<PAGE>
As filed with the Securities and Exchange Commission on December 17, 1999
File No. 000-27579
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- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10/A3
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of The Securities Exchange Act of 1934
CoorsTek, Inc.
(Exact name of registrant as specified in its charter)
Delaware 84-0178380
(I.R.S. Employer Identification No.)
(State or other jurisdiction of
incorporation or organization)
16000 Table Mountain Parkway 80403
Golden, Colorado (Zip Code)
(Address of principal executive
offices)
Copies of any communications should be sent to:
Katherine A. Resler
General Counsel and Secretary
CoorsTek, Inc.
16000 Table Mountain Parkway
Golden, Colorado 80403
(303) 277-4000
and
Linda K. Wackwitz Whitney Holmes
Holme Roberts & Owen LLP Hogan & Hartson L.L.P.
1700 Lincoln Street, Suite 4100 1200 Seventeenth Street, Suite 150
Denver, Colorado 80203 Denver, Colorado 80202
(303) 861-7000 (303) 899-7300
Registrant's telephone number, including area code: (303) 277-4000
Securities to be registered pursuant to Section 12(b) of the Act: None
Securities to be registered pursuant to Section 12(g) of the Act: $.01 par
value Common Stock and associated Preferred Stock Purchase Rights
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION REQUIRED IN REGISTRATION STATEMENT
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM 10
Item 1. Business
The information required by this item is contained under "Summary,"
"Business," "Relationship between ACX and CoorsTek," "Special Considerations"
and "Available Information" of the Information Statement (the "Information
Statement") attached hereto as Annex I. Those sections are incorporated herein
by reference.
Item 2. Financial Information
The information required by this item is contained under "Summary,"
"Capitalization," "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" of
the Information Statement. Those sections are incorporated herein by reference.
Item 3. Properties
The information required by this item is contained under "Business--
Properties" of the Information Statement. That section is incorporated herein
by reference.
Item 4. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is contained under "Security
Ownership of 5% Beneficial Owners, Directors and Executive Officers of
CoorsTek" of the Information Statement. That section is incorporated herein by
reference.
Item 5. Directors and Executive Officers
The information required by this item is contained under "Management" of
the Information Statement. That section is incorporated herein by reference.
Item 6. Executive Compensation
The information required by this item is contained under "Executive
Compensation" and "Management" of the Information Statement. That section is
incorporated herein by reference.
Item 7. Certain Relationships and Related Transactions
The information required by this item is contained under "The Spin-off"
and "Relationship Between ACX and CoorsTek" of the Information Statement. Those
sections are incorporated herein by reference.
Item 8. Legal Proceedings
The information required by this item is contained under "Business--
Environmental Matters" and "Business--Legal Proceedings" of the Information
Statement. Those sections are incorporated herein by reference.
Item 9. Market Price of and Dividends on the Registrant's Common Equity and
Related Stockholder Matters
The information required by this item is contained under "The Spin-off--
Results of Spin-off," "The Spin-off--Other Consequences," "The Spin-off--
Listing and Trading of CoorsTek Common Stock," "Dividend Policy," and
"Description of Capital Stock" of the Information Statement. Those sections are
incorporated herein by reference.
I-2
<PAGE>
Item 10. Recent Sales of Unregistered Securities
None.
Item 11. Description of Registrant's Securities to Be Registered
The information required by this item is contained under "Description of
Capital Stock" and "Anti-takeover Effects of CoorsTek's Articles and Bylaws" of
the Information Statement. Those sections are incorporated herein by reference.
Item 12. Indemnification of Directors and Officers
The information required by this item is contained under "Liability and
Indemnification of Officers and Directors" of the Information Statement. That
section is incorporated herein by reference.
Item 13. Financial Statements and Supplementary Data
The information required by this item is contained in "Consolidated
Financial Information" and "Pro Forma Consolidated Financial Information" of
the Information Statement. Those sections are incorporated herein by reference.
Item 14. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 15. Financial Statements and Exhibits.
(a) Financial Statements
Index to Consolidated Financial Statements on page F-1 of the
Information Statement
(b) Exhibits
See Index to Exhibits
I-3
<PAGE>
[ACX Technologies, Inc. Letterhead]
December 14, 1999
Dear ACX Shareholder:
ACX has made a lot of changes since we were spun off from Adolph Coors
Company in December 1992. At that time, we inherited many developmental and new
technologies. Our commitment to profitable growth required that many tough
decisions be made regarding the future of those technologies. During 1999, the
last of these developmental businesses was shut down, sold or is in the process
of being sold. This allowed us to focus our full time and attention on our two
core businesses, Graphic Packaging Corporation and CoorsTek, Inc. ("CoorsTek"),
which was formerly named Coors Porcelain Company.
In addition, we have made several significant acquisitions of folding
carton packaging businesses--Gravure Packaging of Richmond, Virginia in 1996,
Universal Packaging in 1998 and, most recently, the folding carton business of
Fort James Corporation in August 1999. As a result, Graphic Packaging is now
estimated to be the largest folding carton operation in North America. In the
meantime, in September 1999, we sold our flexible packaging business to focus
on our folding carton operations.
In addition to these actions, ACX Technologies, Inc. has announced a plan
to establish CoorsTek as a fully independent public company. In order to
implement this plan and distribute CoorsTek shares, the Board of Directors of
ACX has approved a spin-off on December 31, 1999 to our shareholders of all the
outstanding shares of CoorsTek common stock. In the spin-off, you will receive
one share of CoorsTek common stock for every four shares of ACX common stock
that you hold at the close of business on December 17, 1999. Your current
shares of ACX common stock will be unchanged and will continue to represent
your ownership position in ACX Technologies, Inc. After the spin-off, the
principal business of ACX will be Graphic Packaging Corporation.
Your Board of Directors has concluded that the spin-off is in the best
interests of ACX, ACX's shareholders and the CoorsTek business because it
believes that:
. having two separate public companies will enable financial markets to
evaluate each company more effectively, thereby enhancing shareholder
value over the long term for both companies and making the stock of each
more attractive as currency for future acquisitions;
. separating CoorsTek from the packaging business of ACX will increase the
borrowing capacity of CoorsTek by providing more efficient access to the
debt markets;
. having separate management and ownership structures for CoorsTek will
link equity based compensation more closely to the business in which its
employees work; and
. the spin-off will provide CoorsTek's management with increased strategic
flexibility and decision-making power to realize significant growth
opportunities.
Shares of CoorsTek's common stock are expected to trade on the Nasdaq
National Market under the symbol "CRTK".
The enclosed information statement explains the proposed spin-off in
detail and provides important information regarding CoorsTek. We urge you to
read it carefully. Please note that a shareholder vote is not required in
connection with this matter, and holders of ACX common stock are not required
to take any action to participate in the spin-off. Thus, we are not asking you
for a proxy.
Very truly yours,
William K. Coors
Chairman of the Board
ACX Technologies, Inc.
<PAGE>
[CoorsTek, Inc. Letterhead]
December 14,
1999
Dear Stockholder:
We are delighted to welcome you as an initial stockholder of CoorsTek,
Inc. We will conduct the CoorsTek business as a company separate from ACX
Technologies, Inc., and our common stock will be publicly traded for the first
time on January 4, 2000, and may be traded on a "when issued" basis in December
1999. You will receive a tax free stock dividend of one (1) share of CoorsTek,
Inc. common stock for each four (4) shares of ACX Technologies that you own on
the close of business on December 17, 1999. Shares of our stock will trade on
the Nasdaq National Market under the symbol CRTK.
Established in 1911 as Coors Porcelain Company, CoorsTek is a
manufacturer of advanced technical ceramics. We have in recent years broadened
our materials base to include fluoropolymers and precision machined metals. Our
goal is to become a leading supplier of components and systems made from high
performance materials by partnering with customers to provide manufacturing and
engineering solutions.
We are excited about the opportunities that our spin-off from ACX
Technologies provides, and are enthusiastic about what the future holds. We
believe that CoorsTek has great potential to grow and are excited about you
growing with us as a CoorsTek, Inc. stockholder.
Congratulations on becoming one of the "founding" stockholders of
CoorsTek, Inc.!
Very truly yours,
Joseph Coors, Jr.
Chairman and Chief Executive Officer
CoorsTek, Inc.
<PAGE>
Common Stock
(par value $.01 per share)
At this time, CoorsTek is wholly owned by ACX Technologies, Inc. In this
spin-off, ACX will distribute 100% of the shares of CoorsTek common stock to
ACX shareholders. Each of you, as a holder of ACX's common stock, will receive
one share of our common stock for every four shares of the common stock of ACX
that you hold at the close of business on December 17, 1999, the record date
for the spin-off.
We are sending you this information statement to describe the spin-off.
We expect the spin-off to occur on December 31, 1999. ACX will mail you
certificates representing your proportionate number of shares of CoorsTek
common stock on or as soon after December 31, 1999 as practicable. Immediately
after the spin-off is completed, ACX will not own any shares of CoorsTek common
stock, and we will be a public company independent of ACX. We refer to
ourselves in this information statement as "We," or "CoorsTek."
No shareholder action is necessary to receive your shares of CoorsTek
common stock. This means that:
. you do not need to pay anything to ACX or to CoorsTek; and
. you do not need to surrender any shares of ACX's common stock to
receive your shares of CoorsTek common stock.
In addition, a shareholder vote is not required for the spin-off to
occur. ACX is not asking you for a proxy, and ACX requests that you do not send
a proxy.
There has been no trading market for CoorsTek common stock. However, we
expect that a limited market for shares of our common stock will develop on or
shortly before the record date for the spin-off, commonly known as a "when
issued" trading market. We have applied to have our common stock traded on the
Nasdaq National Market under the symbol "CRTK."
As you review this information statement, you should carefully consider
the matters described in "Special Considerations" beginning on page 8.
----------------
These securities have not been approved or disapproved by the Securities
and Exchange Commission or any state securities commission nor has the
Securities and Exchange Commission or any state securities commission passed
upon the accuracy or adequacy of this Information Statement.
----------------
This Information Statement does not constitute an offer to sell or the
solicitation of an offer to buy any securities. Changes may occur after the
date of this Information Statement and neither CoorsTek nor ACX will update the
information contained herein except in the normal course of their respective
public disclosures.
----------------
Shareholders of ACX with inquiries related to the spin-off should contact
Investor Relations at (303) 271-7005, or ACX's stock transfer agent and
registrar, Norwest Bank Minnesota, NA, Shareowner Services, Post Office Box
64854, St. Paul, Minnesota 55164-0854. Norwest Bank Minnesota, NA is also
acting as distribution agent for the spin-off.
The date of this Information Statement is December 14, 1999.
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information.................................................... ii
Summary.................................................................. 1
Special Considerations................................................... 8
The Spin-Off............................................................. 12
Relationship Between ACX and CoorsTek.................................... 16
Capitalization........................................................... 18
Dividend Policy.......................................................... 18
Pro Forma Consolidated Financial Information............................. 19
Selected Consolidated Financial Data..................................... 24
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 25
Business................................................................. 30
Management............................................................... 37
Executive Compensation................................................... 41
Security Ownership of Certain Beneficial Owners, Directors and Executive
Officers of CoorsTek.................................................... 46
Description of Indebtedness.............................................. 48
Description of Capital Stock............................................. 49
Anti-Takeover Effects of Certain Provisions.............................. 51
Liability and Indemnification of Officers and Directors.................. 59
Independent Accountants.................................................. 60
Index to the Consolidated Financial Statements of CoorsTek, Inc.......... F-1
</TABLE>
i
<PAGE>
Available Information
CoorsTek has filed a registration statement on Form 10 with the
Securities and Exchange Commission (the "Commission") under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), with respect to its
common stock. This Information Statement, which forms a part of the
registration statement, does not contain all of the information set forth in
the registration statement. This information statement contains summaries of
the material terms and provisions of documents filed as exhibits to the
registration statement. For further information, you should refer to the
registration statement and the exhibits. Each such statement is qualified in
its entirety by such reference. Copies of these documents may be inspected
without charge at the Commission's Public Reference Room located at 450 Fifth
Street, N.W., Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the Commission at (800) SEC-
0330. Copies of this material also should be available through the Internet by
using the SEC EDGAR Archive, the address of which is http://www.sec.gov.
Following the spin-off, CoorsTek will be required to comply with the
reporting requirements of the Exchange Act and will file annual, quarterly and
other reports with the Commission. CoorsTek also will be subject to the proxy
solicitation requirements of the Exchange Act and, accordingly, will furnish
annual reports containing audited financial statements to its stockholders in
connection with its annual meetings of stockholders. After the spin-off, such
reports, proxy statements and other information will be available to be
inspected and copied at the public reference facilities of the Commission or
obtained by mail or over the Internet from the Commission, as described above.
No person is authorized by ACX or CoorsTek to give any information or to
make any representations other than those contained in this Information
Statement. If given or made, such information or representations must not be
relied upon as having been authorized.
ii
<PAGE>
SUMMARY
Because this is a summary, it does not contain all the information that
may be important to you. You should read the entire Information Statement,
including our historical and pro forma consolidated financial statements and
the notes to those financial statements included in this Information Statement.
Unless otherwise indicated, references in this document to "we," "us," "our,"
or "CoorsTek" mean CoorsTek, Inc., formerly named Coors Porcelain Company doing
business as Coors Ceramics Company, and its subsidiaries.
CoorsTek
CoorsTek is a wholly-owned subsidiary of ACX Technologies, Inc. ACX was
spun off from Adolph Coors Company in December 1992. At that time, ACX
inherited many developmental and new technologies. In 1999, the last of these
technologies was sold, is being sold, or closed its doors, allowing ACX to
concentrate on its two core businesses, Graphic Packaging Corporation and
CoorsTek. The Board of Directors of ACX has determined that these two core
businesses can be operated and developed more effectively and in the best
interests of ACX's shareholders if CoorsTek becomes a separate, independent,
publicly traded Company.
CoorsTek has been in business since 1911, when it was incorporated in
Colorado as Coors Porcelain Company, and is a manufacturer of advanced
technical ceramics. In addition, CoorsTek manufactures a wide variety of
products from other engineered materials and is involved in the precision
machining of metals. For some customers, CoorsTek integrates manufactured and
purchased components into assemblies and systems. After the spin-off, CoorsTek
will be an independent, publicly traded company that will continue to develop,
manufacture and sell advanced technical ceramic and other engineered materials
across a wide range of product lines for a variety of applications.
CoorsTek sells its products primarily to industrial manufacturers for
incorporation into their products and processes, providing components to
substantially all of the commonly recognized industrial markets. Since
approximately 90% of CoorsTek's products are manufactured to customer
specifications, we consider our reputation for expert custom product design,
product quality and customer service one of our most valuable assets.
For the nine months ended September 30, 1999 and for its fiscal year
ended December 31, 1998, the revenues of ACX attributable to CoorsTek were $267
million and $297 million respectively.
CoorsTek's principal office is located at 16000 Table Mountain Parkway,
Golden, Colorado 80403, and its telephone number is (303) 277-4000.
1
<PAGE>
The Spin-Off
The following is a brief set of questions and answers about the spin-off.
Why is ACX spinning off . To increase the borrowing capacity of CoorsTek.
CoorsTek?
. To allow financial markets to evaluate ACX and
CoorsTek separately.
. To give CoorsTek's management more flexibility
to take advantage of growth opportunities,
including using CoorsTek stock as currency for
acquisitions.
. To more closely link the value of equity-based
compensation given to CoorsTek's employees to
CoorsTek's business results.
What do I have to do to Nothing; no shareholder vote or other action is
participate in the spin- required. You do not need to surrender any shares
off? of ACX stock to receive shares of CoorsTek common
stock in the spin-off.
What will I receive in the ACX will distribute one share of CoorsTek common
spin-off? stock for every four shares of ACX common stock
owned as of the record date. You will continue to
own your ACX stock.
How will ACX distribute If you own ACX stock on the record date, Norwest
CoorsTek's common stock to Bank Minnesota, NA will mail you a certificate
me? representing your CoorsTek common stock shortly
after December 31, 1999. Following the spin-off
you may retain shares of CoorsTek, sell them or
transfer them to a brokerage or other account.
You will not receive new ACX stock certificates.
When is the record date? The record date is December 17, 1999.
What if I hold my shares of If you hold your shares of ACX stock through your
ACX stock through my stockbroker, bank or other nominee, you are
stockbroker, bank or other probably not a shareholder of record and your
nominee? receipt of CoorsTek common stock depends on your
arrangements with the nominee that holds your
shares of ACX stock for you. We anticipate that
stockbrokers and banks generally will credit
their customers' accounts with CoorsTek common
stock on or about January 3, 2000, but you should
check with your stockbroker, bank or other
nominee. Following the spin-off you may instruct
your stockbroker, bank or other nominee to
transfer your shares of CoorsTek common stock
into your own name.
What if I hold fractional If you own fractional shares, you will receive
shares of CoorsTek's common cash instead of your fractional share of CoorsTek
stock after the spin-off? common stock. Fractional shares to be cashed out
will be aggregated and sold through a
2
<PAGE>
broker-dealer in the open market by the
distribution agent which will distribute to you
your portion of the cash proceeds promptly after
the spin-off. No interest will be paid on any
cash distributed in lieu of fractional shares.
What is CoorsTek's dividend CoorsTek currently anticipates that no cash
policy? dividends will be paid on its common stock in the
foreseeable future in order to conserve cash for
the repayment of debt, future acquisitions and
capital expenditures. We expect that CoorsTek's
Board will periodically reevaluate this dividend
policy, taking into account CoorsTek's operating
results, capital needs, debt restrictions and
other factors.
How will CoorsTek's common
stock trade? We have applied to have CoorsTek common stock
traded on the Nasdaq National Market under the
symbol "CRTK" and expect that regular trading
will begin on January 4, 2000. A temporary form
of interim trading called "when-issued trading"
may occur for CoorsTek common stock on or about
December 21, 1999 and continue through December
31, 1999. A when-issued listing can be identified
by the letter "v" next to the CoorsTek common
stock symbol on the Nasdaq National Market. If
when-issued trading develops, you may buy and
sell CoorsTek common stock in advance of the
spin-off on a when-issued basis. See pages 14 and
15.
ACX stock will continue to trade on a regular
basis reflecting the combined value of ACX and
CoorsTek until December 31, 1999. ACX stock will
trade carrying due-bills representing CoorsTek
common stock December 15, 1999 through December
31, 1999. These due-bills will be redeemed for
CoorsTek common stock on January 5, 2000.
Is the spin-off taxable for No; the Internal Revenue Service has ruled that
U.S. tax purposes? the spin-off will be tax-free for U.S. tax
purposes, except for taxes on any cash received
instead of a fractional share. To review tax
consequences in detail, see pages 8 and 14.
What are the risks involved The separation of CoorsTek from ACX presents
in owning CoorsTek common certain risks. For example, CoorsTek has no prior
stock? history of operating as an independent company.
Certain other risks are associated with owning
CoorsTek common stock due to the nature of its
business and the markets in which it competes.
You are encouraged to carefully consider these
risks, which are described in greater detail on
pages 8 through 11.
Will ACX and CoorsTek be ACX will not own any CoorsTek common stock after
related in any way after the spin-off, and CoorsTek will operate as an
the spin-off? independent, publicly
3
<PAGE>
held company. None of the directors or officers
of CoorsTek will remain directors or officers of
ACX, although Joseph Coors, Director Emeritus of
ACX, and William K. Coors, director of ACX, will
serve as Directors Emeriti of CoorsTek. As
Directors Emeriti, Messrs. Coors will provide
advice and consulting services to the Board but
shall not constitute "directors" and shall not
have voting rights. ACX will enter into
agreements with CoorsTek to allocate
responsibility for liabilities (including tax,
environmental and other contingent liabilities
associated with their respective businesses or
otherwise to be assumed by CoorsTek or ACX), to
separate their businesses, and to provide for the
sharing of certain services on a transitional
basis. These agreements are described in greater
detail on pages 16 and 17.
What We Have Already Accomplished to Prepare for the Spin-Off
Board Appointments
ACX has elected five directors to begin their
service on CoorsTek's Board effective as of the
Spin-Off. See pages 37 and 38.
Senior Management The CoorsTek Board has voted to retain Joseph
Appointments Coors, Jr. as CoorsTek's Chairman and Chief
Executive Officer, John K. Coors as President,
and Derek C. Johnson, who was newly elected to
the office of Executive Vice President. They will
be joined by newly elected officers Joseph G.
Warren, Jr., Chief Financial Officer, Katherine
A. Resler, General Counsel and Secretary, and
Larry D. Murphy, Executive Vice President. See
pages 39 to 40.
New Debt Financing
In contemplation of the spin-off, CoorsTek has
negotiated $270 million in debt financing.
CoorsTek will pay $200 million of the net
proceeds to ACX to repay intercompany obligations
and as a special dividend.
4
<PAGE>
Information Regarding the Spin-off and CoorsTek
Before the spin-off, you should direct inquiries relating to the spin-off
to:
Norwest Bank Minnesota, ACX Technologies, Inc.
NA Investor Relations
Shareowner Services 16000 Table Mountain Parkway
Post Office Box 64854 Golden, Colorado 80403
St. Paul, Minnesota 55164-0854 (303) 271-7005
(651) 450-4064
(800) 468-9716
After the spin-off, you should direct inquiries relating to an investment
in CoorsTek common stock to:
CoorsTek, Inc.
Investor Relations
16000 Table Mountain Parkway
Golden, Colorado 80403
(303) 277-4000
After the spin-off, the transfer agent and registrar for CoorsTek's
common stock will be:
Norwest Bank Minnesota, NA
Shareowner Services
Post Office Box 64854
St. Paul, Minnesota 55164-0854
(651) 450-4064
(800) 468-9716
5
<PAGE>
Summary Financial And Operating Data
The following tables present: 1) summary historical operating data for
each of the last five fiscal years ended December 31, 1998 and for the nine-
month periods ended September 30, 1999 and 1998, 2) summary balance sheet data
as of December 31 for the last five fiscal years and as of September 30, 1999
and 1998 and 3) pro forma selected financial data for the nine months ended
September 30, 1999, and the year ended December 31, 1998, as well as pro forma
balance sheet data as of September 30, 1999. The information as of and for the
nine months ended September 30, 1999 and 1998 and as of and for the years ended
December 31, 1994 and 1995 is derived from our unaudited consolidated financial
statements.
Before the spin-off, we operated as a wholly owned subsidiary of ACX.
Because the data reflect periods during which we did not operate as an
independent company, the historical data may not reflect the results of
operations or the financial condition that would have resulted if we had
operated as a separate, independent company during the periods shown. We have
presented unaudited pro forma financial information as of and for the nine
months ended September 30, 1999 and the year ended December 31, 1998 to give a
better picture of what this information might have looked like if CoorsTek had
been operated independently during this period. The data may not necessarily be
indicative of our future results of operations or financial condition.
The data presented in the table below are derived from our historical and
pro forma consolidated financial statements and the notes to those financial
statements included in this Information Statement. You should read these
sections for a further explanation of the data summarized here.
Unaudited pro forma and historical earnings per share data are presented
on pages 19, 21 and F-3, respectively.
Historical Selected Financial Data:
<TABLE>
<CAPTION>
Nine Months
Ended September
30, Year Ended December 31,
------------------ -----------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Income
Statement Data:
Net sales.............. $266,936 $230,930 $296,614 $304,824 $276,352 $270,877 $231,288
Gross profit........... 66,481 57,099 73,708 85,003 76,132 80,166 63,570
Selling, general and
administrative
expenses.............. 35,957 28,528 37,758 41,754 35,928 36,613 34,541
Asset impairment
charges............... -- 11,814 11,814 -- -- 438 --
Operating income....... 30,524 16,757 24,136 43,249 40,204 43,115 29,029
Interest and other
income (expense)-net.. (3,631) (2,894) (3,524) (68) (6) 393 (354)
Income tax expense..... 10,101 5,117 7,682 16,192 14,996 14,545 11,304
Net income............. 16,792 8,746 12,930 26,989 25,202 28,963 17,371
<CAPTION>
September 30, December 31,
------------------ -----------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Balance
Sheet Data:
Total Assets........... $320,609 $279,231 $278,359 $262,687 $216,635 $189,191 $165,804
Working capital........ 73,607 81,666 89,295 71,649 62,480 47,567 42,337
Long-term debt payable
to Parent............. 50,000 50,000 50,000 -- -- -- --
Total shareholder's
equity................ 184,087 161,263 165,825 203,155 163,463 130,381 115,886
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Nine Months
Ended Year Ended
September 30, December 31,
1999 1998
Pro Forma Selected Financial Data: ------------- ------------
(In thousands)
<S> <C> <C>
Consolidated Income Statement Data:
Net sales........................................... $266,936 $296,614
Gross profit........................................ 66,481 73,708
Selling, general and administrative expenses........ 35,957 37,758
Asset impairment charges............................ -- 11,814
Operating income.................................... 30,524 24,136
Interest and other income (expense)-net............. (14,223) (15,674)
Income tax expense.................................. 6,129 3,150
Net income.......................................... 10,172 5,312
<CAPTION>
September 30,
1999
-------------
<S> <C> <C>
Consolidated Balance Sheet Data:
Total assets........................................ $325,609
Working capital..................................... 83,043
Long term debt...................................... 205,000
Total shareholder's equity.......................... 43,523
</TABLE>
7
<PAGE>
SPECIAL CONSIDERATIONS
We will have increased expenses as an independent public company. This could
impair our profitability.
We do not have an operating history as an independent company. Our
business has historically relied on ACX for various financial, managerial and
administrative services and has been able to benefit from the earnings, assets
and cash flows of ACX's other businesses. ACX will not be obligated to provide
assistance or services to CoorsTek after the spin-off, except as described in
the Distribution Agreement, the Transition Services Agreement and the other
agreements entered into by the companies in connection with the spin-off. See
"Relationship Between ACX and CoorsTek."
Following the spin-off, we will incur the costs and expenses associated
with the management of a public company and will incur interest expense
significantly in excess of that incurred historically. While we have been
profitable as part of ACX, there can be no assurance that, as a stand-alone
company, our future profits will be comparable to historical combined results
before the spin-off. The spin-off may result in some temporary disruption to
the business operation, as well as to the organization and personnel structure,
of CoorsTek which may have an adverse effect on our profitability.
ACX and you would have federal income tax liabilities if the Tax Ruling were
revoked.
The IRS has issued a Tax Ruling to the effect that, among other things,
the spin-off will be tax free to ACX and ACX shareholders under Section 355 of
the Code except to the extent that cash is received in lieu of fractional
shares. The Tax Ruling, while generally binding upon the IRS, is based upon
factual representations and assumptions and commitments on behalf of CoorsTek
with respect to future operations made in the ruling request. If those factual
representations and assumptions were materially incomplete or untrue, or the
facts upon which the Tax Ruling is based are materially different from the
facts at the time of the spin-off, or if CoorsTek does not meet certain
commitments made, the IRS could modify or revoke the Tax Ruling retroactively.
