U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended December 27, 1998
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission file number 0-8251
ADOLPH COORS COMPANY
(Exact name of registrant as specified in its charter)
Colorado 84-0178360
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Golden, Colorado 80401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303) 279-6565
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Class B Common Stock (non-voting), no par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. (X)
State the aggregate market value of the voting stock held by non-affiliates of
the registrant: All voting shares are held by Adolph Coors, Jr. Trust.
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of March 15, 1999:
Class A Common Stock - 1,260,000 shares
Class B Common Stock - 35,677,976 shares
PART I
ITEM 1. Business
(a) General Development of Business
Founded in 1873 and incorporated in Colorado in 1913, Adolph Coors Company
(ACC or the Company) is the holding company for Coors Brewing Company (CBC),
the third-largest U.S. brewer.
CBC owns Coors Distributing Company (CDC) and several smaller subsidiaries. CDC
owns and operates distributorships in several markets across the United States.
CDC's 1998 operations accounted for approximately 5.8% of CBC's reported beer
sales volume.
Coors Japan Company, Ltd. (Coors Japan), a wholly owned subsidiary of CBC,
provides services for marketing and sales to unaffiliated distributors for
Coors products in Japan.
CBC also owns Coors Brewing Iberica, S.A. (Coors Iberica). Coors Iberica
provides services for the production and sales to unaffiliated distributors
for Coors products in Spain. Coors Iberica also brews products for sale in
European markets outside of Spain.
Coors Brewing International, Ltd. (CBIL), owned by ACC and based in London,
was created in December 1997. Effective January 1, 1998, it provides
management and administrative services for CBC. CBIL also provides services
for marketing and sales to unaffiliated distributors for Coors products in
European markets other than Spain.
In addition to CBC and CBIL, ACC owns Coors Canada, Inc. (CCI), which in turn
owns a 50.1% interest in Coors Canada, a partnership. CCI's partner in Coors
Canada, The Molson Companies Limited (Molson Companies), owns the remaining
49.9% interest in the partnership. The partnership, which began January 1,
1998, generates the business that offers Coors products in Canada. The
partnership agreement replaces the interim arrangement that the Company and
Molson Companies operated under during 1997. See further discussion of the
Canadian business under section (c) below.
Some of the following statements describe the Company's expectations of future
products and business plans, financial results, performance and events. See
discussion in Item 7. Actual results may differ materially from these forward-
looking statements.
(b) Financial Information About Industry Segments
The Company has one reporting segment relating to the continuing operations of
producing and marketing malt-based beverages. See Item 8, Financial Statements
and Supplementary Data, for disclosure of sales, operating income and
identifiable assets attributable to the Company's reporting segment.
(c) Narrative Description of Business
Coors Brewing Company - General
CBC produces, markets and sells high-quality malt-based beverages. CBC
concentrates on distinctive premium and above-premium brands that provide
higher-than-average margins. Most of CBC's sales are in U.S. markets; however,
the Company is committed to building profitable sales in international markets.
Sales of malt beverages totaled 21.2 million barrels in 1998, 20.6 million
barrels in 1997 and 20.0 million barrels in 1996. See Item 7 for discussion of
changes in volume.
Marketing
Principal products and services: CBC currently has 17 brands in its portfolio,
of which four are premium products that make up the Coors family of beers:
Coors Light(R), Original Coors(R), Coors Extra Gold(R) and Coors(R) Non-
Alcoholic. CBC also produces and markets Zimar, an innovative malt-based,
above-premium beverage.
CBC offers specialty, above-premium beers, including Winterfest(R); Blue
Moon(TM) Honey Blonde Ale; Blue Moon(TM) Belgian White Ale; Blue Moon(TM)
Raspberry Cream Ale; Blue Moon(TM) Abbey Ale and Blue MoonT Harvest Pumpkin
Ale, a seasonal product. CBC also sells licensed products, including George
Killian's(R) Irish Red(TM) Lager and George Killian's(R) Irish Honey(TM). CBC
distributed Steinlager(r), New Zealand's number-one premium beer, under license
from Lion Nathan International of New Zealand until the end of 1997.
CBC also sells popular-priced products, including Keystone(R) Premium,
Keystone(R) Light, Keystone(R) Dry and Keystone(R) Ice.
CBC's beverages are sold throughout the United States. CBC exports or produces
and sells many products overseas, as described in greater detail below.
CBC owns and operates The SandLot Brewery(R) at Coors Field(R) ballpark in
Denver, Colorado. This brewery, which is open year-round, makes a variety of
specialty beers and has an annual capacity of approximately 4,000 barrels.
New products/opportunities: Zima(R) Citrix(TM) was introduced in test markets
during 1998.
During 1998, Coors(R) Dry was discontinued because the market performance of
this product did not meet expectations. The Company plans on discontinuing the
Blue Moon Honey Blonde Ale, Blue Moon Raspberry Cream Ale, George Killian's
Irish Honey and Keystone Dry products during 1999.
Brand names, trademarks, patents and licenses: CBC owns trademarks on the
majority of the brands it produces and recognizes that consumer knowledge of
and loyalty to its brand names and trademarks are vital to CBC's long-term
success. It also holds several patents, with expiration dates ranging from 1999
to 2018, on innovative processes related to product formulae, can making, can
decorating and certain other technical operations, together with several design
patents for innovative packaging. CBC receives an immaterial amount of revenue
from royalties and licenses.
Brand performance: Coors Light is CBC's best-selling brand and has generated
more than two-thirds of the Company's total sales volume for the past three
years. Coors Light won the gold medal at the most recent Great American Beer
Festival. Premium and above-premium beers accounted for approximately 88% of
CBC's total 1998 sales volume.
Domestic sales: The Company's highest-volume states are California, Texas,
Pennsylvania, New York and New Jersey, comprising 46% of total domestic volume.
Eight geographic field business areas manage domestic sales, which allows CBC
to better anticipate and respond to wholesaler and consumer needs.
International business: Through its U.S. and foreign production facilities,
CBC markets its products to approximately 32 international markets and to U.S.
military bases worldwide.
Coors Canada, Inc. (CCI), a subsidiary of ACC, formed a partnership, Coors
Canada, with The Molson Companies Limited (Molson Companies) to develop the
business related to Coors products in Canada. Coors Canada began operations
January 1, 1998. CCI and Molson Companies have a 50.1% and 49.9% interest,
respectively, CCI's investment in the partnership is accounted for using the
equity method of accounting due to Molson Companies' participating rights in
the partnership's business operations. The partnership agreement has an
indefinite term and can be canceled at the election of either partner. Under
the partnership agreement, Coors Canada is responsible for marketing Coors
products in Canada, while the partnership contracts with Molson for brewing,
distribution and sales of these brands. Coors Canada receives an amount from
Molson generally equal to net sales revenue generated from the Coors brands
less production, distribution, sales and overhead costs related to these sales.
Prior to January 1, 1998, Molson brewed and distributed Original Coors and
Coors Light in Canada. After Molson permitted Miller Brewing Company (Miller)
to purchase a 20% ownership interest in Molson in 1993, the Company initiated
two legal actions regarding its licensing arrangement with Molson. On October
18, 1996, an arbitration panel ruled that the licensing agreement terminated
in 1993 when Miller acquired its ownership interest in Molson. This ruling
returned Canadian rights for all CBC brands to CBC and required Molson to
compensate CBC for the period beginning April 2, 1993. In April 1997, the
Company settled all legal disputes among CBC, Molson, Miller and related
parties. Under terms of the settlement, Molson paid the Company approximately
$72 million during 1997. The arbitration panel also found that Molson had
underpaid royalties from January 1, 1991, to April 1, 1993. Molson paid CBC
$6.1 million in cash (net of $680,000 of withholding taxes) during 1996 to
cover the unpaid royalties plus interest.
Coors Japan, the exclusive importer of Coors products into Japan and based in
Tokyo, markets and sells CBC's products to unaffiliated distributors in Japan.
Beginning in 1991, CBC formed Jinro-Coors Brewing Company (JCBC), a joint
venture with Jinro Limited of the Republic of Korea. Until late 1997, CBC owned
one-third of JCBC, while Jinro Limited owned the remaining two-thirds. During
1997, Jinro Limited and its subsidiaries (including JCBC) experienced
significant financial difficulties. As a result, in the second quarter of 1997,
CBC fully reserved for its investment in JCBC. In December 1997, CBC exercised
the put option it held on its $22-million investment in JCBC, which required
Jinro Limited to purchase, in Korean won, CBC's investment at the greater of
cost or market value by June 24, 1998 (approximately $13.8 million at December
27, 1998). When the put option was exercised, CBC converted its interest in
JCBC to a note receivable from Jinro Limited. Even though the Company made
efforts to obtain repayment of this note receivable, no collections were made
during 1998. See Items 7 and 8 for further discussion of this matter. Prior to
the date the put option was exercised, JCBC's financial results were not
included in CBC's financial statements, as CBC's investment was accounted for
under the cost basis of accounting since it did not have the ability to
significantly influence JCBC's business operations and the investment was
considered temporary.
In March 1994, Coors Iberica purchased a 500,000-hectoliter brewery in
Zaragoza, Spain, from El Aguila S.A. of Madrid, Spain, which is owned 51% by
Amsterdam-based Heineken, N.V. (the world's second-largest brewer). Coors
Iberica brews Coors(R) Gold for sale in Spain and the Coors Extra Gold and
Coors Lightr brands for export to approximately 10 international markets. Prior
to 1998, El Aguila and Coors Iberica jointly distributed Coors products in
Spain, and Coors Iberica managed the marketing efforts. Beginning in 1998,
Coors Iberica began to exclusively handle the sales and marketing efforts of
Coors products in Spain. Financial results of the Zaragoza brewery are included
in ACC's consolidated financial statements.
Beginning September 1992 and until July 1998, a licensing agreement was in
place that allowed Scottish Courage to brew and distribute Coors Extra Gold in
the United Kingdom. A joint venture between CBC and Scottish Courage marketed
the product during this period. Beginning in July 1998, Coors' Zaragoza, Spain,
brewery became the source for Coors Extra Gold sold in the United Kingdom.
Scottish Courage will continue to distribute the product and perform some
packaging services.
In early 1996, ACC established a foreign sales corporation, Coors Export Ltd.,
to utilize favorable U.S. tax laws applicable to foreign sales.
See Item 8, Financial Statements and Supplementary Data, for discussion of
sales, operating income and identifiable assets attributable to the Company's
country of domicile, the United States, and all foreign countries.
Product distribution: A national network of 544 independent distributors and
seven distributorships, including branches, owned and operated by CDC deliver
CBC products to U.S. retail markets. Some distributors operate multiple
branches, bringing the total number of U.S. distributor and branch locations
to 596. Independent distributors deliver CBC products to some international
markets under certain licensing and distribution agreements.
To ensure the highest product quality, CBC monitors distributors' methods of
handling Coors products. This monitoring helps ensure adherence to proper
refrigeration and rotation guidelines for CBC's malt beverages at both
wholesale and retail locations. Distributors are required to replace CBC
products if consumer sales have not occurred within prescribed time frames.
Transportation
Given the location of its three production facilities in the United States, CBC
must ship its products a greater distance than most of its competitors. By
packaging some products in the Memphis and Elkton, Virginia (Shenandoah),
facilities, CBC improves the efficiency of distribution and lowers freight
costs to certain markets. Major competitors have multiple breweries from which
to deliver products, thereby incurring lower transportation costs than CBC.
Approximately 65% of products are shipped by truck and intermodal (piggyback)
directly to distributors or to satellite redistribution centers. Transportation
vehicles are also refrigerated or insulated to keep CBC's malt beverages at
proper temperatures while in transit.
The remaining 35% of the products packaged at CBC's production facilities are
transported by railcar to satellite redistribution centers or directly to
distributors throughout the country. The railcars assigned to CBC are specially
built and insulated to keep Coors products cold en route. Any disruption by
strike in the rail industry would impact CBC more than its major competitors,
but, in management's opinion, the risk of such disruption appears low.
CBC currently uses 12 strategically located satellite redistribution centers
to receive product from production facilities and to prepare shipments to
distributors. In 1998, approximately 63% of packaged products were shipped
directly to distributors, while the remaining 37% moved through the satellite
redistribution centers.
Operations
Production/packaging capacity: CBC currently has three domestic production
facilities. It owns and operates the world's largest single-site brewery in
Golden, Colorado; a packaging, brewing and distribution facility in Memphis,
Tennessee, and a packaging and distribution facility near Elkton, Virginia.
The Golden brewery is the source location for all brands with the Coors name
except for Coors Non-Alcoholic and the Coors products brewed in Canada and
Spain. Approximately 65% of CBC's beer volume is packaged in Golden; most of
the remainder is shipped in bulk from the Golden brewery to the Memphis and
Shenandoah facilities for blending, finishing and packaging.
The Memphis facility currently packages all products exported from the United
States and brews and packages Zima, Zima Citrix, Killian's Irish Honey, Coors
Non-Alcoholic and all of the Blue Moon products. Depending on product mix and
market opportunities, the full utilization of brewing capacity in Memphis
could require additions to plant and equipment in the future.
The Shenandoah facility currently packages certain CBC products for
distribution to eastern U.S. markets and could be expanded if necessary and if
market opportunities warranted the required financial commitment.
At the end of 1998, CBC had approximately 24 million barrels of annual brewing
capacity and 26 million barrels of annual packaging capacity. Actual usable
capacity depends upon product and package mix and may change with shifting
consumer preferences for specific brands or packages. CBC's three facilities
provide sufficient brewing and packaging capacity to meet near-term consumer
demand.
Most of CBC's aluminum can, end, glass bottle and malt requirements are
produced in owned facilities or facilities operated by joint ventures in which
CBC is a partner. CBC has arranged for sufficient container supplies with its
joint venture partners. Malting facilities are sufficient to fulfill its
current requirements but are currently being improved and upgraded to provide
additional needed throughput for the next few years.
Container manufacturing facilities: CBC owns a can manufacturing facility
that produces approximately 3.7 billion aluminum cans per year and an aluminum
- -can end manufacturing facility, which provides CBC aluminum ends and tabs.
Total container properties comprise approximately 9.4% of the book value of
CBC's properties. In 1994, CBC and American National Can Company (ANC) formed a
joint venture to produce beverage cans and ends at CBC's manufacturing
facilities for sale to CBC and outside customers. The joint venture's initial
term is seven years but can be extended for two additional three-year terms.
The joint venture has improved the technology and utilization of both
facilities and has enhanced the returns on this investment. In 1998, CBC
purchased approximately 98.5% of the cans produced by the joint venture. The
joint venture is committed to supplying 100% of the Golden facility's can and
end requirements.
In June 1995, CBC and Anchor Glass Container Corporation (Anchor) established
a joint venture partnership, the Rocky Mountain Bottle Company (RMBC), to
produce glass bottles at the CBC glass manufacturing facility. The joint
venture has lowered unit costs, increased output and created efficiencies at
the glass plant. CBC contributed approximately $16.2 million in machinery,
equipment and certain personal property to RMBC. The partnership's initial
term is 10 years and can be extended for additional two-year periods.
Effective February 5, 1997, Owens-Brockway Glass Container, Inc. (Owens)
replaced Anchor as CBC's partner in RMBC as a result of Anchor's bankruptcy in
September 1996. Further, Owens has replaced Anchor as the 100% preferred
supplier of bottles to CBC for bottle requirements not met by RMBC. Owens'
replacement of Anchor did not significantly impact RMBC's operations.
In 1998, RMBC produced approximately 977 million bottles; CBC purchased
approximately 99% of the bottles produced. To assist in furthering its goal of
manufacturing bottles with recycled material, CBC constructed a glass
recycling facility in Wheat Ridge, Colorado, in 1994 and doubled the amount of
glass the facility can recycle annually. RMBC operates the recycling facility.
Other facilities: CBC owns waste treatment facilities that process waste from
CBC's manufacturing operations and from the City of Golden.
Capital improvements: In 1998, the Company spent approximately $101 million
in capital expenditures. While management plans to invest appropriately to
ensure ongoing productivity and efficiency of CBC assets, a high priority will
be given to those projects the Company believes offer attractive returns. The
Company expects its capital expenditures (including contributions to its
container joint ventures for capital improvements, which will be recorded on
the books of the respective joint venture) for 1999 to be in the range of
approximately $90 million to $100 million.
Raw Materials/Sources and Availability
CBC's beers are made with all natural ingredients, and its brewing process is
one of the longest in the industry. CBC adheres to strict formulation and
quality standards in selecting its raw materials and believes it has sufficient
access to raw materials and packaging supplies to meet its quality and
production requirements.
Barley, barley malt, starch and hops: CBC uses proprietary strains of barley,
developed by its own agronomists, in most of its malt beverages. Virtually all
of this barley is grown on irrigated farmland in the western United States
under contractual agreements with area farmers. CBC's malting facility in
Golden produces malt for all CBC products except Blue Moon. CBC maintains
inventory levels in owned locations sufficient to continue production in the
event of any disruption in barley or malt supplies.
Rice and refined cereal starch (which are interchangeable in CBC's brewing
process) and foreign and domestic hops are purchased from outside suppliers.
Adequate inventories are maintained to continue production through any
foreseeable disruption in supply.
Water: CBC uses naturally filtered water from underground aquifers to brew
malt beverages at its Golden facility. Water from private deep wells is used
for brewing, final blending and packaging operations at plants located outside
Colorado. Water quality and composition were primary factors in all facility
site selections. Water from CBC's sources are well-balanced with minerals and
dissolved solids to brew high-quality malt beverages.
CBC continually monitors the quality of all the water used in its brewing and
blending processes for compliance with its own stringent quality standards, as
well as applicable federal and state water standards. CBC owns water rights
believed to be adequate to meet all of its present requirements for both
brewing and industrial uses; however, The Rocky Mountain Water Company, a
wholly owned subsidiary of CBC, continues to acquire water rights and maintain
water reservoir capacity for future projects, as appropriate, to provide for
long-term strategic growth plans and to sustain brewing operations in the
event of a prolonged drought.
Packaging materials: During 1998, approximately 60% of CBC's malt beverages
were packaged in aluminum cans. CBC purchases most of its cans and ends from
the joint venture with ANC. Aluminum cans for products packaged at the Memphis
plant are purchased from an outside supplier.
Glass bottles were used to package approximately 29% of CBC's beverages in
1998; about half of these bottles were produced by RMBC.
The remainder (11%) of the malt beverages sold during 1998 was packaged
primarily in quarter- and half-barrel stainless steel kegs.
Graphic Packaging Corporation, a subsidiary of ACX Technologies, Inc. (ACX),
supplies much of the secondary packaging for CBC's products, including bottle
labels and paperboard products.
Supply contracts with ACX companies: When ACX was spun off from ACC in 1992,
CBC negotiated long-term supply contracts with certain ACX subsidiaries for
aluminum, starch and packaging materials. These contracts, negotiated at market
prices, were to be in effect through 1997. The aluminum contracts were canceled
in 1995. The starch contract was extended in 1997 to run through 1999. In
February 1999, ACX sold the assets of the subsidiary, which was party to the
starch agreement, to an unaffiliated third party, who was assigned the
agreement. The contract for packaging materials was modified in 1997 and
extended until at least 1999. In late 1998, this contract was again modified
and extended until 2002. See Item 13, Certain Relationships and Related
Transactions, for further details.
Supply contracts: The Company has various long-term supply contracts with
unaffiliated third parties to purchase materials used in production and
packaging, such as cans and glass. The supply agreements provide for the
Company to purchase certain minimum levels of materials with terms expiring in
2001 through 2005. Total commitments under all of these third-party supply
contracts is approximately $619 million.
Energy: CBC purchases electricity and steam for its Golden manufacturing
facilities from Trigen-Nations Energy Corporation, L.L.L.P. (Trigen). Coors
Energy Company, a wholly owned subsidiary of CBC, supplies Trigen with coal
for its steam generator system. CBC does not anticipate future energy supply
problems.
Seasonality of the Business
The beer industry is subject to seasonal sales fluctuation. CBC's sales
volumes are normally at their lowest in the first and fourth quarters and
highest in the second and third quarters. The Company's fiscal year is a 52-
or 53-week year that ends on the last Sunday in December. The 1998, 1997 and
1996 fiscal years were all 52 weeks long.
Research and Project Development
CBC's research and project development spending relates primarily to new
products and packages; brewing processes, ingredients and equipment; packaging
supplies and environmental improvements; and cost reductions in processes and
packaging materials. These activities are meant to improve the quality and
value of CBC's products while reducing costs through more efficient processing
and packaging techniques and equipment design, as well as improved raw
materials. Approximately $15.2 million, $14.6 million and $15.3 million were
spent on research and development in 1998, 1997 and 1996, respectively. The
Company expects to spend approximately $15.4 million on research and project
development in 1999.
To support new product development, CBC maintains a fully equipped pilot
brewery, with a 6,500-barrel annual capacity, within the Golden facility,
enabling CBC to brew small batches of innovative products without interrupting
ongoing production and operations in the main brewery.
Regulations
Federal laws and regulations govern the operations of breweries; the federal
government and all states regulate trade practices, product content and
labeling, advertising and marketing practices, distributor relationships and
related matters. Governmental entities also levy various taxes, license fees
and other similar charges and may require bonds to ensure compliance with
applicable laws and regulations. Many foreign governments apply tariffs on
products such as CBC's when exported into their nations. The Company must also
deal with varying levels and types of foreign government regulation when
attempting to sell its products in those countries.
A number of emerging regulatory/legislative issues could impact the Company's
business operations over the next few years, including: i) potential increases
in federal, state and local excise taxes; ii) restrictions on the advertising
and sale of alcohol beverages; iii) new packaging regulations and taxes; and
iv) others.
Federal excise taxes on malt beverages are currently $18 per barrel. State
excise taxes also are levied at rates that ranged in 1998 from a high of $32.65
per barrel in Alabama to a low of $0.62 per barrel in Wyoming, with an average
of $7.17 per barrel. In 1998, CBC recognized approximately $392 million in
federal and state excise taxes. A substantial increase in federal or state
excise taxes would have a negative impact on sales and profitability of the
entire industry, including CBC. CBC is vigorously opposed to any increases in
federal, state or local excise taxes and will work diligently to ensure that
its view is represented.
The Company anticipates increased scrutiny by lawmakers, regulators and
advocacy groups focused on alcohol sales and marketing activities with respect
to the issues of alcohol abuse and underage consumption. The increased scrutiny
is due to a number of circumstances outside the control of CBC. CBC intends to
strengthen both its and the industry's self-regulation activities, including
continuing vigorous efforts that demonstrate its social responsibility in
advertising, sales, community education and prevention and research.
Environmental
Compliance with federal, state and local environmental laws and regulations
did not materially affect the Company's 1998 capital expenditures, earnings or
competitive position.
The Company continues to promote the efficient use of resources, waste
reduction and pollution prevention. Programs currently under way include
recycling, down-weighting of product packages and, where practical, increasing
the recycled content of product packaging materials, paper and other supplies.
Several employee task forces continually seek effective ways to control
hazardous materials and to reduce emissions and waste.
Employees and Employee Relations
The Company has approximately 5,800 full-time employees. Of CBC's three
domestic production facilities, Memphis plant workers are the only significant
employee group that has union representation (Teamsters). Relations with
employees have been satisfactory. There were union organizing efforts during
1998 by the United Auto Workers (UAW) for the Golden brewing facility.
Hearings were held with the National Labor Relations Board (NLRB) to determine
whether the UAW's organizing efforts could take place only in the Company's
brewing unit or in the Company's larger, integrated unit of brewery, can
manufacturing, end manufacturing and glass manufacturing. The larger,
integrated unit is the recognized unit in an existing agreement with the AFL-
CIO, with whom the UAW is affiliated. In the fall of 1998, the Denver region
of the NLRB refused to allow a recognition election solely in the brewing
operations that was petitioned by the UAW. The Company is waiting for a
decision by the NLRB regarding the UAW's appeal of the regional decision.
There is no deadline for that decision to be made.
Competitive Conditions
Known trends and competitive conditions: Industry and competitive information
was compiled from several industry sources, including Beer Marketer's Insights
and The Maxwell Consumer Report. While management believes that these sources
are reliable, the Company cannot guarantee the absolute accuracy of these
numbers and estimates.
1998 industry overview: The beer industry in the United States is highly
competitive. Industry volume growth has averaged less than 1% annually since
1991. In a very competitive year, 1998 saw domestic beer industry shipments
increase less than 1% after declining slightly in 1997. In recent years,
brewers have attempted to gain market share through competitive pricing,
marketing, promotions and innovative packaging. Extensive use of price
promotions and price discounting has in recent years significantly reduced
revenue growth for major U.S. brewers.
The pricing environment appeared to improve slightly in the fourth quarter of
1998 with the announcement of a modest price increase on specific packages in
select markets. If the price increases are expanded successfully to more
markets and more packages, revenue per barrel will improve. However, the
competitive battleground of the industry appears to be shifting to marketing
and advertising. This shift could consume some or all of the incremental
profit generated by the price increases.
A number of important trends continued in the U.S. beer market in 1998. The
first was a trend toward "trading up." Consumers continued to move away from
lower-priced brands to higher-priced brands, especially imports. Shipments of
import beers rose 15% in 1998. By contrast, microbreweries as a group suffered
declining volume in 1998 for the first time in many years.
In other trends, U.S. per-capita beer consumption continued to decline in
1998, despite recently improving demographics trends. The number of consumers
reaching legal drinking age increased in 1998, according to U.S. Census Bureau
projections. These same projections anticipate that the 21-24 age group will
increase in 1999 for the first time in two decades.
