U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Quarter ended September 30, 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 November 1, 2001:
Class A Common Stock - 1,260,000 shares
Class B Common Stock - 34,860,150 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
September 30, September 24,
2001 2000
Sales - domestic and international $ 742,654 $ 773,535
Beer excise taxes (107,991) (116,459)
Net sales 634,663 657,076
Cost of goods sold (402,306) (413,314)
Gross profit 232,357 243,762
Marketing, general and administrative expenses (179,537) (197,702)
Special (charge) credit (17,673) 5,442
Operating income 35,147 51,502
Gain on sale of distributorship 23,692 --
Other income - net 3,878 4,131
Income before income taxes 62,717 55,633
Income tax expense (23,801) (21,141)
Net income $ 38,916 $ 34,492
Net income per common share - basic $ 1.05 $ 0.94
Net income per common share - diluted $ 1.05 $ 0.92
Weighted average number of outstanding
common shares - basic 37,072 36,861
Weighted average number of outstanding
common shares - diluted 37,237 37,557
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)
Thirty-nine weeks ended
September 30, September 24,
2001 2000
Sales - domestic and international $2,190,211 $2,159,245
Beer excise taxes (319,148) (326,927)
Net sales 1,871,063 1,832,318
Cost of goods sold (1,178,339) (1,144,803)
Gross profit 692,724 687,515
Marketing, general and administrative expenses (544,113) (538,974)
Special charge (18,757) (10,060)
Operating income 129,854 138,481
Gains on sales of distributorships 26,592 1,000
Gains on sales of securities 3,572 --
Other income - net 12,481 10,735
Income before income taxes 172,499 150,216
Income tax expense (65,403) (52,561)
Net income $ 107,096 $ 97,655
Net income per common share - basic $ 2.88 $ 2.66
Net income per common share - diluted $ 2.86 $ 2.61
Weighted average number of outstanding
common shares - basic 37,186 36,745
Weighted average number of outstanding
common shares - diluted 37,482 37,371
Cash dividends declared and paid per
common share $ 0.595 $ 0.535
See notes to unaudited condensed consolidated financial statements.
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30, December 31,
2001 2000
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 47,541 $ 119,761
Short-term marketable securities 61,722 72,759
Accounts and notes receivable, net 154,507 127,078
Inventories:
Finished 37,933 40,039
In process 22,094 23,735
Raw materials 43,323 37,570
Packaging materials 18,862 8,580
Total inventories 122,212 109,924
Other current assets 62,974 68,229
Total current assets 448,956 497,751
Properties, at cost and net 813,851 735,793
Long-term marketable securities 191,314 193,675
Investments in joint ventures 97,805 56,342
Other assets 126,799 145,743
Total assets $1,678,725 $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)
September 30, December 31,
2001 2000
(Unaudited)
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 164,186 $ 197,726
Accrued expenses and other liabilities 231,743 181,610
Current portion of long-term debt 80,000 --
Total current liabilities 475,929 379,336
Long-term debt 25,000 105,000
Deferred tax liability 71,093 89,986
Other long-term liabilities 130,845 122,593
Total liabilities 702,867 696,915
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: 35,191,150 in
2001 and 35,871,121 in 2000) 8,379 8,541
Total capital stock 9,639 9,801
Paid-in capital -- 11,203
Retained earnings 970,860 908,123
Accumulated other comprehensive (loss) income (4,641) 3,262
Total shareholders' equity 975,858 932,389
Total liabilities and shareholders' equity $1,678,725 $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)
Thirty-nine weeks ended
September 30, September 24,
2001 2000
Cash flows from operating activities:
Net income $107,096 $ 97,655
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in net earnings of joint ventures (36,086) (32,676)
Distributions from joint ventures 28,945 38,408
Impairment charge 5,991 4,944
Depreciation and amortization 89,998 95,990
Gains on sales of securities (3,572) --
Net gains on sale or abandonment of
properties and intangibles (24,261) (3,619)
Deferred income taxes (19,141) 21,738
Change in operating assets and liabilities 2,646 (25,286)
Net cash provided by operating activities 151,616 197,154
Cash flows from investing activities:
Purchases of securities (210,527) (314,690)
Sales and maturities of securities 230,559 150,318
Additions to properties and intangible assets (157,918) (87,709)
Proceeds from sales of properties 19,013 4,568
Investment in Molson USA, LLC (65,000) --
Other 10,781 (7,184)
Net cash used in investing activities (173,092) (254,697)
Cash flows from financing activities:
Issuances of stock under stock plans 9,904 12,045
Purchases of stock (39,913) (19,989)
Dividends paid (22,136) (19,720)
Other 1,608 (3,468)
Net cash used in financing activities (50,537) (31,132)
Cash and cash equivalents:
Net decrease in cash and cash equivalents (72,013) (88,675)
Effect of exchange rate changes on
cash and cash equivalents (207) (325)
Balance at beginning of year 119,761 163,808
Balance at end of quarter $ 47,541 $ 74,808
See notes to unaudited condensed consolidated financial statements.
