Molson Coors Beverage Co (TAP) 2001 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Adolph Coors Company (Company: Adolph Coors Company; Ticker: RKY; URL: http://www.coors.com/) 2001 yearend conference call.

At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Mr. Leo Kiely, President and CEO of Coors Brewing Company.

Mr. Kiely, you may begin.

Hello and welcome, everybody, and thanks for joining us today.

With me on the call today are Pete Coors; Tim Wolf; Peter Kendall, the CEO of our new U.K. business in Europe; Rob Klugman, our Senior V.P. Corporate Development and Chief International Officer; David Barnes, Treasurer; Ron , Controller; and Dave Dunnewald, Investor Relations Director.

Just so you know, Pete Coors, Peter Kendall, Rob Klugman and I are in London and the rest of the gang are back in Golden.

Let me start by saying, that we just closed the acquisition of Carling Brewers from Interview -- from Interbrew and our finance team still has a lot of work to do, before we can share most of the detailed number related to this business.

As a result, our remarks today, will focus almost entirely on the 2001 results for Coors as it existed before the acquisition. Our accounting people from both businesses are working diligently to finalize the pro forma numbers for the U.K. business, including the conversion of those results to U.S. GAAP.

We plan to offer more specifics and the outlook for the U.K. business on Wednesday, February 27th at our annual investor/analyst meeting in New York. We hope you can join us on the 27th. The meeting will be Webcast for those of you who won't be able to attend and please contact our Investor Relations team for details or any questions.

One recent development that I am pleased is, the management structure of our U.K. and other international businesses. As I mentioned a minute ago, Peter is now responsible for our U.K. and other European business, including our current Coors Light initiatives in Ireland and Scotland.

All six of the direct reports to the CEO of Carling Brewers have said they will stay with us to drive the U.K. business forward. And by the way, on the recommendation of our U.K. team, we will change the name of the U.K. business to Coors Brewers Limited, in the next couple of months.

With Peter focusing on the U.K., Rob has assumed the responsibility for the rest of our international efforts, in addition to his corporate development accountabilities.

On the call today Tim and I cover three subjects with you and then be happy to take questions. First, an overview of Coors Brewing Company's performance in 2001; second, a detailed review of our fourth quarter 2001 financial results; and finally, some perspective on 2002 for the Coors Brewing Company.

By our standards, 2001 was a tough year that presented some disappointments but also some important successes.

On the downside, our volume declined slightly and full-year profitability came in short of our objectives. But in many important respects our business remains strong. Meanwhile, the price environment -- pricing environment remains favorable while cost trends started to improve significantly, in some key areas. The combination of these cost and pricing trends, resulted in profit growth despite weak volume.

Now, let's take a look at some of the specific highlights for Coors in 2001.

Domestic sales to retail began to show positive traction in the fourth quarter, averaging two percent growth and accelerating in November and December. This renewed growth was led by Coors Light with sales to retail up mid single digits for the quarter.

We maintained strong levels of investment behind our brands which remain healthy, despite competition from new brands and higher ad spending from some of our competitors in 2001. We started to see positive results in reducing our operations cost, particularly in distribution and areas related to our supply chain.

We achieved double-digit volume and income growth from our Canadian Coors Light business. We grew profits in a tough year despite significant market challenges and cost pressures. We set up a joint venture with Ball Container in the U.S. to supply us with cans and ends and we enhance our focus on the core business, by selling three company owned distributorships and outsourcing our information technology infrastructure.

We took a huge step towards making our business stronger and more competitive, by signing an agreement to purchase Carling Brewers from Interbrew. This deal increased our total beer volume by 40 percent and earnings before interest and taxes by more than 60 percent.

In terms of specific financial results, early today we reported unit volume of 22.7 million barrels for the 52-week fiscal 2001, down 1.2 percent from 23 million barrels in the 53-week fiscal 2000. Excluding the extra week in our fiscal 2000, volume for 2001 was down 0.1 percent and sales to retail were down approximately 0.5 percent. The extra week in 2000 boosted volume and sales modestly, but had very little impact on profitability because margins are seasonally very thin near the end of the year.

Back to our 2001 results, net sales were up 0.6 percent and net revenue per barrel increased 1.9 percent because of higher front-line pricing and less price discounting, partially offset by mix shift away fromhigher priced brands and geography.

Cost of goods per barrel increased about two percent or 2.3 percent, as Tim will tell you, when you exclude the impact of selling our company-owned distributorships. Cost-of-goods trends, were driven primarily by higher labor, packaging material, and energy costs, particularly in the first half of the year.

Marketing, general administration expenses were up 0.4 percent per barrel in 2001. As a result, operating income grew 5.1 percent and after tax incrum -- increased 5.5 percent from 2000. Diluted earnings per share for 2001 were $3.21, up 6.3 percent from a year ago.

Overall, while we're not pleased with these results, we are encouraged that we succeeded in growing profits in a tough industry and tough economic environment.

We are highly focused on continuing to build momentum in our sales trends and accelerating our efforts to manage costs. Our progress during the fourth quarter gives us some optimism as we head into the new year.

At this point I'm going to turn it over to Tim to review the fourth quarter financial highlights and to take a look ahead to 2002.

Timothy.

