Goodwill and Intangible Assets

The following summarizes the change in goodwill for the first three quarters of 2012 (in millions):



	Canada		Central Europe		U.K.		MCI			Consolidated
	(In millions)
Balance at December 31, 2011	$	689.5	$	—	$	746.1	$	17.7		$	1,453.3
Business acquisition(1)	60.5		751.3		88.3		—			900.1
Impairment related to China reporting unit	—		—		—		(9.5		)	(9.5		)
Foreign currency translation	26.1		15.8		29.6		(0.2		)	71.3
Purchase price adjustment	—		—		—		0.4			0.4
Balance at September 29, 2012	$	776.1	$	767.1	$	864.0	$	8.4		$	2,415.6

(1)

On June 15, 2012, we completed the Acquisition. See Note 3, "Acquisition of StarBev" for further discussion. We have preliminarily assigned the majority of the goodwill to our Central Europe reporting unit with a portion allocated to the U.K. and Canada reporting units resulting from synergies. This allocation is subject to change as we finalize purchase accounting, which we expect to occur during the fourth quarter of 2012.

The following table presents details of our intangible assets, other than goodwill, as of September 29, 2012:



	Useful life	Gross		Accumulated amortization			Net
	(Years)	(In millions)
Intangible assets subject to amortization:
Brands(1)	3 - 40	$	475.6	$	(202.2	)	$	273.4
Distribution rights	2 - 23	355.1		(254.3		)	100.8
Patents and technology and distribution channels	3 - 10	35.3		(30.9		)	4.4
Favorable contracts, land use rights and other(1)	2 - 42	13.2		(3.3		)	9.9
Intangible assets not subject to amortization:
Brands(1)	Indefinite	5,794.5		—			5,794.5
Distribution networks	Indefinite	1,028.4		—			1,028.4
Other	Indefinite	15.5		—			15.5
Total		$	7,717.6	$	(490.7	)	$	7,226.9

(1)

Includes the preliminary fair values of $143.4 million for brand intangibles with a 30 year useful life, $2,275.4 million, as adjusted in the third quarter of 2012, for brand intangibles with an indefinite-life and a preliminary fair value of a favorable supply contract and other intangibles of $12.0 million with a 2 year useful life as a result of the Acquisition. See Note 3, "Acquisition of StarBev" for total allocation of consideration.

The following table presents details of our intangible assets, other than goodwill, as of December 31, 2011:



	Useful life	Gross		Accumulated amortization			Net
	(Years)	(In millions)
Intangible assets subject to amortization:
Brands	3 - 40	$	316.9	$	(179.0	)	$	137.9
Distribution rights	2 - 23	342.0		(234.0		)	108.0
Patents and technology and distribution channels	3 - 10	34.9		(28.9		)	6.0
Land use rights and other	2 - 42	6.5		(0.8		)	5.7
Intangible assets not subject to amortization:
Brands	Indefinite	3,322.4		—			3,322.4
Distribution networks	Indefinite	990.5		—			990.5
Other	Indefinite	15.5		—			15.5
Total		$	5,028.7	$	(442.7	)	$	4,586.0

The changes in the gross carrying amounts of intangibles from December 31, 2011, to September 29, 2012, are primarily due to the Acquisition. See Note 3, "Acquisition of StarBev" for further discussion. Changes are also 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 September 29, 2012, the following is our estimated amortization expense related to intangible assets for the next five years:



	Amount
	(In millions)
2012 - remaining	$	11.9
2013	$	47.8
2014	$	39.9
2015	$	37.2
2016	$	37.2

Amortization expense of intangible assets was $11.8 million and $9.7 million for the third quarters of 2012 and 2011, respectively, and $30.4 million and $30.0 million for the first three quarters of 2012 and 2011, respectively.