The mid-1990s proliferation of products continued to slow as major brewers
again focused efforts on core brands. The U.S. brewing industry also continues
to consolidate, primarily at the wholesale level. On February 8, 1999, The
Stroh Brewery Company (Stroh) announced that it had signed agreements to sell
two of its brands to Miller, a subsidiary of Philip Morris, Inc., and the
balance of its beer brands and one of its brewing facilities to Pabst Brewing
Company. Miller will also buy two brands from Pabst and expand its contract
brewing agreement with Pabst. The agreements, which are subject to review by
the U.S. Justice Department, are expected to be completed simultaneously in
early April 1999. After a transition period of approximately nine months,
Stroh will seek to sell its remaining breweries and exit the beer business.
The craft brewing segment also contracted, with more microbreweries closing
than opening in 1998.
CBC competitive position: CBC's malt beverages compete with numerous above-
premium, premium, low-calorie, popular-priced, non-alcohol and imported brands
produced by national, regional, local and international brewers. In 1998, more
than 85% of U.S. beer shipments were attributable to the top four domestic
brewers: Anheuser-Busch, Inc. (AB); Philip Morris, Inc., through its
subsidiary Miller; CBC; and Stroh. CBC competes most directly with AB and
Miller, the dominant companies in the industry. CBC is the nation's third-
largest brewer and, according to Beer Marketer's Insights estimates, accounted
for approximately 10.5% of the total 1998 U.S. brewing industry shipments of
malt beverages (including exports and U.S. shipments of imports). This compares
to AB's 46.7% share and Miller's 21.2% share. Among the largest domestic
brewers, CBC has the highest portion, 88%, of its unit volume in the premium
and above-premium price categories. This product mix compares to 76%
premium-and-above volume for AB, 64% for Miller and 5% for Stroh.
Given its industry position, CBC continues to face significant competitive
disadvantages related to economies of scale. Besides lower transportation
costs achieved by competitors with multiple breweries, these larger brewers
also recognize economies of scale in advertising expenditures because of their
greater volume. CBC, in an effort to achieve and maintain national advertising
exposure, must spend substantially more per barrel of beer sold than its major
competitors. Significant levels of advertising are necessary for CBC to hold
and increase its U.S. market share. Additionally, CBC is competitively
disadvantaged in some markets because its distributors have lower average
annual sales than distributors of competing brewers in the same markets.
(d) Financial Information About Foreign and Domestic Operations and Export
Sales
See Item 8, Financial Statements and Supplementary Data, for discussion of
sales, operating income and identifiable assets attributable to the Company's
country of domicile, the United States, and all foreign countries.
ITEM 2. Properties
The Company's major facilities are:
Facility Location Product
Brewery/packaging Golden, CO Malt beverages/packaged
malt beverages
Packaging Elkton, VA Packaged malt beverages
Brewery/packaging Memphis, TN Malt beverages/packaged
malt beverages
Brewery/packaging Zaragoza, Spain Malt beverages/packaged
malt beverages
Can and end plants Golden, CO Aluminum cans and ends
Bottle plant Wheat Ridge, CO Glass bottles
Distribution warehouse Anaheim, CA Wholesale beer distribution
Meridian, ID
Denver, CO
Oklahoma City, OK
Tulsa, OK*
San Bernardino, CA*
Glenwood Springs, CO*
* Leased.
The original brewery site at Golden, which is approximately 2,400 acres,
contains brewing, packaging, can manufacturing and related facilities, as well
as gravel deposits and water-storage facilities.
CBC's can and end plants are operated by a joint venture between CBC and ANC.
CBC's bottle plant is operated by a joint venture between CBC and Owens.
The distribution warehouses are operated by CDC.
The Company owns 2,700 acres of land in Rockingham County, Virginia, where the
Shenandoah facility is located, and 132 acres in Shelby County, Tennessee,
where the Memphis facility is located.
All of the Company's facilities are well-maintained and suitable for their
respective operations. In 1998, CBC estimates that its brewing facilities
operated at an annual average of approximately 88% of its brewing capacity, and
its packaging facilities operated at an annual average of approximately 81% of
the packaging capacity. Annual production capacity varies due to product and
packaging mix and seasonality.
ITEM 3. Legal Proceedings
See the Environmental section of Item 7, Management's Discussion and Analysis
of Financial Condition and Results of Operations, for a discussion of the
Company's obligation for potential remediation costs at the Lowry Landfill
Superfund site and related legal proceedings.
The Company is party to a number of other legal proceedings arising from its
business operations. In each proceeding, the Company is vigorously defending
the allegations. Although the eventual outcome of the various proceedings
cannot be predicted, no single such proceeding and no group of such similar
matters are expected to result in a liability that would be material to the
Company's financial position or results of operations.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
PART II
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
As of March 11, 1999, Adolph Coors Company's (ACC's) Class B common stock
began trading on the New York Stock Exchange under the ticker symbol "RKY" (a
tribute to the Company's Rocky Mountain heritage). Prior to March 11, 1999,
ACC's Class B common stock was traded on the NASDAQ National Market under the
ticker symbol "ACCOB." Daily stock prices are listed in major newspapers,
generally alphabetically under "CoorsB."
The approximate number of record security holders by class of stock at March
15, 1999, is as follows:
Title of class Number of record security holders
Class A common stock, voting, All shares of this class are
$1 par value held by the Adolph Coors, Jr. Trust
Class B common stock, non-voting,
no par value 3,174
Preferred stock, non-voting, None issued
$1 par value
The range of the high and low quotations and the dividends paid per share on
the Class B common stock for each quarter of the past two years are shown
below. The Company expects to continue paying dividends at least at this level
in the future:
1998
Market price
High Low Dividends
First quarter $36 3/4 $29 1/4 $ 0.150
Second quarter $39 1/2 $32 3/4 $ 0.150
Third quarter $56 1/2 $34 $ 0.150
Fourth quarter $55 1/2 $43 1/4 $ 0.150
1997
Market price
High Low Dividends
First quarter $22 1/8 $17 1/2 $ 0.125
Second quarter $28 3/8 $18 7/8 $ 0.125
Third quarter $39 1/4 $25 5/8 $ 0.150
Fourth quarter $41 1/4 $30 3/4 $ 0.150
ITEM 6. Selected Financial Data
Following is ACC's selected financial data for 11 years ended December 27, 1998:
(In thousands, except per share) 1998 1997 1996 1995*
Barrels of malt beverages sold 21,187 20,581 20,045 20,312
Summary of Operations:
Net sales $1,899,533 $1,821,304 $1,741,835 $1,690,701
Cost of goods sold 1,158,887 1,131,610 1,131,470 1,106,635
Marketing, general
and administrative 617,432 573,818 523,250 518,888
Special charges (credits) 19,395 (31,517) 6,341 (15,200)
Total operating expenses 1,795,714 1,673,911 1,661,061 1,610,323
Operating income 103,819 147,393 80,774 80,378
Other (income) expense - net (7,281) 500 5,799 7,100
Income before income taxes 111,100 146,893 74,975 73,278
Income tax expense 43,316 64,633 31,550 30,100
Income from
continuing operations $ 67,784 $ 82,260 $ 43,425 $ 43,178
Per share of common stock
- basic $ 1.87 $ 2.21 $ 1.14 $ 1.13
- diluted $ 1.81 $ 2.16 $ 1.14 $ 1.13
Income from
continuing operations as a
percentage of net sales 3.6% 4.5% 2.5% 2.6%
Financial Position:
Working capital $ 165,079 $ 158,048 $ 124,194 $ 36,530
Properties - net $ 714,441 $ 733,117 $ 814,102 $ 887,409
Total assets $1,460,598 $1,412,083 $1,362,536 $1,384,530
Long-term debt $ 105,000 $ 145,000 $ 176,000 $ 195,000
Other long-term liabilities $ 56,640 $ 23,242 $ 32,745 $ 33,435
Shareholders' equity $ 774,798 $ 736,568 $ 715,487 $ 695,016
Net book value per share
of common stock $ 21.34 $ 19.79 $ 18.83 $ 18.21
Total debt to total
capitalization 15.8% 19.0% 21.2% 24.9%
Return on average
shareholders' equity 9.0% 11.3% 6.2% 6.3%
Other Information:
Dividends $ 21,893 $ 20,523 $ 18,983 $ 19,066
Per share of common stock $ 0.60 $ 0.55 $ 0.50 $ 0.50
Gross profit $ 740,646 $ 689,694 $ 610,365 $ 584,066
Capital expenditures $ 104,505 $ 60,373 $ 65,112 $ 157,599
Depreciation, depletion
and amortization $ 115,815 $ 117,166 $ 121,121 $ 122,830
Full-time employees 5,800 5,800 5,800 6,200
Market price range of
common stock:
High $ 56 1/2 $ 41 1/4 $ 24 1/4 $ 23 1/4
Low $ 29 1/4 $ 17 1/2 $ 16 3/4 $ 15 1/8
* 53-week year versus 52-week year.
(In thousands, except per share) 1994 1993 1992 1991
Barrels of malt beverages sold 20,363 19,828 19,569 19,521
Summary of Operations:
Net sales $1,673,252 $1,595,597 $1,566,606 $1,543,007
Cost of goods sold 1,073,370 1,050,650 1,051,362 1,052,228
Marketing, general
and administrative 505,668 467,138 441,943 448,393
Special (credits) charges (13,949) 122,540 -- 29,599
Total operating expenses 1,565,089 1,640,328 1,493,305 1,530,220
Operating income (loss) 108,163 (44,731) 73,301 12,787
Other expense - net 3,943 12,099 14,672 4,403
Income (loss) before income taxes 104,220 (56,830) 58,629 8,384
Income tax expense (benefit) 46,100 (14,900) 22,900 (8,700)
Income (loss) from
continuing operations $ 58,120 $ (41,930) $ 35,729 $ 17,084
Per share of common stock
- basic $ 1.52 $ (1.10) $ 0.95 $ 0.46
- diluted $ 1.51 $ (1.10) $ 0.95 $ 0.46
Income (loss) from continuing
operations as a
percentage of net sales 3.5% (2.6%) 2.3% 1.1%
Financial Position:
Working capital $ (25,048) $ 7,197 $ 112,302 $ 110,443
Properties - net $ 922,208 $ 884,102 $ 904,915 $ 933,692
Total assets $1,371,576 $1,350,944 $1,373,371**$1,844,811
Long-term debt $ 131,000 $ 175,000 $ 220,000 $ 220,000
Other long-term liabilities $ 30,884 $ 34,843 $ 52,291 $ 53,321
Shareholders' equity $ 674,201 $ 631,927 $ 685,445**$1,099,420
Net book value per share
of common stock $ 17.59 $ 16.54 $ 18.17**$ 29.33
Total debt to total
capitalization 20.6% 26.3% 24.3% 19.5%
Return on average
shareholders' equity 8.9% (6.4%) (0.2%) 2.3%
Other Information:
Dividends $ 19,146 $ 19,003 $ 18,801 $ 18,718
Per share of common stock $ 0.50 $ 0.50 $ 0.50 $ 0.50
Gross profit $ 599,882 $ 544,947 $ 515,244 $ 490,779
Capital expenditures $ 160,314 $ 120,354 $ 115,450 $ 241,512
Depreciation, depletion
and amortization $ 120,793 $ 118,955 $ 114,780 $ 108,367
Full-time employees 6,300 6,200 7,100 7,700
Market price range of
common stock:
High $ 20 7/8 $ 23 1/8 $ 22 7/8 $ 24 1/4
Low $ 14 3/4 $ 15 $ 15 1/2 $ 17 3/8
Note: Numbers in italics include results of discontinued operations.
** Reflects the dividend of ACX Technologies, Inc. to shareholders during 1992.
(In thousands, except per share) 1990 1989* 1988
Barrels of malt beverages sold 19,297 17,698 16,534
Summary of Operations:
Net sales $1,483,873 $1,372,373 $1,278,097
Cost of goods sold 986,352 913,994 829,423
Marketing, general
and administrative 409,085 397,844 380,131
Special charges 30,000 41,670 --
Total operating expenses 1,425,437 1,353,508 1,209,554
Operating income 58,436 18,865 68,543
Other expense (income) - net 5,903 2,546 (6,471)
Income before income taxes 52,533 16,319 75,014
Income tax expense 20,300 9,100 28,700
Income from
continuing operations $ 32,233 $ 7,219 $ 46,314
Per share of common stock
- basic $ 0.87 $ 0.20 $ 1.26
- diluted $ 0.87 $ 0.20 $ 1.26
Income from continuing
operations as a
percentage of net sales 2.2% 0.5% 3.6%
Financial Position:
Working capital $ 201,043 $ 193,590 $ 196,687
Properties - net $1,171,800 $1,012,940 $1,033,012
Total assets $1,761,664 $1,530,783 $1,570,765
Long-term debt $ 110,000 -- --
Other long-term liabilities $ 58,011 $ 16,138 $ 19,367
Shareholders' equity $1,091,547 $1,060,900 $1,062,064
Net book value per share
of common stock $ 29.20 $ 28.75 $ 29.00
Total debt to total
capitalization 9.2% 2.0% 1.7%
Return on average
shareholders' equity 3.6% 1.2% 4.5%
Other Information:
Dividends $ 18,591 $ 18,397 $ 18,311
Per share of common stock $ 0.50 $ 0.50 $ 0.50
Gross profit $ 497,521 $ 458,379 $ 448,674
Capital expenditures $ 183,368 $ 149,616 $ 157,995
Depreciation, depletion
and amortization $ 98,081 $ 122,439 $ 111,432
Full-time employees 7,000 6,800 6,900
Market price range of
common stock:
High $ 27 3/8 $ 24 3/8 $ 21
Low $ 17 1/8 $ 17 3/8 $ 16 1/2
Note: Numbers in italics include results of discontinued operations.
* 53-week year versus 52-week year.
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
INTRODUCTION
Adolph Coors Company (ACC or the Company) is the holding company for Coors
Brewing Company (CBC), which produces and markets high-quality malt-based
beverages.
This discussion summarizes the significant factors affecting ACC's consolidated
results of operations, liquidity and capital resources for the three-year
period ended December 27, 1998, and should be read in conjunction with the
financial statements and the notes thereto included elsewhere in this report.
ACC's fiscal year is a 52- or 53-week year that ends on the last Sunday in
December. The 1998, 1997 and 1996 fiscal years were all 52 weeks long.
Certain unusual or non-recurring items impacted ACC's financial results for
1998, 1997 and 1996; restatement of results excluding special items permits
clearer evaluation of its ongoing operations. These special items are
summarized below.
Summary of operating results:
For the years ended
December 27, December 28, December 29,
1998 1997 1996
(In thousands, except earnings per share)
Operating income:
As reported $103,819 $147,393 $80,774
Excluding special items $123,214 $115,876 $87,115
Net income:
As reported $ 67,784 $ 82,260 $43,425
Excluding special items $ 79,615 $ 68,309 $47,299
Earnings per share:
As reported - basic $1.87 $2.21 $1.14
- diluted $1.81 $2.16 $1.14
Excluding special items - basic $2.19 $1.84 $1.25
- diluted $2.12 $1.80 $1.24
1998: For the 52-week fiscal year ended December 27, 1998, ACC reported net
income of $67.8 million, or $1.87 per basic share ($1.81 per diluted share).
During 1998, the Company recorded a $17.2-million pretax charge for severance
and related costs of restructuring the Company's production operations. A $2.2-
million pretax charge also was recorded during 1998 for the impairment of
certain long-lived assets at one of the Company's distributorships. These items
resulted in a total special pretax charge of $19.4 million, or $0.32 per basic
share ($0.31 per diluted share), after tax. Without this special charge, ACC
would have reported net earnings of $79.6 million, or $2.19 per basic share
($2.12 per diluted share).
1997: For the 52-week fiscal year ended December 28, 1997, ACC reported net
income of $82.3 million, or $2.21 per basic share ($2.16 per diluted share).
During 1997, the Company received a $71.5-million payment from Molson Breweries
(Molson) to settle legal disputes with ACC and CBC, less approximately $3.2
million in related legal expenses. ACC also recorded a $22.4-million reserve
related to the recoverability of CBC's investment in Jinro-Coors Brewing
Company of Korea, as well as a $14.4-million charge related to CBC's brewery in
Zaragoza, Spain, for the impairment of certain long-lived assets and goodwill
and for severance costs for a limited work force reduction. These special items
amounted to a credit of $31.5 million to pretax income, or $0.37 per basic
share ($0.36 per diluted share), after tax. Without this special credit, ACC
would have reported net earnings of $68.3 million, or $1.84 per basic share
($1.80 per diluted share).
1996: For the 52-week fiscal year ended December 29, 1996, ACC reported net
income of $43.4 million, or $1.14 per basic and diluted share. During 1996, the
Company received royalties and interest from Molson in response to the October
1996 arbitration ruling that Molson had underpaid royalties from January 1,
1991, to April 1, 1993. Further, ACC recorded a gain from the 1995 curtailment
of certain postretirement benefits, charges for Molson-related legal expenses
and severance expenses for a limited work force reduction. These special items
amounted to a pretax charge of $6.3 million, or $0.11 per basic share ($.10 per
diluted share), after tax. Without this net special charge, ACC would have
reported net earnings of $47.3 million, or $1.25 per basic share ($1.24 per
diluted share).
Trend summary - percentage increase (decrease) for 1998, 1997 and 1996: The
following table summarizes trends in operating results, excluding special
items.
1998 1997 1996
Volume 2.9% 2.7% (1.3%)
Net sales 4.3% 4.6% 3.0%
Average base price
increase 0.3% 1.7% 2.1%
Gross profit 7.4% 13.0% 5.2%
Operating income 6.3% 33.0% 34.0%
Advertising
expense 10.0% 8.5% 0.5%
Selling, general
and administrative 3.7% 11.8% 13.5%
CONSOLIDATED RESULTS OF CONTINUING OPERATIONS - 1998 VS. 1997 AND 1997 VS.
1996 (EXCLUDING SPECIAL ITEMS)
1998 vs. 1997: Net sales increased 4.3% over 1997, which was caused primarily
by a unit volume increase of 2.9%. The increase in net sales was also
attributable to increased export sales, which generate higher net revenue per
barrel than domestic sales, and a modestly improved domestic pricing
environment.
Gross profit increased 7.4% to $740.6 million from 1997 due to the 4.3% net
sales increase discussed above, coupled with a lower increase in cost of goods
sold of 2.4%. The increase in cost of goods sold was attributable to higher
volumes and slightly higher costs for beer and certain packaging materials,
partially offset by improved cost absorption due to higher beer production
levels and lower aluminum costs.
Operating income grew 6.3% to $123.2 million in 1998 as a result of higher
gross profit discussed above, partially offset by a 7.6% increase in marketing,
general and administrative expenses. Advertising costs increased 10.0% over
1997 due to increased investments behind the core brands both domestically and
internationally. General and administrative costs increased primarily due to
increased spending on Year 2000 compliance issues.
Net non-operating income of $7.3 million in 1998 changed from a net expense
position of $0.5 million in 1997. This $7.8-million change is primarily due to
higher interest income resulting from higher cash balances, lower interest
expense from lower debt balances and the sale in the fourth quarter of certain
patents related to aluminum can decorating technologies.
The Company's effective tax rate decreased to 39.0% in 1998 from 40.8% in 1997
primarily due to higher tax-exempt income and lower state tax expense. The
1998 effective tax rate exceeded the statutory rate primarily because of state
tax expense.
Net earnings for 1998 were $79.6 million, or $2.19 per basic share ($2.12 per
diluted share), compared to $68.3 million, or $1.84 per basic share ($1.80 per
diluted share), for 1997, representing increases of 19.0% (basic) and 17.8%
(diluted) in earnings per share.
1997 vs. 1996: Net sales increased 4.6% driven primarily by an increase in
unit volume of 2.7%. This increase in net sales was also attributable to
increased international sales, which generate higher net revenue per barrel
than domestic sales; greater revenues related to the Canadian business due to
the favorable impact of the interim agreement in effect during 1997 with Molson
Breweries; and net price increases.
Gross profit in 1997 rose 13.0% to $689.7 million from 1996 due to the 4.6%
increase in net sales, as discussed above, while cost of goods sold were flat.
Increases in cost of goods caused by higher sales volume were offset by reduced
can costs; higher income recognized from CBC's joint ventures which produce
bottles and cans; lower costs related to fixed asset write-offs; lower costs
for employee benefits and less depreciation expense.
Operating income increased 33.0% to $115.9 million in 1997 as a result of the
higher gross profit discussed above, offset by a 9.7% increase in marketing,
general and administrative expenses. Advertising costs increased 8.5% over
1996, with increased marketing investment in premium brands and international
advertising costs. General and administrative costs increased primarily due to
incentive compensation; continued investment in both domestic and international
sales organizations; higher costs of operating distributorships (a
distributorship was acquired in mid-1997); and increases in administrative and
start-up costs for certain foreign operations.
Net non-operating expenses in 1997 declined significantly from 1996 because of
a 60.6% decrease in net interest expense partially offset by a 28.2% decrease
in miscellaneous income. Increased cash and investment balances attributed to
improved cash flow resulted in higher interest income on investments, causing
the change in net interest expense. Decreased royalties earned on certain can
production technologies caused the decrease in miscellaneous income.
The Company's effective tax rate decreased to 40.8% in 1997 from 41.8% in 1996
primarily due to higher tax-exempt income and foreign tax credits. The 1997
effective tax rate exceeded the statutory rate primarily because of the
effects of certain foreign investments.
Net earnings for 1997 were $68.3 million, or $1.84 per basic share ($1.80 per
diluted share), compared to $47.3 million, or $1.25 per basic share ($1.24 per
diluted share) for 1996, representing increases of 47.2% (basic) and 45.2%
(diluted) in earnings per share.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash provided by operating
activities and external borrowings. As of December 27, 1998, ACC had working
capital of $165.1 million, and its net cash position was $160.0 million
compared to $168.9 million as of December 28, 1997, and $110.9 million as of
December 29, 1996. In addition to its cash resources, ACC had short-term
investments of $96.2 million at December 27, 1998, compared to $42.2 million at
December 28, 1997. ACC also had $31.4 million of marketable investments with
maturities exceeding one year at December 27, 1998, compared to $47.1 million
at December 28, 1997. ACC had no marketable investments other than cash
equivalents at December 29, 1996. The Company believes that cash flows from
operations and short-term borrowings will be sufficient to meet its ongoing
operating requirements; scheduled principal and interest payments on
indebtedness; dividend payments; costs to make computer software Year 2000
compliant and anticipated capital expenditures in the range of approximately
$90 million to $100 million for production equipment, information systems,
repairs and upkeep, and environmental compliance.
Operating activities: Net cash provided by operating activities was $181.1
million for 1998, $260.6 million for 1997 and $189.6 million for 1996. The
decrease in operating cash flows in 1998 from 1997 of $79.4 million is
primarily a result of the Molson settlement included in the 1997 cash flows
from operations.
The increase in cash flows provided by operating activities in 1997 compared
to 1996 was attributable primarily to higher net income, decreases in
inventories and other assets, and increases in accounts payable and accrued
expenses and other liabilities, partially offset by increases in accounts and
notes receivable. The decrease in inventories primarily resulted from lower
levels of packaging supplies inventories on hand. The decrease in other assets
was due to a reduction in other supplies. The increase in accounts payable and
accrued expenses and other liabilities relative to 1996 reflected accruals for
incentive compensation and increased payables for excise taxes. The increase in
accounts and notes receivable reflects higher sales volumes and higher amounts
due from container joint venture partners.
Investing activities: During 1998, ACC spent $124.0 million on investing
activities compared to $127.9 million in 1997 and $51.4 million in 1996. The
1998 decrease was due primarily to net changes in ACC's marketable securities
with extended maturities that are not considered cash equivalents offset by
increases in property additions. The net of purchases over sales of these
marketable securities was $39.3 million in 1998. Capital expenditures increased
to $104.5 million in 1998 from $60.4 million in 1997 and $65.1 million in 1996.
In 1998, capital expenditures focused primarily on information systems and
facilities maintenance. Additional expenditures were incurred for cost
reduction and capacity and quality improvements. In 1997, capital expenditures
focused on enhancing packaging operations, while 1996 expenditures focused on
information systems and expansion of packaging capacity. Proceeds from property
sales were $2.3 million in 1998, compared to $3.3 million in 1997 and $8.1
million in 1996. The distributions from joint ventures increased to $22.4
million in 1998 from $13.3 million in 1997 and $5.0 million in 1996. The
increase in these distributions during 1998 was mainly attributable to the
Coors Canada partnership, which commenced operations in January 1998. In 1997,
the increase in distributions was mainly due to increased cash flow from
operations and reduced capital expenditures at a certain joint venture.
Financing activities: During 1998, the Company spent $66.0 million on
financing activities primarily due to principal payments on ACC's medium-term
notes of $27.5 million, net purchases of Class B common stock for $17.8
million and dividend payments of $21.9 million.
Net cash used in financing activities was $72.0 million during 1997 primarily
attributable to principal payments on ACC's medium-term notes of $20.5 million,
net purchases of Class B common stock for $35.6 million and dividend payments
of $20.5 million.
ACC spent $59.3 million on financing activities during 1996 due to principal
payments on its medium-term notes of $38.0 million, net purchases of Class B
common stock for $2.3 million and dividend payments of $19.0 million.
Debt obligations: As of December 27, 1998, ACC had $40.0 million outstanding
in medium-term notes, which will become due in 1999. With cash on hand, the
Company repaid principal of $27.5 million and $20.5 million on these notes in
1998 and 1997, respectively. Fixed interest rates on these notes range from
8.63% to 8.73%. ACC also had $100 million outstanding in Senior Notes as of
December 27, 1998. The repayment schedule is $80 million in 2002 and the
remaining $20 million in 2005. Fixed interest rates on these notes range from
6.76% to 6.95%.
The Company's debt-to-total capitalization ratio was 15.8% in 1998, 19.0% at
the end of 1997 and 21.2% at the end of 1996.
