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 26, 1999
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 3, 1999:
Class A Common Stock - 1,260,000 shares
Class B Common Stock - 35,599,759 shares
PART I. FINANCIAL INFORMATION (UNAUDITED)
Item 1. Financial Statements
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Thirteen weeks ended
September 26, September 27,
1999 1998
(In thousands, except per share data)
Sales - domestic and international $651,054 $602,690
Less: beer excise taxes 107,029 103,330
Net sales 544,025 499,360
Cost of goods sold 320,538 309,993
Gross profit 223,487 189,367
Marketing, general and administrative 184,305 156,354
Special charges 5,705 19,395
Operating income 33,477 13,618
Other income - net 2,173 1,269
Income before income taxes 35,650 14,887
Income tax expense 13,814 5,806
Net income $ 21,836 $ 9,081
Net income per common share - basic $ 0.59 $ 0.25
Net income per common share - diluted $ 0.58 $ 0.24
Weighted average number of outstanding
common shares - basic 36,747 36,218
Weighted average number of outstanding
common shares - diluted 37,433 37,474
Cash dividends declared and paid per
common share $ 0.165 $ 0.150
See notes to consolidated financial statements.
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Thirty-nine weeks ended
September 26, September 27,
1999 1998
(In thousands, except per share data)
Sales - domestic and international $1,867,579 $1,758,597
Less: beer excise taxes 308,124 303,148
Net sales 1,559,455 1,455,449
Cost of goods sold 908,140 882,110
Gross profit 651,315 573,339
Marketing, general and administrative 520,301 460,681
Special charges 5,705 19,395
Operating income 125,309 93,263
Other income - net 5,382 2,483
Income before income taxes 130,691 95,746
Income tax expense 50,643 37,341
Net income $ 80,048 $ 58,405
Net income per common share - basic $ 2.18 $ 1.61
Net income per common share - diluted $ 2.14 $ 1.56
Weighted average number of outstanding
common shares - basic 36,714 36,265
Weighted average number of outstanding
common shares - diluted 37,472 37,403
Cash dividends declared and paid per
common share $ 0.480 $ 0.450
See notes to consolidated financial statements.
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 26, December 27,
1999 1998
(In thousands)
Assets
Current assets:
Cash and cash equivalents $ 137,320 $ 160,038
Short-term marketable investments 123,408 96,190
Accounts and notes receivable, net 162,560 126,609
Inventories:
Finished 41,662 38,520
In process 22,506 24,526
Raw materials 32,157 34,016
Packaging materials 10,608 5,598
Total inventories 106,933 102,660
Other current assets 85,218 63,494
Total current assets 615,439 548,991
Properties, at cost and net 712,627 714,441
Long-term marketable investments 5,926 31,444
Other assets 215,454 165,722
Total assets $1,549,446 $1,460,598
See notes to consolidated financial statements. (Continued)
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 26, December 27,
1999 1998
(In thousands)
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 209,563 $ 143,899
Accrued expenses and other liabilities 202,929 200,013
Current portion of long-term debt -- 40,000
Total current liabilities 412,492 383,912
Long-term debt 105,000 105,000
Deferred tax liability 63,041 65,779
Other long-term liabilities 129,080 131,109
Total liabilities 709,613 685,800
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: 35,594,975 in
1999 and 35,395,306 in 1998) 8,475 8,428
Total capital stock 9,735 9,688
Paid-in capital 12,735 10,505
Retained earnings 818,915 756,531
Accumulated other comprehensive loss (1,552) (1,926)
Total shareholders' equity 839,833 774,798
Total liabilities and shareholders' equity $1,549,446 $1,460,598
See notes to consolidated financial statements. (Concluded)
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Thirty-nine weeks ended
September 26, September 27,
1999 1998
(In thousands)
Cash flows from operating activities:
Net income $ 80,048 $ 58,405
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in earnings of joint ventures (25,237) (27,012)
Non-cash severance expense 3,725 17,176
Depreciation and amortization 92,306 86,668
Loss on sale or abandonment of
properties 4,233 4,636
Impairment charge -- 2,219
Deferred income taxes (7,815) (6,909)
Change in operating assets and liabilities (30,004) 1,733
Net cash provided by operating
activities 117,256 136,916
Cash flows from investing activities:
Purchases of investments (85,970) (49,193)
Sales and maturities of investments 83,830 49,820
Capital expenditures (100,629) (62,418)
Proceeds from sales of properties 1,041 2,079
Distributions from joint ventures 23,472 13,219
Other (1,968) (163)
Net cash used in investing activities (80,224) (46,656)
Cash flows from financing activities:
Issuances of stock under stock plans 9,414 6,481
Purchases of stock (13,308) (26,912)
Dividends paid (17,686) (16,376)
Payment of current portion of long-term debt (40,000) (27,500)
Other 2,099 2,131
Net cash used in financing activities (59,481) (62,176)
Cash and cash equivalents:
Net (decrease) increase in cash and
cash equivalents (22,449) 28,084
Effect of exchange rate changes on
cash and cash equivalents (269) 236
Balance at beginning of year 160,038 168,875
Balance at end of quarter $ 137,320 $ 197,195
See notes to consolidated financial statements.
