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 24, 2000
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
Class B Common Stock (non-voting), New York Stock Exchange
no par value
Securities registered pursuant to Section 12(g) of the Act:
None
(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 October 23, 2000:
Class A Common Stock - 1,260,000 shares
Class B Common Stock - 35,610,021 shares
PART I. FINANCIAL INFORMATION (UNAUDITED)
Item 1. Financial Statements
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Thirteen weeks ended
September 24, September 26,
2000 1999
Sales - domestic and international $ 719,734 $ 651,054
Beer excise taxes (116,459) (107,029)
Net sales 603,275 544,025
Cost of goods sold (359,513) (320,538)
Gross profit 243,762 223,487
Marketing, general and administrative (197,702) (184,305)
Special credit (charge) 5,442 (5,705)
Operating income 51,502 33,477
Other income - net 4,131 2,173
Income before income taxes 55,633 35,650
Income tax expense (21,141) (13,814)
Net income $ 34,492 $ 21,836
Net income per common share - basic $ 0.94 $ 0.59
Net income per common share - diluted $ 0.92 $ 0.58
Weighted average number of outstanding
common shares - basic 36,861 36,747
Weighted average number of outstanding
common shares - diluted 37,557 37,433
Cash dividends declared and paid per
common share $ 0.185 $ 0.165
See notes to unaudited consolidated financial statements.
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Thirty-nine weeks ended
September 24, September 26,
2000 1999
Sales - domestic and international $2,008,803 $1,867,579
Beer excise taxes (326,927) (308,124)
Net sales 1,681,876 1,559,455
Cost of goods sold (994,361) (908,140)
Gross profit 687,515 651,315
Marketing, general and administrative (538,974) (520,301)
Special charge - net (10,060) (5,705)
Operating income 138,481 125,309
Other income - net 11,735 5,382
Income before income taxes 150,216 130,691
Income tax expense (52,561) (50,643)
Net income $ 97,655 $ 80,048
Net income per common share - basic $ 2.66 $ 2.18
Net income per common share - diluted $ 2.61 $ 2.14
Weighted average number of outstanding
common shares - basic 36,745 36,714
Weighted average number of outstanding
common shares - diluted 37,371 37,472
Cash dividends declared and paid per
common share $ 0.535 $ 0.480
See notes to unaudited consolidated financial statements.
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
September 24, December 26,
2000 1999
Assets
Current assets:
Cash and cash equivalents $ 74,808 $ 163,808
Short-term marketable securities 80,608 113,185
Accounts and notes receivable, net 167,190 159,660
Inventories:
Finished 47,557 44,073
In process 20,149 19,036
Raw materials 44,516 34,077
Packaging materials 9,321 10,071
Total inventories 121,543 107,257
Other current assets 62,391 68,911
Total current assets 506,540 612,821
Properties, at cost and net 700,776 714,001
Long-term marketable securities 200,499 2,890
Other assets 219,428 216,664
Total assets $1,627,243 $1,546,376
See notes to unaudited consolidated financial statements. (Continued)
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share information)
(Unaudited)
September 24, December 26,
2000 1999
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 172,824 $ 179,615
Accrued expenses and other liabilities 210,739 213,089
Total current liabilities 383,563 392,704
Long-term debt 105,000 105,000
Deferred tax liability 97,307 78,733
Other long-term liabilities 124,741 128,400
Total liabilities 710,611 704,837
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: 35,607,814 in
2000 and 35,462,034 in 1999) 8,480 8,443
Total capital stock 9,740 9,703
Paid-in capital 4,035 5,773
Retained earnings 903,005 825,070
Accumulated other comprehensive (loss) income (148) 993
Total shareholders' equity 916,632 841,539
Total liabilities and shareholders' equity $1,627,243 $1,546,376
See notes to unaudited consolidated financial statements. (Concluded)
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Thirty-nine weeks ended
September 24, September 26,
2000 1999
Cash flows from operating activities:
Net income $ 97,655 $ 80,048
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in earnings of joint ventures (32,676) (25,237)
Impairment charge 4,944 --
Non-cash restructure charges 9,974 3,725
Depreciation and amortization 95,990 92,306
(Gain) loss on sale or abandonment of