Revolving line of credit: In addition to the medium-term notes and the Senior
Notes, the Company has an unsecured, committed credit arrangement totaling
$200 million and as of December 27, 1998, had all $200 million available. This
line of credit has a five-year term which expires in 2002, with two optional
one-year extensions. During 1998, one of the one-year extension options was
exercised, which extended the maturity to 2003. A facilities fee is paid on the
total amount of the committed credit. Under the arrangement, the Company is
required to maintain a certain debt-to-total capitalization ratio, with which
the Company was in compliance at year-end 1998.
CBC's distribution subsidiary in Japan has two revolving lines of credit that
it uses in normal operations. Each of these facilities provides up to 500
million yen (approximately $4.3 million each as of December 27, 1998) in short-
term financing. As of December 27, 1998, the approximate yen equivalent of $5.9
million was outstanding under these arrangements and included in Accrued
expenses and other liabilities in the consolidated balance sheets.
Pension plan and postretirement plan amendments: In November 1998, the ACC
board of directors approved changes to one of its defined benefit pension plans
and one of its postretirement plans that provides medical benefits and life
insurance for eligible dependents. The changes, which will result in amendments
to the respective plans, will be effective July 1, 1999, and will increase the
projected benefit obligation at the effective date of the defined benefit plan
and the postretirement plan by approximately $48 million and $6.7 million,
respectively. To offset the increase in the projected benefit obligation of the
defined benefit pension plan, the Company made a $48-million contribution to
the plan in January 1999.
Advertising and promotions: In July 1998, the Company announced a long-term
sponsorship and promotion agreement with the owners of the Pepsi Center(TM), an
arena under construction in Denver, Colorado, which will be the future home of
the city's professional hockey and basketball teams. With the addition of this
agreement, the Company's total commitments for advertising and promotions at
sports arenas, stadiums and other venues and events are approximately $97
million over the next 10 years.
Hedging activities: As of December 27, 1998, hedging activities consisted of
hard currency forward contracts and purchased options to directly offset hard
currency exposures and swap contracts to reduce exposure to interest rate
fluctuations on certain investment securities. The forward contracts are
irrevocable contracts, whereas the options give the Company the right, but not
the obligation, to exercise the option on the expiration date. The forward
contracts and options, as well as the swap contracts, reduce the risk to
financial position and results of operations due to changes in the underlying
foreign exchange or interest rate. Any variation in the rate accruing to the
contract or option would be offset by a similar change in the related exposure.
Therefore, upon execution of the contract or option, variations in rates would
not adversely impact the Company's financial statements. ACC's hedging
activities and hard currency exposures are minimal. The Company does not enter
into derivative financial instruments for speculation or trading purposes.
Stock repurchase plan: On November 12, 1998, the board of directors
authorized the extension of the Company's stock repurchase program through
1999. The program authorizes repurchases of up to $40 million of ACC's
outstanding Class B common stock during 1999. Repurchases will be financed by
funds generated from operations or possibly from short-term borrowings. The
Company spent approximately $27.6 million in 1998 to repurchase common stock,
primarily in purchasing approximately 766,000 shares of outstanding Class B
common stock under the previously approved stock repurchase program.
Investment in Jinro-Coors Brewing Company: CBC invested approximately $22
million for a 33% interest in Jinro-Coors Brewing Company (JCBC) in 1992. CBC
has accounted for this investment under the cost basis of accounting, given
that CBC has not had the ability to exercise significant influence over JCBC
and that CBC's investment in JCBC has been considered temporary. This
investment included a put option that was exercised by CBC in December 1997.
The put option entitled CBC to require Jinro Limited (the 67% owner of JCBC)
to purchase CBC's investment at the greater of cost or market value (both
measured in Korean won).
Beginning in April 1997, Jinro Limited, a publicly-traded subsidiary of Jinro
Group, missed debt payments and began attempting to restructure. In response
to its financial difficulties and those of its subsidiaries (including JCBC),
Jinro Group has been working with its creditors and the Korean government to
restructure its debts and has been selling real estate and merging and/or
selling businesses. The financial difficulties of JCBC and Jinro Limited, the
guarantor of the put option discussed above, called into question the
recoverability of CBC's investment in JCBC. Therefore, during the second
quarter of 1997, CBC fully reserved for its investment in JCBC. This reserve
was classified as a special charge in the accompanying statements of income.
When CBC exercised its put option in December 1997, it reclassified its
investment in JCBC to a note receivable from Jinro Limited. Since Jinro
Limited's obligation under the put option is measured in Korean won and given
the current significant devaluation of that currency, the full amount received
from Jinro Limited would be significantly less than the value of CBC's original
investment. Jinro Limited, which is operating under protection from its
creditors under the Korean composition law, had until June 1998 to perform its
obligation under the put option. It did not perform. The obligation arising
from CBC's put exercise is subject to the terms of Jinro Limited's composition
plan. The note receivable is unsecured and potentially has very little value
under the composition plan.
In February 1999, Jinro Limited announced a plan to sell JCBC through
international bidding by the end of June 1999. The Company intends to
participate in the bidding process. If the plan to sell JCBC is not successful,
a program will be set up to liquidate the assets.
Cautionary Statement Pursuant to Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995
This report contains "forward-looking statements" within the meaning of the
federal securities laws. These forward-looking statements may include, among
others, statements concerning the Company's outlook for 1999; overall volume
trends; pricing trends and industry forces; cost reduction strategies and their
results; the Company's expectations for funding its 1999 capital expenditures
and operations; the Company's expectations for funding work on computer
software to make it compliant with Year 2000; and other statements of
expectations, beliefs, future plans and strategies, anticipated events or
trends and similar expressions concerning matters that are not historical
facts. These forward-looking statements are subject to risks and uncertainties
that could cause actual results to differ materially from those expressed in
or implied by the statements.
To improve its financial performance, the Company must grow premium beverage
volume, achieve modest price increases for its products and reduce its overall
cost structure. The most important factors that could influence the achievement
of these goals -- and cause actual results to differ materially from those
expressed in the forward-looking statements -- include, but are not limited to,
the following:
- - the inability of the Company and its distributors to develop and execute
effective marketing and sales strategies for Coors products;
- - the potential erosion of sales revenues through discounting or a higher
proportion of sales in value-packs;
- - a potential shift in consumer preferences toward lower-priced products;
- - a potential shift in consumer preferences away from the premium light beer
category, including Coors Light;
- - a potential shift in consumer preferences away from products packaged in
aluminum cans, which are less expensive, toward bottled products;
- - the intensely competitive, slow-growth nature of the beer industry;
- - demographic trends and social attitudes that can reduce beer sales;
- - the continued growth in the popularity of imports and other specialty beers;
- - increases in the cost of aluminum, paper packaging and other raw materials;
- - the Company's inability to reduce manufacturing, freight and overhead costs
to more competitive levels;
- - changes in significant laws and government regulations affecting
environmental compliance and income taxes;
- - the inability to achieve targeted improvements in CBC's distribution system;
- - the imposition of restrictions on advertising (e.g., media, outdoor ads or
sponsorships);
- - labor issues, including union activities that could require a substantial
increase in cost of goods sold or lead to a strike;
- - significant increases in federal, state or local beer or other excise taxes;
- - increases in rail transportation rates or interruptions of rail service;
- - the potential impact of further industry consolidation and the change in
competitive environment given the planned sale of Stroh;
- - the impact on CBC's distribution system of the planned acquisition of Stroh;
- - risks associated with investments and operations in foreign countries,
including those related to foreign regulatory requirements; exchange rate
fluctuations; and local political, social and economic factors;
- - significant increases in the estimated costs of the Year 2000 project; and
- - the risk that computer systems of the Company or its significant suppliers
or customers may not be Year 2000 compliant.
These and other risks and uncertainties affecting the Company are discussed in
greater detail in this report and in the Company's other filings with the
Securities and Exchange Commission.
OUTLOOK FOR 1999
Volume gains are expected to increase net sales in 1999; however, the pricing
environment is expected to be more favorable than in the past few years.
Continuing increased value-pack activity could have an unfavorable impact on
top-line performance due to lower margins.
For fiscal year 1999, raw material costs per barrel are expected to be down
slightly, while fixed costs and freight costs per barrel are expected to be
fairly flat. This outlook could change if cost trends change during the first
nine months of 1999. CBC continues to pursue improvements in its operations
and technology functions to achieve cost reductions over time.
Advertising costs are expected to increase in 1999 while other general and
administrative costs are expected to have minimal fluctuation from 1998.
Management continues to monitor CBC's market opportunities and to invest
behind its brands and sales efforts accordingly. Incremental sales and
marketing spending will be determined on an opportunity-by-opportunity basis.
However, the competitive battleground appears to be shifting to marketing and
advertising, possibly resulting in the incremental revenue generated by price
increases being spent on advertising.
See the item titled Year 2000 under CONTINGENCIES of this section for a
discussion of the expected financial impact of this issue.
Total net interest income is expected to be lower in 1999 based on CBC's lower
cash balances offset by lower outstanding debt relative to its 1998 financial
position. Lower returns on cash balances also are expected due to lower
anticipated yields. Net interest income could be less favorable than expected
if the Company decides to invest a substantial portion of its cash balances
back into the Company. Additional outstanding common stock may be repurchased
in 1999 as approved by the ACC board of directors in November 1998.
The effective tax rate for 1999 is not expected to differ significantly from
the 1998 effective tax rate applied to income excluding special items. The
level and mix of pretax income for 1999 could affect the actual rate for the
year.
In 1999, CBC has planned capital expenditures (including contributions to its
container joint ventures for capital improvements, which will be recorded on
the books of the joint venture) in the range of approximately $90 million to
$100 million. In addition to CBC's 1999 planned capital expenditures,
incremental strategic investments will be considered on a case-by-case basis.
CONTINGENCIES
Environmental: The Company was one of numerous parties named by the
Environmental Protection Agency (EPA) as a "potentially responsible party"
(PRP) for the Lowry site, a legally permitted landfill owned by the City and
County of Denver. In 1990, the Company recorded a special pretax charge of $30
million for potential cleanup costs of the site.
The City and County of Denver; Waste Management of Colorado, Inc.; and Chemical
Waste Management, Inc. brought litigation in 1991 in U.S. District Court
against the Company and 37 other PRPs to determine the allocation of costs of
Lowry site remediation. In 1993, the Court approved a settlement agreement
between the Company and the plaintiffs, resolving the Company's liabilities for
the site. The Company agreed to initial payments based on an assumed present
value of $120 million in total site remediation costs. Further, the Company
agreed to pay a specified share of costs if total remediation costs exceeded
this amount. The Company remitted its agreed share of $30 million, based on the
$120 million assumption, to a trust for payment of site remediation, operating
and maintenance costs.
The City and County of Denver; Waste Management of Colorado, Inc. and Chemical
Waste Management, Inc. are expected to implement site remediation. The EPA's
projected costs to meet the announced remediation objectives and requirements
are currently below the $120 million assumption used for ACC's settlement. The
Company has no reason to believe that total remediation costs will result in
additional liability to the Company.
From time to time, ACC also has been notified that it is or may be a PRP under
the Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA) or similar state laws for the cleanup of other sites where hazardous
substances have allegedly been released into the environment. The Company
cannot predict with certainty the total costs of cleanup, its share of the
total cost or the extent to which contributions will be available from other
parties, the amount of time necessary to complete the cleanups or insurance
coverage. However, based on investigations to date, the Company believes that
any liability would be immaterial to its financial position and results of
operations for these sites. There can be no certainty, however, that the
Company will not be named as a PRP at additional CERCLA sites in the future,
or that the costs associated with those additional sites will not be material.
While we cannot predict the Company's eventual aggregate cost for environmental
and related matters, management believes that any payments, if required, for
these matters would be made over a period of time in amounts that would not be
material in any one year to the Company's results of operations or its
financial or competitive position. The Company believes adequate disclosures
have been provided for losses that are reasonably possible. Further, as the
Company continues to focus on resource conservation, waste reduction and
pollution prevention, it believes that potential future liabilities will be
reduced.
Year 2000: Some computers, software and other equipment include programming
code in which calendar year data are abbreviated to only two digits. As a
result of this design decision, some of these systems could fail to operate or
fail to produce correct results if '00' is interpreted to mean 1900, rather
than 2000. These problems are widely expected to increase in frequency and
severity as the Year 2000 approaches.
ACC recognizes the need to ensure that its operations will not be adversely
impacted by Year 2000 software failures. The Company is addressing this issue
to ensure the availability and integrity of its financial systems and the
reliability of its operational systems. ACC has established processes for
evaluating and managing the risks and costs associated with the Year 2000
problem. This project has two major elements -- Application Remediation and
Extended Enterprise (third-party suppliers, customers and others).
As of December 27, 1998, the Application Remediation element is on schedule,
with 85% of the analysis completed, 74% of the remediation completed and 41%
of the testing completed. Remediation of systems considered critical to ACC's
business is expected to be completed by June 1999, and remediation of non-
critical systems is planned to be completed by September 1999.
The Extended Enterprise element consists of the evaluation of third-party
suppliers, customers, joint venture partners, transportation carriers and
others. Detailed evaluations of the most critical third parties have been
initiated.
The Company has made and will continue to make certain investments in its
information systems and applications to ensure that they are Year 2000
compliant. These investments also include hardware and operating systems
software, which are generally on schedule and are expected to be completed by
June 1999. The financial impact to ACC is anticipated to be in the range of
approximately $12 million to $15 million for 1999. The anticipated expenditures
in 2000 are minimal. The total amount expended on the Year 2000 project through
December 27, 1998, was approximately $23 million.
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-party suppliers, customers and
others, the Company is unable to determine at this time whether the
consequences of Year 2000 failures will have a material impact on its results
of operations, liquidity or financial condition. The efforts undertaken with
the Company's Year 2000 project are expected to significantly reduce ACC's
level of uncertainty about the Year 2000 problem and, in particular, about the
Year 2000 readiness of its Extended Enterprise.
Contingency planning for the Application Remediation and the Extended
Enterprise elements began in October 1998 with initial plans completed in March
1999. The Company will monitor third-party distributors for Year 2000 readiness
and will develop a contingency plan if a distributor is deemed critical to the
Company's operations.
ACCOUNTING CHANGES
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (FAS 133). FAS 133 requires all derivatives be
recognized as either assets or liabilities in the statement of financial
position and requires that those assets and liabilities be measured at fair
value. FAS 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Early application of all provisions of this statement is
permitted but only as of the beginning of any fiscal quarter beginning after
issuance of the statement. Adoption of FAS 133 is not expected to have a
significant impact on the Company's financial position or results of
operations as the Company's derivative activities are minimal. The Company
currently plans to adopt FAS 133 beginning with the first quarter of fiscal
year 1999.
In March 1998, the Accounting Standards Executive Committee issued Statement
of Position 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" (SOP 98-1). SOP 98-1 requires that specified costs
incurred in developing or obtaining internal-use software, as defined by SOP
98-1, be capitalized once certain criteria have been met and amortized in a
systematic and rational manner over the software's estimated useful life. SOP
98-1 is effective for fiscal years beginning after December 15, 1998. SOP 98-1
stipulates that costs incurred prior to initial application of the statement
not be adjusted according to the statement's provisions. Adoption of SOP 98-1
is not expected to have a significant impact on the Company's financial
position or results of operations.
ITEM 7a. Quantitative and Qualitative Disclosures about Market Risk
Exposures, Policies and Procedures
In the normal course of business, the Company is exposed to changes in interest
rates and fluctuations in the value of foreign currencies. The Company has
established policies and procedures that govern the management of these
exposures through the use of a variety of financial instruments. The Company
employs various financial instruments including forward exchange contracts,
options and swap agreements to manage certain of the exposures that it
considers practical to do so. By policy, the Company does not enter into such
contracts for the purpose of speculation or use leveraged financial
instruments. The Company's objective in managing its exposure to interest
rates is to limit the adverse impact that changes in interest rates might
have on earnings and cash flow. To achieve this objective the Company
primarily uses interest rate swaps whose value changes in the opposite
direction to the value of the underlying assets or cash flow.
The Company's objective in managing its exposure to movements in foreign
currency exchange rates is to decrease the volatility of earnings and cash
flows associated with changes in exchange rates. By policy, the Company enters
into hedges to limit the potential loss due to fluctuations in currency
exchange rates below a maximum amount of earnings. The Company has entered
into forward contracts and options whose value changes as the foreign currency
exchange rates change to protect the value of its foreign currency commitments
and revenues. The gains and losses in those contracts offset changes in the
value of the related exposures. The primary currencies hedged are the Canadian
dollar, the Japanese yen and the Spanish peseta. The Company does not hedge the
value of net investments in foreign-currency-denominated operations and
translated earnings of foreign subsidiaries.
Interest Rates
As of December 27, 1998, the fair value of the Company's debt is estimated at
$146.0 million. This exceeded the carrying value of the debt by approximately
$1.0 million. The estimated market risk, defined as the potential change in
fair value of the debt resulting from a hypothetical 10% adverse change in
interest rates, amounted to $2.4 million as of December 27, 1998. The Company
also had $5.0 million of variable rate debt outstanding as of December 27,
1998. A 10% adverse change in interest rates would not have a material adverse
impact on the Company's earnings or cash flow.
The Company's cash and short-term investments are primarily floating rate
instruments. A 10% adverse change (decline) in interest rates would decrease
the Company's 1998 pretax earnings by approximately $0.9 million. This amount
is net of the offsetting positive impact of the interest rate hedges entered
into to effectively fix interest on variable rate investments. The notional
amount of interest rate swaps outstanding as of December 27, 1998, was $20.0
million.
Other Assets
The Company also has certain other long-term assets with a book value of $16.5
million. Due to the long-term nature of these investments, the Company has not
currently entered into any related derivative instruments. While the Company
does not currently anticipate suffering any losses related to these assets,
the potential loss in fair value from a hypothetical 10% adverse change
amounted to $1.7 million as of December 27, 1998.
Foreign Currency Exchange Rates
The Company has entered into foreign currency forwards and options for terms
generally less than one year. The primary currencies hedged in this manner
include the Canadian dollar, Japanese yen, and Spanish peseta. The notional
amount of forward contracts and options purchased was $21.5 million as of
December 27, 1998. The potential loss in fair value for net currency positions
of outstanding foreign currency contracts resulting from a hypothetical 10%
adverse change in all foreign currency exchange rates was $2.3 million.
ITEM 8. Financial Statements and Supplementary Data
Index to Financial Statements
Page(s)
Consolidated Financial Statements:
Report of Independent Accountants 33
Consolidated Statements of Income for each of
the three years in the period ended December 27, 1998 34
Consolidated Balance Sheets at December 27, 1998,
and December 28, 1997 35-36
Consolidated Statements of Cash Flows for each of
the three years in the period ended December 27, 1998 37
Consolidated Statements of Shareholders' Equity
for each of the three years in the period ended
December 27, 1998 38
Notes to Consolidated Financial Statements 39-62
Report of Independent Accountants
To the Board of Directors and Shareholders of Adolph Coors Company:
In our opinion, the accompanying consolidated balance sheets and related
consolidated statements of income, shareholders' equity and cash flows present
fairly, in all material respects, the financial position of Adolph Coors
Company and its subsidiaries at December 27, 1998, and December 28, 1997, and
the results of their operations and their cash flows for each of the three
years in the period ended December 27, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Denver, Colorado
February 8, 1999
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the years ended
December 27, December 28, December 29,
1998 1997 1996
(In thousands, except per share data)
Sales - domestic and international $2,291,322 $2,207,384 $2,121,146
Less: beer excise taxes 391,789 386,080 379,311
Net sales 1,899,533 1,821,304 1,741,835
Costs and expenses:
Cost of goods sold 1,158,887 1,131,610 1,131,470
Marketing, general and administrative 617,432 573,818 523,250
Special charges (credits) (Note 9) 19,395 (31,517) 6,341
Total operating expenses 1,795,714 1,673,911 1,661,061
Operating income 103,819 147,393 80,774
Other income (expense):
Interest income 12,136 8,835 2,924
Interest expense (9,803) (13,277) (14,212)
Miscellaneous - net 4,948 3,942 5,489
Total 7,281 (500) (5,799)
Income before income taxes 111,100 146,893 74,975
Income tax expense (Note 5) 43,316 64,633 31,550
Net income 67,784 82,260 43,425
Other comprehensive income (expense),
net of tax:
Foreign currency translation
adjustments 1,430 (5,886) (1,670)
Unrealized gain on available-for-sale
securities 440 -- --
Comprehensive income $ 69,654 $ 76,374 $ 41,755
Net income per common share - basic $ 1.87 $ 2.21 $ 1.14
Net income per common share - diluted $ 1.81 $ 2.16 $ 1.14
Weighted-average number of outstanding
common shares - basic 36,312 37,218 37,966
Weighted-average number of outstanding
common shares - diluted 37,515 38,056 38,219
See notes to consolidated financial statements
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 27, December 28,
1998 1997
(In thousands)
Assets
Current assets:
Cash and cash equivalents $ 160,038 $ 168,875
Short-term investments 96,190 42,163
Accounts and notes receivable:
Trade, less allowance for doubtful accounts
of $299 in 1998 and $557 in 1997 106,962 89,731
Affiliates 11,896 19,677
Other, less allowance for certain claims of
$584 in 1998 and $1,500 in 1997 7,751 15,077
Inventories:
Finished 38,520 44,729
In process 24,526 20,119
Raw materials 34,016 35,654
Packaging materials, less allowance for
obsolete inventories of $1,018 in 1998
and $1,049 in 1997 5,598 5,977
Total inventories 102,660 106,479
Other supplies, less allowance for obsolete
supplies of $3,968 in 1998 and $4,165 in 1997 27,729 32,362
Prepaid expenses and other assets 12,848 18,224
Deferred tax asset (Note 5) 22,917 24,606
Total current assets 548,991 517,194
Properties, at cost and net (Note 2) 714,441 733,117
Excess of cost over net assets of businesses
acquired, less accumulated amortization
of $6,727 in 1998 and $5,726 in 1997 23,114 22,880
Long-term investments 31,444 47,100
Other assets (Note 10) 142,608 91,792
Total assets $1,460,598 $1,412,083
December 27, December 28,
1998 1997
(In thousands)
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt (Note 4) $ 40,000 $ 27,500
Accounts payable:
Trade 132,193 113,864
Affiliates 11,706 18,072
Accrued salaries and vacations 54,584 58,257
Taxes, other than income taxes 48,332 52,805
Federal and state income taxes (Note 5) 10,130 13,660
Accrued expenses and other liabilities 86,967 74,988
Total current liabilities 383,912 359,146
Long-term debt (Note 4) 105,000 145,000
Deferred tax liability (Note 5) 65,779 76,219
Postretirement benefits (Note 8) 74,469 71,908
Other long-term liabilities 56,640 23,242
Total liabilities 685,800 675,515
Commitments and contingencies
(Notes 3, 4, 5, 6, 7, 8, 10 and 13)
Shareholders' equity (Notes 6 and 11):
Capital stock:
Preferred stock, non-voting, $1 par
value (authorized: 25,000,000
shares; issued and outstanding: none) -- --
Class A common stock, voting, $1
par value, (authorized, issued and
outstanding: 1,260,000 shares) 1,260 1,260
Class B common stock, non-voting,
no par value, $0.24 stated value
(authorized: 100,000,000 shares;
issued and outstanding: 35,395,306 in
1998 and 35,599,356 in 1997) 8,428 8,476
Total capital stock 9,688 9,736
Paid-in capital 10,505 --
Retained earnings 756,531 730,628
Accumulated other comprehensive income (1,926) (3,796)
Total shareholders' equity 774,798 736,568
Total liabilities and shareholders' equity $1,460,598 $1,412,083
See notes to consolidated financial statements.
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended
December 27, December 28, December 29,
1998 1997 1996
Cash flows from operating activities: (In thousands)
Net income $ 67,784 $ 82,260 $ 43,425
Adjustments to reconcile net income
to net cash provided by operating
activities:
Equity in net earnings of joint
ventures (33,227) (15,893) (11,467)
Reserve for severance 8,324 -- --
Reserve for joint venture investment -- 21,978 --
Depreciation, depletion and
amortization 115,815 117,166 121,121
Loss on sale or abandonment of
properties and intangibles, net 7,687 5,594 12,535
Impairment charge 2,219 10,595 --
Deferred income taxes (8,751) (15,043) 17,696
Change in operating assets and
liabilities:
Accounts and notes receivable 2,140 (10,971) 2,232
Inventories 4,176 14,051 18,076
Other assets 8,977 3,742 (2,128)
Accounts payable 9,899 9,599 (8,175)
Accrued expenses and other
liabilities (3,898) 37,475 (3,712)
Net cash provided by operating
activities 181,145 260,553 189,603
Cash flows from investing activities:
Purchases of investments (101,682) (122,800) (5,958)
Sales and maturities of investments 62,393 39,499 --
Additions to properties and intangible
assets (104,505) (60,373) (65,112)
Proceeds from sale of properties
and intangibles 2,264 3,273 8,098
Distributions from joint ventures 22,438 13,250 5,000
Other (4,949) (775) 6,569
Net cash used in investing
activities (124,041) (127,926) (51,403)
Cash flows from financing activities:
Issuances of stock under stock plans 9,823 24,588 4,674
Purchases of stock (27,599) (60,151) (6,975)
Dividends paid (21,893) (20,523) (18,983)
Payments of long-term debt (27,500) (20,500) (38,000)
Other 1,140 4,544 --
Net cash used in financing
activities (66,029) (72,042) (59,284)
Cash and cash equivalents:
Net (decrease) increase in cash and cash
equivalents (8,925) 60,585 78,916
Effect of exchange rate changes on
cash and cash equivalents 88 (2,615) (397)
Balance at beginning of year 168,875 110,905 32,386
Balance at end of year $ 160,038 $ 168,875 $ 110,905
See notes to consolidated financial statements.
