U.S. SECURITIES AND EXCHANGE COMMISSION PRIVATE
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 April 1, 2001
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 7, 2001:
Class A Common Stock - 1,260,000 shares
Class B Common Stock - 36,036,062 shares
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Thirteen weeks ended
April 1, March 26,
2001 2000
Sales - domestic and international $ 637,828 $ 596,789
Beer excise taxes (94,128) (91,360)
Net sales 543,700 505,429
Cost of goods sold (351,153) (326,919)
Gross profit 192,547 178,510
Marketing, general and administrative expenses (169,958) (157,640)
Operating income 22,589 20,870
Gain on sale of securities 2,954 --
Other income - net 4,019 3,226
Income before income taxes 29,562 24,096
Income tax expense (11,234) (9,277)
Net income $ 18,328 $ 14,819
Net income per common share - basic $ 0.49 $ 0.40
Net income per common share - diluted $ 0.49 $ 0.40
Weighted average number of outstanding
common shares - basic 37,203 36,663
Weighted average number of outstanding
common shares - diluted 37,688 37,216
Cash dividends declared and paid per
common share $ 0.185 $ 0.165
See notes to unaudited condensed consolidated financial statements.
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
April 1, December 31,
2001 2000
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 41,965 $ 119,761
Short-term marketable securities 38,030 72,759
Accounts and notes receivable, net 156,628 127,078
Inventories:
Finished 62,176 40,039
In process 30,768 23,735
Raw materials 25,360 37,570
Packaging materials 11,094 8,580
Total inventories 129,398 109,924
Other current assets 63,172 68,229
Total current assets 429,193 497,751
Properties, at cost and net 736,348 735,793
Long-term marketable securities 182,736 193,675
Excess of cost over net assets of businesses
acquired, net 93,517 29,446
Other assets 171,311 172,639
Total assets $1,613,105 $1,629,304
(Continued)
See notes to unaudited condensed consolidated financial statements.
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share information)
April 1, December 31,
2001 2000
(Unaudited)
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 184,226 $ 197,726
Accrued expenses and other liabilities 171,111 181,610
Total current liabilities 355,337 379,336
Long-term debt 105,000 105,000
Deferred tax liability 86,105 89,986
Other long-term liabilities 117,634 122,593
Total liabilities 664,076 696,915
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: 36,048,008 in
2001 and 35,871,121 in 2000) 8,583 8,541
Total capital stock 9,843 9,801
Paid-in capital 17,362 11,203
Retained earnings 919,558 908,123
Accumulated other comprehensive income 2,266 3,262
Total shareholders' equity 949,029 932,389
Total liabilities and shareholders' equity $1,613,105 $1,629,304
(Concluded)
See notes to unaudited condensed consolidated financial statements.
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Thirteen weeks ended
April 1, March 26,
2001 2000
Cash flows from operating activities:
Net income $ 18,328 $ 14,819
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Equity in earnings of joint ventures (9,226) (7,517)
Distributions from joint ventures 7,241 5,315
Depreciation and amortization 30,522 30,603
Gain on sale of securities (2,954) --
Deferred income taxes (122) (1,783)
Change in operating assets and liabilities (76,367) (9,460)
Net cash (used in) provided by
operating activities (32,578) 31,977
Cash flows from investing activities:
Purchases of securities (130,968) (20,000)
Sales and maturities of securities 179,135 38,800
Additions to properties and intangible assets (30,752) (26,275)
Investment in Molson USA, LLC (65,000) --
Other 3,106 1,635
Net cash used in investing activities (44,479) (5,840)
Cash flows from financing activities:
Issuances of stock under stock plans 9,212 479
Purchases of stock (6,055) --
Dividends paid (6,893) (6,061)
Other 3,285 --
Net cash used in financing activities (451) (5,582)
Cash and cash equivalents:
Net (decrease) increase in cash and
cash equivalents (77,508) 20,555
Effect of exchange rate changes on
cash and cash equivalents (288) (134)
Balance at beginning of year 119,761 163,808
Balance at end of quarter $ 41,965 $184,229
See notes to unaudited condensed consolidated financial statements.
