U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter ended June 30, 1996
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
None None
Securities registered pursuant to Section 12(g) of the Act:
Class B Common Stock (non-voting), no par value
(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, 1996:
Class A Common Stock - 1,260,000 shares
Class B Common Stock - 36,798,722 shares
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
Thirteen weeks ended
June 30, June 25,
1996 1995
(In thousands, except per share data)
SALES $614,250 $562,550
Less - beer excise taxes ( 111,824) (105,110)
NET SALES 502,426 457,440
Costs and expenses:
Cost of goods sold 307,467 282,964
Marketing, general and administrative 142,919 132,591
Research and project development 3,277 3,653
Special charge 5,200 --
Total operating expenses 458,863 419,208
OPERATING INCOME 43,563 38,232
Other income (expense) - net ( 2,613) (1,340)
Income before income taxes 40,950 36,892
Income tax expense 17,154 15,448
NET INCOME $ 23,796 $ 21,444
NET INCOME PER SHARE OF COMMON STOCK $ 0.63 $ 0.56
Weighted average number of outstanding
shares of common stock 38,013 38,352
Cash dividends declared and paid per share
of common stock $ 0.125 $ 0.125
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
Twenty-six weeks ended
June 30, June 25,
1996 1995
(In thousands, except per share data)
SALES $1,062,678 $ 992,060
Less - beer excise taxes ( 191,523) ( 186,227)
NET SALES 871,155 805,833
Costs and expenses:
Cost of goods sold 568,244 519,928
Marketing, general and administrative 251,031 239,945
Research and project development 5,640 7,252
Special charge 5,200 --
Total operating expenses 830,115 767,125
OPERATING INCOME 41,040 38,708
Other income (expense) - net ( 5,197) ( 3,381)
Income before income taxes 35,843 35,327
Income tax expense 15,054 14,800
NET INCOME $ 20,789 $ 20,527
NET INCOME PER SHARE OF COMMON STOCK $ 0.55 $ 0.54
Weighted average number of outstanding
shares of common stock 38,013 38,340
Cash dividends declared and paid per share
of common stock $ 0.250 $ 0.250
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, December 31,
1996 1995
(In thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 40,559 $ 32,386
Accounts and notes receivable 164,811 116,755
Inventories:
Finished 53,538 58,486
In process 27,986 28,787
Raw materials 15,007 37,298
Packaging materials 12,728 14,854
Total inventories 109,259 139,425
Other assets 69,658 73,954
Total current assets 384,287 362,520
PROPERTIES, at cost, less accumulated
depreciation, depletion and amortization
of $1,266,157 in 1996 and $1,219,473
in 1995 850,349 887,409
OTHER ASSETS 136,318 136,928
TOTAL ASSETS $ 1,370,954 $1,386,857
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, December 31,
1996 1995
(In thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 24,000 $ 36,000
Accounts payable 133,152 132,349
Accrued expenses and other liabilities 162,690 155,314
Total current liabilities 319,842 323,663
LONG-TERM DEBT 176,000 195,000
DEFERRED TAX LIABILITY 67,229 69,916
OTHER LONG-TERM LIABILITIES 102,976 103,262
Total liabilities 666,047 691,841
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: 36,753,332 in
1996 and 36,736,512 in 1995) 8,751 8,747
Total capital stock 10,011 10,007
Paid-in capital 33,949 33,719
Retained earnings 658,818 647,530
Foreign currency translation adjustment 2,129 3,760
Total shareholders' equity 704,907 695,016
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,370,954 $1,386,857
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the twenty-six weeks ended
June 30, June 25,
1996 1995
(In thousands)
Cash flows from operating activities:
Net income $ 20,789 $ 20,527
Adjustments to reconcile net income
to net cash (used) provided by
operating activities:
Depreciation, depletion and
amortization 59,387 61,173
Change in accumulated deferred
income taxes ( 2,687) 1,216
(Gain) loss on sale or abandonment
of properties 8,829 1,542
Change in current assets and current
liabilities ( 5,979) ( 61,933)
Change in non-current assets and
liabilities ( 4,584) ( 7,866)
Net cash provided by
operating activities 75,755 14,659
Cash flows from investing activities:
Additions to properties ( 32,389) ( 67,551)
Proceeds from sale of properties 1,866 514
Other 4,840 ( 2,493)
Net cash used in investing
activities ( 25,683) ( 69,530)