properties (3,619) 4,233
Deferred income taxes 21,738 (7,815)
Change in operating assets and liabilities (35,260) (30,004)
Net cash provided by operating
activities 158,746 117,256
Cash flows from investing activities:
Purchases of securities (314,690) (85,970)
Sales and maturities of securities 150,318 83,830
Additions to properties and intangibles (87,709) (100,629)
Proceeds from sales of properties 4,568 1,041
Distributions from joint ventures 38,408 23,472
Other (7,184) (1,968)
Net cash used in investing activities (216,289) (80,224)
Cash flows from financing activities:
Issuances of stock under stock plans 12,045 9,414
Purchases of stock (19,989) (13,308)
Dividends paid (19,720) (17,686)
Payment of current portion of long-term debt -- (40,000)
Other (3,468) 2,099
Net cash used in financing activities (31,132) (59,481)
Cash and cash equivalents:
Net decrease in cash and cash equivalents (88,675) (22,449)
Effect of exchange rate changes on
cash and cash equivalents (325) (269)
Balance at beginning of year 163,808 160,038
Balance at end of quarter $ 74,808 $ 137,320
See notes to unaudited consolidated financial statements.
ADOLPH COORS COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 24, 2000
1. BUSINESS
Since our founding in 1873, we have been committed to producing the highest
quality beers. We are incorporated in Colorado and are the third largest
beer producer in the United States.
2. SIGNIFICANT ACCOUNTING POLICIES
Unaudited consolidated financial statements - In our opinion, the
accompanying unaudited financial statements reflect all adjustments,
consisting only of normal recurring accruals, except as discussed in Note 3,
which are necessary for a fair presentation of the financial position,
results of operations and cash flows for the periods presented. The
accompanying financial statements include our accounts and the accounts of
our majority-owned and controlled domestic and foreign subsidiaries. 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 our Form 10-
K for the year ended December 26, 1999. The results of operations for the
thirty-nine weeks ended September 24, 2000, 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.
The year-end condensed balance sheet data was derived from audited financial
statements, but does not include all disclosures required by generally
accepted accounting principles.
Statements of cash flows - During the first thirty-nine weeks of 2000 and
1999, equity was increased by the non-cash tax effects of the issuances of
stock under our stock plans of $7.4 million and $6.9 million, respectively.
3. SPECIAL CHARGE - NET
In the third quarter of 2000, we received approximately $5.4 million related
to an insurance claim settlement. This credit has been classified as a
special item in the statement of income.
In the second quarter of 2000, our Board of Directors approved a plan to
close our brewery and sales operation in Spain by the end of 2000. As a
result of this plan, we performed an evaluation on our Spain operation's
long-lived assets and determined that certain of these assets were impaired.
A charge of approximately $15.5 million was taken in the second quarter, of
which approximately $10.6 million related to severance and other related
costs for approximately 100 employees and $4.9 million related to a fixed
asset impairment charge. These expenses were classified as a special charge
in the statement of income. During the third quarter, approximately $0.6
million was paid out for severance and other related closure costs and at
September 24, 2000, the remaining liability for severance and other related
costs was approximately $10.0 million.
During the third quarter of 1999, we recorded a special charge of $5.7
million. Approximately $3.7 million of this charge related to a
restructuring of part of our operations, which primarily included a
voluntary severance program involving our engineering and construction work
force. Approximately 50 engineering and construction employees accepted
severance packages under the voluntary program. Also included in the $5.7
million charge was approximately $2.0 million of special charges incurred to
facilitate distributor network improvements. During 2000, approximately $2.4
million was paid related to the severance packages and at September 24,
2000, the remaining liability for severance was approximately $0.4 million.