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Accumulated
other
Common stock compre-
issued Paid-in Retained hensive
Class A Class B capital earnings income Total
(In thousands, except per share data)
Balances, December 31, 1995 $ 1,260 $ 8,747 $33,719 $647,530 $ 3,760 $695,016
Shares issued under stock
plans 61 4,613 4,674
Purchases of stock (79) (6,896) (6,975)
Other comprehensive income (1,670) (1,670)
Net income 43,425 43,425
Cash dividends-$0.50 per share (18,983) (18,983)
Balances, December 29, 1996 1,260 8,729 31,436 671,972 2,090 715,487
Shares issued under stock
plans 236 25,145 25,381
Purchases of stock (489)(56,581) (3,081) (60,151)
Other comprehensive income (5,886) (5,886)
Net income 82,260 82,260
Cash dividends-$0.55 per share (20,523) (20,523)
Balances, December 28, 1997 1,260 8,476 -- 730,628 (3,796) 736,568
Shares issued under stock
plans 145 17,923 18,068
Purchases of stock (193) (7,418) (19,988) (27,599)
Other comprehensive income 1,870 1,870
Net income 67,784 67,784
Cash dividends-$0.60 per share (21,893) (21,893)
Balances, December 27, 1998 $ 1,260 $ 8,428 $10,505 $756,531 $(1,926)$774,798
See notes to consolidated financial statements.
ADOLPH COORS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1:
Summary of Significant Accounting Policies
Principles of consolidation: The consolidated financial statements include
the accounts of Adolph Coors Company (ACC); its principal subsidiary, Coors
Brewing Company (CBC); and the majority-owned and controlled domestic and
foreign subsidiaries of both ACC and CBC (collectively referred to as "the
Company"). All significant intercompany accounts and transactions have been
eliminated. The equity method of accounting is used for the Company's
investments in affiliates over which the Company has the ability to exercise
significant influence (see Note 10). The Company has other investments that
are accounted for at cost.
Nature of operations: The Company is a multinational brewer and marketer of
beer and other malt-based beverages. The vast majority of the Company's volume
is sold in the United States to independent wholesalers. The Company's
international volume is produced, marketed and distributed under varying
business arrangements including export, direct investment, joint ventures and
licensing.
Fiscal year: The fiscal year of the Company is a 52- or 53-week period ending
on the last Sunday in December. Fiscal years for the financial statements
included herein ended December 27, 1998, December 28, 1997, and December 29,
1996, all 52-week periods.
Investments in marketable securities: ACC invests excess cash on hand in
interest-bearing debt securities. At December 27, 1998, $96.2 million of these
securities were classified as current assets and $31.4 million were classified
as non-current assets, as their maturities exceeded one year. All of these
securities were considered to be available-for-sale. At December 27, 1998,
these securities have been recorded at fair value, based on quoted market
prices, through other comprehensive income. Maturities on these investments
range from 1999 through 2001.
Concentration of credit risk: The majority of the accounts receivable balances
are from malt beverage distributors. The Company secures substantially all of
this credit risk with purchase money security interests in inventory and
proceeds, personal guarantees and/or letters of credit.
Concentration of transportation: The Company relies heavily upon rail
transportation to ship approximately 35% of its products to satellite
redistribution centers and to distributors throughout the country. A major
disruption in the railroad industry would impact CBC significantly. However,
the risk of such a disruption at the current time appears to be low.
Inventories: Inventories are stated at the lower of cost or market. Cost is
determined by the last-in, first-out (LIFO) method for substantially all
inventories.
Current cost, as determined principally on the first-in, first-out method,
exceeded LIFO cost by $41.4 million and $43.4 million at December 27, 1998,
and December 28, 1997, respectively.
Properties: Land, buildings and equipment are stated at cost. Depreciation is
provided principally on the straight-line method over the following estimated
useful lives: buildings and improvements, 10 to 45 years; and machinery and
equipment, 3 to 20 years. Accelerated depreciation methods are generally used
for income tax purposes. Expenditures for new facilities and improvements that
substantially extend the capacity or useful life of an asset are capitalized.
Start-up costs associated with manufacturing facilities, but not related to
construction, are expensed as incurred. Ordinary repairs and maintenance are
expensed as incurred.
Hedging transactions: In the normal course of business, the Company enters
into off-balance-sheet financial instruments, generally forward, option and
swap contracts, to manage its exposure to interest and foreign currency rate
fluctuations. The Company does not enter into derivative financial instruments
for speculation or trading purposes. Gains and losses related to derivative
instruments are classified in income consistent with the accounting treatment
of the underlying item. At December 27, 1998, the Company had contracts to
purchase $20.6 million in foreign currencies with maturities ranging from 1999
through 2000.
The Company enters into foreign currency derivative instruments that manage
exposures related to specific assets, liabilities or anticipated transactions.
These instruments are therefore marked to market and the unrealized gains and
losses on the instruments generally offset the gains and losses recorded on
the related assets and liabilities.
The Company may enter into swap contracts to reduce exposure to interest rate
fluctuations in connection with certain debt or investment securities. The
company designates or assigns these instruments as hedges of specific assets
or liabilities. The cash flows of the swap mirror those of the underlying
exposures. Any gains or losses recognized upon early termination of the swaps
are deferred and recognized in income over the remaining life of the underlying
exposure. If hedged assets or liabilities were to be sold or extinguished, the
Company would recognize the gain or loss on the designated financial
instruments currently in income. At December 27, 1998, the Company has an
interest rate swap with a notional principal amount of $20 million that matures
in 2000.
Excess of cost over net assets of businesses acquired: The excess of cost
over the net assets of businesses acquired in transactions accounted for as
purchases is being amortized on a straight-line basis, generally over a 40-
year period. During 1998, CBC recorded a $2.2-million impairment charge, which
has been classified as a special charge in the accompanying statements of
income, related to long-lived assets at one of its distributorships. The long-
lived assets were considered impaired in light of both historical losses and
expected future, undiscounted cash flows. The impairment charge represented a
reduction of the carrying amounts of the impaired assets to their estimated
fair market values, which were determined using a discounted cash flow model.
Impairment policy: The Company periodically evaluates its assets to assess
their recoverability from future operations using undiscounted cash flows.
Impairment would be recognized in operations if a permanent diminution in
value is judged to have occurred.
Advertising: Advertising costs, included in marketing, general and
administrative, are expensed when the advertising first takes place.
Advertising expense was $395.8 million, $360.0 million and $331.9 million for
years 1998, 1997 and 1996, respectively. The Company had $7.0 million and $9.6
million of prepaid advertising production costs reported as assets at December
27, 1998, and December 28, 1997, respectively.
Research and development: Research and project development costs, included in
marketing, general and administrative, are expensed as incurred. These costs
totaled $15.2 million, $14.6 million and $15.3 million in 1998, 1997 and 1996,
respectively.
Environmental expenditures: Environmental expenditures that relate to current
operations are expensed or capitalized, as appropriate. Expenditures that
relate to an existing condition caused by past operations, which do not
contribute to current or future revenue generation, are expensed. Liabilities
are recorded when environmental assessments and/or remedial efforts are
probable and the costs can be estimated reasonably.
Statement of Cash Flows: Cash equivalents represent highly liquid investments
with maturities of 90 days or less. The fair value of these investments
approximates their carrying value. During 1998, 1997 and 1996, ACC issued
restricted common stock under its management incentive program resulting in
non-cash increases to the equity accounts of $2.4 million, $0.8 million and
$0, respectively. Also during 1998, 1997 and 1996, equity was increased by the
non-cash tax effects of the exercise of stock options under the Company's stock
plans of $5.9 million, $5.0 million and $0, respectively. Income taxes paid
were $39.6 million in 1998, $66.8 million in 1997 and $13.2 million in 1996.
Use of estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Reclassifications: Certain reclassifications have been made to the 1997 and
1996 financial statements to conform with the 1998 presentation.
NOTE 2:
Properties
The cost of properties and related accumulated depreciation, depletion and
amortization consists of the following:
As of
December 27, December 28,
1998 1997
(In thousands)
Land and improvements $ 94,561 $ 97,117
Buildings 494,344 482,939
Machinery and equipment 1,581,355 1,516,034
Natural resource properties 8,623 8,906
Construction in progress 50,840 39,941
2,229,723 2,144,937
Less accumulated depreciation,
depletion and amortization 1,515,282 1,411,820
Net properties $ 714,441 $ 733,117
During 1997, Coors Brewing Iberica, S.A. (Coors Iberica) addressed certain
capacity issues, including the recoverability of Coors Iberica's long-lived
assets and related goodwill, at its brewery, as well as certain employment
matters. As a result, CBC recorded an impairment charge of approximately $10.6
million and severance costs of approximately $3.8 million, which have been
classified as special charges in the accompanying statements of income. The
impairment charge represented a reduction of the carrying amounts of the
impaired assets to their estimated fair market values, which were determined
with the aid of an independent, third-party appraisal.
Interest incurred, capitalized, expensed and paid were as follows:
For the years ended
December 27, December 28, December 29,
1998 1997 1996
(In thousands)
Interest costs $12,532 $15,177 $17,362
Interest capitalized (2,729) (1,900) (3,150)
Interest expensed $ 9,803 $13,277 $14,212
Interest paid $12,808 $14,643 $17,711
NOTE 3:
Leases
The Company leases certain office facilities and operating equipment under
cancelable and non-cancelable agreements accounted for as operating leases. At
December 27, 1998, the minimum aggregate rental commitment under all non-
cancelable leases was (in thousands): 1999, $6,890; 2000, $4,975; 2001,
$3,558; 2002, $3,367; 2003, $8,935; and $2,204 for years thereafter. Total rent
expense was (in thousands) $11,052, $13,870 and $11,680 for years 1998, 1997
and 1996, respectively.
NOTE 4:
Debt
Long-term debt consists of the following:
As of
December 27, 1998 December 28, 1997
Carrying Fair Carrying Fair
value value value value
(In thousands)
Medium-term notes $ 40,000 $ 40,000 $ 67,500 $ 70,000
Senior Notes 100,000 101,000 100,000 101,000
Industrial development bonds 5,000 5,000 5,000 5,000
Total 145,000 146,000 172,500 176,000
Less current portion 40,000 40,000 27,500 27,500
$105,000 $106,000 $145,000 $148,500
Fair values were determined using discounted cash flows at current interest
rates for similar borrowings.
As of December 27, 1998, the Company had outstanding $40.0 million of unsecured
medium-term notes which mature in 1999. Interest is due semiannually in April
and October at fixed interest rates ranging from 8.63% to 8.73% per annum.
On July 14, 1995, the Company completed a $100-million private placement of
unsecured Senior Notes at fixed interest rates ranging from 6.76% to 6.95% per
annum. Interest on the notes is due semiannually in January and July. The
Notes are payable as follows: $80 million in 2002 and $20 million in 2005.
The Company is obligated to pay the principal, interest and premium, if any,
on the $5 million, City of Wheat Ridge, Colorado Industrial Development Bonds
(Adolph Coors Company Project) Series 1993. The bonds mature in 2013 and are
secured by a letter of credit. They are currently variable rate securities
with interest payable on the first of March, June, September and December. The
interest rate on December 27, 1998, was 3.95%.
The Company has an unsecured, committed credit arrangement totaling $200
million and as of December 27, 1998, had all $200 million available. This line
of credit has a five-year term which expires in 2002, with two optional one-
year extensions. During 1998, one of the one-year extension options was
exercised, which extended the maturity to 2003. A facilities fee is paid on
the total amount of the committed credit. Under the arrangement, the Company
is required to maintain a certain debt-to-total-capitalization ratio, with
which the Company was in compliance at year-end 1998.
CBC's distribution subsidiary in Japan has two revolving lines of credit that
it utilizes in its normal operations. Each of these facilities provides up to
500 million yen (approximately $4.3 million each as of December 27, 1998) in
short-term financing. As of December 27, 1998, the approximate yen equivalent
of $5.9 million was outstanding under these arrangements and is included in
Accrued expenses and other liabilities in the accompanying balance sheets.
NOTE 5:
Income Taxes
Income tax expense (benefit) includes the following current and deferred
provisions:
For the years ended
December 27, December 28, December 29,
1998 1997 1996
(In thousands)
Current:
Federal $ 41,200 $ 68,435 $ 8,878
State and foreign 10,867 11,241 4,976
Total current tax expense 52,067 79,676 13,854
Deferred:
Federal (7,401) (12,935) 12,154
State and foreign (1,350) (2,108) 5,542
Total deferred tax (benefit)
expense (8,751) (15,043) 17,696
Total income tax expense $ 43,316 $ 64,633 $ 31,550
The Company's income tax expense varies from the amount expected by applying
the statutory federal corporate tax rate to income as follows:
For the years ended
December 27, December 28, December 29,
1998 1997 1996
Expected tax rate 35.0% 35.0% 35.0%
State income taxes, net of
federal benefit 3.1 3.9 4.3
Effect of foreign investments 2.5 0.8 1.6
(Non-taxable income) non-deductible
expenses and losses (1.7) (0.4) 1.9
Effect of reserve for joint venture
investment -- 4.8 --
Other, net 0.1 (0.1) (0.8)
Effective tax rate 39.0% 44.0% 42.0%
The Company's deferred taxes are composed of the following:
As of
December 27, December 28,
1998 1997
(In thousands)
Current deferred tax assets:
Deferred compensation and other
employee related $ 12,354 $ 11,773
Balance sheet reserves and accruals 13,569 18,560
Other 261 1,560
Valuation allowance (2,986) (7,002)
Total current deferred tax assets 23,198 24,891
Current deferred tax liabilities:
Balance sheet reserves and accruals 281 285
Net current deferred tax assets $ 22,917 $ 24,606
Non-current deferred tax assets:
Deferred compensation and other
employee related $ 7,457 $ 2,999
Balance sheet reserves and accruals 4,853 2,784
Other employee postretirement benefits 28,969 28,158
Environmental accruals 2,126 1,469
Deferred foreign losses 2,031 2,142
Other 2,933 1,583
Total non-current deferred tax assets 48,369 39,135
Non-current deferred tax liabilities:
Depreciation and capitalized interest 114,148 115,226
Other -- 128
Total non-current deferred tax liabilities 114,148 115,354
Net non-current deferred tax liabilities $ 65,779 $ 76,219
The deferred tax assets have been reduced by a valuation allowance because
management believes it is more likely than not that such benefits will not be
fully realized. The valuation allowance was reduced during 1998 by
approximately $4.0 million due to a change in circumstances regarding
realizability.
The Internal Revenue Service (IRS) has completed its examination of the
Company's federal income tax returns through 1995. The IRS has proposed
adjustments for the years 1993 through 1995 from the recently completed
examination. The material adjustments would result in a tax liability of
approximately $8 million. The Company has filed a protest for the proposed
adjustments and will begin the administrative appeals process in 1999. In the
opinion of management, adequate accruals have been provided for all income tax
matters and related interest.
The Company and ACX Technologies, Inc. (ACX) are parties to a tax sharing
agreement that provides for, among other things, the treatment of tax matters
for periods prior to the distribution of ACX stock at the end of 1992 and the
assignment of responsibility for adjustments as a result of audits by taxing
authorities and is designed to preserve the status of the distribution as tax-
free (see Note 13).
NOTE 6:
Stock Option, Restricted Stock Award and Employee Award Plans
At December 27, 1998, the Company had four stock-based compensation plans,
which are described in greater detail below. The Company applies Accounting
Principles Board Opinion No. 25 and related interpretations in accounting for
its plans. Accordingly, as the exercise prices upon grant are equal to quoted
market values, no compensation cost has been recognized for the stock option
portion of the plans. Had compensation cost been determined for the Company's
stock option portion of the plans based on the fair value at the grant dates
for awards under those plans consistent with the alternative method set forth
under Financial Accounting Standards Board Statement No. 123, the Company's net
income and earnings per share would have been reduced to the pro forma amounts
indicated below:
1998 1997 1996
(In thousands, except
per share data)
Net income As reported $ 67,784 $ 82,260 $ 43,425
Pro forma $ 61,484 $ 78,077 $ 42,793
Net income per common share- As reported $ 1.87 $ 2.21 $ 1.14
basic Pro forma $ 1.69 $ 2.10 $ 1.13
Net income per common share- As reported $ 1.81 $ 2.16 $ 1.14
diluted Pro forma $ 1.64 $ 2.05 $ 1.12
The weighted-average fair
value of options granted
during the year is: $ 14.96 $ 8.78 $ 7.21
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1998, 1997 and 1996, respectively: dividend
yield of 1.63%, 2.47% and 2.535%; expected volatility of 32.56%, 36.06% and
26.7%; risk-free interest rates of 5.78%, 6.52% and 5.74%; and expected lives
of 10 years for all three years.
1983 Plan: The 1983 non-qualified Adolph Coors Company Stock Option Plan, as
amended, (the 1983 Plan) provides for options to be granted at the discretion
of the board of directors. These options expire 10 years from date of grant.
No options have been granted under this plan since 1989. At this time, the
board of directors has decided not to grant additional options under this plan.
A summary of the status of the Company's 1983 Plan as of December 27, 1998,
December 28, 1997, and December 29, 1996, and changes during the years ended
on those dates is presented below:
Options exercisable
at year-end
Weighted- Weighted-
average average
exercise exercise
Shares price Shares price
Outstanding at December 31, 1995 168,654 $16.66 168,654 $16.66
Exercised 100,231 16.54
Forfeited 18,908 21.97
Outstanding at December 29, 1996 49,515 14.85 49,515 14.85
Exercised 45,627 14.55
Forfeited 3,888 18.36
Outstanding at December 28, 1997 -- N/A -- N/A
Exercised --
Forfeited --
Outstanding at December 27, 1998 -- N/A -- N/A
Common stock available for options under the 1983 Plan as of December 27,
1998, December 28, 1997, and December 29, 1996, was 716,886 shares, 716,886
shares and 712,998 shares, respectively.
1990 Plan: The 1990 Equity Incentive Plan, as amended, (1990 EI Plan) that
became effective January 1, 1990, provides for two types of grants: stock
options and restricted stock awards. The stock options have a term of 10 years
with exercise prices equal to fair market value on the day of the grant. For
grants during 1998 and 1997, one-third of the stock option grant vests in each
of the three successive years after the date of grant. For grants during 1994
through 1996, stock options vested at 10% for each $1 increase in fair market
value of ACC stock from date of grant, with a one-year holding period, or vest
100% after nine years. Once a portion has vested, it is not forfeited even if
the fair market value drops. All of the grants issued during 1994 through 1996
were fully vested as of December 27, 1998. In November 1989, the board of
directors authorized 2 million shares of common stock for issuance under the
1990 EI Plan, effective as of January 1, 1990. In February 1995, the board of
directors approved an increase in the authorized shares from 2 million to 5
million shares, effective as of May 11, 1995. In November 1997, the board of
directors approved another increase in the authorized shares to a total of 8
million shares for issuance under the 1990 EI Plan, effective as of November
13, 1997.
A summary of the status of the Company's 1990 EI Plan as of December 27, 1998,
December 28, 1997, and December 29, 1996, and changes during the years ending
on those dates is presented below:
Options exercisable
at year-end
Weighted- Weighted-
average average
exercise exercise
Shares price Shares price
Outstanding at December 31, 1995 1,286,052 $16.35 512,708 $15.95
Granted 614,674 21.27
Exercised 107,327 16.26
Forfeited 70,035 18.84
Outstanding at December 29, 1996 1,723,364 18.01 846,273 16.30
Granted 1,573,742 20.23
Exercised 901,834 17.71
Forfeited 143,093 19.21
Outstanding at December 28, 1997 2,252,179 19.61 769,202 18.25
Granted 794,283 33.83
Exercised 616,914 18.66
Forfeited 99,331 25.06
Outstanding at December 27, 1998 2,330,217 24.47 630,457 19.06
The following table summarizes information about stock options outstanding at
December 27, 1998:
Options Outstanding Options exercisable
at year-end at year-end
Weighted-
average Weighted- Weighted-
Range of remaining average average
Exercise contractual exercise exercise
Prices Shares life price Shares price
$14.45-$22.00 1,473,679 7.5 $19.00 616,318 $18.72
$26.88-$33.41 777,332 9.0 $33.24 8,096 $30.98
$35.81-$52.31 79,206 9.1 $40.25 6,043 $37.69
$14.45-$52.31 2,330,217 8.1 $24.47 630,457 $19.06
Common stock available for options under the 1990 EI Plan as of December 27,
1998, December 28, 1997, and December 29, 1996 was 3,986,146 shares, 4,675,195
shares and 3,105,844 shares, respectively.
In 1998, 85,651 shares of restricted stock were issued under the 1990 EI Plan.
Vesting in the restricted stock awards, which is either pro rata for each
successive year or cliff vesting, is for a three-year period from the date of
grant. The compensation cost associated with these awards was immaterial. In
1997, 40,201 shares of restricted stock were issued under the 1990 EI Plan.
Vesting in the restricted stock award is one year from the date of grant.
Compensation cost associated with these awards was immaterial in 1998 and
1997. In 1996, 45,390 shares of restricted stock were issued under the 1990 EI
Plan. Vesting in the restricted stock awards is over a three-year period from
the date of grant. The compensation cost associated with these awards is
amortized to expense over the vesting period. Compensation cost associated
with these awards was immaterial in 1998, 1997 and 1996.
1991 Plan: In 1991, the Company adopted the Equity Compensation Plan for Non-
Employee Directors (EC Plan). The EC Plan provides for two grants of the
Company's stock: the first grant is automatic and equals 20% of the director's
annual retainer, and the second grant is elective and covers all or any portion
of the balance of the retainer. A director may elect to receive his remaining
80% retainer in cash, restricted stock or any combination of the two. Grants of
stock vest after completion of the director's annual term. The compensation
cost associated with the EC Plan is amortized over the director's term.
Compensation cost associated with this plan was immaterial in 1998, 1997 and
1996. Common stock reserved for this plan as of December 27, 1998, was 31,250
shares.
1995 Supplemental Compensation Plan: In 1995, the Company adopted a
supplemental compensation plan that covers substantially all its employees.
Under the plan, management is allowed to recognize employee achievements
through awards of Coors Stock Units (CSUs) or cash. CSUs are a measurement
component equal to the fair market value of the Company's Class B common stock.
CSUs have a one-year holding period after which the recipient may redeem the
CSUs for cash, or, if the holder has 100 or more CSUs, shares of the Company's
Class B common stock. Prior to 1997, the CSUs had a six-month holding period.
Awards under the plan in 1998, 1997 and 1996 were immaterial. Common stock
available under this plan as of December 27, 1998, was 83,707 shares.
NOTE 7:
Employee Retirement Plans
The Company maintains several defined benefit pension plans for the majority
of its employees. Benefits are based on years of service and average base
compensation levels over a period of years. Plan assets consist primarily of
equity, interest-bearing investments and real estate. The Company'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. Total expense for all these plans was $11.9 million in
1998, $14.1 million in 1997 and $24.8 million in 1996. These amounts include
the Company's matching for the savings and investment (thrift) plan of $6.1
million in 1998, $5.8 million in 1997 and $5.7 million in 1996. The steady
decrease in pension expense from 1996 through 1998 is primarily due to the
improvement in the funded position of the Coors Retirement Plan over that
period. In November 1998, the ACC board of directors approved changes to one
of the plans. The changes, which will result in an amendment to the plan, will
be effective July 1, 1999, and will increase the projected benefit obligation
at the effective date by approximately $48 million. To offset the increase in
the projected benefit obligation of the defined benefit pension plan, the
Company made a $48-million contribution to the plan in January 1999.
Note that the settlement rates shown in the table on the following page were
selected for use at the end of each of the years shown. The Company's actuary
calculates pension expense annually based on data available at the beginning
of each year, which includes the settlement rate selected and disclosed at the
end of the previous year.
For the years ended
December 27, December 28, December 29,
1998 1997 1996
(In thousands)
Components of net periodic
pension cost:
Service cost-benefits earned
during the year $ 14,449 $ 11,234 $ 12,729
Interest cost on projected
benefit obligation 33,205 32,730 31,162
Expected return on plan assets (42,498) (36,176) (29,676)
Amortization of prior service cost 2,274 2,274 2,274
Amortization of net transition amount (1,691) (1,690) (1,690)
Recognized net actuarial loss (gain) 28 (111) 4,279
Net periodic pension cost $ 5,767 $ 8,261 $ 19,078
The changes in the benefit obligation and plan assets and the funded status of
the pension plans are as follows:
As of
December 27, December 28,
1998 1997
(In thousands)
Change in projected benefit obligation:
Projected benefit obligation at
beginning of year $465,229 $422,516
Service cost 14,449 11,234
Interest cost 33,205 32,729
Actuarial loss 40,932 22,660
Benefits paid (21,259) (23,910)
Projected benefit obligation at end of year $532,556 $465,229
Change in plan assets:
Fair value of assets at beginning of year $465,494 $394,206
Actual return on plan assets 33,006 78,163
Employer contributions 2,759 17,035
Benefits paid (21,259) (23,910)
Fair value of plan assets at end of year $480,000 $465,494
Funded status - (shortfall) excess $(52,556) $ 265
Unrecognized net actuarial loss (gain) 28,836 (21,560)
Unrecognized prior service cost 14,303 16,577
Unrecognized net transition amount (2,419) (4,110)
Accrued benefit cost $(11,836) $ (8,828)
1998 1997 1996
Weighted average assumptions as of year-end:
Discount rate 7.00% 7.25% 7.75%
Rate of compensation increase 4.50% 4.50% 5.00%
Expected return on plan assets 10.50% 10.25% 10.25%
NOTE 8:
Non-Pension Postretirement Benefits
The Company has postretirement plans that provide medical benefits and life
insurance for retirees and eligible dependents. The plans are not funded.
The obligation under these plans was determined by the application of the terms
of medical and life insurance plans, together with relevant actuarial
assumptions and health care cost trend rates ranging ratably from 8.5% in 1998
to 4.25% in 2008. The discount rate used in determining the accumulated
postretirement benefit obligation was 7.00%, 7.25% and 7.75% at December 27,
1998, December 28, 1997, and December 29, 1996, respectively. In November 1998,
the ACC board of directors approved changes to one of the plans. The changes,
which will result in an amendment to the plan, will be effective July 1, 1999,
and will increase the accumulated postretirement benefit obligation at the
effective date by approximately $6.7 million.
