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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________________
FORM 10-K
(Mark One)
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
OR
For the transition period from ______ to ______ .
Commission File Number: 1-14829
Molson Coors Brewing Company
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
1801 California Street, Suite 4600, Denver, Colorado
1555 Notre Dame Street East, Montréal, Québec, Canada
(Address of principal executive offices)
84-0178360
(I.R.S. Employer
Identification No.)
80202
H2L 2R5
(Zip Code)
303-927-2337 (Colorado)
514-521-1786 (Québec)
(Registrant's telephone number, including area code)
_______________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Class A Common Stock, $0.01 par value
Class B Common Stock, $0.01 par value
Senior Floating Rate Notes due 2019
1.25% Senior Notes due 2024
Securities registered pursuant to Section 12(g) of the Act: None
Name of each exchange
on which registered
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ý
NO o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES o
NO ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES ý
NO o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES ý
NO o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the
Exchange Act.
Large accelerated filer ý
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES o
NO ý
The aggregate market value of the registrant's voting and non-voting common stock held by non-affiliates of the registrant at the close of business on the last trading
day of the registrant's most recently completed second fiscal quarter, June 29, 2018 , was approximately $12.4 billion based upon the last sales price reported for such date on the
New York Stock Exchange and the Toronto Stock Exchange. For purposes of this disclosure, shares of common and exchangeable stock held by persons holding more than 10%
of the outstanding shares of stock and shares owned by officers and directors of the registrant as of June 29, 2018 , are excluded in that such persons may be deemed to be
affiliates. This determination is not necessarily conclusive of affiliate status for other purposes.
The number of shares outstanding of each of the registrant's classes of common stock, as of February 7, 2019 :
Class A Common Stock—2,560,668 shares
Class B Common Stock—196,042,622 shares
Exchangeable shares:
As of February 7, 2019 , the following number of exchangeable shares was outstanding for Molson Coors Canada, Inc.:
Class A Exchangeable Shares—2,757,201 shares
Class B Exchangeable Shares—14,807,311 shares
The Class A exchangeable shares and Class B exchangeable shares are shares of the share capital in Molson Coors Canada Inc., a wholly-owned subsidiary of the
registrant. They are publicly traded on the Toronto Stock Exchange under the symbols TPX.A and TPX.B, respectively. These shares are intended to provide substantially the
same economic and voting rights as the corresponding class of Molson Coors common stock in which they may be exchanged. In addition to the registered Class A common
stock and the Class B common stock, the registrant has also issued and outstanding one share each of a Special Class A voting stock and Special Class B voting stock. The
Special Class A voting stock and the Special Class B voting stock provide the mechanism for holders of Class A exchangeable shares and Class B exchangeable shares to be
provided instructions to vote with the holders of the Class A common stock and the Class B common stock, respectively. The holders of the Special Class A voting stock and
Special Class B voting stock are entitled to one vote for each outstanding Class A exchangeable share and Class B exchangeable share, respectively, excluding shares held by the
registrant or its subsidiaries, and generally vote together with the Class A common stock and Class B common stock, respectively, on all matters on which the Class A common
stock and Class B common stock are entitled to vote. The Special Class A voting stock and Special Class B voting stock are subject to a voting trust arrangement. The trustee
which holds the Special Class A voting stock and the Special Class B voting stock is required to cast a number of votes equal to the number of then-outstanding Class A
exchangeable shares and Class B exchangeable shares, respectively, but will only cast a number of votes equal to the number of Class A exchangeable shares and Class B
exchangeable shares as to which it has received voting instructions from the owners of record of those Class A exchangeable shares and Class B exchangeable shares, other than
the registrant or its subsidiaries, respectively, on the record date, and will cast the votes in accordance with such instructions so received.
Documents Incorporated by Reference: Portions of the registrant's definitive proxy statement for the registrant's 2019 annual meeting of stockholders, which will be
filed no later than 120 days after the close of the registrant's fiscal year ended December 31, 2018 , are incorporated by reference under Part III of this Annual Report on
Form 10-K.
Table of Contents
Glossary of Terms and Abbreviations
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
INDEX
PART I.
PART II.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
Signatures
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
PART III.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
PART IV.
Exhibits, Financial Statement Schedules
Form 10-K Summary
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2
4
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32
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35
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74
77
173
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174
175
175
175
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AOCI
CAD
CZK
DBRS
DSUs
EBITDA
EPS
EROA
EUR
FASB
GBP
HRK
JPY
LIBOR
Moody’s
NAV
OCI
OPEB
PBO
PSUs
RSD
RSUs
S&P 500
SEC
Glossary of Terms and Abbreviations
Accumulated other comprehensive income (loss)
Canadian dollar
Czech Koruna
A global credit rating agency in Toronto
Deferred stock units
Earnings before interest, tax, depreciation and amortization
Earnings per share
Assumed long-term expected return on assets
Euro
Financial Accounting Standards Board
British Pound
Croatian Kuna
Japanese Yen
London Interbank Offered Rate
Moody’s Investors Service Limited, a nationally recognized statistical rating organization designated by the
Securities and Exchange Commission
Net asset value
Other comprehensive income (loss)
Other postretirement benefit plans
Projected benefit obligation
Performance share units
Serbian Dinar
Restricted stock units
Standard & Poor’s 500 Index®
Securities and Exchange Commission
Standard & Poor’s
Standard and Poor’s Ratings Services, a nationally recognized statistical rating organization designated by the SEC
STRs
STWs
2017 Tax Act
U.K.
U.S.
U.S. GAAP
USD or $
VIEs
Sales-to-retailers
Sales-to-wholesalers
Tax Cuts and Jobs Act
United Kingdom
United States
Accounting principles generally accepted in the United States of America
U.S. dollar
Variable interest entities
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Cautionary Statement Pursuant to Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, (the "Exchange Act"). From time to time, we may also provide oral or written forward-looking
statements in other materials we release to the public. Such forward-looking statements are subject to the safe harbor created by the Private Securities Litigation
Reform Act of 1995.
Statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of
future events or circumstances are forward-looking statements, and include, but are not limited to, statements in Part II—Item 7 Management's Discussion and
Analysis of Financial Condition and Results of Operations in this report, and under the heading "Outlook for 2019 " therein, overall volume trends, consumer
preferences, pricing trends, industry forces, cost reduction strategies, anticipated results, anticipated synergies, expectations for funding future capital expenditures
and operations, expectations regarding future dividends, debt service capabilities, timing and amounts of debt and leverage levels, shipment levels and profitability,
market share and the sufficiency of capital resources. In addition, statements that we make in this report that are not statements of historical fact may also be
forward-looking statements. Words such as "expects," "goals," "plans," "believes," "continues," "may," "anticipate," "seek," "estimate," "outlook," "trends," "future
benefits," "potential," "projects," "strategies," and variations of such words and similar expressions are intended to identify forward-looking statements.
Forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those indicated (both
favorably and unfavorably). These risks and uncertainties include, but are not limited to, those described in Part I—Item 1A "Risk Factors" elsewhere throughout
this report, and those described from time to time in our past and future reports filed with the SEC. Caution should be taken not to place undue reliance on any such
forward-looking statements. Forward-looking statements speak only as of the date when made and we undertake no obligation to update any forward-looking
statement, whether as a result of new information, future events or otherwise.
Market and Industry Data
The market and industry data used in this Annual Report on Form 10-K are based on independent industry publications, customers, trade or business
organizations, reports by market research firms and other published statistical information from third parties, as well as information based on management’s good
faith estimates, which we derive from our review of internal information and independent sources. Although we believe these sources to be reliable, we have not
independently verified the accuracy or completeness of the information.
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ITEM 1. BUSINESS
PART I
Unless otherwise noted in this report, any description of "we," "us" or "our" includes Molson Coors Brewing Company ("MCBC" or the "Company"),
principally a holding company, and its operating and non-operating subsidiaries included within our reporting segments and Corporate. Our reporting segments
include: MillerCoors LLC ("MillerCoors" or U.S. segment), operating in the United States; Molson Coors Canada ("MCC" or Canada segment), operating in
Canada; Molson Coors Europe (Europe segment), operating in Bulgaria, Croatia, Czech Republic, Hungary, Montenegro, the Republic of Ireland, Romania, Serbia,
the United Kingdom and various other European countries; and Molson Coors International ("MCI" or International segment), operating in various other countries.
Unless otherwise indicated, information in this report is presented in USD and comparisons are to comparable prior periods. Our primary operating
currencies, other than USD, include the CAD, the GBP, and our Central European operating currencies such as the EUR, CZK, HRK and RSD.
Background
We are one of the world's largest brewers and have a diverse portfolio of owned and partner brands, including global priority brands Blue Moon, Coors
Banquet, Coors Light, Miller Genuine Draft, Miller Lite, and Staropramen , regional champion brands Carling , Molson Canadian and other leading country-
specific brands, as well as craft and specialty beers such as Creemore Springs , Cobra , Doom Bar, Henry's Hard and Leinenkugel's . With centuries of brewing
heritage, we have been crafting high-quality, innovative products with the purpose of delighting the world's beer drinkers and with the ambition to be the first
choice for our consumers and customers. Our success depends on our ability to make our products available to meet a wide range of consumer segments and
occasions.
Molson and Coors were founded in 1786 and 1873, respectively. Our commitment to producing the highest quality beers is a key part of our heritage and
remains so to this day. Our brands are designed to appeal to a wide range of consumer tastes, styles and price preferences. Our largest markets are the U.S., Canada
and Europe.
Coors was incorporated in June 1913 under the laws of the state of Colorado. In October 2003, Coors merged with and into Adolph Coors Company, a
Delaware corporation. In February 2005, Adolph Coors Company merged with Molson Inc. Upon completion of the merger, Adolph Coors Company changed its
name to Molson Coors Brewing Company.
Acquisition
On October 11, 2016, we completed the acquisition of SABMiller plc's ("SABMiller") 58% economic interest and 50% voting interest in MillerCoors and all
trademarks, contracts and other assets primarily related to the "Miller International Business," as defined in the purchase agreement, outside of the U.S. and Puerto
Rico (the "Acquisition") from Anheuser-Busch InBev SA/NV ("ABI"). The Acquisition was completed for $12.0 billion in cash, subject to a downward adjustment
as described in the purchase agreement. This purchase price "Adjustment Amount," as defined in the purchase agreement, required payment to MCBC if the
unaudited EBITDA for the Miller International Business for the twelve months prior to closing was below $70 million . Under the purchase agreement, we retained
the rights to all of the brands in the MillerCoors portfolio at the time of the Acquisition for the U.S. and Puerto Rican markets, including import brands such as
Peroni and Pilsner Urquell , as well as obtained full ownership of the Miller brand portfolio outside of the U.S. and Puerto Rico. Additionally, in consolidating
control of MillerCoors, we expect we will further improve our scale and agility, benefit from significantly enhanced cash flows from operations, and capture
substantial operational synergies. We believe the purchase of the Miller brand trademarks outside of the U.S. and Puerto Rico provides a strategic opportunity to
leverage the iconic Miller trademark globally alongside our trademarks for Coors and Staropramen, and presents volume and profit growth opportunities in both
core markets and emerging markets.
On January 21, 2018, MCBC and ABI entered into a settlement agreement related to the purchase price adjustment under the purchase agreement, and on
January 26, 2018, pursuant to the settlement agreement, ABI paid to MCBC $330.0 million, of which $328.0 million constitutes the Adjustment Amount. As this
settlement occurred following the finalization of purchase accounting, we recorded the settlement proceeds related to the Adjustment Amount as a gain within
special items, net in our consolidated statement of operations in our Corporate segment and within cash provided by operating activities within our consolidated
statement of cash flows for the year ended December 31, 2018. MCBC and ABI also agreed to certain mutual releases as further described in the settlement
agreement.
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Industry Overview
The brewing industry has significantly evolved over the years, becoming an increasingly global beer market. The industry was previously founded on local
presence with modest international expansion achieved through export, license and partnership arrangements. More recently, it has become increasingly complex,
as the consolidation of brewers has occurred globally, resulting in fewer major global market participants. In addition to the acquisitive element of this industry
consolidation, the market continues to utilize export, license and partnership arrangements; however, these are often with the same global competitors that make up
the majority of the market. This industry consolidation has resulted in a small number of large global brewers representing the majority of the worldwide beer
market. At the same time, smaller local brewers within certain established markets are experiencing accelerated growth as consumers increasingly place value
on locally-produced, regionally-sourced products. As the beer industry continues its evolution of consolidation and diversification of its products to meet consumer
demand with broadening preferences, large global brewers are uniquely positioned to leverage the scale, depth of product portfolio and industry knowledge to
continue to lead the market forward.
Global Competitors' Market Capitalization
We evaluate ourselves in relation to other global brewers using various metrics, including overall market capitalization, volume, net sales revenue, gross
margins and net profits, as well as our position within each of our core markets, with the goal to be the first choice for our consumers and customers. To provide a
perspective of the relative size of the major participants in the global brewing market, the market capitalizations of our primary global competitors, based on
foreign exchange rates as of December 31, 2018 , were as follows:
Anheuser-Busch InBev SA/NV
Heineken N.V. ("Heineken")
Asahi Group Holdings, Ltd. ("Asahi")
Carlsberg Group ("Carlsberg")
MCBC
Our Products
Market Capitalization
(In billions)
133.6
51.0
18.8
16.1
12.2
$
$
$
$
$
We have a diverse portfolio of owned and partner brands which are positioned to meet a wide range of consumer segments and occasions in a variety of
markets, including Blue Moon, Coors Banquet, Coors Light, Miller Genuine Draft, Miller Lite and Staropramen . We consider these our global priority brands
which we continue to invest in and focus on growing globally. We believe our portfolio encompasses all segments of the beer industry with the purpose of
delighting the world's beer drinkers, including premium and premium lights, economy, above premium and craft, as well as adjacencies such as ciders and other
malt beverages. The following includes our primary brands sold in each of our segments.
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Brands sold in the U.S.
Global priority brands
Regional champion brands
Blue Moon
Coors Banquet
Coors Light
Miller Genuine Draft
Miller Lite
Hard cider brands
Crispin
Smith & Forge
Hamm's
Icehouse
Keystone
Mickey's
Miller64
Miller High Life
Milwaukee's Best
Olde English
Steel Reserve
Flavored malt beverages
Arnold Palmer Spiked (3)
Henry's Hard
Redd's (4)
Steel Reserve Alloy Series
(1) Under perpetual royalty-free license from Asahi.
(2) Under license from Heineken.
(3) In partnership with Hornell Brewing, an affiliate of Arizona Beverages
(4) Under perpetual royalty-free license from ABI.
Brands sold in Canada
Craft and import brands
Grolsch (1)
Hop Valley
Leinenkugel's
Peroni Nastro Azurro (1)
Pilsner Urquell (1)
Revolver
Saint Archer
Sol (2)
Terrapin
Global priority brands
National champion and other regional brands
Craft and import brands
Brasseurs de Montréal
Creemore Springs
Granville Island
Henry's Hard
Le Trou du Diable
Leinenkugel's
Belgian Moon
Coors Banquet
Coors Light
Miller Genuine Draft
Miller Lite
Carling
Carling Black Label
Keystone
Mad Jack
Miller High Life
Molson Canadian
Molson Canadian 67
Molson Canadian Cider
Molson Dry
Molson Export
Old Style Pilsner
Rickard's
Licensed premium import brands (1)
Amstel Light
Heineken
Murphy's
Newcastle
Strongbow cider
(1) Under license from Heineken.
Desperados
Dos Equis
Moretti
Sol
Tecate
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Brands sold in Europe
Global priority brands
Regional champion brands
Blue Moon
Coors Light
Miller Genuine Draft
Staropramen
Bergenbier
Borsodi
Carling
Jelen
Kamenitza
Niksicko
Ozujsko
Other (1)
Aspall Cider
Bavaria
Beck's
Branik
Birradamare
Cobra
Corona Extra
Grolsch
Lowenbrau
Rekorderlig cider
Singha
Sharp's Doom Bar
Stella Artois
(1) The European business has licensing and distribution agreements with various other brewers through which it also brews and distributes Beck's, Lowenbrau, Stella Artois and Spaten, as
well as a distribution agreement for the exclusive distribution of the Corona brand, throughout the Central European countries in which we operate. We have an agreement with Dutch brewer,
Bavaria, for the exclusive on-premise and off-premise rights to the sales, distribution and customer marketing of Bavaria and its portfolio of brands in the U.K. Starting in 2018, we have an
agreement for licensed brewing and distribution of Bavaria portfolio in Croatia, Bosnia and Herzegovina, Serbia and Montenegro. We also distribute the Rekorderlig cider brand in the U.K.
and the Republic of Ireland. In the U.K., we also sell the Cobra brands through the Cobra Beer Partnership Ltd. joint venture and the Grolsch brands through a joint venture with Royal
Grolsch N.V., and are the exclusive distributor for several brands including Singha . Additionally, in order to be able to provide a full line of beer and other beverages to our U.K. on-premise
customers, we sell "factored" brands, which are third-party beverage brands for which we provide distribution to retail, typically on a non-exclusive basis.
Brands sold in International
Global priority brands
Blue Moon
Coors Light (1)
Miller Genuine Draft (1)
Miller Lite (1)
Staropramen
Regional champion brands
Miller High Life
Thunderbolt
(1) Focus brands in International segment
7
Other
Carling Strong
Coors Banquet
Coors 1873
Keystone
Milwaukee's Best
Miller Ace
Miller Chill
Miller Ultra
Molson Canadian
Zima
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Our Segments
In 2018 , we operated the following segments: the U.S., Canada, Europe and International. A separate operating team manages each segment and each
segment manufactures, markets, and sells beer and other malt beverage products.
United States Segment
•
•
•
•
Headquarters: Chicago, Illinois
Approximately 7,300 employees
Second largest brewer by volume in the U.S., selling approximately 24% of the total 2018 U.S. brewing industry shipments (excluding exports)
Currently operating seven primary breweries, six craft breweries and two container operations
Prior to the Acquisition completed on October 11, 2016 , MCBC owned a 50% voting and 42% economic interest in MillerCoors (which was originally
formed on July 1, 2008, as a joint venture between MCBC and SABMiller), and MillerCoors was accounted for under the equity method of accounting. Following
the completion of the Acquisition, MillerCoors became a wholly-owned subsidiary of MCBC and its results were fully consolidated by MCBC prospectively
beginning on October 11, 2016 .
Sales and Distribution
In the United States, beer is generally distributed through a three-tier system consisting of manufacturers, distributors and retailers. A national network of
approximately 400 independent distributors and one owned distributor, Coors Distributing Company, purchases our products and distributes them to on- and off-
premise retail accounts.
References to on- and off-premise sales volumes are the sales to retailers of these distributors, which we believe is a useful data point relative to consumer
trends.
Channels
In the United States, the on-premise channel industry volume, which includes sales in bars and restaurants, declined approximately 2% in 2018 .
The off-premise channel includes sales in convenience stores, grocery stores, liquor stores and other retail outlets. The off-premise channel industry volume
declined approximately 1% in 2018 versus prior year.
The following table reflects the industry channel trends over the last five years in the United States. Note that percentages reflect estimates based on market
data currently available.
On-premise
Off-premise
Industry channel trend
2018
2017
2016
2015
2014
16%
84%
16%
84%
16%
84%
17%
83%
17%
83%
Coors Distributing Company distributed less than 2% of our total owned and non-owned volume in 2018 .
Manufacturing, Production and Packaging
Brewing Raw Materials
We use high quality ingredients to brew our products. We malt a portion of our production requirements, using barley purchased under primarily annual
contracts from independent farmers located predominantly in the western United States. Other barley, malt, and cereal grains are purchased from suppliers
primarily in the U.S. Hops are purchased from suppliers in the U.S. and Europe. We both own and lease water rights, as well as purchase water through local
municipalities, to provide for and sustain brewing operations in case of a prolonged drought in the regions where we have operations. We do not currently
anticipate future difficulties in accessing water or agricultural products used in our brewing process in the near term.
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Packaging Materials
The following summarizes the percentage of our U.S. segment's packaging materials by type for the year ended December 31, 2018 .
Aluminum cans or bottles:
•
•
•
A portion of the aluminum containers was purchased from Rocky Mountain Metal Container ("RMMC"), our joint venture with Ball Corporation ("Ball"),
whose production facilities, which are leased from us, are located near our brewery in Golden, Colorado.
In addition to the supply agreement with RMMC, we have a supply agreement with Ball to purchase cans and ends in excess of what is supplied through
RMMC.
The RMMC joint venture agreement along with the cans and ends purchase agreement expire on December 31, 2021.
Glass bottles:
•
•
A portion of the glass bottles was provided by Rocky Mountain Bottle Company ("RMBC"), our joint venture with Owens-Brockway Glass
Container, Inc. ("Owens"), whose production facilities, which are leased from us, are located in Wheat Ridge, Colorado. The RMBC joint venture
agreement expires on July 31, 2025.
In addition to the supply agreement with RMBC, we have a supply agreement with Owens for requirements in excess of RMBC's production, which
expires on December 31, 2021.
Stainless steel kegs:
•
•
Kegs are packaged in half, quarter, and one-sixth barrel stainless steel kegs.
A limited number of kegs are purchased each year, and we have no long-term supply agreement.
Crowns, labels, corrugate and paperboard are purchased from a small number of sources unique to each product. In recent years, we have experienced a
slight shift in the allocation among different packaging types toward aluminum cans and bottles and away from glass bottles. In general, aluminum cans allow for
lower packaging costs compared to most other types of packaging materials. We do not currently anticipate future difficulties in accessing packaging products in
the near term.
Contract Manufacturing
We have an agreement to brew, package and ship products for Pabst Brewing Company. Additionally, the U.S. segment produces beer for export to our
Canada and International segments.
Seasonality of the Business
Total industry volume in the U.S. is sensitive to factors such as weather, changes in demographics, consumer preferences and drinking occasions. Weather
conditions consisting of high temperatures and extended periods of warm weather favor increased consumption of our products, while unseasonably cool or wet
weather, especially during the summer months, adversely affects our sales volumes and net sales. Accordingly, consumption of beer in the U.S. is seasonal, with
approximately 39% of industry sales volume typically occurring during the warmer months from May through August.
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Known Trends and Competitive Conditions
2018 U.S. Beer Industry Overview
The beer industry in the United States is highly competitive, and the two largest brewers, ABI and MCBC together represented the majority of the market in
2018 . However, we estimate the two largest brewers lost share in 2018 due to volume growth in the import and flavored malt beverage categories as consumer
preferences continue to shift within the industry to above premium priced beers. We believe growing or even maintaining our market share will require stabilizing
our core brands and increasing our presence in the fast growing areas of the industry.
Competition from outside of the beer category continues to be a challenge for the beer industry. The following table summarizes the estimated percentage
market share by volume of beer (including flavored malt beverages) and other alcohol beverages, including wine and spirits, as a component of the overall U.S.
alcohol market over the last five years. We anticipate that 2018 data, when available, will reflect a continuation of the recent consumer trends. Note that
percentages reflect estimates based on market data currently available.
Beer
Other alcohol beverages
Our Competitive Position
2017
2016
2015
2014
2013
50%
50%
51%
49%
51%
49%
51%
49%
52%
48%
Our portfolio of beers competes with numerous above premium, premium, and economy brands. These competing brands are produced by international,
national, regional and local brewers. We compete most directly with ABI brands, but also compete with imported and craft beer brands, as well as flavored malt
beverages. The following table summarizes the estimated percentage share of the U.S. beer market represented by Molson Coors, ABI and all other brewers over
the last five years. Note that current year percentages reflect estimates based on market data currently available.
MCBC's share
ABI's share
Others' share
2018
2017
2016
2015
2014
24%
42%
34%
25%
43%
32%
25%
44%
31%
26%
45%
29%
27%
46%
27%
Our products also compete with other alcohol beverages, including wine and spirits, and thus their competitive position is affected by consumer preferences
between and among these other categories. Driven by increased spirits advertising along with increased wine and spirits sales execution, sales of wine and spirits
have grown faster than sales of beer in recent years, resulting in a reduction in the beer segment's lead in the overall alcohol beverage market.
Regulation
The U.S. beer business is regulated by federal, state, and local governments. 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, Alcohol and Tobacco Tax and Trade
Bureau, the U.S. Department of Agriculture, the U.S. Food and Drug Administration, state alcohol regulatory agencies, and state and federal environmental
agencies.
Governmental entities also levy taxes and may require bonds to ensure compliance with applicable laws and regulations. In 2018 , excise taxes on malt
beverages were approximately $15 per hectoliter sold on a reported basis which includes the impact of the Craft Beverage Modernization and Tax Reform Act
which took effect on January 1, 2018, for all qualified large domestic brewers and importers effective for 2018 and 2019, and resulted in reduced excise taxes for
MCBC in the U.S. by $2 per barrel on the first six million barrels, which equated to $1.70 per hectoliter on this portion of volume. We transfer a portion of our
share of these savings to distributors consistent with the revenue splitting approach of our U.S. segment’s economic model. State excise taxes are levied in specific
states at varying rates.
Refer to Part I—Item 1A, Risk Factors for risks associated with the regulatory environment in the U.S.
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Canada Segment
•
•
•
•
Headquarters: Toronto, Ontario
Approximately 2,600 employees
Canada's second largest brewer by volume and North America's oldest beer company, selling approximately 32% of the total 2018 Canada beer market
Currently operating five primary breweries and four craft breweries
We brew, market, sell and distribute a wide variety of beer brands nationally. Our portfolio has leading brands in all major product and price segments. In
2018 , Coors Light had an approximate 10% market share and was the second largest selling beer brand in Canada, and Molson Canadian had an approximate 5%
market share and was the fourth largest selling beer in Canada. As a result of the Acquisition, the Miller brands returned to our Canada business.
The Canada segment also includes our partnership arrangements related to the distribution of beer in Ontario, Brewers' Retail Inc. ("BRI"), and in the
Western provinces, Brewers' Distributor Ltd. ("BDL"). BRI and BDL are accounted for under the equity method of accounting. The majority of ownership in BRI
resides with MCC, Labatt Breweries of Canada LP (a subsidiary of ABI) and Sleeman Breweries Ltd. (a subsidiary of Sapporo International). BDL is jointly
owned by MCC and ABI.
In line with our strategic initiatives to expand our craft portfolio, the Canada segment acquired two craft breweries in Quebec, Le Trou du Diable and
Brasseurs de Montréal, Inc. in 2017 and in 2016, respectively. There were no additional acquisitions during 2018. However, on October 4, 2018, a wholly-owned
subsidiary within our Canadian business completed the formation of an independent Canadian joint venture, Truss LP ("Truss"), with HEXO Corp. ("HEXO") to
pursue opportunities to develop, produce and market non-alcoholic, cannabis-infused beverages once legal in Canada. Truss is structured as a standalone start-up
company with its own board of directors and an independent management team and we maintain a 57.5% controlling interest in the joint venture.
Sales and Distribution
In Canada, provincial governments regulate the beer industry, particularly with regard to the pricing, mark-up, container management, sale, distribution and
advertising of beer. Distribution and the retail sale of alcohol products involve a wide range and varied degree of Canadian government control through their
respective provincial liquor boards. See below discussion for details by province.
Channels
In Canada, the on-premise channel includes sales in bars and restaurants. In Ontario and Western Canada, we use jointly-owned distribution systems to
deliver beer to on-premise customers along with products from Labatt Breweries of Canada LP and Sleeman Breweries Ltd. In Quebec and Eastern Canada, we
primarily deliver directly. The on-premise channel, and relationships with customers, are highly regulated and the regulations differ significantly across different
provincial jurisdictions.
The off-premise channel includes sales to convenience stores, grocery stores, liquor stores and other specialty retail outlets, including "The Beer Store" in
Ontario, which is the world's largest beer retailer and is co-owned by Ontario's three largest brewers. The off-premise channel is highly regulated and differs
significantly across different provincial jurisdictions.
The following table reflects the industry channel trends over the last five years in Canada.
On-premise
Off-premise
Province of Ontario
Industry channel trend
2018
2017
2016
2015
2014
16%
84%
17%
83%
17%
83%
17%
83%
17%
83%
In Ontario, beer is primarily purchased at retail outlets operated by BRI, at government-regulated retail outlets operated by the Liquor Control Board of
Ontario ("LCBO"), at approved agents of the LCBO, at certain licensed grocery stores, or at any bar, restaurant, or tavern licensed by the LCBO to sell alcohol for
on-premise consumption. The BRI retail outlets operate under The Beer Store name. Brewers may deliver directly to BRI's outlets or may choose to use BRI's
distribution centers to access retail stores in Ontario, the LCBO system, the grocery channel and licensed establishments.
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Province of Québec
In Québec, the distribution and sale of beer is governed by the Quebec Alcohol Corporation ("SAQ"). Beer is distributed to retail outlets directly by each
brewer or through approved independent agents. We are the agent for the licensed brands we distribute. The brewer or agent distributes the products to permit
holders for retail sales for on-premise consumption. Québec retail sales for off-premise consumption are made through grocery and convenience stores, as well as
government operated outlets.
Province of British Columbia
In British Columbia, the government's Liquor Distribution Branch controls the regulatory elements of distribution of all alcohol products in the province.
BDL, which we co-own with ABI, manages the distribution of our products throughout British Columbia. Consumers can purchase beer at any Liquor Distribution
Branch retail outlet, at any independently owned and licensed retail store or at any licensed establishment for on-premise consumption. Establishments licensed
primarily for on-premise alcohol sales may also be licensed for off-premise consumption.
Province of Alberta
In Alberta, the distribution of beer is managed by independent private warehousing and shipping companies or by a government sponsored system in the case
of U.S. sourced products. All sales of liquor in Alberta are made through retail outlets licensed by the Alberta Gaming and Liquor Commission or licensees, such
as bars, hotels and restaurants. BDL manages the distribution of our products in Alberta.
Other Provinces
Our products are distributed in the provinces of Manitoba and Saskatchewan through local liquor boards. Manitoba and Saskatchewan also have licensed
private retailers. BDL manages the distribution of our products in Manitoba and Saskatchewan. In the Maritime Provinces (other than Newfoundland), local liquor
boards distribute and sell our products. In Newfoundland, our products are sold through independent distributors. In Yukon, Northwest Territories and Nunavut,
government liquor commissioners manage the distribution and sale of our products.
Manufacturing, Production and Packaging
Brewing Raw Materials
We use high quality ingredients to brew our products. We also use hedging instruments to mitigate the risk of volatility in certain commodities and foreign
exchange markets.
We source barley malt from one primary provider, from which we have a committed supply through 2022. Hops are purchased from a variety of global
suppliers in the U.S. and Europe through contracts that vary in length based on market conditions and cover our supply requirements through 2021. Other starch
brewing adjuncts are sourced from two main suppliers, both in North America, through 2022. Water used in the brewing process is from local sources in the
communities where our breweries operate. We do not currently anticipate future difficulties in accessing water or agricultural products used in our brewing process
in the near term.
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Packaging Materials
The following summarizes the percentage of our Canada segment's packaging materials by type for the year ended December 31, 2018 .
Aluminum cans or bottles:
• We source cans and lids from two primary providers with contracts ending December 2021 and December 2023, respectively.
The distribution systems in each province generally provide the collection network for returnable bottles and aluminum cans.
•
Bottles:
• We single source glass bottles and have a committed supply through December 2021.
•
•
The standard bottle for beer brewed in Canada is the 341 ml returnable bottle and represents the vast majority of our bottle sales.
Bottle sales continue to decline as we have experienced a shift in consumers' preference toward aluminum cans. The standard returnable bottle requires
significant investment behind our returnable bottle inventory and bottling equipment. The trend away from returnable bottles could result in higher fixed
cost deleverage related to these assets and an ultimate decreased need for the assets that support this packaging, which could adversely impact
profitability.
Stainless steel kegs:
•
A limited number of kegs are purchased every year, and we have no long-term supply commitment.
Crowns are currently sourced from one major supplier with a contract through June 2019, which we are currently in the process of extending. Paperboard and
labels are currently sourced from one supplier each with contracts through December 2020 and December 2021, respectively. Corrugate is purchased from a small
number of sources with contracts through December 2020 and March 2021 and we are in the process of extending two additional contracts which expired in 2018,
however, supply has continued without issue while these are being negotiated. We do not currently anticipate future difficulties in accessing any of our required
packaging materials in the near term.
Contract Manufacturing
We have an agreement with North American Breweries, Inc. ("NAB") to brew and package certain Labatt brands for export to the U.S. market. We also have
an agreement with Asahi to brew and package Asahi Super Dry and Asahi Select for export to the U.S. market.
Seasonality of Business
Total industry volume in Canada is sensitive to factors such as weather, changes in demographics, consumer preferences and drinking occasions. Weather
conditions consisting of high temperatures and extended periods of warm weather favor increased consumption of our products, while unseasonably cool or wet
weather, especially during the summer months, adversely affects our sales volumes and net sales. Accordingly, consumption of beer in Canada is seasonal, with
approximately 41% of industry sales volume typically occurring during the warmer months from May through August.
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Known Trends and Competitive Conditions
2018 Canada Beer Industry Overview
The Canadian brewing industry is a mature market and ABI and MCBC are the two largest brewers. It is characterized by aggressive competition for volume
and market share from regional brewers, microbrewers and certain foreign brewers, as well as our main domestic competitor. These competitive pressures require
significant annual investment in marketing and selling activities. In 2018 , the Ontario and Québec markets accounted for approximately 61% of the total beer
market in Canada.
There are three major beer price segments: above premium, which includes craft and most imports; premium, which includes the majority of domestic brands
and the light sub-segment; and value (below premium). Since 2001, the premium beer segment in Canada has gradually lost volume to the above premium and
value segments.
The beer industry has declined in five of the last six years. Aging population and strong competition from other alcohol beverages have been the main
contributors to the declining state of the beer industry.
The following table summarizes the estimated percentage market share by volume of beer (including adjacencies, such as cider) and other alcohol beverages,
including wine and spirits, as a component of the overall Canadian alcohol market over the last five years, for which data is currently available. We anticipate that
2018 data, when available, will reflect a continuation of the recent consumer trends. Note that percentages reflect estimates based on market data currently
available.
Beer
Other alcohol beverages
Our Competitive Position
2017
2016
2015
2014
2013
47%
53%
47%
53%
48%
52%
48%
52%
48%
52%
Our brands compete with competitor beer brands and other alcohol beverages, including wine and spirits, and thus our competitive position is affected by
consumer preferences among these other categories. Our brand portfolio gives us strong representation in all major beer segments.
The following table summarizes the estimated percentage share of the Canadian beer market represented by MCBC, ABI and all other brewers over the last
five years. Note that the sum of the percentages below may not equal 100% due to rounding. Current year percentages reflect estimates based on market data
currently available.
MCBC's share (1)
ABI's share (1)
Others' share
2018
2017
2016
2015
2014
32%
42%
26%
33%
42%
25%
33%
43%
24%
34%
43%
23%
37%
43%
21%
(1) The decrease in MCBC's share in 2015 was largely driven by the loss of the contract with Miller Brewing Company ("Miller"), under which we had
exclusive rights to distribute certain Miller brands in Canada and was terminated effective March 2015. As a result of the Acquisition, beginning
October 11, 2016 , these Miller brands returned to our Canada business.
Regulation
In Canada, provincial governments regulate the production, marketing, distribution, selling and pricing of beer (including the establishment of minimum
prices), and impose commodity taxes and license fees in relation to the production, distribution and sale of beer. In addition, the federal government regulates the
advertising, labeling, quality control, and international trade of beer, and also imposes commodity taxes on both domestically produced and imported beer. In 2018
, our Canada segment excise taxes were approximately $54 per hectoliter sold on a reported basis. Further, certain bilateral and multilateral treaties entered into by
the federal government, provincial governments and certain foreign governments, especially with the United States, affect the Canadian beer industry.
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Europe Segment
•
•
•
•
Headquarters: Prague, Czech Republic
Approximately 6,600 employees
Europe's second largest brewer by volume, on a combined basis, within the European countries in which we operate, with an approximate aggregate 20%
market share (excluding factored products) in 2018
Currently operating twelve primary breweries, five craft breweries and one cidery
The majority of our European segment sales are in the U.K., Croatia, Czech Republic and Romania. Our portfolio includes beers that have the largest share in
their respective countries, such as Carling in the U.K., Ozujsko in Croatia, Jelen in Serbia and Niksicko in Montenegro. We have beers that rank in the top three in
market share in their respective segments throughout the region, such as Bergenbier in Romania, Kamenitza in Bulgaria and Borsodi in Hungary . Additionally, as
a result of the Acquisition, we began selling Miller Genuine Draft in various European countries. Our Europe segment includes our consolidated joint venture
arrangements for the production and distribution of Grolsch and Cobra brands in the U.K. and the Republic of Ireland and factored brand sales (beverage brands
owned by other companies, but sold and delivered to retail by us).
Effective January 1, 2017, European markets including Sweden, Spain, Germany, Ukraine and Russia, which were previously reported under our
International segment, are reported within our Europe segment. Additionally, in January 2017, we purchased a controlling interest in the Spanish craft brewery La
Sagra Brew. Located near Madrid, La Sagra expands our craft portfolio in the world's 11th largest beer market and offers a new distribution partner in Spain for
Blue Moon Belgian White , the largest craft brand in the U.S. In July 2017, we also completed the purchase of Birradamare, a small Italian craft brewery based just
outside of Rome, which gives us an opportunity to develop its special brands in Italy and select export markets. In January 2018, we purchased Aspall Cider
Limited in the U.K., which will strengthen the U.K. portfolio with a premium top ten cider as well as a cider production facility.
Sales and Distribution
In Europe, beer is generally distributed through either a two-tier system consisting of manufacturers and retailers, or a three-tier system consisting of
manufacturers, distributors and retailers. Distribution activities for both the on-premise and off-premise channels are conducted primarily by third-party logistics
providers. Most of our beer in the U.K. is sold directly to retailers. We have an agreement with Tradeteam Ltd. ("Tradeteam", a subsidiary of DHL) to provide the
distribution of our products throughout the U.K. through 2023. We utilize several hundred third-party logistics providers across our Central European operations.
We also conduct a small amount of secondary distribution in Czech Republic utilizing our own fleet of vehicles. It is also common in the U.K. for brewers to
distribute beer, wine, spirits, and other products owned and produced by other companies, which we refer to as factored brands, to the on-premise channel (bars and
restaurants). Approximately 18% of our Europe segment net sales in 2018 represented factored brands. In addition, we have an agreement with Heineken through
December 2019, whereby they sell, market and distribute Coors Light in the Republic of Ireland.
Channels
In Europe, the on-premise channel includes sales to pubs and restaurants. The installation and maintenance of draught beer dispensing equipment in the on-
premise channel is generally the responsibility of the brewer. Accordingly, we own refrigeration units and other equipment used to dispense beer from kegs to
consumers that are used in on-premise outlets. This includes beer lines, cooling equipment, taps, and counter mounts.
The off-premise channel includes sales to supermarkets, convenience stores, liquor stores, distributors, and wholesalers. Over the last few years, the off-
premise channel has become increasingly concentrated among a small number of super-store chains.
Generally, over the years, industry volumes in Europe have shifted from the higher margin on-premise channel, where products are consumed in pubs and
restaurants, to the lower margin off-premise channel, also referred to as the "take-home" market. In 2018 , approximately 40% of sales were on-premise and 60%
were off-premise. Consistent with prior years, the on-premise channel has continued to experience declines from shifting consumer preference to off-premise
partially due to smoking bans in many countries.
Manufacturing, Production and Packaging
Brewing Raw Materials
We use high quality ingredients to brew our products. During 2018 , our malt requirements were sourced from third-party suppliers. We have multiple
agreements with various suppliers that cover almost all of our total required malt, with terms ending in 2020 through 2026. Hops are purchased under various
contracts with suppliers in Germany, the U.S. and the U.K.,
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which cover our requirements through 2019. Adjuncts are purchased under various contracts with local producers, which are typically crop year contracts
commencing in October of each year. Water used in the brewing process is sourced from various wells and through water rights and supply contracts. We do not
currently anticipate future difficulties in accessing required water or agricultural products used in our brewing process in the near term.
Packaging Materials
The following summarizes the percentage of our Europe segment's packaging materials by type for the year ended December 31, 2018 .
Bottles:
•
Kegs:
•
Cans:
A significant majority of returnable bottles are sourced under various agreements with third-party suppliers.
A limited number of kegs are purchased each year from various suppliers, and we have no long-term supply commitment. We are currently in the process
of signing new agreements which would cover all of our requirements for kegs in 2019.
• We have long-term agreements with various suppliers that cover all of our required supply of cans, with terms ending in 2019 through 2023.
Recyclable plastic containers:
• We have multiple agreements with various manufacturers in the region, covering 100% of our requirements which expire in 2019. We do not currently
anticipate any issues in renegotiating and extending contracts or in otherwise being able to access recyclable plastic containers.
Crowns, labels and corrugate are purchased from sources unique to each category. We do not currently foresee future difficulties in accessing these or other
packaging materials in the near term.
Seasonality of Business
In Europe, the beer industry is subject to seasonal sales fluctuations primarily influenced by holidays, weather and by certain major televised sporting events.
Weather conditions consisting of high temperatures and extended periods of warm weather favor increased consumption of our products, while unseasonably cool
or wet weather, especially during the summer months, adversely affects our sales volumes and net sales. Accordingly, the peak selling seasons typically occur
during the summer and during the Christmas and New Year holiday season.
Known Trends and Competitive Conditions
2018 Europe Beer Industry Overview
Based on current data, we estimate that the Europe beer market increased in 2018 compared to 2017 , driven by increased beer consumption versus last year
in some of the largest regions in which we operate. Since 2010, the off-premise market share has increased in our European markets from 55% to over 60% of total
volume, and the on-premise market share has declined
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from 45% to below 40%. Europe beer industry retail shipments have fluctuated by approximately 1% to 2% annually over the last five years. These market
fluctuations are consistent with the fluctuations within the overall alcohol market in each of the respective years.
Our beers compete not only with similar products from competitors, but also with other alcohol beverages, including wines and spirits. The following table
summarizes the estimated percentage market share by volume of beer and other alcohol beverages, including wine and spirits, as a component of the overall
European alcohol market, within the countries in which we have production facilities, over the last five years, for which data is currently available. We anticipate
that 2018 data, when available, will reflect a continuation of the recent consumer trends. Note that percentages reflect estimates based on market data currently
available.
Beer
Other alcohol beverages
Our Competitive Position
2017
2016
2015
2014
2013
28%
72%
28%
72%
28%
72%
28%
72%
29%
71%
In European countries where we currently operate, our primary competitors are Heineken, Asahi, ABI and Carlsberg. We believe our brand portfolio gives us
strong representation in all major beer categories. The following table summarizes our estimated percentage share of the beer market within the European countries
where we operate and our primary competitors over the last five years. Note that current year percentages reflect estimates based on market data currently
available.
MCBC's share
Primary competitors' share
Others' share
Regulation
2018
2017
2016
2015
2014
20%
57%
23%
20%
56%
24%
20%
57%
23%
20%
57%
23%
20%
59%
21%
Each country that is part of our Europe segment is either a member of the European Union ("EU") or a current candidate to join, with the exception of Bosnia,
which is a potential candidate, and, as such, there are similarities in the regulations that apply to many parts of our Europe segment's operations and products,
including brewing, food safety, labeling and packaging, marketing and advertising, environmental, health and safety, employment and data protection regulations.
To operate breweries and conduct our business in Europe, we must obtain and maintain numerous permits and licenses from various governmental agencies.
The U.K. is expected to leave the European Union on March 29, 2019. However, the proposed withdrawal agreement was rejected by the U.K. Parliament on
November 14, 2018 and January 15, 2019. As a result, the terms of the withdrawal remain unknown, which subjects our Europe segment to regulatory and market
uncertainty in the U.K. and in the rest of Europe. See Part I—Item 1A Risk Factors under "Risks Specific to the Europe Segment" for further discussion of the risks
specific to the U.K.'s proposed exit from the EU.
Each country's government levies excise taxes on all alcohol beverages. With the exception of Serbia, Montenegro and Bosnia, all countries' laws on excise
taxes are consistent with the directives of the EU. With the exception of Serbia, where a flat excise per hectoliter is used, all European countries use similar
measurements based on either alcohol by volume or Plato degrees. The EU Excise Directives are currently under review which may result in all jurisdictions being
required to account by reference to alcohol by volume. In 2018 , the excise taxes for our Europe segment were approximately $46 per hectoliter on a reported basis.
Refer to Part I—Item 1A, Risk Factors for risks associated with the regulatory environment in Europe.
International Segment
•
•
•
•
Headquarters: Denver, Colorado
Approximately 450 employees
International beer markets, including emerging markets in Latin America, Asia Pacific and Africa
Currently operating under export models and license agreements, as well as owned breweries, which brew and package brands sold in India
The objective of our International segment is to grow and expand our business and brand portfolio in new and existing markets, while being a meaningful
contributor to overall MCBC growth. Our strategy is centered on our focus markets and
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focus brands. Our focus brands are Coors Light , Miller Lite and Miller Genuine Draft , which are aligned with global priority brands and account for the majority
of our volumes. The International segment's portfolio of beers competes within the above premium category in most of our markets. Our principal competitors
include large global brewers, as well as local brewers. As our International segment's objective is to grow and expand our business, we are developing scale and
building market share in the countries where we operate. Many of the markets in which we operate are considered emerging beer markets, with other brewers
controlling the majority of the market share. Our beers compete not only with similar products from competitors, but also with other alcohol beverages, including
wines, spirits, and ciders, and thus our competitive position is affected by consumer preferences between and among these other categories.
As part of the acquisition of the Miller International Business, which we acquired in the fourth quarter of 2016, we entered into various Transitional Service
Agreements (“TSAs”) with local SABMiller and now ABI owned entities for services including the selling, distribution and production of Miller brands. We have
successfully created a presence and commercial routes to market related to the Miller brands, but continue to leverage production TSAs, which are set to expire in
October 2019, in certain markets. We are in the process of establishing alternative production for the Miller brands and do not currently anticipate any material
disruption in the supply of our products after the currently-scheduled expiration of the production TSAs.
Latin America
In Latin America, we use a combination of export models and license agreements to sell Blue Moon, Coors Light, Miller Genuine Draft, Miller High Life,
Miller Lite and other brands. In our export model markets, we import beer from the U.S. and sell it through agreements with independent distributors. Our export
markets include countries such as Dominican Republic, Paraguay and Puerto Rico. In license markets, such as Argentina, Colombia and Mexico, we have
established exclusive licensing agreements with brewers and distributors for the manufacturing and distribution of our products. In Honduras, Panama and Chile we
rely on a combination of export and license agreements.
Asia Pacific
Our operations in the Asia Pacific region include markets such as Australia, India, Japan and South Korea. Our business in India consists primarily of
operations in the states of Haryana, Punjab and Uttar Pradesh. Our consolidated India business produces, markets and sells a beer portfolio consisting of
Thunderbolt, Miller Ace, Miller High Life and Carling Strong. We own three breweries in India (one of which is currently not operational as a result of the State of
Bihar, India’s enactment of total alcohol prohibition in 2016), where we use high quality ingredients to brew our products, which are sourced through various
contracts with local suppliers. We do not currently anticipate any significant disruption in the supply of these raw materials or brewing inputs in the near term.
Our Japan business imports our brands and sells through independent wholesalers. Our focus is on the marketing and selling of the Blue Moon, Coors Light
and Zima brands. During the fourth quarter of 2018, we entered into an exclusive distribution agreement with Boon Rawd Trading International Co. Ltd, best
known for its flagship brand, Singha . Under this agreement, we will be the exclusive importer, distributor, marketer and seller of Singha in Japan beginning
January 2019. In Australia, we license our brands to a local partner that distributes locally produced and imported products including Blue Moon , Coors, Miller
Genuine Draft, Miller Chill and other products for us. In South Korea, our brands include Blue Moon , Coors Light , Miller Genuine Draft , Miller Lite and
Staropramen and are imported and sold through an independent distributor. During the first half of 2018, we decided to formally exit our business in China and we
have subsequently completed the substantial liquidation of the corresponding entity.
Africa
We sell Miller Genuine Draft in South Africa and Zambia. Miller Genuine Draft is produced in South Africa and sold through a local license agreement.
Corporate
Corporate is not a reportable segment and primarily includes interest and certain other general and administrative costs that are not allocated to any of the
operating segments. The majority of these corporate costs relate to worldwide administrative functions, such as corporate affairs, legal, human resources,
information technology, finance, internal audit, insurance, ethics and compliance, risk management, global growth, supply chain and commercial initiatives, as well
as acquisition, integration and financing costs associated with the Acquisition. Additionally, Corporate includes the results of our water resources and energy
operations in Colorado as well as the unrealized changes in fair value on our commodity swaps not designated in hedging relationships recorded within cost of
goods sold, which are later reclassified when realized to the segment in which the underlying exposure resides.
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Other Information
Global Intellectual Property
We own trademarks on the majority of the brands we produce and have licenses for the remainder. We also hold several patent and design registrations with
expiration dates through 2038 relating to brewing methods, beer dispensing systems, packaging and certain other innovations. We are not reliant on patent royalties
for our financial success. Therefore, these expirations are not expected to have a significant impact on our business.
Sustainability
We believe in producing a beer we can be proud of, from barley to bottle. Our Beer Print i
s MCBC's approach to sustainability and the right way to grow
our business. Our Beer Print is integral to how we will build long-term value for society and our shareholders, while leaving a positive imprint on our
communities, on our environment and on our business.
We have a long legacy of leaving a positive imprint on the environment and our community. MCBC has been recognized on the Dow Jones Sustainability
North America Index for eight consecutive years for our sustainability performance.
In 2012, MCBC built on long-standing efforts to reduce harmful drinking by becoming a signatory of the Beer, Wine and Spirits Producers’ Commitments to
Reduce Harmful Drinking. We have been working closely with other leading beer, wine and spirit companies and with governments around the world to deliver a
10% reduction in the harmful use of alcohol by 2025. The current phase of the Commitments ended in 2017, and we look forward to working with our industry
partners to develop the next set of ambitious targets.
In 2017, we launched Our Beer Print 2025 agenda, Raising the Bar on Beer, a new sustainability strategy for Molson Coors and a set of ambitious goals to
take us to 2025. We focused our efforts where we can have the most positive impact on our business and society. We established goals across three pillars -
Responsibly Refreshing, Sustainable Brewing and Collectively Crafted - that aim to address the shifting expectations of our consumers and stakeholders, while we
continue to drive our operations to be even more resource efficient and resilient. More information about Our Beer Print 2025 agenda can be found on our
sustainability website, www.OurBeerPrint.com, which includes:
•
•
Our Beer Print Report 2018, which presents our 2025 strategy and highlights of our work across our three pillars; and
ESG (Environment, Social and Governance) Report 2018, which offers greater detail on Molson Coors sustainability performance.
The information provided on our website (or any other website referred to in this report) is not part of this report and is not incorporated by reference as part
of this report.
Environmental Matters
Our operations are subject to a variety of extensive and changing federal, state and local environmental laws, regulations and ordinances that govern
activities or operations that may have an impact on human health or the environment. Such laws, regulations or ordinances may impose liability for the cost of
remediation, and for certain damages resulting from sites of past releases of hazardous materials. Our policy is to comply with all such legal requirements. While
we cannot predict our eventual aggregate cost for the environmental and related matters in which we may be or are currently involved, we believe that any
payments, if required, for these matters would be made over a period of time in amounts that would not be material in any one year to our operating results, cash
flows, or our financial or competitive position. We believe adequate reserves have been provided for losses that are probable and estimable. However, there can be
no assurance that environmental laws will not become more stringent in the future or that we will not incur material costs in the future in order to comply with such
laws. See Part II—Item 8 Financial Statements and Supplementary Data, Note 18, "Commitments and Contingencies" of the Notes under the caption "
Environmental" for additional information regarding environmental matters.
Employees
As of the end of 2018 , we employed approximately 17,750 employees within our business globally. Specifically, we employed approximately 7,300 within
our U.S. segment, 6,600 within our Europe segment, 2,600 within our Canada segment, 450 within our International segment, 300 within our Corporate
headquarters in Colorado and 500 within our Global Business Services center.
Available Information
We file with, or furnish to, the SEC reports, including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports pursuant to Section 13(a) or 15(d) of the Exchange Act. These
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reports are available free of charge via EDGAR through the SEC website (www.sec.gov) and are also available free of charge on our corporate website
(www.molsoncoors.com) as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. The foregoing website addresses are
provided as inactive textual references only. The information provided on our website (or any other website referred to in this report) is not part of this report and is
not incorporated by reference as part of this report.
Executive Officers
The following table sets forth certain information regarding our executive officers as of February 12, 2019 :
Name
Mark R. Hunter
Tracey I. Joubert
Gavin D.K. Hattersley
Sergey Yeskov
Simon Cox
Frederic Landtmeters
E. Lee Reichert
Celso L. White
Michelle S. Nettles
Krishnan Anand
ITEM 1A. RISK FACTORS
Age
56
52
56
42
51
45
52
57
47
61
Position
President and Chief Executive Officer
Chief Financial Officer
President and Chief Executive Officer, MillerCoors LLC
President and Chief Executive Officer, Molson Coors International
President and Chief Executive Officer, Molson Coors Europe
President and Chief Executive Officer, Molson Coors Canada
Chief Legal and Corporate Affairs Officer and Secretary
Chief Supply Chain Officer
Chief People and Diversity Officer
Chief Growth Officer
Investing in our Company involves risk. The reader should carefully consider the following risk factors and the other information contained within this
Annual Report on Form 10-K. The risks set forth below are those that management believes are most likely to have a material adverse effect on us, however, are
not a comprehensive description of the risks facing our Company. We may also be subject to other risks or uncertainties not presently known to us or that we
currently deem to be immaterial but may materially adversely affect our business, financial condition or results of operations in future periods. If the following
risks or uncertainties, individually or in combination, actually occur, they may have a material adverse effect on our business, results of operations and prospects.
Risks Specific to Our Company
The global beer industry is constantly evolving, and our position within the global beer industry and our markets in which we operate may
fundamentally change. If we do not successfully transform along with the evolving industry and market dynamics, then the result could have a material
adverse effect on our business and financial results. The brewing industry has significantly evolved over the years becoming an increasingly global beer market.
For many years, the industry operated primarily on local presence with modest international expansion achieved through export, license and partnership
arrangements, whereas it has now become increasingly complex as the global consolidation of brewers has resulted in fewer major market participants. At the same
time, smaller local brewers within certain geographies are seeing accelerated growth as consumers increasingly place value on locally-produced and/or regionally-
sourced products. As a result of the increased global consolidation of brewers and the dynamic of an expanding new segment within the industry with new market
entrants, the markets in which we operate, particularly the more mature markets, may evolve at a disadvantage to our current market position and local
governments may intervene, which may fundamentally accelerate transformational changes to such markets. For example, U.S. and Canada beer markets have long
consisted of a select number of significant market participants with government-regulated routes to market. However, evolution in these and others of our beer
markets together with emerging changes to consumer preferences have introduced a significant expansion of market entrants and resulted in increased consumer
choice and market competition, as well as increased government scrutiny. Specifically, in the U.S., Canada and Europe, we have experienced vast expansion in the
craft beer industry along with the expansion of cider and flavored malt beverages. If our competitors are able to respond more quickly to the evolving trends within
the craft beer, cider and flavored malt beverages categories, or if our new products are not successful, our business and financial results may be adversely impacted.
In Canada, changes to interprovincial trade rules, regulations, distribution models, and packaging requirements, such as government-owned retail outlets and
industry standard returnable bottles, may be disadvantageous to us. Currently, in Ontario and other provinces, provincial governments are reviewing and/or
changing this historical foundation as a result of this market evolution and increased demand by some for government intervention to enhance competition and
choice. If we are unsuccessful in evolving with, and navigating through, the changes to the markets in which we operate, there could be a
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material adverse effect on our business and financial results. See risk factors below under “Risks Specific to the Canadian Segment” for additional risks specific to
competition in the Canadian beer market.
Competition in our markets could require us to reduce prices or increase capital and other expenditures or cause us to lose sales volume, any of which
could have a material adverse effect on our business and financial results. In many of our markets, our primary competitors have greater financial, marketing,
production and distribution resources than we do, and may be more diverse in terms of their geographies and brand portfolios. In all of the markets in which we
operate, aggressive marketing strategies, such as reduced pricing, brand positioning, and increased capital or other investments by these competitors could have a
material adverse effect on our business and financial results. In addition, continuing consolidation among major global brewers and between brewers and other
beverage companies may lead to stronger or new competitors, loss of partner brands, negative impacts on our distributor networks and pressures from marketing
and pricing tactics by competitors. Further, consolidation of distributors in our industry could reduce our ability to promote our brands in the market in a manner
that enhances rather than diminishes their value, as well as reduce our ability to manage our pricing effectively. Additionally, due to competition with brewers and
other beverage companies, an increase in the purchasing power of our large competitors may cause further pricing pressures which could prevent us from
increasing prices to recover higher costs necessary to compete. Such pressures could have a material adverse impact on our business and our financial results and
market share. Failure to generate significant cost savings and margin improvement through our ongoing initiatives could adversely affect our profitability.
Increased pressures for reduced pricing or difficulties in increasing prices while remaining competitive within our markets, as well as the need for increased capital
investment, marketing and other expenditures could result in lower margins or loss of market share and volumes. Moreover, most of our major markets are mature,
so growth opportunities may be more limited to us than to our competitors. For example, sales in the U.S. and Canada accounted for approximately 80% of our
total 2018 sales.
Our success as an enterprise depends largely on the success of relatively few products in several mature markets specific to the beer industry; if
consumer preferences shift away from our products or consumption of our products decline, our business and financial results could be materially adversely
affected. Our Coors Light and Miller Lite brands in the U.S., Coors Light, Molson Canadian , Coors Banquet and Carling brands in Canada, and Carling,
Staropramen, Jelen, Bergenbier and Coors Light brands in Europe represented approximately half of each respective segment's sales volumes in 2018.
Additionally, several of our brands represent a significant share of their respective market, therefore volatility in these markets could disproportionately impact the
performance of these brands. Consequently, any material shift in consumer preferences away from these brands, or from the categories in which they compete,
could have a material adverse effect on our business and financial results. Consumer preferences and tastes may shift away from our brands or beer generally due
to, among others, changing taste preferences, demographics, downturn in economic conditions or perceived value, as well as changes in consumers' perception of
our brands due to negative publicity, regulatory actions or litigation. Recently, there has been more attention focused on health concerns and the harmful effects of
alcoholic beverages which could result in a change in the social acceptability of beer and other alcoholic beverages which could materially impact the consumption
of beer and our sales. Additionally, in some of our major markets, specifically Canada, the U.S. and Europe, there has been a shift in consumer preferences within
the total beer market away from premium brands to "craft beer" produced by smaller, regional microbreweries, as well as a shift within the total alcohol beverage
market from beer to wine and spirits. Moreover, several of our major markets are mature and we have a significant share in such markets, therefore, small
movements in consumer preference, such as consumer shifts away from premium light brands, can disproportionately impact our results. Although the ultimate
impact is currently unknown, the emergence of legal cannabis in certain U.S. states and Canada may result in a shift of discretionary income away from our
products or a change in consumer preferences away from beer. As a result, a shift in consumer preferences away from our products or beer or a decline in the
consumption of our products could result in a material adverse effect on our business and financial results.
The success of our business relies heavily on brand image, reputation, product quality and protection of intellectual property. It is important that we
maintain and increase the image and reputation of our existing brands and products. Concerns about product quality, even when unsubstantiated, could be harmful
to our image and reputation of our brands and products. While we have quality control programs in place, in the event we experienced an issue with product
quality, we may experience recalls or liability in addition to business disruption which could further negatively impact brand image and reputation and negatively
affect our sales. Our brand image and reputation may also be more difficult to protect due to less oversight and control as a result of the outsourcing of some of our
operations. We also could be exposed to lawsuits relating to product liability or marketing or sales practices. Deterioration to our brand equity may be difficult to
combat or reverse and could have a material effect on our business and financial results. In addition, because our brands carry family names, personal activities by
certain members of the Molson or Coors families that harm their public image or reputation could have an adverse effect on our brands. Further, our success is
dependent on our ability to protect our intellectual property rights, including trademarks, patents, domain names, trade secrets and know-how. We cannot be certain
that the steps we have taken to protect
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our intellectual property rights will be sufficient or that third parties will not infringe upon or misappropriate these rights. If we are unable to protect our intellectual
property rights, it could have a material adverse effect on our business and financial results.
Weak, or weakening of, economic or other negative conditions in the markets in which we do business could have a material adverse effect on our
business and financial results. Beer consumption in many of our markets is closely tied to general economic conditions and a significant portion of our portfolio
consists of premium and above premium brands. Difficult macroeconomic conditions in our markets, such as decreases in per capita income and level of disposable
income driven by increases to inflation, income taxes, the cost of living, unemployment levels, political or economic instability or other country-specific factors
could have an adverse effect on the demand for our products. For example, a trend towards value brands in certain of our markets or deterioration of the current
economic conditions could result in a material adverse effect on our business and financial results. A significant portion of our consolidated net sales revenues are
concentrated in the U.S. Therefore, unfavorable macroeconomic conditions, such as a recession or slowed economic growth, in the U.S. could negatively affect
consumer demand for our product in this important market. Under difficult economic conditions, consumers may seek to reduce discretionary spending by forgoing
purchases of our products or by shifting away from our products to lower-priced products offered by other companies. Softer consumer demand for our products,
particularly in the U.S., could reduce our profitability and could negatively affect our overall financial performance.
We may not be able to realize anticipated cost and operational synergies from the Acquisition. The success of the Acquisition will depend, in part, on
our ability to realize anticipated cost and operational synergies. Our success in realizing these cost synergies, and the timing of this realization, depends on the
successful integration of our business and operations with the acquired business and operations. Even if we are able to integrate the acquired businesses and
operations successfully, this integration may not result in the realization of the full benefits of the cost and operational synergies of the Acquisition that we
currently expect within the anticipated time frame, or at all.
Our debt level, which increased significantly to fund the Acquisition, subjects us to financial and operating risks, and the agreements governing such
debt subject us to financial and operating covenants and restrictions. Our indebtedness subjects us to financial and operating covenants, including restrictions on
priority indebtedness, leverage thresholds, liens, certain types of secured debt and certain types of sale lease-back transactions and transfers of assets, which may
limit our flexibility in responding to our business needs. If we are not able to maintain compliance with stated financial covenants or if we breach other covenants
in any debt agreement, we could be in default under such agreement. Such a default would adversely affect our credit ratings, may allow our creditors to accelerate
the related indebtedness, and may result in the acceleration of any other indebtedness to which a cross-acceleration or cross-default provision applies. Our
significant debt level and the terms of such debt could, among other things:
•
•
make it more difficult to satisfy our obligations under the terms of our indebtedness;
limit our ability to refinance our indebtedness on terms acceptable to us, or at all;
limit our flexibility to plan for and adjust to changing business and market conditions and increase our
•
vulnerability to general adverse economic and industry conditions;
require us to dedicate a substantial portion of our cash flow to make interest and principal payments on our
•
debt, thereby limiting the availability of our cash flow to fund future acquisitions, working capital, business
activities, and other general corporate requirements;
•
limit our ability to obtain additional financing for working capital, capital expenditures, strategic
opportunities, including acquisitions or other investments, to fund growth or for general corporate purposes,
even when necessary to maintain adequate liquidity, particularly if any ratings assigned to our debt securities
by rating organizations were revised downward; and
•
adversely impact our competitive position in the industry.
In addition, certain of our current and future debt and derivative financial instruments have or, in the future, could have interest rates that are tied to
reference interest rates, such as the LIBOR. The volatility and availability of such reference rates are out of our control. Accordingly, changes to or the
unavailability of such rates, could result in increases to the cost of debt which would negatively affect our profitability. For example, in 2017, the UK’s Financial
Conduct Authority announced that after 2021 it would no longer persuade or compel panel banks to submit the rates required to calculate LIBOR, and it is unclear
whether the banks currently reporting information used to set LIBOR will stop doing so after 2021. Should LIBOR no
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longer be available, the rates we pay under certain derivative financial instruments could increase, which would negatively affect our profitability, and the
attractiveness of borrowings under our current credit facility or future debt issuances could diminish, thereby limiting our access to capital.
Failure to comply with our debt covenants could have an adverse effect on our ability to obtain future financing at competitive rates and/or our ability
to refinance our existing indebtedness. Under the terms of each of our debt facilities, we must comply with certain restrictions. These include restrictions on
priority indebtedness (certain threshold percentages of secured consolidated net tangible assets), leverage thresholds, liens, and restrictions on certain types of sale
lease-back transactions and transfers of assets. Failure to comply with these restrictions or maintain our credit rating may result in issues with our current financing
structure and potential future financing requirements.
A deterioration in our credit rating could increase our borrowing rates or have an adverse effect on our ability to obtain future financing or refinance
current debt. Ratings agencies may downgrade our credit ratings below their current investment grade levels if we are unable to meet our deleveraging
commitments. A credit ratings downgrade could increase our costs of future borrowing and harm our ability to refinance our debt in the future on acceptable terms
or access the capital markets.
Default by or failure of one or more of our counterparty financial institutions could cause us to incur significant losses. As part of our risk
management activities, we enter into transactions involving derivative financial instruments, including, among others, forward contracts, commodity swap
contracts, option contracts, with various financial institutions. In addition, we have significant amounts of cash and cash equivalents on deposit or in accounts with
banks or other financial institutions in the U.S. and abroad. As a result, we are exposed to the risk of default by, or failure of, counterparty financial institutions.
The risk of counterparty default or failure may be heightened during economic downturns and periods of uncertainty in the financial markets. If one of our
counterparties were to become insolvent or file for bankruptcy, our ability to recover losses incurred as a result of default or to retrieve our assets that are deposited
or held in accounts with such counterparty may be limited by the counterparty's liquidity or the applicable laws governing the insolvency or bankruptcy
proceedings.
Our operations face significant exposure to changes in commodity prices, which could materially and adversely affect our business and financial
results. We use a large volume of agricultural and other raw materials, some of which are purchased through supply contracts with third parties, to produce our
products, including barley, malted barley, hops, corn, other various starches, water and packaging materials, including aluminum cans and bottles, glass and
polyethylene terephthalate containers, as well as, cardboard and other paper products. We also use a significant amount of diesel fuel, natural gas and electricity in
our operations. The supply and price of these raw materials and commodities can be affected by a number of factors beyond our control, including market demand,
alternative sources for suppliers, global geopolitical events (especially as to their impact on crude oil prices and the resulting impact on diesel fuel prices), trade
agreements among producing and consuming nations, governmental regulations, including tariffs, frosts, droughts and other weather conditions, changes in
precipitation patterns, the frequency of extreme weather events, economic factors affecting growth decisions, inflation, plant diseases, theft and industry surcharges
and other practices. For example, in June 2018, U.S. tariffs on aluminum imports from Canada, Mexico and EU went into effect, which has created volatility in the
price of aluminum in the U.S. and increased the price of aluminum used in some of our product packaging. To the extent any of the foregoing factors affect the
availability or prices of ingredients or packaging or our hedging arrangements do not effectively or completely hedge changes in commodity price risks and we are
not able to pass these increased costs along to customers, our business and financial results could be materially adversely impacted.
Unfavorable outcomes of legal or regulatory proceedings may adversely affect our business and financial condition. We are from time to time involved
in or subject to legal or regulatory proceedings related to our business. Such proceedings can be complex, costly, and highly disruptive to business operations by
diverting the attention and energies of management and other key personnel. The assessment of the outcome of such proceedings, including our potential liability,
if any, is a highly subjective process that requires judgments about future events that are not within our control. The outcome of litigation, arbitration, regulatory or
other proceedings, including amounts ultimately received or paid upon judgment or settlement, may differ materially from management’s outlook or estimates,
including any amounts accrued in the financial statements. Actual outcomes, including judgments, awards, settlements or orders, could have a material adverse
effect on our business, financial condition, operating results, or cash flows.
We may incur impairments of the carrying value of our goodwill and other intangible assets which could have a material adverse effect on our
business and financial results. In connection with various business combinations, we have historically allocated material amounts of the related purchase prices to
goodwill and other intangible assets that are considered to have indefinite useful lives. For example, as a result of the Acquisition, we allocated approximately $6.3
billion and $7.6
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billion to goodwill and indefinite-lived intangible assets, respectively. These assets are tested for impairment at least annually, using estimates and assumptions
affected by factors such as economic and industry conditions and changes in operating performance. Additionally, in conjunction with the brand impairment tests,
we also reassess each brand's indefinite-life classification. Potential resulting charges from an impairment of goodwill or brand intangible, as well as
reclassification of an indefinite-lived to a definite-lived brand intangible, could have a material adverse effect on our results of operations. For example, the results
of our annual impairment testing completed as of October 1, 2016, indicated that the fair value of the Molson core brand indefinite-lived intangible asset was below
its carrying value. As a result, we recorded an impairment charge of $495.2 million recorded within special items in our consolidated statements of operations
during the fourth quarter of 2016. Additionally, during this review, we also reassessed the asset’s indefinite-life classification and determined that the Molson core
brands have characteristics that have evolved which now indicate a definite-life is more appropriate. These brands were therefore reclassified as definite-lived
intangible assets and are being amortized over useful lives ranging from 30 to 50 years.
