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The following is an excerpt from a 10-K SEC Filing, filed by COORS ADOLPH CO on 3/29/2002.
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MOLSON COORS BREWING CO - 10-K - 20020329 - BUSINESS

ITEM 1. Business

(a) General Development of Business

Since our founding in 1873, we have been committed to producing the highest quality beers. Our portfolio of brands is designed to appeal to a wide range of consumer taste, style and price preferences. Historically, our beverages have been sold throughout the United States and in select international markets. Unless otherwise noted in this report, any description of us includes both Adolph Coors Company (ACC) and Coors Brewing Company (CBC), ACC's wholly owned subsidiary, but does not include Coors Brewers Limited as it was acquired in February, 2002.

Recent General Business Developments

Carling Brewers: In February 2002, we completed the acquisition of the Carling business from Interbrew S.A. for 1.2 billion British pounds sterling (approximately $1.7 billion), plus associated fees and expenses. The purchase price is subject to adjustment based on the value of certain items, as defined in the purchase agreement, as of the acquisition date. The Carling business, (subsequently renamed Coors Brewers Limited) includes the majority of the assets that previously made up Bass Brewers, including the Carling, Worthington and Caffrey's brand beers; the United Kingdom (U.K.) distribution rights to Grolsch (via a joint venture with Grolsch N.V.); several other beer and flavored-alcohol beverage (FAB) brands; related brewing and malting facilities in the U.K.; and a 49.9% interest in the distribution logistics provider Tradeteam. The brand rights for Carling, which is the largest acquired brand by volume, are mainly for territories in Europe.

Coors Brewers, with its headquarters in Burton-on-Trent, England, is the U.K.'s second-largest beer company, with 2001 volume of approximately 9 million barrels (excluding factored brands), or l9%, of the U.K. beer market, which is Western Europe's second-largest market. The Coors Brewers business is almost exclusively in England and Wales.

The Coors Brewers brand portfolio consists of 20 U.K. beer brands and four FAB brands with strong offerings in each of its target segments. Its mainstream lager, Carling, is currently the number-one beer sold in the U.K. based on volume. Grolsch is the U.K.'s fastest growing premium lager, with volume increasing fourfold since 1994. Coors Brewers leading position in the ale segment is driven by a combination of Worthington, the U.K.'s number-two mainstream ale brand in the On Trade (on-premise) channel, and Caffrey's, the U.K.'s leading premium ale by volume. In addition, Coors Brewers is the only U.K. brewer with a successful range of internally developed FABs.

Like other brewers, Coors Brewers wholesales a range of beers, wines, spirits and soft drinks (factored products) to enhance service and profitability by offering a wide range of products to its On Trade customers.

Coors Brewers currently operates four breweries in the U.K. with production capacity of more than 12 million barrels. The Burton-on-Trent brewery has the largest capacity and is located in the Midlands, in central England, which facilitates cost-efficient distribution throughout the U.K. Other breweries are located in Tadcaster (Yorkshire), Cape Hill (Birmingham) and Alton (Hampshire). Two of the breweries have can and bottle packaging facilities, and there is a broad range of brewing and packaging operations across the four sites. Additionally, the company operates three malting facilities located in Burton, Shobnall and Alloa.

In March 2002, we announced plans to close our Cape Hill brewery and Alloa malting facility. A majority of the production at the Cape Hill brewery relates to brands that were retained by Interbrew. The production at the Alloa malting facility will be moved to one of the other existing malting facilities. These closures will remove excess capacity from the Coors Brewers system.

The Coors Brewers distribution operation is run by Tradeteam, a joint venture with Exel Logistics in which Coors Brewers owns 49.9%. Tradeteam operates a system of satellite warehouses and the transportation fleet for deliveries between the Coors Brewers breweries and customers. Additionally, Tradeteam manages the transportation of certain raw materials such as malt to the Coors Brewers breweries.

EDS Information Services, LLC (EDS): During the third quarter of 2001, we finalized our contract with EDS to outsource certain functions of our information technology infrastructure. We believe this new arrangement will allow us to focus on our core business while having access to the expertise and resources of a world-class information technology provider.

