U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
---- SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 25, 1994
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
---- SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
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Commission file number 0-8251
ADOLPH COORS COMPANY
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(Exact name of registrant as specified in its charter)
Colorado 84-0178360
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(State or other jurisdiction of (I.R.S. Employer identification No.)
incorporation or organization)
Golden, Colorado 80401
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303) 279-6565
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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None None
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Securities registered pursuant to Section 12(g) of the Act:
Class B Common Stock (non-voting), no par value
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(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
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. (X)
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 March 15, 1995:
Class A Common Stock - 1,260,000 shares
Class B Common Stock - 37,070,178 shares
PART I
ITEM 1. Business.
(a) General Development of Business
Founded in 1873, Adolph Coors Company ("ACC" or the "Company"),
through its subsidiary, Coors Brewing Company ("CBC"), produces and markets
beer and other malt-based beverages. The Company's business was conducted as a
partnership or sole proprietorship until 1913, when it incorporated under the
laws of the State of Colorado. During the 1980s, the Company developed a
number of technology-based businesses. At the end of 1992, ACC spun off its
aluminum, packaging, ceramics and other technology businesses in a tax-free
distribution to shareholders. The spin-off was accomplished through a dividend
of the shares of common stock in a new public company, ACX Technologies, Inc.
(ACXT)(NASDAQ:ACXT).
CBC remains as the single direct subsidiary of ACC. CBC owns Coors
Distributing Company, and a number of smaller subsidiaries, including Coors
Transportation Company; Coors Energy Company; The Wannamaker Ditch Company; The
Rocky Mountain Water Company; CBC International, Inc.; Coors Global, Inc.; and
Coors Intercontinental, Inc. CBC indirectly owns, through its
subsidiaries, Coors Brewing International C.V. and Coors Brewing Iberica, S.A.
In 1992, substantially all of the assets of Coors Energy Company and Coors
Transportation Company were sold.
(b) Financial Information About Industry Segments
The Company has continuing operations in a single industry segment,
the production and marketing of beer and other malt-based beverages.
(c) Narrative Description of Business
Coors Brewing Company - General
-------------------------------
CBC is engaged in the production and marketing of high quality
malt-based beverage products. CBC places a priority on higher-margin products
in the premium and above-premium categories and has a number of
distinctive brands that satisfy consumer demands and taste trends. The
majority of CBC's sales come from U.S. markets; however, CBC is also
committed to building profitable sales in international markets. Sales of
malt beverage products totaled 20.4 million barrels in 1994, a 2.7% increase
compared to 19.8 million barrels in 1993.
Marketing
---------
Principal products and services: There are currently 22 products in
the CBC brand portfolio. CBC produces 7 premium products in the Coors
family of brands, including Coors Light, Original Coors, Coors Artic Ice, Coors
Artic Ice Light, Coors Extra Gold, Coors Dry and Coors Cutter, a
non-alcoholic brew.
CBC produces and markets Zima Clearmalt, an innovative malt-based
beverage in the above-premium category. CBC also offers beers in the specialty,
above-premium category, including the Coors seasonal beers -- which
in 1994 were Winterfest, Eisbock, Weizenbier and Oktoberfest Marzen -- and a
number of import or licensed products, including George Killian's Irish Red,
Castlemaine XXXX and Steinlager.
CBC also offers products in the popular-priced category: Keystone,
Keystone Light, Keystone Dry, Keystone Ice and Keystone Amber Light. In
target markets with a high demand for economy beers, CBC offers two
value-added beers, Shulers Lager and Shulers Light. With the exception of
Shulers and Shulers Light, which are in limited distribution, other Coors
malt beverage products are sold in most states. A number of Coors products are
exported or produced and sold in overseas markets. International sales are
described in greater detail below.
New products/opportunities: CBC completed the national expansion of
Zima Clearmalt in the first half of 1994. In addition, Coors Artic Ice
and Coors Artic Ice Light were rolled out into 54% of the U.S. by September
1994. Both ice brands were sold nationally by January 1995. These products are
brewed using patented ice brewing technology licensed from Labatt Breweries of
Canada.
In order to tap into the fast-growing popularity of
special-occasion brews, UniBev Limited (Unibev), a unit of CBC that focuses on
the import and specialty beer market, introduced three new seasonal beers to
complement the well-established Coors Winterfest brand. Each of these
beers -- Eisbock, a springtime bock; Weizenbier, a summertime wheat beer; and
Oktoberfest Marzen beer -- was available in limited quantities for their
respective seasons in 1994. UniBev also distributes Steinlager in the U.S.
Steinlager is the number-one premium beer in New Zealand, and is distributed
by Coors under license from Lion Nathan International of New Zealand.
Early in 1995, CBC announced the introduction of a new product,
Zima Gold. Zima Gold features a distinctive taste that is full-flavored. The
product is being tested with select retailers in Nebraska and Arizona, and
will be rolled out nationally in time for the peak summer selling season.
Also in the first quarter of 1995, CBC announced a distribution arrangement
between UniBev and F.X. Matt Company of Utica, New York. UniBev will
initiate a distribution test of a number of F.X. Matt's Saranac brands --
including Saranac Adirondack Amber, Saranac Golden Pilsner, Saranac Black
and Tan, Saranac Black Forest and Saranac Pale Ale -- in limited markets.
In 1994, CBC also introduced two new Keystone line brands: Keystone
Ice and Keystone Amber Light.
Brand names, trademarks, patents and licenses: Trademarks of CBC
include: Original Coors, Coors Light, Coors Artic Ice, Coors Artic Ice
Light, Coors Extra Gold, Coors Dry, Coors Cutter, Zima Clearmalt, Winterfest,
Eisbock, Weizenbier, Oktoberfest Marzen, Keystone, Keystone Light, Keystone
Dry, Keystone Ice, Keystone Amber Light, Shulers Lager, and Shulers Light.
CBC regards consumer recognition of and loyalty to its brand names and
trademarks as being extremely important to the long-term success of its
business. CBC also holds a number of patents on innovative processes related
to can-making and can-decorating and other technical operations and derives
incremental revenues from related royalties and licenses. Although CBC owns a
number of patents, it does not consider its business to be dependent upon any
one or related group of such patents.
Brand performance: Coors Light is the largest selling brand in
CBC's product portfolio. For the past few years, Coors Light has accounted for
approximately two-thirds of CBC's total sales volume. Despite a competitive
assault in 1994 on the light beer category from the proliferation of ice
beers in U.S. markets, Coors Light posted another volume gain in 1994. CBC's
next strongest volume growth came from its above-premium beverages, including
Zima and George Killian's Irish Red. CBC also gained volume in 1994 from the
introduction of Coors Artic Ice and Coors Artic Ice Light, as well as CBC's
seasonal and import beers. Products in the premium and above-premium
categories make up more than 87% of CBC's volume.
Domestic sales operations: CBC's highest volume sales are in the
states of California, Texas, Pennsylvania, New York and New Jersey.
In August 1994, CBC completed the restructuring of its field sales
operations into eight field business areas (FBAs) strategically located
throughout the United States and managed by newly appointed area vice
presidents. The goal of each new FBA is to align CBC resources more effectively
and improve CBC's competitiveness and responsiveness at retail, distributor
and field marketing levels. The new structure focuses increased autonomy and
bottom-line accountability in the field sales organization.
CBC also continued its emphasis on specialty, import and licensed
beer brands through UniBev, an import and specialty unit of CBC. Organized in
1993, UniBev provides CBC with a separate marketing organization dedicated to
specialty brands in the U.S.
International marketing/partnerships: International markets provide
significant opportunities for profitable growth, and CBC is committed to
increasing its international presence. This will be accomplished through a
number of alternatives, including export products, licensing agreements and
joint ventures. CBC's goal in seeking international opportunities is
superior financial returns to those found in the U.S. beer market. CBC's
first priority is to seek on-site profitable production capability in strategic
international markets.
CBC exports its products to a number of markets outside of the
United States, including American Samoa, the Bahamas, Bahrain, Bermuda, Cayman
Islands, France, Greece, Guam, Ireland, Italy, Panama, Puerto Rico, St.
Maarten, Singapore and the U.S. and British Virgin Islands. In addition, CBC
exports its products to U.S. military bases worldwide. While export volumes
do not account for a significant portion of CBC's sales, they are
significantly more profitable, on a per barrel basis, than sales in U.S.
markets.
CBC has existing licensing agreements with a number of
international brewers. CBC licenses Molson Breweries of Canada Limited (Molson)
to brew and distribute Original Coors and Coors Light in Canada, where Coors
Light is the best selling light beer. In 1992, Miller Brewing Company (Miller)
increased its ownership in Molson to 20%. As a result, CBC initiated two legal
actions related to its licensing agreement with Molson -- seeking to allow CBC
to terminate the agreement or, alternatively, asking that Miller Brewing Company
be removed as a partner in Molson. These legal actions are ongoing and have not
impacted the success of CBC's brands in Canada. In Japan, Original Coors has
been produced under license by Asahi Breweries Ltd. for seven years and remains
one of the top foreign brands in that country.
In early 1994, CBC announced that it had licensed proprietary ice
brewing technology from Labatt Breweries of Canada.
In September 1992, a joint venture between CBC and Scottish &
Newcastle Breweries of Scotland began to brew and distribute Coors Extra Gold
in the United Kingdom. Coors Extra Gold was introduced in Scotland and
northwest England in August 1992, and in 1993 distribution was expanded into
the remainder of Great Britain. In June of 1993, CBC announced the launch of
Coors Extra Gold into Ireland; the brand is brewed by Scottish & Newcastle in
the U.K. and distributed under license by Murphy Brewery Ireland Ltd., Dublin,
a subsidiary of Heineken, N.V. Coors Extra Gold was rated best for overall Best
Draught Lager at the 1994 Brewing Industry International Awards in England.
In 1993, CBC announced that it would produce and market Castlemaine
XXXX (an Australian lager) in the U.S. through a joint venture with Lion
Nathan International of New Zealand. In 1994, CBC expanded its relationship
with Lion Nathan to include exclusive U.S. distribution of Steinlager, the
best-selling premium beer in New Zealand.
Beginning in 1991, CBC made an investment in a joint venture with
Jinro Limited of the Republic of Korea. Jinro-Coors Brewing Company is one-
third owned by CBC and two-thirds owned by Jinro Limited. In the second quarter
of 1994, Jinro-Coors completed construction of a 1.8-million-barrel brewery
in South Korea and launched its first product, Cass Fresh. In its first few
months in the market, Cass Fresh captured a 10% share of the South Korean beer
market. In October of 1994, Jinro-Coors launched Coors Extra Gold in the South
Korean market. In the first quarter of 1995, the joint venture will complete
improvements and additions to double the brewery's capacity. Volumes from
Jinro-Coors Brewing Company are not included in CBC's financial results.
In March 1994, CBC completed the purchase of a 500,000-hectoliter
brewery in Zaragoza, Spain. The brewery was purchased from El Aguila S.A.,
based in Madrid, Spain, which is 51% owned by Amsterdam-based Heineken, N.V.,
the world's second-largest brewer. The total investment by CBC in Spain over the
next few years is expected to exceed $50 million, including purchase price and
future spending on operations and product marketing. Under terms of an
agreement, CBC will contract brew El Aguila products through 1998. In 1994, CBC
also brewed Coors Extra Gold in Zaragoza for export to France, Greece and
Italy. Sales and distribution in Spain will be handled by El Aguila. This
arrangement will provide significant cost and other advantages over exporting
beer from U.S. facilities. Volumes from the Zaragoza brewery are included in
CBC's sales results. Product distribution: Delivery to retail markets in the
United States is accomplished through a national network of 587 independent
distributors and five distributors owned and operated by CBC's subsidiary, Coors
Distributing Company. Some distributors have multiple branches. The total
number of distributor locations in the U.S., including branch operations, is
645. Delivery to export/international markets is accomplished via licensing and
distribution agreements with independent distributors.
In order to ensure the highest product quality, CBC has one of the
industry's most extensive distributor monitoring programs. This program is
designed to ensure that guidelines for proper refrigeration and rotation of
CBC's malt beverage products at both the wholesale and retail levels are
followed. Distributors are responsible for maintaining proper rotation of the
products at retail accounts and are required to replace CBC's malt beverage
products at their own expense if sales to consumers have not occurred within
the prescribed time period.
No single distributor accounted for more than 5% of 1994 barrel
sales.
Transportation
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The number and geographic location of CBC's brewing operations
require its malt beverage products to be shipped farther than competitors'
products. Major competitors have multiple breweries and, therefore, incur lower
transportation costs than CBC incurs to deliver its products to their
respective distributors. By packaging some of its products in Memphis,
Tennessee and Elkton, Virginia (Shenandoah), CBC is able to achieve more
efficient product distribution and a reduction of freight costs for certain
markets. During 1994, 27% of total CBC products sold were first shipped in
CBC's insulated rail tank cars from Golden and then blended, finished and
packaged at the Memphis and Shenandoah plants.
CBC's Golden facilities are served by Burlington Northern, Inc.,
which transports approximately 74% of CBC products packaged at the Golden
facility 14 miles from Golden to Denver. From Denver the products are shipped
by various railroad lines to satellite distribution centers and distributors
throughout the country. CBC is able to maintain the high rail volume through
the use of 24 satellite distribution centers strategically located throughout
the country. These centers, operated by public warehouse companies and CBC,
transfer CBC's malt beverage products from railcars for shipment to distributors
by truck. In 1994, approximately 82% of total railcar volume from Golden moved
through the satellite distribution centers. The railcars assigned to CBC by the
shipping railroads are specially built and insulated to maintain temperature
control en route. A national rail strike of any duration could substantially
impair CBC's ability to transport their products to its markets and cause a
shortage of CBC's malt beverage products to a greater degree than might be
experienced by competitors with multiple breweries. Although an extended
shutdown of the Burlington Northern, Inc. rail spur at Golden could adversely
affect CBC's business, CBC believes that such an interruption of service is
unlikely. In addition, the satellite distribution system would mitigate the
potential impact of interrupted rail service.
The remaining 26% of CBC volume packaged in Golden is shipped by
truck and intermodal (piggyback) directly to distributors. Transportation
vehicles are refrigerated or insulated to keep CBC's malt beverage products at
proper temperatures while in transit to distributor locations.
Operations
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Production/packaging capacity: CBC currently has three domestic
production facilities. It owns and operates the world's largest single-site
brewery in Golden, Colorado; a packaging and brewing facility in Memphis,
Tennessee; and a packaging plant and distribution facility near Elkton,
Virginia (referred to as the Shenandoah facility).
The Golden brewery is the source for all brands with the Coors
name, except for Coors Cutter. The majority of CBC's beer is packaged in Golden.
The remainder is shipped in bulk from the Colorado brewery to the Shenandoah
and Memphis facilities for blending, finishing and packaging. To support the
development of new products, CBC maintains a fully-equipped pilot brewery
within the Golden facility, with a 6,500-barrel annual capacity. This on-site
resource enables CBC to brew small batches of innovative products without
interrupting ongoing production and operations.
The Memphis facility is currently packaging all domestic CBC
products for export outside of the United States and producing Zima
Clearmalt, Zima Gold, Castlemaine XXXX and Coors Cutter. Depending on product
mix and market opportunities, the full utilization of brewing capacity in
Memphis may require incremental expansion in plant and equipment.
The Shenandoah facility, which currently packages certain CBC
products for distribution into eastern markets, was designed so that it could be
expanded to include brewing capability if volumes and economics warrant
additional brewing capacity.
At the end of 1994, CBC had approximately 25 million barrels of
annual brewing capacity and 28 million barrels of annual packaging capacity.
Current capacity figures are dependent on product mix and can change with
shifting consumer preferences for specific brands and/or packages. The
increasing proliferation of products and packages creates logistical
challenges for CBC as well as for all brewers. Together, the three facilities
provide sufficient brewing and packaging capacity to meet consumer demand for
CBC's products into the foreseeable future.
Significant portions of CBC's aluminum can, end, glass bottle and
malt requirements are also produced in its own facilities. CBC has
sufficient capacity in container and malting operations to fulfill its current
and projected requirements.
Container manufacturing facilities: CBC owns a can manufacturing
facility, which produces approximately 3.5 billion aluminum cans per year. In
addition, CBC owns an end manufacturing facility, which provides aluminum
ends and tabs to CBC. Together, container assets comprise approximately 15%
of CBC's property assets. In May of 1994, CBC and American National Can
Company entered into a joint venture to produce reduced-diameter 202
beverage can ends at the CBC end manufacturing facility for sale to CBC and
to outside customers. This innovative joint venture was expanded in the
third quarter to include can manufacturing. Over time, this joint venture is
intended to improve utilization of both facilities and improve the return on
this investment. In 1994, substantially all of the cans, ends and tabs
produced were purchased by CBC.
In 1994, the CBC bottle manufacturing plant produced approximately
790 million bottles for consumption by CBC. There were no sales to outside
customers. Bottles manufactured by CBC are made with an average total recycled
content of 35%. To assist in its goal of manufacturing bottles with 50%
recycled content, in 1992 CBC announced its intent to build a glass recycling
facility in Wheat Ridge, Colorado. Construction of the facility was completed
mid-year in 1994 and doubled the amount of glass CBC can recycle annually.
CBC is currently completing negotiations with Anchor Glass
Container Corporation to form a partnership to produce glass bottles. When
negotiations arescompleted in the near future, an announcement of the
partnership will be released.
Other facilities: CBC owns waste treatment facilities which process
waste from CBC's manufacturing operations as well as municipal waste from the
nearby City of Golden. CBC owns and operates its own power plant. In 1994, a
proposed divestiture of its electric-generating assets to Public Service
Company of Colorado was terminated when the parties could not agree on an
acceptable financial package. CBC is currently evaluating other options for
improving utilization and/or divesting the electric-generating assets.
