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 July 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 August 1, 2001:
Class A Common Stock - 1,260,000 shares
Class B Common Stock - 35,988,329 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
July 1, June 25,
2001 2000
Sales - domestic and international $ 809,729 $ 788,921
Beer excise taxes (117,029) (119,108)
Net sales 692,700 669,813
Cost of goods sold (424,880) (404,570)
Gross profit 267,820 265,243
Marketing, general and administrative expenses (194,618) (183,632)
Special charge (1,084) (15,502)
Operating income 72,118 66,109
Other income - net 8,102 4,378
Income before income taxes 80,220 70,487
Income tax expense (30,368) (22,143)
Net income $ 49,852 $ 48,344
Net income per common share - basic $ 1.34 $ 1.32
Net income per common share - diluted $ 1.33 $ 1.29
Weighted average number of outstanding
common shares - basic 37,284 36,712
Weighted average number of outstanding
common shares - diluted 37,520 37,335
Cash dividends declared and paid per
common share $ 0.205 $ 0.185
See notes to unaudited condensed consolidated financial statements.
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Twenty-six weeks ended
July 1, June 25,
2001 2000
Sales - domestic and international $1,447,557 $1,385,710
Beer excise taxes (211,157) (210,468)
Net sales 1,236,400 1,175,242
Cost of goods sold (776,033) (731,489)
Gross profit 460,367 443,753
Marketing, general and administrative expenses (364,576) (341,272)
Special charge (1,084) (15,502)
Operating income 94,707 86,979
Gain on sale of securities 3,087 --
Other income - net 11,988 7,604
Income before income taxes 109,782 94,583
Income tax expense (41,602) (31,420)
Net income $ 68,180 $ 63,163
Net income per common share - basic $ 1.83 $ 1.72
Net income per common share - diluted $ 1.81 $ 1.69
Weighted average number of outstanding
common shares - basic 37,244 36,688
Weighted average number of outstanding
common shares - diluted 37,604 37,275
Cash dividends declared and paid per
common share $ 0.390 $ 0.350
See notes to unaudited condensed consolidated financial statements.
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
July 1, December 31,
2001 2000
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 77,929 $ 119,761
Short-term marketable securities 47,445 72,759
Accounts and notes receivable, net 188,209 127,078
Inventories:
Finished 55,473 40,039
In process 23,470 23,735
Raw materials 14,307 37,570
Packaging materials 9,065 8,580
Total inventories 102,315 109,924
Other current assets 60,081 68,229
Total current assets 475,979 497,751
Properties, at cost and net 767,926 735,793
Long-term marketable securities 185,387 193,675
Investments in joint ventures 129,031 56,342
Other assets 124,927 145,743
Total assets $1,683,250 $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)
July 1, December 31,
2001 2000
(Unaudited)
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 210,082 $ 197,726
Accrued expenses and other liabilities 183,830 181,610
Total current liabilities 393,912 379,336
Long-term debt 105,000 105,000
Deferred tax liability 75,837 89,986
Other long-term liabilities 120,108 122,593
Total liabilities 694,857 696,915
Shareholders' equity:
Capital stock:
Preferred stock, non-voting, no par value
(authorized: 25,000,000 shares; issued: none) -- --
Class A common stock, voting, no 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:
200,000,000 shares; issued: 36,004,329 in
2001 and 35,871,121 in 2000) 8,572 8,541
Total capital stock 9,832 9,801
Paid-in capital 14,958 11,203
Retained earnings 961,764 908,123
Accumulated other comprehensive income 1,839 3,262
Total shareholders' equity 988,393 932,389