Ball Corporation: Effective January 1, 2002, we became an equal member with Ball Corporation (Ball) in a Colorado limited liability company, Rocky Mountain Metal Container, LLC (RMMC). Also effective on January 1, 2002, we entered into a can and end supply agreement with RMMC (the Supply Agreement). Under that Supply Agreement, RMMC will supply us with substantially all of the can and end requirements for our Golden brewery. RMMC will manufacture these cans and ends at our existing manufacturing facilities, which RMMC is operating under a use and license agreement. We have the right to purchase Ball's interest in RMMC under certain conditions. If we do not exercise that right, Ball may have the right to purchase our interest in RMMC. Our prior joint venture was with American National Can Company (subsequently acquired by Rexam LLC). In August 2001, we purchased Rexam's interest in the joint venture.

Molson USA, LLC: In January 2001, we entered into a joint venture agreement with Molson, Inc. and paid $65 million for a 49.9% interest in the joint venture. The joint venture, Molson USA, LLC (MUSA), was formed to import, market and sell Molson's brands of beer in the United States, including Molson Canadian, Canadian Light, Molson Golden and Molson Ice. Under the agreement, the joint venture owns the exclusive right to import Molson brands into the United States. Additionally, any Molson brands that may be developed in the future for import into the United States are covered under the agreement. We are responsible for the sales activities in the United States for the brands and products that are manufactured in Canada by Molson under the agreement. Decisions related to marketing of the brands are made both by Molson and us through the joint venture.

Coors Canada: In January 1998, we formed Coors Canada, a partnership arrangement, with Molson, Inc. in Canada to distribute Coors products in Canada. We own 50.1% of this partnership through our 100% ownership of Coors Canada, Inc. In December 2000, we entered into a five year brewing and packaging arrangement with Molson in which we will have access to some of Molson's available production capacity in Canada. The Molson capacity available to us under this arrangement in 2001 was 250,000 barrels, none of which was used by us. Starting in 2002, available capacity increases to 500,000 barrels. Currently, we pay Molson a fee for holding this capacity aside for our future use.

Spain: In 2000, we closed our brewery in Zaragoza, Spain, and sales operation in Madrid, Spain. In 2001, the plant and related fixed assets were sold.

Some of the following statements describe our expectations of future products and business plans, financial results, performance and events. Actual results may differ materially from these forward-looking statements. Please see Item 7, Management's Discussion and Analysis - Cautionary Statement Pursuant to Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995, for factors that may negatively impact our performance. The following statements are expressly made subject to those and other risk factors.

(b) Financial Information About Industry Segments

We have one reporting segment, which is focused on the malt beverage business. See Item 8, Financial Statements and Supplementary Data, for financial information relating to our operations.

We are still evaluating the impact of acquiring the Coors Brewers business on our segment reporting for 2002. At this time, we anticipate having two reportable operating segments: the Americas and Europe.

(c) Narrative Description of Business

As noted above in Item 1(a), General Development of Business, Recent General Business Developments, we acquired the Carling business portion of Bass Brewers in February 2002. Except where otherwise noted, the disclosures in this Item (c) relate to the business of Coors Brewing Company as it pertains to our one reporting segment that existed as of December 30, 2001.

Coors Brewing Company - General

We produce, market and sell high-quality malt-based beverages. Our portfolio of brands is designed to appeal to a wide range of consumer taste, style and price preferences. Our beverages are sold throughout the United States and in select international markets. Coors Light has accounted for more than 70% of our sales volume in each of the last four years. Premium and above-premium products accounted for more than 85% of our total sales volume in each of the last four years. Most of our sales are in U.S. markets; however, we are committed to building profitable sales in international markets. Our goal is to continue growing our business and increasing our profitability, both domestically and internationally, by focusing on the following key strategies:

- producing the highest quality products;

- focusing on high-growth, high-margin segments;

- investing in high-potential markets and brands;

- improving our wholesale distribution network;

- reducing costs and improving productivity;

- building organizational excellence; and,

- pursuing strategic opportunities.

Our sales of malt beverages totaled 22.7 million barrels in 2001, 23.0 million barrels in 2000 and 22.0 million barrels in 1999. The barrel sales figures for each year do not include barrel sales of a non-consolidated Canadian partnership. An additional 1.3 million, 1.2 million and 1.0 million barrels were sold by this non-consolidated entity in 2001, 2000 and 1999, respectively. See Item 7, Management's Discussion and Analysis, for discussion of changes in volume.