The changes in the benefit obligation and plan assets and the funded status of
the postretirement benefit plan are as follows:
For the years ended
December 27, December 28, December 29,
1998 1997 1996
(In thousands)
Components of net periodic
postretirement benefit cost:
Service cost - benefits earned
during the year $ 1,484 $ 1,408 $ 2,065
Interest cost on projected
benefit obligation 4,707 4,775 5,082
Recognized net actuarial gain (207) (353) (310)
Net periodic postretirement
benefit cost $ 5,984 $ 5,830 $ 6,837
As of
December 27, December 28,
1998 1997
(In thousands)
Change in projected postretirement
benefit obligation:
Projected benefit obligation at beginning of year $ 67,916 $ 62,677
Service cost 1,484 1,408
Interest cost 4,707 4,775
Actuarial loss 1,504 2,686
Benefits paid (3,489) (3,630)
Projected postretirement benefit
obligation at end of year $ 72,122 $ 67,916
Change in plan assets:
Fair value of assets at beginning of year $ -- $ --
Actual return on plan assets -- --
Employer contributions 3,489 3,630
Benefits paid (3,489) (3,630)
Fair value of plan assets at end of year $ -- $ --
Funded status - shortfall $(72,122) $(67,916)
Unrecognized net actuarial gain (5,552) (7,188)
Unrecognized prior service cost (360) (434)
Accrued postretirement benefits (78,034) (75,538)
Less current portion 3,565 3,630
Long-term postretirement benefits $(74,469) $(71,908)
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:
One-percentage- One-percentage-
point increase point decrease
(In thousands)
Effect on total of service and interest
cost components $ 514 $ (444)
Effect of postretirement benefit obligation $4,207 $(3,693)
NOTE 9:
Special Charges (Credits)
The annual results for 1998 included a third quarter pretax net special charge
of $19.4 million, which resulted in after-tax expense of $0.32 per basic share
($0.31 per diluted share). This charge included a $17.2-million pretax charge
for severance and related costs of restructuring the Company's production
operations. The severance costs related to the restructuring were comprised of
costs under a voluntary severance program involving the Company's production
work force plus severance costs incurred for a small number of salaried
employees. Approximately 200 production employees accepted severance packages
under the voluntary program. Of the total severance charge, approximately $8.7
million of these costs were paid as of December 27, 1998. Also included in the
third quarter results was a $2.2-million pretax charge for the impairment of
certain long-lived assets at one of the Company's distributorships (see
discussion at Note 2).
The annual results for 1997 included a pretax net special credit of $31.5
million, which resulted in after-tax income of $0.37 per basic share ($0.36
per diluted share). First quarter results included a $1.0-million pretax
charge for Molson Breweries (Molson) legal proceedings. Second quarter results
included a $71.5-million special credit relating to a payment from Molson to
settle legal disputes with the Company, less approximately $2.2 million in
related legal expenses. Also in the second quarter, CBC recorded a $22.4-
million reserve related to the recoverability of its investment in Jinro-Coors
Brewing Company (JCBC) of Korea (see Note 10), as well as a $14.4-million
charge related to CBC's brewery in Zaragoza, Spain, for the impairment of
certain long-lived assets (see Note 2) and goodwill and for severance costs for
a limited work force reduction.
The annual results for 1996 included a pretax net special charge of $6.3
million which resulted in after-tax expense of $0.11 per basic share ($0.10
per diluted share). Second quarter results included a $5.2-million pretax
charge for the ongoing Molson legal proceedings and severance costs for
restructuring the Company's engineering and construction operations. Results
of the third quarter included a $6.7-million pretax credit for underpaid past
royalties and interest from Molson (net of related legal expenses) and income
from the continuing effect of changes made in payroll-related practices during
1995. Fourth quarter results included a $7.9-million pretax charge for Molson-
related legal expenses, partially offset by underpaid past royalties from
Molson and the continuing effect of changes made in payroll-related practices
during 1995.
NOTE 10:
Investments
Equity method investments: The Company has investments in affiliates that are
accounted for using the equity method of accounting. These investments
aggregated $62.3 million and $51.7 million at December 27, 1998, and December
28, 1997, respectively. These investment amounts are included in Other assets
on the Company's consolidated balance sheets.
Summarized condensed balance sheet and income statement information for the
Company's equity method investments are as follows:
Summarized condensed balance sheets:
As of
December 27, December 28,
1998 1997
(In thousands)
Current assets $90,092 $76,260
Non-current assets 94,508 78,829
Current liabilities 55,312 40,859
Non-current liabilities 123 4,437
Summarized condensed statements of operations:
For the years ended
December 27, December 28, December 29,
1998 1997 1996
(In thousands)
Net sales $453,246 $372,479 $357,273
Gross profit 97,478 39,459 37,372
Net income 59,650 22,384 19,289
Company's equity in operating
income 33,227 15,893 11,467
The Company's share of operating income of these non-consolidated affiliates
is primarily included in Sales and Cost of goods sold on the Company's
consolidated statements of income.
Coors Canada, Inc. (CCI), a subsidiary of ACC, formed a partnership, Coors
Canada, with The Molson Companies Limited (Molson Companies) to develop the
business related to Coors products in Canada. Coors Canada began operations
January 1, 1998. CCI and Molson Companies have a 50.1% and 49.9% interest,
respectively. CCI's investment in the partnership is accounted for using the
equity method of accounting due to Molson Companies' participating rights in
the partnership's business operations. The partnership agreement has an
indefinite term and can be canceled at the election of either partner. Under
the partnership agreement, Coors Canada is responsible for marketing Coors
products in Canada, while the partnership contracts with Molson for brewing,
distribution and sales of these brands. Coors Canada receives an amount from
Molson generally equal to net sales revenue generated from the Coors brands
less production, distribution, sales and overhead costs related to these sales.
During 1998, CCI received a $15.3-million distribution from the partnership.
See also discussion at Note 12.
In 1995, CBC and Anchor Glass Container Corporation (Anchor) formed a 50/50
joint venture to produce glass bottles at the CBC glass manufacturing facility
for sale to CBC and outside customers. In 1996, Owens-Brockway Glass Container,
Inc. (Owens) purchased certain Anchor assets and assumed Anchor's rights and
obligations under the partnership agreement. The agreement has an initial term
of 10 years and can be extended for additional two-year periods. Under the
terms of the agreement, CBC agreed to contribute machinery, equipment and
certain personal property with an approximate net book value of $16.2 million
and Owens agreed to contribute technology and capital, which would be used to
modernize and expand the capacity of the plant. Also under the agreement, CBC
agreed to purchase an annual quantity of bottles, which represents a 1999
commitment of approximately $71 million. The expenditures under this agreement
in 1998, 1997 and 1996 were approximately $67 million, $59 million and $54
million, respectively. Additionally, the companies entered into another 10-year
agreement that made Owens a long-term, preferred supplier for CBC, satisfying
100% of CBC's other glass requirements.
In 1994, CBC and American National Can Company (ANC) formed a 50/50 joint
venture to produce beverage cans and ends at CBC manufacturing facilities for
sale to CBC and outside customers. The agreement has an initial term of seven
years and can be extended for two additional three-year periods. Additionally,
the agreement requires CBC to purchase 100% of its can and end needs from the
joint venture at contracted unit prices and to pay an annual fee for certain
operating costs. The aggregate amount paid to the joint venture for cans and
ends in 1998, 1997 and 1996 was approximately $231 million, $227 million and
$217 million, respectively. The estimated cost in 1999 under this agreement
for cans and ends is $219 million. Additionally, during 1998 CBC received a
$7.5-million distribution from this joint venture.
CBC is a limited partner in a partnership in which a subsidiary of ACX is the
general partner. The partnership owns, develops, operates and sells certain
real estate previously owned directly by CBC or ACC. Each partner is obligated
to make additional contributions of up to $500,000 upon call of the general
partner. Distributions are allocated equally between the partners until CBC
recovers its investment and thereafter 80% to the general partner and 20% to
CBC. Currently distributions are still being split equally between the
partners.
Cost investments: CBC invested approximately $22 million in JCBC in 1992 for
a 33% interest. CBC has accounted for the investment under the cost basis of
accounting, given that CBC has not had the ability to exercise significant
influence over JCBC and that CBC's investment in JCBC has been considered
temporary. This investment included a put option that was exercised by CBC in
December 1997. The put option entitled CBC to require Jinro Limited (the 67%
owner of JCBC) to purchase CBC's investment at the greater of cost or market
value (both measured in Korean won).
Beginning in April 1997, Jinro Limited, a publicly-traded subsidiary of Jinro
Group, missed debt payments and began attempting to restructure. In response
to its financial difficulties and those of its subsidiaries (including JCBC),
Jinro Group has been working with its creditors and the Korean government to
restructure its debts and has been selling real estate and merging and/or
selling businesses. The financial difficulties of JCBC and Jinro Limited, the
guarantor of the put option discussed above, called into question the
recoverability of CBC's investment in JCBC. Therefore, during the second
quarter of 1997, CBC fully reserved for its investment in JCBC. This reserve
was classified as a special charge in the accompanying statements of income.
CBC exercised its put option in December 1997 and, as a result, reclassified
its investment in JCBC to a note receivable from Jinro Limited. Since Jinro
Limited's obligation under the put option is measured in Korean won and given
the current significant devaluation of that currency, the full amount received
from Jinro Limited would be significantly less than the value of CBC's
original investment. Jinro Limited, which is operating under protection from
its creditors under the Korean composition law, had until June 1998 to perform
its obligation under the put option. It did not perform. The obligation arising
from CBC's put exercise is subject to the terms of Jinro Limited's composition
plan. The note receivable is unsecured and potentially has very little value
under the composition plan. In February 1999, Jinro Limited announced a plan to
sell JCBC through international bidding by the end of June 1999. The Company
intends to participate in the bidding process. If the plan to sell JCBC is not
successful, a program will be set up to liquidate the assets.
In 1991, CBC entered into an agreement with Colorado Baseball Partnership 1993,
Ltd. for an equity investment and multiyear signage and advertising package.
This commitment, totaling approximately $30 million, was finalized upon the
awarding of a National League baseball franchise to Colorado in 1991. The
initial investment as a limited partner has been paid. The carrying value of
this investment approximates its fair value at December 27, 1998, and December
28, 1997. During 1998, the agreement was modified to extend the term and expand
the conditions of the multiyear signage and advertising package. The
recognition of the liability under the multiyear signage and advertising
package began in 1995 with the opening of Coors Field(R). This liability is
included in the total advertising and promotion commitment discussed in
Note 13.
NOTE 11:
Stock Activity and Earnings Per Share
Capital stock: Both classes of common stock have the same rights and
privileges, except for voting, which (with certain limited exceptions) is the
sole right of the holder of Class A stock.
Activity in the Company's Class A and Class B common stock, net of forfeitures,
for each of the three years ended December 27, 1998, December 28, 1997, and
December 29, 1996, is summarized below:
Common stock
Class A Class B
Balances at December 31, 1995 1,260,000 36,736,512
Shares issued under stock plans -- 256,897
Purchases of stock -- (331,005)
Balances at December 29, 1996 1,260,000 36,662,404
Shares issued under stock plans -- 989,857
Purchases of stock -- (2,052,905)
Balances at December 28, 1997 1,260,000 35,599,356
Shares issued under stock plans -- 607,588
Purchases of stock -- (811,638)
Balances at December 27, 1998 1,260,000 35,395,306
At December 27, 1998, December 28, 1997, and December 29, 1996, 25 million
shares of $1 par value preferred stock were authorized but unissued.
In November 1997, the board of directors authorized the repurchase during 1998
of up to $40 million of ACC's outstanding Class B common stock on the open
market. During 1998, 766,200 shares were repurchased for approximately $24.9
million under this stock repurchase program. In December 1996, the board of
directors authorized the repurchase during 1997 of up to $40 million of stock
on the open market. During 1997, the Company repurchased 969,500 shares for
approximately $24.9 million under this stock repurchase program. In November
1998, the board of directors extended the program and authorized the
repurchase during 1999 of up to $40 million of stock.
During 1998 and 1997, the Company purchased shares under the right-of-first-
refusal provision of its stock option plans and, during 1997, purchased
shares from one of its directors and various other sources.
Earnings per share: ACC adopted Statement of Financial Accounting Standards
No. 128, "Earnings per Share" (SFAS 128), effective with year-end 1997
reporting. SFAS 128 requires mandatory presentation of both a basic and
diluted earnings per share. All per share amounts have been restated to comply
with the requirements of SFAS 128.
Basic and diluted net income per common share were arrived at using the
calculations outlined below:
For the years ended
December 27, December 28, December 29,
1998 1997 1996
(In thousands, except per share data)
Net income available to
common shareholders $67,784 $82,260 $43,425
Weighted-average shares
for basic EPS 36,312 37,218 37,966
Basic EPS $1.87 $2.21 $1.14
Effect of dilutive securities:
Stock options 1,077 751 225
Contingent shares not included in
shares outstanding for basic EPS 126 87 28
Weighted-average shares
for diluted EPS 37,515 38,056 38,219
Diluted EPS $1.81 $2.16 $1.14
The dilutive effects of stock options were arrived at by applying the treasury
stock method, assuming the Company was to purchase common shares with the
proceeds from stock option exercises.
NOTE 12:
Segment and Geographic Information
The Company has one reporting segment relating to the continuing operations of
producing and marketing malt-based beverages. The Company's operations are
conducted in the United States, the country of domicile, and several foreign
countries, none of which are individually significant to the Company's overall
operations. The revenues from external customers and operating income
attributable to the United States and all foreign countries for the years
ended December 27, 1998, December 28, 1997, and December 29, 1996 are as
follows:
1998 1997 1996
(In thousands)
United States:
Revenues $1,872,718 $1,787,534 $1,714,989
Operating income $ 93,626 $ 90,501 $ 97,568
Foreign countries:
Revenues $ 26,815 $ 33,770 $ 26,846
Operating income (loss) $ 10,193 $ 56,892 $ (16,794)
Included in 1998 foreign revenues are earnings from CCI, the Company's
investment accounted for using the equity method of accounting (see Note 10).
In 1997 and 1996, prior to the formation of CCI, foreign revenues include
Canadian royalties earned under a licensing agreement.
The net long-lived assets located in the United States and all foreign
countries as of December 27, 1998, and December 28, 1997, are as follows:
1998 1997
(In thousands)
United States $702,923 $722,996
Foreign countries 11,518 10,121
Total $714,441 $733,117
The total export sales (in thousands) during 1998, 1997 and 1996 were
$152,353, $125,569 and $94,116, respectively.
NOTE 13:
Commitments and Contingencies
Insurance: It is the Company's policy to act as a self-insurer for certain
insurable risks consisting primarily of employee health insurance programs,
workers' compensation and general liability contract deductibles. During 1998,
the Company fully insured future risks for long-term disability, and, in most
states, workers' compensation, but maintains a self-insured position for
workers' compensation for certain self-insured states and for claims incurred
prior to the inception of the insurance coverage in 1997.
In 1991, the Company became aware that Mutual Benefit Life Insurance Company
(MBLIC) had been placed under the control of the State of New Jersey. The
Company is a holder of several life insurance policies and annuities through
MBLIC. The cash surrender value under these policies is approximately $7.1
million. Policyholders have been notified that all claims, benefits and
annuity payments will continue to be paid in full; however, at this time,
policyholders are unable to redeem the full value of their policies for cash.
A moratorium charge would be applied to policies that are redeemed.
Letters of credit: As of December 27, 1998, the Company has approximately $17
million outstanding in letters of credit with certain financial institutions.
These letters generally expire within 12 months from the dates of issuance,
which range from March 1999 to October 1999. These letters of credit are being
maintained as security for performance on certain insurance policies,
operations of underground storage tanks, as parent guarantees for bank
financing and overdraft protection of a foreign subsidiary and payments of
liquor and duty taxes and energy billings.
Power supplies: In 1995, Coors Energy Company (CEC), a subsidiary of CBC,
sold a portion of its coal reserves to Bowie Resources Ltd. (Bowie). CEC also
entered into a 10-year agreement to purchase 100% of the brewery's coal
requirements from Bowie. The coal then is sold to Trigen-Nations Energy
Corporation, L.L.L.P. (Trigen).
In September 1995, CBC concluded the sale of its power plant and support
facilities to Trigen. In conjunction with this sale, CBC agreed to purchase
the electricity and steam needed to operate the brewery's Golden facilities
through 2020. CBC's financial commitment under this agreement is divided
between a fixed, non-cancelable cost of approximately $12.9 million for 1999,
which adjusts annually for inflation, and a variable cost, which is generally
based on fuel cost and CBC's electricity and steam use.
Supply Contracts: The Company has various long-term supply contracts with
unaffiliated third parties to purchase materials used in production and
packaging, such as cans and glass. The supply contracts provide for the
Company to purchase certain minimum levels of materials for terms extending
from five to 12 years. The approximate future purchase commitments under all of
these third-party supply contracts are as follows:
Fiscal Year Amount
(In thousands)
1999 $ 106,200
2000 106,200
2001 106,200
2002 75,000
2003 75,000
Thereafter 150,000
Total $ 618,600
The Company's total purchases (in thousands) under these contracts in fiscal
year 1998, 1997 and 1996 were approximately $95,600, $84,900 and $106,900,
respectively.
ACX: At the end of 1992, the Company distributed to its shareholders the
common stock of ACX. ACX was formed in 1992 to own the ceramics, aluminum,
packaging and technology-based development businesses which were then owned by
ACC. William K. Coors, a director of both ACC and ACX during 1998, and Peter H.
Coors are trustees of one or more family trusts that collectively own all of
ACC's voting stock and approximately 46% of ACX's common stock. Joseph Coors, a
director of ACC, resigned as director of ACX in July 1996. ACC and ACX or their
subsidiaries have certain business relationships and have engaged, or proposed
to engage, in certain transactions with one another, as described below.
When ACX was spun off in 1992, CBC entered into market-based, long-term supply
agreements with certain ACX subsidiaries to provide CBC packaging, aluminum
and starch products. Under the packaging supply agreement, CBC agreed to
purchase all of its paperboard (including composite packages, labels and
certain can wrappers) from an ACX subsidiary through 1997. In early 1997, this
contract was modified and extended until at least 1999. In late 1998, this
contract was again modified and extended until 2002. In early 1997, ACX's
aluminum manufacturing business was sold to a third party. The aluminum
contracts were canceled in 1995. Since late 1994, ANC has been the purchasing
agent for the joint venture between ANC and CBC and has ordered limited
quantities of can, end and tab stock from the now-former ACX subsidiary.
Additionally, ANC purchased a small quantity of tab stock from this subsidiary
for the joint venture in early 1997. Under the starch supply agreement, CBC
agreed to purchase 100 million pounds of refined corn starch annually from an
ACX subsidiary through 1997. In early 1997, this agreement was renegotiated,
at slightly higher rates, and extended through 1999. In February 1999, ACX
sold the assets of the subsidiary, which was party to the starch agreement, to
an unaffiliated third party, who was assigned the starch supply agreement.
CBC's total purchases under these agreements in 1998 were approximately $120
million. Purchases from the related parties in 1999 under the packaging and
starch supply agreements are estimated to be approximately $103 million.
Advertising and promotions: In July 1998, the Company announced a long-term
sponsorship and promotion agreement with the owners of the Pepsi Center(TM), an
arena under construction in Denver, Colorado, which will be the future home of
the city's professional hockey and men's basketball teams. With the addition
of this agreement, the Company's total commitments for advertising and
promotions at sports arenas, stadiums and other venues and events are
approximately $97 million over the next 10 years.
Environmental: The City and County of Denver; Waste Management of Colorado,
Inc. and Chemical Waste Management, Inc. brought litigation in 1991 in U.S.
District Court against the Company and 37 other "potentially responsible
parties" to determine the allocation of costs of Lowry site remediation. In
1993, the Court approved a settlement agreement between the Company and the
plaintiffs, resolving the Company's liabilities for the site. The Company
agreed to initial payments based on an assumed present value of $120 million
in total site remediation costs. Further, the Company agreed to pay a specified
share of costs if total remediation costs exceeded this amount. The Company
remitted its agreed share of $30 million, based on the $120-million assumption,
to a trust for payment of site remediation, operating and maintenance costs.
The City and County of Denver; Waste Management of Colorado, Inc., and Chemical
Waste Management, Inc. are expected to implement site remediation. The
Environmental Protection Agency's projected costs to meet the announced
remediation objectives and requirements are currently below the $120-million
assumption used for ACC's settlement. The Company has no reason to believe that
total remediation costs will result in additional liability to the Company.
Litigation: The Company also is named as defendant in various actions and
proceedings arising in the normal course of business. In all of these cases,
the Company is denying the allegations and is vigorously defending itself
against them and, in some instances, has filed counterclaims. Although the
eventual outcome of the various lawsuits cannot be predicted, it is
management's opinion that these suits will not result in liabilities that would
materially affect the Company's financial position or results of operations.
Restructuring: At December 27, 1998, the Company had a $2.8-million liability
related to personnel accruals as a result of a restructuring of operations
that occurred in 1993. These accruals relate to obligations under deferred
compensation arrangements and postretirement benefits other than pensions. For
the restructuring liability incurred during 1998, see discussion at Note 9.
Labor: Approximately 7% of the Company's work force, located principally at
the Memphis brewing and packaging facility, is represented by a labor union
with whom the Company engages in collective bargaining. A labor contract
prohibiting strikes took effect in early 1997 and extends to the year 2001.
Year 2000 (unaudited): Some computers, software and other equipment include
programming code in which calendar year data are abbreviated to only two
digits. As a result of this design decision, some of these systems could fail
to operate or fail to produce correct results if `00' is interpreted to mean
1900 rather than 2000. These problems are widely expected to increase in
frequency and severity as the Year 2000 approaches.
ACC recognizes the need to ensure that its operations will not be adversely
impacted by Year 2000 software failures. The Company is addressing this issue
to ensure the availability and integrity of its financial systems and the
reliability of its operational systems. ACC has established processes for
evaluating and managing the risks and costs associated with the Year 2000
problem. This project has two major elements -- Application Remediation and
Extended Enterprise (third-party suppliers, customers and others).
As of December 27, 1998, the Application Remediation element is on schedule,
with 85% of the analysis completed, 74% of the remediation completed and 41%
of the testing completed. Remediation of systems considered critical to ACC's
business is expected to be completed by June 1999, and remediation of non-
critical systems is planned to be completed by September 1999.
The Extended Enterprise element consists of the evaluation of third-party
suppliers, customers, joint venture partners, transportation carriers and
others. Detailed evaluations of the most critical third parties have been
initiated.
The Company has made and will continue to make certain investments in its
information systems and applications to ensure that they are Year 2000
compliant. These investments also include hardware and operating systems
software, which are generally on schedule and are expected to be completed by
June 1999. The financial impact to ACC is anticipated to be in the range of
approximately million $12 to $15 million for 1999. The anticipated expenditures
in 2000 are minimal. The total amount expended on the Year 2000 project through
December 27, 1998, was approximately $23 million.
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-party suppliers, customers and
others, the Company is unable to determine at this time whether the
consequences of Year 2000 failures will have a material impact on its results
of operations, liquidity or financial condition. The Year 2000 project is
expected to significantly reduce ACC's level of uncertainty about the Year 2000
problem and, in particular, about the Year 2000 readiness of its Extended
Enterprise.
Contingency planning for the Application Remediation and the Extended
Enterprise elements began in October 1998 with initial plans completed in March
1999. The Company will monitor third-party distributors for Year 2000 readiness
and will develop a contingency plan if a distributor is deemed critical to the
Company's operations.
NOTE 14:
Quarterly Financial Information (Unaudited)
The following summarizes selected quarterly financial information for each of
the two years in the period ended December 27, 1998.
In the third quarter of 1998 and the first and second quarters of 1997,
certain adjustments were made which were not of a normal and recurring nature.
As described in Note 9, income in 1998 was decreased by a special pretax
charge of $19.4 million, or $0.32 per basic share ($0.31 per diluted share)
after tax, and income in 1997 was increased by a special pretax credit of
$31.5 million, or $0.37 per basic share ($0.36 per diluted share) after tax.
Refer to Note 9 for a further discussion of special charges (credits).
ADOLPH COORS COMPANY AND SUBSIDIARIES
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
First Second Third Fourth Year
1998 (In thousands, except per share data)
Net sales $414,145 $541,944 $499,360 $444,084 $1,899,533
Gross profit $152,218 $232,597 $189,878 $165,953 $ 740,646
Net income $ 9,786 $ 39,538 $ 9,081 $ 9,379 $ 67,784
Net income per
common share - basic $ 0.27 $ 1.09 $ 0.25 $ 0.26 $ 1.87
Net income per
common share - diluted $ 0.26 $ 1.06 $ 0.24 $ 0.25 $ 1.81
First Second Third Fourth Year
1997 (In thousands, except per share data)
Net sales $398,781 $520,585 $489,491 $412,447 $1,821,304
Gross profit $142,580 $217,452 $187,333 $142,329 $ 689,694
Net income $ 8,045 $ 51,018 $ 17,439 $ 5,758 $ 82,260
Net income per
common share - basic $ 0.21 $ 1.37 $ 0.47 $ 0.16 $ 2.21
Net income per
common share - diluted $ 0.21 $ 1.34 $ 0.46 $ 0.15 $ 2.16
ITEM 9. Disagreements on Accounting and Financial Disclosure
None.
PART III
ITEM 10. Directors and Executive Officers of the Registrant
(a) Directors
WILLIAM K. COORS (Age 82) is chairman of the board and president of Adolph
Coors Company (ACC or the Company) and has served in such capacities since 1970
and 1989, respectively. He has served as a director since 1940. He is the
chairman of the Executive Committee. He is also a director and chairman of the
board of Coors Brewing Company (CBC) and ACX Technologies, Inc. (ACX).
