Annual Report (Form 10-K), fiscal year 1993

ITEM 1. Business
(a) General Development of Business
Founded in 1873, Adolph Coors Company ("ACC" or the "Company") through its principal operating subsidiary, Coors Brewing Company ("CBC" or the "company"), produces and markets beer and other malt-based beverages. The Company's business was conducted as a partnership or sole proprietorship until 1913, when it incorporated under the laws of the State of Colorado. During the 1980's, the Company developed a number of technology-based businesses. At the end of 1992, ACC spun off its aluminum, packaging, ceramics and other technology businesses in a tax-free distribution to shareholders. The spin-off was accomplished through a dividend of the shares of common stock in a new public company, ACX Technologies, Inc. ("ACX Technologies" or "ACXT"). ACXT owns Graphic Packaging Corporation, Golden Aluminum Company, Coors Porcelain Company (dba Coors Ceramics Company) and a number of developmental businesses which were formerly owned by ACC.
CBC remains as the single direct subsidiary of ACC. CBC owns Coors Distributing Company, and a number of smaller subsidiaries, including Ford Street Management Company; Wannamaker Ditch Company; Rocky Mountain Water Company; CBC International, Inc.; Coors Energy Company; and Coors Transportation Company. In 1992, substantially all of the assets of Coors Energy Company and Coors Transportation Company were sold.
(b) Financial Information About Industry Segments
The Company has continuing operations in a single industry segment, the production and marketing of beer and other malt-based beverages.
(c) Narrative Description of Business
Coors Brewing Company - General
CBC is engaged in the production and marketing of high quality malt-based beverage products. CBC has a number of distinctive brands that satisfy developing consumer demands and trends. The company's malt-based beverage products include a number of premium, specialty and import beers, a premium Clearmalt beverage, popular-priced and value-added beers and non-alcoholic brews. Sales of malt beverage products totaled 19.8 million barrels in 1993, a 1.3% increase compared to 19.6 million barrels in 1992.
Due to the seasonality of the beer industry, CBC's sales volumes are normally at their lowest in the first and fourth quarters and highest in the second and third quarters. The fiscal year of the Company is a 52- or 53-week period ending on the last Sunday in December.
In 1993, company management focused on the need to balance volume gains with improved returns to shareholders and a number of steps were taken toward that end. Highlights for 1993 include the following: additions of new senior management personnel; profitability improvement initiatives; initial restructuring of field sales operations to drive decision-making and accountability closer to the retail level; the announcement and/or introduction of seven new products; and the announcement of an agreement in principle to purchase a 500,000 barrel brewery in Spain. The company also revised its executive compensation plan to strengthen the link between incentive compensation and improved returns, beginning in 1994.
The profitability improvement initiatives included a reduction in general and administrative expense accomplished by means of voluntary retirement and severance packages and other initiatives. The company recorded a restructuring charge of $109.5 million in the fourth quarter of 1993, resulting in a net loss for the year. The restructuring charge includes $70.2 million for voluntary separation incentives and $39.3 million for workplace redesign, asset write-downs and other expenses related to the profit improvement initiatives. In addition, other special charges unrelated to the profit improvement initiatives totalled $13 million, primarily for the write-down of certain distributor assets and a provision for environmental enhancements. A total of 679 employees elected to accept one of the voluntary packages.
Marketing and Operations
Product portfolio: There are 17 products in the CBC brand portfolio. The company produces and markets 11 products in the premium/super-premium malt beverage category, including Original Coors, Coors Light, Coors Extra Gold, Coors Dry, Coors Artic Ice, non-alcoholic Coors Cutter, Zima Clearmalt, Killian's Irish Red Lager, Winterfest, Eisbock and Castlemaine XXXX. CBC also distributed a non-alcoholic beverage called Moussy under license with Sibra Holding S.A., of Switzerland. CBC offers three products in the popular-priced category: Keystone, Keystone Light and Keystone Dry. In 1993, the company introduced two value-added beers, Shulers and Shulers Light.
Original Coors, Coors Light, Coors Extra Gold, Coors Dry, Coors Cutter and the Keystone brands are marketed nationwide. Distribution of Zima is being expanded nationwide in 1994. With the exception of Coors Artic Ice, Schulers and Schulers Light, which are in limited introductory markets, other Coors malt beverage products are sold in most states.
Brand performance: Coors Light is the biggest selling brand in CBC's product portfolio, accounting for approximately two-thirds of the company's total sales. Other brands with improved volume in 1993 were Killian's Irish Red and Zima.
Zima is a clear, lightly carbonated alcohol beverage that offers consumers an innovative alternative to their traditional alcohol beverage choices. Based on positive consumer response, Zima, introduced into 3 test markets in the fall of 1992, was expanded into an additional 30% of the U.S. in April and October of 1993. In December, CBC announced its plans to expand distribution of Zima nationally in the first quarter of 1994.
The volume decline of the Original Coors brand moderated in 1993 as this brand maintained sales to its core group of loyal customers. The company also gained incremental volume in 1993 from the test marketing of two new, value-added beers, Shulers and Shulers Light, as well as the U.S. introduction of Castlemaine XXXX, as part of a joint venture with Lion Nathan International of New Zealand.
New products/opportunities: CBC has announced plans for the national expansion of Zima during the first quarter of 1994. The company has also introduced to nine test markets the first domestically brewed ice beer using proprietary ice brewing technology licensed from Labatt Breweries of Canada. Unlike other domestic brewers of ice beer, Coors utilizes a patented ice machine from the Netherlands that takes beer to its freezing point by regulating the temperature to about minus four degrees celsius. Named Coors Artic Ice, this new product is the only U.S.-brewed ice beer to be brewed cold, shipped cold and sold cold. In order to tap into the fast-growing popularity of special-occasion brews, UniBev Limited, an arm of CBC that focuses on the import and specialty beer market, will introduce three new seasonal beers to complement the well-established Coors Winterfest brand. Each of these beers -- Eisbock a springtime bock, a summertime wheat beer and a fall Oktoberfest beer -- will be brewed in limited quantities for their respective seasons.