If the spin-off failed to qualify under Section 355 of the Code,
corporate tax would be payable by the consolidated group of which ACX is the
common parent based upon the difference between the aggregate fair market value
of the CoorsTek business and the adjusted tax bases of such business to ACX
prior to the spin-off. The corporate level tax would be payable by ACX. We have
agreed to indemnify ACX for this and other tax liabilities if they result from
certain actions taken by CoorsTek, or from the spin-off. See "Relationship
between ACX and CoorsTek--Tax Sharing Agreement." In addition, under the Code's
consolidated return regulations, each member of ACX's consolidated group
(including CoorsTek) is severally liable for these tax liabilities. If CoorsTek
is required to indemnify ACX for these liabilities or otherwise is found liable
to the IRS for these liabilities, the resulting obligation could exceed $50
million and could materially adversely affect our financial condition.
Additionally, if the spin-off were not to qualify under Section 355 of
the Code, then each owner of ACX common stock who receives shares of CoorsTek
common stock in the spin-off would be treated as if such stockholder received a
taxable distribution in an amount equal to the fair market value of CoorsTek
common stock received on the date it is received.
Our cash flow requirements are significantly higher than our historical needs
because we have increased our leverage and have replaced the financing ACX has
historically provided.
In connection with the spin-off, we have borrowed funds to settle
intercompany obligations and to pay ACX a dividend to reimburse ACX for certain
funds previously provided for acquisitions. Following the spin-off we will no
longer be under ACX's cash management policies. We believe that our cash flow
from operations, together with availability under the credit facility referred
to below in
8
<PAGE>
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Financial Resources and Liquidity" and "Description of Certain
Indebtedness," will be sufficient to satisfy our working capital, capital
expenditure and debt service requirements and funding needed for acquisitions
in the foreseeable future. However, we cannot assure you that we will have
sufficient cash flow to satisfy these obligations and insufficient cash flow
could materially adversely impair our financial condition.
CoorsTek's increased debt will mean that we will need to generate a
minimum level of cash flow from operations in order to meet required repayments
of interest and principal. In addition, the credit agreements impose certain
restrictions on the conduct of our business following the spin-off.
We have agreed to restrictions and adopted policies that could have possible
anti-takeover effects.
We have agreed to certain restrictions on our future actions to assure
that the spin-off will be tax-free, including restrictions with respect to an
acquisition of shares of CoorsTek common stock. If we fail to abide by these
restrictions, and, as a result, the spin-off fails to qualify as a tax-free
reorganization, CoorsTek will be obligated to indemnify ACX for any resulting
tax liability. The potential tax liability that could arise from an acquisition
of shares of CoorsTek common stock, together with our related indemnification
obligations, could have the effect of delaying, deferring or preventing a
change in control of CoorsTek. See "Relationship between ACX and CoorsTek--Tax
Sharing Agreement."
Several provisions of CoorsTek's Certificate of Incorporation and Bylaws
could deter or delay unsolicited changes in control of CoorsTek. These include
provisions creating a classified Board of Directors and limiting the
stockholders' powers to remove directors or take action by written consent
instead of at a stockholders' meeting. Our Board of Directors has the
authority, without further action by the stockholders, to fix the rights and
preferences of and issue preferred stock. CoorsTek has also adopted a
stockholder rights plan that could make an unsolicited takeover offer
uneconomical without prior Board approval. These provisions and others that
could be adopted in the future could deter unsolicited takeovers or delay or
prevent changes in control or management of CoorsTek, including transactions in
which stockholders might otherwise receive a premium for their shares over then
current market prices. These provisions may limit the ability of stockholders
to approve transactions that they may deem to be in their best interests. See
"Anti-Takeover Effects of CoorsTek's Certificate and Bylaws" and "Description
of Capital Stock."
If we are unable to compete successfully, our revenues may be adversely
affected.
Competition in the advanced ceramics industry is vigorous and comes
primarily from overseas. Principal competitive factors in the worldwide market
include price, quality and delivery schedules. Our products also face
competition from metals and other materials based primarily on price and weight
of metals and other materials. We believe we will be able to compete
successfully in this environment although we cannot guarantee this.
We also face competition in our precision metal machining business and in
the fluoropolymer material business from a multitude of relatively small
domestic companies. We believe there is an opportunity for us, as a larger
company, to compete successfully in this market but we cannot guarantee our
success. Our inability to compete successfully would materially adversely
affect our revenues and financial condition.
Our international sales and transactions in local currencies expose us to
currency fluctuation risks.
CoorsTek is subject to risks associated with selling products in foreign
countries, primarily risks of fluctuating currency exchange rates.
International sales, primarily in Western European and Far East markets,
constituted approximately 25% of our sales in 1998. To limit our risk of
currency fluctuations,
9
<PAGE>
we selectively hedge the U.S. dollar against foreign currencies used in these
markets to mitigate the effects of adverse currency fluctuations when sales are
made in the foreign currency. The strength of the U.S. dollar relative to the
currency of our customers or competitors also may have an impact on our profit
margins or sales to international customers. We cannot assure you that we will
be able to manage these risks successfully or that they will not have a
material adverse effect on our business, financial condition or results of
operations.
Our profitability is sensitive to economic conditions affecting end users of
our products.
Since we sell our products primarily to industrial manufacturers for
incorporation into their products or processes, our business is sensitive to
changes in economic conditions that affect the various industries in which the
end users of our products operate such as the semiconductor, automotive, oil
and gas and pulp and paper industries. Sales fluctuations in an industry that
incorporates CoorsTek's products into its products could directly and
negatively affect our sales to that market. We cannot assure you that these
risks will not have a material adverse effect on our business, financial
condition or results of operations.
Our profitability and growth are subject to risks related to a significant
customer.
We anticipate that approximately 22% of our revenues in 1999 will come
from one customer, Applied Materials, Inc., a semiconductor equipment
manufacturer. Our dependence on this customer may increase as we further
develop our strategic supplier relationship. Any disruption in this
relationship, including a downturn in Applied Materials' business in the
industry(ies) in which it operates, would have a material adverse effect on our
sales.
Our need to comply with extensive governmental regulation could increase our
costs.
We are subject to numerous federal, state and local environmental laws
and regulations of the U.S. and other countries in which we have operations.
Our operations are also governed by laws and regulations relating to worker
health and workplace safety. Based on ACX's experience to date, we believe that
liability for environmental conditions and the future cost of compliance with
existing environmental or occupational health and safety laws and regulations
will not have a material adverse effect on our businesses or financial
condition. However, the impact of any future changes in laws and regulations
cannot be predicted and could increase our operating costs and adversely affect
our productivity. See "Business--Environmental Matters."
We are parties to litigation that if adversely determined could impair our
financial condition.
In the ordinary course of business, we are subject to claims, lawsuits
and contingent liabilities including claims by current and former employees.
Although CoorsTek is defending against these cases, we cannot assure you that
the ultimate outcome of any or all of these cases will not have a material
adverse effect on our business, financial condition or results of operations.
See "Business--Legal Proceedings."
Factors that may affect future results.
Certain statements in this document constitute "forward-looking
statements." These forward-looking statements involve known or unknown risks,
uncertainties and other factors that may cause the actual results, performance,
or achievements of CoorsTek to be materially different from any future results,
performance or achievements expressed or implied by the forward-looking
statements. Specifically, 1) capturing new customers, successfully increasing
sales to existing unaffiliated customers and the success of CoorsTek's future
years' revenue growth is dependent upon numerous factors, including the
continued strength of the U.S. and key foreign economies, the relative position
of the U.S.
10
<PAGE>
dollar vis-a-vis key European and Asian currencies, the actions of competitors
and customers, CoorsTek's ability to execute its marketing plans and the
ability of CoorsTek to maintain or increase sales to existing customers and
capture new business; 2) CoorsTek's overall financial results and financial
condition is dependent upon its customers' and suppliers' ability to execute
their Year 2000 readiness plans; and 3) CoorsTek's ability to increase revenues
and operating income is dependent upon its ability to continue its track record
for new product innovation, general economic conditions such as the position of
the U.S. dollar vis-a-vis other currencies, the availability and pricing of
substitute materials such as metals and plastics, the performance of key
industry segments such as semiconductor, automotive, and electronics and other
factors.
11
<PAGE>
THE SPIN-OFF
Reasons for the Spin-Off
The ACX Board of Directors has determined that the distribution of 100%
of the outstanding common stock of CoorsTek to owners of the common stock of
ACX will enable the management of each of Graphic Packaging and CoorsTek to
operate and develop these two core businesses more effectively. The ACX Board
of Directors has concluded that the spin-off is in the best interests of ACX,
CoorsTek and ACX's shareholders because it believes that:
. separating CoorsTek from the packaging business of ACX will increase
the borrowing capacity of CoorsTek by providing it with more
efficient access to the debt markets;
. having two separate public companies will enable financial markets to
evaluate each company more effectively, thereby enhancing shareholder
value over the long term for both companies and making the stock of
each more attractive as currency for future acquisitions;
. the spin-off will provide CoorsTek's management with increased
strategic flexibility and decision-making power to realize
significant growth opportunities; and
. having a separate management and ownership structure for CoorsTek
will provide equity based compensation that is more closely related
to the business in which its employees work.
Manner of Effecting the Spin-Off
ACX will effect the spin-off as of the close of business on December 31,
1999 by distributing all issued and outstanding shares of CoorsTek common stock
to holders of record of ACX common stock. The spin-off will be made on the
basis of one share of CoorsTek common stock for every four shares of ACX common
stock (the "Distribution Ratio") held as of the close of business on
December 17, 1999. If you would have received fractional shares as a result of
the Distribution Ratio, you will receive cash instead of fractional shares of
CoorsTek common stock. The distribution agent will aggregate all of the
fractional shares, sell them through a broker-dealer on the open market and
distribute to you your portion of the cash proceeds shortly after the spin-off.
No interest will be paid on any cash distributed in lieu of fractional shares.
Norwest Bank Minnesota, NA, as distribution agent, will mail certificates
representing the number of shares of CoorsTek common stock received by each
stockholder in the spin-off. Following the spin-off, stockholders may transfer
the shares to a brokerage account or may retain, transfer or sell the shares.
No owner of ACX common stock will be required to pay any cash or other
consideration for shares of CoorsTek received in the spin-off or to surrender
or exchange any shares of ACX common stock to receive shares of CoorsTek. The
actual total number of shares of CoorsTek common stock to be distributed will
depend on the number of shares of ACX common stock outstanding on December 17,
1999. The shares of CoorsTek common stock distributed in the spin-off will be
fully paid and nonassessable and will not be entitled to preemptive rights. See
"Description of Capital Stock."
Distribution Agreement
The spin-off will be made pursuant to the Distribution Agreement between
ACX and CoorsTek. It establishes the procedures to effect the spin-off and
provides for the distribution of the CoorsTek common stock to the shareholders
of ACX, the allocation to CoorsTek of certain assets and liabilities of ACX and
the transfer to and assumption by CoorsTek of those assets and liabilities.
The Distribution Agreement also contains agreements related to debt and
financing arrangements. CoorsTek has agreed that, concurrently with the spin-
off, it will repay all outstanding
12
<PAGE>
intercompany debt owed by CoorsTek to ACX as of the Distribution Date. CoorsTek
will repay intercompany debt from the net proceeds of the new credit
arrangements and also pay a special dividend to ACX. The total amount of the
repayment and the special dividend together will be $200 million. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation--Financial Resources and Liquidity."
The Distribution Agreement provides for the continuation of existing
insurance coverage under ACX insurance policies for CoorsTek until such
coverage expires by its terms in March 2000 (for property insurance) and May
2000 (for casualty insurance) and for the allocation between ACX and CoorsTek
of costs and liabilities associated with the insurance. Under the Distribution
Agreement, ACX and CoorsTek have each agreed to retain, and to make available
to the other, books and records and related assistance for audit, accounting,
claims defense, legal, insurance, tax, disclosure, benefit administration and
other business purposes. Each has also agreed to pay its own costs related to
the spin-off and CoorsTek has agreed to indemnify ACX if the spin-off is
taxable or if ACX incurs certain liabilities. Under the Distribution Agreement,
the companies agreed to enter into one or more joint defense agreements as
necessary to provide for the management of litigation in which both ACX or its
subsidiaries and CoorsTek or its subsidiaries are parties and the allocation of
related costs, liabilities and recoveries and an environmental responsibility
agreement allocating responsibility for environmental liabilities. Also, the
Distribution Agreement provides that the ACX Board of Directors may determine
not to proceed with the spin-off at any time prior to the Distribution Date,
although such action is not anticipated.
The Distribution Agreement provides for execution and delivery of the
Agreements described in "Relationship between ACX and CoorsTek."
Results of Spin-Off
After the spin-off, CoorsTek will be a separate public company. The
number and identity of stockholders of CoorsTek immediately after the spin-off
will be approximately the same as the number and identity of shareholders of
ACX on December 17, 1999. Immediately after the spin-off, CoorsTek expects to
have approximately 2,493 holders of record of CoorsTek common stock and
approximately 7,134,880 shares of CoorsTek common stock outstanding, based on
the number of record shareholders and issued and outstanding shares of ACX
common stock as of the close of business on November 26, 1999 and the
Distribution Ratio. The actual number of shares of CoorsTek common stock to be
distributed will be determined as of December 17, 1999 and could be affected
by, among other things, the exercise of vested ACX stock options and
exercisable warrants, which as of September 30, 1999 could have been exercised
for approximately two million shares of ACX common stock. The spin-off will not
affect the number of outstanding shares of ACX common stock or the rights of
ACX shareholders.
Other Consequences
As of September 30, 1999, there were outstanding vested and unvested
options and exercisable and non-exercisable warrants to purchase approximately
2.3 million shares of ACX common stock held by persons who will be employed by
CoorsTek after the spin-off. CoorsTek will grant substitute options or warrants
for these outstanding ACX options. The exercise price for each substituted
option granted by CoorsTek will be based on the respective relative fair market
values of the ACX common stock and the CoorsTek common stock prices pre and
post spin. The number of shares will be determined by dividing the original
exercise price of the ACX option by the exercise price of the substitute
option, as determined above, and then multiplying the result by the original
number of option shares. Substitute options will have the same vesting status
and remaining exercise period as the correspondent ACX option.
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<PAGE>
Similarly, the number of shares and the exercise price of the outstanding
ACX options held by option holders who continue to be employed by ACX or one of
its remaining subsidiaries after the spin-off will be adjusted based on the
relative fair market values of the ACX common stock before and after the spin-
off.
Tax Consequences of the Spin-Off
The following is a description of the material U.S. tax consequences
associated with the spin-off and is not intended to address every individual
stockholder's individual tax consequences. In particular, this summary
description does not cover state, local, municipal, provincial or non-U.S. tax
consequences. Stockholders are strongly encouraged to consult their own tax
advisors concerning the tax consequences of the spin-off applicable to them. In
addition, stockholders residing outside of the U.S. are encouraged to seek tax
advice regarding tax implications of the spin-off.
ACX has received a ruling (the "Tax Ruling") from the Internal Revenue
Service (the "IRS"). The Tax Ruling was issued based upon the accuracy of
factual representations and assumptions and commitments as to CoorsTek's future
operations made by ACX and CoorsTek in the ruling request and states, among
other things, that the spin-off will qualify as a tax-free spin-off under
Section 355 of the U.S. Internal Revenue Code of 1986, as amended, for federal
income tax purposes. No gain or loss will be recognized by ACX shareholders as
a result of their receipt of CoorsTek common stock in the spin-off, except for
any cash received in lieu of fractional shares. See "Manner of Effecting the
Spin-Off." However, if the factual basis or assumptions upon which the ruling
was granted prove to be incorrect, or if CoorsTek does not meet certain
commitments made in the tax ruling request, there could be tax consequences.
See "Special Considerations--ACX and you would have federal income tax
liabilities if the Tax Ruling were revoked."
In connection with the spin-off, a shareholder's tax basis in ACX common
stock will be apportioned between ACX common stock and CoorsTek common stock
received in the spin-off according to the relative fair market values of the
shares at the time of the spin-off. In January 2000, ACX will send a letter to
shareholders that will explain the way to allocate tax basis between ACX common
stock and CoorsTek common stock distributed in the spin-off. The holding period
of the CoorsTek common stock received in the spin-off will include the holding
period of the ACX common stock with respect to which the CoorsTek common stock
will be distributed, provided the ACX common stock is held as a capital asset
on December 31, 1999.
Listing and Trading of CoorsTek Common Stock
There currently is no public market for CoorsTek's common stock. We have
applied to include the CoorsTek common stock in the Nasdaq National Market, and
we expect that a when-issued trading market for CoorsTek common stock will
develop on or about December 21, 1999.
The term "when-issued" means that shares can be traded prior to the time
certificates are actually available or issued. Prices at which the CoorsTek
common stock may trade on a when-issued basis cannot be predicted. Until the
CoorsTek common stock is fully distributed and an orderly market develops, the
prices at which trading in the stock occurs may fluctuate significantly and may
be lower or higher than the price that would be expected for a fully-
distributed issue.
The prices at which the CoorsTek common stock will trade following the
spin-off will be determined by the marketplace and may be influenced by many
factors, including the depth and liquidity of the market for CoorsTek common
stock, investor perceptions of CoorsTek, its business and prospects, results of
operations, and general economic and market conditions.
Prior to the spin-off, ACX common stock will continue to trade on a
regular basis reflecting the combined value of ACX and CoorsTek. The New York
Stock Exchange will require that shares of ACX common stock that are sold or
purchased during the period beginning December 15, 1999 and ending on December
31, 1999 be accompanied by due-bills representing the CoorsTek common stock.
Any due-bills will be redeemed for CoorsTek common stock on January 5, 2000.
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The Transfer Agent and Registrar for the CoorsTek common stock will be
Norwest Bank Minnesota, NA, Shareowner Services, Post Office Box 64854, St.
Paul, Minnesota 55164-0854. As of November 26, 1999, there were approximately
2,493 record holders of ACX common stock, which approximates the number of
prospective record holders of CoorsTek common stock immediately after the spin-
off.
CoorsTek common stock distributed in the spin-off generally will be
freely transferable under the Securities Act of 1933, as amended (the
"Securities Act"), except for securities received by persons who may be deemed
to be affiliates of CoorsTek pursuant to Rule 405 under the Securities Act.
Persons who may be deemed to be affiliates of CoorsTek after the spin-off
generally include individuals or entities that control, are controlled by, or
are under common control with CoorsTek, including directors of CoorsTek.
Persons who are affiliates of CoorsTek will be permitted to sell their shares
of CoorsTek common stock received in the spin-off pursuant to Rule 144 under
the Securities Act, subject to the conditions set forth in Rule 144, other than
its holding period requirements.
Conditions; Termination
It is expected that the spin-off will occur on December 31, 1999,
provided that certain conditions set forth in the Distribution Agreement shall
have been satisfied or waived by the ACX Board of Directors. These include,
among other customary conditions, the following:
. The Tax Ruling shall continue to be in effect.
. All material regulatory approvals necessary to consummate the spin-
off shall have been received and be in full force and effect.
. Financing in the amount of at least $205 million shall have been
obtained.
. The CoorsTek common stock shall have been accepted for inclusion on
the Nasdaq National Market, subject to official notice of inclusion.
. The CoorsTek Board of Directors, as named under "Management--
Directors," shall have been elected, and the CoorsTek Certificate of
Incorporation and Bylaws shall be in effect.
Satisfaction of these conditions will not create any obligation on the part of
ACX, CoorsTek or any other person to effect or seek to effect the spin-off or
alter the consequences of any termination of the Distribution Agreement from
those set forth in the Distribution Agreement. See "Arrangements Between ACX
and CoorsTek Relating to the Spin-Off--Distribution Agreement."
Reasons for Furnishing this Document
This document is being furnished by ACX solely to provide information to
ACX shareholders who will receive CoorsTek common stock in the spin-off. It is
not, and is not to be construed as, an inducement or encouragement to buy or
sell any securities of ACX or CoorsTek. We believe that the information
contained in this document is accurate as of the date on the cover. Changes may
occur after that date, and neither ACX nor CoorsTek will update the information
except as is required in the normal course of their public disclosure
practices.
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<PAGE>
RELATIONSHIP BETWEEN ACX AND COORSTEK
Prior to the spin-off, CoorsTek will continue to be a wholly-owned
subsidiary of ACX. In the past, ACX and CoorsTek have engaged in various
transactions with each other. These relationships, which include financial
support by ACX of CoorsTek, will cease in their current forms at the time of
the spin-off. After the spin-off, ACX will have no ownership interest in
CoorsTek and will no longer provide managerial or financial support to it. ACX
and CoorsTek have entered or will enter into contracts that will govern certain
relationships between them following the Distribution, including the
Distribution Agreement and the agreements described below. CoorsTek and ACX
believe that these agreements are at fair market value and are on terms
comparable to those that would have been reached in arm's-length negotiations
had the parties been unaffiliated at the time of the negotiations.
The Distribution Agreement and the other agreements described below are
included as exhibits to CoorsTek's registration statement on Form 10 of which
this Information Statement is a part. The Agreements will be effective on or
before the Distribution Date. See "The Spin-Off--Distribution Agreement."
Tax Sharing Agreement
ACX, CoorsTek and their respective subsidiaries are parties to a Tax
Sharing Agreement that defines the parties' rights and obligations with respect
to deficiencies and refunds of federal, state and other taxes relating to the
CoorsTek business for tax years prior to the spin-off and with respect to
certain tax attributes of CoorsTek after the spin-off. In general, ACX is
responsible for filing consolidated federal and combined or consolidated state
tax returns and paying the associated taxes for periods through the
Distribution Date. CoorsTek will reimburse ACX for the portion of such taxes
relating to the CoorsTek business. CoorsTek is responsible for filing returns
and paying taxes related to the CoorsTek business for periods beginning on or
after the Distribution Date. ACX and CoorsTek have agreed to cooperate with
each other and to share information in preparing such tax returns and in
dealing with other tax matters. ACX and CoorsTek will be responsible for their
own taxes other than those described above.
The Tax Sharing Agreement is designed to preserve the status of the spin-
off as a tax-free distribution. CoorsTek has agreed that it will refrain from
engaging in certain transactions during the two-year period following the spin-
off unless it first provides ACX with a ruling from the Internal Revenue
Service or an opinion of tax counsel acceptable to ACX that the transaction
will not adversely affect the tax-free nature of the spin-off. The transactions
subject to these restrictions, which are not expected to materially affect
CoorsTek's operating flexibility, consist of liquidations, mergers or
consolidations of CoorsTek, redemptions by CoorsTek of certain amounts of its
stock, sales of assets out of the ordinary course of business, discontinuance
of certain businesses and certain issuances of CoorsTek's common stock. In
addition, CoorsTek has agreed to indemnify ACX against any tax liability or
other expense it may incur if the spin-off is determined to be taxable as a
result of CoorsTek's breach of any covenant or representation contained in the
Tax Sharing Agreement or CoorsTek's action in effecting such transactions. By
its terms, the Tax Sharing Agreement terminates when the statutes of
limitations under applicable tax laws expire.
Transitional Services and Other Agreements
In the past, ACX and CoorsTek have provided services for each other such
as insurance administration, joint purchasing and telecommunications services.
To facilitate an orderly and mutually beneficial transition to the status of
two separate public companies, certain of these services will continue to be
provided by contract on a transitional basis for up to one year following the
Distribution
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<PAGE>
Date. ACX and CoorsTek and subsidiaries of ACX and CoorsTek, as applicable,
will enter into one or more transitional services agreements to provide
services deemed necessary or desirable by the parties. The agreements referred
to above, individually or collectively, are not material to the business of
CoorsTek.
ACX and CoorsTek have agreed to enter or cause their respective
subsidiaries to enter into a joint defense agreement with respect to any
litigation or matters in which both ACX (or one or more of its subsidiaries)
and CoorsTek (or one or more of its subsidiaries) are involved and have entered
into an Environmental Responsibility Agreement allocating responsibility for
environmental liabilities. ACX, CoorsTek and their respective subsidiaries have
agreed to give notice and to cooperate with respect to any such environmental
matter and have agreed to indemnify one another for their respective
environmental practices under the environmental responsibility agreement. Any
joint defense agreement would provide for management of the proceeding and
allocation of related costs, liabilities and recoveries. The stated terms of
any joint defense agreement that may be entered into would typically be tied to
the duration of the litigation that is the subject matter of the agreement.
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CAPITALIZATION
The following table sets forth the capitalization of CoorsTek as of
September 30, 1999 (actual) and after giving pro forma effect to the spin-off
and related transactions. On January 4, 2000, CoorsTek will receive
approximately $205 million in net proceeds from the incurrence of debt under
the credit facility provided by Bank of America. CoorsTek will use the net
proceeds to retire the notes and advances payable to ACX, to pay ACX a special
dividend and pay certain transaction fees and expenses under the Bank of
America credit agreement. As of September 30, 1999, CoorsTek had notes and
advances payable to ACX of approximately $59 million, principally as a result
of acquisitions and internal allocation of debt. This amount could increase or
decrease before repayment based upon normal interim operating cash receipts and
payments and acquisition funding requirements.
<TABLE>
<CAPTION>
As of
September 30, 1999
-----------------------
Actual Pro forma (1)
-------- -------------
(In Thousands)
(Unaudited)
<S> <C> <C>
Long-term debt(2)...................................... $ -- $205,000
Notes and advances payable to ACX(3)................... 59,436 --
Shareholder's equity:
Common stock, 200,000 shares authorized, $50 par
value per share (actual), 100,000,000 shares
authorized, $.01 par value per share (pro forma);
200,000 shares issued and outstanding (actual),
7,120,614 shares issued and outstanding (pro forma)
(4)(5).............................................. 10,000 71
Paid-in capital(3)(4).................................. 75,060 42,145
Paid-in capital-warrants............................... 1,600 1,600
Retained earnings(3)................................... 97,720 --
Accumulated other comprehensive income................. (293) (293)
-------- --------
Total shareholder's equity......................... 184,087 43,523
-------- --------
Total Capitalization................................... $243,523 $248,523
======== ========
</TABLE>
- --------
(1) See the Pro Forma Consolidated Financial Information and notes thereto
included elsewhere herein.
(2) See Note 2(a) to the Pro Forma Consolidated Financial Information.
(3) See Note 2(c) to the Pro Forma Consolidated Financial Information.
(4) See Note 2(e) to the Pro Forma Consolidated Financial Information.
(5) The number of shares outstanding after giving effect to the spin-off was
determined based upon the number of shares of ACX common stock outstanding
at September 30, 1999 and reflects the assumed distribution of one share of
CoorsTek common stock for four shares of ACX common stock. The actual
number of shares distributed will depend on the number of shares of ACX
common stock outstanding on December 17, 1999.