Our Products

Our top-selling brand is Coors Light, a premium beer, and our other products include an additional 10 brands. Our other premium beers include Coors Original and Coors Non-Alcoholic. We also offer a selection of above-premium beers including George Killian's Irish Red Lager and Blue Moon Belgian White Ale. In addition, we offer Zima and Zima Citrus, alternative malt-based beverages that are light, refreshing products and have long competed in the malternative category. We also compete in the lower-priced segment of the beer market, called the popular-priced segment, with Extra Gold and our Keystone family of beers - Keystone Premium, Keystone Light and Keystone Ice.

In 2001, the Coors Dry and Winterfest brands, were phased out because of greater emphasis and focus on other brands.

We own and operate The SandLot Brewery at Coors Field ballpark in Denver, Colorado. This brewery, which is open year-round, makes a variety of specialty beers and has an annual capacity of approximately 4,000 barrels.

Sales and Distribution

By federal law, beer must be distributed in the United States through a three-tier system consisting of manufacturers, distributors and retailers. Currently, a national network of 494 distributors delivers our U.S. manufactured products to U.S. retail markets. Of these, 492 are independent businesses and the other two are owned and operated by one of our subsidiaries. Some distributors operate multiple branches, bringing the total number of U.S. distributor and branch locations to 562 for the year ended December 30, 2001. As a result of our new Molson USA joint venture, we have an additional 237 domestic distributors, including branches, that distribute Molson brands (but not Coors brands) within the United States. Additional independent distributors deliver our products to some international markets under licensing and distribution agreements.

In the past three years, consolidation among U.S. wholesalers has accelerated. As a result of this trend, approximately 45% of our U.S. distributors (which sell nearly 40% of our volume) now also distribute Miller Brewing Company products. We view this consolidation trend positively because it generally improves the economics of the combined distributorships, which allows them to compete more effectively against the market leader's distributors.

We establish standards and monitor distributors' methods of handling our products to ensure the highest product quality and freshness. Monitoring ensures adherence to proper refrigeration and rotation guidelines for our products at both wholesale and retail locations. Distributors are required to remove our products from retailer outlets if they have not sold within a certain period of time.

Our highest volume states are California, Texas, Pennsylvania, New York and New Jersey, which together comprised 44% of our total domestic volume in 2001.

We have more than 300 full-time salespeople throughout the United States. Our salespeople work closely with our distributors to assure that they focus appropriately on our product and to assist them in implementing industry best practices to improve efficiency and performance. Our sales function is organized into two regions that manage a total of six geographic field business areas responsible for overseeing domestic sales. We believe this structure enables our salespeople to better anticipate wholesaler and consumer needs and to respond to those needs locally, with greater speed.

In addition, we have a team of category managers responsible for assisting leading U.S. retailers, such as large supermarket chains, with managing their beer offerings. Our category managers work with retailers to enhance overall beer sales through optimizing space allocation, merchandising displays, promotional campaigns and product distribution throughout each retailer's chain. We believe that our success in category management enhances our competitive position.

Manufacturing, Production and Packaging

Brewing Process and Raw Materials

Our ingredients and brewing process make our beers unlike any other beers in the world. We also use unique packaging materials developed to accommodate our cold packaging and shipping.

We use the highest quality ingredients to produce our beers. We adhere to strict formulation and quality standards in selecting our raw materials. We believe we have sufficient access to raw materials to meet our quality and production requirements.

Along with water, barley is the fundamental ingredient in beer. Barley is so important to the quality and taste of our products that we started developing our own strains of barley in 1937. We use proprietary strains of barley, developed by our own barley breeders and agronomists, for most of our malt beverages. Virtually all of this barley is grown on irrigated farmland in the western United States under contracts with area growers. The growers use only our proprietary barley seed developed by us to produce our malting barley. We are the only major brewer in the United States to exclusively use two-row barley rather than the six-row barley that is more commonly used among brewers. Two-row barley allows the seed ample room to grow and develop, which we believe produces a more consistent, higher- quality crop and better tasting beer. Our malting facility in Golden produces approximately 80% of all of our malt requirements for our U.S. products. We also have our own barley malted by third parties under contract. We maintain inventory levels in facilities that we own. Our inventories are sufficient to continue production in the event of any foreseeable disruption in barley supply and currently exceed a 14-month supply.

