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 March 29, 1998
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 May 7, 1998:
Class A Common Stock - 1,260,000 shares
Class B Common Stock - 35,012,308 shares
PART I. FINANCIAL INFORMATION (UNAUDITED)
Item 1. Financial Statements
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Thirteen weeks ended
March 29, March 30,
1998 1997
(In thousands, except per share data)
Sales - domestic and international $ 501,014 $ 483,161
Less: beer excise taxes (86,869) (84,380)
Net sales 414,145 398,781
Cost of goods sold 261,927 256,201
Gross profit 152,218 142,580
Marketing, general and administrative 137,222 127,231
Special charge -- 998
Operating income 14,996 14,351
Other (income) expense - net (1,047) 715
Income before income taxes 16,043 13,636
Income tax expense 6,257 5,591
Net income 9,786 8,045
Other comprehensive income-foreign currency
translation adjustments (1,104) (2,773)
Comprehensive income $ 8,682 $ 5,272
Net income per common share - basic $ 0.27 $ 0.21
Net income per common share - diluted $ 0.26 $ 0.21
Weighted average number of outstanding
common shares - basic 36,418 37,713
Weighted average number of outstanding
common shares - diluted 37,415 38,071
Cash dividends declared and paid per
common share $ 0.150 $ 0.125
See notes to consolidated financial statements.
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 29, December 28,
1998 1997
(In thousands)
Assets
Current assets:
Cash and cash equivalents $ 150,765 $ 168,875
Short-term investments 47,261 42,163
Accounts and notes receivable, net 128,983 124,485
Inventories:
Finished 30,167 44,729
In process 28,177 20,119
Raw materials 25,998 35,654
Packaging materials 7,653 5,977
Total inventories 91,995 106,479
Other assets 72,019 75,192
Total current assets 491,023 517,194
Properties, at cost and net 719,906 733,117
Other assets 155,707 161,772
Total assets $1,366,636 $1,412,083
See notes to consolidated financial statements.
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 29, December 28,
1998 1997
(In thousands)
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 136,582 $ 131,936
Accrued expenses and other liabilities 168,020 199,710
Current portion of long-term debt 42,500 27,500
Total current liabilities 347,102 359,146
Long-term debt 130,000 145,000
Deferred tax liability 75,090 76,219
Other long-term liabilities 93,317 95,150
Total liabilities 645,509 675,515
Shareholders' equity:
Capital stock:
Preferred stock, non-voting, $1 par
value (authorized: 25,000,000 shares;
issued: none) -- --
Class A common stock, voting, $1 par value
(authorized and issued: 1,260,000 shares) 1,260 1,260
Class B common stock, non-voting, no par
value, $0.24 stated value (authorized:
100,000,000 shares; issued: 35,020,455
in 1998 and 35,599,356 in 1997) 8,338 8,476
Total capital stock 9,598 9,736
Retained earnings 716,429 730,628
Accumulated other comprehensive income (4,900) (3,796)
Total shareholders' equity 721,127 736,568
Total liabilities and shareholders' equity $1,366,636 $1,412,083
See notes to consolidated financial statements.
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the thirteen weeks ended
March 29, March 30,
1998 1997
(In thousands)
Cash flows from operating activities:
Net income $ 9,786 $ 8,045
Adjustments to reconcile net income to
net cash provided by operating activities:
Equity in net earnings of joint ventures (6,893) (5,442)
Depreciation and amortization 28,462 30,281
Loss on sale or abandonment
of properties 792 799
Deferred income taxes (1,014) (661)
Change in current assets and current
liabilities (8,778) 11,144
Net cash provided by
operating activities 22,355 44,166
Cash flows from investing activities:
Purchases of investments (12,165) (20,393)
Sales and maturities of investments 15,134 --
Additions to properties (15,944) (11,921)
Proceeds from sale of properties 60 543
Distributions from joint ventures 500 750
Other (166) 224
Net cash used in investing activities (12,581) (30,797)
Cash flows from financing activities:
Issuance of stock under stock plans 1,149 643
Purchases of stock (22,697) (12,922)
Dividends paid (5,477) (4,746)
Other (703) --
Net cash used in financing activities (27,728) (17,025)
Cash and cash equivalents:
Net decrease in cash and cash equivalents (17,954) (3,656)
Effect of exchange rate changes on
cash and cash equivalents (156) (1,004)
Balance at beginning of year 168,875 110,905
Balance at end of quarter $ 150,765 $ 106,245
See notes to consolidated financial statements.
ADOLPH COORS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 29, 1998
1. BUSINESS
Founded in 1873 and incorporated in Colorado in 1913, Adolph
Coors Company (ACC or the Company) is the holding company for
Coors Brewing Company (CBC), the third-largest U.S. brewer.