Domestic sales: The company's highest volume sales are in the states of California, Texas, Pennsylvania and a number of eastern states. CBC utilizes a field sales force made up of regional directors, division managers and area sales managers to ensure maximum customer contact and satisfaction. Field staff operated out of four regional offices that offered training, marketing and merchandising support and customer service. In May of 1993, in an effort to increase its share of the growing import and specialty beer market, CBC announced the formation of UniBev Limited, a new arm of the company's International Import Division. UniBev will provide CBC with a separate umbrella organization to market specialty, import and licensed beer brands in the U.S. In early 1994, CBC took the first step in a field restructuring designed to move accountability and decision making closer to the retail level. The company has established two test field business units (FBUs) with accountability for market and bottom line performance in their respective regions (Texas and California/Hawaii). The company intends to establish more FBUs over time.
International marketing/partnerships: With domestic beer sales virtually flat, international markets offer considerable potential to CBC. CBC exports Coors products to 14 markets outside of the United States, including American Samoa, the Bahamas, Bahrain, Bermuda, Cayman Islands, France, Greece, Guam, Ireland, Italy, Panama, Puerto Rico and the U.S. and British Virgin Islands. In addition, CBC exports its products to approximately 250 U.S. military bases worldwide.
CBC also has existing licensing agreements with a number of international brewers. CBC has licensed Molson Breweries of Canada Limited to brew and distribute Original Coors and Coors Light in Canada and Asahi Breweries Ltd. to brew and distribute Original Coors in Japan. In early 1994, the company announced that it had licensed proprietary ice brewing technology from Labatt Breweries of Canada.
In September 1992, a joint venture between CBC and Scottish & Newcastle Breweries of Scotland began to brew and distribute Coors Extra Gold in the United Kingdom. Coors Extra Gold was introduced in Scotland and northwest England in August 1992, and in 1993 the company expanded distribution into the rest of the United Kingdom. In June of 1993, CBC announced the launch of Coors Extra Gold into Ireland; the brand is brewed by Scottish & Newcastle in the U.K. and distributed under license by Murphy Brewery Ireland Ltd., Dublin. In September, CBC announced that it would produce and market Castlemaine XXXX (an Australian lager) in the U.S. through a joint venture with Lion Nathan International of New Zealand. CBC also owns the exclusive North American distribution rights for a non-alcoholic beverage called Moussy from Sibra Holding S.A., of Switzerland.
Beginning in 1991, CBC took a significant equity position in a foreign brewing facility through a joint venture with Jinro Limited of the Republic of Korea. Jinro-Coors Brewing Company is one-third owned by CBC and two- thirds owned by Jinro Limited. In the second quarter of 1994, Jinro-Coors will complete construction of a 1.8 million barrel brewery in South Korea. The new brewery will produce several new local beers and a Coors brand for Korea's fast-growing beer market.
Late in 1993, CBC signed an agreement in principle with El Aguila S.A., based in Madrid, Spain, for the purchase of a 500,000-barrel brewery in Zaragoza, Spain. This is discussed in greater detail below.
Production/packaging capacity: CBC currently has three domestic production facilities. It owns and operates the world's largest single-site brewery in Golden, Colorado, a packaging and brewing facility in Memphis, Tennessee, and a third facility that currently operates as a packaging plant and distribution facility near Elkton, Virginia (referred to as the Shenandoah facility). Together, the three facilities provide sufficient brewing and packaging capacity to meet consumer demand for Coors products into the foreseeable future.
The Golden, Colorado, brewery is the source for all brands with the Coors name, except for Coors Cutter, the company's non-alcoholic beverage. The majority of the company's beer is packaged in Golden. The remainder is shipped in bulk from the Colorado brewery to the Shenandoah and Memphis facilities for blending, finishing and packaging. The Memphis facility, which was purchased from The Stroh Brewery Company in 1990, is currently packaging all Coors products for export outside of the United States and producing Zima Clearmalt, Castlemaine XXXX and Coors Cutter. Depending on product mix and market opportunities, the full utilization of brewing capacity in Memphis may require incremental upgrades in plant and equipment.
In November, CBC announced that it had signed an agreement in principle with El Aguila S.A., based in Madrid, Spain, for the purchase of a 500,000-barrel brewery in Zaragoza, Spain. The purchase is expected to be finalized in the first half of 1994; no purchase price has been disclosed. Under terms of the agreement, Coors Extra Gold will be brewed in Zaragoza for distribution in Spain. Sales and distribution will be handled in Spain by El Aguila. This arrangement would provide significant cost and other advantages over exporting beer from U.S. facilities. Fifty-one percent of El Aquila S.A. is owned by Amsterdam-based Heineken, N.V., the world's second-largest brewer. The sale is expected to close early in the company's second fiscal quarter.
Other company operations: Significant portions of CBC's aluminum can, glass bottle and malt requirements are produced in its own facilities. The CBC can manufacturing facility produces approximately 3.6 billion aluminum cans per year; the bottle manufacturing plant produces approximately 780 million bottles per year. Bottles manufactured by the company are made with an average total recycled content of 35%. To assist in its goal of manufacturing bottles with 50% recycled content, in 1992 CBC announced its intent to build a glass recycling facility in Wheat Ridge, Colorado. Construction of the facility will be completed mid-year in 1994 and should double the amount of glass the company can recycle annually.
CBC also has its own waste treatment facilities, which process waste from the company's manufacturing operations as well as municipal waste from the nearby City of Golden. The company also owns and operates its own power plant.
