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 26, 1999
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
Class B Common Stock (non-voting), New York Stock Exchange
no par value
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X NO
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 13, 2000:
Class A Common Stock - 1,260,000 shares
Class B Common Stock - 35,467,339 shares
PART I
ITEM 1. Business
(a) General Development of Business
Founded in 1873 and incorporated in Colorado in 1913, Adolph Coors Company
(ACC) is the holding company for Coors Brewing Company (CBC), the third-
largest U.S. brewer. For a description of the business of CBC, see Item 1,
section (c), Narrative Description of Business. ACC, CBC and the majority
owned and controlled domestic and foreign subsidiaries are collectively
referred to as "the Company."
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 in its Zaragoza, Spain brewery. See
Marketing - International business under section (c), Narrative Description of
Business, below.
Coors Brewing International, Ltd. (CBIL), owned by ACC and based in London,
was created in December 1997. 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, Molson, Inc. (Molson), owns the remaining 49.9% interest in the
partnership. The partnership began January 1, 1998 to develop the business
that offers Coors products in Canada. See further discussion of the Canadian
business under section (c), Narrative Description of Business, below.
CBC owns Coors Distributing Company (CDC) and several smaller subsidiaries.
CDC owns and operates distributorships in several markets across the United
States. CDC's 1999 operations accounted for approximately 6.4% of CBC's
reported beer sales volume.
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, Management's Discussion and Analysis of Financial
Conditions and Results of Operations (MD&A). Actual results may differ
materially from these forward-looking statements. See MD&A - Cautionary
Statement Pursuant to Safe Harbor Provisions of the Private Securities
Litigation Reform Act of 1995 for factors that may negatively impact the
Company's performance.
(b) Financial Information About Industry Segments
The Company has one reporting segment focused on the continuing operations of
producing and marketing malt-based beverages. See Item 8, Financial Statements
and Supplementary Data, for financial information relating to the Company.
(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 22.0 million barrels in 1999, 21.2
million barrels in 1998 and 20.6 million barrels in 1997. The barrel sales
figures for each year do not include barrel sales of non-consolidated joint
ventures. See Item 7 for discussion of changes in volume.
Marketing
Principal products and services: CBC currently has 13 brands in its
portfolio, of which four are premium products included in the Coors family of
beers: Coors Light, Original Coors, Coors Dry and Coors Non-Alcoholic. CBC
also produces and markets Coors Extra Gold and Zima, an innovative above-
premium, malt-based beverage.
CBC offers specialty, above-premium beers, including Winterfest, a seasonal
product, and Blue Moon Belgian White Ale. CBC also sells George Killian's
Irish Red Lager, a licensed product.
CBC brands also include popular-priced Keystone Premium, Keystone Light and
Keystone Ice.
CBC owns and operates The SandLot Brewery at Coors Field 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.
CBC's beverages are sold throughout the United States. CBC exports or produces
and sells many products overseas, as described in greater detail below.
New products/opportunities: Zima Citrus was introduced in test markets during
1998. The test markets were expanded in 1999.
Discontinued products: During 1999, Keystone Dry, Blue Moon Honey Blonde
Ale, Blue Moon Harvest Pumpkin Ale, Blue Moon Raspberry Cream Ale, Blue
Moon Abbey Ale and Killian's Irish Honey were discontinued because the
market performance of these products did not meet expectations.
Brand names, trademarks, patents and licenses: CBC owns trademarks on the
majority of the brands it produces and licenses the remainder. CBC 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 2000 to 2019, 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 a very small amount of revenue from royalties and licenses, and does
not depend on this revenue.
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 more than three
years. Premium and above-premium beers accounted for approximately 88% of
CBC's total 1999 sales volume.
Domestic sales: The Company's highest-volume states are California, Texas,
Pennsylvania, New York and New Jersey, comprising 47% of total domestic volume.
The Company reorganized into two regions that manage six geographic field
business areas responsible for overseeing domestic sales, which CBC expects
will allow better anticipation and response to wholesaler and consumer needs.
International business: Through its U.S. and foreign production facilities,
CBC markets its products to approximately 30 international markets and to U.S.
military bases worldwide.
In Canada, Coors Canada markets and sells Coors products, where Coors Light is
the best-selling light beer. Under the partnership agreement, Coors Canada is
responsible for marketing Coors products in Canada, while the partnership
contracts with Molson Canada for the brewing, distribution and sales of these
brands. The partnership receives an amount from Molson Canada generally equal
to net sales revenue generated from the Coors brands less production,
distribution, sales and overhead costs related to these sales. CCI's 50.1%
share of the partnership's financial position and operating results are
accounted for using the equity method due to Molson's participating rights in
the partnership's business operations.
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.
In 1991, CBC formed Jinro-Coors Brewing Company (JCBC), a joint venture with
Jinro Limited of the Republic of Korea. CBC had a one-third ownership interest
in JCBC. Due to the financial difficulties encountered by Jinro Limited, in
December 1997, CBC exercised the put option it held on its $22 million
investment in JCBC, which required Jinro Limited to purchase CBC's investment.
When the put option was exercised, CBC reclassified its investment in JCBC to
a receivable from Jinro Limited. The receivable is secured by shares, which
were later canceled as discussed below. Jinro Limited had until June 1998 to
perform its obligation under the put option. It did not perform. In February
1999, Jinro Limited, announced a plan to sell JCBC through an international
bidding process. The Company submitted a bid for the purchase of JCBC and was
selected as the preferred bidder. Subsequent to this selection, the
supervising court and the creditors of JCBC canceled the original auction and
held a new one, in which CBC did not participate. JCBC was sold to Oriental
Brewery, and the shares of the former owners were canceled in November, 1999.
See Item 7a, MD&A, for further discussion of this matter. Prior to the
exercise date of the put option, JCBC's financial results were not included in
CBC's financial statements. 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.
Coors Iberica owns a 500,000-hectoliter brewery in Zaragoza, Spain. Coors
Iberica brews Coors Gold for sale in Spain and the Coors Extra Gold and Coors
Light brands for export to approximately six international markets. Coors
Iberica exclusively handles the sales and marketing efforts of Coors products
in Spain. Financial results of the Zaragoza brewery are included in ACC's
consolidated financial statements.
The Zaragoza, Spain, brewery also is the source for Coors Extra Gold sold in
the United Kingdom. Carlsberg Tetley and Scottish Courage are distributing the
product.
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 527 independent distributors and
seven distributorships, 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 588. Additional
independent distributors deliver CBC products to some international markets
under certain licensing and distribution agreements.
To ensure the highest product quality, CBC establishes standards and monitors
distributors' methods of handling Coors products. 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
(see discussion under Operations, below), 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.
Approximately 66% of products are shipped by truck and intermodal (piggyback)
directly to distributors or to satellite redistribution centers.
Transportation vehicles are also refrigerated or properly insulated to keep
CBC's malt beverages at required temperatures while in transit.
The remaining 34% of the products packaged at CBC's production facilities are
transported by railcar to satellite redistribution centers or directly to
distributors throughout the country. Railcars assigned to CBC are specially
built and insulated to keep Coors products cold en route. Any interruption in
rail service 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 1999, approximately 62% of packaged products were shipped
directly to distributors, while the remaining 38% 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 62% 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 Citrus, Coors Light, Coors Non-
Alcoholic and Blue Moon Belgian White Ale. Depending on future 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 1999, 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 Company-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
the current malting requirements but are being improved and upgraded to
provide additional capacity needed over the next few years.
Container manufacturing facilities: 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. CBC owns the can manufacturing facility that
produces approximately 3.8 billion aluminum cans per year and an aluminum can
end manufacturing facility, which provides CBC aluminum ends and tabs. The
joint venture has improved the technology and utilization of both facilities
and has enhanced the returns on this investment. In 1999, CBC purchased
virtually all of the cans produced by the joint venture.
Owens-Brockway Glass Container, Inc. (Owens) and CBC operate a joint venture
partnership, the Rocky Mountain Bottle Company (RMBC), to produce glass bottles
at the CBC glass manufacturing facility. The partnership's initial term is until
2005 and can be extended for additional two-year periods. RMBC has a contract
to supply CBC's bottle requirements and Owens is the 100% preferred supplier of
bottles to CBC for bottle requirements not met by RMBC. In 1999, RMBC produced
approximately 941 million bottles. CBC purchases virtually all of the bottles
produced by RMBC. The book value of the total joint ventures' properties are
approximately 11% of the book value of CBC's properties.
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 1999, the Company spent approximately $124.2 million
in capital expenditures (excluding capital improvements for the container
joint ventures, which were recorded on the books of the respective joint
venture). 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 for 2000 to be in the range of approximately
$125 million to $130 million for improving and enhancing the facilities,
infrastructure, information systems and environmental compliance, which
excludes capital improvements to the container joint ventures.
Raw Materials/Sources and Availability
CBC's beers are made with all natural ingredients, and its brewing process is
one of the longest in duration in the industry. CBC adheres to very 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 growers. Furthermore, the growers use
only barley seed developed by CBC. CBC's malting facility in Golden produces
malt for all CBC products except Blue Moon. CBC maintains inventory levels in
Company-owned locations sufficient to continue production in the event of any
disruption in barley or malt supplies.
Rice and refined cereal starch 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 contains minerals that help 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. The Rocky Mountain Water Company, a wholly owned
subsidiary of CBC, acquires water rights, as appropriate, to provide
flexibility for long-term strategic growth needs and also to sustain brewing
operations in the event of a prolonged drought.
Packaging materials: During 1999, 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
and Shenandoah plant are purchased from CBC's can and end joint venture and an
outside supplier.
Glass bottles were used to package approximately 29% of CBC's beverages in
1999; about half of these bottles were produced by RMBC.
The remainder (11%) of the malt beverages sold during 1999 was packaged
primarily in quarter- and half-barrel stainless steel kegs.
Supply contracts with ACX companies: When ACX Technologies, Inc. (ACX) was
spun off from ACC in 1992, CBC negotiated long-term supply contracts with
certain ACX subsidiaries for aluminum, starch and packaging materials.
However, the aluminum and starch contracts have expired or have been canceled.
A subsidiary of ACX supplies much of the secondary packaging for CBC's
products, including bottle labels and paperboard products. The contract for
packaging materials has been 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 starch, cans and glass. The previous starch contract with a
subsidiary of ACX was sold to an unaffiliated third party in February 1999.
The supply agreements provide for the Company to purchase certain minimum
levels of materials with terms expiring in 2001 through 2006.
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 1999, 1998 and
1997 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 $15.5 million, $15.2 million and $14.6 million was
expensed for research and development in 1999, 1998 and 1997, respectively.
The Company expects to spend approximately $15.2 million on research and
project development in 2000.
To support new product development, CBC maintains a fully equipped pilot
brewery, with a 6,500-barrel annual capacity, within the Golden facility. This
facility enables CBC to brew small batches of innovative products without
interrupting ongoing production operations in the main brewery.
Regulations
Federal laws and regulations govern the operations of breweries. The federal
and respective state governments 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 imported 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.
Emerging regulatory/legislative issues with the items mentioned above or other
areas could impact the Company's business operations over the next few years.
Federal excise taxes on malt beverages are currently $18 per barrel. State
excise taxes also are levied at rates that ranged in 1999 from a high of
$32.65 per barrel in Alabama to a low of $0.62 per barrel in Wyoming, with an
average of $7.75 per barrel. In 1999, CBC incurred approximately $406 million
in federal and state excise taxes. A substantial increase in federal or state
excise taxes could 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 works 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 continues
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 1999 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 bottles and cans, making product packages lighter 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. During 1999, the Washington, D.C.,
NLRB upheld the regional decision and rescinded the UAW's appeal.
Competitive Conditions
Known trends and competitive conditions: Industry and competitive information
was compiled from various industry sources, including beverage analyst
reports, Beer Marketer's Insights and The Beer Institute. While management
believes that these sources are reliable, the Company cannot guarantee the
absolute accuracy of these numbers and estimates.
1999 industry overview: The beer industry in the United States is highly
competitive. Industry volume growth has averaged less than 1% annually since
1991, and maintaining, let alone growing, market share requires substantial
investments in marketing and sales. In a very competitive year, 1999 saw
domestic beer industry shipments increase slightly more than 1% after growing
less than 1% in 1998. In recent years, brewers have attempted to gain market
share through competitive pricing, marketing, promotions and innovative
packaging.
The industry's pricing environment improved in 1999 with the announcement of
modest price increases on specific packages in select markets. As a result,
revenue per barrel improved for major U.S. brewers during the year. However,
starting in late 1998, the competitive battleground of the industry shifted
much more heavily toward marketing and advertising spending, and relatively
slightly less discounting. In 1999, CBC invested a significant proportion of
incremental gross profit generated by price increases in increased marketing
and sales activities.
A number of important trends continued in the U.S. beer market in 1999. The
first was a trend toward light, refreshing beers. The fastest growing major
beers in the U.S. market are light American-style lagers, such as Coors Light.
Approximately four-fifths of CBC's annual unit volume in 1999 was in light
beers. The second trend was toward "trading up," as consumers continued to
move away from lower-priced brands to higher-priced brands, especially
imports. Shipments of import beers rose 10% in 1999. Meanwhile microbreweries
continued to face market challenges, as consumers and retailers continued to
consolidate their brand sets and focus more on products with stronger brand
equities. The industry sales trends toward lighter, more-upscale beers play to
CBC's strengths.
The U.S. brewing industry also continues to consolidate at the producer and
wholesaler levels, a trend that generally results in improved economics for
the industry as a whole. 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 also
bought two brands from Pabst and expanded its contract brewing agreement with
Pabst. During a transition period of approximately nine months, Stroh sold or
closed all of its remaining breweries and exited the beer business. In
December 1999, Genesee Corp., then the fifth-largest U.S. brewer, agreed to
sell its brewing unit to Platinum Holdings, a New York-based investment firm.
