Add
TAP to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| TAP > SEC Filings for TAP > Form 10-Q on 6-May-2009 | All Recent SEC Filings |
6-May-2009
Quarterly Report
Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is provided as a supplement to, and should be read in conjunction with, our audited consolidated financial statements, the accompanying notes, and the MD&A included in our Annual Report on Form 10-K for the fiscal year ended December 28, 2008, as well as our unaudited consolidated financial statements and the accompanying notes included in this Form 10-Q. Due to the seasonality of our operating results, quarterly financial results are not an appropriate basis from which to project annual results.
Effective July 1, 2008, Molson Coors Brewing Company ("MCBC") and SABMiller plc ("SABMiller") combined the U.S. and Puerto Rico operations of their respective subsidiaries, Coors Brewing Company ("CBC") and Miller Brewing Company ("Miller"). In connection with the closing of the joint venture transaction, each of MCBC, CBC, SABMiller and Miller have entered into an Amended and Restated Operating Agreement (the "LLC Operating Agreement"). The LLC Operating Agreement is the primary operating document governing the joint venture, MillerCoors LLC ("MillerCoors").
Beginning in the third quarter of 2008, the results and financial position of U.S. operations, which has historically comprised substantially all of our U.S. reporting segment was, in all material respects, prospectively deconsolidated from MCBC. Also beginning in the third quarter of 2008, our interest in the new combined operations have been accounted for by us under the equity method of accounting. Our equity investment in MillerCoors represents our U.S. operating segment from July 1, 2008 forward.
BUSINESS OVERVIEW
Financial Highlights
The following first quarter highlights summarize components of our condensed
consolidated summary of operations for the thirteen weeks ended March 29, 2009
and March 30, 2008. See "RESULTS OF OPERATIONS" below for further analysis of
our reportable segment results.
Thirteen weeks ended
March 29, 2009 March 30, 2008 % change
(In millions, except percentages
and per share data)
Volume in hectoliters 3.895 10.710 (63.6 )%
Net sales $ 559.0 $ 1,356.6 (58.8 )%
Income from continuing
operations, net of tax $ 79.6 $ 43.3 83.8 %
Diluted income per share
from continuing
operations $ 0.43 $ 0.24 79.2 %
|
Consolidated Global Volumes including Proportionate Share of Equity Investments'
volume
Thirteen Weeks Ended Thirteen Weeks Ended
March 29, March 30, March 29, March 30,
2009 2008 % change 2009 2008 % change
Actual Pro forma(1) Actual Reported
(In Thousands) (In Thousands)
Volume in
hectoliters:
Reported financial
volume 3,895 4,201 (7.3 )% 3,895 10,710 (63.6 )%
Royalty volume 51 53 (3.8 )% 51 53 (3.8 )%
Owned volume 3,946 4,254 (7.2 )% 3,946 10,763 (63.3 )%
Proportionate share
of equity
investment
sales-to-retail(2) 6,570 6,549 0.3 % 6,570 45 N/M
Total worldwide beer
volume 10,516 10,803 (2.7 )% 10,516 10,808 (2.7 )%
|
º (1)
º Reflects the reduction of the U.S. segment volume reported for the thirteen
weeks ended March 30, 2008.
º (2)
º Reflects the addition of MCBC proportionate share of equity method
subsidiaries sales-to-retail for the periods presented adjusted for
comparable trading days.
During the first quarter of 2009, our results reflect the adoption of hectoliters as our standard global volume measure and as a result prior periods information presented has been adjusted to reflect this change. Worldwide beer volume is composed of our financial volume, royalty volume and proportionate share of equity investment sales-to-retail. Financial volume represents owned beer brands sold to unrelated external customers within our geographical markets. Royalty beer volume consists of product produced and sold by third parties under various license and contract-brewing agreements. Equity investment sales-to-retail brands volume represents the company's ownership percentage share of volume in its subsidiaries accounted for under the equity method, including MillerCoors and Modelo Molson Imports, L.P.
