EX-99 10 tapex99.htm EXHIBIT 99 TAP EX 99_2012.12.29 10K
Exhibit 99



Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of MillerCoors LLC:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations and comprehensive income (loss), of shareholders' investment and of cash flows present fairly, in all material respects, the financial position of MillerCoors LLC and its subsidiaries at December 31, 2012 and 2011, and the results of their operations and their cash flows for the three years ended December 31, 2012 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



/s/ PricewaterhouseCoopers LLP
Milwaukee, WI
February 15, 2013




MillerCoors LLC and Subsidiaries
Consolidated Balance Sheets
(In millions, except shares)
 
 
As of
 
 
December 31, 2012
 
December 31, 2011
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
17.3

 
$
30.4

Accounts receivable, net of allowance for doubtful accounts of $0.7 and $0.7, respectively
 
252.0

 
279.7

Due from affiliates
 
22.3

 
21.3

Inventories, net
 
481.5

 
414.9

Derivative financial instruments
 
8.3

 
6.9

Prepaid assets
 
60.0

 
57.7

Total current assets
 
841.4

 
810.9

Property, plant and equipment, net
 
2,587.5

 
2,480.1

Goodwill
 
4,360.1

 
4,345.1

Other intangibles, net
 
1,955.2

 
1,980.6

Derivative financial instruments
 
0.9

 
10.0

Other assets
 
46.2

 
45.9

Total assets
 
$
9,791.3

 
$
9,672.6

Liabilities and Shareholders' Investment
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
242.4

 
$
206.2

Due to affiliates
 
8.7

 
12.4

Trade accrued expenses
 
339.2

 
313.9

Accrued payroll and related expenses
 
137.4

 
142.2

Current portion of pension and postretirement benefits
 
46.9

 
42.2

Other current liabilities
 
172.0

 
170.6

Derivative financial instruments
 
11.9

 
35.2

Total current liabilities
 
958.5

 
922.7

Pension and postretirement benefits
 
1,362.7

 
1,343.2

Long-term debt
 
19.1

 
23.6

Derivative financial instruments
 
9.4

 
14.3

Other liabilities
 
146.3

 
90.2

Total liabilities
 
2,496.0

 
2,394.0

Interest attributable to shareholders:
 
 
 
 
Capital stock (840,000 Class A shares and 160,000 Class B shares)
 
—

 
—

Shareholders' capital
 
8,395.2

 
8,303.8

Retained earnings
 
—

 
—

Accumulated other comprehensive loss
 
(1,128.3
)
 
(1,061.9
)
Total interest attributable to shareholders
 
7,266.9

 
7,241.9

Noncontrolling interest
 
28.4

 
36.7

Total shareholders' investment
 
7,295.3

 
7,278.6

Total liabilities and shareholders' investment
 
$
9,791.3

 
$
9,672.6

The accompanying notes are an integral part of the consolidated financial statements.

2

MillerCoors LLC and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income (Loss)
(In millions)
 
 
For the years ended
 
 
December 31, 2012
 
December 31, 2011
 
December 31, 2010
Sales
 
$
8,966.6

 
$
8,763.3

 
$
8,817.7

Excise taxes
 
(1,205.5
)
 
(1,213.1
)
 
(1,247.1
)
Net sales
 
7,761.1

 
7,550.2

 
7,570.6

Cost of goods sold
 
(4,689.7
)
 
(4,647.9
)
 
(4,686.3
)
Gross profit
 
3,071.4

 
2,902.3

 
2,884.3

Marketing, general and administrative expenses
 
(1,828.5
)
 
(1,768.6
)
 
(1,775.1
)
Special items
 
(31.8
)
 
(113.4
)
 
(30.3
)
Operating income
 
1,211.1

 
1,020.3

 
1,078.9

Other income (expense):
 
 
 
 
 
 
Interest expense, net
 
(1.4
)
 
(1.8
)
 
(0.7
)
Other income, net
 
1.7

 
3.0

 
3.1

Total other income (expense)
 
0.3

 
1.2

 
2.4

Income before income taxes
 
1,211.4

 
1,021.5

 
1,081.3

Income taxes
 
(5.5
)
 
(7.5
)
 
(7.6
)
Net income
 
1,205.9

 
1,014.0

 
1,073.7

Net income attributable to noncontrolling interests
 
(15.0
)
 
(10.2
)
 
(16.7
)
Net income attributable to MillerCoors LLC
 
$
1,190.9

 
$
1,003.8

 
$
1,057.0

Other comprehensive income (loss):
 
 
 
 
 
 
Unrealized loss on derivative instruments
 
$
(5.6
)
 
$
(100.3
)
 
$
(1.0
)
Reclassification adjustment on derivative instruments
 
25.5

 
(13.9
)
 
15.4

Pension and other postretirement benefit adjustments
 
(144.8
)
 
(194.4
)
 
(202.2
)
Amortization of net prior service costs and net actuarial losses
 
58.5

 
62.5

 
61.8

Other comprehensive income (loss)
 
(66.4
)
 
(246.1
)
 
(126.0
)
Comprehensive income
 
$
1,124.5

 
$
757.7

 
$
931.0

The accompanying notes are an integral part of the consolidated financial statements.