ADOLPH COORS COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTY-NINE WEEKS ENDED SEPTEMBER 30, 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 thirty-nine weeks ended September 30, 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.
Significant non-cash transactions - During the first thirty-nine 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
$7.4 million, respectively. Net restricted stock activity resulted in non-
cash decreases to the equity accounts of $1.2 million and $1.1 million
during the first thirty-nine weeks of 2001 and 2000, respectively. Also, at
September 30, 2001, shareholders' equity includes the non-cash effects of
stock repurchases of $6.7 million. There was a corresponding payable for
this amount in our September 30, 2001 balance sheet.
During the third quarter of 2001, we finalized our contract with EDS
Information Services, LLC to outsource certain functions of our information
technology infrastructure. This transition to EDS included the sale and
leaseback of certain assets, resulting in a non-cash capital lease
transaction of approximately $10.2 million.
In the third quarter of 2001, we dissolved our can and end joint venture.
As part of the dissolution, we bought out the other partner's equity
interest, resulting in a payable of approximately $16 million at September
30, 2001, and the assumption of certain inventory, fixed assets and trade
payables.
In September 2001, we sold a company-owned distributorship resulting in a
pre-tax gain of approximately $23.7 million. At September 30, 2001, we had
a receivable on our balance sheet of approximately $42.5 million related to
the sale.
Reclassifications - Certain reclassifications have been made to the 2000
financial statements to conform with the 2001 presentation.
3. SPECIAL CHARGES
In the third quarter of 2001, we recorded special charges of $17.7 million.
Of the total charge, $8.1 million related to impairment charges on certain
fixed assets (having combined book values of $24.8 million prior to
impairment), primarily in connection with the outsourcing of certain
functions of our information technology infrastructure to EDS Information
Services, LLC. Special charges of $4.8 million related to other incremental
costs that were incurred as part of finalizing our contract with EDS. We
believe that this outsource will allow us to focus more on our core
business while having access to the expertise and resources of a world-
class technology provider. Our third quarter special charges also included
$3.0 million related to the dissolution of our existing can and end joint
venture as part of a restructuring of this part of our business. We have
signed a letter of intent to enter into a similar joint venture agreement
with Ball Corporation, which we believe will allow us to achieve
operational efficiencies. Finally, in the third quarter of 2001, we
recorded $1.8 million of severance costs for approximately 25 employees,
primarily due to restructuring our purchasing organization. We expect all
related severance to be paid out by the second quarter of 2002. We continue
to evaluate our entire supply chain, with the goal of becoming a more
competitive and efficient organization.
Year-to-date 2001 special charges of $18.8 million include the $1.1 million
charge taken in the second quarter of 2001 related to the outsourcing of
our information technology infrastructure, in addition to the third quarter
charges.
In the third quarter of 2000, we received approximately $5.4 million
related to an insurance claim settlement; this credit was classified as a
special item in the income statement. Special charges (net) through the
third quarter of 2000 include the insurance claim settlement and charges
related to the closure of our Spain brewing and commercial operations. In
the second and fourth quarters of 2000, we recorded a total pretax special
charge of $20.6 million related to the closure of our Spain brewing and
commercial operations. Of the total 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. 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 September 30, 2001, carrying
values are appropriate.
