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 June 25, 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 August 2, 2000:
Class A Common Stock - 1,260,000 shares
Class B Common Stock - 35,668,658 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
June 25, June 27,
2000 1999
Sales - domestic and international $ 733,257 $ 690,691
Beer excise taxes (119,108) (115,123)
Net sales 614,149 575,568
Cost of goods sold (348,906) (315,220)
Gross profit 265,243 260,348
Marketing, general and administrative (183,632) (186,638)
Special charge (15,502) --
Operating income 66,109 73,710
Other income - net 4,378 1,769
Income before income taxes 70,487 75,479
Income tax expense (22,143) (29,248)
Net income $ 48,344 $ 46,231
Net income per common share - basic $ 1.32 $ 1.26
Net income per common share - diluted $ 1.29 $ 1.23
Weighted average number of outstanding
common shares - basic 36,712 36,741
Weighted average number of outstanding
common shares - diluted 37,335 37,435
Cash dividends declared and paid per
common share $ 0.185 $ 0.165
See notes to consolidated financial statements.
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Twenty-six weeks ended
June 25, June 27,
2000 1999
Sales - domestic and international $1,289,069 $1,216,525
Beer excise taxes (210,468) (201,095)
Net sales 1,078,601 1,015,430
Cost of goods sold (634,848) (587,602)
Gross profit 443,753 427,828
Marketing, general and administrative (341,272) (335,996)
Special charge (15,502) --
Operating income 86,979 91,832
Other income - net 7,604 3,209
Income before income taxes 94,583 95,041
Income tax expense (31,420) (36,828)
Net income $ 63,163 $ 58,213
Net income per common share - basic $ 1.72 $ 1.59
Net income per common share - diluted $ 1.69 $ 1.55
Weighted average number of outstanding
common shares - basic 36,688 36,700
Weighted average number of outstanding
common shares - diluted 37,275 37,495
Cash dividends declared and paid per
common share $ 0.350 $ 0.315
See notes to consolidated financial statements.
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
June 25, December 26,
2000 1999
Assets
Current assets:
Cash and cash equivalents $ 316,877 $ 163,808
Short-term marketable securities 24,201 113,185
Accounts and notes receivable, net 187,792 159,660
Inventories:
Finished 43,088 44,073
In process 25,549 19,036
Raw materials 7,819 34,077
Packaging materials 8,912 10,071
Total inventories 85,368 107,257
Other current assets 58,699 68,911
Total current assets 672,937 612,821
Properties, at cost and net 708,539 714,001
Long-term marketable securities 2,890 2,890
Other assets 226,273 216,664
Total assets $1,610,639 $1,546,376
See notes to consolidated financial statements. (Continued)
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share information)
(Unaudited)
June 25, December 26,
2000 1999
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 203,163 $ 179,615
Accrued expenses and other liabilities 203,397 213,089
Total current liabilities 406,560 392,704
Long-term debt 105,000 105,000
Deferred tax liability 84,303 78,733
Other long-term liabilities 124,030 128,400
Total liabilities 719,893 704,837
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: 35,580,656 in
2000 and 35,462,034 in 1999) 8,472 8,443
Total capital stock 9,732 9,703
Paid-in capital 6,594 5,773
Retained earnings 875,361 825,070
Accumulated other comprehensive (loss) income (941) 993
Total shareholders' equity 890,746 841,539
Total liabilities and shareholders' equity $1,610,639 $1,546,376
See notes to consolidated financial statements. (Concluded)
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Twenty-six weeks ended
June 25, June 27,
2000 1999
Cash flows from operating activities:
Net income $ 63,163 $ 58,213
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in earnings of joint ventures (19,959) (15,897)
Impairment charge 4,944 --
Depreciation and amortization 64,163 64,366
(Gain) loss on sale or abandonment of
properties (2,762) 2,194
Deferred income taxes 6,693 (5,610)
Change in operating assets and liabilities 16,506 (7,253)
Net cash provided by operating activities 132,748 96,013
Cash flows from investing activities:
Purchases of investments (40,000) (4,170)
Sales and maturities of investments 128,817 74,009
Additions to properties and intangibles (67,425) (79,259)
Proceeds from sales of properties 4,522 210
Distributions from joint ventures 12,001 8,485
Other (2,163) 753
Net cash provided by investing activities 35,752 28
Cash flows from financing activities:
Issuances of stock under stock plans 6,617 8,937
Purchases of stock (8,851) (13,308)
Dividends paid (12,872) (11,607)
Payment of current portion of long-term debt -- (25,000)
Other -- 506
Net cash used in financing activities (15,106) (40,472)
Cash and cash equivalents:
Net increase in cash and cash equivalents 153,394 55,569
Effect of exchange rate changes on
cash and cash equivalents (325) (202)
Balance at beginning of year 163,808 160,038
Balance at end of quarter $316,877 $215,405
See notes to consolidated financial statements.