CBC continues to explore opportunities to improve asset
utilization, including the divestiture of non-core assets and continuing
improvement in capacity utilization through innovative joint ventures and
alliances.
Capital expansion: In 1994, the Company spent approximately $160.3
million to provide additional new product capacity. While management plans to
invest appropriately in order to ensure the ongoing productivity and
efficiency of CBC assets, a priority will be placed on those projects that
offer returns on investment spending that are well in excess of CBC's cost of
capital. CBC expects its capital expenditures for 1995 to be approximately $167
million.
Raw Materials/Sources and Availability
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CBC uses all-natural ingredients in the production of its malt
beverages. In addition, CBC has one of the longest beer brewing cycles in the
industry. CBC adheres to strict formulation and quality standards in selecting
its raw materials. CBC believes it has sufficient access to raw materials
and packaging materials to meet its production requirements in the foreseeable
future.
Barley, barley malt, starch and hops: CBC uses a proprietary strain
of barley, developed by CBC's agronomists, in most of its malt beverage
products. Virtually all of this barley is grown on irrigated farmland in the
western United States under contractual agreements with area farmers. CBC's
malting facility located in Golden, Colorado, produces malt for all of
CBC's products with the exception of Zima Clearmalt. CBC maintains inventory
levels in several locations owned by CBC which it believes are sufficient to
supply the business in the event of any natural disaster or contingency.
Rice and refined cereal starch, which are considered to be interchangeable in
CBC's brewing process, are purchased from several suppliers. Both foreign and
domestic hops are purchased from various suppliers.
Water: CBC utilizes naturally filtered water from underground
aquifers to brew malt beverages at its Golden, Colorado facility. Water from
private deep wells is used for final blending and packaging operations for
malt beverages packaged at plants located outside Colorado. Water quality and
composition were primary factors in all facility site selections. Water from
CBC's sources in Golden, Memphis and Shenandoah is soft, with the required
balance of minerals and dissolved solids to brew high-quality malt beverages.
CBC continually monitors the quality of all the water used in its brewing and
packaging processes for compliance with CBC's own stringent quality standards
as well as applicable federal and state water standards. CBC owns water rights
believed to be adequate to meet all of CBC's present requirements for both
brewing and industrial uses; however, it continues to acquire water rights and
add water reservoir capacity, as appropriate, to provide for long-term
strategic growth plans and to sustain brewing operations in the event of a
prolonged drought.
Packaging materials: During 1994, approximately 57% of CBC's malt
beverage products were packaged in aluminum cans. This is a slight reduction
from 1993, when 60% of CBC's malt beverages were packaged in aluminum cans.
Aluminum cans for CBC's malt beverage products packaged at the Memphis plant
were purchased from an outside supplier.
Approximately 25% of the cost of malt beverage products packaged in
cans represents the cost of aluminum. CBC's aluminum requirements for
can-and-end-making are purchased through CBC's joint venture agreement with
American National Can Company (ANC), including the portion purchased from
Golden Aluminum Company, a subsidiary of ACXT.
Glass bottles were used to package approximately 31% of CBC's malt
beverage products in 1994. Approximately half of all bottle requirements
were produced in CBC's bottle manufacturing plant. In addition, CBC has
two other qualified suppliers under contract to supply glass bottles.
The remainder of the malt beverages sold during 1994 was packaged
in quarter-and half-barrel stainless steel kegs and two different sizes of a
plastic sphere called "The Party Ball," an innovative package introduced by
CBC in 1988.
Most of the secondary packaging for CBC's products, including bottle labels
and paperboard products, is supplied by Graphic Packaging Corporation,
an ACXT subsidiary.
The cost of packaging materials is expected to increase
significantly in 1995. See Management's Discussion and Analysis for further
discussion.
Supply contracts with ACXT companies: At the time of the spin-off
of ACXT, at the end of 1992, CBC negotiated long-term supply contracts with
operating subsidiaries of ACXT for aluminum and packaging materials. These
contracts are in effect through 1997 and were negotiated at market prices.
Energy: CBC uses both coal and natural gas as primary sources of
energy. Coal is used as the primary fuel in CBC's steam generation system and is
supplied from outside sources. Natural gas was supplied by public utilities
and various natural gas purchase contracts during the year. CBC also has,
through Coors Energy Company, access to fuel oil and propane as alternate
sources of energy. CBC does not anticipate future supply problems for these
natural resources.
Seasonality of the Business
---------------------------
Due to the seasonality of the beer industry, CBC's sales volumes
are normally at their lowest in the first and fourth quarters and highest in the
second and third quarters. The fiscal year of the Company is a 52- or 53-week
period ending on the last Sunday in December. The 1995 fiscal year is 53-weeks
and ends on December 31, 1995.
Competitive conditions
----------------------
Known trends and competitive conditions: Industry and competitive
information was compiled from the following industry sources: Beer Marketer's
Insights, The Maxwell Consumer Report and various securities analyst reports.
While management believes these sources are reliable, CBC cannot guarantee the
absolute accuracy of these numbers and estimates.
1994 Industry overview: The beer industry in the United States is
highly competitive. Industry volume growth in domestic markets has been
below 1% a year for the past several years and per capita consumption fell
in 1994, down to 22.7 gallons per person, compared with 22.9 gallons in 1993.
For the past several years, brewers have attempted to gain share through
competitive pricing. In 1994, price promotions and price discounting
continued to erode net price realizations for brewers. While projected
increases in raw materials costs throughout the industry could result in
modest price increases and some relief from price discounting in the near
term, it is anticipated that competitors will continue to concentrate on
market share gains vs. profitability, which will place continued downward
pressure on pricing. Industry growth is increasingly dependent on
introductions of new, higher-margin products -- including imports,
specialty brews and other innovative brands -- and expansion into
international markets.
A number of important trends emerged in the U.S. beer market in
1994. The first was a trend toward "trading up." Consumers moved away from
lower-priced brands to higher-priced brands, including specialty products and
imports in the above-premium category. This caused a related shift in packaging
preferences, toward glass bottles and away from aluminum cans. Concurrent
with the shift in consumer preference is a recent proliferation of
microbreweries.
To capitalize on the trend toward specialty products and
craft-brewed beers, brewers are introducing new products at an accelerating
rate. It is estimated that the top six brewers introduced or expanded more
than 60 new brands in 1994. G. Heileman Brewing announced in 1994 that it
expects to introduce a total of 150 new products and/or line extensions by
mid-1995. This proliferation of products creates unique challenges in
operations, logistics and marketing for all brewers, distributors and
retailers.
CBC competitive position: CBC's malt beverage products compete with
numerous above-premium, premium, low-calorie, popular-priced, non-alcohol
and imported brands produced by national, regional, local and international
brewers. More than 90% of domestic volume is attributable to the top six
domestic brewers, Anheuser-Busch Companies, Inc. (AB), Philip Morris, Inc.
through its subsidiary Miller Brewing Company (Miller), Coors Brewing
Company, The Stroh Brewery Company, G. Heileman Brewing, and S & P Company.
CBC competes most directly with AB and Miller, the dominant players in the
industry. CBC is the nation's third-largest brewer and, according to Beer
Marketer's Insights (BMI) estimates, CBC accounted for approximately 10.2% of
the total 1994 U.S. brewing industry shipments of malt beverages (including
exports and U.S. shipments of imports). This compares to Miller's 22.6%
share and AB's 44.1% share.
CBC is well-positioned in the malt beverage industry, with strong,
quality brands in the fastest-growing categories. Compared to AB (77%) and
Miller (80%), CBC's premium and above-premium categories make up more than
87% of total volume. Given its position in the industry, CBC continues to face
significant competitive disadvantages related to economies of scale. In
addition to lower transportation costs achieved by major competitors with
multiple breweries, these larger brewers also recognize economies of scale in
advertising expenditures. CBC, in an effort to achieve and maintain national
advertising exposure, must spend substantially more per barrel of beer sold
than its major competitors. On a per barrel basis, it is estimated that CBC
pays nearly twice as much for its advertising as AB; however, the gap between
CBC's and Miller's costs (on a per barrel basis) appears to be narrowing. A
significant level of advertising expenditures is necessary for CBC to hold
and increase its share of the U.S. beer market. This, coupled with ongoing
price competition, puts more pressure on CBC's margins in comparison to CBC's
principal competitors.
Research and Development
------------------------
CBC's research and development expenditures are primarily devoted
to new product and package development, its brewing process and ingredients,
brewing equipment, improved manufacturing techniques for packaging supplies
and environmental improvements in CBC's processes and packaging materials.
The focus of these programs is to improve the quality and value of its malt
beverage products while reducing costs through more efficient processing and
packaging techniques, equipment design and improved varieties of raw materials.
CBC's research and development dollars are strategically applied to
short-term as well as long-term opportunities. Approximately $13.3 million
was spent on research and development in 1994.
Regulations
-----------
Federal laws and regulations govern the operations of breweries;
the federal government and all states regulate trade practices, advertising and
marketing practices, relationships with distributors and related matters.
Governmental entities also levy various taxes, license fees and other similar
charges and may require bonds to ensure compliance with applicable laws and
regulations.
There are a number of emerging regulatory issues that could impact
business operations over the next few years, including potential increases
in state and federal excise taxes, restrictions on the advertising and sale of
alcohol beverages, new packaging regulations and others.
Federal excise taxes on malt beverages are presently $18.00 per
barrel. State excise taxes are also levied at rates that ranged in 1994 from a
high of $32.65 per barrel in Alabama to a low of $0.62 per barrel in Wyoming,
with an average of $7.81 per barrel. In 1994, CBC paid more than $377 million in
federal and state excise taxes. A substantial increase in federal excise taxes
would have a negative impact on the entire industry and could have a material
effect on CBC sales and profitability. CBC is vigorously opposed to any
additional increases in federal and/or state excise taxes and will work
diligently to ensure that its view is adequately represented in the ongoing
debate.
Environmental
-------------
A top priority of the Company is to ensure compliance with all
federal, state and local environmental protection laws and regulations.
Compliance with the provisions of federal, state and local environmental
laws and regulations did not have a material effect on the capital
expenditures, earnings or competitive position of the Company during 1994.
The Company also continues its commitment to programs directed
toward efficient use of resources, waste reduction and pollution prevention.
Programs currently underway include recycling initiatives, down-weighting of
product packages, and, where practicable, increasing the recycled content of
product packaging materials, paper and other supplies. A new recycled glass
processing facility at Coors Glass Manufacturing in Wheat Ridge, Colorado,
opened in May of 1994, resulting in the capability to increase the recycled
content in CBC beer bottles. A number of employee task forces throughout CBC
continually seek effective alternatives for hazardous materials and work to
develop innovative technologies to reduce emissions and waste.
Employees
---------
The Company has approximately 6,300 full-time employees.
Approximately 1,600 employees are salaried. Over the past few years, CBC has
worked diligently to reduce overhead and general and administrative expense.
Foreign Operations
------------------
The Company's foreign operations and export sales are not a
material part of its business. The Company is committed to expanding its
foreign operations throughexport sales, licensing agreements and joint
ventures.
Brewing Company Subsidiaries
----------------------------
Coors Distributing Company (CDC) is CBC's largest subsidiary. CDC
owns and operates distributorships in five markets across the United States.
Together, CDC operations in 1994 accounted for approximately 5% of CBC's
total beer sales.
In late 1992, Coors Energy Company (CEC) became a subsidiary of
CBC. During 1992, CEC sold substantially all of its oil and gas exploration
and production assets. CEC retained a transmission pipeline to bring natural
gas to various CBC facilities in Colorado and, through a subsidiary,
continues to operate a gas transmission pipeline to provide for the energy
needs of CBC's Shenandoah facility. In early 1995, CEC divested a portion of
its Colorado coal reserves on terms favorable to CBC.
In 1992, CBC sold substantially all of the assets and operations of
Coors Transportation Company.
Other subsidiary operations of CBC include The Wannamaker Ditch
Company and The Rocky Mountain Water Company (both carry process water from
Clear Creek to various CBC reservoirs).
CBC and three of its subsidiaries are partners in a partnership
that owns Coors Brewing Iberica S.A. Coors Brewing Iberica S.A. manufactures and
markets beer for sale in Spain and for export to other European countries.
ITEM 2. Properties
The Company's major facilities are set out below:
Facility Location
Product
Brewery/Packaging Golden, Colorado MaltBeverages/Packaged
MaltBeverages
Packaging Elkton, Virginia Packaged MaltBeverages
Brewery/Packaging Memphis, Tennessee Malt Beverages/Packaged
Malt Beverages
Brewery/Packaging Zaragoza, Spain Malt Beverages/Packaged
MaltBeverages
Can and End Plants Golden, Colorado Aluminum Cans and Ends
Bottle Plant Wheat Ridge, Colorado Glass Bottles
Distribution Warehouse Anaheim, California Wholesale Beer Distribution
Distribution Warehouse Boise, Idaho Wholesale Beer Distribution
Distribution Warehouse Denver, Colorado Wholesale Beer Distribution
Distribution Warehouse* Glendale Heights, Illinois Wholesale Beer Distribution
Distribution Warehouse Oklahoma City, Oklahoma Wholesale Beer Distribution
Distribution Warehouse* San Bernardino, California Wholesale Beer Distribution
* Leased
The original brewery site at Golden, which is approximately 2,400
acres, contains brewing, packaging and can manufacturing facilities, as
well as gravel deposits and water-storage facilities. CBC also owns and
operates a glass-bottle making facility in Wheat Ridge, Colorado, just east
of Golden.
CBC's can and end plants are operated by a joint venture between
CBC and American National Can Company.
The Company owns 2,600 acres of land in Rockingham County,
Virginia, where the Shenandoah facility is located, and 131 acres in Shelby
County, Tennessee, where the Memphis plant is located.
All of the Company's facilities are well maintained and suitable
for their respective operations. In 1994, CBC estimates the brewing
facilities operated at approximately 83% of the 1995 brewing capacity and the
packaging facilities operated at approximately 73% of the 1995 packaging
capacity. Annual production capacity can vary due to product mix, packaging mix
and seasonality.
CEC has retained a transmission pipeline to bring natural gas from
certain wells for use at various CBC facilities in Colorado, and through a
subsidiary, will continue to operate a gas transmission pipeline to provide for
the energy needs of the Shenandoah facility.
ITEM 3. Legal Proceedings
In January 1992, ACC and CBC (as well as two former affiliates that
are now subsidiaries of ACXT) were sued by TransRim Enterprises (USA) Ltd.
in Federal District Court for the District of Colorado. TransRim alleged that
the defendants misused confidential information and breached an implied
contract to proceed with a joint venture project to build and operate a paper
board mill. TransRim initially claimed damages totaling $159 million based on
a number of theories, some of which were dismissed from the case by the judge
granting the defendants' motion for the partial summary judgement. Trial by a
jury was held in April 1994, and the jury returned a verdict in favor of all
defendants on all claims. TransRim filed an appeal to the U.S. Court of Appeals,
10th Judicial Circuit. Oral arguments were heard March 7, 1995. Management
believes that ACC and CBC have meritorious defenses and that the ultimate
outcome will not have a material impact on the Company's financial position
and results of operations.
See the Environmental section of Management's Discussion and
Analysis for a discussion of the Company's obligation for potential
remediation costs at the Lowry Landfill Superfund site and related legal
proceedings.
The Company is party to numerous other legal proceedings arising
from its business operations. In each proceeding, the Company is vigorously
defending the allegations. Although the eventual outcome of the various
proceedings cannot be predicted, no single such proceeding, and no group of
such similar matters, is expected to result in liability that would be
material to the Company's financial position.
ITEM 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders
during the fourth quarter ended December 25, 1994.
PART II
ITEM 5. Market for the Registrant's Common Equity and
Related Stockholder Matters
Adolph Coors Company Class B common stock is traded on the
over-the-counter market and is included in the NASDAQ Stock Market National
Market (NNM) listings, under the symbol "ACCOB." Daily stock prices are listed
in major newspapers, generally alphabetically under "CoorsB."
