U.S. SECURITIES AND EXCHANGE COMMISSION PRIVATE Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter ended April 1, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) Commission file number 0-8251 ADOLPH COORS COMPANY (Exact name of registrant as specified in its charter) COLORADO 84-0178360 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) Golden, Colorado 80401 (Address of principal executive offices) (Zip Code) 303-279-6565 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Class B Common Stock (non-voting), New York Stock Exchange no par value Securities registered pursuant to Section 12(g) of the Act: None (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] State the aggregate market value of the voting stock held by non-affiliates of the registrant: All voting shares are held by Adolph Coors, Jr. Trust. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of May 7, 2001: Class A Common Stock - 1,260,000 shares Class B Common Stock - 36,036,062 shares PART I. FINANCIAL INFORMATION Item 1. Financial Statements ADOLPH COORS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) (Unaudited) Thirteen weeks ended April 1, March 26, 2001 2000 Sales - domestic and international $ 637,828 $ 596,789 Beer excise taxes (94,128) (91,360) Net sales 543,700 505,429 Cost of goods sold (351,153) (326,919) Gross profit 192,547 178,510 Marketing, general and administrative expenses (169,958) (157,640) Operating income 22,589 20,870 Gain on sale of securities 2,954 -- Other income - net 4,019 3,226 Income before income taxes 29,562 24,096 Income tax expense (11,234) (9,277) Net income $ 18,328 $ 14,819 Net income per common share - basic $ 0.49 $ 0.40 Net income per common share - diluted $ 0.49 $ 0.40 Weighted average number of outstanding common shares - basic 37,203 36,663 Weighted average number of outstanding common shares - diluted 37,688 37,216 Cash dividends declared and paid per common share $ 0.185 $ 0.165 See notes to unaudited condensed consolidated financial statements. ADOLPH COORS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) April 1, December 31, 2001 2000 (Unaudited) Assets Current assets: Cash and cash equivalents $ 41,965 $ 119,761 Short-term marketable securities 38,030 72,759 Accounts and notes receivable, net 156,628 127,078 Inventories: Finished 62,176 40,039 In process 30,768 23,735 Raw materials 25,360 37,570 Packaging materials 11,094 8,580 Total inventories 129,398 109,924 Other current assets 63,172 68,229 Total current assets 429,193 497,751 Properties, at cost and net 736,348 735,793 Long-term marketable securities 182,736 193,675 Excess of cost over net assets of businesses acquired, net 93,517 29,446 Other assets 171,311 172,639 Total assets $1,613,105 $1,629,304 (Continued) See notes to unaudited condensed consolidated financial statements. ADOLPH COORS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share information) April 1, December 31, 2001 2000 (Unaudited) Liabilities and shareholders' equity Current liabilities: Accounts payable $ 184,226 $ 197,726 Accrued expenses and other liabilities 171,111 181,610 Total current liabilities 355,337 379,336 Long-term debt 105,000 105,000 Deferred tax liability 86,105 89,986 Other long-term liabilities 117,634 122,593 Total liabilities 664,076 696,915 Shareholders' equity: Capital stock: Preferred stock, non-voting, $1 par value (authorized: 25,000,000 shares; issued: none) -- -- Class A common stock, voting, $1 par value (authorized and issued: 1,260,000 shares) 1,260 1,260 Class B common stock, non-voting, no par value, $0.24 stated value (authorized: 100,000,000 shares; issued: 36,048,008 in 2001 and 35,871,121 in 2000) 8,583 8,541 Total capital stock 9,843 9,801 Paid-in capital 17,362 11,203 Retained earnings 919,558 908,123 Accumulated other comprehensive income 2,266 3,262 Total shareholders' equity 949,029 932,389 Total liabilities and shareholders' equity $1,613,105 $1,629,304 (Concluded) See notes to unaudited condensed consolidated financial statements. ADOLPH COORS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Thirteen weeks ended April 1, March 26, 2001 2000 Cash flows from operating activities: Net income $ 18,328 $ 14,819 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Equity in earnings of joint ventures (9,226) (7,517) Distributions from joint ventures 7,241 5,315 Depreciation and amortization 30,522 30,603 Gain on sale of securities (2,954) -- Deferred income taxes (122) (1,783) Change in operating assets and liabilities (76,367) (9,460) Net cash (used in) provided by operating activities (32,578) 31,977 Cash flows from investing activities: Purchases of securities (130,968) (20,000) Sales and maturities of securities 179,135 38,800 Additions to properties and intangible assets (30,752) (26,275) Investment in Molson USA, LLC (65,000) -- Other 3,106 1,635 Net cash used in investing activities (44,479) (5,840) Cash flows from financing activities: Issuances of stock under stock plans 9,212 