Beer wholesalers also continued to consolidate to improve their economics and
competitive positions.
U.S. demographics continued to improve for the beer industry, with the number
of consumers reaching legal drinking age increasing in 1999, according to U.S.
Census Bureau projections. These same projections anticipate that the 21-24
age group would increase in 1999 for the first time in two decades.
The mid-1990s proliferation of products continued to reverse in 1999 as major
brewers again focused efforts on core brands. For example, CBC discontinued
six minor brands during 1999, reducing its brand portfolio by more than 30%.
The CBC portfolio, with 13 brands, is less than half its peak size of 27
brands in 1995. A focus on fewer brands tends to reduce operational
complexity, improve margins and improve sales and marketing focus.
CBC competitive position: CBC's malt beverages compete with numerous above-
premium, premium, low-calorie, popular-priced, non-alcoholic and imported
brands. They are produced by national, regional, local and international
brewers. In 1999, approximately 80% of U.S. beer shipments were attributable
to the top three domestic brewers: Anheuser-Busch, Inc. (AB); Philip Morris,
Inc., through its subsidiary Miller; and CBC. 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 10.7% of the total 1999 U.S. brewing industry
shipments of malt beverages (including exports and U.S. shipments of imports).
This compares to AB's 47.5% share and Miller's 21.6% share. CBC had 88% of its
unit volume in the premium and above-premium price categories, the highest
proportion among the largest domestic brewers. This product mix compares to
75% premium-and-above volume for AB, 60% for Miller and less than 5% for Pabst.
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 benefit from economies of
scale in advertising spending because of their greater unit sales volumes.
CBC, in an effort to achieve and maintain national advertising exposure and
grow its U.S. market share, must spend substantially more per barrel of beer
sold than its major competitors.
Although CBC's results are primarily driven by domestic operations,
international operations increased their importance in recent years, including
Canada, where Coors Light is the number one light beer.
(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 major Company-owned 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 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 1999, CBC estimates that its brewing facilities
operated at an annual average of approximately 89% of its brewing capacity,
and its packaging facilities operated at an annual average of approximately
85% of the packaging capacity. Annual production capacity varies due to
product and packaging mix and seasonality. During the peak season then
capacities are fully utilized.
ITEM 3. Legal Proceedings
See the Environmental section of Item 7, MD&A, for a discussion of the
Company's obligation for potential remediation costs at the Lowry Landfill
Superfund site and related legal proceedings.
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
Adolph Coors Company's (ACC's) Class B common stock began trading on the New
York Stock Exchange on March 11, 1999, 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
13, 2000, 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 3,071
Preferred stock, non-voting,
$1 par value None issued
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:
1999
Market price
High Low Dividends
First quarter $65 13/16 $51 11/16 $ 0.150
Second quarter $59 3/16 $45 1/4 $ 0.165
Third quarter $61 $48 1/4 $ 0.165
Fourth quarter $57 11/16 $47 15/16 $ 0.165
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
ITEM 6. Selected Financial Data
Following is ACC's selected financial data for 11 years ended December 26, 1999:
(In thousands, except per share) 1999 1998 1997 1996
Barrels of malt beverages sold 21,954 21,187 20,581 20,045
Summary of Operations:
Net sales $2,056,646 $1,899,533 $1,821,304 $1,741,835
Cost of goods sold (1,215,965) (1,160,693) (1,131,610) (1,131,470)
Marketing, general
and administrative (692,993) (615,626) (573,818) (523,250)
Special (charges) credits (5,705) (19,395) 31,517 (6,341)
Total operating expenses (1,914,663) (1,795,714) (1,673,911) (1,661,061)
Operating income 141,983 103,819 147,393 80,774
Other income (expense) - net 8,684 7,281 (500) (5,799)
Income before income taxes 150,667 111,100 146,893 74,975
Income tax expense (58,383) (43,316) (64,633) (31,550)
Income from
continuing operations $ 92,284 $ 67,784 $ 82,260 $ 43,425
Per share of common stock
- basic $ 2.51 $ 1.87 $ 2.21 $ 1.14
- diluted $ 2.46 $ 1.81 $ 2.16 $ 1.14
Income from
continuing operations as a
percentage of net sales 4.5% 3.6% 4.5% 2.5%
Financial Position:
Working capital $ 220,117 $ 165,079 $ 158,048 $ 124,194
Properties - net $ 714,001 $ 714,441 $ 733,117 $ 814,102
Total assets $1,546,376 $1,460,598 $1,412,083 $1,362,536
Long-term debt $ 105,000 $ 105,000 $ 145,000 $ 176,000
Other long-term liabilities $ 52,579 $ 56,640 $ 23,242 $ 32,745
Shareholders' equity $ 841,539 $ 774,798 $ 736,568 $ 715,487
Net book value per share
of common stock $ 22.91 $ 21.34 $ 19.79 $ 18.83
Total debt to total
capitalization 11.1% 15.8% 19.0% 21.2%
Return on average
shareholders' equity 11.4% 9.0% 11.3% 6.2%
Other Information:
Dividends $ 23,745 $ 21,893 $ 20,523 $ 18,983
Dividends per share of
common stock $ 0.645 $ 0.60 $ 0.55 $ 0.50
Gross profit $ 840,681 $ 738,840 $ 689,694 $ 610,365
Capital expenditures $ 134,377 $ 104,505 $ 60,373 $ 65,112
Depreciation, depletion
and amortization $ 123,770 $ 115,815 $ 117,166 $ 121,121
Full-time employees 5,800 5,800 5,800 5,800
Market price range of
common stock:
High $ 65 13/16 $ 56 1/2 $ 41 1/4 $ 24 1/4
Low $ 45 1/4 $ 29 1/4 $ 17 1/2 $ 16 3/4
(In thousands, except per share) 1995* 1994 1993 1992
Barrels of malt beverages sold 20,312 20,363 19,828 19,569
Summary of Operations:
Net sales $1,690,701 $1,673,252 $1,595,597 $1,566,606
Cost of goods sold (1,106,635) (1,073,370) (1,050,650) (1,051,362)
Marketing, general
and administrative (518,888) (505,668) (467,138) (441,943)
Special credits (charges) 15,200 13,949 (122,540) --
Total operating expenses (1,610,323) (1,565,089) (1,640,328) (1,493,305)
Operating income (loss) 80,378 108,163 (44,731) 73,301
Other expense - net (7,100) (3,943) (12,099) (14,672)
Income (loss) before income taxes 73,278 104,220 (56,830) 58,629
Income tax (expense) benefit (30,100) (46,100) 14,900 (22,900)
Income (loss) from
continuing operations $ 43,178 $ 58,120 $ (41,930) $ 35,729
Per share of common stock
- basic $ 1.13 $ 1.52 $ (1.10) $ 0.95
- diluted $ 1.13 $ 1.51 $ (1.10) $ 0.95
Income (loss) from continuing
operations as a
percentage of net sales 2.6% 3.5% (2.6%) 2.3%
Financial Position:
Working capital $ 36,530 $ (25,048) $ 7,197 $ 112,302
Properties - net $ 887,409 $ 922,208 $ 884,102 $ 904,915
Total assets $1,384,530 $1,371,576 $1,350,944 $1,373,371**
Long-term debt $ 195,000 $ 131,000 $ 175,000 $ 220,000
Other long-term liabilities $ 33,435 $ 30,884 $ 34,843 $ 52,291
Shareholders' equity $ 695,016 $ 674,201 $ 631,927 $ 685,445**
Net book value per share
of common stock $ 18.21 $ 17.59 $ 16.54 $ 18.17**
Total debt to total
capitalization 24.9% 20.6% 26.3% 24.3%
Return on average
shareholders' equity 6.3% 8.9% (6.4%) (0.2%)
Other Information:
Dividends $ 19,066 $ 19,146 $ 19,003 $ 18,801
Dividends per share of
common stock $ 0.50 $ 0.50 $ 0.50 $ 0.50
Gross profit $ 584,066 $ 599,882 $ 544,947 $ 515,244
Capital expenditures $ 157,599 $ 160,314 $ 120,354 $ 115,450
Depreciation, depletion
and amortization $ 122,830 $ 120,793 $ 118,955 $ 114,780
Full-time employees 6,200 6,300 6,200 7,100
Market price range of
common stock:
High $ 23 1/4 $ 20 7/8 $ 23 1/8 $ 22 7/8
Low $ 15 1/8 $ 14 3/4 $ 15 $ 15 1/2
*53-week year versus 52-week year.
**Reflects the dividend of ACX Technologies, Inc. to shareholders of ACC
during 1992.
(In thousands, except per share) 1991 1990 1989*
Barrels of malt beverages sold 19,521 19,297 17,698
Summary of Operations:
Net sales $1,543,007 $1,483,873 $1,372,373
Cost of goods sold (1,052,228) (986,352) (913,994)
Marketing, general
and administrative (448,393) (409,085) (397,844)
Special charges (29,599) (30,000) (41,670)
Total operating expenses (1,530,220) (1,425,437) (1,353,508)
Operating income 12,787 58,436 18,865
Other expense- net (4,403) (5,903) (2,546)
Income before income taxes 8,384 52,533 16,319
Income tax benefit (expense) 8,700 (20,300) (9,100)
Income from
continuing operations $ 17,084 $ 32,233 $ 7,219
Per share of common stock
- basic $ 0.46 $ 0.87 $ 0.20
- diluted $ 0.46 $ 0.87 $ 0.20
Income from continuing
operations as a
percentage of net sales 1.1% 2.2% 0.5%
Financial Position:
Working capital $ 110,043 $ 201,043 $ 193,590
Properties - net $ 933,692 $1,171,800 $1,012,940
Total assets $1,844,811 $1,761,664 $1,530,783
Long-term debt $ 220,000 110,000 --
Other long-term liabilities $ 53,321 $ 58,011 $ 16,138
Shareholders' equity $1,099,420 $1,091,547 $1,060,900
Net book value per share
of common stock $ 29.33 $ 29.20 $ 28.75
Total debt to total
capitalization 19.5% 9.2% 2.0%
Return on average
shareholders' equity 2.3% 3.6% 1.2%
Other Information:
Dividends $ 18,718 $ 18,591 $ 18,397
Dividends per share of
common stock $ 0.50 $ 0.50 $ 0.50
Gross profit $ 490,779 $ 497,521 $ 458,379
Capital expenditures $ 241,512 $ 183,368 $ 149,616
Depreciation, depletion
and amortization $ 108,367 $ 98,081 $ 122,439
Full-time employees 7,700 7,000 6,800
Market price range of
common stock:
High $ 24 1/4 $ 27 3/8 $ 24 3/8
Low $ 17 3/8 $ 17 1/8 $ 17 3/8
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); 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") produce and
market 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 26, 1999, 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. Fiscal years 1999, 1998 and 1997 each consisted of 52 weeks.
Certain unusual or non-recurring items impacted ACC's financial results for
1999, 1998 and 1997. Restatement of results excluding special items permits
clearer evaluation of its ongoing operations and are summarized below.
Summary of operating results:
For the years ended
December 26, December 27, December 28,
1999 1998 1997
(In thousands, except earnings per share)
Operating income:
As reported $141,983 $103,819 $147,393
Excluding special items $147,688 $123,214 $115,876
After - tax income:
As reported - net income $ 92,284 $ 67,784 $ 82,260
Excluding special items $ 95,778 $ 79,615 $ 68,309
Earnings per share:
As reported - basic $2.51 $1.87 $2.21
- diluted $2.46 $1.81 $2.16
Excluding special items - basic $2.61 $2.19 $1.84
- diluted $2.56 $2.12 $1.80
1999: For the 52-week fiscal year ended December 26, 1999, ACC reported net
income of $92.3 million, or $2.51 per basic share ($2.46 per diluted share).
During 1999, the Company recorded a $3.7 million pretax charge primarily for
severance costs associated with restructuring the Company's engineering and
construction unit. A $2.0 million pretax charge also was recorded during 1999
to facilitate improvements to the Company's distributor network. These items
resulted in a total special pretax charge of $5.7 million, or $0.10 per basic
and diluted share, after tax. Without this special charge, ACC would have
reported net earnings of $95.8 million, or $2.61 per basic share ($2.56 per
diluted share)(see Note 9 in the accompanying Consolidated Financial
Statements).
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).
Trend summary - percentage increase for 1999, 1998 and 1997: The following
table summarizes trends in operating results, excluding special items.
1999 1998 1997
Volume 3.6% 2.9% 2.7%
Net sales 8.3% 4.3% 4.6%
Average base price increase 1.8% 0.3% 1.7%
Gross profit 13.8% 7.1% 13.0%
Operating income 19.9% 6.3% 33.0%
Advertising expense 12.0% 10.0% 8.5%
Selling, general
and administrative 13.6% 3.7% 11.8%
CONSOLIDATED RESULTS OF CONTINUING OPERATIONS - 1999 VS. 1998 AND 1998 VS.
1997 (EXCLUDING SPECIAL ITEMS)
1999 vs. 1998: The Company reported net sales of $2.1 billion for 1999,
representing an 8.3% increase over 1998. Net sales were impacted favorably by
a unit volume increase of 3.6%. Net sales per barrel for 1999 also were
favorably impacted by improved gross realizations per barrel due to increased
pricing, reduced domestic discounting and mix improvement toward higher net
revenue product sales.
Gross profit increased 13.8% to $840.7 million from 1998 due to the 8.3% net
sales increase discussed above, coupled with a lower increase in cost of goods
sold of 4.8%. Cost of goods sold per barrel increased due to a shift in
product demand toward more expensive products and packages, including import
beers sold by Coors-owned distributors, higher glass costs, as well as
increased production and labor costs incurred in the packaging areas during
the first quarter of 1999. These increases were partially offset by decreases
primarily due to reduced aluminum material costs.