ADOLPH COORS COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE TWENTY-SIX WEEKS ENDED JUNE 25, 2000
1. BUSINESS
Founded in 1873 and incorporated in Colorado in 1913, Adolph Coors Company
(ACC) 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, except as discussed in Note 3,
which are necessary for a fair presentation of the financial position of the
Company (as defined) at June 25, 2000, and the results of its operations and
its cash flows for the thirteen and twenty-six weeks ended June 25, 2000 and
June 27, 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 (collectively referred to as "the Company").
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 and twenty-six weeks ended June 25, 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 - Cash paid for interest for the twenty-six weeks
ended June 25, 2000 and June 27, 1999, was $4.2 million and $5.9 million,
respectively. Cash paid for income taxes for the twenty-six weeks ended June
25, 2000 and June 27, 1999, was $16.8 million and $5.3 million, respectively.
During the second quarter of 2000 and 1999, the non-cash tax effects of the
issuances of stock under the Company's stock plans increased equity by $4.0
million and $5.5 million, respectively.
3. SPECIAL CHARGE
In the second quarter of 2000, CBC's Spanish operation, Coors Brewing Iberica,
S.A. (Coors Iberica), completed various analyses of the potential for improved
distribution channels, the viability of Coors brands in the Spain market and
additional contract brewing opportunities. Due to the unfavorable outlook from
these analyses, at the end of the second quarter the CBC Board of Directors
approved a recommendation from the Coors Iberica Board of Directors for a plan
to close the Company's brewery and sales operation in Spain by the end of 2000.
As a result of these events and decisions, CBC reevaluated the recoverability
of Coors Iberica's long-lived assets and determined that certain of these
assets were impaired and wrote them down to their fair market values based on
an independent third-party appraisal. The Company is currently evaluating
options for disposing of the various assets held at the brewery and sales
office in Spain.
As a result of the planned closure and the impairment determination, severance,
for approximately 100 employees, and other related costs of approximately $10.6
million and a fixed asset impairment charge of approximately $4.9 million were
recorded in the second quarter of 2000. These expenses are classified as a
special charge in the accompanying statements of income.
4. 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. Certain proposed adjustments
relating to international matters were settled in April 2000. An agreement for
the remaining issues was reached in July 2000. Neither of these items will
have a material adverse effect on the Company's consolidated balance sheet,
results of operations or liquidity.