ADOLPH COORS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 26, 1999
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 26, 1999,
and the results of its operations and its cash flows for the thirteen and
thirty-nine weeks ended September 26, 1999. 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 27, 1998. The results of operations for
the thirteen and thirty-nine weeks ended September 26, 1999, are not
necessarily indicative of the results that may be achieved for the full fiscal
year and cannot be used to indicate financial performance for the entire year.
Hedging transactions - In the normal course of business, the Company is
exposed to changes in interest rates, fluctuations in the value of foreign
currencies and fluctuations in production and packaging materials prices. The
Company has established policies and procedures, including the use of a
variety of financial instruments, to govern the management of these exposures.
By policy, the Company does not enter into such contracts for the purpose of
speculation or use leveraged financial instruments.
The Company's objective in managing its exposure to changes in interest rates,
fluctuations in foreign currency exchange rates and fluctuations in production
and packaging materials prices is to decrease the volatility of earnings and
cash flows associated with changes in the applicable rates and prices. To
achieve this objective, the Company primarily enters into forward exchange
contracts, options and swap agreements whose values change in the opposite
direction of the anticipated cash flows. Currently, the Company has partially
hedged its exposures noted above for terms extending from October 1999 through
March 2002. Derivative instruments related to anticipated or forecasted
transactions are considered to hedge future cash flows, and the effective
portion of any gains or losses are included in other comprehensive income
until earnings are affected by the forecasted transaction. Any remaining gain
or loss is recognized currently in earnings. The cash flows of the derivative
instruments are expected to be highly effective in achieving offsetting cash
flows attributable to fluctuations in the cash flows of the hedged risk. If it
becomes probable that a forecasted transaction will no longer occur, the
derivative will continue to be carried on the balance sheet at fair value, and
gains and losses that were accumulated in other comprehensive income will be
recognized immediately in earnings. If the derivative instruments are sold or
terminated prior to their expiration dates, any cumulative gains and losses
are deferred and recognized in income over the remaining life of the
underlying exposure. If the hedged assets or liabilities were to be sold or
extinguished, the Company would recognize the gain or loss on the designated
financial instruments currently in income. Instruments entered into that
relate to existing foreign currency assets and liabilities do not qualify for
hedge accounting in accordance with Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (FAS 133) as they relate to existing assets and liabilities
denominated in a foreign currency. The gains and losses on both the
derivatives and the related foreign-currency-denominated assets and
liabilities are recorded currently in earnings.
The Company adopted FAS 133 as of January 1999. The impact of the adoption on
the Company's financial position and results of operations are considered to
be immaterial.
Statements of cash flows - Cash paid for interest for the nine months ended
September 26, 1999 and September 27, 1998, was $9.9 million and $11.1 million,
respectively. Cash paid for income taxes for the nine months ended September
26, 1999 and September 27, 1998, was $43.1 million and $34.2 million,
respectively. During the nine month periods ended September 26, 1999 and
September 27, 1998, ACC issued restricted common stock under its management
incentive program resulting in non-cash increases to the equity accounts of
$0.3 million and $2.5 million, respectively. Also during the third quarter of
1999 and 1998, equity was increased by the non-cash tax effects of the
issuances of stock under the Company's stock plans of $6.9 million and $3.3
million, respectively.
Reclassifications - Certain reclassifications have been made to the 1998
financial statements to conform with the 1999 presentation.