First quarter 2009 highlights demonstrate the importance of building brands and reducing costs:
º •
º Worldwide Coors Light volume increased more than 4% from a year ago.
º •
º In our Canada business, net pricing grew as price increases across all
major markets more than offset price discounting, primarily in the
Quebec market.
º •
º In the U.K business, based on our value-driven strategy, which focuses
on building our brands, we grew pricing and benefited from our
contract brewing arrangement and the expansion of Magners draught
cider.
º •
º MillerCoors in the U.S. made progress on both the top-line and
bottom-line; improving growth of the total portfolio and for key
brands. At the same time, MillerCoors achieved profit growth of more
than 50% versus the pro-forma result a year ago.
º •
º We continued to reduce Corporate overhead and interest costs.
MCBC cost savings initiatives
During the first quarter of 2009, we achieved approximately $18 million of cost savings as part of our three-year, $250 million Resources for Growth ("RFG") cost savings program. These cost savings
include our 42% of RFG cost savings initiatives that were achieved by MillerCoors, which equaled $3 million in the first quarter of 2009.
MillerCoors integration and cost synergy initiatives
MillerCoors further accelerated synergy delivery timing, realizing $50 million in the first quarter which captures some savings originally planned for delivery in the second quarter. A total of $78 million in synergy savings has been realized since July 1, 2008, exceeding MillerCoors' original goal of $50 million for the first twelve months of operations. MillerCoors expects to realize $128 million of synergies by June 30, 2009.
By the end of calendar year 2009, MillerCoors expects to achieve a total of $238 million in synergies, surpassing its original forecast of $225 million. While the timing of synergy delivery has accelerated, MillerCoors' $500 million synergy goal is unchanged.
Income taxes
Our effective tax rate for the first quarter of 2009 was a tax benefit of approximately (2%). We anticipate that our 2009 full year effective tax rate will be in the range of 16% to 20%. The 2009 first quarter effective tax rate is lower than our anticipated full year rate primarily due to the favorable resolution of unrecognized tax positions.
Discontinued operations
Discontinued operations are associated with the formerly-owned Kaiser business in Brazil. See Part I-Financial Statements, Item 1 Note 7 "DISCONTINUED OPERATIONS" and Note 16 "COMMITMENTS AND CONTINGENCIES" for discussions of the nature of amounts recognized in the Discontinued Operations section of the condensed consolidated statements of operations, which consists primarily of amounts associated with indemnity obligations to the owners of Kaiser related to purchased tax credits and other tax, civil and labor issues.
RESULTS OF OPERATIONS
Canada Segment Results of Operations
Our Canada segment consists primarily of Molson's beer business, including the production and sale of the Molson brands, Coors Light, and other licensed brands in Canada. Effective, January 1, 2008, Molson and Grupo Modelo, S.A.B. de C.V. established a joint venture, Modelo Molson Imports, L.P. ("MMI"), to import, distribute, and market the Modelo beer brand portfolio across all Canadian provinces and territories. MMI is accounted for using the equity method. The Canada segment also includes our arrangements related to the distribution of beer in Ontario and in Western Canada, Brewers' Retail, Inc. ("BRI") and Brewers' Distributor Ltd. ("BDL"), respectively. BRI was a consolidated joint venture through February 28, 2009. As of March 1, 2009, we deconsolidated BRI, and prospectively began accounting for BRI results under the equity method as a result of the reduction in our BRI ownership interest following Labatt's acquisition of Lakeport Brewing in Ontario
and the resulting increase in their relative ownership interest in BRI. Also included in the Canada results is BDL, a joint venture accounted for under the equity method.