ADOLPH COORS COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTEEN WEEKS ENDED APRIL 1, 2001
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 condensed consolidated financial statements - In our opinion, 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, 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 31, 2000. The results
of operations for the thirteen weeks ended April 1, 2001, 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 quarter of 2001 and 2000,
shareholders' equity was increased by the non-cash tax effects of the
issuances of stock under our stock plans of $4.1 million and $0.2 million,
respectively. Also during the first quarter of 2001 and 2000, net restricted
stock activity resulted in non-cash decreases to the equity accounts of $1.2
million and $0.2 million, respectively.
Reclassifications - Certain reclassifications have been made to the 2000
financial statements to conform with the 2001 presentation.
3. SPECIAL CHARGES
In the second and fourth quarters of 2000, we recorded a pretax special
charge, which totaled $20.6 million, related to the closure of our Spain
brewery and commercial operations. Of the $20.6 million charge, $11.3
million related to severance and other related closure costs for
approximately 100 employees, $4.9 million related to a fixed asset
impairment charge and $4.4 million for the write-off of our cumulative
translation adjustments, previously recorded in equity, related to our Spain
operations. Through April 1, 2001, approximately $11.2 million of severance
and related closure costs were paid out, which resulted in a remaining
reserve of approximately $0.1 million at April 1, 2001. We are pursuing the
disposal of our remaining assets in Spain and believe adequate write-offs
have been taken on these assets and that the April 1, 2001, carrying values
are appropriate.
In 1999, we recorded a pretax special charge of $3.7 million for severance
costs as part of a restructuring of our operations. At December 31, 2000,
approximately $0.5 million of the severance reserve remained. During the
first quarter of 2001, we paid out all remaining severance, and at April 1,
2001, there was no reserve remaining.
4. OTHER COMPREHENSIVE INCOME
Thirteen weeks ended
April 1, March 26,
2001 2000
(In thousands)
Net income $18,328 $14,819
Other comprehensive (expense) income, net of tax:
Foreign currency translation adjustments (81) (675)
Unrealized gain (loss) on available-for-sale
securities and derivative instruments 1,108 (421)
Reclassification adjustment for net (gains)
losses realized in net income on derivative
instruments (2,023) 9
Comprehensive income $17,332 $13,732
5. EARNINGS PER SHARE (EPS)
Basic and diluted net income per common share were arrived at using the
calculations outlined below:
Thirteen weeks ended
April 1, March 26,
2001 2000
(In thousands, except per share data)
Net income available to common shareholders $18,328 $14,819
Weighted average shares for basic EPS 37,203 36,663
Effect of dilutive securities:
Stock options 477 498
Contingent shares not included in shares
outstanding for basic EPS 8 55
Weighted average shares for diluted EPS 37,688 37,216
Basic EPS $ 0.49 $ 0.40
Diluted EPS $ 0.49 $ 0.40
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. SUBSEQUENT EVENT
In April 2001, we entered into a new, four-year labor agreement with our
Memphis plant workers, who are represented by the Teamsters. Their previous
contract was set to expire on April 1, 2001. Our Memphis plant workers are
the only significant employee group that has union representation.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Thirteen weeks ended
April 1, March 26,
2001 2000
(In thousands, except percentages)
(Unaudited)
Net sales $ 543,700 100% $ 505,429 100%
Cost of goods sold (351,153) 65% (326,919) 65%
Gross profit 192,547 35% 178,510 35%
Marketing, general and administrative
expenses (169,958) 31% (157,640) 31%
Operating income 22,589 4% 20,870 4%
Other income - net 6,973 1% 3,226 1%
Income before taxes 29,562 5% 24,096 5%
Income tax expense (11,234) 2% (9,277) 2%
Net income $ 18,328 3% $ 14,819 3%
Consolidated Results of Operations
Sales and volume - Net sales increased 7.6% to $543.7 million in the first
quarter of 2001, from $505.4 million in the first quarter of 2000. This
increase was primarily due to a volume increase and improved revenues per
barrel. In the first quarter of 2001, we sold 5,112,000 barrels of malt
beverages compared to sales of 4,827,000 barrels in the first quarter of
2000, resulting in a volume increase of 5.9%. Our volume increase was driven
by a build of our wholesalers' inventories in preparation for demand in the
upcoming summer months. We achieved improved revenues per barrel in the
first quarter of 2001 as a result of solid price increases on our products,
which were partially offset by a shift in our sales mix away from some of
our higher-net-revenue products.
Cost of goods sold - Cost of goods sold was $351.2 million for the first
quarter of 2001, compared to $326.9 million for the same period last year.