3

MillerCoors LLC and Subsidiaries
Consolidated Statements of Cash Flows
(In millions)
 
 
For the years ended
 
 
December 31, 2012
 
December 31, 2011
 
December 31, 2010
Cash flows from operating activities:
 
 
 
 
 
 
Net income
 
$
1,205.9

 
$
1,014.0

 
$
1,073.7

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
 
 
 
Depreciation and amortization
 
285.4

 
301.8

 
284.5

Share-based compensation
 
14.0

 
1.9

 
18.9

Brand impairment
 
—

 
60.0

 
—

Loss on disposal of property, plant and equipment
 
35.1

 
12.0

 
13.7

Other
 
(0.2
)
 
(14.1
)
 
(4.9
)
Change in assets and liabilities, excluding effects of acquisitions:
 
 
 
 
 
 
Accounts receivable
 
27.6

 
(47.3
)
 
15.6

Inventories
 
(65.5
)
 
(8.7
)
 
16.4

Prepaid and other assets
 
(0.1
)
 
27.9

 
7.7

Payables and accruals
 
24.1

 
(4.3
)
 
(12.1
)
Derivative financial instruments
 
(0.6
)
 
5.2

 
(2.0
)
Other liabilities
 
(41.0
)
 
41.9

 
(125.3
)
Net cash provided by operating activities
 
1,484.7

 
1,390.3

 
1,286.2

Cash flows from investing activities:
 
 
 
 
 
 
Additions to property, plant and equipment
 
(328.3
)
 
(337.7
)
 
(289.5
)
Proceeds from disposal of property, plant and equipment
 
8.5

 
1.9

 
0.9

Additions to intangible assets
 
(2.4
)
 
(6.7
)
 
(57.5
)
Acquisition of businesses, net of cash acquired
 
(34.2
)
 
—

 
—

Notes receivable repayments
 
—

 
14.0

 
100.0

Net cash used in investing activities
 
(356.4
)
 
(328.5
)
 
(246.1
)
Cash flows from financing activities:
 
 
 
 
 
 
Net contributions and distributions to shareholders
 
(1,095.0
)
 
(1,068.9
)
 
(1,040.3
)
Payments on debt
 
(4.6
)
 
(4.6
)
 
(4.6
)
Net contributions and distributions to noncontrolling interests
 
(20.4
)
 
(4.0
)
 
(14.3
)
Purchase of noncontrolling interests
 
(21.4
)
 
—

 
—

Net cash used in financing activities
 
(1,141.4
)
 
(1,077.5
)
 
(1,059.2
)
Cash and cash equivalents:
 
 
 
 
 
 
Net decrease in cash and cash equivalents
 
(13.1
)
 
(15.7
)
 
(19.1
)
Balance of cash and cash equivalents at beginning of year
 
30.4

 
46.1

 
65.2

Balance of cash and cash equivalents at end of year
 
$
17.3

 
$
30.4

 
$
46.1

Supplemental cash flow information
 
 
 
 
 
 
Interest paid
 
$
1.2

 
$
1.5

 
$
1.7

Income taxes paid
 
$
5.1

 
$
7.2

 
$
5.8

The accompanying notes are an integral part of the consolidated financial statements.


4

MillerCoors LLC and Subsidiaries
Consolidated Statements of Shareholders' Investment
(In millions)
 
 
Capital
stock
 
Shareholders'
capital
 
Retained
earnings
 
Accumulated
other
comprehensive
loss
 
Noncontrolling
interest
 
Total
shareholders'
investment
Balance as of
December 31, 2009
 
$
—

 
$
8,331.4

 
$
—

 
$
(689.8
)
 
$
28.1

 
$
7,669.7

Share-based compensation
 
 

 
18.9

 
 

 
 

 
 

 
18.9

Other comprehensive loss
 
 

 
 

 
 

 
(126.0
)
 
 

 
(126.0
)
Net contributions and distributions
 
 

 
16.7

 
(1,057.0
)
 
 

 
(14.3
)
 
(1,054.6
)
Net income
 
 

 
 

 
1,057.0

 
 

 
16.7

 
1,073.7

Balance as of
December 31, 2010
 
$
—

 
$
8,367.0

 
$
—

 
$
(815.8
)
 
$
30.5

 
$
7,581.7

Share-based compensation
 
 

 
1.9

 
 

 
 

 
 

 
1.9

Other comprehensive loss
 
 

 
 

 
 

 
(246.1
)
 
 

 
(246.1
)
Net contributions and distributions
 
 

 
(65.1
)
 
(1,003.8
)
 
 

 
(4.0
)
 
(1,072.9
)
Net income
 
 

 
 

 
1,003.8

 
 

 
10.2

 
1,014.0

Balance as of
December 31, 2011
 
$
—

 
$
8,303.8

 
$
—

 
$
(1,061.9
)
 