4. OTHER COMPREHENSIVE INCOME
Thirteen weeks ended Thirty-nine weeks ended
September 30, September 24, September 30, September 24,
2001 2000 2001 2000
(In thousands)
Net income $38,916 $34,492 $107,096 $97,655
Other comprehensive
income (expense),
net of tax:
Foreign currency
translation
adjustments (520) 109 2 1,214
Unrealized (loss)
gain on available-
for-sale securities
and derivative
instruments (4,719) 1,896 (3,786) (94)
Reclassification
adjustment for net
gains realized in
net income on
derivative
instruments (1,241) (1,213) (4,119) (2,261)
Comprehensive income $32,436 $35,284 $99,193 $96,514
5. EARNINGS PER SHARE (EPS)
Basic and diluted net income per common share were arrived at using the
calculations outlined below:
Thirteen weeks ended Thirty-nine weeks ended
September 30, September 24, September 30, September 24,
2001 2000 2001 2000
(In thousands, except per share data)
Net income available to
common shareholders $38,916 $34,492 $107,096 $97,655
Weighted average shares
for basic EPS 37,072 36,861 37,186 36,745
Effect of dilutive
securities:
Stock options 159 638 289 567
Contingent shares not
included in shares
outstanding for
basic EPS 6 58 7 59
Weighted average shares
for diluted EPS 37,237 37,557 37,482 37,371
Basic EPS $ 1.05 $ 0.94 $ 2.88 $ 2.66
Diluted EPS $ 1.05 $ 0.92 $ 2.86 $ 2.61
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. Stock options to purchase 3,268
shares of common stock were not included in the computation of third
quarter 2001 earnings per share because the stock options' exercise prices
were greater than the average market price of the common shares.
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.
In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144, Impairment or Disposal of Long-
Lived Assets, which addresses accounting and financial reporting for the
impairment or disposal of long-lived assets. This statement is effective
for us beginning in the first quarter of 2002, and we are evaluating the
impact, if any, that the implementation will have on our financial
statements.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Thirteen weeks ended Thirty-nine weeks ended
September 30, September 24, September 30, September 24,
2001 2000 2001 2000
(In thousands, except percentages)
(Unaudited)
Net Sales $ 634,663 100% $ 657,076 100% $1,871,063 100% $1,832,318 100%
Cost of goods
sold (402,306) 63% (413,314) 63% (1,178,339) 63% (1,144,803) 62%
Gross profit 232,357 37% 243,762 37% 692,724 37% 687,515 38%
Other operating expenses:
Marketing,
general and
administrative
expenses (179,537) 28% (197,702) 30% (544,113) 29% (538,974) 29%
Special charges (17,673) 3% 5,442 1% (18,757) 1% (10,060) 1%
Operating income 35,147 6% 51,502 8% 129,854 7% 138,481 8%
Gains on sales of
distributorships 23,692 4% -- -- 26,592 1% 1,000 --
Other income
- net 3,878 1% 4,131 1% 16,053 1% 10,735 1%
Income before
taxes 62,717 10% 55,633 8% 172,499 9% 150,216 8%
Income tax
expense (23,801) 4% (21,141) 3% (65,403) 4% (52,561) 3%
Net income $ 38,916 6% $ 34,492 5% $ 107,096 6% $ 97,655 5%
Consolidated Results of Operations
Sales and volume - Net sales decreased $22.4 million, or 3.4%, in the third
quarter of 2001 compared to the same period last year, while year-to-date
net sales increased 2.1% compared to the same period last year. The $22.4
million decrease in the third quarter 2001 net sales of $634.7 million
compared to the third quarter 2000 net sales of $657.1 million was due to a
decrease in unit volume and unfavorable mix shifts, partially offset by
higher revenues per barrel. We sold 5,903,000 barrels of malt beverages in
the third quarter of 2001 versus 6,236,000 barrels in the third quarter of
2000. The decrease in unit volume was primarily attributable to a 350,000
barrel wholesale inventory build in the third quarter last year to bring
inventories to desired levels. In the current year, wholesalers started and
ended the third quarter with normal seasonal inventories. During the third
quarter of 2001, there was a continued mix shift away from some of our
higher-net-revenue products and geographies. The decrease in volume and
unfavorable mix shifts were partially offset by higher revenues per barrel
as a result of modest domestic price increases taken during the past year.
Year-to-date net sales of $1,871.1 million, a $38.7 million increase over
the same period last year, were primarily the result of price increases
taken during the past year. Our year-to-date sales of 17,439,000 barrels
were down slightly from 17,452,000 barrels sold in the comparable period
last year.