Total liabilities and shareholders' equity $1,683,250 $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)
Twenty-six weeks ended
July 1, June 25,
2001 2000
Cash flows from operating activities:
Net income $ 68,180 $ 63,163
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in earnings of joint ventures (22,498) (19,959)
Distributions from joint ventures 13,932 12,001
Impairment charge -- 4,944
Depreciation and amortization 60,019 64,163
Gain of sale of securities (3,087) --
Net gain on sale or abandonment of properties
and intangibles (3,489) (2,762)
Deferred income taxes (12,901) 6,693
Change in operating assets and liabilities (34,272) 16,506
Net cash provided by operating activities 65,884 144,749
Cash flows from investing activities:
Purchases of securities (171,174) (40,000)
Sales and maturities of securities 207,925 128,817
Additions to properties and intangible assets (90,518) (67,425)
Proceeds from sales of properties 8,313 4,522
Investment in Molson USA, LLC (65,000) --
Other 13,555 (2,163)
Net cash (used in) provided by investing
activities (96,899) 23,751
Cash flows from financing activities:
Issuances of stock under stock plans 9,861 6,617
Purchases of stock (9,117) (8,851)
Dividends paid (14,539) (12,872)
Other 3,737 --
Net cash used in financing activities (10,058) (15,106)
Cash and cash equivalents:
Net (decrease) increase in cash and cash
equivalents (41,073) 153,394
Effect of exchange rate changes on
cash and cash equivalents (759) (325)
Balance at beginning of year 119,761 163,808
Balance at end of quarter $ 77,929 $316,877
See notes to unaudited condensed consolidated financial statements.
ADOLPH COORS COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE TWENTY-SIX WEEKS ENDED JULY 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 of normal recurring accruals, and certain other adjustments 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 31, 2000. The
results of operations for the twenty-six weeks ended July 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 twenty-six weeks of 2001 and
2000, shareholders' equity was increased by the non-cash tax effects of the
issuances of stock under our stock plans of $4.2 million and $4.0 million,
respectively. Also, net restricted stock activity resulted in non-cash
decreases to the equity accounts of $1.2 million and $0.9 million during
the first twenty-six weeks of 2001 and 2000, respectively.
Reclassifications - Certain reclassifications have been made to the 2000
financial statements to conform with the 2001 presentation.
3. SPECIAL CHARGES
In the second quarter of 2001, we recorded a special charge of $1.1 million
for incremental consulting, legal and other costs incurred in preparations
to restructure and outsource our information technology infrastructure. On
August 1, 2001, we signed a five year services agreement with EDS
Information Services, LLC and will outsource our information technology
infrastructure to them. We expect to incur additional charges in the third
quarter of 2001 in the range of $12 to $15 million as we finalize this
transition. We believe that the outsourcing of our information technology
infrastructure will allow us to focus even more effectively on our core
business of producing, marketing and selling malt beverages while
stabilizing information technology costs. The outsource will give us the
expertise and resources of a world class technology provider, which will
assist in improving disciplines and efficiencies in this important aspect
of our business.
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. All severance and related closure costs were paid out by
July 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 July 1, 2001, carrying values are appropriate.
