10-Q 1 0001.txt 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 25, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) Commission file number 0-8251 ADOLPH COORS COMPANY (Exact name of registrant as specified in its charter) COLORADO 84-0178360 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) Golden, Colorado 80401 (Address of principal executive offices) (Zip Code) 303-279-6565 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Class B Common Stock (non-voting), New York Stock Exchange no par value Securities registered pursuant to Section 12(g) of the Act: None (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] State the aggregate market value of the voting stock held by non-affiliates of the registrant: All voting shares are held by Adolph Coors, Jr. Trust. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of August 2, 2000: Class A Common Stock - 1,260,000 shares Class B Common Stock - 35,668,658 shares PART I. FINANCIAL INFORMATION Item 1. Financial Statements ADOLPH COORS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) (Unaudited) Thirteen weeks ended June 25, June 27, 2000 1999 Sales - domestic and international $ 733,257 $ 690,691 Beer excise taxes (119,108) (115,123) Net sales 614,149 575,568 Cost of goods sold (348,906) (315,220) Gross profit 265,243 260,348 Marketing, general and administrative (183,632) (186,638) Special charge (15,502) -- Operating income 66,109 73,710 Other income - net 4,378 1,769 Income before income taxes 70,487 75,479 Income tax expense (22,143) (29,248) Net income $ 48,344 $ 46,231 Net income per common share - basic $ 1.32 $ 1.26 Net income per common share - diluted $ 1.29 $ 1.23 Weighted average number of outstanding common shares - basic 36,712 36,741 Weighted average number of outstanding common shares - diluted 37,335 37,435 Cash dividends declared and paid per common share $ 0.185 $ 0.165 See notes to consolidated financial statements. ADOLPH COORS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) (Unaudited) Twenty-six weeks ended June 25, June 27, 2000 1999 Sales - domestic and international $1,289,069 $1,216,525 Beer excise taxes (210,468) (201,095) Net sales 1,078,601 1,015,430 Cost of goods sold (634,848) (587,602) Gross profit 443,753 427,828 Marketing, general and administrative (341,272) (335,996) Special charge (15,502) -- Operating income 86,979 91,832 Other income - net 7,604 3,209 Income before income taxes 94,583 95,041 Income tax expense (31,420) (36,828) Net income $ 63,163 $ 58,213 Net income per common share - basic $ 1.72 $ 1.59 Net income per common share - diluted $ 1.69 $ 1.55 Weighted average number of outstanding common shares - basic 36,688 36,700 Weighted average number of outstanding common shares - diluted 37,275 37,495 Cash dividends declared and paid per common share $ 0.350 $ 0.315 See notes to consolidated financial statements. ADOLPH COORS COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) June 25, December 26, 2000 1999 Assets Current assets: Cash and cash equivalents $ 316,877 $ 163,808 Short-term marketable securities 24,201 113,185 Accounts and notes receivable, net 187,792 159,660 Inventories: Finished 43,088 44,073 In process 25,549 19,036 Raw materials 7,819 34,077 Packaging materials 8,912 10,071 Total inventories 85,368 107,257 Other current assets 58,699 68,911 Total current assets 672,937 612,821 Properties, at cost and net 708,539 714,001 Long-term marketable securities 2,890 2,890 Other assets 226,273 216,664 Total assets $1,610,639 $1,546,376 See notes to consolidated financial statements. (Continued) ADOLPH COORS COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share information) (Unaudited) June 25, December 26, 2000 1999 Liabilities and shareholders' equity Current liabilities: Accounts payable $ 203,163 $ 179,615 Accrued expenses and other liabilities 203,397 213,089 Total current liabilities 406,560 392,704 Long-term debt 105,000 105,000 Deferred tax liability 84,303 78,733 Other long-term liabilities 124,030 128,400 Total liabilities 719,893 704,837 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: 35,580,656 in 2000 and 35,462,034 in 1999) 8,472 8,443 Total capital stock 9,732 9,703 Paid-in capital 6,594 5,773 Retained earnings 875,361 825,070 Accumulated other comprehensive (loss) income (941) 993 Total shareholders' equity 890,746 841,539 Total liabilities and shareholders' equity $1,610,639 $1,546,376 See notes to consolidated financial statements. (Concluded) ADOLPH COORS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Twenty-six weeks ended June 25, June 27, 2000 1999 Cash flows from operating activities: Net income $ 63,163 $ 58,213 Adjustments to reconcile net income to net cash provided by operating activities: Equity in earnings of joint ventures (19,959) (15,897) Impairment charge 4,944 -- Depreciation