The approximate number of record security holders by class of stock
at March 15, 1995, is listed below:
Title of Class Number of Record Holders
Class A Common Stock, voting, All shares of this class are
$1 par value held by the Adolph Coors,
Jr. Trust
Class B Common Stock, non-voting,
no par value 5,541
Preferred Stock, non-voting, None issued
$1 par value
The range of the high and low quotations and the dividends paid per
share on the Class B Common Stock for each quarter of the past two years are
shown below:
1994
Market Price
High Low Dividends
First Quarter 19 1/4 14 7/8 $ 0.125
Second Quarter 20 1/4 17 1/2 $ 0.125
Third Quarter 20 7/8 16 7/8 $ 0.125
Fourth Quarter 19 14 3/4 $ 0.125
1993
Market Price
High Low Dividends
First Quarter 17 1/8 15 1/2 $ 0.125
Second Quarter 18 5/8 16 $ 0.125
Third Quarter 21 3/4 17 7/8 $ 0.125
Fourth Quarter 23 1/8 15 $ 0.125
ITEM 6. Selected Financial Data
Following is selected financial data for ACC for the eight years
ended December 25, 1994: (In thousands, except per share data)
1994 1993 1992 1991
----------------------------------------------------------------------
Barrels
of Malt Beverages Sold 20,363 19,828 19,569 19,521
----------------------------------------------------------------------
Summary of Operations
Net sales $1,662,671 $1,581,811 $1,550,788 $1,529,986
----------------------------------------------------------------------
Cost of goods sold 1,062,789 1,036,864 1,035,544 1,039,207
Marketing, general
and administrative 492,403 454,130 429,573 434,141
Research and project
development 13,265 13,008 12,370 14,252
Special (credit) charges (13,949) 122,540 -- 29,599
----------------------------------------------------------------------
Total operating expenses 1,554,508 1,626,542 1,477,487 1,517,199
----------------------------------------------------------------------
Operating income (loss) 108,163 (44,731) 73,301 12,787
Other (income) expense
-net 3,943 12,099 14,672 4,403
----------------------------------------------------------------------
Income (loss) before
income taxes 104,220 (56,830) 58,629 8,384
Income tax expense
(benefit) 46,100 (14,900) 22,900 (8,700)
----------------------------------------------------------------------
Income (loss) from
continuing operations $ 58,120 $ (41,930) $ 35,729 $ 17,084
----------------------------------------------------------------------
Per share of common $ 1.52 $ (1.10) $ 0.95 $ 0.46
stock
Income (loss) from
continuing operations as a
percentage of net sales 3.5% (2.6%) 2.3% 1.1%
======================================================================
Financial Position
Working capital $ (25,048) $ 7,197 $ 112,302 $ 110,443
Properties - net $ 922,208 $ 884,102 $ 904,915 $ 933,692
Total assets** $1,371,576 $1,350,944 $1,373,371 $1,844,811
Long-term debt $ 131,000 $ 175,000 $ 220,000 $ 220,000
Other long-term
liabilities $ 30,884 $ 34,843 $ 52,291 $ 53,321
Shareholders' equity** $ 674,201 $ 631,927 $ 685,445 $1,099,420
Net book value per share
of common stock** $ 17.59 $ 16.54 $ 18.17 $ 29.33
Total debt to total
capitalization 20.6% 26.3% 24.3% 19.5%
Return on average
shareholders' equity 8.9% (6.4%) (0.2%) 2.3%
======================================================================
Other Information
Dividends $ 19,146 $ 19,003 $ 18,801 $ 18,718
Per share of common
stock $ 0.50 $ 0.50 $ 0.50 $ 0.50
Average number of
common shares
outstanding 38,283 37,989 37,561 37,413
Gross profit $ 599,882 $ 544,947 $ 515,244 $ 490,779
Capital expenditures $ 160,314 $ 120,354 $ 115,450 $ 241,512
Depreciation, depletion
and amortization $ 120,793 $ 118,955 $ 114,780 $ 108,367
Full-time employees 6,300 6,200 7,100 7,700
Total taxes $ 472,854 $ 401,667 $ 437,089 $ 405,789
Market price range of
common stock:
High $ 20 7/8 $ 23 1/8 $ 22 7/8 $ 24 1/4
Low $ 14 3/4 $ 15 $ 15 1/2 $ 17 3/8
1990 1989 1988 1987
-----------------------------------------------------------------------
Barrels
of Malt Beverages Sold 19,297 17,698 16,534 15,658
-----------------------------------------------------------------------
Summary of Operations
Net sales $1,478,287 $1,367,718 $1,273,745 $1,169,983
-----------------------------------------------------------------------
Cost of goods sold 980,766 909,339 825,071 750,941
Marketing, general
and administrative 398,889 386,991 369,006 329,313
Research and project
development 10,196 10,853 11,125 11,105
Special (credit) charges 30,000 41,670 -- --
-----------------------------------------------------------------------
Total operating expenses 1,419,851 1,348,853 1,205,202 1,091,359
-----------------------------------------------------------------------
Operating income (loss) 58,436 18,865 68,543 78,624
Other (income) expense
- net 5,903 2,546 (6,471) (6,022)
-----------------------------------------------------------------------
Income (loss) before
income taxes 52,533 16,319 75,014 84,646
Income tax expense
(benefit) 20,300 9,100 28,700 33,500
-----------------------------------------------------------------------
Income (loss) from
continuing operations $ 32,233 $ 7,219 $ 46,314 $ 51,146
-----------------------------------------------------------------------
Per share of common
stock $ 0.87 $ 0.20 $ 1.26 $ 1.40
Income (loss) from
continuing operations as a
percentage of net sales 2.2% 0.5% 3.6% 4.4%
=======================================================================
Financial Position
Working capital $ 201,043 $ 193,590 $ 196,687 $ 242,406
Properties - net $1,171,800 $1,012,940 $1,033,012 $ 975,781
Total assets** $1,761,664 $1,530,783 $1,570,765 $1,456,493
Long-term debt $ 110,000 -- -- --
Other long-term
liabilities $ 58,011 $ 16,138 $ 19,367 $ 26,376
Shareholders' equity** $1,091,547 $1,060,900 $1,062,064 $1,031,811
Net book value per share
of common stock** $ 29.20 $ 28.75 $ 29.00 $ 28.19
Total debt to total
capitalization 9.2% 2.0% 1.7% 0.4%
Return on average
shareholders' equity 3.6% 1.2% 4.5% 4.8%
=======================================================================
Other Information
Dividends $ 18,591 $ 18,397 $ 18,311 $ 18,226
Per share of common
stock $ 0.50 $ 0.50 $ 0.50 $ 0.50
Average number of
common shares
outstanding 37,148 36,781 36,621 36,497
Gross profit $ 497,521 $ 458,379 $ 448,674 $ 419,042
Capital expenditures $ 183,368 $ 149,616 $ 157,995 $ 199,541
Depreciation, depletion
and amortization $ 98,081 $ 122,439 $ 111,432 $ 99,422
Full-time employees 7,000 6,800 6,900 6,800
Total taxes $ 251,606 $ 236,740 $ 236,683 $ 234,352
Market price range of
common stock:
High $ 27 3/8 $ 24 3/8 $ 21 $ 30
Low $ 17 1/8 $ 17 3/8 $ 16 1/2 $ 16 1/4
*Numbers in italics include results of discontinued operations.
**Reflects the dividend of ACX Technologies, Inc. to shareholders
during 1992.
See Note 2 to Consolidated financial statements.
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results
of Operations
INTRODUCTION Adolph Coors Company ("ACC" or the "Company") is the
holding company for a single subsidiary, Coors Brewing Company ("CBC").
CBC produces and markets quality malt-based beverages.
The following discussion summarizes the significant factors
affecting the consolidated results of operations and liquidity and capital
resources of ACC during the three year period ended December 25, 1994.
Unusual or nonrecurring items make it difficult to evaluate the Company's
ongoing operations. Consequently, consolidated financial results for each year
are first reviewed separately including the effects of special and
nonrecurring items. Then consolidated financial results are reviewed
excluding these special and nonrecurring items. This analysis should be read in
conjunction with the financial statements and notes to the financial statements
included in this annual report.
CONSOLIDATED RESULTS OF OPERATIONS FOR FISCAL YEARS 1994, 1993 AND
1992
1994 Consolidated Results of Operations: For the 52-week fiscal
year ended December 25, 1994, ACC reported net income of $58.1 million, or
$1.52 per share.
Two nonrecurring items in 1994 resulted in a net special credit to
ACC. First, the Company reached a settlement with a number of its insurance
carriers which enabled it to recover a portion of the costs associated with
the Lowry Landfill Superfund site. This was partially offset by a writedown
of distributor assets.
The net effect of these two items was a net special credit of
approximately $13.9 million pretax, or $0.22 per share after tax. Without
the net special credit, ACC would have reported 1994 net income of $49.7
million, or $1.30 per share.
1993 Consolidated Results of Operations: For the 52-week fiscal
year ended December 26, 1993, the Company reported a net loss of $41.9
million, or $1.10 per share. The Company recorded restructuring and other
special charges of $122.5 million in the fourth quarter primarily related
to the costs of a significant restructuring intended to reduce costs and
improve performance. The net loss was also the result of an after-tax charge of
$3.2 million, or $0.08 per share, related to the 1993 retroactive increase of 1%
in the federal corporate income tax rate, and the related revaluation of
deferred income tax liability. Excluding these special charges, the
Company's net income would have been $33.6 million, or $0.88 per share.
The 1993 restructuring charge, which totaled $109.5 million pretax,
included $70.2 million for voluntary separation and enhanced early
retirement packages designed to reduce CBC's white collar work force. Of the
remaining $39.3 million, approximately $22.0 million related to workplace
redesign and other profit improvement initiatives, and approximately $17.3
million related to asset writedowns. Substantially all of the charges related to
voluntary separation and enhanced early retirement packages were paid in 1993;
other costs related to workplace redesign and other profit improvement
initiatives were accrued in 1993 and substantially all were paid in 1994.
Special charges related to the writedown of certain distributor assets and a
provision for environmental enhancements totaled $13.0 million. Together the
aggregate impact of the special charges was $1.98 per share.
1992 Consolidated Results of Operations: At the end of 1992, ACC
significantly restructured its operations by spinning off its diversified
technology business into a new, public company, ACX Technologies, Inc.
(NASDAQ:ACXT). The results of ACXT are reported as discontinued operations in
the consolidated financial statements for all periods presented, except as
noted.
In 1992, ACC reported a net loss of $2.0 million. The loss was a
result of a loss from discontinued operations of $29.4 million related to the
spin-off of ACXT, as well as the net after-tax expense of $8.3 million for the
adoption of new financial accounting standards for employee postretirement
benefits (FAS 106) and income taxes (FAS 109). Income from continuing operations
totaled $35.7 million, or $0.95 per share.
Trend summary: percentage increase/(decrease) 1994, 1993 and 1992.
The table below reflects trends in operating results, excluding the
1994 special credit, the 1993 restructuring and other special charges and the
1992 impact of discontinued operations and adoption of new accounting standards.
Earnings per share are shown both as reported and excluding a special credit
and/or charges, the impact of discontinued operations and adoption of new
accounting standards.
1994 1993 1992
------------------------------------------------------------------
------------------------------------------------------------------
Volume 2.7% 1.3% 0.2%
------------------------------------------------------------------
Net sales 5.1% 2.0% 1.4%
------------------------------------------------------------------
Avg. net price increase 0.3% 1.1% 1.7%
------------------------------------------------------------------
Gross profit 10.1% 5.8% 5.0%
------------------------------------------------------------------
Operating income
(excluding special credits/charges) 21.1% 6.1% 72.9%
------------------------------------------------------------------
Advertising expense 20.1% 8.8% (6.1%)
------------------------------------------------------------------
General and Administrative (9.7%) 2.2% 3.9%
------------------------------------------------------------------
EPS (as reported) $1.52 ($1.10) ($0.05)
------------------------------------------------------------------
EPS (excluding all special items) $1.30 $0.88 $0.95
------------------------------------------------------------------
CONSOLIDATED RESULTS OF CONTINUING OPERATIONS: 1994 VS. 1993, 1993
VS. 1992
Excludes the 1994 special credit, the 1993 restructuring and other
special charges and the 1992 impact of discontinued operations and adoption
of new accounting standards.
1994 vs. 1993
-------------
Net sales increased by 5.1% in 1994 from 1993. This increase was
due to a 2.7% increase in volume and a shift in product mix to products in the
premium and above-premium price categories. Gross profit improved to 36.1% of
net sales as compared to 34.5% in 1993. This improvement was primarily the
result of increased volume, improved brand mix profitability, operational
efficiencies and lower aluminum costs.
Operating income improved 21.1% in 1994 over 1993. Although
marketing expense (including advertising) grew substantially in 1994, general
and administrative (G&A) expense declined by 9.7%. The increase in marketing
expense was primarily due to the national rollout of Zima Clearmalt and the
introduction and expansion of Coors Artic Ice and Coors Artic Ice Light. The
decline in G&A expense resulted from the restructuring effort that began in 1993
to reduce overhead costs. Research and development expense was essentially
unchanged in 1994 as compared to 1993.
Net non-operating expenses decreased to $3.9 million in 1994
compared to $12.1 million in 1993. Income from miscellaneous items increased by
$4.9 million due to a gain on the sale of investments and higher royalty income
related to licensed can-making and can-decorating technology. Net interest
expense decreased $3.3 million because of the $50 million principal payment
in June 1994 on ACC's medium-term notes.
The Company's effective tax rate declined in 1994 to 45.0% from 48.9% in 1993.
The decline was largely attributable to the revaluation of ACC's deferred tax
liability in 1993 related to the 1993 1% increase in the federal corporate
income tax rate. The 1994 effective tax rate was higher than the statutory tax
rate because of non-deductible expenses (meals and entertainment expenses and
lobbying costs) and a valuation allowance for a tax loss carryforward.
Net income was $49.7 million, or $1.30 per share, in 1994 compared
to $33.6 million, or $0.88 per share, representing a 47.7% improvement in
earnings per share.
1993 vs. 1992
-------------
Net sales increased by 2.0% in 1993 from 1992. This increase was
due to a 1.3% increase in volume, a shift in product mix to products in the
premium and above-premium price categories and modest price increases in 1993.
Gross profit improved to 34.5% of net sales vs. 33.2% in 1992. The improvement
was primarily the result of increased volume, improved brand mix profitability,
operational efficiencies and lower aluminum costs. The 1993 increase also
reflected the divestiture of lower margin activities associated with CBC's
transportation and energy businesses.
Operating income improved 6.1% in 1993 over 1992 due to the $29.7
million, or 5.8%, improvement in gross profit. The increase in gross profit
more than offset increases in marketing, general and administrative (MG&A)
expense of $24.6 million and research and project development expense of $0.6
million.
Net non-operating expenses decreased to $12.1 million in 1993 compared to $14.7
million in 1992. Net interest expense decreased $2.6 million because of an
increase in investable cash and higher interest income.
The effective tax rate increased in 1993 to 48.9% from 39.1% in
1992. The increase was largely attributable to the 1993 1% increase in the
federal corporate income tax rate, the related revaluation of ACC's
deferred tax liability and non-deductible foreign losses.
Net income in 1993 was $33.6 million, or $0.88 per share, compared
to $35.7 million, or $0.95 per share in 1992.
LIQUIDITY AND CAPITAL RESOURCES:
The Company's primary sources of liquidity are cash provided from
operating activities and external borrowing. The Company continues to be in
a strong position to generate cash internally. The Company's 1994 net cash
position was $27.2 million, a significant decrease compared to $82.2 million in
1993. The Company's 1993 net cash position increased 107% from $39.7 million
in 1992.
The Company believes that cash flows from operations and short-term
borrowings are adequate to meet its ongoing operating requirements, scheduled
principal debt repayments and debt service costs, anticipated capital
expenditures and dividend payments.
Operating Activities
Including net special credits/charges, net cash provided by
operations was $186.4 million in 1994, $168.5 million in 1993 and $155.8 million
in 1992. The 1994 increase in cash from operations was primarily due to higher
net income, higher accumulated deferred income taxes, and higher depreciation
offset in part by an increase in accounts and notes receivable, a decrease in
accrued expenses and other liabilities (primarily due to the payment of
obligations related to the 1993 restructuring) and an increase in accounts
payable. The increase in accounts and notes receivable reflects higher 1994
sales and amounts owed to CBC by the new joint venture between CBC and American
National Can formed to manufacture cans and ends. Higher accounts payable are
due primarily to amounts owed to the new can and end joint venture for purchases
by CBC.
The 1993 increase in cash from operations was due primarily to
higher depreciation, lower accounts and notes receivable, higher accounts
payable and higher accrued expenses (primarily related to restructuring and
special charges). Lower accounts receivable were primarily related to a
change in credit terms from 1992.
Investing Activities (including capital expenditures)
The Company is shifting its strategic emphasis toward projects that
offer returns on investments (ROI) that are equal to or greater than
ACC's weighted average cost of capital. The Company's anticipated capital
expenditures for 1995 are $167 million relating primarily to capacity expansion,
repair and upkeep, return on investment projects and environmental compliance.
In 1994, the Company spent $174.7 million on investment activities, compared
with $119.3 million in 1993 and $140.4 million in 1992. Capital expenditures
were $160.3 million in 1994, $120.4 million in 1993 and $115.5 million in 1992.
In 1994, capital expenditures focused on expansion of facilities (primarily to
expand bottling capacity) and the purchase of a brewery in Zaragoza, Spain. In
1993, capital expenditures were made for expansion of capacity in Memphis for
Zima Clearmalt, routine maintenance and incremental upgrades to all production
facilities.
Net Cash Used/Provided by Financing Activities
The Company used $67.0 million of cash in financing activities in 1994. At the
beginning of the third quarter, the Company made its first principal payment on
its medium-term notes, in the amount of $50 million. In addition,
the Company paid dividends of $19.1 million. Offsetting this was approximately
$2.1 million provided by the exercise of stock options.
In 1993, the Company used $6.6 million in cash in financing activities. The
Company paid $19 million in dividends. The Company received cash through the
exercise of stock options and the proceeds from industrial revenue bonds for an
expansion project. Net cash provided by financing activities in 1992 resulted
from the assumption of additional debt related to the spin-off of ACXT, offset
by the payment of short-term borrowings and the payment of dividends.
Debt Securities
A shelf registration was filed with the Securities and Exchange Commission for
$300 million of debt securities in 1990. As of December 25, 1994, the Company
had $170.0 million outstanding in medium-term notes, having made the first
scheduled principal payment of $50 million on the notes in June 1994. That
payment was funded by a combination of cash on hand and borrowings under the
Company's bank revolving credit facility. Fixed interest rates on the
Company's medium-term notes range between 8.3% and 9.15%. The repayment
schedule for the remaining outstanding notes is $44 million in 1995, $36
million in 1996, $19 million in 1997, $31 million in 1998 and $40 million in
1999. The Company's debt-to-total capitalization ratios were 20.6% at the end of
1994, 26.3% at the end of 1993 and 24.3% at the end of 1992.
Revolving Line of Credit
In addition to the medium-term notes, the Company has an unsecured, committed
revolving line of credit totaling $144 million. From time to time this line of
credit is used for working capital requirements and general corporate purposes.