Thanks, Leo, and hello everybody.

In the fourth quarter just ended, we reported costs related to the restructuring of a handful of areas in the company, mainly in operations, which were partially offset by gains of the sale of our brewery in Spain and the sale of our company-owned distributorship in San Bernadino, California, early in the fourth quarter.

So let me start with the fourth quarter P&L, starting, as we always do, with volume.

Unit volume in the 13-week fourth quarter of 2001 was down 4.8 percent, when compared with the 14-week fourth quarter of 2000. For a more clear comparison, without that extra week a year ago, volume for the fourth quarter of 2001 was up 3.3 percent and sales to retail were up six-tenths of one percent.

The spread between these results, is primarily due to our distributors start in the fourth quarter of 2001 a bit light on inventory both domestically and internationally, along with starting the third quarter a year earlier a little high on inventories.

Our distributors ended both years with inventories at normal seasonal levels. Our domestic business achieved 4.5 percent growth in sales through wholesalers and 2.0 percent growth in sales to retail, using calendar-adjusted time periods. This increase was driven by Coors Light which grew at mid single-digit rate at retail in the quarter, as did the Keystone Light.

As Leo mentioned, our sales trends were much stronger in November and December than in October. Among other brands, soft sales trends for Killian's and Zima continued in the fourth quarter, while original Coors firmed somewhat, but was still down slightly in the quarter.

Net sales per barrel were up eight-tenths of one percent in the fourth quarter. More important, if you back out the impact of the sale of company-owned distributorships net sales per barrel would have been up approximately three percent driven by a little over two percent of domestic pricing and by modestly lower price promotion expense versus a year ago.

Domestic international sales mix with small offsets of positive pricing in the quarter. Cost of goods per barrel decreased nine-tenths of one percent in the fourth quarter. If you back out the sale of distributorships, cost of goods per barrel would have been up about 2.0 percent primarily due to higher labor costs.

Packaging and raw material costs were essentially flat per barrel, during the fourth quarter. And although unit cost in the fourth quarter continued to increase, our operations team made significant progress toward reversing this multi-year trend.

Specifically, we've begun to see the impact of reduced distribution cost for our supply-chain initiatives, along with a slowing in the shift toward more expensive packages primarily long-neck bottles.

Our gross margin was 35.7 percent in the fourth quarter, up 127 basis points from a year earlier. Marketing general administrative expense in the fourth quarter decreased 5.9 percent, which is driven entirely by three roughly equal factors: first, the sale of company-owned distributorships; second, lower overhead expense mostly related to having 13 weeks in the quarter versus 14 weeks a year ago.

Our sales and marketing spending per barrel, what we often refer to as pressure against the marketplace, was actually up modestly in the fourth quarter. And third, lower reported volume related to the extra week in 2000, which resulted in less marketing expense being booked in the fourth quarter of 2001.

Earnings before interest and taxes was $26.7 million, up 37.0 percent from the $19.5 million achieved a year earlier, again, excluding special charges and gains. Net interest income in the fourth quarter was $2.8 million lower than a year ago because of lower interest rates and cash balances than prior year, partially offset by higher capitalized interest from our higher capital spending.

At the end of 2001, cash and marketable securities totaled approximately $310 million while long-term debt, including the current portion, remained at $105 million. Obviously, the acquisition of the U.K. business has done a nice job of dramatically altering those numbers.

Our tax rate was 37.9 percent in the fourth quarter, down slightly from 38.0 percent a year ago, while fourth quarter average weighted shares outstanding decreased by nearly 1.4 million shares because of the significant repurchases we made in the second half of 2001, particularly late in the third quarter after September 11th.

Excluding the special charges and gains I mentioned earlier, we achieved EBITDA of $57.8 million in the fourth quarter, up 9.5 percent of $52.8 million, a year ago. After-tax income reached $17.9 million in the fourth quarter, up 18.1 percent from $15.2 million a year ago.

Diluted earnings per share equaled 49 cents which was up 22.5 percent from the 40 cents achieved a year ago. Including special charges and gains, our reported net income was $15.9 million or 44 cents per diluted share, up 37.5 percent from 32 cents a year ago.

Now a brief look ahead to 2002, and as usual, to paraphrase our Safe Harbor language, some of what we'll cover now and in the Q&A could constitute forward-looking statements. Our actual results could differ materially from what we project today, so please refer to our most recent 10-K and 10-Q for a more complete description of factors that could effect our projections.

To see how 2002 will shape up for the base Coors Brewing Company business, we're focusing on three primary areas. And again we'll -- as Leo mentioned, we'll give you more perspective on our U.K. businesses at the end of this month.

First volume, we're pleased to be entering 2002 with renewed volume momentum and we're consciously optimistic for our volume outlook for the year. We have an exciting lineup of new advertising that begins to air in the first quarter and we'll be happy to share our new direction with you at our meeting in New York, in three weeks.

Second, pricing and sales of distributorships, domestic front-line pricing last year was up consistently in the range of two percent year-over-year with reductions in price promotions and negative sales mix factors roughly offsetting each other. Early in 2002, the pricing environment continues to look positive. As always, we will closely monitor to the level of promotional discounting and the degree of value pack activity.