As a percent of net sales, cost of goods sold for the first quarter of 2001
was consistent with last year at 64.6% versus 64.7% for the first quarter of
2000. On a per barrel basis, cost of goods sold increased in the first
quarter of 2001 compared to the same period last year. Several factors
contributed to this increase and include: higher wages, aluminum and energy
prices; an ongoing shift in demand toward more expensive products and
packages; and additional expenses incurred related to increasing capacity.
This increase in costs was partially offset by the volume leverage that we
were able to achieve in the first quarter of 2001 from our inventory build
to prepare for the peak summer months, along with the benefit we are now
experiencing from closing our Spain brewery.
Gross profit - Gross profit increased 7.9% to $192.5 million in the first
quarter of 2001, from $178.5 million in the first quarter of 2000. As a
percentage of net sales, gross profit was relatively the same for the first
quarter of 2001 and 2000 at 35.4% and 35.3%, respectively.
Marketing, general and administrative expenses - Marketing, general and
administrative costs increased 7.8% to $170.0 million for the first quarter
of 2001, from $157.6 million for the same period last year. In the first
quarter, we continued to invest in our business through advertising and
promotions at a rate consistent with our volume growth. The increase in
general and administrative expenses was due in part to higher information
systems spending in the first quarter of 2001 in preparation for a planned
outsource of a significant portion of our information technology
infrastructure. We also incurred charges related primarily to the write-off
of certain assets.
Operating income - As a result of the factors noted above, operating income
was $22.6 million for the first quarter of 2001, which represents an 8.2% or
$1.7 million increase over the same period last year.
Other income - net - Net other income increased $3.8 million to $7.0 million
for the first quarter of 2001, from $3.2 million for the same period last
year. This increase was primarily a result of gains recognized on the sale
of certain marketable securities in the first quarter of 2001 and higher net
interest income in the first quarter of 2001 compared to 2000. As part of
our tax strategy, we sold certain marketable securities and realized $3.0
million of capital gains on these sales. Our net interest income was higher
due to higher capitalized interest as a result of more capital projects in
progress during the first quarter of 2001.
Consolidated effective tax rate - Our first quarter effective tax rate was
38%, down from 38.5% for the same period last year mainly due to reduced
state tax rates and foreign tax credits.
Net income - Net income for the first quarter of 2001 was $18.3 million, or
$0.49 per basic and diluted share. This compares to $14.8 million, or $0.40
per basic and diluted share, for the same period last year.
Liquidity and Capital Resources
Liquidity - Our primary sources of liquidity are cash provided by operating
activities, marketable securities and external borrowings. At April 1, 2001,
we had working capital of $73.9 million, compared to $118.4 million at
December 31, 2000. Cash and short-term and long-term securities totaled
$262.7 million at April 1, 2001, compared to $386.2 million at December 31,
2000. The decrease in both our working capital and our cash and securities
balances is primarily due to the $65 million payment to Molson in January
2001 for our 49.9% interest in Molson USA, LLC, a joint venture between
Molson, Inc. and ourselves, and due to our capital expenditures in the first
quarter. We believe that cash flows from operations, cash from the sale or
maturity of marketable securities, all of which are highly liquid, 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 program.
Operating activities - Net cash used in operating activities was $32.6
million for the first quarter of 2001, compared to cash provided by
operating activities of $32.0 million for the same period last year. The
significant change in cash flows from operating activities was primarily
attributable to working capital changes. Specifically, increases in our
inventory and accounts receivable balances caused a decrease in operating
cash flows. We increased our inventory levels in the first quarter of 2001
in order to prepare ourselves for the upcoming peak season demand, while in
the first quarter of 2000, inventory levels declined and we had a challenge
meeting demand for our products in the following months. Our accounts
receivable balances increased in the first quarter of 2001 because year-end
2000 balances included activity from the 53rd week, which was our slowest
week of the year for unit volume.
Investing activities - Net cash used in investing activities was $44.5
million for the first quarter of 2001, compared to $5.8 million for the same
period last year. The increase in cash used in investing activities was due
to the $65 million payment in January 2001 for our 49.9% interest in Molson
USA, LLC and increased capital expenditures, primarily for capacity-related
projects, in the first quarter of 2001 compared to 2000. Partially
offsetting this increase was the increase in net cash provided from our
investment activities of $29.4 million due to the sale of certain marketable
securities in the first quarter of 2001 as part of our tax strategy. A
significant portion of the proceeds from the sale of securities was
reinvested into similar corporate, government agency and municipal debt
instruments, and the remaining proceeds were used in our operations.