Operating income grew 19.9% to $147.7 million in 1999 as a result of higher
gross profit discussed above, partially offset by a 12.6% increase in
marketing, general and administrative expenses. Advertising costs increased
12.0% over 1998 due to increased investments behind the core brands both
domestically and internationally. General and administrative expenses for our
international business, as well as information and technology expenses, were
also higher in 1999 compared to 1998.
Net non-operating income of $8.7 million in 1999 increased from $7.3 million
in 1998. This $1.4 million change is primarily due to reductions in net
interest expense. The decrease in net interest expense in 1999 from 1998 was
attributable to an increase in capitalized interest due to higher capital
spending and lower levels of debt.
The Company's effective tax rate decreased to 38.8% in 1999 from 39.0% in 1998
primarily due to higher tax-exempt income. The 1999 effective tax rate
exceeded the statutory rate primarily because of state tax expense.
Net earnings for 1999 were $95.8 million, or $2.61 per basic share ($2.56 per
diluted share), compared to $79.6 million, or $2.19 per basic share ($2.12 per
diluted share), for 1998, representing increases of 19.2% (basic) and 20.8%
(diluted) in earnings per share.
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 7.1% to $738.8 million from 1997 due to the 4.3% net
sales increase discussed above, coupled with a lower increase in cost of goods
sold of 2.6%. 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 7.3% 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 greater spending on Year 2000 system compliance work.
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 was primarily due
to higher interest income resulting from higher cash balances, lower interest
expense from lower debt balances and the sale of certain patents in the fourth
quarter 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash provided by operating
activities and external borrowings. As of December 26, 1999, ACC had working
capital of $220.1 million, and its net cash position was $163.8 million
compared to $160.0 million as of December 27, 1998, and $168.9 million as of
December 28, 1997. In addition to its cash resources, ACC had short-term
investments of $113.2 million at December 26, 1999, compared to $96.2 million
at December 27, 1998, and $42.2 million at December 28, 1997. ACC also had
$2.9 million of marketable investments with maturities exceeding one year at
December 26, 1999, compared to $31.4 million at December 27, 1998, and $47.1
million at December 28, 1997. 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; and anticipated capital expenditures in the
range of approximately $125 million to $130 million for improving and
enhancing the facilities, infrastructure, information systems and
environmental compliance.
Operating activities: Net cash provided by operating activities was $169.8
million for 1999, $181.1 million for 1998 and $260.6 million for 1997. This
resulted in an $11.3 million decrease in operating cash flows in 1999 compared
to 1998. Operating cash decreased approximately $48 million as a result of the
contribution made to the Company's defined benefit pension plan in January
1999, which is reflected in Other assets on the accompanying Consolidated
Balance Sheets. This contribution was made as a result of benefit improvements
to the Company's defined benefit pension plan, which were effective July 1,
1999, and resulted in an increase to the projected benefit obligation of
approximately $48 million. The decrease in operating cash due to the pension
contribution was partially offset by working capital changes, an increase in
deferred tax expense, and an increase in depreciation and amortization. The
fluctuations in working capital changes are primarily due to increased
operating activity and timing of payments between the two years. The increase
in deferred tax expense is due to timing differences arising between book
income and taxable income. Depreciation and amortization has increased over
1998 mainly due to an increase in capitalized assets in the current year.
The decrease in operating cash flows in 1998 from 1997 of $79.4 million was
primarily a result of a settlement with Molson included in the 1997 cash flows
from operations.
Investing activities: During 1999, ACC spent $90.8 million on investing
activities compared to $124.0 million in 1998 and $127.9 million in 1997. The
1999 decrease was primarily due to an increase in cash due to the net activity
of ACC's marketable securities and an increase in distributions received from
joint ventures. These increases were partially offset by an increase in
capital expenditures. The impact of ACC's marketable investment activities
during 1999 was a cash inflow of $11.0 million compared to a cash outflow in
1998 and 1997 of $39.3 million and $83.3 million, respectively. The increase
during 1999 in cash inflows from the net activity on marketable securities was
mainly due to allocating less of the Company's cash resources to marketable
security investments. Distributions from joint ventures increased to $30.3
million in 1999 from $22.4 million in 1998 and $13.3 million in 1997. The
increase in these distributions during 1999 and 1998 was mainly attributable
to increased cash flow from operations at the Coors Canada partnership. In
1997, the increase in distributions was mainly due to increased cash flow from
operations and reduced capital expenditures at joint ventures. Capital
expenditures increased to $134.4 million in 1999 from $104.5 million in 1998
and $60.4 million in 1997. The increased capital spending during 1999 was
primarily due to information technology upgrades, expenditures in packaging
capacity and investments by Coors-owned distributors in non-Coors brands. In
1998, capital expenditures focused primarily on information systems and
facilities maintenance. Additional expenditures were also incurred for cost
reduction and capacity and quality improvements. In 1997, capital expenditures
focused on enhancing packaging operations. Proceeds from property sales were
$3.8 million in 1999 compared to $2.3 million in 1998 and $3.3 million in 1997.
Financing activities: During 1999, the Company spent $76.4 million on
financing activities consisting primarily of principal payments of $40.0
million on ACC's medium-term notes, net purchases of $11.0 million for Class B
common stock and dividend payments of $23.7 million.
During 1998, the Company spent $66.0 million on financing activities
consisting of principal payments of $27.5 million on ACC's medium-term notes,
net purchases of $17.8 million for Class B common stock and dividend payments
of $21.9 million.
During 1997, the Company spent $72.0 million on financing activities primarily
attributable to principal payments of $20.5 million on ACC's medium-term
notes, net purchases of $35.6 million for Class B common stock and dividend
payments of $20.5 million.
Debt obligations: During 1999, the Company repaid the remaining $40.0 million
of outstanding medium-term notes with cash on hand. In 1998 and 1997, payments
of $27.5 million and $20.5 million, respectively, were made on these notes.
ACC also had $100 million outstanding in Senior Notes as of December 26, 1999.
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%. Interest
is paid semiannually in January and July.
The Company's debt-to-total capitalization ratio was 11.1% at the end of 1999,
15.8% at the end of 1998 and 19.0% at the end of 1997.
Revolving line of credit: In addition to the Senior Notes, the Company has an
unsecured, committed credit arrangement totaling $200 million, all of which
was available as of December 26, 1999. This line of credit has a five-year
term which expires in 2002, with two optional one-year extensions. During
1998, the Company exercised an option to extend 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 and was in compliance at year-end 1999.
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 $4.9 million each as of December 26, 1999) in
short-term financing. As of December 26, 1999, the approximate yen equivalent
of $4.9 million was outstanding under these arrangements and is included in
Accrued expenses and other liabilities in the accompanying Consolidated
Balance Sheets.
Advertising and promotions: As of December 26, 1999, the Company's total
commitments for advertising and promotions at sports arenas, stadiums and other
venues and events are approximately $182.7 million over the next eight years.
Stock repurchase plan: In November 1999, the board of directors authorized
the extension of the Company's stock repurchase program through 2000. The
program authorizes repurchases of up to $40 million of ACC's outstanding Class
B common stock during 2000. Repurchases will be financed by funds generated
from operations or short-term borrowings, if necessary. The Company spent
approximately $12.2 million in 1999 to repurchase common stock, purchasing
approximately 232,300 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 in 1991 for a 33% interest in the Jinro-Coors Brewing Company (JCBC),
a joint venture between CBC and Jinro Limited. CBC accounted for this
investment under the cost basis of accounting, given that CBC did not have the
ability to exercise significant influence over JCBC and that CBC's investment
in JCBC was 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.
Beginning in April 1997, Jinro Limited began attempting to restructure due to
financial difficulties. The financial difficulties of JCBC and Jinro Limited
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 Consolidated Statements of Income.
When CBC exercised its put option in December 1997, it reclassified its
investment in JCBC to a receivable from Jinro Limited. The receivable is
secured by shares, which were later canceled, as described below. Jinro
Limited had until June 1998 to perform its obligation under the put option. It
did not perform.
In February 1999, Jinro Limited, which was operating under a composition plan
approved by its creditors and a Korean court, announced a plan to sell JCBC
through an international bidding process. The Company submitted a bid for the
purchase of JCBC and was selected as the preferred bidder. Subsequent to this
selection, the supervising court and creditors of JCBC canceled the original
auction and held a new one, in which CBC did not participate. JCBC was sold to
Oriental Brewery and the shares of the former owners were canceled in November
1999.
Cautionary Statement Pursuant to Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995
This report contains "forward-looking statements" within the meaning of the
federal securities laws. These forward-looking statements may include, among
others, statements concerning the Company's outlook for 2000; overall volume
trends; pricing trends and industry forces; cost reduction strategies and
their anticipated results; the Company's expectations for funding its 2000
capital expenditures and operations; and other statements of expectations,
beliefs, future plans and strategies, anticipated events or trends and similar
expressions concerning matters that are not historical facts. These forward-
looking statements are subject to risks and uncertainties that could cause
actual results to differ materially from those expressed in or implied by the
statements.
To improve its financial performance, the Company must grow premium beverage
volume, achieve modest price increases for its products and reduce its overall
cost structure. As the beer business is competitive and does entail some
measure of risk, the most important factors that could influence the
achievement of these goals - and cause actual results to differ materially
from those expressed in the forward-looking statements - include, but are not
limited to, the following:
- - any inability of the Company and its distributors to develop and execute
effective marketing and sales strategies for Coors and non-Coors products;
- - the potential erosion of sales revenues through discounting or a higher
proportion of sales in value-packs;
- - a potential shift in consumer preferences toward lower-priced products;
- - a continued shift in consumer preferences away from products packaged in
aluminum cans, which are more profitable, toward bottled products;
- - a potential shift in consumer preferences toward products and packages that
would require additional capacity;
- - a potential reduction in sales revenues due to decreases in sales volumes in
certain key domestic and export markets;
- - the intensely competitive, slow-growth nature of the beer industry;
- - demographic trends and social attitudes that can reduce beer sales;
- - the continued growth in the popularity of import beers;
- - increases in the cost of aluminum, paper packaging and other raw materials;
- - a continued shift in the competitive environment toward increased marketing
and advertising spending and significant increases in the costs of marketing
and advertising;
- - any inability of the Company to reduce manufacturing, freight and overhead
costs to more competitive levels;
- - changes in significant laws and government regulations affecting
environmental compliance and income taxes;
- - any inability of the Company 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;
- - significant increases in fuel costs;
- - the potential for a strike by truck drivers;
- - the potential impact of further industry consolidation;
- - 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; and
- - significant increases in the estimated costs of planned capital
expenditures.
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 2000
The Company's performance in 1999 benefited from domestic and export volume
gains. Volume gains are expected to be achieved in 2000, with a growth goal of
one to two percentage points higher than the industry growth rate. The price
environment is expected to be positive in the first quarter of 2000, partially
from reduced discounting. Continuing increased sales of value-packs or an
increase in price discounting could have an unfavorable impact on top-line
performance resulting in lower margins.
For fiscal year 2000, packaging and fixed costs per barrel are expected to be
up slightly due to a shift in product demand to higher-cost products and
packages including longneck bottles and slight increases in prices of some raw
materials. Significant changes in market prices of these items could alter
this outlook. CBC continues to pursue improvements in its operations to
achieve cost reductions over time.
Advertising costs are expected to increase at a rate lower than in 1999, while
the growth in other general and administrative costs should be similar to that
in 1999. 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.
The competitive battleground has shifted to marketing and advertising, which
may result in any incremental revenue generated by price increases being spent
on advertising and market place support.
Net interest should continue its favorable trends based on the Company's lower
outstanding debt and higher anticipated yields relative to 1999. Net interest
could be less favorable than expected if the Company invests a substantial
portion of its cash balances in operating assets or investments with longer-
term returns or if interest rates decline. Also, cash may be used to
repurchase additional outstanding common stock as approved by the ACC board of
directors in November 1999.
The effective tax rate for 2000 is not expected to differ significantly from
the 1999 effective tax rate applied to income excluding special items. The level
and mix of pretax income for 2000 could affect the actual rate for the year.
In 2000, CBC has planned capital expenditures (excluding capital improvements
for its container joint ventures, which will be recorded on the books of the
joint venture) in the range of approximately $125 million to $130 million for
improving and enhancing the facilities, infrastructure, information systems,
and environmental compliance. In addition to CBC's 2000 planned capital
expenditures, incremental strategic investments will be considered on a case-
by-case basis.
The Company has and will continue to assess its operations and work force
structure. Based upon the results of these assessments, the Company may from
time to time determine that certain restructurings of its operations and
workforce are necessary.
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 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. commenced 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.
Chemical Waste Management's projected costs to meet the 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 operating results
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: The "Year 2000" issue arose because some computers, software and
other equipment included programming code in which calendar year data were
abbreviated to only two digits. As a result of this design decision, some of
these systems may have failed to operate or failed to produce correct results
if "00" was interpreted to mean 1900 rather than 2000.
ACC established processes for evaluating and managing the risks and costs
associated with the Year 2000 issue. This project had two major elements -
Application Remediation and Extended Enterprise. As part of Application
Remediation, the Company made certain investments in existing information
systems and applications to ensure that they were Year 2000 compliant. The
Company also invested in certain new applications in order to avoid having to
remediate certain systems. The Extended Enterprise element consisted of the
evaluation of third-party suppliers, customers, joint venture partners,
transportation carriers and others.
The total amount expended on the Year 2000 project -expense and capital-
through December 26, 1999, was approximately $34.6 million. The anticipated
spending in 2000 is very minimal. The Company did not experience any major
difficulties or any significant interruptions to its business during the
transition to the Year 2000.