3. SPECIAL CHARGES
During the third quarter of 1999, the Company undertook a restructuring of
part of its operations, which primarily included a voluntary severance program
involving its engineering and construction work force. Approximately 50
engineering and construction employees accepted severance packages under the
voluntary program. Total severance and related costs were approximately $3.7
million, which are included in the Special charges on the Company's
Consolidated Statements of Income. Approximately 30% of these costs are
expected to be paid out during fiscal 1999. Also included in the $5.7 million
charge is approximately $2.0 million of special charges incurred to facilitate
distributor network improvements.
4. 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 26, September 27, September 26, September 27,
1999 1998 1999 1998
(In thousands, except per share data)
Net income available to
common shareholders $21,836 $ 9,081 $80,048 $58,405
Weighted average shares
for basic EPS 36,747 36,218 36,714 36,265
Effect of dilutive
securities:
Stock options 610 1,125 667 1,013
Contingent shares not
included in shares
outstanding for
basic EPS 76 131 91 125
Weighted average shares
for diluted EPS 37,433 37,474 37,472 37,403
Basic EPS $ 0.59 $ 0.25 $ 2.18 $ 1.61
Diluted EPS $ 0.58 $ 0.24 $ 2.14 $ 1.56
The dilutive effects of stock options were determined by applying the treasury
stock method, assuming the Company was to purchase common shares with the
proceeds from stock option exercises.
5. OTHER COMPREHENSIVE INCOME
Thirteen weeks ended Thirty-nine weeks ended
September 26, September 27, September 26, September 27,
1999 1998 1999 1998
(In thousands)
Net income $21,836 $ 9,081 $80,048 $58,405
Other comprehensive
income (expense),
net of tax:
Foreign currency
translation
adjustments (57) 2,135 (3,031) 1,268
Unrealized gain on
available-for-sale
securities and
derivative
instruments, net of
reclassification
adjustments 2,846 58 3,405 262
Comprehensive income $24,625 $11,274 $80,422 $59,935
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Special Charges
During the third quarter of 1999, Adolph Coors Company (ACC or the Company),
the holding company for Coors Brewing Company (CBC), recorded special charges
totaling $5.7 million, which is composed of a $3.7 million charge primarily
related to severance costs associated with restructuring the Company's
engineering and construction unit, as well as approximately $2.0 million of
special charges incurred to facilitate distributor network improvements. In
the third quarter of 1998, the Company recorded special charges 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.
The Company's operating results including and excluding these special items is
summarized as follows:
Thirteen weeks ended Thirty-nine weeks ended
September 26, September 27, September 26, September 27,
1999 1998 1999 1998
(In thousands, except per share data)
Operating income:
As reported $33,477 $13,618 $125,309 $ 93,263
Excluding special items 39,182 33,013 131,014 112,658
After tax income:
As reported-net income 21,836 9,081 80,048 58,405
Excluding special items 25,330 20,912 83,543 70,236
Earnings per share:
As reported - basic $ 0.59 $ 0.25 $ 2.18 $ 1.61
- diluted $ 0.58 $ 0.24 $ 2.14 $ 1.56
Excluding special items
- basic $ 0.69 $ 0.58 $ 2.28 $ 1.94
- diluted $ 0.68 $ 0.56 $ 2.23 $ 1.88
Consolidated Results of Continuing Operations
Sales and volume - The Company reported net sales of $544.0 million and
$1,559.5 million for the third quarter and first nine months of 1999,
respectively, representing increases of 8.9% and 7.1%, respectively, over the
same periods of 1998. Net sales for the three months ended September 26, 1999,
were impacted favorably by a unit volume increase of 3.3%; CBC sold 5,754,000
barrels of malt beverages in the third quarter of 1999 compared to sales of
5,570,000 barrels in the third quarter of 1998. Net sales per barrel for the
three months ended September 26, 1999, were impacted favorably by improved
gross realizations per barrel due to increased pricing, reduced domestic
discounting and mix improvement toward higher-net-revenue product sales. Net
sales per barrel for the nine months ended September 26, 1999, were impacted
by essentially the same factors, with unit volume up 2.3% over the same period
of 1998.