JOSEPH COORS (Age 81) is vice chairman of ACC and has served in that capacity
since 1975. He has served as a director since 1942. He retired from day-to-day
operations in December 1987. He is a member of the Executive Committee and the
Audit Committee. He is also a director of CBC. He was a director of ACX from
October 1992 until his resignation in July 1996 and now is director emeritus.
PETER H. COORS (Age 52) is vice president of ACC and chief executive officer
and vice chairman of CBC and has served in that capacity since 1993. He has
served as a director of ACC since 1973. Prior to 1993, he served as executive
vice president of ACC and chairman of the brewing group. He served as interim
treasurer and chief financial officer from December 1993 to February 1995. He
is also a director of CBC. He is a member of the Executive Committee. In his
career at CBC, he has served in a number of different positions, including
divisional president of sales, marketing and administration and secretary
(1982-1985); senior vice president, sales and marketing (1978-1982); vice
president (1976-1978); and assistant secretary and assistant treasurer
(1974-1976). Since March 1996, he has been a director of U.S. Bancorp. Since
1997, he has been a director of Energy Corporation of America.
W. LEO KIELY III (Age 52) became president and chief operating officer of CBC
as of March 1, 1993. He was named a director of ACC and CBC in August 1998.
Prior to joining CBC and from 1991 - 1993, he served as division
vice president and then division president of the Frito-Lay, Inc. subsidiary of
PepsiCo in Plano, Texas. From 1989-1991, he served as senior vice president of
field operations, overseeing the operations of Frito-Lay's four regional
business teams. He serves on the board of directors of Sunterra Resorts, Inc.
and the National Association of Manufacturers. He also serves on the
Metropolitan State College of Denver, the Foundation Board and the Denver
Center for the Performing Arts. He is also a national trustee of the Boys &
Girls Clubs of America and chair of the 1998 Denver United Way campaign.
J. BRUCE LLEWELLYN (Age 71) served as a director from 1989 until May 1998, at
which time he retired. He was a member of the Audit Committee until May 1996
and was the chairman of the Compensation Committee until he retired. He was
also a director of CBC. He is an attorney and is involved in the management of
several businesses in which he is an investor. He is currently the chairman of
the board and chief executive officer of Philadelphia Coca Cola Bottling Co.,
Inc. He is also a director of Teleport Communications Group, Inc.
LUIS G. NOGALES (Age 55) has served as a director since 1989. He is a member
of the Audit Committee and was a member of the Compensation Committee until May
1996. In May 1998, he was named the chairman of the Compensation Committee. He
is also a director of CBC. He is president of Nogales Partners, an acquisition
firm (1990-present). In the past, he was chairman and chief executive officer
of Embarcadero Media (1992-1997); president of Univision, the nation's largest
Spanish language television network (1986-1988); and chairman and chief
executive officer of United Press International (1983-1986). He is also a
director of Southern California Edison Company, Edison International and
Kaufman and Broad Home Corporation.
PAMELA H. PATSLEY (Age 42) joined the Company as a director in November of
1996. She is also a director of CBC. She chairs the Audit Committee and is a
member of the Compensation Committee. She is president, chief executive officer
and a director of Paymentech, Inc. in Dallas. She began her career with First
USA, Inc. in 1985 as a founding officer of the company. Before joining First
USA, Patsley was with KPMG Peat Marwick. She is also a director of Message
Media, Inc.
WAYNE R. SANDERS (Age 51) joined the Company as a director in February of 1995.
He is a member of the Compensation Committee and the Audit Committee. He is
also a director of CBC. He is chairman of the board and chief executive officer
of Kimberly-Clark (K-C) Corporation in Dallas. Sanders joined K-C in 1975 as a
senior financial analyst. For the past 20 years, he has served in a number of
positions with K-C. He was named to his current position in 1992. Prior to
that, he served as president and chief executive officer (1991), and as
president, World Consumer, Nonwovens and Service and Industrial Operations
(1990). He was elected to K-C's board of directors in August 1989. He is also a
director of Texas Instruments Incorporated and Chase Bank of Texas, a trustee
of Marquette University and a national trustee of the Boys and Girls Clubs of
America.
ALBERT C. YATES (Age 56) joined the Company as a director in August of 1998.
He is a member of the Compensation Committee and the Audit Committee. He is
also a director of CBC. He is president of Colorado State University in Fort
Collins, Colorado, and chancellor of Colorado State University System. He is a
member of the board of First Interstate Bank. He has served on the board of the
Fort Collins Chamber of Commerce and the Federal Reserve Bank of Kansas City-
Denver Branch. He is a founder of the Cultural Diversity Task Force in Fort
Collins.
(b) Executive Officers
Of the above directors, William K. Coors, Peter H. Coors and W. Leo Kiely III
are executive officers of ACC and CBC. The following also were executive
officers of ACC and/or CBC (as defined by Securities and Exchange Commission
(SEC) rules) at March 1, 1999:
CARL L. BARNHILL (Age 50) joined CBC in May 1994 as senior vice president of
sales. Barnhill brings more than 20 years of marketing experience with consumer
goods companies. Most recently, he was vice president of selling systems
development for the European and Middle East division of Pepsi Foods
International. Prior to joining Pepsi in 1993, he spent 16 years with Frito-Lay
in various senior sales and marketing positions.
L. DON BROWN (Age 53) joined CBC in July 1996 as senior vice president of
operations and technology. Prior to joining CBC, he served as senior vice
president of manufacturing and engineering at Kraft Foods where his
responsibilities included manufacturing, engineering and operations quality
functions. During his years at Kraft from 1971-1996, he held several positions
of increasing responsibility in the manufacturing and operations areas.
ROBERT W. EHRET (Age 54) joined CBC in May 1994 as senior vice president,
human resources. Prior to joining CBC, Ehret served as senior vice president of
human resources for A.C. Nielsen. From 1983-1989, Ehret worked for PepsiCo Inc.
as director of employee relations and personnel director for two of PepsiCo's
international divisions based in Tokyo and London.
PETER M. R. KENDALL (Age 52) joined CBC in January 1998 as senior vice
president and chief international officer. Before joining Coors, he was
executive vice president of operations and finance for Sola International,
Inc., a manufacturer and marketer of eyeglass lenses in Menlo Park, California.
From 1995-1996, Kendall was president of book operations for McGraw Hill
Companies. From 1981-1994, Kendall worked in leadership positions for Pepsi
Cola International. In 1992, he was appointed vice president of marketing and
business development and senior vice president of PepsiCo Wines and Spirits.
ROBERT D. KLUGMAN (Age 51) was named CBC's senior vice president of corporate
development in May 1994. In 1993, he was vice president of corporate
development. Prior to that, he was vice president of brand marketing, a
position he held from 1981-1987 and again from 1990-1993. From 1987-1990, he
was vice president of international, development and marketing services. Before
joining CBC, Klugman was a vice president of client services at Leo Burnett
USA, a Chicago-based advertising agency.
NORMAN E. KUHL (Age 58) was named senior vice president of CBC's container
business units in July 1997. Prior to that, he was vice president of CBC's
container business units beginning January 1992, with responsibility for the
can, glass and end manufacturing areas. His experience includes responsibility
for warehousing, packaging, brewing, malting and utilities. He became vice
president in 1978. In 1985, he became vice president and plant manager of the
Company's packaging and finishing plant in Virginia. In 1990 and 1991, he
served as vice president and plant manager of the brewery in Memphis.
KATHERINE L. MACWILLIAMS (Age 43) joined CBC in April 1996 as vice president
and treasurer. During 1998, she was named vice president, international
finance. Prior to joining CBC, she served as vice president of Capital Markets
for UBS Securities in New York where she was responsible for the marketing of
funding and asset-liability management products to U.S. corporate clients. She
has also held a wide range of financial positions for The First National Bank of
Chicago; Sears, Roebuck and Co.; and Ford Motor Company. She isa member of the
board of directors for The Selected Funds.
MICHAEL A. MARRANZINO (Age 51) was named senior vice president and chief
information officer in November 1997. Since 1994, he had served as CBC's senior
vice president and chief international officer. Prior to that, he served as
vice president and director of international marketing. He has been with CBC
since 1976 and has held positions in the information technology and sales and
marketing areas, including director of development, director for Coors and
Coors Extra Gold brands, director of sales and marketing operations, director
of field sales, director of sales operations and technology system designer.
PATRICIA J. SMITH (Age 55) was named corporate secretary of CBC and ACC in
1993. She also serves in the same capacity for the majority of CBC's
subsidiaries. She served as assistant secretary of ACC and a number of its
subsidiaries from 1990-1993. She has been with the Company since 1979. Prior to
joining the Company, she acquired a broad business background in manufacturing,
transportation and food brokerage through a variety of positions including
corporate secretary and assistant treasurer.
OLIVIA M. THOMPSON (Age 48) was named vice president, controller of CBC in
August 1997. Prior to joining CBC, Thompson was vice president of finance and
systems for Kraft Foods, Inc.'s Foodservice Division. Thompson also previously
served as vice president of business analysis for Kraft Foods. Prior to Kraft,
Thompson worked at Inland Steel Industries, where she served as vice president
of finance, and previous to that, corporate controller. She is a member of the
Executive Leadership Council and currently serves as a member of the board of
directors for PACE (Political Action Coors Employees).
M. CAROLINE TURNER (Age 49) was named senior vice president and general counsel
for CBC in February 1997. She has served as vice president and assistant
secretary of ACC and assistant secretary of CBC since January 1993. She served
as vice president, general counsel and chief legal officer of CBC (1993-1996);
and vice president, chief legal officer (1991-1992); and director, legal
affairs (1986-1991) of ACC. Prior to joining the Company, she was a partner
with the law firm of Holme Roberts & Owen (1983-1986), an associate for Holme
Roberts & Owen (1977-1982) and a clerk in the U.S. 10th Circuit Court of
Appeals (1976-1977).
WILLIAM H. WEINTRAUB (Age 56) was named CBC's senior vice president of
marketing in 1994. He joined CBC as vice president of marketing in July 1993.
Prior to joining CBC, he directed marketing and advertising for Tropicana
Products as senior vice president. From 1982-1991, Weintraub was with the
Kellogg Company, with responsibility for marketing and sales.
TIMOTHY V. WOLF (Age 45) was named vice president and chief financial officer
of ACC and senior vice president and chief financial officer of CBC in February
1995. Wolf came to CBC from Hyatt Hotels Corporation, where he served as senior
vice president of planning and human resources from 1993-1994. From 1989-1993,
he served in several executive positions for The Walt Disney Company, including
vice president, controller and chief accounting officer. Prior to Disney, Wolf
spent 10 years in various financial planning, strategy and control roles at
PepsiCo. He currently serves on the Information Management Commission for the
State of Colorado.
ACC and CBC employ other officers who are not considered executive officers
under SEC regulations.
Terms for all officers and directors are for a period of one year, except that
vacancies may be filled and additional officers elected at any regular or
special meeting. Directors are elected at the Annual Shareholders' Meeting
held in May. There are no arrangements or understandings between any officer
or director pursuant to which any officer or director was elected as such.
(c) Significant Employees
None.
(d) Family Relationships
William K. Coors and Joseph Coors are brothers. Peter H. Coors is a son of
Joseph Coors.
(e) Business Experience
See discussion above in (a) and (b).
(f) Involvement in Legal Proceedings
None.
(g) Section 16 Disclosures
None.
ITEM 11. Executive Compensation
I. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
AWARDS PAYOUTS
NAME & YEAR SALARY BONUS OTHER RESTR SECURITIES LTIP ALL
PRINCIPAL ANNUAL ICTED UNDERLYING PAYOUTS OTHER
POSITION ($) ($) COMP STOCK OPTIONS ($)
(a) ($)(b) ($)(c) (#)(d) ($)(e)
William K. 1998 307,100 0 0 0 0 0 0
Coors,
Chairman of 1997 294,672 0 0 0 0 0 0
the Board,CEO
of Adolph 1996 288,624 0 0 0 0 0 16,168
Coors Company
Peter H. 1998 599,065 292,032 0 241,484 82,200 0 767,338
Coors, Vice
Chairman & 1997 541,428 324,229 0 0 157,625 0 1,302,264
CEO of Coors
Brewing 1996 507,090 0 0 0 22,330 0 22,678
Company
W. Leo 1998 468,000 271,500 0 76,496 50,514 0 800,216
Kiely III,
President & 1997 424,692 263,593 0 0 92,451 0 9,392
COO of Coors
Brewing 1996 400,218 0 0 0 18,154 0 8,705
Company
L. Don 1998 374,504 144,202 61,476 42,008 18,859 0 20,139
Brown,
Senior VP, 1997 360,504 280,000 112,223 0 33,600 0 9,132
Operations &
Techonology 1996 180,346 580,000 0 800,000 58,333 0 3,467
of Coors
Brewing
Company
Peter M. R. 1998 325,000 133,900 83,746 138,983 17,512 0 30,905
Kendall,
Senior VP, 1997 N/A N/A N/A N/A N/A N/A N/A
Chief
Internat- 1996 N/A N/A N/A N/A N/A N/A N/A
ional Officer
of Coors Brewing
Company
(a) Amounts awarded under the Management Incentive Compensation Program.
(b) In 1998, Peter M. R. Kendall received perquisites including moving and
relocation expenses of $62,098. In 1998 and 1997, L. Don Brown also received
perquisites including moving and relocation expenses of $31,476 and $81,691,
respectively. In 1996, none of the named executives received perquisites in
excess of the lesser of $50,000 or 10% of salary plus bonus.
(c) In 1998, 6,743 shares of restricted stock were granted to Peter H. Coors,
2,136 shares to W. Leo Kiely III, 1,173 shares to L. Don Brown and 4,068 shares
to Peter M. R. Kendall. In 1996, 45,390 shares of restricted stock were granted
to L. Don Brown. The restricted stock awards have a three-year vesting period
from the date of grant and are based on continuous service during the vesting
period. Dividends are paid to the holder of the grant during the vesting
period. The values of the 1998 restricted stock grants as of December 27, 1998,
were as follows: Peter H. Coors - $359,908; W. Leo Kiely III - $114,009; L. Don
Brown - $62,609; and Peter M. R. Kendall - $217,130. L. Don Brown's 1996 grant
was valued at $2,422,691 as of December 27, 1998.
No restricted stock grants were made in 1997 to any of the other named
executives.
(d) See discussion under Item 11, Part II, for options issued in 1998.
(e) The amounts shown in this column are attributable to the officer life
insurance other than group life, group term life insurance and the excess of
fair market value over option price for stock options exercised in 1998.
Of the named executives, Peter H. Coors receives officer life insurance
provided by the Company until retirement. At the time of retirement, the
officer's life insurance program terminates and a salary continuation agreement
becomes effective. The officer's life insurance provides six times the
executive base salary until retirement, at which time the Company becomes the
beneficiary. The Company provides term life insurance for W. Leo Kiely III, L.
Don Brown and Peter M. R. Kendall. The officer's life insurance provides six
times the executive base salary until retirement when the benefit terminates.
The 1998 annual benefit for each executive for both programs was: Peter H.
Coors - $25,899; W. Leo Kiely III - $38,713; L. Don Brown - $16,395; and Peter
M. R. Kendall - $27,407.
The Company's 50% match on the first 6% of salary contributed by the officer
to ACC's qualified 401(k) plan was $4,800 each for Peter H. Coors, W. Leo
Kiely III, L. Don Brown and Peter M. R. Kendall. Peter H. Coors and W. Leo
Kiely III exercised stock options in 1998. Peter H. Coors also exercised stock
options in 1997. See discussion in Item 11, Part III, for stock option
exercises in 1998.
In response to Code Section 162 of the Revenue Reconciliation Act of 1993, the
Company appointed a special compensation committee to approve and monitor
performance criteria in certain performance-based executive compensation plans
for 1998.
II. OPTION/SAR GRANTS TABLE
Option Grants in Last Fiscal Year
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
AT ASSUMED RATES OF STOCK
PRICE APPRECIATION FOR
OPTION TERM
% OF TOTAL
NAME NUMBER OF OPTIONS
SECURITIES GRANTED TO EXERCISE
UNDERLYING EMPLOYEES OR BASE
OPTIONS IN FISCAL PRICE EXPIRATION
GRANTED YEAR ($/SHARE) DATE 5% 10%
Peter H. 71,448 9% $33.4063 01/02/08 $1,501,054 $3,803,966
Coors 3,705 1% $52.3125 05/17/00 $ 14,898 $ 30,167
7,047 1% $52.3125 12/01/01 $ 59,307 $ 124,718
W. Leo 50,514 6% $33.4063 01/02/08 $1,061,251 $2,689,418
Kiely III
L. Don 18,859 2% $33.4063 01/02/08 $ 367,910 $ 932,357
Brown
Peter M. 17,512 2% $33.4063 01/02/08 $ 396,210 $1,004,073
R. Kendall
(a) Most grants vest one-third in each of the three successive years after the
date of grant. As of December 27, 1998, the 1998 grants were 0% vested because
of the one-year vesting requirement; however, they will vest 33-1/3% on the
one-year anniversary of the grant dates. Peter H. Coors' two smaller grants
are reload grants which vest immediately and use the initial grant option
termination dates.
III. OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR
Value
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY
SHARES VALUE AT FY-END (#) OPTIONS AT FY-END ($)
ACQUIRED ON REALIZED EXERCIS- UNEXER- EXERCIS- UNEXERCIS-
NAME EXERCISE (#) ($)(a) SABLE CISABLE ABLE ABLE
Peter H.
Coors 19,979 736,277 226,194 150,929 $7,032,212 $4,114,878
W. Leo 38,655 756,293 67,813 112,149 $2,304,712 $3,093,810
Kiely III
L. Don 0 0 69,533 41,259 $2,451,330 $1,152,190
Brown
Peter M. 0 0 0 17,512 $ 0 $ 349,692
R. Kendall
(a) Values stated are the bargain element recognized in 1998, which is the
difference between the option price and the market price at the time of
exercise.
IV. LONG-TERM INCENTIVE PLAN AWARDS TABLE
The Long-Term Incentive Plan (LTIP) was canceled by the board of directors at
the November 1996 board meeting.
V. PENSION PLAN TABLE
The following table sets forth annual retirement benefits for representative
years of service and average annual earnings.
AVERAGE ANNUAL
COMPENSATION YEARS OF SERVICE
10 20 30 40
$125,000 $21,875 $43,750 $65,625 $71,875
150,000 26,250 52,500 78,750 86,250
175,000(a) 30,625 61,250 91,875 100,625
200,000(a) 35,000 70,000 105,000 115,000
225,000(a) 39,375 78,750 118,125 129,375(a)
250,000(a) 43,750 87,500 131,250(a) 143,750(a)
275,000(a) 48,125 96,250 144,375(a) 158,125(a)
300,000(a) 52,500 105,000 157,500(a) 172,500(a)
325,000(a) 56,875 113,750 170,625(a) 186,875(a)
350,000(a) 61,250 122,500 183,750(a) 201,250(a)
375,000(a) 65,625 131,250(a) 196,875(a) 215,625(a)
400,000(a) 70,000 140,000(a) 210,000(a) 230,000(a)
425,000(a) 74,375 148,750(a) 223,125(a) 244,375(a)
450,000(a) 78,750 157,500(a) 236,250(a) 258,750(a)
475,000(a) 83,125 166,250(a) 249,375(a) 273,125(a)
500,000(a) 87,500 175,000(a) 262,500(a) 287,500(a)
525,000(a) 91,875 183,750(a) 275,625(a) 301,875(a)
550,000(a) 96,250 192,500(a) 288,750(a) 316,250(a)
575,000(a) 100,625 201,250(a) 301,875(a) 330,625(a)
600,000(a) 105,000 210,000(a) 315,000(a) 345,000(a)
(a) Maximum permissible benefit under ERISA from the qualified retirement
income plan for 1998 was $130,000. Annual compensation exceeding $160,000 is
not considered in computing the maximum permissible benefit under the
qualified plan. The Company has a non-qualified supplemental retirement plan
to provide full accrued benefits to all employees in excess of IRS maximums.
Annual average compensation covered by the qualified and non-qualified
retirement plans and credited years of service for individuals named in Item
11(a) are as follows: William K. Coors - $281,799 and 59 years; Peter H.
Coors - $534,194 and 27 years; W. Leo Kiely III - $430,970 and 5 years; L. Don
Brown - $377,519 and 3 years; and Peter M. R. Kendall - $325,000 and 1 year.
The Company's principal retirement income plan is a defined benefit plan. The
amount of contribution for officers is not included in the above table since
total plan contributions cannot be readily allocated to individual employees.
The Company's most recent actuarial valuation was as of January 1, 1998, in
which the ratio of plan contributions to total compensation covered by the
plan was approximately 1.0%. Covered compensation is defined as the total base
salary (average of three highest consecutive years out of the last 10) of
employees participating in the plan, including commissions but excluding
bonuses and overtime pay. Compensation also includes amounts deferred by the
individual under Internal Revenue Code Section 401(k) and any amounts deferred
into a plan under Internal Revenue Code Section 125. Normal retirement age
under the plan is 65. An employee with at least 5 years of vesting service may
retire as early as age 55. Benefits are reduced for early retirement based on
an employee's age and years of service at retirement; however, benefits are
not reduced if: (1) the employee is at least age 62 when payments commence; or
(2) the employee's age plus years of service equal at least 85 and the
employee has worked for CBC at least 25 years. The amount of pension actually
accrued under the pension formula is in the form of a straight life annuity.
In addition to the annual benefit from the qualified retirement plan, Peter H.
Coors is covered by a salary continuation agreement. This agreement provides
for a lump sum cash payment to the officer upon normal retirement in an amount
actuarially equivalent in value to 30% of the officer's last annual base
salary, payable for the remainder of the officer's life, but not less than 10
years. The interest rate used in calculating the lump sum is determined using
80% of the annual average yield of the 10-year Treasury constant maturities
for the month preceding the month of retirement. Using 1998 eligible salary
amounts as representative of the last annual base salary, the estimated lump
sum amount for Peter H. Coors would be based upon an annual benefit of
$175,000, paid upon normal retirement.
In November 1998, the ACC board of directors approved changes to one of its
defined benefit pension plans. The changes, which will result in an amendment
to the plan, will be effective July 1, 1999, and will generally increase the
benefits by approximately 20%.
VI. COMPENSATION OF DIRECTORS
The Company adopted the Equity Compensation Plan for Non-Employee Directors
(EC Plan) effective May 16, 1991. The EC Plan provides for two grants of ACC's
Class B common stock (non-voting) to non-employee (NE) directors. The first
grant is automatic and equals 20% of the annual retainer. The second grant is
elective and allows the NE directors to take a portion, or all, of the
remaining annual retainer in stock. Amounts of both grants are determined by
the fair market value of the shares on the date of grant. Shares received
under either grant may not be sold or disposed of before completion of the
annual term. The Company reserved 50,000 shares of stock to be issued under
the EC Plan. The NE directors' annual retainer is $32,000.
In 1998, the NE members of the board of directors were paid 50% of the $32,000
annual retainer for the 1997-1998 term and 50% of the $32,000 annual retainer
for the 1998-1999 term, as well as reimbursement of expenses incurred to
perform their duties as directors. Directors who are full-time employees of
the Company receive $15,000 annually. All directors are reimbursed for any
expenses incurred while attending board or committee meetings and in
connection with any other CBC business. In addition, Joseph Coors, as a
director and retired executive officer, is provided an office, transportation
and secretarial support from CBC.
VII. EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
CBC has no agreements with executives or employees providing employment for a
set period.
L. Don Brown has an agreement that provided a guaranteed bonus of 80% of his
base salary in 1996 and 1997. In addition, he received a $200,000 signing
bonus and a $100,000 transitional bonus in 1996.
The standard severance program for officers is one year of base salary plus a
prorated portion of any earned bonus for the year of severance.
Under the 1990 Equity Incentive Plan (1990 EI Plan), if there is a change in
ownership of the Company, the options and restricted shares vest immediately.
VIII. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
J. Bruce Llewellyn, Luis G. Nogales, Pamela H. Patsley, Wayne R. Sanders and
Albert C. Yates served on the Compensation Committee during 1998.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners
The following table sets forth stock ownership of persons holding in excess of
5% of any class of voting securities as of March 15, 1999:
Name and address Amount and nature
Title of of beneficial of beneficial Percent
class owner ownership of class
Class A Adolph Coors, Jr. Trust, 1,260,000 shares for 100%
common Golden, Colorado; benefit of William K.
stock William K. Coors; Joseph Coors, Joseph Coors and
(voting) Coors; Joseph B. Coors; May Coors Tooker and their
Jeffrey H. Coors and lineal descendants living
Peter H. Coors, trustees at distribution
In addition, certain officers and directors hold interests in other family
trusts, as indicated in Item 12, Section (b).
(b) Security Ownership of Management
The following table sets forth stock ownership of the Company's directors and
all executive officers and directors as a group as of March 15, 1999:
Exercisable
options/
Shares restricted
Title of Name of beneficially stocks Percent
class beneficial owner owned awards (b) Total of class
Class B William K. Coors 320,807 (a) -- 320,807 (a) (a)
common Joseph Coors 2,444 (a) 168 2,612 (a) (a)
stock Peter H. Coors 48,679 (a) 295,200 343,879 (a) (a)
(non- W. Leo Kiely III 12,526 107,604 120,130
voting) Luis G. Nogales 2,111 168 2,279
Pamela H. Patsley 983 404 1,387
Wayne R. Sanders 5,528 168 5,696
Albert C. Yates -- 114 114
L. Don Brown -- 133,582 133,582
Peter M. R. Kendall -- 9,905 9,905
All executive officers
and directors as a
group (21 persons) 17,344,141 716,171 18,060,312 51%
(a) William K. Coors, Joseph Coors and Peter H. Coors are trustees, in
addition to other trustees and beneficiaries or contingent beneficiaries in
certain cases, of various trusts that own an aggregate of 16,687,111 shares of
Class B common stock. These individuals, and others, are trustees of three
other trusts owning 267,100 shares of Class B common stock. In certain of these
trusts, they act solely as trustees and have no vested or contingent benefits.