Also importantly, the revenue per barrel impact of the sales of distributorships that we saw in the fourth quarter, roughly a reduction of about 250 basis points, is likely continue for the next three quarters with slight easing in the third quarter of this year.

Third, cost of goods, the current outlook for cost of goods is more encouraging than what we've seen in the past few years. Following are a few cost factors that we think will be most important in 2002.

First, let's start with operating efficiencies. Our operations teams have been -- begun to get traction in a number of area, particularly with distribution costs and related supply-chain work. Some of these savings are starting to be reflected in our results, especially in the fourth quarter of 2001.

We have been focusing on adding productive capacity during the last two years as you know, culminating with the startup of the new bottle line in our Virginia facility this spring. Now we will focus on utilizing this capacity we have in the very most efficient way possible.

Second, input costs including packaging materials, agricultural commodities, and fuel. At this point the outlook is for roughly flat can costs assuming aluminum ingot prices stay near their current levels. We anticipate modestly higher glass bottle costs with paper packaging rate and agricultural commodity costs being roughly, essentially, flat in 2002.

Fuel costs are always difficult to forecast but the outlook at this point is about even with a year ago. Changes in oil and natural gas prices could alter this outlook.

Third, mix shifts will also effect our costs, but probably less so than in the past few years. Aside from changes in raw material rates, we plan to spend more on glass in 2002 because of the continuing shift in our package mix to long-neck bottles, which, as you know, cost more and are less profitable than most of our other packaging configurations.

We anticipate increasing long-neck, non-receivable -- non-returnable bottles to about the mid 80 percent range of our bottle mix this year. This represents a significant slowdown in this mix shift toward LLNRs, as we complete the phase out of the shorter convenience bottles.

Fourth, we anticipate that the sales of Coors-owned distributorships in 2001 will be a significant factor effecting cost per barrel for Coors Brewing Company reported results in 2002. The fourth quarter impact of about 300 basis points, probably offers the best template for the first three quarters of 2002 with this factor, essentially normalizing by early in the fourth quarter of this year.

Bringing together all these factors, but excluding the impact of selling distributorships, we plan to continue to make progress in reducing costs in key areas of our company in 2002. Overall, we see substantial additional potential and have much more work to do in the months and years ahead, to reduce our costs of doing business to competitive levels.

Now turning briefly to Coors Brewers Limited, our new U.K. business, I just want to reiterate the following expectations, realizing that we'll go into detail -- more detail at the end of the month.

First, we anticipate that this acquisition will be single-digit percent accretive to cash earnings per share in 2002. After 2002, we see potential for double-digit percent accretion to our cash earnings per share. And please do keep in mind, that these figures are preliminary and subject to change as we complete our accounting work for the pro forma financials.

The book -- the impact on book earnings per share depends on purchase price allocation and other accounting questions. We'll have more details and metrics at our February 27th analyst meeting in New York and in SEC filings in three months ahead.

With this significant acquisition and the debt that comes with it, we will be keenly focused in 2002 on cash generation and debt reduction. Per our long-standing plans, we will reduce capital spending sharply from 2001 levels, for at least five years.

For 2002, in our U.S. business or our America's business, we currently anticipate a cap ex range of about $135 to $145 million consistent with the sort of range we've shared with you the last couple of quarters.

We'll also suspend our share repurchases until debt levels are reduced. Additionally, we will accelerate work focused on monetizing non-Coor asset and reducing costs throughout the company. These aggressive strategies are directed toward reducing our debt-to-total-capitalization ratio to less than 45 percent in just a few years.

To give you an ideas of the cash generating potential of our U.S. business alone, in a tough 2001, we still generated about $240 million of cash flow from operations and about $300 million of EBITDA. As I'm sure you know, it's also important to note, in 2001, we spent about $237 million in cash on business initiatives, that we'll not have in 2002, specifically these include about $100 million of capacity spending for capacity work; about $72 million of stock buyback; and $65 million for our important investment in the Molson U.S.A. partnership.

This will give us, we believe, a big head start, toward achieving our debt pay down and capital structure goals in the years ahead.

Now let me turn it back to Leo to wrap us up.

Thanks, Tim.

Now to summarize our discussion, 2001 was a challenging year for Coors. Nonetheless, we made some substantial progress on a number of fronts and particularly in the second half of the year. As we move into 2002, we're focused on continuing to build sales and profit momentum in both our North American and U.K. businesses while we accelerate cash generation and debt reduction.

Although we just completed a challenging year we came out of 2001 a better team and company, offering a solid basis for optimism for the years ahead. As such, we continue to be focused on growing our business ahead of the market, reducing our cost per barrel across the company, generating a solid return for our shareholders, and building the best team in the business.

At this point, , I think we're ready for questions.

Thank you, Mr. Kiely.

At this time, if you have a question please press the one key on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Again, if you have a question please press the one key on your touch-tone telephone.

One moment for questions.

Our first question is from Jeff Kanter of Prudential Financial (Company: Prudential Financial; Ticker: PRU; URL: http://www.prudential.com/).

Jeff.

Good afternoon, everybody.

Hey, Jeff.

Question for you, the STR's up 0.6 percent on an adjusted basis.