In an effort to increase its financial flexibility, the Company increased the
available credit under the facility to $144 million in 1994 from $100 million
in 1993. As of December 25, 1994, the full $144 million was available. For
1994, the Company met its two financial covenants under the committed
revolving line of credit: a minimum tangible net worth test and a
debt-to-total capitalization test.
Hedging Activities
As of December 25, 1994, hedging activities consisted exclusively of hard
currency forward contracts to directly offset hard currency exposures. These
irrevocable contracts eliminated the risk to financial position and results of
operations of changes in foreign exchange rates. Any variation in the exchange
rate that would accrue to the contract would be directly offset by an equal
change in the related obligation. Therefore, after the contract
entrance date, variation in the exchange rate would have no additional impact on
the Company's financial statements. ACC's hedging activities are minimal and
hard currency exposures are not material.
OUTLOOK 1995:
The Company will report 1995 results based on a 53-week fiscal calendar because
the Company's accounting calendar is based on 13 periods rather than a 12-month
calendar year.
The Company expects a significant increase in cost of goods sold in
1995 over 1994 based on projections for volume growth and increased costs of
aluminum and other packaging materials. The Company also anticipates that MG&A
expense will increase in the aggregate. Other overhead costs should remain
basically unchanged, except for increases associated with hiring to fill
positions that were vacant in 1994. Most of the anticipated 1995 increase in
MG&A is related to increased advertising support for the Company's best-selling
brands, including Coors Light, George Killian's Irish Red and other specialty
brands.
The Company anticipates that the increased costs will be offset in part through
volume gains, modest price increases, productivity gains arising from
restructuring and benefits from the American National Can joint venture
including incremental income and minimizing increased aluminum costs. The
Company's effective tax rate will remain higher than the statutory rate due
primarily to non-deductible expenses, such as meals, entertainment and lobbying
expenses.
The Company anticipates that the effect of raw material cost increases will
occur early in 1995, while the expected offsets from cost savings will occur
primarily in the second half of 1995.
ENVIRONMENTAL:
The Company was one of numerous parties named by the Environmental
Protection Agency (EPA) as a "potentially responsible party" (PRP) for the
Lowry Landfill Superfund site, a legally permitted landfill owned by the
City and County of Denver. In 1990, the Company recorded a special pretax
charge of $30 million for potential clean-up costs of the site.
The City and County of Denver, Waste Management of Colorado, Inc.
and Chemical Waste Management, Inc. brought litigation in 1991 in U.S. District
Court against the Company and 37 other PRP's to determine the allocation of
costs of Lowry site remediation. In 1993, the Court approved a settlement
agreement between the Company and the plaintiffs, resolving the Company's
liabilities for the site. The Company agreed to initial payments based on an
assumed present value of $120 million in total site remediation costs. In
addition, the Company agreed to pay a specified share of costs if total
remediation costs are in excess of this amount. Payments representing the
Company's agreed share based on the $120 million assumption were made into a
trust to be applied to costs of site remediation and operating and maintenance
costs.
The EPA recently announced remediation objectives and requirements for the site
and projected costs of its remediation plan. The EPA's projected costs are
below the $120 million total assumed as a basis for the Company's settlement.
The City and County of Denver, Waste Management of Colorado and Chemical Waste
Management, Inc. are expected to implement remediation of the site.
The Company has no reason to believe that total remediation costs will result
in additional liability to the Company.
In 1991, the Company filed suit against certain of its former and current
insurance carriers, seeking recovery of past defense costs and investigation,
study and remediation costs. Settlements were reached during 1993 and 1994 with
all defendants. As a result, in the fourth quarter of 1994, the Company
recognized a special pretax credit of $18.9 million.
The Company has also been notified that it is or may be a PRP under
Comprehensive Environmental Response, Compensation and Liability
(CERCLA) or similar state laws with respect to the cleanup of other sites
where hazardous substances have allegedly been released into the environment.
The Company cannot predict with certainty the total costs of cleanup, its share
of the total cost or the extent to which contributions will be available from
other parties, the amount of time necessary to complete the cleanups, or
insurance coverage. However, based on investigations to date, the Company
believes that any liability would not be material to the financial condition
of the Company with respect to these sites. There can be no certainty,
however, that the Company will not be named as a PRP at additional Superfund
sites in the future, or that the costs associated with those additional sites
will not be material.
While it is impossible to predict the eventual aggregate cost to the Company
for environmental and related matters, management believes that any payments,
if required, for these matters would be made over a period of years in
amounts that would not be material in any one year to the consolidated results
of operations or to the financial or competitive position of the Company. The
Company believes adequate disclosures have been provided for losses that are
reasonably possible. Furthermore, as the Company continues to focus attention on
resource conservation, waste reduction and pollution prevention, it is the
Company's belief that potential future liabilities will be reduced.
ACCOUNTING CHANGES:
The results of operations for 1992 include the adoption of certain
accounting rule changes. In 1992, the Company adopted FAS 106, "Employers
Accounting for Postretirement Benefits Other Than Pensions," and the financial
results for 1992 reflect the adoption. The transition effect of adopting
FAS 106 on the immediate recognition basis resulted in a charge of $38.8
million to 1992 earnings, net of approximately $23.4 million of income tax
effects. The ongoing cost of adopting the new standard increased 1992 net
periodic postretirement benefit cost by $5.2 million.
Also in 1992, the Company adopted FAS 109, "Accounting for Income
Taxes," retroactive to the first quarter, and the financial results for
1992 reflect that adoption as well. The adoption increased 1992 earnings by
$30.5 million because of the reversal of excess deferred income tax liability
balances.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
Page(s)
Consolidated Financial Statements:
Report of Independent Accountants
Consolidated Statement of Income for each of
the three years ended December 25, 1994
Consolidated Balance Sheet at December 25, 1994
and December 26, 1993
Consolidated Statement of Cash Flows for each of
the three years ended December 25, 1994
Consolidated Statement of Shareholders' Equity
for each of the three years ended December 25, 1994
Notes to Consolidated Financial Statements
Report of Independent Accountants
To the Board of Directors and Shareholders of Adolph Coors Company
In our opinion, the consolidated financial statements listed in the
index appearing under Item 14 (a)(1) and (2) on page present fairly, in
all material respects, the financial position of Adolph Coors Company and its
subsidiaries at December 25, 1994, and December 26, 1993, and the results of
their operations and their cash flows for each of the three years in the period
ended December 25, 1994, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above. As discussed in Notes 5 and 8 to the consolidated
financial statements, the Company adopted Statements of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," and No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," in 1992.
PRICE WATERHOUSE LLP
Denver, Colorado
February 28, 1995
ADOLPH COORS COMPANY AND
SUBSIDIARIES
CONSOLIDATED STATEMENT
OF INCOME
For the
years ended
December 25, December 26, December 27,
1994 1993 1992
----------- ----------- -----------
(In thousands, except per share data)
Sales $2,040,330 $1,946,592 $1,911,775
Less - federal and state
excise tax 377,659 364,781 360,987
--------- --------- ---------
Net sales 1,662,671 1,581,811 1,550,788
--------- --------- ---------
Costs and expenses:
Cost of goods sold 1,062,789 1,036,864 1,035,544
Marketing, general
and administrative 492,403 454,130 429,573
Research and project
development 13,265 13,008 12,370
Special (credit) charges
(Note 9) (13,949) 122,540 --
--------- --------- ---------
Total 1,554,508 1,626,542 1,477,487
--------- --------- ---------
Operating income (loss) 108,163 (44,731) 73,301
Other income (expense):
Interest income 1,546 2,580 255
Interest expense (11,461) (15,780) (16,014)
Miscellaneous-net 5,972 1,101 1,087
-------- --------- ---------
Total (3,943) (12,099) (14,672)
Income (loss) before income
taxes 104,220 (56,830) 58,629
Income tax expense (benefit)
(Note 5) 46,100 (14,900) 22,900
--------- --------- ---------
Income (loss) from continuing
operations 58,120 (41,930) 35,729
Net (loss) from discontinued
operations (Note 2) -- -- (29,415)
Income (loss) before cumulative
effect of change in
accounting principles 58,120 (41,930) 6,314
Cumulative effect of change in
accounting for postretirement
benefits (net of tax) -- -- (38,800)
Cumulative effect of change in
accounting for income taxes -- -- 30,500
--------- --------- ---------
Net income (loss) $ 58,120 $ (41,930) $ (1,986)
========= ========= ========
Per share of common stock:
Income (loss) from continuing
operations $ 1.52 $ (1.10) $ 0.95
Net (loss) from discontinued
operations -- -- (0.78)
Income (loss) before cumulative
effect of change in accounting
principles 1.52 (1.10) 0.17
Cumulative effect of change in
accounting for postretirement
benefits -- -- (1.03)
Cumulative effect of change in
accounting for income taxes -- -- 0.81
--------- --------- ---------
Net income (loss) per share of
common stock $ 1.52 $ (1.10) $ (0.05)
========= ======== ========
See accompanying notes to consolidated financial statements.
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 25, December 26,
1994 1993
----------- -----------
(In thousands)
Assets
Current assets:
Cash and cash equivalents $ 27,168 $ 82,211
Accounts and notes receivable,
less allowance for doubtful accounts
of $24 in 1994 and $409 in 1993 106,327 75,967
Inventories:
Finished 67,500 56,878
In process 22,918 24,402
Raw materials 38,108 56,370
Packaging materials 13,078 9,581
--------- ---------
141,604 147,231
Other supplies 38,340 35,213
Prepaid expenses and other assets 13,638 14,975
Prepaid income taxes (Note 5) 1,779 --
Deferred tax asset (Note 5) 26,310 28,151
--------- --------
Total current assets 355,166 383,748
Properties, at cost, less accumulated
depreciation, depletion and amortiza-
tion of $1,220,836 in 1994
and $1,118,292 in 1993 (Note 3) 922,208 884,102
Excess of cost over net assets of businesses
acquired, less accumulated amortization
of $3,307 in 1994 and $2,768 in 1993 20,509 12,826
Other assets 73,693 70,268
--------- ---------
Total assets $1,371,576 $1,350,944
========= =========
See accompanying notes to consolidated financial statements.
December 25, December 26,
Liabilities and Shareholders' Equity 1994 1993
(In thousands)
Current liabilities:
Current portion of long-term debt $ 44,000 $ 50,000
Accounts payable 164,430 121,376
Accrued salaries and vacations 41,567 41,798
Taxes, other than income taxes 47,060 43,928
Federal and state income taxes (Note 5) -- 4,157
Accrued expenses and other liabilities 83,157 115,292
--------- ---------
Total current liabilities 380,214 376,551
Long-term debt (Note 4) 131,000 175,000
Deferred tax liability (Note 5) 71,660 53,430
Postretirement benefits (Note 8) 83,617 79,193
Other long-term liabilities 30,884 34,843
--------- --------
Total liabilities 697,375 719,017
Commitments and contingencies
(Notes 6,7,8,9 and 10)
Shareholders' equity (Note 6):
Capital stock:
Preferred stock, non-voting, $1 par
value, 25,000,000 shares authorized
and no shares issued -- --
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, 100,000,000 shares
authorized and 46,200,000
shares issued 11,000 11,000
--------- ---------
Total capital stock 12,260 12,260
Paid-in capital 56,758 54,928
Retained earnings 623,418 584,444
Other 1,238 40
--------- ---------
693,674 651,672
Less - treasury stock, at cost,
Class B shares, 9,133,060 in
1994 and 9,260,779 in 1993 19,473 19,745
--------- ---------
Total shareholders' equity 674,201 631,927
Total liabilities and shareholders'
equity $1,371,576 $1,350,944
========= =========
See accompanying notes to consolidated financial statements.
ADOLPH COORS COMPANY AND
SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the years ended
December 25, December 26, December 27,
1994 1993 1992
----------- ----------- -----------
(In thousands)
Cash flows from operating
activities:
Net income (loss) $ 58,120 $ (41,930) $ (1,986)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation, depletion and
amortization 120,793 118,955 114,780
Change in accumulated deferred
income taxes 18,230 (26,297) (49,010)
Loss on sale or abandonment of
properties 808 20,387 3,736
Change in current assets and
current liabilities:
Accounts and notes receivable (30,264) 32,632 7,101
Inventories 5,627 5,101 (5,806)
Prepaid expenses and other
assets 50 2,784 818
Accounts payable 43,054 13,950 (13,972)
Federal and state income taxes (5,936) 3 387
Accrued expenses and other
liabilities (28,711) 42,390 (12,368)
Change in deferred items 5,122 812 (2,550)
Postretirement benefits (Note 8) 4,424 12,714 66,479
Other (4,891) (13,008) (5,243)
Other - discontinued operations -- -- 53,410
-------- --------- --------
Net cash provided by operating
activities 186,426 168,493 155,776
Cash flows from investing activities:
Additions to properties (160,314) (120,354) (115,450)
Proceeds from sale of properties 4,382 2,268 26,091
Change in other intangible assets (16,876) -- (2,413)
Other (1,863) (1,238) 6,404
Other - discontinued operations -- -- (55,035)
--------- --------- ---------
Net cash used by investing
activities (174,671) (119,324) (140,403)
Cash flows from financing activities:
Net change in short-term borrowings -- 12 (46,300)
Proceeds from long-term debt -- 5,000 --
Payment of debt (50,000) -- --
Exercise of stock options, net of
related notes receivable 2,102 7,375 4,960
Dividends paid (19,146) (19,003) (18,801)
Other 24 (11) 14
Other - discontinued operations -- -- 69,708
-------- -------- --------
Net cash (used) provided by
financing activities (67,020) (6,627) 9,581
Cash and cash equivalents:
Net increase (decrease) in cash
and cash equivalents (55,265) 42,542 24,954
Effect of exchange rate changes on
cash and cash equivalents 222 -- --
Balance at beginning of year 82,211 39,669 14,715
-------- -------- ---------
Balance at end of year $ 27,168 $ 82,211 $ 39,669
======== ======== =========
See accompanying notes to consolidated financial statements.
ADOLPH COORS COMPANY AND
SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Common stock
issued Paid-in Retained Treasury
Class A Class B capital earnings stock Other Total
(In thousands, except per share data)
Balance at
December 29,
1991 $ 1,260 $11,000 $44,100 $1,064,272 $(21,252)$ 40 $1,099,420
Exercise of
stock options,
including $384
income tax
benefit and
increased by
$805 of payments
on related
loans outstanding
to employees
(Note 6) 4,457 503 4,960
Deferred
compensation
and other (321) (321)
Net loss (1,986) (1,986)
Cash dividends-
$0.50 per share (18,801) (18,801)
Distribution to
shareholders of
ACX Technologies,
Inc. (Note 2) (398,108) 281 (397,827)
------ ------- ------- -------- ------- ------ --------
Balance at
December 27,
1992 1,260 11,000 48,557 645,377 (20,749) 0 685,445
Exercise of
stock options,
including $895
income tax
benefit and
increased by
$132 of
payments on
related
loans
outstanding to
employees (Note 6) 6,371 1,004 7,375
Other 40 40
Net loss (41,930) (41,930)
Cash dividends-
$0.50 per share (19,003) (19,003)
----- ------- ------- -------- ------- ------ --------
Balance at
December 26,
1993 1,260 11,000 54,928 584,444 (19,745) 40 631,927
Exercise of
stock options,
including $159
income tax
benefit (Note 6) 1,830 272 2,102
Other 1,198 1,198
Net income 58,120 58,120
Cash dividends-
$0.50 per share (19,146) (19,146)
------ ------- ------- ---------- -------- ------ ----------
Balance at
December 25,
1994 $1,260 $11,000 $56,758 $623,418 $(19,473) $1,238 $ 674,201
See accompanying notes to consolidated financial statements.
ADOLPH COORS
COMPANY AND SUBSIDIARIES
NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1:
Summary of Accounting Policies
Fiscal year: The fiscal year of the Company is a 52- or 53-week
period ending on the last Sunday in December. Fiscal years for the financial
statements included herein ended December 25, 1994, December 26, 1993, and
December 27, 1992, and were 52-week periods.
Principles of consolidation: The consolidated financial statements
include the accounts of Adolph Coors Company, its only direct subsidiary,
Coors Brewing Company (CBC), and all subsidiaries of CBC (collectively referred
to as "the Company"). All significant intercompany accounts and transactions
have been eliminated.
Inventories: Inventories are stated at the lower of cost or market.
Cost is determined by the last-in, first-out (LIFO) method for
substantially all inventories.
Current cost, as determined principally on the first-in, first-out
method, exceeded LIFO cost by $41,655,000 and $46,705,000 at December 25,
1994 and December 26, 1993, respectively. During 1994 and 1993, total
inventory costs and quantities were reduced, resulting in a LIFO liquidation,
the effect of which was not material.
Properties: Land, buildings and equipment are capitalized at cost.
For financial reporting purposes, depreciation is provided principally on the
straight-line method over the estimated useful lives of the assets. Accelerated
depreciation methods are generally used for income tax purposes. Expenditures
for new facilities and improvements that substantially extend the capacity
or useful life of an asset are capitalized. Start-up costs associated with
manufacturing facilities, but not related to construction, are expensed as
incurred. Ordinary repairs and maintenance are expensed as incurred (Note 3).
Excess of cost over net assets of businesses acquired: The excess
of cost over the net assets of businesses acquired in transactions accounted
for as purchases is being amortized on a straight-line basis, generally over a
40-year period.
Hedging transactions: The Company periodically enters into forward, future and
option contracts for foreign currency and commodities to hedge its exposure to
exchange rates and price fluctuations for raw materials and fixed assets used
in the production of beer. The gains and losses on these contracts are deferred
and recognized in cost of sales as part of the product cost.