We use naturally filtered water from underground aquifers to brew malt beverages at our Golden facility. Water quality and composition have been primary factors in all facility site selections. Water from our sources contains minerals that help brew high-quality malt beverages.

We continually monitor the quality of the water used in our brewing process for compliance with our own stringent quality standards, which exceed federal and state water standards. We own water rights that we believe are more than sufficient to meet all of our present and foreseeable requirements for both brewing and industrial uses. We acquire water rights, as appropriate, to provide flexibility for long-term strategic growth needs and also to sustain brewing operations in case of a prolonged drought.

We take an average of 55 days -- significantly longer than our major competitors -- to brew, age, finish and package our beers. We believe this unique process creates a smoother, more drinkable product. We were the first brewer to introduce a cold-filter process to preserve taste. We keep the product cold -- from the brewhouse through packaging to retail -- by using insulated containers for transport and by requiring our distributors to hold our products in temperature-controlled warehouses.

Brewing and Packaging Facilities

We have three domestic production facilities. We own and operate the world's largest single-site brewery in Golden, Colorado. In addition, we own and operate a packaging and brewing facility in Memphis, Tennessee, and a packaging facility located in the Shenandoah Valley in Virginia.

We brew Coors Light, Coors Original, Extra Gold, Killian's and the Keystone brands in Golden. Approximately 60% of our beer volume brewed in Golden is also packaged there. The remainder is shipped in bulk from the Golden brewery to either our Memphis facility or to our Shenandoah facility for packaging.

The Memphis facility packages all products exported from the United States. It also brews and packages our Zima, Zima Citrus, Coors Non-Alcoholic and Blue Moon brands for domestic and international distribution. Coors Light is brewed in Memphis for export only.

Our Shenandoah facility packages Coors Light, Keystone Light and a small portion of Killian's volume for distribution to eastern U.S. markets.

To continue the brand growth that we have experienced over the past several years, we increased our 2001 capital expenditures to expand our brewing and packaging capacity. In particular, we added a third bottle line to our Shenandoah facility and have added brewing capacity to our Memphis facility to meet growing demand and to lower our production and distribution costs to markets in the northeastern United States. We are improving manufacturing processes in Golden, which will increase brewing and packaging capacity in our largest facility. We also anticipate that further increasing brewing and packaging capacity at our Memphis facility will be an important part of our mid- and long-term capacity plan. Please see Item 7, Management's Discussion and Analysis - Liquidity and Capital Resources, for more information about our planned capital expenditures.

Energy

We purchase electricity and steam for our Golden manufacturing facilities from Trigen-Nations Energy Corporation, L.L.L.P. (Trigen). Coors Energy Company, our wholly owned subsidiary, buys coal, which it sells to Trigen for Trigen's steam generator system, and purchases gas for our Shenandoah and Golden operations.

Packaging Materials

Aluminum cans: Approximately 60% of our products were packaged in aluminum cans in 2001. A substantial portion of those cans were purchased from a joint venture between Coors and Rexam LLC, which operated at our manufacturing facilities. In August 2001, we purchased Rexam's interest in the joint venture.

We own the manufacturing facilities that produced the majority of our aluminum can, end and tab requirements. In 2001, we purchased all of the cans, and most of the ends, produced by these facilities which were operated in 2001 through the joint venture with Rexam. In addition, we purchased certain specialized cans and some cans for products packaged at our Memphis and Shenandoah plants directly from Rexam LLC.

In 2001, we replaced our joint venture with Rexam by forming RMMC with Ball. Effective January 1, 2002, RMMC will operate our existing can and end facilities in Golden, Colorado, one of the largest aluminum can manufacturing facilities in the world. RMMC is structured and has an incentive to reduce manufacturing costs, as well as provide improved sourcing patterns, particularly to our Shenandoah and Memphis facilities. In addition to our supply agreement with RMMC, we also have commercial supply agreements with Ball and Rexam to purchase cans and ends in excess of those that are supplied through RMMC.

Glass bottles: We used glass bottles for approximately 29% of our products in 2001. We operate a production joint venture with Owens-Brockway Glass Container, Inc. (Owens), the Rocky Mountain Bottle Company (RMBC), to produce glass bottles at our glass manufacturing facility. The initial term of the joint venture expires in 2005 and can be extended for additional two-year periods. In 2001, we purchased all of the bottles produced by RMBC, approximately 1.1 billion bottles, which fulfilled about half of our bottle requirements. The remaining bottle requirements were met through a supply contract with Owens.