Our most recent impairment analysis, conducted as of October 1, 2018 , the first day of our fiscal fourth quarter, indicated that the fair value of the U.S.,
Europe and Canada reporting units were estimated at approximately 19% , 11% and 6% in excess of their carrying values, respectively. In the current year testing,
it was determined that the fair value of each of the reporting units declined from the prior year, resulting in our Europe and Canada reporting units now being
considered at risk of future impairment in the event of significant unfavorable changes in the forecasted cash flows (including prolonged weakening of economic
conditions, or significant unfavorable changes in tax, environmental or other regulations, including interpretations thereof), terminal growth rates, market multiples
and/or weighted-average cost of capital utilized in the discounted cash flow analyses. Although the fair values of our reporting units are in excess of their carrying
values, the fair values are sensitive to the aforementioned potential unfavorable changes that could have an adverse impact on future analyses. Any future
impairment of the U.S., Europe or Canada reporting units or brands, or reclassification of indefinite-lived brands to definite-lived, may result in material charges
that could have a material adverse effect on our business and financial results. Additionally, if the on-going integration of the MillerCoors and Miller International
Business is unsuccessful due to, for example, unexpected challenges or difficulties, or adverse economic, market or industry conditions, material impairment
charges may be incurred in the future. The testing of our goodwill for impairment is predicated upon our determination of our reporting units. Any change to the
conclusion of our reporting units or the aggregation of components within our reporting units could result in a different outcome to our annual impairment test. See
Part II-Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations, Critical Accounting Estimates and Part II-Item 8 Financial
Statements and Supplementary Data, Note 10, "Goodwill and Intangible Assets" of the Notes for additional information related to the results of our annual
impairment testing.
Termination of one or more manufacturer/distribution agreements could have a material adverse effect on our business and financial results. We
manufacture and/or distribute products of other beverage companies through various joint venture, licensing, distribution, contract brewing or other similar
arrangements, such as our agreement to import, market, distribute and sell Heineken in Canada and our arrangements to brew and distribute Beck's, Stella Artois,
Lowenbrau and Spaten and to distribute Corona in Central Europe. Our inability to renew or the loss of one or more of these arrangements, as a result of industry
consolidation or otherwise, could have a material adverse effect on our business and financial results. For example, in 2017, our International segment was
adversely impacted by the loss of the Modelo brands in Japan.
Changes in various supply chain standards or agreements could have a material adverse effect on our business and financial results. Our business
includes various joint venture and industry agreements which standardize parts of the supply chain system. An example includes our warehousing and customer
delivery systems in Canada organized under joint venture agreements with other brewers. Any negative change in these agreements or material terms within these
agreements could have a material adverse effect on our business and financial results.
We rely on a small number of suppliers to obtain the packaging materials we need to operate our business. The inability to obtain materials could
unfavorably affect our ability to produce our products which could have a material adverse effect on our business and financial results. We purchase certain
types of packaging materials including aluminum cans and bottles, glass bottles and paperboard from a small number of suppliers. Consolidation of packaging
materials suppliers has reduced local supply alternatives and increased risks of supply disruptions. The inability of any of these suppliers to meet our production
requirements without sufficient time to develop an alternative source could have a material adverse effect on our business and financial results. Additionally, if the
financial condition of these suppliers deteriorates our business and financial results could be adversely impacted. Our suppliers’ financial condition is affected in
large part by conditions and events that are beyond our and their control, including: competitive and general market conditions in the locations in which they
operate; the availability of capital and other financing resources on reasonable terms; loss of major customers; or disruptions of bottling operations that may be
caused by strikes, work stoppages, labor unrest or natural disasters. A deterioration of the financial condition or results of operations of one or more of our major
suppliers could adversely affect our business and financial results.
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Risks associated with operating our joint ventures may materially adversely affect our business and financial results. We have entered into several joint
ventures, including our joint ventures with Ball Corporation (i.e. Rocky Mountain Metal Container), and with Owens-Brockway Glass Container Inc. (i.e. Rocky
Mountain Bottle Company), for a portion of our aluminum and glass packaging supply in the U.S. We may enter into additional joint ventures in the future. Our
joint venture partners may at any time have economic, business or legal interests or goals that are inconsistent with our goals or with the goals of the joint venture.
In addition, we compete against our joint venture partners in certain of our other markets. Disagreements with our business partners may impede our ability to
maximize the benefits of our partnerships. Our joint venture arrangements may require us, among other matters, to pay certain costs or to make certain capital
investments or to seek our joint venture partner's consent to take certain actions. In addition, our joint venture partners may be unable or unwilling to meet their
economic or other obligations under the operative documents, and we may be required to either fulfill those obligations alone to ensure the ongoing success of a
joint venture or to dissolve and liquidate a joint venture.
Our operations in developing and emerging markets expose us to additional risks which could harm our business and financial results. We expect our
operations in developing and emerging markets to become more significant to our operating results as we continue to further expand internationally, including in
connection with our acquisition of the Miller International Business. In certain of these markets, we have limited operating experience and may not succeed. In
addition to risks described elsewhere in this section, our operations in these markets expose us to additional risks, including: changes in local political, economic,
social and labor conditions; restrictions on foreign ownership and investments; repatriation of cash earned in countries outside the U.S.; import and export
requirements; increased costs to ensure compliance with complex foreign laws and regulations; currency exchange rate fluctuations; a less developed and less
certain legal and regulatory environment, which among other things can create uncertainty with regard to liability issues; longer payment cycles, increased credit
risk and higher levels of payment fraud; and other challenges caused by distance, language, and cultural differences.
In addition, as a global company, we are subject to foreign and U.S. laws and regulations designed to combat governmental corruption, including the U.S.
Foreign Corrupt Practices Act and the U.K. Bribery Act. Violations of these laws and regulations could result in fines and penalties, criminal sanctions against us,
our officers, or our employees, prohibitions on the conduct of our business and prohibitions on our ability to offer our products and services in one or more
countries, each of which could have a materially negative effect on our reputation, brands and our operating results. Although we have implemented policies and
procedures designed to ensure compliance with these foreign and U.S. laws and regulations, including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery
Act, there can be no assurance that our employees, business partners or agents will not violate our policies.
Changes to the regulation of the distribution systems for our products could adversely affect our business and financial results. Many countries in
which we operate regulate the distribution of alcohol products and if those regulations were changed, it could alter our business practices and have material adverse
effect on our business and financial results. For example, in the U.S. market, there is a three-tier distribution system that governs the sale of malt beverage
products. That system, consisting of required separation of manufacturers, distributors and retailers, dates back to the repeal of prohibition and is periodically
subject to legal challenges. To the extent that such challenges are successful and allow changes to the three-tier system, such changes could have a material adverse
effect on our U.S. segment results of operations. Further, in Canada, our products are required to be distributed through each province's respective provincial liquor
board. Additionally, in certain Canadian provinces, we rely on our joint venture arrangements, such as BRI and BDL, to distribute our products via retail outlets
that are mandated and regulated by provincial government regulators. BRI owns and operates commercial retail outlets, known as The Beer Store, in Ontario, and
BDL facilitates the distribution of our products in the Western Canadian provinces. If provincial regulation should change, the costs to adjust our distribution
methods could have a material adverse effect on our business and financial results.
Our consolidated financial statements are subject to fluctuations in foreign exchange rates, most significantly the Canadian dollar and the European
operating currencies such as, Euro, British Pound, Czech Koruna, Croatian Kuna, Serbian Dinar, New Romanian Leu, Bulgarian Lev and Hungarian Forint.
We hold assets and incur liabilities, earn revenues and pay expenses in different currencies, most significantly in Canada and throughout Europe. Because our
financial statements are presented in USD, we must translate our assets, liabilities, income and expenses into USD. Increases and decreases in the value of the USD
will affect, perhaps adversely, the value of these items in our financial statements, even if their local currency value has not changed. Additionally, we are exposed
to currency transaction risks related to transactions denominated in currencies other than one of the functional currencies of our operating entities, such as the
purchase of certain raw material inputs or capital expenditures, as well as sales transactions and debt issuances or other incurred obligations. Further, certain
actions by the government of any of the jurisdictions in which we operate could adversely affect our results and financial position. To the extent that we fail to
adequately manage these risks through our risk management policies intended to protect our exposure to currency movements, which may affect our operations,
including if our hedging arrangements do not
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effectively or completely hedge changes in foreign currency rates, our results of operations may be materially and adversely affected. For example, as a result of
the U.K. vote in 2016 to leave the European Union, the GBP experienced a significant decline in comparison to USD and EUR and may continue to be volatile.
Any significant further weakening of the GBP to the USD will have an adverse impact on our European revenues as reported in USD due to the importance of U.K.
sales. Additionally, the strengthening of the USD against the Canadian dollar, European currencies and various other global currencies would adversely impact our
USD reported results due to the impact on foreign currency translation.
Changes in tax, environmental, trade or other regulations or failure to comply with existing licensing, trade and other regulations could cause
volatility or have a material adverse effect on our business and financial results. Our business is highly regulated by national, state, provincial and local laws
and regulations in various jurisdictions regarding such matters as tariffs, licensing requirements, trade and pricing practices, labeling, advertising, promotion and
marketing practices, relationships with distributors, environmental matters, ingredient regulations, and other matters. These laws and regulations are subject to
frequent re-evaluation, varying interpretations and political debate and inquiries from government regulators charged with their enforcement, which could have a
material adverse effect on our business and financial results. For example, on December 22, 2017, H.R. 1, also known as the Tax Cuts and Jobs Act (the “2017 Tax
Act”), was enacted in the U.S. This enactment resulted in a number of significant changes to U.S. federal income tax law for U.S. corporations. Most notably, the
statutory federal corporate income tax rate was changed from 35% to 21% for corporations and, as a result, we recorded an estimated net tax benefit of
approximately $567 million in our consolidated statements of operations during the fourth quarter of 2017 driven by the effects of the 2017 Tax Act on our
deferred tax positions as of December 31, 2017. We continue to monitor the 2017 Tax Act, including proposed regulations which may change upon finalization, as
well as yet to be issued regulations and interpretations. If the forthcoming regulations and interpretations change relative to our current understanding and initial
assessment of the impacts of the 2017 Tax Act, the resulting impacts could have a material adverse impact on our tax rate and cash tax expectations. Separately, in
December 2018, the U.S. Department of Treasury issued a regulation that impacts our ability to claim a refund of certain federal duties, taxes, and fees paid for
beer sold between the U.S. and certain other countries effective in February 2019, and, as a result, future claims will no longer be accepted, and further, we may be
unable to collect approximately $38 million in historically claimed, but not yet received, refunds, which would negatively impact our revenue. Additionally,
modifications of U.S. laws and policies governing foreign trade and investment (including trade agreements and tariffs, such as the North American Free Trade
Agreement or aluminum tariffs) could adversely affect our supply chain, business and results of operations. For example, in June, U.S. 2018 tariffs on aluminum
imports from Canada, Mexico and EU went into effect, which has created volatility in the price of aluminum in the U.S. and increased the price of aluminum used
in some of our product packaging. Continued imposition of U.S. aluminum tariffs, the implementation of additional tariffs and retaliatory tariffs from trade partners
or related uncertainties could further increase the cost of certain of our imported materials, thereby adversely affecting our profitability. Failure to comply with
existing laws and regulations or changes in these laws, regulations, or interpretations thereof, or in tax, environmental, excise tax levels imposed or any other laws
or regulations could result in the loss, revocation or suspension of our licenses, permits or approvals and could have a material adverse effect on our business,
financial condition and results of operations. Additionally, uncertainties exist with respect to the interpretation of, and potential future developments in, complex
domestic and international tax laws and regulations, the amount and timing of future taxable income and the interaction of such laws and regulations among
jurisdictions. Given the wide range of international business relationships and the long-term nature and complexity of existing contractual agreements, differences
arising between the actual results and assumptions made, or future changes to such assumptions, could necessitate future adjustments to tax income and expense
already recorded.
Climate change, weather and water availability may negatively affect our business and financial results. There is concern that a gradual increase in
global average temperatures could cause significant changes in global weather patterns and an increase in the frequency and severity of natural disasters. Changing
weather patterns and more volatile weather conditions could result in decreased agricultural productivity in certain regions which may impact quality, limit
availability or increase the cost of key agricultural commodities, such as hops, barley and other cereal grains, which are important ingredients for our products.
Furthermore, should weather patterns in our markets shift from warm or high temperatures to unseasonably cool or wet weather, consumption of our products may
decline, which could have a material adverse effect on our business and results of operations. Increased frequency or duration of extreme weather conditions could
also impair production capabilities, disrupt our supply chain, distribution networks and routes to market, or impact demand for our products. In addition, public
expectations for reductions in greenhouse gas emissions could result in increased energy, transportation and raw material costs and may require us to make
additional investments in facilities and equipment. Clean water is a limited resource in many parts of the world and climate change may increase water scarcity and
cause a deterioration of water quality in areas where we maintain brewing operations. The competition for water among domestic, agricultural and manufacturing
users is increasing in some of our brewing communities. Even where water is widely available, water purification and waste treatment infrastructure limitations
could increase costs or constrain our operations.
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Concern over climate change may result in new or increased regional, federal and global legal and regulatory requirements to reduce or mitigate the
effects of greenhouse gases, or to limit or impose additional costs on commercial water use due to local water scarcity concerns. In the event that such regulation is
more stringent than current regulatory obligations or the measures that we are currently undertaking to monitor and improve our energy efficiency and water
conservation, we may experience disruptions in, or increases in our costs of, operation and delivery and we may be required to make additional investments in
facilities and equipment or relocate our facilities. In particular, increasing regulation of fuel emissions could increase the cost of energy, including fuel, required to
operate our facilities or transport and distribute our products, thereby increasing the distribution and supply chain costs associated with our products. As a result,
the effects of climate change or water scarcity could negatively affect our business and operations. In addition, any failure to achieve our goals with respect to
reducing our impact on the environment or perception (whether or not valid) of our failure to act responsibly with respect to water use and the environment or to
effectively respond to new, or changes in, legal or regulatory requirements concerning climate change or water scarcity could result in adverse publicity and could
adversely affect our business, reputation, financial condition or results of operations. There is also increased focus, including by governmental and non-
governmental organizations, investors, customers and consumers on these and other environmental sustainability matters, including deforestation, land use, climate
impact and water use. Our reputation could be damaged if we or others in our industry do not act, or are perceived not to act, responsibly with respect to our impact
on the environment.
Loss or closure of a major brewery or other key facility, due to unforeseen or catastrophic events or otherwise, could have a material adverse effect on
our business and financial results. Our business could be interrupted and our financial results could be materially adversely impacted by physical risks such as
earthquakes, hurricanes, floods, terror attacks and other natural disasters or catastrophic events that damage or destroy one of our breweries or key facilities or the
key facilities of our significant suppliers. Additionally, certain catastrophes are not covered by our general insurance policies, which could result in significant
unrecoverable losses. Furthermore, our business and results of operations could be adversely impacted by under-investment in physical assets or production
capacity, including contract brewing and effect on priority of our brands if production capacity is limited. Further, significant excess capacity at any of our
breweries as a result of increased efficiencies in our supply chain process or continued volume declines, could result in under-utilization of our assets, which could
lead to excess overhead expenses or additional costs incurred associated with the closure of one or more of our facilities. For example, as part of a strategic review
of our supply chain network, certain breweries and bottling lines were closed in recent years, and we have and continue to incur brewery closure costs. We
regularly review our supply chain network to ensure that our supply chain capacity is aligned with the needs of the business. Such reviews could potentially result
in further closures and the related costs could be material.
Failure to successfully identify, complete or integrate attractive acquisitions and joint ventures into our existing operations could have an adverse
effect on our business and financial results. We have made a number of acquisitions and entered into several strategic joint ventures. In order to compete in the
consolidating global brewing industry, we anticipate that we may, from time to time, in the future acquire additional businesses or enter into additional joint
ventures that we believe would provide a strategic fit with our business such as the Acquisition and our Canadian business' joint venture with HEXO. Potential
risks associated with acquisitions and joint ventures could include, among other things: our ability to identify attractive acquisitions and joint ventures; our ability
to offer potential acquisition targets and joint venture partners' competitive transaction terms; our ability to raise capital on reasonable terms to finance attractive
acquisitions and joint ventures; our ability to realize the benefits or cost savings that we expect to realize as a result of the acquisition or joint venture; diversion of
management's attention; our ability to successfully integrate our businesses with the business of the acquired company; motivating, recruiting and retaining key
employees; conforming standards, controls, procedures and policies, business cultures and compensation structures among our company and the acquired company;
consolidating and streamlining sales, marketing and corporate operations; potential exposure to unknown liabilities of acquired companies; potential exposure to
unknown or future liabilities or costs that affect the markets in which acquired companies or joint ventures operate; reputational or other damage due to the conduct
of a joint venture partner; loss of key employees and customers of the acquired business; and managing tax costs or inefficiencies associated with integrating our
operations following completion of an acquisition or entry into a joint venture.
Poor investment performance of pension plan holdings and other factors impacting pension plan costs could unfavorably affect our business, liquidity
and our financial results. Our costs of providing defined benefit pension plans are dependent upon a number of factors, such as the rates of return on the plans'
assets, discount rates, the level of interest rates used to measure the required minimum funding levels of the plans, exchange rate fluctuations, government
regulation, court rulings or other changes in legal requirements, global equity prices, and our required and/or voluntary contributions to the plans. While we comply
with the minimum funding requirements, we have certain qualified pension plans with obligations which exceed the value of the plans' assets. These funding
requirements also may require contributions even when there is no reported deficit. Without sustained growth in the pension investments over time to increase the
value of the plans' assets, and depending upon the other factors as listed above, we could be required to fund the plans with significant amounts of cash. Such
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cash funding obligations (or the timing of such contributions) could have a material adverse effect on our cash flows, credit rating, cost of borrowing, financial
position and/or results of operations. For example, following the completion of the triennial review of the U.K. pension plan with the plan's trustees in 2014, we
made a GBP 150 million contribution to our U.K. pension plan in January 2015, based on the underfunded status of the plan and the evaluation of the plan's
performance and long-term obligations. In addition, we made pension plan contributions during 2017 of approximately $310 million , including $200 million of
discretionary contributions to the U.S. pension plan.
We depend on key personnel, the loss of whom could harm our business. The loss of the services and expertise of any key employee could harm our
business. Our future success depends on our ability to identify, attract and retain qualified personnel on a timely basis. Turnover of senior management can
adversely impact our stock price, our results of operations and our client relationships and may make recruiting for future management positions more difficult. In
addition, we must successfully integrate any new management personnel that we hire within our organization, or who join our organization as a result of an
acquisition, in order to achieve our operating objectives, and changes in other key management positions may temporarily affect our financial performance and
results of operations as new management becomes familiar with our business.
Due to a high concentration of workers represented by unions or trade councils in Canada, Europe, and the U.S., we could be significantly affected by
labor strikes, work stoppages or other employee-related issues. As of December 31, 2018 , approximately 50%, 35%, and 30% of our Canadian, European and
U.S. workforces, respectively, are represented by trade unions or councils. Stringent labor laws in certain of our key markets expose us to a greater risk of loss
should we experience labor disruptions in those markets. A prolonged labor strike, work stoppage or other employee-related issue, could have a material adverse
effect on our business and financial results. For example, in the first quarter of 2017, our Toronto brewery unionized employees commenced a labor strike initiated
from on-going negotiations of the collective bargaining agreement. This labor strike resulted in slower than expected production at the Toronto brewery in the first
quarter of 2017. From time to time, our collective bargaining agreements come due for renegotiation, and, if we are unable to timely complete negotiations,
affected employees may strike, which could have an adverse effect on our business and financial results.
Because of our reliance on third-party service providers and internal and outsourced systems for our information technology and certain other
administrative functions, we could experience a disruption to our business. We rely extensively on information services providers worldwide for our
information technology functions including network, help desk, hardware and software configuration. Additionally, we rely on internal networks and information
systems and other technology, including the internet and third-party hosted services, to support a variety of business processes and activities, including
procurement and supply chain, manufacturing, distribution, invoicing and collection of payments. We use information systems for certain human resource activities
and to process our employee benefits, as well as to process financial information for internal and external reporting purposes and to comply with various reporting,
legal and tax requirements. As information systems are critical to many of our operating activities, our business may be impacted by system shutdowns, service
disruptions, obsolescence, or security breaches. Additionally, if one of our service providers were to fail and we were unable to find a suitable replacement in a
timely manner, we could be unable to properly administer our outsourced functions.
A breach of our information systems could cause material financial or reputational harm. Our internal and outsourced systems may also be the target
of cyber-attacks or other breaches to our security, which, if successful, could expose us to the loss of key business, employee, customer or vendor information and
disruption of our operations. If our information systems suffer severe damage, disruption or shutdown, we could experience delays in reporting our financial results
and we may lose revenue and profits as a result of our inability to timely prepare, distribute, invoice and collect payments from our customers. Misuse, leakage or
falsification of information could result in a violation of data privacy laws and regulations, such as the European Union's General Data Protection Regulation, or
damage our reputation and credibility. In addition, we may suffer financial and reputational damage because of lost or misappropriated confidential information
and may become subject to legal action and increased regulatory oversight or consumers may avoid our brands due to negative publicity. We could also be required
to spend significant financial and other resources to remedy the damage caused by a security breach or to repair or replace networks and information systems,
which could have a material adverse effect on our business and financial results.
If the Pentland Trust and the Coors Trust do not agree on a matter submitted to our stockholders or if a super-majority of our board of directors do
not agree on certain actions, generally the matter will not be approved, even if beneficial to us or favored by other stockholders or a majority of our board of
directors. Pentland Securities (1981) Inc. (the "Pentland Trust") (a company controlled by the Molson family and related parties) and the Adolph Coors, Jr. Trust
(the "Coors Trust"), which together control more than 90% of our Class A common stock and Class A exchangeable shares, have a voting trust agreement through
which they have combined their voting power over the shares of our Class A common stock and the Class A exchangeable shares that they own. If these two
stockholders do not agree to vote in favor of a matter submitted to a stockholder vote (other than the election of directors), the voting trustees are required to vote
all of the Class A common stock
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and Class A exchangeable shares deposited in the voting trust against the matter. There is no other mechanism in the voting trust agreement to resolve a potential
deadlock between these stockholders. Therefore, if either the Pentland Trust or the Coors Trust is unwilling to vote in favor of a proposal that is subject to a
stockholder vote, we would be unable to implement the proposal even if our board of directors, management or other stockholders believe the proposal is beneficial
to us. Similarly, our bylaws require the authorization of a super-majority (two-thirds) of the board of directors to take certain transformational actions. Thus, it is
possible that the Company will not be authorized to take action even if it is supported by a simple majority of the board of directors.
The interests of the controlling stockholders may differ from those of other stockholders and could prevent the Company from making certain
decisions or taking certain actions that would be in the best interest of the other stockholders. Our Class B common stock has fewer voting rights than our Class
A common stock and holders of our Class A common stock have the ability to effectively control or have a significant influence over certain company actions
requiring stockholder approval, which could have a material adverse effect on Class B stockholders. See Part II-Item 8 Financial Statements and Supplementary
Data, Note 8, "Stockholders' Equity" of the Notes for additional information regarding voting rights of Class A and Class B stockholders.
Changes in the social acceptability of alcohol, perceptions of our products and the political view of the alcohol beverage industry may harm our
business. The alcoholic beverage industry is regularly the subject of anti-alcohol activist activity related to the health concerns from the misuse of alcohol and
concerns regarding underage drinking and exposure to alcohol advertisements. In addition, in recent years, there has been an increase in public and political
attention on health and well-being as it relates to the alcohol beverage and other industries. Negative publicity regarding beer and changes in consumer perceptions
in relation to beer and other alcoholic beverages, could adversely affect the sale and consumption of our products which could, in turn, adversely affect our
business and financial conditions. Additionally, the concerns around alcohol as well as health and well-being could result in unfavorable regulations or other legal
requirements in certain of our markets, such as advertising, selling and other restrictions, increased taxes associated with our sales, or the establishment of
minimum unit pricing. Any such regulations or requirements could change consumer and customer purchasing patterns, which could negatively impact our
business, results of operations, cash flows or financial condition. In particular, advocates of prohibition and other severe restrictions on the marketing and sales of
alcohol are becoming increasingly organized and coordinated on a global basis, seeking to impose laws or regulations or to bring actions against us, to curtail
substantially the consumption of alcohol, including beer, in developed and developing markets. To the extent such views gain traction in regulations of
jurisdictions in which we do or plan to do business, they could have a material adverse effect on our business and financial results. For example, in early 2016, the
government of Bihar, India, the largest state in India in which our International segment operates, announced a complete prohibition on the sale and distribution of
alcohol, which resulted in the impairment of assets totaling $30.8 million , recorded during the second quarter of 2016.
The Acquisition subjects us to significant additional liabilities, costs and other risks. We have assumed all of the liabilities of MillerCoors, including,
among others, significant pension and other post-employment benefit liabilities. The assumed liabilities put additional pressure on our ability to successfully meet
our deleveraging commitments and grow our business over time as discussed further below. In addition, as a result of the Acquisition, we are subject to the risks of
the U.S. beer market to a much greater extent, and a significant majority of our overall business is in mature, low growth beer markets, such as the U.S., Canada
and the U.K. Economic conditions and consumer preferences in these markets will have a greater impact on our results of operations and financial condition.
We face numerous risks associated with the integration of the Miller International Business. The acquisition of the Miller International Business may
subject us to unknown expenses and liabilities. The success of our acquisition of the Miller International Business will depend, in part, on our ability to realize all
or some of the anticipated synergies and other benefits from integrating this business with our existing businesses and operations. The potential difficulties of the
continuing integration of operations include, among others:
•
•
•
•
•
failure to implement our business plan for the combined business;
unanticipated changes in applicable laws and regulations;
inherent operating risks in the business;
increased foreign currency exposures which could adversely affect the amounts recorded for our foreign assets, liabilities, revenues and
expenses, and could have a negative effect on our results of operations;
reliance on competitors, ABI, to provide production services as we continue to transition the business; and
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•
failure to develop sustainable production sources prior to the expiration of ABI's production services.
We may not be able to maintain the levels of revenue, earnings or operating efficiency that each of the Company and the Miller International Business had
achieved or might achieve separately. The markets in which the Miller International Business operates may not experience the growth rates expected and any
economic downturn affecting those markets could negatively impact the Miller International Business. These markets are in differing stages of development and
may experience more volatility than expected or face more operating risks than in the more mature markets in which we have historically operated. If the Miller
International Business or the markets in which it operates deteriorate, the potential cost savings, growth opportunities and other synergies of the acquisition of the
Miller International Business may not be realized fully, or at all, or may take longer to realize than expected. In such case, our business, financial condition, results
of operations and cash flows may be negatively impacted.
We have identified a material weakness in our internal control over financial reporting which, if not remediated, could adversely affect our business,
reputation and stock price. As part of preparing our 2018 consolidated financial statements, we identified errors in the accounting for income taxes related to the
deferred tax liabilities for our partnership in MillerCoors. See Part II-Item 8 Financial Statements and Supplementary Data, Note 1, "Basis of Presentation and
Summary of Significant Accounting Policies" for further discussion.
As a result of these errors, management identified a material weakness in internal control over financial reporting as of December 31, 2018, related to
designing and maintaining effective controls over the completeness and accuracy of the accounting for, and disclosure of, the income tax effects of acquired
partnership interests. Specifically, we did not design appropriate controls to identify and reconcile deferred income taxes associated with the accounting for
acquired partnership interests. This material weakness resulted in material errors in connection with our step acquisition of MillerCoors that were corrected through
the restatement of the consolidated financial statements as of and for the years ended December 31, 2017, and December 31, 2016, as described in Part II-Item 8
Financial Statements and Supplementary Data, Note 1, "Basis of Presentation and Summary of Significant Accounting Policies" to the consolidated financial
statements and the correction of the unaudited quarterly financial information for fiscal years 2018 and 2017. Additionally, this material weakness could result in
misstatements to the aforementioned account balances or disclosures that would result in a material misstatement to the annual or interim consolidated financial
statements that would not be prevented or detected. As a result of the material weakness in internal control over financial reporting, management has concluded
that we did not maintain effective internal control over financial reporting as of December 31, 2018, based on criteria set forth by the Committee of Sponsoring
Organization of the Treadway Commission in “ Internal Control-An Integrated Framework (2013).” We cannot assure you that we will not identify additional
material weaknesses in our internal control over financial reporting in the future related to income tax or other controls. If the steps we take do not correct the
material weakness in a timely manner, we may be unable to conclude in the future that we maintain effective internal control over financial reporting. The
occurrence of or failure to remediate this or future material weaknesses may adversely affect our reputation and business and the market price of our common
stock.
Risks Specific to the United States Segment
Our U.S. business is highly dependent on independent distributors to sell our products, with no assurance that these distributors will effectively sell
our products. We sell nearly all of our products, including all of our imported products, in the U.S. to independent distributors for resale to retail outlets. These
independent distributors are entitled to exclusive territories and protected from termination by state statutes and regulations. Consequently, if we are not allowed, or
are unable under acceptable terms or at all, to replace unproductive or inefficient distributors, our business, financial position and results of operation may be
adversely affected, which could have a material adverse effect on our business and financial results.
Risks Specific to the Canada Segment
Our Canadian business faces numerous risks relating to its joint venture in the Canadian cannabis industry. On October 4, 2018, a wholly-owned
subsidiary within our Canadian business completed the formation of an independent Canadian joint venture with HEXO, a Canadian entity listed on the Toronto
Stock Exchange that serves the Canadian cannabis market. The joint venture, Truss LP, will pursue opportunities to develop non-alcoholic, cannabis-infused
beverages for the Canadian market following legalization. The success and consumer acceptance of any products produced by the joint venture cannot be assured.
Further, our Canadian subsidiary’s involvement in the Canadian cannabis industry may negatively impact: consumer, business partner, investor or public sentiment
regarding our brands, Canadian beer business or our company. The emerging cannabis industry in Canada and in other jurisdictions is evolving rapidly and subjects
us to a high degree of political, legal and regulatory uncertainty, including when and if regulations in Canada will ultimately be adopted that would allow the
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sale of the non-alcoholic beverages contemplated by the joint venture. The occurrence of any of the above risks could have a material adverse effect on our
business.
We may experience adverse effects on our Canada business and financial results due to declines in the overall Canadian beer industry, continued
price discounting, increased cost of goods sold and higher taxes. If the Canadian beer market continues to decline, the impact to our financial results could be
exacerbated due to our significant share of the overall market. Additionally, continuation or acceleration of price discounting, in Ontario, Québec, Alberta or other
provinces, as well as increases in our cost of goods sold, could adversely impact our business. Further, changes in the Canadian tax legislation, such as the potential
for an increase in beer excise taxes, could decrease our net sales. Although the ultimate impact is currently unknown, the legalization of cannabis in Canada may
result in a shift of discretionary income away from our products or a change in consumer preferences away from beer or our other products. Moreover, the future
success and earnings growth of the Canada business depends, in part, on our ability to efficiently conduct our operations. Failure to generate significant cost
savings and margin improvement through our ongoing initiatives could adversely affect our profitability.
If we are required to move away from the industry standard returnable bottle we use today, we may incur unexpected losses. Along with other brewers
in Canada, we currently use an industry standard returnable bottle which represents approximately 29% of total volume sales (excluding imports) in Canada.
Changes to the Industry Standard Bottle Agreement could impact our use of the industry standard returnable bottle. If we cease to use the industry standard
returnable bottle, our current bottle inventory and a portion of our bottle packaging equipment could become obsolete and could result in a material write-off of
these assets.
Indemnities provided to the purchaser of 83% of the Cervejarias Kaiser Brasil S.A. ("Kaiser") business in Brazil could result in future cash outflows and
statement of operations charges. In 2006, we sold our 83% ownership interest in Kaiser, which was held by our Canadian business, to FEMSA Cerveza S.A. de
C.V. ("FEMSA"). The terms of the sale agreement require us to indemnify FEMSA for exposures related to certain tax, civil and labor contingencies and certain
purchased tax credits. The ultimate resolution of these claims is not under our control. These indemnity obligations are recorded as liabilities on our consolidated
balance sheets, however, we could incur future statement of operations charges as facts further develop resulting in changes to our estimates or changes in our
assessment of probability of loss on these items as well as due to fluctuations in foreign exchange rates. Due to the uncertainty involved in the ultimate outcome
and timing of these contingencies, significant adjustments to the carrying value of our indemnity liabilities and corresponding statement of operations
charges/credits could result in the future. We historically presented the liabilities associated with these indemnity obligations within discontinued operations,
however, these have been reclassified into other current and long-term liabilities.
Risks Specific to the Europe Segment
The vote in the U.K. to leave the European Union could adversely affect us. Approximately 11% of our consolidated net sales in 2018 came from the
U.K., which is our largest market in Europe. In 2016, a majority of voters in the U.K. voted in favor of the U.K. leaving the European Union and the U.K. intends
to withdraw from the European Union in March 2019. The withdrawal remains controversial in the U.K., and the terms of the withdrawal remain unknown. The
U.K. vote to leave the European Union triggered a decline in the GBP in comparison to USD and EUR. Any significant weakening of the GBP to the USD will
have an adverse impact on our European revenues as reported in USD due to the importance of U.K. sales. Furthermore, the withdrawal may result in disruption to
and decline of the U.K. and European economies. Weakening of economic conditions or economic uncertainties tend to harm the beer business, and if such
conditions emerge in the U.K. or in the rest of Europe, it may have a material adverse effect on our Europe segment. The withdrawal may also result in significant
disruption in trade and the movement of goods, including prolonged transportation delays, which could negatively affect our ability to source raw materials and
packaging for our products as well as our ability to import and export products. Because the terms of the exit are still unknown, we face regulatory and market
uncertainty and may need to quickly adapt to regulatory changes and market volatility, including potential increased legal and regulatory complexities and potential
higher costs of conducting business in the U.K. or Europe. Any of these effects, among others, could adversely affect our European business, results of operations,
and financial condition.
Economic trends and intense competition in European markets could unfavorably affect our profitability. Our European businesses have been, and, in
the future may be, adversely affected by conditions in the global financial markets and general economic and political conditions, as well as a weakening of their
respective currencies versus the U.S. dollar. Additionally, we face intense competition in certain of our European markets, particularly with respect to pricing,
which could lead to reduced sales or profitability. In particular, the on-going focus by large competitors in Europe to drive increased market share through
aggressive pricing strategies could adversely affect our sales and results of operations. In addition, in recent years, beer volume sales in Europe have been shifting
from pubs and restaurants (on-premise) to retail stores (off-premise) for the industry in general. Sales to off-premise customers tend to be lower than margins on
sales to on-premise customers, and, as a result, continuation or acceleration of this trend would further adversely affect our profitability.
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Risks Specific to the International Segment
An inability to expand our operations in emerging markets could adversely affect our growth prospects. The continued expansion of our International
segment in emerging markets depends on our ability to react to social, economic, and political conditions in those markets; to create effective product distribution
networks and consumer brand awareness in new markets; and, in many cases, to find appropriate local partners. Due to product price, local regulatory changes,
local competition from competitors that are larger and have more resources than we do, and cultural differences, or absence of effective routes to market, there is
no assurance that our products will be accepted in any particular emerging market. If we are unable to expand our businesses in emerging markets, our growth
prospects could be adversely affected.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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ITEM 2. PROPERTIES
As of February 12, 2019 , our major facilities were owned (unless otherwise indicated) and are as follows:
Facility
Location
Character
U.S. Segment
Administrative offices
Brewery/packaging plants
Beer distributorship
Container operations
Malting operations
Canada Segment
Administrative offices
Brewery/packaging plants
Europe Segment
Administrative offices
Brewery/packaging plants
Chicago, Illinois (1)
Golden, Colorado
Milwaukee, Wisconsin
Albany, Georgia (2)
Elkton, Virginia (2)
Fort Worth, Texas
Golden, Colorado (2)
Irwindale, California
Milwaukee, Wisconsin (2)
Trenton, Ohio (2)
Denver, Colorado
Wheat Ridge, Colorado (3)
Golden, Colorado (3)
Golden, Colorado
Montréal, Québec
Toronto, Ontario
Montréal, Québec (4)
Toronto, Ontario (4)
Vancouver, British Columbia (5)
Prague, Czech Republic
Apatin, Serbia (6)
Bőcs, Hungary
Burton-on-Trent, U.K. (6)
Haskovo, Bulgaria
Niksic, Montenegro
Ostrava, Czech Republic
Ploiesti, Romania (6)
Prague, Czech Republic (6)
Tadcaster Brewery, Yorkshire, U.K. (6)
Zagreb, Croatia
U.S. segment headquarters
U.S. segment administrative office
U.S. segment administrative office
Brewing and packaging
Brewing and packaging
Brewing and packaging
Brewing and packaging
Brewing and packaging
Brewing and packaging
Brewing and packaging
Distribution
Bottling manufacturing facility
Can and end manufacturing facilities
Malting
Corporate headquarters
Canada segment headquarters
Brewing and packaging
Brewing and packaging
Brewing and packaging
Europe segment headquarters
Brewing and packaging
Brewing and packaging
Brewing and packaging
Brewing and packaging
Brewing and packaging
Brewing and packaging
Brewing and packaging
Brewing and packaging
Brewing and packaging
Brewing and packaging
(1)
(2)
(3)
(4)
We lease the office space for our U.S. segment headquarters in Chicago, Illinois.
The Golden, Trenton, Albany, Elkton and Milwaukee breweries collectively account for approximately 75% of our U.S. production.
The Wheat Ridge and Golden Colorado facilities are leased from us by RMBC and RMMC, respectively.
The Montréal and Toronto breweries collectively account for approximately 79% of our Canada production. As part of our ongoing strategic review of
our Canadian supply chain network, in the third quarter of 2017 we announced the plan to build a more efficient and flexible brewery in the greater
Montreal area. As a result of this decision, we have begun to develop plans to transition out of our existing Montreal brewery, and are in the process of
actively
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negotiating the sale of the property with targeted completion of the sale in the second quarter of 2019. The brewery continues to be operational, and as
part of the sale, we anticipate leasing back the property for continued use until the new brewery is operational, which is currently expected to occur in
2021 .
(5)
We lease two brewing and packaging facilities in British Columbia. As a result of the continuation of our Canadian strategic review, during 2016 we
completed the sale of our Vancouver brewery. In conjunction with the sale of the brewery, we agreed to leaseback the existing property to continue
operations on an uninterrupted basis while the new brewery is being constructed. The final closure of the brewery is currently expected to occur in the
third quarter of 2019 .
(6)
The Burton-on-Trent, Prague, Ploiesti, Apatin and Tadcaster breweries collectively account for approximately 71% of our Europe production.
In addition to the properties listed above, we have smaller capacity facilities, including craft breweries and cideries, in each of our segments. We own and
lease various warehouses, distribution centers and office spaces throughout the United States, Canada and Europe.
We also lease offices in Colorado, the location of our Corporate and International segment headquarters, as well as various warehouse and office spaces
within the United States and international countries in which our International segment operates. We believe our facilities are well maintained and suitable for their
respective operations. In 2018 , our operating facilities were not capacity constrained.
ITEM 3. LEGAL PROCEEDINGS
Litigation and other disputes
For information regarding litigation, other disputes and environmental and regulatory proceedings see Part II—Item 8 Financial Statements and
Supplementary Data, Note 18, "Commitments and Contingencies" of the Notes.
We are involved in other disputes and legal actions arising in the ordinary course of our business. While it is not feasible to predict or determine the outcome
of these proceedings, in our opinion, based on a review with legal counsel, none of these disputes and legal actions are currently expected to have a material impact
on our business, consolidated financial position, results of operations or cash flows. However, litigation is subject to inherent uncertainties and an adverse result in
these or other matters may arise from time to time that may harm our business.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
Our Class A common stock and Class B common stock trade on the New York Stock Exchange under the symbols "TAP.A" and "TAP," respectively. In
addition, the Class A exchangeable shares and Class B exchangeable shares of our indirect subsidiary, Molson Coors Canada Inc., trade on the Toronto Stock
Exchange under the symbols "TPX.A" and "TPX.B," respectively. The Class A and B exchangeable shares are a means for shareholders to defer tax in Canada and
have substantially the same economic and voting rights as the respective common shares. The exchangeable shares can be exchanged for our Class A or B common
stock at any time and at the exchange ratios described in the Merger documents, and receive the same dividends. At the time of exchange, shareholders' taxes are
due. The exchangeable shares have voting rights through special voting shares held by a trustee.
The approximate number of record security holders by class of stock at February 7, 2019 , is as follows:
Title of class
Class A common stock, $0.01 par value
Class B common stock, $0.01 par value
Class A exchangeable shares, no par value
Class B exchangeable shares, no par value
35
Number of record
security holders
23
2,624
218
2,338
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PERFORMANCE GRAPH
The following graph compares our cumulative total stockholder return over the last five fiscal years with the S&P 500 and a customized peer index including
MCBC, ABI, Carlsberg, Heineken and Asahi (the "Peer Group"). We have used a weighted-average based on market capitalization to determine the return for the
Peer Group. The graph assumes $100 was invested on December 31, 2013 , in our Class B common stock, the S&P 500 and the Peer Group, and assumes
reinvestment of all dividends. The below is provided for informational purposes and is not indicative of future performance.
Molson Coors
S&P 500
Peer Group
Dividends
2013
2014
2015
2016
2017
2018
$
$
$
100.00 $
100.00 $
100.00 $
135.70 $
113.68 $
123.19 $
174.70 $
115.24 $
155.28 $
184.06 $
126.23 $
144.39 $
158.10 $
153.78 $
152.76 $
110.85
147.03
112.32
We currently plan to maintain our current quarterly dividend of $0.41 per share until we achieve a leverage ratio of approximately 3.75x debt to EBITDA on
a rating agency basis, which we expect to achieve around the middle of 2019. Upon achieving approximately 3.75x leverage, our board's intention is to reinstitute a
dividend payout-ratio target in the range of 20-25% of annual trailing EBITDA for the second half of 2019 and ongoing thereafter.
Issuer Purchases of Equity Securities
In February 2015, we announced that our board of directors approved and authorized a new program to repurchase up to $1.0 billion of our Class A and Class
B common stock. As a result of the Acquisition, we suspended the share repurchase program and thus, there were no shares of Class A or Class B common stock
repurchased since 2015. Under the program, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying
with Rule 10b5-1 under the Exchange Act. The number, price and timing of the repurchases will be at the Company’s sole discretion and will be evaluated
depending on market conditions, liquidity needs or other factors. The Company’s board of directors may
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suspend, modify or terminate the share repurchase program at any time without prior notice. We have suspended our share repurchase program as we continue to
pay down debt.
ITEM 6. SELECTED FINANCIAL DATA
The table below summarizes selected financial information for the five years ended December 31, 2018 . For further information, refer to our consolidated
financial statements and notes thereto presented under Part II—Item 8 Financial Statements and Supplementary Data. Net income attributable to MCBC and the
related net income per basic and diluted share amounts for 2017 and 2016 have been restated due to the correction of errors related to income tax accounting. See
details at Part II—Item 8 Financial Statements and Supplementary Data, Note 1, "Basis of Presentation and Accounting Policies."
Consolidated Statements of Operations:
Net sales
Net income attributable to MCBC (2)
Net income attributable to MCBC per share (2) :
Basic
Diluted
Consolidated Balance Sheets:
Total assets
Current portion of long-term debt and short-term
borrowings
Long-term debt
Other information:
Dividends per share of common stock
$
$
$
$
$
$
$
$
2017
2016 (1)
2018
As Restated
As Restated
2015
2014
(In millions, except per share data)
10,769.6 $
1,116.5 $
11,002.8 $
1,565.6 $
4,885.0 $
1,593.9 $
3,567.5 $
395.2 $
5.17 $
5.15 $
7.27 $
7.23 $
7.52 $
7.47 $
2.13 $
2.12 $
4,146.3
538.6
2.91
2.89
30,109.8 $
30,246.9 $
29,341.5 $
12,276.3 $
13,980.1
1,594.5 $
8,893.8 $
714.8 $
684.8 $
10,598.7 $
11,387.7 $
28.7 $
2,908.7 $
849.0
2,321.3
1.64 $
1.64 $
1.64 $
1.64 $
1.48
(1)
(2)
Includes MillerCoors' results of operations on a consolidated basis for the post-Acquisition period October 11, 2016 , through December 31, 2016, as well
as the assets acquired and related debt issued in connection with the Acquisition. Prior to October 11, 2016 , MCBC’s 42% share of MillerCoors' results
of operations was reported as equity income in MillerCoors in the consolidated statements of operations and our 42% share of MillerCoors' net assets was
reported as Investment in MillerCoors in the consolidated balance sheets. Also included in net income attributable to MCBC is a net special items gain of
approximately $3.0 billion related to the fair value remeasurement of our pre-existing 42% interest in MillerCoors over its carrying value, as well as the
reclassification of the loss related to MCBC's historical AOCI on our 42% interest in MillerCoors. See Part II—Item 8 Financial Statements and
Supplementary Data, Note 4, "Acquisition and Investments" of the Notes for further discussion of the Acquisition.
Includes the impact of the reduction to the U.S. federal income tax rate as a result of U.S. tax reform in 2017. Additionally, during the first quarter of 2018
we recorded a gain within special items, net of $328.0 million which constitutes the Adjustment Amount related to the settlement agreement between
MCBC and ABI as previously discussed.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is provided to assist in understanding
our company, operations and current business environment and should be considered a supplement to, and read in conjunction with, the accompanying
consolidated financial statements and notes included within Part II—Item 8 Financial Statements and Supplementary Data, as well as the discussion of our business
and related risk factors in Part I—Item 1 Business and Part I—Item 1A Risk Factors, respectively. See also "Cautionary Statement Pursuant to Safe Harbor
Provisions of the Private Securities Litigation Reform Act of 1995". We have restated our financial statements for 2017 and 2016 due to the correction of errors in
the accounting for income taxes related to the deferred tax liabilities for our partnership in MillerCoors . Accordingly, the Management’s Discussion and Analysis
of Financial Condition and Results of Operations set forth below reflect the effects of the restatements. See details at Part II—Item 8 Financial Statements and
Supplementary Data, Note 1, "Basis of Presentation and Summary of Significant Accounting Policies."
Our Fiscal Year
Unless otherwise indicated, (a) all $ amounts are in USD and (b) comparisons are to comparable prior periods. For 2016, the consolidated statement of
operations includes MillerCoors' results of operations for the period from January 1, 2016, to October 10, 2016, on an equity method basis of accounting and from
October 11, 2016, to December 31, 2016, on a consolidated basis of accounting. Where indicated, we have reflected unaudited pro forma financial information for
2016 which gives effect to the Acquisition and the related financing as if they were completed on January 1, 2016, the first day of the Company’s 2016 fiscal year.
Operational Measures
We have certain operational measures, such as STWs and STRs, which we believe are important metrics. STW is a metric that we use in our business to
reflect the sales from our operations to our direct customers, generally wholesalers. We believe the STW metric is important because it gives an indication of the
amount of beer and adjacent products that we have produced and shipped to customers. STR is a metric that we use in our business to refer to sales closer to the
end consumer than STWs, which generally means sales from our wholesalers or our company to retailers, who in turn sell to consumers. We believe the STR
metric is important because, unlike STWs, it provides the closest indication of the performance of our brands in relation to market and competitor sales trends.
Acquisition
On October 11, 2016, we completed the acquisition of SABMiller plc's ("SABMiller") 58% economic interest and 50% voting interest in MillerCoors and all
trademarks, contracts and other assets primarily related to the "Miller International Business," as defined in the purchase agreement, outside of the U.S. and Puerto
Rico (the "Acquisition") from Anheuser-Busch InBev SA/NV ("ABI"). The Acquisition was completed for $12.0 billion in cash, subject to a downward purchase
price adjustment as described in the purchase agreement. This purchase price "Adjustment Amount," as defined in the purchase agreement, required payment to
MCBC if the unaudited EBITDA for the Miller International Business for the twelve months prior to closing was below $70 million.
On January 21, 2018, MCBC and ABI entered into a settlement agreement related to the purchase price adjustment under the purchase agreement, and on
January 26, 2018, pursuant to the settlement agreement, ABI paid to MCBC $330.0 million, of which $328.0 million constitutes the Adjustment Amount. As this
settlement occurred following the finalization of purchase accounting, we recorded the settlement proceeds related to the Adjustment Amount as a gain within
special items, net in our consolidated statement of operations in our Corporate segment and within cash provided by operating activities within our consolidated
statement of cash flows for the year ended December 31, 2018. MCBC and ABI also agreed to certain mutual releases as further described in the settlement
agreement.
Executive Summary
We are one of the world's largest brewers and have a diverse portfolio of owned and partner brands, including global priority brands Blue Moon, Coors
Banquet, Coors Light, Miller Genuine Draft, Miller Lite, and Staropramen , regional champion brands Carling , Molson Canadian and other leading country-
specific brands , as well as craft and specialty beers such as Creemore Springs , Cobra , Doom Bar, Henry's Hard and Leinenkugel's . With centuries of brewing
heritage, we have been crafting high-quality, innovative products with the purpose of delighting the world's beer drinkers and with the ambition to be the first
choice for our consumers and customers. Our success depends on our ability to make our products available to meet a wide range of consumer segments and
occasions.
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In 2018 , we continued to focus on building our brand strength and transforming our portfolio toward the above premium, flavored malt beverage, craft and
cider segments. Further, we continued to focus on generating higher returns on our invested capital, managing our working capital and delivering a greater return
on investment for our shareholders.
Adoption of Revenue Recognition Guidance
On January 1, 2018 , we adopted the FASB's new accounting pronouncement related to revenue recognition. This guidance was adopted using the modified
retrospective approach, and therefore, prior period results have not been restated. The following table highlights the impact of this new guidance on summarized
components of our consolidated statement of operations for the year ended December 31, 2018 , when comparing our current period results of operations under the
new guidance, versus our results of operations if historical guidance had continued to be applied.
U.S.
Canada
Europe
International
Consolidated
Year Ended December 31, 2018
Impact to Consolidated Statement of Operations - Favorable/(Unfavorable):
Net sales
Cost of goods sold
Gross profit
Marketing, general and administrative expenses
Operating income (loss)
Interest income (expense), net
Income (loss) before income taxes
$
$
$
$
$
$
$
(6.6) $
— $
(6.6) $
7.7 $
1.1 $
— $
1.1 $
(47.3) $
— $
(47.3) $
47.3 $
— $
— $
— $
(In millions)
(1.7) $
— $
(1.7) $
4.7 $
3.0 $
(3.4) $
(0.4) $
0.1 $
— $
0.1 $
— $
0.1 $
— $
0.1 $
(55.5)
—
(55.5)
59.7
4.2
(3.4)
0.8
These impacts are primarily driven by the reclassification of certain cash payments to customers from marketing, general and administrative expenses to a
reduction of revenue, as well as a change in the timing of recognition of certain promotional discounts and cash payments to customers. See Part I—Item 1.
Financial Statements, Note 1, "Basis of Presentation and Summary of Significant Accounting Policies" and Note 2, "New Accounting Pronouncements" for further
discussion on the adoption of this guidance.
Adoption of Pension and Other Postretirement Benefit Guidance
On January 1, 2018 , we adopted the FASB's new accounting pronouncement related to the classification of pension and other postretirement benefit costs.
Specifically, the new guidance requires us to report only the service cost component in the same line item as other compensation costs arising from services
rendered by the pertinent employees during the period; while the other components of net benefit cost are now presented in the consolidated statements of
operations separately from the service cost component and outside of operating income. The amendments in this update also allow only the service cost component
to be eligible for capitalization when applicable. We have also determined that only service cost will be reported within each operating segment and all other
components will be reported within the Corporate segment. The guidance related to the income statement presentation of service costs and other pension and
postretirement benefit costs is applied retrospectively, while the capitalization of service costs component is applied prospectively. This adjustment is classification
only and had no impact to our consolidated net income. See Note 2, "New Accounting Pronouncements " for further details including updated historical financial
information.
Summary of Consolidated Results of Operations
The following table highlights summarized components of our consolidated statements of operations for the years ended December 31, 2018 , December 31,
2017 , and December 31, 2016 , and unaudited pro forma financial information for the year ended December 31, 2016 . See Part II-Item 8 Financial Statements and
Supplementary Data, “Consolidated Statements of Operations” for additional details of our U.S. GAAP results.
We have presented unaudited pro forma financial information to enhance comparability of financial information between periods. The unaudited pro forma
financial information is based on the historical consolidated financial statements of MCBC and MillerCoors, both prepared in accordance with U.S. GAAP, and
gives effect to the Acquisition and the completed financing as if they were completed on January 1, 2016. Pro forma adjustments are based on items that are
factually supportable, are directly attributable to the Acquisition or the related financing, and are expected to have a continuing impact on MCBC's results of
operations. Any non-recurring items directly attributable to the Acquisition or the related financing are excluded in the unaudited pro forma statements of
operations. The unaudited pro forma financial information does not include adjustments for costs related to integration activities following the completion of the
Acquisition, cost savings or synergies that have been or
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may be achieved by the combined businesses. The unaudited pro forma financial information is presented for illustrative purposes only and does not necessarily
reflect the results of operations of MCBC that actually would have resulted had the Acquisition and related financing occurred at the date indicated, or project the
results of operations of MCBC for any future dates or periods. See "Unaudited Pro Forma Financial Information" below for details of pro forma adjustments.
Net income attributable to MCBC and the related diluted per share amounts for 2017 and 2016 have been restated due to the correction of errors related to
income tax accounting. See details at Part II—Item 8 Financial Statements and Supplementary Data, Note 1, "Basis of Presentation and Accounting Policies."
December 31, 2018
December 31, 2017
December 31, 2016
For the years ended
As Reported
Change
As Restated
As Restated
Pro Forma
Financial volume in hectoliters (1)
96.627
(In millions, except percentages and per share data)
99.563
46.912
(2.9)%
101.934
Net sales
Net income (loss) attributable to MCBC
Net income (loss) attributable to MCBC per
diluted share
N/M = Not meaningful
$
$
$
10,769.6
(2.1)% $
11,002.8 $
4,885.0 $
10,983.2
1,116.5
(28.7)% $
1,565.6 $
1,593.9 $
291.8
5.15
(28.8)% $
7.23 $
7.47 $
1.35
Pro Forma
Change
(2.3)%
0.2 %
N/M
N/M
(1)
Financial volumes for the year ended December 31, 2016, were recast to reflect the impacts of aligning policies on reporting financial volumes as a result
of the Acquisition.
2018 Financial Highlights
•
•
In 2018 , net income attributable to MCBC decreased 28.7% compared to the prior year primarily driven by the one-time income tax benefit recognized in
the prior year due to the reduction to the U.S. federal corporate income tax rate as a result of the 2017 Tax Act. This decline was also driven by unrealized
mark-to-market changes on commodity positions and lower volume and cost inflation in the U.S. and Canada, partially offset by the gain of $328.0
million related to the Adjustment Amount as previously discussed, positive global net pricing, global marketing optimization, general and administrative
spend reductions and cost savings, as well as lower interest expense.
During 2018, we repaid our CAD 400 million 2.25% notes with cash on hand as part of our deleveraging commitment. We also repaid $379 million of
commercial paper which was outstanding at December, 31, 2017.
• We generated cash flow from operating activities of approximately $2.3 billion , representing a 24.9% increase from approximately $1.9 billion in 2017 .
The increase in operating cash flow in 2018 compared to 2017 is primarily related to the proceeds received during the first quarter of 2018 of $328.0
million related to the Adjustment Amount as previously discussed, as well as lower pension contributions and lower interest paid, partially offset by
unfavorable changes in working capital and lower cash tax receipts.
•
Regional financial highlights:
•
•
In the U.S. segment, we reported income before income taxes of $1,320.7 million in 2018 , versus income of $1,394.2 million in 2017 , primarily
driven by lower volume, cost of goods sold inflation, higher special charges and negative sales mix, partially offset by lower marketing, general
and administrative expenses and higher net pricing. During the year we grew our share of the premium light segment with Miller Lite , which
completed its seventeenth consecutive quarter of increased segment share, according to Nielsen. Coors Light remained the number two beer in
industry share. In above premium, we established a foundation for growth by successfully introducing Arnold Palmer Spiked , establishing
Peroni as the fastest growing European import, and relaunching the Sol brand. Additionally, Peroni grew volume for the seventeenth consecutive
quarter. Blue Moon remained the number one national craft brand in the U.S.
In our Canada segment, we drove positive pricing primarily in Ontario and West. However, volume declined in the West and Ontario, partially
offset by growth in Quebec. We reported income before income taxes of $157.0 million in 2018 , versus income of $210.2 million in 2017 ,
primarily due to higher other expense related to unrealized mark-to-market losses on warrants issued in connection with the formation of the
Truss LP ("Truss") joint venture, negative sales mix and lower volumes, partially offset by higher net pricing.
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•
•
In our Europe segment, our continued portfolio premiumization while defending share of national champion brands positively impacted our
performance as we grew volumes in our above premium and core brands. In 2018 , we reported income before income taxes of $186.4 million ,
versus income of $234.9 million in 2017 , primarily due to cycling the impact of the indirect tax provision release of approximately $50 million
during the first quarter of 2017, adopting recently revised excise-tax guidelines in one of our European markets, investments in our First Choice
Agenda, as well as unfavorable foreign currency movements. This was partially offset by favorable sales mix shift from our premiumization
efforts, more efficient marketing investments, the addition of Aspall Cider business, as well as a positive impact from cycling a bad debt
provision recognized in 2017.
Our International segment reported a loss before income taxes of $2.7 million in 2018 , compared to a loss of $19.7 million in the prior year,
primarily driven by lower marketing and integration expenses, shifting to a more profitable business model in Mexico, higher net pricing, along
with volume growth in our focus markets, partially offset by negative foreign currency movements and increased special charges as a result of
formally exiting our China business.
•
Brand highlights:
•
•
•
•
Global priority brand volume decreased 3.1% in 2018 versus 2017 , due to declines across Canada, the U.S. and International, partially offset by
growth in Europe.
Blue Moon Belgian White global brand volume decreased 0.2% in 2018 versus 2017 , due to decline in the U.S., offset by growth in Canada,
Europe and International.
Carling brand volume in Europe decreased by 2.5% versus 2017 , due to lower volumes in the U.K., the brand's primary market.
Coors global brand volume - Coors Light global brand volume declined 5.0% in 2018 versus 2017 . The overall volume decrease was due to
lower brand volume in the U.S., Canada and International, partially offset by growth in Europe. Volumes in the U.S. were lower than prior year
reflective of the U.S. industry premium and premium light segment performance. The declines in Canada are the result of ongoing competitive
pressures in Quebec and Ontario and a continued shift in consumer preference to value brands in the West. Coors Banquet global brand volume
decreased 4.9% in 2018 versus 2017 , driven by the U.S. and Canada.
• Miller global brand volume - Miller Lite global brand volumes decreased 1.3% in 2018 versus 2017 , primarily driven by declines in the U.S.,
partially offset by growth in International. However, Miller Lite gained share of the U.S. premium light segment for the seventeenth consecutive
quarter. Miller Genuine Draft global brand volume decreased 3.9% in 2018 versus 2017 , due to decreases in the U.S., International and Canada,
partially offset by growth in Europe.
• Molson Canadian brand volume in Canada decreased 8.1% during 2018 versus the prior year, primarily driven by competitive pressures in the
West.
•
Staropramen global brand volume increased 3.7% during 2018 versus 2017 , driven by growth outside of the brand's primary market.
Worldwide Brand Volume
Worldwide brand volume (or "brand volume" when discussed by segment) reflects owned brands sold to unrelated external customers within our geographic
markets, net of returns and allowances, royalty volume, an adjustment from STWs to STRs and our proportionate share of equity investment brand volume
calculated consistently with MCBC owned volume. Contract brewing and wholesaler volume is removed from worldwide brand volume as this is non-owned
volume for which we do not directly control performance. We believe this definition of worldwide brand volume more closely aligns with how we measure the
performance of our owned brands within the markets in which they are sold. Financial volume represents owned brands sold to unrelated external customers within
our geographical markets, net of returns and allowances as well as contract brewing, wholesale non-owned brand volume and company-owned distribution volume.
Royalty volume consists of our brands produced and sold by third parties under various license and contract-brewing agreements and because this is owned
volume, it is included in worldwide brand volume. The adjustment from STWs to STRs provides the closest indication of the performance of our owned brands in
relation to market and competitor sales trends, as it reflects sales volume one step closer to the end consumer and generally means sales from our wholesalers or
our company to retailers. Equity investment worldwide brand volume represents our ownership percentage share of volume in our subsidiaries accounted for under
the equity method, consisting of MillerCoors prior to the completion of the Acquisition on October 11, 2016 . See Part II—Item 8 Financial Statements and
Supplementary Data, Note 4, "Acquisition and Investments" of the Notes for further discussion.
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Effective in the first quarter of 2018, we have revised our net sales per hectoliter performance discussions to include a brand volume basis as defined above
(with the exception of the STW to STR adjustment) with the net sales revenue component reflecting owned and actively managed brands as well as royalty revenue
consistent with how management views the business. We continue to also discuss net sales per hectoliter performance on a reported basis.
Volume in hectoliters:
Financial volume
Less: Contract brewing and wholesaler volume
Add: Royalty volume
Add: STW to STR adjustment
Owned volume
Add: Proportionate share of equity investment
worldwide brand volume
Total worldwide brand volume
N/M = Not meaningful
December 31, 2018
Change
December 31, 2017
Change
December 31, 2016
(In millions, except percentages)
For the years ended
96.627
(8.182)
4.054
(0.358)
92.141
—
92.141
(2.9)%
(4.9)%
10.0 %
(47.9)%
(1.9)%
— %
(1.9)%
99.563
(8.602)
3.685
(0.687)
93.959
112.2 %
108.6 %
75.3 %
N/M
106.1 %
—
(100.0)%
93.959
43.4 %
46.912
(4.124)
2.102
0.707
45.597
19.940
65.537
Our worldwide brand volume decreased in 2018 compared to 2017 , due to declines in the U.S. and Canada, partially offset by growth in Europe and
International. Worldwide brand volume increased in 2017 compared to 2016 , due to the Acquisition as well as strong growth in Europe and International partially
as a result of adding the Miller global brands business as well as growth within our existing brand portfolio.
Net Sales Drivers
The following table highlights the drivers of change in net sales for the year ended December 31, 2018 , versus December 31, 2017 , by segment (in
percentages) and excludes Corporate net sales revenue for our water resources and energy operations in the state of Colorado.
Consolidated
U.S.
Canada
Europe
International
Volume
Price, Product and Geography
Mix (1)
Currency
Other (2)
Total
(2.9)%
(5.1)%
(2.9)%
2.1 %
(7.5)%
0.7 %
1.9 %
(1.6)%
0.4 %
3.5 %
0.5 %
— %
— %
3.3 %
(1.3)%
(0.4)%
(0.1)%
— %
(2.6)%
— %
(2.1)%
(3.3)%
(4.5)%
3.2 %
(5.3)%
(1)
Includes the impacts of the adoption of the new accounting pronouncement related to revenue recognition as discussed above. See Part II—Item 8
Financial Statements and Supplementary Data, Note 1, "Basis of Presentation and Summary of Significant Accounting Policies" and Note 2, "New
Accounting Pronouncements " for further discussion on the adoption of this revenue recognition guidance.
(2)
Europe "Other" column includes the impacts of the release of an indirect tax provision in 2017 as further described in the Results of Operations.
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The following table highlights the drivers of change in net sales on a reported basis for the year ended December 31, 2017 , versus December 31, 2016 , by
segment (in percentages) and excludes Corporate net sales revenue for our water resources and energy operations in the state of Colorado. Consolidated includes
the U.S. segment for 2017 as well as the post-Acquisition period of October 11, 2016, through December 31, 2016. Prior to the Acquisition, MillerCoors was
accounted for as an equity method investment:
Consolidated
Canada
Europe
International
Volume
Price, Product and Geography
Mix
Currency
Other (1)
Total
112.2 %
(1.6)%
3.1 %
60.1 %
13.3%
2.2%
2.9%
1.3%
(0.3)%
1.7 %
(2.1)%
— %
— %
— %
6.4 %
— %
125.2%
2.3%
10.3%
61.4%
(1)
Europe "Other" column includes the release of an indirect tax provision further described in the Results of Operations.
Cost Savings Initiatives
Total cost savings in 2018 exceeded our targets and totaled more than $240 million, driven by our U.S., Canada and Europe segments. We have delivered
more than $495 million of cost savings collectively for the 2017 - 2019 program.
Depreciation and Amortization
Depreciation and amortization expense was $857.5 million in 2018 , an increase of $44.7 million compared to 2017 , primarily due to brewery system
implementations in the U.S. On a reported basis, depreciation and amortization expense was $812.8 million in 2017, an increase of $424.4 million compared to
2016, primarily due to the incremental depreciation and amortization recorded for the U.S. segment as a result of the Acquisition. On a pro forma basis,
depreciation and amortization expense decreased $38.6 million in 2017 compared to 2016, primarily due to lower accelerated depreciation due to brewery closures
in 2017 and the impact of foreign exchange rates.
Income Taxes
Effective tax rates have been restated for 2017 and 2016 due to the correction of errors related to income tax accounting. See details at Part II—Item 8
Financial Statements and Supplementary Data, Note 1, "Basis of Presentation and Summary of Significant Accounting Policies."
Effective tax rate
For the years ended
December 31, 2017
December 31, 2016
December 31, 2018
17%
As Restated
As Restated
(15)%
48%
The increase in the effective income tax rate for 2018 versus 2017 was primarily driven by the one-time impacts of the enactment of the 2017 Tax Act
recognized in 2017, most notably the remeasurement of our deferred taxes for the reduction in the U.S. statutory federal corporate income tax rate. This one-time
benefit to our deferred tax positions recognized in 2017 was partially offset by the reduction of the statutory U.S. federal corporate income tax rate from 35% to
21% beginning in 2018.
The decrease in the effective income tax rate for 2017 versus 2016 was primarily driven by the above mentioned impacts of the 2017 Tax Act, as well as the
income tax impacts recognized in 2016 associated with our previously held equity interest in MillerCoors which increased our effective tax rate in 2016.
Additionally, our 2016 effective tax rate was negatively impacted by the remeasurement of the deferred tax liability on our Molson core brand intangible asset to
the Canadian ordinary income tax rate upon reclassification from indefinite-lived to definite-lived subject to amortization.
Our tax rate is volatile and may increase or decrease with changes in, among other things, the amount and source of income or loss, our ability to utilize
foreign tax credits, excess tax benefits or deficiencies from share-based compensation, changes in tax laws, and the movement of liabilities established pursuant to
accounting guidance for uncertain tax positions as statutes of limitations expire, positions are effectively settled, or when additional information becomes available.
There are proposed or pending tax law changes in various jurisdictions in which we do business that, if enacted, may have an impact on our effective tax rate.
Additionally, we continue to monitor the 2017 Tax Act, including proposed regulations which may change upon finalization, as well as yet to be issued regulations
and interpretations. If the forthcoming regulations and interpretations change relative to our current understanding and initial assessment of the impacts of the 2017
Tax Act, the resulting impacts could have a material adverse impact on our effective tax rate.
43
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See Part II—Item 8 Financial Statements and Supplementary Data, Note 6, "Income Tax", for additional details regarding our effective tax rate.
Results of Operations
United States Segment
Financial volume in hectoliters (1)
Sales (1)
Excise taxes
Net sales (1)
Cost of goods sold (1)
Gross profit
Marketing, general and administrative expenses
Special items, net (2)
Operating income
Interest income (expense), net
Other income (expense), net
For the years ended
December 31, 2018
Change
December 31, 2017
(In millions, except percentages)
$
64.272
8,234.4
(974.5)
7,259.9
(4,277.5)
2,982.4
(1,631.3)
(37.8)
1,313.3
8.8
(1.4)
(5.1)%
(3.6)% $
(5.9)%
(3.3)%
(1.1)%
(6.3)%
(8.5)%
147.1 %
(5.1)%
(32.8)%
(41.7)%
67.731
8,541.7
(1,036.0)
7,505.7
(4,324.2)
3,181.5
(1,782.7)
(15.3)
1,383.5
13.1
(2.4)
1,394.2
Income (loss) before income taxes
$
1,320.7
(5.3)% $
(1)
(2)
Includes gross inter-segment sales, purchases, and volumes, which are eliminated in the consolidated totals.