Thirteen Weeks Ended
March 29, March 30,
2009 2008 % change
(In millions, except percentages)
Volume in hectoliters 1.763 1.767 (0.2 )%
Net sales $ 324.7 $ 383.6 (15.4 )%
Cost of goods sold (187.4 ) (216.2 ) (13.3 )%
Gross profit 137.3 167.4 (18.0 )%
Marketing, general and (83.5 ) (106.6 ) (21.7 )%
administrative expenses
Special items, net (8.1 ) (1.4 ) N/M
Operating income 45.7 59.4 (23.1 )%
Other income, net 4.3 3.3 N/M
Earnings before income taxes $ 50.0 $ 62.7 (20.3 )%
|
Foreign currency impact on results
The Canadian dollar ("CAD") depreciated versus the U.S. dollar ("USD") resulting in an approximate $12 million decrease to USD earnings before income taxes on a quarter over quarter basis during the thirteen week first quarter.
Volume and net sales
With the formation of MillerCoors, the revenues and production costs of MCBC products sold by Molson in Canada for U.S. distribution, which were previously treated as inter-company sales and eliminated upon consolidation, are now included in Canada segment results. However, the sales volume continues to be eliminated from our Canada results, as this volume is now reported by MillerCoors. These increases will impact this quarter and the next quarter as we cycle prior year results that do not reflect this treatment. To provide more comparable results, we will provide year-over-year changes that exclude the reporting effects in Canada of deconsolidating BRI in March 2009 and setting up MillerCoors in 2008.
Our Canada segment sales volume was 1.8 million hectoliters in the first quarter of 2009, unchanged from a year ago. Our Canada sales to retail ("STRs"), for the calendar quarter ended March 31, 2009 decreased 3.2% versus a year ago, driven by soft industry volumes in the first quarter, along with our decision to limit our participation in off-premise price discounting. STRs of Molson's strategic brands, which represent more than 85 percent of our Canada volume, were stable, while sales of our non-supported brands declined. Strategic brand changes were led by double-digit growth of Coors Light and mid-single digit growth of Carling. Partner import brands and Molson Canadian volumes declined versus the prior comparable period.
Comparable net sales per hectoliter increased 2.0% in local currency, driven by favorable net pricing, led by price increases across all major markets, partially offset by continued discounting activity.
Total Canadian beer industry sales to retail declined an estimated 1.2% in the calendar first quarter of 2009. Our estimated Canada market share decreased about three-quarters of a share point in the first quarter of 2009 versus a year ago.
Cost of goods sold
First quarter 2009 cost of goods sold per hectoliter increased 2.4% on a comparable basis in local currency. This increase was due to the net effect of three factors:
º •
º Commodity, packaging material, distribution and other input costs
increased cost of goods sold by 2.5%,
º •
º About a third of these inflationary increases were offset by savings
from our RFG initiatives,
º •
º An increase of about 1% was due to an increase in overhead expenses
and ongoing product mix shifts.
Marketing, general and administrative expenses
Marketing, general and administrative expense in the first quarter of 2009 decreased by approximately 6% in local currency, driven by lower overhead and incentive compensation expense versus the comparable prior year period.
Special items, net
The Canada segment recognized $8.1 million of special items in the first quarter of 2009 related to costs associated with the Montreal brewery employee pension curtailment and severance, and the ongoing Edmonton brewery closure expenses. See Part I-Financial Statements, Item 1 Note 5 "SPECIAL ITEMS, NET" to the condensed consolidated financial statements for further discussion.
United States Segment Results of Operations
During the first two quarters of 2008, the United States ("U.S.") segment produced, marketed and sold the Coors portfolio of brands in the United States and Puerto Rico and includes the results of the Rocky Mountain Metal Corporation and Rocky Mountain Bottle Corporation, which were consolidated joint ventures. The U.S. segment also included sales of Molson products in the United States. As of July 1, 2008, MillerCoors began operations. The results and financial position of our U.S. segment operations were prospectively deconsolidated upon contribution to the joint venture, and our interest in MillerCoors is being accounted for and reported by us under the equity method of accounting. This means that 42% of the net income reported by MillerCoors is reported on the MCBC income statement as "Equity income in MillerCoors" (after being adjusted for basis difference amortization, accounting policy differences, and share based compensation). MillerCoors' revenue and expense do not directly appear on our income statement. Similarly, 42% of MillerCoors' cash distributions appear on our statement of cash flows as "Distributions from MillerCoors" and the individual components of MillerCoors' cash flow do not appear on our statement of cash flows. Thus, while our equity investment in MillerCoors will represent our U.S. operating segment from and after July 1, 2008, our discussion of its results of operations are not addressed to and do not reflect MillerCoors' financial statements and
results of operations. See Part I-Financial Statements, Item 1 Note 1 "BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES," regarding the MillerCoors joint venture.