2. SIGNIFICANT ACCOUNTING POLICIES
Unaudited consolidated financial statements - In the opinion of
management, the accompanying unaudited financial statements
reflect all adjustments, consisting only of normal recurring
accruals, which are necessary for a fair presentation of the
financial position of the Company at March 29, 1998, the results
of its operations and its cash flows for the three months ended
March 29, 1998. The accompanying financial statements include the
accounts of ACC, CBC and the majority-owned and controlled
domestic and foreign subsidiaries of both ACC and CBC. All significant
intercompany transactions and balances have been eliminated in consolidation.
These financial statements should be read in conjunction with the notes to
the consolidated financial statements contained in the Company's Form 10-K
for the year ended December 28, 1997.
Statement of cash flows - Cash paid for interest during the first
quarter of 1998 and 1997 was $3.9 million and $4.1 million,
respectively. Cash paid for income taxes during the first quarter
of 1998 and 1997 was $1.5 million and $3.1 million, respectively.
During the first quarter of 1998 and 1997, ACC issued $2.5
million and $0.7 million, respectively, in restricted common
stock under its management incentive program.
Reclassifications - Certain reclassifications have been made to
the 1997 financial statements to conform with the 1998 presentation.
3. YEAR 2000
As the Year 2000 approaches, ACC recognizes the need to ensure
its operations will not be adversely impacted by Year 2000
software failures. The Company is addressing this issue to ensure
the availability and integrity of its financial systems and the
reliability of its operational systems. ACC has established
processes for evaluating and managing the risks and costs
associated with this problem. The Company has and will continue
to make certain investments in its information systems and
applications to ensure that it is Year 2000 compliant. The
financial impact to ACC is anticipated to be in the range of $10
to $15 million for each of fiscal years 1998 and 1999. In
addition, ACC is working with its suppliers and customers to
ensure their compliance with Year 2000 issues in order to avoid
any interruptions in its business. While ACC does not at this
time anticipate significant problems with suppliers and
customers, it is developing appropriate plans with these third parties.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Special Charge
The Company recorded no special items during the first quarter of
1998. During the first quarter of 1997, ACC recorded a special
charge of approximately $1 million for ongoing legal proceedings
with Molson Breweries of Canada Limited. The Company's operating
results including and excluding this special charge are summarized below:
For the quarter ended
March 29, March 30,
1998 1997
(In thousands, except per share data)
Operating income:
As reported $14,996 $14,351
Excluding special items N/A 15,349
Net income:
As reported 9,786 8,045
Excluding special items N/A 8,655
Earnings per share:
As reported - basic $0.27 $0.21
- diluted $0.26 $0.21
Excluding special charge - basic N/A $0.23
- diluted N/A $0.23
Consolidated Results of Continuing Operations
Sales and volume - For the first quarter of 1998, ACC reported
net sales of $414.1 million, a 3.9% increase over the first
quarter of 1997. The increase in net sales was due primarily to a
4.5% increase in unit volume; CBC sold 4,691,000 barrels of malt
beverages in the first quarter of 1998, compared to sales of
4,489,000 barrels in the first quarter of 1997. Net sales for the
three months ended March 29, 1998, were also impacted favorably
by proportionally more export sales, which generate greater net
revenue per barrel than domestic volume. These positive factors were offset
in part by increased price discounting and unfavorable package mix.
Gross profit - Gross profit in the first quarter of 1998 rose
6.8% to $152.2 million from the first quarter of 1997. As a
percentage of net sales, gross profit increased to 36.8% in the
first quarter of 1998 from 35.8% a year earlier. This increase
was attributable to a 3.9% increase in net sales, as discussed
above, offset partially by a 2.2% increase in cost of goods sold.
Cost of goods sold increased primarily due to unit volume
increases, but was impacted favorably by improved overhead
productivity and shipping efficiencies.
Operating income - Operating income was $15.0 million for the
three months ended March 29, 1998, compared to $15.3 million,
excluding the special charge, for a year earlier. This decrease
was primarily due to an increase in marketing, general and
administrative expenses that slightly outweighed the increase in
gross profit. Marketing, general and administrative expenses rose
due to greater advertising spending and increased investment in
the Company's domestic and international sales organizations.
Non-operating expenses - Net non-operating income and expenses
for the first quarter of 1998 were favorable to the first quarter
of 1997 primarily because of a $2.9 million change in net
interest from expense to income. The change was attributable to
an increase in interest income due to higher cash and investment
balances and a decrease in interest expense due to lower outstanding
principal balances on ACC's medium-term notes. Miscellaneous income
decreased due to foreign exchange gains and losses, lower royalty income
and increases in other non-operating costs at certain subsidiaries.