479 Purchases of stock (6,055) -- Dividends paid (6,893) (6,061) Other 3,285 -- Net cash used in financing activities (451) (5,582) Cash and cash equivalents: Net (decrease) increase in cash and cash equivalents (77,508) 20,555 Effect of exchange rate changes on cash and cash equivalents (288) (134) Balance at beginning of year 119,761 163,808 Balance at end of quarter $ 41,965 $184,229 See notes to unaudited condensed consolidated financial statements. ADOLPH COORS COMPANY AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THIRTEEN WEEKS ENDED APRIL 1, 2001 1. BUSINESS Since our founding in 1873, we have been committed to producing the highest quality beers. We are incorporated in Colorado and are the third largest beer producer in the United States. 2. SIGNIFICANT ACCOUNTING POLICIES Unaudited condensed consolidated financial statements - In our opinion, the accompanying unaudited financial statements reflect all adjustments, consisting only of normal recurring accruals, which are necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented. The accompanying financial statements include our accounts and the accounts of our majority-owned and controlled domestic and foreign subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. These financial statements should be read in conjunction with the notes to the consolidated financial statements contained in our Form 10-K for the year ended December 31, 2000. The results of operations for the thirteen weeks ended April 1, 2001, are not necessarily indicative of the results that may be achieved for the full fiscal year and cannot be used to indicate financial performance for the entire year. The year-end condensed balance sheet data was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles. Statements of cash flows - During the first quarter of 2001 and 2000, shareholders' equity was increased by the non-cash tax effects of the issuances of stock under our stock plans of $4.1 million and $0.2 million, respectively. Also during the first quarter of 2001 and 2000, net restricted stock activity resulted in non-cash decreases to the equity accounts of $1.2 million and $0.2 million, respectively. Reclassifications - Certain reclassifications have been made to the 2000 financial statements to conform with the 2001 presentation. 3. SPECIAL CHARGES In the second and fourth quarters of 2000, we recorded a pretax special charge, which totaled $20.6 million, related to the closure of our Spain brewery and commercial operations. Of the $20.6 million charge, $11.3 million related to severance and other related closure costs for approximately 100 employees, $4.9 million related to a fixed asset impairment charge and $4.4 million for the write-off of our cumulative translation adjustments, previously recorded in equity, related to our Spain operations. Through April 1, 2001, approximately $11.2 million of severance and related closure costs were paid out, which resulted in a remaining reserve of approximately $0.1 million at April 1, 2001. We are pursuing the disposal of our remaining assets in Spain and believe adequate write-offs have been taken on these assets and that the April 1, 2001, carrying values are appropriate. In 1999, we recorded a pretax special charge of $3.7 million for severance costs as part of a restructuring of our operations. At December 31, 2000, approximately $0.5 million of the severance reserve remained. During the first quarter of 2001, we paid out all remaining severance, and at April 1, 2001, there was no reserve remaining. 4. OTHER COMPREHENSIVE INCOME Thirteen weeks ended April 1, March 26, 2001 2000 (In thousands) Net income $18,328 $14,819 Other comprehensive (expense) income, net of tax: Foreign currency translation adjustments (81) (675) Unrealized gain (loss) on available-for-sale securities and derivative instruments 1,108 (421) Reclassification adjustment for net (gains) losses realized in net income on derivative instruments (2,023) 9 Comprehensive income $17,332 $13,732 5. EARNINGS PER SHARE (EPS) Basic and diluted net income per common share were arrived at using the calculations outlined below: Thirteen weeks ended April 1, March 26, 2001 2000 (In thousands, except per share data) Net income available to common shareholders $18,328 $14,819 Weighted average shares for basic EPS 37,203 36,663 Effect of dilutive securities: Stock options 477 498 Contingent shares not included in shares outstanding for basic EPS 8 55 Weighted average shares for diluted EPS 37,688 37,216 Basic EPS $ 0.49 $ 0.40 Diluted EPS $ 0.49 $ 0.40 The dilutive effects of stock options were determined by applying the treasury stock method, assuming we were to purchase common shares with the proceeds from stock option exercises. 6. SUBSEQUENT EVENT In April 2001, we entered into a new, four-year labor agreement with our Memphis plant workers, who are represented by the Teamsters. Their previous contract was set to expire on April 1, 2001. Our Memphis plant workers are the only significant employee group that has union representation. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Thirteen weeks ended April 1, March 26, 2001 2000 (In thousands, except percentages) (Unaudited) Net sales $ 543,700 100% $ 505,429 100% Cost of goods sold (351,153) 65% (326,919) 65% Gross profit 192,547 35% 178,510 35% Marketing, general and administrative expenses (169,958) 31% (157,640) 31% Operating income 22,589 4% 20,870 4% Other income - net 6,973 1% 3,226 1% Income before taxes 29,562 5% 24,096 5% Income tax expense (11,234) 2% (9,277) 2% Net income $ 18,328 3% $ 14,819 3% Consolidated Results of Operations Sales and volume - Net sales increased 7.6% to $543.7 million in the first quarter of 2001, from $505.4 million in the first quarter of 2000. This increase was primarily due to a volume increase and improved revenues per barrel. In the first quarter of 2001, we sold 5,112,000 barrels of malt beverages compared to sales of 4,827,000 barrels in the first quarter of 2000, resulting in a volume increase of 5.9%. Our volume increase was driven by a build of our wholesalers' inventories in preparation for demand in the upcoming summer months. We achieved improved revenues per barrel in the first quarter of 2001 as a result of solid price increases on our products, which were partially offset by a shift in our sales mix away from some of our higher-net-revenue products. Cost of goods sold - Cost of goods sold was $351.2 million for the first quarter of 2001, compared to $326.9 million for the same period last year. As a percent of net sales, cost of goods sold for the first quarter of 2001 was consistent with last year at 64.6% versus 64.7% for the first quarter of 2000. On a per barrel basis, cost of goods sold increased in the first quarter of 2001 compared to the same period last year. Several factors contributed to this increase and include: higher wages, aluminum and energy prices; an ongoing shift in demand toward more expensive products and packages; and additional expenses incurred related to increasing capacity. This increase in costs was partially offset by the volume leverage that we were able to achieve in the first quarter of 2001 from our inventory build to prepare for the peak summer months, along with the benefit we are now experiencing from closing our Spain brewery. Gross profit - Gross profit increased 7.9% to $192.5 million in the first quarter of 2001, from $178.5 million in the first quarter of 2000. As a percentage of net sales, gross profit was relatively the same for the first quarter of 2001 and 2000 at 35.4% and 35.3%, respectively. Marketing, general and administrative expenses - Marketing, general and administrative costs increased 7.8% to $170.0 million for the first quarter of 2001, from $157.6 million for the same period last year. In the first quarter, we continued to invest in our business through advertising and promotions at a rate consistent with our volume growth. The increase in general and administrative expenses was due in part to higher information systems spending in the first quarter of 2001 in preparation for a planned outsource of a significant portion of our information technology infrastructure. We also incurred charges related primarily to the write-off of certain assets. Operating income - As a result of the factors noted above, operating income was $22.6 million for the first quarter of 2001, which represents an 8.2% or $1.7 million increase over the same period last year. Other income - net - Net other income increased $3.8 million to $7.0 million for the first quarter of 2001, from $3.2 million for the same period last year. This increase was primarily a result of gains recognized on the sale of certain marketable securities in the first quarter of 2001 and higher net interest income in the first quarter of 2001 compared to 2000. As part of our tax strategy, we sold certain marketable securities and realized $3.0 million of capital gains on these sales. Our net interest income was higher due to higher capitalized interest as a result of more capital projects in progress during the first quarter of 2001. Consolidated effective tax rate - Our first quarter effective tax rate was 38%, down from 38.5% for the same period last year mainly due to reduced state tax rates and foreign tax credits. Net income - Net income for the first quarter of 2001 was $18.3 million, or $0.49 per basic and diluted share. This compares to $14.8 million, or $0.40 per basic and diluted share, for the same period last year. Liquidity and Capital Resources Liquidity - Our primary sources of liquidity are cash provided by operating activities, marketable securities and external borrowings. At April 1, 2001, we had working capital of $73.9 million, compared to $118.4 million at December 31, 2000. Cash and short-term and long-term securities totaled $262.7 million at April 1, 2001, compared to $386.2 million at December 31, 2000. The decrease in