Was that -- was that surprising to you and can you -- can you talk a little bit about what your expectations are as we go into 2002, for both -- for both shipments and STR's. And marketing per barrel, you know, everybody's coming out with a flavored alcoholic beverage, you know, how do you -- how do you -- how do you -- how do you expect to keep, you know, the focus on Coors Light, with a lot of noise in the marketplace.

Yes, Jeff, thank you, this is Leo.

And, Tim, you may want to comment on the ...

Yes.

... shipments numbers, right?

You know, we're not -- we're not in the forecasting business, Jeff. You know, I wish I had a crystal ball. We're pleased to see some momentum back in the business and we think that the fourth quarter's a pretty reasonable shot at the kind of momentum we're going into this year in, as we said in the release.

It's still a very tender market. It's bouncing around week to week and so, you know, cautious optimism is where we are. We also have quite a bit of new marketing work, that we haven't hit the market yet with. So balance is sort of a controlled optimism here.

Regarding focus on Coors Light, we'll give you a little better sense of that, as we talk to you later in the month because we'll show you our plans and, you know, talk about our spending focus. Suffice to say, we are very aware of the need to have growth momentum on Coors Light. That is Job One for us.

Obviously, we have other brands that we need to address and we'll talk about that whole portfolio, when we see you in New York.

Tim, any perspective on the sales trends?

Yes. I -- Jeff, thanks for your question.

I think, as you know, we're -- the reason why, you know, while we're optimistic we are cautiously so is I think you know we're cycling some year-over-year numbers. And, you know, while -- as we mention our comments, we're encouraged by the progress we've made the first month or so.

You know, we're, you know, we're looking at year-over-year comparisons for the first quarter that are pretty easy. So we've got to get a little more time under our belt. We want to see how the marketing program that Ron going to be sharing with you in a little bit of detail, takes hold.

So that -- to Leo's point, we're focusing on Coors Light. But we're encouraged but we've got to be really, really guarded in our optimism because of, you know, the FAB -- the FAB factor that you mentioned and the fact that we're cycling some pretty easy numbers.

And pricing outlook for this year? It sounds like it's this two-percent type range?

Correct.

Thank you.

Yes, Jeff, one final thought.

I think the -- regarding this clutter and focus, the good news is, that as we look at Coors Light, particularly the Miller Coors has, is that typically do have a FAB product, mostly Ice continued to outpace the rest of our wholesale system in 2001 and particularly in the fourth quarter.

That's an encourage to us, so there's just some balance there.

Thank you very much.

Our next question is from Dave Swartzberg of ABN Amro (Company: ABN Amro Holding N.V.; Ticker: ABN; URL: http://www.abnamro.com/).

Haven't hard my middle name in a little while. Mark Swartzberg, how are you all doing?

Hello, Mark.

Just divine, you know.

Exactly. Please tell me if this pushes until the 27th, but I had a question for Peter on this speculation out there on combination of distribution between Interbrew and Carlsberg in the U.K. Really two questions if you're fielding them.

Number one, you know, any sense of probability behind that? And number two, if we simplify and just say it's happening, how do you think it effect your business? Is it significant, and if so, in what way? That would be helpful, I think.

Yes, Mark, let me -- let me just take that quickly and say, that we're not going to speculate on it. It appears over here in the chat to be in the rumor category. We'd just be adding to rumors. And in any case, it's not the end of the world over here.

I mean, there's going to be more combination and distribution over here. We're looking at it aggressively, other people are. This is just a natural evolution of what's going on in the beer business over here. We, you know, we'll try and bring you the latest stuff on that when we see you later in the month and I appreciate you being patient about it.

Thanks, Leo.

Our next question is from Gregory Badishkanian of Salomon Smith Barney.

Hi. Good afternoon, Greg Badishkanian here. Just a few quick -- real quick questions.

First, what are -- what is your capacity utilization with the added capacity that you've added on?

Why don't you give us all the questions and we'll hand them out here, Greg?

Oh, sure, that's one.

Secondly is, just in terms of the new -- the new products coming out, you know, what do -- do you think that the pressure is going to increase, you know, over the next few quarters, particularly, with Bud?

You know, that marketing's going to probably go up a bit, but could you talk a little bit about that and how that's going to impact your particular products? And, you know, that's it.

You've got it.

Tim, you want to comment on the capacity utilization?

Yes.

Greg, the capacity projects packaging, brewing, as well as some projects we're doing, as we speak on our -- on our distribution system -- and again, there are different types of capacity -- I think take us down to a much more healthy low 80's sort of capacity utilization, realizing that at peak capacity when we hit April-May-June-July, you know, we, like our competitors, move up to the -- into the 90's range.

But, much, much healthier place for us than, you know, 12, 15, 18 months ago, when we were really creating over a 100 percent, as you'll recall, spending lots of money chasing volume, not having profit flow-through.

So we think on average, realizing that that's a -- that term is fraught with delicacy in our business. And on average we're in a much, much healthier low 80's-high 70's capacity utilization, sort of range.

Greg, I'm going to ask Rob Klugman to give some perspective on . Rob's on point on that for Coors, so why don't you take it, Rob.

Greg, I don't think anybody really knows, you know, whether the introduction of some additional exactly, you know, is that going to just fragment or is it going to significantly grow.

