USA: Molson Coors Reports 2005 Second Quarter Results

Molson Coors Brewing Company announced on August 2, higher consolidated net sales and sales volume, and lower net income for the second quarter of 2005 compared to the second quarter of 2004. Higher consolidated sales volume and net sales were attributable to the inclusion of Molson Inc. results in the second quarter of 2005 but not in the second quarter of 2004. Lower net income of $38.5 million, or $0.45 per share, was primarily attributable to special
charges totalling $87.7 million in the second quarter 2005.

For the 13-week second quarter ended June 26, 2005, the company reported net sales of $1.6 billion and sales volume of 12,799,000 barrels, or 15,019,100 hectolitres (hl). Excluding special items and merger-related amortization expense, the company reported after-tax income of $105.1 million*, or $1.22 per share, for the 2005 second quarter, down 12.4 percent from 2004 on a pro forma basis. The company's effective tax rate during the second quarter 2005 was 53.0 percent, or 37.5 percent excluding special items and merger-related amortization.

The company plans to file an amended first quarter 2005 Form 10-Q later this week to correct the initial recording of a U.S. deferred tax asset as part of the purchase accounting for its U.K. acquisition in 2002. Due to the change, the company will restate its first quarter 2005 tax provision and earnings. The company still expects its long-term effective tax rate excluding Brazil losses to be in the range of 25 to 30 percent.

The company's restated first quarter 2005 net loss was $75.7 million, or $0.88 per share, on a pro forma basis. Excluding special items and merger-related amortization expense, after-tax income was $7.0 million, or $0.08 per share, on a pro forma basis, down 86 percent from a year ago.

On a consolidated pro forma basis, compared to the second quarter 2004, the company's second quarter 2005 results included: Sales to retail (3.8%); Sales volume (3.1%); Net sales (1.3%) Operating income (49.0%); Earnings per share (65.2%); After-tax income, excluding special items and merger-related amortization expenses (12.4%).

Leo Kiely, Molson Coors president and chief executive officer, said: "Overall, our second quarter results were mixed, with some trend improvements in our two largest markets -- Canada and the U.S. -- and continuing challenges in both our Europe and Brazil segments. In Canada, our year-over-year sales to retail increased 2.1 percent during the second quarter, which was our best retail sales performance in the last seven quarters in Canada, with Coors Light growing more than 10 percent from a year ago. In the U.S., Coors Light sales to retail were up slightly compared to a year ago. In addition, the U.S. pricing environment was still favourable, despite competitive discounting activity in some key markets on select brands and packages.

"We also faced some headwinds during the second quarter, especially in our Europe segment, which was significantly challenged by a weak U.K. beer industry, increased competitive discounting and margin pressure from unfavourable brand and channel mix changes. In Brazil, cost and pricing trend shave improved, but continued sales declines and operating losses challenged this business.

"For the remainder of the year, we will focus on making even more progress improving our sales trends in Canada and the U.S. In the U.K., we are working to restore volume momentum with targeted sales efforts in both the on-premise and off-premise channels while maintaining the strength of our U.K. brand equities. We're also accelerating a number of U.K. cost reduction initiatives. Across the enterprise, we will continue our work integrating the operations and organization of the combined Molson and Coors business as we build a more competitive and profitable global beer company."

Canada segment comparable sales to retail were up 2.1 percent during the second quarter 2005 compared to a year ago largely due to favourable weather and stronger sales and marketing programs versus a year ago. Sales volume of2,218,000 barrels (2,602,600 hl) was down 2.8 percent on a comparable basis from a year ago primarily due to a reduction in trade inventories and one fewer shipping day compared to last year, along with lower export volume.Canada segment net sales were up approximately 6 percent on a pro forma basis from the second quarter of 2004 driven by favourable foreign exchange rates. Operating income in Canada during the second quarter 2005 decreased 11.9percent on a pro forma basis from the prior year due to lower sales volume, incremental investments in core brands and higher non-headcount-related general and administrative expenses.