4. OTHER COMPREHENSIVE INCOME
Thirteen weeks ended Thirty-nine weeks ended
September 24, September 26, September 24, September 26,
2000 1999 2000 1999
(In thousands)
Net income $34,492 $21,836 $97,655 $80,048
Other comprehensive
income (expense),
net of tax:
Foreign currency
translation
adjustments 109 (57) 1,214 (3,031)
Unrealized gain (loss)
on available-for-sale
securities and
derivative
instruments 1,896 2,846 (94) 3,405
Reclassification
adjustment for net
gains realized in net
income on derivative
instruments (1,213) -- (2,261) --
Comprehensive income $35,284 $24,625 $96,514 $80,422
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 24, September 26, September 24, September 26,
2000 1999 2000 1999
(In thousands, except per share data)
Net income available to
common shareholders $34,492 $21,836 $97,655 $80,048
Weighted average shares
for basic EPS 36,861 36,747 36,745 36,714
Effect of dilutive
securities:
Stock options 638 610 567 667
Contingent shares not
included in shares
outstanding for
basic EPS 58 76 59 91
Weighted average shares
for diluted EPS 37,557 37,433 37,371 37,472
Basic EPS $ 0.94 $ 0.59 $ 2.66 $ 2.18
Diluted EPS $ 0.92 $ 0.58 $ 2.61 $ 2.14
The dilutive effects of stock options were determined by applying the
treasury stock method, assuming we were to purchase common shares with the
proceeds from stock option exercises.
6. ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition", (SAB 101). The
Accounting Bulletin provides guidance on applying generally accepted
accounting principles to revenue recognition in financial statements and
requires disclosure of a company's revenue recognition policy. An amendment
in June 2000 delayed the effective date until the fourth quarter of 2000. We
do not believe that the adoption of SAB 101 will have a material impact on
our consolidated financial statements.
7. SUBSEQUENT EVENTS
On October 25, 2000, we signed a letter of intent with Molson Inc. to form a
joint venture to import, market, sell and distribute Molson's brands of beer
in the U.S. We expect to pay approximately $65.0 million in cash and to
receive a 49.9% interest in the joint venture, which will be accounted for
using the equity method of accounting. We expect to finalize a definitive
agreement by December 31, 2000.
We also signed two additional letters of intent with Molson for a brewing
and packaging arrangement and to amend the terms of our existing partnership
agreement, respectively. Under the proposed brewing and packaging agreement,
we would have access to some of Molson's available production capacity in
Canada. Our current partnership agreement with Molson, which pertains to the
marketing and selling of our products in Canada, would be amended to extend
the term and provide performance guarantees to us. We expect these
agreements to be finalized by December 31, 2000.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Thirteen weeks ended Thirty-nine weeks ended
September 24, September 26, September 24, September 26,
2000 1999 2000 1999
(In thousands, except percentages)
(Unaudited)
Net Sales $ 603,275 100% $ 544,025 100% $1,681,876 100% $1,559,455 100%
Cost of goods sold (359,513) 60% (320,538) 59% (994,361) 59% (908,140) 58%
Gross profit 243,762 40% 223,487 41% 687,515 41% 651,315 42%
Other operating
expenses:
Marketing, general
and administrative(197,702) 33% (184,305) 34% (538,974) 32% (520,301) 33%
Special credits
(charges) 5,442 1% (5,705) 1% (10,060) 1% (5,705) --
Total other
operating
expenses (192,260) 32% (190,010) 35% (549,034) 33% (526,006) 34%
Operating income 51,502 9% 33,477 6% 138,481 8% 125,309 8%
Other income - net 4,131 1% 2,173 -- 11,735 1% 5,382 --
Income before taxes 55,633 9% 35,650 7% 150,216 9% 130,691 8%
Income tax expense (21,141) 4% (13,814) 3% (52,561) 3% (50,643) 3%
Net income $ 34,492 6% $ 21,836 4% $ 97,655 6% $ 80,048 5%
Consolidated Results of Continuing Operations
Sales and volume - Net sales for the quarter were impacted favorably by a
unit volume increase of 8.4%; we sold 6,236,000 barrels of malt beverages in
the third quarter of 2000 compared to sales of 5,754,000 barrels in the
third quarter of 1999. This resulted in net sales increases of 10.9% and
7.9% for the thirteen and thirty-nine week periods ended September 24, 2000,
respectively, when compared to the same periods last year. Third quarter
2000 net sales were $603.3 million compared to $544.0 million in the third
quarter of 1999. Year-to-date net sales were $1,681.9 million compared to
$1,559.5 million for the same period last year. Net sales were also
favorably impacted by improved revenues per barrel due to increased prices
for our products and a continuing shift toward higher-net-revenue product
sales. Year-to-date net sales were impacted by essentially the same factors,
with unit volume up 4.7% over the same period of 1999. We have sold
17,452,000 barrels year-to-date compared to 16,669,000 barrels for the same
period last year.