and amortization 64,163 64,366 (Gain) loss on sale or abandonment of properties (2,762) 2,194 Deferred income taxes 6,693 (5,610) Change in operating assets and liabilities 16,506 (7,253) Net cash provided by operating activities 132,748 96,013 Cash flows from investing activities: Purchases of investments (40,000) (4,170) Sales and maturities of investments 128,817 74,009 Additions to properties and intangibles (67,425) (79,259) Proceeds from sales of properties 4,522 210 Distributions from joint ventures 12,001 8,485 Other (2,163) 753 Net cash provided by investing activities 35,752 28 Cash flows from financing activities: Issuances of stock under stock plans 6,617 8,937 Purchases of stock (8,851) (13,308) Dividends paid (12,872) (11,607) Payment of current portion of long-term debt -- (25,000) Other -- 506 Net cash used in financing activities (15,106) (40,472) Cash and cash equivalents: Net increase in cash and cash equivalents 153,394 55,569 Effect of exchange rate changes on cash and cash equivalents (325) (202) Balance at beginning of year 163,808 160,038 Balance at end of quarter $316,877 $215,405 See notes to consolidated financial statements. ADOLPH COORS COMPANY AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE TWENTY-SIX WEEKS ENDED JUNE 25, 2000 1. BUSINESS Founded in 1873 and incorporated in Colorado in 1913, Adolph Coors Company (ACC) 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, except as discussed in Note 3, which are necessary for a fair presentation of the financial position of the Company (as defined) at June 25, 2000, and the results of its operations and its cash flows for the thirteen and twenty-six weeks ended June 25, 2000 and June 27, 1999. 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 (collectively referred to as "the Company"). 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 26, 1999. The results of operations for the thirteen and twenty-six weeks ended June 25, 2000, 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 - Cash paid for interest for the twenty-six weeks ended June 25, 2000 and June 27, 1999, was $4.2 million and $5.9 million, respectively. Cash paid for income taxes for the twenty-six weeks ended June 25, 2000 and June 27, 1999, was $16.8 million and $5.3 million, respectively. During the second quarter of 2000 and 1999, the non-cash tax effects of the issuances of stock under the Company's stock plans increased equity by $4.0 million and $5.5 million, respectively. 3. SPECIAL CHARGE In the second quarter of 2000, CBC's Spanish operation, Coors Brewing Iberica, S.A. (Coors Iberica), completed various analyses of the potential for improved distribution channels, the viability of Coors brands in the Spain market and additional contract brewing opportunities. Due to the unfavorable outlook from these analyses, at the end of the second quarter the CBC Board of Directors approved a recommendation from the Coors Iberica Board of Directors for a plan to close the Company's brewery and sales operation in Spain by the end of 2000. As a result of these events and decisions, CBC reevaluated the recoverability of Coors Iberica's long-lived assets and determined that certain of these assets were impaired and wrote them down to their fair market values based on an independent third-party appraisal. The Company is currently evaluating options for disposing of the various assets held at the brewery and sales office in Spain. As a result of the planned closure and the impairment determination, severance, for approximately 100 employees, and other related costs of approximately $10.6 million and a fixed asset impairment charge of approximately $4.9 million were recorded in the second quarter of 2000. These expenses are classified as a special charge in the accompanying statements of income. 4. INCOME TAXES The Internal Revenue Service (IRS) has completed its examination of the Company's federal income tax returns through 1995. The IRS proposed adjustments for the years 1993 through 1995 based upon the completed examinations. The Company filed a protest for the proposed adjustments and began the administrative appeals process in 1999. Certain proposed adjustments relating to international matters were settled in April 2000. An agreement for the remaining issues was reached in July 2000. Neither of these items will have a material adverse effect on the Company's consolidated balance sheet, results of operations or liquidity. 