5. OTHER COMPREHENSIVE INCOME
Thirteen weeks ended Twenty-six weeks ended
June 25, June 27, June 25, June 27,
2000 1999 2000 1999
(In thousands)
Net income $48,344 $46,231 $63,163 $58,213
Other comprehensive income
(expense), net of tax:
Foreign currency translation
adjustments 1,779 (792) 1,105 (2,973)
Unrealized gain (loss) on
available-for-sale securities
and derivative instruments (1,597) 805 (1,991) 558
Reclassification adjustment
for net gains realized in
net income on derivative
instruments (1,029) -- (1,048) --
Comprehensive income $47,497 $46,244 $61,229 $55,798
6. EARNINGS PER SHARE (EPS)
Basic and diluted net income per common share were arrived at using the
calculations outlined below:
Thirteen weeks ended Twenty-six weeks ended
June 25, June 27, June 25, June 27,
2000 1999 2000 1999
(In thousands, except per share data)
Net income available to
common shareholders $48,344 $46,231 $63,163 $58,213
Weighted average shares
for basic EPS 36,712 36,741 36,688 36,700
Effect of dilutive securities:
Stock options 564 618 528 696
Contingent shares not
included in shares
outstanding for basic EPS 59 76 59 99
Weighted average shares
for diluted EPS 37,335 37,435 37,275 37,495
Basic EPS $ 1.32 $ 1.26 $ 1.72 $ 1.59
Diluted EPS $ 1.29 $ 1.23 $ 1.69 $ 1.55
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
Special Charge
In March 1994, Coors Brewing Company (CBC), through its subsidiary, Coors
Brewing Iberica, S.A. (Coors Iberica), purchased an approximately 500,000-
hectoliter brewery in Zaragosa, Spain. In the second quarter of 2000, Coors
Iberica completed various analyses of the potential for improved distribution
channels, the viability of Coors brands in the Spain market and additional
contract brewing opportunities. Due to the unfavorable outlook from these
analyses, at the end of the second quarter the CBC Board of Directors approved
a recommendation from the Coors Iberica Board of Directors for a plan to close
the Company's brewery and sales operation in Spain by the end of 2000.
As a result of these recent events and decisions, CBC management reevaluated the
recoverability of Coors Iberica's long-lived assets. As a result of the plan of
closure and the evaluation of the recoverability of Coors Iberica's long-lived
assets, severance, for approximately 100 employees, and other related costs of
approximately $10.6 million and a fixed asset impairment charge of approximately
$4.9 million were recorded as special charges in the second quarter of 2000.
The severance and other related costs will be funded from the Company's current
cash balances, and the majority of these costs will be paid by the end of 2000.
The Company will incur additional expenses related to the plan of closure during
the second half of 2000. The Company anticipates that these expenses will be
substantially less than the second quarter special charge.
The decision to close the Spain brewery and sales operation will eliminate that
operation's annual operating losses from the Company's overall operating
results. The anticipated payback period is less than three years; the Company
plans to invest most of the annual savings of approximately $7.0 million to
$8.0 million into its domestic and international businesses. The Company
expects that the savings from the closure will begin in fiscal 2001.
The Company's operating results including and excluding these special charges
is summarized as follows:
Thirteen weeks ended Twenty-six weeks ended
June 25, June 27, June 25, June 27,
2000 1999 2000 1999
(In thousands, except per share data)
Operating income:
As reported $66,109 $73,710 $ 86,979 $91,832
Excluding special charges 81,611 73,710 102,481 91,832
After tax income:
As reported 48,344 46,231 63,163 58,213
Excluding special charges 53,434 46,231 68,253 58,213
Earnings per share:
As reported - basic $ 1.32 $ 1.26 $ 1.72 $ 1.59
- diluted $ 1.29 $ 1.23 $ 1.69 $ 1.55
Excluding special charges
- basic $ 1.46 $ 1.26 $ 1.86 $ 1.59
- diluted $ 1.43 $ 1.23 $ 1.83 $ 1.55
Consolidated Results of Continuing Operations
Sales and volume - Adolph Coors Company (ACC); the holding company for Coors
Brewing Company (CBC); and the majority-owned and controlled domestic and
foreign subsidiaries of both ACC and CBC (collectively referred to as "the
Company") reported net sales of $614.1 million and $1,078.6 million for the
second quarter and first half of 2000, respectively, representing increases of
6.7% and 6.2%, respectively, over each of the same periods of 1999. Net sales
for the thirteen weeks ended June 25, 2000, were impacted favorably by a unit
volume increase of 3.4%: CBC sold 6,389,000 barrels of malt beverages in the
second quarter of 2000 compared to sales of 6,181,000 barrels in the second
quarter of 1999. Additionally, net sales were favorably impacted by improved
gross realizations per barrel due to increased pricing and mix improvement
toward higher-net-revenue product sales.