both our working capital and our cash and securities balances is primarily due to the $65 million payment to Molson in January 2001 for our 49.9% interest in Molson USA, LLC, a joint venture between Molson, Inc. and ourselves, and due to our capital expenditures in the first quarter. We believe that cash flows from operations, cash from the sale or maturity of marketable securities, all of which are highly liquid, and cash provided by short-term borrowings, when necessary, will be sufficient to meet our ongoing operating requirements, scheduled principal and interest payments on debt, dividend payments, anticipated capital expenditures and potential repurchases of common stock under our previously-announced stock repurchase program. Operating activities - Net cash used in operating activities was $32.6 million for the first quarter of 2001, compared to cash provided by operating activities of $32.0 million for the same period last year. The significant change in cash flows from operating activities was primarily attributable to working capital changes. Specifically, increases in our inventory and accounts receivable balances caused a decrease in operating cash flows. We increased our inventory levels in the first quarter of 2001 in order to prepare ourselves for the upcoming peak season demand, while in the first quarter of 2000, inventory levels declined and we had a challenge meeting demand for our products in the following months. Our accounts receivable balances increased in the first quarter of 2001 because year-end 2000 balances included activity from the 53rd week, which was our slowest week of the year for unit volume. Investing activities - Net cash used in investing activities was $44.5 million for the first quarter of 2001, compared to $5.8 million for the same period last year. The increase in cash used in investing activities was due to the $65 million payment in January 2001 for our 49.9% interest in Molson USA, LLC and increased capital expenditures, primarily for capacity-related projects, in the first quarter of 2001 compared to 2000. Partially offsetting this increase was the increase in net cash provided from our investment activities of $29.4 million due to the sale of certain marketable securities in the first quarter of 2001 as part of our tax strategy. A significant portion of the proceeds from the sale of securities was reinvested into similar corporate, government agency and municipal debt instruments, and the remaining proceeds were used in our operations. Financing activities - Net cash used in financing activities was $0.5 million for the first quarter of 2001, compared to $5.6 million for the same period last year. The primary uses were $6.1 million for purchases of Class B common stock under our stock repurchase program and dividend payments of $6.9 million, partially offset by $9.2 million cash received from the exercise of stock options under our stock option plans. Cautionary Statement Pursuant to Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995 This report contains "forward-looking statements" within the meaning of the federal securities laws. You can identify these statements by forward- looking words such as "expect," "anticipate," "plan," "believe," "seek," "estimate," "internal," "outlook," "trends," "industry forces," "strategies," "goals" and similar words. These forward-looking statements may include, among others, statements concerning our outlook for 2001; overall volume trends; pricing trends and industry forces; cost reduction strategies and their anticipated results; our expectations for funding our 2001 capital expenditures and operations; and other statements of expectations, beliefs, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the expectations we describe in our forward-looking statements. To improve our financial performance, we must grow premium beverage volume, achieve modest price increases for our products and control costs. The most important factors that could influence the achievement of these goals - and cause actual results to differ materially from those expressed in the forward-looking statements - include, but are not limited to, the following: - - Our success depends largely on the success of one product, the failure of which would materially adversely affect our financial results. - - Because our primary production facilities are located at a single site, we are more vulnerable than our competitors to transportation disruptions and natural disasters. - - We are smaller than our two primary competitors, and we are more vulnerable than our competitors to cost and price fluctuations. - - We are vulnerable to the pricing actions of our primary competitors, which we do not control. - - If demand for our products continues to grow, we may lack the capacity needed to meet demand or we may be required to increase our capital spending significantly. - - If any of our suppliers are unable or unwilling to meet our requirements, we may be