5. OTHER COMPREHENSIVE INCOME Thirteen weeks ended Twenty-six weeks ended June 25, June 27, June 25, June 27, 2000 1999 2000 1999 (In thousands) Net income $48,344 $46,231 $63,163 $58,213 Other comprehensive income (expense), net of tax: Foreign currency translation adjustments 1,779 (792) 1,105 (2,973) Unrealized gain (loss) on available-for-sale securities and derivative instruments (1,597) 805 (1,991) 558 Reclassification adjustment for net gains realized in net income on derivative instruments (1,029) -- (1,048) -- Comprehensive income $47,497 $46,244 $61,229 $55,798 6. EARNINGS PER SHARE (EPS) Basic and diluted net income per common share were arrived at using the calculations outlined below: Thirteen weeks ended Twenty-six weeks ended June 25, June 27, June 25, June 27, 2000 1999 2000 1999 (In thousands, except per share data) Net income available to common shareholders $48,344 $46,231 $63,163 $58,213 Weighted average shares for basic EPS 36,712 36,741 36,688 36,700 Effect of dilutive securities: Stock options 564 618 528 696 Contingent shares not included in shares outstanding for basic EPS 59 76 59 99 Weighted average shares for diluted EPS 37,335 37,435 37,275 37,495 Basic EPS $ 1.32 $ 1.26 $ 1.72 $ 1.59 Diluted EPS $ 1.29 $ 1.23 $ 1.69 $ 1.55 The dilutive effects of stock options were determined by applying the treasury stock method, assuming the Company was to purchase common shares with the proceeds from stock option exercises. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Special Charge In March 1994, Coors Brewing Company (CBC), through its subsidiary, Coors Brewing Iberica, S.A. (Coors Iberica), purchased an approximately 500,000- hectoliter brewery in Zaragosa, Spain. In the second quarter of 2000, Coors Iberica completed various analyses of the potential for improved distribution channels, the viability of Coors brands in the Spain market and additional contract brewing opportunities. Due to the unfavorable outlook from these analyses, at the end of the second quarter the CBC Board of Directors approved a recommendation from the Coors Iberica Board of Directors for a plan to close the Company's brewery and sales operation in Spain by the end of 2000. As a result of these recent events and decisions, CBC management reevaluated the recoverability of Coors Iberica's long-lived assets. As a result of the plan of closure and the evaluation of the recoverability of Coors Iberica's long-lived assets, severance, for approximately 100 employees, and other related costs of approximately $10.6 million and a fixed asset impairment charge of approximately $4.9 million were recorded as special charges in the second quarter of 2000. The severance and other related costs will be funded from the Company's current cash balances, and the majority of these costs will be paid by the end of 2000. The Company will incur additional expenses related to the plan of closure during the second half of 2000. The Company anticipates that these expenses will be substantially less than the second quarter special charge. The decision to close the Spain brewery and sales operation will eliminate that operation's annual operating losses from the Company's overall operating results. The anticipated payback period is less than three years; the Company plans to invest most of the annual savings of approximately $7.0 million to $8.0 million into its domestic and international businesses. The Company expects that the savings from the closure will begin in fiscal 2001. The Company's operating results including and excluding these special charges is summarized as follows: Thirteen weeks ended Twenty-six weeks ended June 25, June 27, June 25, June 27, 2000 1999 2000 1999 (In thousands, except per share data) Operating income: As reported $66,109 $73,710 $ 86,979 $91,832 Excluding special charges 81,611 73,710 102,481 91,832 After tax income: As reported 48,344 46,231 63,163 58,213 Excluding special charges 53,434 46,231 68,253 58,213 Earnings per share: As reported - basic $ 1.32 $ 1.26 $ 1.72 $ 1.59 - diluted $ 1.29 $ 1.23 $ 1.69 $ 1.55 Excluding special charges - basic $ 1.46 $ 1.26 $ 1.86 $ 1.59 - diluted $ 1.43 $ 1.23 $ 1.83 $ 1.55 Consolidated Results of Continuing Operations Sales and volume - Adolph Coors Company (ACC); the holding company for Coors Brewing Company (CBC); and the majority-owned and controlled domestic and foreign subsidiaries of both ACC and CBC (collectively referred to as "the Company") reported net sales of $614.1 million and $1,078.6 million for the second quarter and first half of 2000, respectively, representing increases of 6.7% and 6.2%, respectively, over each of the same periods of 1999. Net sales for the thirteen weeks ended June 25, 2000, were impacted favorably by a unit volume increase of 3.4%: CBC sold 6,389,000 barrels of malt beverages in the second quarter of 2000 compared to sales of 6,181,000 barrels in the second quarter of 1999. Additionally, net sales were favorably impacted by improved gross realizations per barrel due to increased pricing and mix improvement toward higher-net-revenue product sales. Gross profit - Gross profit in the second quarter of 2000 rose 1.9% to $265.2 million over the