Thirteen Weeks Ended
March 29, 2009 March 30, 2008 % change
Net sales $ - $ 650.0 N/M Cost of goods sold - (392.9 ) N/M
Gross profit - 257.1 N/M
Marketing, general and
administrative expenses - (197.6 ) N/M
Special items, net - 8.0 N/M
Equity income in
MillerCoors 97.1 - 100.0 %
Operating income 97.1 67.5 43.9 % Other income, net - 2.4 N/M
Earnings before income
taxes $ 97.1 $ 69.9 38.9 %
The results of operations for MillerCoors for the three months ended March 31, 2009, and pro forma results of operations for the three month period ended March 31, 2008 are as follows:
For the three months ended
March 31, 2009 March 31, 2008 % change
Actual Pro Forma
(In millions, except percentages)
Volumes in hectoliters 18.422 18.791 (2.0 )%
Sales $ 2,005.7 $ 1,947.1 3.0 %
Excise taxes (289.8 ) (294.7 ) (1.7 )%
Net sales 1,715.9 1,652.4 3.8 %
Cost of goods sold (1,049.9 ) (1,017.0 ) 3.2 %
Gross profit 666.0 635.4 4.8 %
Marketing, general and
administrative expenses (441.8 ) (485.9 ) (9.1 )%
Special items, net (10.4 ) (11.3 ) (8.0 )%
Operating income 213.8 138.2 54.7 %
Other income (expense), net (0.5 ) 2.6 N/M
Income before income taxes 213.3 140.8 51.5 %
Income tax expense (2.1 ) - N/M
Net income 211.2 140.8 50.0 %
Less: Net income
attributable to
noncontrolling interests (5.2 ) (4.2 ) 23.8 %
Net income attributable
to MillerCoors $ 206.0 $ 136.6 50.8 %
|
The unaudited pro forma combined financial information has been derived from the historical financial results of the respective U.S. businesses of MCBC and Miller, giving effect to the MillerCoors transaction and other related adjustments, described below. These pro forma results are not necessarily indicative of the results of operations that would have been achieved had the MillerCoors transaction taken place at the beginning of the pro forma period, and do not purport to be indicative of future operating results.
MILLERCOORS, LLC
UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT
For the Three Months Ended March 31, 2008
MCBC's U.S. Miller's U.S.
Business Business MillerCoors
Contributed to Contributed to Pro Forma Pro Forma
MillerCoors MillerCoors Adjustments Results
(In millions)
Net sales $ 650.0 $ 996.3 $ 6.1 C $ 1,652.4
Cost of goods sold (392.9 ) (630.1 ) 5.2 C
0.8 D (1,017.0 )
Gross profit 257.1 366.2 12.1 635.4
Marketing, general and
administrative (197.6 ) (274.1 ) (4.3 ) C
(14.9 ) A
11.8 D
(6.8 ) B (485.9 )
Special items 8.0 (19.3 ) - (11.3 )
Operating income 67.5 72.8 (2.1 ) 138.2
Interest, net - 1.2 1.2
Other, net 2.4 6.1 (7.1 ) C 1.4
Pretax income 69.9 80.1 (9.2 ) 140.8
Income tax expense - - - -
Net income 69.9 80.1 (9.2 ) 140.8
Less: Net income
attributable to
noncontrolling interests (4.9 ) 0.7 - (4.2 )
Net income attributable
to MillerCoors, LLC $ 65.0 $ 80.8 $ (9.2 ) $ 136.6
|
Description of Pro Forma Adjustments
º A
º With the formation of MillerCoors in the third quarter of 2008,
amortization was initiated on certain intangible assets contributed by
Miller that had formerly been classified as indefinite-lived. Since
this decision was due in large part to the combined brand portfolio at
MillerCoors following its formation, a comparable amortization amount
was included in the pro forma period.