And, you know, as a matter of fact, right now, there's some -- all sorts of different rumblings about, you know, some potential problems in -- for . Be that as it may, we decided that for this summer season our concentration's going to be on Coors Light.

We're real, real happy with where we are with Coors Light and we're just going to be fine with that. We need to defend our Zima brand and we'll be doing that as well.

Great, thank you very much.

Thank you.

Our next question is from Skip Carpenter of Thomas Weisel & Partners.

Yes, good afternoon, guys.

Hey, Skip.

Tim, I was wondering -- first question for you.

Not that I need to tell you this, but if you look obviously at that COGs per barrel and how that's been tracking the last two years your revenue per barrel, do you think that as you've gone into looking at your U.S. business, this will be the first year since kind of in the last couple years, that you're going to start finally seeing net revenue tracing north of your cost of goods per barrel ...

Right.

... given some of the initiatives that you outlined?

You know, I love Leo's term, we don't have a crystal ball.

But I -- that's exactly the relationship that we're targeting. And our want, as I think you know, is to, you know, plan conservatively and try to over deliver. You know, the -- if we're looking at pricing in the two-percent-plus range -- obviously, that wouldn't be on all our volume, with a scocsh-off because of mix, you know, our objective is to be increasing COG's per barrel, at a slower rate than that.

And I think if you look at the plan that we've got in the pipeline -- the distribution projects or supply-chain projects, how we're operating our lines, this is the year we're going to go after exactly the relationship you're describing. That's our objective.

And I guess I'd suggest, that we get a quarter or two under our belt, before we really show what we've achieved before, you know, giving you specifics on what that looks like. I'd rather have the results speak for themselves.

But, what you describe is exactly what we're going after.

OK. And I guess, not to constantly be beating on this, but again turning back to these flavored alcoholic beverages, what, in your guys' opinion, differentiates this new product emergence on the beer market versus what we have seen whether that was like the wine coolers, or particularly I would say, the crack in specialties such as -- or even the ice and the red beers.

How do you guys view this new product wave that is either different from those prior product waves?

Well, let me have Rob hit that for you, skip.

You know, I -- we've seen in our industry, you know, a lot of really short-lived phenomena and you've spelled some of them out.

In this particular case, you've got, you know, some very strong or reasonably strong brand names playing and that may or may not cause a difference. We'll find out.

OK, thank you.

Our next question is from Andrew Conway or Credit Suisse First Boston (Company: Credit Suisse Group; Ticker: CSGKY; URL: http://www.credit-suisse.com/).

Hey, Andrew.

Morning. Hey, Tim. Morning, gentlemen.

Couple of questions, I know, for Leo and Rob.

I know, Leo, you talked about a little bit about the tender market. I know it's -- the economy is very challenging. But if you could, as a timeline anecdotally talk a little bit about, as you communicate with your wholesales in that September-October-November-December and January period, how you would describe the beer consumer in the U.S. Just some take-aways.

And, Tim, is it fair to say, as we look at your U.S. business this year, that marketing per barrel could grow faster than gross profit per barrel? In other words, your lower distribution expenses and the mix effect of your sales of distributors, will allow you to put more pressure against the core brand?

Andrew, on the volume, you know, it's a funny one because so much of this has to do with year-to-year overlap. As you'll recall ...

Sure.

... you know, we had an exceptional volume year in the year 2002. Obviously, a disappoint year in the year 2001. And, you know, it's -- there's a lot of way to sort of spin that and have perspective on it in retrospect.

The fact is, we held on to the share gains we got in 2000. And we actually, you know, built a little bit in volume coming out of the year.

Our volume trends turned around, as the overlap picture changed, almost to the date on the calendar. Things slowed down in November of 2000 and they started to perk back up again in November of 2001. And, you know, the industry kind of parallels that, as well.

So I think in some sense, we may be coming out from under that sort of overhang.

Sure.

And maybe things are firming up underneath us. But, I've got to tell you, it's hard to identify a trend difference in our beer drinkers, you know.

The other factor is, that market by market this is all over the place. And we tend to get impacted that -- you know, by that disproportionately. Biggest recovery we saw was in the Northeast and Southeast. Now, the Northeast didn't have a terrible year, but it came back right on schedule at the end of the year.

The Southwest -- excuse me, Northeast and Southwest. The Southwest had a terrible year overlapping and then started to firm up and really started to show some more favorable trends. That's particularly Texas Southwest. California, continues to be week on, week off.

So when I say it's tender, it's just because, you know, we don't want to be premature calling a trend to set in. But I think some of the logic would say, that, you know, maybe 2000 wasn't sustainable, 2001 the volume may not be as bad as it appeared -- I'm talking industry-wise. And maybe we're back to a more normalized industry trend. That's certainly what we'd hope.

Did I totally confuse you?

No, you didn't. That was great.

You got it.

Tim?

Yes.

Hey, Andrew. Thank you for your question because I think it's a really important one, especially in light of, you know, how sales curve accounting works and how a lot of folks have looked at us through a good portion of 2001.

Right.

You know, nothing could be further from the truth, that we have pulled back on our support of our brands and our markets, on the contrary.