ITEM 7a. Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business, the Company is exposed to fluctuations in
interest rates, the value of foreign currencies and production and packaging
materials prices. 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 when practical. 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 fluctuations in interest
rates, foreign currency exchange rates and production and packaging materials
prices is to decrease the volatility of earnings and cash flows associated
with changes in the applicable rates and prices. To achieve this objective,
the Company primarily enters into forward exchange contracts, options and swap
agreements whose values change in the opposite direction of the anticipated
cash flows. The Company does not hedge the value of net investments in
foreign-currency-denominated operations and translated earnings of foreign
subsidiaries. The Company's primary foreign currency exposures are the
Canadian dollar, the Japanese yen and the Spanish peseta.
A sensitivity analysis has been prepared to estimate the Company's exposure to
market risk of interest rates, foreign currency exchange rates and commodity
prices. The sensitivity analysis reflects the impact of a hypothetical 10%
adverse change in the applicable market interest rates, foreign currency
exchange rates and commodity prices. The volatility of the applicable rates
and prices are dependent on many factors that cannot be forecasted with
reliable accuracy. Therefore, actual changes in fair values could differ
significantly from the results presented in the table below.
The following table presents the results of the sensitivity analysis of the
Company's derivative portfolio:
As of
Estimated fair value volatility December 26, 1999
(In millions)
Foreign currency risk: forwards, options $ (2.8)
Interest rate risk: swaps $ (1.3)
Commodity price risk: swaps, options $(11.3)
ITEM 8. Financial Statements and Supplementary Data
Index to Financial Statements
Page(s)
Consolidated Financial Statements:
Report of Independent Accountants 30
Consolidated Statements of Income for each of
the three years in the period ended December 26, 1999 31
Consolidated Balance Sheets at December 26, 1999,
and December 27, 1998 32-33
Consolidated Statements of Cash Flows for each of
the three years in the period ended December 26, 1999 34
Consolidated Statements of Shareholders' Equity
for each of the three years in the period ended
December 26, 1999 35
Notes to Consolidated Financial Statements 36-59
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 26, 1999, and December 27, 1998, and
the results of their operations and their cash flows for each of the three
years in the period ended December 26, 1999, in conformity with accounting
principles generally accepted in the United States. 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 auditing standards
generally accepted in the United States 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 9, 2000
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the years ended
December 26, December 27, December 28,
1999 1998 1997
(In thousands, except per share data)
Sales - domestic and international $ 2,462,874 $ 2,291,322 $ 2,207,384
Beer excise taxes (406,228) (391,789) (386,080)
Net sales (Note 13) 2,056,646 1,899,533 1,821,304
Costs and expenses:
Cost of goods sold (1,215,965) (1,160,693) (1,131,610)
Marketing, general and administrative (692,993) (615,626) (573,818)
Special (charges) credits (Note 9) (5,705) (19,395) 31,517
Total operating expenses (1,914,663) (1,795,714) (1,673,911)
Operating income 141,983 103,819 147,393
Other income (expense):
Interest income 11,286 12,136 8,835
Interest expense (4,357) (9,803) (13,277)
Miscellaneous - net 1,755 4,948 3,942
Total 8,684 7,281 (500)
Income before income taxes 150,667 111,100 146,893
Income tax expense (Note 5) (58,383) (43,316) (64,633)
Net income 92,284 67,784 82,260
Other comprehensive income (expense),
net of tax (Note 12):
Foreign currency translation
adjustments (3,519) 1,430 (5,886)
Unrealized gain on available-for-sale
securities 6,438 440 --
Comprehensive income $ 95,203 $ 69,654 $ 76,374
Net income per common share - basic $ 2.51 $ 1.87 $ 2.21
Net income per common share - diluted $ 2.46 $ 1.81 $ 2.16
Weighted-average number of outstanding
common shares - basic 36,729 36,312 37,218
Weighted-average number of outstanding
common shares - diluted 37,457 37,515 38,056
See notes to consolidated financial statements
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 26, December 27,
1999 1998
(In thousands)
Assets
Current assets:
Cash and cash equivalents $ 163,808 $ 160,038
Short-term investments 113,185 96,190
Accounts and notes receivable:
Trade, less allowance for doubtful accounts
of $55 in 1999 and $299 in 1998 123,861 106,962
Affiliates 13,773 11,896
Other, less allowance for certain claims of
$133 in 1999 and $584 in 1998 22,026 7,751
Inventories:
Finished 44,073 38,520
In process 19,036 24,526
Raw materials 34,077 34,016
Packaging materials, less allowance for
obsolete inventories of $1,195 in 1999
and $1,018 in 1998 10,071 5,598
Total inventories 107,257 102,660
Other supplies, less allowance for obsolete
supplies of $1,975 in 1999 and $3,968 in 1998 23,584 27,729
Prepaid expenses and other assets 24,858 12,848
Deferred tax asset (Note 5) 20,469 22,917
Total current assets 612,821 548,991
Properties, at cost and net (Notes 2 and 13) 714,001 714,441
Excess of cost over net assets of businesses
acquired, less accumulated amortization
of $7,785 in 1999 and $6,727 in 1998 31,292 23,114
Long-term investments 2,890 31,444
Other assets (Note 10) 185,372 142,608
Total assets $1,546,376 $1,460,598
December 26, December 27,
1999 1998
(In thousands)
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable:
Trade $ 155,344 $ 132,193
Affiliates 24,271 11,706
Accrued salaries and vacations 60,861 54,584
Taxes, other than income taxes 53,974 48,332
Federal and state income taxes (Note 5) 8,439 10,130
Accrued expenses and other liabilities 89,815 86,967
Current portion of long-term debt (Note 4) -- 40,000
Total current liabilities 392,704 383,912
Long-term debt (Note 4) 105,000 105,000
Deferred tax liability (Note 5) 78,733 65,779
Postretirement benefits (Note 8) 75,821 74,469
Other long-term liabilities 52,579 56,640
Total liabilities 704,837 685,800
Commitments and contingencies
(Notes 3, 4, 5, 6, 7, 8, 10 and 14)
Shareholders' equity (Notes 6, 11 and 12):
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: 35,462,034 in
1999 and 35,395,306 in 1998) 8,443 8,428
Total capital stock 9,703 9,688
Paid-in capital 5,773 10,505
Retained earnings 825,070 756,531
Accumulated other comprehensive income (loss) 993 (1,926)
Total shareholders' equity 841,539 774,798
Total liabilities and shareholders' equity $1,546,376 $1,460,598
See notes to consolidated financial statements.
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended
December 26, December 27, December 28,
1999 1998 1997
Cash flows from operating activities: (In thousands)
Net income $ 92,284 $ 67,784 $ 82,260
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in net earnings of joint
ventures (36,958) (33,227) (15,893)
Reserve for severance 4,769 8,324 --
Reserve for joint venture investment -- -- 21,978
Depreciation, depletion and
amortization 123,770 115,815 117,166
Loss on sale or abandonment of
properties and intangibles, net 2,471 7,687 5,594
Impairment charge -- 2,219 10,595
Deferred income taxes 20,635 (8,751) (15,043)
Change in operating assets and liabilities:
Accounts and notes receivable (21,036) 2,140 (10,971)
Inventories (4,373) 4,176 14,051
Other assets (49,786) 8,977 3,742
Accounts payable 35,261 9,899 9,599
Accrued expenses and other liabilities 2,751 (3,898) 37,475
Net cash provided by operating
activities 169,788 181,145 260,553
Cash flows from investing activities:
Purchases of investments (94,970) (101,682) (122,800)
Sales and maturities of investments 105,920 62,393 39,499
Additions to properties and intangible
assets (134,377) (104,505) (60,373)
Proceeds from sales of properties
and intangible assets 3,821 2,264 3,273
Distributions from joint ventures 30,280 22,438 13,250
Other (1,437) (4,949) (775)
Net cash used in investing
activities (90,763) (124,041) (127,926)
Cash flows from financing activities:
Issuances of stock under stock plans 9,728 9,823 24,588
Purchases of stock (20,722) (27,599) (60,151)
Dividends paid (23,745) (21,893) (20,523)
Payments of long-term debt (40,000) (27,500) (20,500)
Other (1,692) 1,140 4,544
Net cash used in financing
activities (76,431) (66,029) (72,042)
Cash and cash equivalents:
Net increase (decrease) in cash and cash
equivalents 2,594 (8,925) 60,585
Effect of exchange rate changes on
cash and cash equivalents 1,176 88 (2,615)
Balance at beginning of year 160,038 168,875 110,905
Balance at end of year $ 163,808 $ 160,038 $ 168,875
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 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 loss (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
Shares issued under stock
plans 110 15,895 16,005
Purchases of stock (95) (20,627) (20,722)
Other comprehensive income 2,919 2,919
Net income 92,284 92,284
Cash dividends-$0.645 per share (23,745) (23,745)
Balances, December 26, 1999 $ 1,260 $ 8,443 $ 5,773 $825,070 $ 993 $841,539
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 where 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 26, 1999, December 27, 1998, and December 28,
1997, were all 52-week periods.
Investments in marketable securities: ACC invests excess cash on hand in
interest-bearing debt securities. At December 26, 1999, $113.2 million of
these securities were classified as current assets and $2.9 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 26,
1999, these securities have been recorded at fair value, based on quoted
market prices, through other comprehensive income. Maturities on these
investments range from 2000 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.
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 $41.0 million and $41.4 million at December 26, 1999,
and December 27, 1998, 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.
Derivative Instruments: In the normal course of business, the Company is
exposed to fluctuations in interest rates, the value of foreign currencies and
production and packaging materials prices. 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 when practical. By policy, the
Company does not enter into such contracts for the purpose of speculation or
use leveraged financial instruments.
The Company's derivatives activities are subject to management, direction and
control of the Financial Risk Management Committee (FRMC). The FRMC is
composed of the chief financial officer and other senior management of the
Company. The FRMC (1) sets forth risk-management philosophy and objectives
through a corporate policy, (2) provides guidelines for derivative-instrument
usage and (3) establishes procedures for control and valuation, counterparty
credit approval and the monitoring and reporting of derivative activity.
The Company's objective in managing its exposure to fluctuations in interest
rates, foreign currency exchange rates and production and packaging materials
prices is to decrease the volatility of earnings and cash flows associated
with changes in the applicable rates and prices. To achieve this objective,
the Company primarily enters into forward exchange contracts, options and swap
agreements whose values change in the opposite direction of the anticipated
cash flows. Derivative instruments related to forecasted transactions are
considered to hedge future cash flows, and the effective portion of any gains
or losses are included in other comprehensive income until earnings are
affected by the variability of cash flows. Any remaining gain or loss is
recognized currently in earnings. The cash flows of the derivative instruments
are expected to be highly effective in achieving offsetting cash flows
attributable to fluctuations in the cash flows of the hedged risk. If it
becomes probable that a forecasted transaction will no longer occur, the
derivative will continue to be carried on the balance sheet at fair value, and
gains and losses that were accumulated in other comprehensive income will be
recognized immediately in earnings. If the derivative instruments are
terminated prior to their expiration dates, any cumulative gains and losses
are deferred and recognized in income over the remaining life of the
underlying exposure. If the 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.
To manage its exposures, the Company has entered into various financial
instruments including forward exchange contracts, options and swap agreements.
The Company has designated some of these instruments as cash flow hedges. The
Company has partially hedged its exposure to the variability in future cash
flows relating to fluctuations in foreign exchange rates and certain
production and packaging materials prices for terms extending from January
2000 through March 2002 (see Note 12).
Instruments entered into that relate to existing foreign currency assets and
liabilities do not qualify for hedge accounting in accordance with Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133). The gains and losses on both
the derivatives and the foreign-currency-denominated assets and liabilities
are recorded currently in Sales, Cost of goods sold and Marketing, general and
administrative expenses in the accompanying Consolidated Statements of Income.
Interest rate swap agreements are not designated as hedges, and therefore,
currently all gains and losses are recorded in Interest income in the
accompanying Consolidated Statements of Income. The Company has entered into
call and put options which currently do not qualify for hedge accounting. If,
at some future date, these options do qualify for hedge accounting, the
Company may choose to designate them as hedging items. All gains and losses on
these options are recorded currently in Cost of goods sold on the accompanying
Consolidated Statements of Income.
The Company adopted FAS 133 as of January 1999. During 1999, there were no
significant gains or losses recognized in earnings for hedge ineffectiveness or
due to excluding a portion of the value from measuring effectiveness. The
estimated net gain to be recognized over the next 12 months in relation to
certain production and packaging materials at December 26, 1999, is $5.1
million.
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 Consolidated
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 is run. Advertising expense
was $443.4 million, $395.8 million and $360.0 million for years 1999, 1998 and
1997, respectively. The Company had $6.2 million and $7.0 million of prepaid
advertising production costs reported as assets at December 26, 1999, and
December 27, 1998, respectively.
Research and development: Research and project development costs, included in
Marketing, general and administrative, are expensed as incurred. These costs
totaled $15.5 million, $15.2 million and $14.6 million in 1999, 1998 and 1997,
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 original maturities of 90 days or less. The fair value of these
investments approximates their carrying value. During 1999, 1998 and 1997, ACC
issued restricted common stock under its management incentive program. These
issuances, net of forfeitures, resulted in net non-cash (decreases) increases
to the equity accounts of ($0.7) million, $2.4 million and $0.8 million in
1999, 1998 and 1997 respectively. Also during 1999, 1998 and 1997, equity was
increased by the non-cash tax effects of the exercise of stock options under
the Company's stock plans of $7.0 million, $5.9 million and $5.0 million,
respectively. Net income taxes paid were $42.4 million in 1999, $39.6 million
in 1998 and $66.8 million in 1997.
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 1998 and
1997 financial statements to conform with the 1999 presentation.