The total of these trust shares, together with other management shares shown
above, represents 51% of the total number of shares of such class outstanding.
(b) This column represents exercisable options to purchase shares under the
Company's 1990 EI Plan (as amended and restated) and the 1991 Equity
Compensation Plan for Non-Employee Directors (as amended and restated) that
could be exercised as of March 15, 1999. It reflects restricted stock awards
granted under the 1990 EI Plan. Vesting in the restricted stock is over a
three-year period from date of grant for employee/officers and at the end of
the term for outside directors. In the event of a change in control of the
Company, the options and restricted shares vest immediately.
(c) Changes in Control
There are no arrangements that would later result in a change of control of
the Company.
ITEM 13. Certain Relationships and Related Transactions
(a) Transactions with Management and Others
In March 1998, the Company purchased the personal residence of W. Leo Kiely
III, director and president and COO of CBC, for $962,500. This purchase price
was based upon the average of two third-party appraisals. The appraisals were
obtained from The Appraisal Advantage, LLC and Columbine Real Estate Services.
(b) Certain Business Relationships
William K. Coors, a director of both ACC and ACX during 1998, and Peter H.
Coors are trustees of one or more family trusts that collectively own all of
ACC's voting stock and approximately 46% of ACX's common stock (see Security
Ownership of Certain Beneficial Owners and Management in Item 12). Joseph
Coors, a director of ACC during 1998, resigned as director of ACX in July
1996. ACC and ACX, or their subsidiaries have certain business relationships
and have engaged or proposed to engage in certain transactions with one
another, as described below.
When ACX was spun off in 1992, CBC entered into market-based, long-term supply
agreements with certain ACX subsidiaries to provide CBC packaging, aluminum
and starch products. Under the packaging supply agreement, CBC agreed to
purchase all of its paperboard (including composite packages, labels and
certain can wrappers) from an ACX subsidiary through 1997. In early 1997, this
contract was modified and extended until at least 1999. In late 1998, this
contract was again modified and extended through 2001. In early 1997, ACX's
aluminum manufacturing business was sold to a third party. The aluminum
contracts were canceled in 1995. Since late 1994, American National Can
Company (ANC) has been the purchasing agent for the joint venture between ANC
and CBC and has ordered limited quantities of can, end and tab stock from the
now-former ACX subsidiary. Additionally, ANC purchased a small quantity of tab
stock for the joint venture from this subsidiary in early 1997. Under the
starch supply agreement, CBC agreed to purchase 100 million pounds of refined
corn starch annually from an ACX subsidiary through 1997. In early 1997, this
agreement was renegotiated, at slightly higher rates, and extended through
1999. In February 1999, ACX sold the assets of the subsidiary, which was party
to the starch agreement, to an unaffiliated third party, who was assigned the
starch supply agreement. CBC's total purchases under these agreements in 1998
were approximately $120 million. Purchases from the related parties in 1999
under the packaging and starch supply agreements are estimated to be
approximately $103 million.
Also with the spin-off, ACC, ACX and their subsidiaries negotiated other
agreements involving employee matters, environmental management, tax sharing
and trademark licensing. These agreements govern certain relationships between
the parties, as described in the Company's report on Form 8-K dated December
27, 1992, and contained in the information statement mailed to ACC's
shareholders at the time of the spin-off.
Certain ACC and ACX subsidiaries are parties to other miscellaneous market-
based transactions. In 1998, CBC provided water and waste water treatment
services to an ACX ceramics facility located on property leased from CBC, and
CBC received real estate management and other services from the ACX real
estate brokerage subsidiary. In addition, CBC purchased miscellaneous products
from the ACX ceramics subsidiary, including certain ceramic can tooling for
CBC's can lines. During 1998, CBC received approximately $285,000 in total and
paid approximately $212,000 in total under these agreements and transactions.
In 1999, CBC expects to pay approximately $179,000 and receive approximately
$294,000 under these agreements.
CBC is a limited partner in a partnership in which an ACX subsidiary is the
general partner. The partnership, which was formed at the time of the spin-
off, owns, develops, operates and sells certain real estate previously owned
directly by CBC or ACC. Each partner is obligated to make additional cash
contributions of $500,000 upon call of the general partner. Distributions are
allocated equally between the partners until CBC recovers its investment, and
thereafter 80% to the general partner and 20% to CBC. Currently distributions
are still being split equally between the partners.
(c) Indebtedness of Management
Employee loans could be made with the exercise of stock options granted under
the 1983 non-qualified Adolph Coors Company Stock Option Plan. No such loans
were made or outstanding in 1998.
No member of management or another with a direct or indirect interest in ACC
was indebted to the Company in excess of $60,000 in 1998.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements: See index of financial statements in Item 8.
(2) Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
SCHEDULE II
ADOLPH COORS COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Additions
Balance at charged to Balance
beginning costs and Other at end
of year expenses additions Deductions of year
Allowance for doubtful (In thousands)
accounts
Year ended
December 27, 1998 $ 557 $ 42 $ -- ($ 300)(a) $ 299
December 28, 1997 $ 275 $1,627 $ -- ($1,345)(a) $ 557
December 29, 1996 $ 30 $ 393 $ -- ($ 148)(a) $ 275
Allowance for certain
claims
Year ended
December 27, 1998 $1,500 $ 400 $ -- ($1,316)(a) $ 584
December 28, 1997 $ -- $1,500 $ -- $ -- $1,500
December 29, 1996 $ -- $ -- $ -- $ -- $ --
Allowance for obsolete
inventories and supplies
Year ended
December 27, 1998 $5,214 $4,569 $ -- ($4,797)(a) $4,986
December 28, 1997 $3,319 $7,193 $ 426 ($5,724)(a) $5,214
December 29, 1996 $2,942 $4,941 $ 3 ($4,567)(a) $3,319
(a) Write-offs of uncollectible accounts, claims or obsolete inventories and
supplies.
(3) Exhibits:
Exhibit 3.1 - Amended Articles of Incorporation.
(Incorporated by reference to Exhibit 3.1 to Form 10-K
for the fiscal year ended December 30, 1990)
Exhibit 3.2 - By-laws, as amended and restated in August 1997.
(Incorporated by reference to Exhibit 3.2 to Form 10-K
for the fiscal year ended December 28, 1997)
Exhibit 4.1 - Form of Indenture for Adolph Coors Company Senior Debt
Securities. (Incorporated by reference to Exhibit 4 to
Registration Statement on Form S-3 filed March 14,
1990, and amended on March 26, 1990, file No. 33-
33831). Upon request, the Company agrees to provide a
copy of any debt instrument as applicable under
Regulation S-K, Item 601, (b)(4)(iii).
Exhibit 10.1 - Officers' Life Insurance Program. (Incorporated by
reference to Exhibit 10 to Form 10-K for the fiscal
year ended December 28, 1980)
Exhibit 10.2* - Officers and Directors Salary Continuation Agreement.
(Incorporated by reference to Exhibit 10 to Form 10-K
for the fiscal year ended December 26, 1982)
Exhibit 10.3* - 1983 non-qualified Adolph Coors Company Stock Option
Plan, as amended effective February 13, 1992.
(Incorporated by reference to Exhibit 10.3 to Form 10-
K for the fiscal year ended December 29, 1991)
Exhibit 10.4* - Coors Brewing Company 1996 Annual Management Incentive
Compensation Plan. (Incorporated by reference to
Exhibit 10.4 to Form 10-K for the fiscal year ended
December 29, 1996)
Exhibit 10.5* - Coors Brewing Company Long-Term Incentive Plan, 1994-
1996 Plan Cycle. (Incorporated by reference to Exhibit
10.5 to Form 10-K for the fiscal year ended December
25, 1994)
Exhibit 10.6* - Adolph Coors Company 1990 Equity Incentive Plan.
(Amended during 1999)(Incorporated by reference to
Exhibit 10.6 to Form 10-K for the fiscal year ended
December 28, 1997)
Exhibit 10.7* - Coors Brewing Company Employee Profit - Sharing Program.
(Incorporated by reference to Exhibit 10.7 to Form 10-
K for the fiscal year ended December 31, 1995)
Exhibit 10.8 - Adolph Coors Company Non-Employee Director
Compensation Deferral Plan. (Incorporated by reference
to Exhibit 10.9 to Form 10-K for the fiscal year ended
December 31, 1989)
*Represents a management contract.
Exhibit 10.9 - Agreement between Adolph Coors Company and a Former
Executive Officer and Current Director. (Incorporated
by reference to Exhibit 10.10 to Form 10-K for the
fiscal year ended December 31, 1989)
Exhibit 10.10 - Form of Coors Brewing Company Distributorship
Agreement. (Introduced 1989) (Incorporated by
reference to Exhibit 10.11 to Form 10-K for the fiscal
year ended December 31, 1989)
Exhibit 10.11 - Adolph Coors Company Water Augmentation Plan.
(Incorporated by reference to Exhibit 10.12 to Form
10-K for the fiscal year ended December 31, 1989)
Exhibit 10.12 - Adolph Coors Company Equity Compensation Plan for Non-
Employee Directors. (Amended during 1999)
(Incorporated by reference to Exhibit 10.12 to Form
10-K for the fiscal year ended December 28, 1997)
Exhibit 10.13 - Distribution Agreement, dated as of October 5, 1992,
between the Company and ACX Technologies, Inc.
(Incorporated herein by reference to the Distribution
Agreement included as Exhibits 2, 19.1 and 19.1A to
the Registration Statement on Form 10 filed by ACX
Technologies, Inc. (file No. 0-20704) with the
Commission on October 6, 1992, as amended)
Exhibit 10.14* - Employment Contracts and Termination of Employment
Agreements for W. Leo Kiely III. (Incorporated by
reference to Exhibit 10.17 to Form 10-K for the fiscal
year ended December 26, 1993)
Exhibit 10.15 - Revolving Credit Agreement, dated as of October 23,
1997. (Incorporated by reference to Exhibit 10.15 to
Form 10-K for the fiscal year ended December 28, 1997)
Exhibit 10.16 - Adolph Coors Company Stock Unit Plan. (Amended during
1999) (Incorporated by reference to Exhibit 10.16 to
Form 10-K for the fiscal year ended December 28, 1997)
Exhibit 10.17* - Employment Contract and Termination Agreement for L.
Don Brown. (Incorporated by reference to Exhibit 10.4
to Form 10-K for the fiscal year ended December 29,
1996)
Exhibit 10.18* - Coors Brewing Company 1997 Annual Management Incentive
Compensation Plan. (Incorporated by reference to
Exhibit 10.4 to Form 10-K for the fiscal year ended
December 29, 1996)
Exhibit 10.19 - Form of Coors Brewing Company Distributorship
Agreement. (Incorporated by reference to Exhibit 10.20
to Form 10-K for the fiscal year ended December 29,
1996)
*Represents a management contract.
Exhibit 10.20* - Coors Brewing Company 1998 Annual Management Incentive
Compensation Plan. (Incorporated by reference to
Exhibit 10.20 to Form 10-K for the fiscal year ended
December 28, 1997)
Exhibit 10.21* - Coors Brewing Company 1998 Deferred Compensation Plan.
Exhibit 21 - Subsidiaries of the Registrant.
Exhibit 23 - Consent of Independent Accountants.
Exhibit 27 - Financial Data Schedule
*Represents a management contract.
(b) Reports on Form 8-K
A report on Form 8-K dated August 14, 1998, was filed announcing plans for a
Voluntary Severance Program for approximately 200 hourly employees at Coors
Brewing Company's Golden facility. See further discussion in Item 8, Financial
Statements, of this filing.
(c) Other Exhibits
None.
(d) Other Financial Statement Schedules
None.
EXHIBIT 21
ADOLPH COORS COMPANY AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
The following table lists ACC's subsidiaries and the respective jurisdictions
of their organization or incorporation as of December 27, 1998. All
subsidiaries are included in ACC's consolidated financial statements.
State/country of
organization or
Name incorporation
Coors Brewing Company Colorado
Coors Brewing Company International, Inc. Colorado
Coors Brewing Iberica, S.A. Spain
Coors Services, S.A. Switzerland
Coors Distributing Company Colorado
Coors Energy Company Colorado
Gap Run Pipeline Company Colorado
Coors Nova Scotia Co. Canada
Coors Global, Inc. Colorado
Coors Intercontinental, Inc. Colorado
The Rocky Mountain Water Company Colorado
The Wannamaker Ditch Company Colorado
Coors Japan Company, Ltd. Japan
Coors Brewing Company de Mexico, S. de R.L. de C.V. Mexico
Coors Brewing International, Ltd. United Kingdom
Coors Export Ltd. Barbados, West Indies
Coors Canada, Inc. Canada
EXHIBIT 23
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-2761), (No. 33-35035), (No. 33-40730),
(No. 33-59979) and (No. 333-45869) of Adolph Coors Company of our report dated
February 8, 1999, appearing on page 33 of this Form 10-K.
PricewaterhouseCoopers LLP
Denver, Colorado
March 26, 1999
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ADOLPH COORS COMPANY
By /s/ William K. Coors
William K. Coors
Chairman and President
(Chief Executive Officer)
By /s/ Timothy V. Wolf
Timothy V. Wolf
Vice President and
Chief Financial Officer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following directors on behalf of the
Registrant and in the capacities and on the date indicated.
By /s/ Joseph Coors By /s/ Albert C. Yates
Joseph Coors Albert C. Yates
Vice Chairman
By /s/ Peter H. Coors By /s/ Luis G. Nogales
Peter H. Coors Luis G. Nogales
Chief Executive Officer
Coors Brewing Company
By /s/ W. Leo Kiely III By /s/ Pamela H. Patsley
W. Leo Kiely III Pamela H. Patsley
President and
Chief Operating Officer
Coors Brewing Company
By /s/ Wayne R. Sanders
Wayne R. Sanders
March 26, 1999
/TEXT>
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ADOLPH COORS COMPANY
DEFERRED COMPENSATION PLAN
___________________________
Effective February 1, 1998
ADOLPH COORS COMPANY
DEFERRED COMPENSATION PLAN
RECITALS:
Adolph Coors Company, a Colorado corporation (the "Company"), hereby
establishes the Adolph Coors Company Deferred Compensation Plan (the "Plan"),
effective as of February 1, 1998. The Plan is intended to provide a mechanism
whereby certain of the highly compensated and select management employees of
the Company and those affiliates that adopt the Plan may defer compensation
and have such amounts, together with credited earnings, if applicable, paid
out upon the participant's retirement, death, disability or other termination
of service with the Company or affiliate and upon certain other specified
events. The Company intends that the Plan shall not be treated as a "funded"
plan for purposes of either the Internal Revenue Code of 1986, as amended (the
"Code") or the Employee Retirement Income Security Act of 1974, as amended
("ERISA").
ARTICLE I Definitions
Defined terms used in this Plan shall have the meanings set forth below:
1.1 "Affiliated Entity" means any corporation or other entity, including but
not limited to partnerships and joint ventures, affiliated with Adolph Coors
Company, directly or indirectly through ownership, control or otherwise, as
determined by the Committee.
1.2 "Base Salary" means the actual amount of base remuneration payable to an
employee by the Company from time to time before reduction for contributions
to plans covered by sections 401(k) and 125 of the Code.
1.3 "Beneficiary" means the person or persons, trust or other entity
designated by a Participant, pursuant to Section 5.7, to receive any amounts
distributable under the Plan at the time of the Participant's death.
1.4 "Change in Control" shall mean any of the following: (i) the acquisition
or the ownership of fifty percent or more of the total Voting Stock of the
Company then issued and outstanding, by any person, or group of affiliated
persons, or entities not affiliated with the Company as of the Effective Date
of this Plan, without the consent of the Board of Directors, or (ii) the
election of individuals constituting a majority of the Board of Directors who
were not either (A) members of the Board of Directors prior to the election or
(B) recommended to the shareholders by a majority of the persons comprising
the Board of Directors immediately prior to the election, or (iii) a legally
binding and final vote of the shareholders of the Company in favor of selling
all or substantially all of the assets of the Company. For this purpose
"Voting Stock" means the $1.00 par value Class A Common Stock of the Company.
In addition, a "Change in Control" shall also mean, with respect to any
individual Participant, a "Change in Control" as defined in any separate
agreement between the Company or Affiliated Entity and the Participant.
1.5 "Committee" means the administrative committee provided for in Section
6.1.
1.6 "Company" means Adolph Coors Company and, where the context requires, any
Affiliated Entity that has elected to participate in this Plan in accordance
with the provisions of Article VIII.
1.7 "Company Stock" means the Class B non-voting common stock of Adolph Coors
Company.
1.8 "Compensation" means an employee's Base Salary, Executive Bonus and the
amount of income, in the form of shares of Company Stock, attributable to the
exercise of a Stock Option through payment of the exercise price with shares
of Company Stock.
1.9 "Credited Earnings" means the amount of earnings credited to the
Participant's Plan Account as of the date specified for such purpose in the
applicable provision of the Plan. Credited Earnings shall be determined based
upon the deemed investment elections made by the Participant in accordance
with the provisions of Article IV. Except as otherwise provided in Section
4.1, credited Earnings shall be accounted for and credited to a Participant's
Plan Account beginning upon the date that the Participant's deemed investment
elections pursuant to Article IV are implemented within the Trust.
1.10 "Disability" shall have the same meaning given to such term from time to
time in the Company's Long-Term Disability Plan.
1.11 "Election Agreement" means an agreement between an eligible employee and
the Company providing for the employee's participation in the Plan and for the
employee's elections with respect to deferrals under Article III, the deemed
investment of the Participant's Plan Account under Article IV and
distributions under Article V, execution of which by an eligible employee is
required under Article II for Plan participation.
1.12 "Executive Bonus" means a bonus paid pursuant to the Company's
Management Incentive Compensation Plan or such other incentive or bonus
programs as may be designated for this purpose by the Committee.
1.13 "Participant" means any eligible employee of the Company selected to
participate in this Plan by the Committee who has completed an Election
Agreement and is entitled to the distribution of benefits hereunder. A
Participant shall remain a Participant for all purposes of this Plan so long
as the Participant is entitled to the distribution of benefits hereunder,
except to the extent provided in Section 2.3.
1.14 "Participant Deferrals" means the amounts of a Participant's Compensation
which he elects to defer and have allocated to his Plan Account pursuant to
Article III.
1.15 "Plan Account" means a bookkeeping account maintained by the Company
which shall show at all times the amounts of Participant Deferrals made by a
Participant and all Credited Earnings allocable to such amounts.
1.16 "Plan Year" means the twelve month period on which the Plan records are
kept, which shall be the calendar year.
1.17 "Retirement" means an employee's termination of employment with the
Company after the normal retirement age established by the Company's
Retirement Plan, which is presently age 65.
1.18 "Stock Option" means an option to acquire shares of the Company's Common
Stock granted pursuant to the Company's 1990 Equity Incentive Plan.
1.19 "Trust" means the trust created by the Company or any Affiliated Entity
which has adopted the Plan pursuant to Article VIII which may be used to
provide funding for the distribution of benefits hereunder in accordance with
the provisions of the Plan.
1.20 "Trust Agreement" means the written instrument pursuant to which the
Trust is created.
1.21 "Trustee" means the bank, trust company or individual appointed by the
Company or any Affiliated Entity pursuant to Article VII and acting from time
to time as the trustee of the Trust formed to provide benefits under the Plan.
ARTICLE II Eligibility and Participation
2.1 Eligibility and Participation.
From time to time the Committee, in its sole discretion, shall determine the
eligibility requirements for participation and shall designate those highly
compensated and select management employees of the Company and those
Affiliated Entities that have adopted this Plan pursuant to Article VIII to
whom the opportunity to participate in this Plan shall be extended. The
transfer of employment by a Participant between the Company and an Affiliated
Entity, or between Affiliated Entities, shall not be considered a termination
of employment and shall not cause a disruption in participation in this Plan.
2.2 Enrollment
Employees who have been selected by the Committee to participate in this Plan
shall enroll in the Plan, prior to the calendar year during which the employee
will participate in the Plan (or in the case of an individual who becomes an
eligible employee of the Company after the beginning of a calendar year, within
30 days after the date the individual becomes an eligible employee), by (a)
entering into an Election Agreement with the Company, which shall contain the
Participant's election as to the Compensation to be deferred under the Plan for
the subsequent calendar year, the period of deferral, the method of payment,
the initial investment elections of the Participant pursuant to Article IV, and
such other terms as the Company deems appropriate and necessary, and (b)
completing such other forms and furnishing such other information as the
Company may reasonably require. In the case of an employee who becomes eligible
to and elects to participate in the Plan during a calendar year, any election
to defer Compensation shall apply only to Compensation earned after the
effective date of such election. A Participant shall enter into a new Election
Agreement with respect to each Plan Year of participation under the Plan.
2.3 Failure of Eligibility.
If a Participant ceases to meet the eligibility criteria as determined by the
Committee for participation herein for any reason but continues to be a Company
employee, participation herein and benefits hereunder shall cease as of the
effective date of the change in employment status, position or title which
results in termination of eligibility for participation herein. The
determination of the Committee with respect to the termination of participation
in the Plan shall be final and binding on all parties affected thereby. Any
benefits accrued hereunder at the time of such change, together with Credited
Earnings, shall be distributed to such Participant on the third anniversary of
the date on which such Participant's eligibility ceased, or, at the sole
election of the Committee, at any time prior to such third anniversary.
ARTICLE III Contribution Deferrals
Each Plan Year, a Participant may elect to have Participant Deferrals withheld
from his Base Salary and credited to his Plan Account in any whole percentage
of his Base Salary from 1-100%. In addition, a Participant may elect to have
the Company withhold from his Executive Bonus any amount up to 100% of such
Executive Bonus and have such amount credited to his Plan Account as a
Participant Deferral. Participant Deferrals shall be deducted from a
Participant's Base Salary and Executive Bonus through payroll withholding in
accordance with the Participant's election and credited to the Participant's
Plan Account at such time. If a Participant exercises a Stock Option during a
Plan Year through payment of the exercise price with shares of Company Stock,
the Participant may elect to defer the receipt of the shares of Company Stock
representing the shares in excess of the shares used to exercise the Stock
Option (the "Gain Shares"). The shares of Company Stock representing the Gain
Shares that would otherwise be issued to the Participant upon the exercise of
a Stock Option through payment of the exercise price with shares of Company
Stock shall be withheld by the Company, transferred to the Trust and treated
as a deemed investment of the Participant in accordance with the provisions of
Article IV. All elections with respect to the deferral of Compensation,
including Gain Shares, must be made in accordance with the provisions of
Section 2.2.
ARTICLE IV Accounting and Investments
4.1 Accounting.
The Company shall maintain or cause to be maintained a book accounting record
of the Participant's Plan Account, showing the amounts of Participant Deferrals
and the Credited Earnings thereon, based upon the deemed investment elections
of each Participant pursuant to Section 4.2. The Company shall also maintain or
cause to be maintained appropriate accounting records of the Trust.
4.2 Deemed Investment Elections.
Each Participant shall elect from time to time, in accordance with such
procedures as may be established for this purpose by the Committee, the manner
in which Credited Earnings shall be determined with respect to the
Participant's Plan Account, based upon the deemed investment elections made by
the Participant. The deemed investment options available to Participants shall
be determined from time to time by the Committee and may be changed from time
to time. In the case of Participant Deferrals attributable to Stock Options,
such Participant Deferrals shall be deemed to be invested only in Company Stock
and the Participant may not change the deemed investment election with respect
to such amounts. Subject to the foregoing restriction, the Participant shall be
permitted to change his deemed investment elections in accordance with such
procedures as may be established for this purpose by the Committee. If at any
time the Committee does not possess deemed investment directions for all of a
Participant's Plan Account, the Participant shall be deemed to have directed
that the undesignated portion of the Plan Account be deemed to be invested in a
money market, fixed income or similar fund made available under the Plan as
determined by the Committee in its discretion. Each Participant hereunder, as a
condition to his or her participation hereunder, agrees to indemnify and hold
harmless the Company, the Committee and their agents and representatives from
any losses or damages of any kind relating to the Participant's choice of
deemed investments and the investment results of such deemed investments.
ARTICLE V Distributions
5.1 Time of Distribution.
(a) Unless a Participant otherwise elects in accordance with the provisions
of subsection 5.1(b), the amount credited to a Participant's Plan Account shall
be distributed to the Participant (or his Beneficiary), or distributions shall
begin, on the first day of the month next following 60 days after the date on
which the Participant's service with the Company terminates, whether such
service terminates because of death, Disability, Retirement, voluntary
termination or termination by the Company. The transfer of a Participant
between the Company and an Affiliated Entity, or between Affiliated Entities,
shall not be considered a termination of employment for purposes of this Plan.
(b) At the time a Participant elects to make Participant Deferrals in
accordance with Section 3.1 with respect to a specified Plan Year, the
Participant may also elect to receive payment of the amounts deferred under
Article III of the Plan with respect to such Plan Year, together with Credited
Earnings thereon, regardless of when service terminates, after a period of
three, five, ten, fifteen or twenty years. A Participant shall also be
permitted to elect to receive payment of the Participant Deferrals with respect
to a Plan Year at such other times as may be permitted by the Committee from
time to time. If a Participant makes such an election, then the amounts
deferred under Article III with respect to such Plan Year, together with
Credited Earnings thereon, shall be distributed to the Participant (or his
Beneficiary) on the first business day of the calendar year that is three,
five, ten, fifteen or twenty years after the calendar year of the deferrals as
elected by the Participant, or at such other time as may be elected by the
Participant with the permission of the Committee. Amounts payable under this
subsection after a specified period of years shall be paid in a lump sum,
except as provided in Section 5.2.