I mean, I think for those of us -- for those of you who followed us, you know that our bias has been and it will always be, to take cost out of our business, over overheads, our cost of doing business, and invest dis-proportionally in the front end of our business.

When our ideas aren't as sharp, when our promotion efforts aren't as clear and impactful, are we going to pull back a little bit and keep our powder dry, you bet you. And there was a tad of that. But, if you look at the overall spending for 2001, certainly on a per-barrel basis, it was in fact up over 2000 -- full year 2000.

And to your question, our objective in 2002 is, to invest more and more in the front end and challenge -- Carl Barnhill runs our sales organization, Ron runs marketing -- to give us all the great ideas in the world to go after and fund even more.

And, you know, I don't think Leo and I could stand here today and say the percentage -- for every incremental dollar of margin we're going to invest 70 percent in the market and have 30 percent flow through. But, that's the sort of -- maybe it's 80/20, maybe it's 90/10, maybe it's 60/40, depending on the quality of the idea and the pace at which we're improving.

But, that is definitely, definitely our mindset today. It has been of late and I think it will continue to be.

So it's fair to say, Tim, that marketing -- you've got the flexibility with cost that marketing per barrel, could in fact exceed your gross profit growth per barrel and still achieve your internal growth results.

Absolutely. Absolutely. The math works just fine.

Thank you very much.

Yes, that's our place on the power curve, Andrew, as you know. And the only thing I'd add to that is, that what Tim describes for 2001 is even more pointed, when you look at Coors Light.

Once we had some we were more confident in the fourth quarter we actually increased the Coors Light burn. And, hey, we have to have that kind of flexibility.

That's -- you know, this is a big, big line in our P&L. We'll go into this, this year positioned to increase our ad support marginally going in, but if we get ahead of our plans, as Tim said, and we've got ideas we think are bankable, we'll be leaning forward and that's what we did really in the previous three years as you know.

Yes. Thank you.

Thanks, Andrew.

Our next question is from Sandy Soames of Cazenove.

Yes, hi, hello.

I just wondered if you could give some information on the outlook for state taxes? There's been some speculation, that with the weak U.S. economy the state taxes on alcohol will have to go up. Do you think that's possible?

Sandy, these things don't move very fast. We don't see any unusual pressure in this direction. There's always some noise, but, in fact, the noise has been cut -- you know, almost unusually balanced over the last two or three years, with as many states with initiatives for taking taxes down as taking up.

So, you know, if a trend builds there, we'll take a look at look at it and let you know, but we don't see it as anything looming on the horizon right now.

Good, thank you.

Could I also just ask about, you know, whether you have been in negotiations with either or Allied Domecq to take on their RTD spirit brands? I mean, it seems somewhat surprising that, you know, both of those two companies are running with Miller.

I'm not going to speculate on anything specifically.

We've talked to lots and lots of people about this category and, frankly, we continue to review our options. Right now, I think the way Rob characterizes is just right. We're focused on regenerating Coors Light momentum and we've got a Zima brand that's still a very big brand in this category, that we'll share some plans on, as we get into the year.

Thank you.

Thank you.

Our next question is from John Faucher of J.P. Morgan (Company: J.P. Morgan Chase & Co. ; Ticker: JPM ; URL: http://www.chase.com/).

Hey, John.

Good morning, guys.

Wanted to ask you a question on Molson.

As we look sort of a year later at this joint venture you guys have, when you talk about some of the plusses and the minuses and where you stand relative to where you expected to be?

And then, can you give us a little bit of guidance going forward in terms of how much of a growth engine can Molson be for your portfolio?

Tim, you might think about how to, you know, position the relative volume opportunity here.

But, John, just in terms of, you know, where we sit today, you know, interestingly what -- I can't say we're surprised where we are. We're disappointed because we had hoped for some more upside. But, we were pretty realistic in terms of the state of the business we were picking up.

You know, mid year it was pretty frustrating because when we picked it up at the start of the year, there just weren't any plans in place. So it took us most of the first half just to get tactical plans in place. I've got to tell you, over the back half and particularly late in the third quarter, from a -- from a marketing and sales point of view, the tea really started to gel. And, as we hit the fourth quarter, we really started to impact the trends pretty significantly.

So we're feeling pretty good relatively, in terms of where the brand is going in 2002. We're driving for growth this year. We'll see how much leverage we can get. We've already got some of the key markets growing and learning tactically, how to play the portfolio in those markets.

And Dave and his group -- Dave is a terrific executive out of Molson who is now in charge of that -- doing a great job doing the marketing for the -- for the beer season.

So we continue to be quite optimistic about this brand and the traction we can get with it in the midterm. And we'll keep you posted quarter to quarter as best we can, in terms of the volume momentum.

Hey, John, yes this is Tim.

Just picking up on what Leo's saying, I think we look at the Molson venture, especially Canadian Light, as a really exciting growth opportunity. And even just the last, you know, few months, the momentum on that brand, Canadian and Canadian Light, is really picking up, has picked up.

And to some extent, it's, you know, getting -- pulling together to Leo's point about no plans in place early in 2001. It's taken a couple of shots to get the packaging, to get the copy, to get the whole marketing promotional program together.