Gross profit - Gross profit in the third quarter of 1999 rose 18.0% to $223.5
million compared to the third quarter of 1998, while gross profit in the first
nine months of 1999 rose 13.6% to $651.3 million, compared to the same period
of 1998. As a percentage of net sales, gross profit increased to 41.1% and
41.8% in the third quarter and first nine months of 1999, respectively, from
37.9% and 39.4% for the same periods a year earlier. These improvements were
attributable to the increases in net sales per barrel, as discussed above,
offset by significantly smaller increases in cost of goods sold of 3.4% in the
third quarter of 1999 and 3.0% in the first nine months of 1999 versus the
prior year. Cost of goods sold per barrel for the third quarter of 1999
increased slightly due to higher glass costs and a shift in product demand
toward more expensive products and packages, including import beers sold by
Coors-owned distributors. These increases more than offset lower unit costs
for aluminum and paper packaging materials. Cost of goods sold per barrel for
the nine months ended September 26, 1999, increased as a result of a shift in
product demand toward more expensive products and packages, higher glass
costs, as well as increased production and labor costs incurred in the
packaging areas during the first quarter of 1999. These increases were
partially offset by decreases primarily due to production leverage and reduced
aluminum and paper packaging material costs.
Operating income (excluding special charges) - Operating income was $39.2
million and $131.0 million for the third quarter and first nine months of
1999, respectively, compared to $33.0 million and $112.7 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 primarily because of higher spending on marketing and
promotions. International and related general and administrative expenses, as
well as information technology expenses, were also higher in the third
quarter and first nine months of 1999 compared to the same periods in 1998.
Non-operating income and expense - Net non-operating income for the third
quarter and first nine months of 1999 improved from the same periods of 1998
primarily because of reductions in net interest expense. The decrease in net
interest expense in 1999 compared to 1998 was attributable to an increase in
capitalized interest due to increased capital spending and lower outstanding
principal balances of ACC's medium-term notes.
Effective tax rate - The consolidated effective tax rate for the third quarter
and first nine months of 1999 was 38.75% compared to 39.0% for the same periods
in 1998.
After tax income (excluding special charges) - After tax income for the third
quarter and first nine months of 1999 were $25.3 million, or $0.69 per basic
share ($0.68 per diluted share), and $83.5 million, or $2.28 per basic share
($2.23 per diluted share), respectively. This compares to after tax income of
$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, for
the third quarter and first nine months of 1998.
Liquidity and Capital Resources
Liquidity - The Company's primary sources of liquidity are cash provided by
operating activities and external borrowings. As of September 26, 1999, ACC
had working capital of $202.9 million, and its cash position was $137.3
million compared to $160.0 million as of December 27, 1998. In addition to its
cash resources, ACC had short-term, highly liquid investments of $123.4
million at September 26, 1999, compared to $96.2 million at December 27, 1998.
ACC also had $5.9 million of marketable securities with maturities exceeding
one year at September 26, 1999, compared to $31.4 million at December 27,
1998. 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 debt, dividend payments,
anticipated capital expenditures and potential repurchases of its common stock
under a previously-announced stock repurchase plan.
Operating activities - Net cash provided by operating activities was $117.3
million for the first nine months of 1999 compared to $136.9 million for the
first nine months of 1998. Operating cash decreased approximately $48 million
as a result of the contribution made to the Company's defined benefit pension
plan in January 1999, which is reflected in Other assets on the Consolidated
Balance Sheets. This contribution was made as a result of benefit improvements
to the Company's defined benefit pension plan, which were effective July 1,
1999, and resulted in an increase to the projected benefit obligation of
approximately $48 million. The decrease in operating cash due to the pension
contribution was offset by working capital changes, a decrease in the non-cash
portion of the severance expense and an increase in depreciation and
amortization. The fluctuations in working capital changes are primarily due to
increased operating activity and timing of payments between the two years. The
decrease in the non-cash portion of the severance expense is due to lower
severance costs incurred in the 1999 restructuring of the Company's
engineering and construction unit compared to the 1998 restructuring of
certain production functions. Depreciation and amortization has increased over
the same period of 1998 mainly due to an increase in capitalized assets in the
current year.
Investing activities - During the first nine months of 1999, ACC spent $80.2
million on net investing activities compared to spending $46.7 million for the
first nine months of 1998. The net impact of ACC's marketable investment
activities was a cash outflow of $2.1 million during the first nine months of
1999, compared to an inflow of $0.6 million during the same period of 1998.
This increase of cash outflow is mainly due to allocating more of the
Company's cash resources to marketable investments. Capital expenditures
increased to $100.6 million for the nine months ended September 26, 1999, from
$62.4 million a year earlier. The increased capital spending during the first
nine months of 1999 compared to the same period in 1998 is primarily due to
increased spending on information technology upgrades, packaging capacity and
investments by Coors-owned distributors in non-Coors brands. Further, ACC
received $23.5 million in distributions from joint ventures during the first
nine months of 1999, compared to $13.2 million during the same period of 1998.