Cash flows from financing activities:
Issuance of stock under stock plans 235 1,108
Dividends paid ( 9,502) ( 9,589)
Payment of current portion of long-term debt( 31,000) ( 29,000)
Short-term borrowings -- 72,900
Other -- ( 138)
Net cash (used) provided by
financing activities ( 40,267) 35,281
Cash and cash equivalents:
Net increase (decrease) in cash
and cash equivalents 9,805 ( 19,590)
Effect of exchange rate changes on
cash and cash equivalents ( 1,632) 672
Balance at beginning of year 32,386 27,168
Balance at end of quarter $ 40,559 $ 8,250
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Quarterly Calendar Change:
In 1996, Adolph Coors Company (ACC or the Company) changed its
reporting calendar to a 12-period fiscal year from the 13-period
fiscal year that was used in 1995 and prior years. The 1996
fiscal year is composed of four 13-week quarters. The 1995 fiscal
year, prior to restatement, was composed of a 12-week first
quarter, a 12-week second quarter, a 16-week third quarter and a
13-week fourth quarter. After restatement, the first, second and
third quarters of 1995 were 13-weeks and the fourth quarter of
1995 was 14-weeks. The principal reason for the change was to
create fiscal quarters that are similar to calendar year quarters
and thus more comparable to the reporting practices of other
consumer-product companies. The 1995 and 1994 financial
information has been restated to conform with 1996 presentation.
The restatement of the Consolidated Income Statements for the
four individual quarters of 1995 was included in the Company's
first quarter Form 10-Q filing. The restatement of the
Consolidated Income Statements for the four individual quarters
of 1994 is included as a part of this filing.
Special Charge:
In the second quarter of 1996, the Company recorded a special
charge of $5.2 million related to the cost of ongoing legal
proceedings with Molson Breweries of Canada Limited and
affiliates and the severance component of restructuring Coors
Brewing Company's (CBC) engineering and construction operations.
The operating results of the Company including and excluding the
special charge are summarized below:
For the quarter ended For the two quarters ended
June 30, June 25, June 30, June 25,
1996 1995 1996 1995
(In thousands, except per share data)
Operating income
As reported $43,563 $38,232 $41,040 $38,708
Excluding special charge 48,763 N/A 46,240 N/A
Net income
As reported 23,796 21,444 20,789 20,527
Excluding special charge 26,956 N/A 23,949 N/A
Earnings per share
As reported $ 0.63 $0.56 $0.55 $0.54
Excluding special charge $ 0.71 N/A $0.63 N/A
Sales and Volume:
The Company reported net sales of $502.4 million and $871.2
million for the second quarter and first half of 1996,
representing 9.8% and 8.1% increases, respectively, from the
comparable periods in the prior year. ACC's principal
subsidiary, Coors Brewing Company, reported malt beverage sales
of 5,788,000 barrels for the second quarter of 1996 compared to
5,542,000 barrels sold in the second quarter of 1995, an increase
of 4.4%. Malt beverage sales for the first half of 1996
increased to 10,061,000 barrels from 9,792,000 for the same
period of 1995, an increase of 2.7%. The change in sales volume
for the second quarter and first half of 1996 resulted primarily
from an increase in sales of Coors Light, offset in part by a
decrease in sales of Zima Clearmalt. The net sales increase for
the second quarter and first half of 1996 were the result of
higher volume, higher malt beverage prices, lower price promotion
expense and more export sales, which offer higher net revenue per
barrel than domestic volume.
Gross Profit:
Gross profit increased $20.5 million, or 11.7%, for the second
quarter of 1996 compared to the second quarter of 1995. Gross
profit as a percentage of net sales for the second quarter of
1996 increased to 38.8% from 38.1% for the same period a year
earlier. Gross profit as a percentage of net sales for the first
half of 1996 declined to 34.8% from 35.5% for the first half of
1995. The increase in gross profit percent for the second
quarter of 1996 was primarily the result of increased sales
volume and higher prices achieved for the Company's products.
These improvements were offset in part by increased costs for new
packages and products and paper packaging materials.