DIVIDEND POLICY
CoorsTek currently anticipates that no cash dividends, other than the
special dividend to ACX referenced above in "Capitalization," will be paid on
its common stock in the foreseeable future in order to conserve cash for the
repayment of debt, future acquisitions and capital expenditures. The decision
as to whether to declare any future dividend and the amount thereof, if any,
will be in the sole discretion of CoorsTek's Board of Directors. Any additional
future payment of dividends will depend upon the financial condition, capital
requirements, debt covenants and restrictions, and earnings of CoorsTek, and
such other factors that the CoorsTek Board of Directors may deem relevant.
18
<PAGE>
Pro Forma Consolidated Financial Information
(Unaudited)
The following unaudited Pro Forma Consolidated Statements of Income for
the nine months ended September 30, 1999 and the year ended December 31, 1998
present the results of operations and consolidated financial position of
CoorsTek assuming that the transactions contemplated by the spin-off had been
completed as of the beginning of the year presented. The unaudited Pro Forma
Consolidated Balance sheet as of September 30, 1999 assumes the transactions
contemplated by the proposed spin-off occurred on that date. In the opinion of
management, they include all material adjustments necessary to reflect, on a
pro forma basis, the impact of transactions contemplated by the spin-off on
CoorsTek's historical financial information. The adjustments are described in
the Notes to the Pro Forma Consolidated Financial Information (Unaudited) and
are set forth in the "Pro Forma Adjustments" columns.
The unaudited Pro Forma Consolidated Financial Information of CoorsTek
should be read in conjunction with the historical financial statements of
CoorsTek beginning on page F-1. We have presented unaudited pro forma financial
information as of and for the nine months ended September 30, 1999 and for the
year ended December 31, 1998 to give you a better picture of what our financial
statements might have looked like if CoorsTek had been operated independently
during this period. Actual results may have differed from pro forma results if
we were operated independently. You should not rely on the pro forma financial
information as being indicative of the financial position that would have
resulted, the results of operation that would have been attained or future
results after the spin-off.
COORSTEK, INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
Nine Months Ended September 30, 1999
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Sales.................................... $266,936 $266,936
Cost of goods sold....................... 200,455 200,455
-------- -------- --------
Gross profit............................. 66,481 66,481
Selling, general and administrative...... 35,957 35,957
-------- -------- --------
Operating income......................... 30,524 -- 30,524
Other income (expense):
Interest expense
Interest expense on debt............. (3,088) (10,592)(2a) (13,680)
Other interest expense............... (605) (605)
-------- -------- --------
Total interest expense................. (3,693) (10,592) (14,285)
Interest income........................ 62 62
-------- -------- --------
Income before income taxes............... 26,893 (10,592) 16,301
Income tax expense....................... 10,101 (3,972)(2b) 6,129
-------- -------- --------
Net income............................... $ 16,792 $ (6,620) $ 10,172
======== ======== ========
Net income per share of basic common
stock................................... $ 2.36 $ (0.93) $ 1.43
======== ======== ========
Weighted average shares outstanding-basic
(2f).................................... 7,111 7,111 7,111
======== ======== ========
Net income per share of diluted common
stock................................... $ 2.34 $ (0.92) $ 1.42
======== ======== ========
Weighted average shares outstanding-
diluted (2f)............................ 7,185 7,185 7,185
======== ======== ========
</TABLE>
See Notes to the Pro Forma Consolidated Financial Statements (Unaudited).
19
<PAGE>
COORSTEK, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
September 30, 1999
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Pro
Historical Adjustments Forma
---------- ----------- --------
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents................ $ -- $205,000(2a) $ --
(200,000)(2c)
(5,000)(2d)
Accounts receivable, less allowance for
doubtful accounts of $2,572............. 50,868 50,868
Inventories.............................. 67,861 67,861
Other assets............................. 12,893 12,893
-------- -------- --------
Total current assets................... 131,622 -- 131,622
-------- -------- --------
Properties, net............................ 138,070 138,070
Goodwill................................... 37,454 37,454
Debt issuance costs........................ -- 5,000(2d) 5,000
Other assets............................... 13,463 13,463
-------- -------- --------
Total assets........................... $320,609 $ 5,000 $325,609
======== ======== ========
Liabilities And Shareholder's Equity
Current liabilities:
Accounts payable......................... $ 14,836 $ 14,836
Accrued salaries and vacation............ 9,781 9,781
Accrued expenses and other liabilities... 23,962 23,962
Advances payable to Parent............... 9,436 (9,436)(2c) --
-------- -------- --------
Total current liabilities.............. 58,015 (9,436) 48,579
-------- -------- --------
Long-term debt............................. 50,000 205,000(2a) 205,000
(50,000)(2c)
Accrued post-retirement benefits........... 15,327 15,327
Other long-term liabilities................ 13,180 13,180
-------- -------- --------
Total liabilities...................... 136,522 145,564 282,086
-------- -------- --------
Shareholder's equity:
Common stock, 200,000 shares authorized,
$50 par value per share (actual),
100,000,000 shares authorized, $.01 par
value per share (pro forma); 200,000
shares issued and outstanding (actual),
7,120,614 shares issued and outstanding
(pro forma)............................. 10,000 (9,929)(2e) 71
Paid-in capital.......................... 75,060 (42,844)(2c) 42,145
9,929(2e)
Paid-in capital-warrants................. 1,600 1,600
Retained earnings........................ 97,720 (97,720)(2c) --
Accumulated other comprehensive income... (293) (293)
-------- -------- --------
Total shareholder's equity............. 184,087 (140,564) 43,523
-------- -------- --------
Total liabilities and shareholder's
equity................................ $320,609 $ 5,000 $325,609
======== ======== ========
</TABLE>
See Notes to the Pro Forma Consolidated Financial Statements (Unaudited).
20
<PAGE>
COORSTEK, INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31, 1998
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Pro
Historical Adjustments Forma
---------- ----------- --------
<S> <C> <C> <C>
Sales.................................... $296,614 $296,614
Cost of goods sold....................... 222,906 222,906
-------- --------
Gross profit............................. 73,708 -- 73,708
Selling, general and administrative...... 37,758 37,758
Asset impairment charge.................. 11,814 11,814
-------- -------- --------
Operating income......................... 24,136 -- 24,136
Other income (expense):
Interest expense:
Interest expense on debt............... (4,000) $(12,150)(3a) (16,150)
Other interest expense................. (125) (125)
-------- -------- --------
Total interest expense............... (4,125) (12,150) (16,275)
Interest income.......................... 601 601
-------- -------- --------
Income before income taxes............... 20,612 (12,150) 8,462
Income tax expense....................... 7,682 (4,532)(3b) 3,150
-------- -------- --------
Net income............................... $ 12,930 $ (7,618) $ 5,312
======== ======== ========
Net income per share of basic common
stock................................... $ 1.81 $ (1.07) $ 0.74
======== ======== ========
Weighted average shares outstanding-basic
(3c).................................... 7,126 7,126 7,126
======== ======== ========
Net income per share of diluted common
stock................................... $ 1.78 $ (1.05) $ 0.73
======== ======== ========
Weighted average shares outstanding-di-
luted (3c).............................. 7,258 7,258 7,258
======== ======== ========
</TABLE>
See Notes to Pro Forma Consolidated Financial Statements (Unaudited).
21
<PAGE>
NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: The accompanying unaudited Pro Forma Consolidated Financial
Information reflects all adjustments which, in the opinion of management, are
necessary to present fairly the pro forma financial position and pro forma
results of operations for CoorsTek assuming CoorsTek was a stand-alone entity.
This information should be read in conjunction with CoorsTek's historical
financial statements and notes thereto beginning on page F-1 in the latter
portion of this document.
Note 2: The pro forma adjustments to the accompanying historical
financial information as of and for the nine months ended September 30, 1999
are described below:
(a) Historical interest expense relates to interest charged on
intercompany debt of $50.0 million at an 8% annual rate. This debt will be
paid off at the time of the spin-off. On a pro forma basis, debt of $205.0
million will be incurred consisting of a $95.0 million revolver at LIBOR
plus 2% (of which $30.0 million will be borrowed) and Senior Term A debt of
$85.0 million at LIBOR plus 2%, both of which have a five-year maturity. In
addition, CoorsTek will have Senior Term B debt of $90.0 million at LIBOR
plus 2.75% with a seven year maturity. The weighted average interest rate
used for the September 30, 1999 pro forma statements was 8.41%. A 1/8%
increase/decrease in the rate used would have increased/decreased the
recorded interest expense by $0.3 million. Interest expense has also been
adjusted to reflect the amortization of the debt issuance costs described
in Note 2(d).
(b) Income tax is adjusted for the pro forma adjustment in Note 2(a) at
the effective rate of 37.5%.
(c) CoorsTek will pay $200.0 million of the debt proceeds discussed at
Note 2(a) to ACX for reduction of intercompany debt, advances payable and
payment of a special dividend. Advances payable to Parent consist of funds
received from ACX primarily to fund the acquisitions of Edwards Enterprises
and Precision Technologies, net of cash generated by CoorsTek from
operations.
(d) Debt issuance costs estimated at $5.0 million will be amortized over
a five year period. The actual debt issuance costs could differ from this
estimate.
(e) Adjustment to reflect the issuance of 7,120,614 shares of Common
Stock, par value $0.01 per share as of December 31, 1999. The actual shares
outstanding and the conversion ratio, one CoorsTek share for every four
shares of ACX, could differ from reported amounts.
(f) Basic and diluted weighted average number of shares outstanding are
based on ACX's basic and diluted weighted average number of shares
outstanding as of September 30, 1999 adjusted for the conversion ratio
described in Note 2(e). All ACX common stock equivalents are included for
purposes of determining diluted weighted average number of shares
outstanding. The actual number of shares issued and the conversion ratio
used in the spin-off could differ from these estimates.
Note 3: The pro forma adjustments to the accompanying historical
financial information for the year ended December 31, 1998 are described
below:
(a) Historical interest expense relates to interest charged on
intercompany debt of $50.0 million at an 8% annual rate. See discussion of
the anticipated debt structure in Note 2(a). The interest rate used for the
December 31, 1998 pro forma statements was 7.39%. A 1/8% increase/decrease
in the rate used would have increased/decreased the recorded interest
expense by $0.3 million. Interest expense has also been adjusted to reflect
the amortization of the debt issuance costs described in Note 2(d).
(b) Income tax is adjusted for pro forma adjustment in Note 3(a) at the
effective rate of 37.3%.
22
<PAGE>
(c) Basic and diluted weighted average number of shares outstanding are
based on ACX's basic and diluted weighted average number of shares
outstanding as of December 31, 1998 adjusted for the conversion ratio
described in Note 2(e). All ACX common stock equivalents are included for
purposes of determining diluted weighted average number of shares
outstanding. The actual number of shares issued used in the spin-off could
differ from these estimates.
23
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table summarizes certain selected financial data of
CoorsTek. The Income Statement data set forth below for each of the three years
in the three-year period ended December 31, 1998 and the Balance Sheet Data as
of the end of each year in the three-year period ended December 31, 1998 are
derived from audited financial statements of CoorsTek. The Income Statement
data set forth below for the years ended December 31, 1995 and 1994 and for
each of the nine-month periods ended September 30, 1999 and 1998 and the
Balance Sheet Data as of December 31, 1995 and 1994 and September 30, 1999 and
1998 are derived from unaudited consolidated financial statements of CoorsTek.
The historical selected financial data may not necessarily be indicative of
CoorsTek's past or future performance as an independent company. Such
historical data should be read in conjunction with "Management's Discussion and
Analysis of Results of Operations and Financial Condition" and CoorsTek's
Consolidated Financial Statements and notes thereto included elsewhere in this
document.
Unaudited proforma and historical earnings per share data is presented on
pages 19, 21 and F-3, respectively.
<TABLE>
<CAPTION>
Nine Months
Ended September 30, Year Ended December 31,
-------------------- -----------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------- --------- -------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Historical Selected
Financial Data:
Consolidated Income
Statement Data:
Net sales.............. $ 266,936 $ 230,930 $296,614 $304,824 $276,352 $270,877 $231,288
Gross profit........... 66,481 57,099 73,708 85,003 76,132 80,166 63,570
Selling, general and
administrative
expenses.............. 35,957 28,528 37,758 41,754 35,928 36,613 34,541
Asset impairment
charges............... -- 11,814 11,814 -- -- 438 --
Operating income....... 30,524 16,757 24,136 43,249 40,204 43,115 29,029
Interest and other
income (expense)-net.. (3,631) (2,894) (3,524) (68) (6) 393 (354)
Income tax expense..... 10,101 5,117 7,682 16,192 14,996 14,545 11,304
Net income............. 16,792 8,746 12,930 26,989 25,202 28,963 17,371
<CAPTION>
September 30, December 31,
-------------------- -----------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------- --------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Balance
Sheet Data:
Total assets........... $ 320,609 $ 279,231 $278,359 $262,687 $216,635 $189,191 $165,804
Working capital........ 73,607 81,666 89,295 71,649 62,480 47,567 42,337
Long-term debt payable
to Parent............. 50,000 50,000 50,000 -- -- -- --
Total shareholder's
equity................ 184,087 161,263 165,825 203,155 163,463 130,381 115,886
</TABLE>
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General Overview
The following discussion and analysis is based on the separate historical
financial statements of CoorsTek, which was formerly named Coors Porcelain
Company and operated its business as Coors Ceramics Company. During the periods
presented, CoorsTek was a wholly owned subsidiary of ACX. The Board of
Directors of ACX announced a plan to spin-off CoorsTek on or about December 31,
1999. This plan is subject to certain requirements, most notably the ruling by
the Internal Revenue Service of the transaction as a tax free distribution. ACX
provides general management, legal, treasury, tax, internal audit, financial
reporting and environmental services to CoorsTek. These ACX costs have been
allocated to CoorsTek and included in the discussion herein on a basis that
management believes is reasonable. This allocation may not necessarily equal
the costs that would have been or will be incurred by CoorsTek on a stand-alone
basis.
CoorsTek develops, manufactures and sells advanced technical products
across a wide range of product lines for a variety of applications. It has been
in business since 1911 and is the largest U.S. owned, independent manufacturer
of advanced technical ceramics. CoorsTek provides components to substantially
every major industrial market.
On March 1, 1999, CoorsTek acquired all of the outstanding shares of
Edwards Enterprises for approximately $18 million in cash. The acquisition has
been accounted for under the purchase method of accounting and goodwill is
approximately $4.2 million. Edwards Enterprises, located in Newark, California,
manufactures precision-machined parts for the semiconductor industry and
aircraft industries.
On March 12, 1999, CoorsTek acquired the net assets of Precision
Technologies for approximately $22 million in cash and 300,000 warrants to
purchase shares of ACX common stock at an exercise price equal to the fair
market value at the date of closing. In connection with the spin-off, the ACX
warrants will be converted into warrants to purchase CoorsTek common stock
following the spin-off. The warrants vest only upon the achievement of certain
revenue goals within three years. The acquisition has been accounted for under
the purchase method of accounting and goodwill is approximately $21.1 million.
Precision Technologies, located in Livermore, California, manufactures
precision-machined parts for the semiconductor, medical and aircraft
industries.
Combined Results of Operations
Comparison of Nine Months Ended September 30, 1999 compared to Nine Months
Ended September 30, 1998
CoorsTek's net sales increased $36.5 million or 15.8% to $266.9 million
for the nine months ended September 30, 1999 compared to $230.4 million for the
same 1998 period. The acquisitions of Edwards Enterprises and Precision
Technologies in March 1999 accounted for an increase in net sales of $45.8
million. Excluding these acquisitions, net sales decreased $9.4 million in the
year to date period as a result of price competition and weakened demand in the
pulp and paper and electronics markets. However, the pricing and demand in
these markets strengthened in the third quarter of 1999, as sales, excluding
Edwards Enterprises and Precision Technologies, increased $3.6 million to $73.6
million compared to $70.0 million for the third quarter of 1998. CoorsTek
expects continued gradual sales improvement in these markets.
Gross profit for the first nine months of 1999 increased $9.4 million or
16.4% to $66.5 million compared to $57.1 million for the nine months ended
September 30, 1998. The increase is attributed to the acquisitions of Edwards
Enterprises and Precision Technologies which contributed $10.4 million. Gross
margin of 24.9% for the first three quarters of 1999 increased compared with
1998 gross margin
25
<PAGE>
for the same period of 24.8% due to the growth of semiconductor sales. As a
result of an increase in pricing and demand in the third quarter of 1999, gross
profit, excluding Edwards Enterprises and Precision Technologies, increased
$3.6 million to $19.0 million compared to $15.4 million for the third quarter
of 1998. CoorsTek expects slight gross profit improvements in these particular
markets to continue.
Operating income for the first nine months of 1999 was $30.5 million, a
$13.7 million or 81.5% increase compared to the first nine months of 1998 of
$16.8 million. In the first quarter of 1998, CoorsTek recorded $6.2 million in
asset impairment charges in conjunction with the cancellation of the C-4
technology agreement with IBM. Changes in the market for C-4 applications
extended the time frame for achieving commercial sales beyond original
expectations. This lack of near term commercial sales opportunities, combined
with increasing overhead costs, prompted CoorsTek to negotiate termination of
the agreement with IBM. In the third quarter of 1998, CoorsTek recorded an
additional $5.6 million asset impairment charge related to the Chattanooga,
Tennessee operation. Management decided to offer this operation for sale when
strong offshore competition in the electronic package market at the time made
it uneconomical to have a manufacturing facility dedicated to this product
line. Consequently, the long-lived assets of Chattanooga were written down to
their estimated fair value using the asset held for use model. In addition, the
acquisitions of Edwards Enterprises and Precision Technologies in March 1999
contributed $8.1 million to operating income for the first nine months of 1999.
CoorsTek's operating income, excluding the impact of acquisitions and asset
impairment charges, decreased $6.1 million for the first nine months of 1999
compared to the same period in 1998 as a result of price competition primarily
in the first half of 1999.
Net interest expense for the nine months ended September 30, 1999 was
$3.6 million compared to $2.9 million in the first nine months of 1998. Three
million dollars of this expense consists of payments to ACX on intercompany
debt for both of the nine month periods ended September 30, 1999 and 1998.
The consolidated effective tax rate was 37.5% for the nine months ended
September 30, 1999 and 36.9% for the same period in 1998.
Year Ended December 31, 1998 to Year Ended December 31, 1997
Net sales for 1998 were $296.6 million, a decline of $8.2 million or
2.7%, from 1997 net sales of $304.8 million. The lower net sales in 1998
reflect downturns in sales resulting from pricing pressures in the pulp and
paper and telecommunication industries and volume declines in the semiconductor
and petrochemical industries.
Gross profit was $73.7 million in 1998, a decrease of $11.3 million or
13.3% from $85.0 million in 1997. The decrease is attributed to increased price
competition, particularly in international markets due to the strength of the
U.S. dollar compared to certain foreign currencies. Gross margins declined from
27.9% in 1997 to 24.8% in 1998 due to a decline in industries previously
mentioned and competitive pricing pressures.
Operating income for 1998 totaled $24.1 million, a decline of $19.1
million or 44.2%, from 1997 operating income of $43.2 million. Excluding the
asset impairment charges and the change to the estimated depreciable lives
discussed below, operating income totaled $34.0 million, a decline of $9.2
million or 21.3% from 1997. Other than the asset impairment charges, the lower
operating income in 1998 reflects a downturn in sales to customers in key
market segments and the effects of currency influenced price competition
resulting from a strong U.S. dollar.
Operating margins declined in 1998 to 8.1% from 14.2% in 1997. The lower
operating margins in 1998 reflect $11.8 million in asset impairment charges
offset by the $2.0 million positive impact
26
<PAGE>
from the change in estimated depreciable lives discussed below, lower sales
volumes in higher margin semiconductor and pulp and paper industry product
lines and currency influenced price competition.
During 1998, CoorsTek recorded $11.8 million in asset impairment charges,
of which $6.2 million related to the cancellation of CoorsTek's C-4 technology
agreement with IBM discussed above. CoorsTek recorded an additional $5.6
million asset impairment charge at the Chattanooga, Tennessee operation
discussed above. In early 1998, the Company changed the estimated depreciable
lives for certain long-lived assets based on the actual lives demonstrated for
similar assets. The effect of this change positively impacted operating income
by approximately $2.0 million.
The allocation of long term debt from ACX resulted in an increase in
interest expense from $110,000 in 1997 to $4.1 million in 1998.
The consolidated effective tax rate was 37.3% for 1998 compared to 37.5%
in 1997.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996.
CoorsTek's net sales for 1997 increased $28.4 million to $304.8 million
over 1996 net sales of $276.4 million. This 10.3% increase is primarily
attributable to a rebound in the telecommunications, semiconductor and data
processing industries and increased sales volumes to the petrochemical
industry. The August 1997 acquisition of Tetrafluor, a manufacturer of Teflon
(R) fluoropolymer parts, extended CoorsTek's material base and added $5.8
million in revenue for 1997. International sales as a percentage of total net
sales decreased in 1997 to 27.0% from 30.5% in 1996. The decrease in
international sales in 1997 was due to gains in domestic sales, lower sales
dollars from some international customers due to currency influenced price
competition and weaker demand from certain foreign mining industry customers.
Gross profit increased $8.9 million or 11.6% to $85.0 million in 1997
compared to $76.1 million in 1996 on the strength of increased sales and the
acquisition of Tetrafluor which contributed $1.6 million. Gross margins
increased slightly in 1997 to 27.9% from 27.5% in 1996.
Operating margins decreased slightly in 1997 to 14.1% compared to 14.5%
in 1996. The strength of the U.S. dollar compared to certain foreign currencies
resulted in increased price competition in some foreign markets.
On the strength of sales increases, CoorsTek's operating income for 1997
rose $3.0 million, or 7.5%, to $43.2 million from 1996 levels.
The consolidated effective tax rate was 37.5% for 1997 compared to 37.3%
in 1996.
Liquidity and Capital Resources
CoorsTek's liquidity is generated from both internal and external sources
and is used to fund short-term working capital needs, capital expenditures and
acquisitions. Internally generated liquidity is measured by net cash from
operations, as discussed below, and working capital. At September 30, 1999,
CoorsTek's working capital was $73.6 million with a current ratio of 2.3 to 1.
In contemplation of the spin-off, CoorsTek has negotiated a new $270
million credit facility consisting of a $95 million revolver and an $85 million
Senior Term A facility both maturing in five years and a $90 million Senior
Term B facility maturing in seven years. Borrowings under the credit facility
will bear interest at rates generally based on LIBOR plus a spread that varies
depending upon CoorsTek's performance. CoorsTek will pay $200.0 million of the
debt proceeds to ACX for reduction of intercompany obligations and payment of a
special dividend.
27
<PAGE>
In 1997 and 1996, CoorsTek contributed its excess cash to ACX. In 1998,
cash was retained by CoorsTek and was not contributed to ACX. Capital
expenditures for the three year period ended December 31, 1998 totaled $84.3
million and were used primarily for the addition of production capacity, as
well as for computerized manufacturing equipment and enhancements to existing
computer systems. CoorsTek expects capital expenditures of $12.0 in 1999 and
$25.0 million in 2000. On March 1, 1999, CoorsTek acquired all of the
outstanding shares of Edwards Enterprises for approximately $18.0 million in
cash. On March 12, 1999, CoorsTek acquired the net assets of Precision
Technologies for approximately $22.0 million in cash and 300,000 non-vested
warrants to purchase shares of ACX common stock at an exercise price equal to
the fair market value at the date of closing. In connection with the spin-off,
the warrants will be converted into warrants to purchase shares of CoorsTek
common stock after the spin-off. The warrants vest only on the attainment of
certain revenue thresholds. Acquisitions during 1998 utilized $0.9 million in
cash for the acquisition of Pulsation Equipment. Cash utilized for acquisitions
in 1997 and 1996 were $15.8 million and $6.6 million for the acquisitions of
Tetrafluor, Inc. and H.B. Company, respectively.
The impact of inflation on CoorsTek's financial position and results of
operations has been minimal and is not expected to adversely affect future
results.
Impact of the Year 2000
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define a specific year. If not corrected,
a computer program that uses date-sensitive software may recognize a date "00"
as the year 1900 rather than the year 2000. This could result in system
failures or erroneous results to various activities and operations.
Management of ACX implemented a company wide program to prepare ACX's
(including CoorsTek's) financial, manufacturing and other critical systems and
applications for the year 2000. The program includes the establishment of a
task force that has the support and participation of upper management and
includes individuals from CoorsTek and ACX with expertise in information
technologies, risk management and legal. The Board of Directors of ACX monitors
the progress of the program on a quarterly basis. The task force's objective is
to ensure an uninterrupted transition to the year 2000 by assessing, testing,
and modifying all information technology (IT) and non-IT systems, and third
parties such as suppliers and customers.
The Year 2000 task force has taken an inventory of all IT and non-IT
systems of ACX, including those of CoorsTek. This inventory categorizes
potential systems date failures into three categories: "major" (critical to
production and could be business threatening with no short-term alternatives
available); "limited" (disrupting to the business operations with short-term
solutions available); and "minor" (inconsequential to the business operations).
The task force has prioritized the program to focus first on "major" systems.
It is CoorsTek's goal to have all major and limited systems Year 2000 compliant
by December 31, 1999.
IT Systems--CoorsTek is primarily using internal resources to remediate
IT systems. The majority of the IT systems have been recently purchased from
third party vendors. These systems were already Year 2000 compliant or had Year
2000 compliance upgrades. As of December 31, 1998, approximately 75% of
CoorsTek's IT systems were Year 2000 compliant. As of September 30, 1999,
approximately 99% of CoorsTek's IT systems were compliant.
Non-IT Systems--CoorsTek has approximately 18 manufacturing locations
with varying degrees of non-IT systems (such as automated kiln systems,
statistical process control systems, quality control systems, and machining
equipment). The vast majority of these facilities are located in North America.
To ensure Year 2000 compliance for non-IT systems, the Year 2000 task force has
contacted suppliers of these non-IT systems and obtained statements that the
systems are Year 2000 compliant and is in the
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<PAGE>
process of testing Year 2000 compliance. The majority of these non-IT systems
use time intervals instead of dates and are Year 2000 compliant. Thus, CoorsTek
believes that potential disruptions of such systems due to the Year 2000 issue
should be minimal. As of December 31, 1998 and September 30, 1999,
approximately 80% and 99%, respectively, of CoorsTek's "major" and "limited"
non-IT systems are Year 2000 compliant. The "minor" non-IT systems are in
various stages of compliance.
Third Parties--The Year 2000 task force has been in contact with key
suppliers and customers to minimize potential business disruptions related to
the Year 2000 issue between CoorsTek and these third parties. The task force
has focused on suppliers and customers who if their systems were to fail, such
failures would be classified as "major". In October 1998, letters were sent to
each of these suppliers requesting information about their Year 2000 readiness.