Financing activities - ACC spent $59.5 million on financing activities during
the nine months ended September 26, 1999, compared to $62.2 million in 1998.
The 1999 uses were primarily for principal payments on debt of $40 million,
purchases of $13.3 million of Class B common stock under the stock repurchase
program and dividend payments of $17.7 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 1999; overall volume
trends; pricing trends and industry forces; cost reduction strategies and
their results; the Company's expectations for funding its 1999 capital
expenditures and operations; the Company's expectations for funding
expenditures 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:
- - any inability of the Company and its distributors to develop and execute
effective marketing and sales strategies for Coors and non-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 continued shift in consumer preferences away from products packaged in
aluminum cans, which are more profitable, toward bottled products;
- - a potential shift in consumer preferences toward products and packages that
would require additional capacity;
- - a potential reduction in sales revenues due to decreases in sales volumes in
certain key domestic and export markets;
- - 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 import beers;
- - increases in the cost of aluminum, paper packaging and other raw materials;
- - a continued shift in the competitive environment toward increased marketing
and advertising spending and significant increases in the costs of marketing
and advertising;
- - any inability of the Company to reduce manufacturing, freight and overhead
costs to more competitive levels;
- - changes in significant laws and government regulations affecting
environmental compliance and income taxes;
- - a failure of the Company 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 further industry consolidation and the change in the
competitive environment given the sale of Stroh;
- - 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;
- - significant increases in the estimated costs of the Year 2000 project and/or
planned capital expenditures; 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 1998 Form 10-K filed with the Securities and
Exchange Commission.
Outlook
The Company's performance in the first nine months of 1999 benefited from
domestic and export volume gains. Both the export and domestic volume gains
are expected to continue throughout 1999, although not necessarily at the same
rates experienced in the first nine months of 1999. The pricing environment is
expected to continue to be favorable in comparison to the past few years with
modest price increases expected in select markets in the fourth quarter of
1999. An increase in price discounting or continued value-pack activity could
have an unfavorable impact on top-line performance and margins.
For fiscal year 1999 and early 2000, packaging and fixed costs per barrel are
expected to be up slightly due to a shift in product demand to higher-cost
products and packages, including long-neck bottles. Based on recent market
prices, certain packaging materials costs are expected to increase over the
next year. The Company has taken and will continue to consider measures that
mitigate the volatility of key raw materials, including working with its
suppliers and using financial risk management techniques. Significant changes
in market prices of these items could alter this outlook. CBC continues to
pursue improvements in its operations and technology functions to achieve cost
reductions over time.
Marketing, general and administrative costs are expected to increase at a rate
higher than the 1998 increase. Management continues to monitor CBC's market
opportunities and to invest behind its brands and sales efforts accordingly.
Incremental sales and marketing spending will be determined on an opportunity-
by-opportunity basis. The competitive battleground has shifted to marketing
and advertising, which may result in any incremental revenue generated by
price increases being spent on advertising.
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 lower
outstanding debt relative to 1998. Net interest could be less favorable than
expected if the Company invests a substantial portion of its cash balances in
operating related assets or investments with longer-term returns. Also, cash
may be used to repurchase additional outstanding common stock as initially
approved by the ACC Board of Directors in November 1998.
The effective tax rate for the rest of 1999 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 1999 could affect the actual
rate for the year.
Recently, there has been a rapid expansion in market place demand for longneck
bottles and value-packs. To effectively meet the increasing demand for these
packages, in May 1999, the Board of Directors approved incremental capital
spending of $30 to $45 million (including contributions to its container joint
ventures for capital improvements, which will be recorded on the books of the
joint ventures) increasing the Company's capital spending plan for 1999, which
is in the range of $130 to $140 million. In addition to CBC's 1999 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.
ACC has recognized the need to ensure that its operations will not be
adversely impacted by Year 2000 software failures. The Company continues to
address 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 26, 1999, the Application Remediation (analysis, remediation
and testing) is complete. 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 completed.