NOTE 2:
Properties
The cost of properties and related accumulated depreciation, depletion and
amortization consists of the following:
As of
December 26, December 27,
1999 1998
(In thousands)
Land and improvements $ 94,687 $ 94,561
Buildings 501,013 494,344
Machinery and equipment 1,680,600 1,581,355
Natural resource properties 7,423 8,623
Construction in progress 44,845 50,840
2,328,568 2,229,723
Less accumulated depreciation,
depletion and amortization (1,614,567) (1,515,282)
Net properties $ 714,001 $ 714,441
Interest incurred, capitalized, expensed and paid were as follows:
For the years ended
December 26, December 27, December 28,
1999 1998 1997
(In thousands)
Interest costs $ 8,478 $12,532 $15,177
Interest capitalized (4,121) (2,729) (1,900)
Interest expensed $ 4,357 $ 9,803 $13,277
Interest paid $ 9,981 $12,808 $14,643
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 26, 1999, the minimum aggregate rental commitment under all non-
cancelable leases was (in thousands): 2000, $5,790; 2001, $4,864; 2002,
$4,231; 2003, $3,711; 2004, $3,628; and $7,152 for years thereafter. Total
rent expense was (in thousands) $10,978, $11,052 and $13,870 for years 1999,
1998 and 1997, respectively.
NOTE 4:
Debt
Long-term debt consists of the following:
As of
December 26, 1999 December 27, 1998
Carrying Fair Carrying Fair
value value value value
(In thousands)
Medium-term notes $ -- $ -- $ 40,000 $ 40,000
Senior Notes 100,000 99,000 100,000 101,000
Industrial development bonds 5,000 5,000 5,000 5,000
Total 105,000 104,000 145,000 146,000
Less current portion -- -- 40,000 40,000
$105,000 $104,000 $105,000 $106,000
Fair values were determined using discounted cash flows at current interest
rates for similar borrowings.
During 1999, the medium-term notes matured and were paid in full.
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
principal amount of the Notes is 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 26, 1999, was 4.85%.
The Company has an unsecured, committed credit arrangement totaling $200
million, all of which was available as of December 26, 1999. This line of
credit has a five-year term which expires in 2002, with two optional one-year
extensions. During 1998, the Company exercised an option to extend 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 1999.
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 $4.9 million each as of December 26, 1999) in
short-term financing. As of December 26, 1999, the approximate yen equivalent
of $4.9 million was outstanding under these arrangements and is included in
Accrued expenses and other liabilities in the accompanying Consolidated
Balance Sheets.
NOTE 5:
Income Taxes
Income tax expense (benefit) includes the following current and deferred
provisions:
For the years ended
December 26, December 27, December 28,
1999 1998 1997
(In thousands)
Current:
Federal $ 31,062 $ 41,200 $ 68,435
State and foreign 6,686 10,867 11,241
Total current tax expense 37,748 52,067 79,676
Deferred:
Federal 19,035 (7,401) (12,935)
State and foreign 1,600 (1,350) (2,108)
Total deferred tax
expense (benefit) 20,635 (8,751) (15,043)
Total income tax expense $ 58,383 $ 43,316 $ 64,633
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 26, December 27, December 28,
1999 1998 1997
Expected tax rate 35.0% 35.0% 35.0%
State income taxes, net of
federal benefit 3.7 3.1 3.9
Effect of foreign investments 1.1 2.5 0.8
Non-taxable income (0.8) (1.7) (0.4)
Effect of reserve for joint venture
investment -- -- 4.8
Other, net (0.2) 0.1 (0.1)
Effective tax rate 38.8% 39.0% 44.0%
The Company's deferred taxes are composed of the following:
As of
December 26, December 27,
1999 1998
(In thousands)
Current deferred tax assets:
Deferred compensation and other
employee related $ 12,052 $ 13,985
Balance sheet reserves and accruals 13,258 12,296
Other 211 261
Valuation allowance (1,146) (2,986)
Total current deferred tax assets 24,375 23,556
Current deferred tax liabilities:
Balance sheet reserves and accruals 3,906 639
Net current deferred tax assets $ 20,469 $ 22,917
Non-current deferred tax assets:
Deferred compensation and other
employee related $ 14,578 $ 12,131
Balance sheet reserves and accruals 4,913 4,254
Retirement benefits 9,947 29,725
Environmental accruals 2,264 2,126
Deferred foreign losses 1,623 2,031
Total non-current deferred tax assets 33,325 50,267
Non-current deferred tax liabilities:
Depreciation and capitalized interest 109,425 114,242
Other 2,633 1,804
Total non-current deferred tax liabilities 112,058 116,046
Net non-current deferred tax liabilities $ 78,733 $ 65,779
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 1999 by
approximately $1.8 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 began the administrative appeals process in 1999. In the
opinion of management, adequate accruals have been provided for all income tax
matters and related interest.
NOTE 6:
Stock Option, Restricted Stock Award and Employee Award Plans
At December 26, 1999, 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:
1999 1998 1997
(In thousands, except
per share data)
Net income As reported $ 92,284 $ 67,784 $ 82,260
Pro forma $ 82,222 $ 61,484 $ 78,077
Earnings per share - basic As reported $ 2.51 $ 1.87 $ 2.21
Pro forma $ 2.24 $ 1.69 $ 2.10
Earnings per share - diluted As reported $ 2.46 $ 1.81 $ 2.16
Pro forma $ 2.20 $ 1.64 $ 2.05
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:
1999 1998 1997
Risk-free interest rate 5.03% 5.78% 6.52%
Dividend yield 1.09% 1.63% 2.47%
Volatility 30.66% 32.56% 36.06%
Expected term (years) 7.8 10.0 10.0
Weighted average fair market value $ 23.28 $ 14.96 $ 8.78
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 26, 1999,
December 27, 1998, and December 28, 1997, and changes during the years ended
on those dates is presented below:
Weighted-
Options average
available exercise
for grant Shares price
Outstanding at December 29, 1996 712,998 49,515 $14.85
Exercised -- (45,627) 14.55
Forfeited 3,888 (3,888) 18.36
Outstanding at December 28, 1997 716,886 -- N/A
Exercised -- --
Forfeited -- --
Outstanding at December 27, 1998 716,886 -- N/A
Exercised -- --
Forfeited -- --
Outstanding at December 26, 1999 716,886 -- N/A
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 1997 through 1999, 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 26, 1999. In November 1997, the
board of directors approved increasing the total authorized shares to 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 26, 1999,
December 27, 1998, and December 28, 1997, and changes during the years ending
on those dates is presented below:
Options
exercisable
at year-end
Weighted- Weighted-
Options average average
available exercise exercise
for grant Shares price Shares price
Outstanding at
December 29, 1996 3,105,844 1,723,364 $18.01 846,273 $16.30
Authorized 3,000,000 -- --
Granted (1,573,742) 1,573,742 20.23
Exercised -- (901,834) 17.71
Forfeited 143,093 (143,093) 19.21
Outstanding at
December 28, 1997 4,675,195 2,252,179 19.61 769,202 18.25
Granted (794,283) 794,283 33.83
Exercised -- (616,914) 18.66
Forfeited 99,331 (99,331) 25.06
Outstanding at
December 27, 1998 3,980,243 2,330,217 24.47 630,457 19.06
Granted (917,951) 917,951 57.86
Exercised -- (494,424) 21.54
Forfeited 110,289 (110,289) 38.00
Outstanding at
December 26, 1999 3,172,581 2,643,455 $36.05 881,161 $23.26
The following table summarizes information about stock options outstanding at
December 26, 1999:
Options outstanding Options exercisable
Weighted-
average Weighted- Weighted-
Range of remaining average average
exercise contractual exercise exercise
prices Shares life (years) price Shares price
$14.45-$22.00 1,043,060 6.6 $19.11 645,598 $19.06
$26.88-$33.41 651,511 8.0 $33.25 186,853 $33.03
$35.81-$59.25 948,884 9.0 $56.59 48,710 $41.48
$14.45-$59.25 2,643,455 7.8 $36.05 881,161 $23.26
The Company issued 4,953 shares, 85,651 shares and 40,201 shares of restricted
stock in 1999, 1998 and 1997, respectively, under the 1990 EI Plan. For the
1999 shares, the vesting period is two years from the date of grant. For the
1998 shares, the vesting period is three years from the date of the grant and
is either prorata for each successive year or cliff vesting. For the 1997
shares, the vesting period is one year from the date of the grant. The
compensation cost associated with these awards is amortized over the vesting
period. Compensation cost associated with these awards was immaterial in 1999,
1998 and 1997.
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 1999, 1998
and 1997. Common stock reserved for this plan as of December 26, 1999, was
30,258 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, for shares
of the Company's Class B common stock. Awards under the plan in 1999, 1998 and
1997 were immaterial. The number of shares of common stock available under
this plan as of December 26, 1999, 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 $11.6 million in
1999, $11.9 million in 1998, and $14.1 million in 1997. These amounts include
the Company's matching for the savings and investment (thrift) plan of $6.1
million in 1999, $6.1 million in 1998, and $5.8 million in 1997. The decrease
in pension expense from 1997 to 1998 is primarily due to the improvement in
the funded position of the Coors Retirement Plan over that period. In 1999,
the funded position of the Coors Retirement Plan continued to improve, but
periodic pension costs did not decrease significantly from 1998 because in
November 1998, the ACC board of directors approved changes to one of the plans
that were effective July 1, 1999. The changes increased 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 26, December 27, December 28,
1999 1998 1997
(In thousands)
Components of net periodic
pension cost:
Service cost-benefits earned
during the year $ 16,456 $ 14,449 $ 11,234
Interest cost on projected
benefit obligation 38,673 33,205 32,730
Expected return on plan assets (52,173) (42,498) (36,176)
Amortization of prior service cost 4,161 2,274 2,274
Amortization of net transition amount (1,690) (1,691) (1,690)
Recognized net actuarial loss (gain) 75 28 (111)
Net periodic pension cost $ 5,502 $ 5,767 $ 8,261
The changes in the benefit obligation and plan assets and the funded status of
the pension plans are as follows:
As of
December 26, December 27,
1999 1998
(In thousands)
Change in projected benefit obligation:
Projected benefit obligation at
beginning of year $ 532,556 $ 465,229
Service cost 16,456 14,449
Interest cost 38,673 33,205
Amendments 48,573 --
Actuarial (gain) loss (63,326) 40,932
Benefits paid (24,504) (21,259)
Projected benefit obligation at end of year $ 548,428 $ 532,556
Change in plan assets:
Fair value of assets at beginning of year $ 480,000 $ 465,494
Actual return on plan assets 124,840 35,842
Employer contributions 50,078 2,759
Benefits paid (24,504) (21,259)
Expenses paid (3,261) (2,836)
Fair value of plan assets at end of year $ 627,153 $ 480,000
Funded status - excess (shortfall) $ 78,725 $ (52,556)
Unrecognized net actuarial (gain) loss (105,473) 28,836
Unrecognized prior service cost 58,715 14,303
Unrecognized net transition amount (728) (2,419)
Prepaid (accrued) benefit cost $ 31,239 $ (11,836)
1999 1998 1997
Weighted average assumptions as of year-end:
Discount rate 8.00% 7.00% 7.25%
Rate of compensation increase 5.25% 4.50% 4.50%
Expected return on plan assets 10.50% 10.50% 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 8.0% in 1999
to 5.25% in 2006. The discount rate used in determining the accumulated
postretirement benefit obligation was 8.00%, 7.00% and 7.25% at December 26,
1999, December 27, 1998, and December 28, 1997, respectively. In November
1998, the ACC board of directors approved changes to one of the plans. The
changes were effective July 1, 1999, and increased 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 26, December 27, December 28,
1999 1998 1997
(In thousands)
Components of net periodic
postretirement benefit cost:
Service cost - benefits earned
during the year $ 1,404 $ 1,484 $ 1,408
Interest cost on projected
benefit obligation 5,112 4,707 4,775
Recognized net actuarial gain (138) (207) (353)
Net periodic postretirement
benefit cost $ 6,378 $ 5,984 $ 5,830
As of
December 26, December 27,
1999 1998
(In thousands)
Change in projected postretirement
benefit obligation:
Projected benefit obligation at beginning of year $ 72,122 $ 67,916
Service cost 1,404 1,484
Interest cost 5,112 4,707
Amendments 554 --
Actuarial loss(gain) (2,497) 1,504
Benefits paid (4,295) (3,489)
Projected postretirement benefit
obligation at end of year $ 72,400 $ 72,122
Change in plan assets:
Fair value of assets at beginning of year $ -- $ --
Actual return on plan assets -- --
Employer contributions 4,295 3,489
Benefits paid (4,295) (3,489)
Fair value of plan assets at end of year $ -- $ --
Funded status - shortfall $(72,400) $(72,122)
Unrecognized net actuarial gain (7,958) (5,552)
Unrecognized prior service cost (benefit) 242 (360)
Accrued postretirement benefits (80,116) (78,034)
Less current portion 4,295 3,565
Long-term postretirement benefits $(75,821) $(74,469)
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 $ 535 $ (470)
Effect of postretirement benefit obligation $4,500 $(4,000)
NOTE 9:
Special Charges (Credits)
The annual results for 1999 included a third quarter pretax net special charge
of $5.7 million, which resulted in after-tax expense of $0.10 per basic and
diluted share. The Company undertook restructuring part of its operations,
which primarily included a voluntary severance program involving its
engineering and construction work force. Approximately 50 engineering and
construction employees accepted severance packages under the voluntary
program. Total severance and related costs were approximately $3.7 million,
which are included in the Special charges on the Company's accompanying
Consolidated Statements of Income. Of the total severance charge,
approximately $880,000 of these costs were paid as of December 26, 1999. Also
included in the $5.7 million charge is approximately $2.0 million of special
charges incurred to facilitate distributor network improvements.
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
$14.9 million of these costs were paid as of December 26, 1999. 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 Note 1).
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 Canada 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, (see Note 1) for the impairment of certain
long-lived assets and goodwill and for severance costs for a limited work
force reduction.