The company continues to explore opportunities to improve asset utilization, including the divestiture of non-core assets and continuing improvement in capacity utilization through innovative joint ventures and alliances.
Brewing Company subsidiaries: Coors Distributing Company (CDC) is CBC's largest subsidiary. CDC owns and operates distributorships in four markets across the United States. As part of CBC's corporate restructuring, CDC recently sold three of its company-owned distributorships. Together, CDC operations in 1993 accounted for approximately 5% of the company's total beer sales.
In late 1992, Coors Energy Company (CEC) became a subsidiary of CBC. During 1992, CEC sold substantially all of its oil and gas exploration and production assets. CEC retained a transmission pipeline to bring natural gas to various company facilities in Colorado and, through a subsidiary, continues to operate a gas transmission pipeline to provide for the natural gas needs of CBC's Shenandoah facility. CEC also operates an ash disposal site for the company's use in Colorado.
Also in 1992, Coors Transportation Company (CTC) sold substantially all of its assets and operations.
Other subsidiary operations of CBC include Ford Street Management Company (a distributor development company); Wannamaker Ditch Company and Rocky Mountain Water Company, (which carry processed water from Clear Creek to various Coors reservoirs).
Raw Materials
CBC uses all-natural ingredients in the production of its malt beverages. In addition, the company has one of the longest beer brewing cycles in the industry. CBC adheres to strict formulation and quality standards in selecting its raw materials.
Barley, rice, starch, hops: CBC uses a proprietary strain of barley developed by the company's agronomists in all its malt beverage products. Virtually all of this barley is grown on irrigated farmland in the western United States under contractual agreements with area farmers. As part of the 1993 restructuring, CBC consolidated some of its barley operations to achieve improved efficiencies.
Rice and refined cereal starch, which are considered to be interchangeable in CBC's brewing process, are purchased from several suppliers. Both foreign and domestic hops are purchased from various suppliers. The 1993 restructuring plan included reductions in commodities inventories.
Water: CBC utilizes naturally filtered water from underground aquifers to brew malt beverages at its Golden, Colorado, facility. Water from private deep wells is used for final blending and packaging operations for malt beverages packaged at plants located outside Colorado. Water quality and composition were primary factors in all facility site selections. Water from the company's sources in Golden, Memphis and Shenandoah is soft, with the required balance of minerals and dissolved solids to brew quality pilsner beers. CBC continually monitors the quality of all the water used in its brewing and packaging processes for compliance with the company's own stringent quality standards as well as federal and state water standards. CBC owns water rights believed to be adequate to meet all of the company's present requirements for both brewing and industrial uses; however, it continues to acquire water rights and add water reservoir capacity to provide for long-term strategic growth plans and to sustain brewing operations in the event of a prolonged drought.
Packaging materials: During 1993, approximately 56% of Coors malt beverage products were packaged in aluminum cans, which were primarily supplied by CBC's aluminum can manufacturing plant. Additional aluminum cans for Coors malt beverage products packaged at the Memphis plant were purchased from an outside supplier.
Glass bottles were used to package approximately 27% of Coors malt beverage products in 1993. A significant portion of all bottle requirements was produced in CBC's bottle manufacturing plant; CBC has two other qualified suppliers under contract to supply glass bottles. The remainder of the malt beverages sold during 1993 were packaged in quarter- and half-barrel stainless steel kegs and two different sizes of a plastic sphere called "The Party Ball," an innovative package introduced by CBC in 1988.
In 1993, most of the secondary packaging for Coors products, including bottle labels and paperboard products, were supplied by Graphic Packaging Corporation, an ACX Technologies subsidiary. A second supplier provided corrugated boxes. Supply contracts with ACX Technologies companies: In preparing for the spin-off of ACX Technologies, CBC negotiated market-based, long-term supply contracts with ACXT subsidiaries to ensure an uninterrupted supply of raw materials and packaging materials including aluminum.
CBC believes it has sufficient access to raw materials and packaging materials to meet its production requirements in the foreseeable future.
Transportation/Distribution
The number and geographical location of CBC's brewing operations require its malt beverage products to be shipped farther than competitors' products. Major competitors have multiple breweries and therefore incur lower transportation costs than CBC incurs to deliver its products to their respective distributors. By packaging some of its products in Memphis and Shenandoah, CBC is able to achieve more efficient product distribution and a reduction of freight costs for certain markets.
Transportation: During 1993, 28% of total Coors products sold were shipped in CBC's insulated rail tank cars from Golden to be packaged at the Shenandoah and Memphis plants. CBC's Golden facilities are served by Burlington Northern, Inc., which transports approximately 76% of Coors malt beverage products packaged at the Golden facility the 14 miles from Golden to Denver. From there, they are shipped by various railroad lines to distributors throughout the country. CBC is able to maintain the high rail volume through the use of 24 satellite redistribution centers strategically located throughout the country. These centers, operated by public warehouse companies and CBC, transfer Coors malt beverage products from railcars for shipment to distributors. In 1993, approximately 86% of total railcar volume from Golden moved through this channel.
The railcars assigned to CBC by the shipping railroads are specially built and insulated to maintain temperature control en route. A national rail strike of any duration could therefore substantially impair CBC's ability to transport Coors products to its markets and cause a shortage of Coors malt beverage products to a greater degree than would be experienced by competitors with multiple breweries. This situation would be intensified by low inventories maintained at distributors to assure the freshness of Coors malt beverage products. Although an extended shutdown of the Burlington Northern, Inc. rail spur at Golden could adversely affect CBC's business, CBC believes that such an interruption of service is unlikely. In addition, the satellite redistribution system reduces the potential impact of interrupted rail service.
The remaining 24% of CBC volume packaged in Golden is shipped by truck and intermodal (piggyback) directly to distributors. Transportation vehicles are refrigerated or insulated to keep Coors malt beverage products at proper temperatures until they are delivered to distributor locations.