The Company has made and will continue to make any necessary 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 have been completed and tested. The financial impact to ACC is
anticipated to be in the range of approximately $12 million to $15 million for
1999. The anticipated expenditures in 2000 are minimal. As the Year 2000
expenditures decrease, some of these resources will likely be used for other
investments and, therefore, any reduction in future expense from decreased
Year 2000 costs will not directly increase net income in future years. The
total amount expended on the Year 2000 project through September 26, 1999, was
approximately $33.4 million.
The failure to have adequately corrected 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 efforts
undertaken with the Company's Year 2000 project are expected to significantly
reduce ACC's level of uncertainty about the Year 2000 problem and provide
greater assurance about the Year 2000 readiness of its Extended Enterprise.
Contingency planning for the Application Remediation and the Extended
Enterprise elements began in October 1998, with final plans completed in
August 1999. The Company will continue to review these contingency plans
throughout the rest of the year and will continue to monitor third-party
distributors for Year 2000 readiness.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
In the normal course of business, the Company is exposed to interest rates,
foreign currency exchange rates and commodity prices through investments and
financing arrangements, sales to foreign customers, purchases from foreign
suppliers and the acquisition of production and packaging materials from both
domestic and foreign suppliers. The Company has established policies and
procedures that govern the management of these exposures through the use of a
variety of financial instruments. The Company employs various financial
instruments including forward exchange contracts, options and swap agreements
to manage certain of the exposures that it considers practical to do so. By
policy, the Company does not enter into such contracts for the purpose of
speculation or use leveraged financial instruments.
The Company's objective in managing its exposure to fluctuations in interest
rates, foreign currency exchange rates and commodity prices is to decrease the
volatility of earnings and cash flows associated with changes in the
corresponding rates and prices. The Company does not hedge the value of net
investments in foreign-currency-denominated operations and translated earnings
of foreign subsidiaries. The Company's primary foreign currency exposures are
the Canadian dollar, the Japanese yen and the Spanish peseta.
A sensitivity analysis has been prepared to estimate the Company's exposure to
market risk of interest rates, foreign currency exchange rates and commodity
prices. The sensitivity analysis reflects the impact of a hypothetical 10%
adverse change in the applicable market interest rates, foreign currency
exchange rates and commodity prices. The volatility of the applicable rates
and prices are dependent on many factors that cannot be forecasted with
reliable accuracy. Therefore, actual changes in fair values could differ
significantly from the results presented in the table below.
The following table presents the results of the sensitivity analysis of the
Company's derivative portfolio:
As of
Estimated Fair Value Volatility September 26, 1999
(In millions)
Foreign Currency Risk: Forwards, Options $ (3.3)
Interest Rate Risk: Swaps (2.8)
Commodity Price Risk: Swaps, Options (10.6)
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
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/ Olivia M. Thompson
Olivia M. Thompson
Vice President, Controller
(Principal Accounting Officer)
November 10, 1999
<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-26-1999