$
36.7

 
$
7,278.6

Share-based compensation
 
 

 
14.0

 
 

 
 

 
 

 
14.0

Other comprehensive loss
 
 

 
 
 
 

 
(66.4
)
 
 

 
(66.4
)
Purchase of noncontrolling interest
 
 
 
(18.5
)
 
 
 
 
 
(2.9
)
 
(21.4
)
Net contributions and distributions
 
 

 
95.9

 
(1,190.9
)
 
 

 
(20.4
)
 
(1,115.4
)
Net income
 
 

 
 

 
1,190.9

 
 

 
15.0

 
1,205.9

Balance as of
December 31, 2012
 
$
—

 
$
8,395.2

 
$
—

 
$
(1,128.3
)
 
$
28.4

 
$
7,295.3

The accompanying notes are an integral part of the consolidated financial statements.


5

MillerCoors LLC and Subsidiaries
Notes to Consolidated Financial Statements
1. Basis of Presentation and Summary of Significant Accounting Policies
Company Description
MillerCoors LLC and subsidiaries (“MillerCoors” or “the Company”) brews and sells beer to distributors. Its major brands include Coors Light, Miller Lite, Miller High Life, Keystone and Blue Moon.

MillerCoors is a joint venture combining the U.S. and Puerto Rican operations of SABMiller plc (“SABMiller”) and Molson Coors Brewing Company (“Molson Coors”) with Miller Brewing Company (“Miller”) and MC Holding Company LLC (“Coors”) being the direct owners of the Company, collectively the “Shareholders.” Miller and Coors each have a 50% voting interest in MillerCoors and a 58% and 42% economic interest, respectively. SABMiller and Molson Coors have agreed that all of their U.S. operations will be conducted exclusively through the joint venture. The joint venture commenced on July 1, 2008. MillerCoors opening balances as of July 1, 2008 were based on contributions of assets and liabilities from the Shareholders recognized on a carryover basis. If the Company were to dissolve, the Shareholders would receive proceeds pro rata in accordance with their shareholder capital accounts.
Basis of Presentation and Consolidation
The Company's consolidated financial statements include its accounts and its majority-owned and controlled subsidiaries. The consolidated financial statements are presented on the basis of accounting principles generally accepted in the United States of America (“U.S. GAAP”). All significant intercompany accounts and transactions have been eliminated in consolidation.
Fiscal Year
The Company's fiscal year ends on December 31.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires the Company to make certain estimates, judgments and assumptions. The Company believes 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, the Company's consolidated financial statements may be materially affected.
Cash and Cash Equivalents
Cash and cash equivalents are all highly liquid temporary investments purchased with an original maturity of less than three months.
Accounts Receivable and Notes Receivable
The Company records 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. The Company calculates this allowance based on its history of write-offs, level of past-due accounts based on the contractual terms of the receivables and its relationships with and the economic status of its customers.
Inventories
Inventories are stated at lower of cost or market. Cost is determined by the first-in, first-out (“FIFO”) method. The Company regularly assesses the shelf-life of its inventories and reserves for those inventories when it becomes apparent the product will not be sold within its freshness specifications.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the respective assets. Buildings and improvements are depreciated over useful lives ranging from 20 to 40 years, limited to the minimum lease term for leasehold improvements. Machinery and equipment are depreciated over useful lives ranging from 3 to 25 years. Containers are depreciated over a useful life of 15 years. The cost and related accumulated depreciation of buildings, equipment and containers retired, or otherwise disposed of, are removed from the accounts. Any gain or loss is included in earnings. Ordinary repairs and maintenance are expensed as incurred.

6
MillerCoors LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)

Impairment of Long-Lived Assets
The Company reviews property, plant and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of property, plant and equipment is measured by comparing the carrying value to the projected undiscounted cash flows that the assets are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying value of the asset exceeds its fair market value.
Computer Software
The Company capitalizes the costs of obtaining or developing internal-use computer software, including directly related payroll costs. Computer software developed or obtained for internal use is depreciated using the straight-line method over the estimated useful life of the software, ranging from 3 to 8 years. Internally generated costs associated with maintaining computer software programs are expensed as incurred. Computer software is classified in property, plant and equipment in the consolidated balance sheets.
Goodwill and Other Intangible Assets
Finite lived intangible assets are stated at cost less accumulated amortization using a straight-line basis and impairment losses, if any. Cost is determined as the amount paid by the Company, unless the asset has been acquired as part of a business combination. Amortization is included within marketing, general and administrative expenses in the consolidated statements of operations and comprehensive income (loss).