Other packaging: The remaining 11% of the volume we sold in 2001 was packaged in quarter- and half-barrel stainless steel kegs purchased from third-party suppliers.

We purchase most of our paperboard and label packaging from a subsidiary of Graphic Packaging International Corporation (GPIC). These products include paperboard, multi-can pack wrappers, bottle labels and other secondary packaging supplies. We have begun negotiations to renew this contract which expires in 2002. We expect it to be renewed prior to expiration. William K. Coors and Peter H. Coors serve as co-trustees of a number of Coors family trusts that collectively control GPIC. Please read Item 13, Certain Relationships and Related Transactions, for more information regarding GPIC.

Product Shipment

We ship our products greater distances than most of our competitors. By packaging more of our products in our Memphis and Shenandoah facilities, we reduce freight costs to certain markets.

In 2001, approximately 64% of our products were shipped by truck and intermodal directly to distributors or to our satellite redistribution centers. Transportation vehicles are refrigerated or properly insulated to keep our malt beverages cold while in transit. The remaining 36% of the products packaged at our production facilities were shipped by railcar to either satellite redistribution centers or directly to distributors throughout the country. Railcars assigned to us are specially built and insulated to keep our products cold en route.

At December 30, 2001, we had 11 strategically located satellite redistribution centers, which we use to receive product from production facilities and to prepare shipments to distributors. Subsequent to year- end, we have 10 satellite redistribution centers resulting from the consolidation of two of our western distribution centers. In 2001, approximately 50% of packaged products were shipped directly to distributors and 50% moved through the satellite redistribution centers.

International Business

We market our products in select international markets and to U.S. military bases worldwide.

Europe

See discussion regarding the acquisition of the Carling business in England and Wales at Item 1(a), General Development of Business, Recent General Business Developments.

Exclusive of the new Coors Brewers business, our efforts in Europe, relating to our U.S. brands, are focused on marketing Coors Light in the Republic of Ireland. Additionally, we are testing Coors Light in Scotland and Northern Ireland, and we will assess the feasibility of expanding the sale of Coors Light to the balance of the U.K.

During 2000, we closed our brewery and commercial operations in Spain. In 2001, we sold the related land, buildings and equipment. This brewery produced beer for Spain and other European markets. Beginning in late 2000, we began sourcing beer for our remaining European markets from our Memphis plant. The beer is then packaged for distribution under contract in the U.K. by Thomas Hardy Packaging Limited.

We are developing plans for integrating our current European business with Coors Brewers.

Canada

Coors Canada, our partnership with Molson, manages all marketing activities for our products in Canada. We own 50.1% of this partnership and Molson owns the remaining 49.9%. The partnership contracts with a Molson subsidiary for the brewing, distribution and sale of products. This non- consolidated entity had sales of 1.3 million, 1.2 million and 1.0 million barrels in 2001, 2000 and 1999, respectively, and partnership net revenue per barrel was $22.79 in 2001, $21.99 in 2000 and $20.52 in 1999. Coors Light currently has a market share of more than 7% and is the number-one light beer -- and the number-four beer brand overall -- in Canada.

Puerto Rico and the Caribbean

In Puerto Rico, we market and sell Coors Light through an independent local distributor. A local team of our employees manages marketing and promotional efforts in this market. Coors Light is the number one brand in the Puerto Rico market with more than a 55% market share in 2001.

We also sell our products in several other Caribbean markets, including the U.S. Virgin Islands, through local distributors.

Japan

Coors Japan Company, Ltd., our Tokyo-based subsidiary, is the exclusive importer and marketer of our products in Japan. The Japanese business is currently focused on Zima and Coors Original. Coors Japan sells our products to independent distributors in Japan. China

In August 2001, we formed a new subsidiary, Coors Beer & Beverages (Suzhou) Co., Ltd., to market and distribute Coors Original in China. In October 2001, we commenced a brewing agreement with Lion Nathan Beer and Beverages (Suzhou) Co. Ltd. to supply the China market.

