Acquisition of Molson Coors Central Europe

9 Months Ended

Sep. 29, 2012

Business Combinations [Abstract]

Acquisition of Molson Coors Central Europe

Acquisition of StarBev

General

In accordance with our strategy to increase our portfolio of premium brands and deepen our reach into growth markets around the world, we completed the Acquisition of StarBev from StarBev L.P. (the "Seller") on June 15, 2012, for €2.7 billion (or $3.4 billion), including the assumption and payoff of pre-existing StarBev indebtedness. Headquartered in Amsterdam and Prague, StarBev is one of the largest brewers in Central Europe. StarBev, which we renamed Molson Coors Central Europe ("MCCE"), operates nine breweries in Czech Republic, Serbia, Croatia, Romania, Bulgaria, Hungary and Montenegro and sold approximately 13.3 million hectoliters of beer in 2011, including sales in Bosnia-Herzegovina and Slovakia. In 2011, StarBev held a top-three market share position in each of its markets, and its brand portfolio includes local champions such as Staropramen, Borsodi, Kamenitza, Bergenbier, Ozujsko, Jelen, and Niksicko, and it also brews and distributes other brands under license. Staropramen is distributed and sold in over 30 countries. The operating results of MCCE are reported in our new Central Europe operating segment and our MCI operating segment as further described in Note 4, "Segment Reporting." We incurred acquisition and integration costs of $5.1 million and $36.5 million in the third quarter and first three quarters of 2012, respectively. We also incurred financing-related expenses as further described in Note 8, "Other Income and Expense" and Note 13, "Debt."

Unaudited Pro Forma Financial Information

MCCE contributed Net sales of $328.2 million, of which $321.5 million is included in our Central Europe segment, and Income from continuing operations before income taxes of $90.4 million, of which $87.6 million is included in our Central Europe segment, from the Acquisition date of June 15, 2012, through September 29, 2012. The incremental portion not included in our Central Europe segment results is our Central Europe export and license business reflected in our MCI segment results. The following unaudited pro forma summary presents our Condensed Consolidated Statements of Operations as if MCCE had been acquired on December 26, 2010, the first day of our 2011 fiscal year. These amounts were calculated after conversion to U.S. GAAP, conforming to our accounting policies, and adjusting MCCE's results to reflect the depreciation and amortization that would have been charged assuming the preliminary fair value adjustments to Properties, net and Other intangibles, net resulting from the purchase had been applied from December 26, 2010, together with the consequential tax effects. These adjustments also reflect the removal of StarBev historical interest expense, the addition of interest expense to be prospectively incurred on the debt issued to finance the Acquisition and the removal of the previously mentioned acquisition-related costs of $31.4 million incurred prior to the third quarter. Additional significant adjustments recorded during the second quarter of 2012 include the removal of the following non-recurring, transaction-related costs included in the historical operating results: a $57.9 million Euro currency loss, a $39.2 million loss related to standard pre-issuance U.S. Treasury interest rate hedges ("Treasury Locks"), and bridge facility costs of $13.0 million, as further described in Note 8, "Other Income and Expense" and Note 13, "Debt", as well as expense of $8.6 million related to the fair value adjustment to acquisition date inventory. This unaudited pro forma financial information is not intended to reflect the performance which would have actually resulted had the Acquisition been effected on the dates indicated. Further, the unaudited pro forma results of operations are not necessarily indicative of the results of operations that may be obtained in the future.

	Thirteen Weeks Ended		Thirty-Nine Weeks Ended
	September 24, 2011		September 29, 2012(1)		September 24, 2011
	(In millions)
Net sales	$	1,269.2	$	3,226.8	$	3,338.6
Income from continuing operations before income taxes	$	284.7	$	590.7	$	680.0
Net income attributable to MCBC	$	253.2	$	497.8	$	589.8
Net income per common share attributable to MCBC:
Basic	$	1.36	$	2.76	$	3.16
Diluted	$	1.36	$	2.74	$	3.13

(1) The thirty-nine weeks ended September 29, 2012, include actual results for the period from the Acquisition date of June 15, 2012.