Follow-up letters were sent again in February 1999 to those third parties who
did not respond. Finally, in May 1999, those still not responding were
contacted directly by telephone. The responses, in general, indicated that the
Year 2000 programs they had implemented were adequate and they did not foresee
any disruptions. Customer surveys were conducted on an informal basis during
sales calls, customer on-site audits of the Company's Year 2000 program and
documentation of customer programs which was sent to the Company at the time
they requested information about the status of CoorsTek's Year 2000 program.
While CoorsTek cannot guarantee compliance by third party suppliers, CoorsTek
has developed contingency plans to ensure the availability of inventory
supplies in the event a supplier is not Year 2000 compliant.
Contingency Plan--CoorsTek has finalized a contingency plan in the event
there are Year 2000 failures related to CoorsTek's IT and non-IT systems and/or
key third parties. CoorsTek's manufacturing facilities are not interdependent
in terms of non-IT systems, and its facilities utilize a diverse range of non-
IT systems. Thus, the contingency plan includes for non-IT systems the transfer
of production between facilities and manufacturing equipment. Currently, we
believe that we have enough manufacturing capacity to accommodate the
contingency plan.
CoorsTek's major IT systems are heavily dependent on two vendors. These
vendors have completed extensive Year 2000 testing on their products and
indicate they are Year 2000 compliant. In addition, CoorsTek has also performed
Year 2000 testing and has found no compliance issues. CoorsTek will continue to
monitor its systems for Year 2000 compliance and will test such systems, as
considered necessary.
CoorsTek is not dependent on any one supplier for raw materials and other
items and services necessary for the manufacturing of its products. CoorsTek
has established back-up suppliers and will maintain adequate inventory levels
at December 31, 1999 to minimize the potential business disruption in the event
of a Year 2000 failure by a supplier.
Costs--Through December 31, 1998, CoorsTek spent approximately $40,000
out of an estimated total of less than $150,000 related to the Year 2000 issue
for CoorsTek. As of September 30, 1999 CoorsTek spent $101,000 related to the
Year 2000 issue. CoorsTek has not separately tracked internal costs such as
payroll related costs for its information technologies group and other
employees working on the Year 2000 project. CoorsTek expenses all costs related
to the Year 2000 issue as incurred. These costs are being funded through
operating cash flows.
CoorsTek's current estimate of the time and costs related to the
remediation of the Year 2000 issue are based on the facts and circumstances
existing at this time. New developments could affect CoorsTek's estimates to
remediate the Year 2000 issue. These developments include, but are not limited
to: (i) the availability and cost of personnel trained in this area; (ii) the
ability to identify and remediate all IT and non-IT systems; (iii)
unanticipated failures in IT and non-IT systems; and (iv) the planning and Year
2000 compliance success that key customers and suppliers attain.
29
<PAGE>
BUSINESS
General
Established in 1911 as a Colorado corporation, CoorsTek develops,
manufactures and sells engineered solutions for a multitude of industrial and
commercial applications that incorporate advanced materials such as technical
ceramics, engineered plastics or precision machined metals into components,
assemblies and systems. CoorsTek will be reincorporated in Delaware prior to
the Distribution Date.
Industry Overview
Advanced technical ceramics, also known as engineered ceramics, are
materials that exhibit superior mechanical properties, corrosion/oxidation
resistance and thermal, electrical, optical and magnetic properties. In
addition, recent acquisitions of companies offering plastics and metals
fabrication, and assembly capabilities, has expanded CoorsTek's ability to meet
increasing market demand, particularly in the semiconductor industry, for a
broader spectrum of products and services.
Markets and Products
CoorsTek provides components to most of the commonly recognized
industrial markets. Our largest markets include:
. Semiconductor
. Electronics
. Advanced Products
. Pulp and Paper
. Wear and Mining
Semiconductor includes the manufacture, assembly and integration of
ceramic and metal components for use in semiconductor processing equipment in
the semiconductor industry. Currently, the semiconductor industry is one of the
fastest growing market segments for our products. Opportunities exist in this
industry to aggressively pursue new applications for ceramics to replace
certain metal and other conventional materials used in a variety of
applications. In addition, we can offer machined metal components and cleanroom
assembly services for applications where ceramic is not the material of choice.
Electronics is a diverse market group with applications in aerospace,
automotive, computer, defense, power generation and distribution, and
telecommunications. Materials used in this application include high purity
ceramics often combined with metal components and precious metals plating.
Advanced Products, is our most diversified group of products and includes
components for aerospace, automotive, chemical and material processing,
computer, consumer, defense, electrical, fluid handling, mechanical, medical,
paper, and petroleum markets. This category can include ceramics, plastics and
metals. Materials and processes utilized offer specialized solutions for severe
use applications.
Pulp and Paper primarily involves the manufacture of wear and corrosion
resistant components for the paper pulp processing industry. Materials include
ceramics often in a composite form with plastics and/or metals.
Wear and Mining includes products used in chemical and material
processing, mining, paper, and other mechanical applications. Materials
utilized include a wide selection of wear resistant ceramics. Contract, on-site
installation service is also available.
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<PAGE>
In order to successfully compete in our chosen markets, we must offer
flexible production processes that are capable of producing custom designs.
Over 90% of our products are custom made to our customer's specific
requirements. Another competitive advantage we have is the ability to evaluate
new materials, applications, and opportunities for value-added products. We
place great value in building and maintaining close relationships with our
customers.
Some uses of our components include:
.Fixtures for processing of silicon wafers in semiconductor chip
fabrication;
. Slitting knives and other processing and sizing devices used in
high-speed paper making machines;
. Seals and other pump components installed in automobiles, home
appliances, chemical processing, and blood analysis equipment;
. Valves used in fluid handling;
. Precipitators used in pollution control equipment;
. Power tubes used in electrical power generation installations;
. Linings for pipe used in the processing of coal and other
abrasive materials;
. Substrates (or bases) for various electronic circuits, pressure
sensors, and semiconductor chips that are critical components in
computers, communications systems, automotive controls and
military electronics;
. Passive electronic components, such as capacitors and insulators,
used in electrical devices; and
. Advanced electronic ceramic packages, which are casings that
surround a semiconductor chip, that insulate and connect the chip
to printed circuitry. Cellular telephones, pagers, and radar
detection devices require these packages due to their need for
high reliability.
We engineer and custom design our products to comply with specific
customer requirements. Successful product design requires consultation with
customers in their choice of the correct base material and selection by
CoorsTek of the appropriate manufacturing processes. Since we sell our products
primarily to industrial manufacturers for incorporation into their products or
processes, the business is sensitive to changes in economic conditions that
affect the end users of our products.
Materials and Services
Ceramic products can be nearly as hard as diamond, can withstand extreme
temperatures and have excellent electrical properties. These properties make
ceramic products ideal materials for a variety of industrial applications.
Although sometimes more expensive than competing materials, such as plastics
and metals, ceramic products provide higher value by contributing to longer
product life and enabling our customers to enhance their technologies.
While advanced technical ceramics constitute the majority of our
business, we believe there is a large potential to expand our existing business
through products that incorporate other materials such as metals and plastics.
Two of our facilities are directly involved in the precision machining of
metals such as stainless steel and aluminum for applications in the
semiconductor equipment and aerospace markets. Both of these manufacturing
sites, acquired in 1999, are capable of performing customer specified cleanroom
assembly and packaging which integrates ceramics and metals. This business
comprises 17.2% of our revenue year-to-date in 1999.
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We are also involved in the manufacture of fluoropolymer sealing system
plastics used in the aerospace and industrial hydraulic equipment, fluid
handling systems and transportation industries. This business represents 3.5%
of our revenue year-to-date in 1999.
Strategy
We seek to grow our business by devoting resources to new product and
material development, internally and through acquisitions, particularly in
industry segments that show the most growth potential. In pursuit of this
strategy, we purchased Precision Technologies and Edwards Enterprises earlier
this year. We believe these acquisitions have strengthened our ability to
service customers, particularly in the semiconductor industry, by broadening
our materials offerings, including machined aluminum, and by positioning us to
provide assembly services.
We believe our reputation for expert custom product design, product
quality and customer service is one of our most valuable assets for achieving
our strategy. We work with key customers in diverse industries to develop value
added, engineered products. We continuously evaluate new materials and product
offerings, often with customers, in order to anticipate and satisfy customers'
future needs and to offer a greater range of products with improved performance
characteristics.
Manufacturing and Raw Materials
Ceramic manufacturing involves several steps. From raw material
preparation to completion of the finished product, a typical component will be
formed, fired and, if necessary, machined, then inspected, packaged and
shipped. The extent to which a part is processed is dependent on the
specifications placed on the finished product by the customer. Limitations of
the material and manufacturing process determine whether the part will be
processed through secondary finishing steps to meet the final specification.
The raw materials CoorsTek uses in its operations are readily available
from diverse sources. Long term, volume purchase agreements with suppliers
assure CoorsTek of consistent and ongoing supplies of raw materials.
CoorsTek owns or leases approximately 2.28 million square feet of
manufacturing space in the United States and abroad. Overall, CoorsTek
currently operates at approximately 75% of available capacity. Capacity
utilization is not currently a major constraint at CoorsTek's 18 manufacturing
locations. These facilities specialize, to a certain degree, in a particular
market and are located strategically to optimize customer service while
minimizing manufacturing and transportation costs. CoorsTek continues to invest
in computerized, high precision manufacturing equipment and believes it is well
positioned for growth opportunities in both domestic and foreign markets.
Sales and Distribution
We anticipate that more than 22% of our revenues in 1999 will come from
one customer, Applied Materials, Inc., a semiconductor equipment manufacturer.
Our dependence on this customer may increase as we further develop our
strategic supplier relationship. Any disruption in this relationship, including
a downturn in Applied Materials' business in the industry(ies) in which it
operates, would have a material adverse effect on our sales.
CoorsTek sells products primarily to manufacturers, including original
equipment manufacturers, for incorporation into industrial applications and
consumer products. CoorsTek generates sales through direct sales employees
located throughout the United States and Europe and manufacturers'
representatives. CoorsTek's sales personnel, many with engineering expertise,
receive substantial technical assistance and engineering support due to the
highly technical nature of its products.
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International sales, primarily in Western Europe and Far East markets,
constituted approximately 25%, 27%, and 31% of ceramic product sales in 1998,
1997, and 1996, respectively. CoorsTek selectively hedges the U.S. dollar
against foreign currencies used in these markets in order to mitigate the
effects of adverse currency fluctuations when sales are made in the foreign
currency. The strength of the dollar relative to the currency of our customers
or competitors may have an impact on CoorsTek's profit margins or sales to
international customers.
No single product line or class accounted for more than 10% of CoorsTek's
consolidated net revenue although sales to various industry groups such as the
petrochemical, automotive, power generation and mining, and semiconductor
industries comprised 16%, 13%, 12%, and 10%, respectively, of CoorsTek's 1998
consolidated net revenue.
CoorsTek's 25 largest customers accounted for approximately 34% of our
net sales for 1998, with no single customer representing more than 10% of
CoorsTek's annual sales. A new focus on the semiconductor industry initiated in
1999 may result in an increased dependence on certain semiconductor equipment
manufacturers. Commitment to consistent high quality and customer service has
earned CoorsTek sole supplier status with several major U.S. manufacturers and
a leading position with several other major customers.
As of September 30, 1999, CoorsTek had backlog orders of approximately
$89.1 million, as compared to $83.7 million as of September 30, 1998.
Approximately $62.0 million of the backlog at September 30, 1999 has been
shipped as of December 1, 1999. Customers may place annual orders, with
shipments scheduled over a twelve-month period. Backlog orders may be higher
for certain industrial product segments due to longer time periods between
order and delivery dates under purchase orders. Sales are not seasonal but can
be sensitive to overall economic conditions that affect the users of advanced
ceramic products. Backlog is not necessarily indicative of past or future
operating results.
Competition
Competition in the advanced ceramics industry is vigorous and comes
primarily from Kyocera Corporation (Japan), Morgan Crucible Co. (United
Kingdom), NGK Insulators, Ltd. (Japan), CeramTec AG (Germany) and Saint Gobain
(France). Principal competitive factors in the worldwide market include price
(including the impact of currency fluctuations), quality, and delivery
schedules. A major competitor in most of the markets we serve, CoorsTek holds a
prominent position in many product lines. It has maintained long standing
relationships with major corporations by providing consistent high product
quality and customer service.
We also face competition in our precision metal machining business and in
the fluoropolymer materials business from a multitude of relatively small
domestic companies. We believe there is an opportunity for us, as a larger
company, to compete successfully in these markets but we cannot guarantee our
success.
Ceramic materials offer advantages over conventional materials for
applications in which certain properties such as high electrical resistance,
hardness, high-temperature strength, wear and abrasion resistance, and precise
machinability are important. Ceramic products, however, face competition from
metals and other materials. For example, plastics are substituting ceramics in
certain computer and telecommunications applications because of plastics' lower
cost and lighter weight. CoorsTek believes that the overall value of ceramic
products continues to be attractive to customers. In accordance with the
strategy outlined above, CoorsTek continues to explore and evaluate the
development of, or acquisition of companies with, products manufactured from
competing or complementary materials.
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<PAGE>
Research and Development
Our ability to commercialize CoorsTek's technologies and compete
effectively in our various markets depends significantly on our continued and
timely development of innovative technology, materials, products and processes
using advanced and cost-efficient manufacturing processes. While innovation is
a significant element of CoorsTek's business, we do not have separate, material
research and development expenses. Instead, innovations are generally made as
part of product development on a case-by-case basis in response to customer
orders or needs.
Patents, Proprietary Rights and Licenses
CoorsTek holds a number of patents and pending patent applications in the
U.S. and in foreign countries. Our policy generally is to pursue patent
protection that we consider necessary or advisable for the patentable
inventions and technological improvements of our business. CoorsTek also relies
significantly on trade secrets, technical expertise and know-how, continuing
technological innovations and other means, such as confidentiality agreements
with employees, consultants and customers, to protect and enhance CoorsTek's
competitive position in our markets.
CoorsTek considers the name "Coors" and the goodwill associated with it
to be important to its customer recognition. CoorsTek has received certain
licensing rights to use the Coors name.
CoorsTek believes that we and our subsidiaries own or have the right to
use the proprietary technology and other intellectual property necessary to our
operations. Except as noted above, we do not believe that our success is
materially dependent on the existence or duration of any individual patent,
trademark or license or related group of patents, trademarks or licenses.
Environmental Matters
CoorsTek's operations are subject to all federal, state and local
environmental, health and safety laws and regulations and, in a few instances,
foreign laws, that regulate health and safety matters and the discharge of
materials into air, land and water, and govern the handling and disposal of
solid and hazardous wastes. We believe we are in substantial compliance with
applicable environmental and health and safety laws and regulations and do not
believe that costs of compliance with these laws and regulations will have a
material effect upon our capital expenditures, earnings or competitive
position.
CoorsTek has received a demand for payment arising out of contamination
of a semiconductor manufacturing facility formerly owned by a subsidiary of
CoorsTek, Coors Components, Inc. Colorado State environmental authorities are
seeking clean up of soil and ground water contamination from a subsequent
owner. Although CoorsTek does not believe it is responsible for the
contamination or the cleanup, the parties agreed to a remediation plan.
CoorsTek will manage the remediation and is responsible to pay from 10% to 15%
of the remediation costs in excess of $500,000. There is no firm estimate of
potential clean up costs, although management does not believe it will be
material.
CoorsTek has received a Unilateral Administrative Order issued by the EPA
relating to the Rocky Flats Industrial Park (RFIP) Site, and is participating
with the RFIP group to perform an Engineering Evaluation/Cost Analysis on the
property including investigation and sampling. The EPA has not selected a
remedy but management does not expect costs to exceed reserved amounts.
CoorsTek and some of its subsidiaries have been notified that they may be
or have been named as potentially responsible parties ("PRPs") under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980 or
similar state laws with respect to the remediation of certain sites where
hazardous substances have been released into the environment. CoorsTek cannot
predict with certainty the total costs of remediation, its share of the total
costs, the extent to which
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<PAGE>
contributions will be available from other parties, the amount of time
necessary to complete the remediation, or the availability of insurance.
However, based on investigations to date, CoorsTek believes that any liability
with respect to these sites would not be material to the financial condition or
results of operations of CoorsTek, without consideration for insurance
recoveries. There can be no certainty, however, that CoorsTek will not be named
as a PRP at additional sites or be subject to other environmental matters in
the future or that the costs associated with those additional sites or matters
would not be material.
In addition, CoorsTek has received demands or requests for information
relating to alleged contamination of various properties currently or formerly
owned by CoorsTek or to which CoorsTek allegedly shipped waste. In management's
opinion, none of these claims will result in liability that would materially
affect CoorsTek's financial position or results of operations.
Employees
As of September 30, 1999, CoorsTek had approximately 3,300 full-time
employees. None of the employees is subject to a collective bargaining
agreement. Management considers its employee relations to be good.
Properties
CoorsTek believes that its facilities are well maintained and suitable
for their respective operations. The table below lists CoorsTek's plants and
most other physical properties and their locations and character.
<TABLE>
<CAPTION>
Facility Location Character
-------- -------- ---------
<S> <C> <C>
Manufacturing Benton, Arkansas(1) Ceramic Products
Manufacturing Grand Junction, Colorado Ceramic Products
Manufacturing Chattanooga, Tennessee Ceramic Products
Manufacturing Hillsboro, Oregon Ceramic Products
Manufacturing Lawrence, Pennsylvania(2) Ceramic Products
Manufacturing Norman, Oklahoma Ceramic Products
Manufacturing Oklahoma City, Oklahoma(3) Ceramic Products
Manufacturing Glenrothes, Scotland Ceramic Products
Manufacturing Oak Ridge, Tennessee(4) Ceramic Products
Manufacturing Austin, Texas(5) Ceramic Products,
Assembly Operations
Manufacturing and Odessa, Texas Ceramic Products
Distribution Office
Fluoropolymer
Manufacturing El Segundo, California(2) Products
Manufacturing and Company Golden, Colorado(6) Ceramic Products
Offices
Manufacturing Newark, California Metal Machining and
Assembly Operations
Manufacturing Livermore, California(5) Metal Machining and
Assembly Operations
</TABLE>
- --------
(1) Three facilities.
(2) Leased facility.
(3) Two facilities, one of which is leased.
(4) Three facilities, one of which is leased.
(5) Three facilities, all of which are leased.
(6) Four facilities, one of which is leased.
The operating facilities of CoorsTek are not constrained by capacity
issues.
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<PAGE>
Legal Proceedings
In the ordinary course of business, CoorsTek and its subsidiaries are
subject to various pending claims, lawsuits and contingent liabilities. In each
of these cases, CoorsTek is vigorously defending itself. CoorsTek does not
believe that disposition of these matters will have a material adverse effect
on CoorsTek's consolidated financial position or results of operations. On
August 12, 1999, five current and former employees sued one of CoorsTek's
subsidiaries in the U.S. District Court for the Eastern District of Arkansas
claiming gender discrimination, sexual harassment and retaliation. The
plaintiffs are seeking class certification which the Company is resisting based
on the distinctions among their respective claims. Our preliminary evaluation
indicates the case is largely without merit, however, we do not have sufficient
information to determine the ultimate outcome or any potential liability
related to these claims. Specific information regarding environmental legal
proceedings is discussed under the caption "Environmental Matters."
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MANAGEMENT
Directors
In accordance with CoorsTek's Bylaws, the CoorsTek Board will consist of
seven directors. Joseph Coors, Jr. currently serves as the sole director of
CoorsTek. ACX, as sole stockholder of CoorsTek, elected four additional
directors to begin their service as of the Distribution Date. The CoorsTek
Board intends to appoint the remaining two directors as soon as possible.
Directors of CoorsTek will relinquish any positions held with ACX on the
Distribution Date.
CoorsTek's Certificate of Incorporation provides for the division of the
Board of Directors into three classes as of the first annual meeting of
stockholders. The full slate of directors will stand for election at the first
annual meeting of stockholders, to be held in 2001, and at that time will be
nominated to serve for terms of one, two and three years (Classes I, II and
III), respectively. Stockholders will elect one class, consisting of
approximately one third of the Directors, for three-year terms at each
succeeding annual meeting. CoorsTek's Certificate of Incorporation sets a cap
on the number of directors at 11 and the number of directors may be fixed by or
in the manner provided in the Bylaws. On the Distribution Date, the directors
will be the persons named below.
Joseph Coors and William K. Coors will serve as Directors Emeriti. As
Directors Emeriti, Messrs. Coors will provide advice and consulting services to
the Board but shall not constitute "directors" and shall not have voting
rights.
<TABLE>
<CAPTION>
Principal Occupation or
Name Age Employment for the Past Five Years
---- --- ----------------------------------
<S> <C> <C>
John K. Coors....... 43 President of CoorsTek since October 1998; Chief
Executive Officer of Golden Genesis Company (a
former publicly traded subsidiary of ACX), from
January 1997 to October 1998; President of Golden
Photon Company from July 1992 to October 1998; Vice
President and Plant Manager of Coors Brewing
Company's Memphis, Tennessee brewery from January to
July 1992; director of Golden Genesis Company from
1997 to August 1999. He has been a director of ACX
since 1996.
Joseph Coors, Jr. .. 57 President and director of ACX since its formation in
August 1992; Chairman of CoorsTek since 1989, Chief
Executive Officer of CoorsTek since March 1997, and
President of CoorsTek from 1997 to October 1998 and
from 1985 to 1993; Director of Golden Genesis
Company from May 1998 until August 1999; Chairman of
Golden Aluminum (a former subsidiary of ACX) from
1993 to 1997; Executive Vice President of Adolph
Coors Company from 1991 to 1992; director of Hecla
Mining Company (NYSE: HL); Chairman of the Air Force
Memorial Foundation.
John E. Glancy...... 53 Corporate Executive Vice President and Manager of
Commercial and International Business of Science
Applications International Corp. (SAIC) since 1978
(SAIC provides professional and technical services
and products in high-technology areas to government
and the private sector); Employed by General Atomic
Company, a manufacturer of nuclear reactors, and the
U.S. Atomic Energy Commission prior to 1978;
Director of SAIC and Network Solutions, Inc.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Principal Occupation or
Name Age Employment for the Past Five Years
---- --- ----------------------------------
<S> <C> <C>
Donald E. Miller..... 69 Vice Chairman of The Gates Corporation (automotive
and industrial supplier) from 1994 to August, 1996;
President of Gates Rubber Company from 1982 to 1993
and President and Chief Operating Officer of The
Gates Corporation from 1987 to 1994; Director of
Lennox Industries, Inc., Sentry Insurance Company,
Chateau Communities, Inc. and OEA, Inc. Mr. Miller
has been retired since August, 1996.
Robert L. Smialek.... 55 President and Chief Executive Officer of Insilco
Corporation from 1993 until July 1999; Insilco
manufactures specialty products for the automotive,
telecommunications, electronics, defense and
consumer product markets; President and Chief
Operating Officer of the Temperature and Appliance
Controls Group of Siebe plc, a global controls and
engineering firm, from October 1992 to May 1993;
President and Chief Operating Officer of Ranco,
Inc., from September 1990 to October 1992, a
subsidiary of Siebe, Inc.; Group Vice President for
Tracor Instruments Group from May 1988 to May 1990;
Employed by General Electric Company from 1969 to
1988, most recent position was General Manager of
Manufacturing and Technology Operations for the
Medical Systems Group; Director of Insilco
Corporation, General Cable Corporation and Gleason
Corporation. Mr. Smialek has been retired since
July, 1999.
</TABLE>
Committees of the CoorsTek Board
The CoorsTek Board will have four standing committees: Audit,
Compensation, Executive and Corporate Governance. The membership of each
committee will be determined following the spin-off.
Audit Committee (all members will be nonemployee directors):
. Reviews the scope and results of the audit of CoorsTek by CoorsTek's
independent accountants.
. Recommends the appointment of CoorsTek's independent accountants.
. Reviews the adequacy of CoorsTek's systems of internal control and
accounting policies and procedures, including compliance with
CoorsTek's ethics policy.
. Directs and supervises investigations into matters within the scope of
its duties.
Compensation Committee (all members will be nonemployee directors):
. Reviews and recommends to the Board compensation of management
personnel.
. Reviews and approves executive incentive and benefit plans.
. Reviews and recommends to the Board general employee benefits.
Executive Committee (all members will be employee directors):
. Exercises all of the authority of the Board when the Board is not in
session except as provided in CoorsTek's Certificate of Incorporation,
Bylaws and applicable law.
Corporate Governance Committee (all members will be nonemployee directors):
. Considers and recommends nominees for election as directors.
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. Reviews and evaluates the performance of the Board.
Compensation of Directors
Employee directors will not receive additional compensation for serving
as directors of CoorsTek. Each non-employee director of CoorsTek, including
Directors Emeriti, will receive a meeting fee of $7,000 per meeting, 50 percent
of which will be paid in shares of CoorsTek's common stock. The balance of the
retainer will be paid in cash unless the non-employee director elects to take
all or a portion of it in CoorsTek's common stock.
In addition, CoorsTek has adopted the Stock Option and Incentive Plan
under which each non-employee director will receive a grant of 5,000 non-
qualified stock options upon initial election to the Board and 3,000 non-
qualified stock options upon election by stockholders to his or her three year
term. The options, with an exercise price equal to 100% of market value on the
date of grant, will vest in equal increments over a three-year period and will
expire, if unexercised, ten years from the date of grant.
No additional amounts will be paid to directors for committee meetings.
Directors will be reimbursed for expenses incurred while attending Board or
committee meetings and in connection with any other Company business. In
addition, CoorsTek will purchase accidental death and dismemberment insurance
for the non-employee directors.
Family Relationships
John K. Coors and Joseph Coors, Jr. are brothers and are sons of Joseph
Coors and nephews of William K. Coors.
Executive Officers
On the Distribution Date, the executive officers of CoorsTek will be as
follows:
Joseph Coors, Jr., age 57, has been Chairman of CoorsTek since 1989 and
its Chief Executive Officer since March 1997. He was President of CoorsTek from
1985 to 1993 and from 1997 to October 1998. Mr. Coors has been President of ACX
and a Director since its formation in 1992, and was a Director of Golden
Genesis Company from May 1998 until August 1999, a Chairman of Golden Aluminum
Company from 1993 to 1997, and an Executive Vice President of Adolph Coors
Company from 1991 to 1992. He also is a director of Hecla Mining Company
(NYSE:HL) and Chairman of the Air Force Memorial Foundation. Mr. Coors holds a
bachelor's degree in applied mathematics from the University of North Carolina.
John K. Coors, age 43, has been President of CoorsTek since October 1998.