Cost of goods sold - Cost of goods sold was $402.3 million for the third
quarter of 2001 and $1,178.3 million year-to-date, compared to $413.3
million and $1,144.8 million, respectively, for the same periods last year.
As a percentage of net sales, cost of goods sold was 63.4% and 63.0% for
the third quarter and year-to-date 2001, respectively, compared to 62.9%
and 62.5%, for the same periods in 2000. On a per barrel basis, cost of
goods sold increased 2.8% in the third quarter of 2001 versus 2000. This
increase was largely a result of not being able to achieve the same fixed
cost leverage in the third quarter as last year due to the volume decline.
Other factors contributing to the increase in the third quarter cost of
goods sold per barrel include: higher packaging costs for glass bottles and
aluminum cans and higher labor costs. This increase was partially offset by
continued distribution efficiencies from enhancements made to our
information systems and processes, as well as benefits we experienced this
year from closing our Spain brewing and commercial operations in late 2000.
Year-to-date cost of goods sold per barrel increased 3.0% compared to the
same period last year for primarily the same reasons, other than fixed cost
leverage.
Marketing, general and administrative expenses - Marketing, general and
administrative expenses of $179.5 million in the third quarter of 2001
decreased $18.2 million, or 9.2%, compared to the same period last year. A
significant portion of the decrease was due to the timing of recording
marketing-related expenses this year versus last year. We account for our
marketing expenses under sales-curve accounting which records expense based
on actual barrels sold in proportion to the full-year forecast. In the
third quarter of 2000, we made the decision to invest significant
incremental media dollars in Monday Night Football, and our third quarter
last year was burdened with a majority of those dollars. In 2001, we
included Monday Night Football media in our annual forecast, causing the
expense to be spread over the year, resulting in less of an impact to the
third quarter versus last year. Also, in the third quarter of 2001, we
slightly lowered our annual forecast for marketing spending, partially
because of a reduction in the cost of media, and this resulted in a
decrease in marketing expense in the third quarter. Our full-year marketing
forecast remains relatively comparable to last year. The decrease in the
third quarter marketing expense was slightly offset by an increase in
general and administrative expenses due to higher labor and information
systems costs. Year-to-date marketing, general and administrative expenses
of $544.1 million increased $5.1 million compared to the same period last
year. The 1.0% increase in year-to-date marketing, general and
administrative expenses was due to an increase in general and
administrative expenses for the same reasons as the third quarter increase.
Special charges - In the third quarter of 2001, we recorded special charges
of $17.7 million. Of the total charge, $8.1 million related to impairment
charges on certain fixed assets (having combined book values of $24.8
million prior to impairment), primarily in connection with the outsourcing
of certain functions of our information technology infrastructure to EDS
Information Services, LLC. Special charges of $4.8 million related to other
incremental costs that were incurred as part of finalizing our contract
with EDS. We believe that this outsource will allow us to focus more on our
core business while having access to the expertise and resources of a
world-class technology provider. Our third quarter special charges also
included $3.0 million related to the dissolution of our existing can and
end joint venture as part of a restructuring of this part of our business.
We have signed a letter of intent to enter into a similar joint venture
agreement with Ball Corporation, which we believe will allow us to achieve
operational efficiencies. Finally, in the third quarter of 2001, we
recorded $1.8 million of severance costs for approximately 25 employees,
primarily due to restructuring our purchasing organization. We expect all
related severance to be paid out by the second quarter of 2002. We continue
to evaluate our entire supply chain, with the goal of becoming a more
competitive and efficient organization.
Year-to-date 2001 special charges of $18.8 million include the $1.1 million
charge taken in the second quarter of 2001 related to the outsourcing of
our information technology infrastructure, in addition to the third quarter
charges.
In the third quarter of 2000, we received approximately $5.4 million
related to an insurance claim settlement; this credit was classified as a
special item in the income statement. Special charges (net) through the
third quarter of 2000 include the insurance claim settlement and charges
related to the closure of our Spain brewing and commercial operations. In
the second and fourth quarters of 2000, we recorded a total pretax special
charge of $20.6 million related to the closure of our Spain brewing and
commercial operations. Of the total 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. 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 September 30, 2001, carrying
values are appropriate.