Distribution: Delivery to retail markets in the United States is accomplished through a national network of 600 independent distributors and 4 distributors owned and operated by CBC's subsidiary, CDC. Some distributors have multiple branches. The total number of distributor locations, including branch operations, is 668. No single distributor accounted for more than 5% of 1993 barrel sales.
In order to ensure the highest product quality, CBC has one of the industry's most extensive distributor monitoring programs. This program is designed to ensure that guidelines for proper refrigeration and rotation of Coors malt beverage products at both the wholesale and retail levels are followed. Distributors are responsible for maintaining proper rotation of the products at retail accounts and are required to replace Coors malt beverage products at their own expense if sales to consumers have not occurred within the prescribed time period.
Competition
The beer industry in the United States is highly competitive. Coors malt beverage products compete with numerous super-premium, premium, low-calorie, popular-priced, value-added, non-alcoholic and imported brands produced by national, regional, local and international brewers. CBC is the nation's third largest brewer and, according to Beer Marketer's Insights (BMI) estimates, CBC accounted for approximately 10% of the total 1993 U.S. brewing industry shipments of malt beverages.
CBC's major competitors include Anheuser-Busch Companies, Inc. (through its subsidiary Anheuser-Busch, Inc.), Philip Morris, Inc. (through its subsidiary Miller Brewing Company), The Stroh Brewery Company, G. Heileman Brewing, and S & P Company.
Because approximately 85% of CBC's volume comes from premium, higher-margin products, CBC competes most directly with Anheuser-Busch (approximately 44% market share) and Miller (approximately 22% share), the dominant players in the industry. In 1993, price promotions and price discounting continued to erode net price realizations for brewers; industry trade publications estimate that well over 40% of premium products were sold on discount industry wide. It is anticipated that competitive price/discount activity will continue for all brewers in 1994, especially in California and select markets in the Pacific Northwest.
For the past few years, price realizations for brewers have increased well below inflation levels. CBC has responded to pricing pressures in two ways. On the cost side, CBC has implemented aggressive cost-management initiatives and close scrutiny of company functions and programs to ensure strategic alignment with company objectives and optimum asset utilization. On the revenue side, CBC continues to seek and exploit opportunities to maintain a strong premium position in the marketplace.
CBC is well-positioned in the malt beverage industry, with strong, quality brands in the fastest-growing categories. The company, however, does face significant competitive disadvantages related to economies of scale. In addition to lower transportation costs achieved by major competitors with multiple breweries, these larger brewers also recognize economies of scale in advertising expenditures. CBC, in an effort to achieve and maintain national advertising exposure, must spend substantially more per barrel of beer sold than its major competitors. This level of advertising expenditures is necessary for CBC to hold and increase its share of the U.S. beer market.
Capital Expansion
CBC has sufficient brewing and packaging capacity to fulfill projected volume requirements in the foreseeable future. In 1993, the company spent approximately $120 million to upgrade the Memphis facility to support the Zima expansion, to perform routine maintenance in all plants and to make incremental capital upgrades to all production facilities. The company expects its capital expenditures for 1994 to be approximately $193 million. Capital spending in 1994 will be primarily focused on new facilities, repair and upkeep and return on investment projects.
Research and Development
CBC is continually engaged in research and development programs and has developed various improvements in raw materials, processes and packaging systems and in the development of innovative, quality products. Approximately $13 million was spent on research and development in 1993. Although CBC owns a number of patents, it does not consider its business to be dependent upon any one or related group of such patents.
CBC's research and development expenditures are primarily devoted to new product and package development, its brewing process and ingredients, brewing equipment, improved manufacturing techniques for packaging supplies and environmental improvements in the company's processes and packaging materials. The focus of these programs is to improve the quality and value of its malt beverage products while reducing costs through more efficient processing and packaging techniques, equipment design and improved varieties of raw materials. CBC's research and development dollars are strategically applied to short-term, and long-term opportunities.
Regulations
Federal, state and local laws and regulations govern the operations of breweries; the federal government and all states in which Coors malt beverage products are distributed regulate trade practices, advertising and marketing practices, relationships with distributors and related matters. Governmental entities also levy various taxes, license fees and other similar charges and may require bonds to ensure compliance with applicable laws and regulations.
CBC anticipates a number of regulatory issues in 1994 that could impact business operations, including potential increases in state and federal excise taxes, restrictions on the advertising and sale of alcohol beverages, new packaging regulations and others.
Federal excise taxes on malt beverages are presently $18.00 per barrel. State excise taxes are also levied at rates that ranged in 1993 from a high of $32.65 per barrel in Alabama to a low of $0.62 per barrel in Wyoming. In 1993, Coors paid $364.8 million in federal and state excise taxes. For 1994, the Clinton Administration has indicated a desire to exempt brewers from an increase in federal excise taxes; however, an increase in federal excise taxes is still subject to Congressional debate. A substantial increase in federal excise taxes would have a negative impact on the entire industry and could have a material effect on company sales, profitability, and cash flow. CBC is vigorously opposed to any additional increases in federal and/or state excise taxes and will work diligently to ensure that its view is adequately represented in the ongoing debate.
Environment
See Management's Discussion and Analysis.
Energy
CBC uses both coal and natural gas as primary sources of energy. Coal is used as the primary fuel in CBC's steam generation system and is supplied from outside sources. Natural gas was supplied by public utilities and various natural gas purchase contracts during the year. The company also has fuel oil and propane available as alternate sources of energy. CBC does not anticipate future supply problems for these natural resources.
Employees
The Company has approximately 6,200 full-time employees. Approximately 1,685 employees are salaried. In 1993, 679 employees left the company under a voluntary separation program.
Foreign Operations
The company's foreign operations and export sales are not a material part of its business. However, the company is committed to expanding its foreign operations through equity participation arrangements, licensing agreements and export sales.