In the second quarter 2005, sales volume and net sales in the U.S. segment increased 0.5 percent and 2.7 percent, respectively, on a pro forma basis from the second quarter a year ago. U.S. sales to retail decreased 2.6 percent on a pro forma basis during the quarter, driven largely by the lapping of the 2004 nationwide rollout of the company's Aspen Edge brand. Coors Light sales to retail increased slightly in the second quarter 2005, the first such increase for Coors Light in the U.S. in nine quarters. Including a special charge of $10.0 million, U.S. operating income of $78.8 million increased 3.8 percent on a pro forma basis compared to a year earlier, driven by positive pricing and lower manufacturing costs, partially offset by higher materials and energy costs. Excluding the special charge, U.S. operating income increased 17 percent on a pro forma basis.

In the second quarter 2005, Europe segment sales volume decreased by 5.8 percent compared to a year ago, with Carling sales volume declining less than 2.0 percent. Net sales per barrel decreased 10.5 percent from the second quarter of 2004, primarily because of a change in contractual arrangements on some factored brand sales, which reduced both net sales and cost of goods sold by $65 million, with no impact on profits.

The U.K. beer industry as a whole was impacted negatively by lower consumer spending. The company's U.K. sales volume declines during the quarter were further driven by unusually high levels of competitor discounting in both the on-premise and off-premise channels, as well as the lapping of higher second quarter 2004 sales volume, which benefited from the Euro 2004 soccer tournament. Including a special credit of $3.2 million, Europe segment operating income during the second quarter 2005 decreased 37.2 percent from the prior year.

Brazil segment net sales during the second quarter increased nearly 20 percent on a pro forma basis from the second quarter of 2004, driven by favourable beer pricing and a 16 percent appreciation of the Brazilian real versus the U.S. dollar. Sales volume of 1,637,000 barrels (1,920,950 hl) declined 11.7 percent on a comparable basis versus a year ago. Excluding special charges, the Brazil segment reduced operating losses by approximately half on a pro forma basis from the second quarter 2004. The company cannot recognize a tax benefit from the operating losses generated by the Brazil segment, which caused a 26 percentage point increase in the company's effective tax rate in the second quarter. The company has made solid progress in its detailed assessment of its Brazil operations and evaluation of options for the future of the business.

The company reported special charges totalling $87.7 million during the second quarter 2005, including:

* Brazil results include a $46.7 million special charge to increase contingent liabilities due to developments in the quarter that indicate a higher probability of future payments in certain transactional tax disputes.
* Corporate segment special charges were $34.2 million, primarily due to severance payments and benefits for executives who left the company following the merger, including the cost of providing a price per share floor under stock options for some of these executives.
* In the U.S., special charges of $10.0 million were primarily for accelerated depreciation of the Memphis brewery, which will be closed by early 2007.
* In Europe, a special credit of $3.2 million was due to one-time development profits on real estate formerly held by the company.

In the second quarter 2005, Molson Coors synergy teams continued to pursue aggressively $175 million of pre-tax cost synergies that the company has committed to capturing over the next three years. Since the completion of the merger on February 9, 2005, the company has captured approximately $15 million in cost synergies, with the savings mostly in overhead costs. The company believes it is on track to capture the $50 million cost synergy commitment for 2005.

Molson Coors Brewing Company will conduct an earnings conference call with financial analysts and investors at noon Eastern Time today to discuss the company's second quarter financial results. The company will provide a live webcast of the earnings call. Approximately two hours after the conclusion of the earnings call, the company also will host an online, real-time webcast of an Investor Relations "Working Session" with financial analysts at 3:00 p.m. Eastern Time. Both webcasts will be accessible via the company's website, www.molsoncoors.com. Online replays of the webcasts will be available until 11:59 p.m. Eastern Time on September 30, 2005.

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