º B
º Adjustment to reflect mark-to-market accounting for share-based
compensation held by MillerCoors employees.
º C
º Adjustments to conform classification between the MCBC U.S. business
and the Miller U.S. business and to conform the MCBC U.S. business
accounting calendar from a thirteen week to a three calendar months
ended March 31, 2008.
º D
º Adjustments to conform accounting policies with regard to inventory
valuation, pension and postretirement plans and allocation of
advertising costs between interim periods.
For a reconciliation from MillerCoors Net income to MCBC's proportional share of net income attributable to MillerCoors reported under the equity method see Part I-Financial Statements, Item 1 Note 3 "INVESTMENT IN MILLERCOORS."
Volume and net sales
During the first quarter of 2009, MillerCoors domestic STRs increased 0.4% versus the prior year pro forma quarter due to strong results from five of the six focus brands, offset by declines in Milwaukee's Best and above-premium domestic brands. MillerCoors domestic sales-to-wholesalers ("STW") declined 1% versus prior year, while total STWs declined 2%, driven by a double-digit reduction in contract brewing volumes.
MillerCoors total net sales increased by 3.8% to $1.7 billion versus the prior pro forma quarter. Pricing remained favorable in the first quarter of 2009 as MillerCoors domestic net sales per hectoliter, excluding contract brewing and MillerCoors-owned distributor sales, increased 5.6% based on 2008 first and fourth quarter price increases and reductions in discounting. Pricing growth was lower than the previous quarter due to cycling of early 2008 general price increases.
Cost of goods sold
MillerCoors continues to realize supply chain related synergies and deliver savings from its cost leadership programs-related to Miller and CBC legacy cost savings initiatives (called Project Unicorn and Resources for Growth, respectively)-Cost of goods sold per hectoliter increased by 5.3% due to significant increases in brewing and packaging materials.
Marketing, general and administrative expenses
For the first quarter of 2009, marketing, general and administrative costs decreased by 9.1% driven by timing and management of marketing and sales spending and the accelerated timing of synergy delivery.
Depreciation and amortization expense for MillerCoors in the first quarter of 2009 was approximately $71 million, and additions to properties and intangible assets were approximately $97 million.
Special Items
During the first quarter of 2009, MillerCoors incurred special items totaling $10.4 million due to employee relocation and retention expenses relating to the joint venture.
United Kingdom Segment Results of Operations
The United Kingdom ("U.K.") consists of production and sale of the owned brands principally in the United Kingdom, results of our royalty arrangements in the Republic of Ireland, our consolidated joint venture arrangement to produce, import and distribute the Grolsch brands in the United Kingdom and the Republic of Ireland, factored brand sales (beverage brands owned by other companies, but sold
and delivered to retail by us) in the U.K., and our joint venture arrangement with DHL ("Tradeteam") for the distribution of products throughout Great Britain accounted for under the equity method.
Thirteen Weeks Ended
March 29, 2009 March 30, 2008 % change
(In millions, except percentages)
Volume in hectoliters 2.021 2.346 (13.8 )%
Net sales $ 219.4 $ 310.5 (29.3 )%
Cost of goods sold (149.9 ) (219.0 ) (31.6 )%
Gross profit 69.5 91.5 (24.0 )%
Marketing, general and
administrative expenses (67.0 ) (95.1 ) (29.5 )%
Special items, net (0.9 ) (2.1 ) (57.1 )%
Operating income (loss) 1.6 (5.7 ) N/M
Interest income(1) 2.0 2.8 (28.6 )%
Other expense, net (1.0 ) (1.2 ) (16.7 )%
. . .
|
|
|