ITEM 2.



ITEM 2. Properties
The company's major facilities are set out below:
*Numbers in italics reflect continuing operations only. **Reflects the dividend of ACX Technologies, Inc. to shareholders during 1992. See Note 2 to Consolidated Financial Statements. ITEM 7.





ITEM 7. Management's Discussion and Analysis of Financial Condition and Comparison of Financial Results Fiscal Years 1993, 1992, and 1991
ADOLPH COORS COMPANY
Consolidated results including 1993 restructuring and other special charges and 1992 discontinued operations
1993 Consolidated Results: During 1993, Adolph Coors Company (ACC or the "Company") was the holding company for a single subsidiary, Coors Brewing Company (CBC or the "company"). CBC produces and markets quality malt-based beverages.
During 1993, company management focused on the need to balance volume gains with improved returns to shareholders. A number of steps were taken to improve profitability and performance. As a direct result of those initiatives, the company recorded restructuring and other special charges of $122.5 million in the fourth quarter, which resulted in a net loss for the year. The restructuring charge, which totaled $109.5 million pretax, includes $70.2 million for voluntary separation incentives designed to reduce the company's white collar work force, as well as $39.3 million for workplace redesign, asset write-downs and other expenses related to the profit improvement initiatives. As a part of the voluntary separation incentives, 643 employees elected to leave the company. The actions taken related to this charge, when fully implemented, are expected to generate annual pretax savings of more than $30 million. In addition, these actions position the company to compete more efficiently and effectively in an increasingly competitive business environment. Other special charges unrelated to the profit improvement initiatives totaled $13 million, primarily for the write- down of certain distributor assets and a provision for environmental enhancements.
For the 52-week fiscal year ended December 26, 1993, ACC reported a net loss of $41.9 million, or $1.10 per share, compared to a net loss of $2.0 million, or $0.05 per share in 1992. The net loss was the result of the restructuring and other special charges and the 1993 retroactive increase of one percent in the federal corporate income tax rate. The restructuring and other charges had an impact of $1.98 per share. Before the restructuring and other special charges, the impact of the tax rate increase was an after-tax charge of $3.2 million, or $0.08 per share, related to the revaluation of the deferred income tax liability and the change in the current year's tax provision.
1992 Consolidated Results: In 1992, the Company's net loss of $2.0 million decreased significantly from net income of $25.5 million, or $0.68 per share in 1991. Consolidated earnings in 1992 were reduced by a loss from discontinued operations of $29.4 million (related to the spin-off of ACX Technologies, Inc.), as well as the net after-tax expense of $8.3 million for the adoption of new accounting standards for employee postretirement benefits (FAS 109) and income taxes (FAS 106).
At the end of 1992, ACC significantly restructured its operations by spinning off its diversified technology businesses into a new, public company, ACX Technologies, Inc. (NASDAQ:ACXT). The results of ACXT are reported as discontinued operations in the consolidated financial statements for all periods presented, except as noted.
COORS BREWING COMPANY
Industry Overview*
The domestic brewing industry is subject to a number of challenging trends, including a lack of volume growth, intense price competition and the threat of increased excise taxes at the state and federal levels.
Although sales of malt-based beverages accounted for a major share (approximately 87%) of all U.S. alcohol beverage sales, total industry volume, based on domestic tax paid shipments, has declined from 181.6 million barrels in 1991 to an estimated 180.2 million barrels estimated for 1993. Total industry volume, including non-alcohol brews, import and export products has grown from 196.0 million barrels in 1991 to an estimated 198.3 million barrels in 1993. Domestic sales of malt-beverages, excluding imports, have increased less than one-half of one percent over the same time period. Non-alcohol brews, imports and specialty brews account for the fastest growing segments in the industry.
More than 90% of domestic volume is attributable to the top six domestic brewers, Anheuser-Busch, Inc.(44% share), Miller Brewing Company (22% share), Coors Brewing Company (10% share), The Stroh Brewery Company (7-8% share), G. Heileman Brewing (5% share), and S & P Company (3-4% share). In order to protect market share in a flat market, many brewers are resorting to intense price competition and product discounting. For the past few years, price gains for brewers have been well below inflation levels, and it is expected that they will continue to be limited by ongoing competition and price discounting. Analysts have stated that more than 40% of premium beers are now sold on discount. Analysts have also noted a recent trend toward consumer trading-down, e.g. consumers buying lower-priced beers rather than premium products, especially in markets with weaker economies. Some brewers have responded by introducing private label beers, and, according to analysts, some brewers have initiated a form of direct store delivery.
Finally, public discussion continues regarding the possibility of another increase in federal beer excise taxes. If this increase occurs, it is expected to have a significant impact on the entire industry, and could have a material impact on the company's sales, earnings and cash flow.
While these trends bear watching and create intense competitive challenges for all brewers, CBC has managed to achieve increases in volume and net sales for the past nine consecutive years. A critical mission of the company's marketing department is to create steadily increasing equity in each brand. In addition, the company is committed to and strongly supports the three-tier distribution system. Due, in part, to its strong position in premium beer sales, the company continues to be in a good position to generate cash internally. The company's focus is to achieve a balance of volume growth and improved returns to investors as it moves forward.
*Industry and competitive information was compiled from the following industry sources: Beer Marketer's Insights, The Maxwell Consumer Report and various securities analyst reports. While Coors believes the sources are reliable, the company cannot guarantee the absolute accuracy of these numbers and estimates, or undertake to advise readers of any change in estimated figures.
Financial Results from Continuing Operations 1993, 1992 and 1991 Excludes 1993 restructuring and other special charges and 1992 impact of discontinued operations.