In addition, approximately one-third of the second quarter
increase in cost of goods sold resulted from abandonment of
properties and in-house engineering studies associated with CBC's
shift from an in-house construction and engineering organization
to one that relies much more on external suppliers for these
services. The decline in gross profit percent for the first half
of 1996 was driven primarily by one-time costs in the first
quarter associated with depleting and abandoning old packaging
inventories and preparation of the Company's operations for the
summer season. These preparation costs included costs of new
brands and packages, packaging equipment overhauls and the
abandonment of certain container operation equipment.
Operating Income:
Operating income for the second quarter of 1996, excluding the
special charge, increased 27.7% to $48.8 million compared to
$38.2 million for the second quarter of 1995. Operating income
for the first half of 1996, excluding the second quarter special
charge, increased 19.4% to $46.2 million from $38.7 million in
1995. Higher operating income for both periods was primarily the
result of an increase in gross profit, offset in part by higher
marketing, general and administrative expense.
Marketing, general and administrative expense in the second
quarter and first half of 1996 increased $10.3 million, or 7.8%,
and $11.1 million, or 4.6%, respectively. The increases for both
periods were primarily the result of increased domestic and
international selling expense including additional staffing,
training and on-premise sales development. Additionally,
advertising expense increased modestly in the second quarter of
1996 compared to a year ago, while advertising for the first half
of 1996 was essentially unchanged compared to the first half of
1995. The mix of advertising spending for 1996 continues to
reflect a shift to Coors Light and Original Coors and away from
Zima Clearmalt and Artic Ice.
Research and project development expense declined 10.3% and 22.2%
for the second quarter of 1996 and the first half of 1996,
respectively, compared to the same periods in 1995. The declines
were primarily the result of planned reductions in project
development expense for facilities and equipment.
Non-Operating Expenses:
Other (income) expense - net increased $1.3 million and $1.8
million for the second quarter and first half of 1996,
respectively, compared to the same periods of 1995. The
increases are primarily the result of lower capitalized interest
expense and a $56-million net increase in long-term debt. The
increased debt is the result of a July 1995 $100-million private
placement of Senior Notes and $44-million of scheduled principal
payments on the Company's medium-term notes. These principal
payments included payments of $29 million in June 1995 and $15
million in September 1995. The increased interest expense for the
second quarter and the first half of 1996 was partially offset by
increased interest income.
Effective Tax Rate:
The consolidated effective tax rates for the second quarter and
first half of 1996 were 41.9% and 42.0% compared to 41.9% and
41.9%, respectively, for the same periods of 1995.
Net Income:
Consolidated net income for the second quarter and first half of
1996, including the special charge, was $23.8 million, or $0.63
per share, and $20.8 million, or $0.55 per share, respectively.
This compares to $21.4 million, or $0.56 per share, and $20.5
million, or $0.54 per share, for the second quarter and first
half of 1995, respectively. Excluding the $5.2 million pretax
special charge ($3.2 million, or $0.08 per share, after tax), the
Company's 1996 second quarter and year-to-date net income
increased 26.2% to $27.0 million ($0.71 per share) and 16.7% to
$23.9 million ($0.63 per share), respectively.
Working Capital:
Total current assets exceeded total current liabilities by $64.4
million at June 30, 1996. Working capital has increased by $25.6
million since year-end 1995. This increase is primarily due to
an increase in accounts receivable of $48.1 million, a decrease
in inventories of $30.2 million and an increase in other current
liabilities of $7.4 million. Additionally, the current portion
of long-term debt decreased by $12.0 million.
The increase in accounts receivable is attributable to seasonal
(June) sales volume increases and 1996 price increases. The
decrease in inventories is seasonal due primarily to raw material
usage (primarily barley) and to a lesser extent, a decline in
finished goods that was caused by sales volumes that exceeded
production. The increase in other current liabilities is
primarily a result of an increase in tax liabilities offset by a
contribution to the Company's retirement plan.
Cash Provided by Operating Activities:
Net cash provided by consolidated operating activities for the
first half of 1996 was $75.8 million, up from $14.7 million
provided by operating activities for the same period a year ago.
This increase resulted primarily from changes relative to 1995 in
accounts receivable, inventories, accounts payable balances and
loss on the sale or abandonment of properties.