Operating income - As a result of the factors noted above, operating
income, including special charges, was $35.1 million for the third quarter
of 2001, down 31.8% from $51.5 million in the third quarter of 2000. Year-
to-date operating income, including special charges, was $129.9 million,
down 6.2% compared to the same period last year. Excluding special charges,
operating income increased 14.7% to $52.8 million in the third quarter of
2001 compared to $46.1 million in the third quarter of 2000. Year-to-date
2001 operating income excluding special charges was comparable to the same
period last year at $148.6 million and $148.5 million, respectively.
Other income - net - Net other income of $27.6 million in the third quarter
of 2001 increased $23.4 million over the same period last year. This
increase was the result of a $23.7 million gain recognized on the sale of
one of our company-owned distributorships. Year-to-date 2001 net other
income increased $30.9 million to $42.6 million compared to $11.7 million
for the same period last year. This increase was due to the gains
recognized in 2001 on the second and third quarter sales of our company-
owned distributorships. Also contributing to the increase are gains
recognized on the sale of securities during the year as part of our tax
strategy, as well as higher capitalized interest in 2001 due to more
capital projects in process.
Consolidated effective tax rate - Our third quarter effective tax rate,
both including and excluding special charges, was 37.9%, down from 38.0%
for the third quarter of 2000. The year-to-date effective tax rate
including special charges was 37.9%, compared to 35% for the same period
last year. In 2000, our rate was affected by the favorable settlement of
certain tax issues related to the Spain brewery closure, the resolution of
an IRS audit, and reduced state tax rates. Excluding special charges, our
year-to-date effective tax rate was 37.9% compared to 38% last year.
Net income - Net income for the third quarter of 2001 was $38.9 million, or
$1.05 per basic and diluted share, compared to $34.5 million, or $0.94 per
basic share ($0.92 per diluted share), for the third quarter of 2000. Year-
to-date 2001 net income was $107.1 million, or $2.88 per basic share ($2.86
per diluted share), compared to $97.7 million, or $2.66 per basic share
($2.61 per diluted share), for the same period last year. Excluding special
items and the gain on the sale of our distributorship, after-tax earnings
were $35.2 million, or $0.95 per basic and diluted share in the third
quarter of 2001, compared to after-tax earnings of $31.1 million, or $0.84
per basic share ($0.83 per diluted share), in the third quarter of 2000.
Year-to-date after-tax earnings, excluding special items and the gains on
the sales of our distributorships, were $102.3 million, or $2.75 per basic
share ($2.73 per diluted share), up from $98.8 million, or $2.68 per basic
share ($2.64 per 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. As of September
30, 2001, we had negative working capital of $27.0 million compared to
positive working capital of $118.4 million at December 31, 2000. Cash and
short-term and long-term securities totaled $300.6 million at September 30,
2001, compared to $386.2 million at December 31, 2000. The significant
decrease in working capital was due to the reclassification of $80 million
of our debt from long term to current, as this amount is due in July 2002.
Excluding this reclassification, working capital decreased approximately
$65.4 million due primarily to the $65 million payment made to Molson for
our 49.9% interest in Molson USA, LLC, a joint venture with Molson, Inc.
Our cash and short-term and long-term securities balances decreased for the
same reason and also as a result of our ongoing capital expenditures in
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
repurchases of common stock under our stock repurchase program. In the
third quarter of 2001, our board of directors increased the amount
authorized for share repurchases in 2001 from $40 million to $90 million.
The increase was in response to the market conditions following the events
of September 11, 2001 and to capitalize on relaxed SEC stock repurchase
rules.
Operating activities - Net cash provided by operating activities of $151.6
million for the thirty-nine weeks ended September 30, 2001, decreased $45.6
million compared to net cash provided by operating activities of $197.2
million for the same period last year. This decrease was due to a decrease
in distributions received from our container joint ventures in 2001,
compared to 2000, and working capital changes. Also in 2001, we had an
increase in gains on sales of properties and had changes in our deferred
taxes, both of which decrease the cash provided by operating activities.
Our working capital changes from year-end 2000 were primarily due to an
increase in accounts receivable and inventories. Accounts receivable
balances were higher than at year-end due to the sale of a company-owned
distributorship, for which there was a related receivable at September 30,
2001. Inventory balances were higher than at year-end due to seasonality;
our September 2001 levels were consistent with the same period last year.