second quarter of 1999, while gross profit in the first half of 2000 rose 3.7% to $443.8 million, compared to the same period of 1999. As a percentage of net sales, gross profit decreased to 43.2% and 41.1% in the second quarter and first half of 2000, respectively, from 45.2% and 42.1% for the same periods a year earlier. These changes were attributable to the increases in net sales per barrel, as discussed above, offset by significantly larger increases in cost of goods sold of 10.7% in the second quarter of 2000 and 8.0% in the first half of 2000 versus the prior year. Cost of goods sold per barrel for the second quarter of 2000 increased mainly due to a shift in product demand toward more expensive products and packages, including import beers sold by Coors-owned distributors, Zimar and longneck bottles. Additionally, there was an increase in packaging materials costs and in production expense during the second quarter of 2000 compared to the same period in 1999. The increased packaging materials costs in 2000 were mainly due to a one-time benefit of renegotiating and revising certain long-term supply contracts during the second quarter of 1999. The increased production expense was related to meeting higher-than-expected demand for certain products, which mainly consisted of overtime pay. The cost of goods sold per barrel for the six months ended June 25, 2000, was impacted by essentially the same factors. Operating income (excluding special charges) - Operating income was $81.6 million and $102.5 million for the second quarter and first half of 2000, respectively, compared to $73.7 million and $91.8 million for the same periods a year earlier. The increase for the second quarter of 2000 was primarily due to the increase in gross profit, as discussed above, as well as an overall decrease in marketing, general and administrative expenses. Total marketing, general and administrative expenses decreased during the second quarter of 2000 compared to the same period of 1999 because of lower information technology expenses and corporate overhead expenses. The increase in operating income for the first half of 2000 compared to the same period in 1999 was primarily due to the increase in gross profit, as discussed above, which was partially offset by an increase in marketing, general and administrative expenses. Marketing, general and administrative expenses rose primarily because of higher spending on marketing, sales, promotions and the Company's international organization. These increases were partially offset by lower information technology expenses incurred during the first half of 2000 compared to the same period in 1999. Non-operating income - Net non-operating income for the second quarter and first half of 2000 improved over the same periods in 1999 primarily because of increases in interest income and reductions in interest expense. The increase in interest income was mainly due to higher average cash and securities balances in the first half of 2000 compared to the first half of 1999, while the decrease in interest expense was due to lower outstanding medium-term debt. Effective tax rate (excluding special charges) - The consolidated effective tax rates for the second quarter and first half of 2000 were 37.86% and 38.0%, respectively, compared to 38.75% for the same periods in 1999. The rate decreased in 2000 mainly because of reduced state tax rates. Net income (excluding special charges) - Net income for the second quarter and first half of 2000 was $53.4 million, or $1.46 per basic share ($1.43 per diluted share), and $68.3 million, or $1.86 per basic share ($1.83 per diluted share), respectively. This compares to net income of $46.2 million, or $1.26 per basic share ($1.23 per diluted share), and $58.2 million, or $1.59 per basic share ($1.55 per diluted share), respectively, for the second quarter and first half of 1999. Liquidity and Capital Resources Liquidity - The Company's primary sources of liquidity are cash provided by operating activities and external borrowings. As of June 25, 2000, ACC had working capital of $266.4 million, and its cash position was $316.9 million compared to $163.8 million as of December 25, 1999. In addition to its cash resources, ACC had short-term, highly liquid securities of $24.2 million at June 25, 2000, compared to $113.2 million at December 26, 1999. ACC also had $2.9 million of marketable securities with maturities exceeding one year at both June 25, 2000 and December 26, 1999. 