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 $69.2 million and $62.3 million at December 26, 1999, and December
27, 1998, respectively. These investment amounts are included in Other assets
on the Company's accompanying 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 26, December 27,
1999 1998
(In thousands)
Current assets $99,539 $90,092
Non-current assets $84,945 $94,508
Current liabilities $34,317 $55,312
Non-current liabilities $ 75 $ 123
Summarized condensed statements of operations:
For the years ended
December 26, December 27, December 28,
1999 1998 1997
(In thousands)
Net sales $449,238 $453,246 $372,479
Gross profit $116,970 $ 97,478 $ 39,459
Net income $ 68,375 $ 59,650 $ 22,384
Company's equity in operating
income $ 36,958 $ 33,227 $ 15,893
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
accompanying Consolidated Statements of Income.
Coors Canada, Inc. (CCI), a subsidiary of ACC, formed a partnership, Coors
Canada, with Molson, Inc. to market and sell Coors products in Canada. Coors
Canada began operations January 1, 1998. CCI and Molson 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's 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 Canada for
brewing, distribution and sales of these brands. Coors Canada receives an
amount from Molson Canada generally equal to net sales revenue generated from
the Coors brands less production, distribution, sales and overhead costs
related to these sales. During 1999, CCI received a $21.0 million distribution
from the partnership. Also see discussion in Note 13.
Owens-Brockway Glass Container, Inc. (Owens) and CBC operate a joint venture
partnership, the Rocky Mountain Bottle Company (RMBC), to produce glass
bottles at the CBC glass manufacturing facility. The partnership's initial
term is until 2005 and can be extended for additional two-year periods. RMBC
has a contract to supply CBC's bottle requirements and Owens is the 100%
preferred supplier of bottles to CBC for bottle requirements not met by RMBC.
In 1999, RMBC produced approximately 941 million bottles. CBC purchases
virtually all of the bottles produced by RMBC.
Also under the agreement, CBC agreed to purchase an annual quantity of bottles
from the joint venture, which represents a 2000 commitment of approximately
$86 million. The expenditures under this agreement in 1999, 1998 and 1997 were
approximately $69 million, $67 million and $59 million, respectively.
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. The aggregate
amount paid to the joint venture for cans and ends in 1999, 1998 and 1997 was
approximately $223 million, $231 million and $227 million, respectively. The
estimated cost in 2000 under this agreement for cans and ends is $232 million.
Additionally, during 1999 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
Technologies, Inc. (ACX) is the general partner. The partnership owns,
develops, operates and sells certain real estate previously owned directly by
CBC or ACC. Cash distributions and income or losses are allocated equally
between the partners until CBC recovers its investment. After CBC recovers its
investment, cash distributions are split 80% to the general partner and 20% to
CBC, while income or losses are allocated in such a manner to bring CBC's
partnership interest to 20%. In late 1999, CBC recovered its investment.
Cost investments: CBC invested approximately $22 million in 1991 for a 33%
interest in the Jinro-Coors Brewing Company (JCBC), a joint venture between
CBC and Jinro Limited. CBC accounted for this investment under the cost basis
of accounting, given that CBC did not have the ability to exercise significant
influence over JCBC and that CBC's investment in JCBC was 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.
Beginning in April 1997, Jinro Limited began attempting to restructure due to
financial difficulties. The financial difficulties of JCBC and Jinro Limited
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 Consolidated Statements of Income.
When CBC exercised its put option in December 1997, it reclassified its
investment in JCBC to a receivable from Jinro Limited. The receivable is secured
by shares, which were later canceled as described below. Jinro Limited had until
June 1998 to perform its obligation under the put option. It did not perform.
In February 1999, Jinro Limited, which was operating under a composition plan
approved by its creditors and a Korean court, announced a plan to sell JCBC
through an international bidding process. The Company submitted a bid for the
purchase of JCBC and was selected as the preferred bidder. Subsequent to this
selection, the supervising court and creditors of JCBC canceled the original
auction and held a new one, in which CBC did not participate. JCBC was sold to
Oriental Brewery and the shares of the former owners were canceled in November
1999.
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 26, 1999, and
December 27, 1998. 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 Fieldr. This liability is
included in the total advertising and promotion commitment discussed in Note 14.
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 26, 1999, December 27,
1998, and December 28, 1997, is summarized below:
Common Stock
Class A Class B
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 -- 684,808
Purchases of stock -- (888,858)
Balances at December 27, 1998 1,260,000 35,395,306
Shares issued under stock plans -- 478,390
Purchases of stock -- (411,662)
Balances at December 26, 1999 1,260,000 35,462,034
At December 26, 1999, December 27, 1998, and December 28, 1997, 25 million
shares of $1 par value preferred stock were authorized but unissued.
The board of directors authorized the repurchase during 1999, 1998 and 1997 of
up to $40 million each year of ACC's outstanding Class B common stock on the
open market. During 1999, 1998 and 1997, 232,300 shares, 766,200 shares and
969,500 shares, respectively, were repurchased for approximately $12.2
million, $24.9 million and $24.9 million, respectively, under this stock
repurchase program. In November 1999, the board of directors extended the
program and authorized the repurchase during 2000 of up to $40 million of
stock.
Earnings per share: Basic and diluted net income per common share were arrived
at using the calculations outlined below:
For the years ended
December 26, December 27, December 28,
1999 1998 1997
(In thousands, except per share data)
Net income available to
common shareholders $92,284 $67,784 $82,260
Weighted-average shares
for basic EPS 36,729 36,312 37,218
Effect of dilutive securities:
Stock options 640 1,077 751
Contingent shares not included in
shares outstanding for basic EPS 88 126 87
Weighted-average shares
for diluted EPS 37,457 37,515 38,056
Basic EPS $2.51 $1.87 $2.21
Diluted EPS $2.46 $1.81 $2.16
The dilutive effects of stock options were arrived at by applying the treasury
stock method, assuming the Company was to repurchase common shares with the
proceeds from stock option exercises.
NOTE 12:
Other Comprehensive Income
Foreign Unrealized Accumulated
currency gain on available- other
translation for-sale securities comprehensive
adjustments and derivatives income
(In thousands)
Balances, December 29, 1996 $ 2,090 $ -- $ 2,090
Current period change (5,886) -- (5,886)
Balances, December 28, 1997 (3,796) -- (3,796)
Current period change 1,430 440 1,870
Balances, December 27, 1998 (2,366) 440 (1,926)
Current period change (3,519) 6,438 2,919
Balances, December 26, 1999 $(5,885) $ 6,878 $ 993
Tax
Pre-tax (expense) Net-of-tax
gain (loss) benefit gain (loss)
1999:
Foreign currency translation adjustments $(5,745) $ 2,226 $(3,519)
Unrealized gain on available-for-sale
securities and derivatives 10,511 (4,073) 6,438
Other comprehensive income $ 4,766 $(1,847) $ 2,919
1998:
Foreign currency translation adjustments $ 2,344 $ (914) $ 1,430
Unrealized gain on available-for-sale
securities and derivatives 721 (281) 440
Other comprehensive income $ 3,065 $(1,195) $ 1,870
1997:
Foreign currency translation adjustments $(9,942) $ 4,056 $(5,886)
Unrealized gain on available-for-sale
securities and derivatives -- -- --
Other comprehensive (loss) income $(9,942) $ 4,056 $(5,886)
NOTE 13:
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 net revenues from external customers, operating income and
pretax income attributable to the United States and all foreign countries for
the years ended December 26, 1999, December 27, 1998, and December 28, 1997,
are as follows:
1999 1998 1997
(In thousands)
United States:
Net revenues $2,007,560 $1,864,745 $1,780,613
Operating income $ 133,172 $ 93,259 $ 66,708
Pre-tax income $ 171,756 $ 110,627 $ 66,363
Foreign countries:
Net revenues $ 49,086 $ 34,788 $ 40,691
Operating income $ 8,811 $ 10,560 $ 80,685
Pre-tax income $ (21,089) $ 473 $ 80,530
Included in 1999 and 1998 foreign revenues are earnings from CCI, the
Company's investment accounted for using the equity method of accounting (see
Note 10). In 1997, 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 26, 1999, and December 27, 1998, are as follows:
1999 1998
(In thousands)
United States $705,062 $702,923
Foreign countries 8,939 11,518
Total $714,001 $714,441
The total export sales (in thousands) during 1999, 1998 and 1997 were
$178,249, $152,353 and $125,569, respectively.
NOTE 14:
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 1999,
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 Colorado 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. In July 1999, Anchor National, a Sun America Company, bought out MBLIC.
The cash surrender value was transferred to Anchor National. 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. Anchor National has been issuing
new insurance certificates as well as procedures for policyholders to redeem
the full value of their policies for cash.
Letters of credit: As of December 26, 1999, the Company had approximately
$22.1 million outstanding in letters of credit with certain financial
institutions. These letters generally expire within 12 months from the dates
of issuance, with expiration dates ranging from March 2000 to October 2000.
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 $13.3 million for 2000,
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 starch, 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)
2000 $ 142,000
2001 142,000
2002 94,000
2003 94,000
2004 94,000
Thereafter 160,000
Total $ 726,000
The Company's total purchases (in thousands) under these contracts in fiscal
year 1999, 1998 and 1997 were approximately $108,900, $95,600 and $84,900,
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. In December 1999, ACX spun off the ceramics business into a separate
company, CoorsTek. William K. Coors and Peter H. Coors are trustees of one or
more family trusts that collectively own all of ACC's voting stock,
approximately 47% of Class B common stock, approximately 46% of ACX's common
stock and approximately 45% of CoorsTek common stock. ACC, ACX and CoorsTek or
their subsidiaries have certain business relationships and have engaged, or
proposed to engage, in certain transactions with one another, as described
below.
CBC currently has a packaging supply agreement with a subsidiary of ACX under
which CBC purchases all of its paperboard (including composite packages,
labels and certain can wrappers). This contract expires in 2002. Also, since
late 1994, ANC, the purchasing agent for the joint venture between ANC and
CBC, has ordered limited quantities of can, end and tab stock from an entity
that was formerly a subsidiary of ACX. CBC also had an agreement to purchase
refined corn starch annually from an ACX subsidiary. 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 the packaging agreement in 1999 were approximately
$107 million. Purchases from the related party in 2000 under the packaging
agreement are estimated to be approximately $106 million.
Advertising and promotions: The Company's total commitments for advertising
and promotions at sports arenas, stadiums and other venues and events are
approximately $182.7 million over the next eight 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.
Chemical Waste Management's projected costs to meet the 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 26, 1999, the Company had a $2.7 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 liabilities incurred during 1999 and 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 2001.
Year 2000 (unaudited): The "Year 2000" issue arose because some computers,
software and other equipment included programming code in which calendar year
data were abbreviated to only two digits. As a result of this design decision,
some of these systems may have failed to operate or failed to produce correct
results if "00" was interpreted to mean 1900 rather than 2000. ACC established
processes for evaluating and managing the risks and costs associated with the
Year 2000 issue. The Company did not experience any major difficulties or any
significant interruptions to its business during the transition to the Year
2000.
NOTE 15:
Quarterly Financial Information (Unaudited)
The following summarizes selected quarterly financial information for each of
the two years in the period ended December 26, 1999.
In the third quarters of 1999 and 1998, certain adjustments were made which
were not of a normal and recurring nature. As described in Note 9, income in
1999 was decreased by a special pretax charge of $5.7 million, or $0.10 per
basic share ($0.10 per diluted share) after tax, and 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. 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
1999 (In thousands, except per share data)
Net sales $439,862 $575,568 $544,025 $497,191 $2,056,646
Gross profit $167,480 $260,348 $223,487 $189,366 $ 840,681
Net income $ 11,982 $ 46,231 $ 21,836 $ 12,235 $ 92,284
Net income per
common share - basic $ 0.33 $ 1.26 $ 0.59 $ 0.33 $ 2.51
Net income per
common share - diluted $ 0.32 $ 1.23 $ 0.58 $ 0.33 $ 2.46
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 $151,816 $232,156 $189,367 $165,501 $ 738,840
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
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 83) is chairman of the board and president of Adolph
Coors Company (ACC) 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 82) 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.
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. He is also a director
of CoorsTek, Inc., which was spun-off from ACX in December 1999.
PETER H. COORS (Age 53) 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 and is a member of the Executive
Committee. Prior to 1993, he served as executive vice president of ACC and
chairman of the brewing division, before the organization of CBC. He served as
interim treasurer and chief financial officer from December 1993 to February
1995. He is also a director of CBC. In his career at CBC, he has served in a
number of different executive and management positions. Since March 1996, he
has been a director of U.S. Bancorp.
W. LEO KIELY III (Age 53) 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, he held executive positions with Frito-Lay, Inc., a
subsidiary of PepsiCo in Plano, Texas, most recently serving as central
division president. He serves on the board of directors of Sunterra Resorts,
Inc. 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 and Girls Clubs of America and chair of the 1999 Denver
United Way campaign.
LUIS G. NOGALES (Age 56) has served as a director since 1989. He is a member
of the Audit Committee and chairman of the Compensation Committee. He
is also a director of CBC. He is president of Nogales Partners, an
acquisition firm (1990-present). 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 Edison International, Kaufman
and Broad Home Corporation and Kaufman and Broad S.A.
PAMELA H. PATSLEY (Age 43) joined the Company as a director in November 1996.
She is also a director of CBC. She chairs the Audit Committee and is
a member of the Compensation Committee. In March 2000, she became
executive vice president of First Data Corp. and president of First
Data Merchant Services, First Data's merchant processing enterprise,
which also includes the TeleCheck check guarantee and approval
business. Prior to joining First Data, Patsley served as president,
chief executive officer and director of Paymentech. She began her
Paymentech career as a founding officer of First USA, Inc. when it
was established in 1985. Before joining First USA, Patsley was with
KPMG Peat Marwick. She is also a director of Message Media, Inc.
