U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Quarter ended March 26, 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 May 3, 2000:
Class A Common Stock - 1,260,000 shares
Class B Common Stock - 35,431,073 shares
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Thirteen weeks ended
March 26, March 28,
2000 1999
Sales - domestic and international $ 555,812 $ 525,834
Beer excise taxes (91,360) (85,972)
Net sales 464,452 439,862
Cost of goods sold (285,942) (272,382)
Gross profit 178,510 167,480
Marketing, general and administrative (157,640) (149,358)
Operating income 20,870 18,122
Other income - net 3,226 1,440
Income before income taxes 24,096 19,562
Income tax expense (9,277) (7,580)
Net income $ 14,819 $ 11,982
Net income per common share - basic $ 0.40 $ 0.33
Net income per common share - diluted $ 0.40 $ 0.32
Weighted average number of outstanding
common shares - basic 36,663 36,659
Weighted average number of outstanding
common shares - diluted 37,216 37,552
Cash dividends declared and paid per
common share $ 0.165 $ 0.150
See notes to consolidated financial statements.
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
March 26, December 26,
2000 1999
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 184,229 $ 163,808
Short-term marketable securities 94,320 113,185
Accounts and notes receivable, net 145,361 159,660
Inventories:
Finished 38,537 44,073
In process 25,307 19,036
Raw materials 21,347 34,077
Packaging materials 8,236 10,071
Total inventories 93,427 107,257
Other current assets 54,806 68,911
Total current assets 572,143 612,821
Properties, at cost and net 708,762 714,001
Long-term marketable securities 2,890 2,890
Other assets 225,023 216,664
Total assets $1,508,818 $1,546,376
See notes to consolidated financial statements. (Continued)
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share information)
March 26, December 26,
2000 1999
(Unaudited)
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 155,130 $ 179,615
Accrued expenses and other liabilities 194,782 213,089
Total current liabilities 349,912 392,704
Long-term debt 105,000 105,000
Deferred tax liability 77,416 78,733
Other long-term liabilities 126,832 128,400
Total liabilities 659,160 704,837
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: 35,477,346 in
2000 and 35,462,034 in 1999) 8,447 8,443
Total capital stock 9,707 9,703
Paid-in capital 6,217 5,773
Retained earnings 833,828 825,070
Accumulated other comprehensive (loss) income (94) 993
Total shareholders' equity 849,658 841,539
Total liabilities and shareholders' equity $1,508,818 $1,546,376
See notes to consolidated financial statements. (Concluded)
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Thirteen weeks ended
March 26, March 28,
2000 1999
Cash flows from operating activities:
Net income $ 14,819 $ 11,982
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Equity in earnings of joint ventures (7,517) (7,054)
Depreciation and amortization 30,603 30,574
(Gain) loss on sale or abandonment of
properties (301) 617
Deferred income taxes (1,783) (4,218)
Change in operating assets and liabilities (9,159) (70,303)
Net cash provided by (used in)
operating activities 26,662 (38,402)
Cash flows from investing activities:
Purchases of investments (20,000) --
Sales and maturities of securities 38,800 58,955
Capital expenditures (26,275) (28,366)
Proceeds from sales of properties 1,733 181
Distributions from joint ventures 5,315 3,790
Other (98) 728
Net cash (used in) provided by investing
activities (525) 35,288
Cash flows from financing activities:
Issuances of stock under stock plans 479 6,941
Purchases of stock -- (3,496)
Dividends paid (6,061) (5,527)
Payment of current portion of long-term debt -- (15,000)
Other -- (515)
Net cash used in financing activities (5,582) (17,597)
Cash and cash equivalents:
Net increase (decrease) in cash and
cash equivalents 20,555 (20,711)
Effect of exchange rate changes on
cash and cash equivalents (134) (269)
Balance at beginning of year 163,808 160,038
Balance at end of quarter $184,229 $139,058
See notes to consolidated financial statements.