The Company evaluates the carrying value of its goodwill for impairment at least annually. The Company evaluates its other intangible assets for impairment when there is evidence 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 the evaluation of goodwill and intangible assets for impairment.
Fair Value Measurements
Authoritative guidance for fair value measurements defines fair value, establishes a framework for measuring fair value and requires disclosures about assets and liabilities measured at fair value in the financial statements. See Note 6, “Goodwill and Other Intangible Assets,” for disclosures related to impairment, Note 8, “Fair Value Measurements,” for disclosures related to financial assets and liabilities and Note 11, “Employee Retirement Plans,” for disclosures related to pension assets.
Derivative Financial Instruments
The Company recognizes all derivative instruments as either assets or liabilities at their estimated fair value on a gross basis in its consolidated balance sheets. The change in a derivative's fair value is recorded each period in current earnings or accumulated other comprehensive income (loss), depending on whether the derivative is designated as part of a hedge transaction and if so, the type of hedge transaction. See Note 8, “Fair Value Measurements,” and Note 9, “Hedging Transactions and Derivative Financial Instruments,” for disclosure of the Company's derivative instruments and hedging activities.
Share-Based Payments
All share-based payments to qualified individuals, including grants of employee stock options, are recognized as compensation cost in the financial statements based on the fair value of the grants at every period end as liability classified awards.

There are certain share-based compensation plans where employees of the Company were granted awards while employed by the Shareholders prior to the formation of the Company. Compensation cost related to these plans is recognized for unvested awards because the employees are earning their share-based compensation while working at the Company. In addition, because the Company is an unconsolidated subsidiary of the Shareholders, the holders of the awards are considered “non-employees” and therefore the compensation cost is calculated under variable accounting. The Company recorded $14.0 million, $1.9 million and $18.9 million of compensation costs in marketing, general and administrative expenses in the consolidated statements of operations and comprehensive income (loss) related to these awards for the years ended December 31, 2012, December 31, 2011 and December 31, 2010, respectively. See Note 16, “Share-Based Payments,” for additional information on share-based compensation plans of the Company.
Revenue Recognition
Revenue is recognized when the significant risks and rewards of ownership, including the risk of loss due to lost or stolen product, are transferred to the customer, which is at the time of shipment to unaffiliated customers.

7
MillerCoors LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)


The cost of various programs, such as price promotions, rebates and coupons, are treated as a reduction of sales. Sales of products are for cash or otherwise agreed upon credit terms. Sales are stated net of discounts and returns.

Freight costs billed to customers for shipping and handling are recorded as sales, and shipping and handling expenses are recognized as cost of goods sold. The amounts billed to a customer for shipping and handling represent revenues earned for the goods provided. The costs incurred for shipping and handling expenses represent costs incurred to move the product. The Company has adopted a policy to include these costs within cost of goods sold.
Excise Taxes
Excise taxes collected from customers and remitted to tax authorities are state and federal excise taxes on beer shipments. Excise taxes on beer shipments are shown in a separate line item in the consolidated statements of operations and comprehensive income (loss) as a reduction of sales. Sales taxes collected from customers are recognized as a liability, with the liability subsequently reduced when the taxes are remitted to the tax authority.
Cost of Goods Sold
The Company's cost of goods sold includes brewing raw materials, packaging materials, manufacturing costs, plant administrative support and overheads, inbound and outbound freight costs, purchasing and receiving costs, inspection costs, warehousing and internal transfer costs.
Marketing, General and Administrative Expenses
The Company's marketing, general and administrative expenses consist predominately of marketing costs, sales costs and non-manufacturing administrative and overhead costs. The creative portion of the Company's advertising activities is expensed as incurred. Production costs are expensed when the advertising is first run. Marketing expense was $896.6 million, $859.9 million and $866.2 million for the years ended December 31, 2012, December 31, 2011 and December 31, 2010, respectively. Prepaid marketing costs of $28.9 million and $17.1 million were included in prepaid assets in the consolidated balance sheets as of December 31, 2012 and 2011, respectively.
Income Taxes
The Shareholders of the Company have elected to treat the Company as a partnership for U.S. federal and state income tax purposes.  Accordingly, the related tax attributes of the Company are passed through to the Shareholders and income taxes are payable by the Shareholders.  

These consolidated financial statements include an income tax provision related to state taxes as the Company is still subject to income taxes in certain states or jurisdictions.  
Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive loss, which are recorded within shareholders' investment, are as follows:
 
 
For the years ended
 
 
December 31, 2012
 
December 31, 2011
 
 
(In millions)
Unrealized (loss) on derivative instruments
 
$
(6.9
)
 
$
(26.8
)
Pension and other postretirement benefit adjustments
 
(1,121.4
)
 
(1,035.1
)
Total accumulated other comprehensive loss
 
$
(1,128.3
)
 
$
(1,061.9
)
New Accounting Pronouncements
Fair Value Measurement

In May 2011, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance with regards to fair value measurement and disclosure requirements. The new guidance results in a consistent definition of fair value and convergence between U.S. GAAP and International Financial Reporting Standards (“IFRS”) on both how to measure fair value and on the disclosures regarding fair value measurements. The guidance became effective for the Company beginning in fiscal year 2012. The implementation of this standard did not have a material impact on the consolidated financial position, results of operations or cash flows of the Company.