Cost of goods sold - Cost of goods sold was $359.5 million for the third
quarter and $994.4 million for the thirty-nine weeks ended September 24,
2000, compared to $320.5 million and $908.1 million, respectively, for the
same periods last year. For the third quarter of 2000, cost of goods sold
was 59.6% as a percent of net sales compared to 58.9% for the same quarter
last year. Cost of goods sold for the thirty-nine weeks ended September 24,
2000, as a percentage of net sales was 59.1% compared to 58.2% for the same
period last year. Cost of goods sold per barrel for the third quarter 2000
increased over the same period last year. This increase was primarily a
result of higher aluminum costs and an ongoing shift in demand toward more
expensive products and packages and higher labor costs. Our labor costs were
higher due to increased wages and increased production expense for overtime
pay to meet higher-than-expected demand for certain products. Cost of goods
sold per barrel for the thirty-nine week period ended September 24, 2000
increased over the same period last year for essentially the same reasons.
Gross profit - Gross profit increased 9.1% to $243.8 million in the third
quarter 2000, compared with $223.5 million in the third quarter last year.
Year-to-date gross profit increased 5.6% to $687.5 million compared to
$651.3 million for the same period last year.
Marketing, general and administrative - Marketing, general and
administrative expenses were $197.7 million and $539.0 million for the
thirteen and thirty-nine week periods ended September 24, 2000,
respectively. These represent increases of 7.3% over third quarter 1999
expenses of $184.3 million and 3.6% over the prior year-to-date expenses of
$520.3 million. Third quarter marketing, general and administrative expenses
increased over the prior year third quarter due to higher spending on
marketing and promotions, both domestically and internationally. Year-to-
date marketing, general and administrative expenses were higher for
essentially the same reasons, partially offset by lower information
technology expenses in 2000 compared to 1999. The 1999 information technology
expenses were higher due to year 2000 remediation and systems upgrades.
Special(credits) charges - In the third quarter of 2000, we recorded a
special credit of $5.4 million related to an insurance claim settlement. In
addition to the third quarter credit, year-to-date special items include a
$15.5 million charge taken in the second quarter of 2000 related to the
planned closure of our brewery and sales operation in Spain. Of this charge,
approximately $10.6 million related to severance and other related closure
costs and $4.9 million related to an asset impairment charge. We expect to
pay the severance and other related costs from our current cash balances. We
anticipate that the majority of these costs will be paid by January 2001. We
expect to incur additional expenses related to this closure in the fourth
quarter of 2000. These expenses are expected to be substantially less than
the second quarter special charge and will also be funded from current cash
balances. The decision to close our Spain operations will result in the
elimination of those annual losses from our overall operating results. The
anticipated payback period is less than three years; and we plan to invest
most of the annual savings of approximately $7.0 million to $8.0 million
into our domestic and international businesses. We expect these savings from
the closure to begin in fiscal 2001.
In the third quarter of 1999, we recorded a special charge of $5.7 million,
which was comprised of approximately $3.7 million for severance costs as
part of a restructuring of our operations and approximately $2.0 million for
distributor network improvements. At the end of the third quarter of 2000,
almost all severance costs have been paid out, with the remaining to be paid
out by January 2001.
Operating income - As a result of the factors noted above, operating income
was $51.5 million for the quarter and $138.5 million year-to-date. These
represent increases of $18.0 million or 53.8% and $13.2 million or 10.5%,
respectively, over the same periods last year. Excluding special (credits)
charges, operating income for the third quarter of 2000 would have been
$46.1 million compared to $39.2 million for the same period last year,
representing an increase of $6.9 million or 17.6%. Year-to-date operating
income for 2000 would have been $148.5 compared to $131.0 million for the
same period last year, representing a $17.5 million or 13.4% increase.