See accompanying notes to consolidated financial statements. ========= ========= See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
ADOLPH COORS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1:
Summary of Accounting Policies
Fiscal year: The fiscal year of the Company is a 52- or 53-week period ending on the last Sunday in December. Fiscal years for the financial statements included herein ended December 26, 1993, December 27, 1992 and December 29, 1991.
Principles of consolidation: The consolidated financial statements include the accounts of Adolph Coors Company, its sole direct subsidiary, Coors Brewing Company (CBC), and all subsidiaries of CBC (collectively referred to as "the Company"). All significant intercompany accounts and transactions have been eliminated. Certain reclassifications were made to 1991 amounts to conform with current presentation.
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 $46,705,000 and $52,959,000 at December 26, 1993, and December 27, 1992, respectively. During 1993, total inventory costs and quantities were reduced, resulting in a LIFO liquidation, the effect of which was not material.
Properties: Land, buildings and equipment are capitalized at cost. For financial reporting purposes, depreciation is provided principally on the straight-line method over the estimated useful lives of the assets. Accelerated depreciation methods are generally used for income tax purposes. Expenditures for new facilities and improvements that substantially extend the capacity or useful life of an asset are capitalized. Start-up costs associated with manufacturing facilities, but not related to construction, are expensed as incurred. Ordinary repairs and maintenance are expensed as incurred (Note 3).
Interest capitalized, expensed and paid was as follows:
Common stock reserved for options, and restricted stock awards totaled 2,331,800 shares as of December 26, 1993, and 1,864,100 shares as of December 27, 1992.
In January 1993, the number and exercise price of all options outstanding at the time of the ACX Technologies spin-off were adjusted to compensate for the economic value of the options as a result of the distribution to shareholders. The options of officers who transferred to ACX Technologies were cancelled. The net effect of these adjustments decreased the number of options outstanding by 147,400.
NOTE 7:
Employee Retirement Plans
The Company maintains several defined benefit pension plans for the majority of its employees. Benefits are based on years of service and average base compensation levels over a period of years. Plan assets consist primarily of equity, real estate and interest-bearing investments. The Company's funding policy is to contribute annually not less than the ERISA minimum funding standards, nor more than the maximum amount which can be deducted for federal income tax purposes. Total expense for these plans, as well as a savings and investment (thrift) plan, was $39,873,000 in 1993, $20,282,000 in 1992 and $14,635,000 in 1991. The 1993 increase in plan expense resulted primarily from the offering of the early retirement program and plan changes. Included in the 1993 service cost is $16.5 million which was the result of the early retirement program. That 1993 expense has been included in restructuring costs (Note 9).
Significant assumptions used in determining the valuation of the projected benefit obligations as of the end of 1993, 1992 and 1991 were:
ITEM 9.



ITEM 9. Disagreements on Accounting and Financial Disclosure
Within the last two fiscal years there have been no changes in the Company's independent accounting firm or disagreements on accounting and financial statement disclosure matters.
PART III
ITEM 10.



ITEM 10. Directors and Executive Officers of the Registrant
(a) Directors
JOSEPH COORS (Age 76) is presently Vice Chairman of Adolph Coors Company and has served in such capacity since 1975. He has served as a Director since 1942. He retired from day-to-day operations in December 1987. He serves as chairman of the Compensation Committee and is a member of the Executive Committee and the Audit Committee. He is also a Director of CBC and ACXT.
PETER H. COORS (Age 47) has served as a Director of Adolph Coors Company since 1973. Prior to 1993, he served as Executive Vice President of Adolph Coors Company and Chairman of the Brewing Group. In December 1993, he was named interim treasurer. Also in 1993, he became Vice President and Secretary of Adolph Coors Company and was elected CEO and Vice Chairman of CBC. He is also a member of the Board of Directors of CBC. He serves as a member of the Debt Pricing Committee and the Executive Committee. In his career at Coors, he has served in a number of different positions, including Divisional President of Sales, Marketing and Administration and Secretary (1982-1985), Senior Vice President, Sales and Marketing (1978-1982), Vice President (1976- 1978), and Assistant Secretary and Assistant Treasurer (1974-1976).
WILLIAM K. COORS (Age 77) is Chairman of the Board and President of Adolph Coors Company and has served in such capacities since 1970 and 1989, respectively. He has served as a Director since 1940. He serves as Chairman of the Debt Pricing Committee and the Executive Committee. He is also a director and Chairman of the Board of CBC and ACXT.
J. BRUCE LLEWELLYN (Age 66) has served as a Director and member of the Audit Committee since 1989. In 1993, he was named chairman of the Audit Committee. As of 1993, he also serves on the Compensation Committee. He is a member of the Board of Directors of CBC. He is an attorney and involved in the management of several businesses in which he is an investor. He is presently the Chairman of the Board and Chief Executive Officer of Philadelphia Coca Cola Bottling, Inc., Queen City Broadcasting, Inc. and Garden State Cablevision, Inc. He is also a Director of Manufacturers Hanover Trust/Chemical Bank and QVC, Inc.
LUIS G. NOGALES (Age 50) is a Director and member of the Audit Committee and has served in such capacities since 1989. In 1993, he also became a member of the Compensation Committee. He is a member of the Board of Directors of CBC. He is Chairman and Chief Executive Officer of Embarcadero Media, Inc., a media (radio) acquisition company in Los Angeles. In the past he was president of Nogales Partners (1990 to present), a media acquisition firm, general partner of Nogales Castro Partners (1989-1990), President of Univision, the nation's largest Spanish language television network (1986- 1988) and Chairman and Chief Executive Officer of United Press International (1983-1986). From 1981-1983 he served as Senior Vice President of Fleishman- Hillard, Inc. He is also a Director of Southern California Edison Company and SCEcorp.
It is the Company's intent to name one additional independent director in 1994.