<PERIOD-START> DEC-28-1998
<PERIOD-END> SEP-26-1999
<EXCHANGE-RATE> 1
<CASH> 137320
<SECURITIES> 123408
<RECEIVABLES> 162560
<ALLOWANCES> 0
<INVENTORY> 106933
<CURRENT-ASSETS> 615439
<PP&E> 712627
<DEPRECIATION> 0
<TOTAL-ASSETS> 1549446
<CURRENT-LIABILITIES> 412492
<BONDS> 105000
0
0
<COMMON> 9735
<OTHER-SE> 830098
<TOTAL-LIABILITY-AND-EQUITY> 1549446
<SALES> 1867579
<TOTAL-REVENUES> 1559455
<CGS> 908140
<TOTAL-COSTS> 1434146
<OTHER-EXPENSES> (1057)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (4325)
<INCOME-PRETAX> 130691
<INCOME-TAX> 50643
<INCOME-CONTINUING> 80048
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 80048
<EPS-BASIC> 2.18
<EPS-DILUTED> 2.14
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CIK> 0000024545
<NAME> ADOLPH COORS COMPANY
<MULTIPLIER> 1000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-29-1996
<EXCHANGE-RATE> 1
<CASH> 110905
<SECURITIES> 0
<RECEIVABLES> 114343
<ALLOWANCES> 0
<INVENTORY> 121070
<CURRENT-ASSETS> 416642
<PP&E> 814102
<DEPRECIATION> 0
<TOTAL-ASSETS> 1362536
<CURRENT-LIABILITIES> 292448
<BONDS> 176000
0
0
<COMMON> 9989
<OTHER-SE> 705498
<TOTAL-LIABILITY-AND-EQUITY> 1362536
<SALES> 2121146
<TOTAL-REVENUES> 1741835
<CGS> 1131470
<TOTAL-COSTS> 1661061
<OTHER-EXPENSES> (5488)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11288
<INCOME-PRETAX> 74975
<INCOME-TAX> 31550
<INCOME-CONTINUING> 43425
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43425
<EPS-BASIC> 1.14
<EPS-DILUTED> 1.14
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CIK> 0000024545
<NAME> ADOLPH COORS COMPANY
<MULTIPLIER> 1000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> MAR-30-1997
<EXCHANGE-RATE> 1
<CASH> 106245
<SECURITIES> 0
<RECEIVABLES> 118537
<ALLOWANCES> 0
<INVENTORY> 112483
<CURRENT-ASSETS> 423523
<PP&E> 791772
<DEPRECIATION> 0
<TOTAL-ASSETS> 1351744
<CURRENT-LIABILITIES> 293743
<BONDS> 176000
0
0
<COMMON> 9865
<OTHER-SE> 694608
<TOTAL-LIABILITY-AND-EQUITY> 1351744
<SALES> 483161
<TOTAL-REVENUES> 398781
<CGS> 256201
<TOTAL-COSTS> 384430
<OTHER-EXPENSES> (1488)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2203
<INCOME-PRETAX> 13636
<INCOME-TAX> 5591
<INCOME-CONTINUING> 8045
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8045
<EPS-BASIC> .21
<EPS-DILUTED> .21
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CIK> 0000024545
<NAME> ADOLPH COORS COMPANY
<MULTIPLIER> 1000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> JUN-29-1997
<EXCHANGE-RATE> 1
<CASH> 178501
<SECURITIES> 0
<RECEIVABLES> 167048
<ALLOWANCES> 0
<INVENTORY> 98015
<CURRENT-ASSETS> 540381
<PP&E> 758123
<DEPRECIATION> 0
<TOTAL-ASSETS> 1415171
<CURRENT-LIABILITIES> 354645
<BONDS> 145000
0
0
<COMMON> 9804
<OTHER-SE> 729942
<TOTAL-LIABILITY-AND-EQUITY> 1415171
<SALES> 1113014
<TOTAL-REVENUES> 919366
<CGS> 559334
<TOTAL-COSTS> 812781
<OTHER-EXPENSES> (2528)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3643
<INCOME-PRETAX> 105470
<INCOME-TAX> 46407
<INCOME-CONTINUING> 59063
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 59063
<EPS-BASIC> 1.58
<EPS-DILUTED> 1.55
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<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> 9783
<OTHER-SE> 737201
<TOTAL-LIABILITY-AND-EQUITY> 1417132
<SALES> 1706759
<TOTAL-REVENUES> 1408857
<CGS> 861492
<TOTAL-COSTS> 1270445
<OTHER-EXPENSES> (2232)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4034
<INCOME-PRETAX> 136610
<INCOME-TAX> 60108
<INCOME-CONTINUING> 76502
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 76502
<EPS-BASIC> 2.05
<EPS-DILUTED> 2.05
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CIK> 0000024545
<NAME> ADOLPH COORS COMPANY
<MULTIPLIER> 1000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> DEC-28-1997
<EXCHANGE-RATE> 1
<CASH> 168875
<SECURITIES> 42163
<RECEIVABLES> 124485
<ALLOWANCES> 0
<INVENTORY> 106479