8
MillerCoors LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)

Presentation of Other Comprehensive Income

In June 2011, the FASB issued authoritative guidance with regards to the presentation of other comprehensive income. This guidance was later amended in December 2011. Upon adoption of the amended guidance, an entity has the option to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The guidance became effective for the Company beginning in fiscal year 2012. The implementation of this standard is limited to a change in presentation of the results of operations, which the Company has elected to present as a single continuous statement of comprehensive income.

Goodwill Impairment Testing

In September 2011, the FASB issued authoritative guidance with regards to goodwill impairment testing. The new guidance permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If it is concluded that this is the case, it is necessary to perform the two-step goodwill impairment test. If it is concluded that this is not the case, the two-step goodwill impairment test is not required. The guidance became effective for the Company beginning in fiscal year 2012. The implementation of this standard did not have a material impact on the consolidated financial position or results of operations of the Company.

Multi-employer Pension Plan Disclosures

In September 2011, the FASB issued authoritative guidance with regards to the disclosure requirements related to an employer's participation in a multi-employer pension plan. The new guidance requires additional disclosures regarding the significant multi-employer pension plans in which an employer participates. The guidance became effective, retrospectively, beginning in fiscal year 2012. The implementation of this standard is limited to a change in the disclosures in the notes to consolidated financial statements of the Company. With the assumption of a significant multi-employer pension plan discussed in Note 11, “Employee Retirement Plans,” the remaining multi-employer plans are not significant and do not require disclosure under this guidance.

New Accounting Pronouncements Not Yet Adopted

Offsetting Assets and Liabilities Disclosures

In December 2011, the FASB issued authoritative guidance with regards to the disclosure requirements related to offsetting asset and liability positions. The update creates new disclosure requirements regarding the nature of an entity's rights of offset and related arrangements associated with its financial instruments and derivative instruments. The new disclosures are designed to better facilitate comparison between financial statements prepared under U.S. GAAP and IFRS by requiring entities to provide financial statement users information about both gross and net exposures. The guidance will become effective for the Company beginning in fiscal year 2013. The implementation of this standard is limited to a change in the disclosures in the notes to consolidated financial statements of the Company.

Reclassification of Items from Accumulated Other Comprehensive Income (“AOCI”)

In February 2013, the FASB issued authoritative guidance which adds new disclosure requirements for items reclassified out of AOCI. The update requires that an entity present either in a single note or parenthetically on the face of the financial statements, the effect of significant amounts reclassified from each component of AOCI based on its source and the income statement line items affected by the reclassification. The guidance is effective for the Company beginning in fiscal year 2014, with early adoption permitted. The implementation of this standard is limited to a change in presentation of the results of operations of the Company.

2. Variable Interest Entities
Once an entity is determined to be a variable interest entity (“VIE”), the party with the controlling financial interest, the primary beneficiary, is required to consolidate the entity. The Company has investments in VIEs, of which the Company has determined it is the primary beneficiary. These include Rocky Mountain Metal Container and Rocky Mountain Bottle Company. Accordingly, the Company has consolidated these two joint ventures.


9
MillerCoors LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)

Rocky Mountain Metal Container

Rocky Mountain Metal Container (“RMMC”), a Colorado limited liability company, is a joint venture with Ball Corporation (“Ball”) in which the Company holds a 50% interest. The Company has a can and end supply agreement with RMMC. Under this agreement, RMMC supplies the Company with substantially all of the can and end requirements for the Golden brewery, as well as portions of the Company's requirements at other breweries. RMMC manufactures these cans and ends at the Company's 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

Rocky Mountain Bottle Company (“RMBC”), a Colorado limited liability company, is a joint venture with Owens-Brockway Glass Container, Inc. (“Owens”) in which the Company holds a 50% interest. RMBC produces glass bottles at the Company's manufacturing facility for use at its brewery locations. Under this agreement, RMBC supplies the Company's bottle requirements, and Owens has a contract to supply the majority of the Company's bottle requirements not met by RMBC. As RMBC is an LLC, the tax consequences flow to the joint venture partners.

3. Special Items
The Company has incurred charges that are not indicative of its core operations. As such, the Company has separately classified these costs as special items.

Special items, as reported in the consolidated statements of operations and comprehensive income (loss) consist of:
 
 
For the years ended
 
 
December 31, 2012
 
December 31, 2011
 
December 31, 2010
 
 
(In millions)
Asset write-offs
 
$
34.1

 
$
—

 
$
—

Pension curtailment
 
(2.3
)
 
—

 
14.0

Sparks impairment charge
 
—

 
60.0

 
—

Multi-employer pension plan assumption
 
—

 
50.9

 
—

Consulting, relocation and other integration costs
 
—

 
2.5

 
4.2

Restructuring charges
 
—

 
—

 
12.1

Total
 
$
31.8

 
$
113.4

 
$
30.3


The Company recognized $34.1 million of expense for asset write-offs in 2012. In the third quarter, a charge of $18.7 million was recorded for the write-off of machinery and equipment related to the Home Draft package which was discontinued. In the fourth quarter, a charge of $15.4 million was recorded for the write-off of internal-use computer software determined to have no future economic benefit to the Company.