See Part II—Item 8 Financial Statements and Supplementary Data, Note 7, "Special Items" of the Notes for detail of special items.
44
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We have presented unaudited pro forma financial information of the U.S. segment for 2016 to enhance comparability of financial information between
periods. Results for the period from January 1, 2016, through October 10, 2016, are actual results of MillerCoors utilized in preparing MCBC's share of
MillerCoors earnings when we historically accounted for MillerCoors under the equity method of accounting, and, therefore, its results of operations were reported
as equity income within MCBC's consolidated statements of operations. Results for the period from October 11, 2016, through December 31, 2016, are actual
results recorded when MillerCoors was fully consolidated within our results of operations. We have aggregated these reported 2016 results and applied pro forma
adjustments to arrive at combined U.S. segment pro forma financial information for the full year 2016.
For the year
ended
December 31,
2017
As Reported
by
MCBC
For the period
January 1
through
October 10,
2016
As Reported
by
MillerCoors
For the period
October 11
through
December 31, 2016
As Reported
by
MCBC
For the year ended
December 31, 2016
Pro Forma
Adjustments (1)
Pro
Forma (1)
Pro Forma
Change
Financial volume in hectoliters (2)(3)
67.731
55.750
14.436
—
(In millions, except percentages)
Sales (3)
Excise taxes
Net sales (3)
Cost of goods sold (3)
Gross profit
Marketing, general and administrative expenses
Special items, net (4)
Operating income
Interest income (expense), net
Other pension and postretirement benefits
(costs), net
Other income (expense), net
$
8,541.7 $
6,987.2 $
1,780.0 $
(23.2) $
(1,036.0)
7,505.7
(4,324.2)
3,181.5
(1,782.7)
(15.3)
1,383.5
13.1
—
(2.4)
(861.8)
6,125.4
(3,426.6)
2,698.8
(1,403.9)
(111.3)
1,183.6
(1.4)
(14.4)
3.7
(213.4)
1,566.6
(1,027.0)
539.6
(432.2)
2,959.1
3,066.5
—
—
0.7
12.3
(10.9)
37.8
26.9
(27.3)
(2,965.0)
(2,965.4)
—
14.4
—
70.186
8,744.0
(1,062.9)
7,681.1
(4,415.8)
3,265.3
(1,863.4)
(117.2)
1,284.7
(1.4)
—
4.4
Income (loss) before income taxes
$
1,394.2 $
1,171.5 $
3,067.2 $
(2,951.0) $
1,287.7
(3.5)%
(2.3)%
(2.5)%
(2.3)%
(2.1)%
(2.6)%
(4.3)%
(86.9)%
7.7 %
N/M
— %
N/M
8.3 %
N/M = Not meaningful
(1)
(2)
(3)
(4)
Pro forma amounts give effect to the Acquisition as if it had occurred at the beginning of fiscal year 2016 and have been updated to reflect that effective
January 1, 2017, the results of the MillerCoors Puerto Rico business, which were previously included as part of the U.S. segment, are now reported within
the International segment. See Part II - Item 7 Management's Discussion and Analysis, "Unaudited Pro Forma Financial Information," for details of pro
forma adjustments.
Financial volumes for the year ended December 31, 2016, were recast to reflect the impacts of aligning policies on reporting financial volumes as a result
of the Acquisition.
On a reported basis, includes gross inter-segment sales, purchases, and volumes, which are eliminated in the consolidated totals.
See Part II—Item 8 Financial Statements and Supplementary Data, Note 7, "Special Items" of the Notes for detail of special items.
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Table of Contents
The following represents our proportionate share of MillerCoors' net income reported under the equity method prior to the Acquisition:
Income (loss) before income taxes
Income tax expense
Net (income) loss attributable to noncontrolling interest
Net income attributable to MillerCoors
MCBC's economic interest
MCBC's proportionate share of MillerCoors' net income
Amortization of the difference between MCBC's contributed cost basis and proportionate share of the underlying equity in net
assets of MillerCoors (1)
Share-based compensation adjustment (1)
U.S. import tax benefit (1)
Equity income in MillerCoors
For the period
January 1
through
October 10,
2016
(In millions, except
percentages)
1,171.5
(3.3)
(11.0)
1,157.2
42%
486.0
3.3
(0.7)
12.3
500.9
$
$
$
(1)
See Part II—Item 8 Financial Statements and Supplementary Data, Note 4, "Acquisition and Investments" of the Notes, for a detailed discussion of these
equity method adjustments prior to the Acquisition.
The discussion below highlights the U.S. segment results of operations for the year ended December 31, 2018 , versus the year ended December 31, 2017 ,
and for the year ended December 31, 2017 , versus the year ended December 31, 2016 , on a reported and pro forma basis, where applicable.
Significant events
Throughout 2018, U.S. financial volume, including shipment timing and distributor inventory levels, as well as financial results were impacted by brewery
system implementations at our Golden, Colorado, Trenton, Ohio and Fort Worth, Texas breweries. We continue to prepare for future implementations at our
remaining breweries expected to occur in 2019, including the implementation at our Milwaukee, Wisconsin brewery, which is currently underway.
In order to align our cost base with our scale of business, during the third quarter of 2018, we initiated restructuring activities in the U.S. and reduced U.S.
employment levels by approximately 300 employees in the fourth quarter of 2018. As a result, severance costs related to these restructuring activities were
recorded as special charges.
The volatility of aluminum, inclusive of Midwest Premium, and freight and fuel costs continued to significantly impact our results during 2018. To the extent
these prices continue to fluctuate, our business and financial results could be materially adversely impacted. We continue to monitor these risks and rely on our risk
management hedging program to help mitigate price risk exposure for commodities including aluminum and fuel.
In order to increase overall operating efficiency, during the first quarter of 2018, the U.S. segment announced plans to close the Colfax, California cidery.
The cidery closed in January 2019 and cider production has moved to the 10th Street Brewery in Milwaukee, Wisconsin. We recognized special charges in 2018
associated with the cidery closure consisting primarily of accelerated depreciation in excess of normal depreciation.
On October 11, 2016 , we completed the Acquisition and as a result, MCBC owns 100% of the outstanding equity and voting interests of MillerCoors.
Therefore, beginning October 11, 2016 , MillerCoors' results of operations have been prospectively consolidated into MCBC’s consolidated financial statements
and included in the U.S. segment. See Part II—Item 8 Financial Statements and Supplementary Data, Note 4, "Acquisition and Investments" for further details.
Additionally, effective January 1, 2017, the results of the MillerCoors Puerto Rico business, which were previously included as part of the U.S. segment, are now
reported within the International segment. Note, we only present unaudited pro forma financial information for the consolidated entity and the U.S. segment.
During the third quarter of 2015, the U.S. business announced plans to close its brewery in Eden, North Carolina in an effort to optimize the brewery
footprint and streamline operations for greater efficiencies. Products produced in Eden were transitioned to other breweries in the U.S. supply chain network and
the Eden brewery is now closed. Total special charges
46
Table of Contents
associated with the Eden closure of approximately $182 million have bee n incurred from the decision to close through December 31, 2018 , consisting primarily of
accelerated depreciation. During the fourth quarter of 2018, the real property associated with the closed Eden brewery was sold.
Additionally, in 2016 MillerCoors acquired craft breweries Revolver Brewing, Terrapin Beer Company and Hop Valley Brewing Company.
Volume and net sales
Brand volume declined 3.9% in 2018 compared to 2017 , driven by lower volume in the premium light segment. STWs, excluding contract brewing volume,
decreased 4.4% in 2018 compared to 2017 , reflective of brand volume performance.
Net sales per hectoliter on a brand volume basis increased 1.5% in 2018 compared to 2017 , due to favorable net pricing, partially offset by negative sales
mix. Net sales per hectoliter on a reported basis for 2018 , increased 1.9% in 2018 compared to 2017 .
Brand volume declined 2.9% in 2017 compared to 2016, driven by lower volume in the premium light and below premium segments. STWs, excluding
contract brewing volume, decreased 3.3% in 2017 compared to 2016.
Net sales per hectoliter on a brand volume basis for 2017 increased 1.2% compared to 2016 reported net sales and 1.0% compared to 2016 pro forma net
sales, due to favorable net pricing. Net sales per hectoliter on a reported basis, increased 1.1% compared to 2016 reported figures and increased 1.3% compared to
2016 pro forma figures.
Cost of goods sold
Cost of goods sold per hectoliter increased 4.2% in 2018 compared to prior year driven by higher transportation costs, aluminum inflation and volume
deleverage, partially offset by cost savings. Additionally, in 2018 we recorded $2.8 million of integration costs related to the Acquisition within cost of goods sold.
Cost of goods sold per hectoliter decreased 0.1% in 2017 compared to 2016 reported figures due to the cycling of $82.0 million related to the inventory step
up as a result of the Acquisition. Cost of goods sold per hectoliter increased 1.5% in 2017 compared to 2016 pro forma figures driven by higher input costs and
volume deleverage, partially offset by cost savings. Additionally, in 2017 we recorded $2.4 million of integration costs related to the Acquisition within cost of
goods sold.
Marketing, general and administrative expenses
Marketing, general and administrative expenses decreased 8.5% in 2018 compared to 2017 driven by the amicable resolution of a dispute with a vendor in
the third quarter of 2018, spending optimization and efficiencies during the year as well as lower employee-related expenses including incremental cost reductions
initiated in the third quarter of 2018 and lower employee incentive expense.
Marketing, general and administrative expenses decreased in 2017 compared to 2016 on a reported basis and decreased in 2017 compared to 2016 on a pro
forma basis , due to spending optimization and efficiencies. Marketing, general and administrative expenses also includes integration costs of $5.1 million in 2017.
Interest income (expense), net
Net interest income decreased for 2018 compared to 2017 as a result of lower reductions in mandatorily redeemable noncontrolling interest liabilities in 2018
compared to 2017. Adjustments in the carrying value of the mandatorily redeemable noncontrolling interests are recorded to interest income (expense), net until
settled.
Net interest income increased for 2017 compared to 2016, primarily due to a reduction in mandatorily redeemable noncontrolling interest liabilities.
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Table of Contents
Canada Segment
Financial volume in hectoliters (1)(2)
Sales (2)
Excise taxes
Net sales (2)
Cost of goods sold (2)
Gross profit
$
Marketing, general and administrative expenses
Special items, net (3)
Operating income (loss)
Other income (expense), net (4)
Income (loss) before income taxes
$
N/M = Not meaningful
December 31, 2018
Change
December 31, 2017
Change
December 31, 2016
(In millions, except percentages)
For the years ended
8.554
1,850.6
(458.5)
1,392.1
(847.0)
545.1
(341.9)
(23.8)
179.4
(22.4)
157.0
(2.9)%
(2.9)% $
2.3 %
(4.5)%
— %
(10.8)%
(14.0)%
65.3 %
(9.9)%
N/M
(25.3)% $
8.805
1,906.2
(448.2)
1,458.0
(847.0)
611.0
(397.5)
(14.4)
199.1
11.1
210.2
(1.6)%
1.4 % $
(1.2)%
2.3 %
6.4 %
(2.9)%
9.5 %
(96.3)%
N/M
42.3 %
N/M $
8.950
1,879.4
(453.7)
1,425.7
(796.4)
629.3
(363.0)
(393.8)
(127.5)
7.8
(119.7)
(1)
(2)
(3)
(4)
Financial volumes for the year ended December 31, 2016, were recast to reflect the impacts of aligning policies on reporting financial volumes as a result
of the Acquisition.
Includes gross inter-segment sales, purchases, and volumes, which are eliminated in the consolidated totals.
See Part II—Item 8 Financial Statements and Supplementary Data, Note 7, "Special Items" of the Notes for detail of special items.
See Part II—Item 8 Financial Statements and Supplementary Data, Note 5, "Other Income and Expense" of the Notes for detail of other income (expense).
Significant events
As a result of the Acquisition, the Miller brands were added to our Canada segment's portfolio beginning October 11, 2016. Additionally, as part of our
ongoing assessment of our Canadian supply chain network, we completed the sale of our Vancouver brewery on March 31, 2016. In conjunction with the sale of
the brewery, we agreed to leaseback the existing property to continue operations on an uninterrupted basis while the new brewery is being constructed. We have
and continue to incur significant capital expenditures associated with the construction of the new brewery in Chilliwack, British Columbia, most of which we
expect to be funded with the proceeds from the sale of the Vancouver brewery. We will also incur additional charges, including estimated accelerated depreciation
charges of approximately CAD 7 million , through final closure of the brewery which is currently expected to occur in the third quarter of 2019 . The remaining
costs of leasing the existing facility through the estimated closure date will be approximately CAD 4 million which are not included within special items.
In further efforts to help optimize the Canada brewery network, in the third quarter of 2017 we announced a plan to build a more efficient and flexible
brewery in the greater Montreal area. As a result of this decision, we have begun to develop plans to transition out of our existing Montreal brewery, including the
acquisition of land in Longueuil, Quebec. We are also actively negotiating the sale of the existing brewery location and are targeting completion of the sale in the
second quarter of 2019. The brewery continues to be operational, and as part of the sale, we anticipate leasing back the property for continued use until the new
brewery is operational, which is currently expected to occur in 2021. Accordingly, we incurred accelerated depreciation charges associated with the existing
brewery closure starting in the second half of 2017, of which the amount in excess of normal depreciation is recorded within special items. We expect to incur
additional charges, including estimated accelerated depreciation charges in excess of normal depreciation of approximately CAD 65 million , through final closure
of the brewery. However, due to the uncertainty inherent in our estimates, these estimated future accelerated depreciation charges, as well as the timing of the
brewery closure, are subject to change.
During 2016, we recorded an aggregate impairment charge to the Molson core brand intangible asset within special items and subsequently reclassified the
brands from indefinite to definite-lived, resulting in increased amortization expense of intangible assets for 2017 compared to 2016.
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Table of Contents
Foreign currency impact on results
During 2018 , the CAD depreciated versus the USD on an average basis, resulting in a decrease of $4.3 million to our 2018 USD earnings before income
taxes. During 2017 , the CAD appreciated versus the USD on an average basis, resulting in an increase of $5.1 million to our 2017 USD earnings before income
taxes. Included in these amounts are both translational and transactional impacts of changes in foreign exchange rates. The impact of transactional foreign currency
gains and losses is recorded within other income (expense) in our consolidated statements of operations.
Volume and net sales
Our Canada brand volume decreased 2.2% in 2018 compared to 2017 , as a result of volume decline in the West and Ontario, partially offset by growth in
Quebec. Net sales per hectoliter on a brand volume basis decreased 2.6% in local currency in 2018 compared to 2017 , driven by the impacts resulting from the
adoption of the new accounting pronouncement related to revenue recognition, which requires certain cash payments to customers to now be recognized as a
reduction of revenue versus marketing, general and administrative expense, and unfavorable brand mix. Net sales per hectoliter on a reported basis in local
currency decreased 1.6% in 2018 compared to 2017.
Brand volume decreased 0.5% in 2017 compared to 2016 , primarily as a result of lower domestic volumes, partially offset by the addition of the Miller
brands as a result of the Acquisition. Net sales per hectoliter on a brand volume basis increased 1.6% in local currency in 2017 compared to 2016 , driven by
positive pricing and sales mix. Net sales per hectoliter on a reported basis in local currency increased 2.2% in 2017 compared to 2016.
Cost of goods sold
Cost of goods sold per hectoliter in local currency increased 2.9% in 2018 compared to 2017 , driven by input cost inflation, volume deleverage, and supply
chain transformation investments, partially offset by distribution gains and cost savings. Additionally, for 2018 we recorded $0.5 million of integration costs
related to the Acquisition within cost of goods sold.
Cost of goods sold per hectoliter in local currency increased 6.2% in 2017 compared to 2016 , due to sales mix shift to higher cost products, impacts of
volume deleverage, higher inflation and unfavorable transactional foreign currency impacts, partially offset by ongoing cost saving initiatives. Additionally, for
2017 we recorded $4.1 million of integration costs related to the Acquisition within cost of goods sold.
Marketing, general and administrative expenses
Marketing, general and administrative expenses decreased 14.1% in local currency in 2018 compared to 2017 , primarily driven by impacts resulting from
the adoption of the new accounting pronouncement related to revenue recognition as further discussed above and lower brand investments.
Marketing, general and administrative expenses increased 7.6% in local currency in 2017 compared to 2016 , primarily driven by higher brand amortization
in 2017, partially offset by lower bad debt expense, and spending reductions.
Other income (expense), net
Other expense of $22.4 million in 2018 was primarily driven by charges related to unrealized mark-to-market losses on warrants issued in connection with
the formation of the Truss joint venture, as further detailed in Note 16, "Derivative Instruments and Hedging Activities."
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Europe Segment
Financial volume in hectoliters (1)(2)(3)
Sales (3)
Excise taxes
Net sales (3)
Cost of goods sold
Gross profit
$
Marketing, general and administrative expenses
Special items, net (4)
Operating income (loss)
Interest income (expense), net
Other income (expense), net
Income (loss) before income taxes
$
N/M = Not meaningful
December 31, 2018
Change
December 31, 2017
Change
December 31, 2016
(In millions, except percentages)
For the years ended
23.772
3,088.6
(1,086.0)
2,002.6
(1,269.4)
733.2
(534.6)
(6.0)
192.6
(5.1)
(1.1)
186.4
2.1 %
6.9 % $
14.6 %
3.2 %
8.1 %
(4.3)%
0.8 %
20.0 %
(16.6)%
N/M
N/M
(20.6)% $
23.290
2,888.3
(947.6)
1,940.7
(1,174.4)
766.3
(530.3)
(5.0)
231.0
3.6
0.3
234.9
3.1 %
4.0 % $
(6.9)%
10.3 %
4.5 %
20.4 %
3.7 %
N/M
85.2 %
— %
(96.8)%
70.7 % $
22.590
2,778.1
(1,017.9)
1,760.2
(1,123.5)
636.7
(511.4)
(0.6)
124.7
3.6
9.3
137.6
(1)
(2)
(3)
(4)
Financial volumes for the year ended December 31, 2016, were recast to reflect the impacts of aligning policies on reporting financial volumes as a result
of the Acquisition.
Excludes royalty volume of 1.787 million hectoliters, 1.694 million hectoliters and 0.194 million hectoliters for 2018 , 2017 and 2016 , respectively.
Includes gross inter-segment sales and volumes, which are eliminated in the consolidated totals.
See Part II—Item 8 Financial Statements and Supplementary Data, Note 7, "Special Items" of the Notes for detail of special items.
Significant events
The U.K. is expected to leave the European Union on March 29, 2019. However, the proposed withdrawal agreement was rejected by the U.K. Parliament on
November 14, 2018, and January 15, 2019. As a result, the terms of the withdrawal remain unknown, which subjects our Europe segment to regulatory and market
uncertainty in the U.K. and in the rest of Europe. See Part I—Item 1A Risk Factors under "Risks Specific to the Europe Segment" for further discussion of the risks
specific to the U.K.'s proposed exit from the EU.
In January 2018, the Europe segment completed the acquisition of Aspall Cyder Limited, an established premium cider business in the U.K.
As a result of the Acquisition, the Miller brands were added to our Europe segment's portfolio beginning October 11, 2016, and effective January 1, 2017,
European markets including Sweden, Spain, Germany, Ukraine and Russia, which were previously reported under our International segment, are reported within
our Europe segment.
As part of our continued strategic review of our European supply chain network, during the fourth quarter of 2015, we announced the planned closure of the
Burton South brewery in the U.K. Since 2015, we incurred charges consisting primarily of accelerated depreciation in excess of normal depreciation related to the
Burton South brewery which closed during the first quarter of 2018. Production has been consolidated within our recently modernized Burton North brewery. We
may recognize other charges or benefits related to brewery closures, which cannot currently be estimated and will be recorded within special items.
In the first quarter of 2017, the largest food and retail company in Croatia, Agrokor, announced that it was facing significant financial difficulties that raised
doubt about the collectibility of certain of our outstanding receivables with its direct subsidiaries. These subsidiaries are customers of ours within the Europe
segment and, therefore, we have closely monitored the situation. As a result, we recorded a provision for an estimate of uncollectible receivables during 2017. We
have subsequently reduced this exposure and as of December 31, 2018 , our estimated provision of uncollectible receivables from Agrokor totals
50
Table of Contents
approximately $3 million . The settlement plan related to this matter was approved in October 2018, and did not have a significant impact on our financial
statements.
During the first quarter of 2017, we released an indirect tax loss contingency which was initially recorded in the fourth quarter of 2016, for a benefit of
approximately $50 million within the excise taxes line item on the consolidated statement of operations. See Part II—Item 8 Financial Statements and
Supplementary Data, Note 18, "Commitments and Contingencies" of the Notes for further discussion.
Foreign currency impact on results
Our Europe segment operates in numerous countries within Europe, and each country's operations utilize distinct currencies. During 2018 , foreign currency
movements unfavorably impacted our Europe USD income before income taxes by $2.8 million . During 2017 , foreign currency movements unfavorably impacted
our Europe USD income before income taxes by $7.5 million. Included in these amounts are both translational and transactional impacts of changes in foreign
exchange rates. The impact of transactional foreign currency gains and losses is recorded within other income (expense) in our consolidated statements of
operations.
Volume and net sales
Our Europe brand volume increased 2.2% in 2018 compared to 2017 , primarily driven by growth from our above premium and core brand performance.
Net sales per hectoliter on a brand volume basis decreased 3.4% in local currency in 2018 compared to 2017 , primarily driven by the negative impact of
cycling the release of the approximate $50 million indirect tax provision in the first quarter of 2017, negative pricing due to the impact of adopting recently revised
excise-tax guidelines in one of our European markets, and increasing our investment behind our First Choice Agenda this year. Net sales per hectoliter on a
reported basis in local currency decreased 2.1% in 2018 compared to 2017.
Brand volume increased 10.3% in 2017 compared to 2016 , primarily driven by the transfer of royalty and export brand volume across Europe from our
International business and the addition of the Miller brands, along with growth from our above premium brands.
Net sales per hectoliter on a brand volume basis increased 4.9% in local currency in 2017 compared to 2016 , primarily driven by the indirect tax provision of
approximately $50 million recorded in the fourth quarter of 2016 and subsequently released in the first quarter of 2017 and the addition of royalty and export brand
volumes, including the impact of Miller brands. Net sales per hectoliter on a reported basis in local currency increased 9.0% in 2017 compared to 2016.
Cost of goods sold
Cost of goods sold per hectoliter increased 2.3% in local currency in 2018 compared to 2017 , primarily due to input inflation and mix shift to higher-cost
brands and geographies. Additionally, we recorded $0.6 million of integration costs related to the Acquisition within cost of goods sold in 2018 .
Cost of goods sold per hectoliter increased 3.4% in local currency in 2017 compared to 2016 , primarily driven by mix shift to higher cost brands and
geographies. Additionally, we have recorded $0.6 million of integration costs related to the Acquisition within cost of goods sold in 2017 .
Marketing, general and administrative expenses
Marketing, general and administrative expenses decreased 3.3% in local currency in 2018 compared to 2017 , driven by more efficient marketing investments
and the impacts resulting from the adoption of the new accounting pronouncement related to revenue recognition and a positive impact from cycling a bad debt
provision booked in 2017, partially offset by the addition of Aspall brand investments.
Marketing, general and administrative expenses increased 4.9% in local currency in 2017 compared to 2016 , driven by higher brand investments and general
and administrative costs, including increased amortization related to the Miller brand portfolio, and recognition of the previously mentioned provision for
uncollectible receivables.
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International Segment
Financial volume in hectoliters (1)(2)
Sales
Excise taxes
Net sales
Cost of goods sold (3)
Gross profit
Marketing, general and administrative expenses
Special items, net (4)
Operating income (loss)
Other income (expense), net
Income (loss) before income taxes
N/M = Not meaningful
$
$
December 31, 2018
Change
December 31, 2017
Change
December 31, 2016
(In millions, except percentages)
For the years ended
2.214
299.5
(49.4)
250.1
(160.4)
89.7
(81.6)
(9.3)
(1.2)
(1.5)
(2.7)
(7.5)%
(0.5)% $
33.9 %
(5.3)%
(11.1)%
7.4 %
(19.8)%
N/M
(93.9)%
N/M
(86.3)% $
2.394
300.9
(36.9)
264.0
(180.5)
83.5
(101.7)
(1.6)
(19.8)
0.1
(19.7)
60.1 %
57.5 % $
34.7 %
61.4 %
68.5 %
47.8 %
56.0 %
(94.9)%
(50.3)%
(50.0)%
(50.3)% $
1.495
191.0
(27.4)
163.6
(107.1)
56.5
(65.2)
(31.1)
(39.8)
0.2
(39.6)
(1)
(2)
(3)
(4)
Financial volumes for the year ended December 31, 2016, were recast to reflect the impacts of aligning policies on reporting financial volumes as a result
of the Acquisition.
Excludes royalty volume of 2.267 million hectoliters, 1.991 million hectoliters and 1.908 million hectoliters in 2018 , 2017 and 2016 , respectively.
Includes gross inter-segment purchases, which are eliminated in the consolidated totals.
See Part II—Item 8 Financial Statements and Supplementary Data, Note 7, "Special Items" of the Notes for detail of special items.
Significant events
During the first half of 2018, we decided to formally exit our business in China and, as such, have incurred special charges. See Part II—Item 8 Financial
Statements and Supplementary Data, Note 7, "Special Items" of the Notes for further detail.
As a result of the Acquisition, the Miller brands were added to our International segment's portfolio beginning October 11, 2016. Additionally, as a result of
the Acquisition, effective January 1, 2017, European markets including Sweden, Spain, Germany, Ukraine and Russia, which were previously reported as part of
our International segment, are reported within our Europe segment while the results of the MillerCoors Puerto Rico business, which were previously included as
part of the U.S. segment, are reported within the International segment.
On April 5, 2016, the government of the state of Bihar implemented a complete prohibition of the sale and consumption of all forms of alcohol. As a result of
this ban, our Molson Coors Cobra India business is currently not operating. This ban does not impact the rest of our business in India outside of the state of Bihar.
As a result, we recorded an aggregate impairment charge of $30.8 million within special items during the second quarter of 2016. We continue to monitor legal
proceedings impacting the regulatory environment as it relates to our ability to resume operations in the state.
Foreign currency impact on results
Our International segment operates in numerous countries around the world and each country's operations utilize distinct currencies. Foreign currency
movements unfavorably impacted our International USD loss before income taxes by $3.2 million for 2018 and favorably impacted our International USD loss
before income taxes by $0.2 million for 2017 . Included in these amounts are both translational and transactional impacts of changes in foreign exchange rates. The
impact of transactional foreign currency gains and losses is recorded within other income (expense) in our consolidated statements of operations.
Volume and net sales
Our International brand volume increased 2.2% in 2018 compared to 2017 , driven by organic volume growth in many of our focus markets, partially offset
by lower volumes in Mexico due to higher net pricing and the loss of the Modelo contract in
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Japan at the end of the second quarter of 2017. Our International financial volume decreased 7.5% in 2018 compared to 2017 , driven by shifting to local third party
production in Mexico, which increased our royalty volume.
Net sales per hectoliter on a brand volume basis decreased 7.3% in 2018 compared to 2017 , primarily driven by sales mix changes and shifting to local
production in Mexico, partially offset by positive net pricing. Net sales per hectoliter on a reported basis increased 2.4% in 2018 compared to 2017 due to changes
in sales mix.
Brand volume increased 28.9% in 2017 compared to 2016 , driven by the change in segment reporting of the Puerto Rico business from the U.S. segment,
Coors Light growth primarily in Latin America and the addition of the Miller brands partially offset by the transfer of royalty and export brand volume to Europe.
Net sales per hectoliter on a brand volume basis increased 25.2% in 2017 compared to 2016 , primarily due to sales mix changes and positive pricing. Net
sales per hectoliter on a reported basis increased 0.8% in 2017 compared to 2016, driven by positive net pricing and favorable sales mix.
Cost of goods sold
Cost of goods sold per hectoliter decreased 3.9% in 2018 compared to 2017 , primarily driven by sales mix changes. Additionally, during 2018 we recorded
$1.0 million of integration costs related to the Acquisition within cost of goods sold.
Cost of goods sold per hectoliter increased 5.2% in 2017 compared to 2016 , primarily driven by sales mix changes. Additionally, during 2017 we recorded
$3.6 million of integration costs related to the Acquisition within cost of goods sold.
Marketing, general and administrative expenses
Marketing, general and administrative expenses decreased 19.8% in 2018 compared to 2017 , primarily due to lower marketing investments, overhead, and
integration costs as well as $2.0 million of settlement proceeds related to our Colombia business in the first quarter of 2018. During 2018 , we recorded $1.8
million of integration costs related to the Acquisition within marketing, general and administrative expenses.
Marketing, general and administrative expenses increased 56.0% in 2017 compared to 2016 , primarily due to higher organization and integration costs
related to the acquisition of the Miller global brands, along with increased brand investments, including higher brand amortization costs. During 2017 , we recorded
$8.4 million of integration costs related to the Acquisition within marketing, general and administrative expenses.
Corporate Segment
December 31, 2018
Change
December 31, 2017
Change
December 31, 2016
(In millions, except percentages)
For the years ended
$
Financial volume in hectoliters
Sales
Excise taxes
Net sales
Cost of goods sold
Gross profit
Marketing, general and administrative expenses
Special items, net (1)
Operating income (loss)
Interest expense, net
Other pension and postretirement benefits (costs),
net
Other income (expense), net
—
0.8
—
0.8
(166.4)
(165.6)
(213.3)
326.6
(52.3)
(301.9)
38.2
14.4
— %
(11.1)% $
— %
(11.1)%
N/M
N/M
(11.1)%
N/M
(55.0)%
(16.1)%
(19.4)%
N/M
—
0.9
—
0.9
122.9
123.8
(239.8)
(0.1)
(116.1)
(360.0)
47.4
(7.7)
— %
(10.0)% $
— %
(10.0)%
N/M
N/M
6.4 %
(85.7)%
(42.6)%
45.2 %
N/M
(84.8)%
Income (loss) before income taxes
$
(301.6)
(30.9)% $
(436.4)
(11.3)% $
—
1.0
—
1.0
22.9
23.9
(225.3)
(0.7)
(202.1)
(248.0)
8.4
(50.5)
(492.2)
N/M = Not meaningful
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(1)
See Part II—Item 8 Financial Statements and Supplementary Data, Note 7, "Special Items" of the Notes for detail of special items.
Significant events
In connection with the Acquisition, we have incurred, and will continue to incur, various transaction and integration costs as further discussed below. See
Part II—Item 8 Financial Statements and Supplementary Data, Note 4, "Acquisition and Investments" of the Notes for further details.
Cost of goods sold
The unrealized changes in fair value on our commodity swaps, which are economic hedges, are recorded as cost of goods sold within our Corporate business
activities. As the exposure we are managing is realized, we reclassify the gain or loss to the segment in which the underlying exposure resides, allowing our
segments to realize the economic effects of the derivative without the resulting unrealized mark-to-market volatility. Cost of goods sold for the year ended
December 31, 2018 , include unrealized mark-to-market losses of $166.2 million , and cost of goods sold for the years ended December 31, 2017 , and December
31, 2016, include unrealized mark-to-market gains of $123.3 million and $23.1 million, respectively, on these commodity swaps. Lower commodity market prices
relative to our hedged positions on our commodity swaps drove the total unrealized mark-to-market loss in 2018. The total gain recognized in 2017 was primarily
driven by higher commodity prices during the year versus 2016.
Marketing, general and administrative expenses
Marketing, general and administrative expenses decreased in 2018 compared to 2017 , primarily due to the timing of corporate general and administrative
costs, lower employee-related expenses, and higher integration costs related to the Acquisition recognized in the prior year, partially offset by incremental
investment behind global business capabilities including information technology investments. During 2018 we recorded $36.9 million of integration costs related to
the Acquisition within marketing, general and administrative expenses.
Marketing, general and administrative expenses increased in 2017 compared to 2016 , primarily due to incremental investment behind global business
capabilities including higher compensation expense, partially offset by higher acquisition-related costs recognized in 2016. Specifically, during 2017 we recorded
$57.1 million within marketing, general and administrative expenses related the Acquisition, compared to $108.4 million in 2016.
Interest expense, net
Net interest expense decreased in 2018 compared to 2017 , primarily driven by debt repayments. Net interest expense increased in 2017 compared to 2016 ,
primarily driven by incremental interest incurred on debt issued to partially fund the Acquisition. See Part II—Item 8 Financial Statements and Supplementary
Data, Note 16, "Derivative Instruments and Hedging Activities" and Note 11, "Debt" for further details.
Other income (expense), net
Net other income in 2018 compared to net other expense in 2017 was primarily driven by an $11.7 million gain recorded on the sale of a non-operating asset
in 2018. Net other expense decreased from 2017 compared to 2016 , primarily driven by financing costs incurred in 2016 on our bridge loan of approximately $63
million partially offset by the $20.5 million gain on the sale of non-operating assets as well as unrealized gains on foreign currency forwards which are economic
hedges entered into during the second quarter of 2016 in connection with the issuance of debt on July 7, 2016.
See Part II—Item 8 Financial Statements and Supplementary Data, Note 5, "Other Income and Expense" of the Notes for further discussion of other income
(expense) amounts and Note 15, "Employee Retirement Plans and Postretirement Benefits" for discussion of changes in pension and postretirement benefits (costs)
as all non-service cost components of pension and postretirement benefits (costs) are now reported within Corporate.
Liquidity and Capital Resources
Our primary sources of liquidity include cash provided by operating activities and access to external capital. We believe that cash flows from operations and
cash provided by short-term and long-term borrowings, when necessary, will be more than adequate to meet our ongoing operating requirements, scheduled
principal and interest payments on debt, anticipated dividend payments and capital expenditures for the next twelve months, and our long-term liquidity
requirements.
A significant portion of our trade receivables are concentrated in Europe. While these receivables are not concentrated in any specific customer and our
allowance on these receivables factors in collectibility, we may encounter difficulties in our ability to collect due to the impact to our customers of any further
economic downturn within Europe.
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A significant portion of our cash flows from operating activities is generated outside the U.S., in currencies other than USD. As of December 31, 2018 ,
approximately 47% of our cash and cash equivalents were located outside the U.S., largely denominated in foreign currencies. We accrue for tax consequences on
the earnings of our foreign subsidiaries upon repatriation. When the earnings are considered indefinitely reinvested outside of the U.S., we do not accrue taxes.
However, we continue to assess the impact of the 2017 Tax Act on the tax consequences of future repatriations. We utilize a variety of tax planning and financing
strategies in an effort to ensure that our worldwide cash is available in the locations in which it is needed. We periodically review and evaluate these strategies,
including external committed and non-committed credit agreements accessible by MCBC and each of our operating subsidiaries. We believe these financing
arrangements, along with the cash generated from the operations of our U.S. segment, are sufficient to fund our current cash needs in the U.S.
Cash Flows and Use of Cash
Our business generates positive operating cash flow each year, and our debt maturities are of a longer-term nature. However, our liquidity could be impacted
significantly by the risk factors described in Part I, Item 1A. Risk Factors.
Cash Flows from Operating activities
Net cash provided by operating activities of approximately $2.3 billion in 2018 , increased by $465.0 million compared to 2017 . This increase was driven by
the proceeds received during the first quarter of $328.0 million related to the Adjustment Amount as defined and further discussed in Part II—Item 8 Financial
Statements and Supplementary Data, Note 4, "Acquisition and Investments" of the Notes, lower pension contributions and interest paid, partially offset by
unfavorable changes in working capital and lower cash tax receipts.
Net cash provided by operating activities of approximately $1.9 billion in 2017 increased by $739.4 million compared to 2016 . This increase is primarily
related to the addition of the consolidated U.S. business, lower cash paid for taxes (refund in 2017 as compared to cash tax paid in 2016 ) and working capital
improvements, partially offset by higher pension contributions including the discretionary cash contribution of $200 million to the U.S. pension plan and higher
cash paid for interest.
Cash Flows from Investing activities
Net cash used in investing activities of $669.1 million in 2018 , increased by $130.9 million compared to 2017 primarily due to higher capital expenditures,
increased outflows from other investing activities, including acquisitions, as well as lower proceeds related to asset disposals.
Net cash used in investing activities of $538.2 million in 2017 decreased by approximately $11.7 billion compared to 2016 driven primarily by the
completion of the Acquisition in 2016 for $12.0 billion , offset by higher capital expenditures in 2017 resulting from the Acquisition.
Cash Flows from Financing activities
Net cash used in financing activities of approximately $1.0 billion in 2018 , decreased by $487.5 million from net cash used in financing activities of
approximately $1.5 billion in 2017 . This decrease was primarily driven by lower net repayments on debt and borrowings in 2018 compared to 2017 , partially
offset by the repayment of borrowings under our commercial paper program in 2018 compared to an increase in borrowings under our commercial paper program
in the prior year.
Net cash used in financing activities of approximately $1.5 billion in 2017 , decreased by approximately $12.8 billion from net cash provided by financing
activities of approximately $11.3 billion in 2016 . This change was primarily driven by the approximate $2.5 billion of net proceeds received from our February 3,
2016, equity offering of 29.9 million shares of our Class B common stock, the approximate $6.9 billion of net proceeds from the issuance of debt on July 7, 2016,
to partially fund the Acquisition in 2016, as well as increased net repayments of debt as we began to deleverage in 2017. See "Borrowings" below for more details
on financing activity.
See Part II—Item 8 Financial Statements and Supplementary Data, Note 11, "Debt" of the Notes for a summary of our financing activities and debt position
as of December 31, 2018 , and December 31, 2017 .
Capital Resources
Cash and Cash Equivalents
As of December 31, 2018 , we had total cash and cash equivalents of approximately $1.1 billion , compared to $418.6 million as of December 31, 2017 . The
increase in cash and cash equivalents as of December 31, 2018 , from December 31, 2017 , was primarily driven by the net proceeds from operating activities
including the proceeds received during the first quarter of $328.0 million related to the Adjustment Amount as defined and further discussed in Part II—Item 8
Financial Statements and Supplementary Data, Note 4, "Acquisition and Investments" of the Notes, partially offset by repayments of borrowings,
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capital expenditures and dividend payments. The majority of our cash and cash equivalents are invested in a variety of highly liquid investments with original
maturities of 90 days or less. These investments are viewed by management as low-risk investments on which there are little to no restrictions regarding our ability
to access the underlying cash to fund our operations as necessary. While we have some investments in prime money market funds, these are classified as cash and
cash equivalents; however, we continually monitor the need for reclassification under the updated SEC requirements for money market funds, and the potential that
the shares of such funds could have a net asset value of less than one dollar. We also utilize cash pooling arrangements to facilitate the access to cash across our
geographies.
Working Capital
The Company actively manages working capital through inventory management as well as management of accounts payable and accounts receivable to
ensure we are able to meet short-term obligations and we are effectively using assets to increase profitability.
Borrowings
During the third quarter of 2018, we repaid our CAD 400 million 2.25% notes which matured in September 2018. Notional amounts are presented in USD
based on the applicable exchange rate as of December 31, 2018 . Refer to Part II—Item 8 Financial Statements and Supplementary Data, Note 11, "Debt" for
details regarding the cross currency swaps on our $500 million 2.25% senior notes due 2020 which economically converted these notes to EUR denominated.
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Based on the credit profile of our lenders that are party to our credit facilities, we are confident in our ability to draw on our revolving credit facility if the
need arises. We had no borrowings on our $1.5 billion revolving credit facility as of December 31, 2018 . During the third quarter of 2018, we extended the
maturity date of our revolving credit facility by one year to July 7, 2023. In addition, we intend to further utilize our cross-border, cross-currency cash pool as well
as our commercial paper program for liquidity as needed. We also have JPY overdraft facilities, CAD, GBP and USD lines of credit with several banks should we
need additional short-term liquidity.
Under the terms of each of our debt facilities, we must comply with certain restrictions. These include restrictions on priority indebtedness (certain threshold
percentages of secured consolidated net tangible assets), leverage thresholds, liens, and restrictions on certain types of sale lease-back transactions and transfers of
assets. Additionally, under the $1.5 billion revolving credit facility, the maximum leverage ratio is 4.75x debt to EBITDA, with a decline to 4.00x debt to EBITDA
as of the last day of the fiscal quarter ending December 31, 2020 . As of December 31, 2018 , and December 31, 2017 , we were in compliance with all of these
restrictions, have met such financial ratios and have met all debt payment obligations. All of our outstanding senior notes as of December 31, 2018 , rank pari-
passu.
See Part II—Item 8 Financial Statements and Supplementary Data, Note 11, "Debt" of the Notes for a complete discussion and presentation of all borrowings
and available sources of borrowing, including lines of credit.
Credit Rating
Our current long-term credit ratings are BBB-/Stable Outlook, Baa3/Stable Outlook and BBB(Low)/Stable Outlook with Standard and Poor's, Moody's and
DBRS, respectively. Our short-term credit ratings are A-3, Prime-3 and R-2(low), respectively. A securities rating is not a recommendation to buy, sell or hold
securities, and it may be revised or withdrawn at any time by the rating agency.
Foreign Exchange
Foreign exchange risk is inherent in our operations primarily due to the significant operating results that are denominated in currencies other than USD. Our
approach is to reduce the volatility of cash flows and reported earnings which result from
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currency fluctuations rather than business related factors. Therefore, we closely monitor our operations in each country and seek to adopt appropriate strategies that
are responsive to foreign currency fluctuations. Our financial risk management policy is intended to offset a portion of the potentially unfavorable impact of
exchange rate changes on net income and earnings per share. See Part II—Item 8 Financial Statements and Supplementary Data, Note 16, "Derivative Instruments
and Hedging Activities" of the Notes for additional information on our financial risk management strategies.
Our consolidated financial statements are presented in USD, which is our reporting currency. Assets and liabilities recorded in foreign currencies that are the
functional currencies for the respective operations are translated at the prevailing exchange rate at the balance sheet date. Translation adjustments resulting from
this process are reported as a separate component of other comprehensive income. Revenue and expenses are translated at the average exchange rates during the
period. Gains and losses from foreign currency transactions are included in earnings for the period. The significant exchange rates to the USD used in the
preparation of our consolidated financial results for the primary foreign currencies used in our foreign operations (functional currency) are as follows:
Weighted-Average Exchange Rate (1 USD equals)
December 31, 2018
December 31, 2017
December 31, 2016
For the years ended
Canadian dollar (CAD)
Euro (EUR)
British pound (GBP)
Czech Koruna (CZK)
Croatian Kuna (HRK)
Serbian Dinar (RSD)
Romanian Leu (RON)
Bulgarian Lev (BGN)
Hungarian Forint (HUF)
Closing Exchange Rate (1 USD equals)
Canadian dollar (CAD)
Euro (EUR)
British pound (GBP)
Czech Koruna (CZK)
Croatian Kuna (HRK)
Serbian Dinar (RSD)
Romanian Leu (RON)
Bulgarian Lev (BGN)
Hungarian Forint (HUF)
1.30
0.84
0.77
21.93
6.32
99.74
4.00
1.67
267.65
1.27
0.88
0.77
23.43
6.59
112.49
4.01
1.72
276.49
As of
1.32
0.90
0.75
24.61
6.78
110.81
4.05
1.77
258.13
December 31, 2018
December 31, 2017
1.36
0.87
0.78
22.43
6.46
103.20
4.06
1.71
279.94
1.26
0.83
0.74
21.29
6.19
98.52
3.89
1.63
258.91
The weighted-average exchange rates in the above table have been calculated based on the average of the foreign exchange rates during the relevant period
and have been weighted according to the foreign denominated earnings from operations of the USD equivalent. If foreign currencies in the countries in which we
operate devalue significantly in future periods, most significantly the CAD and European operating currencies included in the above table, then the impact on USD
reported earnings may be material.
Capital Expenditures
In 2018 , we incurred $643.2 million , and have paid $651.7 million , for capital improvement projects worldwide, excluding capital spending by equity
method joint ventures, representing an approximate 2% increase versus 2017 capital expenditures incurred of $628.4 million . This increase is primarily due to
capital expenditures associated with the construction of our new Chilliwack, British Columbia brewery, expected to be finalized in the third quarter of 2019, and
Longueuil, Quebec brewery.
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We continue to focus on where and how we employ our planned capital expenditures, specifically strengthening our focus on required returns on invested
capital as we determine how to best allocate cash within the business.
Contractual Obligations and Commercial Commitments
Contractual Obligations
A summary of our consolidated contractual obligations as of December 31, 2018 , based on foreign exchange rates as of December 31, 2018 , is as follows:
Total
Less than 1 year
Payments due by period
1 - 3 years
(In millions)
3 - 5 years
More than 5 years
Debt obligations
$
10,540.0 $
1,595.2 $
1,866.6 $
Interest payments on debt obligations
Retirement plan expenditures (1)
Operating leases
Capital leases
Other long-term obligations (2)
Total obligations
4,284.5
447.8
184.8
124.1
2,592.6
297.1
51.4
49.4
6.1
694.4
$
18,173.8 $
2,693.6 $
542.9
90.6
72.8
42.1
1,081.8
3,696.8 $
866.6 $
458.9
89.5
41.6
11.7
657.0
2,125.3 $
6,211.6
2,985.6
216.3
21.0
64.2
159.4
9,658.1
See Part II - Item 8 Financial Statements and Supplementary Data, Note 11, "Debt" , Note 15, "Employee Retirement Plans and Postretirement Benefits,"
Note 16, "Derivative Instruments and Hedging Activities" and Note 18, "Commitments and Contingencies" of the Notes for additional information.
(1)
(2)
Represents expected contributions under our defined benefit pension plans in the next twelve months and our benefit payments under postretirement
benefit plans for all periods presented. The net underfunded liability as of December 31, 2018 , of our defined benefit pension plans (excluding our
overfunded plans) and postretirement benefit plans is $104.1 million and $672.1 million , respectively. Defined benefit pension plan contributions in
future years will vary based on a number of factors, including actual plan asset returns and interest rates, and as such, have been excluded from the above
table. We fund pension plans to meet the requirements set forth in applicable employee benefits laws. We may also voluntarily increase funding levels to
meet financial goals. Excluding BRI and BDL, in 2019 , we expect to make contributions to our defined benefit pension plans of approximately $6 million
and benefit payments under our OPEB plans of approximately $45 million , based on foreign exchange rates as of December 31, 2018 .
Our U.K. pension plan is subject to a statutory valuation for funding purposes every three years. The most recent valuation as of June 30, 2016, resulted in
a long-term funding commitment plan consisting of MCBC contributions to the plan of a GBP 60 million lump-sum contribution in early 2020 and
incremental GBP 25.7 million annual contributions from 2020 through 2026, which are excluded from the above table.
We have taken numerous steps to reduce our exposure to these long-term pension obligations, including the closure of the U.K. pension plan in early 2009
to future earning of service credit, benefit modifications in several of our Canada plans and entering into partial buy-out contracts for some of our plans.
However, given the net liability of our underfunded plans and their dependence upon the global financial markets for their financial health, the plans may
continue to periodically require potentially significant amounts of cash funding.
Primarily includes non-cancelable purchase commitments as of December 31, 2018 , that are enforceable and legally binding. Approximately $1.7 billion
of the total other long-term obligations relate to long-term supply contracts with third parties to purchase raw material, packaging material and energy
used in production. Our aggregate commitments for advertising and promotions, including sports sponsorship, total approximately $486 million . The
remaining amounts relate to derivative payments, sales and marketing, distribution, information technology services, open purchase orders and other
commitments. Included in other long-term obligations are $6.1 million of unrecognized tax benefits, excluding positions we would expect to settle using
deferred tax assets, and $10.5 million of indemnities provided to FEMSA for which we cannot reasonably estimate the timing of future cash flows, and we
have therefore included these amounts in the more than 5 years column.
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Guarantees
We guarantee indebtedness and other obligations to banks and other third parties for some of our equity method investments and consolidated subsidiaries.
See Part II—Item 8 Financial Statements and Supplementary Data, Note 18, "Commitments and Contingencies" of the Notes for further discussion.
Other Commercial Commitments
Based on foreign exchange rates as of December 31, 2018 , future commercial commitments are as follows:
Standby letters of credit
$
64.5 $
48.8 $
15.7 $
— $
—
Amount of commitment expiration per period
Total amounts
committed
Less than 1 year
1 - 3 years
(In millions)
3 - 5 years
More than 5 years
Contingencies
We are party to various legal proceedings arising in the ordinary course of business, environmental litigation and indemnities associated with our sale of
Kaiser to FEMSA. See Part II—Item 8 Financial Statements and Supplementary Data, Note 18, "Commitments and Contingencies" of the Notes for further
discussion.
Off-Balance Sheet Arrangements
In accordance with U.S. GAAP, our operating leases are not reflected in our consolidated balance sheets. See Part II—Item 8 Financial Statements, Note 18,
"Commitments and Contingencies" of the Notes for further discussion of these off-balance sheet arrangements. As of December 31, 2018 , we did not have any
other material off-balance sheet arrangements (as defined in Item 303(a)(4)(ii) of Regulation S-K).
Outlook for 2019
In the U.S., Miller Lite continues its strong segment trend while Coors Light’s relative performance improved with the brand holding share of segment in the
fourth quarter of 2018. In 2019, we have plans to accelerate our above premium portfolio through higher investment. We plan to double our media spend on Blue
Moon , the number one national craft brand, air national advertising for Peroni for the first time, build on a very successful year-one for both Arnold Palmer Spiked
Half and Half and Sol , increase the presence of Henry's Hard in the fast growing hard seltzer category, focusing on the brand's clear product differentiators of zero
sugar and only 88 calories and introduce a number of innovations, including Cape Line , Saint Archer Gold , Crispin extensions and Sol Chelada - all before this
summer. Our U.S. business enters 2019 having further strengthened its position as the trusted category captain across chain accounts in both the off- and on-
premise channels and more broadly our customer excellence performance is market leading and improving further, as evidenced by the Advantage Survey results.
Additionally, allied to this we have ramped up our e-commerce approach within joint business plans and continue to build competitive advantage through our
technology enabled field sales teams with tools such as BeerMate, which we are rolling out globally. Our new Coors Light advertising is now on air, and we
believe we are moving in the right direction with the brand, allowing us to take even more share in premium lights. We anticipate Coors Light will continue to
emphasize its cold, Rocky Mountain positioning as the World's Most Refreshing Beer. We expect it will also invest more than ever on digital and social channels to
engage and recruit 21-34 year olds. Miller Lite , the original light beer with less carbs and calories, plans to further enhance its competitive messaging to drive
greater consumer affinity and brand switching from its major competitor.
In Canada, our First Choice Commercial excellence approach and capability is building. In terms of commercial performance, there are multiple highlights.
Our total share trend has improved three quarters in a row and Coors Light’s segment share also improved three quarters in a row, improving to flat in the fourth
quarter. Craft volume grew driven by Belgian Moon and Creemore and our non-alcoholic portfolio of Coors Edge and Heineken 0.0 is delivering strong volume
and segment share growth. In the value segment, we delivered strong share growth in 2018 driven by our simplified portfolio strategy and the launch of Miller
High Life . As we look at 2019 and beyond, we believe there is growth potential from our innovation pipeline. Coors Slice , for example, is an innovation that
strengthens the Coors trademark, and we are encouraged by the tests behind our pending introduction of Aqua-Relle , our hard sparkling water. Our commitment to
customer excellence includes the adoption of BeerMate to strengthen field sales management and promising joint business plan pilots with key customers. For
example, a pilot with Ontario’s LCBO is producing beer category growth well in excess of the total industry performance. Our two largest brands will benefit from
new advertising, brand redesign, and innovation in 2019. For Coors Light , we launch our new “The Mountains Are Calling” campaign and introduce new
packages, including a new chill pack in
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time for summer and the Molson trademark enters 2019 with a new brand redesign and communication platform which we expect will unlock latent passion for the
brand. The Miller brand trademark returned to our portfolio in 2016, and we plan to build on a very successful 2018: building awareness and distribution of Miller
High Life since its launch early last year, rolling out Miller Lite nationally after a successful trial in Newfoundland, and adding to the success of Miller Genuine
Draft in other non-U.S. markets by expanding the brand’s availability and above premium positioning.
In Europe, our brand volumes are growing and premiumizing. Our national champion portfolio inflected to positive volume growth last year, our global
brands continued to grow well in excess of the industry, and our above premium and craft portfolio also contributed to growth and mix. Our First Choice for
Customer focus is also strengthening our customer relationships. For example, according to the Advantage survey of U.K. retailers, we rate number one in the
Multiple On-Trade across all beverage suppliers. Our national champion brands in Europe had a solid year, and we still aim for more. Our largest brand, Carling ,
has just begun a major new 360 campaign, “Made Local,” which started this month, and we anticipate it will continue throughout 2019 and we believe it will
strengthen the brand's market leading position. Finally, in Europe, we are exporting and licensing our brands to multiple new markets. We are generating increasing
profit from this business and are excited about its future because it is low capital intensity and we believe it offers considerable room for growth.
In International, last year was year-one of our new International strategy, targeting focus markets and implementing the many actions that have improved
profitability. These include our shift to local production in Mexico, favorable changes in the pricing of Coors Light , Miller Genuine Draft , and Miller Lite ,
accelerated growth of Blue Moon and Miller High Life , and improved performance at retail. International’s recent wins include Miller Genuine Draft capturing
leadership of Paraguay’s premium segment, our new Blue Moon Tap House in Panama which we expect to be the first of many, and strong growth across our
portfolio in Latin America and India. Looking forward, our International business will remain committed to top- and bottom-line growth driven by continued focus
on portfolio mix improvements, building capabilities to expand within our priority markets and potential strategic entry into new markets.
Cost Savings
We intend to deliver cost savings on our three-year cost savings program for 2017 to 2019 of approximately $700 million, including approximately $205
million in 2019. Delivering on these savings commitments will be particularly important given recent increases in input costs such as aluminum and fuel as well as
impacts of inflation. Our next generation cost savings program, for 2020 through 2022, is currently expected to deliver approximately $450 million over the three-
year program term and is focused around many of the same functions of the business as the current program.
Capital Expenditures
We currently expect to incur total capital expenditures of approximately $700 million in 2019 , based on foreign exchange rates as of December 31, 2018 ,
including capital expenditures associated with the construction of our new British Columbia and Montreal breweries and excluding capital spending by equity
method joint ventures.
Interest
We anticipate 2019 consolidated net interest expense of approximately $300 million , based on foreign exchange and interest rates as of December 31, 2018 .
Tax
We expect our effective tax rate to be in the range of 18 to 22 percent for 2019, which remains subject to additional definitive guidance from the U.S.
government regarding the implementation of the 2017 Tax Act. Our preliminary view of our long-term effective tax rate (after 2019) is in the range of 20 to 24
percent.
Dividends and Stock Repurchases
We currently plan to maintain our current quarterly dividend of $0.41 per share until we achieve a leverage ratio of approximately 3.75x debt to EBITDA on
a rating agency basis, which we expect to achieve around the middle of 2019. Upon achieving approximately 3.75x leverage, our board's intention is to reinstitute a
dividend payout-ratio target in the range of 20-25% of annual trailing EBITDA for the second half of 2019 and ongoing thereafter. We have suspended our share
repurchase program as we continue to pay down debt which we plan to revisit as we deleverage.
Critical Accounting Estimates
Our consolidated financial statements are prepared in accordance with U.S. GAAP. In connection with the preparation of our consolidated financial
statements, we are required to make judgments and estimates that significantly affect the reported amounts of assets, liabilities, revenues and expenses and related
disclosures. Our estimates are based on historical experience,
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current trends and various other assumptions we believe to be relevant under the circumstances. We review the underlying factors used in our estimates regularly,
including reviewing the significant accounting policies impacting the estimates, to ensure compliance with U.S. GAAP. However, due to the uncertainty inherent in
our estimates, actual results may be materially different. We have identified the accounting estimates below as critical to understanding and evaluating the financial
results reported in our consolidated financial statements.
For a complete description of our significant accounting policies, see Part II—Item 8 Financial Statements and Supplementary Data, Note 1, "Basis of
Presentation and Summary of Significant Accounting Policies" of the Notes.
Pension and Other Postretirement Benefits
Our defined benefit pension plans cover certain current and former employees in the U.S., Canada, the U.K. (within our Europe segment) and Japan (within
our International segment). Benefit accruals for the majority of employees in our U.S. plan have been frozen and the plans are closed to new entrants. In the U.S.,
we also participate in, and make contributions to, multi-employer pension plans. Our OPEB plans provide medical benefits for retirees and their eligible
dependents as well as life insurance and, in some cases, dental and vision coverage, for certain retirees in Canada, the U.S., Corporate, and Europe. The U.S.,
Canada and U.K. defined benefit pension plans are primarily funded, but the Japan plan and all OPEB plans are unfunded. We also offer defined contribution plans
in each of our segments.
Accounting for pension and OPEB plans requires that we make assumptions that involve considerable judgment which are significant inputs in the actuarial
models that measure our net pension and OPEB obligations and ultimately impact our earnings. These include the discount rate, long-term expected rate of return
on assets, compensation trends, inflation considerations, health care cost trends and other assumptions, as well as determining the fair value of assets in our funded
plans. Specifically, the discount rates, as well as the expected rates of return on assets and plan asset fair value determination, are important assumptions used in
determining the plans' funded status and annual net periodic pension and OPEB benefit costs. We evaluate these critical assumptions at least annually on a plan and
country-specific basis. We also, with the help of actuaries, periodically evaluate other assumptions involving demographic factors, such as retirement age, mortality
and turnover, and update them to reflect our experience and expectations for the future. While we believe that our assumptions are appropriate, significant
differences in our actual experience or significant changes in our assumptions may materially affect our net pension and postretirement benefit obligations and
related expense.
Discount Rates
The assumed discount rates are used to present-value future benefit obligations based on each plan's respective estimated duration. Our pension and
postretirement discount rates are based on our annual evaluation of high quality corporate bonds in the various markets based on appropriate indices and actuarial
guidance. We believe that our discount rate assumptions are appropriate; however, significant changes in our assumptions may materially affect our pension and
OPEB obligations and related expense.
As of December 31, 2018 , on a weighted-average basis, the discount rates used were 3.44% for our defined benefit pension plans and 3.92% for our OPEB
plans. The change from the weighted-average discount rates of 3.01% for our defined benefit pension plans and 3.34% for our postretirement plans as of
December 31, 2017 , is primarily the result of overall market changes during 2018.
A 50 basis point change in our discount rate assumptions would have had the following effects on the projected benefit obligation balances as of
December 31, 2018 , for our pension and OPEB plans:
Projected benefit obligation - unfavorable (favorable)
Pension obligation
OPEB obligation
Total impact to the projected benefit obligation
$
$
62
Impact to projected benefit obligation as of
December 31, 2018
- 50 basis points
Decrease
Increase
(In millions)
350.0 $
35.4
385.4 $
(313.1)
(33.2)
(346.3)
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Our U.K. pension plan includes benefits linked to inflation. The above sensitivity analysis does not consider the implications to inflation resulting from the
above contemplated discount rate changes. This sensitivity holds all other assumptions constant.
Long-Term Expected Rates of Return on Assets
The assumed long-term expected return on assets is used to estimate the actual return that will occur on each individual funded plan's respective plan assets
in the upcoming year. We determine each plan's EROA with substantial input from independent investment specialists, including our actuaries and other
consultants. In developing each plan's EROA, we consider current and expected asset allocations, historical market rates as well as historical and expected returns
on each plan's individual asset classes. In developing future return expectations for each of our plan's assets, we evaluate general market trends as well as key
elements of asset class returns such as expected earnings growth, yields and spreads. The calculation includes inputs for interest, inflation, credit, and risk premium
(active investment management) rates and fees paid to service providers. Based on the above factors and expected asset allocations, we have assumed, on a
weighted-average basis, an EROA of 4.38% for our defined benefit pension plan assets for cost recognition in 2019 . This is an increase from the weighted-average
rate of 4.10% we had assumed in 2018 . We believe that our EROA assumptions are appropriate; however, significant changes in our assumptions or actual returns
that differ significantly from estimated returns may materially affect our net periodic pension costs.
To compute the expected return on plan assets, we apply the EROA to the market-related value of the pension plan assets adjusted for projected benefit
payments to be made from the plan assets and projected contributions to the plan assets. We use the fair value approach to calculate the market-related value of
pension plan assets used to determine net periodic pension cost, which includes measuring the market-related value of plan assets at fair value for purposes of
determining the expected return on plan assets and amount of gain or loss subject to amortization.
A 50 basis point change in our discount rate and expected return on assets assumptions made at the beginning of 2018 would have had the following effects
on 2018 net periodic pension and postretirement benefit costs:
Description of pension and postretirement plan sensitivity item
Expected return on pension plan assets
Discount rate on pension plans
Discount rate on postretirement plans
Fair Value of Plan Assets
Impact to 2018 pension and postretirement benefit costs - 50
basis points (unfavorable) favorable
Decrease
Increase
$
$
$
(In millions)
(28.4) $
2.7 $
1.8 $
28.4
(7.5)
(1.6)
We recognize our defined benefit pension plans as assets or liabilities in the consolidated balance sheets based on their underfunded or overfunded status as
of our year end and recognize changes in the funded status due to changes in actuarial assumptions in the year in which the changes occur within other
comprehensive income. Our funded status of our defined benefit pension plans is measured as the difference between each plan's projected benefit obligation and
its assets' fair values. The fair value of plan assets is determined by us using available market information and appropriate valuation methodologies. However,
considerable judgment is required in selecting an appropriate methodology and interpreting market data to develop the estimates of fair value, especially in the
absence of quoted market values in an active market. Changes in these assumptions or the use of different market inputs may have a material impact on the
estimated fair values or the ultimate amount at which the plan assets are available to satisfy our plan obligations.
Equity assets are diversified between domestic and other international investments. Relative allocations reflect the demographics of the respective plan
participants. See Part II—Item 8 Financial Statements and Supplementary Data, Note 15, "Employee Retirement Plans and Postretirement Benefits" of the Notes
for a comparison of target asset allocation percentages to actual asset allocations as of December 31, 2018 .
Other Considerations
Our net periodic pension and postretirement benefit costs are also influenced by the potential amortization (or non-amortization) from accumulated other
comprehensive income (loss) of deferred gains and losses, which occur when actual experience differs from estimates. We employ the corridor approach for
determining each plan's amortization. This approach defines the “corridor” as the greater of 10% of the PBO or 10% of the market-related value of plan assets (as
discussed above)
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and requires amortization of the excess net gain or loss that exceeds the corridor over the average remaining service periods of active plan participants. For our
closed plans or plans that are primarily inactive, the average remaining life expectancy of all plan participants (including retirees) is used. If our actuarial losses
significantly exceed this corridor in the future, significant incremental pension and postretirement costs could result. As of year-end 2018 , the deferred losses of
several of our Canadian plans, as well as those in our U.K. plan, and the deferred gains of our U.S. plan, exceeded the 10% corridor.
The assumed health care cost trend rates represent the rates at which health care costs are assumed to increase and are based on actuarial input and
consideration of historical and expected experience. We use these trends as a significant assumption in determining our postretirement benefit obligation and
related costs. Changes in our projections of future health care costs due to general economic conditions and those specific to health care will impact this trend rate.
An increase in the trend rate would increase our obligation and expense of our postretirement health care plan. We believe that our health care cost trend rate
assumptions are appropriate; however, significant changes in our assumptions may materially affect our postretirement benefit obligations and related costs. As of
December 31, 2018 , the health care trend rates used were ranging ratably from 6.5% in 2019 to 4.5% in 2037, consistent with our health care trend rates ranging
ratably from 6.8% in 2018 to 4.5% in 2037 used as of December 31, 2017 . See Part II—Item 8 Financial Statements and Supplementary Data, Note 15, "Employee
Retirement Plans and Postretirement Benefits" of the Notes for further information.
Contingencies, Environmental and Litigation Reserves
Contingencies, environmental and litigation reserves are recorded, when probable, using our best estimate of loss. This estimate, involving significant
judgment, is based on an evaluation of the range of loss related to such matters and where the amount and range can be reasonably estimated. These matters are
generally resolved over a number of years and only when one or more future events occur or fail to occur. Following our initial determination, we regularly
reassess and revise the potential liability related to any pending matters as new information becomes available. Unless capitalization is allowed or required by U.S.
GAAP, environmental and legal costs are expensed when incurred. We disclose pending loss contingencies when the loss is deemed reasonably possible, which
requires significant judgment. As a result of the inherent uncertainty of these matters, the ultimate conclusion and actual cost of settlement may materially differ
from our estimates. We recognize contingent gains upon the determination that realization is assured beyond a reasonable doubt, regardless of the perceived
probability of a favorable outcome prior to achieving that assurance. In the instance of gain contingencies resulting from favorable litigation, due to the numerous
uncertainties inherent in a legal proceeding, gain contingencies resulting from legal settlements are not recognized in income until cash or other forms of payment
are received. If significant and probable, we disclose as appropriate.
See Part I—Item 3 Legal Proceedings and Part II—Item 8 Financial Statements and Supplementary Data, Note 18, "Commitments and Contingencies" of the
Notes for a discussion of our contingencies, environmental and litigation reserves as of December 31, 2018 .
Goodwill and Intangible Asset Valuation
Goodwill is allocated to the reporting unit in which the business that created the goodwill resides. A reporting unit is an operating segment, or a business unit
one level below that operating segment, for which discrete financial information is prepared and regularly reviewed by segment management. As of the date of our
annual impairment test, performed as of October 1, the operations in each of the specific regions within our U.S., Canada, Europe and International segments are
components based on the availability of discrete financial information and the regular review by segment management. Therefore, the components within each
respective segment must be evaluated for aggregation to determine if the components have similar economic characteristics. As a result, in certain cases, we have
aggregated business units, within an operating segment, into one reporting unit if the specific aggregation criteria under U.S. GAAP is met. Specifically, we have
concluded that the components within the U.S., Canada and Europe segment each meet the criteria as having similar economic characteristics and therefore have
aggregated these components into the U.S., Canada and Europe reporting units, respectively. Therefore, the U.S., Canada and Europe reporting units are consistent
with our operating segments. However, for our India business, the reporting unit is one level below the International operating segment. Any change to the
conclusion of our reporting units or the aggregation of components within our reporting units could result in a different outcome to our annual impairment test. As
of the date of our annual impairment test, our significant indefinite-lived intangible assets included the Coors and Miller brand families in the U.S., the Coors Light
distribution rights in Canada, and the Carling and Staropramen brands in Europe.
We evaluate the carrying value of our goodwill and indefinite-lived intangible assets for impairment at least annually or when an interim triggering event
occurs that would indicate that impairment may have taken place. Our annual impairment test was performed as of October 1, the first day of the last fiscal quarter.
We evaluate our other definite-lived intangible assets for impairment when evidence exists that certain events or changes in circumstances indicate that the carrying
amount of these assets may not be recoverable. Significant judgments and assumptions are required in such impairment evaluations.
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Our annual evaluation involves comparing each reporting unit's fair value to its respective carrying value, including goodwill. If the fair value exceeds
carrying value, then we conclude that no goodwill impairment has occurred. If a reporting unit's carrying value exceeds its fair value, we would recognize an
impairment loss in an amount equal to the excess up to the total amount of goodwill allocated to that reporting unit.
We use a combination of discounted cash flow analyses and market approaches to determine the fair value of each of our reporting units, and an excess
earnings approach to determine the fair values of our Coors and Miller brand families in the U.S. and Staropramen brand in Europe. We utilized a qualitative
assessment of the Coors Light distribution rights in Canada and the Carling brand in Europe, in order to determine whether the fair value of these indefinite-lived
intangible assets is in excess of its carrying value. The decision to utilize a qualitative assessment in the current year for these brands was the result of taking
several factors into consideration, including the excess of the respective brands' fair value over its carrying value in the prior year quantitative impairment analysis.
Our discounted cash flow projections include assumptions for growth rates for sales, costs and profits, which are based on various long-range financial and
operational plans of each reporting unit or each indefinite-lived intangible asset. Additionally, discount rates used in our goodwill analysis are based on weighted-
average cost of capital, driven by the prevailing interest rates in geographies where these businesses operate, as well as the credit ratings, financing abilities and
opportunities of each reporting unit, among other factors. Discount rates for the indefinite-lived intangible analysis by brand largely reflect the rates supporting the
overall reporting unit valuation but may differ slightly to adjust for country or market specific risk associated with a particular brand. Our market-based valuations
utilize earnings multiples of comparable public companies, which are reflective of the market in which each respective reporting unit operates, and recent
comparable market transactions.
Changes in the factors used in our fair value estimates, including declines in industry or company-specific beer volume sales, margin erosion, termination of
brewing and/or distribution agreements with other brewers, and discount rates used, could have a significant impact on the fair values of the reporting units and
indefinite-lived intangible assets.