4. OTHER COMPREHENSIVE INCOME
Thirteen weeks ended Twenty-six weeks ended
July 1, June 25, July 1, June 25,
2001 2000 2001 2000
(In thousands)
Net income $49,852 $48,344 $68,180 $63,163
Other comprehensive income
(expense), net of tax:
Foreign currency translation
adjustments 603 1,779 522 1,105
Unrealized (loss) gain on
available-for-sale securities
and derivative instruments (175) (1,597) 933 (1,991)
Reclassification adjustment
for net gains realized in
net income on derivative
instruments (855) (1,029) (2,878) (1,048)
Comprehensive income $49,425 $47,497 $66,757 $61,229
5. 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
July 1, June 25, July 1, June 25,
2001 2000 2001 2000
(In thousands, except per share data)
Net income available to
common shareholders $49,852 $48,344 $68,180 $63,163
Weighted average shares
for basic EPS 37,284 36,712 37,244 36,688
Effect of dilutive securities:
Stock options 230 564 353 528
Contingent shares not
included in shares
outstanding for basic EPS 6 59 7 59
Weighted average shares
for diluted EPS 37,520 37,335 37,604 37,275
Basic EPS $ 1.34 $ 1.32 $ 1.83 $ 1.72
Diluted EPS $ 1.33 $ 1.29 $ 1.81 $ 1.69
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. RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets. SFAS 141 requires that the purchase
method of accounting be used for all business combinations initiated after
June 30, 2001. We do not expect this statement to have a material effect on
our financial position or results of operations. SFAS 142, which will be
effective for us beginning in the first quarter of fiscal 2002, requires
goodwill and intangible assets that have indefinite lives to not be
amortized but to be reviewed annually for impairment, or more frequently if
impairment indicators arise. We are currently evaluating the impact that
the implementation of this statement will have on our financial statements.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Thirteen weeks ended Twenty-six weeks ended
July 1, June 25, July 1, June 25,
2001 2000 2001 2000
(In thousands, except percentages)
(Unaudited)
Net Sales $ 692,700 100% $ 669,813 100% $1,236,400 100% $1,175,242 100%
Cost of goods
sold (424,880) 61% (404,570) 60% (776,033) 63% (731,489) 62%
Gross profit 267,820 39% 265,243 40% 460,367 37% 443,753 38%
Other operating
expenses:
Marketing, general
and administrative
expenses (194,618) 28% (183,632) 27% (364,576) 29% (341,272) 29%
Special charges (1,084) -- (15,502) 2% (1,084) -- (15,502) 1%
Operating income 72,118 10% 66,109 10% 94,707 8% 86,979 7%
Other income - net 8,102 1% 4,378 1% 15,075 1% 7,604 1%
Income before
Taxes 80,220 12% 70,487 11% 109,782 9% 94,583 8%
Income tax expense(30,368) 4% (22,143) 3% (41,602) 3% (31,420) 3%
Net income $ 49,852 7% $ 48,344 7% $ 68,180 6% $ 63,163 5%
Consolidated Results of Operations
Sales and volume - Net sales increased 3.4% in the second quarter of 2001
and 5.2% in the first twenty-six weeks of 2001, compared to the same
periods last year. Second quarter 2001 net sales of $692.7 million were
$22.9 million higher than the second quarter of 2000 due primarily to
improved revenues per barrel and due to a slight increase in unit volume.
The increase in revenues per barrel was mainly due to solid domestic price
increases and a shift in geographic mix toward markets with lower excise
taxes, partially offset by a shift in our sales mix away from some of our
higher-net-revenue products. Our unit volume sales were up 0.5% in the
second quarter of 2001 compared to the second quarter of 2000. As we
expected, our wholesaler inventory build in the first quarter of 2001
resulted in a lower volume growth rate in the second quarter of 2001 than
we would have otherwise experienced. We sold 6,424,000 barrels of malt
beverages in the second quarter of 2001 compared to sales of 6,389,000
barrels in the second quarter of 2000. Year-to-date net sales of $1,236.4
million, a $61.2 million increase over the same period last year, were
impacted by the same factors that impacted the second quarter of 2001. We
sold 11,536,000 barrels in the first half of 2001 compared to 11,216,000 in
the same period last year. Our year-to-date volume growth of 2.9% over the
same period last year was driven by a reduction in wholesaler inventories
below seasonal levels a year ago.
Cost of goods sold - Cost of goods sold was $424.9 million for the second
quarter of 2001 and $776.0 million year-to-date, compared to $404.6 million
and $731.5 million, respectively, for the same periods last year. As a
percentage of net sales, cost of goods sold was 61.3% and 62.8% for the
second quarter and year-to-date 2001, respectively, compared to 60.4% and
62.2% for the same periods last year. On a per barrel basis, cost of goods
sold increased 4.5% in the second quarter of 2001 compared to the same
period last year. This increase is a result of several factors, including:
higher packaging costs for glass bottles and aluminum cans as well as the
ongoing mix shift toward sales of more-expensive products and packages,
higher natural gas costs, higher labor costs and additional expenses
incurred related to increasing capacity. The increase in cost per barrel
was partially offset by distribution efficiencies that we began to
experience as a result of enhancements to our information systems and
processes, and was also partially offset by the benefit that we are now
experiencing from closing our Spain brewery. Cost of goods sold per barrel
for the twenty-six weeks ended July 1, 2001 increased 3.2% over the same
period last year for the same reasons.