Accounts receivable and notes receivable increased by $48.1
million in 1996, compared to a $25.1 million increase in 1995.
The increase in accounts receivable is primarily attributable to
higher malt beverage volume and prices during the second quarter
of 1996 than a year earlier.
Inventories declined $30.2 million in the first half of 1996
compared to a decline of $8.3 million in the first half of 1995.
In general, inventory decreases are typical in the first half of
the year because of raw material usage (primarily barley). In
1996, the overall inventory decline was greater than in 1995
because of an in-process inventories decrease, which was the
result of sales volumes that exceeded production. In 1995, the
raw materials inventory decline was partially offset by an in-
process inventories increase.
Accounts payable increased by $0.8 million at the end of the
second quarter 1996, compared to a decrease of $37.1 million in
1995. Accounts payable were unusually high at the end of 1994
due to amounts owed to advertising agencies and the container
joint venture with American National Can Company. Cash from
short-term borrowings in 1995 was primarily used to reduce
accounts payable during the first half of 1995.
The 1996 loss on sale or abandonment of properties of $8.8
million represents an increase of $7.3 million over 1995. This
increase primarily represents the 1996 abandonment of certain
container operations equipment, various capital projects and
engineering studies. The majority of these projects and studies
will not be completed because of the Company's decisions to
substantially reduce its engineering and construction staff and
its facilities capital spending.
Cash Used in Investing Activities:
Property additions in the second quarter of 1996 declined $35.2
million to $32.4 million, compared to $67.6 million for the same
period a year ago. The decrease reflects the impact of lower
1996 annual expected capital expenditures (including
contributions to the container joint ventures for capital
improvements) of approximately $90 million, compared with annual
capital expenditures of $145.8 million in 1995. The expected
decrease for 1996 is the result of the completion of several
plant capacity projects in 1995 and reflects the Company's
intention to manage capital expenditures and cash more
aggressively through a variety of means, including asset sales,
lease financing and joint ventures. In addition to the Company's
1996 planned capital expenditures, strategic investments will be
considered on a case-by-case basis.
Cash (Used) Provided by Financing Activities:
The primary financing activity in the first half of 1996 was a
principal payment of $31.0 million on the Company's medium-term
notes. For comparison, in the first half of 1995, the Company
made a principal payment of $29.0 million. In addition, the
Company paid dividends of $9.5 and $9.6 million in the first half
of 1996 and 1995, respectively. The 1995 financing activities
also included $72.9 million in short-term borrowings under ACC's
line of credit that were primarily used to reduce accounts
payable.
Significant Events:
In connection with its pending legal proceedings with Molson
Breweries of Canada Limited, the Company received a cash payment
for past due royalties and interest totaling $5.7 million (net of
$0.6 million of withholding taxes) during the first quarter of
1996. The obligation of Molson to make this payment is a subject
of the arbitration proceedings that began in May 1996. The
Company expects final resolution of this issue in 1996.
Outlook:
As previously discussed, the Company's new reporting calendar
includes a 13-week third quarter, compared to the previous
calendar, which had a 16-week third quarter. Accordingly, the
1996 third quarter sales volume and operating income will
represent a smaller share of the Company's overall annual
operating results, compared to the same period before the change
to the new calendar. The Company's 1995 quarterly operating
results have been restated to reflect this calendar change.
Pricing trends for the industry and the Company have been
positive for the first half of 1996. As of the end of the second
quarter, price increases had been implemented in most U.S.
markets, and there had been no significant reversals of those
increases or expanded price discounting activity. However, the
Company cannot predict the degree to which pricing will be eroded
by discounting or the impact that higher prices will have on
total volume or consumers trading down to lower-margin products.
Raw material costs as a whole have been stable for the first half
of 1996, and the Company expects these trends to continue for the
remainder of the year. Additionally, benefits are expected from
1995 and 1996 cost structure improvements that included
outsourcing, certain restructuring efforts, selected payroll-
related changes and additional container operating efficiencies.
Marketing, general and administrative (MG&A) costs are expected
to increase modestly in 1996 over the prior year as the result of
increased support for domestic and international sales.
Advertising costs, which are the largest component of MG&A, are
expected to be relatively constant compared to 1995.