Prior to October 2001, we marketed Coors Original beer under a licensing arrangement with Carlsberg-Guangdong. This arrangement was mutually terminated as permitted by its terms in October 2001.

Seasonality of the Business

The beer industry is subject to seasonal sales fluctuation. Our sales volumes are normally at there lowest in the first and fourth quarters and highest in the second and third quarters. Our fiscal year is a 52- or 53- week year that ends on the last Sunday in December. The 2001 and 1999 fiscal years were both 52 weeks, while the 2000 fiscal year was 53 weeks.

Research and Development

Our research and development activities relate primarily to creating and improving products and packages. These activities are designed to refine the quality and value of our products and to reduce costs through more efficient processing and packaging techniques, equipment design and improved raw materials. We spent approximately $16.5 million, $16.9 million and $16.5 million for research and development in 2001, 2000 and 1999, respectively. We expect to spend approximately $16 million on research and product development in 2002.

To support new product development, we maintain a fully equipped pilot brewery within the Golden facility. This facility has a 6,500-barrel annual capacity and enables us to brew small batches of innovative products without interrupting ongoing operations in the main brewery.

Intellectual Property

We own trademarks on the majority of the brands we produce and we have licenses for the remainder. We also hold several patents on innovative processes related to product formula, can making, can decorating and certain other technical operations. These patents have expiration dates ranging from 2002 to 2021. These expirations are not expected to have a significant impact on our business.

Regulation

Our business is highly regulated by federal, state and local government entities. These regulations govern many parts of our operations, including brewing, marketing and advertising, transportation, distributor relationships, sales and environmental issues. To operate our facilities, we must obtain and maintain numerous permits, licenses and approvals from various governmental agencies, including the U.S. Treasury Department; Bureau of Alcohol, Tobacco and Firearms; the U.S. Department of Agriculture; the U.S. Food and Drug Administration; state alcohol regulatory agencies as well as state and federal environmental agencies. Internationally, our business is also subject to regulations and restrictions imposed by the laws of the foreign jurisdictions in which we sell our products.

Governmental entities also levy taxes and may require bonds to ensure compliance with applicable laws and regulations. Federal excise taxes on malt beverages are currently $18 per barrel. State excise taxes also are levied at rates that ranged in 2001 from a high of $32.65 per barrel in Alabama to a low of $0.62 per barrel in Wyoming, with an average of $7.91 per barrel. In 2001, we incurred approximately $413 million in federal and state excise taxes. We realize that from time to time Congress and state legislatures consider various proposals to increase or decrease excise taxes on the production and sale of alcohol beverages, including beer. The last significant increase in federal excise taxes on beer was in 1991, when these taxes doubled.

Environmental Matters

We are subject to the requirements of federal, state, local and foreign environmental and occupational health and safety laws and regulations. Compliance with these laws and regulations did not materially affect our 2001 capital expenditures, earnings or competitive position, and we do not anticipate that they will do so in 2002.

We are also required to obtain environmental permits from governmental authorities for certain of our operations. We cannot provide assurance that we have been or will be at all times in complete compliance with, or have obtained, all such permits. These authorities can modify or revoke our permits and can enforce compliance through fines and injunctions. We are not in violation of any of our permits and, we believe, we have obtained or are in the process of obtaining all necessary permits, to the best of our knowledge.

We continue to promote the efficient use of resources, waste reduction and pollution prevention. We currently conduct several programs including recycling bottles and cans and, where practical, increasing the recycled content of product packaging materials, paper and other supplies.

See also Item 7, Management's Discussion and Analysis - Contingencies, for additional discussion of our environmental contingencies.

Employees and Employee Relations

We have approximately 5,500 employees, excluding Coors Brewers Limited. Memphis hourly employees, who constitute about 8% of our total work force, are represented by the Teamsters union and are the only significant employee group at any of our three domestic production facilities having union representation. The Memphis union contract was renegotiated in early 2001. The new contract expires in 2005. We believe our people are absolutely key to our success and that relations with our employees are good.

Competitive Conditions

Known trends and competitive conditions: Industry and competitive information in this section and elsewhere in this report was compiled from various industry sources, including beverage analyst reports, Beer Marketer's Insights, Beer Marketer Survey, Impact Databank and The Beer Institute. While management believes that these sources are reliable, we cannot guarantee the complete accuracy of these numbers and estimates.