He also has been a Director of ACX since 1996 and of Golden Genesis Company
from January 1997 to August 1999. Mr. Coors was Chief Executive Officer of
Golden Genesis Company from January 1997 to October 1998, President of Golden
Photon Company from July 1992 to October 1998 and Vice President and Plant
Manager of Coors Brewing Company's Memphis, Tennessee brewery from January to
July 1992. Mr. Coors holds a bachelor's degree in chemical engineering from
Colorado School of Mines and a masters degree in biochemistry from the
University of Texas at Austin and a doctorate degree in engineering from
Technical University of Munich.
Derek C. Johnson, age 39, has been Executive Vice President of Sales and
Marketing and Operations of CoorsTek since August 1999. Mr. Johnson was Vice
President of Sales and Marketing from October 1998 to August 1999, Vice
President of Golden Operations from 1997 to 1998 and Manager of Manufacturing
for Golden Operations from 1992 to 1997, for CoorsTek. Mr. Johnson received a
bachelor's degree in electrical engineering from the KirkCaldy Technical
College of Scotland and a master's degree in business administration from the
University of Denver.
39
<PAGE>
Larry D. Murphy, age 57, has been Executive Vice President of Strategic
Initiatives of CoorsTek since October 1999. Prior to joining CoorsTek, he
served as Financial Services Group Banking Director with Andersen Consulting
from 1990 to September 1999. From 1987 to 1990, Mr. Murphy was Chief
Information Officer for Union Bank and he served as Chief Executive Officer and
President of Security Pacific Information Services, Inc. from 1980 to 1987. Mr.
Murphy received a bachelor's degree in mathematics from Auburn University and a
master's degree in business administration from National University.
Katherine A. Resler, age 40, has been General Counsel and Secretary of
CoorsTek since September 1999. Ms. Resler has been Counsel for ACX since 1998,
its Director of Executive Compensation since 1995 and its Assistant Secretary
since 1992. Ms. Resler received a bachelor's degree in science and a master's
degree in business administration from Colorado State University, and a J.D.
from the University of Denver.
Joseph G. Warren, Jr., age 54, has been Chief Financial Officer and
Treasurer of CoorsTek since August 1999. Mr. Warren was Vice President of
Finance, Chief Financial Officer, Secretary and Treasurer of White Electronics
& Designs, Inc., a semiconductor manufacturer, from 1995 to July 1999. From
1994 to 1995 he served as Vice President and Chief Financial Officer of Axxess
Technologies, Inc. and from 1993 to 1994 served as Secretary, Treasurer and
Vice President of Golden Technologies Company, Inc., a wholly-owned subsidiary
of ACX. From 1992 to 1993, Mr. Warren was President of Coors Ceramicon Designs,
Ltd., a subsidiary of CoorsTek, and from 1985 to 1992 was Vice President of
CoorsTek. Mr. Warren received a bachelor's degree in accounting from Arizona
State University.
Other officers are:
Janet D. Comerford, age 41, has been Vice President of Human Resources
and Environmental Health and Safety of CoorsTek since October 1998. Ms.
Comerford was Regional Human Resources Manager of CoorsTek from 1997 to 1998,
served as Manager of Administration from 1994 to 1997 and was a Production
Manager from 1991 to 1994. Ms. Comerford received a bachelor's degree in
business administration from the University of Arizona.
Dean A. Rulis, age 52, has been Vice President of Acquisitions and
Technology of CoorsTek since 1998. He was President and General Manager of
Wilbanks International, Inc. (a wholly owned subsidiary of CoorsTek) from 1997
to 1998; President of Golden Technologies Company, Inc. from 1992 to 1997. He
holds a bachelor's degree in mechanical engineering from Purdue University.
40
<PAGE>
EXECUTIVE COMPENSATION
Compensation Philosophy
CoorsTek's compensation philosophy is intended to create value for
CoorsTek's stockholders through long-term growth in sales and earnings. The
total compensation package will consist of salary, benefits, an annual
incentive opportunity and equity grants and will be designed to attract,
motivate and retain the quality of executives needed to successfully lead and
manage CoorsTek. This package will intentionally tie a significant portion of
the executives' total compensation to CoorsTek's performance and creation of
shareholder value.
CoorsTek Cash Compensation Arrangements
The following table sets forth the initial annual base salaries to be
paid for fiscal year 2000 to the named executive officers. The compensation
amounts do not include incentive cash bonuses that may be payable under
management incentive plans, but which will not be determined until a future
date.
<TABLE>
<CAPTION>
Estimated Cash
Name Position Compensation
---- -------- --------------
<S> <C> <C>
Joseph Coors, Jr. ...... Chairman and Chief Executive Officer $533,000
John K. Coors........... President $300,000
Derek C. Johnson........ Executive Vice President $240,000
Larry D. Murphy......... Executive Vice President $402,000
Joseph G. Warren, Jr. .. Chief Financial Officer and Treasurer $240,000
</TABLE>
Summary of Executive Compensation
The following information relates to the compensation paid by ACX to
Joseph Coors, Jr., who was as of December 31, 1998, and who will be as of the
Distribution Date, the Chief Executive Officer of CoorsTek. Other individuals
who will be executive officers of CoorsTek as of the Distribution Date, were
not among the CoorsTek executive officers for the year ended December 31, 1998
or earned less than $100,000 during 1998 and as a result are not included in
the table. All cash compensation reported in the table was paid by ACX and all
stock compensation was in the form of ACX common stock or options to purchase
shares of ACX common stock.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation/
Annual Compensation Awards
------------------------------ -------------
Securities
Other Annual Underlying All other
Name and Principal Salary Bonus Compensation Options/ SARs Compensation
Position Year ($) ($) ($) (#) ($)
------------------ ---- -------- -------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Joseph Coors, Jr. ..... 1998 $485,000 $305,550 -- 62,000 $12,705(1)
Chairman and Chief Ex-
ecutive 1997 $460,000 $479,780 $3,236(2) 15,000 $ 8,659
Officer 1996 $460,000 $437,460 -- -- $ 8,408
</TABLE>
- --------
(1) Other Compensation includes the value of term life insurance benefitting
the executive and the employer's contribution to the 401(k) plan,
respectively, as follows: $8,705 and $4,000.
(2) The amount shown is reimbursement during the year for taxes.
41
<PAGE>
Option/SAR Grants in Last Fiscal Year
The following table provides information on grants of options to purchase
shares of ACX common stock made during 1998. All options are granted at the ACX
common stock's market value on the grant date, and each grant has an expiration
date as specified in the table. All options vest in the event of a change in
control. The option price may be paid in cash, by surrendering shares owned for
more than 6 months, or through irrevocable instructions to a broker to deduct
the option price from the proceeds of the sale.
Individual Grants
<TABLE>
<CAPTION>
Number of %of Total
Securities Options/SARS Grant
Underlying Granted to Date
Options/SARs Employees Exercise or Present
Granted in Fiscal Base Price Value
Name (#) Yr. ($/Sh) Expiration Date ($)(1)
---- ------------ ------------ ----------- --------------- --------
<S> <C> <C> <C> <C> <C>
Joseph Coors, Jr. ...... 62,000(2) 13.0% $24.344 2/10/08 $795,460
</TABLE>
- --------
(1) Values indicated are an estimate based on the Black-Scholes option pricing
model using the following assumptions: (a) 28.1 percent stock price
volatility based on the average stock price volatility of the companies
included in the S&P Manufacturing (Diversified/Industrials) Index; (b) 5.63
percent risk-free rate of return; (c) zero dividend yield; (d) anticipated
exercising at the end of the option term; and (e) no adjustment for non-
transferability or risk of forfeiture. The actual value realized will be
determined by the excess of the stock price over the exercise price on the
date the option is exercised. There is no certainty the actual value
realized will be at or near the value estimated by the Black-Scholes option
pricing model.
(2) Options granted annually vest ratably over 3 years with each vested
increment being exercisable until the tenth anniversary of the grant date.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values
<TABLE>
<CAPTION>
Value of Unexercised
Number of Securities In-The-Money
Underlying Unexercised Options/SARs
Shares Acquired Value Options/SARs at 12/31/98 ($) (1)
On Exercise Realized ------------------------- -------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Joseph Coors, Jr. ...... 5,900 $87,269 607,266 90,900 $273,418 $ 0
</TABLE>
- --------
(1) Value of unexercised options equals market value of the shares ($12.8125)
underlying in-the-money options at December 31,1998, less the exercise
price, times the number of in-the-money options outstanding.
CoorsTek Executive Incentive Compensation
Stock Option and Incentive Plan
CoorsTek has adopted the Stock Option and Incentive Plan (the "Incentive
Plan"), which provides for the grant of stock options, stock appreciation
rights, restricted stock, restricted stock units, deferred stock awards,
unrestricted stock awards, performance stock awards, dividend equivalent
rights, performance awards and annual incentive awards. Awards may be made
under the incentive Plan to employees and directors of the Company and to any
other individual whose participation in the incentive plan is determined to be
in the interests of the Company by the Board. The number of shares of common
stock to be reserved for issuance under the Incentive Plan is the number of
shares needed in substitution of ACX options plus an additional one million
shares, subject to adjustment for stock dividends, splits and other similar
events. Stock options intended to qualify as incentive stock options
42
<PAGE>
under the Internal Revenue code of 1986, and options that do not qualify as
incentive stock options may be granted under the incentive Plan. The exercise
price of each option will be determined by the board (or a committee if the
Board so delegated) but may not be less than 100% of the fair market value of
the Company's common stock on the date of grant unless the stock options are
granted in lieu of cash compensation forfeited by the participant, in which
case, the exercise price will be discounted by the amount of cash compensation
surrendered.
Deferred Compensation
CoorsTek has adopted the Executive Deferred Compensation Plan (the
"Deferred Plan") which provides for the deferral of up to 100% of an eligible
employee's bonus and annual salary. The amounts deferred are first invested as
a contribution to the Company"s 401(k) plan until the maximum elective
contribution permitted by the 401(k) plan is met. Additional amounts may also
be deferred in investments established by the board. Eligible employees must
elect to participate in the Deferred Plan at least 30 days prior to the
commencement of the year in which the compensation to be deferred is earned. An
election to defer earnings must be made for a period of no less that 24 months
from the date the amount would otherwise have been paid. Payments of deferred
earnings may be made in a lump sum or in pro-rata annual installments for a
period not to exceed 10 years from the date participant's employment is
terminated. The Deferred Plan also provides for the payment of a benefit if the
pension payable to the participant from the Company's retirement plan is
limited by Code Section 415 or code Section 410(a)(17). To the extent a benefit
is provided to the participant under the Deferred Plan because of limits
imposed by Code Section 401(a)(17), it shall be reduced by the participant's
Section 415 benefit.
Retirement Plan
The Board of Directors of ACX Technologies, Inc. approved the spin-off of
the assets and liabilities of the ACX Technologies, Inc. Retirement Plan
attributable to current and former employees of CoorsTek and its subsidiaries
into a separate CoorsTek Retirement Plan ("Retirement Plan"), effective August
31, 1999. The Retirement Plan's assets will be held in trust. The provisions of
the Retirement Plan will be substantially the same as the provisions applicable
to the CoorsTek portion of the ACX Retirement Plan. The Retirement Plan will be
administered by an administrative committee appointed by the Board of Directors
of CoorsTek. Until the spin-off is completed, employees of CoorsTek and its
subsidiaries will continue to participate in the ACX retirement plan.
The retirement benefit is generally based on length of service and
average monthly compensation. Compensation taken into account is the total base
compensation, including commissions, overtime pay and amounts deferred by the
employee under Company plans pursuant to (S)(S) 125 and 401(k) of the Internal
Revenue Code of 1986, as amended, but excluding profit sharing pay and cash
bonuses. Average monthly compensation is determined by using the average of the
highest 36 consecutive months out of the last ten years, including years with
ACX and its subsidiaries and Adolph Coors Company and its subsidiaries.
The normal annual retirement benefit equals 1.25% of average annual
compensation times years of service (maximum of 25 years), plus .5% of average
annual compensation in excess of covered compensation times years of service
(maximum of 25 years), plus .5% of average annual compensation times years of
service in excess of 25 years, plus, beginning in 1996, the sum of 1.5% of
bonus pay for each plan year (not to exceed 25% of base pay). Covered
compensation is generally based on an average of the Social Security taxable
wage bases in effect during the 35 years ending with the calendar year in which
the employee's social security retirement age occurs. Years of service includes
years of service with ACX and its subsidiaries (and Adolph Coors Company and
its subsidiaries with respect to certain employees).
43
<PAGE>
Unreduced normal retirement benefits are payable under the Retirement
Plan at (i) age 65, regardless of years of service or (ii) any time after age
60 provided age plus years of vesting service total at least 90. The benefit
accrued under the pension formula set forth above is in the form of a straight
life annuity. An employee with at least ten years of vesting service who
retires prior to normal retirement date is eligible for a retirement benefit,
at reduced rates, provided the employee is at least age 55.
The following table sets forth annual retirement benefits for
representative years of service and average annual compensation as of December
31, 1998. The amounts shown in the table were calculated without taking into
account an amount for covered compensation; accordingly, the benefits shown
would be subject to a reduction to reflect the payment of Social Security
benefits. Furthermore, the amounts shown in the table were calculated without
adding any amounts related to the portion of the formula which adds, beginning
in 1996, the sum of 1.5% of bonus pay for each plan year (not to exceed 25% of
base pay). This portion of the formula is not based on average annual
compensation.
The maximum permissible benefit under ERISA from the qualified Retirement
Plan for 1998 was $130,000. In addition, the maximum compensation for 1998 that
may be used in determining benefits from the qualified Retirement Plan is
$160,000. CoorsTek's Executive Deferred Compensation Plan provides for the
benefits that are not payable from the Retirement Plan because of these two
limitations. The amounts shown in this table include the benefits payable under
the Executive Deferred Compensation Plan because of these two limitations.
Pension Plan
<TABLE>
<CAPTION>
Years of Service
------------------------------------------------------------
Remuneration 15 20 25 30 35
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$125,000 $ 32,813 $ 43,750 $ 54,688 $ 57,813 $ 56,328
$150,000 39,375 52,500 65,625 69,375 67,594
$175,000 45,938 61,250 76,563 80,938 78,859
$200,000 52,500 70,000 87,500 92,500 90,125
$225,000 59,063 78,750 98,438 104,063 101,391
$250,000 65,625 87,500 109,375 115,625 112,656
$275,000 72,188 96,250 120,313 127,188 123,922
$300,000 78,750 105,000 131,250 138,750 135,188
$325,000 85,313 113,750 142,188 150,313 146,453
$350,000 91,875 122,500 153,125 161,875 157,719
$375,000 98,438 131,250 164,063 173,438 168,984
$400,000 105,000 140,000 175,000 185,000 180,250
$425,000 111,563 148,750 185,938 196,563 191,516
$450,000 118,125 157,500 196,875 208,125 202,781
$475,000 124,688 166,250 207,813 219,688 214,047
$500,000 131,250 175,000 218,750 231,250 225,313
$525,000 137,813 183,750 229,688 242,813 236,578
$550,000 144,375 192,500 240,625 254,375 247,844
$575,000 150,938 201,250 251,563 265,938 259,109
</TABLE>
- --------
(1) As of fiscal year-end 1998, average annual compensation covered by the
Retirement Plan, which is equal to the highest average salary amount over a
consecutive 36 month period in the last 10 years, and credited years of
service with ACX, including previous compensation and years of service with
CoorsTek and its subsidiaries, for the named executives are as follows:
Joseph Coors, Jr.--$466,808 and 22 years; John K. Coors--$174,152 and 20
years; and Derek C. Johnson-- $125,600 and 14 years. Larry D. Murphy and
Joseph G. Warren, Jr. have been with CoorsTek less than the above 36-month
period.
44
<PAGE>
Employment Contracts, Termination of Employment, Salary Continuation and
Change-in-Control Arrangements
CoorsTek has employment contracts with all of the named executives for a
three year period. Under the contracts, the executives receive an annual salary
as indicated in the Compensation Table, receive a $25,000 signing bonus and are
eligible to participate in equity incentive and annual bonus plans. In
addition, Larry D. Murphy received 85,000 ACX nonqualified stock options and
Joseph G. Warren, Jr. received 50,000 ACX nonqualified stock options subject to
vesting conditions based on time and stock performance. Upon termination, the
executive receives: nothing if terminated for cause; the greater of the
remaining term or one year's salary if termination is not for cause but two
years salary if termination is due to a Change in Control (as defined in the
stock option and incentive plan); and a gross-up amount if certain excise tax
payments are triggered.
Compensation received by the named executives upon retirement includes
normal retirement benefits and, for the Chief Executive Officer and the
President, a number of shares of stock to be granted under salary continuation
agreements. The shares will be payable in full upon retirement at age
60 or after. Additionally, the shares will be 50 percent vested at age 50 with
10 years of service and the remaining 50 percent will vest in 5 percent
increments between ages 51 and 60.
In addition, in the case of a Change in Control of CoorsTek, CoorsTek's
compensation plans will be affected as follows: (1) under the Stock Option and
Incentive Plan, all outstanding options will become exercisable in full and all
stock units will become payable in full and prorated bonuses will be calculated
and paid, if earned; (2) under the Executive Deferred Compensation Plan,
distributions of deferred amounts will be made in a lump sum within 90 days
after the Change in Control; and (3) under the salary continuation agreements,
stock units vest 100% without regard to the executive's age or service. The
definition of change in control for these purposes is as follows: (i) if
beneficial ownership of 50% or more of either the outstanding shares of
CoorsTek's common stock or the combined voting power of CoorsTek's voting stock
is acquired by persons or entities not related to CoorsTek without consent of
the current Board, (ii) upon the election of individuals constituting a
majority of the Board who were either not members prior to their election or
not recommended to the stockholders by the Board, (iii) upon a merger,
consolidation or sale of all or substantially all of CoorsTek's assets,
whereupon (a) at least 50% of the outstanding shares of CoorsTek's common stock
and of the combined voting power of voting securities are not held in the same
proportion, and by the same persons as the beneficial owners prior to such
event, (b) at least 35% of CoorsTek's common stock is held by a person that did
not hold such amount prior to the event and (c) a majority of the current Board
did not continue to serve as directors, or (iv) approval by the stockholders of
CoorsTek of a complete liquidation or dissolution of CoorsTek.
45
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS,
DIRECTORS AND EXECUTIVE OFFICERS
OF COORSTEK
None of the present executive officers or directors of CoorsTek currently
owns any shares of CoorsTek common stock, all of which are owned currently by
ACX. However, the executive officers and directors of CoorsTek will receive, by
virtue of their ownership of ACX common stock, shares of CoorsTek common stock
in the spin-off. In addition, as discussed under "Management," certain existing
options and warrants to purchase shares of ACX common stock under ACX executive
plans will be converted into comparable options and warrants to purchase shares
of CoorsTek common stock.
The following table lists beneficial ownership of ACX common stock as of
September 30, 1999 by owners of more than five percent of the ACX common stock,
each of the directors, each of the named executive officers and all directors
and executive officers of CoorsTek as a group. Except as otherwise indicated,
the beneficial owner has sole voting and investment power.
<TABLE>
<CAPTION>
Amount and Nature of
Address for 5% Beneficial Percent
Name Owners Ownership of Class
---- ---------------------------- -------------------- --------
<S> <C> <C> <C>
Adolph Coors, Jr. Trust Adolph Coors Company 2,800,000 9.8%
(William K. Coors, Golden, Colorado 80401
Jeffrey H.
Coors, J. Brad Coors,
Joseph
Coors, and Peter H.
Coors, co-
trustees with shared
voting and
investment power)
Grover C. Coors Trust Adolph Coors Company 2,727,016 9.6%
(William K. Coors, Golden, Colorado 80401
Jeffrey H.
Coors, John K. Coors,
Joseph
Coors, and Joseph
Coors, Jr., co-
trustees with shared
voting and
investment power)
May Kistler Coors Trust Adolph Coors Company 1,726,652 6.1%
(William K. Coors, Golden, Colorado 80401
Jeffrey H.
Coors, Joseph Coors,
Joseph
Coors, Jr. and Peter
H. Coors,
co-trustees with
shared voting
and investment power)
Tweedy, Browne Company 52 Vanderbilt Avenue 1,481,685 5.2%
LLC New York, New York 10017
and Affiliates
Herman F. Coors Trust Adolph Coors Company 1,435,000 5.0%
(William K. Coors, Golden, Colorado 80401
Jeffrey H.
Coors, Joseph Coors,
Joseph
Coors, Jr. and Peter
H. Coors, co- trustees
with shared voting
and investment power)
William K. Coors (1) Adolph Coors Company 1,856,421 6.5%
Golden, Colorado 80401
Jeffrey H. Coors (2) ACX Technologies, Inc. 2,477,883 8.7%
16000 Table Mountain Parkway
Golden, Colorado 80403
Joseph Coors (3) Adolph Coors Company 1,981,788 7.0%
Golden, Colorado 80401
Peter H. Coors (4) Adolph Coors Company 1,735,726 6.1%
Golden, Colorado 80401
John K. Coors (5) 54,558 *
Joseph Coors, Jr. (6) CoorsTek, Inc. 2,459,392 8.6%
16000 Table Mountain Parkway
Golden, Colorado 80403
Derek C. Johnson (7) 14,532 *
Larry D. Murphy 0 --
Joseph G. Warren, Jr. 0 --
Directors and Executive
Officers
as a Group (6 persons) 2,517,482 8.8%
</TABLE>
46
<PAGE>
- -------
* Holds less than 1% of the Common Stock
(1) Includes 1,726,652 shares held by William K. Coors as trustee of the May
Kistler Coors Trust, as to which he shares voting and investment power with
Jeffrey H. Coors, Joseph Coors, Joseph Coors, Jr. and Peter H. Coors, as
co-trustees. Includes 3,333 shares of ACX common stock issuable pursuant to
options that are currently exercisable or will be exercisable within 60
days.
(2) Includes 1,726,652 shares held by Jeffrey H. Coors as trustee of the May
Kistler Coors Trust, as to which he shares voting and investment power with
William K. Coors, Joseph Coors, Joseph Coors, Jr. and Peter H. Coors, as
co-trustees. Does not include: 72,350 shares of Common Stock restricted and
unissued until the earlier of (i) grantee's retirement, death, disability
or termination of employment, or (ii) the year 2000 (5,726) shares), 2001
(3,600 shares), 2002 (5,344 shares), 2004 (10,096 shares), 2005 (11,443)
and 2010 (12,618 shares); or 66,672 shares of Common Stock restricted and
unissued until retirement. Includes 628,442 shares of ACX common stock
issuable pursuant to options that are currently exercisable or will be
exercisable within 60 days.
(3) Includes 250,000 shares held by Joseph Coors as co-trustee of his revocable
trust. Also includes 1,726,652 shares held by Joseph Coors as trustee of
the May Kistler Coors Trust, as to which he shares voting and investment
power with William K. Coors, Jeffrey H. Coors, Joseph Coors, Jr. and Peter
H. Coors, as co-trustees. Includes 2,000 shares of ACX common stock
issuable pursuant to options that are currently exercisable or will be
exercisable within 60 days.
(4) Includes 1,726,652 shares held by Peter H. Coors as trustee of the May
Kistler Coors Trust, as to which he shares voting and investment power with
William K. Coors, Jeffrey H. Coors, Joseph Coors, and Joseph Coors, Jr., as
co-trustees.
(5) Does not include 18,156 shares of ACX common stock restricted and unissued
until retirement. Includes 52,324 shares of ACX common stock issuable
pursuant to options that are currently exercisable or will be exercisable
within 60 days.
(6) Includes 1,726,652 shares held by Joseph Coors, Jr. as trustee of the May
Kistler Coors Trust, as to which he shares voting and investment power with
William K. Coors, Jeffrey H. Coors, Joseph Coors and Peter H. Coors, as co-
trustees. Does not include 1,798 shares of ACX common stock restricted and
unissued until the earlier of retirement or death, disability or
termination of employment; or 64,032 shares of common stock restricted and
unissued until retirement. Includes 651,832 of ACX common stock issuable
pursuant to options that are currently exercisable or will be exercisable
within 60 days.
(7) Includes 11,332 shares of ACX common stock issuable pursuant to options
that are currently exercisable or will be exercisable within 60 days.
47
<PAGE>
DESCRIPTION OF INDEBTEDNESS
In connection with the spin-off, CoorsTek expects to enter into a Credit
Agreement (the "Bank of America Loan"), provided by Bank of America and a
syndicate of other lenders. The Bank of America Loan will provide for a $270
million credit facility consisting of a $95 million revolving credit facility
maturing in five years, an $85 million term facility maturing in five years and
a $90 million term facility maturing in seven years. Borrowings under the
credit facility will bear interest at rates generally based on LIBOR plus a
spread that will vary depending upon CoorsTek's performance. The Bank of
America Loan will be collateralized by the accounts receivable and inventory of
CoorsTek and all of the outstanding capital stock of CoorsTek's subsidiaries,
whether now owned or later acquired. The agreement for the Bank of America Loan
is expected to contain covenants restricting liens, capital expenditures,
investments, borrowing, payment of dividends, mergers, and acquisitions and
sales of assets. In addition, the agreement for the Bank of America Loan, as
amended, is expected to contain financial covenants restricting maximum annual
capital expenditures and requiring maintenance of the following ratios:
. maximum total debt to EBITDA (as defined in the agreement for the
Bank of America Loan);
. minimum EBITDA to interest; and
. minimum tangible net worth.
CoorsTek will pay $200 million of the debt proceeds to ACX for reduction
of intercompany obligations and payment of a special dividend.
48
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Authorized Shares
Under CoorsTek's Certificate of Incorporation, the authorized capital
stock of CoorsTek consists of 100,000,000 shares of common stock, par value
$.01 per share, and 20,000,000 shares of preferred stock, $.01 par value per
share. ACX currently owns all outstanding shares of common stock. No shares of
preferred stock have been issued. Immediately after the spin-off, based on the
number of shares of common stock of ACX outstanding at November 26, 1999 and
the distribution ratio of one share of CoorsTek common stock for every four
shares of ACX common stock, approximately 7,134,880 shares of the CoorsTek
common stock and no shares of the preferred stock will be issued and
outstanding. ACX will not own shares of CoorsTek common stock after the spin-
off.
Common Stock
Holders of CoorsTek common stock are entitled to one vote for each share
on all matters voted on by stockholders. Holders of CoorsTek common stock do
not have cumulative voting rights in the election of directors. The first
annual meeting of stockholders is expected to be held during 2001.
There is no established public trading market for CoorsTek common stock,
although a "when issued" market is expected to develop prior to the spin-off
date. We have applied for inclusion of CoorsTek common stock on the Nasdaq
National Market. We expect to receive approval of such inclusion prior to the
spin-off.
All shares of CoorsTek common stock to be distributed will be fully paid
and nonassessable. Holders of CoorsTek common stock do not have any
subscription, redemption or conversion privileges.