Financing activities - Net cash used in financing activities was $0.5
million for the first quarter of 2001, compared to $5.6 million for the same
period last year. The primary uses were $6.1 million for purchases of Class
B common stock under our stock repurchase program and dividend payments of
$6.9 million, partially offset by $9.2 million cash received from 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. You can identify these statements by forward-
looking words such as "expect," "anticipate," "plan," "believe," "seek,"
"estimate," "internal," "outlook," "trends," "industry forces,"
"strategies," "goals" and similar words. These forward-looking statements
may include, among others, statements concerning our outlook for 2001;
overall volume trends; pricing trends and industry forces; cost reduction
strategies and their anticipated results; our expectations for funding our
2001 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 the
expectations we describe in our forward-looking statements.
To improve our financial performance, we must grow premium beverage volume,
achieve modest price increases for our products and control costs. 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 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
we do not control.
- - If demand for our products continues to grow, 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 conceivably 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
increase our costs disproportionately 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 sell our products
effectively.
- - Because our sales volume is more concentrated in fewer geographic areas in
the United States than our competition, any loss of market share in the
states where we are concentrated could have a material adverse effect on
our results of operations.
- - Because we lack a significant presence in international markets, we are
dependent on the U.S. market.
These and other risks and uncertainties affecting us are discussed in
greater detail in our other filings with the Securities and Exchange
Commission.
Outlook
Our performance in the first quarter of 2001 benefited from volume gains
achieved from a build in wholesale inventories as part of our strategy to
prepare for peak-season demand. Sales-to-retail volume was down in the first
quarter, partially due to overall industry softness brought on by difficult
year-over-year weather comparisons and a slowing economy. Our outlook is for
this trend to reverse in the upcoming months as the peak season gets
underway and we experience easier year-over-year comparisons. We expect our
volume trend to lag the sales-to-retail trend as a result of our first
quarter wholesale inventory build. Our first quarter performance also
benefited from increased beer pricing, which is expected to continue to be
favorable throughout the year. The benefits we derived from volume gains and
pricing in the first quarter were partially offset by geographic and product
mix shift. Compared to last year, we believe that mix will not contribute as
significantly to our revenue growth this year.
For fiscal year 2001, our cost of goods sold per barrel is expected to be up
modestly compared to last year. The expected increase is due to increases in
prices of energy, aluminum, glass and other packaging materials and due to
an ongoing shift in product demand to higher-cost products and packages,
including longneck bottles. Significant changes in mix or the market prices
of these items could alter this outlook. Also, if sales-to-retail trends do
not reverse as anticipated, this outlook could change.
Marketing, general and administrative expenses are expected to increase
modestly in 2001. We continue to monitor our market opportunities with a
bias to invest behind our brands and sales efforts. Incremental sales and
marketing spending will be determined on an opportunity-by-opportunity
basis. Beginning in 2001, we will be outsourcing a significant portion of
our information technology infrastructure. We are currently evaluating the
impact that this will have on general and administrative expenses and our
financial position.
Net interest income growth is expected to slow because of lower interest
rates and our lower cash position as a result of the $65 million payment to
Molson and our planned increase in capital expenditures in 2001. However,
the increase in capital expenditures will result in additional capitalized
interest, which will partially offset the slower interest income growth. Of
course, net interest income could be less favorable than expected if we
invest a substantial portion of our cash balances in operating assets or
other investments with longer-term returns, or if interest rates decline
further. Also, cash may be used to repurchase additional shares of
outstanding common stock as approved by our board of directors.
Our effective tax rate for 2001 is not expected to differ significantly from
the 2000 effective tax rate applied to income, excluding special items.
However, the level and mix of pretax income for 2001 could affect the actual
rate for the year.
We have planned capital expenditures in 2001 (excluding capital improvements
for our container joint ventures, which will be recorded on the books of the
respective joint ventures) in the range of $200 million to $240 million for
improving and enhancing our facilities, infrastructure, information systems
and environmental compliance. In addition to our planned capital
expenditures, incremental strategic investments will be considered on a
case-by-case basis.
PART II. OTHER INFORMATION
Not applicable
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 14, 2001
9