Other income - net - Net other income for the thirteen weeks ended September
24, 2000, was $4.1 million compared to $2.2 million for the same period last
year. Year-to-date net other income was $11.7 million compared to $5.4
million for the same period last year. The significant increase for both the
thirteen and thirty-nine week periods ended September 24, 2000, is primarily
due to higher average investment balances with higher average interest rates
and lower debt balances compared to the same periods last year.
Consolidated effective tax rate - Our third quarter effective tax rate was
38%, down from 38.75% for the same period last year mainly due to reduced
state tax rates. Our year-to-date effective tax rate decreased to 35% from
38.75% for the same period a year ago due to the tax benefit pertaining to
the favorable settlement of certain tax issues related to the Spain brewery
closure; the resolution of an IRS audit; and reduced state tax rates.
Net income - Net income for the thirteen and thirty-nine weeks ended
September 24, 2000, was $34.5 million or $0.94 per basic share ($0.92 per
diluted share) and $97.7 million or $2.66 per basic share ($2.61 per diluted
share), respectively. This compares to $21.8 million or $0.59 per basic
share ($0.58 per diluted share) and $80.0 million or $2.18 per basic share
($2.14 per diluted share), respectively, for the same periods last year.
Excluding special items, net income for the thirteen and thirty-nine weeks
ended September 24, 2000, would have been $31.1 million or $0.84 per basic
share ($0.83 per diluted) and $99.4 million or $2.70 per basic share ($2.66
per diluted). This compares to net income, excluding special items, of $25.3
million or $0.69 per basic share ($0.68 per diluted) and $83.5 million or
$2.28 per basic share ($2.23 per diluted), respectively, for the same
periods last year.
Liquidity and Capital Resources
Liquidity - Our primary sources of liquidity are cash provided by operating
activities, marketable securities and external borrowings. As of September
24, 2000, we had working capital of $123.0 million, compared to $220.1
million at December 26, 1999. Cash, short-term and long-term securities
totaled $355.9 million at September 24, 2000 compared to $279.9 million at
December 26, 1999. The significant increase in these balances compared to
the prior year is primarily a result of cash generated from operations
invested in longer term securities, whose current yields are higher than
shorter term securities. These long-term securities include corporate,
government agency and municipal debt instruments which are investment grade.
All of these securities can be easily converted to cash if necessary. We
believe that cash flows from operations, cash from the sale or maturity of
highly liquid securities and cash provided by short-term borrowings, when
necessary, will be sufficient to meet our ongoing operating requirements,
scheduled principal and interest payments on debt, dividend payments,
anticipated capital expenditures and potential repurchases of common stock
under our previously-announced stock repurchase plan.
Operating activities - Net cash provided by operating activities of $158.7
million for the thirty-nine week period ended September 24, 2000, increased
$41.4 million compared to net cash provided by operating activities of
$117.3 million for the same period last year. The increase in net cash
provided by operating activities is partially a result of a $48 million
contribution made to our defined benefit pension plan in January 1999 with
no similar contribution made in the current year. The 1999 contribution was
made as a result of benefit improvements to our defined benefit pension
plan, which were effective July 1, 1999, and resulted in an increase to the
projected benefit obligation of approximately $48 million. Also contributing
to the increase in cash provided by operations were higher net income, the
utilization of deferred tax assets and timing of tax payments made in 2000
and the impairment charge incurred related to long lived assets in Spain.
These increases in net cash provided by operating activities were offset by
increases in the equity of earnings of joint ventures, gains on sale of
properties and working capital changes, which all decrease the cash provided
by operating activities. The fluctuations in working capital changes were
primarily due to increased inventory levels at the end of the third quarter
of 2000 to bring our inventories to desired levels and due to the timing of
payments between the two years.