Under the Delaware General Corporation Law, we may pay dividends out of
"surplus" (as determined in accordance with the Delaware General Corporation
Law) or, if there is no surplus, out of net profits for the fiscal year in
which the dividends are declared and/or the preceding fiscal year (subject to
certain restrictions). Subject to the preferences or other rights of any
CoorsTek preferred stock that may be issued from time to time, holders of
CoorsTek common stock are entitled to participate ratably in dividends on the
common stock as declared by the Board of Directors. Our dividend policy will be
established by our Board of Directors from time to time. Subject to legal and
contractual restrictions, the Board of Directors' decisions regarding dividends
will be based on all considerations that in its business judgment are relevant
at the time, including past and projected earnings, cash flows, economic,
business and securities market conditions and anticipated developments
concerning our business and operations. We do not currently intend to pay
dividends on the common stock.
Holders of CoorsTek common stock are entitled to share ratably in all
assets available for distribution to stockholders in the event of liquidation
or dissolution of CoorsTek, subject to distribution of the preferential amount,
if any, to be distributed to holders of preferred stock.
Preferred Stock
The Certificate of Incorporation authorizes the Board, without any vote
or action by the holders of common stock, to issue preferred stock from time to
time in one or more series. The Board is authorized to determine the number of
shares and to fix the powers, designations, preferences and relative,
participating, optional or other special rights of any series of preferred
stock. Issuances of preferred stock would be subject to the applicable rules of
the Nasdaq National Market or other organizations on which CoorsTek stock is
then quoted or listed. Depending upon the terms of preferred stock established
by the Board of Directors, any or all series of preferred stock could have
preference over the common stock with respect to dividends and other
distributions and upon liquidation of
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CoorsTek. If any shares of preferred stock are issued with voting powers, or if
additional shares of common stock are issued, the voting power of the
outstanding common stock would be diluted.
CoorsTek believes that the availability of preferred stock will provide
increased flexibility to facilitate possible future financings and acquisitions
and to meet other corporate needs that might arise.
Transfer Agent and Registrar
Norwest Bank Minnesota, NA will be the transfer agent and registrar for
the CoorsTek common stock immediately following the spin-off.
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ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS
CoorsTek's Certificate of Incorporation and Bylaws, the Delaware General
Corporation Law and the Stockholder Rights Plan contain provisions that may
discourage or delay the acquisition of control of CoorsTek by means of a tender
offer, open market purchases, a proxy contest or otherwise.
Purposes of Provisions
The relevant provisions of the Certificate of Incorporation and Bylaws
are intended to discourage certain types of transactions that may involve an
actual or threatened change of control of CoorsTek and to encourage any person
who might seek to acquire control of CoorsTek to negotiate with the Board of
Directors. Management of ACX and CoorsTek believe that generally the interests
of the stockholders would be served best if any change in control results from
negotiations with the CoorsTek Board of the proposed terms, such as the price
to be paid, the form of consideration and the anticipated tax effects of the
transaction. However, to the extent that these provisions do discourage
takeover attempts, they could make it more difficult to accomplish transactions
that are opposed by the incumbent Board and could deprive stockholders of
opportunities to realize takeover premiums for their shares or other advantages
that large accumulations of stock would provide.
The Certificate of Incorporation, the Bylaws and the Stockholder Rights
Plan will be effective on or before the Distribution Date, and are filed as
exhibits to CoorsTek's registration statement on Form 10 of which this
Information Statement is a part.
Delaware Section 203
Section 203 of the Delaware General Corporation Law provides that,
subject to certain exceptions, a corporation shall not engage in any "business
combination" with any "interested stockholder" for a three-year period
following the time that such stockholder becomes an interested stockholder
unless:
. prior to such time, the board of directors of the corporation
approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder;
. upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding certain
shares); or
. on or subsequent to such time, the business combination is approved
by the board of directors of the corporation and by the affirmative
vote of at least 66 2/3% of the outstanding voting stock which is not
owned by the interested stockholder.
Section 203 generally defines an "interested stockholder" to include:
. any person that is the owner of 15% or more of the outstanding voting
stock of the corporation, or is an affiliate or associate of the
corporation and was the owner of 15% or more of the outstanding
voting stock of the corporation at any time within three years
immediately prior to the relevant date; and
. the affiliates and associates of any such person.
Section 203 generally defines a "business combination" to include:
. mergers and sales or other dispositions of 10% or more of the assets
of the corporation with or to an interested stockholder;
. certain transactions resulting in the issuance or transfer to the
interested stockholder of any stock of the corporation or its
subsidiaries;
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. certain transactions which would result in increasing the
proportionate share of the stock of the corporation or its
subsidiaries owned by the interested stockholder; and
. receipt by the interested stockholder of the benefit (except
proportionately as a stockholder) of any loans, advances, guarantees,
pledges, or other financial benefits.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an "interested stockholder" to effect various business
combinations with a corporation for a three-year period, although the
certificate of incorporation or stockholder-adopted bylaws may exclude a
corporation from the restrictions imposed thereunder. Neither the Certificate
of Incorporation nor the Bylaws exclude CoorsTek from the restrictions imposed
under Section 203. It is anticipated that the provisions of Section 203 may
encourage companies interested in acquiring CoorsTek to negotiate in advance
with the Board of Directors since the stockholder approval requirement would be
avoided if the Board approves, prior to the time the acquirer becomes an
interested stockholder, either the business combination or the transaction that
results in the acquirer becoming an interested stockholder.
Classification of the Board
Effective as of the first annual meeting of stockholders, to be held in
2001, the total number of directors will be divided into three classes, with
each class containing one-third of the total, as near as may be. The terms of
directors will expire as follows:
. the terms of the first class will expire at the second annual meeting
of stockholders held after the spin-off,
. the terms of directors in the second class will expire at the third
annual meeting of stockholders held after the spin-off, and
. the terms of directors in the third class will expire at the fourth
annual meeting of stockholders held after the spin-off.
Upon the expiration of the initial staggered terms, directors shall be
elected for terms of three years to succeed those whose terms expire. Of the
initial directors, the first class will consist of two persons, the second
class will consist of two persons and the third class will consist of one
person. The two additional directors will be elected to the third class and the
first class, respectively. The structure of the classified board is intended to
promote continuity and stability of CoorsTek's management and policies because
a majority of the directors serving at any given time will have prior
experience as directors of CoorsTek.
The classification of directors could make it more difficult for
stockholders to quickly change the composition of the Board. At least two
annual meetings of stockholders, instead of one, generally would be required to
effect a change in the majority of the Board.
Number of Directors; Removal; Vacancies
The Certificate of Incorporation provides that the number of directors
shall not exceed 11. The initial Board of Directors will consist of seven
persons. The exact number of directors is set in accordance with the Bylaws by
resolution from time to time of two-thirds of the directors then in office.
Interim vacancies on the Board, or vacancies created by an increase in the
number of directors, may be filled by a majority of the directors then in
office. A director appointed to fill a vacancy will hold office for the
remainder of the term of the class of director in which the vacancy occurred or
the new directorship was created.
Directors may be removed for cause only by a class vote of the holders of
two-thirds of the stockholders entitled to vote thereon. This provision, in
conjunction with the provisions of the Certificate of Incorporation authorizing
the Board to fill vacant directorships, would prevent
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stockholders holding less than two-thirds of the voting stock from removing
incumbent directors and filling the resulting vacancies with their own
nominees.
Stockholder Action
The Certificate of Incorporation requires all stockholder action to be
taken at an annual or special meeting of stockholders and prohibits stockholder
action by written consent, unless the action is by unanimous consent. The
Certificate of Incorporation and Bylaws also provide that special meetings of
stockholders may be called by the Board of Directors, the Chairperson or the
President.
The provisions prohibiting stockholder action by consent resolution
except by unanimous consent and, not permitting any stockholder or group
thereof to call a special meeting may have the effect of delaying consideration
of a stockholder proposal until the next annual meeting of the stockholders
unless a special meeting is called by the Board of Directors, the Chairperson
or the President.
Stockholder Proposals
CoorsTek's Bylaws establish an advance notice procedure for nominations
(other than by or at the direction of the Board) of candidates for election as
directors at, and for proposals to be brought before, an annual meeting of
stockholders. Subject to any other applicable requirements, only such
nominations may be considered and such business may be conducted at an annual
meeting as have been brought before the meeting by or at the direction of the
Board or by a stockholder who has given to the Secretary of CoorsTek timely
written notice, in proper form, of the same.
To be timely, notice of nominations or other business to be brought
before an annual meeting must be received by the Secretary of CoorsTek not less
than 90 days nor more than 120 days prior to the anniversary of the preceding
year's annual meeting. For the purposes of CoorsTek's first annual meeting held
after 2000, the anniversary date shall be deemed to be May 15, 2001.
Each notice must set forth:
. the identity (including name and address) of the stockholder or
stockholders who intend to make the nomination or proposal,
. the class and number of shares of common stock and preferred stock
owned directly or indirectly, by such stockholder,
. a representation that the stockholder is a holder of record of Coors
Ceramic stock entitled to vote at the meeting and intends to appear
in person or by proxy at the meeting to propose the business or
nomination,
. a representation whether the stockholder or the beneficial owner, if
any, intends or is part of a group which intends:
. to deliver a proxy statement and/or form of proxy to holders of at
least the percentage of CoorsTek's capital stock required to approve
the proposal or elect the nominee, or
. otherwise to solicit proxies from stockholders in support of the
proposal or nomination,
. in the case of a stockholder proposal,
-- a brief description of the business desired to be brought before
the meeting,
-- the text of the proposal (including the text of any resolutions
proposed for consideration and in the event that the business
includes a proposal to amend the Bylaws, the language of the
proposed amendment),
-- the reasons for conducting such business at the meeting and
-- any material interest of such stockholder in the proposed
business, if any, and
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. in the case of a nomination for election of a director,
-- all information regarding the nominee proposed by the stockholder
that would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange
Commission, and
-- the consent of the nominee to be named in a proxy statement as a
candidate for election and to serve as a director if elected.
CoorsTek may require any proposed nominee to furnish such other
information as it may reasonably require to determine the eligibility of such
proposed nominee to serve as a director.
The chairperson of the meeting at which the directors are to be elected
or at which the stockholder action is to be taken shall have the power and
duty:
-- to determine whether a nomination or any business proposed to be
brought before the meeting was made or proposed in accordance with
these procedures, and
-- if any proposed nomination or business was not made or proposed in
compliance with these procedures, to declare that the nomination
shall be disregarded or that the proposed business shall not be
transacted.
These provisions are intended to facilitate planning for the conduct of
CoorsTek's annual meeting of stockholders and to provide time for proposals to
be evaluated fully. They may have the effect of precluding a nomination or the
conduct of business at a particular meeting if the proper procedures are not
followed and may deter a potential acquirer from conducting a solicitation of
proxies to elect its own slate of directors or otherwise attempting to obtain
control of CoorsTek, even if the conduct of such solicitation or such attempt
might be beneficial to the stockholders.
Acquisition Proposals
In determining whether an acquisition proposal is in the long-term best
interests of CoorsTek and its stockholders, the Certificate of Incorporation
provides that the Board may consider the effect of both an acquisition proposal
and a potential acquisition on creditors, customers and employees of CoorsTek
and on the community in general, the risks of non-consummation of an
acquisition proposal, the identity, prior background and other business
experiences of the person or entity making an acquisition proposal, and the
business plans of both CoorsTek and the person or entity making an acquisition
proposal and their respective effects on stockholder interests.
Stockholder Vote for Amendment of Certificate of Incorporation and Bylaws
Under Delaware law, amendments to a company's certificate of
incorporation require a resolution of the board of directors and the approval
of the holders of a majority of the outstanding shares entitled to vote and, in
certain cases, of a majority of the outstanding shares of each class entitled
to vote, voting separately as a class. Delaware law also permits a company's
certificate of incorporation to require a greater vote than the vote otherwise
required for any corporate action. The Certificate of Incorporation requires
the concurrence of the holders of at least two-thirds of the voting stock of
CoorsTek, voting together as a single class, to amend or repeal, or adopt any
provision inconsistent with the anti-takeover provisions of the Certificate of
Incorporation discussed above. The Certificate of Incorporation also provides
that the Bylaws may be amended or repealed by an affirmative vote of two-thirds
of the directors then in office or by an affirmative vote of two-thirds of the
stockholders entitled to vote thereon. These supermajority vote requirements
are intended to prevent a stockholder with a majority of CoorsTek's common
stock from avoiding the requirements of these provisions by simply amending
them.
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Other Provisions of Certificate
CoorsTek's Certificate of Incorporation authorizes the Board of Directors
to take such action as it may determine to be reasonably necessary or desirable
to encourage any person or entity to enter into negotiations with the Board and
management of CoorsTek respecting any transaction that may result in a change
of control and to contest or oppose any such transaction that the Board
determines to be unfair, abusive or otherwise undesirable to CoorsTek or its
stockholders, business, customers, employees or other constituencies. This
provision specifically permits the Board to adopt plans or to issue securities
(including common stock or preferred stock, rights or debt securities), which,
among other things, may be exchangeable or convertible into cash or other
securities on such terms as the Board determines, may provide for differential
and unequal treatment of different holders or classes of holders and may
contain restrictions that preclude or limit the entitlement, exercise or
transfer of such securities by a person who, after their creation, acquires a
certain percentage of CoorsTek's voting stock. This provision is intended, in
part, to give the Board greater bargaining power to negotiate on behalf of
stockholders in the event of a takeover proposal. It may, however, discourage
or make more difficult a hostile takeover or acquisition of control and could
deprive stockholders of possible opportunities to realize premiums for their
shares and reduce the risk to management that it might be displaced by a
takeover.
Preferred Stock and Additional Common Stock
The Board's authority to issue of shares of common stock and preferred
stock and to fix by resolution the terms and conditions of each series of
preferred stock may either impede or facilitate the completion of a merger,
tender offer or other takeover attempt. For example, the issuance of new shares
might impede a business combination if the terms of those shares include series
voting rights that would enable the holder to block business combinations or
the issuance of new shares might facilitate a business combination if those
shares have general voting rights sufficient to cause an applicable percentage
vote requirement to be satisfied. The Board of Directors will make any
determination regarding issuance of additional shares based on its judgment as
to the best interest of its stockholders, customers, employees or other
constituencies.
Stockholder Rights Plan
CoorsTek adopted a Stockholder Rights Plan which will cause the issuance
of, one preferred share purchase right (a "Right") for each share of CoorsTek
Common stock. Each Right will entitle the registered holder to purchase from
CoorsTek one one-thousandth of a share of Series A Junior Participating
Preferred Stock of CoorsTek (the "Junior Preferred") at an exercise price of
$38, subject to adjustment. The description and terms of the Rights will be set
forth in a Stockholder Plan Rights Agreement between CoorsTek and Norwest Bank,
N.A., as Rights Agent (the "Rights Agent").
Initially, the Rights will be attached to all certificates representing
shares of common stock then outstanding. The Rights will separate from the
common stock and a distribution of Rights Certificates will occur upon the
earlier to occur of:
. ten days following a public announcement that a person or group of
affiliated or associated persons (an "Acquiring Person") has
acquired, or obtained the right to acquire, beneficial ownership of
15% or more of the outstanding shares of common stock (the "Stock
Acquisition Date"), or
. ten business days following the commencement of a tender offer or
exchange offer the consummation of which would result in the
beneficial ownership by a person of 15% or more of the outstanding
shares of common stock.
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The earlier of such dates is referred to as the "Distribution Date."
Until the Distribution Date:
. the Rights will be evidenced by the common stock certificates, no
separate certificates evidencing the Rights will be distributed and
the Rights will be transferred only with the common stock
certificates, and
. the surrender for transfer of any certificates of common stock
outstanding will also constitute the transfer of the Rights
associated with the common stock represented by such certificate.
The Rights are not exercisable until the Distribution Date and will
expire at the close of business on January 1, 2010, unless earlier redeemed or
exchanged by CoorsTek as described below. The Rights will not be exercisable by
a holder in any jurisdiction where the requisite qualification to the issuance
to such holder, or the exercise by such holder, of the Rights has not been
obtained or is not obtainable.
As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Rights Certificates") will be mailed to
holders of record of the common stock as of the close of business on the
Distribution Date and, thereafter, the separate Rights Certificates alone will
evidence the Rights. Except as otherwise determined by the CoorsTek Board, only
shares of common stock issued prior to the Distribution Date will be issued
with Rights.
If a person or group becomes an Acquiring Person (except pursuant to an
offer for all outstanding shares of common stock that the independent directors
determine to be fair to and otherwise in the best interests of CoorsTek and its
stockholders), each holder of a Right will, after the end of a redemption
period referred to below, have the right to receive, upon exercise, common
stock (or, in certain circumstances, cash, property or other securities of
CoorsTek) having a value equal to two times the exercise price of the Right.
Notwithstanding any of the foregoing, all Rights that are, or (under certain
circumstances specified in the Rights Agreement) were, beneficially owned by
any Acquiring Person will be null and void. However, Rights are not exercisable
following the occurrence of the events set forth above until such time as the
Rights are no longer redeemable by CoorsTek as set forth below.
For example, at a Purchase Price of $38 per Right, each Right not owned
by an Acquiring Person (or by certain related parties) following an event set
forth in the preceding paragraph would entitle its holder to purchase $76 worth
of common stock (or other consideration, as noted above) for $38. Assuming that
the common stock had a per share value of $19 at such time, the holder of each
valid Right would be entitled to purchase 4 shares of common stock for $38.
If, at any time following the Stock Acquisition Date,
. CoorsTek is acquired in a merger or other business combination
transaction in which CoorsTek is not the surviving corporation (other
than a merger which follows an offer for all outstanding shares of
common stock that the independent directors determine to be fair to
and otherwise in the best interests of CoorsTek and its
stockholders), or
. 50% or more of CoorsTek's assets or earning power is sold or
transferred,
each holder of a Right (except Rights that previously have been voided as set
forth above) shall, after the expiration of the redemption period referred to
below, have the right to receive, upon exercise, common stock of the acquiring
company having a value equal to two times the Purchase Price of the Right
(e.g., common stock of the acquiring company having a value of $76 for the $38
Purchase Price).
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At any time after a person or group becomes an Acquiring Person, CoorsTek
Board may exchange the Rights (other than Rights owned by such Acquiring Person
that have become void), in whole or in part, at an exchange ratio of one share
of common stock per Right (subject to adjustment).
The Purchase Price payable, and the number of one one-thousandths of a
share of Junior Preferred or other securities or property issuable, upon
exercise of the Rights, are subject to adjustment from time to time to prevent
dilution:
. in the event of a stock dividend on, or a subdivision, combination or
reclassification of the Junior Preferred,
. upon the grant to holders of the Junior Preferred of certain rights or
warrants to subscribe for Junior Preferred or convertible securities at
less than the current market price of the Junior Preferred, or
. upon the distribution to holders of the Junior Preferred of evidences of
indebtedness or assets (other than regular quarterly cash dividends and
dividends payable in Junior Preferred) or of subscription rights or
warrants (other than those referred to above).
The Stockholder Rights Plan provides that the number of outstanding
Rights shall adjust in the event of a stock dividend on CoorsTek's common stock
payable in shares of common stock and in the event of any subdivisions,
consolidations or combinations of common stock occurring, in any such case,
prior to the Distribution Date.
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares will be issued (other than fractions
of Junior Preferred that are integral multiples of one one-thousandth of a
share of Junior Preferred, which may, at CoorsTek's election be evidenced by
depositary receipts) and in lieu thereof, an adjustment in cash will be made
based on the market price of the Junior Preferred on the last trading date
prior to the date of exercise.
CoorsTek does not have authority to redeem shares of the Junior
Preferred. Each share of Junior Preferred will be entitled, when, as and if
declared, to a minimum preferential quarterly dividend payment of the greater
of:
. $0.01 per share; and
. 1,000 times the aggregate per share amount of all cash dividends, and
1,000 times the aggregate per share amount (payable in kind) of all non
cash dividends or other distributions other than a dividend payable in
shares of common stock.
Upon any liquidation (voluntary or otherwise), dissolution or winding up
of CoorsTek, no distribution shall be made to the holders of shares of
CoorsTek's capital stock ranking junior to the Junior Preferred unless, prior
thereto, the holders of shares of Junior Preferred shall have received $38 per
share (the "Junior Preferred Liquidation Preference"), plus any unpaid
dividends and distributions payable thereon, whether or not declared, to the
date of such payment.
Following the payment of the Junior Preferred Liquidation Preference, no
additional distributions shall be made to the holders of Junior Preferred
unless, prior thereto, the common stockholders shall have received an amount
per share equal to the quotient obtained by dividing the Junior Preferred
Liquidation Preference by 1,000.
Each share of Junior Preferred shall entitle the holder thereof to 1,000
votes on all matters submitted to a vote of the common stockholders of the
Corporation. In the event of any merger, consolidation or other transaction in
which outstanding shares of Ceramics common stock are
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converted or exchanged, each share of Junior Preferred will be entitled to
receive 1,000 times the amount received per share of common stock. These
rights, and the rights described in the preceding two paragraphs, are protected
by customary antidilution provisions.
In general, the Board may cause CoorsTek to redeem the Rights in whole,
but not in part, at any time during the period commencing on January 1, 2000,
and ending on the tenth day following the Stock Acquisition Date, as such
period may be extended or shortened by the Board (the "Redemption Period") at a
price of $.001 per Right (payable in cash, common stock or other consideration
deemed appropriate by the CoorsTek Board). After the redemption period has
expired, CoorsTek's right of redemption may be reinstated if an Acquiring
Person reduces his beneficial ownership to 10% or less of the outstanding
shares of common stock in a transaction or series of transactions not involving
CoorsTek and there are no other Acquiring Persons. Immediately upon the action
of the Board ordering redemption of the Rights, the Rights will terminate and
the only right of the holders of Rights will be to receive the $.001 redemption
price.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of CoorsTek, including, without limitation, the right
to vote or to receive dividends. While the distribution of the Rights will not
be subject to federal taxation to stockholders or to CoorsTek, stockholders
may, depending upon the circumstances, recognize taxable income in the event
that the Rights become exercisable for common stock (or other consideration) of
CoorsTek or for common stock of the acquiring company as set forth above.
Other than those provisions relating to the principal economic terms of
the Rights, any of the provisions of the Rights Agreement may be amended by
CoorsTek's Board prior to the Distribution Date. After the Distribution Date,
the provisions of the Rights Agreement may be amended by CoorsTek's Board in
order to cure any ambiguity, defect or inconsistency or to make changes which
do not adversely affect the interests of holders of Rights (excluding the
interests of any Acquiring Person), or to shorten or lengthen any time period
under the Rights Agreement; provided however, no amendment to adjust the time
period governing redemption may be made at such time as the Rights are not
redeemable.
The Rights are being registered under the Exchange Act, together with
common stock, pursuant to the registration statement. In the event that the
Rights become exercisable, CoorsTek will register the shares of Junior
Preferred for which the Rights may be exercised, in accordance with applicable
law.
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LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Elimination of Liability in Certain Circumstances
The Certificate of Incorporation eliminates the personal liability of
directors to CoorsTek or its stockholders for monetary damages for breach of
fiduciary duty, except in the instances described below. The Certificate of
Incorporation also provides that if Delaware law is amended to further
eliminate or limit the liability of directors, then the liability of a director
will be so eliminated or limited to the fullest extent permitted by the amended
law, without further stockholder action.
Directors remain liable for:
. breaches of their duty of loyalty to CoorsTek and its stockholders,
. acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of laws,
. transactions from which a director derives improper personal benefit,
and
. for unlawful distributions, under a provision of the Delaware General
Corporation Law that makes directors personally liable and which
expressly sets forth a negligence standard with respect to such
liability.
The provisions that eliminate liability as described above will apply to
officers of CoorsTek if they are directors of CoorsTek and are acting in their
capacity as directors and will not apply to officers of CoorsTek who are not
directors.
CoorsTek believes the diligence exercised by directors stems primarily
from a desire to act in the best interest of CoorsTek and not from a fear of
monetary damages awards. Consequently, CoorsTek believes that the level of
scrutiny and care exercised by CoorsTek's directors and officers will not be
lessened by the limitations on liability provided by the Certificate of
Incorporation.
Indemnification and Insurance
The Delaware General Corporation Law contains provisions permitting and,
in some situations, requiring Delaware corporations to provide indemnification
to their officers and directors for losses and litigation expense incurred in
connection with their service to the corporation in those capacities. The
Certificate of Incorporation and Bylaws contain provisions that require
CoorsTek to indemnify its directors and officers to the fullest extent
permitted by law. Indemnification includes advancement of reasonable expenses
in certain circumstances.
The Delaware General Corporation Law permits indemnification of a
director of a Delaware corporation, in the case of a third party action, if the
director
. conducted himself or herself in good faith,
. reasonably believed that
-- in the case of conduct in his or her official capacity, his or
her conduct was in the corporation's best interest, or
-- in all other cases, his or her conduct was at least not opposed
to the corporation's best interest, and
. in the case of any criminal proceeding, had no reasonable cause to
believe that his or her conduct was unlawful.
The Delaware General Corporation Law further provides for mandatory
indemnification of directors and officers who are wholly successful on the
merits or otherwise in litigation. The Delaware
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statute limits the indemnification that a corporation may provide to its
directors in a derivative action in which the director is held liable to the
corporation, or in any proceeding in which the director is held liable on the
basis of his or her improper receipt of a personal benefit.
In addition, the Delaware General Corporation Law and CoorsTek's Bylaws
authorize CoorsTek to purchase insurance for its directors and officers
insuring them against certain risks as to which CoorsTek may be unable lawfully
to indemnify them. CoorsTek intends to maintain insurance coverage for its
officers and directors as well as insurance coverage to reimburse CoorsTek for
potential costs of its corporate indemnification of officers and directors.
CoorsTek may enter into agreements with its directors providing contractually
for indemnification consistent with the Certificate of Incorporation and
Bylaws.
The Bylaws also provide with respect to officers and directors covered by
insurance and indemnity:
. that the rights conferred on the covered officers and directors
thereby are not exclusive of any other rights which the officer or
director may have or thereafter acquire under any statute, provision
of the Certificate of Incorporation, the Bylaws, agreement, vote of
stockholders or disinterested directors, or otherwise,
. that CoorsTek's obligation, if any, to indemnify or to advance
expenses to any covered officer or director who was or is serving at
its request as a director, officer, employee or agent of another
company, partnership, joint venture, trust, enterprise or nonprofit
entity will be reduced by any amount that the covered officer or
director may collect as indemnification or advancement of expenses
from such other company, partnership, joint venture, trust,
enterprise or nonprofit entity, and
. that any repeal or modification of the relevant provisions of the
Bylaws will not adversely affect any right or protection thereunder
of any covered officer or director in respect of any act or omission
occurring prior to the time of such repeal or modification.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted for directors and officers and controlling persons
pursuant to the foregoing provisions, CoorsTek has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
INDEPENDENT ACCOUNTANTS
The Board of Directors of CoorsTek will select before the end of 1999 an
independent accounting firm to audit CoorsTek's financial statements for the
year ending December 31, 1999. PricewaterhouseCoopers LLP has served as
independent accountants of ACX throughout the periods covered by the financial
statements included in this Information Statement.