Gross profit - Gross profit in the second quarter of 2000 rose 1.9% to $265.2
million over the second quarter of 1999, while gross profit in the first half
of 2000 rose 3.7% to $443.8 million, compared to the same period of 1999. As a
percentage of net sales, gross profit decreased to 43.2% and 41.1% in the
second quarter and first half of 2000, respectively, from 45.2% and 42.1% for
the same periods a year earlier. These changes were attributable to the
increases in net sales per barrel, as discussed above, offset by significantly
larger increases in cost of goods sold of 10.7% in the second quarter of 2000
and 8.0% in the first half of 2000 versus the prior year. Cost of goods sold
per barrel for the second 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, Zimar and longneck bottles.
Additionally, there was an increase in packaging materials costs and in
production expense during the second quarter of 2000 compared to the same
period in 1999. The increased packaging materials costs in 2000 were mainly due
to a one-time benefit of renegotiating and revising certain long-term supply
contracts during the second quarter of 1999. The increased production expense
was related to meeting higher-than-expected demand for certain products, which
mainly consisted of overtime pay. The cost of goods sold per barrel for the six
months ended June 25, 2000, was impacted by essentially the same factors.
Operating income (excluding special charges) - Operating income was $81.6
million and $102.5 million for the second quarter and first half of 2000,
respectively, compared to $73.7 million and $91.8 million for the same periods
a year earlier. The increase for the second quarter of 2000 was primarily due
to the increase in gross profit, as discussed above, as well as an overall
decrease in marketing, general and administrative expenses. Total marketing,
general and administrative expenses decreased during the second quarter of 2000
compared to the same period of 1999 because of lower information technology
expenses and corporate overhead expenses. The increase in operating income for
the first half of 2000 compared to the same period in 1999 was primarily due to
the increase in gross profit, as discussed above, which was partially offset by
an increase 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 half of 2000 compared to the same period in 1999.
Non-operating income - Net non-operating income for the second quarter and
first half of 2000 improved over the same periods in 1999 primarily because of
increases in interest income and reductions in interest expense. The increase
in interest income was mainly due to higher average cash and securities
balances in the first half of 2000 compared to the first half of 1999, while
the decrease in interest expense was due to lower outstanding medium-term debt.
Effective tax rate (excluding special charges) - The consolidated effective tax
rates for the second quarter and first half of 2000 were 37.86% and 38.0%,
respectively, compared to 38.75% for the same periods in 1999. The rate
decreased in 2000 mainly because of reduced state tax rates.
Net income (excluding special charges) - Net income for the second quarter and
first half of 2000 was $53.4 million, or $1.46 per basic share ($1.43 per
diluted share), and $68.3 million, or $1.86 per basic share ($1.83 per diluted
share), respectively. This compares to net income of $46.2 million, or $1.26
per basic share ($1.23 per diluted share), and $58.2 million, or $1.59 per
basic share ($1.55 per diluted share), respectively, for the second quarter
and first half 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 June 25, 2000, ACC had
working capital of $266.4 million, and its cash position was $316.9 million
compared to $163.8 million as of December 25, 1999. In addition to its cash
resources, ACC had short-term, highly liquid securities of $24.2 million at
June 25, 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 June 25, 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 principal and interest payments on
indebtedness, dividend payments, anticipated capital expenditures and
potential repurchases of its common stock under the previously-announced stock
repurchase plan.