WAYNE R. SANDERS (Age 52) joined the Company as a director in February 1995.
He is a member of the Compensation Committee and the Audit Committee and 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 and
during the past 20 years he has served in a number of positions with K-C. He
was named to his current position in 1992. 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.
ALBERT C. YATES (Age 57) joined the Company as a director in August 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 the Federal
Reserve Board of Kansas City-Denver Branch. He has served on the
board of the Fort Collins Chamber of Commerce and First Interstate Bank.
William K. Coors and Joseph Coors are brothers. Peter H. Coors is a son of
Joseph Coors.
(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 at March 1, 2000:
DAVID G. BARNES (Age 38) joined CBC in March 1999 as vice president of finance
and treasury. Prior to that, he was vice president of finance and
development for Tricon Global Restaurants and was based in Hong Kong.
At Tricon, he also held positions as vice president of mergers and
acquisition and vice president of planning. From 1990-1994, he worked
at Asea Brown Boveri in various strategy, planning and development
roles of increasing responsibility. He started his career at Bain and
Company as a consultant for 5 years.
CARL L. BARNHILL (Age 51) joined CBC in May 1994 as senior vice president of
sales with more than 20 years of marketing experience with consumer
goods companies. Previously, 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, Inc. in various senior sales and marketing positions.
L. DON BROWN (Age 54) joined CBC in July 1996 as senior vice president of
container, 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 55) was senior vice president, human resources and
communications from May 1994 to March 2000. He has announced plans to
retire in 2001. He continues to be employed by the Company working on
strategic initiatives. Prior to joining CBC, Ehret served in
management positions with A.C. Nielsen, and PepsiCo Inc.
PETER M. R. KENDALL (Age 53) 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
international book operations for McGraw Hill Companies. From 1981-
1994, Kendall worked in leadership positions for Pepsi International,
PepsiCo and PepsiCo Wines and Spirits. Prior to Pepsi, he spent six
years at McKinsey & Co. in New York.
ROBERT D. KLUGMAN (Age 52) was named CBC's senior vice president of corporate
development in May 1994. In 1993, he served as vice president of corporate
development. Prior to 1993, he was vice president of brand marketing, and
also served as vice president of international, development and marketing
services. Before joining CBC, Klugman was a vice president of client services
at Leo Burnett USA, a Chicago-based advertising agency.
MICHAEL A. MARRANZINO (Age 52) served as senior vice president and chief
information officer from November 1997 until his retirement in March
2000. He was with CBC since 1976 and held a number of senior
positions, including chief international officer.
PATRICIA J. SMITH (Age 56) was named corporate secretary of CBC and ACC in
1993. She also serves in the same capacity for the majority of ACC's
and CBC's subsidiaries. She retired as of March 2000 after more than
20 years with the Company.
OLIVIA M. THOMPSON (Age 49) 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 corporate controller.
M. CAROLINE TURNER (Age 50) has been senior vice president since February
1997, and general counsel for CBC since 1993. In March 2000, she was
also named Corporate Secretary. She has served as vice president and
assistant secretary of ACC, and was assistant secretary of CBC since
January 1993. Since joining the Company in 1986, she served primarily
as the chief legal officer of both ACC and CBC. Prior to joining the
Company, she was a partner with the law firm of Holme Roberts & Owen
and a clerk in the U.S. 10th Circuit Court of Appeals.
WILLIAM H. WEINTRAUB (Age 57) 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 46) 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 Science and
Technology Commission for the State of Colorado.
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.
ITEM 11. Executive Compensation
I. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG -TERM COMPENSATION
AWARDS PAYOUTS
OTHER RESTRICT- SECURITIES LTIP ALL
ANNUAL ED UNDERLYING PAY- OTHER
NAME & PRINCIPAL SALARY BONUS COMP STOCK OPTIONS OUTS COMP
POSITION YEAR ($) ($)(a) ($)(b) ($)(c) (#)(d) ($) ($)(e)
William K. Coors, 1999 320,800 0 0 0 0 0 0
Chairman of the 1998 307,100 0 0 0 0 0 0
Board, CEO of 1997 294,672 0 0 0 0 0 0
Adolph Coors
Company
Peter H. Coors, 1999 655,765 380,294 0 0 62,751 0 55,504
Vice Chairman & 1998 599,065 292,032 0 241,484 82,200 0 32,807
CEO of Coors 1997 541,428 324,229 0 0 157,625 0 13,687
Brewing Company
W. Leo Kiely III, 1999 516,750 304,722 0 0 87,429 0 41,723
President & COO 1998 468,000 271,500 0 76,496 50,514 0 43,653
of Coors Brewing 1997 424,692 263,593 0 0 92,451 0 10,508
Company
L. Don Brown, 1999 367,502 166,672 0 0 15,218 0 18,132
Senior VP, 1998 374,504 144,202 61,476 42,008 18,859 0 21,195
Operations & 1997 360,504 280,000 112,223 0 33,600 0 9,132
Technology of
Coors Brewing
Company
Timothy V. Wolf, 1999 343,020 160,022 0 0 28,790 0 11,535
Senior VP & CFO 1998 326,528 130,611 0 38,033 17,081 0 13,684
of Coors Brewing 1997 326,516 163,834 0 0 44,134 0 7,178
Company
(a) Amounts awarded under the Management Incentive Compensation Program.
(b) In 1999, none of the named executives received perquisites in excess of
the lesser of $50,000 or 10% of salary plus bonus. In 1998 and 1997, L. Don
Brown received perquisites including moving and relocation expenses of $31,476
and $81,691, respectively.
(c) In 1999, the 45,390 shares of restricted stock which were granted to L.
Don Brown in 1996 vested. The value at vesting date was $2,282,268.
No restricted stock grants were made to any of the named executives during
1999. 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
1,062 shares to Timothy V. Wolf. These 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 26, 1999 were as follows: Peter H. Coors - $342,629; W. Leo Kiely
III - $108,536; L. Don Brown - $59,603; and Timothy V. Wolf - $53,963.
No restricted stock grants were made in 1997 to any of the named executives.
(d) See discussion under Item 11, Part II, for options issued in 1999.
(e) The amounts shown in this column are attributable to the officer life
insurance other than group life, as well as 401(k) match.
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 Timothy V. Wolf. The officer's life insurance provides
six times the executive base salary until retirement when the benefit
terminates. The 1999 annual benefit for each executive was: Peter H. Coors -
$50,704; W. Leo Kiely III - $35,715; L. Don Brown - $13,332; and Timothy V.
Wolf - $6,735.
The Company's 50% match on the first 6% of salary contributed by the officer
to ACC's qualified 401(k) plan was $4,800 each for Peter H. Coors, W. Leo
Kiely III, L. Don Brown and Timothy V. Wolf. Peter H. Coors, W. Leo Kiely III,
and Timothy V. Wolf exercised stock options in 1999. See discussion in Item
11, Part III for stock option exercises in 1999.
In response to Code Section 162 of the Revenue Reconciliation Act of 1993, the
Company appointed a special compensation committee to approve and monitor
performance criteria in certain performance-based executive compensation plans
for 1999.
II. OPTION/SAR GRANTS TABLE
Option Grants in Last Fiscal Year
POTENTIAL REALIZABLE
VALUE AT ASSUMED RATES
INDIVIDUAL GRANTS OF STOCK PRICE
APPRECIATION FOR
OPTION TERM
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES OR BASE
GRANTED IN FISCAL PRICE EXPIRATION
NAME (#)(a) YEAR ($/SHARE) DATE 5% 10%
Peter H. Coors 45,348 5% $56.8438 01/04/09 $1,621,135 $4,108,274
17,403 2% $59.2500 02/16/09 $ 648,471 $1,643,352
W. Leo Kiely 32,062 3% $56.8438 01/04/09 $1,146,177 $2,904,637
III 55,367 6% $59.2500 02/16/09 $2,063,086 $5,228,264
L. Don Brown 11,083 1% $56.8438 01/04/09 $ 396,204 $1,004,057
4,135 0.5% $59.2500 02/16/09 $ 154,078 $ 390,465
Timothy V. 10,641 1% $56.8438 01/04/09 $ 380,403 $ 964,015
Wolf 18,149 2% $59.2500 02/16/09 $ 676,268 $1,713,796
(a) Grants vest one-third in each of the three successive years after the date
of grant. As of December 26, 1999, the 1999 grants were 0% vested because of
the one-year vesting requirement; however, they will vest 33-1/3% on the one-
year anniversary of the grant dates.
III. OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Value
SHARES NUMBER OF
ACQUIRED UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ON VALUE OPTIONS IN-THE-MONEY
EXERCISE REALIZED AT FY-END (#) OPTIONS AT FY-END($)
NAME (#) ($)(a) Exercis- Unexercis- Exercis- Unexercis-
able able able able
Peter H. Coors 28,820 1,179,819 260,930 150,124 $7,129,307 $2,071,173
W. Leo Kiely 18,843 780,497 96,624 151,922 $2,743,226 $1,549,743
III
L. Don Brown 0 0 87,019 38,991 $2,741,667 $ 577,948
Timothy V. 19,277 786,803 5,693 54,891 $ 99,073 $ 661,349
Wolf
(a) Values stated are the bargain element recognized in 1999, 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 - $297,524 and 60 years; Peter H.
Coors - $588,753 and 28 years; W. Leo Kiely III - $469,814 and 6 years; L. Don
Brown - $367,503 and 4 years; and Timothy V. Wolf - $332,021 and 5 years.
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 July 1, 1999. As a
result of the amendment to the plan which became effective July 1, 1999, a $48
million contribution was made in January 1999 and that contribution's ratio to
total compensation was approximately 20%. 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
actuarially accrued under the pension formula is based on a single 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 1999 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
$202,500, paid upon normal retirement.
In November 1998, the ACC board of directors approved changes to one of its
defined benefit pension plans. The changes were 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 as amended and restated August 14, 1997. 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 $34,000.
In 1999, the NE members of the board of directors were paid 50% of the $32,000
annual retainer for the 1998-1999 term and 50% of the $36,000 annual retainer
for the 1999-2000 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 and
transportation by CBC.
VII. EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
CBC has no agreements with executives or employees providing employment for a
set period.
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, if there is a change in ownership of the
Company, the options and restricted shares vest immediately.
VIII. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Luis G. Nogales, Pamela H. Patsley, Wayne R. Sanders and Albert C. Yates
served on the Compensation Committee during 1999.
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 13, 2000:
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 13, 2000:
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 2,612 (a) 150 2,762 (a) (a)
stock Peter H. Coors 64,665 (a) 350,854 415,519 (a) (a)
(non- W. Leo Kiely III 12,508 175,559 188,067
voting) Luis G. Nogales 2,279 150 2,429
Pamela H. Patsley 1,387 361 1,748
Wayne R. Sanders 5,696 150 5,846
Albert C. Yates 114 451 565
L. Don Brown 29,754 156,140 185,894
Timothy V. Wolf 1,700 36,758 38,458
All executive officers
and directors as a
group (17 persons) 17,199,158 1,204,665 18,403,823 52%
(a) William K. Coors, Joseph Coors and Peter H. Coors are trustees, in
addition to other trustees, and beneficiaries or contingent beneficiaries, of
various Coors family trusts that own an aggregate of 16,750,094 shares of
Class B common stock. These individuals, with others, are trustees of three
trusts which own 267,100 shares of Class B common stock. In these three
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, represent 52% 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 EC that could be
exercised as of March 13, 2000. It also 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
None.
(b) Certain Business Relationships
William K. Coors and Peter H. Coors are trustees of one or more family trusts
that collectively own all of ACC's Class A voting common stock, approximately
47% of Class B common stock, approximately 46% of ACX's common stock and
approximately 45% of CoorsTek's common stock (see Security Ownership of Certain
Beneficial Owners and Management in Item 12). ACC, ACX and CoorsTek or their
subsidiaries have certain business relationships and have engaged or proposed
to engage in certain transactions with one another, as described below.
CBC currently has a packaging supply agreement with a subsidiary of ACX under
which CBC purchases all of its paperboard (including composite packages, labels
and certain can wrappers). This contract expires in 2002. CBC also had an
agreement to purchase refined corn starch annually from an ACX subsidiary. 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 the packaging agreement in 1999
were approximately $107 million. Purchases from the related party in 2000 under
the packaging agreement are estimated to be approximately $106 million.
When ACX was spun-off from ACC in 1992, 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 1999, CBC provided water and waste water treatment
services to a CoorsTek 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 CoorsTek, including certain ceramic can tooling for CBC's can lines. During
1999, CBC received approximately $320,000 and paid approximately $67,000 under
these agreements and transactions. In 2000, CBC expects to pay approximately
$30,000 and receive approximately $226,000 under these agreements.
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. Cash distributions and
income or losses are allocated equally between the partners until CBC recovers
its investment. After CBC recovers its investment, cash distributions are
split 80% to the general partner and 20% to CBC, while income or losses are
allocated in such a manner to bring CBC's partnership interest to 20%. In late
1999, CBC recovered its investment.
(c) Indebtedness of Management
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 1999.
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.
Report of Independent Accountants on
Financial Statement Schedules
To the Board of Directors and Shareholders of Adolph Coors Company:
Our audits of the consolidated financial statements referred to in our report
dated February 9, 2000 appearing on page 30 of this Form 10-K also included an
audit of the financial statement schedule listed in Item 14(a)(2) of this Form
10-K. In our opinion, this financial statement schedule presents fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Denver, Colorado
February 9, 2000
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 26, 1999 $ 299 $ 53 $ -- ($ 297)(a) $ 55
December 27, 1998 $ 557 $ 42 $ -- ($ 300)(a) $ 299
December 28, 1997 $ 275 $1,627 $ -- ($1,345)(a) $ 557
Allowance for certain
claims
Year ended
December 26, 1999 $ 584 $ 44 $ -- ($ 495)(a) $ 133
December 27, 1998 $1,500 $ 400 $ -- ($1,316)(a) $ 584
December 28, 1997 $ -- $1,500 $ -- $ -- $1,500
Allowance for obsolete
inventories and supplies
Year ended
December 26, 1999 $4,986 $3,778 $ -- ($5,594)(a) $3,170
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
(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 10.1* - 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 10.2* - 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 10.3* - Adolph Coors Company 1990 Equity Incentive Plan.