Effective tax rate - The consolidated effective tax rate applied
to income excluding special items for the three months ended
March 29, 1998, was 39.0% compared to 40.9% for the same period in 1997.
Net income - Consolidated net income for the first quarter of
1998 was $9.8 million, or $0.27 per basic share ($0.26 per
diluted share), compared to $8.7 million, excluding the special charge,
or $0.23 per basic and diluted share for the first quarter of 1997.
Liquidity and Capital Resources
Liquidity - The Company's primary sources of liquidity are cash
provided by operating activities and external borrowings. As of
March 29, 1998, ACC had working capital of $143.9 million, and
its net cash position was $150.8 million compared to $168.9
million as of December 28, 1997. In addition to its cash
resources, ACC had short-term, highly liquid investments of $47.3
million at March 29, 1998, compared to $42.2 million at December
28, 1997. ACC also had $39.0 million of marketable investments
with maturities exceeding one year at March 29, 1998, compared to
$47.1 million at December 28, 1997. The Company believes that
cash flows from operations and short-term borrowings will be
sufficient to meet its ongoing operating requirements, scheduled
principal and interest payments on indebtedness, dividend
payments, costs to make computer software Year 2000 compliant,
anticipated capital expenditures and potential repurchases of its
common stock under the previously announced stock repurchase plan.
Operating activities - Net cash provided by operating activities
was $22.4 million for the first quarter of 1998 compared to $44.2
million for the first quarter of 1997. This decrease in cash
provided by operating activities was primarily attributable to a
decrease in accrued expenses and other liabilities. Accrued
expenses and other liabilities decreased because of lower
accruals for management incentives, federal excise taxes and
payroll. Partially offsetting this decrease in operating cash
flows was a decrease in finished goods and raw materials inventories.
Investing activities - During the first quarter of 1998, ACC
spent $12.6 million on investing activities compared to $30.8
million for the first quarter of 1997. Net purchases, sales and
maturities of marketable investments were favorable to 1997 by
$23.4 million. Capital expenditures increased to $15.9 million
for the three months ended March 29, 1998, from $11.9 million a
year earlier. Capital expenditures for the first quarter of 1998
focused on information systems and upgrades and other efficiency-
improvements to Shenandoah and Golden-based facilities.
Financing activities - ACC spent $27.7 million on financing
activities during the first quarter of 1998, of which $20.5
million was used to purchase 647,000 shares of Class B common
stock on the open market under the Company's $40 million stock
repurchase program. Dividend payments were $5.5 million. ACC
spent $17.0 million in the first quarter of 1997 on financing
activities, consisting primarily of $8.9 million in purchases of
Class B stock on the open market and $4.7 million in dividends.
Cautionary Statement Pursuant to Safe Harbor Provisions of the
Private Securities Litigation Reform Act of 1995
This report contains "forward-looking statements" within the
meaning of the federal securities laws. These forward-looking
statements may include, among others, statements concerning the
Company's outlook for 1998; overall volume trends; pricing trends
and industry forces; cost reduction strategies and their results;
the Company's expectations for funding its 1998 capital
expenditures and operations; the Company's expectations for
funding work on computer software to make it compliant with Year
2000; and other statements of expectations, beliefs, future plans
and strategies, anticipated events or trends and similar
expressions concerning matters that are not historical facts.
These forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ
materially from those expressed in or implied by the statements.
To improve its financial performance, the Company must grow premium
beverage volume, achieve modest price increases for its products and reduce
its overall cost structure. 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:
- - the inability of the Company and its distributors to develop and
execute effective marketing and sales strategies for Coors products;
- - the potential erosion of sales revenues through discounting or
a higher proportion of sales in value-packs;
- - a potential shift in consumer preferences toward lower-priced
products in response to price increases;
- - a potential shift in consumer preferences away from the premium
light beer category, including Coors Light;
- - the intensely competitive, slow-growth nature of the beer industry;
- - demographic trends and social attitudes that can reduce beer sales;
- - the continued growth in the popularity of imports and other specialty beers;
- - increases in the cost of aluminum, paper packaging and other raw materials;
- - the Company's inability to reduce manufacturing, freight and
overhead costs to more competitive levels;
- - changes in significant laws and government regulations
affecting environmental compliance and income taxes;
- - the inability to achieve targeted improvements in CBC's distribution system;
- - the imposition of excise or other taxes;
- - the imposition of restrictions on advertising (e.g., media,
outdoor ads or sponsorships);
- - labor issues, including union activities that could require a
substantial increase in cost of goods sold or lead to a strike;
- - significant increases in federal, state or local beer or other excise taxes;
- - increases in rail transportation rates or interruptions of rail service;
- - the potential impact of industry consolidation;
- - risks associated with investments and operations in foreign countries,
including those related to foreign regulatory requirements; exchange rate
fluctuations and local political, social and economic factors; and
- - the risk that computer systems of the Company or its
significant suppliers and customers may not be Year 2000 compliant.