60
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
COORSTEK, INC.
(A Wholly-owned Subsidiary of ACX Technologies, Inc.)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants......................................... F-2
Consolidated Statement of Income and Comprehensive Income for each of the
three years ended December 31, 1998...................................... F-3
Consolidated Balance Sheet at December 31, 1998 and December 31, 1997..... F-4
Consolidated Statement of Cash Flows for each of the three years ended
December 31, 1998........................................................ F-5
Consolidated Statement of Shareholder's Equity for each of the three years
ended December 31, 1998.................................................. F-6
Notes to Consolidated Financial Statements................................ F-7
Financial Statement schedule for the fiscal years ended December 31, 1998,
1997 and 1996
Schedule II--Valuation and Qualifying Accounts.......................... F-22
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder of CoorsTek, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of CoorsTek, Inc. and its subsidiaries at December 31, 1998 and 1997,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule listed in the accompanying index presents fairly in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements
and the financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and the financial statement schedule 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.
PricewaterhouseCoopers LLP
Denver, Colorado
September 24, 1999
F-2
<PAGE>
COORSTEK, INC.
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
------------------ ----------------------------
1999 1998 1998 1997 1996
-------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Sales........................ $266,936 $230,390 $296,614 $304,824 $276,352
Cost of goods sold........... 200,455 173,291 222,906 219,821 200,220
-------- -------- -------- -------- --------
Gross profit............... 66,481 57,099 73,708 85,003 76,132
Selling, general and
administrative.............. 35,957 28,528 37,758 41,754 35,928
Asset impairment charge...... -- 11,814 11,814 -- --
-------- -------- -------- -------- --------
Operating income........... 30,524 16,757 24,136 43,249 40,204
Other income (expense):
Interest expense........... (3,693) (2,943) (4,125) (110) (182)
Interest income............ 62 49 601 82 95
Miscellaneous--net......... -- -- -- (40) 81
-------- -------- -------- -------- --------
Total other expense...... (3,631) (2,894) (3,524) (68) (6)
Income before income taxes... 26,893 13,863 20,612 43,181 40,198
Income tax expense........... 10,101 5,117 7,682 16,192 14,996
-------- -------- -------- -------- --------
Net income................... $ 16,792 $ 8,746 $ 12,930 $ 26,989 $ 25,202
======== ======== ======== ======== ========
Other comprehensive income:
Minimum pension liability
adjustment, net of tax of
$167...................... -- -- (281) -- --
Foreign currency
translation adjustments... (130) (188) (56) 27 601
-------- -------- -------- -------- --------
Comprehensive income......... $ 16,662 $ 8,558 $ 12,593 $ 27,016 $ 25,803
======== ======== ======== ======== ========
Net income per basic share of
common stock (unaudited).... $ 2.36 $ 1.23 $ 1.81 $ 3.84 $ 3.61
======== ======== ======== ======== ========
Weighted average shares
outstanding-basic
(unaudited)................. 7,111 7,130 7,126 7,030 6,975
======== ======== ======== ======== ========
Net income per diluted share
of common stock
(unaudited)................. $ 2.34 $ 1.20 $ 1.78 $ 3.74 $ 3.54
======== ======== ======== ======== ========
Weighted average shares
outstanding-diluted
(unaudited)................. 7,185 7,281 7,258 7,221 7,126
======== ======== ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
COORSTEK, INC.
CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
------------------- ------------------
Pro Forma 1999 1998 1997
---------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............. $ -- $ -- $ 17,203 $ 988
Accounts receivable, less allowance
for doubtful accounts of $2,572 in
1999 (unaudited), $1,839 in 1998 and
$1,993 in 1997....................... 50,868 50,868 39,044 44,430
Inventories........................... 67,861 67,861 56,223 54,583
Other assets.......................... 12,893 12,893 10,241 10,566
-------- -------- -------- --------
Total current assets................ 131,622 131,622 122,711 110,567
-------- -------- -------- --------
Properties, net......................... 138,070 138,070 131,324 132,538
Goodwill, less accumulated amortization
of $5,064 in 1999 (unaudited), $3,656
in 1998 and $2,750 in 1997............. 37,454 37,454 11,839 11,951
Debt issuance costs..................... 5,000 -- -- --
Other assets............................ 13,463 13,463 12,485 7,631
-------- -------- -------- --------
Total assets........................ $325,609 $320,609 $278,359 $262,687
======== ======== ======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Accounts payable...................... $ 14,836 $ 14,836 $ 10,837 $ 16,298
Accrued salaries and vacation......... 9,781 9,781 11,794 11,884
Taxes other than income............... 2,985 2,985 2,874 2,626
Accrued expenses and other
liabilities.......................... 20,977 20,977 7,911 8,110
Advances payable to Parent............ -- 9,436 -- --
-------- -------- -------- --------
Total current liabilities........... 48,579 58,015 33,416 38,918
-------- -------- -------- --------
Long-term debt payable to Parent........ -- 50,000 50,000 --
Long-term debt.......................... 205,000 -- -- --
Accrued postretirement benefits......... 15,327 15,327 15,327 14,994
Other long-term liabilities............. 13,180 13,180 13,791 5,620
-------- -------- -------- --------
Total liabilities................... 282,086 136,522 112,534 59,532
-------- -------- -------- --------
Commitments and contingencies (note 11)
Shareholders' Equity:
Common stock, 200,000 shares
authorized, $50 par value per share
(actual), 100,000,000 shares
authorized, $.01 par value per share
(pro forma); 200,000 shares issued
and outstanding (actual), 7,120,614
shares issued and outstanding (pro
forma) .............................. 71 10,000 10,000 10,000
Paid-in capital......................... 42,145 75,060 75,060 124,983
Paid-in capital-warrants................ 1,600 1,600 -- --
Retained earnings....................... -- 97,720 80,928 67,998
Other comprehensive income (loss)....... (293) (293) (163) 174
-------- -------- -------- --------
Total shareholder's equity.......... 43,523 184,087 165,825 203,155
-------- -------- -------- --------
Total liabilities and shareholder's
equity............................. $325,609 $320,609 $278,359 $262,687
======== ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE>
COORSTEK, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year ended December 31,
------------------ ----------------------------
1999 1998 1998 1997 1996
-------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income.................. $ 16,792 $ 8,746 $ 12,930 $ 26,989 $ 25,202
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and
amortization.............. 17,587 14,933 19,977 18,664 16,159
Asset impairment charges... -- 11,814 11,814 -- --
Change in deferred income
taxes..................... (1,500) (3,619) (3,372) (972) 805
(Gain) loss on sale of
properties................ 558 98 (810) 303 975
Change in current assets
and current liabilities,
net of effects from
acquisitions:
Accounts receivable....... (6,171) 3,244 5,386 (5,842) 873
Inventories............... (2,850) (1,437) (1,640) (3,657) (5,022)
Other assets.............. 172 445 540 (1,044) 1,266
Accounts payable.......... 1,715 (2,930) (5,460) 3,899 (4,863)
Accrued expenses and other
liabilities.............. 9,190 10,530 (163) 1,853 (5,324)
Change in deferred
compensation.............. (780) 662 1,237 (1,204) 1,197
Change in other............ (40) (7) 2,076 19 (1,860)
-------- -------- -------- -------- --------
Net cash provided by
operating activities........ 34,673 42,479 42,515 39,008 29,408
Cash flows from investing
activities:
Additions to properties..... (8,077) (22,369) (26,890) (28,812) (28,667)
Acquisitions, net of cash
acquired................... (52,841) (915) (915) (15,781) (6,636)
Proceeds from sale of
properties................. -- -- 1,863 89 315
Other....................... 1,033 (282) (343) (284) (1,165)
-------- -------- -------- -------- --------
Net cash used in investing
activities.................. (59,885) (23,566) (26,285) (44,788) (36,153)
Cash flows from financing
activities, net of debt
assumed in acquisitions:
Net capital contributions
from (to) Parent........... 8,009 (449) (15) 5,829 7,097
-------- -------- -------- -------- --------
Net cash provided by (used
in) financing activities.... 8,009 (449) (15) 5,829 7,097
Cash and cash equivalents:
Net increase (decrease) in
cash and cash equivalents.. (17,203) 18,464 16,215 49 352
Balance at beginning of
period..................... 17,203 988 988 939 587
-------- -------- -------- -------- --------
Balance at end of period.... $ -- $ 19,452 $ 17,203 $ 988 $ 939
======== ======== ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
COORSTEK, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
(In thousands)
<TABLE>
<CAPTION>
Common Paid-in Paid-in Capital Retained
Stock Capital Warrants Earnings Other Total
------- -------- --------------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995................... $10,000 $104,812 $ -- $16,023 $(454) $130,381
Net capital contribution
from Parent............ -- 7,495 -- -- -- 7,495
Dividends paid to
Parent................. -- -- -- (216) -- (216)
Net income.............. -- -- -- 25,202 -- 25,202
Cumulative translation
adjustment............. -- -- -- -- 601 601
------- -------- ------ ------- ----- --------
Balance at December 31,
1996................... $10,000 $112,307 $ -- $41,009 $ 147 $163,463
Net capital contribution
from Parent............ -- 12,676 -- -- -- 12,676
Net income.............. -- -- -- 26,989 -- 26,989
Cumulative translation
adjustment............. -- -- -- -- 27 27
------- -------- ------ ------- ----- --------
Balance at December 31,
1997................... $10,000 $124,983 $ -- $67,998 $ 174 $203,155
Net capital distribution
to Parent.............. -- (49,923) -- -- -- (49,923)
Net income.............. -- -- -- 12,930 -- 12,930
Minimum pension
liability adjustment... -- -- -- -- (281) (281)
Cumulative translation
adjustment............. -- -- -- -- (56) (56)
------- -------- ------ ------- ----- --------
Balance at December 31,
1998................... $10,000 $ 75,060 $ -- $80,928 $(163) $165,825
Net income (unaudited).. -- -- -- 16,792 -- 16,792
Issuance of warrants
(unaudited)............ -- -- 1,600 -- -- 1,600
Cumulative translation
adjustment
(unaudited)............ -- -- -- -- (130) (130)
------- -------- ------ ------- ----- --------
Balance at September 30,
1999, (unaudited)...... $10,000 $ 75,060 $1,600 $97,720 $(293) $184,087
======= ======== ====== ======= ===== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. General Information
The accompanying financial statements and notes are based on the separate
historical financial statements of CoorsTek, Inc., which was formerly named
Coors Porcelain Company and operated its business as Coors Ceramics Company
(the "Company" or "CoorsTek"). During the periods presented, CoorsTek was a
wholly owned subsidiary of ACX Technologies, Inc. ("ACX" or "Parent"). The
Board of Directors of ACX has announced a plan to spin-off CoorsTek to existing
ACX shareholders on or about December 31, 1999. This plan is contingent on
certain requirements, most notably the pending ruling by the Internal Revenue
Service of the transaction as a tax free distribution.
Established in 1911, CoorsTek develops, manufactures and sells engineered
solutions for a multitude of industrial and commercial applications that
incorporate advanced materials such as technical ceramics, engineered plastics
or precision machined metals into components, assemblies and systems.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation: The consolidated financial statements include the
assets, liabilities, results of operations, cash flows and changes in
shareholder's equity of CoorsTek and its wholly-owned subsidiaries. All
material intercompany accounts and transactions have been eliminated. CoorsTek
was a wholly-owned subsidiary of ACX for the periods presented. The
consolidated financial statements have been prepared in conformity with
generally accepted accounting principles, using management's best estimates and
judgments when appropriate.
The consolidated financial statements include allocations of certain
charges from ACX for general management, legal, treasury, tax, internal audit,
financial reporting, environmental affairs and other miscellaneous services.
Management believes the charges are a reasonable estimate of the costs that
would have been incurred by CoorsTek on a stand-alone basis.
The financial information included herein may not necessarily reflect the
consolidated financial position, results of operations, cash flows and changes
in shareholder's equity of CoorsTek in the future or what they would have been
had CoorsTek been a separate, stand-alone company during the periods presented.
Parent Allocations: Selling, general and administrative expense for 1998,
1997 and 1996 includes allocation of $4.7 million, $5.0 million and $4.0
million, respectively of certain ACX corporate expenses for general management,
legal, treasury, tax, internal audit, financial reporting and environmental
services. Management believes the basis for allocating the foregoing
allocations was reasonable but may not necessarily equal the costs that would
have been or will be incurred by CoorsTek on a stand-alone basis. In
determining the allocation of ACX corporate costs, CoorsTek performed a review
of 1) the services performed by ACX, 2) headcount, facilities and sales
comparisons and 3) management oversight provided to CoorsTek, as well as
considering other factors.
Long-term debt consists of intercompany debt transferred from ACX in 1998
at an annual interest rate of 8%. CoorsTek had no intercompany debt prior to
1998. Interest expense for the nine months ended September 30, 1999 and the
year ended December 31, 1998 includes $3.0 million (unaudited) and $4.0 million
paid to ACX on intercompany debt, respectively. Interest income (expense)
includes ($0.6) million (unaudited) and $0.5 million (paid) earned from the
participation in ACX's cash management system during the nine months ended
September 30, 1999 and the year ended December 31, 1998, respectively. No
interest income was earned from participation in ACX's cash
F-7
<PAGE>
COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
management during 1997 or 1996. If intercompany debt had been transferred from
ACX in 1997 and 1996, the debt costs would have been approximately $4.0 million
on debt of $50.0 million at an annual rate of 8%.
Use of estimates: The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements as well as revenues and expenses reported for the
periods presented. Actual results can differ from these estimates.
Interim financial information: The financial information as of September
30, 1999 and for the nine months ended September 30, 1999 and 1998 is unaudited
but includes all adjustments that management considers necessary for a fair
presentation of its financial position, results of operations, cash flows and
changes in shareholder's equity. Results for the nine months ended September
30, 1999 are not necessarily indicative of results to be expected for the full
fiscal year 1999 or for any future period.
Pro Forma Financial Information: The pro forma balance sheet as of
September 30, 1999 is unaudited but includes all pro forma adjustments that
management considers necessary for a fair presentation of its financial
position after the proposed spin off giving effect to the anticipated
incurrence of debt and payment of a special dividend to the Parent (see
subsequent event discussion). The pro forma balance sheet is not necessarily
indicative of the financial position that would have been attained had the spin
off occurred on September 30, 1999.
Revenue recognition: Revenues are recognized when finished products are
shipped to customers or services have been rendered.
Inventories: Inventories are stated at the lower-of-cost or market. Cost
is determined by the first-in, first-out (FIFO) method. The classification of
inventories, in thousands, was as follows:
<TABLE>
<CAPTION>
December 31,
September 30, -----------------
1999 1998 1997
------------- -------- --------
(unaudited)
<S> <C> <C> <C>
Finished..................................... $ 26,889 $ 21,890 $ 19,106
In process................................... 25,979 22,049 23,299
Raw materials................................ 14,993 12,284 12,178
-------- -------- --------
Total inventories.......................... $ 67,861 $ 56,223 $ 54,583
======== ======== ========
</TABLE>
Properties: Land, buildings and equipment are stated at cost. For
financial reporting purposes, depreciation is recorded principally on a
straight-line method over the estimated useful lives of the asset as follows:
<TABLE>
<S> <C>
Buildings and
improvements........... 10 to 30 years
Machinery and
equipment.............. 3 to 30 years
Leasehold improvements.. The shorter of the useful life, lease term or 20 years
Goodwill................ The shorter of the useful life or 20 years
</TABLE>
F-8
<PAGE>
COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The cost of properties and related accumulated depreciation, in
thousands, consisted of the following:
<TABLE>
<CAPTION>
December 31,
September 30, --------------------
1999 1998 1997
------------- --------- ---------
(unaudited)
<S> <C> <C> <C>
Land and improvements.................... $ 7,339 $ 6,401 $ 6,401
Buildings................................ 74,140 65,739 64,052
Machinery and equipment.................. 229,681 197,513 185,373
Construction in progress................. 9,374 12,178 11,729
--------- --------- ---------
320,534 281,831 267,555
Less: accumulated depreciation........... (182,464) (150,507) (135,017)
--------- --------- ---------
Net properties......................... $ 138,070 $ 131,324 $ 132,538
========= ========= =========
</TABLE>
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. Ordinary
repairs and maintenance are expensed as incurred.
In early 1998, CoorsTek changed the estimated depreciable lives for
certain long-lived assets based on the actual lives exhibited for similar
assets. The effect of this change positively impacted earnings before interest
and taxes by approximately $2.0 million in 1998.
Impairment of Long-Lived Assets and Identifiable Intangibles: CoorsTek
periodically reviews long-lived assets, identifiable intangibles and goodwill
for impairment whenever events or changes in business conditions indicate the
carrying amount of the assets may not be fully recoverable. Measurement of the
impairment loss is based on fair value of the asset, which is generally
determined by the discounting of future estimated cash flows. See Note 4.
Cash and Cash Equivalents: CoorsTek defines cash equivalents as highly
liquid investments with original maturities of 90 days or less. The carrying
value of CoorsTek's cash equivalents approximates their fair market value.
Miscellaneous-net: Certain royalty and building rental revenues are
included in "Miscellaneous-net" in the Consolidated Statement of Income.
Earnings per share: On or about December 31, 1999, CoorsTek will issue
approximately 7,120,614 shares of common stock based on a conversion ratio of
one CoorsTek share for every four outstanding shares of ACX common stock. The
number of shares reported is based on the number of shares of ACX stock
outstanding on September 30, 1999. The number of shares actually issued will
differ from this amount.
Unaudited basic and diluted net earnings per common share have been
computed by dividing the net earnings for each period presented by the number
of common shares of ACX outstanding during the periods presented as adjusted
for the conversion ratio described above. All ACX common stock equivalents were
considered for purposes of determining dilutive shares outstanding.
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, and 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.
F-9
<PAGE>
COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Hedging Transactions: CoorsTek from time to time engages in hedging
activities against fluctuations in foreign currency prices. These activities
are immaterial to CoorsTek and are expected to remain so in the future.
Subsequent Event: CoorsTek anticipates issuing debt and paying $200
million of the proceeds to ACX for settlement of intercompany obligations and
payment of a special dividend. CoorsTek plans to issue debt of $270 million
consisting of a $95 million short-term revolver, Senior Term A debt of $85
million and Senior Term B debt of $90 million. The revolver will have an unused
commitment of $65 million and will initially bear interest at LIBOR plus 2%
with a maturity of five years. The Senior Term A debt will initially bear
interest at LIBOR plus 2% and mature in five years. The Senior Term B debt will
initially bear interest at LIBOR plus 2.75% and mature in seven years. The
interest spread for the three debt instruments will vary in future periods
based upon performance pricing criteria.
Adoption of New Accounting Standards: Statement of Financial Accounting
Standards (SFAS) No. 133 "Accounting for Derivative Instruments and Hedging
Activities" which establishes accounting and reporting standards for derivative
instruments and for hedging activities was issued in June 1998. This statement
requires the recognition of all derivatives as either assets or liabilities at
fair value in the statement of financial position. This statement is effective
for the year ending December 31, 2000 and is not expected to have a material
effect on CoorsTek's financial statements.
Note 3. Operating Leases
CoorsTek has leases for a variety of equipment and facilities that expire
in various years. Future minimum lease payments, in thousands, required as of
December 31, 1998, under non-cancelable operating leases with terms exceeding
one year, are as follows:
<TABLE>
<S> <C>
1999.................................................................. $1,435
2000.................................................................. 1,068
2001.................................................................. 579
2002.................................................................. 443
2003 and thereafter................................................... 337
------
Total............................................................... $3,862
======
</TABLE>
Operating lease rentals for warehouse, production, office facilities and
equipment amounted to $1.5 million for the nine months ended September 30, 1999
(unaudited) and $0.9 million, $1.2 million and $2.3 million for the years ended
December 1998, 1997 and 1996, respectively.
Note 4. Asset Impairment Charges
During 1998, CoorsTek recorded $11.8 million in asset impairment charges.
A $6.2 million charge was taken in March of 1998 in conjunction with the
cancellation of the C-4 technology agreement with IBM. Changes in the market
for C-4 applications extended the time frame for achieving commercial sales
beyond original expectations. This lack of near term commercial sales
opportunities, combined with increasing overhead costs, prompted CoorsTek to
negotiate termination of the agreement with IBM. Consequently, CoorsTek wrote
down the carrying value of fixed assets associated with this project to their
discounted expected future cash flows of zero. During 1998, CoorsTek disposed
of the C-4 fixed assets. The disposition of the C-4 assets had no impact on the
operating
F-10
<PAGE>
COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
results of CoorsTek. Prior to the impairment, these assets were included in the
Industrial Ceramics segment.
As a result of strong offshore competition in the electronic package
market, CoorsTek recorded a $5.6 million asset impairment charge in September
of 1998 at the Chattanooga, Tennessee operation. A review of estimated
undiscounted future cash flows indicated the carrying amount of property, plant
and equipment at Chattanooga may not be recoverable. Accordingly, the fixed
assets were written down to fair value calculated by discounting expected
future cash flows under the asset held for use model. These assets are included
in the Industrial Ceramics segment.
Note 5. Income Taxes
CoorsTek and its U.S. subsidiaries file consolidated Federal and Colorado
state income tax returns with ACX. In addition, CoorsTek files state income tax
returns in various other states. The Federal income tax sharing agreement with
ACX substantially approximates a Federal income tax provision and liability as
if CoorsTek was filing on a separate income tax return basis. Liabilities for
Federal and Colorado state income taxes are payable to ACX. CoorsTek directly
pays to all other states in which it files a state tax return. CoorsTek's
foreign subsidiaries file separate returns with the applicable taxing
authority.
The components of income before income taxes, in thousands, for the years
ended December 31 were:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Domestic......................................... $ 20,319 $ 42,933 $ 39,201
Foreign.......................................... 293 248 997
-------- -------- --------
Total income before taxes...................... $ 20,612 $ 43,181 $ 40,198
======== ======== ========
</TABLE>
The provision for income taxes, in thousands, for the years ended
December 31, included the following:
<TABLE>
<CAPTION>
1998 1997 1996
------- -------- --------
<S> <C> <C> <C>
Current provision:
Federal....................................... $ 9,209 $ 14,889 $ 12,086
State......................................... 1,764 2,122 1,762
Foreign....................................... 81 153 343
------- -------- --------
Total current tax expense................... 11,054 17,164 14,191
------- -------- --------
Deferred provision:
Federal....................................... (3,014) (898) 785
State......................................... (358) (74) 20
------- -------- --------
Total deferred tax expense (benefit)........ (3,372) (972) 805
------- -------- --------
Total income tax expense.................... $ 7,682 $ 16,192 $ 14,996
======= ======== ========
</TABLE>
F-11
<PAGE>
COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Temporary differences which give rise to a significant portion of
deferred tax assets and liabilities, in thousands, at December 31, are as
follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Deferred tax asset arising from:
Depreciation and other property related.................. $ 2,517 $ 2,885
Pension and employee benefits............................ 12,181 10,159
Inventory................................................ 2,205 1,672
All other................................................ 3,223 1,890
Valuation allowance...................................... (3,386) (3,657)
------- -------
Gross deferred tax assets.............................. 16,740 12,949
------- -------
Deferred tax liabilities arising from:
Depreciation and other property related.................. 7,325 6,462
Interest................................................. -- 411
Pension and employee benefits............................ -- 159
All other................................................ 157 31
------- -------
Gross deferred tax liabilities......................... 7,482 7,063
------- -------
Net deferred tax asset..................................... $ 9,258 $ 5,886
======= =======
</TABLE>
The principal differences between the effective income tax rate and the
U.S. statutory federal income tax rate at December 31, were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Expected tax rate....... 35.0 % 35.0 % 35.0 %
State income taxes (net
of federal benefit).... 4.9 % 3.5 % 3.5 %
Research tax credits.... (2.2)% (1.3)% (0.7)%
Non-taxable income and
expenses............... (1.0)% (0.1)% 0.0 %
Foreign tax expense..... 0.1 % 0.0 % (0.8)%
Other--net.............. 0.5 % 0.4 % 0.3 %
---- ---- ----
Effective tax rate...... 37.3 % 37.5 % 37.3 %
==== ==== ====
</TABLE>
The Internal Revenue Service (IRS) has completed its examination of ACX's
Federal income tax returns through 1995. The IRS will begin reviewing the
Federal income tax returns for 1996 through 1998 during 1999. In the opinion of
management, adequate accruals have been provided for all income tax matters and
related interest.
CoorsTek has not provided for U.S. or additional foreign taxes on $5.4
million of undistributed earnings of its foreign subsidiaries. These
undistributed earnings are considered to be reinvested indefinitely. If such
earnings were repatriated, foreign tax credits should become available under
current law to reduce or eliminate the resulting U.S. income tax liability.
ACX, CoorsTek and their respective subsidiaries have executed a Tax
Sharing Agreement that defines the parties' rights and obligations with respect
to deficiencies and refunds of Federal, state and other taxes relating to the
CoorsTek business for tax years prior to the spin-off and with respect to
certain tax attributes of CoorsTek after the spin-off. In general, ACX will be
responsible for filing consolidated Federal and combined or consolidated state
tax returns and paying the associated taxes for periods through the date of the
spin-off (the "Distribution Date"). CoorsTek will reimburse ACX for the
F-12
<PAGE>
COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
portion of such taxes relating to the CoorsTek business. CoorsTek is
responsible for filing returns and paying taxes related to the CoorsTek
business for periods beginning on or after the Distribution Date. ACX and
CoorsTek will agree to cooperate with each other and to share information in
preparing such tax returns and in dealing with other tax matters. ACX and
CoorsTek will be responsible for their own taxes other than those described
above.
The Tax Sharing Agreement is designed to preserve the status of the spin-
off as a tax-free distribution. CoorsTek has agreed that it will refrain from
engaging in certain transactions during the two-year period following the spin-
off unless it first provides ACX with a ruling from the Internal Revenue
Service or an opinion of tax counsel acceptable to ACX that the transaction
will not adversely affect the tax-free nature of the spin-off. The transactions
subject to these restrictions, which are not expected to materially affect
CoorsTek's operating flexibility, consist of liquidations, mergers or
consolidations of CoorsTek, redemptions by CoorsTek of certain amounts of its
stock, sales of assets out of the ordinary course of business, discontinuance
of certain businesses and certain issuances of CoorsTek's common stock. In
addition, CoorsTek will agree to indemnify ACX against any tax liability or
other expense it may incur if the spin-off is determined to be taxable as a
result of CoorsTek's breach of any covenant or representation contained in the
Tax Sharing Agreement or CoorsTek's action in effecting such transactions. By
its terms, the Tax Sharing Agreement will terminate when the statutes of
limitations under applicable tax laws expire.