Investing activities - During the first thirty-nine weeks of 2000, we used
$216.3 million in investing activities compared to a use of $80.2 million in
the same period last year. As discussed under the Liquidity section above,
we have shifted to investing in longer term marketable securities by
investing cash from short term investment maturities into longer term
corporate, government agency and municipal debt instruments. The net impact
of our marketable investment activities was a cash outflow of $164.4 million
during the first nine months of 2000 compared to an outflow of $2.1 million
during the same period last year. Again, the increase of cash outflow is
mainly due to allocating more of our cash resources to long term securities
rather than to cash equivalents and short term securities, which was our
prior focus. Partially offsetting the cash used for investing in marketable
securities was the $12.9 million decrease in capital expenditures in the
current year compared to the prior year. Capital expenditures were $87.7
million for the first thirty-nine weeks of 2000, compared to $100.6 million
for the same period last year. In the current year, there was less spending
on information technology and system upgrades than last year. The cash
outflows related to marketable securities and capital expenditures were
partially offset by higher cash distributions received from our joint
venture entities of $38.4 million for the thirty-nine weeks ended September
24, 2000, compared to $23.5 million in the same period last year. The
increase in distributions received was a result of higher earnings of the
joint ventures over last year.
Financing activities - Net cash used in financing activities was $31.1
million for the thirty-nine weeks ended September 24, 2000, compared to
$59.5 million for the same period last year. The primary uses were $20.0
million for purchases of Class B common stock under our stock repurchase
program and dividend payments of $19.7 million. These cash uses were
partially offset by cash inflows of $12.0 million related to the exercise of
stock options under our stock option plans.
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 our outlook for 2000; overall volume trends;
pricing trends and industry forces; cost reduction strategies and their
results; our expectations for funding our 2000 capital expenditures and
operations; 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 our financial performance, we must grow premium beverage volume,
achieve modest price increases for our products and reduce our 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:
- Our success depends largely on the success of one product, the failure of
which would materially adversely affect our financial results.
- Because our primary production facilities are located at a single site, we
are more vulnerable than our competitors to transportation disruptions and
natural disasters.
- We are significantly smaller than our two primary competitors, and we are
more vulnerable than our competitors to cost and price fluctuations.
- We are vulnerable to the pricing actions of our primary competitors, which
are beyond our control.
- If demand for our products continues to grow at current rates, we may lack
the capacity needed to meet demand or we may be required to increase our
capital spending significantly.
- If any of our suppliers are unable or unwilling to meet our requirements, we
may be unable to promptly obtain the materials we need to operate our business.
- The government may adopt regulations that could increase our costs or our
liabilities or could limit our business activities.
- If the social acceptability of our products declines, or if litigation is
directed at the alcoholic beverage industry, our sales volumes could
decrease and our business could be materially adversely affected.
- Any significant shift in packaging preferences in the beer industry could
disproportionately increase our costs and could limit our ability to meet
consumer demand.
- We depend on independent distributors to sell our products and we cannot
provide any assurance that these distributors will effectively sell our
products.
- Because our sales volume is more concentrated in a few geographic areas in the
United States, any loss of market share in the states where we are concentrated
would have a material adverse effect on our results of operations.
- Because we lack a significant presence in international markets, we are
dependent on the United States market.
- We are subject to environmental regulation by federal, state and local
agencies, including laws that impose liability without regard to fault.
These and other risks and uncertainties affecting our company are discussed
in greater detail in our 1999 Form 10-K filed with the Securities and
Exchange Commission.
Outlook
Our performance in the first nine months of 2000 has benefited from strong
domestic volume gains (sales to wholesalers), particularly in the third
quarter as volume gains outpaced sales-to-retail due to inventory
replenishment. Strong sales-to-retail growth continued in the third quarter.
Sales-to-retail growth is expected to continue, although at a lower rate
than the sales-to-retail volume gains experienced so far in 2000 because of
unusually strong growth a year ago partially due to year 2000 pantry loading.
Our third quarter performance also benefited from increased domestic pricing
and mix improvement toward higher-net-revenue product sales. The favorable
pricing environment is expected to continue in the fourth quarter since we
have announced front-line price increases on about 20% of our volume.
Increased value-pack activity or price discounting could have an unfavorable
impact on top-line performance.
While the current outlook is for higher freight expense due to higher fuel
costs, we expect these costs to be manageable and continue to consider
tactics to mitigate the impact of these costs on the business.