Gross profit - Gross profit increased 1% to $267.8 million in the second
quarter of 2001, from $265.2 million in the second quarter of 2000. Year-
to-date gross profit increased 3.7% to $460.4 million compared to $443.8
million for the same period last year.
Marketing, general and administrative expenses - Marketing, general and
administrative expenses increased 6% to $194.6 million for the second
quarter of 2001, from $183.6 million for the same period last year. In the
second quarter of 2001, we incurred higher marketing expense as a result of
the timing of our obligations on large advertising contracts this year
compared to last year. Our actual second quarter advertising and
promotional spending remained relatively consistent with the second quarter
last year. General and administrative expenses were higher in the second
quarter of 2001 compared to the second quarter of 2000 primarily due to the
timing of when wage increases occurred this year versus last year and due
to an increase in the amount of information systems projects underway
compared to the same period last year. Year-to-date marketing, general and
administrative expenses increased 6.8% to $364.6 million for the twenty-six
weeks ended July 1, 2001, from $341.3 million for same period last year for
essentially the same reasons.
Special charges - In the second quarter of 2001, we recorded a special
charge of $1.1 million for incremental consulting, legal and other costs
incurred in preparations to restructure and outsource our information
technology infrastructure. On August 1, 2001, we signed a five year
services agreement with EDS Information Services, LLC and will outsource
our information technology infrastructure to them. We expect to incur
additional charges in the third quarter of 2001 in the range of $12 to $15
million as we finalize this transition. We believe that the outsourcing of
our information technology infrastructure will allow us to focus even more
effectively on our core business of producing, marketing and selling malt
beverages while stabilizing information technology costs. The outsource
will give us the expertise and resources of a world class technology
provider, which will assist in improving disciplines and efficiencies in
this important aspect of our business.
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. All severance and related closure costs were paid by July
1, 2001.
Operating income - As a result of the factors noted above, operating income
including special charges was $72.1 million for the second quarter of 2001,
up 9.1% from $66.1 million in the second quarter of 2000. Year-to-date
operating income including special charges increased 8.9% to $94.7 million
compared to $87.0 million for the same period last year. Excluding special
charges, operating income decreased 10.3% in the second quarter of 2001 and
was $73.2 million compared to $81.6 million in the second quarter of 2000.
Year-to-date operating income, excluding special charges, decreased 6.5% to
$95.8 million compared to $102.5 million for the same period last year.
Other income - net - Net other income of $8.1 million in the second quarter
of 2001 increased $3.7 million from $4.4 million in the second quarter of
2000. The increase was primarily due to a $2.9 million gain realized on the
sale of one of our company owned distributorships. We also had higher net
interest income in the second quarter of 2001 due to higher capitalized
interest as a result of more capital projects in process. Year-to-date net
other income increased $7.5 million to $15.1 million for the same reasons
and also due to gains recognized on the sale of certain marketable
securities, primarily in the first quarter, as part of our tax strategy.
Consolidated effective tax rate - Our second quarter 2001 effective tax
rate including special charges was 37.9% compared to 31.4% for the same
period last year. Excluding special charges, the second quarter effective
tax rate was 37.9% in both 2001 and 2000. The year-to-date effective tax
rate including special charges was 37.9% compared to 33.2% for the same
period last year. Excluding special charges, the year-to-date effective tax
rate was 37.9% compared to 38% for the same period last year. The decrease
in the year-to-date rate in 2001, excluding special charges, is primarily
due to reduced state tax rates and foreign tax credits.