During 2012, the Company recorded a $2.3 million pension curtailment gain. The pension curtailment resulted from a change to the MillerCoors Retirement Plan to cease benefit accruals for certain active hourly and salaried non-exempt participants as discussed in Note 11, “Employee Retirement Plans.”

The Company recorded a pension curtailment loss of $14.0 million in 2010. The pension curtailment resulted from collective bargaining to cease benefit accruals when labor agreements expire for certain hourly union employees as discussed in Note 11, “Employee Retirement Plans.”

In the third quarter of 2011, the Company recognized an intangible asset impairment charge of $60.0 million for the Sparks brand. See Note 6, “Goodwill and Other Intangible Assets,” for further discussion.

In the third quarter of 2011, the Company recognized a charge of $50.9 million due to the Company's planned assumption of the Milwaukee Brewery Workers' Pension Plan (“MBW Plan”). See Note 11, “Employee Retirement Plans,” for further discussion.


10
MillerCoors LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)

Consulting, relocation and other integration costs are mainly comprised of third party consulting costs related to the joint venture formation, relocation costs of employees required to move as a result of joint venture staffing decisions and the formation of the headquarters, and other miscellaneous costs related to the integration of the Company.

In the third quarter of 2008, the Company began a restructuring program focused on labor savings across sales and general and administrative functions as well as on the reduction of overhead expenses. The Company recognized $12.1 million of expense for severance related to reduction in workforce and contract termination costs for the year ended December 31, 2010.

The following summarizes activities relating to restructuring accruals:
 
 
Severance
Costs
 
Contract
Termination
Costs
 
Total
Restructuring
Costs
 
 
(In millions)
Balance as of December 31, 2009
 
$
4.8

 
$
2.4

 
$
7.2

Charges incurred
 
10.7

 
1.4

 
12.1

Payments made
 
(11.5
)
 
(1.8
)
 
(13.3
)
Balance as of December 31, 2010
 
$
4.0

 
$
2.0

 
$
6.0

Charges incurred
 
—

 
—

 
—

Payments made
 
(4.0
)
 
(1.1
)
 
(5.1
)
Balance as of December 31, 2011
 
$
—

 
$
0.9

 
$
0.9

Charges incurred
 
—

 
—

 
—

Payments made
 
—

 
(0.3
)
 
(0.3
)
Balance as of December 31, 2012
 
$
—

 
$
0.6

 
$
0.6


4. Inventories
Inventories, net of reserves, consist of the following:
 
 
As of
 
 
December 31, 2012
 
December 31, 2011
 
 
(In millions)
Raw materials
 
$
267.0

 
$
221.3

Work in process
 
78.6

 
73.3

Finished goods
 
83.7

 
69.2

Spare parts
 
50.6

 
51.9

Other inventories
 
17.3

 
18.1

Total gross inventories
 
$
497.2

 
$
433.8

Inventory reserves
 
(15.7
)
 
(18.9
)
Total inventories, net
 
$
481.5

 
$
414.9



11
MillerCoors LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)

5. Property, Plant and Equipment
The cost of property, plant and equipment and related accumulated depreciation consists of the following:
 
 
As of
 
 
December 31, 2012
 
December 31, 2011
 
 
(In millions)
Land and improvements
 
$
182.6

 
$
173.8

Buildings and improvements
 
829.0

 
797.9

Machinery and equipment
 
3,575.9

 
3,448.7

Capitalized software
 
157.6

 
117.0

Containers
 
163.1

 
153.0

Construction in progress
 
335.6

 
282.2

Total property, plant and equipment at cost
 
$
5,243.8

 
$
4,972.6

Less: accumulated depreciation
 
(2,656.3
)
 
(2,492.5
)
Total property, plant and equipment, net
 
$
2,587.5

 
$
2,480.1


Depreciation of property, plant and equipment was $218.9 million, $231.6 million and $208.6 million for the years ended December 31, 2012, December 31, 2011 and December 31, 2010, respectively. Included in depreciation, software amortization was $17.8 million, $22.1 million and $21.4 million for the years ended December 31, 2012, December 31, 2011 and December 31, 2010, respectively.

6. Goodwill and Other Intangible Assets
As of December 31, 2012 and 2011, the carrying value of goodwill resulted primarily from the Shareholders' transactions prior to the formation of the joint venture. The Company is required to perform goodwill impairment tests on at least an annual basis and more frequently in certain circumstances. The Company completed the required goodwill impairment testing as of November 30, 2012. As of the latest impairment testing date, the fair value of goodwill, as determined by a combination of discounted cash flow analyses and evaluations of values derived from earnings multiples of comparable public companies, was substantially in excess of its carrying value. As such, there was no impairment.