Reporting Units and Goodwill
The fair value of the U.S., Europe and Canada reporting units were estimated at approximately 19% , 11% and 6% in excess of carrying value, respectively,
as of the October 1, 2018, testing date. In the current year testing, it was determined that the fair value of each of the reporting units declined from the prior year,
resulting in our Europe and Canada reporting units now being considered at risk of impairment. The decline in fair value across all reporting units in the current
year is largely due to the recent interest rate environment which has resulted in an increase to the risk-free rate included in our current year discount rate
calculations. This fact, coupled with the recent changes in market conditions resulting in lower earnings multiples of comparable public companies within our
market-based valuations, adversely impacted the results of our impairment testing. In the U.S. reporting unit, market driven declines from the prior year were
partially offset by a decrease in the tax rate driven by the enactment of the 2017 Tax Act within the U.S., as well as inclusion of incremental cost saving initiatives
included in the current year forecast. In the Europe reporting unit, declines from the prior year were partially offset by continued volume and revenue growth
throughout 2018 benefiting management's forecasts and positively impacting the forecasted future cash flows of the reporting unit. The market-driven decline in
the excess of the fair value over the carrying value of the Canada reporting unit was coupled with continued challenging industry dynamics during the year,
including continued performance declines within the Molson and Coors Light core brands, resulting in a reduction of forecasted results in comparison to the prior
year. These declines were slightly offset by incremental cost saving initiatives included in the current year forecast. The fair value of the India reporting unit
declined slightly from the prior year, as a result of shifts in business strategy; however, fair value of the India reporting unit continues to remain in excess of its
carrying value as of our annual testing date.
Intangible Assets
The Coors and Miller indefinite-lived brands in the U.S. continue to be sufficiently in excess of their respective carrying values as of the annual testing date.
The fair value of the Coors Light brand distribution rights in Canada continues to be sufficiently in excess of its carrying value as of the testing date. During
2016, we recorded an aggregate impairment charge to the Molson core indefinite-lived brand asset of $495.2 million . The impairment charge was the result of a
continued decline in performance of the Molson core brand asset throughout 2016, which drove a downward shift in management's forecast, along with a
challenging market dynamic and competitive conditions that were not expected to subside in the near-term. At that time, we also reassessed the brand's indefinite-
life classification and determined that the Molson core brands had characteristics that indicated a definite-life assignment was more appropriate, including
prolonged weakness in consumer demand driven by increased economic and competitive pressures. Given these factors resulted in sustained declines in brand
performance, and it was unclear when these ongoing pressures on the brands would subside, these brands were reclassified as definite-lived intangible assets as of
October 1, 2016, and are being amortized over their remaining useful lives ranging from 30 to 50 years.
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Our Europe indefinite-lived intangibles' fair values, including the Staropramen and Carling brands, continue to be sufficiently in excess of their respective
carrying values as of the annual testing date.
We utilized Level 3 fair value measurements in our impairment analysis of certain indefinite-lived intangible brand assets, including the Coors and Miller
brands in the U.S., and the Staropramen brand in Europe, which utilizes an excess earnings approach to determine the fair values of these assets as of the testing
date. The future cash flows used in the analysis are based on internal cash flow projections based on our long range plans and include significant assumptions by
management as noted below. Separately, we performed qualitative assessments of certain indefinite-lived intangible assets, including the Coors Light brand
distribution rights in Canada, Carling brand in Europe and water rights in the U.S., to determine whether it was more likely than not that the fair values of these
assets were greater than their respective carrying amounts. Based on the qualitative assessments, we determined that a full quantitative analysis was not necessary.
Key Assumptions
As of the date of our annual impairment test, performed as of October 1, the Europe and Canada reporting unit goodwill balances are at risk of future
impairment in the event of significant unfavorable changes in the forecasted cash flows (including prolonged weakening of economic conditions, or significant
unfavorable changes in tax, environmental or other regulations, including interpretations thereof), terminal growth rates, market multiples and/or weighted-average
cost of capital utilized in the discounted cash flow analyses. For testing purposes of our reporting units, management's best estimates of the expected future results
are the primary driver in determining the fair value. Current projections used for our Canada reporting unit testing reflect continued challenges within the beer
industry in Canada adversely impacting the projected cash flows of the business, offset by growth resulting from the benefit of anticipated cost savings and specific
brand-building and innovation activities. Current projections used for our Europe reporting unit incorporate ongoing anticipated cost savings, coupled with
continued volume and revenue growth. Positive assumptions included in management's forecast for both the Europe and Canada reporting units are being offset by
adverse market conditions negatively impacting discount rate and market multiple assumptions applied to our fair valuation models in the current year.
Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. As a result, there can be no
assurance that the estimates and assumptions made for purposes of the annual goodwill and indefinite-lived intangible impairment tests will prove to be an accurate
prediction of the future. Examples of events or circumstances that could reasonably be expected to negatively affect the underlying key assumptions and ultimately
impact the estimated fair value of our reporting units and indefinite-lived intangibles may include such items as: (i) a decrease in expected future cash flows,
specifically, a decrease in sales volume and increase in costs that could significantly impact our immediate and long-range results, a decrease in sales volume
driven by a prolonged weakness in consumer demand or other competitive pressures adversely affecting our long-term volume trends, a continuation of the trend
away from core brands in certain of our markets, especially in markets where our core brands represent a significant portion of the market, unfavorable working
capital changes and an inability to successfully achieve our cost savings targets, (ii) adverse changes in macroeconomic conditions or an economic recovery that
significantly differs from our assumptions in timing and/or degree (such as a recession), (iii) volatility in the equity and debt markets or other country specific
factors which could result in a higher weighted-average cost of capital, (iv) sensitivity to market multiples; and (v) regulation limiting or banning the
manufacturing, distribution or sale of alcoholic beverages.
Based on known facts and circumstances, we evaluate and consider recent events and uncertain items, as well as related potential implications, as part of our
annual assessment and incorporate into the analyses as appropriate. These facts and circumstances are subject to change and may impact future analyses.
In 2018 , the discount rates used in developing our fair value estimates for each of our reporting units were 9.00% , 9.25% and 9.50% for our U.S, Canada
and Europe reporting units, respectively. The rates used for our reporting unit testing increased for each of the reporting units in the current year. In 2018 , discount
rates used for testing of indefinite-lived intangibles ranged from 9.25% to 10.50% considering the market or country specific risk premium for each geography in
which our brands are based. The discount rates for the Coors and Miller brands in the U.S., and the Staropramen brand in Europe, increased compared to the
discount rates used in the prior year analysis, primarily due to an increase in the risk-free rates included in our current year discount rate calculations.
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While historical performance and current expectations have resulted in fair values of our reporting units in excess of carrying values, if our assumptions are
not realized, it is possible that an impairment charge may need to be recorded in the future. For example, a 50 basis point increase in our discount rate assumptions,
which is within a reasonable range of historical discount rate fluctuations between test dates, would have had the following effects on the fair value cushion in
excess of carrying value for the U.S., Europe and Canada reporting units as of the October 1, 2018, test date:
Reporting units:
United States
Europe
Canada
Impact to the fair value cushion as of October 1, 2018
- 50 basis points increase
Cushion (as reported)
Cushion (post-sensitivity)
% of fair value in excess of carrying value
19%
11%
6%
16%
8%
3%
Post sensitivity, the fair values of the U.S., Europe and Canada reporting units remain in excess of the their carrying values. The discount rate sensitivity
holds all other assumptions and inputs constant.
Regarding definite-lived intangibles, we continuously monitor the performance of the underlying asset for potential triggering events suggesting an
impairment review should be performed. Excluding the definite-lived intangible asset impairment charge associated with the triggering event that occurred in
Bihar, India, which resulted in an impairment of tangible assets of $11.0 million and impairment of goodwill and definite-lived intangibles of $19.8 million in
2016, no such triggering events resulting in an impairment charge were identified in 2018, 2017 or 2016. See Part II—Item 8 Financial Statements and
Supplementary Data, Note 10, "Goodwill and Intangible Assets" of the Notes for further discussion.
As of December 31, 2018 , the carrying values of goodwill and intangible assets were approximately $8.3 billion and $13.8 billion , respectively. If actual
performance results differ significantly from our projections or we experience significant fluctuations in our other assumptions, a material impairment charge may
occur in the future. See Part II—Item 8 Financial Statements and Supplementary Data, Note 10, "Goodwill and Intangible Assets" of the Notes for further
discussion and presentation of these amounts.
Income Taxes
Income taxes are accounted for in accordance with U.S. GAAP. Judgment is required in determining our consolidated provision for income taxes. In the
ordinary course of our global business, there are many transactions for which the ultimate tax outcome is uncertain. Additionally, our income tax provision is based
on calculations and assumptions that are subject to examination by many different tax authorities. See Part II—Item 8 Financial Statements and Supplementary
Data, Note 6, "Income Tax" of the Notes for further discussion on the implications of the 2017 Tax Act in the U.S. on our financial statements.
We are periodically subject to tax return audits by both foreign and domestic tax authorities, which can involve questions regarding our tax positions.
Settlement of any challenge resulting from these audits can result in no change, a complete disallowance, or some partial adjustment reached through negotiations
or litigation. We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained based on its
technical merits. We measure and record the tax benefits from such a position based on the largest benefit that has a greater than 50% likelihood of being realized
upon ultimate settlement. Our estimated liabilities related to these matters are adjusted in the period in which the uncertain tax position is effectively settled, the
statute of limitations for examination expires or when additional information becomes available. Our liability for unrecognized tax benefits requires the use of
assumptions and significant judgment to estimate the exposures associated with our various filing positions. Although we believe that the judgments and estimates
made are reasonable, actual results could differ and resulting adjustments could materially affect our effective income tax rate and income tax provision.
We provide for taxes that may be payable if undistributed earnings of overseas subsidiaries were to be remitted to the U.S., except for those earnings that we
consider to be permanently reinvested. However, we continue to monitor the impacts of the 2017 Tax Act, as defined in Part II—Item 8 Financial Statements and
Supplementary Data, Note 6, "Income Tax," including yet to be issued regulations and interpretations, on the tax consequences of future repatriations. Future sales
of foreign subsidiaries are not exempt from capital gains tax in the U.S. under the 2017 Tax Act. We have no plans to dispose of any of our foreign subsidiaries and
are not recording deferred taxes on outside basis differences in foreign subsidiaries for the sale of a foreign subsidiary.
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We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. We evaluate our ability to realize
the tax benefits associated with deferred tax assets by assessing the adequacy of future expected taxable income, including the reversal of existing temporary
differences, historical and projected operating results, and the availability of prudent and feasible tax planning strategies. The realization of tax benefits is evaluated
by jurisdiction and the realizability of these assets can vary based on the character of the tax attribute and the carryforward periods specific to each jurisdiction. In
the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of its net recorded amount, an adjustment to the
deferred tax asset would decrease income tax expense in the period a determination was made. Likewise, should we determine that we would not be able to realize
all or part of our net deferred tax asset in the future, an adjustment to the deferred tax asset would be recorded to income tax expense in the period such
determination was made.
New Accounting Pronouncements
New Accounting Pronouncements Not Yet Adopted
Leases
In February 2016, the FASB issued authoritative guidance intended to increase transparency and comparability among organizations by requiring the
recognition of lease assets and liabilities on the balance sheet and disclosure of key information about leasing arrangements. We will adopt this guidance and all
related amendments applying the modified retrospective transition approach to all lease arrangements as of the effective date of adoption, January 1, 2019.
Additionally, for existing leases as of the effective date, we will elect the package of practical expedients available at transition to not reassess the historical lease
determination, lease classification and initial direct costs.
For operating leases, the adoption of this new guidance is currently expected to result in the recognition of right-of-use ("ROU") assets of between
approximately $150 million and $160 million , and aggregate current and non-current lease liabilities of between approximately $160 million and $170 million , as
of the effective date of adoption, including immaterial reclassifications of prepaid and deferred rent balances into ROU assets. Additionally, as a result of the
cumulative impact of adopting the new guidance, we expect to record a net increase to opening retained earnings of between $30 million and $35 million as of
January 1, 2019, with the offsetting impact within other assets, related to our share of the accelerated recognition of deferred gains on non-qualifying and other
sale-leaseback transactions by an equity method investment within our Canada segment. We are in the process of finalizing this transition adjustment calculation,
which will be completed during the first quarter of 2019. Additionally, while our accounting for finance leases will remain unchanged at adoption, we will
prospectively change the presentation of finance lease liabilities within the consolidated balance sheets to be presented within current portion of long-term debt and
short-term borrowings and long-term debt, as appropriate. The adoption of this guidance is not expected to impact our cash flows from operating, investing, or
financing activities.
Other than the items noted above, there have been no new accounting pronouncements not yet effective that we believe have a significant impact, or potential
significant impact, to our consolidated financial statements.
See Part II-Item 8 Financial Statements and Supplementary Data, Note 2, "New Accounting Pronouncements" of the Notes for a description of new
accounting pronouncements.
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Unaudited Pro Forma Financial Information
The following unaudited pro forma financial information gives effect to the Acquisition and the related financing as if they were completed on January 1,
2016, the first day of our 2016 fiscal year, and the pro forma adjustments are based on items that are factually supportable, are directly attributable to the
Acquisition, and are expected to have a continuing impact on our results of operations. The unaudited pro forma financial information has been calculated after
applying MCBC’s accounting policies and adjusting the results of MillerCoors to reflect the additional depreciation and amortization that would have been charged
assuming the fair value adjustments to property, plant and equipment, and intangible assets had been applied from January 1, 2016, together with the consequential
tax effects. Pro forma adjustments have been made to remove non-recurring transaction-related costs included in historical results as well as to reflect the
incremental interest expense to be prospectively incurred on the debt and term loans issued to finance the Acquisition, in addition to other pro forma adjustments.
See below table for significant non-recurring costs.
Additionally, the following unaudited pro forma financial information does not reflect the impact of the acquisition of the Miller global brand portfolio and
other assets primarily related to the Miller International Business as we are not able to estimate the historical results of operations from this business and have
concluded, based on the limited information available to MCBC, that it is insignificant to the overall Acquisition. The purchase price allocation reflects the
estimated value allocated to the Miller global brand portfolio reported within identifiable intangible assets subject to amortization.
The unaudited pro forma financial information below does not reflect the realization of any expected ongoing synergies related to integration. Further, the
unaudited pro forma financial information should not be considered indicative of the results that would have occurred if the Acquisition and related financing had
been completed on January 1, 2016, nor are they indicative of future results.
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MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2016
(IN MILLIONS, EXCEPT PER SHARE DATA)
MCBC Historical
(1)
As Restated
MillerCoors
Historical (2)
Pro Forma
Adjustments (1)
As Restated
Financial volume in hectoliters
46.912
55.750
(0.728)
Note
(1)
Pro Forma
Combined
101.934
$
13,545.1
Sales
Excise taxes
Net sales
Cost of goods sold
Gross profit
Marketing, general and administrative expenses
Special items, net
Equity income in MillerCoors
Operating income (loss)
Interest income (expense), net
Other pension and postretirement benefits (costs), net
Other income (expense), net
Income (loss) before income taxes
Income tax benefit (expense) (2)
Net income (loss) including noncontrolling interests (2)
Net income (loss) attributable to noncontrolling interests
Net income (loss) attributable to MCBC (2)
Basic net income (loss) attributable to Molson Coors Brewing Company
per share (2)
Diluted net income (loss) attributable to Molson Coors Brewing
Company per share (2)
Weighted-average shares—basic
Weighted-average shares—diluted
$
6,597.4 $
6,987.2 $
(1,712.4)
4,885.0
(2,999.0)
1,886.0
(1,597.2)
2,532.9
500.9
3,322.6
(244.4)
8.4
(32.5)
3,054.1
(1,454.3)
1,599.8
(5.9)
(861.8)
6,125.4
(3,426.6)
2,698.8
(1,403.9)
(111.3)
—
(39.5)
12.3
(1)
(1)
(27.2)
77.3
(2)
50.1
40.2
(2,965.0)
(500.9)
(3)
(4)
1,183.6
(3,375.6)
(1.4)
(14.4)
3.7
1,171.5
(3.3)
1,168.2
(11.0)
(123.0)
(5)
—
58.9
(6)
(3,439.7)
980.4
(7)
(2,459.3)
—
$
$
$
1,593.9 $
1,157.2 $
(2,459.3)
$
7.52
7.47
212.0
213.4
$
$
2.7
2.7
(8)
(8)
(2,561.9)
10,983.2
(6,348.3)
4,634.9
(2,960.9)
(543.4)
—
1,130.6
(368.8)
(6.0)
30.1
785.9
(477.2)
308.7
(16.9)
291.8
1.36
1.35
214.7
216.1
(1)
The MCBC historical results and pro forma adjustments columns reflect the impact of the correction of errors in the accounting for income taxes related
to the deferred tax liabilities for our partnership in MillerCoors as discussed in Part II—Item 8 Financial Statements and Supplementary Data, Note 1,
"Basis of Presentation and Summary of Significant Accounting Policies." The correction of these errors had no impact on our pro forma combined results.
(2)
Represents MillerCoors' activity for the pre-Acquisition periods of January 1, 2016, through October 10, 2016.
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(1)
Sales
The following pro forma adjustments eliminate beer sales between MCBC and MillerCoors for the year ended December 31, 2016, that were previously
recorded as affiliate sales and became intercompany transactions after the Acquisition was completed and thus eliminate in consolidation.
Hectoliters of beer and other beverages sold
MCBC's beer sales to MillerCoors
MillerCoors' beer sales to MCBC
Total pro forma adjustment to sales
Excise tax adjustment (1)
For the year ended
December 31, 2016
(In millions)
(0.728)
7.5
32.0
39.5
12.3
$
$
$
(1) Represents a benefit associated with an anticipated refund to Coors Brewing Company ("CBC"), a wholly-owned subsidiary of MCBC, of U.S. federal excise
tax paid on products imported by CBC based on qualifying volumes exported by CBC from the U.S.
(2)
Cost of Goods Sold
The following pro forma adjustments (increase)/decrease cost of goods sold for the year ended December 31, 2016:
MillerCoors' beer purchases from MCBC (1)
MCBC's beer purchases from MillerCoors (1)
Depreciation (2)
MillerCoors' royalties paid to SABMiller (3)
Policy reclassification (4)
Historical charges recorded for pallets (5)
Historical charges recorded for inventory step-up (6)
Total pro forma adjustment to cost of goods sold
For the year ended
December 31, 2016
(In millions)
7.5
32.0
(46.1)
13.2
(18.6)
7.3
82.0
77.3
$
$
(1) Reflects beer purchases between MCBC and MillerCoors that were previously recorded as affiliate purchases and became intercompany transactions after the
Acquisition was completed and thus eliminate in consolidation.
(2) Reflects the pro forma adjustment to depreciation expense associated with the estimated fair value of MillerCoors' property, plant and equipment over the
estimated remaining useful life.
(3) Reflects royalties paid by MillerCoors to SABMiller plc for sales of certain of its licensed brands in the U.S. Upon completion of the Acquisition, royalties are
no longer paid related to these licensed brands. See the purchase agreement for additional details.
(4) Reflects the reclassification of certain MillerCoors overhead costs from marketing, general and administrative expenses to cost of goods sold to align to
MCBC policy related to profit and loss classification of such costs.
(5) Reflects the amortization of MillerCoors' pallet costs which were historically recorded as a non-current asset and amortized into cost of goods sold, separate
from depreciation expense. As part of our policy alignment, the pallets are now classified as depreciable fixed assets within Properties, net and the related
depreciation is included as part of depreciation expense that is recognized in cost of goods sold. This adjustment reflects the removal of historical pallet
amortization expense recorded within cost of goods sold and the depreciation pro forma adjustment above reflects the updated amount to be recorded as cost of
goods sold depreciation going forward.
(6) Reflects the step-up in fair value of inventory related to the Acquisition which was sold in the fourth quarter of 2016 and
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therefore increased our historical cost of goods sold. Given this cost does not have a continuing impact, we have accordingly adjusted the pro forma financial
information.
(3)
Marketing, General and Administrative
Based on the estimated fair values of identifiable amortizable intangible assets and depreciable property, plant and equipment, and the estimated useful lives
assigned, the following pro forma adjustments to amortization and depreciation expenses have been made to marketing, general and administrative expenses for the
year ended December 31, 2016. Additionally, a pro forma adjustment has been made to eliminate MillerCoors' service agreement income related to charges to
SABMiller for the year ended December 31, 2016, that were previously recorded as a reduction to MillerCoors' marketing, general and administrative expenses as
this activity with SABMiller ceased upon completion of the Acquisition. We have also removed transaction related costs included in the historical MCBC
statements of operations as they will not have a continuing impact. The pro forma adjustments to increase/(decrease) marketing, general and administrative expense
are as follows:
Marketing, general and administrative pro forma adjustment for depreciation and amortization
MillerCoors' service agreement charges to SABMiller
Policy reclassification - See cost of goods sold note 4 above
Historical transaction costs
Total pro forma adjustment to marketing, general and administrative expenses
(4)
Special Items, Net
Pro forma adjustment to special items, net (1)
For the year ended
December 31, 2016
(In millions)
56.5
1.6
(18.6)
(79.7)
(40.2)
$
$
For the year ended
December 31, 2016
(In millions)
$
(2,965.0)
(1) Reflects the net gain of approximately $3.0 billion recorded within special items, net, during the fourth quarter of 2016, representing the excess of the
approximate $6.1 billion estimated fair value of our pre-existing 42% equity interest in MillerCoors over its estimated transaction date carrying value of
approximately $2.7 billion, as well as the reclassification of the loss related to MCBC's historical AOCI on our 42% interest in MillerCoors of $458.3 million.
Refer to Part II—Item 8 Financial Statements and Supplementary Data, Note 4, "Acquisition and Investments" of the Notes for further details regarding the
inputs used to determine revaluation.
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(5)
Interest Income (Expense)
Represents the pro forma adjustments for the incremental interest expense, including the amortization of debt issuance costs, as if the Acquisition and related
financing had occurred on January 1, 2016. The Acquisition was funded through cash on hand, including proceeds received from our February 3, 2016, equity
issuance, the issuance of debt on July 7, 2016, as well as borrowings on our term loan, which occurred concurrent with the close of the Acquisition. We incurred
costs related to the issuance of debt, committed financing we had in place prior to the completion of the Acquisition and earned interest income on the cash
proceeds from the equity issuance and debt issuance prior to the completion of the Acquisition. We have therefore removed these amounts for pro forma purposes
as they would not have been incurred or earned had the Acquisition and related financing been completed on January 1, 2016. Additionally, we incurred losses on
the swaption derivative instruments that we entered into to economically hedge a portion of our long-term debt issuance with which we partially funded the
Acquisition. These swaptions were not designated in hedge accounting relationships as the hedges were entered into in association with the Acquisition and,
accordingly, all mark-to-market fair value adjustments were reflected within interest expense. As the losses on the swaptions are non-recurring and do not have a
continuing impact on the business, we have removed them from our pro forma financial information. The debt issued on July 7, 2016, consists of fixed rate notes.
The term loans, which had monthly interest at the rate of 1.50% plus one-month LIBOR, were fully repaid as of July 19, 2017.
Term loan interest expense adjustments
Interest expense adjustments from debt issued on July 7, 2016
Historical net interest on other items discussed above
Total pro forma adjustment to interest expense
(6)
Other Income (Expense)
For the year ended
December 31, 2016
(In millions)
$
$
52.7
204.1
(133.8)
123.0
Represents the elimination of historical financing costs that do not have a continuing impact related to the bridge loan and other derivative and foreign
exchange net gains recorded on cash received from the debt issued on July 7, 2016, which have been included in the historical financial statements within other
income (expense).
Historical financing costs on the bridge loan
Historical derivative and foreign exchange net gains related to debt issued on July 7, 2016
Total pro forma adjustment to other income (expense)
73
For the year ended
December 31, 2016
(In millions)
$
$
63.4
(4.5)
58.9
Table of Contents
(7)
Income Tax Benefit (Expense)
MillerCoors elected to be taxed as a partnership for U.S. federal and state income tax purposes. As a result, the related tax attributes of MillerCoors are
passed through to its shareholders and income taxes are payable by its shareholders. Therefore, income tax expense within MCBC's historical results includes the
tax effect of our 42% equity income from MillerCoors. The pro forma adjustment to income tax expense is inclusive of both the tax effect of the assumption of the
incremental 58% of MillerCoors' pretax income, as well as the tax effect of the other pro forma adjustments impacting pretax income discussed above, based on the
estimated blended U.S. federal and state statutory income tax rate and other pro forma tax considerations.
Total pro forma adjustment to income tax benefit (expense) (1)
For the year ended
December 31, 2016
(In millions)
$
980.4
(1) Includes the impact of the restatement to correct errors related to income tax accounting. See details at Part II—Item 8 Financial Statements and
Supplementary Data, Note 1, "Basis of Presentation and Accounting Policies" as previously discussed.
(8)
Weighted-Average Shares Outstanding
Weighted-average shares outstanding have been calculated to include the impact of the shares that were issued in the first quarter of 2016 in conjunction with
the February 3, 2016, equity offering, which was completed to fund a portion of the Acquisition. As such, the below adjustment assumes such shares were
outstanding on January 1, 2016.
Impact of shares issued in February 3, 2016, equity offering
Weighted-average shares—basic
Weighted-average shares—diluted
For the year ended
December 31, 2016
(In millions)
2.7
2.7
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, we actively manage our exposure to various market risks by entering into various supplier-based and market-based hedging
transactions, authorized under established risk management policies that place clear controls on these activities. Our objective in managing these exposures is to
decrease the volatility of our earnings and cash flows due to changes in underlying rates and costs.
The counterparties to our market-based transactions are generally highly rated institutions. We perform assessments of their credit risk regularly. Our market-
based transactions include a variety of derivative financial instruments, none of which are used for trading or speculative purposes.
Interest Rate Risk
We are exposed to volatility in interest rates with regard to current and future debt offerings. Primary exposures include U.S. Treasury rates, Canadian
government rates and LIBOR. To mitigate this exposure as it pertains to future debt offerings and to achieve our desired fixed-to-floating rate debt profile, we may
enter into interest rate swaps from time to time.
Foreign Exchange Risk
Foreign currency fluctuations affect our net investments in foreign subsidiaries and foreign currency-denominated cash flows. We manage our foreign
currency exposures through foreign currency forward contracts and foreign-denominated debt. We may also enter into cross currency swaps from time to time.
Commodity Price Risk
We use commodities in the production and distribution of our products. To manage the related price risk for these costs, we utilize market-based derivatives
and long-term supplier-based contracts. Our primary objective when entering into these transactions is to achieve price certainty for commodities used in our
supply chain. We manage our exposures through a combination of purchase orders, long-term supply contracts and over-the-counter financial instruments.
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Equity Price Risk
We currently hold warrants allowing us the option to purchase common shares of HEXO Corp. ("HEXO"), our Truss LP ("Truss") joint venture partner in
Canada. These warrants are subject to equity price risk, representative of the potential future loss of value that would result from a decline in the market price of
HEXO's underlying common shares.
Details of market-risk sensitive debt, derivative and other financial instruments are included in the table below. Notional amounts and fair values are
presented in USD based on the applicable exchange rate as of December 31, 2018 . See Part II—Item 8 Financial Statements and Supplementary Data, Note 11,
"Debt" and Note 16, "Derivative Instruments and Hedging Activities" of the Notes for further discussion.
Notional amounts by expected maturity date
Year end
2019
2020
2021
2022
2023
Thereafter
Total
December 31,
2018
Fair value
Asset/
(Liability)
Long-term debt:
CAD 500 million 2.75% notes due 2020
CAD 500 million 2.84% notes due 2023
CAD 500 million 3.44% notes due 2026
$500 million 1.45% notes due 2019
$500 million 1.90% notes due 2019
$500 million 2.25% notes due 2020
$1.0 billion 2.10% notes due 2021
$500 million 3.5% notes due 2022
$2.0 billion 3.0% notes due 2026
$1.1 billion 5.0% notes due 2042
$1.8 billion 4.2% notes due 2046
EUR 500 million notes due 2019
EUR 800 million 1.25% notes due 2024
Foreign currency management:
Forwards
Cross currency swaps
Interest rate management:
Forward starting interest rate swaps
Commodity pricing management:
Swaps
Options
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
366.6 $
— $
— $
— $
— $
500.0 $
— $
— $
— $
— $
— $
— $
— $
1,000.0
— $
— $
— $
— $
— $
— $
$
— $
— $
— $
— $
— $
— $
(In millions)
— $
— $
— $
— $
— $
— $
— $
500.0 $
— $
— $
— $
— $
— $
— $
366.6 $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
366.6 $
— $
— $
— $
— $
— $
2,000.0 $
1,100.0 $
1,800.0 $
— $
917.4 $
366.6 $
366.6 $
366.6 $
500.0 $
500.0 $
500.0 $
1,000.0 $
500.0 $
2,000.0 $
1,100.0 $
1,800.0 $
573.4 $
917.4 $
500.0
500.0
— $
— $
— $
$
$
— $
— $
— $
— $
— $
— $
$
— $
573.4
156.1
$
— $
109.2 $
500.0 $
59.3
$
— $
14.0 $
— $
— $
— $
— $
— $
338.6 $
500.0 $
— $
— $
250.0
$
250.0 $
— $
1,000.0 $
1,500.0 $
520.7
46.6
$
$
268.2 $
— $
77.1
$
— $
2.4 $
— $
— $
— $
— $
— $
868.4 $
46.6 $
(368.4)
(357.4)
(352.3)
(498.1)
(501.6)
(502.8)
(968.7)
(496.7)
(1,813.2)
(1,020.4)
(1,529.1)
(573.7)
(910.8)
16.3
36.5
(12.3)
(42.0)
—
We hold warrants providing us with the ability to purchase 11.5 million common shares of HEXO, our Truss joint venture partner, at a strike price of CAD
6.00 per share which expire on October 4, 2021. The fair value of our warrant asset at December 31, 2018 , was $19.6 million .
Sensitivity Analysis
Our market sensitive derivative and other financial instruments, as defined by the SEC, are debt, foreign currency forward contracts, commodity swaps,
commodity options, cross currency swaps, forward starting interest rate swaps and warrants. We monitor foreign exchange risk, interest rate risk, commodity risk,
equity price risk and related derivatives using a sensitivity analysis.
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Table of Contents
The following table presents the results of the sensitivity analysis, which reflects the impact of a hypothetical 10% adverse change in each of these risks to
our derivative and debt portfolio, with the exception of interest rate risk to our forward starting interest rate swaps in which we have applied an absolute 1%
adverse change to the respective instrument's interest rate:
Estimated fair value volatility
Foreign currency risk:
Forwards
Foreign currency denominated debt
Cross currency swaps
Interest rate risk:
Debt
Forward starting interest rate swaps
Commodity price risk:
Commodity swaps
Commodity options
Equity price risk:
Warrants
As of
December 31, 2018
December 31, 2017
(In millions)
$
$
$
$
$
$
$
$
(35.1) $
(249.3) $
(43.3) $
(302.1) $
(126.2) $
(77.5) $
— $
(2.8) $
(36.5)
(310.0)
—
(311.9)
—
(43.5)
—
—
The volatility of the applicable rates and prices are dependent on many factors that cannot be forecast with reliable accuracy. Therefore, actual changes in fair
values could differ materially from the results presented in the table above.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
Consolidated Financial Statements:
Management's Report
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations for the years ended December 31, 2018, December 31, 2017, and December 31, 2016
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2018, December 31, 2017, and December 31, 2016
Consolidated Balance Sheets as of December 31, 2018, and December 31, 2017
Consolidated Statements of Cash Flows for the years ended December 31, 2018, December 31, 2017, and December 31, 2016
Consolidated Statements of Stockholders' Equity and Noncontrolling Interests for the years ended December 31, 2018, December 31, 2017, and
December 31, 2016
Notes to Consolidated Financial Statements
Note 1, "Basis of Presentation and Summary of Significant Accounting Policies"
Note 2, "New Accounting Pronouncements"
Note 3, "Segment Reporting"
Note 4, "Acquisition and Investments"
Note 5, "Other Income and Expense"
Note 6, "Income Tax"
Note 7, "Special Items"
Note 8, "Stockholders' Equity"
Note 9, "Properties"
Note 10, "Goodwill and Intangible Assets"
Note 11, "Debt"
Note 12, "Inventories"
Note 13, "Share-Based Payments"
Note 14, "Accumulated Other Comprehensive Income (Loss)"
Note 15, "Employee Retirement Plans and Postretirement Benefits"
Note 16, "Derivative Instruments and Hedging Activities"
Note 17, "Accounts Payable and Other Current Liabilities"
Note 18, "Commitments and Contingencies"
Note 19, "Supplemental Guarantor Information"
Note 20, "Quarterly Financial Information (Unaudited)"
77
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78
80
82
83
84
85
87
89
89
98
102
106
114
114
120
122
123
124
128
131
131
135
136
146
155
155
159
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MANAGEMENT'S REPORT
The preparation, integrity and objectivity of the financial statements and all other financial information included in this annual report are the responsibility of
the management of Molson Coors Brewing Company. The financial statements have been prepared in accordance with generally accepted accounting principles in
the United States, applying estimates based on management's best judgment where necessary. Management believes that all material uncertainties have been
appropriately accounted for and disclosed.
Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of
our internal control over financial reporting as of December 31, 2018 , based on the framework and criteria established in Internal Control—Integrated Framework
(2013 Framework), issued by the Committee of Sponsoring Organizations of the Treadway Commission.
A material weakness, as defined in Exchange Act Rule 12b-2, is a deficiency, or a combination of deficiencies, in internal control over financial reporting,
such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on
a timely basis.
As part of preparing our 2018 consolidated financial statements, we identified errors in the accounting for income taxes related to the deferred tax liabilities
for our partnership in MillerCoors. Following the Acquisition in 2016, MillerCoors continued as a partnership for tax purposes until 2018, at which point the
partnership was dissolved. Upon the dissolution of the MillerCoors partnership, we changed our outside basis deferred tax liability for our investment in the
partnership to separate deferred tax positions for each of the individual book-tax basis differences in the underlying assets and liabilities of MillerCoors. In doing
so, we identified a difference between the deferred tax liabilities recorded and the deferred tax liabilities required. As a result, we concluded that the deferred tax
liabilities and deferred tax expense associated with our remeasurement of our previously held equity interest in MillerCoors was incorrectly calculated upon close
of the Acquisition in the fourth quarter of 2016. Specifically, upon closing of the Acquisition and completion of the related deferred income tax calculations, we
did not reconcile the outside basis deferred income tax liability for the investment in the partnership to the book-tax difference in the underlying assets and
liabilities within the partnership.
As part of our annual assessment of internal control over financial reporting, we have determined that a material weakness existed in the Company’s internal
control over financial reporting as of December 31, 2018. A material weakness existed in that we did not design and maintain effective controls over the
completeness and accuracy of the accounting for, and disclosure of, the income tax effects of acquired partnership interests. Specifically, we did not design
appropriate controls to identify and reconcile deferred income taxes associated with the accounting for acquired partnership interests. This material weakness
resulted in material errors in connection with our step acquisition of MillerCoors that were corrected through the restatement of the consolidated financial
statements as of and for the years ended December 31, 2017, and December 31, 2016, as described in Note 1, "Basis of Presentation and Summary of Significant
Accounting Policies" to the consolidated financial statements and the correction of the unaudited quarterly financial information for fiscal years 2018 and 2017.
Additionally, this material weakness could result in misstatements to the aforementioned account balances or disclosures that would result in a material
misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.
As a result of the material weakness in internal control over financial reporting described above, management has concluded that we did not maintain
effective internal control over financial reporting as of December 31, 2018.
Management's Plan for Remediation of the Material Weakness
In response to the material weakness described above, with the oversight of the Audit Committee of our Board of Directors, management is currently
evaluating our policies and procedures related to the accounting for income taxes and plans to design and implement adequate internal controls to ensure that (i) the
income tax effects of acquired partnership interests are properly accounted for and disclosed in the period of acquisition, and (ii) the resulting investment in
partnership deferred income tax assets and liabilities are assessed and reconciled periodically to the book-tax differences in the underlying assets and liabilities
within the partnership to determine whether any adjustment is necessary.
The remediation efforts are intended both to address the identified material weakness and to enhance our overall financial control environment. Management is
committed to continuous improvement of the Company’s internal control over financial reporting and will continue to diligently review the Company’s internal
control over financial reporting.
PricewaterhouseCoopers LLP, the Company's independent registered public accounting firm, provides an objective, independent audit of the consolidated
financial statements and internal control over financial reporting. Their accompanying
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report is based upon an examination conducted in accordance with standards of the Public Company Accounting Oversight Board (United States), including tests of
accounting procedures, records and internal control.
The Board of Directors, operating through its Audit Committee composed of independent, outside directors, monitors the Company's accounting control
systems and reviews the results of the Company's auditing activities. The Audit Committee meets at least quarterly, either separately or jointly, with representatives
of management, PricewaterhouseCoopers LLP, and internal auditors. To ensure complete independence, PricewaterhouseCoopers LLP and the Company's internal
auditors have full and free access to the Audit Committee and may meet with or without the presence of management.
/s/ MARK R. HUNTER
Mark R. Hunter
President & Chief Executive Officer
Molson Coors Brewing Company
February 12, 2019
/s/ TRACEY I. JOUBERT
Tracey I. Joubert
Chief Financial Officer
Molson Coors Brewing Company
February 12, 2019
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and
Stockholders of Molson Coors Brewing Company
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Molson Coors Brewing Company and its subsidiaries (the "Company") as of
December 31, 2018 and 2017, and the related consolidated statements of operations, of comprehensive income (loss), of stockholders’ equity and noncontrolling
interests and of cash flows for each of the three years in the period ended December 31, 2018 , including the related notes and schedule of valuation and qualifying
accounts for each of the three years in the period ended December 31, 2018 appearing under Item 15(c) (collectively referred to as the “consolidated financial
statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2018 , based on criteria established in Internal
Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of
December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018 in conformity
with accounting principles generally accepted in the United States of America. Also in our opinion, the Company did not maintain, in all material respects,
effective internal control over financial reporting as of December 31, 2018 , based on criteria established in Internal Control - Integrated Framework (2013) issued
by the COSO because a material weakness in internal control over financial reporting existed as of that date related to the completeness and accuracy of the
accounting for and disclosure of the income tax effects of acquired partnership interests.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness referred to
above is described in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. We considered this material weakness
in determining the nature, timing, and extent of audit tests applied in our audit of the 2018 consolidated financial statements, and our opinion regarding the
effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.
Restatement of Previously Issued Financial Statements
As discussed in Note 1 to the consolidated financial statements, the Company has restated its 2017 and 2016 financial statements to correct errors.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and
for its assessment of the effectiveness of internal control over financial reporting included in management's report referred to above. Our responsibility is to express
opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public
accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal
control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal
80
Table of Contents
control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our
audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Denver, Colorado
February 12, 2019
We have served as the Company's auditor since 1974.
81
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE DATA)
For the Years Ended
December 31, 2017
December 31, 2016
December 31, 2018
As Restated
As Restated
Table of Contents
Sales
Excise taxes
Net sales
Cost of goods sold
Gross profit
Marketing, general and administrative expenses
Special items, net
Equity income in MillerCoors
Operating income (loss)
Other income (expense), net
Interest expense
Interest income
Other pension and postretirement benefits (costs), net
Other income (expense), net
Total other income (expense), net
Income (loss) before income taxes
Income tax benefit (expense)
Net income (loss)
Net (income) loss attributable to noncontrolling interests
Net income (loss) attributable to Molson Coors Brewing Company
Net income (loss) attributable to Molson Coors Brewing Company per share:
Basic
Diluted
Weighted-average shares outstanding:
Basic
Dilutive effect of share-based awards
Diluted
$
13,338.0 $
13,471.5 $
(2,568.4)
10,769.6
(6,584.8)
4,184.8
(2,802.7)
249.7
—
1,631.8
(306.2)
8.0
38.2
(12.0)
(272.0)
1,359.8
(225.2)
1,134.6
(18.1)
(2,468.7)
11,002.8
(6,236.7)
4,766.1
(3,052.0)
(36.4)
—
1,677.7
(349.3)
6.0
47.4
1.4
(294.5)
1,383.2
204.6
1,587.8
(22.2)
$
$
$
1,116.5 $
1,565.6 $
5.17 $
5.15 $
7.27 $
7.23 $
216.0
0.6
216.6
215.4
1.1
216.5
6,597.4
(1,712.4)
4,885.0
(2,999.0)
1,886.0
(1,597.2)
2,532.9
500.9
3,322.6
(271.6)
27.2
8.4
(32.5)
(268.5)
3,054.1
(1,454.3)
1,599.8
(5.9)
1,593.9
7.52
7.47
212.0
1.4
213.4
0.1
Anti-dilutive securities excluded from computation of diluted EPS
0.8
0.3
See notes to consolidated financial statements.
82
Table of Contents
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN MILLIONS)
For the Years Ended
December 31, 2017
December 31, 2016
December 31, 2018
As Restated
As Restated
Net income (loss) including noncontrolling interests
$
1,134.6 $
1,587.8 $
1,599.8
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments
Reclassification of cumulative translation adjustment to income
Unrealized gain (loss) on derivative and non-derivative financial instruments
Reclassification of derivative (gain) loss to income
Pension and other postretirement benefit adjustments
Amortization of net prior service (benefit) cost and net actuarial (gain) loss to
income and settlement
Reclassification of historical share of MillerCoors' AOCI loss
Ownership share of unconsolidated subsidiaries' other comprehensive income (loss)
Total other comprehensive income (loss), net of tax
Comprehensive income (loss)
Comprehensive (income) loss attributable to noncontrolling interests
(359.0)
6.0
10.9
2.5
43.5
4.9
—
(0.8)
(292.0)
842.6
(16.1)
Comprehensive income (loss) attributable to Molson Coors Brewing Company
$
826.5 $
See notes to consolidated financial statements.
686.7
—
(133.4)
1.3
145.7
3.6
—
10.4
714.3
2,302.1
(24.7)
2,277.4 $
(234.4)
—
9.7
(3.0)
53.8
22.8
258.2
22.3
129.4
1,729.2
(3.0)
1,726.2
83
As of
December 31, 2017
December 31, 2018
As Restated
Table of Contents
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
Assets
Current assets:
Cash and cash equivalents
Accounts and other receivables:
Trade, less allowance for doubtful accounts of $14.5 and $17.2, respectively
Affiliate receivables
Other receivables, less allowance for doubtful accounts of $0.2 and $0.5, respectively
Inventories, less allowance for obsolete inventories of $16.2 and $8.1, respectively
Other current assets, net
Total current assets
Properties, less accumulated depreciation of $2,558.8 and $2,096.6, respectively
Goodwill
Other intangibles, less accumulated amortization of $810.3 and $662.3, respectively
Other assets
Total assets
Liabilities and equity
Current liabilities:
Accounts payable and other current liabilities (includes affiliate payables of $0.1 and $0.4, respectively)
Current portion of long-term debt and short-term borrowings
Total current liabilities
Long-term debt
Pension and postretirement benefits
Deferred tax liabilities
Other liabilities
Total liabilities
Commitments and contingencies ( Note 18 )
Molson Coors Brewing Company stockholders' equity
Capital stock:
Preferred stock, $0.01 par value (authorized: 25.0 shares; none issued)
Class A common stock, $0.01 par value per share (authorized: 500.0 shares; issued and outstanding: 2.6 shares
and 2.6 shares, respectively)
Class B common stock, $0.01 par value per share (authorized: 500.0 shares; issued: 205.4 shares and 204.7
shares, respectively)
Class A exchangeable shares, no par value (issued and outstanding: 2.8 shares and 2.9 shares, respectively)
Class B exchangeable shares, no par value (issued and outstanding: 14.8 shares and 14.7 shares, respectively)
Paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Class B common stock held in treasury at cost (9.5 shares and 9.5 shares, respectively)
Total Molson Coors Brewing Company stockholders' equity
Noncontrolling interests
Total equity
Total liabilities and equity
$
1,057.9 $
$
$
736.0
8.4
126.6
591.8
245.6
2,766.3
4,608.3
8,260.8
13,776.4
698.0
30,109.8 $
2,706.4 $
1,594.5
4,300.9
8,893.8
726.6
2,128.9
323.8
16,374.0
—
—
2.0
103.2
557.6
6,773.1
7,692.9
(1,150.0)
(471.4)
13,507.4
228.4
13,735.8
See notes to consolidated financial statements.
84
$
30,109.8 $
418.6
728.3
5.5
168.2
591.5
277.6
2,189.7
4,673.7
8,405.5
14,296.5
681.5
30,246.9
2,684.5
714.8
3,399.3
10,598.7
848.5
1,896.3
316.8
17,059.6
—
—
2.0
107.7
553.2
6,688.5
6,958.4
(860.0)
(471.4)
12,978.4
208.9
13,187.3
30,246.9
Table of Contents
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
For the Years Ended
December 31, 2017
December 31, 2016
December 31, 2018
As Restated
As Restated
Cash flows from operating activities:
Net income (loss) including noncontrolling interests
$
1,134.6 $
1,587.8 $
1,599.8
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Revaluation gain on previously held 42% equity interest in MillerCoors and
AOCI reclassification
Inventory step-up in cost of goods sold
Depreciation and amortization
Amortization of debt issuance costs and discounts
Share-based compensation
(Gain) loss on sale or impairment of properties and other assets, net
Equity income in MillerCoors
Distributions from MillerCoors
Unrealized (gain) loss on foreign currency fluctuations and derivative
instruments, net
Income tax (benefit) expense
Income tax (paid) received
Interest expense, excluding interest amortization
Interest paid
Pension expense (benefit)
Pension contributions paid
Change in current assets and liabilities (net of impact of business
combinations) and other:
Receivables
Inventories
Payables and other current liabilities
Other assets and other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Additions to properties
Proceeds from sales of properties and other assets
Payment for completion of Acquisition, net of cash acquired
Investment in MillerCoors
Return of capital from MillerCoors
Other
Net cash used in investing activities
—
—
857.5
12.7
42.6
(8.1)
—
—
193.1
225.2
32.3
304.2
(308.7)
(57.2)
(8.9)
(38.4)
(10.6)
27.6
(66.6)
—
—
812.8
23.2
58.3
(0.4)
—
—
(124.3)
(204.6)
86.0
338.8
(350.3)
(67.8)
(310.0)
(7.2)
21.3
31.0
(28.3)
2,331.3
1,866.3
(651.7)
32.5
—
—
—
(49.9)
(669.1)
(599.6)
60.5
—
—
—
0.9
(538.2)
85
(2,965.0)
82.0
388.4
66.5
29.9
396.0
(488.6)
488.6
(20.7)
1,454.3
(165.0)
262.3
(162.5)
(11.6)
(12.1)
65.6
(23.2)
144.9
(2.7)
1,126.9
(341.8)
174.5
(11,961.0)
(1,253.7)
1,086.9
8.5
(12,286.6)
Table of Contents
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(IN MILLIONS)
For the Years Ended
December 31, 2017
December 31, 2016
December 31, 2018
As Restated
As Restated
Cash flows from financing activities:
Proceeds from issuance of common stock, net
Exercise of stock options under equity compensation plans
Dividends paid
Payments on debt and borrowings
Proceeds on debt and borrowings
Debt issuance costs
Net proceeds from (payments on) revolving credit facilities and commercial
paper
Other
Net cash provided by (used in) financing activities
Cash and cash equivalents:
Net increase (decrease) in cash and cash equivalents
Effect of foreign exchange rate changes on cash and cash equivalents
Balance at beginning of year
Balance at end of year
—
16.0
(354.2)
(319.8)
—
(0.5)
(374.3)
23.9
(1,008.9)
653.3
(14.0)
418.6
$
1,057.9 $
—
4.0
(353.4)
(3,000.1)
1,536.0
(7.0)
374.3
(50.2)
(1,496.4)
(168.3)
26.0
560.9
418.6 $
2,525.6
11.2
(352.9)
(223.9)
9,460.6
(60.7)
(1.1)
(40.9)
11,317.9
158.2
(28.2)
430.9
560.9
See notes to consolidated financial statements. See Note 1, "Basis of Presentation and Summary of Significant Accounting Policies" for supplementary cash flow
data.
86
Table of Contents
Total
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND NONCONTROLLING INTERESTS
(IN MILLIONS)
MCBC Stockholders' Equity
Common stock
Exchangeable
Accumulated
other
Common
Stock
held in
Non
issued
shares issued
Paid-in-
Retained
comprehensive
treasury
Class B
$ (471.4) $
controlling
interests
20.1
Balance as of December 31, 2015 $ 7,063.1 $
108.2 $ 603.0 $ 4,000.4 $ 4,505.2 $
(1,704.1)
Class A Class B Class A Class B
1.7 $
— $
capital
earnings
income (loss)
Exchange of shares
Shares issued under equity
compensation plan
Amortization of share-based
compensation
Replacement share-based awards
issued in conjunction with
Acquisition
Acquisition of businesses
Purchase of noncontrolling
interest
Net income (loss) including
noncontrolling interests - As
Restated
Other comprehensive income
(loss), net of tax
Issuance of common stock
Distributions and dividends to
noncontrolling interests
Dividends declared and paid -
$1.64 per share
Balance as of December 31, 2016
- As Restated
Exchange of shares
Shares issued under equity
compensation plan
Amortization of share-based
compensation
Acquisition of business and
purchase of noncontrolling
interest
Net income (loss) including
noncontrolling interests - As
Restated
—
—
—
(0.1)
(31.8)
31.9
—
—
—
(1.1)
—
—
—
—
(1.1)
—
—
—
32.3
—
—
—
—
32.3
—
—
—
—
—
—
46.4
186.3
—
—
—
—
—
—
—
—
46.4
—
—
—
—
—
—
—
—
186.3
(0.1)
—
—
—
—
0.1
—
—
—
(0.2)
1,599.8
—
—
—
—
—
1,593.9
—
—
129.4
2,525.6
—
—
—
0.3
—
—
—
—
—
2,525.3
—
—
132.3
—
—
—
(6.2)
—
—
—
—
—
—
—
—
(352.9)
—
—
—
—
—
(352.9)
—
—
5.9
(2.9)
—
(6.2)
—
$11,222.6 $
— $
2.0 $
108.1 $ 571.2 $ 6,635.3 $ 5,746.2 $
(1,571.8)
$ (471.4) $
203.0
—
—
—
(0.4)
(18.0)
18.4
—
—
—
(22.9)
—
—
—
—
(22.9)
—
—
—
57.3
—
—
—
—
57.3
—
—
—
—
—
—
1.8
—
—
—
—
0.4
—
—
—
1.4
1,587.8
—
—
—
—
—
1,565.6
—
—
22.2
87
Table of Contents
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND NONCONTROLLING INTERESTS (Continued)
(IN MILLIONS)
MCBC Stockholders' Equity
Common stock
Exchangeable
Accumulated
other
Common
Stock
held in
Non
issued
shares issued
Paid-in-
Retained
comprehensive
Total
Class A Class B Class A Class B
capital
earnings
income (loss)
treasury
Class B
controlling
interests
714.3
—
—
—
—
—
—
711.8
—
2.5
(20.2)
—
—
—
—
—
—
—
—
(20.2)
(353.4)
—
—
—
—
—
(353.4)
—
—
—
$13,187.3 $
— $
2.0 $
107.7 $ 553.2 $ 6,688.5 $ 6,958.4 $
(860.0)
$ (471.4) $
208.9
—
—
—
(4.5)
4.4
0.1
—
—
—
2.8
—
—
—
—
2.8
—
—
—
42.2
—
—
—
—
42.2
—
—
—
44.3
—
—
—
—
39.4
—
—
—
—
—
—
4.9
(0.2)
—
—
—
—
0.1
—
—
—
(0.3)
1,134.6
—
—
—
—
—
1,116.5
—
—
18.1
(292.0)
—
—
—
—
—
—
(290.0)
—
(2.0)
(27.8)
—
—
—
—
—
(27.8)
—
—
—
21.6
—
—
—
—
—
—
—
—
21.6
(22.8)
—
—
—
—
—
—
—
—
(22.8)
Other comprehensive income
(loss), net of tax
Distributions and dividends to
noncontrolling interests
Dividends declared and paid -
$1.64 per share
Balance as of December 31, 2017
- As Restated
Exchange of shares
Shares issued under equity
compensation plan
Amortization of share-based
compensation
Formation of consolidated joint
venture ( Note 4 )
Purchase of noncontrolling
interest
Net income (loss) including
noncontrolling interests
Other comprehensive income
(loss), net of tax
Adoption of new accounting
pronouncement ( Note 2 )
Contributions from noncontrolling
interests
Distributions and dividends to
noncontrolling interests
Dividends declared and paid -
$1.64 per share
Balance as of December 31, 2018 $13,735.8 $
(354.2)
—
—
—
—
—
(354.2)
—
—
—
— $
2.0 $
103.2 $ 557.6 $ 6,773.1 $ 7,692.9 $
(1,150.0)
$ (471.4) $
228.4
See notes to consolidated financial statements.
88
Table of Contents
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and Summary of Significant Accounting Policies
Unless otherwise noted in this report, any description of "we", "us" or "our" includes Molson Coors Brewing Company ("MCBC" or the "Company"),
principally a holding company, and its operating and non-operating subsidiaries included within our reporting segments and Corporate. Our reporting segments
include: MillerCoors LLC ("MillerCoors" or U.S. segment), operating in the U.S.; Molson Coors Canada ("MCC" or Canada segment), operating in Canada;
Molson Coors Europe (Europe segment), operating in Bulgaria, Croatia, Czech Republic, Hungary, Montenegro, the Republic of Ireland, Romania, Serbia, the
U.K. and various other European countries; and Molson Coors International ("MCI" or International segment), operating in various other countries.
Unless otherwise indicated, comparisons are to comparable prior periods, and 2018 , 2017 and 2016 refers to the 12 months ended December 31, 2018 ,
December 31, 2017 , and December 31, 2016 , respectively. On October 11, 2016 , we completed the acquisition of SABMiller plc's ("SABMiller") 58% economic
interest and 50% voting interest in MillerCoors and all trademarks, contracts and other assets primarily related to the "Miller International Business," as defined in
the purchase agreement, outside of the U.S. and Puerto Rico (the "Acquisition") from Anheuser-Busch InBev SA/NV ("ABI"), and MillerCoors, previously a joint
venture between MCBC and SABMiller, became a wholly-owned subsidiary of MCBC. Accordingly, for periods prior to October 11, 2016 , our 42% economic
ownership interest in MillerCoors was accounted for under the equity method of accounting, and, therefore, its results of operations were reported as equity income
in MillerCoors in the consolidated statements of operations, and our 42% share of MillerCoors' net assets was reported as investment in MillerCoors in the
consolidated balance sheets. Beginning October 11, 2016 , MillerCoors was fully consolidated and continues to be reported as our U.S. segment. See Note 4,
"Acquisition and Investments" for further discussion.
Our consolidated financial statements and related disclosures reflect new accounting pronouncements adopted during the year as discussed in Note 2, "New
Accounting Pronouncements."
Unless otherwise indicated, information in this report is presented in USD and comparisons are to comparable prior periods. Our primary operating
currencies, other than USD, include the CAD, the GBP, and our Central European operating currencies such as the EUR, CZK, HRK and RSD.
Principles of Consolidation
Our consolidated financial statements include our accounts and our majority-owned and controlled domestic and foreign subsidiaries, as well as certain VIEs
for which we are the primary beneficiary. All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
Our consolidated financial statements are prepared in accordance with U.S. GAAP. These accounting principles require us to make certain estimates,
judgments and assumptions. We believe that the estimates, judgments and assumptions used to determine certain amounts that affect the financial statements are
reasonable, based on information available at the time they are made. To the extent there are differences between these estimates and actual results, our
consolidated financial statements may be materially affected.
Restatement of Previously Issued Consolidated Financial Statements for Income Tax Accounting Errors
As part of preparing our 2018 consolidated financial statements, MCBC identified errors in the accounting for income taxes related to the deferred tax
liabilities for our partnership in MillerCoors. Following the Acquisition in 2016 , MillerCoors continued as a partnership for tax purposes until 2018 , at which
point the partnership was dissolved. Upon the dissolution of the MillerCoors partnership, we changed our outside basis deferred tax liability for our investment in
the partnership to separate deferred tax positions for each of the individual book-tax basis differences in the underlying assets and liabilities of MillerCoors. In
doing so, we identified a difference between the deferred tax liabilities recorded and the deferred tax liabilities required related to our acquired partnership interest
in MillerCoors. Specifically, upon closing of the Acquisition and completion of the related deferred income tax calculations associated with the remeasurement of
the previously held equity interest in MillerCoors, we did not reconcile the outside basis deferred income tax liability for the investment in the partnership to the
book-tax differences in the underlying assets and liabilities within the partnership, which would have identified the difference resulting from the Acquisition. As a
result of completing this reconciliation as part of preparing our 2018 consolidated financial statements, we concluded that the previously issued 2017 and 2016
consolidated financial statements were misstated. Accordingly, we have restated our 2016 consolidated financial statements to increase deferred tax liabilities (and
related subtotals) and corresponding deferred tax expense by $399.1 million , with a corresponding decrease to net income
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and earnings per share. For 2017 , the change to the deferred tax liabilities caused by the aforementioned error required revaluation due to the effects of the 2017
Tax Act. This impact, along with further insignificant income tax errors in the recorded tax effects related to the remeasurement of the previously held equity
interest in MillerCoors, resulted in a required correction to decrease deferred tax liabilities and deferred tax expense by $151.4 million , resulting in increases to our
net income and earnings per share for the year ended December 31, 2017 . These adjustments resulted in an aggregate increase to our deferred tax liabilities and
total liabilities and a corresponding decrease in retained earnings and total equity of $247.7 million as of December 31, 2017 . These errors had no impact on any
period prior to the Acquisition (which was completed during the fourth quarter of 2016), and, further, there is no impact on the previously disclosed cash tax
benefits resulting from the election to treat the Acquisition as an asset acquisition for U.S. tax purposes and accordingly the related tax benefit. Impacts to the
condensed consolidated statements of cash flow are limited to changes within operating activities as noted below, and, therefore, there are no impacts on the
operating, investing or financing subtotals. Refer to Note 20, "Quarterly Financial Information (Unaudited)," for the impact of correcting these previously reported
errors on our unaudited quarterly results.
The impacts of these corrections to fiscal years 2016 and 2017 are as follows:
Consolidated Statements of Operations:
Income tax benefit (expense)
Net income (loss)
Net income (loss) attributable to Molson Coors Brewing Company
Basic net income (loss) attributable to Molson Coors Brewing Company per share
Diluted net income (loss) attributable to Molson Coors Brewing Company per share
Consolidated Statements of Comprehensive Income:
Net income (loss) including noncontrolling interests
Comprehensive income (loss)
Comprehensive income (loss) attributable to Molson Coors Brewing Company
Consolidated Balance Sheets:
Deferred tax liabilities
Total liabilities
Retained earnings
Total Molson Coors Brewing Company stockholders' equity
Total equity
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Year Ended
December 31, 2017
Year Ended
December 31, 2016
As Reported
As Restated
As Reported
As Restated
(In millions)
53.2 $
204.6 $
(1,055.2) $
(1,454.3)
1,436.4 $
1,414.2 $
6.57 $
6.53 $
1,587.8 $
1,565.6 $
7.27 $
7.23 $
1,998.9 $
1,993.0 $
9.40 $
9.34 $
1,599.8
1,593.9
7.52
7.47
Year Ended
December 31, 2017
Year Ended
December 31, 2016
As Reported
As Restated
As Reported
As Restated
(In millions)
1,436.4 $
2,150.7 $
2,126.0 $
1,587.8 $
2,302.1 $
2,277.4 $
1,998.9 $
2,128.3 $
2,125.3 $
1,599.8
1,729.2
1,726.2
As of
As of
December 31, 2017
December 31, 2016
As Reported
As Restated
As Reported
As Restated
(In millions)
1,648.6 $
1,896.3 $
1,699.0 $
2,098.1
16,811.9 $
17,059.6 $
17,719.8 $
18,118.9
7,206.1 $
6,958.4 $
6,145.3 $
13,226.1 $
12,978.4 $
11,418.7 $
13,435.0 $
13,187.3 $
11,621.7 $
5,746.2
11,019.6
11,222.6
$
$
$
$
$
$
$
$
$
$
$
$
$
Consolidated Statements of Cash Flows:
Net income (loss) including noncontrolling interests
Income tax (benefit) expense
Year Ended
December 31, 2017
Year Ended
December 31, 2016
As Reported
As Restated
As Reported
As Restated
(In millions)
$
$
1,436.4 $
1,587.8 $
(53.2) $
(204.6) $
1,998.9 $
1,055.2 $
1,599.8
1,454.3
The impacts of the restatement have been reflected throughout the financial statements, including the applicable footnotes, as appropriate.
Revenue Recognition
We account for revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, which we
adopted on January 1, 2018 , using the modified retrospective transition approach (see Note 2, "New Accounting Pronouncements" for impacts of adoption).
Our net sales represent the sale of beer and other malt beverages (including adjacencies, such as cider and hard soda), net of excise tax. Sales are stated net of
incentives, discounts and returns. Sales of products are for cash or otherwise agreed upon credit terms. Our payment terms vary by location and customer, however,
the time period between when revenue is recognized and when payment is due is not significant. Our revenue generating activities have a single performance
obligation and are recognized at the point in time when control transfers and our obligation has been fulfilled, which is when the related goods are shipped or
delivered to the customer, depending upon the method of distribution and shipping terms. Where our products are sold under consignment arrangements, revenue is
not recognized until control has transferred, which is when the product is sold to the end customer. Revenue is measured as the amount of consideration we expect
to receive in exchange for the sale of our product. The cost of various programs, such as price promotions, rebates and coupons are treated as a reduction of sales.
In certain of our markets, we make cash payments to customers such as slotting or listing fees, or payments for other marketing or promotional activities. These
cash payments are recorded as a reduction of revenue unless we receive a distinct good or service as defined under ASC 606. Specifically, a good or service is
considered distinct when it is separately identifiable from other promises in the contract, we receive a benefit from the good or service, and the benefit is separable
from the sale of our product to the customer.
Certain payments made to customers are conditional on the achievement of volume targets, marketing commitments, or both. If paid in advance, we record
such payments as prepayments and amortize them over the relevant period to which the customer commitment is made (generally up to five years). When the
payment is not for a distinct good or service, or fair value cannot be reasonably estimated, the amortization of the prepayment or the cost as incurred is recorded as
a reduction of revenue. Where a distinct good or service is received and fair value can be reasonably estimated, the cost is included as marketing, general and
administrative expenses. The amounts deferred are reassessed regularly for recoverability over the contract period and are impaired where there is objective
evidence that the benefits will not be realized or the asset is otherwise not recoverable. Separately, as discussed below, we analyze whether these advance payments
contain a significant financing component for potential adjustment to the transaction price.
Our primary revenue generating activity represents the sale of beer and other malt beverages to customers, including both domestic and exported product
sales. Our customer could be a distributor, retail or on-premise outlet, depending on the market. The majority of our revenues are generated from brands that we
own and brew ourselves, however, we also import or brew and sell certain non-owned partner brands under licensing and related arrangements. In addition,
primarily in the U.K., as well as certain other countries in our Europe segment, we sell other beverage companies' products to on-premise customers to provide
them with a full range of products for their retail outlets. We refer to this as the "factored brand business." Sales from this business are included in our net sales and
cost of goods sold when ultimately sold. In the factored brand business, we normally purchase inventory, which includes excise taxes charged by the vendor, take
orders from customers for such brands, negotiate with the customers on pricing and invoice customers for the product and related costs of delivery. In addition, we
incur the risk of loss at times we are in possession of the inventory and for the receivables due from the customers. Revenues for owned brands, partner and
imported brands, as well as factored brands are recognized at the point in time when control is transferred to the customer as discussed above.
Other Revenue Generating Activities
We contract manufacture for other brewers in some of our markets. These contractual agreements require us to brew, package and ship certain brands to
these brewers, who then sell the products to their own customers in their respective markets.
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Revenues under contract brewing arrangements are recognized when our obligation related to the finished product is fulfilled and control of the product transfers to
these other brewers.
We also have licensing agreements with third party partners who brew and distribute our products in various markets across our segments. Under these
agreements, we are compensated based on the amount of products sold by our partners in these markets at an agreed upon royalty rate or profit percentage. We
apply the sales-based royalty practical expedient to these licensing arrangements and recognize revenue as product is sold by our partners at the agreed upon rate.
We have evaluated these other revenue generating activities under the disaggregation disclosure criteria outlined within the guidance and concluded that
these other revenue generating activities are immaterial for separate disclosure. See Note 3, "Segment Reporting," for disclosure of revenues by geographic
segment.
Variable Consideration
Our revenue generating activities include variable consideration which is recorded as a reduction of the transaction price based upon expected amounts at the
time revenue for the corresponding product sale is recognized. For example, customer promotional discount programs are entered into with certain distributors for
certain periods of time. The amount ultimately reimbursed to distributors is determined based upon agreed-upon promotional discounts which are applied to
distributors' sales to retailers. Other common forms of variable consideration include volume rebates for meeting established sales targets, and coupons and mail-in
rebates offered to the end consumer. The determination of the reduction of the transaction price for variable consideration requires that we make certain estimates
and assumptions that affect the timing and amounts of revenue and liabilities recorded. We estimate this variable consideration, including analyzing for a potential
constraint on variable consideration, by taking into account factors such as the nature of the promotional activity, historical information and current trends,
availability of actual results, and expectations of customer and consumer behavior.
We do not have standard terms that permit return of product; however, in certain markets where returns occur we estimate the amount of returns as variable
consideration based on historical return experience and adjust our revenue accordingly. Products that do not meet our high quality standards are returned by the
customer or recalled and destroyed and are recorded as a reduction of revenue. The reversal of revenue is recorded upon determination that the product will be
recalled and destroyed. We estimate the costs required to facilitate product returns and record them in cost of goods sold as required.
During the twelve months ended December 31, 2018 , adjustments to revenue from performance obligations satisfied in the prior period due to changes in
estimates in variable consideration were immaterial.
Significant Financing Component and Costs to Obtain Contracts
In certain of our businesses where such practices are legally permitted, we make loans or advanced payments to retail outlets that sell our brands. For
arrangements that do not span greater than one year, we apply the practical expedient available under ASC 606 and do not adjust the transaction price for the
effects of a potential significant financing component. We further analyze arrangements that span greater than one year on an ongoing basis to determine whether a
significant financing component exists. No such arrangements existed during the twelve months ended December 31, 2018 .
Advance payments to customers, where legally permitted, are deferred and amortized as a reduction to revenue over the expected period of benefit and tested
for recoverability as appropriate. All other costs to obtain contracts and fulfill are expensed as incurred based on the nature, significance and expected benefit of
these costs relative to the contract.
Contract Assets and Liabilities
We continually evaluate whether our revenue generating activities and advanced payment arrangements with customers result in the recognition of contract
assets or liabilities. No such assets or liabilities existed as of December 31, 2018 , or December 31, 2017 . Separately, trade accounts receivable, including affiliate
receivables, approximates receivables from contracts with customers.
Shipping and Handling
Freight costs billed to customers for shipping and handling are recorded as revenue. Shipping and handling expense related to costs incurred to deliver
product are recognized within cost of goods sold. We account for shipping and handling activities that occur after control has transferred as a fulfillment cost as
opposed to a separate performance obligation, and the costs of shipping and handling are recognized concurrently with the related revenue.
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Excise Taxes
Excise taxes remitted to tax authorities are government-imposed excise taxes on beer. Excise taxes are shown in a separate line item in the consolidated
statements of operations as a reduction of sales. Excise taxes are recognized as a current liability within accounts payable and other current liabilities on the
consolidated balance sheets, with the liability subsequently reduced when the taxes are remitted to the tax authority.
Cost of Goods Sold
Our cost of goods sold includes costs we incur to make and ship beer and other malt beverages. These costs include brewing materials, such as barley, hops
and various grains. Packaging materials, such as glass bottles, aluminum cans, cardboard and paperboard are also included in our cost of goods sold. Additionally,
our cost of goods sold include both direct and indirect labor, shipping and handling including freight costs, utilities, maintenance costs, warehousing costs,
purchasing and receiving costs, depreciation, promotional packaging, other manufacturing overheads and costs to purchase factored and other non-owned brands
from suppliers, as well as the estimated cost to facilitate product returns.
Marketing, General and Administrative Expenses
Our marketing, general and administrative expenses include media advertising (television, radio, digital, print), tactical advertising (signs, banners, point-of-
sale materials) and promotion costs on both local and national levels within our operating segments. The creative portion of our advertising activities is expensed as
incurred. Production costs of advertising and promotional materials are expensed when the advertising is first run. Marketing, general and administrative expenses
also include integration costs of $38.8 million and $70.6 million for 2018 and 2017 , respectively, and acquisition and integration costs of $108.4 million for 2016
associated with the Acquisition.