Net income - Including special charges, net income was $49.9 million for
the second quarter of 2001,or $1.34 and $1.33 per basic and diluted share,
respectively. This compares to net income (including special charges) of
$48.3 million, or $1.32 and $1.29 per basic and diluted share,
respectively, for the second quarter of 2000. Year-to-date net income
(including special charges) was $68.2 million or $1.83 and $1.81 per basic
and diluted share, respectively, compared to $63.2 million or $1.72 and
$1.69 per basic and diluted share, respectively, for the same period last
year. Excluding special charges, net income for the second quarter of 2001
was $50.5 million or $1.36 and $1.35 per basic and diluted share,
respectively, compared to second quarter 2000 net income of $53.4 million
or $1.46 and $1.43 per basic and diluted share, respectively. Year-to-date
net income (excluding special charges) was $68.8 million or $1.85 and $1.83
per basic and diluted share, respectively. This compares to net income
(excluding special charges) of $68.3 million or $1.86 and $1.83 per basic
and diluted share, respectively, 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 July 1, 2001,
we had working capital of $82.1 million, compared to $118.4 million at
December 31, 2000. Cash and short-term and long-term marketable securities
totaled $310.8 million at July 1, 2001, compared to $386.2 million at
December 31, 2000. The $36.3 million decrease in working capital and the
$75.4 million decrease in our cash and short-term and long-term marketable
securities balances from December 31, 2000 is primarily due to the $65
million payment made 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 half of 2001. 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 provided by operating activities was $65.9
million for the first half of 2001, compared to $144.7 million for the same
period last year. The $78.8 million decrease in cash provided by operating
activities was primarily due to changes in our accounts receivable and
deferred tax balances. Our accounts receivable balances increased over
year-end 2000 balances due to higher sales volume in the second quarter of
2001 and due to year-end 2000 balances being lower because they included
activity from the 53rd week, which was our slowest week last year for unit
volume. Our net deferred tax liability decreased from year-end 2000 due to
the realization of certain tax benefits.
Investing activities - Net cash used in investing activities was $96.9
million for the first half of 2001, compared to net cash provided by
investing activities of $23.8 million for the same period last year. The
current year cash use was due to the $65 million payment in January 2001
for our 49.9% interest in Molson USA, LLC and year-to-date capital
expenditures of $90.5 million, primarily for capacity related projects.
Partially offsetting the cash use was the net cash provided by our
investment activities and proceeds from the sale of properties. During the
first half of 2001 we sold certain marketable securities 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. The
net cash provided by investing activities of $23.8 million for the first
twenty-six weeks of 2000 was primarily due to maturities of investments,
$88.8 million of which had not yet been reinvested in marketable securities
by the end of the second quarter of 2000, but rather was classified as cash
and cash equivalents at June 25, 2000. Capital expenditures of $67.4
million in the first twenty-six weeks of 2000 partially offset the net cash
provided by investment maturities.
Financing activities - Net cash used in financing activities was $10.1
million for the first half of 2001, compared to $15.1 million for the same
period last year. The primary uses were $9.1 million for purchases of Class
B common stock under our stock repurchase program and dividend payments of
$14.5 million, partially offset by $9.9 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," "outlook," "trends," "industry forces," "strategies," "goals"
and similar words. These forward-looking statements may include, among
others, statements concerning our outlook for 2001 and beyond, overall
volume trends, consumer preferences, 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. We disclaim any intention or obligation to update or revise any
forward looking statements whether as a result of new information, future
events or otherwise.
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 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 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,
particularly by consumers, 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 half of 2001 benefited from strong domestic
pricing and from modest volume gains. We expect the beer pricing
environment to continue to be favorable in the second half of the year. Our
volume gains in the first half of the year were driven by the reduction of
wholesaler inventories below normal seasonal levels a year ago to meet
demand. Sales-to-retail volume declined in the first half of the year, on a
calendar-adjusted basis, partially a result of a slowing economy, colder
weather and new market entries into the malt-based beverage category that
are getting attention in the marketplace. Our volume trends in the second
half of 2001 will be challenged if sales-to-retail trends do not reverse.