And, as we look at 2002 -- and I think our friends at Molson would agree because they've done most of the work -- a lot of the work, it's really exciting. The challenge is, kind of a bifurcated nature of the portfolio. The Molson Ice is a pretty good-sized brand, but like a like of ice beers it's not where the growth is nor will be.

So it's offsetting that decline and then some to have the whole portfolio grow. But, we really think that there's enough strength and opportunity in Canadian and Canadian Light to do just that. And, you know, we're really, really enthused about what the next couple of quarters will look like.

And, you know, I think for a perspective, John -- and I'm not -- this isn't a forecast so don't misinterpret me as that, but this is -- this is a pretty big business and it's a pretty profitable business.

And if we grew at the rate of the import category, even the low end of the import category, in that 10-percent range, that's meaningful incremental volume working off of you know -- you know, circa 900,000 barrel, 800 and some thousand barrel basis, something like that.

It's a pretty sizable business.

Great. Thanks, guys.

Our next question is from Marc Cohen of Goldman Sachs (Company: The Goldman Sachs Group Inc.; Ticker: GS; URL: http://www.gs.com/).

Hi, Marc.

Hi, how are you guys?

Good, how are you?

Just have a couple of questions.

First of all, relating to media spending and specifically on the light beer category, you've already quite clearly noted, that you're planning some significant increases on Coor Light.

I wonder if you could talk a little bit about what you think the industry atmosphere's going to look like on media spending this year, because I guess it's sounding as if there's going to be significant dollar increment increases. And, which is, you know, even more amplified by the fact the media rates seem to be down.

So I'd like to understand what you're assuming competitively there.

And then second, relating to the category pickup, I wonder if first of all is there anything you guys can identify in looking about the country, about where the categories picked up that we can get a, you know, a guide for, just thinking about why it might be, you know, sustainable?

And related to that, it's clear that the Light part of the category picked up or it seems that the Light part of the category picked up in Q4 and I'm wonder the extent to which you can do analysis that identifies whether that has anything to do at all with seasonality on the favored alcoholic beverages?

I think regarding your latter that, you know, certainly there is seasonality there and I'm not -- but, you know, quantifying that I think would be way premature.

There isn't anything we can tease out of geographic trends as -- and we'll have to take a look at -- look at some channel trends, as we get more data in here to see if we can, you know, get a better feel for consistent growth by channel, Marc.

Regarding media spending, what I believe about media spending in January is, it's like professional wrestling, you know, when we can tell you what our intentions are and everybody can talk big about how much they're going to spend and we'll see what the category will bear.

Clearly, it's a good media market. The buy-in, clearly, there's going to be some upshot fronts -- up-front shots at this FAB business. But, we know we're spending at rates on Coors Light where we get people's attention. We can see it respond when we get stuff right.

I'm not worried about our media levels. If we have -- if we can find some more money to go invest, we're likely to invest it against specific brands in specific geographies where we really think we've got distributor alignment right and can add some momentum.

As you know, we've got two jobs to do, that's build the big brands in the big markets and second job right behind it is to add more big markets. And our bias would be, to invest in those areas where we've really got tight alignment with our wholesales, that's what we'll be looking to do this year.

OK, thanks.

Our next question is from Caroline Levy of UBS Warburg (Company: UBS AG; Ticker: UBS; URL: http://www.ubs.com/).

Good morning, everybody.

Three quick questions, can you just comment on distributor inventories going into the new year, whether they're low or just where they should be?

Secondly, forgive me for not getting this, but on STR's in the fourth quarter were they up .6 or two percent? If you could just clarity the difference between those two different numbers that were out there.

And finally, more importantly, the third question, can you, Tim, outline perhaps -- give, you know, some kind of numbers on the savings from technology outsourcing, supply chain, and the various other initiatives you have? That would be helpful, if you could refresh us on that.

Caroline, I'll let Tim take the numbers. STR's in the quarter were up about two percent.

Domestic.

What was the .6 number?

That -- Caroline, that was for the whole company.

Oh, OK.

The 2.0 percent is just the domestic, you know, U.S. business.

OK.

And what -- we'll work through all our terms in the future, so we're real clear what's total company, what's U.K., what's domestic. But that the 2.0 percent was just the domestic USA business.

OK.

I'll try to hit all your questions. Distributed inventories coming into 2002 very normal, about a million 50 barrels. That's pretty consistent with prior years.

On the savings piece, I mean, obviously, this is the big question for us. You know, what we have done, will continue to do is, tease out the savings as we see them and share with you. I think we're right now on distribution cost all in, warehousing and the warehousing costs will get managed even better in the next 15 -- 12 to 15 months, as we complete the network optimization project.

We're running about a million dollars a month savings. There's more work to be done on transportation management optimization. There's another, you know, half to three-quarters of a million dollars upside -- I won't say per month, but say every other month on average for 2002.

And on the technology outsourcing, we don't expect to see a cost reduction out of the box. What we expect to do -- we expect to achieve is, as we move more from a legacy environment, lot of different systems, lot of different platforms, lot of different redundant costs, to a more consistent, coherent SAP backbone, what we'll start doing is, we'll use less resource.

And the way our agreement with our outsource partners works is, as we start doing that we pay less. And so, I -- you know, the first six-nine months of 2002, I don't think -- we certainly haven't planned any hard-dollar savings. We get to the back part of the year 2003, we'll start to pick up a bit.