This classification includes general and administrative costs for functions such as finance, legal, human resources and information technology, along with
acquisition and integration costs as noted above, which consist primarily of labor and outside services, as well as bad debt expense related to our allowance for
doubtful accounts. Unless capitalization is allowed or required by U.S. GAAP, legal costs are expensed when incurred. These costs also include our marketing and
sales organizations, including labor and other overheads. This line item additionally includes amortization costs associated with intangible assets, as well as certain
depreciation costs related to non-production equipment and share-based compensation.
Share-based compensation is recognized using a straight-line method over the vesting period of the awards. We include estimated forfeitures expected to
occur when calculating share-based compensation expense. Our share-based compensation plan and the awards within it contain provisions that accelerate vesting
of awards upon change in control, retirement, disability or death of eligible employees and directors. Our share-based awards are considered vested when the
employee's retention of the award is no longer contingent on providing service, which for certain awards can result in immediate recognition for awards granted to
retirement-eligible individuals or accelerated recognition for awards granted to individuals that will become retirement eligible within the stated vesting period.
Also, if less than the stated vesting period, we recognize these costs over the period from the grant date to the date retirement eligibility is achieved.
Special Items
Our special items represent charges incurred or benefits realized that either we do not believe to be indicative of our core operations, or we believe are
significant to our current operating results warranting separate classification; specifically, such items are considered to be one of the following:
•
•
•
•
infrequent or unusual items,
impairment or asset abandonment-related losses,
restructuring charges and other atypical employee-related costs, or
fees on termination of significant operating agreements and gains (losses) on disposal of investments.
The items classified as special items are not necessarily non-recurring, however, they are deemed to be incremental to income earned or costs incurred by the
company in conducting normal operations, and therefore are presented separately from other components of operating income.
Equity Income in MillerCoors
On October 11, 2016 , following the close of the Acquisition, MillerCoors became a wholly-owned subsidiary of MCBC and as a result, MCBC owns 100%
of the outstanding equity and voting interests of MillerCoors. Prior to October 11, 2016 , MCBC's equity income in MillerCoors represented our proportionate
share for the period of the net income of our investment in MillerCoors accounted for under the equity method. This amount reflected adjustments to eliminate
intercompany gains and
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losses, and to amortize, if appropriate, any difference between cost and underlying equity in net assets upon the formation of MillerCoors.
Interest Expense, net
Our interest costs are associated with borrowings to finance our operations and acquisitions. Interest earned on our cash and cash equivalents across our
business is recorded as interest income. Changes in estimates (if any) to mandatorily redeemable noncontrolling interest liabilities, which are presented within other
current and non-current liabilities on the consolidated balance sheet, are also recognized within interest expense.
We capitalize interest cost as a part of the original cost of acquiring certain fixed assets if the cost of the capital expenditure and the expected time to
complete the project are considered significant.
Other Income (Expense)
Our other income (expense) classification primarily includes gains and losses associated with activities not directly related to brewing and selling beer and
other malt beverages. For instance, aggregate unrealized and realized foreign exchange gains and losses resulting from remeasurement and settlement of foreign-
denominated monetary assets and liabilities, as well as certain gains or losses on sales of non-operating assets and the mark-to-market activity associated with
warrants are classified in this line item. These gains and losses are reported in the operating segment in which they occur; however, foreign exchange gains and
losses on intercompany balances related to financing and other treasury-related activities are reported within the Corporate segment. The initial recording of
foreign-denominated transactions are classified based on the nature of the transaction, with the unrealized or realized foreign exchange gains or losses resulting
from the subsequent remeasurement of the monetary asset or liability, and its ultimate settlement, classified in other income (expense).
Discontinued Operations
We no longer present the activity related to foreign exchange movements nor the liabilities associated with our indemnities resulting from the historical sale
of the Kaiser business, as discussed in Note 18, "Commitments and Contingencies," within discontinued operations and have accordingly reclassified the activity
into other income within continuing operations of the consolidated statements of operations, and the liabilities into other current and long-term liabilities within the
consolidated balance sheets. This change has been applied retrospectively and prospectively. As a result, we reclassified a foreign exchange gain of $1.5 million
and a loss of $2.8 million from discontinued operations to other income (expense), net for the fiscal years 2017 and 2016 , respectively.
Income Taxes
Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of our assets, liabilities, and certain
unrecognized gains and losses recorded in accumulated other comprehensive income (loss). We apply the intraperiod tax allocation rules to allocate our provision
for income taxes between continuing operations and other categories of earnings, such as other comprehensive income (loss), when we meet the criteria prescribed
by U.S. GAAP.
We provide for taxes that may be payable if undistributed earnings of overseas subsidiaries were to be remitted to the U.S., except for those earnings that we
consider to be permanently reinvested. However, we continue to monitor the impacts of the 2017 Tax Act, as defined in Note 6, "Income Tax," including yet to be
issued regulations and interpretations, on the tax consequences of future repatriations. Future sales of foreign subsidiaries are not exempt from capital gains tax in
the U.S. under the 2017 Tax Act. However, we have no plans to dispose of any of our foreign subsidiaries and are not recording deferred taxes on outside basis
differences in foreign subsidiaries for the sale of a foreign subsidiary.
The tax benefit from an uncertain tax position is recognized only if it is more likely than not that the tax position will be sustained based on its technical
merits. We measure and record the tax benefits from such a position based on the largest benefit that has a greater than 50% likelihood of being realized upon
ultimate settlement. Interest, penalties and offsetting positions related to unrecognized tax benefits are recognized as a component of income tax expense. We
record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized.
We account for the tax effects of global intangible low-taxed income (“GILTI”) as a component of income tax expense in the period the tax arises, to the
extent applicable.
Other Comprehensive Income (Loss)
OCI represents income and losses for the reporting period, including the related tax impacts, which are excluded from net income (loss) and recognized
directly within AOCI as a component of equity. OCI also includes amounts reclassified to income during the reporting period that were previously recognized
within AOCI. Amounts remaining within AOCI are expected to be
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reclassified out of AOCI in the future, at which point they will be recognized within the consolidated statement of operations as a component of net income (loss).
We recognize OCI related to the translation of assets and liabilities of our foreign subsidiaries which are denominated in currencies other than USD, unrealized
gains and losses on the effective portion of our derivatives designated in cash flow and net investment hedging relationships, actuarial gains and losses and prior
service costs related to our pension and other post-retirement benefit plans, as well as our proportionate share of our equity method investments' OCI. Additionally,
we do not have the expectation or intent to cash settle certain of our intercompany note receivable and note payable positions in the foreseeable future; therefore,
the remeasurement of these instruments is recorded as a component of foreign currency translation adjustments within OCI.
Earnings Per Share
Basic EPS was computed using the weighted-average number of shares of common stock outstanding during the period. Diluted EPS includes the additional
dilutive effect of our potentially dilutive securities, which include RSUs, DSUs, PSUs, and stock options. The dilutive effects of our potentially dilutive securities
are calculated using the treasury stock method. Our calculation of weighted-average shares includes Class A common stock and Class B common stock, and Class
A exchangeable shares and Class B exchangeable shares. All classes of stock have in effect the same dividend rights and share equitably in undistributed earnings.
Holders of Class A common stock receive dividends only to the extent dividends are declared and paid to holders of Class B common stock. See Note 8,
"Stockholders' Equity" for further discussion of the Class A common stock and Class B common stock and Class A exchangeable shares and Class B exchangeable
shares. We have no unvested outstanding equity share awards that contain non-forfeitable rights to dividends.
Cash and Cash Equivalents
Cash consists of cash on hand and bank deposits. Cash equivalents represent highly liquid investments with original maturities of three months or less. Our
cash deposits are maintained with multiple, reputable financial institutions.
Supplementary cash flow includes non-cash issuances of share-based awards, as well as non-cash investing activities related to movements in our guarantee
of indebtedness of certain equity method investments. Additionally, the initial recognition of the warrants discussed in Note 16, “Derivative Instruments and
Hedging Activities” represents a non-cash financing activity in 2018. In 2016, total Acquisition consideration includes non-cash investing activity related to the
issuance of replacement share-based compensation awards, as well as the elimination of a net payable owed by MCBC to MillerCoors.
During 2018 and 2017, we had non-cash activities related to the recognition of capital leases, and during 2017, we also had non-cash activities related to the
acquisition of a business. We also had non-cash activities related to capital expenditures incurred but not yet paid during each period presented. This aggregate
non-cash activity totaled $236.5 million , $265.5 million and $177.4 million , for 2018 , 2017 and 2016 , respectively.
There was no other significant non-cash activity in 2018 , 2017 and 2016 other than mentioned above. See Note 4, "Acquisition and Investments," Note 10,
"Goodwill and Intangible Assets," Note 13, "Share-Based Payments," and Note 16, “Derivative Instruments and Hedging Activities” for further discussion.
Accounts Receivable and Notes Receivable
We record accounts and notes receivable at net realizable value. This carrying value includes an appropriate allowance for estimated uncollectible amounts to
reflect any loss anticipated on the accounts and notes receivable balances. We calculate this allowance based on our country-specific history of write-offs, level of
past-due accounts based on the contractual terms of the receivables and our relationships with and the economic status of our customers, which may be impacted by
current macroeconomic and regulatory factors specific to the country of origin.
In the U.K., loans are extended to a portion of the retail outlets that sell our brands. An allowance for credit losses is maintained to provide for loan losses
deemed to be probable related to specifically identified loans and for losses in the loan portfolio that have been incurred at the balance sheet date. We establish our
allowance through a provision for loan losses charged against earnings and recorded in marketing, general and administrative expenses. Loan balances that are
written off are recorded against the allowance as a write-off. Activity within the allowance for credit losses was immaterial for fiscal years 2018 , 2017 and 2016 .
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined by the first-in, first-out ("FIFO") method. We regularly assess the shelf-
life of our inventories and reserve for those inventories when it becomes apparent the product will not be sold within our freshness specifications.
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Other current assets
Other current assets include prepaid assets, maintenance and operating supplies, promotion materials and derivative assets that are expected to be recognized
or realized within the next 12 months. Maintenance and operating supplies include our inventories of spare parts, which are kept on hand for repairs and
maintenance of machinery and equipment. The majority of spare parts within our business include motors, fillers and other components that are required to
maintain a normal level of production in the event that expected maintenance and/or repairs are required. These parts are inventoried within current assets as they
are reasonably expected to be used during the normal operating cycle of the business and are reserved for excess and obsolescence, as appropriate. The allowance
for obsolete supplies was $9.2 million and $7.4 million as of December 31, 2018 , and December 31, 2017 , respectively.
Properties
Properties are stated at original cost less accumulated depreciation. Depreciation is recorded using the straight-line method over the estimated useful lives of
the assets, which are reviewed periodically and have the following ranges: buildings and improvements: 20 - 40 years; machinery and equipment: 3 - 25 years;
furniture and fixtures: 3 - 10 years; returnable containers: 2 - 15 years; and software: 3 - 5 years. Land is not depreciated, and construction in progress is not
depreciated until ready for service. Costs of enhancements or modifications that substantially extend the capacity or useful life of an asset are capitalized and
depreciated accordingly. Ordinary repairs and maintenance are expensed as incurred. When property is retired or otherwise disposed of, the cost and accumulated
depreciation are removed from our consolidated balance sheets and the resulting gain or loss, if any, is reflected in our consolidated statements of operations. Long-
lived assets are evaluated for impairment whenever events or changes in circumstances indicate the carrying value of an asset (or asset group) may not be
recoverable.
Returnable containers are recorded at acquisition cost and consist of returnable bottles, kegs, pallets and crates that are both in our direct control within our
breweries, warehouses and distribution facilities and those that we indirectly control in the market through our agreements with our customers and other brewers
and for which a deposit is received. The deposits received on our returnable containers in the market are recorded as deposit liabilities, included as current
liabilities within accounts payable and other current liabilities in the consolidated balance sheets. We estimate that the loss, breakage and deterioration of our
returnable containers is comparable to the depreciation calculated on an estimated useful life of up to 4 years for bottles, 5 years for pallets, 7 years for crates, and
15 years for returnable kegs. We also own and maintain other equipment in the market related to delivery of our products to end consumers, for example on-
premise dispense equipment and refrigeration units. This equipment is recorded at acquisition cost and depreciated over lives of up to 7 years, depending on the
market, reflecting the use of the equipment, as well as the loss and deterioration of the asset.
The costs of acquiring or developing internal-use computer software, including directly-related payroll costs for internal resources, are capitalized and
classified within properties. Implementation costs incurred in hosting arrangements that are service contracts are also capitalized within properties. Software
maintenance and training costs are expensed in the period incurred.
Properties held under capital lease are depreciated using the straight-line method over the estimated useful life or the lease term, whichever is shorter, and the
related depreciation is included in depreciation expense. Capital lease assets for which ownership is transferred at the end of the lease, or there is a bargain
purchase option, are amortized over the useful life that would be assigned if the asset were owned.
Goodwill and Other Intangible Assets
Goodwill is allocated to the reporting unit in which the business that created the goodwill resides. A reporting unit is an operating segment, or a business unit
one level below that operating segment, for which discrete financial information is prepared and regularly reviewed by segment management. As of the date of our
annual impairment test, performed as of October 1, the operations in each of the specific regions within our U.S., Canada, Europe and International segments are
considered components based on the availability of discrete financial information and the regular review by segment management. We have concluded that the
components within the U.S., Canada and Europe segments each meet the criteria as having similar economic characteristics and therefore have aggregated these
components into the U.S., Canada and Europe reporting units, respectively. Additionally, we determined that the components within our International segment do
not meet the criteria for aggregation with the exception of the operations of our India businesses, which constitute a separate reporting unit. As required, we
evaluate the carrying value of our goodwill and indefinite-lived intangible assets for impairment at the reporting unit level at least annually or when an interim
triggering event occurs that would indicate that impairment may have taken place. Our annual test is performed as of the first day of our fiscal fourth quarter. We
continuously monitor the performance of our other definite-lived intangible assets and evaluate for impairment when evidence exists that certain events or changes
in circumstances indicate that the carrying amount of these assets may not be recoverable. Significant judgments and assumptions are required in such impairment
evaluations. Definite-lived intangible assets are stated at cost less accumulated
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amortization. Amortization is recorded using the straight-line method over the estimated lives of the assets as this approximates the pattern in which the assets
economic benefits are consumed.
Equity Method Investments
We apply the equity method of accounting to 20% to 50% owned investments where we exercise significant influence or VIEs for which we are not the
primary beneficiary. We use the cumulative earnings approach for determining cash flow presentation of cash distributions received from equity method investees.
Distributions received are included in our consolidated statements of cash flows as operating activities, unless the cumulative distributions exceed our portion of
the cumulative equity in the net earnings of the equity method investment, in which case the excess distributions are deemed to be returns of the investment and are
classified as investing activities in our consolidated statements of cash flows. Equity method investments as of December 31, 2018 , include Brewers' Retail, Inc.
("BRI") and Brewers' Distributor Ltd. ("BDL") in Canada.
There are no related parties that own interests in our equity method investments as of December 31, 2018 .
Derivative Hedging Instruments
We use derivatives as part of our normal business operations to manage our exposure to fluctuations in interest rates, foreign currency exchange, commodity
prices, production and packaging material costs and for other strategic purposes related to our core business. We enter into derivatives for risk management
purposes only, including derivatives designated in hedge accounting relationships as well as those derivatives utilized as economic hedges. We do not enter into
derivatives for trading or speculative purposes. We recognize our derivatives on the consolidated balance sheets as assets or liabilities at fair value and are
classified in either current or non-current assets or liabilities based on each contract's respective unrealized gain or loss position and each contract's respective
maturity. Our policy is to present all derivative balances on a gross basis, without regard to counterparty master netting agreements or similar arrangements.
Further, our current derivative agreements do not allow us to net positions with the same counterparty and therefore, we present our derivative positions gross in
our consolidated balance sheets.
Changes in fair values of outstanding cash flow and net investment hedges are recorded in OCI, until earnings are affected by the variability of cash flows of
the underlying hedged item or the sale of the underlying net investment, respectively. Effective cash flow hedges offset the gains or losses recognized on the
underlying exposure in the consolidated statements of operations, or for net investment hedges, the foreign exchange translation gain or loss recognized in AOCI.
Changes in fair value of outstanding fair value hedges and the offsetting changes in fair value of the hedged item are recognized in earnings. Changes in fair value
of the derivative attributable to components allowed to be excluded from the assessment of hedge effectiveness are deferred in AOCI and recognized in earnings
over the life of the hedge.
We record realized gains and losses from derivative instruments in the same financial statement line item as the hedged item/forecasted transaction. Changes
in unrealized gains and losses for derivatives not designated in a hedge accounting relationship are recorded directly in earnings each period and are also recorded
in the same financial statement line item as the hedged item/forecasted transaction. Cash flows from the settlement of derivatives, including both economic hedges
and those designated in hedge accounting relationships, appear in the consolidated statements of cash flows in the same categories as the cash flows of the hedged
item.
In accordance with authoritative accounting guidance, we do not record the fair value of derivatives for which we have elected the Normal Purchase Normal
Sale ("NPNS") exemption. We account for these contracts on an accrual basis, recording realized settlements related to these contracts in the same financial
statement line items as the corresponding transaction.
Pension and Postretirement Benefits
We maintain retirement plans for the majority of our employees. We offer different types of plans within each segment, including defined benefit plans,
defined contribution plans and OPEB plans. Each plan is managed locally and in accordance with respective local laws and regulations. Our equity investments,
BRI and BDL, maintain defined benefit, defined contribution and postretirement benefit plans as well.
We recognize the underfunded or overfunded status of a defined benefit postretirement plan as an asset or liability in the consolidated balance sheets and
recognize changes in the funded status in the year in which the changes occur within OCI. The funded status of a plan, measured as the difference between the fair
value of plan assets and the projected benefit obligation, and the related net periodic pension cost are calculated using a number of significant actuarial
assumptions. Changes in net periodic pension cost and funding status may occur in the future due to changes in these assumptions.
97
We use the fair value approach to calculate the market-related value of pension plan assets used to determine net periodic pension cost, which includes
measuring the market-related value of plan assets at fair value for purposes of determining the expected return on plan assets and amount of gain or loss subject to
amortization.
Projected benefit obligation is the actuarial present value as of the measurement date of all benefits attributed by the plan benefit formula to employee service
rendered before the measurement date using assumptions as to future compensation levels and years of service if the plan benefit formula is based on those future
compensation levels and years of service. Accumulated benefit obligation is the actuarial present value of benefits (whether vested or unvested) attributed by the
plan benefit formula to employee service rendered before the measurement date and based on employee service and compensation, if applicable, prior to that date.
Accumulated benefit obligation differs from projected benefit obligation in that it includes no assumption about future compensation levels and years of service.
We employ the corridor approach for determining each plan's potential amortization from AOCI of deferred gains and losses, which occur when actual
experience differs from estimates, into our net periodic pension and postretirement benefit cost. This approach defines the "corridor" as the greater of 10% of the
projected benefit obligation or 10% of the market-related value of plan assets and requires amortization of the excess net gain or loss that exceeds the corridor over
the average remaining service periods of active plan participants. For plans closed to new entrants and the future accrual of benefits, the average remaining life
expectancy of all plan participants (including retirees) is used.
Fair Value Measurements
The carrying amounts of our cash and cash equivalents, accounts receivable, accounts payable and other current liabilities approximate fair value as recorded
due to the short-term nature of these instruments. In addition, the carrying amounts of our trade loan receivables, net of allowances, approximate fair value. The fair
value of derivatives is estimated by discounting the estimated future cash flows utilizing observable market interest, foreign exchange and commodity rates
adjusted for non-performance credit risk associated with our counterparties (assets) or with MCBC (liabilities). Additionally, the fair value of warrants is estimated
using the Black-Scholes valuation model. See Note 16, "Derivative Instruments and Hedging Activities" for additional information. Based on current market rates
for similar instruments, the fair value of long-term debt is presented in Note 11, "Debt."
U.S. GAAP guidance for fair value includes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation
techniques (market approach, income approach and cost approach). Our financial assets and liabilities are measured using inputs from the three levels of the fair
value hierarchy.
The three levels of the hierarchy are as follows:
Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date.
Level 2—Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets
that are less active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived
principally from, or corroborated by, observable market data by correlation or other means (market corroborated inputs).
Level 3—Unobservable inputs that reflect the assumptions that we believe market participants would use in pricing the asset or liability. We develop these
inputs based on the best information available, including our own data.
Foreign Currency
Assets and liabilities recorded in foreign currencies that are the functional currencies for the respective operations are translated at the prevailing exchange
rate at the balance sheet date. Translation adjustments resulting from this process are reported as a separate component of OCI. Gains and losses from foreign
currency transactions are included in earnings for the period. Revenue and expenses are translated at the average exchange rates during the period.
2. New Accounting Pronouncements
Adoption of New Accounting Pronouncements
Pension and Other Postretirement Benefit Plans
In August 2018, the FASB issued authoritative guidance intended to add, remove, and clarify disclosure requirements related to defined benefit pension and
other postretirement plans. This guidance is effective for annual periods after
98
December 15, 2020, with early adoption permitted. We early adopted this guidance in the fourth quarter of 2018 on a retrospective basis. The adoption of this
guidance did not have an impact on our financial position or results of operations.
In March 2017, the FASB issued authoritative guidance intended to improve the consistency, transparency and usefulness of financial information related to
defined benefit pension or other postretirement plans. Under the new guidance, an employer must disaggregate the service cost component from the other
components of net benefit cost within the statements of operations. Specifically, the new guidance requires us to report only the service cost component in the same
line item as other compensation costs arising from services rendered by the pertinent employees during the period; while the other components of net benefit cost
are now presented in the consolidated statements of operations separately from the service cost component and outside of operating income. The amendments in
this update also allow only the service cost component to be eligible for capitalization when applicable. We have also determined that only service cost will be
reported within each operating segment and all other components will be reported within the Corporate segment. The guidance related to the income statement
presentation of service costs and other pension and postretirement benefit costs is applied retrospectively, while the capitalization of service costs component is
applied prospectively. We adopted this guidance as of January 1, 2018 , which was a classification adjustment only and had no impact to our consolidated net
income.
The following table shows the (increase) decrease for the respective line item within the consolidated statement of operations for consolidated and segment
reporting amounts for the year ended December 31, 2017 . There was no impact to the International segment in 2017.
Cost of goods sold
Marketing, general and administrative expenses
Special items, net
Other pension and postretirement benefits (costs), net
Total
Corporate
Europe
U.S.
Canada
Consolidated
$
$
— $
—
—
47.4
47.4 $
(27.5) $
(18.6)
—
—
7.3 $
0.7 $
(0.6)
(5.4)
—
(0.4)
(2.9)
—
(46.1) $
1.3 $
(2.6) $
(19.5)
(19.6)
(8.3)
47.4
—
The following table shows the (increase) decrease for the respective line item within the consolidated statement of operations for consolidated and segment
reporting amounts for the year ended December 31, 2016 .
Cost of goods sold
Marketing, general and administrative
expenses
Special items, net
Other pension and postretirement benefits
(costs), net
Total
Revenue Recognition
$
$
Corporate
International
Europe
U.S.
Canada
Consolidated
— $
— $
(7.3) $
(1.0) $
(3.2) $
(11.5)
0.1
—
8.4
8.5 $
0.1
—
—
0.1 $
(4.8)
—
—
(12.1) $
(1.4)
—
—
(2.4) $
(1.4)
10.5
—
5.9 $
(7.4)
10.5
8.4
—
In May 2014, the FASB issued authoritative guidance related to new accounting requirements for the recognition of revenue from contracts with customers.
The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that
reflects the consideration to which the entity expects to be entitled to in exchange for the goods or services.
We adopted this guidance and related amendments as of January 1, 2018 , applying the modified retrospective transition approach to all contracts. Based on
our comprehensive assessment of the new guidance, including our evaluation of the five-step approach outlined within the guidance, we concluded that the
adoption did not have a significant impact to our core revenue generating activities. However, the adoption resulted in a change in presentation of certain cash
payments made to customers as well as the timing of recognition of certain promotional discounts. Specifically, certain cash payments to customers were
previously recorded within marketing, general and administrative expenses in the consolidated statements of operations. Upon the adoption of the new guidance,
many of these cash payments did not meet the specific criteria within the new guidance of providing a “distinct” good or service, and therefore, were required to be
presented as a reduction of revenue. The impact of this change resulted in a reduction of revenue and marketing, general and administrative expenses by
approximately $60 million during 2018 , primarily within our Canada segment, with no impact to net income. Furthermore,
99
upon adoption of the new guidance, certain of our promotional discounts which are deemed variable consideration under the new guidance, are now recognized at
the time of the related shipment of product, which is earlier than recognized under historical guidance. This change in recognition timing has shifted financial
statement recognition primarily amongst quarters, however, the full-year impact was not significant to our financial results. We also evaluated the requirements of
the new guidance on our other revenue generating activities such as contract brewing and license arrangements, and concluded that no changes to our historical
accounting treatment was required.
As a result of the cumulative impact of adopting the new guidance, we recorded a reduction to opening retained earnings of $27.8 million as of January 1,
2018 , with an offsetting increase primarily within accounts payable and other current liabilities and the related tax effects, related primarily to the accelerated
recognition of certain promotional discounts. Results for reporting periods beginning after January 1, 2018 , are presented under the new guidance, while prior
period amounts have not been adjusted and continue to be reported in accordance with historical accounting guidance. The following tables provide a comparison
of our current period results of operations and financial position under the new guidance, versus our financial statements if the historical guidance had continued to
be applied:
Consolidated Statement of Operations:
Sales
Excise taxes
Net sales
Cost of goods sold
Gross profit
Marketing, general and administrative expenses
Special items, net
Operating income (loss)
Interest expense
Interest income
Other pension and postretirement benefits (costs), net
Other income (expense), net
Income (loss) before income taxes
Income tax benefit (expense)
Net income (loss)
Net (income) loss attributable to noncontrolling interests
Net income (loss) attributable to MCBC
Basic net income (loss) attributable to MCBC per share
Diluted net income (loss) attributable to MCBC per share
Year ended December 31, 2018
Under Historical
Guidance
As Reported Under
New Guidance
Effect of Change
(In millions, except per share data)
$
13,393.5 $
13,338.0 $
(2,568.4)
10,825.1
(6,584.8)
4,240.3
(2,862.4)
249.7
1,627.6
(306.2)
11.4
38.2
(12.0)
1,359.0
(225.1)
1,133.9
(18.1)
(2,568.4)
10,769.6
(6,584.8)
4,184.8
(2,802.7)
249.7
1,631.8
(306.2)
8.0
38.2
(12.0)
1,359.8
(225.2)
1,134.6
(18.1)
$
$
$
1,115.8 $
1,116.5 $
5.17 $
5.15 $
5.17 $
5.15 $
100
(55.5)
—
(55.5)
—
(55.5)
59.7
—
4.2
—
(3.4)
—
—
0.8
(0.1)
0.7
—
0.7
—
—
Consolidated Balance Sheet:
Assets
Trade accounts receivable, net
Other current assets, net
Liabilities and equity
Accounts payable and other current liabilities
Deferred tax liabilities
Retained earnings
Accumulated other comprehensive income (loss)
As of December 31, 2018
Under Historical
Guidance
As Reported Under
New Guidance
Effect of Change
(In millions)
$
$
$
$
$
$
735.9 $
242.4 $
2,667.4 $
2,137.7 $
7,720.0 $
736.0 $
245.6 $
2,706.4 $
2,128.9 $
7,692.9 $
(1,150.2) $
(1,150.0) $
0.1
3.2
39.0
(8.8)
(27.1)
0.2
These changes are primarily driven by the reclassification of certain cash payments to customers from marketing, general and administrative expenses to a
reduction of revenue, as well as the change in the timing of recognition of certain promotional discounts and cash payments to customers. This adoption had no
impact to our cash flows from operating, investing or financing activities. See Note 1, "Basis of Presentation and Summary of Significant Accounting Policies" for
further details on our significant accounting policies for revenue recognition pursuant to the new guidance.
Financial and Commodity Risks
In August 2017, the FASB issued authoritative guidance intended to refine and expand hedge accounting for both financial and commodity risks. The revised
guidance will create more transparency around how economic results are presented, both on the face of the financial statements and in the footnotes. In addition,
this guidance makes certain targeted improvements to simplify the application of hedge accounting guidance. This guidance is effective for annual periods
beginning after December 15, 2018, including interim periods within those annual periods, with early adoption permitted. We early adopted this guidance during
the second quarter of 2018. All transition requirements have been applied to hedging relationships existing on the date of adoption and the effect of the adoption is
reflected as of January 1, 2018. The adoption of this guidance did not result in a cumulative adjustment to the opening balance of retained earnings as of January 1,
2018, and did not have any other material effect on our results of operations, financial position or cash flows. All required disclosures under the new guidance have
been made in Note 16, "Derivative Instruments and Hedging Activities."
New Accounting Pronouncements Not Yet Adopted
In August 2018, the FASB issued authoritative guidance intended to address a customer’s accounting for implementation costs incurred in a cloud computing
arrangement that is a service contract. This guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a
service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The guidance also requires
presentation of the capitalized implementation costs in the statement of financial position and in the statement of cash flows in the same line item that a prepayment
for the fees of the associated hosting arrangement would be presented, and the expense related to the capitalized implementation costs to be presented in the same
line item in the statement of operations as the fees associated with the hosting element (service) of the arrangement. This guidance is effective for annual periods
beginning after December 15, 2019, including interim periods within those annual periods, with early adoption permitted. We are currently evaluating the potential
impact on our financial position, results of operations, and statement of cash flows upon adoption of this guidance, which will result in the change in presentation
of capitalized implementation costs related to hosting arrangements from properties to other assets on the consolidated balance sheet, as well as the expense related
to such costs no longer being classified as depreciation expense and cash flows related to those costs no longer being presented as investing activities.
In February 2018 , the FASB issued authoritative guidance intended to improve the usefulness of financial information related to the enactment of the 2017
Tax Act, as defined in Note 6, "Income Tax." This guidance provides an option to reclassify from AOCI to retained earnings the stranded tax effects resulting from
the change in the U.S. federal corporate income tax rate as a result of the 2017 Tax Act. This guidance is effective for annual periods beginning after December 15,
2018 , including interim periods within those annual periods, with early adoption permitted. We are currently evaluating the potential impact on our financial
statements in order to determine whether to elect to make this reclassification upon adoption of this guidance.
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In February 2016, the FASB issued authoritative guidance intended to increase transparency and comparability among organizations by requiring the
recognition of lease assets and liabilities on the balance sheet and disclosure of key information about leasing arrangements. We will adopt this guidance and all
related amendments applying the modified retrospective transition approach to all lease arrangements as of the effective date of adoption, January 1, 2019.
Additionally, for existing leases as of the effective date, we will elect the package of practical expedients available at transition to not reassess the historical lease
determination, lease classification and initial direct costs.
For operating leases, the adoption of this new guidance is currently expected to result in the recognition of right-of-use ("ROU") assets of between
approximately $150 million and $160 million , and aggregate current and non-current lease liabilities of between approximately $160 million and $170 million , as
of the effective date of adoption, including immaterial reclassifications of prepaid and deferred rent balances into ROU assets. Additionally, as a result of the
cumulative impact of adopting the new guidance, we expect to record a net increase to opening retained earnings of between $30 million and $35 million as of
January 1, 2019, with the offsetting impact within other assets, related to our share of the accelerated recognition of deferred gains on non-qualifying and other
sale-leaseback transactions by an equity method investment within our Canada segment. We are in the process of finalizing this transition adjustment calculation,
which will be completed during the first quarter of 2019. Additionally, while our accounting for finance leases will remain unchanged at adoption, we will
prospectively change the presentation of finance lease liabilities within the consolidated balance sheets to be presented within current portion of long-term debt and
short-term borrowings and long-term debt, as appropriate. The adoption of this guidance is not expected to impact our cash flows from operating, investing, or
financing activities.
Other than the items noted above, there have been no new accounting pronouncements not yet effective or adopted in the current year that we believe have a
significant impact, or potential significant impact, to our consolidated financial statements.
3. Segment Reporting
Our reporting segments are based on the key geographic regions in which we operate, which are the basis on which our chief operating decision maker
evaluates the performance of the business.
Reporting Segments
United States
The U.S. segment consists of our production, marketing and sales of our brands and other owned and licensed brands in the U.S. Prior to the completion of
the Acquisition on October 11, 2016, MillerCoors was a limited liability company that we jointly owned with SABMiller and which operated in the U.S. and
Puerto Rico. See Note 4, "Acquisition and Investments" for further discussion. Effective January 1, 2017, the results of the MillerCoors Puerto Rico business,
which were previously reported as part of the U.S. segment, are reported within the International segment. We have not recast historical results for these changes
on the basis of materiality.
Canada
The Canada segment consists of our production, marketing and sales of our brands and other owned and licensed brands in Canada. The Canada segment also
includes BRI, our joint venture arrangement related to the distribution and retail sale of beer in Ontario, and BDL, our joint venture arrangement related to the
distribution of beer in the western provinces. Both BRI and BDL are accounted for as equity method investments.
We have an agreement with Heineken N.V. ("Heineken") that grants us the right to import, market, distribute and sell Heineken products. Additionally, as a
result of the Acquisition, beginning October 11, 2016, we have the right to brew or import, market, distribute and sell certain Miller brands in Canada. We also
contract brew and package certain Labatt and Asahi brands for the U.S. market.
Europe
The Europe segment consists of our production, marketing and sales of our brands as well as a number of smaller regional brands in the U.K., the Republic
of Ireland and Central Europe . As a result of the Acquisition, a portion of the operating results of the international Miller brand portfolio are reported in the Europe
segment. Additionally, effective January 1, 2017, European markets including Sweden, Spain, Germany, Ukraine and Russia, which were previously reported
under our International segment, are reported within our Europe segment. Our European business also has licensing agreements and distribution agreements with
various other brewers.
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International
The objective of the International segment is to grow and expand our business and brand portfolio in new and existing markets, including emerging markets,
outside the U.S., Canada, and Europe segments. The International segment includes operations in Latin America (the Caribbean, Central America, Mexico and
South America), Asia Pacific (Australia, India, Japan and South Korea) and South Africa and surrounding markets. International operates through a combination of
export and license arrangements, in addition to our India business that produces, markets and sells our products and our Japan business that imports, markets and
sells our and certain other third-party products. As a result of the Acquisition, effective January 1, 2017, European markets including Sweden, Spain, Germany,
Ukraine and Russia, which were previously reported under our International segment, are reported within our Europe segment while the results of the MillerCoors
Puerto Rico business, which were previously reported as part of the U.S. segment, are reported within the International segment.
Corporate
Corporate is not a reportable segment and primarily includes interest and certain other general and administrative costs that are not allocated to any of the
operating segments. The majority of these corporate costs relate to worldwide administrative functions, such as corporate affairs, legal, human resources,
information technology, finance, internal audit, insurance, ethics and compliance, risk management, global growth, supply chain and commercial initiatives, as well
as acquisition, integration and financing costs associated with the Acquisition. Additionally, Corporate includes the results of our water resources and energy
operations in Colorado as well as the unrealized changes in fair value on our commodity swaps not designated in hedging relationships recorded within cost of
goods sold, which are later reclassified when realized to the segment in which the underlying exposure resides.
Summarized Financial Information
No single customer accounted for more than 10% of our consolidated sales in 2018 , 2017 or 2016 . Consolidated net sales represent sales to third-party
external customers less excise taxes. Inter-segment transactions impacting net sales revenues and income (loss) before income taxes eliminate in consolidation and,
for fiscal year 2018 are U.S. segment sales of $104.5 million to our International segment and $19.0 million to our Canada segment, as well as approximately $12
million of Canada inter-segment sales to the U.S.
The following tables represent consolidated net sales, interest expense, interest income and reconciliations of amounts shown as income (loss) before income
taxes to income (loss) attributable to MCBC. Income (loss) before income taxes includes the impact of special items; refer to Note 7, "Special Items" for further
discussion. Income (loss) before income taxes for 2017 and 2016 has been adjusted to reflect the adoption of the new accounting pronouncement resulting in the
reclassification of all non-service components of pension and other postretirement costs to Corporate as discussed in Note 2, "New Accounting Pronouncements."
Additionally, various costs associated with the Acquisition, including its related financing, were recorded in 2018 , 2017 and 2016; refer to Note 4, "Acquisition
and Investments" for details.
U.S.
Canada
Europe
International
Corporate (1)
Inter-segment net
sales eliminations
Consolidated
$
7,259.9 $
1,392.1 $
2,002.6 $
(In millions)
250.1
$
0.8 $
(135.9) $
10,769.6
Year ended December 31, 2018
8.8
—
—
—
(5.6)
0.5
—
—
(309.4)
7.5
Net sales
Interest expense
Interest income
Income (loss) before income taxes $
1,320.7 $
157.0 $
186.4 $
(2.7)
$
(301.6) $
Income tax benefit (expense)
Net income (loss)
Net (income) loss attributable to
noncontrolling interests
Net income (loss) attributable to
MCBC
—
—
— $
(306.2)
8.0
1,359.8
(225.2)
1,134.6
(18.1)
$
1,116.5
(1)
During the first quarter of 2018, we recorded a gain of $328.0 million related to the Adjustment Amount as defined and further discussed in Note 4,
"Acquisition and Investments." Additionally, related to the unrealized mark-to-market
103
valuation on our commodity hedge positions, we recorded unrealized losses of $166.2 million for the year ended December 31, 2018, compared to
unrealized gains of $123.3 million for the year ended December 31, 2017.
Year ended December 31, 2017
U.S.
Canada
Europe (1)
International
Corporate (2)
Inter-segment net
sales eliminations
Consolidated
As Restated
$
7,505.7 $
1,458.0 $
1,940.7 $
(In millions)
264.0
$
0.9 $
(166.5) $
11,002.8
13.1
—
—
—
—
3.6
—
—
(362.4)
2.4
Net sales
Interest expense
Interest income
Income (loss) before income taxes $
1,394.2 $
210.2 $
234.9 $
(19.7)
$
(436.4) $
Income tax benefit (expense)
Net income (loss)
Net (income) loss attributable to
noncontrolling interests
Net income (loss) attributable to
MCBC
—
—
— $
(349.3)
6.0
1,383.2
204.6
1,587.8
(22.2)
$
1,565.6
(1)
In the first quarter of 2017, we recorded a provision for an estimate of uncollectible receivables of approximately $11 million related to Agrokor, a large
customer in Croatia. We have subsequently reduced this exposure and as of December 31, 2018 , our estimated provision of uncollectible receivables from
Agrokor totals approximately $3 million . The settlement plan related to this matter was approved in October 2018, and did not have a significant impact on
our financial statements. Separately, during the first quarter of 2017, we released an indirect tax loss contingency, which was initially recorded in the fourth
quarter of 2016, for a benefit of approximately $50 million . See Note 18, "Commitments and Contingencies" for details.
(2)
Related to the unrealized mark-to-market valuation on our commodity hedge positions, we recorded unrealized gains of $123.3 million for the twelve
months ended December 31, 2017, compared to unrealized gains of $23.1 million for the twelve months ended December 31, 2016.
U.S. (1)
Canada
Europe (2)
International
Corporate
Inter-segment net
sales eliminations
Consolidated
As Restated
Year ended December 31, 2016
Net sales
Interest expense
Interest income
Income (loss) before income
taxes
Income tax benefit (expense)
Net income (loss)
Net (income) loss attributable to
noncontrolling interests
Net income (loss) attributable to
MCBC
$
1,566.6 $
1,425.7 $
1,760.2 $
(In millions)
163.6
$
1.0 $
(32.1) $
—
—
—
—
—
3.6
—
—
(271.6)
23.6
—
—
$
3,568.0 $
(119.7) $
137.6 $
(39.6)
$
(492.2) $
— $
4,885.0
(271.6)
27.2
3,054.1
(1,454.3)
1,599.8
(5.9)
$
1,593.9
(1)
Prior to October 11, 2016 , MCBC’s 42% share of MillerCoors' results of operations was reported as equity income in MillerCoors in the consolidated
statements of operations. As a result of the Acquisition, beginning October 11, 2016 , MillerCoors' results were fully consolidated into MCBC’s
consolidated financial statements. The above table reflects this treatment accordingly. Also included in net income attributable to MCBC is a net special
items gain of approximately $3.0 billion related to the fair value remeasurement of our pre-existing 42% interest in MillerCoors over its carrying value, as
well as the reclassification of the loss related to MCBC's historical AOCI on our 42% interest in MillerCoors. Refer to Note 4, "Acquisition and
Investments" for further discussion.
104
(2)
During the fourth quarter of 2016, we recorded a charge of approximately $50 million within excise taxes due to assessments received from a local
country regulatory authority in Europe related to indirect tax calculations. See Note 18, "Commitments and Contingencies" for further discussion.
The following table presents total assets and select cash flow information by segment:
Assets
Depreciation and amortization
Capital expenditures
As of December 31,
For the years ended December 31,
For the years ended December 31,
2018
2017
2018
2017
2016
2018
2017
2016
U.S. (1)
Canada
Europe
International
Corporate
$
19,057.1 $
19,353.6 $
514.0 $
4,640.5
5,430.0
274.1
708.1
4,835.7
5,522.0
294.8
240.8
141.9
188.0
9.9
3.7
(In millions)
485.7 $
131.2
182.3
9.6
4.0
105.7 $
322.0 $
351.5 $
98.4
175.7
5.1
3.5
165.3
150.0
3.1
11.3
99.9
131.6
2.3
14.3
Consolidated
$
30,109.8 $
30,246.9 $
857.5 $
812.8 $
388.4 $
651.7 $
599.6 $
105.4
72.2
144.4
4.9
14.9
341.8
(1)
For the year ended December 31, 2016, represents MillerCoors' activity for the post-Acquisition period of October 11, 2016 , through December 31, 2016.
The following table presents net sales by geography, based on the location of the customer:
Net sales to unaffiliated customers:
United States and its territories (1)
Canada
United Kingdom
Other foreign countries (2)
Consolidated net sales
For the years ended
December 31, 2018
December 31, 2017
December 31, 2016
(In millions)
$
$
7,272.1 $
7,493.6 $
1,298.2
1,184.6
1,014.7
1,358.4
1,172.8
978.0
10,769.6 $
11,002.8 $
1,622.4
1,344.4
1,071.4
846.8
4,885.0
(1)
(2)
Prior to October 11, 2016 , MCBC’s 42% share of MillerCoors' results of operations was reported as equity income in MillerCoors in the consolidated
statements of operations. As a result of the completion of the Acquisition, beginning October 11, 2016 , MillerCoors' results of operations were fully
consolidated into MCBC’s consolidated financial statements and included in the U.S. segment. Net sales from the period October 11, 2016 , through
December 31, 2016, reflect the consolidation of MillerCoors in the U.S. segment.
Reflects net sales from the individual countries within our Central European operations (included in our Europe segment), as well as our International
segment, for which no individual country has total net sales exceeding 10% of the total consolidated net sales.
105
The following table presents net properties by geographic location:
Net properties:
United States and its territories
Canada
United Kingdom
Other foreign countries (1)
Consolidated net properties
As of
December 31, 2018
December 31, 2017
(In millions)
$
$
2,943.0 $
719.7
396.5
549.1
4,608.3 $
3,025.0
673.0
392.6
583.1
4,673.7
(1)
Reflects net properties within the individual countries included in our Central European operations (included in our Europe segment), as well as our
International segment, for which no individual country has total net properties exceeding 10% of the total consolidated net properties.
4. Acquisition and Investments
Acquisition
On October 11, 2016 , we completed the Acquisition for $12.0 billion in cash, subject to a downward purchase price adjustment as described in the purchase
agreement. This purchase price "Adjustment Amount," as defined in the purchase agreement, required payment to MCBC if the unaudited EBITDA for the Miller
International Business for the twelve months prior to closing was below $70 million . Throughout the process outlined in the purchase agreement, significant
uncertainty remained on the ultimate outcome of the Adjustment Amount. As a result, no adjustment to purchase accounting was made through the completion of
the measurement period in October 2017. On January 21, 2018, MCBC and ABI entered into a settlement agreement related to the purchase price adjustment under
the purchase agreement, and on January 26, 2018, pursuant to the settlement agreement, ABI paid to MCBC $330.0 million , of which $328.0 million constitutes
the Adjustment Amount. As this settlement occurred following the finalization of purchase accounting, we recorded the settlement proceeds related to the
Adjustment Amount as a gain within special items, net in our consolidated statement of operations in our Corporate segment and within cash provided by operating
activities within our consolidated statement of cash flows for the year ended December 31, 2018. MCBC and ABI also agreed to certain mutual releases as further
described in the settlement agreement.
Prior to the Acquisition, MCBC owned a 50% voting and 42% economic interest in MillerCoors and MillerCoors was accounted for under the equity method
of accounting. Following the completion of the Acquisition, MillerCoors, which was previously a joint venture between MCBC and SABMiller, became a wholly-
owned subsidiary of MCBC and its results were fully consolidated by MCBC prospectively beginning on October 11, 2016 .
The operating results of MillerCoors are reported in our U.S. segment and the operating results of the international Miller brand portfolio are reported in our
Canada segment, Europe segment and International segment. Additionally, effective January 1, 2017, the results of the MillerCoors Puerto Rico business, which
were previously reported as part of the U.S. segment, are reported within the International segment. See Note 3, "Segment Reporting" for more information on our
reporting segments.
Under the acquisition method of accounting, MCBC recorded all assets acquired and liabilities assumed at their respective acquisition-date fair values. The
excess of total consideration, including the estimated fair value of our previously held equity interest in MillerCoors, over the net identifiable assets acquired and
liabilities assumed was recorded as goodwill. During 2017, we recorded adjustments to our preliminary purchase price allocation, primarily related to the
recognition of certain deferred tax assets, partially offset by the recognition of certain accrued liabilities. The net impact of these changes was a decrease to
goodwill of $92.1 million . There were no other changes to our allocated amounts during 2017, and our purchase price allocation is now finalized.
Separately, early in the fourth quarter of 2017, and prior to the completion of our one year measurement period, we completed the allocation of goodwill to
our reporting units, with the goodwill predominantly assigned to the U.S. reporting unit, and a portion allocated to the Canada and Europe reporting units. See Note
10, "Goodwill and Intangible Assets" for further information.
We have elected to treat the Acquisition as an asset acquisition for U.S. tax purposes and accordingly currently expect to receive substantial tax benefits for
the first 15 years following the close of the Acquisition. The assets and liabilities acquired in
106
connection with the Acquisition related to the remaining 58% ownership were stepped up to fair value for tax purposes and thus the carrying value of these assets
and liabilities related to the purchase price for the 58% interest primarily equals the tax basis as of the acquisition date.
The total cash paid to ABI in October 2016 to complete the Acquisition, net of cash acquired of $39.0 million , is presented as a cash outflow within investing
activities during 2016. Additionally, cash flows provided by operating activities during 2016 include outflows of $90.3 million primarily related to transaction and
other acquisition costs.
See Note 8, "Stockholders' Equity" for details related to our February 3, 2016, equity offering completed in relation to the Acquisition and Note 11, "Debt"
and Note 16, "Derivative Instruments and Hedging Activities" for details related to the financing and hedging strategies completed in relation to the Acquisition.
Our fiscal year 2016 consolidated statement of operations includes net sales and income before taxes of approximately $1.6 billion and $3.1 billion ,
respectively, attributable to MillerCoors since the Acquisition date. The income includes the net gain of approximately $3.0 billion related to the Acquisition as
discussed below.
Unaudited Pro Forma Financial Information
The following unaudited pro forma financial information gives effect to the Acquisition and the completed financing as if they were completed on January 1,
2016, the first day of our 2016 fiscal year and the pro forma adjustments are based on items that are factually supportable, are directly attributable to the
Acquisition, and are expected to have a continuing impact on MCBC's results of operations. The unaudited pro forma financial information has been calculated
after applying MCBC’s accounting policies and adjusting the historical results of MillerCoors to reflect the additional depreciation and amortization that would
have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets had been applied from January 1, 2016, together with
the consequential tax effects. Pro forma adjustments have been made to remove non-recurring transaction-related costs included in historical results as well as to
reflect the incremental interest expense to be prospectively incurred on the debt and term loans issued to finance the Acquisition, in addition to other pro forma
adjustments. See the below table for significant non-recurring costs. Also, see Note 5, "Other Income and Expense" and Note 11, "Debt" for details related to
financing-related expenses incurred.
Additionally, the following unaudited pro forma financial information does not reflect the impact of the acquisition of the Miller global brand portfolio and
other assets primarily related to the Miller International Business as we are not able to estimate the historical results of operations from this business and have
concluded, based on the limited information available to MCBC, that it is insignificant to the overall Acquisition. The purchase price allocation reflects estimated
value allocated to the Miller global brand portfolio reported within identifiable intangible assets subject to amortization.
The unaudited pro forma financial information below does not reflect the realization of any expected ongoing synergies relating to the integration of
MillerCoors. Further, the unaudited pro forma financial information should not be considered indicative of the results that would have occurred if the Acquisition
and related financing had been consummated on January 1, 2016, nor are they indicative of future results.
Net sales
Net income attributable to MCBC
Net income attributable to MCBC per share:
Basic
Diluted
107
For the year ended
December 31, 2016
(in millions)
$
$
$
$
10,983.2
291.8
1.36
1.35
For the year ended December 31, 2016, the following non-recurring charges (benefits) directly attributable to the Acquisition were made as adjustments to
our pro forma results to remove the impact from our historical operating results within the below noted line items.
Non-recurring charges (benefits)
Recognition of inventory fair value step-up
Revaluation gain on previously held 42% equity interest in MillerCoors and AOCI loss
reclassification
Other transaction-related costs
Bridge loan - amortization of financing costs
Foreign currency forwards and transactional foreign currency - net gain
Term loan - commitment fee
Swaption - unrealized loss
Interest income earned on money market and fixed rate deposit accounts
Fair Value of Consideration Transferred
The purchase consideration was comprised of the following (in millions):
Total cash consideration
Replacement share-based awards issued in conjunction with Acquisition (1)
Elimination of MCBC's net payable to MillerCoors (2)
Total consideration
Previously held equity interest in MillerCoors (3)
Total consideration and value to be allocated to net assets
For the year ended
December 31, 2016
(In millions)
$
$
$
$
$
$
$
$
Location
82.0 Cost of goods sold
(2,965.0) Special items, net
Marketing, general and
administrative expenses
79.7
63.4 Other income (expense)
(4.5) Other income (expense)
4.0 Interest expense, net
36.4 Interest expense, net
(19.0) Interest income, net
$
$
$
12,000.0
46.4
(8.0)
12,038.4
6,090.0
18,128.4
(1)
(2)
(3)
In connection with the Acquisition, MCBC issued replacement share-based compensation awards to various MillerCoors' employees who had awards
outstanding under the historical MillerCoors share-based compensation plan. The fair value of the replacement awards associated with services rendered
through the date of the Acquisition was recognized as a non-cash component of the total purchase consideration. See Note 13, "Share-Based Payments"
for further information.
Represents the net payable owed by MCBC to MillerCoors as of the closing date which became an intercompany payable upon completion of the
Acquisition.
The acquisition of MillerCoors is considered a step acquisition, and accordingly, we remeasured our pre-existing 42% equity interest in MillerCoors
immediately prior to completion of the Acquisition to its estimated fair value of approximately $6.1 billion . As a result of the remeasurement, we
recorded a net gain of approximately $3.0 billion within special items, net during the fourth quarter of 2016, representing the excess of the approximate
$6.1 billion estimated fair value of our pre-existing 42% equity interest over its transaction date carrying value of approximately $2.7 billion . This net
gain also includes the reclassification of our accumulated other comprehensive loss related to our previously held equity interest of $458.3 million in the
fourth quarter of 2016 as further discussed below. Additionally, related to our pre-existing 42% equity interest, we recorded incremental deferred income
tax expense and a corresponding deferred tax liability of approximately $1.5 billion upon completion of the Acquisition. This deferred tax adjustment has
been restated to reflect the correction of the error discussed in Note 1, "Basis of Presentation and Summary of Significant Accounting Policies."
As discussed above, our revaluation gain is net of a loss of $458.3 million related to the reclassification of our historical AOCI related to our 42% interest
in MillerCoors, thereby removing the historical balance from our balance sheet. The reclassified AOCI loss is related to historical net unrealized losses on
derivative positions previously designated by MillerCoors as cash flow hedges and historical pension and other postretirement benefit actuarial losses.
108
The associated income tax benefit of $200.1 million related to this reclassified AOCI loss was recorded as a component of the income tax benefit
(expense) line item on the consolidated statement of operations for the year ended December 31, 2016.
Allocation of Consideration Transferred
The acquisition of MillerCoors was reflected in our consolidated financial statements as a step acquisition using the acquisition method of accounting. As
such, we remeasured our pre-existing 42% equity interest in MillerCoors to fair value as discussed above. The fair value measurement of our previously held equity
interest immediately prior to the completion of the Acquisition is based on significant inputs not observable in the market, and thus represents a Level 3
measurement. Specifically, the approach used in determining the fair value of our pre-existing 42% equity interest in MillerCoors, while considering an allocation
of the total $12.0 billion purchase price attributable to the Acquisition and the nature of the Acquisition, also incorporated an income valuation approach using
inputs including discount rate and terminal growth rate.
Under the acquisition method, MCBC recorded all assets acquired and liabilities assumed at their respective acquisition-date fair values. The excess of total
consideration, including the estimated fair value of our previously held equity interest in MillerCoors, over the net identifiable assets acquired and liabilities
assumed was recorded as goodwill.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the Acquisition date (in millions):
Total current assets (1)
Property, plant and equipment (2)
Other intangible assets (3)
Other assets (4)
Total current liabilities
Pension and postretirement benefits
Other non-current liabilities
Total identifiable net assets acquired
Goodwill (5)
Fair value of noncontrolling interests (6)
Total consideration and value to be allocated to net assets
$
$
$
1,061.8
2,998.9
9,875.0
462.3
(1,190.1)
(1,009.7)
(208.3)
11,989.9
6,323.5
(185.0)
18,128.4
(1)
Includes inventories of $505.4 million , trade receivables of $344.3 million , other receivables of $40.2 million as well as cash acquired of $39.0 million .
The fair value of inventories was determined based on the estimated selling price of the inventory less the remaining manufacturing and selling costs and a
normal profit margin on those manufacturing and selling efforts. The estimated step-up in fair value of inventory of $82.0 million increased cost of goods
sold over approximately one month as the acquired inventory was sold. For all other current assets acquired, the fair values approximate the carrying
values.
(2) The fair value of property, plant and equipment was determined by using certain estimates and assumptions that are not observable in the market and thus
represent a Level 3 measurement. The fair value and remaining useful life of property, plant and equipment are estimated as follows:
Land
Buildings and improvements
Machinery and equipment
Software
Returnable containers
Construction in progress
Acquired property, plant and equipment
Remaining useful life
(Years)
N/A
3-40
3-25
1-5
1-15
N/A
$
$
Fair value
(In millions)
156.8
413.0
1,927.7
152.4
89.8
259.2
2,998.9
109
(3)
The fair value of identifiable intangible assets was estimated using significant assumptions that are not observable in the market and thus represent a Level
3 measurement. The excess earnings approach was primarily used and significant assumptions included the amount and timing of projected cash
flows, a discount rate selected to measure the risk inherent in the future cash flows, and the assessment of the asset’s life cycle, including
competitive trends and other factors. The fair value and remaining useful life of identifiable intangible assets was estimated as follows:
Brands not subject to amortization
Brands subject to amortization
Other intangible assets not subject to amortization
Other intangible assets subject to amortization
Total acquired identifiable intangible assets
$
$
7,320.0
2,030.0
320.0
205.0
9,875.0
Fair value
(In millions)
Remaining useful life
(Years)
Indefinite
10-30
Indefinite
2-40
Brands not subject to amortization include the Coors and Miller families of brands in the U.S. Brands subject to amortization include certain brands in the
U.S. and the Miller global brand portfolio. Other intangible assets not subject to amortization include water rights. Other intangible assets subject to
amortization include certain distribution rights, naming rights and favorable contracts.
Includes estimated deferred tax assets of approximately $430 million which were presented as non-current deferred tax liabilities upon consolidation by
MCBC due to jurisdictional netting.
The goodwill arising from the Acquisition is primarily attributable to expected improvements to our global scale and agility, operational synergies and
acceleration of the MCBC growth strategy, as well as the assembled workforce. We have predominantly allocated the goodwill generated in the
Acquisition to our U.S. reporting unit, with a portion allocated to the Canada and Europe reporting units. All of the tax basis goodwill generated in the
Acquisition is expected to be deductible for U.S. federal and state tax purposes.
MillerCoors has jointly held interests in multiple entities that are fully consolidated. The related fair value of the noncontrolling interest in each entity was
estimated by applying the market and income valuation approaches. The fair value of MillerCoors' noncontrolling interest was estimated using significant
assumptions that are not observable in the market and thus represent a Level 3 measurement.
(4)
(5)
(6)
Summarized financial information for MillerCoors for the periods prior to the Acquisition, under the equity method of accounting, is as follows:
Results of Operations
Net sales
Cost of goods sold
Gross profit
Operating income (1)
Net income attributable to MillerCoors (1)
For the period January 1
through October 10
2016
(In millions)
$
$
$
$
6,125.4
(3,426.6)
2,698.8
1,183.6
1,157.2
(1)
Results include net special charges primarily related to the closure of the Eden, North Carolina, brewery. For the pre-Acquisition periods of January 1,
2016, through October 10, 2016, MillerCoors recorded net special charges of $85.6 million , including $103.2 million of accelerated depreciation in
excess of normal depreciation associated with the closure of the Eden brewery, and a postretirement benefit curtailment gain related to the closure of Eden
of $25.7 million .
110
The following represents our proportionate share in net income attributable to MillerCoors reported under the equity method of accounting prior to the
Acquisition:
Net income attributable to MillerCoors
MCBC's economic interest
MCBC's proportionate share of MillerCoors' net income
Amortization of the difference between MCBC's contributed cost basis and proportionate share of the underlying equity in net assets
of MillerCoors
Share-based compensation adjustment (1)
U.S. import tax benefit (2)
Equity income in MillerCoors
For the period January 1
through October 10
2016
(In millions, except
percentages)
$
$
1,157.2
42%
486.0
3.3
(0.7)
12.3
500.9
(1)
(2)
The net adjustment is to eliminate all share-based compensation impacts related to pre-existing SABMiller equity awards held by former Miller Brewing
Company employees employed by MillerCoors, as well as to add back all share-based compensation impacts related to pre-existing MCBC equity awards
held by former MCBC employees who transferred to MillerCoors.
Represents a benefit associated with an anticipated refund to CBC of U.S. federal excise tax paid on products imported by CBC based on qualifying
volumes exported by CBC from the U.S. The anticipated refund is recorded within other non-current assets on the consolidated balance sheet as of
December 31, 2018.
Investments
Our investments include both equity method and consolidated investments. Those entities identified as VIEs have been evaluated to determine whether we
are the primary beneficiary. The VIEs included under "Consolidated VIEs" below are those for which we have concluded that we are the primary beneficiary and
accordingly, consolidate these entities. None of our consolidated VIEs held debt as of December 31, 2018 , or December 31, 2017 . We have not provided any
financial support to any of our VIEs during 2018 that we were not previously contractually obligated to provide. Amounts due to and due from our equity method
investments are recorded as affiliate accounts payable and affiliate accounts receivable. See below under "Affiliate Transactions" for further details.
Authoritative guidance related to the consolidation of VIEs requires that we continually reassess whether we are the primary beneficiary of VIEs in which we
have an interest. As such, the conclusion regarding the primary beneficiary status is subject to change and we continually evaluate circumstances that could require
consolidation or deconsolidation. As of December 31, 2018 , and December 31, 2017 , our consolidated VIEs are Cobra Beer Partnership, Ltd. ("Cobra U.K."),
Grolsch U.K. Ltd ("Grolsch"), Rocky Mountain Metal Container (“RMMC”), Rocky Mountain Bottle Company (“RMBC”) and Truss LP ("Truss"). Our
unconsolidated VIEs are BRI and BDL.
Both BRI and BDL have outstanding third-party debt which is guaranteed by their respective shareholders. As a result, we have a guarantee liability of $35.9
million and $38.1 million recorded as of December 31, 2018 , and December 31, 2017 , respectively, which is presented within accounts payable and other current
liabilities on the consolidated balance sheets and represents our proportionate share of the outstanding balance of these debt instruments. The carrying value of the
guarantee liability equals fair value, which considers an adjustment for our own non-performance risk and is considered a Level 2 measurement. The offset to the
guarantee liability was recorded as an adjustment to our respective equity method investment within the consolidated balance sheets. The resulting change in our
equity method investments during the year due to movements in the guarantee represents a non-cash investing activity.
Equity Method Investments
Brewers' Retail Inc.
BRI is a beer distribution and retail network for the Ontario region of Canada, with majority of the ownership residing with MCC, Labatt Breweries of
Canada LP (a subsidiary of ABI) and Sleeman Breweries Ltd. (a subsidiary of Sapporo International). BRI charges its owners administrative fees that are designed
so the entity operates on a cash neutral basis. This
111
administrative fee is based on costs incurred, net of other revenues earned, and is allocated in accordance with the operating agreement to its owners based on
volume of products. Contractual provisions cause participation in governance and other interests to fluctuate based on this calculated market share requiring
frequent primary beneficiary evaluations. However, based on the existing structure, control is shared, and remains shared through such changes, and therefore we
do not anticipate becoming the primary beneficiary in the foreseeable future. We consider BRI an affiliate. See "Affiliate Transactions" section below summarizing
our transactions and balances with affiliates, including BRI.
We have an obligation to proportionately fund BRI's operations. As a result of this obligation, we continue to record our proportional share of BRI's net
income or loss and OCI activity, including when we have a negative equity method balance. As of December 31, 2018 , and December 31, 2017 , we had a positive
equity method investment balance of $13.8 million and $2.8 million , respectively. The increase to our net investment balance from prior year was primarily driven
by equity earnings. See "Affiliate Transactions" below for BRI affiliate transactions including administrative fees charged to MCBC under the agreement with BRI
which are recorded in cost of goods sold, as well as for BRI affiliate due to and due from balances as of December 31, 2018 , and December 31, 2017 ,
respectively, related to trade receivables and payables for sales to external customers and costs incurred by BRI offset by administrative fees charged and paid by
MCBC (which may be in a payable or receivable position depending on the amount under or over charged).
Brewers' Distributor Ltd.
BDL is a distribution operation owned by MCC and Labatt Breweries of Canada LP (a subsidiary of ABI) that, pursuant to an operating agreement, acts as an
agent for the distribution of their products in the western provinces of Canada. The two owners share 50% - 50% voting control of this business. We consider BDL
an affiliate. See "Affiliate Transactions" section below summarizing our transactions and balances with affiliates, including BDL.
BDL charges the owners administrative fees that are designed so the entity operates at break-even profit levels. This administrative fee is based on costs
incurred, net of other revenues earned, and is allocated in accordance with the operating agreement to the owners based on volume of products. No other parties are
allowed to sell beer through BDL, which does not take legal title to the beer distributed for the owners. As of December 31, 2018 , and December 31, 2017 , our
investment in BDL was $30.0 million and $33.2 million , respectively. The decrease in our investment balance from prior year is primarily attributable to a
decrease in our guarantee of BDL's third-party debt obligations. See "Affiliate Transactions" section below for BDL affiliate transactions including administrative
fees charged to MCBC under the agreement with BDL which are recorded in cost of goods sold, as well as for BDL affiliate due to and due from balances as of
December 31, 2018 , and December 31, 2017 , respectively, related to trade receivables and payables for sales to external customers and costs incurred by BDL
offset by administrative fees charged and paid by MCBC (which may be in a payable or receivable position depending on the amount under or over charged).
Our equity method investments are not considered significant for disclosure of financial information on either an individual or aggregated basis and there
were no significant undistributed earnings as of December 31, 2018 , or December 31, 2017 , for any of these companies.
Affiliate Transactions
All transactions with our equity method investments are considered related party transactions and recorded within our affiliate accounts. The following table
summarizes transactions with affiliates:
Beer sales to MillerCoors (1)
Beer purchases from MillerCoors (1)
Service agreement costs and other charges to MillerCoors (1)
Service agreement costs and other charges from MillerCoors (1)
Administrative fees, net charged from BRI
Administrative fees, net charged from BDL
December 31, 2018
December 31, 2017
December 31, 2016
For the years ended
(In millions)
$
$
$
$
$
$
— $
— $
— $
— $
94.0 $
40.2 $
— $
— $
— $
— $
93.5 $
37.3 $
7.5
32.0
1.9
0.9
85.8
34.3
(1)
For 2016, represents MillerCoors' activity for the pre-Acquisition period of January 1, 2016, through October 10, 2016, when MillerCoors was an equity
method investment.
112
Amounts due to and due from affiliates as of December 31, 2018 , and December 31, 2017 , respectively, are as follows:
Amounts due from affiliates
Amounts due to affiliates
December 31, 2018
December 31, 2017
December 31, 2018
December 31, 2017
$
$
7.7 $
0.7
—
8.4 $
(In millions)
4.4 $
1.1
—
5.5 $
— $
—
0.1
0.1 $
—
—
0.4
0.4
BRI
BDL
Other
Total
Consolidated VIEs
Rocky Mountain Metal Container
RMMC, a Colorado limited liability company, is a joint venture with Ball Corporation in which we hold a 50% interest. Our U.S. business has a can and end
supply agreement with RMMC. Under this agreement, we purchase substantially all of the output of RMMC. RMMC manufactures cans and ends at our facilities,
which RMMC is operating under a use and license agreement. As RMMC is a limited liability company (“LLC”), the tax consequences flow to the joint venture
partners.
Rocky Mountain Bottle Company
RMBC, a Colorado limited liability company, is a joint venture with Owens-Brockway Glass Container, Inc. in which we hold a 50% interest. Our U.S.
business has a supply agreement with RMBC under which we agree to purchase output approximating the agreed upon annual plant capacity of RMBC. RMBC
manufactures bottles at our facilities, which RMBC is operating under a lease agreement. As RMBC is an LLC, the tax consequences flow to the joint venture
partners.
Cobra U.K.
We hold a 50.1% interest in Cobra U.K., which owns the worldwide rights to the Cobra beer brand (with the exception of the Indian sub-continent, owned by
Cobra India). The noncontrolling interest is held by the founder of the Cobra beer brand. We consolidate the results and financial position of Cobra U.K., and it is
reported within our Europe operating segment.
Grolsch
Grolsch is a joint venture between us and Royal Grolsch N.V. (a member of Asahi Group Holdings, Ltd.) in which we hold a 49% interest. The Grolsch joint
venture markets Grolsch brands in the U.K. and the Republic of Ireland. The majority of the Grolsch brands are produced by us under a contract brewing
arrangement with the joint venture. MCBC and Royal Grolsch N.V. sell beer to the joint venture, which sells the beer back to MCBC (for onward sale to
customers) for a price equal to what it paid, plus a marketing and overhead charge and a profit margin. Grolsch is a taxable entity in Europe. Accordingly, income
tax expense in our consolidated statements of operations includes taxes related to the entire income of the joint venture. We consolidate the results and financial
position of Grolsch and it is reported within our Europe operating segment.
Truss
On October 4, 2018 , a wholly-owned subsidiary within our Canadian business completed the formation of Truss LP, an independent Canadian joint venture
with HEXO Corp. ("HEXO") to pursue opportunities to develop, produce and market non-alcoholic, cannabis-infused beverages once legal in Canada. Truss is
structured as a standalone start-up company with its own board of directors and an independent management team. We maintain a 57.5% controlling interest in
Truss, which is a VIE that is consolidated. In connection with the formation of Truss, HEXO also issued warrants to our Canadian subsidiary, which are further
discussed in Note 16, "Derivative Instruments and Hedging Activities."
113
The following summarizes the assets and liabilities of our consolidated VIEs (including noncontrolling interests):
December 31, 2018
December 31, 2017
Total Assets
Total Liabilities
Total Assets
Total Liabilities
As of
RMMC/RMBC
Other
$
$
189.8 $
31.0 $
(In millions)
35.0 $
5.1 $
130.6 $
25.0 $
9.0
2.3
5. Other Income and Expense
Bridge loan commitment fees
Gain on sale of non-operating asset
Gain (loss) from other foreign exchange and derivative activity, net
Other, net (1)
Other income (expense), net
For the years ended
December 31, 2018
December 31, 2017
December 31, 2016
(In millions)
$
$
— $
11.7
(31.9)
8.2
(12.0)
$
— $
—
(8.0)
9.4
1.4
$
(63.4)
20.5
7.2
3.2
(32.5)
(1)
During 2018, we recorded a non-cash gain of CAD 5.8 million , or $4.3 million , resulting from the release of our guarantee of the Montreal Canadiens'
obligations under a ground lease for the Bell Centre Arena as a result of an independent transaction by the Montreal Canadiens with the lessor. Separately,
during 2017, we recorded a gain of CAD 10.9 million , or $8.3 million , resulting from a purchase price adjustment related to the historical sale of Molson
Inc.’s ownership interest in the Montreal Canadiens. The CAD 10.9 million was paid by the Montreal Canadiens in 2017. Both transactions involve the
Montreal Canadiens, which is considered an affiliate of MCBC.