Also, our volume trends will be affected by our wholesalers starting the
third quarter with normal seasonal inventories, compared to last year when
our wholesalers started the third quarter at 350,000 barrels below normal
levels.
We expect our cost of goods sold per barrel for the full fiscal year 2001
to be up modestly from 2000. However, the growth rate of cost of goods sold
per barrel in the second half of 2001 will depend largely on the sales
volume and related volume leverage that we are able to achieve. The
expected full year increase is largely due to increases in prices of
energy, aluminum, glass and other packaging materials, additional capacity
related costs, including higher labor costs, and due to the continuing
shift in consumer product demand to higher-cost products and packages,
including longneck bottles. We expect the increase in cost of goods per
barrel to be partially offset by benefits from closing our Spain brewery in
2000 and from improvements in our distribution costs. Significant changes
in package or product mix or market prices could alter our outlook for cost
of goods sold per barrel.
Marketing, general and administrative expenses are expected to increase
modestly in 2001. We continue to make investments in our organization and
continue to monitor our market opportunities, investing in our brands and
sales efforts as deemed appropriate. Sales and marketing spending will be
determined on an opportunity-by-opportunity basis.
Net interest income should continue its favorable trends, but at a slower
rate 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. 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 under our stock repurchase
program.
Our effective tax rate for the rest of 2001 is not expected to differ
significantly from the rate applied to income during the first half of the
year. However, the level and mix of pretax income for 2001 could affect the
actual rate for the year.
We expect full year 2001 capital expenditures (excluding capital
improvements for our container joint ventures, which will be recorded on
the respective books of the joint ventures) to be approximately $240
million. The incremental spending over last year's level primarily relates
to production capacity expansion, systems for improving our business
performance and enhancements of our infrastructure. We anticipate that our
2002 capital spending will be significantly lower than our 2001 spending.
In addition to our planned capital expenditures, incremental strategic
investments will be considered on a case-by-case basis.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On May 17, 2001, a special meeting of shareholders was held to vote on the
following six proposals:
1. To increase the number of authorized Class B shares that may be issued
and to eliminate the par value of the Class A and preferred shares;
The results of the voting were as follows:
For: Against: Abstain: Broker Non-Vote:
30,514,949 2,567,382 114,241 0
2. To require equal dividends on Class A and Class B common stock and allow
us to distribute stock dividends to the holders of Class A common stock in
the form of shares of Class B common stock;
The results of the voting were as follows:
For: Against: Abstain: Broker Non-Vote:
30,839,770 360,117 129,231 1,867,454
3. To authorize our board of directors to grant limited voting rights if
the board ever designates classes of our authorized preferred stock;
The results of the voting were as follows:
For: Against: Abstain: Broker Non-Vote:
21,793,645 9,382,267 153,205 1,867,455
4. To establish a majority vote to approve all matters submitted to the
shareholders, instead of the two-thirds vote currently required for
extraordinary matters;
The results of the voting were as follows:
For: Against: Abstain: Broker Non-Vote:
30,878,729 342,087 108,300 1,867,456
5. To convert the Class B common stock into voting stock if and for so long
as there are no shares of Class A common stock outstanding; and
The results of the voting were as follows:
For: Against: Abstain: Broker Non-Vote:
30,955,535 228,280 145,303 1,867,454
6. To permit internal asset transfers to entities wholly owned by us
without obtaining a vote of the Class B shareholders.
The results of the voting were as follows:
For: Against: Abstain: Broker Non-Vote:
22,890,722 8,296,166 142,229 1,867,454
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/ Ronald A. Tryggestad
Ronald A. Tryggestad
Vice President and Controller
(Principal Accounting Officer)
August 10, 2001
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