(b) Executive Officers
Of the above directors, Peter H. Coors and William K. Coors are executive officers of Adolph Coors Company and CBC. The following also were executive officers of the Company on March 18, 1994:
ALVIN C. BABB (Age 61) has served as Executive Vice President, Operations and Technology for CBC since 1983. Prior to becoming Executive Vice President of CBC, he served as Group Vice President of Brewery Operations (1982-1983), Senior Vice President of Brewery Operations (1981-1982) and Senior Vice President of Plant Operations (1978-1981). He has been with the company for more than 40 years. He is a member of the Master Brewing Association of America.
W. LEO KIELY, III (Age 47) became President and Chief Operating Officer of CBC as of March 1, 1993. Prior to joining Coors, he served as Division Vice President and then Central Division President of Frito-Lay, Inc., a subsidiary of PepsiCo, in Plano, Texas. From 1989-1991, he served as Senior Vice President of Field Operations, overseeing the operations of Frito-Lay's four regional business teams. From 1984-1989, he was the Vice President of Sales and Marketing for Frito-Lay.
ROBERT D. KLUGMAN (Age 46) was named Vice President of Corporate Development in July 1993. Prior to that, he was Vice President of Brand Marketing, a position he held from 1981-1987, and again from 1990-1993. From 1987-1990, he was Vice President of International Development and Marketing Services. Before joining Coors, Klugman was a Vice President of Client Services at Leo Burnett USA, a Chicago-based advertising agency.
M. CAROLINE TURNER (Age 44) was named Vice President and Assistant Secretary of ACC and Vice President, Chief Legal Officer and Assistant Secretary of CBC in 1993. In the past she served as Vice President, Legal (1991-December 1992) and Director, Legal (1986-February 1991) of ACC. Prior to joining the Company, she was a partner with the law firm of Holme Roberts & Owen (1983- 1986), an associate for Holme Roberts & Owen (1977-1982) and a clerk in the U.S. 10th Circuit Court of Appeals (1976-1977).
WILLIAM H. WEINTRAUB (Age 51) joined CBC as Vice President of Marketing in July 1993. Prior to joining Coors, he directed all marketing and advertising for Tropicana Products as Senior Vice President. From 1982-1991, Weintraub was with the Kellogg Company, with responsibility for marketing and sales. He also held a number of positions at Procter and Gamble from 1967-1982.
The Company is actively searching for a new Chief Financial Officer.
ACC and CBC employ a number of other officers who are not considered executive officers of the Registrant as defined under SEC regulations.
Terms for all officers and directors are for a period of one year, except that vacancies may be filled and additional officers elected at any regular or special meeting. Directors are elected at the Annual Shareholders' Meeting held on the Thursday of the second full week of May. There are no arrangements or understandings between any officer or director pursuant to which any officer or director was elected as such.
(d) Family Relationships
William K. Coors and Joseph Coors are brothers. Peter H. Coors is a son of Joseph Coors.
(e) Section 16 Disclosures
All filing and disclosure requirements were met in 1993.
ITEM 11.

ITEM 11. Executive Compensation
*Assumes that the value of the investment in Coors Common Stock and each index was $100 on December 25, 1988, and that all dividends were reinvested.
**Results are adjusted for the December 1992 spin-off of ACXT.
Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors has furnished the following report on executive compensation for Adolph Coors Company. This report presents Adolph Coors Company's compensation philosophy for fiscal year 1993.
Overview of Compensation Strategy for Executives
Under the supervision of the three-member 1993 Compensation Committee of the Board of Directors, the Company continued to support the compensation policies, plans and programs developed in 1992, which sought to enhance the profitability of the Company by linking financial incentives of senior management with the Company's financial performance. The Compensation Committee of the Board recognized that 1993 was a year of transition with major changes occurring in management and in the company. New compensation policies, plans and programs will be developed in 1994.
In furtherance of the profitability goal, annual base salaries were set at median levels found in the external market so that the Company relied to a large degree on annual incentive compensation to reward corporate officers for superior corporate and business unit performance. Annual incentive compensation strategies were variable and closely tied to corporate performance in a manner designed to encourage a continuing focus on improved profitability.
The Compensation Committee also endorsed the position that stock ownership by management was beneficial in aligning management interest with shareholders to enhance shareholder value. Consequently, the compensation strategy provided incentives for management to increase equity participation in the Company.
The Compensation Committee's compensation strategy for the CEO and other executive officers consisted of:
* targeting base salary to the 50th percentile of relevant, broadly- defined external markets;
* providing an annual cash incentive award targeted to the 75th percentile of the same external markets;
* the equity portion of the long-term incentive award provided ownership opportunities through the Non-Qualified Equity Incentive Plan.
Relationship of Performance to Specific Elements of the Compensation Strategy
Following are brief descriptions which outline details and performance measures of each component of the 1993 executive compensation strategy.
Base salary
The Company used compensation survey data to determine salaries competitive at the 50th percentile for like positions in similar sized manufacturing companies. Company size was determined by total net sales since a correlation exists between salary amounts and total sales.
Salary ranges were established for executives by using the 50th percentile market data as the mid-point and surrounding it with a 50% spread between minimum and maximum. Where the executive was paid within that range was determined by individual performance and the company's ability to pay. The salary range could be viewed as a continuum based on experience and performance:
* Newly-hired or -promoted executives who have little performance history in the position were normally paid below the mid-point.
* Consistent with Coors' compensation strategy, the market 50th percentile was the targeted salary for executives who are fully experienced and fully contributing in the position.
* Base salary above the 50th percentile was used to recognize contributions beyond those normally associated with the position.
Annual Cash Incentive Award
In 1993, executive officers of Adolph Coors Company who are also executive officers of Coors Brewing Company (CBC), and executive officers of CBC had an opportunity to earn an annual bonus through the Coors Brewing Company employee-wide, profit sharing plan. Annual pre-tax profit targets as approved by the Compensation Committee were met, payouts to all employees were based on an equal percentage of their 1993 eligible earnings.