Note 6. Stock Compensation
ACX has an equity incentive plan that provides for the granting of
nonqualified stock options and incentive stock options to certain key employees
of its subsidiaries that eligible CoorsTek employees participate in. The equity
incentive plan also provides for the granting of restricted stock, bonus
shares, stock units and offers to officers of ACX and its subsidiaries to
purchase stock. Generally, options outstanding under ACX's equity incentive
plan are subject to the following terms: (1) the exercise price of a stock
option is generally equal to the fair market value of ACX's common stock on the
date of grant; (2) ratable vesting over either a three-or four-year service
period; and (3) maximum term of ten years from the date of grant.
There are currently approximately 1,009,000 and 998,000 vested and
unvested ACX options, respectively, held by current CoorsTek employees and ACX
employees who will be transferred to CoorsTek upon the spin-off. The exercise
price for these shares ranges from $10.14 to $27.06. CoorsTek will grant
substituted options for outstanding vested and unvested ACX options. It is
currently not known how many substituted CoorsTek options will be granted or
what the range of the exercise prices will be. The number of options granted
and the corresponding exercise prices will be based on the respective ACX and
CoorsTek stock prices pre and post spin. CoorsTek does not anticipate incurring
any compensation charges as 1) the aggregate intrinsic value of the options
immediately subsequent to the spin off will not exceed the aggregate intrinsic
value of the options immediately prior to the spin off, 2) the ratio of the
exercise price per option to the market value per share will not be reduced and
3) the vesting provisions and option period of the original grant will remain
the same.
Pro forma information: CoorsTek applies the intrinsic value method
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," in accounting for stock options granted to CoorsTek
employees. Accordingly, no compensation expense has been recognized for the
issuance of employee stock options as the exercise price of the options equaled
or exceeded the fair market value of the ACX stock at the time of grant.
F-13
<PAGE>
COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Pro forma net earnings and earnings per share information, as required by
SFAS No. 123 "Accounting for Stock-Based Compensation" has been determined as
if ACX had accounted for employee stock options grants to CoorsTek employees
under SFAS No. 123's fair value method. The fair value of these options was
estimated at the grant date using a Black-Scholes option pricing model with the
following weighted-average assumptions: (1) dividend yield of 0%; (2) expected
volatility of 28.1% in 1998, 23.2% in 1997, and 22.6% in 1996; (3) risk-free
interest rate ranging from 4.8% to 5.0% in 1998, 5.4% to 5.5% in 1997 and 6.1%
to 6.4% in 1996; and (4) expected life of 3 to 7.36 years in 1998, 3 to 6.23
years in 1997 and 3 to 6.37 years in 1996. The weighted average per share fair
value of options granted during 1998, 1997, and 1996 was $22.16, $21.26 and
$15.17, respectively.
The pro forma effect of recognizing compensation expense in accordance
with SFAS No. 123 would have been to reduce CoorsTek's reported net earnings by
$0.7 million in 1998, $0.3 million in 1997 and $0.6 million in 1996. Had
compensation expense been recorded by CoorsTek in accordance with SFAS No. 123,
the effect would be to reduce unaudited pro forma diluted net earnings per
share to $1.68 in 1998, $3.68 in 1997 and $3.44 in 1996.
Note 7. Retirement and Other Postretirement Benefit Plans
Pension Plan: CoorsTek participates with ACX in a defined benefit
retirement plan for substantially all of CoorsTek's employees. The Parent
manages the plan including plan assets which consist primarily of equity and
interest-bearing investments. Benefits are based on years of service and
average base compensation levels over a period of years. The Parent's funding
policy is to contribute annually not less than the ERISA minimum funding
standards nor more than the maximum amount that can be deducted for Federal
income tax purposes.
Retiree Medical Plan: In addition to receiving pension benefits, CoorsTek
employees may participate in ACX's medical plan which provides health care and
life insurance benefits to eligible retirees and their dependents. Eligible
employees may receive these benefits after reaching age 55 with 10 years of
service. Prior to reaching age 65, eligible retirees may receive certain health
care benefits substantially similar to those available to active employees. The
amount the retiree pays is based on age and service at the time of retirement.
These plans are not funded.
401(k) Plan: Eligible employees of CoorsTek may participate in CoorsTek's
401(k) plan in which employees can contribute up to 18% of annual eligible
compensation subject to certain regulatory and plan limitations. CoorsTek
matches contributions by employees up to 1% of the employee's contribution.
CoorsTek's expense related to the 401(k) match was $0.7 million each for 1998
and 1997 and $0.6 million in 1996.
CoorsTek has established a separate defined benefit retirement plan and
has established a health plan that includes retiree medical coverage for its
current and former employees. An allocable share of the defined benefit plan
assets and pension obligations will be transferred from the ACX retirement plan
to the CoorsTek retirement plan. This allocation will be based on the
requirements of the applicable regulatory body at the date of the spin-off.
Included in the December 31, 1998 and 1997 balance sheets of CoorsTek are
estimates of assets and pension obligations to be transferred to CoorsTek.
Actual amounts to be transferred will be measured at the spin date and will
likely be different from these estimates.
F-14
<PAGE>
COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following tables set forth the estimated change in benefit
obligation, change in plan assets, funded status, net periodic benefit cost and
other information applicable to the CoorsTek, Inc. Retirement Plan and retiree
medical coverage. This information is based on the estimated allocations of the
respective plan assets and liabilities as described above. The actual results
could differ from these estimates. All information, except interest rates, is
in thousands.
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
------------------ ------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of
year............................... $ 90,267 $ 82,605 $ 12,357 $ 11,570
Service Cost........................ 2,290 1,968 338 248
Interest Cost....................... 6,439 4,470 892 763
Actuarial loss (gain)............... 1,890 3,986 (3) 258
Benefits Paid....................... (3,071) (2,762) (422) (482)
-------- -------- -------- --------
Benefit obligation at end of year... 97,815 90,267 13,162 12,357
-------- -------- -------- --------
Change in plan assets
Fair value of plan assets at
beginning of year.................. 79,404 68,601 -- --
Actual return on plan assets........ 630 13,212 -- --
Acquisitions........................ -- -- -- --
Company contributions............... -- 353 -- --
Benefits paid....................... (2,805) (2,762) -- --
-------- -------- -------- --------
Fair value of plan assets at end of
year............................... 77,229 79,404 -- --
-------- -------- -------- --------
Funded status......................... (20,586) (10,863) (13,162) (12,357)
Unrecognized actuarial loss (gain).... 11,794 2,046 (1,929) (2,407)
Unrecognized prior service cost....... 4,070 3,810 (793) (991)
-------- -------- -------- --------
Accrued benefit cost.................. $(4,722) $(5,007) $(15,884) $(15,755)
======== ======== ======== ========
Amounts recognized in the Consolidated
Balance Sheet consist of:
Accrued benefit liability........... $(9,738) $(5,007) $(15,884) $(15,755)
Intangible asset.................... 4,568 -- -- --
Accumulated other comprehensive
income............................. 448 -- -- --
-------- -------- -------- --------
Net amount recognized............... $(4,722) $(5,007) $(15,884) $(15,755)
======== ======== ======== ========
Weighted average assumptions at year
end:
Discount rate....................... 6.80% 7.25% 6.80% 7.25%
Expected return on plan assets...... 9.75% 9.75%
Rate of compensation increase....... 4.30% 4.75%
</TABLE>
It is the Parent's policy to amortize unrecognized gains and losses in
excess of 10% of the larger of plan assets and the projected benefit obligation
(PBO) over the expected service of active employees (12-15 years). However, in
cases where the accrued benefit liability exceeds the actual unfunded liability
by more than 20% of the PBO, the amortization is reduced to 5 years.
For measurement purposes, a 7.5% annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1998. The rate was
assumed to decrease by 0.5% per annum to 4.25% and remain at that level
thereafter.
F-15
<PAGE>
COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
------------------------- --------------------
1998 1997 1996 1998 1997 1996
------- ------- ------- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic
benefit cost
Service cost............... $ 2,290 $ 1,968 $ 1,815 $ 338 $ 248 $ 495
Interest cost.............. 6,439 4,470 3,605 892 763 807
Expected return on plan
assets.................... (843) (8,595) (6,132) -- -- --
Amortization of prior
service costs............. 651 306 150 (198) (104) (199)
Recognized actuarial loss
(gain).................... (6,082) 4,879 3,436 (481) (90) (38)
------- ------- ------- ----- ----- ------
Net periodic benefit cost.. $ 2,455 $ 3,028 $ 2,874 $ 551 $ 817 $1,065
======= ======= ======= ===== ===== ======
</TABLE>
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change in
assumed health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1% Point 1% Point
Increase Decrease
-------- --------
<S> <C> <C>
Effect on total of services and interest cost
components............................................. $297 $276
Effect on postretirement benefit obligation............. 903 849
</TABLE>
Note 8: Supplemental Cash Flow Information:
<TABLE>
<CAPTION>
Nine months ended
September 30, 1999 1998 1997 1996
------------------ ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C>
Total interest costs............ $3,693 $ 4,125 $ 224 $ 217
Interest capitalized............ -- -- 114 35
Interest expensed............... 3,693 4,125 110 182
Interest paid (primarily to
Parent)........................ 3,000 4,000 24 145
Income taxes paid (primarily to
Parent)........................ $ 966 $11,882 $16,950 $18,390
</TABLE>
Non-Cash Investing Activities: See description of non-cash investing
activities with ACX in Note 10.
Interest costs for the nine months ended September 30, 1999 and the year
ended December 31, 1998 include $3.0 million (unaudited) and $4.0 million paid
to ACX on intercompany debt, respectively.
Note 9. Acquisitions
In March 1999, CoorsTek acquired the net assets of Precision Technologies
for approximately $22.0 million in cash and 300,000 warrants to receive shares
of the Parent's common stock at an exercise price equal to the fair market
value at the date of close. These warrants will be converted into warrants to
purchase shares of CoorsTek common stock after the spin-off. These warrants
vest only upon the achievement of certain revenue goals within three years. The
warrants have been recorded as an increase in the purchase price at their
estimated fair value on the date of acquisition using the Black-Scholes pricing
model. The acquisition has been accounted for under the purchase method of
accounting, and goodwill of approximately $21.1 million is being amortized over
20 years. Precision Technologies, located in Livermore, California,
manufactures precision-machined parts for the semiconductor, medical, and
aircraft industries.
F-16
<PAGE>
COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In March 1999, CoorsTek acquired all of the outstanding shares of Edwards
Enterprises for approximately $18.0 million. The acquisition has been accounted
for under the purchase method of accounting, and goodwill of approximately $4.2
million is being amortized over 20 years. Edwards Enterprises, located in
Newark, California, manufactures precision-machined parts for the semiconductor
industry.
In May of 1998, CoorsTek acquired the assets of Pulsation Equipment for
$0.9 million. The acquisition was accounted for under the purchase method of
accounting and goodwill of $0.8 million is being amortized over 15 years on a
straight line basis.
On August 1, 1997, CoorsTek acquired the assets of Tetrafluor, Inc.,
based in El Segundo, California, for $15.8 million. Tetrafluor manufactures
Teflon(R) fluoropolymer sealing systems and components for use in aerospace,
industrial and transportation industries. The acquisition was accounted for
under the purchase method of accounting, and Tetrafluor's results of operations
are included in CoorsTek's consolidated financial statements from the date of
acquisition. The purchase price was allocated to the net assets acquired based
upon their estimated fair value. Goodwill for Tetrafluor was $10.7 million and
is being amortized over 15 years on a straight-line basis.
During 1996, CoorsTek purchased the operating assets of H.B. Company,
Inc., a manufacturer of oilfield pump components based in Oklahoma City,
Oklahoma. The acquisition was accounted for under the purchase method of
accounting, and CoorsTek's results of operations for 1996 include the results
of the acquisition since March 19, 1996. The purchase price was $6.6 million
and was allocated to the net assets acquired based upon their estimated fair
market value. Goodwill of $1.4 million is being amortized over 15 years on a
straight-line basis.
Note 10. Related Party Transactions
Beginning on December 28, 1992, Adolph Coors Company (ACCo) had no
ownership interest in CoorsTek. However, certain Coors family trusts have
significant interests in both ACX and ACCo. Transactions with ACCo were
immaterial for 1998, 1997 and 1996.
Since the formation of ACX, CoorsTek has engaged in several related party
transactions with ACX and its subsidiaries. These include, but are not limited
to, participation in ACX's cash management system (see Note 2), benefiting from
administrative services provided by ACX (see Note 2), intercompany debt
allocations (see Note 2), payments of dividends, miscellaneous asset and
liability transfers between the entities as well as miscellaneous capital
contributions of other forms between the entities. The average amount due to
ACX, during the nine months ended September 30, 1999 was $70.3 million
(unaudited). The average amount due to ACX for the years ended December 31,
1998 and 1997 was $45.8 million and $0, respectively. At September 30, 1999,
the Company owed ACX $59.4 million (unaudited). At December 31, 1998 and 1997,
the Company owed ACX $50.0 million and $0, respectively.
F-17
<PAGE>
COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Dividends paid to ACX totaled $0, $38,000 and ($216,000) in 1998, 1997
and 1996, respectively. Net capital contributions from ACX, in thousands, for
the year ended December 31, consisted of:
<TABLE>
<CAPTION>
1998 1997 1996
--------- -------- -------
<S> <C> <C> <C>
Assets transferred from ACX.................... $ 13 $ 6,846 $ 630
Bonuses paid in common stock of ACX............ 79 177 747
Transfer of liability to ACX................... -- (176) (979)
Transfer of long-term debt from ACX............ (50,000) -- --
Capital contribution to ACX.................... (15) -- --
Capital contribution from ACX.................. -- 5,829 7,097
--------- -------- -------
Total net capital contributions.............. $ (49,923) $ 12,676 $ 7,495
========= ======== =======
</TABLE>
Note 11. Commitments and Contingencies
CoorsTek is self-insured for certain insurable risks consisting primarily
of employee health insurance programs and workers compensation. Certain stop-
loss and excess insurance policies are also maintained to reduce overall risk.
In addition, CoorsTek maintains insurance policies to protect against loss
related to property, business interruption and general liability risks.
CoorsTek is named as a defendant in various actions and proceedings
arising in the normal course of business, including claims by current or former
employees relating to employment or termination. Although the eventual outcome
of the various lawsuits cannot be predicted, it is management's opinion that
these suits will not result in liabilities to such extent that they would
materially affect CoorsTek's financial position or results of operations.
CoorsTek has received a demand for payment arising out of contamination
of a semiconductor manufacturing facility formerly owned by a subsidiary of
CoorsTek, Coors Components, Inc. ("CCI"). Colorado State environmental
authorities are seeking clean up of soil and ground water contamination from a
subsequent owner. The contamination is believed to have occurred prior to
CoorsTek's ownership of CCI and there are possible off site sources of
contamination. CCI was sold in November, 1987. Although CoorsTek does not
believe it is responsible for the contamination or the cleanup, the parties
agreed to a remediation plan. CoorsTek will manage the remediation and is
responsible to pay from 10% to 15 % of the remediation costs in excess of
$500,000. However, the remediation costs to date are below $500,000 and
management does not expect costs to exceed this amount.
CoorsTek has received a Unilateral Administration Order issued by the EPA
relating to the Rocky Flats Industrial Park Site, (RFIP) and is participating
with the RFIP Group to perform an Engineering Evaluation/Cost Analysis on the
property. There is no estimate of potential clean up costs, but management does
not believe it will be material.
Some of CoorsTek's subsidiaries have been notified that they may be
potentially responsible parties ("PRPs") under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA") or similar state
laws with respect to the remediation of certain sites where hazardous
substances have been released into the environment. CoorsTek cannot predict
with certainty the total costs of remediation, its share of the total costs,
the extent to which contributions will be available from other parties, the
amount of time necessary to complete the remediation or the availability of
insurance. However, based on investigations to date, CoorsTek believes that any
liability with respect to these sites would not be material to the financial
condition and results of operations of CoorsTek, without
F-18
<PAGE>
COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
consideration for insurance recoveries. There can be no certainty, however,
that CoorsTek will not be named as a PRP at additional sites or be subject to
other environmental matters in the future or that the costs associated with
those additional sites or matters would not be material.
CoorsTek is a guarantor on industrial development bonds of CCI, a former
subsidiary that was sold in November 1987. The buyer of CCI assumed the
liability at the time of purchase. The terms require annual principal and
interest payments and a balloon payment of $2.2 million in May 2000. In the
event of default by the buyer, CoorsTek would assume the liability. The buyer
has made all payments to date in a timely manner and management does not
believe CoorsTek is at risk for payment of the bonds as of December 31, 1998.
The outstanding balance as of December 31, 1998, 1997 and 1996 was $2.4
million, $3.0 million and $3.1 million, respectively.
Note 12. Segment Information
Prior to 1999, the Company operated as a single segment that consisted
primarily of industrial ceramic products. In 1999, the Company acquired Edwards
Enterprises and Precision Technologies (see Note 9). These companies
manufacture precision-machined parts primarily for the semiconductor industry.
As a result of acquiring these companies and the resultant significance of the
semiconductor market to the Company, the Company changed its internal reporting
to track two segments separately: semiconductor products and industrial
ceramics products. The semiconductor products segment produces both ceramic and
non-ceramic products that are used in the semiconductor industry. The
industrial ceramics products segment produces primarily ceramic products that
are used in non-semiconductor industries.
The accounting policies of the segments are the same as those described
in Note 2 and there are generally no intersegment transactions. The Company
evaluates the performance of its segments and allocates resources to them based
primarily on gross margin.
The table below summarizes information about reportable segments, in
thousands, as of and for the nine months ended September 30 (unaudited):
<TABLE>
<CAPTION>
Depreciation
Net Gross and Capital
Sales Margin Amortization Expenditures
-------- ------- ------------ ------------
<S> <C> <C> <C> <C>
1999
Semiconductor........................ $ 73,986 $20,559 $ 3,682 $ 1,504
Industrial ceramics.................. 192,950 45,922 13,905 6,573
-------- ------- ------- -------
Consolidated total................. $266,936 $66,481 $17,587 $ 8,077
======== ======= ======= =======
1998
Semiconductor........................ $ 11,898 $ 3,874 $ 956 $ 970
Industrial ceramics.................. 218,492 53,225 13,977 21,399
-------- ------- ------- -------
Consolidated total................. $230,390 $57,099 $14,933 $22,369
======== ======= ======= =======
</TABLE>
The depreciation and amortization for the semiconductor segment for the
periods ended September 30, 1999 and 1998 includes $702 and $0, respectively,
of goodwill amortization that is included in selling, general and
administrative expense. The depreciation and amortization for the industrial
ceramics segment for the periods ended September 30, 1999 and 1998 includes
$691 and $679, respectively, of goodwill amortization that is included in
selling, general and administrative expense.
F-19
<PAGE>
COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The table below summarizes information about reportable segments, in
thousands, as of and for the years ended December 31:
<TABLE>
<CAPTION>
Depreciation
Net Gross and Capital
Sales Margin Amortization Assets Expenditures
-------- ------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C>
1998
Semiconductor............... $ 17,061 $ 4,976 $ 1,337 $ 20,626 $ 1,015
Industrial ceramics......... 279,553 68,732 18,640 257,733 25,875
-------- ------- ------- -------- -------
Consolidated total........ $296,614 $73,708 $19,977 $278,359 $26,890
======== ======= ======= ======== =======
1997
Semiconductor............... $ 19,199 $ 6,928 $ 1,527 $ 19,279 $ 1,032
Industrial ceramics......... 285,625 78,075 17,137 243,408 27,780
-------- ------- ------- -------- -------
Consolidated total........ $304,824 $85,003 $18,664 $262,687 $28,812
======== ======= ======= ======== =======
1996
Semiconductor............... $ 19,500 $ 8,443 $ 807 $ 17,942 $ 4,146
Industrial ceramics......... 256,852 67,689 15,352 198,693 24,521
-------- ------- ------- -------- -------
Consolidated total........ $276,352 $76,132 $16,159 $216,635 $28,667
======== ======= ======= ======== =======
</TABLE>
Depreciation and amortization for the industrial ceramics segment
includes $912, $438 and $93 of goodwill amortization for the years ended
December 31, 1998, 1997 and 1996, respectively. This amortization expense is
included in selling, general and administrative expense. There was no goodwill
amortization included in depreciation and amortization for the semiconductor
segment for the years ended December 31, 1998, 1997 and 1996.
Information related to CoorsTek's operations by geographic area is
presented below:
Revenue from unaffiliated customers, in thousands:
<TABLE>
<CAPTION>
December 31,
----------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
United States.................................. $224,295 $224,272 $193,061
Europe......................................... 39,338 41,815 39,109
Asia........................................... 19,975 23,497 23,512
Canada......................................... 8,446 8,886 7,614
Other Foreign.................................. 6,696 8,161 14,128
Less: discounts and allowances................. (2,136) (1,807) (1,072)
-------- -------- --------
Total........................................ $296,614 $304,824 $276,352
======== ======== ========
Long-lived assets, in thousands:
<CAPTION>
December 31,
----------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
United States.................................. $151,630 $155,712 $126,687
Europe......................................... 3,486 3,101 2,978
Canada......................................... 6 84 72
-------- -------- --------
Total........................................ $155,122 $158,897 $129,737
======== ======== ========
</TABLE>
F-20
<PAGE>
COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Long-lived assets consist primarily of net property, plant and equipment,
goodwill and cash surrender values on certain insurance policies.
Note 13. Quarterly Financial Information (unaudited)
The following summarizes selected quarterly financial information, in
thousands, for each of the two years in the period ended December 31, 1998.
<TABLE>
<CAPTION>
First Second Third Fourth Year
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
1998
Net sales....................... $80,945 $79,422 $70,023 $66,224 $296,614
Cost of goods sold.............. 60,241 59,258 53,792 49,615 222,906
------- ------- ------- ------- --------
Gross profit.................... 20,704 20,164 16,231 16,609 73,708
Selling, general &
administrative................. 10,076 9,762 8,690 9,230 37,758
Asset impairment charges........ 6,232 -- 5,582 -- 11,814
------- ------- ------- ------- --------
Operating income................ 4,396 10,402 1,959 7,379 24,136
Other income (expense):
Interest expense, net......... (1,055) (984) (855) (630) (3,524)
------- ------- ------- ------- --------
Income before income taxes...... 3,341 9,418 1,104 6,749 20,612
Income tax expense.............. 1,229 3,485 403 2,565 7,682
------- ------- ------- ------- --------
Net income...................... $ 2,112 $ 5,933 $ 701 $ 4,184 $ 12,930
======= ======= ======= ======= ========
Net income per basic share...... $ 0.29 $ 0.83 $ 0.10 $ 0.59 $ 1.81
======= ======= ======= ======= ========
Weighted average shares
outstanding--basic............. 7,106 7,138 7,145 7,115 7,126
======= ======= ======= ======= ========
Net income per diluted share.... $ 0.29 $ 0.81 $ 0.10 $ 0.58 $ 1.78
======= ======= ======= ======= ========
Weighted average shares
outstanding--diluted........... 7,284 7,306 7,255 7,186 7,258
======= ======= ======= ======= ========
1997
Net sales....................... $71,416 $75,011 $79,329 $79,068 $304,824
Cost of goods sold.............. 50,444 52,871 58,126 58,380 219,821
------- ------- ------- ------- --------
Gross profit.................... 20,972 22,140 21,203 20,688 85,003
Selling, general &
administrative................. 10,774 10,601 9,999 10,380 41,754
------- ------- ------- ------- --------
Operating income................ 10,198 11,539 11,204 10,308 43,249
Other income (expense):
Interest income (expense)..... (4) (1) (12) (11) (28)
Miscellaneous--net............ 20 12 (36) (36) (40)
------- ------- ------- ------- --------
Income before income taxes...... 10,214 11,550 11,156 10,261 43,181
Income tax expense.............. 3,829 4,334 4,184 3,845 16,192
------- ------- ------- ------- --------
Net income...................... $ 6,385 $ 7,216 $ 6,972 $ 6,416 $ 26,989
======= ======= ======= ======= ========
Net income per basic share...... $ 0.91 $ 1.03 $ 0.99 $ 0.91 $ 3.84
======= ======= ======= ======= ========
Weighted average shares
outstanding--basic............. 6,991 7,002 7,045 7,079 7,030
======= ======= ======= ======= ========
Net income per diluted share.... $ 0.89 $ 1.01 $ 0.96 $ 0.88 $ 3.74
======= ======= ======= ======= ========
Weighted average shares
outstanding--diluted........... 7,150 7,176 7,262 7,294 7,221
======= ======= ======= ======= ========
</TABLE>
F-21
<PAGE>
SCHEDULE II
Allowance for doubtful receivables (deducted from accounts receivable)
<TABLE>
<CAPTION>
Additions
Balance at charged to costs Balance at end
beginning of year and expenses Other Deductions of year
----------------- ---------------- ----- ---------- --------------
<S> <C> <C> <C> <C> <C>
1996........ $1,608 301 19 (646) $1,282
1997........ $1,282 1,079 60 (428) $1,993
1998........ $1,993 547 (5) (696) $1,839
</TABLE>
F-22
<PAGE>
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Document Description
------- --------------------
<C> <S>
2 Distribution Agreement+
3.1 Certificate of Incorporation of Registrant*
3.2 Bylaws of Registrant*
4.1 Form of Rights Agreement*
4.2 Form of Certificate of Designation, Preferences and Rights of Series A
Junior Participating Preferred Stock*
10.1 Description of Officers' Life Insurance Program*
10.2 CoorsTek, Inc. Stock Option and Incentive Plan*
10.3 CoorsTek, Inc. Executive Deferred Compensation Plan*
10.4 Tax Sharing Agreement+
10.5 Environmental Responsibility Agreement+
10.6 Master Transition Materials and Services Agreement+
10.7 Amended Salary Continuation Agreement for John K. Coors*
10.8 Amended Salary Continuation Agreement for Joseph Coors, Jr.*
10.9 Employment Agreement for John K. Coors*
10.10 Employment Agreement for Joseph Coors, Jr.*
10.11 Employment Agreement for Derek C. Johnson*
10.12 Employment Agreement for Larry D. Murphy*
10.13 Employment Agreement for Joseph G. Warren, Jr.*
21 List of Subsidiaries*
27 Financial Data Schedule +
</TABLE>
- --------
+ Filed with amendment to registration statement on Form 10 filed December 2,
1999
* Filed with amendment to registration statement on Form 10 filed December 14,
1999
I-4
<PAGE>
Signatures
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
CoorsTek, Inc.
/s/ Joseph Coors, Jr.
By: _________________________________
Name:Joseph Coors, Jr.
Title:Chairman and Chief
Executive Officer
December 17, 1999
Signing Date
I-5