These and other risks and uncertainties affecting the Company are
discussed in greater detail in the Company's 1997 Form 10-K filed
with the Securities and Exchange Commission.
Outlook
The first quarter, with historically lower volume, has not
generally been a good indicator of annual results. The second and
third quarters, which include the peak summer volume months,
traditionally generate the greatest share of the Company's annual
operating income. However, first quarter results were consistent
with a full year outlook predicting volume gains and increased
net sales. However, the pricing environment is expected to be
extremely competitive, restraining expectations of net sales per
barrel. Also, increased value-pack activity may have an
unfavorable impact on top-line performance due to lower margins.
Income from the Company's Canadian business is expected to be 25%
to 30% lower per barrel in 1998 than in 1997 based on current
sales trends and 1998 plans for marketing investments, although
first quarter results were more favorable than anticipated.
Revenue received under the Company's interim agreement with
Molson Breweries of Canada, Ltd., which expired at year-end 1997,
provided higher earnings per barrel than those expected as a
result of the new partnership with The Molson Companies Ltd. and
Carling O'Keefe Breweries of Canada, Ltd. On the other hand, the
partners of the Coors Canada Partnership see considerable growth
potential for Coors products in Canada in the future.
For fiscal year 1998, raw material costs are expected to be up
slightly, but fixed costs and freight costs are expected to be
down slightly. CBC continues to pursue improvements in its
operations and technology functions to achieve cost reductions over time.
Advertising and other general and administrative costs are expected to
increase but at a lower rate than in 1997. Management continues to monitor
CBC's market opportunities and to invest behind its brands and sales
efforts accordingly. Incremental sales and marketing spending will be
determined on an opportunity-by-opportunity basis.
See the item titled Year 2000 Contingency below for a discussion
of the expected financial impact of this issue.
Net interest is expected to improve in 1998 based on CBC's more
favorable cash position and its lower outstanding debt relative
to its 1997 financial position. Net interest could be less
favorable than expected if the Company invests a substantial
portion of its cash balances in assets with long-term returns.
Additional outstanding common stock may be repurchased in 1998 as
approved by the ACC board of directors in November 1997.
The effective tax rate for 1998 is not expected to differ
significantly from the 1997 effective tax rate applied to income
excluding special items. The level and mix of pretax income for
1998 could affect the actual rate for the year.
In 1998, CBC has planned capital expenditures (including
contributions to its container joint ventures for capital
improvements, which will be recorded on the books of the joint
ventures) in the range of $75 to $85 million. In addition to
CBC's 1998 planned capital expenditures, incremental strategic
investments will be considered on a case-by-case basis.
CONTINGENCIES
Year 2000 - As the Year 2000 approaches, ACC recognizes the need
to ensure its operations will not be adversely impacted by Year
2000 software failures. The Company is addressing this issue to
ensure the availability and integrity of its financial systems
and the reliability of its operational systems. ACC has
established processes for evaluating and managing the risks and
costs associated with this problem. The Company has and will
continue to make certain investments in its information systems
and applications to ensure that it is Year 2000 compliant. The
financial impact to ACC is anticipated to be in the range of $10
to $15 million for each of fiscal years 1998 and 1999. In
addition, ACC is working with its suppliers and customers to
ensure their compliance with Year 2000 issues in order to avoid
any interruptions in its business. While ACC does not at this
time anticipate significant problems with suppliers and
customers, it is developing appropriate plans with these third parties.
Labor Issues - The United Auto Workers (UAW) are engaged in an effort to
organize and represent employees at the Golden brewery. Hearings have been
held with the National Labor Relations Board (NLRB) to determine whether
the UAW's organizing efforts can take place only in the Company's brewing
unit or in the Company's larger, integrated unit of brewery, can
manufacturing, end manufacturing and glass manufacturing. The larger,
integrated unit is the recognized unit in an existing agreement with the
AFL-CIO, with whom the UAW is affiliated. A decision from the NLRB regarding
who is eligible to vote in an election is expected in early June 1998. If an
election occurs, it will likely occur early in the third quarter of 1998.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None for the quarter ended March 29, 1998.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K.
(b) Reports on Form 8-K
None for the quarter ended March 29, 1998.
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 and
Chief Financial Officer
(Principal Financial Officer)
(Principal Accounting Officer)
May 13, 1998