As of December 25, 1994, hedging activities consisted exclusively of hard
currency forward contracts to directly offset hard currency exposures. These
irrevocable contracts eliminated the risk to financial position and results of
operations from changes in the underlying foreign exchange rate.
Any variation in the exchange rate that would accrue to the contract would be
directly offset by an equal change in the related obligation. Therefore, after
the contract entrance date, variation in the exchange rate would have had no
additional impact on the Company. The Company's hedging activities are
minimal and hard currency exposures are not material.
Concentration of credit risk: The majority of the accounts
receivable balances as of December 25, 1994, and December 26, 1993, were from
malt beverage distributors. The Company secures substantially all of this
credit risk with purchase money security interests in inventory and proceeds,
personal guarantees and/or letters of credit. Statement of Cash Flows: The
Company defines cash equivalents as highly liquid investments with original
maturities of 90 days or less. Income taxes paid were $30,995,000 in 1994,
$15,367,000 in 1993 and $26,167,000 in 1992.
Net income per common share: Net income per common share is based on the
weighted average number of shares of common stock outstanding during each year.
Except for voting, both classes of common stock have the same rights and
privileges.
Environmental expenditures: Environmental expenditures that relate to current
operations are expensed or capitalized as appropriate. Expenditures that relate
to an existing condition caused by past operations, which do not contribute to
current or future revenue generation, are expensed. Liabilities are recorded
when environmental assessments and/or remedial efforts are probable and the
costs can be reasonably estimated.
NOTE 2:
Discontinued Operations
In May 1992, the board of directors of the Company authorized development of a
plan to distribute to its shareholders its ceramics, aluminum, packaging and
technology-based developmental businesses (the "Technology Businesses"). On
August 12, 1992, the Company formed ACX Technologies, Inc. ("ACXT"
or "ACX Technologies") to own the Technology Businesses. On December 27,
1992, the Company distributed to its shareholders the common stock of ACXT.
Accordingly, the results of ACXT and the Technology Businesses are reported as
discontinued operations in these consolidated financial statements for all
periods presented except as noted. Each holder of record of the Company's common
stock on December 16, 1992, received one share of ACXT common stock for
every three shares of Adolph Coors Company common stock held as of such date.
ACXT stock is publicly traded on the over-the-counter market under the symbol
"ACXT."
The loss from discontinued operations for the year ended December 27, 1992, was
$29,415,000, or $0.78 per share. The 1992 results included approximately
$7,200,000, or $0.19 per share, for transaction costs associated with the
spin-off and a fourth quarter pretax charge of $13,700,000, or $0.36 per share,
related to restructuring of operations primarily at Coors Ceramics Company and
Golden Technologies Company, Inc. Discontinued operations for 1992 also
included the operating results of the Technology Businesses and ACXT's
adoption of the new accounting standards for postretirement benefits and
income taxes. Net income from discontinued operations for the year ended
December 29, 1991, was $8,433,000, or $0.22 per share.
Historical marketing, general and administrative expenses for the Technology
Businesses, which included costs incurred directly by and for the Technology
Businesses, plus a reasonable portion of other shared historical corporate
expenses, were allocated to discontinued operations. Interest expense in 1992
was allocated based on short-term borrowings up to $75,000,000, which is
approximately the amount of outside debt owed by ACXT immediately after the
distribution. Interest expense on the short-term borrowings was based on
interest rates ranging from 3.1% to 6.9% resulting in interest costs of
$6,044,000 for the year ended December 27, 1992. Interest expense was
capitalized based on construction in progress balances rather than on actual
interest expense allocated.
The following summarizes the results of operations for discontinued operations:
For the yearended
December 27,
1992
--------------
(In thousands)
Outside sales $413,969
--------------
Loss before income taxes $(24,215)
Income tax benefit (7,200)
--------------
Loss before cumulative effect
of change in accounting principles (17,015)
Cumulative effect of change in accounting
for postretirement benefits (net of tax) (13,200)
Cumulative effect of change in accounting
for income taxes 800
--------------
Net loss from discontinued
operations $(29,415)
==============
NOTE 3:
Properties
The cost of properties and related accumulated depreciation,
depletion and amortization consists of the following:
For the years ended
December 25, December 26,
1994 1993
----------- -----------
(In thousands)
Land and improvements $ 96,995 $ 93,436
Buildings 454,679 427,111
Machinery and equipment 1,488,060 1,394,156
Natural resource properties 16,125 22,386
Construction in progress 87,185 65,305
--------- ---------
2,143,044 2,002,394
Less accumulated depreciation, depletion
and amortization 1,220,836 1,118,292
--------- ---------
Net Properties $ 922,208 $ 884,102
========= =========
Interest capitalized, expensed and paid was as follows:
For the years ended
December 25, December 26, December 27,
1994 1993 1992
(In thousands)
Interest costs
Continuing operations $17,761 $20,580 $21,631
Discontinued operations -- -- $ 6,044
Interest capitalized
Continuing operations $(6,300) $(4,800) $(5,617)
Discontinued operations -- -- $(1,456)
Interest expensed
Continuing operations $11,461 $15,780 $16,014
Discontinued operations -- -- $ 4,588
Interest paid $21,169 $20,172 $23,339
NOTE 4:
Debt
The Company is obligated to pay the principal, interest and premium, if any,
on the $5 million, City of Wheat Ridge, Colorado Industrial Development Bonds
(Adolph Coors Company Project) Series 1993. The bonds mature in 2013. They are
currently variable rate securities with interest payable on the first of March,
June, September and December. The weighted average interest rate during 1994
was 3.0%.
As of December 25, 1994, the Company had outstanding $170 million of unsecured
medium-term notes. All notes have interest due semi-annually in April and
October at fixed interest rates ranging from 8.30% to 9.15% per annum. The
repayment schedule for the notes issued is $44 million in 1995, $36
million in 1996, $19 million in 1997, $31 million in 1998 and $40 million in
1999.
The Company has an unsecured committed credit arrangement totaling
$144 million, and as of December 25, 1994, all $144 million was available. This
line of credit has a four-year term through December 12, 1998, and is subject to
the Company maintaining certain financial ratios. The only restriction for
withdrawal is that the Company meet specific covenant criteria. As of December
25, 1994, the Company also had approximately $100 million of uncommitted credit
arrangements available, of which nothing was outstanding. The Company pays no
commitment fees for these uncommitted arrangements, which are on a funds-
available basis. Interest rates are negotiated at the time of borrowing.
NOTE 5:
Income Taxes
In 1992, the Company and its subsidiaries adopted Statement of Financial
Accounting Standards No. 109 (FAS 109), "Accounting for Income Taxes." The
transition effect of adopting FAS 109 resulted in a $30.5 million
increase in net income reflected as the cumulative effect of a change in
accounting principle in 1992.
The provision for income taxes charged to continuing operations was
as follows:
For the years ended
December 25, December 26, December 27,
1994 1993 1992
----------- ----------- -----------
(In thousands)
Current provision:
Federal $ 19,875 $ 14,479 $ 20,193
State 6,154 2,471 3,827
-------- -------- --------
Total current tax expense 26,029 16,950 24,020
-------- -------- --------
Deferred:
Federal 16,804 (27,890) ( 1,025)
State 3,267 (3,960) ( 95)
-------- -------- --------
Total deferred tax expense
(benefit) 20,071 (31,850) ( 1,120)
-------- -------- --------
Total income tax expense
(benefit) $ 46,100 $ (14,900) $ 22,900
======== ======== ========
The deferred tax assets (liabilities) are composed of the tax
effect of the following:
As of
December 25, December 26,
1994 1993
----------- -----------
(In thousands)
Tax in excess of book
depreciation and
amortization $(126,090) $(125,157)
(Gain) loss on sale or writedown of (2,954) (3,032)
assets
Deferred compensation and other
employee related 12,614 12,192
Change in balance sheet reserves
and accruals 27,528 37,356
Environmental accruals 6,823 11,606
Alternative minimum tax 3,164 9,155
Capitalized interest (2,516) (2,155)
Other employee postretirement
benefits (Note 8) 34,054 31,065
State deferred taxes, net of federal
income tax benefit 651 648
Other - net 1,376 3,043
-------- -------
Net deferred tax liability $ (45,350) $ (25,279)
======== ========
In 1992, the Company's income tax expense for discontinued
operations differed from the federal statutory rate of 34% because of
non-deductible expenses of 8.8% and other items (similar to those below) of
4.5%. The effective rate was 29.7%.
Income taxes as reflected in the Consolidated Statement of Income differ from
the amounts computed by applying the statutory federal corporate tax rate to
income as follows:
For the years ended
December 25, December 26, December 27,
1994 1993 1992
----------- ----------- -----------
Expected tax rate 35.0% (35.0%) 34.0%
State income taxes
(net of federal income
tax benefit) 5.1 (1.7) 3.7
Revaluation of deferred income tax
liability 0.8 4.4 --
Unremitted earnings (losses) of
foreign joint venture (0.2) 2.6 --
Non-deductible expenses and losses 1.3 2.7 --
Other - net 2.2 0.8 1.4
----- ----- -----
Effective tax rate 44.2% (26.2%) 39.1%
===== ===== =====
The Internal Revenue Service (IRS) has completed its examination of
the Company's federal income tax returns through 1990. The IRS is
currently examining the fiscal years 1991 and 1992. In the opinion of
management, adequate accruals have been provided for all income tax
matters and related interest.
The Company and ACXT are parties to a tax sharing agreement that
provides for, among other things, the treatment of tax matters for periods
prior to the distribution of ACXT stock and responsibility for adjustments as a
result of audits by taxing authorities and is designed to preserve the status
of the distribution as tax-free.
NOTE 6:
Stock Option and Restricted Stock Award Plans
Under the Company's stock option plans, officers and other key employees may be
granted options which allow for the purchase of shares of the Company's common
stock. The option price on outstanding options is equal to the fair market value
of the stock at the date of grant. The 1983 non-qualified Adolph Coors Company
Stock Option Plan, as amended, provides for options to be granted at the
discretion of the board of directors. These options expire 10 years from date
of grant. No options have been granted under this plan since 1989. At this
time, the board of directors has decided not to grant additional options
under this plan. The 1990 Equity Incentive Plan (1990 EI Plan) that became
effective January 1, 1990, as amended, provides for two types of grants:
restricted stock awards and stock options. The stock options have a term of
10 years with exercise prices equal to market on the day of the grant. Prior to
1994, one-third of the stock option grant was vested in each of the three
successive years after the date of grant. Effective January 1, 1994, stock
options vest at 10% for each one dollar increase in fair market value of
ACC stock from date of grant, or vest 100% after nine years. Vesting in the
restricted stock awards is over a three-year period from the date of grant.
All restricted shares outstanding as of December 27, 1992, became fully
vested because of the spin-off. The compensation cost associated with these
awards is amortized to expense over the vesting period. In 1991, the Company
adopted an Equity Compensation Plan for Non-Employee Directors (EC Plan).
The EC Plan provides for two grants of the Company's stock; the first grant
is automatic and equals 20% of the Director's annual retainer and the second
grant is elective and covers all or any portion of the balance of the
retainer. The compensation cost associated with the EC Plan is amortized
over the Director's term. In 1992, all then outstanding grants under the
restricted stock plan were accelerated to fully vest because of the spin-off.
Changes in stock options are as follows:
Price range
Shares per share
-----------------------------------------------------------------------------
Outstanding at December 29, 1991 1,804,500 $14.50-$30.50
Adjustment due to ACX Technologies, Inc.
spin-off (147,400) --
Granted -- --
Canceled (90,600) $14.50-$30.50
Exercised (276,100) $13.00-$24.63
-----------------------------------------------------------------------------
Outstanding at December 27, 1992 1,290,400 $13.00-$30.50
Granted 83,000 $16.44-$16.50
Canceled (60,100) $13.24-$21.35
Exercised (465,000) $10.82-$18.36
-----------------------------------------------------------------------------
Outstanding at December 26, 1993 848,300 $10.82-$22.75
Granted 530,700 $16.25-$16.25
Canceled (65,700) $14.45-$18.36
Exercised (126,900) $13.24-$18.36
-----------------------------------------------------------------------------
Outstanding at December 25, 1994 1,186,400 $13.24-$22.75
=============================================================================
Options exercisable at:
December 26, 1993 841,300
December 25, 1994 643,700
=============================================================================
Common stock reserved for options, and restricted stock awards totaled
1,866,800 shares as of December 25, 1994, and 2,331,800 shares as of
December 26, 1993.
In January 1993, the number and exercise price of all options outstanding at
the time of the ACX Technologies spin-off were adjusted to compensate
for the economic value of the options as a result of the distribution to
shareholders. The options of officers who transferred to ACX Technologies
were canceled. The net effect of these adjustments decreased the number of
options outstanding by 147,400.
NOTE 7:
Employee Retirement Plans
The Company maintains several defined benefit pension plans for the
majority of its employees. Benefits are based on years of service and average
base compensation levels over a period of years. Plan assets consist
primarily of equity, real estate and interest-bearing investments. The
Company's funding policy is to contribute annually not less than the ERISA
minimum funding standards, nor more than the maximum amount which can be
deducted for federal income tax purposes. Total expense for these plans,
as well as a savings and investment (thrift) plan, was $29,485,000 in 1994,
$39,873,000 in 1993 and $20,282,000 in 1992. The 1993 increase in plan
expense resulted primarily from the offering of the early retirement program
and plan changes. Included in the 1993 service cost is $16.5 million which
was the result of the early retirement program. The 1993 expense has been
included in restructuring costs (Note 9).
For the years ended
December 25, December 26, December 27,
1994 1993 1992
----------- ----------- -----------
(In thousands)
Service cost-benefits earned during
the year $ 12,517 $ 27,089 $ 10,873
Interest cost on projected benefit
obligations 28,377 24,332 20,818
Actual (gain) on plan assets (872) (35,329) (9,748)
Net amortization and deferral (16,351) 16,929 (7,639)
------- ------- -------
Net pension expense $ 23,671 $ 33,021 $ 14,304
======= ======= =======
The funded status of the pension plans and amounts recognized in the
Consolidated Balance Sheet are as follows:
As of
December 25, December 26,
1994 1993
----------- -----------
(In thousands)
Actuarial present value of accumulated
plan benefits, including vested
benefits of $264,319 in 1994 and
$273,589 in 1993 $278,489 $290,318
------- -------
Projected benefit obligations for
service rendered to date $343,628 $380,594
Plan assets available for benefit 261,982 253,526
------- -------
Plan assets less than projected benefit
obligations 81,646 127,068
Unrecognized net loss (50,211) (94,416)
Prior service cost not yet recognized (23,062) (25,402)
Unrecognized net asset being recognized
over 15 years 9,181 10,872
------- -------
Net accrued pension liability $ 17,554 $ 18,122
======= =======
Significant assumptions used in determining the valuation of the projected
benefit obligations as of the end of 1994, 1993 and 1992 were:
1994 1993 1992
---- ---- ----
Settlement rate 8.50% 7.25% 8.75%
Increase in compensation levels 5.00% 5.00% 5.75%
Rate of return on plan assets 9.50% 9.50% 10.50%
NOTE 8:
Non-Pension Postretirement Benefits
The Company has postretirement plans that provide medical benefits
and life insurance for retirees and eligible dependents. The plans are not
funded.
This obligation was determined by the application of the terms of
medical and life insurance plans, together with relevant actuarial
assumptions and health care cost trend rates ranging ratably from 11.0% in
1994 to 6.5% in the year 2006. The effect of an annual 1% increase in
trend rates would increase the accumulated postretirement benefit
obligation by approximately $8.5 million and $10.5 million in 1994 and
1993, respectively. The effect of a 1% increase in trend rates also would
have increased the ongoing annual cost by $1.2 million and $1.0 million in
1994 and 1993, respectively. The discount rate used in determining
the accumulated postretirement benefit obligation was 8.50% and
7.25% at December 25, 1994, and December 26, 1993, respectively.
Net periodic postretirement benefit cost included the following:
For the years ended
December 25, December 26,
1994 1993
----------- -----------
(In thousands)
Service cost-benefits attributed to service
during the period $ 3,097 $ 10,163
Interest cost on accumulated postretirement
benefit obligation 6,698 5,311
Amortization of net loss (gain) 78 (239)
Return on plan assets -- --
------- -------
Net periodic postretirement benefit cost $ 9,873 $ 15,235
======= =======
The 1994 decrease in plan expense resulted principally from the
1993 early retirement program. Included in the 1993 service cost is $7.7
million which was the result of the early retirement program. That 1993
expense has been included in restructuring costs (Note 9).
The status of the plan was as follows:
As of
December 25, December 26,
1994 1993
----------- -----------
(In thousands)
Accumulated postretirement benefit obligation:
Retirees $ 32,989 $ 43,254
Fully eligible active plan participants 11,508 16,737
Other active plan participants 32,221 35,008
------- -------
Accumulated postretirement obligation in
excess of plan assets 76,718 94,999
Unrecognized net gain (loss) 2,999 (18,273)
Unrecognized prior service cost 7,680 4,578
------- -------
Accrued postretirement benefit obligation
in the Consolidated Balance Sheet $ 87,397 $ 81,304
======= =======
NOTE 9:
Special (Credit) Charges
Fourth quarter results for 1994 include a net special credit of $13.9 million
which is shown as a separate item in the accompanying Consolidated
Statement of Income and resulted in $0.22 per share after tax. Two
nonrecurring items contributed to the net special credit. First, the
Company reached a settlement with a number of its insurance carriers which
enabled it to recover a portion of the costs associated with the Lowry Landfill
Superfund site. Secondly, CBC recorded an impairment reserve for the
writedown of distributor assets.