(Incorporated by reference to Exhibit 10.6 to Form
10-K for the fiscal year ended December 28, 1997) and
1999 Amendment (Incorporated by reference to Exhibit
10.6 to Form 10-K for the fiscal year ended December
27, 1998)
Exhibit 10.4 - 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)
Exhibit 10.5 - Adolph Coors Company Equity Compensation Plan for Non-
Employee Directors. (Incorporated by reference to
Exhibit 10.12 to Form 10-K for the fiscal year ended
December 28, 1997) and 1999 Amendment (Incorporated by
reference to Exhibit 10.12 to Form 10-K for the fiscal
year ended December 27, 1998)
Exhibit 10.6 - 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 10.7 - 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 10.8 - Adolph Coors Company Stock Unit Plan. (Incorporated by
reference to Exhibit 10.16 to Form 10-K for the fiscal
year ended December 28, 1997) and 1999 Amendment
(Incorporated by reference to Exhibit 10.16 to Form
10-K for the fiscal year ended December 27, 1998)
Exhibit 10.9* - Coors Brewing Company 1999 Annual Management Incentive
Compensation Plan.
Exhibit 10.10* - Coors Brewing Company 1998 Deferred Compensation Plan.
(Incorporated by reference to Exhibit 10.21 to Form
10-K for the fiscal year ended December 27, 1998)
Exhibit 10.11* - Coors Brewing Company 2000 Annual Management Incentive
Compensation Plan.
Exhibit 10.12* - Amendment to Adolph Coors Company 1990 Equity
Incentive Plan approved February 15, 2000.
Exhibit 10.13 - 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 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
None.
(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 26, 1999. 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 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 Prospectus
constituting part of the Registration Statement on Form S-3 (No. 33-33831) and
in the Registration Statements on Form S-8 (No. 33-2761), (No. 33-35035), (No.
33-40730), (No. 33-59979) and (No. 333-45869) of Adolph Coors Company of our
report dated February 9, 2000, appearing on page 30 of this Form 10-K.
We also consent to the incorporation by reference of our report dated February
9, 2000 relating to the financial statement schedule, appearing on page 72 of
this Form 10-K.
PricewaterhouseCoopers LLP
Denver, Colorado
March 24, 2000
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 24, 2000
COORS BREWING COMPANY PRIVATE
1999 ANNUAL MANAGEMENT INCENTIVE COMPENSATION PLAN
(MIC)
PARTICIPANTS:
All Department Directors and above in salary grades E08 and E09 will
participate in an annual incentive program known as the Management Incentive
Compensation Plan (MIC).
Participants who are newly hired or promoted into an eligible position during
the Plan year will be eligible to receive a pro-rata share of the incentive
payment based on the number of calendar days spent in an eligible position
divided by the actual number of days during the year of the Plan.
ANNUAL INCENTIVE PROGRAM TARGET LEVELS AS A PERCENT OF BASE SALARY AS OF 1-1-
1999 OR PLAN ENTRY DATE IF LATER:
Total On Target
Bonus
Position Potential
CEO/COO 50%
Executive Staff 40%
Vice President 30%
Other Participants 25%
BONUS PAYOUT PARAMETERS:
The Chief Executive Officer (CEO) and Chief Operating Officer (COO) will be
measured only on Company financial performance (as modified by quality
performance noted below). All other participants will be evaluated based on two
components, the achievement of Company financial performance goals (as modified
by quality performance noted below) and individual performance goals. The
percentages of the total potential bonus are:
Company Individual
Position Component Component
CEO/COO 100% 0%
Executive Staff 75% 25%
Vice President 40% 60%
Other Participants 40% 60%
If the Company financial goals are achieved, each participant will receive the
portion of the bonus based on the Company component. None of the Company
portion will be paid if pre-tax income falls below a minimum of 75% of the
target financial goal. The amount of the Company component will be reduced 2%
from target for each 1% that actual results fall below the target pretax income
goal. For each 1% the Company pretax income exceeds the target goal, the target
Company component will increase 2% up to the maximum of the financial goal.
For calendar year 1999 the Company has established a specific quality goals.
Achievement of the quality goal will result in an increase in the financial
portion of the payout by 10% if an Above Target rating is achieved. An On
Target rating will have no impact to bonus payouts and Below Target will result
in a decrease in the financial portion of the payout by 10%. The quality
objectives will be measured by percentage reductions in consumer complaints:
Above Target - 11% or greater
On Target - 9-10.99%
Below Target - 8.99% and below
COMPANY FINANCIAL TARGETS:
Annual Company financial goals will be measured based on pre-tax income before
special charges or credits for 1999 after incentive plan payouts (in millions).
Minimum Target Maximum
108.75 145 217.5
Definitions:
Pretax Income - Income before income taxes for external reporting purposes as
shown on the Annual Report including both Domestic and International and also
including the revenue and expenses associated with entering an international
market.
Special Charges (Credits) - Extraordinary items (one-time unusual events)
which are separately identified in the Company's internal and external
financial statements and other special items as defined by management.
INDIVIDUAL PERFORMANCE GOALS:
The other portion of the bonus is based on achievement of individual
performance goals. The individual portion of the bonus is not dependent on
fulfillment of Company financial goals. Individual performance payouts will be
based on an individual incentive multiplier of between 0 and 150%, multiplied
by the amount equal to the dollar amount of the individual performance
component at target:
Above Target 125-150%
On Target 100%
Below Target 0-70%
Individual performance goals will be documented and agreed upon by the later of
February 1 of the Plan year or 30 days after the start date in the Plan. Each
participant will meet with his or her immediate supervisor to develop
individual goals in support of the Company strategies. These goals will be
written and signed off by the participant and the supervisor before
implementation. All individual goals must be reviewed and approved by the COO
or the CEO. At the end of the Plan year each supervisor must submit in writing
the results of each individual performance goal and the individual performance
multiplier.
FORM AND TIMING OF PAYMENTS:
At the end of the plan year final awards will be calculated. Payments will be
made as soon as practicable after the end of the plan year.
FEDERAL, STATE AND FICA TAX WITHHOLDING:
The Company will be required to withhold all applicable federal, state and FICA
income taxes on the awards.
TAX TREATMENT:
Participants realize taxable income at the date the incentive payout is
received.
DISCLAIMER:
Coors Brewing Company reserves the right to change, amend or terminate this
Plan at any time, for any reason at its sole discretion. This Plan supersedes
all prior documentation relating to the Annual Management Incentive
Compensation Plan.
NOT EMPLOYMENT CONTRACT:
At no time is this plan to be considered an employment contract between the
participants and the Company. It does not guarantee participants the right to
be continued as an employee of the Company. It does not effect a participant's
right to leave the Company or the Company's right to discharge a participant.
TERMINATION PROVISIONS:
Participants must be on the payroll as of 1-1-2000 to receive payment. The CEO
must approve any exceptions.
COORS BREWING COMPANY PRIVATE
2000 ANNUAL MANAGEMENT INCENTIVE COMPENSATION PLAN
(MIC)
PARTICIPANTS:
All Department Directors and above in salary grades E08 and E09 will
participate in an annual incentive program known as the Management Incentive
Compensation Plan (MIC).
Participants who are newly hired or promoted into an eligible position during
the Plan year will be eligible to receive a pro-rata share of the incentive
payment based on the number of calendar days spent in an eligible position
divided by the actual number of days during the year of the Plan.
ANNUAL INCENTIVE PROGRAM TARGET LEVELS AS A PERCENT OF BASE SALARY AS OF 1-1-
2000 OR PLAN ENTRY DATE IF LATER:
Total On Target
Bonus
Position Potential
CEO 80%
COO 75%
Executive Staff 50%
Vice President 40%
Other Participants 30%
BONUS PAYOUT PARAMETERS:
The Chief Executive Officer (CEO) and Chief Operating Officer (COO) will be
measured only on Company financial performance (as modified by quality
performance noted below). All other participants will be evaluated based on two
components, the achievement of Company financial performance goals (as modified
by quality performance noted below) and individual performance goals. The
percentages of the total potential bonus are:
Company Individual
Position Component Component
CEO/COO 100% 0%
Executive Staff 75% 25%
Vice President 40% 60%
Other Participants 40% 60%
If the Company financial goals are achieved, each participant will receive the
portion of the bonus based on the Company component. None of the Company
portion will be paid if pre-tax income falls below a minimum of 75% of the
target financial goal. The amount of the Company component will be reduced 2%
from target for each 1% that actual results fall below the target pretax income
goal. For each 1% the Company pretax income exceeds the target goal, the target
Company component will increase 2% up to the maximum of the financial goal.
For calendar year 2000 the Company has established specific quality goals.
Achievement of the quality goal will result in an increase in the financial
portion of the payout by 10% if an Above Target rating is achieved. An On
Target rating will have no impact to bonus pay outs and Below Target will
result in a decrease in the financial portion of the payout by 10%. The quality
objectives will be measured by percentage reductions in consumer complaints:
Above Target - 9% or greater
On Target - 7-8.99%
Below Target - 6.99% and below
COMPANY FINANCIAL TARGETS:
Annual Company financial goals will be measured based on pre-tax income before
special charges or credits for 2000 after incentive plan payouts (in millions).
Minimum Target Maximum
$127.5MM $170MM $255MM
Definitions:
Pretax Income - Income before income taxes for external reporting purposes as
shown on the Annual Report including both Domestic and International and also
including the revenue and expenses associated with entering an international
market.
Special Charges (Credits) - Extraordinary items (one-time unusual events)
which are separately identified in the Company's internal and external
financial statements and other special items as defined by management.
INDIVIDUAL PERFORMANCE GOALS:
The other portion of the bonus is based on achievement of individual
performance goals. The individual portion of the bonus is not dependent on
fulfillment of Company financial goals. Individual performance payouts will be
based on an individual incentive multiplier of between 0 and 150%, multiplied
by the amount equal to the dollar amount of the individual performance
component at target:
Above Target (125-150%) On Target (90-110%) Below Target (0-70%)
Individual performance goals will be documented and agreed upon by the later of
February 1 of the Plan year or 30 days after the start date in the Plan. Each
participant will meet with his or her immediate supervisor to develop
individual goals in support of the Company strategies. These goals will be
written and signed off by the participant and the supervisor before
implementation. All individual goals must be reviewed and approved by the COO
or the CEO. At the end of the Plan year each supervisor must submit in writing
the results of each individual performance goal and the individual performance
multiplier.
FORM AND TIMING OF PAYMENTS:
At the end of the plan year final awards will be calculated. Payments will be
made as soon as practicable after the end of the plan year.
FEDERAL, STATE AND FICA TAX WITHHOLDING:
The Company will be required to withhold all applicable federal, state and FICA
income taxes on the awards.
TAX TREATMENT:
Participants realize taxable income at the date the incentive payout is
received.
DISCLAIMER:
Coors Brewing Company reserves the right to change, amend or terminate this
Plan at any time, for any reason at its sole discretion. This Plan supersedes
all prior documentation relating to the Annual Management Incentive
Compensation Plan.
NOT EMPLOYMENT CONTRACT:
At no time is this plan to be considered an employment contract between the
participants and the Company. It does not guarantee participants the right to
be continued as an employee of the Company. It does not effect a participant's
right to leave the Company or the Company's right to discharge a participant.
TERMINATION PROVISIONS:
Participants must be on the payroll as of 1-1-2001 to receive payment. The CEO
must approve any exceptions.
EXHIBIT A
ADOLPH COORS COMPANY
EQUITY INCENTIVE PLAN
Amendment Effective
January 1, 2000
Pursuant to Section 16 of the Plan, the Plan is hereby amended to read as
follows:
1. Section 7.2 of the Plan is hereby amended to add new sections 7.2 (d) (v)
and (vi) as follows:
"7.2 (d) Termination of Employment, Death, Disability, Etc.
(v) Commencing with Options granted under this Plan after 1999,
if the Option Holder dies during the Option Period while still employed
or within the one year period referred to in (vi) below, or within the
thirty-six-month period referred to in (ii) above, the Option may be
exercised by those entitled to do so under the Option Holder's will or
by the laws of descent and distribution within fifteen months following
the Option Holder's death, (provided that such exercise must occur
within the Option Period), but not thereafter. In any such case, the
Option may be exercised only as to the shares as to which the Option had
become exercisable on or before the date of the Option Holder's death.
(vi) Commencing with Options granted under this Plan after 1999,
if the employment of the Option Holder by the Company is terminated,
which for this purpose means that the Option Holder is no longer
employed by the Company or by an Affiliated Corporation) within the
Option Period for any reason other than cause, retirement pursuant to
the Company's retirement policy, disability or the Option Holder's
death, the Option may be exercised by the Option Holder within one year
following the date of such termination (provided that such exercise must
occur within the Option Period), but not thereafter. In any such case,
the Option may be exercised only as to the shares as to which the Option
had become exercisable on or before the date of termination of employment.
2. The effective date of this Amendment shall be January 1, 2000. No
other terms of the Plan are amended hereby, except that any provision of the
Plan not specifically amended herein, which is deemed to be inconsistent with
the extension of the applicable exercise period from three months to one year,
shall be deemed amended to conform with the amendments to Section 7.2 (d).
Dated:___________________________________
ATTEST: ADOLPH COORS COMPANY
By: _/s/ Patricia J. Smith__ By: _/s/ Peter H. Coors_______
Patricia J. Smith, Secretary Peter H. Coors, Vice President
<TABLE> <S> <C>
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