In 1993, the executive officers of CBC also had an opportunity to earn an annual bonus through the Management Incentive Program. The annual pre-tax profit and payout percentage was stated with an acceptable performance range starting from threshold to a maximum as approved by the Compensation Committee. The approved annual pre-tax profit targets were met, and payouts to all eligible employees were based on a percentage of their 1993 base salary.
In 1993, the Chief Operating Officer and Vice President of Marketing, as part of their employment contracts, earned a cash incentive award based on a percentage of their 1993 base salary.
In 1993, the Company undertook several strategic initiatives -- including a voluntary separation package -- to better position the Company for profitable growth. This resulted in some significant asset write-downs and other restructuring expenses. The Company recognized the impact of these charges on earnings and approved the payout at the minimum profit level for the profit sharing plan.
Long-term Incentive Awards
In addition to receiving base salary and being eligible for annual cash incentive awards, executive officers of CBC were also provided an opportunity to earn a total long-term award targeted to the 75th percentile level of comparably sized companies paying long-term awards. This opportunity was provided by means of the Non-Qualified Equity Incentive Plan (NQEI) through grants of ACC restricted stock and non-qualified stock options.
The NQEI plan was administered by the Compensation Committee. That committee was composed entirely of non-employee, independent directors. The NQEI plan provided for two types of grants for key management employees: restricted stock awards and stock options. Both types of grants were subject to certain holding periods and other restrictions to encourage long-term ownership. The NQEI plan provided that options be granted at exercise prices equal to the market value on the date the option was granted.
CEO Compensation for 1993
The CEO's 1993 compensation did not reflect any of the incentive elements of the Company's compensation strategy. While fully supportive of the executive compensation strategy and fully committed to the Company goal of improved profitability, CEO William K. Coors has elected not to participate in the incentive program. It is Mr. Coors' belief that his compensation, although quite low relative to market and industry standards, is adequate to support his needs and that, given his strong commitment to corporate goals and objectives, financial incentives would not enhance his motivation to achieve superior performance. Consequently, the base annual salary of the CEO has been set at the current level for 11 years.
Joseph Coors, Chairman J. Bruce Llewellyn Luis G. Nogales
Compensation Committee Interlocks and Insider Participation
Joseph Coors, J. Bruce Llewellyn and Luis G. Nogales served on the Compensation Committee during the past fiscal year. Joseph Coors, Chairman of the Compensation Committee, retired as the President and Chief Operating Officer of the Company in December 1987.
Joseph Coors owns a Coors beer distributorship in Cincinnati, Ohio. During 1993, this distributor purchased 71,035 barrels of beer from CBC at the same pricing available to independent distributors.
Joseph Coors is a director of both ACC and ACXT. He, along with William K. Coors, a Director of both ACC and ACXT, and Peter H. Coors, Director and an executive officer of ACC, and Jeffrey H. Coors and Joseph Coors, Jr., both directors and executive officers of ACXT, are trustees of several family trusts that collectively own a majority of the common stock of ACC and ACXT, or their subsidiaries, have certain business relationships and have engaged in certain transactions with one another, as described below. Such relationships and transactions are not, individually or in the aggregate, material to the Company.
In connection with the spin-off of ACXT in December 1992, CBC entered into market-based, long-term supply contracts with certain ACXT subsidiaries to provide packaging, aluminum and starch products to CBC. In addition, CBC sells brewery by-products to an ACXT subsidiary and sells aluminum scrap from CBC's can making operations to another ACXT subsidiary. The sales under these supply contracts are a material source of revenue for ACXT and provide CBC a stable source for a significant portion of its raw materials and packaging materials.
Also in connection with the spin-off, ACC and ACXT and their subsidiaries negotiated several other agreements, including employee matters, environmental management, tax sharing, trademark licensing and numerous one- year transitional agreements for various services and materials. A few service agreements between ACC and ACXT subsidiaries that extend beyond the now expired transitional period include agreements under which Coors Energy supplies natural gas to certain Colorado facilities of ACXT and an agreement by CBC to provide water and waste water treatment services for an ACXT ceramics facility. A joint defense agreement that commenced at the time of the spin-off is in effect with respect to the TransRim litigation described in Item 3, Legal Proceedings. A description of the foregoing agreements was included in the Company's report on Form 8-K dated December 27, 1992, in Exhibit B, "Information Statement dated December 9, 1992, mailed by the Company to its shareholders."
CBC is a limited partner in a limited partnership formed in connection with the spin-off, with an ACXT subsidiary as general partner. The partnership owns, develops, operates and sells certain real estate previously owned directly by CBC or ACC. Each partner is obligated to make additional cash contributions of up to $500,000 upon call of the general partner. Distributions of $500,000 were made to both partners in 1993. Distributions are allocated equally between the partners until CBC recovers its investment, and thereafter 80% to the general partner and 20% to CBC.
In 1993, CBC sold certain laboratory facilities and technology to an ACXT subsidiary for approximately $350,000, the estimated fair value of the assets. In addition, certain subsidiaries of ACC and ACXT are parties to miscellaneous market-based transactions. For instance, CBC buys ceramic can tooling from an ACXT subsidiary to test on CBC can lines, CBC serves as aggregator for long distance telephone services for itself and certain ACXT companies, CBC leases office space to the limited partnership mentioned above and the partnership separately provides real estate management and administrative services to CBC.
ITEM 12.

ITEM 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners
The following table sets forth stock ownership of persons holding in excess of five percent of any class of voting securities, as of March 18, 1994:
(a) Primarily from settlement of an Internal Revenue Service audit. (b) Restated for discontinued operations.
* Represents a management contract.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter ended December 26, 1993.
(c) Other Exhibits
No exhibits in addition to those previously filed and listed in Item 14