Fourth quarter results for 1993 include several special charges. These special
charges resulted in a pretax charge of $122.5 million, or $1.98 per share after
tax. A restructuring charge, which totaled $109.5 million, or $1.77
per share after tax, resulted from the Company's announcement in July 1993 of
a restructuring program designed to reduce costs, improve operating
efficiencies and increase shareholder value. The restructuring charge includes
$70.2 million for voluntary severance and enhanced early retirement incentives
designed to reduce the Company's white-collar work force, as well as $39.3
million for workplace redesign, asset writedowns and other expenses related to
profit improvement initiatives. Substantially all of the payments for
voluntary severance and enhanced early retirement incentives occurred in
1993. Of the $39.3 million, approximately $22 million related to workplace
redesign and other expenses related to profit improvement initiatives, and
approximately $17.3 million related to asset writedowns. Substantially all
costs related to workplace redesign and other profitability improvement
initiatives, which were accrued in 1993, were paid in 1994. Other
special charges unrelated to the profit improvement initiatives totaled
$13.0 million for the writedown of certain distributor assets and a
provision for environmental enhancements.
The 1993 restructuring charge and subsequent activity are
summarized as follows:
Workplace Asset
Personnel Redesign Writedowns Total
--------- --------- ---------- --------
1993 Charges $ 70,240 $ 22,000 $ 17,300 $109,540
1993 Payments and writedowns 57,924 3,600 17,300 78,824
------- ------- ------- -------
Balance as of December 26, 1993 12,316 18,400 -- 30,716
1994 Payments 3,045 16,480 -- 19,525
------- ------- ------- -------
Balance as of December 25, 1994 $ 9,271 $ 1,920 $ -- $ 11,191
======= ======= ======= =======
The majority of the remaining accruals relate to obligations under
deferred compensation arrangements and postretirement benefits other than
pensions.
NOTE 10:
Commitments and Contingencies
It is the policy of the Company to act as a self-insurer for
certain insurable risks consisting primarily of employee
health insurance programs, workers'compensation and general
liability contract deductibles. In 1994, a subsidiary of CBC continued
to perform under an agreement to purchase coal for CBC's steam generation
facility. The agreement runs for a five-year period beginning in 1990
and requires the purchase of a minimum of 330,000 tons of coal per
contract year.
In 1992, CBC entered into a five-year supply contract to purchase substantial
amounts of packaging raw materials from two subsidiaries of ACX Technologies.
These contracts are for pre-determined quantities and based on market pricing.
In 1992, ACC and CBC (as well as two former affiliates that are now
subsidiaries of ACXT) were sued by TransRim Enterprises (USA) Ltd. in Federal
District Court for the District of Colorado. TransRim alleged that the
defendants misused confidential information and breached an implied contract to
proceed with a joint venture project to build and operate a paper board mill.
TransRim initially claimed damages totaling $159 million based on a number
of theories, some of which were removed from the case by the judge granting the
defendants' motion for the partial summary judgement. Trial by a jury was held
in April 1994, and the jury returned a verdict in favor of all defendants to
all claims. TransRim filed an appeal to the U.S. Court of Appeals, 10th
Judicial Circuit. Oral arguments were heard March 7, 1995. Management believes
that ACC and CBC have meritorious defenses and that the ultimate outcome
will not have a material impact on the Company's financial position and
results of operations.
In 1992, CBC appealed to the U.S. Circuit Court of Appeals for the First
Circuit seeking a review of a ruling of the U.S. District Court for the
State of New Hampshire. The District Court had upheld a 1991 U.S. Bankruptcy
Court order awarding damages of $10 million, plus interest and attorneys'
fees, to a former beer distributor. In the fourth quarter of 1993, CBC entered
into a settlement of this matter and a related case. The settlement was
within the amount of reserves previously established for the matter.
In 1991, the Company became aware that Mutual Benefit Life Insurance Company
(MBLIC) had been placed under the control of the State of New Jersey. The
Company is a holder of several life insurance policies and annuities through
MBLIC. The cash surrender value under these policies, net of outstanding loans,
approximates $7,621,000. Policyholders have been notified that all
claims, benefits and annuity payments will continue to be paid in full;
however, at this time policyholders are able to only partially redeem their
policies for cash.
In 1991, CBC entered into an agreement with Colorado Baseball Partnership 1993,
Ltd. for an equity investment and multi-year signage and advertising package.
This commitment, totaling approximately $30 million was finalized
upon the awarding of a National League baseball franchise to Colorado in
1991. The initial investment as a limited partner has been paid. The
multi-year signage and advertising package will commence in 1995.
In 1991, the City and County of Denver, Waste Management of Colorado, Inc. and
Chemical Waste Management, Inc. brought litigation in U.S. District Court
against the Company and 37 other PRP's to determine the allocation
of costs of Lowry site remediation. In 1993, the Court approved a settlement
agreement between the Company and the plaintiffs, resolving the Company's
liabilities for the site. The Company agreed to initial payments based on an
assumed present value of $120 million in total site remediation costs. In
addition, the Company agreed to pay a specified share of costs if total
remediation costs are in excess of this amount. Payments representing the
Company's agreed share based on the $120 million assumption were made
into a trust to be applied to costs of site remediation and operating and
maintenance costs. None of these payments were material to the Company's
cash flow or financial position. The terms did not result in any adjustment
to the $30 million reserve established in 1990.
The Environmental Protection Agency (EPA) recently announced remediation
objectives and requirements for the site and projected costs of its
remediation plan. The EPA's projected costs are below the $120 million total
assumed as a basis for the Company's settlement. The City and County of
Denver, Waste Management of Colorado, Inc. and Chemical Waste Management are
expected to implement remediation of the site. The Company has no reason to
believe that total remediation costs will result in additional liability to
the Company.
In 1991, the Company filed suit against certain of its former and current
insurance carriers, seeking recovery of past defense costs and investigation,
study and remediation costs. Settlements were reached during 1993
and 1994 with all defendants. As a result, in the fourth quarter of 1994, the
Company recognized a special pretax credit of $18.9 million (Note 9).
The Company also is named as defendant in various actions and proceedings
arising in the normal course of business. In all of these cases,
the Company is denying the allegations and is vigorously defending against
them and, in some instances, has filed counterclaims. Although the eventual
outcome of the various lawsuits cannot be predicted, it is management's
opinion these suits will not result in liabilities to such extent that
they would materially affect the Company's financial position or results of
operations.
NOTE 11:
Quarterly Financial Information (Unaudited)
The following summarizes selected quarterly financial information for each of
the two years in the period ended December 25, 1994. The third
quarter is a 16-week period; all other fiscal quarters are 12 weeks.
As described in Note 9, income in the fourth quarter of 1994 was
increased by a special pretax credit of $13,949,000 or $.22 per share, and
income from continuing operations in the fourth quarter of 1993 was reduced by
special pretax charges of $122,540,000, or $1.98 per share.
ADOLPH COORS COMPANY AND SUBSIDIARIES
QUARTERLY FINANCIAL STATEMENT (UNAUDITED)
First Second Third Fourth Year
(In thousands, except per share data)
1994
Net sales $318,453 $432,216 $555,581 $ 356,421 $1,662,671
Cost of goods sold 211,252 254,637 358,679 238,221 1,062,789
Marketing, general
and administrative 92,926 127,693 159,979 111,805 492,403
Research and project
development 2,197 3,313 4,217 3,538 13,265
Special (credit) -- -- -- (13,949) (13,949)
Other (income)
expense-net (156) 2,567 1,266 266 3,943
------- ------- -------- ------- ---------
Total costs and
expenses 306,219 388,210 524,141 339,881 1,558,451
Income before
income taxes 12,234 44,006 31,440 16,540 104,220
Income tax expense 5,300 20,100 14,100 6,600 46,100
------- ------- ------- -------- ---------
Net income $ 6,934 $ 23,906 $ 17,340 $ 9,940 $ 58,120
======= ======= ======= ======== =========
Net income per share of
common stock $ 0.18 $ 0.63 $ 0.45 $ 0.26 $ 1.52
======= ======= ======= ======== =========
First Second Third Fourth Year
(In thousands, except per share data)
1993
Net sales $295,983 $412,868 $535,627 $337,333 $1,581,811
------- ------- ------- ------- ---------
Cost of goods sold 198,905 257,539 349,149 231,271 1,036,864
Marketing, general
and administrative 82,747 115,803 158,288 97,292 454,130
Research and project
development 2,602 2,833 4,506 3,067 13,008
Special charges
including
restructuring charge -- -- -- 122,540 122,540
Other (income)
expense-net 3,374 2,904 3,696 2,125 12,099
------- ------- ------- ------- ---------
Total costs
and expenses 287,628 379,079 515,639 456,295 1,638,641
Income (loss)
before income taxes 8,355 33,789 19,988 (118,962) (56,830)
Income tax expense
(benefit) 3,700 14,900 10,400 (43,900) (14,900)
------ ------- ------- -------- ---------
Net income (loss) $ 4,655 $ 18,889 $ 9,588 $(75,062) $ (41,930)
======= ======= ======= ======== =========
Net income (loss)
per share of
common stock $ 0.12 $ 0.50 $ 0.25 $ (1.97) $ (1.10)
======= ======= ======= ======== =========
ITEM 9. Disagreements on Accounting and Financial Disclosure
Within the last two fiscal years there have been no changes in the
Company's independent accounting firm or disagreements on material accounting
and financial statement disclosure matters.
PART III
ITEM 10. Directors and Executive Officers of the Registrant
(a) Directors.
JOSEPH COORS (Age 77) is Vice Chairman of Adolph Coors Company and
has served in that capacity since 1975. He has served as a Director since
1942. He retired from day-to-day operations in December 1987. He serves as a
member of the Executive Committee, the Debt Pricing Committee, the Compensation
Committee and the Audit Committee. He is also a Director of Coors Brewing
Company and ACX Technologies, Inc.
PETER H. COORS (Age 48) has served as a Director of Adolph Coors
Company since 1973. Prior to 1993, he served as Executive Vice President of
Adolph Coors Company and Chairman of the Brewing Group. Also in 1993, he
became Vice President and Secretary of Adolph Coors Company and was
elected CEO and Vice Chairman of Coors Brewing Company. In December 1993, he
was named interim treasurer. He is also a member of the Board of Directors
of Coors Brewing Company. He serves as a member of the Debt Pricing Committee
and the Executive Committee. In his career at Coors Brewing Company, he
has served in a number of different positions, including Divisional
President of Sales Marketing and Administration and Secretary (1982-1985),
Senior Vice President, Sales and Marketing (1978-1982), Vice President
(1976-1978), and Assistant Secretary and Assistant Treasurer (1974-1976).
WILLIAM K. COORS (Age 78) is Chairman of the Board and President of
Adolph Coors Company and has served in such capacities since 1970 and 1989,
respectively. He has served as a Director since 1940. He serves as Chairman of
the Debt Pricing Committee and the Executive Committee. He is also a
director and Chairman of the Board of Coors Brewing Company and ACX
Technologies, Inc.
J. BRUCE LLEWELLYN (Age 67) has served as a Director and member of
the Audit Committee since 1989. In 1993, he was named chairman of the Audit
Committee. He also serves on the Compensation Committee and the Special
Performance-Based Compensation Committee. He is a member of the Board of
Directors of Coors Brewing Company. He is an attorney and involved
in the management of several businesses in which he is an investor. He
is presently the Chairman of the Board and Chief Executive Officer of
Philadelphia Coca Cola Bottling, Inc. and Queen City Broadcasting, Inc. He
is also a Director of Manufacturers Hanover Trust/Chemical Bank and QVC, Inc.
LUIS G. NOGALES (Age 51) has served as a Director since 1989. He became a
member of the Audit Committee in 1992. He has served as a member
of the Compensation Committee since 1989 and was named chairman in May
1994. He is also a member of the Special Performance-Based Compensation
Committee. He is a member of the Board of Directors of Coors Brewing Company.
He is chairman and chief executive officer of Embarcadero Media, Inc., a
media (radio) acquisition company in Los Angeles. In the past he was
president of Nogales Partners (1990 to present), a media acquisition firm,
general partner of Nogales Castro Partners (1989-1990), President of
Univision, the nation's largest Spanish language television network
(1986-1988), and Chairman and Chief Executive Officer of United Press
International (1983-1986). From 1981-1983 he served as Senior Vice
President of Fleishman-Hillard, Inc. He is also a Director
of Southern California Edison Company and SCEcorp.
WAYNE R. SANDERS (Age 47) joined the Company as a Director in February of 1995.
He is chairman of the board and chief executive officer of Kimberly
Clark (K-C) Corporation in Dallas. Sanders joined Kimberly Clark in 1975 as
Senior Financial Analyst. For the past 20 years, he has served in a number of
positions with K-C. He was named to his current position in 1992. Prior to
that, he served as president and chief executive officer (1991); president,
World Consumer, Nonwovens and Service and Industrial Operations (1990). He
was elected to K-C's board of directors in August 1989.
(b) Executive Officers.
Of the above directors, Peter H. Coors and William K. Coors are executive
officers of the Adolph Coors Company. The following also were executive
officers of Adolph Coors Company (as defined by SEC rules) at March 1, 1995:
ALVIN C. BABB (Age 62) is Senior Vice President of Operations and Technology
for CBC and has served in that capacity since 1983. Prior to that, he
served as Group Vice President of Brewery Operations (1982-1983), Senior Vice
President of Brewery Operations (1981-1982) and Senior Vice President of
Plant Operations (1978-1981). He has been with CBC for more than 40 years.
He is a member of the Master Brewing Association of America.
CARL L. BARNHILL (Age 46) joined CBC in May of 1994 as Senior Vice President
of Sales. Barnhill brings more than 20 years of marketing experience
with consumer goods companies. Most recently, he was Vice President of Selling
Systems Development for the European and Middle East division of Pepsi
Foods International. Prior to joining Pepsi in 1993, he spent 16 years
with Frito-Lay in various upper-level sales and marketing positions.
ROBERT W. EHRET (Age 50) joined CBC in May of 1994 as Senior Vice
President, Human Resources. Prior to joining CBC, Ehret served as Senior Vice
President of Human Resources for A.C. Nielsen. From 1983 to 1989, Ehret worked
for PepsiCo Inc., as Director of Employee Relations and Personnel Director for
two of PepsiCo's international divisions based in Tokyo and London. He also
worked in various Human Resource capacities at Celanese Corporation.
W. LEO KIELY, III (Age 48) became President and Chief Operating
Officer of CBC as of March 1, 1993. Prior to joining CBC, he served as
division vice president and then division president of the Frito-Lay, Inc.
subsidiary of PepsiCo in Plano, Texas. From 1989-1991, he served as senior
vice president of field operations, overseeing the operations of
Frito-Lay's four regional business teams. From 1984-1989, he was the
vice president of sales and marketing for Frito-Lay.
ROBERT D. KLUGMAN (Age 47) was named Senior Vice President of Corporate
Development in May 1994, and Vice President of Corporate Development in July
1993. Prior to that, he vas Vice President of Brand Marketing, a
position he held from 1981 - 1987, and again from 1990 - 1993. From 1987 to
1990 he was Vice President of International, Development and Marketing
Services. Before joining CBC, Klugman was a Vice President of Client Services
at Leo Burnett USA, a Chicago-based advertising agency.
MICHAEL A. MARRANZINO (Age 47) has served as CBC's Senior Vice
President and Chief International Officer since 1994. Prior to that,
he served as Vice President and Director of International Marketing. He
has been with CBC since 1976, and has held positions in the sales and
marketing area, including director of development, director for Coors
and Coors Extra Gold brands, director of sales and marketing operations,
director of field sales and director of sales operations.
M. CAROLINE TURNER (Age 45) was named Vice President and Assistant Secretary
of ACC and Vice President, Chief Legal Officer and Assistant Secretary
of CBC in 1993. In the past she served as Vice President, Chief Legal Officer
(1991-1992) and Director, Legal Affairs (1986-1991) of ACC. Prior to joining
the Company, she was a partner with the law firm of Holme Roberts & Owen
(1983-1986), an associate for Holme Roberts and Owen (1977-1982) and a
clerk in the U.S. 10th Circuit Court of Appeals (1976-1977).
WILLIAM H. WEINTRAUB (Age 52) was named Senior Vice President of
Marketing in 1994. He joined CBC as Vice President of Marketing in
July, 1993. Prior to joining CBC, he directed all marketing and
advertising for Tropicana Products as Senior Vice President. From
1982 - 1991, Weintraub was with the Kellogg Company, with responsibility
for marketing and sales. He also held a number of positions at Procter &
Gamble from 1967 - 1982.
TIMOTHY V. WOLF (Age 41) was named Vice President, Treasurer and
Chief Financial Officer of ACC and Senior Vice President and Chief Financial
Officer of CBC in February, 1995. Wolf came to CBC from Hyatt Hotels
Corporation, where he served as Senior Vice President of Planning and
Human Resources from 1993 to 1994. From 1989 to 1993 he served in
several executive positions for The Walt Disney Company including Vice
President, Controller and Chief Accounting Officer.
ACC and CBC employ a number of other officers who are not
considered executive officers of the Registrant as defined under SEC
regulations. Terms for all officers and directors are for a period of one year,
except that vacancies may be filled and additional officers elected at any
regular or special meeting. Directors are elected at the Annual Shareholders'
Meeting held in May. There are no arrangements or understandings between any
officer or director pursuant to which any officer or director was elected as
such.
(d) Family Relationships.
William K. Coors and Joseph Coors are brothers. Peter H. Coors is
a son of Joseph Coors.
(e) Section 16 Disclosures.