2001 industry overview: The beer industry in the United States is extremely competitive. Industry volume growth has averaged less than 1% annually since 1991. Therefore, growing or even maintaining market share requires substantial and consistent investments in marketing and sales. In a very competitive year, U.S. beer industry shipments increased less than 1% in 2001, after growing 0.8% in 2000. In recent years, brewers have focused on marketing, promotions and innovative packaging in an effort to gain market share with less use of price discounting strategies.

The industry's pricing environment continued to be positive in 2001, with modest price increases on specific packages in select markets. As a result, revenue per barrel improved for major U.S. brewers during the year. However, for the industry in general, many raw material prices increased in 2001, including aluminum, glass and energy. In addition, consumer demand continued to shift away from short bottles and toward longneck bottles, which cost significantly more to make and ship than short bottles.

A number of important trends affected the U.S. beer market in 2001. The first was a continuing sales shift toward lighter, more-refreshing beverages. Virtually all of the growth in the category was achieved by American-style light lagers (domestic and imported) and new alternative malt beverages. More than 80% of our annual unit volume in 2001 was in light beers. The second trend was toward "trading up," as consumers continued to move away from lower-priced brands to higher-priced brands, including imports and alternative malt beverages. Import beer shipments rose nearly 10% in 2001. Long-term industry sales trends toward lighter, more-upscale beers generally play to our strengths.

The U.S. brewing industry has experienced significant consolidation in the past several years, which has removed excess capacity. Several competitors have exited the beer business, sold brands or closed inefficient, outdated brewing facilities. In 2001, beer industry consolidation at the wholesaler level maintained a quick pace. This consolidation generally improves economics for the combining wholesalers and their suppliers.

U.S. demographics continued to improve for the beer industry, with the number of consumers reaching legal drinking age continuing to increase in 2001, according to U.S. Census Bureau assessments and projections. These same projections anticipate that the 21 to 24 age group will continue to grow for most of this decade. This trend is important to the beer industry because young adults tend to consume more beer per capita than other demographic groups.

Our competitive position: Our malt beverages compete with numerous above- premium, premium, low-calorie, popular-priced, non-alcoholic and imported brands. These competing brands are produced by national, regional, local and international brewers. In 2001, approximately 80% of U.S. beer shipments were attributed to the top three domestic brewers: Anheuser- Busch, Inc.; Philip Morris, Inc., through its subsidiary Miller Brewing Company; and Coors Brewing Company. We compete most directly with Anheuser and Miller, the dominant companies in the U.S. industry. According to Beer Marketer's Insights estimates, we are the nation's third-largest brewer, selling approximately 11.1% of the total 2001 U.S. brewing industry shipments of malt beverages (including exports and U.S. shipments of imports). This compares to Anheuser's 48.6% share and Miller's 19.6% share.

Our beer shipments to wholesalers decreased 1.2% in 2001, primarily because fiscal 2000 was 53 weeks, while fiscal 2001 was 52 weeks. On a comparable- calendar basis, our 2001 beer shipments were down 0.1% from a year earlier because of slower sales of our products other than Coors Light and Keystone Light. By comparison, Anheuser's domestic shipments increased 1.2% in 2001 and Miller's declined 2.4%. More than 85% of our unit volume was in the premium and above-premium price categories, the highest proportion among the major domestic brewers.

We continue to face competitive disadvantages related to economies of scale. Besides lower transportation costs achieved by competitors with multiple, geographically dispersed breweries, these larger brewers also benefit from economies of scale in advertising spending because of their greater unit sales volumes. To achieve and maintain national advertising exposure and grow our U.S. market share, we generally spend substantially more per barrel to market our products than our major competitors.

Although our results are primarily driven by U.S. sales, international operations have increased in importance in recent years, including in Canada, where Coors Light is the number-one light beer. We anticipate that the acquisition of Coors Brewers will substantially increase the contribution of our international operations to our total results. See Item
1.(a), General Development of Business, Recent general business developments and Note 17, Subsequent Event, in the Notes to the Consolidated Financial Statements, for discussion relative to the Carling acquisition.

(d) Financial Information About Foreign and Domestic Operations and Export Sales

See Item 8, Financial Statements and Supplementary Data, for discussion of sales, operating income and identifiable assets attributable to our country of domicile, the United States, and all foreign countries.

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