ADOLPH COORS COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTEEN WEEKS ENDED MARCH 26, 2000
1. BUSINESS
Founded in 1873 and incorporated in Colorado in 1913, Adolph Coors Company
(ACC or the Company) is the holding company for Coors Brewing Company (CBC),
the third-largest U.S. brewer.
2. SIGNIFICANT ACCOUNTING POLICIES
Unaudited consolidated financial statements - In the opinion of management,
the accompanying unaudited financial statements reflect all adjustments,
consisting only of normal recurring accruals, which are necessary for a fair
presentation of the financial position of the Company at March 26, 2000, and
the results of its operations and its cash flows for the thirteen weeks ended
March 26, 2000. 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
26, 1999. The results of operations for the thirteen weeks ended March 26,
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.
Statements of cash flows - Cash paid for interest for the thirteen weeks ended
March 26, 2000 and March 28, 1999, was $3.9 million and $4.4 million,
respectively. Cash paid for income taxes for the thirteen weeks ended March
26, 2000 and March 28, 1999, was $10.0 million and $1.2 million, respectively.
During the first quarter of 2000 and 1999, equity was increased by the non-
cash tax effects of the issuances of stock under the Company's stock plans of
$0.2 million and $4.6 million, respectively.
3. INCOME TAXES
The Internal Revenue Service (IRS) has completed its examination of the
Company's federal income tax returns through 1995. The IRS proposed
adjustments for the years 1993 through 1995 based upon the completed
examinations. The Company filed a protest for the proposed adjustments and
began the administrative appeals process in 1999. In the opinion of
management, adequate accruals have been provided for all income tax matters
and related interest. Certain proposed adjustments relating to international
matters were settled in April 2000, the most significant of which resulted in
a current tax liability of approximately $8.0 million. This matter had
previously been provided for in the income tax accruals. The remaining issue
under the protest is still pending resolution, however it is not anticipated
to result in a significant tax liability.
4. OTHER COMPREHENSIVE INCOME
Thirteen weeks ended
March 26, March 28,
2000 1999
(In thousands)
Net income $14,819 $11,982
Other comprehensive expense, net of tax:
Foreign currency translation adjustments (675) (2,181)
Unrealized gain on available-for-sale
securities and derivative instruments,
net of reclassification adjustments (412) (247)
Comprehensive income $13,732 $ 9,554
5. EARNINGS PER SHARE (EPS)
Basic and diluted net income per common share were arrived at using the
calculations outlined below:
Thirteen weeks ended
March 26, March 28,
2000 1999
(In thousands, except per share data)
Net income available to common shareholders $14,819 $11,982
Weighted average shares for basic EPS 36,663 36,659
Effect of dilutive securities:
Stock options 498 773
Contingent shares not included in shares
outstanding for basic EPS 55 120
Weighted average shares for diluted EPS 37,216 37,552
Basic EPS $ 0.40 $ 0.33
Diluted EPS $ 0.40 $ 0.32
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.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Consolidated Results of Continuing Operations
Sales and volume - The Company reported net sales of $464.5 million for the
first quarter of 2000, representing an increase of 5.6% over the same period
of 1999. Net sales for the thirteen weeks ended March 26, 2000, was impacted
favorably by a unit volume increase of 2.0%; CBC sold 4,827,000 barrels of
malt beverages in the first quarter of 2000 compared to sales of 4,734,000
barrels in the first quarter of 1999. Additionally, net sales was favorably
impacted by improved gross realizations per barrel due to increased pricing,
reduced domestic discounting and mix improvement toward higher-net-revenue
product sales.