As a result of the Molson legal proceedings, the Company incurred
significant legal costs which were included as part of the second
quarter special charge. Additional legal costs are anticipated
until the proceedings are resolved, but costs for the second half
of 1996 are expected to be at a somewhat lower rate than in the
second quarter.
Cautionary Statement:
The "Outlook" section of this report contains "forward-looking
statements" within the meaning of the federal securities laws.
These statements are subject to risks and uncertainties that
could cause actual results to differ materially from those
expressed in or implied by the statements. The most important
factors that could prevent the Company from achieving its goals -
and cause actual results to differ materially from those
expressed in forward-looking statements - include, but are not
limited to the following:
-- the potential interruption of rail service if the
current contract negotiations fail between the rail
carriers and railroad unions resulting in a rail
strike
-- the ability of the Company and its distributors to
develop and execute effective marketing and sales
strategies for Coors products
-- the potential erosion of recent price increases through
discounting
-- a potential shift in consumer preferences toward lower-
priced products in response to price increases
-- changes in the cost of aluminum, paper packaging and
other raw materials
-- an inability to reduce the Company's manufacturing and
overhead cost structure to a more competitive level
These and other risks and uncertainties affecting the Company are
discussed in greater detail in the Company's 1995 Form 10-K filed
with the Securities and Exchange Commission.
These statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Form 10-K
for the year ended December 31, 1995. The accompanying financial
statements have not been examined by the Company's independent
accountants in accordance with generally accepted auditing
standards, but in the opinion of management of Adolph Coors
Company, such financial statements include all adjustments
necessary to present fairly the Company's financial position and
results of operations. The results of operations for the 26
weeks ended June 30, 1996, may not be indicative of results that
may be expected for the year ending December 29, 1996.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 5. Other Information
a) Senior Vice President Appointment
On July 8, 1996 the Company announced the appointment of L. Don
Brown to the position of Senior Vice President of Operations and
Technology. Mr. Brown will report to W. Leo Kiely, III, Coors
Brewing Company President and Chief Operating Officer.
b) Restated 1994 Quarterly Consolidated Income Statements
ADOLPH COORS COMPANY AND SUBSIDIARIES
SUMMARY OF OPERATIONS RESTATED FOR 1994
Thirteen Thirteen Thirteen Thirteen Fifty-two
Weeks Ended Weeks Ended Weeks Ended Weeks Ended Weeks Ended
March 27, June 26, September 25, December 25, December 25,
1994 1994 1994 1994 1994
(In thousands, except per share data)
Barrels of
malt beverages
sold 4,288 5,723 5,572 4,780 20,363
SALES $ 428,303 $ 584,897 $ 551,108 $ 476,022 $ 2,040,330
Less: beer
excise
taxes ( 78,795)( 105,096)( 104,166) (89,602) ( 377,659)
NET SALES 349,508 479,801 446,942 386,420 1,662,671
Costs and expenses:
Cost of
goods sold 231,853 279,914 293,126 257,896 1,062,789
Marketing,
general and
administrative 100,670 141,758 128,301 121,674 492,403
Research and
project
development 2,380 3,699 3,387 3,799 13,265
Special
credit -- -- -- ( 13,949) ( 13,949)
Total operating
expenses 334,903 425,371 424,814 369,420 1,554,508
OPERATING INCOME 14,605 54,430 22,128 17,000 108,163
Other income
(expense)
-net ( 96)( 2,820)( 633)( 394) ( 3,943)
Income before
income taxes 14,509 51,610 21,495 16,606 104,220
Income tax
expense 6,286 23,573 9,640 6,601 46,100
NET INCOME $ 8,223 $ 28,037 $ 11,855 $ 10,005 $ 58,120
NET INCOME
PER SHARE
OF COMMON
STOCK $ 0.22 $ 0.73 $ 0.31 $ 0.26 $ 1.52
Weighted average
number of outstand-
ing shares of
common stock 38,218 38,279 38,729 37,905 38,283
Cash dividends
declared and
paid per share
of common
stock $ 0.125 $ 0.125 $ 0.125 $ 0.125 $ 0.500
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADOLPH COORS COMPANY
By /s/ Timothy V. Wolf
Timothy V. Wolf
Vice President, Chief Financial Officer
(Principal Financial Officer)
(Principal Accounting Officer)
August 14, 1996