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, 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 increased to $132.7 million for the first half of 2000 from $96.0 million for the first half of 1999. A portion of the $36.7 million increase in operating cash was due to a $48 million contribution made to the Company's defined benefit pension plan in January 1999 without a similar contribution being made in 2000. This contribution was made in 1999 as a result of benefit improvements to the Company's defined benefit pension plan, which were effective July 1, 1999, and resulted in an increase to the projected benefit obligation of approximately $48 million. Also contributing to the increase in net cash provided by operating activities during the first half of 2000 were increased net income, the impairment charge incurred during the second quarter of 2000 on the Coors Iberica long-lived assets and utilization of deferred tax assets. These increases to net cash provided by operating activities were offset by increases in the equity in earnings of joint ventures, gains on the sales of properties and working capital changes, which all decrease the cash provided by operating activities. The fluctuations in working capital changes are primarily due to increased operating activity and timing of payments between the two years. Investing activities - During the first twenty-six weeks of 2000, ACC received $35.8 million from net investing activities compared to $0.1 million received for the first twenty-six weeks of 1999. The net impact of ACC's marketable investment activities was a cash inflow of $88.8 million during the first half of 2000, compared to an inflow of $69.8 million during the same period of 1999. This increase of cash inflow is due to more securities maturing in the first half of 2000 compared to the same period in 1999 offset by purchases of $40.0 million of securities in the first half of 2000 compared to $4.2 million in the same period of 1999. Capital expenditures decreased to $67.4 million for the twenty-six weeks ended June 25, 2000, from $79.3 million a year earlier. The decreased capital spending during the first quarter of 2000 compared to the same period in 1999 is primarily due to decreased spending on information technology upgrades, as technology upgrades were substantially completed in 1999. ACC received $12.0 million in distributions from joint ventures during the first half of 2000, compared to $8.5 million during the same period of 1999. The increased distributions from joint ventures was due to increased operating activity at the joint ventures. Financing activities - ACC spent $15.1 million on financing activities during the twenty-six weeks ended June 25, 2000, compared to $40.5 million in 1999. The 2000 uses were primarily for purchases of $8.9 million of Class B common stock under the stock repurchase program and dividend payments of $12.9 million. The 1999 uses were primarily for principal payments on debt of $25 million, purchases of $13.3 million of Class B common stock under the stock repurchase program and dividend payments of $11.6 million. The Company bought back fewer shares under its stock repurchase program during the first half of 2000 compared to the same period in 1999. The dividend per share amount increased to $0.185 per share in the first half of 2000 compared to $0.165 per share for the same period of 1999. The debt payments in the first half of 1999 were on the medium-term notes, which were paid off in the third quarter of 1999. 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 2000; overall volume trends; pricing trends and industry forces; cost reduction strategies and their results; the Company's expectations for funding its 2000 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 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. As the beer business is competitive and does entail some measure of risk, 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: - any inability of the Company and its distributors to develop and execute effective marketing and sales strategies for Coors and non-Coors products; - the potential erosion of sales revenues through discounting, higher proportion of sales in value-packs, or negative consumer reaction to price increases; - a potential shift in consumer preferences toward lower-priced products; - an accelerated shift in consumer preferences toward products with higher costs; - a potential shift in consumer preferences toward products and packages that would require additional capacity; - 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 import beers; - increases in the cost of aluminum, paper packaging and other raw materials; - increasing competition in and costs of marketing and advertising spending; - any inability of the Company to reduce manufacturing, freight and overhead costs to more competitive levels; - changes, or imposition of restrictions, in laws or government regulations affecting environmental compliance, income taxes, advertising and other products and operations of the Company; - any inability of the Company to achieve targeted improvements in CBC's distribution