We are required to perform goodwill and indefinite-lived intangible asset impairment tests on at least an annual basis and more frequently in certain circumstances. We performed the required annual impairment testing as of July 1, 2012, and determined that there were no impairments of goodwill or other indefinite-lived intangible assets. We did not include the China reporting unit in our annual goodwill impairment testing as of July 1, 2012, as the entire goodwill balance was impaired and written off in the second quarter of 2012.

Through our annual impairment testing of goodwill performed in the third quarter of 2012, it was determined that the fair value of our U.K. and Canada reporting units were at risk of failing step one of the goodwill impairment test. The fair value of the U.K. reporting unit was estimated at approximately 7% in excess of its carrying value (of which $864.0 million is goodwill as of September 29, 2012) and the fair value of the Canada reporting unit was estimated at approximately 15% in excess of its carrying value (of which $776.1 million is goodwill as of September 29, 2012). The reporting units are therefore at risk of a future impairment in the event of significant unfavorable changes in the forecasted cash flows, terminal growth rates, market transaction multiples and/or weighted-average cost of capital utilized in the discounted cash flow analysis. For testing purposes, management's best estimates of the expected future results are the primary driver in determining the fair value. Current projections reflect challenging environments that have been adversely impacted by a weak economy across all industries, partially offset by anticipated cost savings and specific brand-building and innovation activities.

Through our annual impairment testing of indefinite-lived intangibles performed in the third quarter of 2012, it was determined that the fair value of our Molson core brands were at risk of failing step one of the impairment test, with the fair value of the Molson core brands estimated at approximately 14% in excess of its carrying value (of which $3,105.2 million is indefinite-lived intangibles as of September 29, 2012). The Molson core brands face similar risks and challenges as the Canada reporting unit, as described above. Additionally, our annual impairment testing of indefinite-lived intangibles indicated that the Carling brand in the U.K. (of which $324.0 million is indefinite-lived intangible as of September 29, 2012) continues to have a fair value significantly in excess of its carrying value.

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 impairment test 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 U.K. and Canada reporting units and Molson core brands may include such items as: (i) a decrease in expected future cash flows, specifically, an increase in required pension contributions, a decrease in sales volume, unfavorable working capital changes and an inability to successfully achieve our cost savings targets, (ii) an economic recovery that significantly differs from our assumptions in timing and/or degree, (iii) volatility in the equity and debt markets which could result in a higher discount rate; and (iv) sensitivity to market transaction multiples.

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.

Since its inception, the performance of our MC Si'hai joint venture (which is included in our China reporting unit with our other operations in China) did not meet our expectations due to delays in executing its business plans. As a result, our 2011 impairment testing indicated that the fair value of our China reporting unit only exceeded its carrying value by 4%. As part of the negotiations with our partner to resolve business difficulties and other issues affecting the joint venture, during the second quarter of 2012, we signed an agreement to acquire our partner's 49% noncontrolling interest in the joint venture. As of the end of the second quarter of 2012, there had been a lack of progress by our partner in timely satisfying the closing conditions, as well as delays and obstacles in gaining government approval for the acquisition of the noncontrolling interest, including a court order in China which prevented our joint venture partner from transferring its equity interest to us. These developments, coupled with the impact of increased competitive pressures in China were the combined trigger to review the future cash flows for the reporting unit. The subsequent testing identified that the full amount of the goodwill was impaired, resulting in a charge of $9.5 million in the second quarter of 2012. We also recognized an impairment charge on the definite-lived brand and distribution rights intangible assets of $0.9 million in the second quarter of 2012. Both of these charges are classified as Special items in our Condensed Consolidated Statements of Operations. In addition, as a result of recent developments identified in the third quarter of 2012, we deconsolidated our MC Si'hai joint venture and recorded an impairment loss of $27.6 million upon deconsolidation. See Note 5, "Investments" for further discussion.

Regarding definite-lived intangibles, we continuously monitor the performance of the underlying asset for potential triggering events suggesting an impairment review should be performed. No such triggering events were identified in the third quarter of 2012.