Operating activities - Net cash provided by operating activities increased to
$132.7 million for the first half of 2000 from $96.0 million for the first
half of 1999. A portion of the $36.7 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. Also contributing to the increase in net cash provided by operating
activities during the first half of 2000 were increased net income, the
impairment charge incurred during the second quarter of 2000 on the Coors
Iberica long-lived assets and utilization of deferred tax assets. These
increases to net cash provided by operating activities were offset by increases
in the equity in earnings of joint ventures, gains on the sales of properties
and working capital changes, which all decrease the cash provided by operating
activities. 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 twenty-six weeks of 2000, ACC received
$35.8 million from net investing activities compared to $0.1 million received
for the first twenty-six weeks of 1999. The net impact of ACC's marketable
investment activities was a cash inflow of $88.8 million during the first half
of 2000, compared to an inflow of $69.8 million during the same period of
1999. This increase of cash inflow is due to more securities maturing in the
first half of 2000 compared to the same period in 1999 offset by purchases of
$40.0 million of securities in the first half of 2000 compared to $4.2 million
in the same period of 1999. Capital expenditures decreased to $67.4 million
for the twenty-six weeks ended June 25, 2000, from $79.3 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 technology upgrades were substantially
completed in 1999. ACC received $12.0 million in distributions from joint
ventures during the first half of 2000, compared to $8.5 million during the
same period of 1999. The increased distributions from joint ventures was due
to increased operating activity at the joint ventures.
Financing activities - ACC spent $15.1 million on financing activities during
the twenty-six weeks ended June 25, 2000, compared to $40.5 million in 1999.
The 2000 uses were primarily for purchases of $8.9 million of Class B common
stock under the stock repurchase program and dividend payments of $12.9
million. The 1999 uses were primarily for principal payments on debt of $25
million, purchases of $13.3 million of Class B common stock under the stock
repurchase program and dividend payments of $11.6 million. The Company bought
back fewer shares under its stock repurchase program during the first half of
2000 compared to the same period in 1999. The dividend per share amount
increased to $0.185 per share in the first half of 2000 compared to $0.165 per
share for the same period of 1999. The debt payments in the first half of 1999
were on the medium-term notes, which were paid off in the third quarter of 1999.
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;
- an accelerated 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 half of 2000 benefited from strong
domestic volume gains (sales to wholesalers). Domestic sales-to-retail volume
gains experienced by the Company's distributors were even larger than the
Company's volume gains. Domestic sales-to-retail growth is expected to
continue in the second half of 2000, although at a lower rate than the sales-
to-retail volume gains experienced in the first half of 2000. Because of high
product demand in the second quarter and the resulting decrease in distributor
inventories, it is anticipated that the Company's domestic volume growth will
outpace the sales-to-retail growth of its distributors in the third quarter.
The Company's second 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 for the rest of
2000. Increased value-pack activity or price discounting could have an
unfavorable impact on top-line performance. While freight costs have increased
due to higher fuel expense, the Company expects these costs to be manageable
and has implemented and continues 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 in the first half of
2000. Packaging and fixed costs per barrel are expected to increase over 1999,
mainly due to increases in prices of certain packaging materials and a shift
in product demand to higher-cost products and packages, including longneck
bottles and import beer sold by Coors-owned distributors. Significant changes
in demand for higher cost packages or 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, although at a rate lower than the 1999 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.
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 effective tax rate for the rest of 2000 is not expected to differ
significantly from the rate applied to income during the first six 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.
CBC expects capital expenditures for 2000 (excluding capital improvements for
its container joint ventures, which will be recorded on the books of the
respective joint ventures) in the range of $135 million to $145 million for
improving and enhancing facilities, infrastructure, information systems and
environmental compliance. There continues to be a rapid expansion in market-
place demand, particularly for longneck bottles and value-packs. To
effectively meet the increasing demand, the Company anticipates making
additional investments in capacity in the next few years, including capacity
to produce more value-packs and building a new bottle line in one of the
Company's facilities. The Company anticipates that capital spending in 2001
will increase above the 2000 spending estimate. 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
Exhibit 3.2 - By-laws, as amended and restated in May 2000.
(b) Reports on Form 8-K
A report on Form 8-K dated June 2, 2000, was filed announcing changes to
certain Board of Directors and top management positions at the Company.
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)
August 9, 2000