All filing and disclosure requirements were met in 1994.
ITEM 11. Executive Compensation
I. SUMMARY COMPENSATION TABLE
----------------------------------------------------------------------------
ANNUAL COMPENSATION LONG TERM COMPENSATION
AWARDS PAYOUTS
NAME & PRINCIPAL
POSITION YEAR SALARY BONUS OTHER RESTRICTED SECURITIES LTIP ALL
($) ($)(a) ANNUAL STOCK UNDERLYING PAYOUTS OTHER
COMP ($)(b) OPTIONS ($)(C) COMP
($)(d) (#)(e) ($)(e)(f)
----------------------------------------------------------------------------------------------------------------------
William K. Coors, Chairman 1994 275,020 2,714 0 0 0 0 86,219
of the Board, CEO of Adolph 1993 256,000 1,938 0 0 0 0 65,539
Coors Company 1992 256,000 0 27,288 0 0 0 58,153
----------------------------------------------------------------------------------------------------------------------
Peter H. Coors, Vice Chairman 1994 483,328 281,262 0 0 28,820 0 9,102
& CEO of Coors Brewing 1993 465,688 44,185 13,041 49,312 30,000 0 8,622
Company 1992 465,061 0 18,593 0 0 491,302 7,257
----------------------------------------------------------------------------------------------------------------------
W. Leo Kiely III, President 1994 384,400 230,858 0 0 23,655 0 5,151
& COO of Coors Brewing 1993 310,000 187,251 309,121 16,500 10,000 0 6,198
Company 1992
----------------------------------------------------------------------------------------------------------------------
Alvin C. Babb, Senior VP, 1994 289,552 133,214 0 0 13,364 0 13,451
Operations & Technology 1993 278,800 27,333 11,538 4,931 3,000 0 15,239
1992
----------------------------------------------------------------------------------------------------------------------
William H. Weintraub, Senior 1994 274,168 126,136 0 0 12,654 0 7,785
VP Marketing 1993 120,271 106,397 33,084 0 0 0 5,733
1992
----------------------------------------------------------------------------------------------------------------------
(a) Amounts awarded under the Management Incentive Compensation
Program.
(b) No restricted stock grants were made in 1994.
In 1993, restricted stock was granted to three of the named officers. The
number of grants and their values at December 25, 1994 are as follows: Peter
H. Coors - 3,000 shares valued at $47,625; W. Leo Kiely III - 1,000
shares valued at $15,875; and Alvin C. Babb - 300 shares valued at $4,763.
Restricted stock awards granted in 1993 have a three-year
vesting period based on year of grant and expire with termination of
employment. Dividends are paid to the holders of the grants during the
vesting period.
No restricted stock grants were made in 1992. In 1992,
restricted stock grants existing as of December 27, 1992 became vested due
to the spin-off. No restricted stock grants were outstanding as of
December 27, 1992.
(c) In 1992, cash was paid under CBC's 1990 Long-Term Incentive
Plan for the three-year performance period ended December 27, 1992.
(d) Under the 1983 Non-Qualified Stock Option Plan, the Company
reimburses a portion of the taxes the executive will incur. In 1994, none of
the named executives received perquisites in excess of the lesser of $50,000
or 10% of salary plus bonus. In 1993, W. Leo Kiely III and William H.
Weintraub received perquisites including moving expenses of $299,639 for W.
Leo Kiely III and $28,320 for William H. Weintraub. In 1992, William K. Coors
had perquisites including personal use of the Company's Lear jet - $13,118
and auto allowance- $8,694. The Company no longer owns the Lear jet.
(e) No stock option grants were made in 1992.
(f) The amounts shown in this column are attributable to the
officer life insurance and 401(k) plans. The named executives receive officer
life insurance provided by the Company until retirement. At the time of
retirement, the officer's life insurance program terminates and for some of
the officers, the salary continuation agreement becomes effective. The
officer life insurance provides six times the executive base salary until
retirement, at which time the Company becomes the beneficiary. The 1994
annual benefit for each executive: William K. Coors - $79,354;
Peter H. Coors - $4,969; W. Leo Kiely III - $3,423;
Alvin C. Babb - $9,062; William H. Weintraub - $3,284. The
Company's 50% match on the first 6% of salary contributed by the officer to
ACC's qualified 401(k) plan was $4,133 for Peter H. Coors; $1,728 for W. Leo
Kiely III; $4,389 for Alvin C. Babb; $4,501 for William H. Weintraub.
In response to Code Section 162 of the Revenue Reconciliation Act
of 1993, the Company appointed a special compensation committee to approve
and monitor performance criteria in certain performance based executive
compensation plans for 1994.
II. OPTION/SAR GRANTS TABLE
Option Grants in Last Fiscal Year
----------------------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE VALUE
AT ASSUMED RATES OF STOCK PRICE
INDIVIDUAL GRANTS APPRECIATION FOR OPTION TERM
----------------------------------------------------------------------------------------------------------
NUMBER OF % TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED FISCAL YEAR ($/SHARE) DATE 5% 10%
(#)
----------------------------------------------------------------------------------------------------------
Peter H. Coors 28,820 (a) 5% $16.25 01/03/04 $276,923 $718,358
W. Leo Kiely III 23,655 (a) 4% $16.25 01/03/04 $227,294 $589,617
Alvin C. Babb 13,364 (a) 3% $16.25 01/03/04 $128,411 $333,107
William H. Weintraub 12,654 (a) 2% $16.25 01/03/04 $121,589 $315,409
(a) From the date of grant, one-tenth of the grant vests for each
one dollar increment in fair market value (FMV) of the stock over
the exercise price. For example, when the FMV reaches $17.25, 10% of
the grant is vested; when it reaches $18.25, 20% is vested; etc.
FMV is calculated by averaging the high and low stock price for each
day. Once a portion has vested, it is not reversed even if the FMV
drops. If not sooner, the grant is 100% vested after 9 years. At
December 25, 1994, the grants were 40% vested.
III. OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE
Aggregated Option/SAR Exercises in Last Fiscal Year, and FY-End Option/SAR Value
---------------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONEY
ACQUIRED AT FY-END(#) (b) OPTIONS AT FY-END ($) (b)
ON VALUE
NAME EXERCISE (#) REALIZED Exercisable Unexercisable Exercisable Unexercisable
--------------------------------------------------------------------------------------------------------------------
Pete H. Coors 0 0 164,208 37,292 169,962 0
W. Leo Kiely III 0 0 12,794 20,860 0 0
Alvin C. Babb 5,632 20,576 26,325 10,018 25,872 0
William H. Weintraub 0 0 5,061 7,592 0 0
(a) Values stated are the bargain element received in 1994, which
is the difference between the option price and the market price at
the time of exercise.
(b) No grants were made in 1992. In 1992, ACC approved the
adjustment of all options outstanding as of December 27, 1992, for
both the amount and exercise price pursuant to a formula which retained the
same option spread for the employee after the spin-off as had existed
immediately prior to the spin-off.
IV. LONG-TERM INCENTIVE PLAN AWARDS TABLE
POTENTIAL FUTURE PAYOUTS UNDER NON-STOCK
PRICE-BASED PLANS
NAME NUMBER OF PERFORMANCE THRESHOLD TARGET MAXIMUM
SHARES, UNITS OR OTHER ($ OR #) ($ OR #) ($ OR #)
OR OTHER PERIOD UNTIL
RIGHTS MATURATION OR
(#) PAYOUT
Peter H. Coors 150% of 1-1-94 1994 - 1996 8,646* 129,691* 259,382*
salary at target
W. Leo Kiely III 140% of 1-1-94 1994 - 1996 7,097* 99,353* 198,706*
salary at target
Alvin C. Babb 100% of 1-1-94 1994 - 1996 $28,956** $289,552** $579,104**
salary at target
William H. Weintraub 100% of 1-1-94 1994 - 1996 $ 8,226** $ 82,250** $165,500**
salary at target 3,543* 35,431* 70,862*
* Number of options to be granted.
** Award of 1/2 restricted shares and 1/2 cash.
Under the Long-Term Incentive Plan (LTIP), payout targets are
dependent on cumulative Return on Invested Capital (ROIC) which is defined as
earnings before interest expense and after tax, divided by debt plus equity. The
LTIP cycle is three years, with any payout at the beginning of the fourth year.
Under the first cycle, the earliest potential payout is for 1994-1996.
Participants elect the form of payout from several options. The first option
is to receive one-half of the payout in cash, one-half in shares of restricted
stock. Restricted shares will be fully vested, but will be restricted from
sale for a period of five years. The second option allows the participant to
use the cash portion of payout to purchase discounted shares of stock (based
on 75% of the fair market value of the stock at the time of payout.) Shares
purchased under this option are fully vested, but cannot be sold for a period
of three years.The third option allows the participant to elect a percentage
(a multiple of10, but not more than 100) of the total award amount to be
received in the form of stock options; the number of options to be three times
the total award amount divided by the fair market value of the stock at the
time the participant enters the LTIP. The options will be fully vested and
have a ten-year term. The remainder of the award, if the percentage elected
is less than 100%, will be awarded one-half in cash, one-half in restricted
shares of stock. All shares will receive dividends during the restriction
period.
V. PENSION PLAN TABLE
The following table sets forth annual retirement benefits for
representative years of service and average annual earnings.
AVERAGE ANNUAL
COMPENSATION YEARS OF SERVICE
10 20 30 40
$ 125,000 $ 21,875 $ 43,750 $ 65,625 $ 71,875
150,000 26,250 52,500 78,750 86,250
175,000 30,625 61,250 91,875 100,625
200,000 35,000 70,000 105,000 115,000*
225,000 39,375* 78,750* 118,125* 129,375*
250,000 43,750* 87,500* 131,250* 143,750*
275,000 48,125* 96,250* 144,375* 158,125*
300,000 52,500* 105,000* 157,500* 172,500*
325,000 56,875* 113,750* 170,625* 186,875*
350,000 61,250* 122,500* 183,750* 201,250*
375,000 65,625* 131,250* 196,875* 215,625*
400,000 70,000* 140,000* 210,000* 230,000*
425,000 74,375* 148,750* 223,125* 244,375*
450,000 78,750* 157,500* 236,250* 258,750*
475,000 83,125* 166,250* 249,375* 273,125*
500,000 87,500* 175,000* 262,500* 287,500*
*Maximum permissible benefit under ERISA from the qualified
retirement income plan for 1994 was $118,800 and annual compensation
in excess of $150,000 is not considered for benefits under the qualified plan.
The Company has a non-qualified supplemental retirement plan to provide
full accrued benefits to all employees in excess of IRS maximums.
Annual average compensation covered by the retirement plan and
credited years of service for individuals named in Item 11(a) are as follows:
William K. Coors - $247,340 and 55 years; Peter H. Coors - $456,339 and
23 years; and Alvin C. Babb - $280,224 and 41 years; W. Leo Kiely III -
$379,454 and 1 year; William H. Weintraub - $270,479 and 1 year.
The Company's principal retirement income plan is a defined benefit
plan. The amount of contribution for officers is not included in the above
table since total plan contributions cannot be readily allocated to individual
employees. The Company's most recent actuarial valuation was as of January 1,
1994, in which the ratio of plan contributions to total compensation covered
by the plan was approximately 9.2%. Covered compensation is defined as the
total base salary (average of three highest consecutive years out of the
last ten) of employees participating in the plan, including commissions
but excluding bonuses and overtime pay. Compensation also includes amounts
deferred by the individual under Internal Revenue Code Section 401(k) and
any amounts deferred into a plan under Internal Revenue Code Section 125.
Normal retirement age under the plan is 65. An employee with at least 5 years
of vesting service may retire as early as age 55. Benefits are reduced for
early retirement based on an employee's age and years of service at
retirement; however, benefits are not reduced if (1) the employee is at
least age 62 when payments commence or (2) the employee's age
plus years of service equal at least 85 and the employee has worked
for CBC at least 25 years. The amount of pension actually accrued under the
pension formula is in the form of a straight line annuity.
In addition to the annual benefit from the qualified Retirement
Plan, two of the named executives are covered by salary continuation agreements.
These agreements provide for a lump sum cash payment to the officer upon
normal retirement in an amount actuarially equivalent in value to 30% of the
officer's last annual base salary, payable for the remainder of the officer's
life, but not less than 10 years. If the officer should die after age 55, the
surviving spouse receives the lump sum. The interest rate used in calculating
the lump sum is determined using 80% of the annual average yield of the 10-year
Treasury constant maturities for the month preceding the month of retirement.
Using 1994 eligible salary amounts as representative of the last annual
base salary, the estimated annual benefit upon normal retirement for
these officers would be: Peter H. Coors- $140,500
and Alvin C. Babb - $86,900.
Compensation of Directors
The Company adopted the Equity Compensation Plan for Non-Employee
Directors (EC Plan) effective May 16, 1991. The EC Plan provides for two grants
of Adolph Coors Company's Class B (non-voting) common stock to non-employee
(NE) directors. The first grant is automatic and equals 20% of the
annual retainer. The second grant is elective and allows the NE directors
to take a portion, or all, of the remaining annual retainer in stock.
Amounts of both grants are determined by the market value of the shares on
the date of grant. Shares received under either grant may not be sold or
disposed of before completion of the annual term. The Company reserved
50,000 shares of stock to be issued under the EC Plan. The retainer for the
1992-1993 term was $25,000 plus $1,500 per meeting. Beginning with the
1993-1994 annual term the Company increased the NE directors' annual
retainer to $32,000 and eliminated the per meeting fee.
The NE members of the Board of Directors in 1993 were paid 50% of
the $25,000 annual retainer for the 1992-1993 term plus $1,500 per meeting and
50% of the $32,000 annual retainer for the 1993-1994 term and reimbursement of
expenses incurred to perform their duties as directors. Directors who are
full-time employees of the Company receive $15,000 annually. All directors
are reimbursed for any expenses incurred while attending Board of Directors or
committee meetings and in connection with any other CBC business. In
addition, Joseph Coors, as a director and retired executive officer, is
provided an office, transportation and secretarial support from CBC.
Employment Contracts and Termination of Employment Arrangements
CBC has no agreements with executives or employees providing
employment for a set period. W. Leo Kiely III, President and COO, has an
agreement with CBC that provided for a guaranteed bonus equal to 50% of
base salary for the first and second year of his employment (1993 and 1994).
In the event of termination without cause prior to June 1, 1995, CBC would
pay his base monthly salary plus the guaranteed bonus for 30 months. If
Mr. Kiely were terminated without cause on or after June 1, 1995, he would
receive his then current salary for 18 months plus 1 1/2 times his last
bonus amount. In either case, health benefits would
continue through the payout period or when he commenced other employment if
earlier.
William H. Weintraub, Senior Vice President, Marketing, has an
agreement which provided for a guaranteed bonus equal to 40% of base salary
for 1993 and 1994. It provides that, if Mr. Weintraub were terminated without
cause prior to July 1, 1995, he would receive 15 months of salary plus the 40%
bonus for that period.
In 1993, Alvin C. Babb, Senior Vice President, Operations & Technology, and
CBC entered into an agreement providing for certain payments to Mr. Babb if
his employment terminates on or before December 31, 1996. CBC would pay Mr.
Babb an amount equal to two times his salary plus a lump-sum payment under
his salary continuation agreement using a 5% discount factor and would pay any
differential between medical benefits then provided and medical benefits
provided under CBC's 1993 medical program.
The standard severance program for officers is one year of base salary plus a
prorated portion of any earned bonus for the year of severance.
Comparison of 5-year Cumulative Total Return*
Indexed/Cumulative Returns
1989 1990 1991 1992** 1993
1994
S & P 500 Index 100.00 96.90 126.42 136.06 149.76
151.74
S & P Bev-Alcoholic 100.00 106.26 111.49 132.94 134.64
142.58
Coors 100.00 104.57 143.53 136.86 129.56
142.43
*Assumes that the value of the investment in ACC Common Stock and
each index was $100 on December 25, 1989, and that all dividends were
reinvested.
**Results for 1992 includes $7.92 for the spin-off occurring in
December 1992.
Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors has furnished
the following report on executive compensation for Adolph Coors Company's
operating subsidiary, Coors Brewing Company (CBC). This report represents
Adolph Coors Company's compensation philosophy for fiscal year 1994.
Overview of Compensation Strategy for Executives
Under the supervision of the three member 1994 Compensation Committee of the
Board of Directors, the Company continued to support the philosophy
that compensation policies, plans and programs must enhance the
profitability of the Company by linking financial incentives of senior
CBC management with the Company's financial performance. While the base
salary philosophy remained the same, all incentive programs were changed
to drive shareholder value and increase profitability.
Annual base salaries were set at median levels found in the
external market. A more aggressive posture was adopted for base salaries
for senior officers who have accountability for major functions. Incentive
compensation strategies were tied to Company performance and shareholder
return to encourage a greater return on invested capital and to increase
share price.
The Compensation Committee's compensation strategy for CBC's CEO
and other executive officers consisted of:
-targeting base salary to the 50th percentile of relevant,
broadly-defined external markets;
-a Company-wide annual profit sharing program under which all eligible
employees share profits based on an equal percentage of payout;
-providing an annual cash incentive award targeted at the 75th
percentile of the same external markets;
-providing annual stock grants designed to increase shareholder
return;
-developing a long-term incentive plan designed to increase return on
invested capital.
Relationship of Performance to Specific Elements of the
Compensation Strategy
Following are brief descriptions that outline details and performance measures
of each component of the 1994 executive compensation strategy.
Base Salary
The Company used compensation survey data to determine salaries
competitive at the 50th percentile for like positions in similar sized
manufacturing companies. Company size was determined by total net sales.