5.2 Method and Amount of Distribution.
(a) Unless a Participant otherwise elects with respect to a Plan Year in
accordance with the provisions of this Section 5.2, payment of all Participant
Deferrals, together with Credited Earnings, shall be made at the time
determined in accordance with the provisions of Section 5.1 in a lump sum in an
amount equal to the amount credited to his Plan Account as of the last day of
the month prior to the date of payment.
(b) At the time a Participant elects to make Participant Deferrals in
accordance with Section 3.1 with respect to a specified Plan Year, the
Participant may also elect to receive payment of the amounts deferred under
Article III of the Plan with respect to such Plan Year, together with Credited
Earnings thereon, over a three, five, ten, fifteen or twenty year installment
payout instead of a lump sum. In order to be valid, an election under this
subsection must be filed, in writing, with the Committee at least two years
before the date of the Participant's termination of service with the Company.
Payments in accordance with this subsection shall be made in annual
installments, with the first installment payable upon the first day of the
month next following 60 days after the termination of service of the
Participant, or the date specified by the Participant in accordance with the
provisions of subsection 5.1(b), as the case may be. Each annual installment
shall be determined by dividing the value of the Participant's Plan Account as
of the last day of the month prior to the date of payment by the number of
remaining annual installments to be made in accordance with the Participant's
election.
(c) Notwithstanding the foregoing provisions of this Section 5.2, in the
event of the death or Disability of the Participant, whether prior to or
following Retirement, the Participant or his Beneficiary, as the case may be,
may request a lump sum payout of the Participant's entire Plan Account. Any
such request shall be considered by the Committee, which shall have the sole
discretion to either approve such a payment or to deny such a payment. If a
lump sum payment is authorized by the Committee under these circumstances,
payment of the Participant's Plan Account, based upon the amount credited to
such Plan Account as of the last day of the month prior to the date of payment,
shall be made within 60 days after the date on which the Committee approves
such payment.
(d) During the period following a Participant's termination of employment with
the Company and before payment of his Plan Account begins, and during the
period that a Participant's Plan Account is being distributed in accordance
with an installment payout election, the Plan Account shall continue to be
credited with Credited Earnings in accordance with the provisions of Article IV
and the Participant shall be entitled to make deemed investment elections with
respect to the investment of his or her Plan Account.
(e) Notwithstanding the foregoing provisions of this Section 5, to the extent
that a Participant's Plan Account is deemed to be invested in Company Stock at
the time that distribution commences hereunder, such distribution shall be
made, to the extent thereof, in whole shares of Company Stock, rather than in
cash, with the value of any fractional share distributed in cash. In all other
instances, a Participant's Plan Account shall be distributed in cash.
5.3 Early Distribution With Penalty.
Instead of receiving the distribution of a Participant's Plan Account at the
time and in the manner otherwise specified in this Article V, a Participant
may elect to receive his entire Plan Account in a lump sum at any time. If a
Participant so elects, the amount of his Plan Account shall be reduced by 10%
as a penalty for early distribution and the amount in such Plan Account as of
the last day of the month prior to receipt by the Company of the Participant's
election under this subsection, reduced by the 10% penalty amount, shall be
paid to the Participant in a lump sum within 30 days after receipt by the
Company of the Participant's election. To the extent that a Participant's Plan
Account is invested in Company Stock, the lump sum distribution shall be made
in whole shares of Company Stock, with the value of any fractional share
distributed in cash. A Participant who makes such an election shall no longer
be eligible to participate in the Plan. All elections under this section shall
be made in writing, shall be effective when delivered to the Company and shall
be irrevocable once made.
5.4 Distribution Upon Change in Control.
In the event of a Change in Control of the Company, each Participant in the
Plan, and each Participant or Beneficiary receiving payments from the Plan,
shall receive an immediate lump sum payment of the amount allocated to his
Plan Account as of the date of such Change in Control. Such payment shall be
made as soon as administratively possible following the date of the Change in
Control.
5.5 Hardship Distributions.
In the event of hardship endured by a Participant and recognized as such by
the Committee, and upon receipt by the Committee of a written application for
the early distribution of amounts deferred, the Committee shall direct the
distribution to the Participant of all amounts allocated to the Plan Account
to the extent reasonably required to satisfy the hardship need. For purposes
of this Plan, "hardship" shall mean a Participant's severe, unforeseeable
financial hardship resulting from a sudden unexpected illness or accident of
the Participant (or any of his family), loss of the Participant's property due
to casualty, or other similar extraordinary and unforeseeable circumstances
arising as a result of events beyond the control of the Participant. In no
event may a distribution be made to the extent that such hardship is or may be
relieved (i) through reimbursement or compensation by insurance or otherwise,
or (ii) by liquidation of the Participant's assets, to the extent the
liquidation of such assets would not itself cause severe financial hardship.
If the Committee grants a hardship distribution pursuant to this Section 5.5,
the Committee may also permit the Participant to reduce or eliminate his
deferrals under the Plan for the remainder of the Plan Year. The Committee's
decision with respect to the existence or nonexistence of hardship with
respect to a particular Participant shall be final and binding on all parties.
5.6 Source of Payments.
All amounts payable to any person under this Plan shall be paid from the
general assets of the Company as such amounts become due and payable or, in
the sole discretion of the Company, such amounts may be paid from the Trust in
accordance with the provisions of the Trust and upon the written direction of
the Company. If a Participant is employed by more than one entity during his
period of participation in the Plan, the various employers shall agree among
themselves with respect to the allocation of the obligation to make payments
to the Participant in accordance with the provisions of this Plan.
5.7 Beneficiaries.
Each Participant shall designate one or more persons, trusts or other entities
as his Beneficiary to receive any amounts distributable hereunder at the time
of the Participant's death. Such designation shall be made by the Participant
on a Beneficiary Designation Form supplied by the Committee at his initial
enrollment and may be changed from time to time by the Participant. Any such
beneficiary designation shall apply to all amounts payable to a Participant
hereunder. All payments to a Participant's Beneficiary under the Plan shall be
made at the times and in the manner previously elected by the Participant with
respect to distributions under the Plan. In the absence of an effective
beneficiary designation as to part or all of a Participant's interest in the
Plan, such amount shall be distributed to the personal representative of the
Participant's estate.
5.8 Withholding.
All amounts payable under the provisions of this Plan to any person shall be
subject to withholding of applicable tax and other items in accordance with
federal, state and local law.
ARTICLE VI Administration
6.1 The Committee-Plan Administrator
(a) The Company's Retirement Committee, or a subcommittee thereof appointed
by the Retirement Committee, shall serve as the Administrative Committee
for this Plan. The Committee shall administer the Plan in accordance
with its terms and purposes.
(b) The Committee may designate an individual to serve as Plan Administrator
and may at any time revoke a prior designation and select a different
individual to serve as Plan Administrator.
6.2 Committee to Administer and Interpret Plan
The Committee shall administer the Plan and shall have all powers necessary
for that purpose, including, but not by way of limitation, power to interpret
the Plan, to determine the eligibility, status and rights of all persons under
the Plan and, in general, to decide any dispute. The Committee shall maintain
all Plan records except records of the Trust fund.
6.3 Organization of Committee.
The Committee shall adopt such rules as it deems desirable for the conduct of
its affairs and for the administration of the Plan. It may appoint agents (who
need not be members of the Committee) to whom it may delegate such powers as
it deems appropriate, except that any dispute shall be determined by the
Committee. The Committee may make its determinations with or without meetings.
It may authorize one or more of its members or agents to sign instructions,
notices and determinations on its behalf. The action of a majority of the
Committee shall constitute the action of the Committee.
6.4 Indemnification.
The Committee, the Plan Administrator and all of the other agents and
representatives of the Committee shall be indemnified and saved harmless by
the Company against any claims, and the expenses of defending against such
claims, resulting from any action or conduct relating to the administration of
the Plan, except claims judicially determined to be attributable to gross
negligence or willful misconduct.
6.5 Agent for Process.
The Committee shall be agent of the Plan for service of all process.
6.6 Determination of Committee Final.
The decisions made by the Committee shall be final and conclusive on all
persons.
6.7 The Trustee
The Trustee shall be responsible for: (a) the investment of the Trust fund to
the extent and in the manner provided herein and in the Trust Agreement; (b)
the custody and preservation of Trust assets delivered to it; and (c) for
making such distributions from the Trust fund as the Company shall direct. The
Trustee shall have only the responsibilities specified in this section and in
the Trust Agreement.
ARTICLE VII Trust
7.1 Trust Agreement.
The Company and each Affiliated Entity which has adopted the Plan have each
entered into a Trust Agreement with the Trustee, which shall initially be
Fidelity Management Trust Company, to provide for the holding, investment and
administration of the funds of the Plan for the Participants who are employed
by each such entity. The Trust Agreement shall be part of the Plan, and the
rights and duties of any person under the Plan shall be subject to all of the
terms and provisions of the Trust Agreement.
7.2 Expenses of Trust.
The parties expect that the Trust will be treated as though it were not a
separate taxpaying entity for federal and state income tax purposes and that,
as a consequence, the Trust will not be subject to income tax with respect to
its income. However, if the Trust should be taxable, the Company shall
contribute the amount necessary to pay such taxes to the Trust and the Trustee
shall pay all such taxes out of the Trust. All expenses of administering the
Trust shall be paid by the Company.
ARTICLE VIII Affiliated Entities
8.1 Adoption of Plan.
Any Affiliated Entity, whether or not presently existing, may with the consent
of the Committee become a party to the Plan by adopting the Plan for one or
more of its highly- compensated and select management employees. In accordance
with the provisions of Section 2.1, the Committee shall have the sole
discretion to determine which employees of such an Affiliated Entity, if any,
may participate in the Plan. Thereafter, such Affiliated Entity shall promptly
deliver to the Company a copy of the document evidencing its adoption of the
Plan. The Company and each such Affiliated Entity shall enter into such written
agreements as they may consider necessary and appropriate in order to allocate
the responsibility for payments due under the provisions of the Plan with
respect to employees who transfer employment between participating employers.
8.2 Agency of the Company.
Each Affiliated Entity by becoming a party to the Plan constitutes the Company
its agent with authority to act for it in all transactions in which the
Company believes such agency will facilitate the administration of the Plan
and with authority to amend and terminate the Plan.
8.3 Disaffiliation and Withdrawal From Plan
Any Affiliated Entity which has adopted the Plan and which thereafter ceases
for any reason to be an Affiliated Entity shall forthwith cease to be a party
to the Plan. Any Affiliated Entity may, by resolution of its governing body and
written notice thereof to the Company provide from and after the end of any
plan year for the discontinuance of Plan participation by such employer and its
employees.
8.4 Effect of Disaffiliation or Withdrawal
At the time of disaffiliation or withdrawal, the disaffiliating or withdrawing
employer shall by resolution of its governing body determine whether to
continue the Plan for its covered employees or to terminate the Plan as to
such employees.
ARTICLE IX Amendment and Termination
9.1 Termination of Deferrals.
The Company, through action of its Board of Directors, may terminate future
Participant Deferrals under the Plan at any time, for any reason. If deferrals
are discontinued, the Plan and Trust shall continue to operate in accordance
with their respective terms and distributions shall be made to Participants
(and Beneficiaries) in accordance with the provisions of the Plan.
9.2 Termination of Plan.
The Company and each Affiliated Entity which has adopted the Plan expect to
continue this Plan indefinitely, but the Company and each such Affiliated
Entity may terminate this Plan as to its employees at any time.
Notwithstanding the foregoing, the Company and each such Affiliated Entity
shall not terminate this Plan as to its employees solely for the purpose of
accelerating the distribution of benefits to its employees.
9.3 Benefits Distributable Upon Termination
Notwithstanding 9.1 above, the Company or the Affiliated Entity, as the case
may be, shall distribute, or cause the Trustee to distribute, all benefits
that have accrued under the Plan for Participants employed by the entity that
terminates its participation in the Plan, together with all benefits that have
accrued under the Plan for former Participants or Beneficiaries, as of the
date of termination of the Plan, with such benefits computed and distributed
as though all Participants terminated employment with the Company or the
Affiliated Entity on the date of Plan termination.
9.4 Amendment by Company
The Company may amend this Plan at any time and from time to time, but no
amendment shall reduce any benefit that has accrued on the effective date of
the amendment.
ARTICLE X Miscellaneous
10.1 Funding of Benefits - No Fiduciary Relationship.
All benefits payable under this Plan shall be distributed as they become due
and payable either by the Company out of its general assets or from the Trust,
as determined by the Company in its sole discretion. The Company and each
Affiliated Entity that adopts the Plan pursuant to Article VIII shall be
responsible for providing the benefits only for its own employees who are
Participants in the Plan. Nothing contained in this Plan shall be deemed to
create any fiduciary relationship between the Company and the Participants. To
the extent that any person acquires a right to receive benefits under this
Plan, such right shall be no greater than the right of any unsecured general
creditor of the Company.
10.2 Reimbursement for Certain Expenses.
The Plan and Trust have been established with the intent and understanding
that, for federal income tax purposes, Participants in the Plan will not be
subject to tax with respect to their participation in the Plan until such time
as distributions are actually made to the Participants in accordance with the
provisions of the Plan. If a Participant is treated by the Internal Revenue
Service as having received income with respect to the Plan in a year prior to
the actual receipt of distributions under the Plan, the Company shall
reimburse the Participant for all reasonable legal and accounting costs
incurred by the Participant in contesting such proposed treatment.
10.3 Right to Terminate Employment
The Company and each Affiliated Entity may terminate the employment of any
Participant as freely and with the same effect as if this Plan were not in
existence.
10.4 Inalienability of Benefits.
No Participant shall have the right to assign, transfer, hypothecate, encumber
or anticipate his interest in any benefits under this Plan, nor shall the
benefits under this Plan be subject to any legal process to levy upon or attach
the benefits for payment for any claim against the Participant or his spouse.
If any Participant's benefits are garnished or attached by the order of any
court, the Company may bring an action for declaratory judgment in a court of
competent jurisdiction to determine the proper recipient of the benefits to be
distributed pursuant to the Plan. During the pendency of the action, any
benefits that become distributable shall be paid into the court as they become
distributable, to be distributed by the court to the recipient it deems proper
at the conclusion of the action. Notwithstanding the foregoing provisions of
this Section 10.4, a Participant shall have the right to assign any amounts
that may become payable hereunder for any reason other than the death of the
Participant to a revocable trust of which the Participant is the grantor or a
family partnership controlled by the Participant, provided that any such
assignment shall not enable the Participant to anticipate or otherwise receive
current economic benefit from such assignment.
10.5 Claims Procedure.
(a) All claims shall be filed in writing by the Participant, his spouse or the
authorized representative of the claimant, by completing such procedures as the
Committee shall require. Such procedures shall be reasonable and may include
the completion of forms and the submission of documents and additional
information.
(b) If a claim is denied, notice of denial shall be furnished by the Committee
to the claimant within 90 days after the receipt of the claim by the Committee,
unless special circumstances require an extension of time for processing the
claim, in which event notification of the extension shall be provided to the
Participant or beneficiary and the extension shall not exceed 90 days.
(c) The Committee shall provide adequate notice, in writing, to any claimant
whose claim has been denied, setting forth the specific reasons for such
denial, specific reference to pertinent Plan provisions, a description of any
additional material or information necessary for the claimant to perfect his
claims and an explanation of why such material or information is necessary, all
written in a manner calculated to be understood by the claimant. Such notice
shall include appropriate information as to the steps to be taken if the
claimant wishes to submit his claim for review. The claimant or the claimant's
authorized representative may request such review within the reasonable period
of time prescribed by the Committee. In no event shall such a period of time be
less than 60 days. A decision on review shall be made not later than 60 days
after the Committee's receipt of the request for review. If special
circumstances require a further extension of time for processing, a decision
shall be rendered not later than 120 days following the Committee's receipt of
the request for review. If such an extension of time for review is required,
written notice of the extension shall be furnished to the claimant prior to the
commencement of the extension. The decision on review shall be furnished to the
claimant. Such decision shall be in writing and shall include specific reasons
for the decision, written in a manner calculated to be understood by the
claimant, as well as specific references to the pertinent Plan provisions on
which the decision is based.
10.6 Disposition of Unclaimed Distributions
Each Participant must file with the Company from time to time in writing his
address and each change of address. Any communication, statement or notice
addressed to a Participant at his last address filed with the Company, or if
no address is filed with the Company, then at his last address as shown on the
Company's records, will be binding on the Participant and his spouse for all
purposes of the Plan. The Company shall not be required to search for or locate
a Participant or his spouse. If the Committee notifies a Participant (or
Beneficiary) that he is entitled to a distribution and also notifies him of the
provisions of this section, and the individual fails to claim his benefits
under this Plan or make his address known to the Committee within five calendar
years after the notification, the benefits under the Plan of such individual
shall be forfeited as of the end of the Plan Year coincident with or following
the five year waiting period. If the individual should later make a claim for
his forfeited benefit, the Company shall cause the amount of the forfeited
benefit to be distributed to the individual, either through a direct payment by
the Company or through a payment from the Trust.
10.7 Distributions Due Minors or Incompetents.
If any person entitled to a distribution under the Plan is a minor, or if the
Committee determines that any such person is incompetent by reason of physical
or mental disability, whether or not legally adjudicated an incompetent, the
Committee shall have the power to cause the distributions becoming due to such
person to be made to another for his or her benefit, without responsibility of
the Committee or the Trustee to see to the application of such distributions.
Distributions made pursuant to such power shall operate as a complete
discharge of the Company, the Trust fund, the Trustee and the Committee.
10.8 Governing Law.
This Plan shall be governed by the laws of the State of Colorado.
Dated: _____________________
ATTEST: ADOLPH COORS COMPANY
By:__________________________ By:_____________________________________
TABLE OF CONTENTS
Page
RECITALS 1
ARTICLE I - Definitions 1
1.1 "Affiliated Entity" 1
1.2 "Base Salary" 1
1.3 "Beneficiary" 1
1.4 "Change in Control" 1
1.5 "Committee" 2
1.6 "Company" 2
1.7 "Company Stock" 2
1.8 "Compensation" 2
1.9 "Credited Earnings" 2
1.10 "Disability" 2
1.11 "Election Agreement" 2
1.12 "Executive Bonus" 2
1.13 "Participant" 2
1.14 "Participant Deferrals" 2
1.15 "Plan Account" 3
1.16 "Plan Year" 3
1.17 "Retirement" 3
1.18 "Stock Option" 3
1.19 "Trust" 3
1.20 "Trust Agreement" 3
1.21 "Trustee" 3
ARTICLE II - Eligibility and Participation 3
2.1 Eligibility and Participation 3
2.2 Enrollment 3
2.3 Failure of Eligibility 4
ARTICLE III - Contribution Deferrals 4
ARTICLE IV - Accounting and Investments 5
4.1 Accounting 5
4.2 Deemed Investment Elections 5
ARTICLE V - Distributions 5
5.1 Time of Distribution 5
5.2 Method and Amount of Distribution 6
5.3 Early Distribution With Penalty 7
5.4 Distribution Upon Change in Control 7
5.5 Hardship Distributions 8
5.6 Source of Payments 8
5.7 Beneficiaries 8
5.8 Withholding 8
ARTICLE VI - Administration 9
6.1 The Committee-Plan Administrator 9
6.2 Committee to Administer and Interpret Plan 9
6.3 Organization of Committee. 9
6.4 Indemnification 9
6.5 Agent for Process 9
6.6 Determination of Committee Final 9
6.7 The Trustee 10
ARTICLE VII - Trust 10
7.1 Trust Agreement 10
7.2 Expenses of Trust 10
ARTICLE VIII - Affiliated Entities 10
8.1 Adoption of Plan 10
8.2 Agency of the Company 11
8.3 Disaffiliation and Withdrawal From Plan 11
8.4 Effect of Disaffiliation or Withdrawal 11
ARTICLE IX - Amendment and Termination 11
9.1 Termination of Deferrals 11
9.2 Termination of Plan 11
9.3 Benefits Distributable Upon Termination 11
9.4 Amendment by Company 12
ARTICLE X - Miscellaneous 12
10.1 Funding of Benefits - No Fiduciary Relationship 12
10.2 Reimbursement for Certain Expenses 12
10.3 Right to Terminate Employment 12
10.4 Inalienability of Benefits 12
10.5 Claims Procedure 13
10.6 Disposition of Unclaimed Distributions 13
10.7 Distributions Due Minors or Incompetents 14
10.8 Governing Law 14
AMENDMENT TO
ADOLPH COORS COMPANY
EQUITY INCENTIVE PLAN
General
Effective January 1, 1990, Adolph Coors Company, a Colorado corporation (the
"Company"), established the Adolph Coors Company Equity Incentive Plan (the
"Plan") for certain key employees. In section 16 of the Plan, the Company
reserved the right to amend the Plan from time to time through action of the
Company's Board of Directors (the "Board"). Pursuant to resolutions adopted by
the Company's board of directors on February 16, 1999, the Plan is hereby
amended as follows.
Amendment
1. Section 2.1(g), the definition of "Fair Market Value," shall be amended in
its entirety to provide as follows:
"Fair Market Value" means the average of the highest and lowest prices of the
Stock on the New York Stock Exchange or the National Association of Securities
Dealers Automated Quotation System ("NASDAQ"), as applicable, on a particular
date. If the Stock is not traded on either the New York Stock Exchange or
NASDAQ, Fair Market Value shall mean the average of the highest and lowest
prices of the stock on the principal stock exchange or other market on which
the Stock is traded on a particular date. If there are no Stock transactions on
such date, the Fair Market Value shall be determined as of the immediately
preceding date on which there were Stock transactions. If the price of the
Stock is not reported on any securities exchange or national market system, the
Fair Market Value of the Stock on the particular date shall be as determined by
the Committee. If, upon exercise of an Option, the exercise price is paid by a
broker's transaction as provided in subsection 7.2(g)(ii)(D), Fair Market
Value, for purposes of the exercise, shall be the price at which the Stock is
sold by the broker.
2. The amendment in the preceding paragraph shall be effective for all
determinations of Fair Market Value under the Plan on and after February 16,
1999.
IN WITNESS WHEREOF, this Amendment has been signed this 26th day of February,
1999, to be effective as provided above.
ADOLPH COORS COMPANY
ATTEST:
By:_____________________________ By:__________________________________
#486352
AMENDMENT TO
ADOLPH COORS COMPANY
EQUITY COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
General
Effective May 16, 1991, Adolph Coors Company, a Colorado corporation (the
"Company"), established the Adolph Coors Company Equity Compensation Plan for
Non-Employee Directors (the "Plan") for the directors of the Company who are
not also employees of the Company. In section 11 of the Plan, the Company
reserved the right to amend the Plan from time to time through action of the
Company's Board of Directors (the "Board"). Pursuant to resolutions adopted by
the Company's board of directors on February 16, 1999, the Plan is hereby
amended as follows.
Amendment
1. Section 2.1(e), the definition of "Fair Market Value," shall be amended in
its entirety to provide as follows:
"Fair Market Value" means the average of the highest and lowest prices of the
Stock on the New York Stock Exchange or the National Association of Securities
Dealers Automated Quotation System ("NASDAQ"), as applicable, on a particular
date. If the Stock is not traded on either the New York Stock Exchange or
NASDAQ, Fair Market Value shall mean the average of the highest and lowest
prices of the stock on the principal stock exchange or other market on which
the Stock is traded on a particular date. If there are no Stock transactions on
such date, the Fair Market Value shall be determined as of the immediately
preceding date on which there were Stock transactions. If the price of the
Stock is not reported on any securities exchange or national market system, the
Fair Market Value of the Stock on the particular date shall be as determined by
the Committee.
2. The amendment in the preceding paragraph shall be effective for all
determinations of Fair Market Value under the Plan on and after February 16,
1999.
IN WITNESS WHEREOF, this Amendment has been signed this 26th day of February,
1999, to be effective as provided above.
ADOLPH COORS COMPANY
ATTEST:
By:____________________________ By:____________________________
#487513
AMENDMENT TO
ADOLPH COORS COMPANY
COORS STOCK UNIT PLAN
General
Effective March 28, 1995, Adolph Coors Company, a Colorado corporation (the
"Company"), established the Coors Stock Unit Plan (the "Plan") for certain
employees of the Company and affiliates of the Company that adopt the Plan. In
section 12 of the Plan, the Company reserved the right to amend the Plan from
time to time through action of the Company's Board of Directors (the "Board").
Pursuant to resolutions adopted by the Company's board of directors on
February 16, 1999, the Plan is hereby amended as follows.
Amendment
1. Section 2.1(f), the definition of "Coors Stock Unit," shall be amended in
its entirety to provide as follows:
"Coors Stock Unit" means a measurement component equal to the "Fair Market
Value" of a share of the Company's Class B common stock (non-voting), no par
("Class B Common Stock"). For this purpose, "Fair Market Value" shall be based
upon the average of the highest and lowest prices of the Stock on the New York
Stock Exchange or the National Association of Securities Dealers Automated
Quotation System ("NASDAQ"), as applicable, on a particular date. If the Stock
is not traded on either the New York Stock Exchange or NASDAQ, Fair Market
Value shall mean the average of the highest and lowest prices of the stock on
the principal stock exchange or other market on which the Stock is traded on a
particular date. If there are no Stock transactions on such date, the Fair
Market Value shall be determined as of the immediately preceding date on which
there were Stock transactions. If the price of the Stock is not reported on any
securities exchange or national market system, the Fair Market Value of the
Stock on the particular date shall be as determined by the Committee.
2. The amendment in the preceding paragraph shall be effective for all
determinations of Fair Market Value under the Plan on and after February 16,
1999.
IN WITNESS WHEREOF, this Amendment has been signed this 26th day of February,
1999, to be effective as provided above.
ADOLPH COORS COMPANY
ATTEST:
By:_____________________________ By:__________________________________
#487519