Fair Value of the Purchase Price

The following table summarizes the purchase price, inclusive of pre-existing debt assumed and subsequently repaid, to acquire StarBev:

	Fair Value
	(In millions)
Cash consideration to Seller	$	1,816.0
Fair value of convertible note issued to Seller(1)	645.9
Senior debt facilities with third-party creditor(2)	585.0
Total consideration	$	3,046.9
Cash, net of bank overdraft acquired(3)	$	(42.3	)
Subordinated deferred payment obligation ("SDPO") with third-party creditors(4)	423.4
Total purchase price, inclusive of pre-existing debt assumed and subsequently repaid	$	3,428.0

(1) We issued a €500 millionZero Coupon Senior Unsecured Convertible Note due 2013 to the Seller upon close of the Acquisition. See Note 13, "Debt" for further discussion.

(2) According to our agreement with the Seller and in accordance with the terms of the senior debt facility agreement, upon the closing of the Acquisition, we immediately repaid pre-existing StarBev third-party debt including accrued interest.

(3) Consists of $143.6 million of cash acquired and $101.3 million of bank overdrafts assumed as part of MCCE's cash pool arrangement and repaid during the third quarter of 2012.

(4) We assumed the pre-existing StarBev $423.4 million SDPO payable to third-party creditors, which we subsequently repaid on June 29, 2012, in accordance with the terms of the SDPO agreement. The SDPO was held by private investors and accrued interest at 11%. The settlement of the SDPO was not required by our agreement with the Seller.

The following table represents the classifications of the cash flows used, which are included within our Condensed Consolidated Statements of Cash Flows:

	(In millions)
Operating activities(1)	$	1.4
Investing activities(2)	2,257.4
Financing activities(1)	424.3
Total cash used	$	2,683.1
Non-cash(3)	$	645.9

(1) Includes the SDPO discussed above, which was subsequently repaid on June 29, 2012, for $425.7 million including the $1.4 million of interest incurred subsequent to the close of the Acquisition noted as "Operating activities" in the table above.

(2) Includes $1,816.0 million of cash consideration to the Seller for shares acquired and release of StarBev's pre-existing obligations to the Seller. Also, included is $585.0 million of pre-existing third-party debt immediately repaid in accordance with our agreement with the Seller and the terms of the senior debt facility agreement. This amount is presented net of cash acquired of $143.6 million.

(3) Reflects the $645.9 million fair value of the convertible note issued to the Seller upon close of the Acquisition. See Note 13, "Debt" for further discussion.

Allocation of Consideration Transferred

The following table represents the preliminary allocation of the total consideration to MCCE's identifiable net assets, fair value of the noncontrolling interest in MCCE, and resulting residual goodwill as of June 15, 2012. These allocated amounts were updated in the third quarter of 2012 and remain subject to revision until our valuation and tax-related adjustments are finalized, which we expect to occur during the fourth quarter of 2012. The changes in the third quarter of 2012 resulted in an increase to Goodwill of approximately $69 million primarily driven by the decrease in the valuation of Other intangibles, net.

	Fair Value
	(In millions)
Cash and cash equivalents	$	143.6
Current assets(1)	260.9
Properties, net	582.0
Other intangibles, net(2)	2,430.8
Other assets	41.0
Total assets acquired	$	3,458.3
Current liabilities(3)	847.6
Non-current liabilities(4)	423.3
Total liabilities assumed	$	1,270.9
Total identifiable net assets	$	2,187.4
Noncontrolling interest measured at fair value	40.6
Goodwill(5)	900.1
Total consideration	$	3,046.9

(1) Includes trade receivables of $152.2 million and inventory of $57.3 million.

(2) See Note 12, "Goodwill and Intangible Assets" for further discussion.

(3) Includes the $423.4 million SDPO assumed, which was subsequently repaid for $425.7 million on June 29, 2012.

(4) Includes $403.4 million of deferred tax liabilities.

(5) The goodwill resulting from the Acquisition is primarily attributable to MCCE's licensed brand brewing, distribution and import business, anticipated synergies and the assembled workforce. 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. The goodwill is not expected to be deductible for tax purposes. See Note 12, "Goodwill and Intangible Assets" for further discussion.