But, you know, to -- I mean, you know -- you know the beer business. You know our business, where we're going to do -- where we're going to achieve the most savings are running our lines longer, improving our labor productivity, reducing waster, in addition to the sort of distribution and supply-chain initiatives, that we're working on as we speak.

So we'll be very attentive to sharing that with you in the quarters ahead. Nice progress in 2001. I mean, real tangible progress and a lot of optimism for what we're going to show you in 2002.

Thank you.

Yes. Just on CPR -- STR's, Tim, sales to retail, Caroline, one other thought for you. The two percent number is domestic, that's right.

You know, the other numbers that influence that move around quite a bit. Puerto Rico, which is a big market for us, we don't record as domestic. They had a -- they had a real soft category down there post September 11th which continued into the fourth quarter.

Actually, we continue to marginally grow share there, which is what we have to watch most importantly. Zima in Japan continues to be soft. They're being attacked by a proliferation of the FAB's brand analogous to the U.S.

On the other hand we don't count Canadian volume at all and it's a big, profitable business for us. Our Canadian -- the barrel growth was up low double-digit.

We had a fabulous year in Canada this year. The Molson team's doing a great job with us up there. And so, you know, I just wanted to give you that balance and perspective.

That's pretty helpful, Leo. Thank you.

Thanks, Caroline.

Our next question comes from Marc Greenberg of Deutsche Bank.

Good morning or good evening depending upon where you are.

Tim and Leo, just a couple of follow-up questions here.

First, guys, with a year's experience behind you looking out to this year, do you have greater confidence that the challenges owing to last year's inventory build into the peak season, will be less severe? My -- you know, talk about that with regard to some of your supply-chain initiatives.

And additionally, is it your sense that the U.K. brewing cycle can reduce any of this seasonality? I know it's early but, you know, just in terms of mitigating some of the financial volatility, would be my first question.

And then -- and then as follow up, not to -- not to beat the light beer horse too hard here, but I wonder if you might give us some color about, with such a big increase from Bud Light, are you worried at all about the properties you want, actually getting crowded out, or is your approach differentiated enough so that you can have impact in other places?

Marc, let me take two and three here and talk Coors Light first.

Let us -- let -- I'd like to have Ron really address that issue for you when we see you in a couple weeks. And but suffice to say, we're not worried about being crowded out.

You know, certain points somebody can only loud so loud you know? You know, on the other hand there's obviously going to be a lot of media pressure and particularly, we suspect young adult media pressure on the category this year. We clearly have to be distinctive and stand out in that and our media strategy needs to be very savvy.

I think Ron can answer that for you well and I think you'll appreciate that discussion.

Regarding, you know, changing seasonality around, I don't know what you wish for. Yes, the U.K. business has a -- has a different kind of seasonality. They have a robust summer, but they have a very big fourth quarter.

As their team said to us, "We're likely to make your fourth quarter a lot more exciting, Leo." So I'm not sure I'm wishing for that or not. But, you know, the net of it will be a little bit more balance in the cycle quarterly.

Tim, on the inventory picture?

Yes. And I'll make a comment on the brewing stuff, too.

The inventory build last year was a good idea. It's a good idea this year and our objective is, to do that, you know -- do that again to smooth the pace at which we use these -- the Golden brewery and obviously, our facility in Virginia and Memphis.

You know, the challenge is, to make sure we have sufficient pull-through, so that that inventory doesn't sit there. That's really what happened last year because I -- you know, what we learned from the year 2000 was with strained capacity without building up for peak season, it creates a real -- a real bottleneck and that's not what we want.

So, you know, we're going to build our inventories prudently, but we're going to build them in anticipation for, you know, our April kickoff to peak season. So that -- I think that's the way that we've got to tease this out.

Thanks, Tim.

Thanks, Marc.

Again, if you have a question please press the one key on your touch-tone telephone. One moment for questions.

Our next question is from Stuart Friou of Hunter Global.

I just wanted to kind of clarify on this marketing spending.

I think Bud yesterday announced, they were going to increase their spending behind Bud Light 15 to 18 percent. I mean, are you saying that you are prepared to spend that kind of money behind Coors Light in '02?

I guess what I'm saying, Stuart is, that we already spend on a per-barrel basis about twice as much money as Budweiser does. It really isn't a spending per say issue, it's a market-by-market issue.

And, you know, I guess what I'd say is, if that's what it took we have the capability to do that, but we really don't think about it quite that way.

OK, thank you.

I'm showing no further questions at this time.

Mr. Kiely, I'll turn the program back over to you, with any closing remarks.

Yes, thank you very much.

Thanks for your interest in Coors, everybody. It's an exciting time for us. I want to reiterate that we're focused now on both sides of the pond as they say on managing our plans and bringing our businesses in.

I think -- I think there's good reason for optimism for the Coors Brewing Company, as we look forward from this position. And we really look forward to sharing more details about that with you, when we see most of you, I hope, on the 27th of February in New York City.

Thanks for being with us today.

Thank you.

Thank you, gentlemen.

Ladies and gentlemen, this does conclude today's conference call. Thank you for you participation. You may disconnect at this time and have a good day.