The following tables present details of the Company's finite lived intangible assets:
 
 
As of
 
 
December 31, 2012
 
 
Useful Life
 
Gross
 
Accumulated
Amortization
 
Net
 
 
(Years)
 
(In millions)
Intangible assets subject to amortization:
 
 
 
 
 
 
 
 
Brands
 
8-40
 
$
2,101.0

 
$
(302.7
)
 
$
1,798.3

Distribution network
 
29
 
85.0

 
(29.9
)
 
55.1

Contract brewing
 
8
 
35.0

 
(35.0
)
 
—

Patents
 
16
 
22.0

 
(14.0
)
 
8.0

Distribution rights
 
15-29
 
104.2

 
(16.4
)
 
87.8

Other
 
15-39
 
13.7

 
(7.7
)
 
6.0

Total
 
 
 
$
2,360.9

 
$
(405.7
)
 
$
1,955.2



12
MillerCoors LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)

 
 
As of
 
 
December 31, 2011
 
 
Useful Life
 
Gross
 
Accumulated
Amortization
 
Net
 
 
(Years)
 
(In millions)
Intangible assets subject to amortization:
 
 
 
 
 
 
 
 
Brands
 
1.25-40
 
$
2,062.1

 
$
(246.0
)
 
$
1,816.1

Distribution network
 
29
 
85.0

 
(27.0
)
 
58.0

Contract brewing
 
8
 
35.0

 
(35.0
)
 
—

Patents
 
16
 
22.0

 
(12.7
)
 
9.3

Distribution rights
 
15-29
 
102.1

 
(11.4
)
 
90.7

Other
 
15-39
 
13.7

 
(7.2
)
 
6.5

Total
 
 
 
$
2,319.9

 
$
(339.3
)
 
$
1,980.6


In September 2011, the Company concluded that the decline in the financial performance of the Sparks brand below levels assumed in the estimated fair value assessment conducted in December 2008 was a triggering event that required an impairment test to be performed on the Sparks brand. The Company shortened the life of the Sparks brand to 1.25 years from 8 years, resulting in the Company's estimated gross cash flows being less than the carrying value of the brand. As such, the Company prepared a cash flow analysis based on management's estimate of the brand's future financial performance discounted at a rate that reflects the Company's cost of capital. This analysis estimated a fair value of approximately $2.5 million. Consequently, the Company recorded a $60.0 million impairment charge to the brand's carrying value in the third quarter of 2011, which is included in special items within the consolidated statements of operations and comprehensive income (loss).

The estimated future amortization expense for intangible assets for the years ending December 31 is as follows:
 
Amount
 
(In millions)
2013
$
64.8

2014
64.8

2015
64.8

2016
64.8

2017
64.8


Amortization expense of intangible assets was $66.5 million, $70.2 million and $75.9 million for the years ended December 31, 2012, December 31, 2011 and December 31, 2010, respectively.

7. Capital Stock
The capital stock in the Company is divided between Class A (840,000 shares issued and authorized) and Class B (160,000 shares issued and authorized). The Class A shares have voting rights and the Class B shares have no voting rights. The Shareholders are not obligated for the debts and obligations of the Company. Capital stock as of December 31, 2012 and December 31, 2011 is as follows:
 
Number of
Shares
Class A
 
Miller (par value $.001, per share)
420,000

Coors (par value $.001, per share)
420,000

 
840,000

Class B
 
Miller (par value $.001, per share)
160,000



13
MillerCoors LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)

8. Fair Value Measurements
Derivative assets and liabilities are financial instruments measured at fair value on a recurring basis. Certain assets and liabilities are subject to review for impairment and are measured at fair value on a non-recurring basis. The guidance on fair value measurements and disclosures has been applied to these balances accordingly. See Note 1, “Basis of Presentation and Summary of Significant Accounting Policies,” and Note 9, “Hedging Transactions and Derivative Financial Instruments.”

The authoritative guidance for fair value establishes 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). The Company utilizes a combination of market and income approaches to value derivative instruments. The Company's 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
 
Unadjusted quoted prices in active markets for identical assets or liabilities
Level 2
 
Unadjusted quoted prices in active markets for similar assets or liabilities, or
 
 
Unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or
 
 
Inputs other than quoted prices that are observable for the asset or liability
Level 3
 
Unobservable inputs for the asset or liability

The following tables present information about the Company's derivative assets and liabilities measured at fair value on a recurring basis:
 
 
 Fair Value Measurements at December 31, 2012
 
 
Total
 
Quoted prices in active markets
(Level 1)
 
Significant observable inputs
(Level 2)
 
Significant unobservable inputs
(Level 3)
 
 
(In millions)
Commodity Derivative Assets
 
$
8.9

 
$
—

 
$
8.9

 
$
—

Commodity Derivative Liabilities
 
(21.3
)
 
(4.5
)
 
(16.8
)
 
—

Foreign Exchange Assets
 
0.3

 
—

 
0.3

 
—

Total
 
$
(12.1
)
 
$
(4.5
)
 
$
(7.6
)
 
$
—

 
 
 
 Fair Value Measurements at December 31, 2011
 
 
Total
 
Quoted prices in active markets
(Level 1)
 
Significant observable inputs
(Level 2)
 
Significant unobservable inputs
(Level 3)
 
 
(In millions)
Commodity Derivative Assets
 
$
16.9

 
$
—

 
$
16.9

 
$
—

Commodity Derivative Liabilities
 
(48.6
)
 
(14.2
)
 
(34.4
)
 
—

Foreign Exchange Liabilities
 
(0.9
)
 
—

 
(0.9
)
 
—

Total
 
$
(32.6
)
 
$
(14.2
)
 
$
(18.4
)
 
$
—


The Company recognizes the transfer of derivative instruments between the levels in the fair value hierarchy at the end of the reporting period. There were no transfers between Level 1 and Level 2 during fiscal years 2012 and 2011. The Company had no outstanding derivatives classified as Level 3 as of December 31, 2012 or December 31, 2011.