6. Income Tax
Restatement of Previously Issued Consolidated Financial Statements for Income Tax Accounting Errors
Prior year amounts have been restated to reflect the correction of the errors discussed in Note 1, "Basis of Presentation and Summary of Significant
Accounting Policies."
U.S. Federal Income Tax Reform
On December 22, 2017, H.R. 1, also known as the Tax Cuts and Jobs Act (the “2017 Tax Act”), was enacted in the U.S. This enactment resulted in a number
of significant changes to U.S. federal income tax law for U.S. corporations. Most notably, the statutory U.S. federal corporate income tax rate was changed from
35% to 21% for corporations.
Additionally, on December 22, 2017, the SEC staff also issued Staff Accounting Bulletin No. 118 ("SAB 118") to address the application of U.S. GAAP in
situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the
accounting for certain income tax effects of the 2017 Tax Act. SAB 118 provides a measurement period for companies to evaluate the impacts of the 2017 Tax Act
on their financial statements. The measurement period ended during the fourth quarter of 2018 and we completed our accounting for the effects of the 2017 Tax
Act and did not make material adjustments to the amounts recorded as of December 31, 2017. However, we did adjust for the restatement for the income tax
accounting errors as described in Note 1, "Basis of Presentation and Summary of Significant Accounting Policies."
We recorded a net tax benefit of approximately $567 million as a result of the effects of the 2017 Tax Act on our deferred taxes as of December 31, 2017.
The tax effects recorded primarily include the impact of the reduction in the U.S. tax rate on our deferred tax assets and liabilities as well as the impact of
additional limitations on share-based compensation deductions as of December 31, 2017.
Further, the 2017 Tax Act includes a one-time transition tax on post-1986 undistributed foreign earnings and profits. We do not expect to have any liability
for this tax as we have no accumulated earnings and profits, as defined by U.S. tax law, as of
114
November 2, 2017, and December 31, 2017. As a result of the 2017 Tax Act and new territorial tax regime, we do not anticipate any material future U.S. or foreign
tax costs associated with future dividends and have no accumulated earnings and profits as of December 31, 2018. Our remaining outside basis differences in
foreign subsidiaries are not expected to reverse with material tax consequences in the future as we have no plans to sell any foreign subsidiaries.
We continue to monitor the 2017 Tax Act, including proposed regulations which may change upon finalization, as well as yet to be issued regulations and
interpretations. If the forthcoming regulations and interpretations change relative to our current understanding and initial assessment of the impacts of the 2017 Tax
Act, the resulting impacts could have a material adverse impact on our effective tax rate.
Income Taxes
Our income (loss) before income taxes on which the provision for income taxes was computed is as follows:
Domestic
Foreign
Total
For the years ended
December 31, 2018
December 31, 2017
December 31, 2016
$
$
1,320.4 $
39.4
1,359.8 $
(In millions)
1,488.3 $
(105.1)
1,383.2 $
3,396.9
(342.8)
3,054.1
Income tax expense (benefit) includes the following current and deferred provisions:
Current:
Federal
State
Foreign
Total current tax expense (benefit)
Deferred:
Federal
State
Foreign
Total deferred tax expense (benefit)
Total income tax expense (benefit)
December 31, 2018
For the years ended
December 31, 2017
December 31, 2016
As Restated
(In millions)
As Restated
$
$
$
$
$
(22.9)
$
(177.1)
$
(4.7)
38.7
4.7
36.5
11.1
$
(135.9)
$
232.2
$
(79.5)
$
31.2
(49.3)
214.1
225.2
$
$
33.5
(22.7)
(68.7)
$
(204.6)
$
83.4
12.0
31.9
127.3
1,033.8
150.0
143.2
1,327.0
1,454.3
The increase in income tax expense for 2018 versus 2017 was primarily driven by the above mentioned net deferred tax benefit of approximately $567
million recognized in 2017 resulting from the impacts of the 2017 Tax Act, partially offset by the impact of the reduction of the U.S. federal corporate income tax
rate from 35% to 21% in 2018. The decrease in income tax expense for 2017 versus 2016 was also largely driven by the above mentioned net deferred tax benefit
resulting from the impacts of the 2017 Tax Act, as well as the 2016 deferred tax effects associated with our previously held equity interest in MillerCoors,
including the pretax gain recognized on its fair value remeasurement and the reclassification of the accumulated other comprehensive loss related to our historical
42% interest in MillerCoors upon completion of the Acquisition (see Note 4, "Acquisition and Investments" ). Specifically, this resulted in the recognition of net
deferred income tax expense of approximately $1.3 billion in 2016. In addition, we recognized incremental deferred income tax expense in 2016 as a result of the
remeasurement of our deferred tax liability associated with our Molson core brand intangible asset to the Canadian ordinary income tax rate upon reclassification
from indefinite-lived to definite-lived subject to amortization (see Note 10, "Goodwill and Intangible Assets" ). This incremental deferred tax expense more than
offset the deferred tax benefit associated with the pretax impairment charge recognized in 2016.
115
Our effective tax rate varies from the U.S. federal statutory income tax rate as follows:
Statutory Federal income tax rate
State income taxes, net of federal benefits
Effect of foreign tax rates and tax planning
Effect of Molson brand useful life change
Effect of U.S. tax reform
Effect of unrecognized tax benefits
Change in valuation allowance
Acquisition-related permanent items
Other, net
Effective tax rate
For the years ended
December 31, 2017
December 31, 2016
December 31, 2018
As Restated
As Restated
21.0 %
1.4 %
(8.1)%
— %
0.2 %
0.8 %
0.7 %
— %
0.6 %
16.6 %
35.0 %
2.2 %
(16.5)%
— %
(41.0)%
(0.3)%
3.6 %
— %
2.2 %
(14.8)%
35.0 %
3.5 %
(1.9)%
6.4 %
— %
— %
(0.5)%
4.4 %
0.7 %
47.6 %
The increase in the effective income tax rate for 2018 versus 2017 is primarily driven by the one-time impacts of the 2017 Tax Act recognized in 2017, most
notably the remeasurement of our deferred taxes from the reduction in the U.S. statutory federal corporate income tax rate. This one-time benefit to our deferred tax
positions recognized in 2017 was partially offset by the reduction of the statutory U.S. federal corporate income tax rate from 35% to 21% beginning in 2018.
The decrease in the effective income tax rate for 2017 versus 2016 was primarily driven by the above mentioned impacts of the 2017 Tax Act, as well as the
above mentioned income tax impacts recognized in 2016 associated with our previously held equity interest in MillerCoors. Additionally, our 2016 effective tax
rate was negatively impacted by the remeasurement of the deferred tax liability on our Molson core brand intangible asset to the Canadian ordinary income tax rate
as discussed above.
Additionally, our foreign businesses operate in jurisdictions with statutory income tax rates that differ from the U.S. Federal statutory rate. Specifically, the
statutory income tax rates in the countries in Europe in which we operate range from 9% to 25% , and Canada has a statutory income tax rate of approximately
26% .
116
Non-current deferred tax assets:
Compensation-related obligations
Pension and postretirement benefits
Foreign exchange gain/loss
Derivative instruments
Tax credit carryforwards
Tax loss carryforwards
Accrued liabilities and other
Other
Valuation allowance
Total non-current deferred tax assets
Non-current deferred tax liabilities:
Fixed assets
Partnership investments
Foreign exchange gain/loss
Pension and postretirement benefits
Intangible assets
Total non-current deferred tax liabilities
Net non-current deferred tax assets
Net non-current deferred tax liabilities
As of
December 31, 2017
December 31, 2018
As Restated
(In millions)
$
$
$
$
55.8 $
121.4
—
8.9
54.5
1,201.8
52.2
24.0
(1,040.0)
478.6 $
345.8
17.0
3.0
—
2,167.1
2,532.9 $
—
2,054.3 $
10.3
—
21.0
45.8
23.6
1,214.2
28.3
8.3
(1,077.7)
273.8
69.4
1,146.4
—
2.7
881.2
2,099.7
—
1,825.9
The balances in the table above reflect the change in tax status of our investment in MillerCoors, which effective in 2018, is no longer a partnership for U.S.
tax purposes. As a result of this change, the associated net deferred tax liability balance for the partnership investment in MillerCoors, previously in the partnership
investments line item, has been reallocated in 2018 into its respective individual deferred tax asset and liability classifications above.
The overall increase in net deferred tax liabilities of $228.4 million in 2018 is primarily attributable to the amortization of goodwill and indefinite-lived
intangible assets resulting from the Acquisition for U.S. tax purposes, as well as incremental tax depreciation of fixed assets. Additionally, our deferred tax
balances are also impacted by foreign exchange rates, as a significant amount of our deferred tax assets and liabilities are in foreign jurisdictions.
Our deferred tax valuation allowances are primarily the result of uncertainties regarding the future realization of recorded tax benefits on tax loss
carryforwards from operations in various jurisdictions. The measurement of deferred tax assets is reduced by a valuation allowance if, based upon available
evidence, it is more likely than not that the deferred tax assets will not be realized. We have evaluated the realizability of our deferred tax assets in each jurisdiction
by assessing the adequacy of expected taxable income, including the reversal of existing temporary differences, historical and projected operating results and the
availability of prudent and feasible tax planning strategies. Based on this analysis, we have determined that the valuation allowances recorded in each period
presented are appropriate.
We have deferred tax assets for U.S. tax carryforwards that expire between 2019 and 2038 of $76.7 million and $35.8 million as of December 31, 2018 , and
December 31, 2017 , respectively. We have foreign tax loss carryforwards that expire between 2019 and 2038 of $195.0 million and $238.6 million as of
December 31, 2018 , and December 31, 2017 , respectively. We have foreign tax loss carryforwards that do not expire of $984.6 million and $963.4 million as of
December 31, 2018 , and December 31, 2017 , respectively.
117
Domestic net non-current deferred tax liabilities
Foreign net non-current deferred tax assets
Foreign net non-current deferred tax liabilities
Net non-current deferred tax liabilities
As of
December 31, 2017
December 31, 2018
As Restated
$
$
(In millions)
1,353.2 $
26.8
727.9
2,054.3 $
1,045.6
32.5
812.8
1,825.9
The 2018 and 2017 amounts above exclude $47.8 million and $37.9 million respectively, of unrecognized tax benefits that have been recorded as a reduction
of non-current deferred tax assets, which is presented within non-current deferred tax liabilities due to jurisdictional netting on the consolidated balance sheets.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits, excluding interest and penalties, is as follows:
Balance at beginning of year
Additions for tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Settlements
Release due to statute expirations
Foreign currency adjustment
Balance at end of year
For the years ended
December 31, 2018
December 31, 2017
December 31, 2016
(In millions)
$
$
$
41.9
22.3
0.7
(8.4)
—
(1.6)
(3.3)
51.6
$
$
39.7
13.5
13.6
—
(12.8)
(14.6)
2.5
41.9
$
39.5
1.7
—
—
—
(2.3)
0.8
39.7
In 2018, we finalized our bilateral advanced pricing agreement with the Canadian Revenue Agency and U.S. Internal Revenue Service covering tax years
2014 through December 31, 2021, and accordingly, released associated uncertain tax positions.
Our remaining unrecognized tax benefits as of December 31, 2018 , relate to tax years that are currently open to examination. Annual tax provisions include
amounts considered sufficient to pay assessments that may result from examination of prior year tax returns; however, the amount ultimately paid upon resolution
of issues may differ materially from the amount accrued.
During 2019 , we anticipate that approximately $1 million to $5 million of unrecognized tax benefits will be released due to closings of statutes of
limitations.
118
Reconciliation of unrecognized tax benefits balance
Estimated interest and penalties
Unrecognized tax positions
Total unrecognized tax benefits
Presented net against non-current deferred tax assets
Current (included in accounts payable and other current liabilities)
Non-current (included within other liabilities)
Total unrecognized tax benefits
Amount of unrecognized tax benefits that would impact the effective tax rate,
if recognized (1)
$
$
$
$
$
December 31, 2018
December 31, 2017
December 31, 2016
For the years ended
(In millions)
2.3 $
51.6
53.9 $
47.8 $
—
6.1
53.9 $
2.1 $
41.9
44.0 $
37.9 $
—
6.1
44.0 $
51.6 $
41.9 $
5.7
39.7
45.4
32.7
3.0
9.7
45.4
39.7
(1)
Amounts exclude the potential effects of valuation allowances, which may fully or partially offset the impact to the effective tax rate.
We file income tax returns in most of the federal, state and provincial jurisdictions in the U.S., Canada and various countries in Europe. Tax years through
2013 are closed in the U.S. In Canada, tax years through the year ended 2012 are closed or have been effectively settled through examination except for issues
relating to intercompany cross-border transactions. The statute of limitations for intercompany cross-border transactions is closed through tax year 2010. Tax years
through 2011 are closed for most countries in European jurisdictions with statutes of limitations varying from 3 to 8 years.
119
7. Special Items
We have incurred charges or realized benefits that either we do not believe to be indicative of our core operations, or we believe are significant to our current
operating results warranting separate classification. As such, we have separately classified these charges (benefits) as special items.
For the years ended
December 31, 2018
December 31, 2017
December 31, 2016
(In millions)
$
34.7 $
2.6
$
Employee-related charges
Restructuring
Impairments or asset abandonment charges
U.S. - Asset abandonment (1)
Canada - Intangible asset impairment (2)
Canada - Asset abandonment (3)
Europe - Asset abandonment (4)
International - Asset impairment and write-off (5)
Unusual or infrequent items
Europe - Flood loss (insurance reimbursement), net (6)
Termination fees and other (gains) losses
U.S. - Acquisition revaluation gain and reclassification of historical share of
MillerCoors' AOCI (7)
Canada - Gain on sale of asset (3)
Europe - Gain on sale of asset (4)
International (8)
Acquisition purchase price adjustment settlement gain (9)
Total Special items, net
8.2
—
24.5
3.8
—
—
—
—
—
7.1
$
(328.0)
(249.7) $
7.3
2.7
495.2
5.0
10.8
30.8
(9.3)
(2,965.0)
(110.4)
—
—
—
14.5
—
14.4
9.5
—
—
—
—
(4.6)
—
—
36.4
$
(2,532.9)
(1)
(2)
(3)
Charges for 2018 relate to the closure of the Colfax, California cidery, and consist primarily of accelerated depreciation in excess of normal depreciation,
as well as other costs associated with the previously closed Eden, North Carolina brewery, including net charges associated with the sale of the Eden real
property. Charges for 2017 also relate to the Eden brewery closure.
During the fourth quarter of 2016, we recognized impairment charges related to indefinite-lived intangible assets in Canada. See Note 10, "Goodwill and
Intangible Assets" for further discussion.
As part of our ongoing strategic review of our Canadian supply chain network, during 2016 we completed the sale of our Vancouver brewery, resulting in
net cash proceeds received of CAD 183.1 million ( $140.8 million ), and recognized a gain of $110.4 million within special items. In conjunction with the
sale of the brewery, we agreed to leaseback the existing property to continue operations on an uninterrupted basis while our new brewery is being
constructed. We have evaluated this transaction pursuant to the accounting guidance for sale-leaseback transactions, and concluded that the relevant
criteria had been met for full gain recognition. Additionally, during 2018 , 2017 and 2016 , we incurred other abandonment charges, consisting primarily
of accelerated depreciation charges in excess of normal depreciation, related to the planned closure of the Vancouver brewery, which is currently expected
to occur in the third quarter of 2019 .
Additionally, in the third quarter of 2017, as a result of the continuation of this strategic review, we announced the plan to build a more efficient
and flexible brewery in the greater Montreal area. As a result of this decision, we have begun to develop plans to transition out of our existing Montreal
brewery. Accordingly, we incurred accelerated depreciation charges associated with the existing brewery closure in the second half of 2017 and in 2018,
of which the amount in excess of normal depreciation is recorded within special items. We expect to incur additional charges, including estimated
accelerated depreciation charges in excess of normal depreciation of approximately CAD 65 million , through final closure of the brewery, which is
currently expected to occur in 2021 . However, due to the uncertainty inherent in our estimates, these estimated future accelerated depreciation charges as
well as the timing of the brewery closure are subject to change.
120
(4)
(5)
(6)
(7)
(8)
(9)
As a result of our continued strategic review of our European supply chain network, during 2018, 2017 and 2016, we incurred charges consisting
primarily of accelerated depreciation in excess of normal depreciation related to the closure of our Burton South brewery and other associated closure
costs. The Burton South Brewery closed during the first quarter of 2018. Additionally, as part of this review, related to the closures of our Plovdiv
brewery in Bulgaria and Alton brewery in the U.K., during 2018, 2017 and 2016, we recorded asset abandonment related special charges.
Separately, during 2017 we completed the sale of land related to our previously closed Plovdiv brewery and received net cash proceeds of $8.2 million
and recognized a gain of $4.6 million within special items.
Based on an interim impairment assessment performed during the second quarter of 2016, which was triggered by the enactment of total alcohol
prohibition in the state of Bihar, India on April 5, 2016, we recorded an impairment loss in the second quarter of 2016. See Note 10, "Goodwill and
Intangible Assets" for additional details.
During the third quarter of 2016, we received the final settlement of insurance proceeds related to losses incurred by our Europe business from flooding in
Serbia, Bosnia and Croatia that occurred during 2014.
On October 11, 2016, we completed the Acquisition and recorded a revaluation gain on the excess of the estimated fair value remeasurement for our pre-
existing 42% interest in MillerCoors over its carrying value, as well as the reclassification of the loss related to MCBC's historical AOCI on our 42%
interest in MillerCoors within special items, net in the fourth quarter of 2016. See Note 4, "Acquisition and Investments" for further details.
Represents charges related to the exit of our China business in 2018, consisting primarily of the reclassification of the associated cumulative foreign
currency translation adjustment from AOCI upon substantial liquidation. See Note 14, "Accumulated Other Comprehensive Income (Loss)" for further
details.
During the first quarter of 2018, we recorded the settlement proceeds related to the Adjustment Amount as a gain within special items, net in our
consolidated statement of operations in our Corporate segment and within cash provided by operating activities within our consolidated statement of cash
flows. See Note 4, "Acquisition and Investments" for further details.
Restructuring Activities
Beginning in 2016, restructuring initiatives related to the integration of MillerCoors after the completion of the Acquisition were implemented in order to
operate a more efficient business and achieve cost saving targets which to date resulted in reduced employment levels by approximately 110 employees. Total
restructuring costs related to integration initiatives were $1.6 million in 2017 and $9.3 million in 2016, representing the majority of the charges within the table
below by segment. Subsequently, during the third quarter of 2018, we initiated restructuring activities in the U.S. in order to align our cost base with our scale of
business. As a result, we reduced U.S. employment levels by approximately 300 employees in the fourth quarter of 2018. Additionally, we also initiated global
restructuring activities during the fourth quarter of 2018, and reduced employment levels across the business by approximately 20 employees. Severance costs
related to these restructuring activities were recorded as special items in our consolidated statements of operations. As we continually evaluate our cost structure
and seek opportunities for further efficiencies and cost savings as part of these initiatives, we may incur additional restructuring related charges in the future,
however, we are unable to estimate the amount of charges at this time.
We have continued our ongoing assessment of our supply chain strategies across our segments in order to align with our cost saving objectives. As part of
this strategic review, which began in 2014, we have had restructuring activities related to the closure or planned closure of breweries, as well as activities related to
business efficiencies. As a result, we have reduced employment levels by a total of 456 employees. Consequently, we recognized severance and other employee-
related charges, which we have recorded as special items within our consolidated statements of operations. We will continue to evaluate our supply chain network
and seek opportunities for further efficiencies and cost savings, and we therefore may incur additional restructuring related charges or adjustments to previously
recorded charges in the future, however, we are unable to estimate the amount of charges at this time.
121
The accrued restructuring balances represent expected future cash payments required to satisfy the remaining severance obligations to terminated employees,
the majority of which we expect to be paid in the next 12 months.
U.S.
Canada
Europe
International
Corporate
Total
(In millions)
Balance as of December 31, 2015
$
— $
2.3 $
5.6 $
Balance assumed in Acquisition
Charges incurred
Payments made
Changes in estimates
Foreign currency and other adjustments
Balance as of December 31, 2016
Charges incurred and changes in estimates
Payments made
Foreign currency and other adjustments
Balance as of December 31, 2017
Charges incurred and changes in estimates
Payments made
Foreign currency and other adjustments
Balance as of December 31, 2018
8. Stockholders' Equity
6.9
3.2
(5.0)
—
—
—
4.0
(0.4)
—
—
—
1.2
(1.2)
(2.1)
(0.7)
5.1 $
5.9 $
2.8 $
0.8
(5.3)
—
—
(1.9)
0.3
0.1
(1.3)
0.2
0.6 $
4.3 $
1.8 $
29.6
(8.6)
—
(0.7)
(2.0)
(0.1)
2.2
(3.3)
(0.1)
21.6 $
1.5 $
0.6 $
$
$
$
Changes to the number of shares of capital stock issued were as follows:
1.3
$
—
0.3
(1.4)
—
—
$
0.2
1.6
(1.6)
—
$
0.2
2.2
(1.8)
—
0.6
$
— $
—
0.7
—
—
—
$
0.7
0.1
(0.8)
—
— $
1.4
(0.1)
—
1.3
$
9.2
6.9
9.4
(8.0)
(2.1)
(0.7)
14.7
2.6
(10.9)
0.5
6.9
34.7
(15.8)
(0.2)
25.6
Balance as of December 31, 2015
Shares issued from public offering
Shares issued under equity compensation plans
Shares exchanged for common stock
Balance as of December 31, 2016
Shares issued under equity compensation plans
Shares exchanged for common stock
Balance as of December 31, 2017
Shares issued under equity compensation plans
Shares exchanged for Class B exchangeable shares
Balance as of December 31, 2018
Common stock
issued
Exchangeable
shares issued
Class A
Class B (1)
Class A
Class B
(Share amounts in millions)
2.6
—
—
—
2.6
—
—
2.6
—
—
2.6
172.5
29.9
0.5
0.8
203.7
0.5
0.5
204.7
0.7
—
205.4
2.9
—
—
—
2.9
—
—
2.9
—
(0.1)
2.8
16.0
—
—
(0.8)
15.2
—
(0.5)
14.7
—
0.1
14.8
(1)
During 2016, we received proceeds from our February 3, 2016, equity offering of our Class B common stock. See "Class B Common Stock Equity
Issuance" below for further discussion.
Exchangeable Shares
The Class A exchangeable shares and Class B exchangeable shares were issued by Molson Coors Canada Inc. ("MCCI"), a wholly-owned subsidiary of the
Company. The exchangeable shares are substantially the economic equivalent of the corresponding shares of Class A and Class B common stock that a Molson
shareholder would have received in the Merger if the holder had elected to receive shares of Molson Coors common stock. Holders of exchangeable shares also
receive, through a voting trust, the benefit of Molson Coors voting rights, entitling the holder to one vote on the same basis and in the same circumstances as one
corresponding share of Molson Coors common stock.
122
Voting Rights
Each holder of record of Class A common stock, Class B common stock, Class A exchangeable shares and Class B exchangeable shares is entitled to one
vote for each share held, without the ability to cumulate votes on the election of directors. Our Class B common stock has fewer voting rights than our Class A
common stock and holders of our Class A common stock have the ability to effectively control or have a significant influence over company actions requiring
stockholder approval. Specifically, holders of Class B common stock voting together as a single class have the right to elect three directors of the Molson Coors
Board of Directors, as well as the right to vote on certain additional matters as outlined in the Restated Certificate of Incorporation (as amended, the “Certificate”),
such as merger agreements that require approval under applicable law, sales of all or substantially all of the our assets to unaffiliated third parties, proposals to
dissolve MCBC, and certain amendments to the Certificate that require approval under applicable law, each as further described and limited by the Certificate. The
Certificate also provides that holders of Class A common stock and Class B common stock shall vote together as a single class, on an advisory basis, on any
proposal to approve the compensation of MCBC's named executive officers.
Conversion Rights
The Certificate provides for the right of holders of Class A common stock to convert their stock into Class B common stock on a one-for-one basis at any
time. The exchangeable shares are exchangeable at any time, at the option of the holder on a one -for-one basis for corresponding shares of Molson Coors common
stock.
Class B Common Stock Equity Issuance
On February 3, 2016, we completed an underwritten public offering of our Class B common stock, which increased the number of Class B common shares
issued and outstanding by 29.9 million shares and received proceeds of approximately $2.5 billion , net of issuance costs. The proceeds from the issuance were
utilized to partially fund the completion of the Acquisition on October 11, 2016. See Note 4, "Acquisition and Investments" for further details.
9. Properties
Land and improvements
Buildings and improvements
Machinery and equipment
Returnable containers
Furniture and fixtures
Software
Natural resource properties
Construction in progress
Total properties cost
Less: accumulated depreciation
Properties, net
As of
December 31, 2018
December 31, 2017
(In millions)
369.3 $
953.6
4,095.0
403.4
361.1
445.0
3.8
535.9
7,167.1
(2,558.8)
4,608.3 $
363.9
930.6
3,910.6
356.2
360.5
310.4
3.8
534.3
6,770.3
(2,096.6)
4,673.7
$
$
Depreciation expense was $633.4 million , $590.7 million and $306.3 million in 2018 , 2017 and 2016 , respectively. Loss and breakage expense related to
our returnable containers, included in the depreciation expense amounts noted above, was $48.4 million , $46.9 million and $33.0 million in 2018 , 2017 and 2016 ,
respectively, and is classified within cost of goods sold in the consolidated statements of operations. Additionally, the previously mentioned depreciation expense
for 2018 , 2017 and 2016 includes accelerated depreciation of $30.7 million , $20.5 million and $12.4 million respectively, primarily associated with brewery
closures, and is classified within special items in the consolidated statements of operations. See Note 7, "Special Items" for further discussion as well as details
around facility closures.
123
10. Goodwill and Intangible Assets
Balance as of December 31, 2016
$
6,415.6 $
567.6 $
1,260.5 $
6.4
$
8,250.1
U.S.
Canada
Europe
International
Consolidated
(In millions)
Adjustments to preliminary purchase price allocation and synergy
allocation (1)
Business acquisition (2)
Foreign currency translation
Balance as of December 31, 2017
(487.1)
—
—
295.0
13.8
55.7
100.0
—
177.5
$
5,928.5 $
932.1 $
1,538.0 $
—
—
0.5
6.9
(92.1)
13.8
233.7
$
8,405.5
Adjustments to preliminary purchase price allocation (2)
Business acquisition (3)
Foreign currency translation
Balance as of December 31, 2018
—
—
—
(2.8)
—
(72.7)
—
10.3
(78.9)
—
—
(0.6)
$
5,928.5 $
856.6 $
1,469.4 $
6.3
$
(2.8)
10.3
(152.2)
8,260.8
(1) On October 11, 2016, we completed the Acquisition and estimated preliminary goodwill of approximately $6.4 billion , which was initially allocated to our
U.S. segment. During 2017, we recorded adjustments to our preliminary purchase price allocation resulting in a net decrease in goodwill of $92.1 million .
Separately, early in the fourth quarter of 2017, and prior to the completion of the one year measurement period, we completed the allocation of goodwill to our
reporting units, resulting in $295.0 million and $100.0 million allocated to the Canada and Europe reporting units, respectively, as of October 11, 2016. Refer to
Note 4, "Acquisition and Investments" for further details.
(2)
(3)
During the fourth quarter of 2017, we completed the acquisition of Le Trou du Diable, a craft brewer located in Quebec. As part of the preliminary
purchase price accounting in the fourth quarter of 2017, goodwill generated in conjunction with this acquisition was recorded within our Canada segment.
During 2018, we recorded adjustments to the preliminary purchase price allocation related to this acquisition, which is now finalized.
During the first quarter of 2018, we completed the acquisition of Aspall Cyder Limited, an established premium cider business in the U.K. Goodwill
generated in conjunction with this acquisition was recorded within our Europe segment, and our purchase price allocation is now finalized.
The following table presents details of our intangible assets, other than goodwill, as of December 31, 2018 :
Intangible assets subject to amortization:
Brands
License agreements and distribution rights
Other
Intangible assets not subject to amortization:
Brands
Distribution networks
Other
Total
Gross
Accumulated
amortization
(In millions)
Net
$
4,988.0 $
(682.4) $
220.2
129.2
8,169.9
741.8
337.6
(95.7)
(32.2)
—
—
—
$
14,586.7 $
(810.3) $
4,305.6
124.5
97.0
8,169.9
741.8
337.6
13,776.4
Useful life
(Years)
10 - 50
15 - 28
2 - 40
Indefinite
Indefinite
Indefinite
124
The following table presents details of our intangible assets, other than goodwill, as of December 31, 2017 :
Intangible assets subject to amortization:
Brands
License agreements and distribution rights
Other
Intangible assets not subject to amortization:
Brands
Distribution networks
Other
Total
Useful life
(Years)
10 - 50
15 - 28
2 - 40
Indefinite
Indefinite
Indefinite
Gross
Accumulated
amortization
(In millions)
Net
$
5,215.3 $
236.3
148.3
8,216.6
804.7
337.6
(516.0) $
(103.9)
(42.4)
—
—
—
$
14,958.8 $
(662.3) $
4,699.3
132.4
105.9
8,216.6
804.7
337.6
14,296.5
The changes in the gross carrying amounts of intangibles from December 31, 2017 , to December 31, 2018 , are primarily driven by the impact of foreign
exchange rates, as a significant amount of intangibles are denominated in foreign currencies.
Based on foreign exchange rates as of December 31, 2018 , the estimated future amortization expense of intangible assets is as follows:
Year
2019
2020
2021
2022
2023
$
Amount
(In millions)
220.4
219.4
213.1
208.5
207.6
Amortization expense of intangible assets was $224.1 million , $222.1 million , and $82.1 million for the years ended December 31, 2018 , December 31,
2017 , and December 31, 2016 , respectively. The increase in amortization expense in 2017 versus 2016 is primarily attributable to the addition of U.S. definite-
lived intangible asset amortization following the completion of the Acquisition, as well as the reclassification of the Molson core brand intangible assets from
indefinite to definite-lived following the completion of our annual impairment test as of October 1, 2016. This expense is primarily presented within marketing,
general and administrative expenses in our consolidated statements of operations.
We completed our required annual goodwill and indefinite-lived intangible impairment testing as of October 1, 2018, the first day of our fourth quarter, and
concluded there were no impairments of goodwill within our U.S., Europe, Canada or India reporting units. Further, there were no impairments of our other
indefinite-lived intangible assets as a result of the annual review process.
Reporting Units and Goodwill
As of the date of our annual impairment test, performed as of October 1, 2018, the operations in each of the specific regions within our U.S., Canada, Europe
and International segments are considered components based on the availability of discrete financial information and the regular review by segment management.
We have concluded that the components within the U.S., Canada and Europe segments each meet the criteria of having similar economic characteristics and
therefore have aggregated these components into the U.S., Canada and Europe reporting units, respectively. Additionally, we determined that the components
within our International segment do not meet the criteria for aggregation, and therefore, the operations of our India business constitute a separate reporting unit at
the component level. See Note 1, "Basis of Presentation and Summary of Significant Accounting Policies" for further discussion of our determination of reporting
units for purposes of goodwill impairment testing.
The fair value of the U.S., Europe and Canada reporting units were estimated at approximately 19% , 11% and 6% in excess of carrying value, respectively,
as of the October 1, 2018, testing date. In the current year testing, it was determined that the fair value of each of the reporting units declined from the prior year,
resulting in our Europe and Canada reporting units
125
now being considered at risk of impairment. The decline in fair value across all reporting units in the current year is largely due to the recent interest rate
environment which has resulted in an increase to the risk-free rate included in our current year discount rate calculations. This fact, coupled with the recent changes
in market conditions resulting in lower earnings multiples of comparable public companies within our market-based valuations, adversely impacted the results of
our impairment testing. In the U.S. reporting unit, market driven declines from the prior year were partially offset by a decrease in the tax rate driven by the
enactment of the 2017 Tax Act within the U.S., as well as inclusion of incremental cost saving initiatives included in the current year forecast. In the Europe
reporting unit, declines from the prior year were partially offset by continued volume and revenue growth throughout 2018 benefiting management's forecasts and
positively impacting the forecasted future cash flows of the reporting unit. The market-driven decline in the excess of the fair value over the carrying value of the
Canada reporting unit was coupled with continued challenging industry dynamics during the year, including continued performance declines within the Molson and
Coors Light core brands, resulting in a reduction of forecasted results in comparison to the prior year. These declines were slightly offset by incremental cost
saving initiatives included in the current year forecast. The fair value of the India reporting unit declined slightly from the prior year, as a result of shifts in business
strategy; however, the fair value of the India reporting unit continues to remain in excess of its carrying value as of our annual testing date.
Although the fair value of each of our reporting units was determined to be in excess of its respective carrying value as of the October 1, 2018, testing date,
the fair value determinations are sensitive to further unfavorable changes in forecasted cash flows, macroeconomic conditions, market multiples or discount rates
that could negatively impact future analyses.
Indefinite-Lived Intangibles
The Coors and Miller indefinite-lived brands in the U.S. continue to be sufficiently in excess of their respective carrying values as of the annual testing date.
The fair value of the Coors Light brand distribution rights in Canada continues to be sufficiently in excess of its carrying value as of the testing date.
Separately, during 2016, we recorded an aggregate impairment charge to the Molson core indefinite-lived brand asset of $495.2 million . The impairment charge
was the result of a continued decline in performance of the Molson core brand asset throughout 2016, which drove a downward shift in management's forecast,
along with a challenging market dynamic and competitive conditions that were not expected to subside in the near-term. At that time, we also reassessed the
brand's indefinite-life classification and determined that the Molson core brands had characteristics that indicated a definite-life assignment was more appropriate,
including prolonged weakness in consumer demand driven by increased economic and competitive pressures. Given these factors resulted in sustained declines in
brand performance, and it was unclear when these ongoing pressures on the brands would subside, these brands were reclassified as definite-lived intangible assets
as of October 1, 2016, and are being amortized over their remaining useful lives ranging from 30 to 50 years.
The fair values of our indefinite-lived intangibles in Europe, including the Staropramen and Carling brands, continue to be sufficiently in excess of their
respective carrying values as of the annual testing date.
We utilized Level 3 fair value measurements in our impairment analysis of certain indefinite-lived intangible brand assets, including the Coors and Miller
brands in the U.S., and the Staropramen brand in Europe, which utilizes an excess earnings approach to determine the fair values of these assets as of the testing
date. The future cash flows used in the analysis are based on internal cash flow projections based on our long range plans and include significant assumptions by
management as noted below. Separately, we performed qualitative assessments of certain indefinite-lived intangible assets, including the Coors Light brand
distribution rights in Canada, Carling brand in Europe and water rights in the U.S., to determine whether it was more likely than not that the fair values of these
assets were greater than their respective carrying amounts. Based on the qualitative assessments, we determined that a full quantitative analysis was not necessary.
Key Assumptions
As of the date of our annual impairment test, performed as of October 1, the Europe and Canada reporting unit goodwill balances are at risk of future
impairment in the event of significant unfavorable changes in the forecasted cash flows (including prolonged weakening of economic conditions, or significant
unfavorable changes in tax, environmental or other regulations, including interpretations thereof), terminal growth rates, market multiples and/or weighted-average
cost of capital utilized in the discounted cash flow analyses. For testing purposes of our reporting units, management's best estimates of the expected future results
are the primary driver in determining the fair value. Current projections used for our Canada reporting unit testing reflect continued challenges within the beer
industry in Canada adversely impacting the projected cash flows of the business, offset by growth resulting from the benefit of anticipated cost savings and specific
brand-building and innovation activities. Current projections used for our Europe reporting unit incorporate ongoing anticipated cost savings, coupled with
continued volume and revenue growth. Positive assumptions included in management's forecast for both the Europe and Canada reporting units are being offset by
adverse market conditions negatively impacting discount rate and market multiple assumptions applied to our fair valuation models in the current year.
126
Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. As a result, there can be no
assurance that the estimates and assumptions made for purposes of the annual goodwill and indefinite-lived intangible impairment tests will prove to be an accurate
prediction of the future. Examples of events or circumstances that could reasonably be expected to negatively affect the underlying key assumptions and ultimately
impact the estimated fair value of our reporting units and indefinite-lived intangibles may include such items as: (i) a decrease in expected future cash flows,
specifically, a decrease in sales volume and increase in costs that could significantly impact our immediate and long-range results, a decrease in sales volume
driven by a prolonged weakness in consumer demand or other competitive pressures adversely affecting our long-term volume trends, a continuation of the trend
away from core brands in certain of our markets, especially in markets where our core brands represent a significant portion of the market, unfavorable working
capital changes and an inability to successfully achieve our cost savings targets, (ii) adverse changes in macroeconomic conditions or an economic recovery that
significantly differs from our assumptions in timing and/or degree (such as a recession), (iii) volatility in the equity and debt markets or other country specific
factors which could result in a higher weighted-average cost of capital, (iv) sensitivity to market multiples; and (v) regulation limiting or banning the
manufacturing, distribution or sale of alcoholic beverages.
Based on known facts and circumstances, we evaluate and consider recent events and uncertain items, as well as related potential implications, as part of our
annual assessment and incorporate into the analyses as appropriate. These facts and circumstances are subject to change and may impact future analyses.
While historical performance and current expectations have resulted in fair values of our reporting units and indefinite-lived intangible assets in excess of
carrying values, if our assumptions are not realized, it is possible that an impairment charge may need to be recorded in the future.
Definite-Lived Intangibles
Regarding definite-lived intangibles, we continuously monitor the performance of the underlying assets for potential triggering events suggesting an
impairment review should be performed. Excluding the definite-lived intangible asset impairment charge associated with the triggering event which occurred in
Bihar, India in 2016 further discussed below, no such triggering events that resulted in an impairment charge were identified in 2018 , 2017 or 2016 .
India Triggering Event and Interim Impairment Assessment
On April 5, 2016, the government of the state of Bihar implemented a complete prohibition of the sale and consumption of all forms of alcohol. Due to this
triggering event, and as the expected length of the prohibition was unclear and was expected to remain in effect for the foreseeable future, we performed an interim
impairment assessment for the impacted tangible assets, intangible assets and the India reporting unit goodwill. Specifically, upon identification of the triggering
event we completed step one of the goodwill impairment test comparing the fair value of the India reporting unit to its carrying value using a combination of
discounted cash flow analyses and market approaches, which resulted in the need to complete step two. Upon completion of step two, we recorded an impairment
of tangible assets of $11.0 million and impairment of goodwill and definite-lived intangibles of $19.8 million within special items during the second quarter of
2016. The remaining goodwill attributable to the India reporting unit of $6.3 million , based on foreign exchange rates as of December 31, 2018 , is associated with
cash flows in other states in India, where alcohol sales are not prohibited. We continue to monitor legal proceedings impacting the regulatory environment as it
relates to our ability to resume operations in the state.
127
11. Debt
Debt Obligations
Senior notes:
CAD 400 million 2.25% notes due 2018 (1)
CAD 500 million 2.75% notes due 2020 (1)
CAD 500 million 2.84% notes due 2023 (2)
CAD 500 million 3.44% notes due 2026 (1)(2)
$500 million 1.45% notes due 2019 (2)
$500 million 1.90% notes due 2019 (3)
$500 million 2.25% notes due 2020 (3)
$1.0 billion 2.10% notes due 2021 (2)
$500 million 3.5% notes due 2022 (4)
$2.0 billion 3.0% notes due 2026 (2)
$1.1 billion 5.0% notes due 2042 (4)
$1.8 billion 4.2% notes due 2046 (2)
EUR 500 million notes due 2019 (3)
EUR 800 million 1.25% notes due 2024 (2)
Other long-term debt
Less: unamortized debt discounts and debt issuance costs
Total long-term debt (including current portion)
Less: current portion of long-term debt
Total long-term debt
Short-term borrowings:
Commercial paper program (5)
Other short-term borrowings (6)
Current portion of long-term debt
Current portion of long-term debt and short-term borrowings
As of
December 31, 2018
December 31, 2017
(In millions)
$
— $
366.6
366.6
366.6
500.0
499.8
499.0
1,000.0
509.3
2,000.0
1,100.0
1,800.0
573.4
917.4
43.0
(64.8)
10,476.9
(1,583.1)
8,893.8 $
— $
11.4
1,583.1
1,594.5 $
$
$
$
318.2
397.7
397.7
397.7
500.0
498.5
498.2
1,000.0
512.2
2,000.0
1,100.0
1,800.0
600.3
960.4
22.1
(75.9)
10,927.1
(328.4)
10,598.7
379.0
7.4
328.4
714.8
(1)
(2)
Prior to Molson Coors International, L.P., a Delaware limited partnership and wholly-owned subsidiary of MCBC ("Molson Coors International L.P."),
issuing our CAD 500 million 2.75% notes due September 18, 2020 ("CAD 500 million notes"), and CAD 400 million 2.25% notes due September 18,
2018 ("CAD 400 million notes", and together with the CAD 500 million notes, the "2015 Notes"), on September 18, 2015 , we entered into forward
starting interest rate swap agreements to hedge the interest rate volatility for a 10 year period. We settled these swaps at the time of issuance of the 2015
Notes and are amortizing a portion of the resulting loss from AOCI to interest expense over the remaining term of the 2015 Notes as well as over a portion
of the 2016 Notes defined below up to the full 10-year term of the interest rate swap agreements. The amortizing loss will increase our effective cost of
borrowing compared to the stated coupon rates by 0.65% and 0.60% on each of the CAD 500 million notes due in 2020 and 2026, respectively. See Note
16, "Derivative Instruments and Hedging Activities" for further details on the forward starting interest rate swaps. During the third quarter of 2018, we
repaid the CAD 400 million notes with cash on hand.
On July 7, 2016 , MCBC issued approximately $5.3 billion senior notes with portions maturing from July 15, 2019 , through July 15, 2046 ("2016 USD
Notes"), and EUR 800.0 million senior notes maturing July 15, 2024 ("2016 EUR Notes"), and Molson Coors International L.P., completed a private
placement of CAD 1.0 billion senior notes maturing July 15, 2023 , and July 15, 2026 ("2016 CAD Notes"), in order to partially fund the financing of the
Acquisition (2016 USD Notes, 2016 EUR Notes and 2016 CAD Notes, collectively, the "2016 Notes"). These issuances resulted in total proceeds of
approximately $6.9 billion , net of underwriting fees and discounts of $36.5 million and $17.7 million ,
128
respectively. Total debt issuance costs capitalized in connection with these notes including underwriting fees, discounts and other financing related costs,
were approximately $65 million and are being amortized over the respective terms of the 2016 Notes. The 2016 Notes began accruing interest upon
issuance, with semi-annual payments due on the 2016 USD Notes and 2016 CAD Notes in January and July beginning in 2017, and annual interest
payments due on the 2016 EUR Notes in July beginning in 2017.
Prior to issuing the 2016 EUR Notes and the 2016 CAD Notes, we entered into foreign currency forward agreements to economically hedge the foreign
currency exposure of a portion of the respective notes, which were subsequently settled on July 7, 2016 , concurrent with the issuance of the 2016 Notes.
Additionally, upon issuance we designated the EUR Notes as a net investment hedge of our Europe business. See Note 16, "Derivative Instruments and
Hedging Activities" for further details.
Prior to using the proceeds from our 2016 Notes and February 3, 2016, equity issuance to partially fund the Acquisition, we invested these proceeds in
various fixed rate deposit and money market accounts with terms of three months or less and, accordingly, recognized interest income of $19.0 million for
the year ended December 31, 2016 , within interest income (expense).
(3)
On March 15, 2017, MCBC issued approximately $1.5 billion of senior notes, consisting of $500 million 1.90% senior notes due March 15, 2019 , and
$500 million 2.25% senior notes due March 15, 2020 (collectively, the "2017 USD Notes") and EUR 500 million floating rate senior notes due March 15,
2019 ("2017 EUR Notes") (2017 USD Notes and 2017 EUR Notes, collectively, the "2017 Notes"). We bear quarterly interest on the 2017 EUR Notes at
the rate of 0.35% plus three-month EURIBOR . These issuances resulted in total proceeds of approximately $1.5 billion , net of underwriting fees and
discounts of $3.1 million and $0.7 million , respectively. Total debt issuance costs capitalized in connection with these notes, including underwriting fees,
discounts and other financing related costs, were $6.1 million and are being amortized over the respective terms of the 2017 Notes. The 2017 Notes began
accruing interest upon issuance, with quarterly payments due on the 2017 EUR Notes beginning June 15, 2017, and semi-annual payments due on the
2017 USD Notes beginning September 15, 2017. The proceeds from our 2017 Notes were used to repay our term loans.
In the first quarter of 2017, we entered into interest rate swaps to economically convert our fixed rate 2017 USD Notes to floating rate debt. As a result of
these hedge programs, the carrying value of the $500 million 1.90% notes and $500 million 2.25% notes were adjusted for fair value movements
attributable to the benchmark interest rate. During the fourth quarter of 2017, we settled these interest rate swaps, at which time we ceased adjusting the
carrying value of the 2017 USD Notes for the fair value of these swaps. At the time of termination, cumulative adjustments to the carrying value of the
notes were losses of $1.6 million on the $500 million 1.90% notes and $1.9 million on the $500 million 2.25% notes. Beginning in the fourth quarter of
2017, we began amortizing these cumulative adjustments to interest expense over the remaining term of each respective note and will accordingly increase
the annual effective interest rate for the $500 million 1.90% notes and $500 million 2.25% notes for the remaining term of the notes by 0.24% and 0.17% ,
respectively. The fair value adjustments and subsequent amortization have been excluded from the aggregate principal debt maturities table presented
below.
During the second quarter of 2018, we entered into cross currency swaps in order to hedge a portion of the foreign currency translational impacts of our
European investment. As a result of the swaps, we economically converted our $500 million 2.25% senior notes due 2020 and associated interest to EUR
denominated, which will result in a EUR interest rate to be received at 0.85% . See Note 16, "Derivative Instruments and Hedging Activities" for further
details.
Prior to issuing the 2017 EUR Notes, we entered into foreign currency forward agreements to economically hedge the foreign currency exposure of a
portion of the respective notes, which were subsequently settled on March 15, 2017, concurrent with the issuance of the 2017 EUR Notes. Additionally,
upon issuance we designated the 2017 EUR Notes as a net investment hedge of our Europe business. See Note 16, "Derivative Instruments and Hedging
Activities" for further details.
(4)
On May 3, 2012, we issued approximately $1.9 billion of senior notes with portions maturing in 2017, 2022 and 2042. The issuance resulted in total
proceeds, before expenses, of approximately $1.9 billion , net of underwriting fees and discounts of $14.7 million and $4.6 million , respectively. Total
debt issuance costs capitalized in connection with these senior notes, including the underwriting fees and discounts, were approximately $18.0 million and
are being amortized over the term of the notes. During the second quarter of 2017, we repaid the $300 million 2.0% notes due 2017 using commercial
paper.
During 2014, we entered into interest rate swaps to economically convert our fixed rate $500 million 3.5% notes due 2022 (" $500 million notes") to
floating rate debt. As a result of fair value hedge accounting, the carrying value of the $500 million notes included a cumulative adjustment for the change
in fair value of $18.1 million at the time of
129
(5)
(6)
termination of the swaps. Beginning in the fourth quarter of 2015, we began amortizing this cumulative adjustment to interest expense over the remaining
term of the $500 million notes and will accordingly decrease the annual effective interest rate for the remaining term by 0.56% . The fair value
adjustments and subsequent amortization have been excluded from the aggregate principal debt maturities table presented below.
As of December 31, 2018 , we had no outstanding borrowings under our commercial paper program and as of December 31, 2017 , we had total
outstanding borrowings under our commercial paper program of $379.0 million at a weighted-average effective interest rate and tenor of 1.84% and 45
days, respectively.
As of December 31, 2018 , we had $1.1 million in bank overdrafts and $88.9 million in bank cash related to our cross-border, cross-currency cash pool for
a net positive position of $87.8 million . As of December 31, 2017 , we had $1.2 million in bank overdrafts and $37.8 million in bank cash related to our
cross-border, cross-currency cash pool for a net positive position of $36.6 million .
We had total outstanding borrowings of $7.3 million and $3.2 million under our two JPY overdraft facilities as of December 31, 2018 , and December 31,
2017 , respectively. In addition, we have GBP and CAD lines of credit under which we had no outstanding borrowings as of December 31, 2018 , or
December 31, 2017 . A summary of our short-term facility availability is presented below. See Note 18, "Commitments and Contingencies" for further
discussion related to letters of credit.
JPY 900 million overdraft facility at Japan base rate plus 0.45%
JPY 500 million overdraft facility at Japan base rate plus 0.35%
•
•
• CAD 30 million overdraft facility at USD Prime or CAD Prime depending on the borrowing currency
• GBP 20 million overdraft facility at GBP LIBOR plus 1.5%
• USD 20 million line of credit overdraft facility at USD Prime plus 5%
Debt Fair Value Measurements
We utilize market approaches to estimate the fair value of certain outstanding borrowings by discounting anticipated future cash flows derived from the
contractual terms of the obligations and observable market interest and foreign exchange rates. As of December 31, 2018 , and December 31, 2017 , the fair value
of our outstanding long-term debt (including current portion of long-term debt) was approximately $9.9 billion and $11.2 billion , respectively. All senior notes are
valued based on significant observable inputs and classified as Level 2 in the fair value hierarchy. The carrying values of all other outstanding long-term
borrowings and our short-term borrowings approximate their fair values and are also classified as Level 2 in the fair value hierarchy.
Revolving Credit Facility
On July 7, 2017, we entered into a 5 -year, $1.5 billion revolving multi-currency credit facility, which provides a $150 million sub-facility available for the
issuance of letters of credit which replaced our previous revolving credit facility. In connection with the new revolving credit facility, we increased the size of our
existing commercial paper program to a maximum aggregate amount outstanding at any time of $1.5 billion . Concurrent with these transactions, in the third
quarter of 2017, we incurred $3.4 million of issuance costs related to the $1.5 billion revolving credit facility, which are being amortized over the term of the
agreement. During the third quarter of 2018, we extended the maturity date of our revolving credit facility by one year to July 7, 2023.
We had no borrowings drawn on our $1.5 billion revolving credit facility as of December 31, 2018 . As of December 31, 2017, we had approximately $1.1
billion available to draw under our $1.5 billion revolving credit facility, as the borrowing capacity is reduced by borrowings under our commercial paper program.
We had no other borrowings drawn on this revolving credit facility as of December 31, 2017.
The maximum leverage ratio of this facility is 4.75x debt to EBITDA, with a decline to 4.00x debt to EBITDA as of the last day of the fiscal quarter ending
December 31, 2020 .
Under the terms of each of our debt facilities, we must comply with certain restrictions. These include customary events of default and specified
representations and warranties and covenants, including, among other things, covenants that restrict our ability to incur certain additional priority indebtedness,
create or permit liens on assets, or engage in mergers or consolidations. As of December 31, 2018 , and December 31, 2017 , we were in compliance with all of
these restrictions and have met all debt payment obligations. All of our outstanding senior notes as of December 31, 2018 , rank pari-passu.
130
As of December 31, 2018 , the aggregate principal debt maturities of long-term debt and short-term borrowings, based on foreign exchange rates as of
December 31, 2018 , for the next 5 years are as follows:
2019
2020
2021
2022
2023
Thereafter
Total
Interest
Interest incurred
Interest capitalized
Interest expensed
12. Inventories
Finished goods
Work in process
Raw materials
Packaging materials
Inventories, net
13. Share-Based Payments
Year
Amount
(In millions)
1,595.2
866.6
1,000.0
500.0
366.6
6,211.6
10,540.0
$
$
For the years ended
December 31, 2018
December 31, 2017
December 31, 2016
$
$
311.7
$
(5.5)
306.2
$
(In millions)
351.8
$
(2.5)
349.3
$
272.2
(0.6)
271.6
As of
December 31, 2018
December 31, 2017
$
$
(In millions)
229.8 $
83.4
224.3
54.3
591.8 $
222.3
85.2
231.7
52.3
591.5
We have one share-based compensation plan, the MCBC Incentive Compensation Plan (the "Incentive Compensation Plan"), as of December 31, 2018 , and
all outstanding awards fall under this plan.
Molson Coors Brewing Company Incentive Compensation Plan
We issue the following types of awards related to shares of Class B common stock to certain directors, officers, and other eligible employees, pursuant to the
Incentive Compensation Plan: RSUs, DSUs, PSUs, and stock options.
RSU awards are issued based upon the market value equal to the price of our stock at the date of the grant and vest over a period of three years. In 2018 ,
2017 and 2016 , we granted 0.4 million , 0.3 million and 0.2 million RSUs, respectively, with a weighted-average market value of $72.78 , $92.02 and $92.95 each,
respectively. Prior to vesting, RSUs have no voting rights.
DSU awards, under the Directors' Stock Plan pursuant to the Incentive Compensation Plan, are elections made by non-employee directors of MCBC that
enable them to receive all or one-half of their annual cash retainer payments in our stock. The deferred stock unit awards are issued at the market value equal to the
closing price on the date of the grant. The DSUs are paid in shares of stock upon termination of service. Prior to vesting, DSUs have no voting rights. In 2018 ,
2017 and 2016 , we granted a small number of DSUs with a weighted-average market value of $64.48 , $86.06 and $100.60 per share, respectively.
As part of our annual grant in the first quarter of 2018 , 2017 and 2016 we granted PSUs. PSUs are granted with a target value established at the date of grant
and vest upon completion of a service requirement. The settlement amount of the PSUs is
131
determined based on market and performance metrics, which include our total shareholder return performance relative to the S&P 500 and specified internal
performance metrics designed to drive greater shareholder return. PSU compensation expense is based on a fair value assigned to the market metric upon grant
using a Monte Carlo model, which remains constant throughout the vesting period of three years and a performance multiplier, which will vary due to changing
estimates of the performance metric condition. During 2018 , 2017 and 2016 , we granted 0.2 million , 0.2 million and 0.1 million PSUs, respectively, each with a
weighted-average fair value of $78.30 , $97.13 and $90.49 , respectively.
Stock options are granted with an exercise price equal to the market value of a share of Class B common stock on the date of grant. Stock options have a term
of ten years and generally vest over three years. During 2018 , 2017 and 2016 , we granted 0.2 million , 0.2 million and 0.1 million options, respectively, each with
a weighted-average fair value of $15.44 , $18.66 and $16.65 , respectively.
In connection with the Acquisition, MCBC issued replacement awards to various MillerCoors employees who had awards outstanding under the historical
MillerCoors share-based compensation plan consisting of 0.5 million stock options with a weighted-average fair value of $42.21 per share, 0.4 million RSUs with a
weighted-average market value of $107.91 per share, and 0.1 million PSUs with a weighted-average fair value of $106.17 per share. The terms and fair values of
these awards were substantially the same as the replaced MillerCoors awards. The fair value of the replacement awards associated with services rendered through
the date of the Acquisition was recognized as a non-cash component of the total purchase consideration. The remaining fair value of the replacement awards
associated with post-Acquisition service is being recognized as an expense on a straight-line basis over the remaining vesting period of the awards. The fair values
of the replacement stock options were estimated using a binomial lattice valuation model due to their various in-the-money levels and remaining terms.
Pretax share-based compensation expense
Tax benefit (1)
After-tax share-based compensation expense
For the years ended
December 31, 2018
December 31, 2017
December 31, 2016
$
$
42.6
$
(6.9)
35.7
$
(In millions)
58.3
$
(11.1)
47.2
$
32.3
(10.0)
22.3
(1)The tax benefit for 2017 excludes the impact of the remeasurement of related deferred tax assets resulting from the reduction of the U.S. federal corporate
income tax rate pursuant to the 2017 Tax Act. See Note 6, "Income Tax" for further discussion.
As of December 31, 2018 , there was $39.9 million of total unrecognized compensation cost from all share-based compensation arrangements granted under
the Incentive Compensation Plan, related to unvested awards. This total compensation expense is expected to be recognized over a weighted-average period of 1.8
years.
Non-vested as of December 31, 2017
Granted
Vested
Forfeited
Non-vested as of December 31, 2018
RSUs and DSUs
PSUs
Weighted-average
grant date fair value per
unit
Units
Weighted-average grant
date fair value per unit
(In millions, except per unit amounts)
$95.80
$72.77
$91.39
$89.78
$88.53
0.4
0.2
(0.1)
—
0.5
$89.57
$78.30
$75.46
$—
$86.85
Units
1.0
0.4
(0.3)
(0.1)
1.0
The weighted-average fair value per unit for the non-vested PSUs is $84.90 as of December 31, 2018 .
The total intrinsic values of RSUs and DSUs vested during 2018 , 2017 and 2016 were $24.8 million , $31.5 million and $21.8 million , respectively.
132
Outstanding as of December 31, 2017
Granted
Exercised
Forfeited
Outstanding as of December 31, 2018
Expected to vest as of December 31, 2018
Exercisable as of December 31, 2018
Stock options
Weighted-
average
remaining
contractual
life (years)
Weighted-
average
exercise price
(In millions, except per share amounts and years)
Aggregate
intrinsic
value
$63.60
$78.79
$47.16
—
$70.56
$85.32
$64.73
4.6
$
31.3
5.2
8.3
4.0
$
$
$
4.3
—
4.3
Awards
1.5
0.2
(0.4)
—
1.3
0.4
0.9
The total intrinsic values of exercises during 2018 , 2017 and 2016 were $9.6 million , $7.0 million and $17.7 million , respectively. During 2018 , 2017 and
2016 , cash received from stock options exercises was $16.0 million , $4.0 million and $11.2 million , respectively, and total tax benefits realized, including excess
tax benefits, from share-based awards vested or exercised was $8.4 million , $20.2 million and $15.1 million , respectively.
The shares of Class B common stock to be issued under the stock option plans are made available from authorized and unissued MCBC Class B common
stock. As of December 31, 2018 , there were 3.9 million shares of MCBC Class B common stock available for the issuance under the Incentive Compensation Plan.
The fair value of each option granted in 2018 , 2017 and 2016 was determined on the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions:
Risk-free interest rate
Dividend yield
Volatility range
Weighted-average volatility
Expected term (years)
Weighted-average fair value
December 31, 2018
2.65%
2.08%
For the years ended
December 31, 2017
2.04%
1.64%
December 31, 2016
1.40%
1.81%
22.36% - 24.14%
22.40% - 22.88%
23.16% - 24.64%
22.81%
5.3
$15.44
22.52%
5.1
$18.66
23.53%
5.2
$16.65
The risk-free interest rates utilized for periods throughout the contractual life of the stock options are based on a zero-coupon U.S. Treasury security yield at
the time of grant. Expected volatility is based on a combination of historical and implied volatility of our stock. The expected term of stock options is estimated
based upon observations of historical employee option exercise patterns and trends of those employees granted options in the respective year.
133
The fair value of the market metric for each PSU granted in 2018 , 2017 and 2016 was determined on the date of grant using a Monte Carlo model to
simulate total stockholder return for MCBC and peer companies with the following weighted-average assumptions:
Risk-free interest rate
Dividend yield
Volatility range
Weighted-average volatility
Expected term (years)
Weighted-average fair market value
December 31, 2018
2.34%
2.08%
For the years ended
December 31, 2017
1.59%
1.64%
December 31, 2016
1.04%
1.81%
13.03% - 81.87%
13.71% - 80.59%
14.10% - 77.11%
22.76%
2.8
$78.30
24.24%
2.8
$97.13
23.68%
2.8
$90.49
The risk-free interest rates utilized for periods throughout the expected term of the PSUs are based on a zero-coupon U.S. Treasury security yield at the time
of grant. Expected volatility is based on historical volatility of our stock as well as the stock of our peer firms, as shown within the volatility range above, for a
period from the grant date consistent with the expected term. The expected term of PSUs is calculated based on the grant date to the end of the performance period.
134
14. Accumulated Other Comprehensive Income (Loss)
MCBC stockholders' equity
Foreign
currency
translation
adjustments
Gain (loss) on
derivative
instruments
Pension and
Postretirement
Benefit
adjustments
(In millions)
Equity Method
Investments
Accumulated
other
comprehensive
income (loss)
(598.3)
$
(350.4)
$
As of December 31, 2015
Foreign currency translation adjustments
Unrealized gain (loss) on derivative instruments
Reclassification of derivative (gain) loss to income
Pension and other postretirement benefit adjustments
Amortization of net prior service (benefit) cost and net actuarial (gain) loss to
income and settlement
Reclassification of historical share of MillerCoors' AOCI loss to income (1)
Ownership share of unconsolidated subsidiaries' other comprehensive income
(loss) (1)
Tax benefit (expense) (1)
As of December 31, 2016
Foreign currency translation adjustments
Unrealized gain (loss) on derivative and non-derivative instruments
Reclassification of derivative (gain) loss to income
Pension and other postretirement benefit adjustments
Amortization of net prior service (benefit) cost and net actuarial (gain) loss to
income and settlement
Ownership share of unconsolidated subsidiaries' other comprehensive income
(loss)
$
(769.9)
$
(227.4)
—
—
—
—
—
—
3.2
$
(994.1)
$
638.3
—
—
—
—
—
14.5
$
—
20.0
(3.4)
—
—
—
—
(9.9)
21.2
$
—
(205.3)
2.0
—
—
—
Tax benefit (expense)
As of December 31, 2017
Foreign currency translation adjustments
Reclassification of cumulative translation adjustment to
income (2)
Unrealized gain (loss) on derivative instruments
Reclassification of derivative (gain) loss to income
Pension and other postretirement benefit adjustments
Amortization of net prior service (benefit) cost and net actuarial (gain) loss to
income and settlement
Ownership share of unconsolidated subsidiaries' other comprehensive income
(loss)
41.2
71.2
$
(314.6)
$
(110.9)
$
(411.6)
106.4
6.0
—
—
—
—
—
—
14.5
3.4
—
—
—
Tax benefit (expense)
As of December 31, 2018
(24.5)
(744.7)
$
$
(31.2)
(17.8)
$
—
—
—
—
—
458.3
36.8
(214.6)
(69.9)
$
—
—
—
—
—
14.3
(3.9)
(59.5)
$
—
—
—
—
—
—
(1.0)
0.2
(1,704.1)
(234.7)
20.0
(3.4)
64.4
28.9
458.3
36.8
(238.0)
(1,571.8)
643.0
(205.3)
2.0
181.8
4.4
14.3
71.6
(860.0)
(305.8)
6.0
14.5
3.4
55.4
6.5
(1.0)
(69.0)
(7.3)
—
—
64.4
28.9
—
—
(16.7)
(529.0)
$
4.7
—
—
181.8
4.4
—
(36.9)
(375.0)
$
(0.6)
—
—
—
55.4
6.5
—
(13.5)
(327.2)
$
(60.3)
$
(1,150.0)
(1)
Upon completion of the Acquisition on October 11, 2016, we recorded a loss of $458.3 million within special items, net upon reclassification of our
accumulated other comprehensive loss related to our historical 42% interest in MillerCoors. The associated income tax benefit of $200.1 million was also
reclassified and recorded as a component of the income tax benefit (expense) line item on the consolidated statement of operations. See Note 4,
"Acquisition and Investments" for further details. The remaining AOCI of our equity method investments is related to changes to BRI and BDL pension
obligations.
(2)
As a result of exiting our China business, the associated cumulative foreign currency translation adjustment was reclassified from AOCI and recognized
within special items, net upon substantial liquidation. See Note 7, "Special Items" for further details.
We have significant levels of net assets denominated in currencies other than the USD due to our operations in foreign countries, and therefore we recognize
OCI gains and/or losses when those items are translated to USD. The foreign currency translation losses recognized during 2018 were due to the weakening of the
CAD, GBP and other currencies of our Europe operations versus the USD. The foreign currency translation gains recognized during 2017 were due to the
strengthening of
135
CAD, GBP, and other currencies of our Europe operations versus the USD. The foreign currency translation losses recognized during 2016 were due to the
weakening of the GBP and other currencies of our Europe operations versus the USD, partially offset by slight strengthening of the CAD versus the USD.
Reclassifications from AOCI to income:
December 31, 2018
For the years ended
December 31, 2017
December 31, 2016
Reclassifications from AOCI
(In millions)
Location of gain (loss)
recognized in income
Gain/(loss) on cash flow hedges:
Forward starting interest rate swaps
Foreign currency forwards
Foreign currency forwards
Total income (loss) reclassified, before tax
Income tax benefit (expense)
Net income (loss) reclassified, net of tax
Amortization of defined benefit pension and other
postretirement benefit plan items:
Prior service benefit (cost)
Net actuarial gain (loss) and settlement
Total income (loss) reclassified, before tax
Income tax benefit (expense)
Net income (loss) reclassified, net of tax
$
$
$
$
Other reclassifications from AOCI to Income:
China cumulative translation adjustment resulting from
substantial liquidation
$
Historical share of MillerCoors' AOCI loss
Total income (loss) reclassified, before tax
Income tax benefit (expense)
Net income (loss) reclassified, net of tax
Total income (loss) reclassified, net of tax
$
$
15. Employee Retirement Plans and Postretirement Benefits
(3.0)
$
(3.7)
$
(3.8) Interest expense, net
(0.2)
(0.2)
(3.4)
0.9
3.7
(2.0)
(2.0)
0.7
(2.5)
$
(1.3)
$
14.4 Cost of goods sold
(7.2) Other income (expense), net
3.4
(0.4)
3.0
(0.5)
$
(0.5)
$
(6.0)
(6.5)
1.6
(3.9)
(4.4)
0.8
(4.9)
$
(3.6)
$
Other pension and postretirement
benefits (costs), net
(0.6)
Other pension and postretirement
benefits (costs), net
(28.3)
(28.9)
6.1
(22.8)
(6.0)
$
—
(6.0)
—
(6.0)
$
— $
—
—
—
— $
— Special items, net
(458.3) Special items, net
(458.3)
200.1
(258.2)
(13.4)
$
(4.9)
$
(278.0)
We maintain retirement plans for the majority of our employees. Depending on the location and benefit program, we provide either defined benefit pension
or defined contribution plans to our employees. Each plan is managed locally and in accordance with respective local laws and regulations. We have defined
benefit pension plans in the U.S., U.K., Canada and Japan. All active retirement plans for Corporate employees are defined contribution pension plans.
Additionally, we offer OPEB plans to a portion of our Canadian, U.S., Corporate and Central European employees; these plans are not funded. BRI and BDL
maintain defined benefit, defined contribution and postretirement benefit plans as well; however, those plans are excluded from this disclosure as BRI and BDL are
equity method investments and not consolidated.
The U.S. participates in and makes contributions to multi-employer pension plans. Contributions to multi-employer pension plans were $7.9 million in 2018 ,
$7.7 million in 2017 and $1.2 million for the post-Acquisition period of October 11, 2016, through December 31, 2016. Additionally, the U.S. postretirement
health plan qualifies for the federal subsidy under the
136
Medicare Prescription Drug Improvement and Modernization Act of 2003 (“the Act”) because the prescription drug benefits provided under the Company's
postretirement health plan for Medicare eligible retirees generally require lower premiums from covered retirees and have lower co-payments and deductibles than
the benefits provided in Medicare Part D and, accordingly, are actuarially equivalent to or better than the benefits provided under the Act. The benefits paid,
including prescription drugs, were $37.1 million in 2018 , $36.6 million in 2017 and $9.0 million for the post-Acquisition period of October 11, 2016, through
December 31, 2016. Subsidies of $0.3 million for both 2018 and 2017 , and $0.1 million for the post-Acquisition period of October 11, 2016, through December
31, 2016, were received.
As a result of the Acquisition, MillerCoors' results of operations became fully consolidated by MCBC, and, therefore, for the year ended December 31, 2016,
the consolidated statement of operations includes MillerCoors' pension and OPEB expenses attributable to the period from October 11, 2016, to December 31,
2016. MillerCoors' pension and OPEB plans were recorded at fair value upon close of the Acquisition.
Defined Benefit and OPEB Plans
Net Periodic Pension and OPEB Cost (Benefit)
We have adopted the FASB's new guidance related to the classification of defined benefit pension and other postretirement plan costs. Specifically, the new
guidance requires us to report only the service cost component in the same line item as other compensation costs arising from services rendered by the pertinent
employees during the period; while the other components of net benefit cost are now presented in the consolidated statements of operations separately from the
service cost component and outside of operating income. We have also determined that only service cost will be reported within each operating segment and all
other components will be reported within the Corporate segment. See further discussion in Note 2, "New Accounting Pronouncements."