unable to promptly obtain the materials we need to operate our business. - - The government may adopt regulations that could conceivably increase our costs or our liabilities or could limit our business activities. - - If the social acceptability of our products declines, or if litigation is directed at the alcoholic beverage industry, our sales volumes could decrease and our business could be materially adversely affected. - - Any significant shift in packaging preferences in the beer industry could increase our costs disproportionately and could limit our ability to meet consumer demand. - - We depend on independent distributors to sell our products, and we cannot provide any assurance that these distributors will sell our products effectively. - - Because our sales volume is more concentrated in fewer geographic areas in the United States than our competition, any loss of market share in the states where we are concentrated could have a material adverse effect on our results of operations. - - Because we lack a significant presence in international markets, we are dependent on the U.S. market. These and other risks and uncertainties affecting us are discussed in greater detail in our other filings with the Securities and Exchange Commission. Outlook Our performance in the first quarter of 2001 benefited from volume gains achieved from a build in wholesale inventories as part of our strategy to prepare for peak-season demand. Sales-to-retail volume was down in the first quarter, partially due to overall industry softness brought on by difficult year-over-year weather comparisons and a slowing economy. Our outlook is for this trend to reverse in the upcoming months as the peak season gets underway and we experience easier year-over-year comparisons. We expect our volume trend to lag the sales-to-retail trend as a result of our first quarter wholesale inventory build. Our first quarter performance also benefited from increased beer pricing, which is expected to continue to be favorable throughout the year. The benefits we derived from volume gains and pricing in the first quarter were partially offset by geographic and product mix shift. Compared to last year, we believe that mix will not contribute as significantly to our revenue growth this year. For fiscal year 2001, our cost of goods sold per barrel is expected to be up modestly compared to last year. The expected increase is due to increases in prices of energy, aluminum, glass and other packaging materials and due to an ongoing shift in product demand to higher-cost products and packages, including longneck bottles. Significant changes in mix or the market prices of these items could alter this outlook. Also, if sales-to-retail trends do not reverse as anticipated, this outlook could change. Marketing, general and administrative expenses are expected to increase modestly in 2001. We continue to monitor our market opportunities with a bias to invest behind our brands and sales efforts. Incremental sales and marketing spending will be determined on an opportunity-by-opportunity basis. Beginning in 2001, we will be outsourcing a significant portion of our information technology infrastructure. We are currently evaluating the impact that this will have on general and administrative expenses and our financial position. Net interest income growth is expected to slow because of lower interest rates and our lower cash position as a result of the $65 million payment to Molson and our planned increase in capital expenditures in 2001. However, the increase in capital expenditures will result in additional capitalized interest, which will partially offset the slower interest income growth. Of course, net interest income could be less favorable than expected if we invest a substantial portion of our cash balances in operating assets or other investments with longer-term returns, or if interest rates decline further. Also, cash may be used to repurchase additional shares of outstanding common stock as approved by our board of directors. Our effective tax rate for 2001 is not expected to differ significantly from the 2000 effective tax rate applied to income, excluding special items. However, the level and mix of pretax income for 2001 could affect the actual rate for the year. We have planned capital expenditures in 2001 (excluding capital improvements for our container joint ventures, which will be recorded on the books of the respective joint ventures) in the range of $200 million to $240 million for improving and enhancing our facilities, infrastructure, information systems and environmental compliance. In addition to our planned capital expenditures, incremental strategic investments will be considered on a case-by-case basis. PART II. OTHER INFORMATION Not applicable Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ADOLPH COORS COMPANY By /s/ Olivia M. Thompson Olivia M. Thompson Vice President, Controller (Principal Accounting Officer) May 14, 2001 9