In the current year, we had significant gains on the sale of properties due
to the sale of two company-owned distributorships. Our net deferred tax
liability decreased from year-end 2000 due to the realization of certain
tax benefits.
Investing activities - During the first thirty-nine weeks of 2001, we used
$173.1 million in investing activities compared to $254.7 million in the
same period last year. Cash used in the current year includes the $65
million payment made to acquire our 49.9% interest in Molson USA, a joint
venture with Molson, Inc. and includes year-to-date capital expenditures of
$157.9 million, a significant portion of which relates to capacity-related
projects that were started late in 2000 and in early 2001. Although these
significant cash outlays occurred in 2001, total cash used in investing
activities decreased $81.6 million compared to the same period last year,
due to more proceeds from sales of properties in 2001 and due to higher net
investment activity in 2000. In 2001, our net cash proceeds from marketable
securities activity was $20.0 million compared to a net cash use of $164.4
million last year. In 2000, we shifted to investing our cash into longer-
term marketable securities, all of which are highly liquid. This change in
investment strategy resulted in a higher cash outflow for purchases of
securities in 2000 compared to 2001. At September 30, 2001, our long-term
marketable securities balance of $191.3 million was comparable to the
September 24, 2000 balance of $193.7 million.
Financing activities - Net cash used in financing activities was $50.5
million for the thirty-nine weeks ended September 30, 2001, compared to
$31.1 million for the same period last year. Primary uses of cash in 2001
were $39.9 million for purchases of Class B common stock under our stock
repurchase program and dividend payments of $22.1 million, partially offset
by cash inflows of $9.9 million 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.
- - 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 alcohol 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
Year-to-date net sales have benefited from modest domestic pricing,
partially offset by a sales mix shift away from higher net revenue products
domestically and internationally. The current economic climate causes
uncertainty surrounding our pricing outlook, but we remain cautiously
optimistic that our favorable pricing trends will continue through the
balance of the year. Regarding volume, if our distributors end the year
with normal inventories, we expect our volume growth for the year to be
similar to our sales-to-retail trends. Relative to fiscal 2000, our 2001
results will not include the 53rd week of sales, which will make for a
tough comparison on our sales trends. (Our fiscal year is the 52 or 53
weeks that end on the last Sunday in December. Our 2000 fiscal year
consisted of 53 weeks while 2001 consists of 52 weeks.) However, on a gross
margin basis, we expect the 53rd week to have very little impact. Again
relative to 2000, fourth quarter net sales trends will be impacted by the
sale of two of our company owned distributorships during 2001, which
comprised approximately 3% of our annual volume, and substantially higher
average revenue per barrel than our overall volume.
We currently expect our full-year cost of goods sold per barrel to be down
from our year-to-date rate. The lower expected growth rate in the fourth
quarter is due, in part, to the sale of our company-owned distributorships
in 2001, which will take some of our higher-cost products out of our cost
of goods sold. Also, in the fourth quarter, we expect less inflation,
particularly in the cost of natural gas, than we experienced in late 2000.
Finally, we expect to see continued improvements in our distribution costs
as a result of enhancements we made to our information systems and
processes. Of course, our outlook may change because cost of goods sold per
barrel is dependant on actual sales volume and the related volume leverage
that we are able to achieve in the balance of the year.
Full year marketing, general and administrative expenses are expected to be
comparable to last year. We are reviewing our marketing and sales
opportunities and will continue to invest in our brands and sales efforts
as we deem appropriate.
Net interest income is likely to decline modestly in the last quarter of
2001 due to lower interest rates and lower cash balances. During the year,
we sold certain investments as part of our tax strategy and reinvested
proportionately more into municipal investments which tend to yield lower
rates of return on a pretax basis. Also, given the current economic
environment, the interest rates on our non-municipal investments have
decreased. Relative to 2000, our cash balances are lower as a result of our
$65 million payment for our interest in Molson USA, LLC, year-to-date share
repurchases and higher capital spending. Cash balances could decrease
further if we repurchase additional shares of outstanding common stock
under our stock repurchase program.
Our tax rate for the rest of 2001 is not expected to differ significantly
from the rate applied to income during the first three quarters 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 existing 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 to our infrastructure. We anticipate our 2002
capital spending to be substantially lower than our 2001 spending. In
addition to our planned capital expenditures, incremental strategic
investments will be considered on a case-by-case basis.
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)
November 8, 2001
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