December 31, 2018
Pension OPEB
Consolidated
Pension
December 31, 2017
OPEB
Consolidated
Pension
December 31, 2016
OPEB
Consolidated
(In millions)
For the years ended
$
5.5 $
9.3 $
14.8
$
7.7 $
10.9 $
18.6
$
7.6 $
4.1 $
11.7
Service cost:
Service cost
Other pension and postretirement
costs (benefits), net:
Interest cost
Expected return on plan assets, net of
expenses
Amortization of prior service cost
(benefit)
Amortization of net actuarial loss
(gain)
Curtailment, settlement or special
termination benefit loss (gain)
Less: expected participant
contributions
Total other pension and
postretirement cost (benefits), net
Net periodic pension and OPEB cost
(benefit)
$
$
161.8
25.8
(232.8)
0.5
187.6
(232.3)
205.6
30.6
(287.9)
0.4
0.7
7.6
0.8
(0.8)
(0.2)
(1.7)
0.1
—
0.5
5.9
0.9
0.5
12.2
—
—
(5.4)
(2.9)
(0.8)
(0.5)
—
236.2
(287.5)
0.5
12.2
(8.3)
(0.5)
146.4
10.9
(194.1)
—
0.7
(0.1)
17.8
10.5
(0.5)
—
—
—
(62.7) $
24.5 $
(38.2)
$
(75.5) $
28.1 $
(47.4)
$
(19.2) $
10.8 $
157.3
(194.1)
0.6
17.8
10.5
(0.5)
(8.4)
(57.2) $
33.8 $
(23.4)
$
(67.8) $
39.0 $
(28.8)
$
(11.6) $
14.9 $
3.3
137
Obligations and Changes in Funded Status
For the year ended December 31, 2018
For the year ended December 31, 2017
Pension
OPEB
Consolidated
Pension
OPEB
Consolidated
Change in benefit obligation:
Prior year benefit obligation
$
5,584.4
$
Service cost, net of expected employee contributions
Interest cost
Actual employee contributions
Actuarial loss (gain)
Amendments and special termination benefits
Benefits paid
Settlement
Foreign currency exchange rate change
Benefit obligation at end of year
Change in plan assets:
Prior year fair value of assets
Actual return on plan assets
Employer contributions
Actual employee contributions
Settlement
Benefits and plan expenses paid
Foreign currency exchange rate change
Fair value of plan assets at end of year
Funded status:
Amounts recognized in the Consolidated Balance
Sheets:
Other non-current assets
Accounts payable and other current liabilities
Pension and postretirement benefits
Net amounts recognized
$
$
$
$
$
$
4.7
161.8
0.6
(342.3)
10.7
(296.8)
(0.6)
(217.8)
4,904.7
$
5,897.7
$
(156.1)
8.9
0.6
(0.6)
(296.8)
(236.4)
5,217.3
312.6
$
$
416.7
$
(4.5)
(99.6)
312.6
$
803.6 $
9.3
25.8
—
(108.8)
(3.2)
(44.1)
—
(10.5)
672.1 $
— $
—
44.1
—
—
(44.1)
—
— $
(672.1) $
— $
(45.1)
(627.0)
(672.1) $
(In millions)
6,388.0
$
14.0
187.6
0.6
(451.1)
7.5
(340.9)
(0.6)
(228.3)
5,576.8
$
5,897.7
$
(156.1)
53.0
0.6
(0.6)
(340.9)
(236.4)
5,217.3
(359.5)
$
$
416.7
$
(49.6)
(726.6)
(359.5)
$
6,177.5 $
7.2
205.6
0.7
179.4
—
(327.5)
(947.6)
289.1
5,584.4 $
5,945.5 $
608.9
310.0
0.7
(947.6)
(327.5)
307.7
5,897.7 $
313.3 $
412.0 $
(4.9)
(93.8)
313.3 $
835.0 $
10.9
30.6
—
(34.9)
(4.4)
(43.3)
—
9.7
803.6 $
— $
—
43.3
—
—
(43.3)
—
— $
(803.6) $
— $
(48.9)
(754.7)
(803.6) $
7,012.5
18.1
236.2
0.7
144.5
(4.4)
(370.8)
(947.6)
298.8
6,388.0
5,945.5
608.9
353.3
0.7
(947.6)
(370.8)
307.7
5,897.7
(490.3)
412.0
(53.8)
(848.5)
(490.3)
The accumulated benefit obligation for our defined benefit pension plans was approximately $4.9 billion and $5.6 billion as of December 31, 2018 , and
December 31, 2017 , respectively. The $130.8 million decrease in the net underfunded status of our aggregate pension and OPEB plans from December 31, 2017 ,
to December 31, 2018 , was primarily driven by the increase in discount rates. Our underfunded status also includes the impact of the High Court ruling in the U.K.
related to equalizing pension benefits between men and women, which had an immaterial impact to our net underfunded status.
As of December 31, 2018 , our defined benefit plan in the U.K. and certain defined benefit plans in the U.S. and Canada were overfunded as a result of our
ongoing de-risking strategy. Information for our defined benefit plans that had aggregate accumulated benefit obligations and projected benefit obligations in
excess of plan assets as of December 31, 2018 , is as follows:
Accumulated benefit obligation
Projected benefit obligation
Fair value of plan assets
As of
December 31, 2018
December 31, 2017
$
$
$
(In millions)
742.1 $
742.4 $
638.3 $
864.0
864.3
765.6
Information for OPEB plans with an accumulated postretirement benefit obligation in excess of plan assets has been disclosed above in "Obligations and
Changes in Funded Status" as all of our OPEB plans are unfunded.
138
Accumulated Other Comprehensive Income (Loss)
Amounts recognized in AOCI not yet recognized as components of net periodic pension and OPEB cost, pretax, were as follows:
Net actuarial loss (gain)
Net prior service cost
Total not yet recognized
As of December 31, 2018
As of December 31, 2017
Pension
OPEB
Consolidated
Pension
OPEB
Consolidated
$
$
687.8 $
(191.7) $
496.1 $
645.4 $
(83.3) $
10.2
(5.6)
4.6
1.5
(1.6)
698.0 $
(197.3) $
500.7 $
646.9 $
(84.9) $
562.1
(0.1)
562.0
(In millions)
Changes in plan assets and benefit obligations recognized in OCI, pretax, were as follows:
Pension
OPEB
Consolidated
(In millions)
Accumulated other comprehensive loss (income) as of December 31, 2016
$
800.7 $
(47.8) $
Amortization of prior service (costs) benefit
Amortization of net actuarial (loss) gain
Net prior service cost
Settlement
Current year actuarial loss (gain)
Foreign currency exchange rate change
(0.5)
(12.2)
—
5.4
(141.5)
(5.0)
—
—
(1.6)
2.9
(38.7)
0.3
Accumulated other comprehensive loss (income) as of December 31, 2017
$
646.9 $
(84.9) $
Amortization of prior service (costs) benefit
Amortization of net actuarial (loss) gain
Net prior service cost
Settlement
Current year actuarial loss (gain)
Foreign currency exchange rate change
(0.7)
(7.6)
9.8
—
46.8
2.8
0.2
1.7
(4.1)
(0.1)
(107.9)
(2.2)
Accumulated other comprehensive loss (income) as of December 31, 2018
$
698.0 $
(197.3) $
752.9
(0.5)
(12.2)
(1.6)
8.3
(180.2)
(4.7)
562.0
(0.5)
(5.9)
5.7
(0.1)
(61.1)
0.6
500.7
139
Assumptions
Periodic pension and OPEB cost is actuarially calculated annually for each individual plan based on data available at the beginning of each year.
Assumptions used in the calculation include the settlement discount rate selected and disclosed at the end of the previous year as well as other assumptions detailed
in the table below. The weighted-average rates used in determining the periodic pension and OPEB cost for the fiscal years 2018 , 2017 and 2016 were as follows:
Weighted-average assumptions:
Settlement discount rate
Rate of compensation increase
Expected return on plan assets (1)
Health care cost trend rate
December 31, 2018
For the years ended
December 31, 2017
December 31, 2016
Pension
OPEB
Pension
OPEB
Pension
OPEB
3.01%
2.00%
4.10%
N/A
3.34%
N/A
N/A
Ranging ratably
from 6.75% in
2018 to 4.5% in
2037
3.36%
2.00%
4.83%
N/A
3.76%
N/A
N/A
Ranging ratably
from 7.0% in
2017 to 4.5% in
2037
3.72%
2.00%
5.15%
N/A
3.59%
N/A
N/A
Ranging ratably
from 7.7% in
2016 to 4.5% in
2028
(1)
We develop our EROA assumptions annually with input from independent investment specialists including our actuaries, investment consultants, plan
trustee and other specialists. Each EROA assumption is based on historical data, including historical returns, historical market rates and is calculated for
each plan's individual asset class. The calculation includes inputs for interest, inflation, credit, and risk premium (active investment management) rates
and fees paid to service providers. We consider our EROA to be a significant management estimate. Any material changes in the inputs to our
methodology used in calculating our EROA could have a significant impact on our reported defined benefit pension plans' expense.
Benefit obligations are actuarially calculated annually at the end of each year based on the assumptions detailed in the table below. Obligations under the
OPEB plans are determined by the application of the terms of medical, dental, vision and life insurance plans, together with relevant actuarial assumptions and
heath care cost trend rates. The weighted-average rates used in determining the projected benefit obligation for defined pension plans and the accumulated
postretirement benefit obligation for OPEB plans, as of December 31, 2018 , and December 31, 2017 , were as follows:
Weighted-average assumptions:
Settlement discount rate
Rate of compensation increase
Health care cost trend rate
As of December 31, 2018
As of December 31, 2017
Pension
3.44%
2.00%
N/A
OPEB
3.92%
N/A
Ranging ratably
from 6.5% in 2019
to 4.5% in 2037
Pension
3.01%
2.00%
N/A
OPEB
3.34%
N/A
Ranging ratably
from 6.75% in 2018
to 4.5% in 2037
The change to the weighted-average discount rates used for our defined benefit pension plans and postretirement plans as of December 31, 2018 , from
December 31, 2017 , is primarily the result of overall market changes during 2018.
Investment Strategy
The obligations of our defined benefit pension plans in the U.S., Canada and the U.K. are supported by assets held in trusts for the payment of future
benefits. The business segments are obligated to adequately fund these asset trusts. The underlying investments within our defined benefit pension plans include:
cash and short-term instruments, debt securities, equity securities, investment funds, and other investments including derivatives, hedge fund of funds and real
estate. Investment allocations reflect the customized strategies of the respective plans.
The plans use liability driven investment strategies in managing defined pension benefits. For all defined benefit pension plan assets the plans have the
following primary investment objectives:
140
(1)
(2)
(3)
optimize the long-term return on plan assets at an acceptable level of risk and manage projected future cash contributions;
maintain a broad diversification across asset classes and among investment managers; and
manage the risk level of the plans' assets in relation to the plans' liabilities.
Each plan's respective allocation targets promote optimal expected return and volatility characteristics given a focus on a long-term time horizon for fulfilling
the plans' obligations. All assets are managed by external investment managers with a mandate to either match or outperform their benchmark. The plans used
different asset managers in the U.S., U.K. and Canada and each plan's respective asset allocation could be impacted by a change in asset managers.
Our investment strategies for our defined benefit pension plans also consider the funding status for each plan. For defined benefit pension plans that are
highly funded, assets are invested primarily in fixed income holdings that have a similar duration to the associated liabilities. For plans with lower funding levels,
the fixed income component is managed in a similar manner to the highly funded plans. In addition to this liability-matching fixed income allocation, these plans
also contain exposure to return generating assets including: equities, real estate, debt, and other investments held with the goal of producing higher returns, which
may also have a higher risk profile. These investments are diversified by investing globally with limitations placed on issuer concentration.
Both our U.K. and Canadian plans hedge a portion of the foreign exchange exposure between plan assets that are not denominated in the local plan currency
and the local currency as the Canadian and U.K. pension liabilities will be settled in CAD and GBP, respectively.
Target Allocations
The following compares target asset allocation percentages with actual asset allocations on a weighted-average asset basis as of December 31, 2018 :
Equities
Fixed income
Real estate
Annuities
Other
Target
allocations
14.4%
67.1%
2.6%
9.6%
6.3%
Actual
allocations
13.1%
70.9%
2.5%
9.7%
3.8%
During the first quarter of 2019, we adjusted our target allocation of plan assets to align with our updated investment strategy. These allocation changes are
reflected in our weighted-average EROA assumptions for 2019.
Significant Concentration Risks
We periodically evaluate our defined benefit pension plan assets for concentration risks. As of December 31, 2018 , we did not have any individual
underlying asset position that composed a significant concentration of each plan's overall assets. However, we currently have significant plan assets invested in
U.K., U.S. and Canadian government fixed income holdings. A provisional credit rating downgrade for any of these governments could negatively impact the asset
values.
Further, as our benefit plans maintain exposure to non-government investments, a significant system-wide increase in credit spreads would also negatively
impact the reported plan asset values. In general, equity and fixed income risks have been mitigated by company-specific concentration limits and by utilizing
multiple equity managers. We do have significant amounts of assets invested with individual fixed income and hedge fund managers, therefore, the plans use
outside investment consultants to aid in the oversight of these managers and fund performance.
Valuation Techniques
We use a variety of industry accepted valuation techniques to value our plan assets. The techniques vary depending upon instrument type. Whenever
possible, we prioritize the use of observable market data in our valuation processes. We use market, income and cost approaches to value our plan assets as of
period end. See Note 1, "Basis of Presentation and Summary of Significant Accounting Policies" for additional information on our fair value methodologies and
accounting policies. We have not changed our fair value techniques used to value plan assets this year.
141
Major Categories of Plan Assets
As of December 31, 2018 , our major categories of plan assets included the following:
•
•
•
•
•
•
Cash and short-term instruments—Includes cash, trades awaiting settlement, bank deposits, short-term bills and short-term notes. Our "trades
awaiting settlement" category includes payables and receivables associated with asset purchases and sales that are awaiting final cash settlement
as of year-end due to the use of trade date accounting for our pension plans assets. These payables normally settle within a few business days of
the purchase or sale of the respective asset. The respective assets are included in or removed from our year end plan assets and categorized in
their respective asset categories in the fair value hierarchy below. We include these items in Level 1 of this hierarchy, as the values are derived
from quoted prices in active markets. Short-term instruments are included in Level 2 of the fair value hierarchy as these are highly liquid
instruments that are valued using observable inputs, but their asset values are not publicly quoted.
Debt securities—Includes various government and corporate fixed income securities, interest and inflation-linked assets such as bonds and
swaps, collateralized securities, and other debt securities. The majority of the plans' fixed income assets trade on "over the counter" exchanges,
which provides observable inputs that are the primary data used to determine each individual investment's fair value. We also use independent
pricing vendors, as well as matrix pricing techniques. Matrix pricing uses observable data from other similar investments as the primary input to
determine the individual security's fair value. Government and corporate fixed income securities are generally classified as Level 2 in the fair
value hierarchy as they are valued using observable inputs. Assets included in our collateralized securities include mortgage backed securities
and collateralized mortgage obligations, which are considered Level 3 due to the use of the significant unobservable inputs used in deriving these
assets' fair values.
Equities—Includes publicly traded common and other equity-like holdings, primarily publicly traded common stock and real estate investment
trusts. Equity assets are well diversified between international and domestic investments. We consider equities quoted on public exchanges as
Level 1 while other assets that are not quoted on public exchanges but valued using significant observable inputs as Level 2 depending on the
individual asset's characteristics.
NAV per share practical expedient—Includes our debt funds, equity funds, hedge fund of funds, real estate fund holdings and private equity
funds. The market values for these funds are based on the net asset values multiplied by the number of shares owned.
Annuities—Includes non-participating annuity buy-in insurance policies purchased to cover a portion of the plan members. The fair value of
non-participating contracts fluctuates based on changes in the obligation associated with covered plan members. These values are considered
Level 3 due to the use of the significant unobservable inputs used in deriving these assets' fair values.
Other—Includes derivatives, repurchase agreements, recoverable taxes for taxes paid and awaiting reclaim due to the tax exempt nature of the
pension plan, venture capital, and private equity. Derivatives are priced using observable inputs including yields, interest rate curves and spreads.
Exchange traded derivatives are typically priced using the last trade price. Repurchase agreements are agreements where our plan has created an
asset exposure using borrowed assets, creating a repurchase agreement liability, to facilitate the trade. The assets associated with the repurchase
agreement are included in the other category in the fair value hierarchy, and the repurchase agreement liability is classified as Level 1 in the
hierarchy, as the liability is valued using quoted prices in active markets. When determining the presentation of our target and asset allocations
for repurchase agreements, we are viewing the asset type, as opposed to the investment vehicle, and accordingly include the associated assets
within fixed income, specifically interest and inflation linked assets. We include recoverable tax items in Level 1 of this hierarchy, as these are
cash receivables and the values are derived from quoted prices in active markets. Private equity is included in Level 3 as the values are based
upon the use of unobservable inputs.
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Fair Value Hierarchy
The following presents our fair value hierarchy for our defined benefit pension plan assets excluding investments using the NAV per share practical expedient
(in millions):
Total as of
December 31, 2018
Fair value measurements as of December 31, 2018
Quoted prices
in active
markets
(Level 1)
Significant
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Cash and cash equivalents
Cash
Trades awaiting settlement
Bank deposits, short-term bills and notes
Debt
Government securities
Corporate debt securities
Interest and inflation linked assets
Collateralized debt securities
Equities
Common stock
Investment funds
Private equity
Annuities
Buy-in annuities
Other
Repurchase agreements
Recoverable taxes
Private Equity
$
297.3 $
(11.2)
34.6
1,695.8
1,235.5
1,112.4
7.2
297.3 $
(11.2)
—
—
—
—
—
299.0
299.0
23.8
481.1
(1,448.8)
0.4
137.0
—
—
(1,448.8)
0.4
—
— $
—
34.6
1,695.8
1,235.5
1,065.8
—
—
—
—
—
—
—
Total fair value of investments excluding NAV per
share practical expedient
$
3,864.1
$
(863.3)
$
4,031.7
$
—
—
—
—
—
46.6
7.2
—
23.8
481.1
—
—
137.0
695.7
143
The following presents our total fair value of plan assets including the NAV per share practical expedient for our defined benefit pension plan assets:
Fair value of investments excluding NAV per share practical expedient
Fair value of investments using NAV per share practical expedient
Debt funds
Equity funds
Real estate funds
Private equity funds
Total fair value of plan assets
Total at
December 31, 2018
(In millions)
3,864.1
818.8
420.9
20.0
93.5
5,217.3
$
$
The following presents our fair value hierarchy for our defined benefit pension plan assets excluding investments using the NAV per share practical expedient
(in millions):
Total at
December 31, 2017
Fair value measurements as of December 31, 2017
Quoted prices
in active
markets
(Level 1)
Significant
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Cash and cash equivalents
Cash
Trades awaiting settlement
Bank deposits, short-term bills and notes
Debt
Government securities
Corporate debt securities
Interest and inflation linked assets
Collateralized debt securities
Equities
Common stock
Investment funds
Private equity
Annuities
Buy-in annuities
Other
Repurchase agreements
Recoverable taxes
Venture capital
Private equity
$
299.1 $
299.1 $
26.4
41.2
1,873.6
1,515.3
1,248.3
10.6
26.4
—
—
—
—
—
— $
—
41.2
1,873.6
1,515.3
1,193.7
—
697.1
695.9
1.2
24.2
178.9
—
—
(1,835.5)
(1,835.5)
0.5
0.3
200.4
0.5
—
—
—
—
—
—
—
—
Total fair value of investments excluding NAV per share
practical expedient
$
4,280.4
$
(813.6)
$
4,625.0
$
—
—
—
—
—
54.6
10.6
—
24.2
178.9
—
—
0.3
200.4
469.0
144
The following presents our fair value hierarchy including the NAV per share practical expedient for our defined benefit pension plan assets:
Fair value of investments excluding NAV per share practical expedient
Fair value of investments using NAV per share practical expedient
Debt funds
Equity funds
Real estate funds
Private equity funds
Total fair value of plan assets
Fair Value: Level Three Rollforward
Total at
December 31, 2017
(In millions)
4,280.4
913.3
554.9
50.0
99.1
5,897.7
$
$
The following presents our Level 3 Rollforward for our defined pension plan assets excluding investments using the NAV per share practical expedient:
Balance as of December 31, 2016
Total gain or loss (realized/unrealized):
Realized gain (loss)
Unrealized gain (loss) included in AOCI
Purchases, issuances, settlements
Foreign exchange translation (loss)/gain
Balance as of December 31, 2017
Total gain or loss (realized/unrealized):
Realized gain (loss)
Unrealized gain (loss) included in AOCI
Purchases, issuances, settlements
Foreign exchange translation (loss)/gain
Balance as of December 31, 2018
Expected Cash Flows
Amount
(In millions)
337.4
0.6
10.2
94.9
25.9
469.0
13.8
(18.8)
272.2
(40.5)
695.7
$
$
$
In 2019 , we expect to make contributions to our defined benefit pension plans of approximately $6 million and benefit payments under our OPEB plans of
approximately $45 million based on foreign exchange rates as of December 31, 2018 . BRI and BDL contributions to their respective defined benefit pension plans
are excluded here, as they are not consolidated in our financial statements. Plan funding strategies are influenced by employee benefits, tax laws and plan
governance documents.
145
Expected future benefit payments for defined benefit pension and OPEB plans, based on foreign exchange rates as of December 31, 2018 , are as follows:
Expected benefit payments
2019
2020
2021
2022
2023
2024-2028
Defined Contribution Plans
Pension
OPEB
(In millions)
$
$
$
$
$
$
301.4 $
287.7 $
289.3 $
289.9 $
290.2 $
1,450.9 $
45.2
45.4
45.2
44.9
44.6
216.3
We offer defined contribution pension plans for the majority of our U.S., Corporate, Canadian and U.K. employees. The investment strategy for defined
contribution plans are determined by each individual participant from the options we have made available as the plan sponsor. U.S. non-union and Corporate
employees are eligible to participate in qualified defined contribution plans which provide for employer contributions ranging from 5% to 11% of eligible
compensation (certain employees were also eligible for additional employer contributions). Effective, December 29, 2017, the plans covering the U.S. non-union
and Corporate employees were merged while retaining the contribution percentages previously indicated. U.S. union employees are eligible to participate in a
qualified defined contribution plan which provides for employer contributions based a factors associated with various collective bargaining agreements. The
employer contributions to the U.K. and Canadian plans range from 3% to 8.5% of employee compensation. Both employee and employer contributions were made
in cash in accordance with participant investment elections.
We recognized costs associated with defined contribution plans of $78.5 million , $80.5 million and $24.0 million in 2018 , 2017 and 2016 , respectively.
In addition, we have other deferred compensation and nonqualified defined contribution plans. Effective January 1, 2018, the Company formed the Molson
Coors Deferred Compensation Plan through the merger of the Molson Coors Brewing Company Supplemental Savings and Investment Plan with and into the
MillerCoors LLC Combined Deferred Compensation Plan and Salaried Non-Union Employees’ Retirement Savings Supplemental Plan. We have voluntarily
funded these liabilities through rabbi trusts. These assets are invested in publicly traded mutual funds whose performance is expected to closely match changes in
the plan liabilities. As of December 31, 2018 , and December 31, 2017 , the plan liabilities were equal to the plan assets and were included in other liabilities and
other assets on our consolidated balance sheets, respectively.
16. Derivative Instruments and Hedging Activities
Overview and Risk Management Policies
We use derivatives as part of our normal business operations to manage our exposure to fluctuations in interest rates, foreign currency, commodity price risk
and for other strategic purposes related to our core business. We have established policies and procedures that govern the risk management of these exposures. Our
primary objective in managing these exposures is to decrease the volatility of cash flows affected by changes in the underlying rates and prices.
To achieve our objectives, we enter into a variety of financial derivatives, including foreign currency exchange, commodity, interest rate, cross currency
swaps as well as options. We also enter into physical hedging agreements directly with our suppliers to manage our exposure to certain commodities.
Counterparty Risk
While, by policy, the counterparties to any of the financial derivatives we enter into are major institutions with investment grade credit ratings of at least A-
by Standard & Poor's (or the equivalent) or A3 by Moody's, we are exposed to credit-related losses in the event of non-performance by counterparties. This credit
risk is generally limited to the unrealized gains in such contracts, should any of these counterparties fail to perform as contracted.
We have established a counterparty credit policy and guidelines that are monitored and reported to management according to prescribed guidelines to assist
in managing this risk. As an additional measure, we utilize a portfolio of institutions either headquartered or operating in the same countries that we conduct our
business. In calculating the fair value of our
146
derivative balances, we also record an adjustment to recognize the risk of counterparty credit and our own non-performance risk, as appropriate.
Price and Liquidity Risks
We base the fair value of our derivative instruments upon market rates and prices. The volatility of these rates and prices are dependent on many factors that
cannot be forecasted with reliable accuracy. The current fair values of our contracts could differ significantly from the cash settled values with our counterparties.
As such, we are exposed to price risk related to unfavorable changes in the fair value of our derivative contracts.
We may be forced to cash settle all or a portion of our derivative contracts before the expected settlement date upon the occurrence of certain contractual
triggers including a change of control, termination event or other breach of agreement. This could have a negative impact on our liquidity. For derivative contracts
that we have designated as hedging instruments, early cash settlement would result in the timing of our hedge settlement not being matched to the cash settlement
of the forecasted transaction or firm commitment. We may also decide to cash settle all or a portion of our derivative contracts before the expected settlement date
through negotiations with our counterparties, which could also impact our cash position.
Due to the nature of our counterparty agreements, we are not able to net positions with the same counterparty across business units. Thus, in the event of
default, we may be required to early settle all out-of-the-money contracts, without the benefit of netting the fair value of any in-the-money positions against this
exposure.
Collateral
We do not receive and are not required to post collateral unless a change of control event occurs. This termination event would give either party the right to
early terminate all outstanding swap transactions in the event that the other party consolidates, merges with, or transfers all or substantially all of its assets to,
another entity, and the creditworthiness of the surviving entity that has assumed such party's obligations is materially weaker than that of such party. As of
December 31, 2018 , we did not have any collateral posted with any of our counterparties.
Derivative Accounting Policies
Overview
Our foreign currency forwards and our forward starting interest rate swaps are designated in hedging relationships as cash flow hedges, and our cross
currency swaps are designated as net investment hedges. Prior to settlements discussed below, our forward starting interest rate swaps were also designated as cash
flow hedges and our interest rate swaps were designated as fair value hedges. In certain situations, we may execute derivatives that do not qualify for, or we do not
otherwise seek, hedge accounting but are determined to be important for managing risk. For example, our commodity swaps, commodity options, as well as the
swaptions that we entered into in association with the Acquisition were not designated in hedge accounting relationships. These outstanding economic hedges are
measured at fair value on our consolidated balance sheets with changes in fair value recorded in earnings. We have historically elected to apply the NPNS
exemption to certain contracts, as applicable. These contracts are typically transacted with our suppliers and include risk management features that allow us to fix
the price on specific volumes of purchases for specified delivery periods. We also consider whether any provisions in our contracts represent embedded derivative
instruments as defined in authoritative accounting guidance and apply the appropriate accounting.
Hedge Accounting Policies
We formally document all relationships receiving hedge accounting treatment between hedging instruments and hedged items, as well as the risk-
management objective and strategy for undertaking hedge transactions pursuant to prescribed guidance. We also formally assess effectiveness both at the hedge's
inception and on an ongoing basis, specifically whether the derivatives that are used in hedging transactions have been highly effective in mitigating the risk
designated as being hedged and whether those hedges may be expected to remain highly effective in future periods. Specific to net investment hedges, we have
elected to use the spot-to-spot methodology to assess effectiveness.
We discontinue hedge accounting prospectively when (1) the derivative is no longer highly effective in offsetting changes in the cash flows of a forecasted
future transaction; (2) the derivative expires or is sold, terminated, or exercised; (3) it is no longer probable that the forecasted transaction will occur;
(4) management determines that designating the derivative as a hedging instrument is no longer appropriate; or (5) management decides to cease hedge accounting.
When we discontinue hedge accounting prospectively, but it continues to be probable that the forecasted transaction will occur in the originally expected
period, the existing gain or loss on the derivative remains in AOCI for cash flow hedges and net investment hedges or in the carrying value of the hedged item for
fair value hedges and is reclassified into earnings when the
147
forecasted transaction affects earnings. However, if it is no longer probable that a forecasted transaction will occur by the end of the originally specified time
period or within an additional two-month period of time thereafter, the gains and losses in AOCI are recognized immediately in earnings. In all situations in which
hedge accounting is discontinued and the derivative remains outstanding, we carry the derivative at its fair value on the consolidated balance sheets until maturity,
recognizing future changes in the fair value in current period earnings.
Significant Derivative/Hedge Positions
Derivative Activity Related to the Acquisition
During the first quarter of 2016, we entered into swaption agreements with a total notional amount of $855.0 million to economically hedge a portion of our
long-term debt issuance with which we partially funded the Acquisition. We paid upfront premiums of $37.8 million for the option to enter into and exercise swaps
with a forward starting effective date. These swaptions were not designated in hedge accounting relationships as the hedges were entered into in association with
the Acquisition and, accordingly, all mark-to-market fair value adjustments were reflected within interest expense. During the second quarter of 2016, we
terminated and cash settled these swaptions in anticipation of the issuance of the 2016 Notes, resulting in cash proceeds of $1.4 million .
Separately, prior to issuing the EUR Notes and the CAD Notes on July 7, 2016 , we entered into foreign currency forward agreements in the second quarter of
2016 with a total notional amount of EUR 794.6 million and CAD 965.5 million , representing a majority of the anticipated net proceeds from the issuance of the
respective CAD Notes and EUR Notes, to economically hedge the foreign currency exposure of the associated notes against the USD prior to issuance and to
convert the proceeds to USD upon issuance through gross settlement. We settled these foreign currency forwards on July 7, 2016 , resulting in a loss of $3.6
million , and received the USD necessary, along with the USD Notes, to complete our financing needs for the Acquisition. These foreign currency forwards were
not designated in hedge accounting relationships, and, accordingly, the mark-to-market fair value adjustments and resulting unrealized losses were recorded to
other income (expense).
On July 7, 2016 , concurrent with the issuance of the EUR Notes, we designated the principal EUR 800 million of the EUR Notes as a non-derivative
financial net investment hedge of our investment in our Europe business in order to hedge a portion of the related foreign currency translational impacts, and,
accordingly, record changes in the carrying value of the EUR Notes due to fluctuations in the spot rate to AOCI. See Note 11, "Debt" for further discussion of the
EUR Notes and CAD Notes.
Interest Rate Swaps
In the first quarter of 2017, we entered into interest rate swaps with an aggregate notional amount of $1.0 billion to economically convert our fixed rate $1.0
billion 2017 USD Notes to floating rate debt. We received fixed interest payments semi-annually at a rate of 1.90% and 2.25% per annum on our $500 million
senior notes due March 15, 2019 , and $500 million senior notes due March 15, 2020 , respectively, and paid a rate to our counterparties based on a credit spread
plus the one-month LIBOR rate , thereby effectively exchanging a fixed interest obligation for a floating interest obligation.
We entered into these interest rate swap agreements to minimize exposure to changes in the fair value of each of our $500 million notes that results from
fluctuations in the benchmark interest rate, specifically LIBOR. We designated these swaps as fair value hedges and determined that there was zero ineffectiveness.
The changes in fair value of derivatives designated as fair value hedges and the offsetting changes in fair value of the hedged item were recognized in earnings. The
changes in fair value of the two $500 million interest rate swaps were recorded in interest expense in our consolidated statement of operations and were fully offset
by changes in fair value of the two $500 million notes attributable to the benchmark interest rate, also recorded to interest expense.
During the fourth quarter of 2017, we voluntarily settled our aggregate notional amount of $1.0 billion which resulted in net cash payments of $3.5 million ,
representing the cumulative adjustments to the carrying value of the notes from inception to termination. At the time of settlement we ceased adjusting the carrying
value of the two $500 million notes for the fair value movements and these cumulative adjustments are now being amortized as a charge to interest expense over
the expected remaining term of the respective note. See Note 11, "Debt" for additional details.
Separately, in prior years, we also entered into similar interest rate swap agreements to economically convert our fixed rate $500 million 3.5% notes due
2022 to floating rate debt. These interest rate swap agreements were also previously voluntarily cash settled, at which time we ceased adjusting the carrying value
of the notes for the fair value movements. The cumulative adjustments which increased the carrying value of the notes are being amortized as a benefit to interest
expense over the expected remaining term of the notes. See Note 11, "Debt" for additional details.
148
Net Investment Hedges
On March 15, 2017, we issued an aggregate of EUR 500 million (approximately $530 million at issuance), 0.35% plus three-month EURIBOR floating rate
senior notes due March 15, 2019. We simultaneously designated the principal of the 2017 EUR Notes as a net investment hedge of our investment in our Europe
business in order to hedge a portion of the foreign currency translational impacts and, accordingly, will record changes in the carrying value of the 2017 EUR
Notes due to fluctuations in the spot rate to AOCI. See Note 11, "Debt" for further discussion.
Forward Starting Interest Rate Swaps
Forward starting interest rate swaps are instruments we use to manage our exposure to the volatility of the interest rates associated with future interest
payments on a forecasted debt issuance. During the third quarter of 2018, we entered into forward starting interest rate swaps with notional amounts totaling $1.5
billion . The forward starting interest rate swaps have an effective date of July 2018 and termination dates of July 2021, May 2022 and July 2026, mirroring the
terms of the forecasted debt issuances. Weighted-average interest rates on the swaps are fixed at 3.00% , 3.01% and 3.10% for July 2021, May 2022 and July 2026,
respectively. Under the agreements we are required to early terminate these swaps at the time we expect to issue the related forecasted debt. We have designated
these contracts as cash flow hedges. As a result, the unrealized mark-to-market gains or losses will be recorded to AOCI until termination at which point the
realized gain or loss of these swaps at issuance of the hedged debt will be reclassified from AOCI and amortized to interest expense over the term of the hedged
debt.
Prior to the issuance of the 2015 Notes, we entered into forward starting interest rate swaps with a notional of CAD 600 million in order to manage our
exposure to the volatility of the interest rates associated with the future interest payments on the forecasted debt issuances. The swaps had an effective date of
September 2015 and a termination date of September 2025 mirroring the terms of the initially forecasted debt issuance. Under these agreements we were required
to early terminate these swaps at the approximate time we issued the previously forecasted debt. We had designated these contracts as cash flow hedges and
accordingly, a portion of the CAD 39.2 million ( $29.5 million at settlement) loss on the forward starting interest rate swaps is being reclassified from AOCI and
amortized to interest expense over the remaining term of the 2015 Notes and over a portion the CAD 500 million notes due in 2026 up to the full 10-year term of
the interest rate swap agreements.
Cross Currency Swaps
Effective April 18, 2018, we entered into cross currency swap agreements having a total notional of approximately EUR 404 million ( $500 million upon
execution) in order to hedge a portion of the foreign currency translational impacts of our European investment. As a result of the swaps, we economically
converted our $500 million 2.25% senior notes due 2020 and associated interest to EUR denominated, which will result in a EUR interest rate to be received at
0.85% . We have designated these cross currency swaps as net investment hedges and accordingly, record changes in fair value due to fluctuations in the spot rate
to AOCI. The changes in fair value of the swaps attributable to changes other than those due to fluctuations in the spot rate are excluded from the assessment of
hedge effectiveness and recorded to interest expense over the life of the hedge.
Foreign Currency Forwards
Prior to issuing the 2017 EUR Notes on March 15, 2017, we entered into foreign currency forward agreements in the first quarter of 2017 with a total notional
amount of EUR 499 million , representing a majority of the anticipated net proceeds from the issuance of the respective 2017 EUR Notes, to economically hedge
the foreign currency exposure of the associated notes against the USD prior to issuance and to convert the proceeds to USD upon issuance through gross
settlement. We settled these foreign currency forwards on March 15, 2017, resulting in a loss of $8.3 million . These foreign currency forwards were not designated
in hedge accounting relationships, and, accordingly, the mark-to-market fair value adjustments and resulting losses were recorded to other income (expense).
We have financial foreign exchange forward contracts in place to manage our exposure to foreign currency fluctuations. We hedge foreign currency exposure
related to certain royalty agreements, exposure associated with the purchase of production inputs and imports that are denominated in currencies other than the
functional entity's local currency, and other foreign exchanges exposures. These contracts have been designated as cash flow hedges of forecasted foreign currency
transactions. We use foreign currency forward contracts to hedge these future forecasted transactions up to a 60 month horizon.
Commodity Swaps and Options
We have financial commodity swap and option contracts in place to hedge changes in the prices of natural gas, aluminum, including surcharges relating to
our aluminum exposures, corn, barley and diesel. These contracts allow us to swap our floating exposure to changes in these commodity prices for a fixed rate.
These contracts are not designated in hedge accounting relationships. As such, changes in fair value of these derivatives are recorded in cost of goods sold in the
consolidated statements of operations. We hedge forecasted purchases of natural gas up to 60 months , aluminum up to 60 months , corn up to
149
60 months , and diesel up to 60 months out in the future for use in our supply chain, in line with our risk management policy. Further, we hedge forecasted
purchases of barley based on crop year and physical inventory management. For purposes of measuring segment operating performance, the unrealized changes in
fair value of the swaps not designated in hedge accounting relationships are reported in Corporate outside of the segment specific operating results until such time
that the exposure we are managing is realized. At that time we reclassify the gain or loss from Corporate to the operating segment, allowing our operating segments
to realize the economic effects of the derivative without the resulting unrealized mark-to-market volatility.
Warrants
On October 4, 2018 , in connection with the formation of the Truss joint venture, as discussed further in Note 4, "Acquisition and Investments," our joint
venture partner, HEXO, issued to our Canadian subsidiary a total of 11.5 million warrants to purchase common shares of HEXO at a strike price of CAD 6.00 per
share at any time during the three year period following the formation of the joint venture. The fair value of the warrants at issuance of approximately $45 million
was recorded as a non-current asset and as an adjustment to paid-in capital, net of tax. All changes in the fair value of the warrants subsequent to issuance will be
recorded in other income (expense), net on the consolidated statements of operations.
Derivative Fair Value Measurements
We utilize market approaches to estimate the fair value of our derivative instruments by discounting anticipated future cash flows derived from the
derivative's contractual terms and observable market interest, foreign exchange and commodity rates. The fair values of our derivatives also include credit risk
adjustments to account for our counterparties' credit risk, as well as our own non-performance risk, as appropriate. The fair value of the HEXO warrants is
estimated using the Black-Scholes option-pricing model. As of December 31, 2018 , the assumptions used to estimate the fair value of the HEXO warrants are as
follows:
Expected term (years)
Estimated volatility
Risk-free interest rate
Expected dividend yield
2.75
88.71%
2.04%
—%
The expected term is based on the contractual maturity date of the warrants. Estimated volatility is based on a blend of implied volatility along with historical
volatility levels of peer companies. The risk-free rate utilized is based on a zero-coupon Canadian Treasury security yield with a remaining term equal to the
expected term of the warrants. The expected dividend yield is determined by historical dividend levels.
The table below summarizes our derivative assets and liabilities that were measured at fair value as of December 31, 2018 , and December 31, 2017 . See
Note 1, "Basis of Presentation and Summary of Significant Accounting Policies" for further discussion related to measuring the fair value of derivative instruments.
Cross currency swaps
Interest rate swaps
Foreign currency forwards
Commodity swaps and options
Warrants
Total
Total as of
December 31, 2018
Quoted prices
in active markets
(Level 1)
Fair Value Measurements as of
December 31, 2018
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
$
36.5
$
(12.3)
16.3
(42.0)
19.6
18.1
$
150
(In millions)
— $
—
—
—
—
— $
36.5
$
(12.3)
16.3
(42.0)
19.6
18.1
$
—
—
—
—
—
—
Total as of
December 31, 2017
Quoted prices
in active markets
(Level 1)
Fair Value Measurements as of
December 31, 2017
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
$
(10.9)
$
122.8
111.9
$
(In millions)
— $
—
— $
(10.9)
$
122.8
111.9
$
—
—
—
Foreign currency forwards
Commodity swaps and options
Total
As of December 31, 2018 and December 31, 2017 , we had no significant transfers between Level 1 and Level 2. New derivative contracts transacted during
2018 were all included in Level 2.
Results of Period Derivative Activity
The following tables include the year-to-date results of our derivative activity in our consolidated balance sheets as of December 31, 2018 , and
December 31, 2017 , and our consolidated statements of operations for the years ended December 31, 2018 , December 31, 2017 , and December 31, 2016 ,
respectively.
Fair Value of Derivative Instruments in the Consolidated Balance Sheets (in millions):
Asset derivatives
Liability derivatives
December 31, 2018
Notional
amount
Balance sheet location
Fair value
Balance sheet location
Fair value
Derivatives designated as hedging instruments:
Cross currency swaps
Interest rate swaps
Foreign currency forwards
$
$
$
500.0
1,500.0
338.6
Other non-current assets
Other non-current assets
Other current assets
Other non-current assets
$
36.5 Other liabilities
— Other liabilities
7.3 Accounts payable and other current liabilities
9.2 Other liabilities
Total derivatives designated as hedging instruments
Derivatives not designated as hedging instruments:
$
53.0
Commodity swaps (1)
Commodity options (1)
Warrants
$
$
$
868.4
Other current assets
Other non-current assets
46.6
50.6
Other current assets
Other non-current assets
$
12.1 Accounts payable and other current liabilities
6.1 Other liabilities
0.1 Accounts payable and other current liabilities
19.6 Other liabilities
Total derivatives not designated as hedging instruments
$
37.9
Asset derivatives
Liability derivatives
December 31, 2017
Notional
amount
Balance sheet location
Fair value
Balance sheet location
Derivatives designated as hedging instruments:
Foreign currency forwards
$
326.4
Total derivatives designated as hedging instruments
Derivatives not designated as hedging instruments:
Commodity swaps (1)
$
765.0
Other current assets
Other non-current assets
Other current assets
Other non-current assets
Commodity options (1)
Total derivatives not designated as hedging instruments
$
30.6
Other current and non-current
assets
$
$
$
$
0.4 Accounts payable and other current liabilities
0.2 Other liabilities
0.6
70.8 Accounts payable and other current liabilities
63.5 Other liabilities
Accounts payable and other current liabilities and other
liabilities
0.2
134.5
$
—
(12.3)
(0.1)
(0.1)
$
(12.5)
$
(37.9)
(22.3)
(0.1)
—
$
(60.3)
Fair value
$
(6.1)
(5.4)
$
(11.5)
$
$
(7.3)
(4.2)
(0.2)
(11.7)
(1)
Notional includes offsetting buy and sell positions, shown in terms of absolute value. Buy and sell positions are shown gross in the asset and/or liability
position, as appropriate.
151
Items Designated and Qualifying as Hedged Items in Fair Value Hedging Relationships in the Consolidated Balance Sheets (in millions):
Line item in the balance sheet in which the hedged item
is included
Carrying amount of the hedged assets/liabilities
Cumulative amount of fair value hedging adjustment(s) in the
hedged assets/liabilities (1) Increase/(Decrease)
As of December 31, 2018
As of December 31, 2018
Current portion of long-term debt and short-term
borrowings
Long-term debt
$
$
(1) Entire balances relate to hedging adjustments on discontinued hedging relationships.
(In millions)
— $
— $
(0.2)
8.3
The Pretax Effect of Fair Value and Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income (in millions):
Derivatives in cash flow hedge relationships
Forward starting interest rate swaps
Foreign currency forwards
Total
$
$
For the year ended December 31, 2018
Amount of gain (loss) recognized in
OCI on derivative
Location of gain (loss) reclassified
from AOCI into income
Amount of gain (loss) recognized from
AOCI on derivative
Interest expense
Cost of goods sold
Other income (expense), net
(12.3)
26.8
14.5
$
$
(3.0)
(0.2)
(0.2)
(3.4)
For the year ended December 31, 2018
Amount of gain (loss)
recognized in OCI on
derivative
Location of gain (loss)
reclassified from AOCI
into income
Amount of gain (loss)
recognized from
AOCI on derivative
Location of gain (loss)
recognized in income on
derivative (amount
excluded from
effectiveness testing)
Amount of gain (loss)
recognized in income on
derivative (amount
excluded from
effectiveness testing) (1)
$
$
36.5 Interest expense
36.5
$
$
— Interest expense
—
$
$
10.7
10.7
Derivatives in net investment hedge
relationships
Cross currency swaps
Total
(1)
Represents amounts excluded from the assessment of effectiveness for which the difference between changes in fair value and period amortization is
recorded in other comprehensive income.
Non-derivative financial instruments in net
investment hedge relationships
Amount of gain (loss)
recognized in OCI on
derivative
Location of gain (loss)
reclassified from AOCI
into income
Amount of gain (loss)
recognized from
AOCI on derivative
Location of gain (loss)
recognized in income on
derivative (amount
excluded from
effectiveness testing)
Amount of gain (loss)
recognized in income on
derivative (amount excluded
from effectiveness testing)
For the year ended December 31, 2018
EUR 800 million notes due 2024
EUR 500 million notes due 2019
Total
$
$
Other income (expense),
net
Other income (expense),
net
43.0
26.9
69.9
$
$
Other income (expense),
net
Other income (expense),
net
—
—
—
$
$
—
—
—
152
Derivatives in cash flow hedge relationships
Forward starting interest rate swaps
Foreign currency forwards
Total
For the year ended December 31, 2017
Amount of gain
(loss) recognized
in OCI on
derivative
(effective portion)
Location of gain
(loss) reclassified
from AOCI
into income
(effective portion)
Amount of gain
(loss) recognized
from AOCI
on derivative
(effective portion)
$
$
— Interest expense
(22.7)
Cost of goods sold
Other income (expense),
net
(22.7)
$
$
(3.7)
3.7
(2.0)
(2.0)
For the year ended December 31, 2017
Location of gain
(loss) recognized
in income
on derivative
(ineffective portion
and amount
excluded from
effectiveness testing)
Interest expense
Cost of goods sold
Other income (expense),
net
Location of gain
(loss) recognized
in income
on derivative
(ineffective portion
and amount
excluded from
effectiveness testing)
Amount of gain
(loss) recognized
in income
on derivative
(ineffective portion
and amount
excluded from
effectiveness testing)
Amount of gain
(loss) recognized
in income
on derivative
(ineffective portion
and amount
excluded from
effectiveness testing)
$
$
$
$
—
—
—
—
—
—
—
—
—
—
—
Non-derivative financial instruments in net
investment hedge relationships
EUR 800 million notes due 2024
EUR 500 million notes due 2019
Total
$
$
Amount of gain
(loss) recognized
in OCI on
derivative
(effective portion)
Location of gain
(loss) reclassified
from AOCI
into income
(effective portion)
Amount of gain
(loss) recognized
from AOCI
on derivative
(effective portion)
Other income (expense),
net
Other income (expense),
net
(119.0)
(63.6)
(182.6)
$
$
Other income (expense),
net
Other income (expense),
net
—
—
—
Derivatives in fair value hedge relationship
Interest rate swaps
Total
Amount of gain (loss)
recognized in income
on derivative
$
$
Interest expense
(3.5)
(3.5)
Location of gain (loss) recognized in income
For the year ended December 31, 2017
For the year ended December 31, 2016
Amount of gain
(loss) recognized
in OCI on
derivative
(effective portion)
Location of gain
(loss) reclassified
from AOCI
into income
(effective portion)
Amount of gain
(loss) recognized
from AOCI
on derivative
(effective portion)
Location of gain
(loss) recognized
in income
on derivative
(ineffective portion
and amount
excluded from
effectiveness testing)
Amount of gain
(loss) recognized
in income
on derivative
(ineffective portion
and amount
excluded from
effectiveness testing)
— Interest expense
$
(23.7)
Cost of goods sold
Other income (expense),
net
(3.8)
14.4
Interest expense
Cost of goods sold
Other income (expense),
net
(7.2)
3.4
$
$
Derivatives in cash flow hedge relationships
Forward starting interest rate swaps
$
Foreign currency forwards
Total
$
(23.7)
$
153
For the year ended December 31, 2016
Amount of gain
(loss) recognized
in OCI on
derivative
(effective portion)
Location of gain
(loss) reclassified
from AOCI
into income
(effective portion)
Amount of gain
(loss) recognized
from AOCI
on derivative
(effective portion)
Location of gain
(loss) recognized
in income
on derivative
(ineffective portion
and amount
excluded from
effectiveness testing)
Amount of gain
(loss) recognized
in income
on derivative
(ineffective portion
and amount
excluded from
effectiveness testing)
$
$
Other income (expense),
net
43.7
43.7
$
$
Other income (expense),
net
—
—
$
$
—
—
Non-derivative financial instruments in net
investment hedge relationships
EUR 800 million notes due 2024
Total
We expect net gains of approximately $4 million (pretax) recorded in AOCI as of December 31, 2018 , will be reclassified into earnings within the next 12
months. For derivatives designated in cash flow hedge relationships, the maximum length of time over which forecasted transactions are hedged as of
December 31, 2018 , is approximately 8 years.
The Effect of Fair Value and Cash Flow Hedge Accounting on the Consolidated Statements of Operations (in millions) :
Total amount of income and expense line items presented in the consolidated statement of operations in which the effects of fair
value or cash flow hedges are recorded
Gain (loss) on cash flow hedging relationships:
Forward starting interest rate swaps
Amount of gain (loss) reclassified from accumulated other comprehensive income into income
Foreign currency forwards
Amount of gain (loss) reclassified from accumulated other comprehensive income into income
Location and amount of gain (loss) recognized in income
on fair value and cash flow hedging relationships
For the year ended December 31, 2018
Cost of goods
sold
Other income
(expense), net
Interest expense
$
$
$
(6,584.8) $
(12.0)
$
(306.2)
— $
— $
(0.2) $
(0.2)
$
(3.0)
—
The Effect of Derivatives Not Designated as Hedging Instruments on the Consolidated Statements of Operations (in millions):
Derivatives not in hedging relationship
Commodity swaps
Warrants
Total
Derivatives not in hedging relationship
Commodity swaps
Foreign currency swaps
Total
For the year ended December 31, 2018
Location of gain (loss) recognized
in income on derivative
Amount of gain (loss) recognized
in income on derivative
Cost of goods sold
Other income (expense), net
For the year ended December 31, 2017
Location of gain (loss) recognized
in income on derivative
Cost of goods sold
Other income (expense), net
$
$
$
$
(110.5)
(23.8)
(134.3)
Amount of gain (loss) recognized
in income on derivative
150.1
(8.3)
141.8
154
Derivatives not in hedging relationship
Location of gain (loss) recognized
in income on derivative
Amount of gain (loss) recognized
in income on derivative
For the year ended December 31, 2016
Commodity swaps
Commodity options
Foreign currency swaps
Swaption
Total
Cost of goods sold
Cost of goods sold
Other income (expense), net
Interest expense
$
$
13.0
(0.7)
(4.3)
(36.4)
(28.4)
Lower commodity prices relative to our hedged positions, primarily in aluminum, during 2018 drove the total loss recognized in income related to
commodity swaps for the year end December 31, 2018 . Contrarily, higher commodity prices, also primarily in aluminum, during 2017 resulted in the total gain
recognized in income related to commodity swaps for the year ended December 31, 2017 .
17. Accounts Payable and Other Current Liabilities
Accounts payable and accrued trade payables
Accrued compensation
Accrued excise and other non-income related taxes
Accrued interest
Accrued selling and marketing costs
Container liability
Other (1)
Accounts payable and other current liabilities
As of
December 31, 2018
December 31, 2017
(In millions)
1,616.8 $
224.6
244.1
112.6
120.0
163.0
225.3
1,568.6
262.4
292.9
116.1
92.0
146.0
206.5
2,706.4 $
2,684.5
$
$
(1)
Includes current liabilities related to derivatives, income taxes, pensions and other postretirement benefits and other accrued expenses.
18. Commitments and Contingencies
Letters of Credit
As of December 31, 2018 , we had $64.5 million outstanding in letters of credit with financial institutions. These letters primarily expire throughout 2019 and
$19.4 million of the letters contain a feature that automatically renews the letter for an additional year if no cancellation notice is submitted. These letters of credit
are being maintained as security for deferred compensation payments, reimbursements to insurance companies, reimbursements to the trustee for pension
payments, deductibles or retention payments made on our behalf, various payments due to governmental agencies, operations of underground storage tanks and
other general business purposes, and are not included on our consolidated balance sheets.
Guarantees and Indemnities
We guarantee indebtedness and other obligations to banks and other third parties for some of our equity method investments and consolidated subsidiaries.
As of December 31, 2018 , and December 31, 2017 , the consolidated balance sheets include liabilities related to these guarantees of $35.9 million and $42.8
million , respectively, primarily related to the guarantee of the indebtedness of our equity method investments. See Note 4, "Acquisition and Investments" for
further detail.
Kaiser
In 2006, we sold our entire equity interest in our Brazilian unit, Cervejarias Kaiser Brasil S.A. ("Kaiser") to FEMSA Cerveza S.A. de C.V. ("FEMSA"). The
terms of the sale agreement require us to indemnify FEMSA for certain exposures related to tax, civil and labor contingencies arising prior to FEMSA's purchase of
Kaiser. In addition, we provided an indemnity to FEMSA for losses Kaiser may incur with respect to tax claims associated with certain previously utilized
purchased tax credits. We settled a portion of our tax credit indemnity obligation during 2010. The maximum potential claims amount for the remainder of the
purchased tax credits (which we believe present less risk than those previously settled), was $90.2 million as
155
of December 31, 2018 . Our total estimate of the indemnity liability as of December 31, 2018 , was $10.3 million , of which $4.2 million was classified as a current
liability, and $6.1 million classified as non-current.
Our estimates consider a number of scenarios for the ultimate resolution of these issues, the probabilities of which are influenced not only by legal
developments in Brazil but also by management's intentions with regard to various alternatives that could present themselves leading to the ultimate resolution of
these issues. The liabilities are impacted by changes in estimates regarding amounts that could be paid, the timing of such payments, adjustments to the
probabilities assigned to various scenarios and foreign currency exchange rates. Our indemnity also covers fees and expenses that Kaiser incurs to manage the
cases through the administrative and judicial systems.
Additionally, we also provided FEMSA with indemnity related to all other tax, civil, and labor contingencies existing as of the date of sale. In this regard,
however, FEMSA assumed their full share of all of these contingent liabilities that had been previously recorded and disclosed by us prior to the sale on
January 13, 2006. However, we may have to provide indemnity to FEMSA if those contingencies settle at amounts greater than those amounts previously recorded
or disclosed by us. We will be able to offset any indemnity exposures in these circumstances with amounts that settle favorably to amounts previously recorded.
Our exposure related to these indemnity claims is capped at the amount of the sales price of the 68% equity interest of Kaiser, which was $68.0 million . As a result
of these contract provisions, our estimates include not only probability-weighted potential cash outflows associated with indemnity provisions, but also probability-
weighted cash inflows that could result from favorable settlements, which could occur through negotiation or settlement programs arising from the federal or any of
the various state governments in Brazil. The recorded value of the tax, civil, and labor indemnity liability was $4.4 million as of December 31, 2018 , which is
classified as non-current. For the remaining portion of our indemnity obligations, not deemed probable, we continue to utilize probability-weighted scenarios in
determining the value of the indemnity obligations.
Future settlement procedures and related negotiation activities associated with these contingencies are largely outside of our control. The sale agreement
requires annual cash settlements relating to the tax, civil, and labor indemnities. Indemnity obligations related to purchased tax credits must be settled upon
notification of FEMSA's settlement. Due to the uncertainty involved with the ultimate outcome and timing of these contingencies, significant adjustments to the
carrying values of the indemnity obligations have been recorded to date, and additional future adjustments may be required. These liabilities are denominated in
Brazilian Reais and are therefore, subject to foreign exchange gains or losses. As a result, these foreign exchange gains and losses are the only impacts recorded
within other income (expense), net.
The table below provides a summary of reserves associated with the Kaiser indemnity obligations from December 31, 2015 , through December 31, 2018 :
Balance as of December 31, 2015
Changes in estimates
Foreign exchange impacts
Balance as of December 31, 2016
Changes in estimates
Foreign exchange impacts
Balance as of December 31, 2017
Changes in estimates
Foreign exchange impacts
Balance as of December 31, 2018
156
Total indemnity
reserves
(In millions)
14.4
—
3.2
17.6
—
(0.3)
17.3
—
(2.6)
14.7
$
$
$
$
Purchase Obligations
We have various long-term supply contracts and distribution agreements with unaffiliated third parties and our joint venture partners to purchase materials
used in production and packaging and to provide distribution services. The supply contracts provide that we purchase certain minimum levels of materials
throughout the terms of the contracts. Additionally, we have various long-term non-cancelable commitments for advertising, sponsorships and promotions,
including marketing at sports arenas, stadiums and other venues and events. The future aggregate minimum required commitments under these purchase
obligations are shown in the table below based on foreign exchange rates as of December 31, 2018 . The amounts in the table do not represent all anticipated
payments under long-term contracts. Rather, they represent unconditional, non-cancelable purchase commitments under contracts with remaining terms greater
than one year.
Year
Supply and Distribution
Advertising and
Promotions
2019
2020
2021
2022
2023
Thereafter
Total
(Amounts in millions)
$
445.4 $
400.5
345.5
316.5
217.0
1.3
$
1,726.2 $
142.3
104.4
66.3
48.9
35.5
88.1
485.5
Total purchases under our supply and distribution contracts in 2018 , 2017 and 2016 were approximately $1.1 billion , $1.2 billion and $910.7 million ,
respectively. Total advertising expense was approximately $1.2 billion , $1.3 billion and $644.1 million in 2018 , 2017 and 2016 , respectively.
Leases
We lease certain office facilities and operating equipment under cancelable and non-cancelable agreements accounted for as operating leases. Additionally,
we lease certain buildings and equipment which are accounted for as capital leases. Gross assets recorded under capital leases as of December 31, 2018 , and
December 31, 2017 , were $ 82.5 million and $ 71.4 million , respectively. The associated accumulated amortization on these assets as of December 31, 2018 , and
December 31, 2017 , was $ 13.2 million and $ 9.0 million , respectively. These amounts are recorded within properties on the consolidated balance sheets. Based
on foreign exchange rates as of December 31, 2018 , future minimum lease payments under operating leases that have initial or remaining non-cancelable terms in
excess of one year, as well as capital leases, are as follows:
Year
Operating Leases
Capital Leases
2019
2020
2021
2022
2023
Thereafter
Total future minimum lease payments
Less: Interest on capital leases
(Amounts in millions)
$
49.4 $
40.2
32.6
24.6
17.0
21.0
$
184.8 $
Present value of future minimum capital lease payments (1)
$
6.1
36.2
5.9
5.9
5.8
64.2
124.1
(38.8)
85.3
(1) Includes current portion of $ 3.2 million . Current and non-current capital lease obligations are recorded within accounts payable and other current liabilities,
and other liabilities on the consolidated balance sheets, respectively.
Total rent expense was $66.1 million , $64.1 million and $36.6 million in 2018 , 2017 and 2016 , respectively.
157
Litigation and Other Disputes and Environmental
Related to litigation, other disputes and environmental issues, we have accrued an aggregate of $13.7 million as of December 31, 2018 , and $17.8 million as
of December 31, 2017 . While we cannot predict the eventual aggregate cost for litigation, other disputes and environmental matters in which we are currently
involved, we believe adequate reserves have been provided for losses that are probable and estimable. Further, we believe that any payments, if required, for these
matters would be made over a period of time in amounts that would not be material in any one year to our results from operations, cash flows or our financial or
competitive position. Additionally, we believe that any reasonably possible losses in excess of the amounts accrued are immaterial to our consolidated financial
statements, except as otherwise noted.
We are involved in other disputes and legal actions arising in the ordinary course of our business. While it is not feasible to predict or determine the outcome
of these proceedings, in our opinion, based on a review with legal counsel, other than as noted, none of these disputes or legal actions are expected to have a
material impact on our business, consolidated financial position, results of operations or cash flows. However, litigation is subject to inherent uncertainties and an
adverse result in these or other matters may arise from time to time that may harm our business.
Each year since 2014, we received assessments from a local country regulatory authority related to indirect tax calculations in our Europe operations. The
aggregate amount of the assessments received at the time of resolution of this matter was approximately $139.0 million . We challenged the validity of these
assessments and defended our position regarding the method of calculation, including by following the required regulatory procedures in order to proceed with an
appeal of the assessments. During the fourth quarter of 2016, following discussions with the regulatory authority and consideration of existing facts and
circumstances at that time, we concluded that a portion of this estimated range of loss was deemed probable. As a result, we recorded a charge of approximately
$50 million within the excise taxes line item on the consolidated statement of operations for the year ended December 31, 2016. In April 2017, a local jurisdictional
court ruled in our favor. Based on this favorable ruling, we released this provision in the first quarter of 2017 as we no longer deemed this loss probable. This
resulted in a benefit of approximately $50 million , recorded within the excise taxes line item on the consolidated statement of operations during the year ended
December 31, 2017. During the second quarter of 2017, we received formal confirmation from the regulatory authority that they would not appeal the local
jurisdictional court ruling, and the regulatory authority has since withdrawn its assessments. As a result, we believe this dispute is fully resolved.
On February 12, 2018, Stone Brewing Company filed a trademark infringement lawsuit in federal court in the Southern District of California against
MillerCoors LLC alleging that the Keystone brand has “rebranded” itself as “Stone” and is marketing itself in a manner confusingly similar to Stone Brewing
Company's registered Stone trademark. Stone Brewing Company seeks treble damages in the amount of MillerCoors’ profit from Keystone sales. MillerCoors
subsequently filed an answer and counterclaims against Stone Brewing Company. On May 31, 2018, Stone Brewing Company filed motions to dismiss and for a
preliminary injunction seeking to bar MillerCoors from continuing to use “STONE” on Keystone Light cans and related marketing materials. We are currently
awaiting the court decision regarding the motions to dismiss and preliminary injunction. We intend to vigorously assert and defend our rights in this lawsuit. A
range of potential loss is not estimable at this time.
In December 2018, the U.S. Department of Treasury issued a regulation that impacts our ability to claim a refund of certain federal duties, taxes, and fees
paid for beer sold between the U.S. and certain other countries effective in February 2019. As a result, future claims will no longer be accepted, and we may be
further unable to collect historically claimed, but not yet received, refunds of approximately $38 million , which are recorded within other non-current assets on our
consolidated balance sheet as of December 31, 2018 .
Environmental
When we determine it is probable that a liability for environmental matters or other legal actions exists and the amount of the loss is reasonably estimable, an
estimate of the future costs is recorded as a liability in the financial statements. Costs that extend the life, increase the capacity or improve the safety or efficiency
of our assets or are incurred to mitigate or prevent future environmental contamination may be capitalized. Other environmental costs are expensed when incurred.
Total environmental expenditures recognized as other expense for 2018 , 2017 and 2016 were immaterial to our consolidated financial statements.
Canada
Our Canada brewing operations are subject to provincial environmental regulations and local permit requirements. Our Montréal and Toronto breweries have
water treatment facilities to pre-treat waste water before it goes to the respective local governmental facility for final treatment. We have environmental programs
in Canada including organization, monitoring and verification, regulatory compliance, reporting, education and training, and corrective action.
158
We sold a chemical specialties business in 1996. We are still responsible for certain aspects of environmental remediation, undertaken or planned, at those
chemical specialties business locations. We have established provisions for the costs of these remediation programs.
United States
We were previously notified that we are or may be a potentially responsible party ("PRP") under the Comprehensive Environmental Response,
Compensation and Liability Act or similar state laws for the cleanup of sites where hazardous substances have allegedly been released into the environment. We
cannot predict with certainty the total costs of cleanup, our share of the total cost, the extent to which contributions will be available from other parties, the amount
of time necessary to complete the cleanups or insurance coverage.
Lowry
We are one of a number of entities named by the Environmental Protection Agency ("EPA") as a PRP at the Lowry Superfund site. This landfill is owned by
the City and County of Denver ("Denver") and is managed by Waste Management of Colorado, Inc. ("Waste Management"). In 1990, we recorded a pretax charge
of $30 million , a portion of which was put into a trust in 1993 as part of a settlement with Denver and Waste Management regarding the then-outstanding
litigation. Our settlement was based on an assumed remediation cost of $120 million (in 1992 adjusted dollars). We are obligated to pay a portion of future costs, if
any, in excess of that amount.
Waste Management provides us with updated annual cost estimates through 2032. We review these cost estimates in the assessment of our accrual related to
this issue. Our expected liability (based on the $120 million threshold being met) is based on our best estimates available.
Based on the assumptions utilized, the present value and gross amount of the costs as of December 31, 2018 , are approximately $5 million and $7 million ,
respectively. Cost estimates were discounted using a 2.86% risk-free rate of return. We did not assume any future recoveries from insurance companies in the
estimate of our liability, and none are expected.
Considering the estimates extend through the year 2032 and the related uncertainties at the site, including what additional remedial actions may be required
by the EPA, new technologies and what costs are included in the determination of when the $120 million is reached, the estimate of our liability may change as
further facts develop. We cannot predict the amount of any such change, but additional accruals in the future are possible.
Other
In prior years, we were notified by the EPA and certain state environmental divisions that we are a PRP, along with other parties, at the East Rutherford and
Berry's Creek sites in New Jersey and the Chamblee site in Georgia. Certain former non-beer business operations, which we discontinued use of and subsequently
sold, were involved at these sites. Potential losses associated with these sites could increase as remediation planning progresses.
We are aware of groundwater contamination at some of our properties in Colorado resulting from historical, ongoing, or nearby activities. There may also be
other contamination of which we are currently unaware.
Europe and International
We are subject to the requirements of governmental and local environmental and occupational health and safety laws and regulations within each of the
countries in which we operate. Compliance with these laws and regulations did not materially affect our 2018 capital expenditures, results of operations or our
financial or competitive position, and we do not anticipate that they will do so in 2019 .
19. Supplemental Guarantor Information
For purposes of this Note 19, including the tables, "Parent Issuer" shall mean MCBC. "Subsidiary Guarantors" shall mean certain Canadian and
U.S. subsidiaries reflecting the substantial operations of each of our Canada and U.S. segments.
SEC Registered Securities
On May 3, 2012, MCBC issued $1.9 billion of senior notes, in a registered public offering, consisting of $300 million 2.0% senior notes due 2017
(subsequently repaid in the second quarter of 2017), $500 million 3.5% senior notes due 2022, and $1.1 billion 5.0% senior notes due 2042. Additionally, on
July 7, 2016 , MCBC issued the 2016 USD Notes and the 2016 EUR Notes, in a registered public offering. In December 2017, MCBC completed an exchange offer
in which it issued publicly registered senior notes in exchange for its $500 million 1.90% senior notes due 2019, $500 million 2.25% senior notes due
159
2020 and our EUR 500 million floating rate senior notes due 2019, which were issued in private placement transactions in March 2017. "Parent Issuer" in the
below tables is specifically referring to MCBC in its capacity as the issuer of these 2012, 2016 and 2017 issuances. These senior notes are guaranteed on a senior
unsecured basis by the Subsidiary Guarantors. Each of the Subsidiary Guarantors is 100% owned by the Parent Issuer. The guarantees are full and unconditional
and joint and several.
None of our other outstanding debt is registered with the SEC, and such other outstanding debt is guaranteed on a senior unsecured basis by the Parent and/or
Subsidiary Guarantors. These guarantees are full and unconditional and joint and several. See Note 11, "Debt" for details of all debt issued and outstanding as of
December 31, 2018 .
Restatement of Previously Issued Consolidated Financial Statements for Income Tax Accounting Errors
As a result of the restatement to correct errors related to income tax accounting discussed in Note 1, "Basis of Presentation and Summary of Significant
Accounting Policies," we have restated our supplemental guarantor condensed consolidating statements of operations for the years ended December 31, 2017 and
2016, and condensed consolidating balance sheet as of December 31, 2017. The errors did not impact the total net cash flows from operating, investing or financing
activities in the condensed consolidating statement of cash flows.
See Note 1, "Basis of Presentation and Summary of Significant Accounting Policies" for further discussion of these corrections. The impacts to the guarantor
condensed consolidating financial statements are included in the tables below.