system; - significant increases in federal, state or local beer or other excise taxes; - increases in transportation rates and costs or interruptions of service; - the potential impact of further industry consolidation; - significant increases in planned capital expenditures or changes in underlying assumptions that would accelerate capital spending; and - 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. These and other risks and uncertainties affecting the Company are discussed in greater detail in the Company's 1999 Form 10-K filed with the Securities and Exchange Commission. Outlook The Company's performance in the first half of 2000 benefited from strong domestic volume gains (sales to wholesalers). Domestic sales-to-retail volume gains experienced by the Company's distributors were even larger than the Company's volume gains. Domestic sales-to-retail growth is expected to continue in the second half of 2000, although at a lower rate than the sales- to-retail volume gains experienced in the first half of 2000. Because of high product demand in the second quarter and the resulting decrease in distributor inventories, it is anticipated that the Company's domestic volume growth will outpace the sales-to-retail growth of its distributors in the third quarter. The Company's second quarter performance also benefited from increased domestic pricing and mix improvement toward higher-net-revenue product sales. The favorable pricing environment is expected to continue for the rest of 2000. Increased value-pack activity or price discounting could have an unfavorable impact on top-line performance. While freight costs have increased due to higher fuel expense, the Company expects these costs to be manageable and has implemented and continues to consider tactics to mitigate the impact of these costs on the business. For the remainder of 2000, packaging and fixed costs per barrel are expected to increase, although at a lower rate than experienced in the first half of 2000. Packaging and fixed costs per barrel are expected to increase over 1999, mainly due to increases in prices of certain packaging materials and a shift in product demand to higher-cost products and packages, including longneck bottles and import beer sold by Coors-owned distributors. Significant changes in demand for higher cost packages or market prices of these items could alter this outlook. CBC continues to pursue improvements in its operations to achieve cost reductions over time. Marketing, general and administrative expenses are expected to increase in 2000, although at a rate lower than the 1999 increase. 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. Net interest should continue its favorable trends based on the Company's lower outstanding debt, higher cash balances and higher anticipated yields relative to 1999. Net interest could be less favorable than expected if the Company invests a substantial portion of its cash balances in operating assets or investments with longer-term returns, or if interest rates decline. Also, cash may be used to repurchase additional outstanding common stock as approved by the ACC board of directors in November 1999. The effective tax rate for the rest of 2000 is not expected to differ significantly from the rate applied to income during the first six months of the year (excluding the impact of the second quarter special charge). The level and mix of pretax income for 2000 could affect the actual rate for the year. CBC expects capital expenditures for 2000 (excluding capital improvements for its container joint ventures, which will be recorded on the books of the respective joint ventures) in the range of $135 million to $145 million for improving and enhancing facilities, infrastructure, information systems and environmental compliance. There continues to be a rapid expansion in market- place demand, particularly for longneck bottles and value-packs. To effectively meet the increasing demand, the Company anticipates making additional investments in capacity in the next few years, including capacity to produce more value-packs and building a new bottle line in one of the Company's facilities. The Company anticipates that capital spending in 2001 will increase above the 2000 spending estimate. In addition to CBC's 2000 planned capital expenditures, incremental strategic investments will be considered on a case-by-case basis. PART II. OTHER INFORMATION Item 1. Legal Proceedings No significant legal proceedings. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 3.2 - By-laws, as amended and restated in May 2000. (b) Reports on Form 8-K A report on Form 8-K dated June 2, 2000, was filed announcing changes to certain Board of Directors and top management positions at the Company. 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) August 9, 2000