For the remainder of 2000, packaging and fixed costs per barrel are expected
to increase, although at a lower rate than experienced year-to-date. Higher
costs are mainly due to increases in prices of certain packaging materials, a
shift in product demand to higher-cost products and packages and costs related
to our efforts to meet demand for our products at a time when we are
increasingly capacity constrained. Significant changes in demand for higher
cost packages or market prices of these items could alter this outlook. We
continue to pursue improvements in our operations to achieve cost reductions
over time.
Marketing, general and administrative expenses are expected to increase
through the end of the year, although at a rate lower than the 1999
increase. We continue to monitor our market opportunities and to invest
behind our brands and sales efforts accordingly. Incremental sales and
marketing spending will be determined on an opportunity-by-opportunity basis.
Net interest should continue its favorable trends based on our higher
investment balances and higher anticipated yields relative to 1999. However,
we have shifted from owning a large amount of tax-exempt securities toward
owning more securities that are taxable, but that yield higher returns. The
higher yields on these securities will be partially offset by higher income
taxes resulting from the shift in the investment portfolio. Net interest
could be less favorable than expected if we invest a substantial portion of
our cash balances in operating assets or if interest rates decline. Also,
cash may be used to repurchase additional outstanding common stock as
approved by our board of directors in November 1999.
The effective tax rate for the rest of 2000 is not expected to differ
significantly from the rate applied to income during the first nine months of
the year (excluding the impact of the second quarter special charge). The level
and mix of pretax income for 2000 could affect the actual rate for the year.
We expect capital expenditures for 2000 (excluding capital improvements for
our container joint ventures, which will be recorded on the books of the
respective joint ventures) to be in the range of $145 million to $155
million for improving and enhancing facilities, infrastructure, information
systems and environmental compliance. There continues to be increasing
demand for long-neck bottles and value-packs. To effectively meet the
increasing demand, we anticipate making additional investments in capacity
in the next few years, including capacity to produce more value-packs and
building new bottle lines. Our anticipated capital spending in 2001 is in
the range of $200 million to $240 million. Our 2002 estimated capital
spending is expected to be lower than 2001. In addition to our planned
capital expenditures, incremental strategic investments will be considered
on a case-by-case basis. We recently signed a letter of intent with Molson,
which provides for Molson to brew and package beer for us for sale in the
U.S. market. Although we believe this arrangement will help us meet a
portion of the U.S. demand for our products, we do not expect that it will
alter our near-term capacity expansion plans.
We also recently signed a letter of intent with Molson to form a joint
venture to import, market, sell and distribute Molson's brands in the U.S.
market. We expect to pay Molson approximately $65 million and to receive a
49.9% interest in the joint venture. We plan to fund this investment from
available cash or marketable securities.
PART II. OTHER INFORMATION
Item 5. Other Information
On October 25, 2000, we signed a letter of intent with Molson Inc. to form a
joint venture to import, market, sell and distribute Molson's brands of beer
in the U.S. Under the proposed agreement, the joint venture will obtain the
exclusive rights to Molson brands currently imported into the U.S. and any
Molson brands that may be developed in the future for import into the U.S.
Under the proposed agreement, all of these products will be brewed and
packaged by Molson in Canada and imported by the joint venture into the U.S.
We expect to pay Molson approximately $65.0 million and to receive a 49.9%
interest in the joint venture. We believe we will finalize a definitive
agreement by December 31, 2000.
In addition, we signed a letter of intent with Molson for a brewing and
packaging arrangement under which we will have access to some of Molson's
available production capacity in Canada. The Molson capacity available to us
under this arrangement is expected to reach an annual contract brewing rate
of up to 700,000 barrels over the next few years. Although we believe this
arrangement will help us meet a portion of the growing U.S. demand for our
products, we do not expect that it will alter our near-term capacity
expansion plans.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule (For EDGAR filing only)
(b) Reports on Form 8-K
None
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADOLPH COORS COMPANY
By /s/ Timothy V. Wolf
Timothy V. Wolf
Vice President and
Chief Financial Officer
(Principal Financial Officer)
October 27, 2000