Gross profit - Gross profit in the first quarter of 2000 rose 6.6% to $178.5
million compared to the first quarter of 1999. As a percentage of net sales,
gross profit increased to 38.4% in the first quarter of 2000, from 38.1% for
the same period a year earlier. These improvements were attributable to the
increases in net sales per barrel, as discussed above, offset by smaller
increases in cost of goods sold of 5.0% in the first quarter of 2000 versus
the prior year. Cost of goods sold per barrel for the first quarter of 2000
increased mainly due to a shift in product demand toward more expensive
products and packages, including import beers sold by Coors-owned
distributors, non-beer malt-based beverages and longneck bottles. These
increases more than offset lower unit costs for certain production and
packaging materials.
Operating income - Operating income was $20.9 million for the first quarter of
2000, compared to $18.1 million for the same period a year earlier. This
increase was primarily due to the increase 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, sales, promotions and the Company's
international organization. These increases were partially offset by lower
information technology expenses incurred during the first quarter of 2000
compared to the same period in 1999 due to there not being any Year 2000
remediation costs in the first quarter of 2000.
Non-operating income and expense - Net non-operating income for the first
quarter of 2000 improved from the same period of 1999 primarily because of
increases in interest income and reductions in interest expense. The increase
in interest income is mainly due to higher average cash and securities balances
in the first quarter of 2000 compared to the first quarter of 1999, while the
decrease in interest expense is due to lower outstanding medium-term debt.
Effective tax rate - The consolidated effective tax rate for the three months
ended March 26, 2000 was 38.5% compared to 38.75% for the same period in 1999.
Net income - Net income for the first quarter of 2000 was $14.8 million, or
$0.40 per basic and diluted share. This compares to net income of $12.0
million, or $0.33 per basic share ($0.32 per diluted share), for the first
quarter of 1999.
Liquidity and Capital Resources
Liquidity - The Company's primary sources of liquidity are cash provided by
operating activities and external borrowings. As of March 26, 2000, ACC had
working capital of $222.2 million, and its cash position was $184.2 million
compared to $163.8 million as of December 26, 1999. In addition to its cash
resources, ACC had short-term, highly liquid securities of $94.3 million at
March 26, 2000, compared to $113.2 million at December 26, 1999. ACC also had
$2.9 million of marketable securities with maturities exceeding one year at
both March 26, 2000 and December 26, 1999. The Company believes that cash
flows from operations and short-term borrowings will be sufficient to meet its
ongoing operating requirements, scheduled 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 $26.7
million for the first quarter of 2000 compared to net cash used of $38.4
million for the same period of 1999. A portion of the $65.1 million increase
in operating cash was due to a $48 million contribution made to the Company's
defined benefit pension plan in January 1999 without a similar contribution
being made in 2000. This contribution was made in 1999 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. In addition to there being no
additional pension contribution in 2000, there were also working capital
changes that contributed to the increase in operating cash during the first
quarter of 2000 compared to the same period in the prior year. The
fluctuations in working capital changes are primarily due to increased
operating activity and timing of payments between the two years.
Investing activities - During the first quarter of 2000, ACC spent $0.5
million on net investing activities compared to cash provided of $35.3 million
for the first quarter of 1999. The net impact of ACC's marketable securities
activities was a cash inflow of $18.8 million during the first quarter of
2000, compared to an inflow of $59.0 million during the same period of 1999.
This decrease of cash inflow is due to fewer securities maturing in the first
quarter of 2000 compared to the same period in 1999 as well as there being
purchases of $20.0 million in the first quarter of 2000 compared to no
purchases in the same period of 1999. Capital expenditures decreased to $26.3
million for the thirteen weeks ended March 26, 2000, from $28.4 million a year
earlier. The decreased capital spending during the first quarter of 2000
compared to the same period in 1999 is primarily due to decreased spending on
information technology upgrades, as the technology upgrades were substantially
completed in 1999. Further, ACC received $5.3 million in distributions from
joint ventures during the first quarter of 2000, compared to $3.8 million
during the same period of 1999.
Financing activities - ACC spent $5.6 million on financing activities during
the thirteen weeks ended March 26, 2000, compared to $17.6 million in 1999.