Salary ranges were established for executives by using the 50th percentile
market data as the mid-point, with a 50% spread between minimum and
maximum. Where the executive was paid within the range was determined by
individual performance.
Annual Profit Sharing Program
All full time and part time employees of the Company are eligible for a payout
based on annual pre-tax profit goals being met. Payouts to all
employees are based on an equal percentage of their 1994 eligible earnings.
Management Incentive Compensation Program
In 1994, the annual Management Incentive Compensation Program was changed to
drive both Company profitability and individual performance. Executive officers
and other key management personnel were measured based on pre-tax
profit and written individual performance plans tied to Company objectives.
Payout may only occur after profit objectives are realized. The Compensation
Committee approved annual pre-tax profit objectives as well as minimum and
maximum payout levels within the program. Annual targets were met and payouts
to all eligible employees were based on those profit and individual
performance results as a percentage of their beginning 1994 salary.
In 1994, the Chief Operating Officer and Senior Vice President of
Marketing, as part of their agreements with CBC, earned a cash incentive
award based on a percentage of their 1994 base salary.
Annual Stock Option Grants
In 1994, the Committee approved granting of stock options to the executive
officers and to other key management personnel. Options were granted as a
percentage of base salary and based on the individual's level in
the organization. Options were granted with a ten year term. Option
vesting is based on a one year holding period and an increase in share value.
Options vest 10% for each one dollar increase in fair market value. All
options vest after nine years regardless of share value increase. Options
were granted through the 1990 Equity Incentive Plan (1990 EI Plan).
The 1990 EI Plan was administered by the Compensation Committee.
That committee was composed of non-employee, independent directors. The 1990
EI Plan provided that options be granted at exercise prices equal to the fair
market value on the date the option was granted.
Long Term Incentive Plan
In 1994, the Committee established a Long Term Incentive Plan (LTIP).
Participants are all officers and selected key personnel. The plan
is on a biannual basis. Each plan has a three year measurement cycle (first
plan cycle is for years 1994 through 1996). The plan measures cumulative
return on invested capital. The Committee established both minimum and
maximum payout levels for participants as a percentage of 1994 salary and
level within the organization. The plan provides for three different options
regarding payout, which must be elected before the start of the plan cycle.
The first option of payout is to receive one-half of the payout in
restricted shares, one-half in cash. The restricted shares have a five year
restriction. The second option is to take the cash portion of the first option
to purchase shares of Company stock at a 25% discount, with a three year
restriction on the purchased shares. The third option is to take stock options
in lieu of both restricted shares and cash in 10% increments at a three to one
ratio. These options have a ten year term with no further restrictions.
CEO Compensation for 1994
The CEO's compensation for 1994 did not reflect any of the incentive elements
of the Company's compensation strategy. While fully supportive of
the executive compensation strategy and fully committed to the Company goal
of improved profitability and an increase in shareholder value, CEO William K.
Coors has elected not to participate in the incentive programs. It is Mr.
Coors' belief that his compensation, although low relative to market and
industry standards, is adequate to support his needs and that, given his
strong commitment to corporate goals and objectives, financial incentives
would not enhance his motivation to achieve superior performance. Mr. Coors
did however, receive a 8.0% increase in base salary, which was his first
increase in salary over the past twelve years.
Luis G. Nogales, Chairman
Joseph Coors
J. Bruce Llewellyn
Compensation Committee Interlocks and Insider Participation
Joseph Coors, J. Bruce Llewellyn and Luis G. Nogales served on the
Compensation Committee during the past fiscal year. Joseph Coors, retired as
the President and Chief Operating Officer of the Company in December 1987.
Joe Coors sold a Coors beer distributorship in Cincinnati, Ohio on
December 31, 1993.
Joseph Coors is a director of both ACC and ACXT. He, along with
William K. Coors, a Director of both ACC and ACXT, and Peter H. Coors, a
Director and an executive officer of ACC, are trustees of several family trusts
that collectively own a majority of the common stock of ACXT. ACC and
ACXT, or their subsidiaries, have certain business relationships and have
engaged in certain transactions with one another, as described below.
In connection with the spin-off of ACXT in December 1992, CBC
entered into market-based, long-term supply contracts with certain ACXT
subsidiaries to provide packaging, aluminum and starch products to CBC. Under
the packaging supply agreement, CBC agreed to purchase from an ACXT subsidiary
substantially all of CBC's paperboard and label requirements through 1997.
Under the aluminum supply agreement, CBC agreed to purchase from another ACXT
subsidiary all of CBC's requirements for aluminum can end stock and a
substantial amount of CBC's tab stock needs, as well as substantial
quantities of body stock through 1994. In addition, CBC agreed to purchase
substantial volumes ofaluminum stock to meet CBC's requirements, based on
absolute pounds or percentages of CBC needs through 1997. ANC is acting as a
purchasing agent under the agreement for the CBC/ANC end and can joint
venture. These supply contracts are a material source of revenue for ACXT
and provide CBC a stable source for a significant portion of its raw
materials and packaging materials. In addition, CBC sells brewery by-
products to an ACXT subsidiary and sells aluminum scrap from CBC's
can making operations to another ACXT subsidiary.
Also in connection with the spin-off, ACC and ACXT and their
subsidiaries negotiated several other agreements, including employee matters,
environmental management, tax sharing, trademark licensing agreements. In
addition, there were numerous one-year transitional agreements for various
services and materials. A few continuing service agreements between ACC and
ACXT subsidiaries include agreements under which Coors Energy Company supplies
natural gas to certain Colorado facilities of ACXT and an agreement by CBC to
provide water and waste water treatment services for an ACXT ceramics facility.
A joint defense agreement that commenced at the time of the spin-off is in
effect with respect to the TransRim litigation described in Item 3, Legal
Proceedings. A description of the foregoing agreements was included in the
Company's report on Form 8-K dated December 27, 1992, in Exhibit B,
"Information Statement," dated December 9, 1992, mailed by the Company to its
shareholders.
CBC is a limited partner in a limited partnership, formed in
connection with the spin-off, with an ACXT subsidiary as general partner. The
partnership owns, develops, operates and sells certain real estate previously
owned directly by CBC or ACC. Each partner is obligated to make additional cash
contributions of up to $500,000 upon call of the general partner. Distributions
of $1,000,000 were made to both partners in 1994. Distributions are allocated
equally between the partners until CBC recovers its investment, and thereafter
80% to the general partner and 20% to CBC.
In 1993, CBC sold certain laboratory facilities and technology to
an ACXT subsidiary for approximately $350,000, the estimated fair value of
the assets. In addition, certain subsidiaries of ACC and ACXT are parties to
miscellaneous market-based transactions. For instance, CBC buys ceramic can
tooling from an ACXT subsidiary to test on CBC can lines and CBC serves as
aggregator for long distance telephone services for itself and certain ACXT
companies. During 1994, a lease of office space from CBC to the limited
partnership, mentioned above, terminated.
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management
(a) Security Ownership of Certain Beneficial Owners
The following table sets forth stock ownership of persons holding
in excess of five percent of any class of voting securities, as of
March 15, 1995:
Name and
Address of Amount and Nature
Title of Beneficial of Beneficial Percent
Class Owner Ownership of Class
-------- ----------------- -------------------- ----------
Class A Adolph Coors, Jr. 1,260,000 shares for 100%
Common Trust, Golden benefit of William K.
Stock Colorado, William K. Coors, Joseph Coors
(voting) Coors, Joseph Coors, and May Coors Tooker
Joseph Coors, Jr., and their lineal
Jeffrey H. Coors and descendants living
Peter H. Coors, Trustees at distribution
In addition, certain officers and directors hold interests in other
family trusts, as indicated in Item 12, Section (b) (1) following.
(b) Security Ownership of Management
The following table sets forth stock ownership of the Company's
directors, and all executive officers and directors as a group, as of
March 15, 1995:
Exercisable
Options/
Restricted
Shares Stocks
Title of Name of Beneficially Awards Percent
Class Beneficial Owner Owned (2) Total of Class
-------- ----------------- ------------- --------------------- ----------
Class B Joseph Coors 1,149 (1) 323 1,472(1) (1)
Common Peter H. Coors 36,451 (1) 177,208 213,659(1) (1)
Stock William K. Coors (1) (1) (1)
(non- J. Bruce Llewellyn 3,066 1,129 4,195
voting) Luis G. Nogales 816 323 1,139
Wayne R. Sanders 2,000 2,000
Alvin C. Babb 100 27,625 27,725
W. Leo Kiely III 10,000 17,126 27,126
All Executive
Officers and
Directors as a
Group (15 persons) 19,312,727 301,060 19,613,787 53%
(1) William K. Coors and Peter H. Coors are two of the trustees of
the Adolph Coors Foundation, which owns 732,413 shares of Class B Common
Stock. William K. Coors, Joseph Coors and Peter H. Coors are trustees, in
addition to other trustees, and beneficiaries or contingent beneficiaries in
certain cases, of various trusts that own an aggregate of 16,762,111 shares.
These individuals, and others, are trustees of five other trusts owning
1,762,921 shares. In certain of these trusts, they act solely as trustees and
have novested or contingent benefits. The total of these trust shares, together
with other management shares shown above, represents 53% of the total number
of shares ofsuch class outstanding.
(2) This represents exercisable options to purchase shares under
the Company's 1983 Non-Qualified Stock Option Plan and 1990 Equity Incentive
Plan (as amended in 1994) that could be exercised as of March 15, 1995. In
addition,it reflects restricted stock awards granted under the 1990 Equity
Incentive Plan. Vesting in the restricted stock is over a three year period
from date of grant. All restricted stock awards became fully vested at the time
of the ACXTspin-off. In the event of a change in control of the Company, all
vesting restrictions on the restricted stock awards would be lifted.
(c) Changes in Control.
There are no arrangements that would at some subsequent date result
in a change of control of the Company.
ITEM 13. Certain Relationships and Related Transactions
(a) & (b) For a description of certain business relationships and
related transactions see the discussion under the caption "Compensation
Committee Interlock and Insider Participation" contained in Item 11 of this
report.
(c) Indebtedness of Management
Loans are made available to employees in connection with the
exercise of stock options. No such loans were made or outstanding in 1994.
There was no other indebtedness in excess of $60,000 between the
Company and any member of management or others that have a direct or indirect
interest in the Company.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements: See index of financial statements
in Item 8.
(2) Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts
Certain financial schedules that were presented in previous years'
reports are no longer required by Regulation S-X. These schedules have been
omitted from this report.
All other schedules are omitted because they are not applicable or
the required information is shown in the financial statements or notes thereto.
SCHEDULE II
ADOLPH COORS COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING
ACCOUNTS
Additions
Balance at charged to Balance
beginning costs and Other at end
of year expenses additions Deductions of year
(In thousands)
Allowance for doubtful
receivables (deducted
from accounts receivable)
Year Ended
December 27, 1992 (c) $ 46 $ 23 $ --(a) ($ 57) (b) $ 12
December 26, 1993 $ 12 $ 493 $ --(a) ($ 96) (b) $ 409
December 25, 1994 $ 409 $ -- $ --(a) ($ 385) (b) $ 24
(a) Collections of accounts previously written off and additions
through acquisition of businesses.
(b) Write-off of uncollectible accounts.
(c) Restated for discontinued operations.
(3) Exhibits:
Exhibit 3.1 - Amended Articles of Incorporation.
(Incorporated by reference to Exhibit 3.1 to Form 10-K for
the fiscal year ended December 30, 1990)
Exhibit 3.2 - Amended By-laws. (Incorporated by reference to Exhibit 3.2
to Form 10-Q for the fiscal quarter ended June 13, 1993)
Exhibit 4.1 - Form of Indenture for Adolph Coors Company Senior Debt
Securities. (Incorporated by reference to Exhibit 4 to
Registration Statement on Form S-3 filed March 14, 1990
and amended on March 26, 1990, file No.33-33831). Upon
request, the Company agrees to provide a copy of any debt
instrument as applicable under Regulation S-K, Item 601,
(b)(4)(iii).
Exhibit 10.1 - Officers' Life Insurance Program. (Incorporated by
reference to Exhibit 10 to Form 10-K for the fiscal year
ended December 28, 1980)
Exhibit 10.2* - Officers and Directors Salary Continuation Agreement.
(Incorporated by reference to Exhibit 10 to Form 10-K for
the fiscal year ended December 26, 1982)
Exhibit 10.3* - Adolph Coors Company 1983 Non-Qualified Stock Option Plan,
as amended effective February 13, 1992 (Incorporated by
reference to Exhibit 10.3 to Form 10-K for the fiscal year
ended December 29, 1991)
Exhibit 10.4* - Model of Coors Brewing Company Annual Incentive Plan
Exhibit 10.5* - Coors Brewing Company Long-Term Incentive Plan, 1994-1996
Plan Cycle.
Exhibit 10.6* - Adolph Coors Company Equity Incentive Plan. Amended as of
May 12, 1994.
Exhibit 10.7* - Coors Brewing Company Employee Profit Sharing Program.
(Incorporated by reference to Exhibit 10.8 to Form 10-K
for the fiscal year ended December 31, 1989)
Exhibit 10.8 - Adolph Coors Company Non-Employee Director Compensation
Deferral Plan. (Incorporated by reference to Exhibit 10.9
to Form 10-K for the fiscal year ended December 31, 1989)
Exhibit 10.9 - Agreement between Adolph Coors Company and a former
Executive Officer and current Director. (Incorporated by
reference to Exhibit 10.10 to Form 10-K for the fiscal
year ended December 31, 1989)
Exhibit 10.10 - Form of Coors Brewing Company Distributorship Agreement.
(Introduced 1989) (Incorporated by reference to Exhibit
10.11 to Form 10-K for the fiscal year ended December 31,
1989)
Exhibit 10.11 - Adolph Coors Company Water Augmentation Plan.
(Incorporated by reference to Exhibit 10.12 to Form 10-K
for the fiscal year ended December 31, 1989)
Exhibit 10.12 - Adolph Coors Company Equity Compensation Plan for Non-
Employee Directors (Incorporated by reference to Exhibit
4.1 to registration Statement on Form S-8 filed on
May 21, 1991, file No. 33-40730)
Exhibit 10.13 - Distribution Agreement dated as of October 5, 1992,
between the Company and ACX Technologies, Inc.
(Incorporated herein by reference to the Distribution
Agreement included as Exhibits 2, 19.1 and 19.1A to the
Registration Statement on Form 10 filed by ACX
Technologies, Inc. (file No. 0-20704) with the Commission
on October 6, 1992, as amended.)
Exhibit 10.14* - Employment Contracts and Termination of Employment
Agreements for W. Leo Kiely III, Alvin C. Babb and William
H. Weintraub. (Incorporated by reference to Exhibit 10.17
to Form 10-K for the fiscal year ended December 26, 1993)
Exhibit 10.15 - Revolving Credit Agreement, dated as of
December 12, 1994.
Exhibit 21 - Subsidiaries.
Exhibit 23 - Consent of Independent Accountants.
*Represents a management contract.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter ended
December 25, 1994.
(c) Other Exhibits
No exhibits in addition to those previously filed and listed in
Item 14 (a) (2) are filed herein.
(d) Other Financial Statement Schedules
No additional financial statement schedules are required.
Other Matters
For the purpose of complying with the amendments to the rules
governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933,
the undersigned registrant hereby undertakes as follows, which undertaking shall
be incorporated by reference into registrant's Registration Statements on
Form S-8No. 33-2761 (filed January 17, 1986), 33-35035 (filed May 24, 1990) and
33-40730 (filed May 21, 1991) and on Form S-3 No. 33-33831 (filed
March 14, 1990):
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
EXHIBIT 21
ADOLPH COORS COMPANY AND SUBSIDIARIES
SUBSIDIARIES OF REGISTRANT
The following table lists subsidiaries of the Registrant and the
respective jurisdictions of their organization or incorporation as of
December 25, 1994. All subsidiaries are included in Registrant's consolidated
financial statements.
State/Country of
Organization or
Name Incorporation
------------------------------- ------------------------------
Coors Brewing Company Colorado
CBC International, Inc. Colorado
Coors Brewing International C.V.* The Netherlands
Coors Brewing Iberica, S.A. Spain
Coors Distributing Company Colorado
Coors Energy Company Colorado
Gap Run Pipeline Company Colorado
Coors Global, Inc. Colorado
Coors Intercontinental, Inc. Colorado
Coors International, Inc. Delaware
Coors Transportation Company Colorado
The Rocky Mountain Water Company Colorado
The Wannamaker Ditch Company Colorado
* Organized as a partnership.
EXHIBIT 23
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the
Prospectus constituting part of the Registration Statement on Form S-3
(No.33-33831) and in the Registration Statements on Form S-8 (No. 33-2761),
(No.33-35035) and (No. 33-40730) of Adolph Coors Company of our report dated
February 28, 1995 appearing on page of this Form 10-K.
PRICE WATERHOUSE LLP
Denver, Colorado
March 24, 1995
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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/ William K. Coors
--------------------
William K. Coors
Chairman and President
(Chief Executive Officer)
By /s/ Timothy V. Wolf
--------------------
Timothy V. Wolf
Vice President, Treasurer,
Chief Financial Officer
(Principal Financial Officer)
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following directors on behalf of
the Registrant and in the capacities and on the date indicated.
By /s/ Joseph Coors By /s/ J.Bruce Llewellyn
------------------ ----------------------
Joseph Coors J.Bruce Llewellyn
Vice Chairman
By /s/ Peter H. Coors By /s/ LuisG. Nogales
------------------ -------------------
Peter H. Coors Luis G.Nogales
Chief Executive Officer
Coors Brewing Company
By /s/ Wayne R. Sanders
--------------------
Wayne R. Sanders
March 24, 1995