<CURRENT-ASSETS> 517194
<PP&E> 733117
<DEPRECIATION> 0
<TOTAL-ASSETS> 1412083
<CURRENT-LIABILITIES> 359146
<BONDS> 145000
0
0
<COMMON> 9736
<OTHER-SE> 726832
<TOTAL-LIABILITY-AND-EQUITY> 1412083
<SALES> 2207384
<TOTAL-REVENUES> 1821304
<CGS> 1131610
<TOTAL-COSTS> 1673911
<OTHER-EXPENSES> (3942)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4442
<INCOME-PRETAX> 146893
<INCOME-TAX> 64633
<INCOME-CONTINUING> 82260
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 82260
<EPS-BASIC> 2.21
<EPS-DILUTED> 2.16
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CIK> 0000024545
<NAME> ADOLPH COORS COMPANY
<MULTIPLIER> 1000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-START> DEC-29-1997
<PERIOD-END> MAR-29-1998
<EXCHANGE-RATE> 1
<CASH> 150765
<SECURITIES> 47261
<RECEIVABLES> 128983
<ALLOWANCES> 0
<INVENTORY> 91995
<CURRENT-ASSETS> 491023
<PP&E> 719906
<DEPRECIATION> 0
<TOTAL-ASSETS> 1366636
<CURRENT-LIABILITIES> 347102
<BONDS> 130000
0
0
<COMMON> 9598
<OTHER-SE> 711529
<TOTAL-LIABILITY-AND-EQUITY> 1366636
<SALES> 501014
<TOTAL-REVENUES> 414145
<CGS> 262329
<TOTAL-COSTS> 399149
<OTHER-EXPENSES> (312)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (735)
<INCOME-PRETAX> 16043
<INCOME-TAX> 6257
<INCOME-CONTINUING> 9786
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9786
<EPS-BASIC> .27
<EPS-DILUTED> .26
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CIK> 0000024545
<NAME> ADOLPH COORS COMPANY
<MULTIPLIER> 1000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-START> DEC-29-1997
<PERIOD-END> JUN-28-1998
<EXCHANGE-RATE> 1
<CASH> 192905
<SECURITIES> 39032
<RECEIVABLES> 153676
<ALLOWANCES> 0
<INVENTORY> 89823
<CURRENT-ASSETS> 541267
<PP&E> 711950
<DEPRECIATION> 0
<TOTAL-ASSETS> 1406444
<CURRENT-LIABILITIES> 364358
<BONDS> 120000
0
0
<COMMON> 9601
<OTHER-SE> 745566
<TOTAL-LIABILITY-AND-EQUITY> 1406444
<SALES> 1155907
<TOTAL-REVENUES> 956089
<CGS> 572117
<TOTAL-COSTS> 876444
<OTHER-EXPENSES> (886)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (328)
<INCOME-PRETAX> 80859
<INCOME-TAX> 31535
<INCOME-CONTINUING> 49324
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 49324
<EPS-BASIC> 1.36
<EPS-DILUTED> 1.32
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CIK> 0000024545
<NAME> ADOLPH COORS COMPANY
<MULTIPLIER> 1000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-START> DEC-29-1997
<PERIOD-END> SEP-27-1998
<EXCHANGE-RATE> 1
<CASH> 197195
<SECURITIES> 49543
<RECEIVABLES> 138165
<ALLOWANCES> 0
<INVENTORY> 97473
<CURRENT-ASSETS> 545478
<PP&E> 707483
<DEPRECIATION> 0
<TOTAL-ASSETS> 1417447
<CURRENT-LIABILITIES> 382538
<BONDS> 105000
0
0
<COMMON> 9645
<OTHER-SE> 755886
<TOTAL-LIABILITY-AND-EQUITY> 1417447
<SALES> 1758597
<TOTAL-REVENUES> 1455449
<CGS> 882110
<TOTAL-COSTS> 1362186
<OTHER-EXPENSES> (1058)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1425)
<INCOME-PRETAX> 95746
<INCOME-TAX> 37341
<INCOME-CONTINUING> 58405
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 58405
<EPS-BASIC> 1.61
<EPS-DILUTED> 1.56
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CIK> 0000024545
<NAME> ADOLPH COORS COMPANY
<MULTIPLIER> 1000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-START> DEC-29-1997
<PERIOD-END> DEC-27-1998
<EXCHANGE-RATE> 1
<CASH> 160038
<SECURITIES> 96190
<RECEIVABLES> 126609
<ALLOWANCES> 0
<INVENTORY> 102660
<CURRENT-ASSETS> 548991
<PP&E> 714441
<DEPRECIATION> 0
<TOTAL-ASSETS> 1460598
<CURRENT-LIABILITIES> 383912
<BONDS> 105000
0
0
<COMMON> 9688
<OTHER-SE> 765110
<TOTAL-LIABILITY-AND-EQUITY> 1460598
<SALES> 2291307
<TOTAL-REVENUES> 1899518
<CGS> 1160678
<TOTAL-COSTS> 1795699
<OTHER-EXPENSES> (4948)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2333)
<INCOME-PRETAX> 111100
<INCOME-TAX> 43316
<INCOME-CONTINUING> 67784
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 67784
<EPS-BASIC> 1.87
<EPS-DILUTED> 1.81
</TABLE>