Condensed Consolidating Statement of Operations:
As Reported
Equity income (loss) in subsidiaries
Operating income (loss)
Income (loss) before income taxes
Income tax benefit (expense)
Net income (loss)
Net income (loss) attributable to MCBC
Comprehensive income (loss) attributable to MCBC
As Restated
Equity income (loss) in subsidiaries
Operating income (loss)
Income (loss) before income taxes
Income tax benefit (expense)
Net income (loss)
Net income (loss) attributable to MCBC
Comprehensive income (loss) attributable to MCBC
Parent
Issuer
Subsidiary
Guarantors
Year ended
December 31, 2017
Subsidiary
Non
Guarantors
(In millions)
Eliminations
Consolidated
(285.7) $
1,481.2 $
1,937.0 $
(86.6) $
1,850.4 $
1,850.4 $
2,634.4 $
(285.7) $
1,481.2 $
1,937.0 $
64.8 $
2,001.8 $
2,001.8 $
2,785.8 $
193.4 $
370.0 $
(63.4) $
(6.7) $
(70.1) $
(92.3) $
(1,758.1) $
(1,758.1) $
(1,758.1) $
— $
(1,758.1) $
(1,758.1) $
376.8 $
(3,011.2) $
193.4 $
370.0 $
(63.4) $
(6.7) $
(70.1) $
(92.3) $
(1,909.5) $
(1,909.5) $
(1,909.5) $
— $
(1,909.5) $
(1,909.5) $
376.8 $
(3,162.6) $
—
1,677.7
1,383.2
53.2
1,436.4
1,414.2
2,126.0
—
1,677.7
1,383.2
204.6
1,587.8
1,565.6
2,277.4
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1,850.4 $
1,584.6 $
1,267.7 $
146.5 $
1,414.2 $
1,414.2 $
2,126.0 $
2,001.8 $
1,736.0 $
1,419.1 $
146.5 $
1,565.6 $
1,565.6 $
2,277.4 $
160
Condensed Consolidating Statement of Operations:
As Reported
Equity income (loss) in subsidiaries
Operating income (loss)
Income (loss) before income taxes
Income tax benefit (expense)
Net income (loss)
Net income (loss) attributable to MCBC
Comprehensive income (loss) attributable to MCBC
As Restated
Equity income (loss) in subsidiaries
Operating income (loss)
Income (loss) before income taxes
Income tax benefit (expense)
Net income (loss)
Net income (loss) attributable to MCBC
Comprehensive income (loss) attributable to MCBC
Condensed Consolidating Balance Sheets:
As Reported
Net investment in and advances to subsidiaries
Total assets
Deferred tax liabilities
Total liabilities
MCBC stockholders' equity
Total stockholders' equity
Total equity
Total liabilities and equity
As Restated
Net investment in and advances to subsidiaries
Total assets
Deferred tax liabilities
Total liabilities
MCBC stockholders' equity
Total stockholders' equity
Total equity
Total liabilities and equity
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Parent
Issuer
Subsidiary
Guarantors
Year ended
December 31, 2016
Subsidiary
Non
Guarantors
(In millions)
Eliminations
Consolidated
2,268.8 $
2,044.8 $
1,780.6 $
(340.4) $
3,170.2 $
3,374.7 $
212.4 $
(1,108.0) $
1,993.0 $
1,993.0 $
2,125.3 $
1,869.7 $
1,645.7 $
1,381.5 $
2,266.7 $
2,266.7 $
2,362.5 $
(340.4) $
3,170.2 $
3,374.7 $
212.4 $
(1,507.1) $
1,593.9 $
1,593.9 $
1,726.2 $
1,867.6 $
1,867.6 $
1,963.4 $
— $
(1,055.2)
(119.1) $
(1,809.3) $
(83.1) $
(1,809.3) $
(291.9) $
(159.6) $
(451.5) $
(457.4) $
(705.9) $
(1,809.3) $
(1,809.3) $
(1,809.3) $
(1,656.6) $
(119.1) $
(1,410.2) $
(83.1) $
(1,410.2) $
—
3,322.6
3,054.1
1,998.9
1,993.0
2,125.3
—
3,322.6
3,054.1
(291.9) $
(159.6) $
(451.5) $
(457.4) $
(705.9) $
(1,410.2) $
— $
(1,454.3)
(1,410.2) $
(1,410.2) $
(1,257.5) $
1,599.8
1,593.9
1,726.2
Parent
Issuer
Subsidiary
Guarantors
As of
December 31, 2017
Subsidiary
Non
Guarantors
(In millions)
Eliminations
Consolidated
26,443.9 $
4,297.4 $
4,683.1 $
(35,424.4) $
—
26,677.0 $
30,289.1 $
11,135.1 $
(37,854.3) $
30,246.9
— $
864.7 $
845.0 $
(61.1) $
13,452.1 $
5,382.9 $
8,351.9 $
(10,375.0) $
13,226.1 $
31,275.5 $
4,148.9 $
(35,424.4) $
13,224.9 $
24,906.2 $
2,574.3 $
(27,479.3) $
13,224.9 $
24,906.2 $
2,783.2 $
(27,479.3) $
26,677.0 $
30,289.1 $
11,135.1 $
(37,854.3) $
1,648.6
16,811.9
13,226.1
13,226.1
13,435.0
30,246.9
26,196.2 $
4,297.4 $
4,683.1 $
(35,176.7) $
—
26,429.3 $
30,289.1 $
11,135.1 $
(37,606.6) $
30,246.9
— $
13,452.1 $
1,112.4 $
5,630.6 $
845.0 $
(61.1) $
8,351.9 $
(10,375.0) $
12,978.4 $
31,027.8 $
4,148.9 $
(35,176.7) $
12,977.2 $
24,658.5 $
2,574.3 $
(27,231.6) $
12,977.2 $
24,658.5 $
2,783.2 $
(27,231.6) $
26,429.3 $
30,289.1 $
11,135.1 $
(37,606.6) $
1,896.3
17,059.6
12,978.4
12,978.4
13,187.3
30,246.9
161
Presentation
Certain amounts have been revised to reflect the new accounting pronouncements recently adopted as discussed in Note 2, "New Accounting
Pronouncements."
Effective January 1, 2018, MillerCoors USA LLC, a new entity with no historic activity, was added as a subsidiary guarantor. In addition, effective
December 26, 2017, our historical subsidiary guarantor, Jacob Leinenkugel Brewing Co., LLC, was merged with and into the existing subsidiary guarantor,
MillerCoors LLC, and, on January 1, 2018, our historical subsidiary guarantors MillerCoors Holdings LLC and MC Holding Company LLC were also merged with
and into MillerCoors LLC, a subsidiary guarantor.
In the first quarter of 2018, MillerCoors LLC, a subsidiary guarantor, declared a distribution of approximately $1.7 billion to Molson Coors Brewing
Company, which was simultaneously non-cash settled via offset to an equal amount of payables that were owed by Molson Coors Brewing Company to
MillerCoors LLC.
The following information sets forth the condensed consolidating statements of operations for the years ended December 31, 2018 , December 31, 2017 , and
December 31, 2016 , condensed consolidating balance sheets as of December 31, 2018 , and December 31, 2017 , and condensed consolidating statements of cash
flows for the years ended December 31, 2018 , December 31, 2017 , and December 31, 2016 . Investments in subsidiaries are accounted for under the equity
method; accordingly, entries necessary to consolidate the Parent Issuer and all of our guarantor and non-guarantor subsidiaries are reflected in the eliminations
column. In the opinion of management, separate complete financial statements of MCBC and the Subsidiary Guarantors would not provide additional material
information that would be useful in assessing their financial composition.
162
Table of Contents
Sales
Excise taxes
Net sales
Cost of goods sold
Gross profit
Marketing, general and administrative expenses
Special items, net
Equity income (loss) in subsidiaries
Operating income (loss)
Other income (expense), net
Interest income (expense), net
Other pension and postretirement benefits (costs), net
Other income (expense), net
Total other income (expense), net
Income (loss) before income taxes
Income tax benefit (expense)
Net income (loss)
Net (income) loss attributable to noncontrolling interests
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(IN MILLIONS)
Parent
Issuer
Subsidiary
Guarantors
Year ended
December 31, 2018
Subsidiary
Non
Guarantors
Eliminations
Consolidated
$
162.5 $
10,118.0 $
3,739.8 $
(682.3) $
13,338.0
—
162.5
(2.0)
160.5
(305.5)
(1.7)
1,367.8
1,221.1
(323.2)
(0.1)
(0.1)
(323.4)
897.7
218.8
1,116.5
—
(1,420.3)
8,697.7
(5,242.6)
3,455.1
(2,041.0)
270.6
(126.5)
1,558.2
342.7
5.4
(57.3)
290.8
1,849.0
(480.8)
1,368.2
—
(1,148.1)
2,591.7
(1,800.3)
791.4
(678.4)
(19.2)
131.4
225.2
(317.7)
32.9
45.4
(239.4)
(14.2)
36.8
22.6
(18.1)
—
(682.3)
460.1
(222.2)
222.2
—
(1,372.7)
(1,372.7)
—
—
—
—
(1,372.7)
—
(1,372.7)
—
(2,568.4)
10,769.6
(6,584.8)
4,184.8
(2,802.7)
249.7
—
1,631.8
(298.2)
38.2
(12.0)
(272.0)
1,359.8
(225.2)
1,134.6
(18.1)
1,116.5
826.5
Net income (loss) attributable to MCBC
Comprehensive income (loss) attributable to MCBC
$
$
1,116.5 $
1,368.2 $
4.5 $
(1,372.7) $
826.5 $
1,061.9 $
(122.8) $
(939.1) $
163
Table of Contents
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(IN MILLIONS)
Sales
Excise taxes
Net sales
Cost of goods sold
Gross profit
Marketing, general and administrative expenses
Special items, net
Equity income (loss) in subsidiaries
Operating income (loss)
Other income (expense), net
Interest income (expense), net
Other pension and postretirement benefits (costs), net
Other income (expense), net
Total other income (expense), net
Income (loss) before income taxes
Income tax benefit (expense)
Net income (loss)
Net (income) loss attributable to noncontrolling interests
Year ended
December 31, 2017
As Restated
Subsidiary
Non
Guarantors
Parent
Issuer
Subsidiary
Guarantors
Eliminations
Consolidated
$
21.8 $
10,457.9 $
3,513.7 $
(521.9) $
13,471.5
—
21.8
(2.0)
19.8
(284.8)
(0.8)
2,001.8
1,736.0
(308.4)
—
(8.5)
(316.9)
1,419.1
146.5
1,565.6
—
(1,475.1)
8,982.8
(5,020.3)
3,962.5
(2,165.8)
(29.8)
(285.7)
1,481.2
275.6
1.3
178.9
455.8
1,937.0
64.8
2,001.8
—
(993.6)
2,520.1
(1,701.4)
818.7
(636.3)
(5.8)
193.4
370.0
(310.5)
46.1
(169.0)
(433.4)
(63.4)
(6.7)
(70.1)
(22.2)
—
(521.9)
487.0
(34.9)
34.9
—
(1,909.5)
(1,909.5)
—
—
—
—
(1,909.5)
—
(1,909.5)
—
(2,468.7)
11,002.8
(6,236.7)
4,766.1
(3,052.0)
(36.4)
—
1,677.7
(343.3)
47.4
1.4
(294.5)
1,383.2
204.6
1,587.8
(22.2)
1,565.6
2,277.4
Net income (loss) attributable to MCBC
Comprehensive income (loss) attributable to MCBC
$
$
1,565.6 $
2,001.8 $
(92.3) $
(1,909.5) $
2,277.4 $
2,785.8 $
376.8 $
(3,162.6) $
164
Table of Contents
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(IN MILLIONS)
Year ended
December 31, 2016
As Restated
Subsidiary
Non
Guarantors
Parent
Issuer
Subsidiary
Guarantors
Eliminations
Consolidated
Sales
Excise taxes
Net sales
Cost of goods sold
Gross profit
Marketing, general and administrative expenses
Special items, net
Equity income (loss) in subsidiaries
Equity income in MillerCoors
Operating income (loss)
Other income (expense), net
Interest income (expense), net
Other pension and postretirement benefits (costs), net
Other income (expense), net
Total other income (expense), net
Income (loss) before income taxes
Income tax benefit (expense)
Net income (loss)
Net (income) loss attributable to noncontrolling interests
$
26.5 $
3,742.8 $
3,044.3 $
(216.2) $
—
26.5
—
26.5
(249.5)
(1.0)
1,869.7
—
1,645.7
(202.1)
(0.1)
(62.0)
(264.2)
1,381.5
212.4
1,593.9
—
(661.4)
3,081.4
(1,831.8)
1,249.6
(805.2)
2,565.3
(340.4)
500.9
3,170.2
268.9
(3.5)
(60.9)
204.5
3,374.7
(1,507.1)
1,867.6
—
(1,051.0)
1,993.3
(1,352.8)
640.5
(573.1)
(31.4)
(119.1)
—
(83.1)
(311.2)
12.0
90.4
(208.8)
(291.9)
(159.6)
(451.5)
(5.9)
—
(216.2)
185.6
(30.6)
30.6
—
(1,410.2)
—
(1,410.2)
—
—
—
—
(1,410.2)
—
(1,410.2)
—
Net income (loss) attributable to MCBC
Comprehensive income (loss) attributable to MCBC
$
$
1,593.9 $
1,867.6 $
(457.4) $
(1,410.2) $
1,726.2 $
1,963.4 $
(705.9) $
(1,257.5) $
6,597.4
(1,712.4)
4,885.0
(2,999.0)
1,886.0
(1,597.2)
2,532.9
—
500.9
3,322.6
(244.4)
8.4
(32.5)
(268.5)
3,054.1
(1,454.3)
1,599.8
(5.9)
1,593.9
1,726.2
165
Table of Contents
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(IN MILLIONS)
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net
Other receivables, net
Inventories, net
Other current assets, net
Intercompany accounts receivable
Total current assets
Properties, net
Goodwill
Other intangibles, net
Net investment in and advances to subsidiaries
Other assets
Total assets
Liabilities and equity
Current liabilities:
Accounts payable and other current liabilities
Current portion of long-term debt and short-term borrowings
Intercompany accounts payable
Total current liabilities
Long-term debt
Pension and postretirement benefits
Deferred tax liabilities
Other liabilities
Intercompany notes payable
Total liabilities
MCBC stockholders' equity
Intercompany notes receivable
Total stockholders' equity
Noncontrolling interests
Total equity
Total liabilities and equity
Parent
Issuer
Subsidiary
Guarantors
As of
December 31, 2018
Subsidiary
Non
Guarantors
Eliminations
Consolidated
$
515.8
$
—
50.0
—
3.0
—
568.8
19.0
—
6.0
25,475.0
159.9
$
156.1
427.3
48.3
451.6
157.2
2,366.0
3,606.5
3,427.5
6,444.0
11,800.0
3,893.2
193.2
$
$
26,228.7
$
29,364.4
$
170.8
$
1,651.0
$
1,572.6
1,836.5
3,579.9
7,765.6
3.2
—
26.0
1,347.6
12,722.3
13,507.4
(1.0)
13,506.4
—
120.9
1,771.9
1,097.4
711.2
1,461.1
199.3
63.6
5,304.5
30,057.5
(5,997.6)
24,059.9
—
—
13,506.4
24,059.9
$
26,228.7
$
29,364.4
$
166
386.0 $
317.1
28.3
140.2
85.4
31.0
988.0
1,161.8
1,816.8
1,970.4
4,579.7
436.0
10,952.7 $
884.6 $
21.9
439.6
1,346.1
30.8
12.2
758.9
98.5
5,998.6
8,245.1
3,890.4
(1,411.2)
2,479.2
228.4
2,707.6
10,952.7 $
— $
—
—
—
—
(2,397.0)
(2,397.0)
—
—
—
(33,947.9)
(91.1)
(36,436.0) $
— $
—
(2,397.0)
(2,397.0)
—
—
(91.1)
—
(7,409.8)
(9,897.9)
(33,947.9)
7,409.8
(26,538.1)
—
(26,538.1)
(36,436.0) $
1,057.9
744.4
126.6
591.8
245.6
—
2,766.3
4,608.3
8,260.8
13,776.4
—
698.0
30,109.8
2,706.4
1,594.5
—
4,300.9
8,893.8
726.6
2,128.9
323.8
—
16,374.0
13,507.4
—
13,507.4
228.4
13,735.8
30,109.8
Table of Contents
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(IN MILLIONS)
As of
December 31, 2017
As Restated
Parent
Issuer
Subsidiary
Guarantors
Subsidiary
Non Guarantors
Eliminations
Consolidated
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net
Other receivables, net
Inventories, net
Other current assets, net
Intercompany accounts receivable
Total current assets
Properties, net
Goodwill
Other intangibles, net
Net investment in and advances to subsidiaries
Other assets
Total assets
Liabilities and equity
Current liabilities:
Accounts payable and other current liabilities
Current portion of long-term debt and short-term borrowings
Intercompany accounts payable
Total current liabilities
Long-term debt
Pension and postretirement benefits
Deferred tax liabilities
Other liabilities
Intercompany notes payable
Total liabilities
MCBC stockholders' equity
Intercompany notes receivable
Total stockholders' equity
Noncontrolling interests
Total equity
Total liabilities and equity
$
$
$
$
6.6
—
90.4
—
9.6
—
106.6
16.8
—
8.0
26,196.2
101.7
$
140.9
424.8
45.2
457.7
184.8
2,303.2
3,556.6
3,509.8
6,487.8
12,183.8
4,297.4
253.7
26,429.3
$
30,289.1
$
$
1,648.9
$
180.4
379.0
2,131.8
2,691.2
9,399.7
2.9
—
10.7
1,347.6
13,452.1
12,978.4
(1.2)
12,977.2
317.8
102.8
2,069.5
1,189.5
832.1
1,112.4
200.1
227.0
5,630.6
31,027.8
(6,369.3)
24,658.5
—
—
12,977.2
24,658.5
$
26,429.3
$
30,289.1
$
167
271.1 $
309.0
32.6
133.8
83.2
65.6
895.3
1,147.1
1,917.7
2,104.7
4,683.1
387.2
11,135.1 $
855.2 $
18.0
134.2
1,007.4
9.5
13.5
845.0
106.0
6,370.5
8,351.9
4,148.9
(1,574.6)
2,574.3
208.9
2,783.2
11,135.1 $
— $
—
—
—
—
(2,368.8)
(2,368.8)
—
—
—
(35,176.7)
(61.1)
(37,606.6) $
— $
—
(2,368.8)
(2,368.8)
—
—
(61.1)
—
(7,945.1)
(10,375.0)
(35,176.7)
7,945.1
(27,231.6)
—
(27,231.6)
(37,606.6) $
418.6
733.8
168.2
591.5
277.6
—
2,189.7
4,673.7
8,405.5
14,296.5
—
681.5
30,246.9
2,684.5
714.8
—
3,399.3
10,598.7
848.5
1,896.3
316.8
—
17,059.6
12,978.4
—
12,978.4
208.9
13,187.3
30,246.9
Table of Contents
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(IN MILLIONS)
Net cash provided by (used in) operating activities
$
1,199.8 $
1,044.6 $
331.7 $
(244.8) $
2,331.3
Parent
Issuer
Subsidiary
Guarantors
Year ended
December 31, 2018
Subsidiary
Non
Guarantors
Eliminations
Consolidated
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to properties
Proceeds from sales of properties and other assets
Other
Net intercompany investing activity
Net cash provided by (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options under equity compensation plans
Dividends paid
Payments on debt and borrowings
Debt issuance costs
Net proceeds from (payments on) revolving credit facilities and
commercial paper
Other
Net intercompany financing activity
Net cash provided by (used in) financing activities
CASH AND CASH EQUIVALENTS:
(11.1)
—
—
46.3
35.2
16.0
(325.2)
—
(0.5)
(378.4)
(5.1)
(32.6)
(725.8)
(440.5)
23.4
(0.6)
(35.4)
(453.1)
—
(56.4)
(307.3)
—
—
(8.5)
(199.9)
(572.1)
(200.1)
9.1
(49.3)
176.4
(63.9)
—
(217.4)
(12.5)
—
4.1
37.5
45.2
(143.1)
Net increase (decrease) in cash and cash equivalents
509.2
19.4
124.7
—
—
—
(187.3)
(187.3)
—
244.8
—
—
—
—
187.3
432.1
—
—
—
(651.7)
32.5
(49.9)
—
(669.1)
16.0
(354.2)
(319.8)
(0.5)
(374.3)
23.9
—
(1,008.9)
653.3
(14.0)
418.6
Effect of foreign exchange rate changes on cash and cash
equivalents
Balance at beginning of year
Balance at end of period
—
6.6
(4.2)
140.9
(9.8)
271.1
$
515.8 $
156.1 $
386.0 $
— $
1,057.9
168
Table of Contents
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(IN MILLIONS)
Net cash provided by (used in) operating activities
$
792.5 $
1,474.7 $
818.5 $
(1,219.4) $
1,866.3
Parent
Issuer
Subsidiary
Guarantors
Year ended
December 31, 2017
Subsidiary
Non
Guarantors
Eliminations
Consolidated
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to properties
Proceeds from sales of properties and other assets
Other
Net intercompany investing activity
Net cash provided by (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options under equity compensation plans
Dividends paid
Payments on debt and borrowings
Proceeds on debt and borrowings
Debt issuance costs
Net proceeds from (payments on) revolving credit facilities and
commercial paper
Other
Net intercompany financing activity
Net cash provided by (used in) financing activities
CASH AND CASH EQUIVALENTS:
(12.1)
—
—
72.1
60.0
4.0
(324.0)
(2,600.0)
1,536.0
(7.0)
378.5
(12.9)
32.2
(993.2)
(428.6)
4.4
0.4
21.1
(402.7)
—
(809.5)
(398.4)
—
—
—
(11.1)
149.1
(1,069.9)
(158.9)
56.1
0.5
(254.4)
(356.7)
—
(439.3)
(1.7)
—
—
(4.2)
(26.2)
(20.1)
(491.5)
Net increase (decrease) in cash and cash equivalents
(140.7)
2.1
(29.7)
Effect of foreign exchange rate changes on cash and cash
equivalents
Balance at beginning of year
Balance at end of period
—
147.3
(2.7)
141.5
28.7
272.1
$
6.6 $
140.9 $
271.1 $
— $
169
—
—
—
161.2
161.2
—
1,219.4
—
—
—
—
—
(161.2)
1,058.2
—
—
—
(599.6)
60.5
0.9
—
(538.2)
4.0
(353.4)
(3,000.1)
1,536.0
(7.0)
374.3
(50.2)
—
(1,496.4)
(168.3)
26.0
560.9
418.6
Table of Contents
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(IN MILLIONS)
Net cash provided by (used in) operating activities
$
666.6 $
579.4 $
245.3 $
(364.4) $
1,126.9
Parent
Issuer
Subsidiary
Guarantors
Year ended
December 31, 2016
Subsidiary
Non
Guarantors
Eliminations
Consolidated
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to properties
Proceeds from sales of properties and other assets
Payment for completion of Acquisition, net of cash acquired
Investment in MillerCoors
Return of capital from MillerCoors
Other
Net intercompany investing activity
Net cash provided by (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net
Exercise of stock options under equity compensation plans
Dividends paid
Payments on debt and borrowings
Proceeds on debt and borrowings
Debt issuance costs
Net proceeds from (payments on) revolving credit facilities and
commercial paper
Other
Net intercompany financing activity
Net cash provided by (used in) financing activities
CASH AND CASH EQUIVALENTS:
Net increase (decrease) in cash and cash equivalents
Effect of foreign exchange rate changes on cash and cash
equivalents
Balance at beginning of year
Balance at end of period
(14.3)
—
—
—
—
—
(11,260.0)
(11,274.3)
2,525.6
11.2
(322.2)
(200.0)
8,667.6
(56.2)
—
(17.4)
—
10,608.6
(164.1)
159.0
(11,972.6)
(1,253.7)
1,086.9
1.9
(1,429.1)
(13,571.7)
—
—
(355.7)
(0.2)
768.8
(4.5)
—
—
12,624.9
13,033.3
(163.4)
15.5
11.6
—
—
6.6
—
—
—
—
—
—
(1,425.7)
(1,555.4)
14,114.8
14,114.8
—
—
(39.4)
(23.7)
24.2
—
(1.1)
(23.5)
1,489.9
1,426.4
—
—
364.4
—
—
—
—
—
(14,114.8)
(13,750.4)
—
—
—
(341.8)
174.5
(11,961.0)
(1,253.7)
1,086.9
8.5
—
(12,286.6)
2,525.6
11.2
(352.9)
(223.9)
9,460.6
(60.7)
(1.1)
(40.9)
—
11,317.9
158.2
(28.2)
430.9
560.9
0.9
41.0
116.3
—
146.4
(5.7)
106.2
(22.5)
178.3
$
147.3 $
141.5 $
272.1 $
— $
170
Table of Contents
20. Quarterly Financial Information (Unaudited)
The 2017 quarterly information reflects retrospective adjustments for the adoption of the new accounting guidance related to defined benefit pension and
other postretirement plans as discussed in Note 2, "New Accounting Pronouncements."
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2018
2017
2018
2017
As Revised
2018
2017
As Revised
2018
2017
As Restated
(In millions, except per share data)
Sales
Excise taxes
Net sales
Cost of goods sold
Gross profit
$
2,868.0 $
2,913.8 $
3,820.5 $
3,793.1 $
3,625.1 $
3,552.9 $
3,024.4 $
3,211.7
(536.5)
(465.1)
(735.3)
(701.8)
(690.9)
(669.7)
(605.7)
(632.1)
2,331.5
2,448.7
3,085.2
3,091.3
2,934.2
2,883.2
2,418.7
2,579.6
(1,535.7)
(1,372.3)
(1,739.1)
(1,755.5)
(1,714.0)
(1,589.1)
(1,596.0)
(1,519.8)
$
795.8 $
1,076.4 $
1,346.1 $
1,335.8 $
1,220.2 $
1,294.1 $
822.7 $
1,059.8
Amounts attributable to Molson
Coors Brewing Company:
Net income (loss) attributable to
Molson Coors Brewing Company $
Basic net income (loss)
attributable to Molson Coors
Brewing Company per share
Diluted net income (loss)
attributable to Molson Coors
Brewing Company per share
$
$
278.1 $
208.5 $
424.1 $
327.0 $
338.3 $
313.2 $
76.0 $
716.9
1.29 $
0.97 $
1.96 $
1.52 $
1.57 $
1.45 $
0.35 $
3.33
1.28 $
0.96 $
1.96 $
1.51 $
1.56 $
1.45 $
0.35 $
3.31
The sum of the quarterly net income per share amounts may not agree to the full-year net income per share amounts. We calculate net income per share based
on the weighted-average number of outstanding shares during the reporting period. The average number of shares fluctuates throughout the year and can therefore
produce a full-year result that does not agree to the sum of the individual quarters.
Correction of Previously Issued Unaudited Condensed Consolidated Financial Statements for Income Tax Accounting Errors
As a result of the corrections of the income tax accounting errors discussed in Note 1, "Basis of Presentation and Summary of Significant Accounting
Policies," we have corrected our previously disclosed unaudited condensed consolidated statements of operations for the three month and year-to-date periods
ended June 30, 2017, September 30, 2017, and December 31, 2017, and the unaudited condensed consolidated balance sheets as of the end of each of the quarterly
periods in 2017 and 2018. Specifically, in addition to the impacts of the errors described in Note 1, "Basis of Presentation and Summary of Significant Accounting
Policies," we have further corrected our 2017 unaudited interim financial statements to increase the deferred tax liability and corresponding deferred tax expense by
$2.9 million for the three months ended June 30, 2017, and to decrease the deferred tax liability and corresponding deferred tax expense by $26.2 million and
$128.1 million for the three months ended September 30, 2017, and December 31, 2017, respectively. There was no impact of the corrections on the unaudited
condensed consolidated statements of operations for the three months ended March 31, 2017, or for the three months and year-to-date periods ended March 31,
2018, June 30, 2018, and September 30, 2018. We assessed the applicable guidance issued by the SEC and the FASB and concluded that these errors in the 2017
and 2018 quarterly and year-to-date financial statements were not material, individually or in the aggregate, to MCBC’s previously issued unaudited interim
condensed consolidated financial statements for the applicable interim periods included in our Quarterly Reports on Form 10-Q for the aforementioned quarterly
periods. The errors in the three months ended December 31, 2017, were material and as such are described as restated.
The revision of our previously issued unaudited condensed consolidated financial statements for the three months ended March 31, 2018, three and six
months ended June 30, 2018, and the three and nine months ended September 30, 2018, will be affected in connection with our quarterly filings for the quarters
ending March 31, June 30, and September 30, 2019, respectively.
171
Table of Contents
March 31, 2018
As of
June 30, 2018
September 30, 2018
As Reported
As Revised
As Reported
As Revised
As Reported
As Revised
(In millions)
Consolidated Balance Sheets:
Deferred tax liabilities
Total liabilities
Retained earnings
Total Molson Coors Brewing Company stockholders'
equity
Total equity
$
$
$
$
$
1,688.7 $
1,936.4 $
1,771.0 $
2,018.7 $
1,853.6 $
2,101.3
16,521.0 $
16,768.7 $
16,764.3 $
17,012.0 $
16,380.3 $
16,628.0
7,367.9 $
7,120.2 $
7,703.5 $
7,455.8 $
7,953.2 $
7,705.5
13,445.9 $
13,198.2 $
13,576.6 $
13,328.9 $
13,864.1 $
13,616.4
13,663.5 $
13,415.8 $
13,796.6 $
13,548.9 $
14,090.0 $
13,842.3
Three Months Ended
Six Months Ended
Three Months Ended
Nine Months Ended
Three Months Ended
June 30, 2017
June 30, 2017
September 30, 2017
September 30, 2017
December 31, 2017
As
Reported As Revised
As
Reported As Revised
As
Reported As Revised
As
Reported As Revised
As
Reported As Restated
Consolidated Statements of Operations:
(In millions)
Income tax benefit (expense)
$ (125.2) $ (128.1) $ (191.1) $ (194.0) $ (147.4) $ (121.2) $ (338.5) $ (315.2) $
391.7 $
519.8
Net income (loss)
$
335.0 $
332.1 $
550.0 $
547.1 $
293.1 $
319.3 $
843.1 $
866.4 $
593.3 $
721.4
Net income (loss) attributable to
Molson Coors Brewing Company $
Basic net income (loss)
attributable to Molson Coors
Brewing Company per share
Diluted net income (loss)
attributable to Molson Coors
Brewing Company per share
$
$
329.9 $
327.0 $
538.4 $
535.5 $
287.0 $
313.2 $
825.4 $
848.7 $
588.8 $
716.9
1.53 $
1.52 $
2.50 $
2.49 $
1.33 $
1.45 $
3.83 $
3.94 $
2.73 $
3.33
1.52 $
1.51 $
2.49 $
2.47 $
1.33 $
1.45 $
3.81 $
3.92 $
2.72 $
3.31
March 31, 2017
As of
June 30, 2017
September 30, 2017
As Reported
As Revised
As Reported
As Revised
As Reported
As Revised
(In millions)
Consolidated Balance Sheets:
Deferred tax liabilities
Total liabilities
Retained earnings
Total Molson Coors Brewing Company stockholders'
equity
Total equity
$
$
$
$
$
1,762.6 $
2,161.7 $
1,865.2 $
2,267.2 $
1,932.4 $
2,308.2
17,732.3 $
18,131.4 $
17,812.2 $
18,214.2 $
17,980.2 $
18,356.0
6,265.5 $
5,866.4 $
6,507.1 $
6,105.1 $
6,705.8 $
6,330.0
11,602.9 $
11,203.8 $
12,105.5 $
11,703.5 $
12,503.0 $
12,127.2
11,814.9 $
11,415.8 $
12,315.4 $
11,913.4 $
12,711.4 $
12,335.6
172
Table of Contents
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an
evaluation of our disclosure controls and procedures as such term is defined under Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended
("Exchange Act"). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that because of the material weakness in our
internal control over financial reporting described below our disclosure controls and procedures were not effective as of December 31, 2018 to provide reasonable
assurance that information required to be disclosed in our reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management necessarily applies its
judgment in assessing the costs and benefits of such disclosure controls and procedures that, by their nature, can only provide reasonable assurance regarding
management's control objectives. Also, we have investments in certain unconsolidated entities that we do not control or manage.
Management performed additional analysis and other post-closing procedures as of December 31, 2018 and 2017 and for each of the three years in the period
ended December 31, 2018, to ensure the consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United
States of America (“U.S. GAAP”), including reviewing the accounting for income taxes related to existing partnerships.
Management has concluded that, notwithstanding the material weakness described below, the company’s consolidated financial statements in this Form 10-K
fairly present, in all material respects, our financial position, results of operations and cash flows as of the dates, and for the periods presented, in conformity with
U.S. GAAP.
Management's Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act
Rule 13a-15(f). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with U.S. GAAP. A company's internal control over financial reporting includes
those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with U.S. GAAP, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of
our internal control over financial reporting as of December 31, 2018 , based on the framework and criteria established in Internal Control—Integrated Framework
(2013 Framework), issued by the Committee of Sponsoring Organizations of the Treadway Commission.
A material weakness, as defined in Exchange Act Rule 12b-2, is a deficiency, or a combination of deficiencies, in internal control over financial reporting,
such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on
a timely basis.
As a result of this assessment, management concluded that we did not design and maintain effective controls over the completeness and accuracy of the
accounting for, and disclosure of, the income tax effects of acquired partnership interests. Specifically, we did not design appropriate controls to identify and
reconcile deferred income taxes associated with the accounting for acquired partnership interests. This material weakness resulted in material errors in connection
with our step acquisition of MillerCoors that were corrected through the restatement of the consolidated financial statements as of and for the
173
Table of Contents
years ended December 31, 2017, and December 31, 2016, and the correction of the unaudited quarterly financial information for fiscal years 2018 and 2017.
Additionally, this material weakness could result in misstatements to the aforementioned account balances or disclosures that would result in a material
misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.
As a result of the material weakness in internal control over financial reporting described above, management has concluded that we did not maintain
effective internal control over financial reporting as of December 31, 2018.
An independent registered public accounting firm, PricewaterhouseCoopers LLP, has audited the effectiveness of our internal control over financial reporting
as of December 31, 2018 , as stated in their report which appears in Part II—Item 8 Financial Statements and Supplementary Data.
Management's Plan for Remediation of the Material Weakness
In response to the material weakness described above, with the oversight of the Audit Committee of our Board of Directors, management is currently
evaluating our policies and procedures related to the accounting for income taxes and plans to design and implement adequate internal controls to ensure that (i) the
income tax effects of acquired partnership interests are properly accounted for and disclosed in the period of acquisition, and (ii) the resulting investment in
partnership deferred income tax assets and liabilities are assessed and reconciled periodically to the book-tax differences in the underlying assets and liabilities
within the partnership to determine whether any adjustment is necessary.
The remediation efforts are intended both to address the identified material weakness and to enhance our overall financial control environment. Management is
committed to continuous improvement of the company’s internal control over financial reporting and will continue to diligently review the company’s internal
control over financial reporting.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the quarter ended December 31,
2018 , that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
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Table of Contents
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Incorporated by reference to our definitive proxy statement for our 2019 annual meeting of stockholders, which will be filed no later than 120 days after
December 31, 2018 .
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to our definitive proxy statement for our 2019 annual meeting of stockholders, which will be filed no later than 120 days after
December 31, 2018 .
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Incorporated by reference to our definitive proxy statement for our 2019 annual meeting of stockholders, which will be filed no later than 120 days after
December 31, 2018 .
Equity Compensation Plan Information
The following table summarizes information about the Incentive Compensation Plan as of December 31, 2018 . All outstanding awards shown in the table
below relate to our Class B common stock.
Plan category
Equity compensation plans approved by security holders (1)
Equity compensation plans not approved by security holders
Total
(1)
A
B
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
2,947,496
—
2,947,496
Weighted-average
exercise price of
outstanding options,
warrants and rights
$70.56
N/A
$70.56
C
Number of securities remaining
available for future issuance under
equity compensation plans
(excluding securities reflected in
column A)
3,943,057
—
3,943,057
Under the Incentive Compensation Plan, we may issue RSUs, DSUs, PSUs and stock options. Amount in column A includes 1,172,015 RSUs and DSUs,
503,747 PSUs (assuming the target award is met) and 1,271,734 options, respectively, outstanding as of December 31, 2018 . See Part II—Item 8
Financial Statements and Supplementary Data, Note 13, "Share-Based Payments" of the Notes to the Consolidated Financial Statements for further
discussion. Outstanding RSUs, DSUs and PSUs do not have exercise prices and therefore have been disregarded for purposes of calculating the weighted-
average exercise price.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Incorporated by reference to our definitive proxy statement for our 2019 annual meeting of stockholders, which will be filed no later than 120 days after
December 31, 2018 .
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Incorporated by reference to our definitive proxy statement for our 2019 annual meeting of stockholders, which will be filed no later than 120 days after
December 31, 2018 .
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Table of Contents
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) Financial Statements, Financial Statement Schedules and Exhibits
The following are filed or incorporated by reference as a part of this Annual Report on Form 10-K:
(1) Management's Report
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations for the years ended December 31, 2018 , December 31, 2017 , and December 31, 2016
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2018 , December 31, 2017 , and December 31, 2016
Consolidated Balance Sheets as of December 31, 2018 , and December 31, 2017
Consolidated Statements of Cash Flows for the years ended December 31, 2018 , December 31, 2017 , and December 31, 2016
Consolidated Statements of Stockholders' Equity and Noncontrolling Interests for the years ended December 31, 2018 , December 31, 2017 , and
December 31, 2016
Notes to Consolidated Financial Statements
(2)
Schedule II—Valuation and Qualifying Accounts for the years ended December 31, 2018 , December 31, 2017 , and December 31, 2016
(3) Exhibit list
Exhibit
Number
2.1.1
2.1.2
2.1.3
2.1.4
3.1.1
3.1.2
3.2
4.1.1
4.1.2
Document Description
Purchase Agreement, dated as of November 11, 2015, by
and between Anheuser-Busch InBev SA/NV and Molson
Coors Brewing Company.
Amendment No. 1 to Purchase Agreement, dated as of
March 25, 2016, by and between Anheuser-Busch InBev
SA/NV and Molson Coors Brewing Company.
Amendment No. 2 to Purchase Agreement, dated as of
October 3, 2016, by and between Anheuser-Busch InBev
SA/NV and Molson Coors Brewing Company.
Settlement Agreement, dated as of January 21, 2018, by
and between Anheuser-Busch InBev SA/NV and Molson
Coors Brewing Company .
Restated Certificate of Incorporation of Molson Coors
Brewing Company.
Amendment to Restated Certificate of Incorporation of
Molson Coors Brewing Company.
Third Amended and Restated Bylaws of Molson Coors
Brewing Company.
Indenture, dated as of May 3, 2012, by and among Molson
Coors Brewing Company, the guarantors named therein
and Deutsche Bank Trust Company Americas, as trustee.
First Supplemental Indenture, dated as of May 3, 2012, to
the Indenture dated May 3, 2012, by and among Molson
Coors Brewing Company, the guarantors named therein
and Deutsche Bank Trust Company Americas, as trustee.
Incorporated by Reference
Filed
Herewith
Form
8-K
10-Q
8-K
8-K
Exhibit
2.1
2.1
2.1
Filing Date
November 12, 2015
May 3, 2016
October 4, 2016
10.1
January 22, 2018
Schedule 14A
Annex G
December 10, 2004
3.1
3.1
4.1
4.2
August 6, 2013
August 4, 2009
May 3, 2012
May 3, 2012
10-Q
10-Q
8-K
8-K
176
Table of Contents
Exhibit
Number
4.1.3
4.1.4
4.1.5
4.1.6
4.1.7
4.1.8
4.2
4.3
4.4
4.5.1
4.5.2
4.5.3
4.5.4
Document Description
Second Supplemental Indenture, dated as of June 15, 2012,
to the Indenture dated May 3, 2012, by and among Molson
Coors Brewing Company, the guarantors named therein
and Deutsche Bank Trust Company Americas, as trustee.
Third Supplemental Indenture, dated as of May 13, 2016,
to the Indenture dated May 3, 2012, by and among Molson
Coors Brewing Company, the guarantors named therein
and Deutsche Bank Trust Company Americas, as trustee.
Fourth Supplemental Indenture, dated as of August 19,
2016, to the Indenture dated May 3, 2012, by and among
Molson Coors Brewing Company, the guarantors named
therein and Deutsche Bank Trust Company Americas, as
trustee.
Fifth Supplemental Indenture, dated as of September 30,
2016, to the Indenture dated May 3, 2012, by and among
Molson Coors Brewing Company, the guarantors named
therein and Deutsche Bank Trust Company Americas, as
trustee.
Sixth Supplemental Indenture, dated as of October 11,
2016, to the Indenture dated May 3, 2012, by and among
Molson Coors Brewing Company, the guarantors named
therein and Deutsche Bank Trust Company Americas, as
trustee.
Seventh Supplemental Indenture, dated as of January 11,
2018, to the Indenture dated May 3, 2012, by and among
Molson Coors Brewing Company, the guarantors named
therein and Deutsche Bank Trust Company Americas, as
trustee.
Form of 3.500% Senior Notes due 2022.
Form of 5.000% Senior Notes due 2042.
Registration Rights Agreement, dated as of February 9,
2005, by and among Adolph Coors Company, Pentland
Securities (1981) Inc., 4280661 Canada Inc., Nooya
Investments Ltd., Lincolnshire Holdings Limited, 4198832
Canada Inc., BAX Investments Limited, 6339522
Canada Inc., Barleycorn Investments Ltd., DJS
Holdings Ltd., 6339549 Canada Inc., Hoopoe
Holdings Ltd., 6339603 Canada Inc., and The Adolph
Coors, Jr. Trust dated September 12, 1969.
Indenture, dated as of September 18, 2015, by and among
Molson Coors International LP, the guarantors named
therein and Computershare Trust Company of Canada, as
trustee.
First Supplemental Indenture, dated as of September 18,
2015, to the Indenture dated September 18, 2015, by and
among Molson Coors International LP, the guarantors
named therein and Computershare Trust Company of
Canada, as trustee.
Second Supplemental Indenture, dated as of September 18,
2015, to the Indenture dated September 18, 2015, by and
among Molson Coors International LP, the guarantors
named therein and Computershare Trust Company of
Canada, as trustee.
Third Supplemental Indenture, dated as of May 13, 2016,
to the Indenture dated September 18, 2015, by and among
Molson Coors International LP, the guarantors named
therein and Computershare Trust Company of Canada, as
trustee.
Incorporated by Reference
Filed
Herewith
Form
10-Q
8-K
10-Q
Exhibit
4.8
Filing Date
August 8, 2012
4.3
4.9
June 28, 2016
November 1, 2016
10-Q
4.10
November 1, 2016
10-K
4.2.7
February 14, 2017
10-K
4.1.8
February 14, 2018
4.2
4.2
99.2
4.1
4.2
4.3
4.2
May 3, 2012
May 3, 2012
February 15, 2005
September 18, 2015
September 18, 2015
September 18, 2015
June 28, 2016
8-K
8-K
8-K
8-K
8-K
8-K
8-K
177
Table of Contents
Exhibit
Number
4.5.5
4.5.6
4.5.7
4.5.8
4.6
4.7.1
4.7.2
4.7.3
4.7.4
4.7.5
4.7.6
4.7.7
Document Description
Fourth Supplemental Indenture, dated as of August 19,
2016, to the Indenture dated September 18, 2015, by and
among Molson Coors International LP, the guarantors
named therein and Computershare Trust Company of
Canada, as trustee.
Fifth Supplemental Indenture, dated as of September 30,
2016, to the Indenture dated September 18, 2015, by and
among Molson Coors International LP, the guarantors
named therein and Computershare Trust Company of
Canada, as trustee.
Sixth Supplemental Indenture, dated as of October 11,
2016, to the Indenture dated September 18, 2015, by and
among Molson Coors International LP, the guarantors
named therein and Computershare Trust Company of
Canada, as trustee.
Seventh Supplemental Indenture, dated as of January 11,
2018, to the Indenture dated September 18, 2015, by and
among Molson Coors International LP, the guarantors
named therein and Computershare Trust Company of
Canada, as trustee.
Form of 2.75% Series 2 Notes due 2020.
Indenture, dated as of July 7, 2016, by and among Molson
Coors Brewing Company, the guarantors named therein
and Deutsche Bank Trust Company Americas, as trustee.
First Supplemental Indenture, dated as of July 7, 2016, to
the Indenture dated July 7, 2016, by and among Molson
Coors Brewing Company, the guarantors named therein
and Deutsche Bank Trust Company Americas, as trustee
and paying agent.
Second Supplemental Indenture, dated as of July 7, 2016,
to the Indenture dated July 7, 2016, by and among Molson
Coors Brewing Company, the guarantors named therein
and Deutsche Bank Trust Company Americas, as trustee.
Third Supplemental Indenture, dated as of August 19,
2016, to the Indenture dated July 7, 2016, by and among
Molson Coors Brewing Company, the guarantors named
therein and Deutsche Bank Trust Company Americas, as
trustee.
Fourth Supplemental Indenture, dated as of September 30,
2016, to the Indenture dated July 7, 2016, by and among
Molson Coors Brewing Company, the guarantors named
therein and Deutsche Bank Trust Company Americas, as
trustee.
Fifth Supplemental Indenture, dated as of October 11,
2016, to the Indenture dated July 7, 2016, by and among
Molson Coors Brewing Company, the guarantors named
therein and Deutsche Bank Trust Company Americas, as
trustee.
Sixth Supplemental Indenture, dated as of January 11,
2018, to the Indenture dated July 7, 2016, by and among
Molson Coors Brewing Company, the guarantors named
therein and Deutsche Bank Trust Company Americas, as
trustee.
4.8
4.9
4.10
Form of 1.250% Senior Notes due 2024.
Form of 1.450% Senior Notes due 2019.
Form of 2.100% Senior Notes due 2021.
Incorporated by Reference
Filed
Herewith
Form
10-Q
Exhibit
4.3
Filing Date
November 1, 2016
10-Q
4.4
November 1, 2016
10-K
4.4.7
February 14, 2017
10-K
4.5.8
February 14, 2018
8-K
8-K
8-K
8-K
4.3
4.1
4.2
4.3
September 18, 2015
July 7, 2016
July 7, 2016
July 7, 2016
10-Q
4.14
November 1, 2016
10-Q
4.15
November 1, 2016
10-K
4.5.6
February 14, 2017
10-K
4.8.7
February 14, 2018
4.2
4.3
4.3
July 7, 2016
July 7, 2016
July 7, 2016
8-K
8-K
8-K
178
Table of Contents
Exhibit
Number
4.11
4.12
4.13.1
4.13.2
4.13.3
4.13.4
4.13.5
4.13.6
4.14
4.15
4.16.1
4.16.2
4.17.1
4.17.2
Document Description
Form of 3.000% Senior Notes due 2026 .
Form of 4.200% Senior Notes due 2046.
Indenture, dated as of July 7, 2016, by and among Molson
Coors International LP, Molson Coors Brewing Company,
as parent, the subsidiary guarantors named therein and
Computershare Trust Company of Canada, as trustee.
First Supplemental Indenture, dated as of July 7, 2016, to
the Indenture dated July 7, 2016, by and among Molson
Coors International LP, Molson Coors Brewing Company,
as parent, the subsidiary guarantors named therein and
Computershare Trust Company of Canada, as trustee.
Second Supplemental Indenture, dated as of August 19,
2016, to the Indenture dated July 7, 2016, by and among
Molson Coors International LP, the guarantors named
therein and Computershare Trust Company of Canada, as
trustee.
Third Supplemental Indenture, dated as of September 30,
2016, to the Indenture dated July 7, 2016, by and among
Molson Coors International LP, the guarantors named
therein and Computershare Trust Company of Canada, as
trustee.
Fourth Supplemental Indenture, dated as of October 11,
2016, to the Indenture dated July 7, 2016, by and among
Molson Coors International LP, the guarantors named
therein and Computershare Trust Company of Canada, as
trustee.
Fifth Supplemental Indenture, dated as of January 11,
2018, to the Indenture dated July 7, 2016, by and among
Molson Coors International LP, the guarantors named
therein and Computershare Trust Company of Canada, as
trustee.
Form of 2.840% Senior Notes due 2023.
Form of 3.440% Senior Notes due 2026.
Indenture, dated as of March 15, 2017, by and among
Molson Coors Brewing Company, the guarantors named
therein and The Bank of New York Mellon Trust
Company, N.A., as trustee.
First Supplemental Indenture, dated as of January 11,
2018, to the Indenture dated as of March 15, 2017, by and
among Molson Coors Brewing Company, the guarantors
named therein and The Bank of New York Mellon Trust
Company, N.A., as trustee.
Indenture, dated as of March 15, 2017, by and among
Molson Coors Brewing Company, the guarantors named
therein and The Bank of New York Mellon Trust
Company, N.A., as trustee.
First Supplemental Indenture, dated as of January 11,
2018, to the Indenture, dated as of March 15, 2017, by and
among Molson Coors Brewing Company, the guarantors
named therein and The Bank of New York Mellon Trust
Company, N.A., as trustee.
Incorporated by Reference
Filed
Herewith
Form
8-K
8-K
8-K
Exhibit
4.3
4.3
4.9
Filing Date
July 7, 2016
July 7, 2016
July 7, 2016
8-K
4.10
July 7, 2016
10-Q
10-Q
4.7
4.8
November 1, 2016
November 1, 2016
10-K
4.11.5
February 14, 2017
10-K
4.14.6
February 14, 2018
8-K
8-K
8-K
4.10
4.10
4.1
July 7, 2016
July 7, 2016
March 15, 2017
10-K
4.17.2
February 14, 2018
8-K
4.4
March 15, 2017
10-K
4.18.2
February 14, 2018
4.18
4.19
Form of 1.900% Senior Notes due 2019.
Form of 2.250% Senior Notes due 2020.
4.20
Form of Senior Floating Rate Notes due 2019.
10.1 *
Amended and Restated Molson Coors Brewing Company
Directors' Stock Plan effective May 31, 2012.
8-K
8-K
8-K
10-Q
179
4.1
4.1
4.4
10.7
March 15, 2017
March 15, 2017
March 15, 2017
August 8, 2012
Table of Contents
Exhibit
Number
10.2.1 *
10.2.2 *
10.2.3 *
10.2.4 *
10.2.5 *
10.2.6 *
10.3 *
10.4 *
10.5 *
10.6 *
10.7.1
10.7.2
10.7.3
10.7.4
10.7.5
Document Description
Amended and Restated Molson Coors Brewing Company
Incentive Compensation Plan.
Form of Long-Term Incentive Performance Share Unit
Award Agreement pursuant to the Amended and Restated
Molson Coors Brewing Company Incentive Compensation
Plan.
Form of Restricted Stock Unit Agreement pursuant to the
Amended and Restated Molson Coors Brewing Company
Incentive Compensation Plan.
Form of Directors DSU Award Statement pursuant to the
Amended and Restated Molson Coors Brewing Company
Incentive Compensation Plan.
Form of Directors RSU Award Statement pursuant to the
Amended and Restated Molson Coors Brewing Company
Incentive Compensation Plan.
Form of Stock Option pursuant to the Amended and
Restated Molson Coors Brewing Company Incentive
Compensation Plan.
Form of Executive Continuity and Protection Program
Letter Agreement .
Molson Coors Brewing Company Amended and Restated
Change in Control Protection Program effective
January 1, 2008.
Offer Letter, dated as of September 30, 2016, by and
between Peter H. Coors and Molson Coors Brewing
Company.
Executive Employment Agreement, dated as of November
5, 2015, by and between MillerCoors, LLC and Gavin D.K.
Hattersley.
Credit Agreement, dated as of July 7, 2017, by and among
Molson Coors Brewing Company, the borrowing
subsidiaries party thereto, CitiBank, N.A., as
administrative agent and a U.S. issuing bank, Bank of
America, N.A., as a U.S. issuing bank, The Bank of Tokyo
Mitsubishi UFJ, LTD. as a U.S. issuing bank, Citigroup
Global Markets, Inc., Merrill Lynch, Pierce, Fenner &
Smith Incorporated, and The Bank of Tokyo Mitsubishi
UFJ, Ltd. as joint lead arrangers and joint bookrunners,
and Bank of America, N.A. and The Bank of Tokyo
Mitsubishi UFJ, Ltd. as Co-Syndication Agents.
Amendment No. 1 and Extension Agreement, dated as of
July 19, 2018, by and among Molson Coors Brewing
Company, Molson Coors Brewing Company (UK) Limited,
Molson Canada 2005, Molson Coors Canada Inc. and
Molson Coors International LP, the lenders party thereto,
and Citibank, N.A., as administrative agent.
Subsidiary Guarantee Agreement, dated as of July 7, 2017,
by and among Molson Coors Brewing Company, the
subsidiaries named on Schedule I thereto, and Citibank,
N.A., as administrative agent.
Supplement No. 1, dated as of January 11, 2018, to the
Subsidiary Guarantee Agreement, dated July 7, 2017, by
and among Molson Coors Brewing Company, the
subsidiaries named on Schedule I thereto, and Citibank,
N.A., as administrative agent.
Supplement No. 2, dated as of January 14, 2019, to the
Subsidiary Guarantee Agreement, dated July 7, 2017, by
and among Molson Coors Brewing Company, the
subsidiaries named on Schedule I thereto, and Citibank,
N.A., as administrative agent.
Incorporated by Reference
Filed
Herewith
Form
10-Q
10-K
10-K
10-K
10-Q
10-K
10-Q
10-Q
8-K
10-Q
8-K
Exhibit
10.1
10.2.2
Filing Date
August 6, 2015
February 14, 2017
10.2.3
February 14, 2017
10.2.4
February 14, 2017
10.6
10.7.8
10.7
10.8
10.1
10.1
10.1
November 7, 2008
February 12, 2015
May 11, 2005
August 8, 2012
October 4, 2016
May 3, 2017
July 13, 2017
8-K
10.1
July 19, 2018
8-K
10.2
July 13, 2017
10-K
10.8.3
February 14, 2018
X
10.8
Form of Commercial Paper Dealer Agreement .
8-K
10.3
July 13, 2017
180
Table of Contents
Exhibit
Number
10.9 *
10.10
10.11 *
10.12 *
10.13 *
21
23.1
31.1
31.2
32
101.INS **
101.SCH **
101.CAL **
101.DEF **
101.LAB **
101.PRE **
Document Description
Executive Employment Agreement, dated as of November
13, 2014, by and between Molson Coors Brewing Company
and Mark R. Hunter.
Variation Agreement, dated as of November 12, 2013, by
and among Molson Coors Brewing Company and Grupo
Modelo SAB de C.V. and certain of their respective
affiliates.
Employment Letter, dated as of November 2, 2009, by and
between Molson Coors Brewing Company and Krishnan
Anand.
Offer Letter, dated as of November 22, 2016, by and
between Molson Coors Brewing Company and Tracey
Joubert.
Molson Coors Deferred Compensation Plan, as amended
and restated effective January 1, 2018.
Subsidiaries of the Registrant.
Consent of Independent Registered Public Accounting
Firm.
Section 302 Certification of Chief Executive Officer.
Section 302 Certification of Chief Financial Officer.
Written Statement of Chief Executive Officer and Chief
Financial Officer furnished pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase
Document
XBRL Taxonomy Extension Definition Linkbase
Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase
Document
Incorporated by Reference
Filed
Herewith
Form
8-K
10-K
10-Q
8-K
8-K
Exhibit
10.1
Filing Date
November 18, 2014
10.44
February 14, 2014
10.1
10.1
10.1
May 7, 2015
November 25, 2016
May 25, 2018
X
X
X
X
X
X
X
X
X
X
X
* Represents a management contract or compensatory plan or arrangement.
** Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Operations, (ii) the
Consolidated Statements of Comprehensive Income (Loss), (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of
Stockholders' Equity and Noncontrolling Interests, (vi) the Notes to Consolidated Financial Statements, and (vii) document and entity information.
(b) Exhibits
The exhibits included in Item 15(a)(3) above are filed or incorporated by reference pursuant to the requirements of Item 601 of Regulation S-K.
(c) Other Financial Statement Schedules
181
Table of Contents
SCHEDULE II
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS)
Allowance for doubtful accounts—trade accounts receivable
Year ended:
December 31, 2018
December 31, 2017
December 31, 2016
Allowance for obsolete supplies and inventory
Year ended:
December 31, 2018
December 31, 2017
December 31, 2016
Deferred tax valuation account
Year ended:
December 31, 2018
December 31, 2017
December 31, 2016
Balance at
beginning
of year
Additions
charged to
costs and
expenses
Deductions (1)
Foreign
exchange
impact
Balance at
end of year
$
$
$
$
$
$
$
$
$
17.2 $
10.7 $
8.7 $
15.5 $
8.8 $
8.5 $
5.1 $
7.2 $
4.0 $
30.1 $
20.6 $
4.4 $
(7.1) $
(2.0) $
(1.5) $
(19.6) $
(14.5) $
(3.7) $
(0.7) $
1.3 $
(0.5) $
(0.6) $
0.6 $
(0.4) $
14.5
17.2
10.7
25.4
15.5
8.8
1,077.7 $
901.7 $
824.9 $
18.7 $
67.8 $
161.3 $
(7.3) $
(21.1) $
(53.6) $
(49.1) $
129.3 $
(30.9) $
1,040.0
1,077.7
901.7
(1)
Amounts related to write-offs of uncollectible accounts, claims or obsolete inventories and supplies. Amounts related to the deferred tax asset valuation
allowance are primarily due to the utilization of capital loss and operating loss carryforwards and re-evaluations of deferred tax assets.
182
Table of Contents
ITEM 16. FORM 10-K SUMMARY
None.
183
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MOLSON COORS BREWING COMPANY
By
/s/ MARK R. HUNTER
Mark R. Hunter
President, Chief Executive Officer and Director
(Principal Executive Officer)
February 12, 2019
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant
and in the capacities and on the date indicated.
By
By
By
By
By
By
By
By
By
By
By
By
By
By
By
By
/s/ MARK R. HUNTER
President, Chief Executive Officer and Director (Principal Executive Officer)
Mark R. Hunter
/s/ TRACEY I. JOUBERT
Tracey I. Joubert
/s/ BRIAN C. TABOLT
Brian C. Tabolt
Chief Financial Officer
(Principal Financial Officer)
Vice President and Controller
(Principal Accounting Officer)
/s/ PETER H. COORS
Chairman
Peter H. Coors
/s/ GEOFFREY E. MOLSON
Vice Chairman
Geoffrey E. Molson
/s/ PETER J. COORS
Peter J. Coors
Director
/s/ BETTY K. DEVITA
Director
Betty K. DeVita
/s/ ROGER G. EATON
Director
Roger G. Eaton
/s/ MARY LYNN FERGUSON-MCHUGH
Director
Mary Lynn Ferguson-McHugh
/s/ CHARLES M. HERINGTON
Director
Charles M. Herington
/s/ FRANKLIN W. HOBBS
Director
Franklin W. Hobbs
/s/ ANDREW T. MOLSON
Director
Andrew T. Molson
/s/ IAIN J. G. NAPIER
Iain J. G. Napier
Director
/s/ H. SANFORD RILEY
Director
H. Sanford Riley
/s/ DOUGLAS D. TOUGH
Director
Douglas D. Tough
/s/ LOUIS VACHON
Louis Vachon
Director
February 12, 2019
Exhibit 10.7.5
SUPPLEMENT NO. 2, dated as of January 14, 2019 (this “ Supplement ”), to the Subsidiary Guarantee Agreement dated as
of July 7, 2017, among MOLSON COORS BREWING COMPANY, a Delaware corporation (the “ Company ”), MOLSON
COORS BREWING COMPANY (UK) LIMITED, MOLSON CANADA 2005, MOLSON COORS CANADA INC. and MOLSON
COORS INTERNATIONAL LP (the “ Initial Borrowing Subsidiaries ” and, together with the Company and other Borrowing
Subsidiaries from time to time party to the Credit Agreement, the “ Borrowers ”), each subsidiary of the Company listed on
Schedule I hereto (each such subsidiary individually, a “ Guarantor ” and collectively, the “ Guarantors ”) and CITIBANK N.A.,
as Administrative Agent (in such capacity, the “ Administrative Agent ”).
A.
Reference is made to the Credit Agreement dated as of July 7, 2017 (as amended, restated, supplemented or otherwise
modified from time to time, the “ Credit Agreement ”), among the Company, the Initial Borrowing Subsidiaries and other Borrowing
Subsidiaries from time to time party thereto, the Lenders and Issuing Banks from time to time party thereto and the Administrative Agent.
B.
Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the
Credit Agreement and the Subsidiary Guarantee Agreement referred to therein.
C.
The Guarantors have entered into the Subsidiary Guarantee Agreement in order to induce the Lenders to make Loans and
accept and purchase B/As upon the terms and subject to the conditions set forth in the Credit Agreement. Section 21 of the Subsidiary
Guarantee Agreement provides that additional Subsidiaries of the Company may become Guarantors under the Subsidiary Guarantee
Agreement by execution and delivery of an instrument in the form of this Supplement. The undersigned Subsidiary (the “ New Subsidiary ”)
is executing this Supplement in accordance with the requirements of the Credit Agreement to become a Guarantor under the Subsidiary
Guarantee Agreement in order to induce the Lenders to make additional Loans and accept and purchase additional B/As and as consideration
for Loans previously made and B/As previously accepted and purchased.
Accordingly, the Administrative Agent and the New Subsidiary agree as follows:
SECTION 1. In accordance with Section 21 of the Subsidiary Guarantee Agreement, the New Subsidiary by its signature
below becomes a Canadian Guarantor under the Subsidiary Guarantee Agreement with the same force and effect as if originally
named therein as a Canadian Guarantor and the New Subsidiary hereby agrees to all the terms and provisions of the Subsidiary
Guarantee Agreement applicable to it as a Canadian Guarantor thereunder. Each reference to a “Canadian Guarantor” in the
Subsidiary Guarantee Agreement shall be deemed to include the New Subsidiary. The Subsidiary Guarantee Agreement is hereby
incorporated herein by reference.
SECTION 2. The New Subsidiary represents and warrants to the Administrative Agent and the Lenders that this
Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation,
enforceable against it in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally
and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.
SECTION 3. This Supplement may be executed in counterparts (and by different parties hereto on different counterparts),
each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Supplement
shall become effective when the Administrative Agent shall have received a counterpart of this Supplement that bears the signature
of the New Subsidiary.
Delivery of an executed signature page to this Supplement by facsimile transmission (or other electronic transmission (including by
.pdf)) shall be as effective as delivery of a manually signed counterpart of this Supplement.
SECTION 4. Except as expressly supplemented hereby, the Subsidiary Guarantee Agreement shall remain in full force
and effect.
SECTION 5. THIS SUPPLEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAW OF THE STATE OF NEW YORK.
SECTION 6. In case any one or more of the provisions contained in this Supplement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any
way be affected or impaired thereby (it being understood that the invalidity of a particular provision in a particular jurisdiction shall
not in and of itself affect the validity of such provision in any other jurisdiction). The parties hereto shall endeavor in good- faith
negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as
close as possible to that of the invalid, illegal or unenforceable provisions.
SECTION 7. All communications and notices hereunder shall be in writing and given as provided in Section 8 of the
Subsidiary Guarantee Agreement. All communications and notices hereunder to the New Subsidiary shall be given to it at the
address set forth under its signature below.
SECTION 8. The New Subsidiary agrees to reimburse the Administrative Agent for its reasonable out-of-pocket expenses
in connection with this Supplement, including the reasonable fees, other charges and out-of-pocket disbursements of counsel for the
Administrative Agent to the extent payable pursuant to Section 10.03 of the Credit Agreement.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the New Subsidiary and the Administrative Agent have duly executed this Supplement to the
Subsidiary Guarantee Agreement as of the day and year first above written.
MOLSON ULC, as Canadian
Guarantor
By:
Name: E. Lee Reichert,
III
Title: Assistant
Secretary
CITIBANK, N.A., as Administrative
Agent
By:
Name:
Title:
Schedule I
to Supplement to the Subsidiary Guarantee Agreement
GUARANTORS
COORS BREWING COMPANY
CBC HOLDCO 3 INC.
CBC HOLDCO 2 LLC
CBC HOLDCO LLC
NEWCO3, INC.
MILLERCOORS LLC
MOLSON COORS INTERNATIONAL GENERAL, ULC
COORS INTERNATIONAL HOLDCO 2, ULC
MOLSON COORS INTERNATIONAL LP
MOLSON COORS CALLCO ULC
MOLSON COORS CANADA HOLDCO, ULC
MOLSON COORS CANADA INC.
MOLSON ULC
MOLSON CANADA 2005
3230600 NOVA SCOTIA COMPANY
MOLSON COORS (UK) HOLDINGS LLP
GOLDEN ACQUISITION
MOLSON COORS HOLDINGS LIMITED
MOLSON COORS BREWING COMPANY (UK) LIMITED
MOLSON COORS HOLDCO INC.
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
The following table lists our significant subsidiaries and the respective jurisdictions of their organization or incorporation as of December 31, 2018. All subsidiaries listed
below are included in our consolidated financial statements.
Exhibit 21
Name
Coors Brewing Company d/b/a Molson Coors International
CBC Holdco 2 LLC
CBC Holdco LLC
Newco3, Inc.
CBC Holdco 3, Inc.
Coors International Holdco 2, ULC
Molson Coors International General, ULC
Molson Coors International LP
Molson Coors Callco ULC
Molson Coors Canada Holdco, ULC
Molson Coors Canada Inc.
Molson ULC f/k/a Molson Inc.
Molson Canada 2005
3230600 Nova Scotia Company
Molson Coors (UK) Holdings LLP
Molson Coors Cayman 2 Company
Molson Coors (Barbados) SRL
Golden Acquisition
Molson Coors Holdings Limited
Molson Coors Brewing Company (UK) Limited
Molson Coors Holdco Inc.
Molson Coors European Finance Company
Molson Coors Lux 1
Molson Coors Lux 2
Molson Coors Netherlands B.V. f/k/a Starbev Netherlands B.V.
Pivovary Staropramen s.r.o. f/k/a Molson Coors Czech s.r.o.
MillerCoors LLC
MillerCoors USA LLC
State/province/country of organization
or incorporation
Colorado
Colorado
Colorado
Colorado
Colorado
Nova Scotia
Nova Scotia
Delaware
Nova Scotia
Nova Scotia
Canada
British Columbia
Ontario
Nova Scotia
United Kingdom
Cayman Islands
Barbados
United Kingdom
United Kingdom
United Kingdom
Delaware
Luxembourg
Luxembourg
Luxembourg
Netherlands
Czech Republic
Delaware
Delaware
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-124140, 333-122628, 333-110855, 333-110854, 33-
40730, 333-103573, 333-59516, 333-38378, 333-166521 and 333-183243), Form S-3 (Nos. 333-120776, 333-49952 and 333-48194) and Form S-3ASR (No. 333-
223427) of Molson Coors Brewing Company of our report dated February 12, 2019 relating to the consolidated financial statements, financial statement schedule
and the effectiveness of internal control over financial reporting, which appears in this Form 10‑K.
/s/ PricewaterhouseCoopers LLP
Denver, Colorado
February 12, 2019
Exhibit 31.1
I, Mark R. Hunter, certify that:
SECTION 302 CERTIFICATION OF CHIEF EXECUTIVE OFFICER
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Molson Coors Brewing Company;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control
over financial reporting.
February 12, 2019
/s/ MARK R. HUNTER
Mark R. Hunter
President & Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
I, Tracey I. Joubert, certify that:
SECTION 302 CERTIFICATION OF CHIEF FINANCIAL OFFICER
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Molson Coors Brewing Company;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control
over financial reporting.
February 12, 2019
/s/ TRACEY I. JOUBERT
Tracey I. Joubert
Chief Financial Officer
(Principal Financial Officer)
WRITTEN STATEMENT OF CHIEF EXECUTIVE OFFICER
AND CHIEF FINANCIAL OFFICER
FURNISHED PURSUANT TO SECTION 906
OF THE SARBANES‑‑OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350)
AND FOR THE PURPOSE OF COMPLYING WITH RULE 13a-14(b)
OF THE SECURITIES EXCHANGE ACT OF 1934.
Exhibit 32
The undersigned, the Chief Executive Officer and the Chief Financial Officer of Molson Coors Brewing Company (the “Company”) respectively, each
hereby certifies that to his knowledge on the date hereof:
a)
the Annual Report on Form 10-K of the Company for the year ended December 31, 2018 filed on the date hereof with the Securities and
Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
b)
information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ MARK R. HUNTER
Mark R. Hunter
President & Chief Executive Officer
(Principal Executive Officer)
February 12, 2019
/s/ TRACEY I. JOUBERT
Tracey I. Joubert
Chief Financial Officer
(Principal Financial Officer)
February 12, 2019
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the
Company and furnished to the Securities and Exchange Commission or its staff upon request.