The 2000 uses were primarily for dividend payments of $6.1 million, where as
the 1999 uses were primarily for principal payments on debt of $15 million,
net stock activity of $3.4 million of Class B common stock under the stock
repurchase program and dividend payments of $5.5 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 2000; overall volume
trends; pricing trends and industry forces; cost reduction strategies and
their results; the Company's expectations for funding its 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 its financial performance, the Company must grow premium beverage
volume, achieve modest price increases for its products and reduce its overall
cost structure. As the beer business is competitive and does entail some
measure of risk, 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, higher
proportion of sales in value-packs, or negative consumer reaction to price
increases;
- - a potential shift in consumer preferences toward lower-priced products;
- - a continued shift in consumer preferences toward products with higher costs;
- - a potential shift in consumer preferences toward products and packages that
would require additional capacity;
- - 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;
- - increasing competition in and costs of marketing and advertising spending;
- - any inability of the Company to reduce manufacturing, freight and overhead
costs to more competitive levels;
- - changes, or imposition of restrictions, in laws or government regulations
affecting environmental compliance, income taxes, advertising and other
products and operations of the Company;
- - any inability of the Company to achieve targeted improvements in CBC's
distribution system;
- - significant increases in federal, state or local beer or other excise taxes;
- - increases in transportation rates and costs or interruptions of service;
- - the potential impact of further industry consolidation;
- - significant increases in planned capital expenditures or changes in
underlying assumptions that would accelerate capital spending; and
- - 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.
These and other risks and uncertainties affecting the Company are discussed in
greater detail in the Company's 1999 Form 10-K filed with the Securities and
Exchange Commission.
Outlook
The Company's performance in the first quarter of 2000 benefited from domestic
volume gains. However, sales-to-retail volume gains were even larger than the
Company's total volume gains. The domestic volume gains are expected to
continue throughout 2000, although not at the same rate as the sales-to-retail
volume gains experienced in the first quarter of 2000. The Company's first
quarter performance also benefited from increased pricing, reduced domestic
discounting and mix improvement toward higher-net-revenue product sales. The
pricing environment is expected to continue to be favorable in comparison to
most of the 1990's. Continuing value-pack activity or an increase in price
discounting could have an unfavorable impact on top-line performance.
For fiscal year 2000, packaging and fixed costs per barrel are expected to be
up slightly due to increases in prices of certain packaging materials and a
shift in product demand to higher-cost products and packages, including
longneck bottles. Significant changes in market prices of these items could
alter this outlook. CBC continues to pursue improvements in its operations to
achieve cost reductions over time.
Marketing, general and administrative expenses are expected to increase in
2000, however at a rate lower than the 1999 rate 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
incremental revenue generated by price increases being spent on advertising
and marketplace support.
Net interest should continue its favorable trends based on the Company's lower
outstanding debt, higher cash balances and higher anticipated yields relative
to 1999. Net interest could be less favorable than expected if the Company
invests a substantial portion of its cash balances in operating assets or
investments with longer-term returns or if interest rates decline. Also, cash
may be used to repurchase additional outstanding common stock as approved by
the ACC board of directors in November 1999.
The Company recently settled with the Internal Revenue Service (IRS) on
certain proposed tax adjustments relating to international matters. The IRS
had made these proposed adjustments as a result of their examination of the
Company's federal tax returns for years 1993 through 1995. The settlement of
these matters resulted in an approximately $8.0 million tax liability, which
had previously been provided for in the income tax accruals, and may have a
favorable impact on the Company's annual effective tax rate for 2000.
In 2000, CBC has planned capital expenditures (excluding capital improvements
for its container joint ventures, which will be recorded on the books of the
joint venture) in the range of approximately $125 million to $135 million for
improving and enhancing the facilities, infrastructure, information systems,
and environmental compliance. In addition to CBC's 2000 planned capital
expenditures, incremental strategic investments will be considered on a case-
by-case basis.
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)
May 10, 2000
2
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