The Company endeavors to utilize the best available information in measuring fair value. The derivative assets and liabilities are valued using the listed markets if market data for identical contracts exist or a combination of listed markets and published prices if market data for similar contracts exist. As such, these derivative instruments are classified within Level 1 or Level 2, as appropriate. The Company manages credit risk of its derivative instruments on the basis of its net exposure with each counterparty and has elected to measure the fair value in the same manner.

In 2011, the Company recognized an impairment charge on an intangible asset which resulted in the fair value measurement of the Sparks brand on a non-recurring basis. The fair value measurement is defined as Level 3 in the fair value hierarchy as the

14
MillerCoors LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)

valuation inputs are considered to be unobservable. For discussion of the valuation techniques used to measure the fair value, a description of the inputs and information used to develop those inputs, refer to Note 6, “Goodwill and Other Intangible Assets.”

The carrying amounts of the Company's cash and cash equivalents, accounts receivable, accounts payable and current accrued liabilities approximate fair value as recorded due to the short-term maturity of these instruments. Assuming current market rates for similar instruments and considering non-performance risk, the carrying value of long-term debt approximated the fair value as of December 31, 2012, and exceeded the fair value by approximately $0.2 million as of December 31, 2011. The Company utilizes market approaches to estimate the fair value of outstanding borrowings by discounting anticipated future cash flows derived from the contractual terms of the obligations and observable market interest rates. All outstanding borrowings are valued based on significant observable inputs and would be classified as Level 2 in the fair value hierarchy.

9. Hedging Transactions and Derivative Financial Instruments
Overview and Risk Management Policies

In the normal course of business, the Company is exposed to fluctuations of commodity prices and foreign exchange rates. These exposures relate to the acquisition of production materials, packaging materials, transportation surcharges and imported products. The Company has established policies and procedures that govern the strategic management of these exposures through the use of a variety of financial instruments. By policy, the Company does not enter into such contracts for trading purposes or for the purpose of speculation.

The Company's objective in managing its exposure to fluctuations in commodity prices is to reduce the volatility in its cash flows and earnings caused by unexpected adverse fluctuations in the commodity markets. To achieve this objective, the Company enters into futures contracts, swaps, options, and purchased option collars. In general, maturity dates of the contracts coincide with market purchases of the commodity. The Company may also embed option features within its barley supply contracts that require bifurcation and are accounted for at fair value on the balance sheet. The Company may simultaneously enter into offsetting option contracts with financial counterparties that mirror the terms of the option feature in the supply contracts. As of December 31, 2012, the Company had financial commodity swaps, futures contracts and options in place to hedge certain future expected purchases of aluminum can sheet, aluminum cans, natural gas, electricity and diesel fuel surcharge. These contracts are either marked-to-market, with changes in fair value recognized in cost of goods sold, or have been designated as cash flow hedges of forecasted purchases, and recognized in other comprehensive income (loss).

In order to manage exposure to fluctuations in foreign currency and to reduce the volatility in cash flows and earnings caused by unexpected adverse fluctuations in foreign exchange rates, the Company enters into forward contracts. The Company's exposure to foreign exchange rates exists primarily with the Euro and the Czech Koruna. Maturity dates of the contracts generally coincide with the settlement of the forecasted transactions and these contracts are marked-to-market, with changes in fair value recognized in cost of goods sold or other income in 2012 and 2011, respectively.

As of December 31, 2012, the maturities of the Company's derivative instruments ranged from several months to three years. The following are notional transaction amounts for the Company's outstanding derivatives, summarized by instrument type:
 
 
Notional Value
 
 
As of
 
 
December 31, 2012
 
December 31, 2011

 
(In millions)
Instrument Type:
 
 
 
 
Swaps
 
$
548.5

 
$
579.7

Forwards
 
11.5

 
12.8

Exchange Traded Futures Contracts
 
8.1

 
24.7

Options1
 
0.4

 
140.1

Total
 
$
568.5

 
$
757.3

 
 
 
 
 
1 Comprised of both buy and sell positions shown in terms of absolute value.
 
 
 
 

The Company also enters into physical hedging agreements directly with its suppliers as a part of its risk management strategy. The Company has concluded that some of these contracts are derivatives and has elected the “Normal Purchase Normal Sales” exemption. As a result, these contracts do not need to be recorded on the consolidated balance sheets. For contracts which the Company elected the “Normal Purchase Normal Sales” scope exception, it appropriately documented the basis of the

15
MillerCoors LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)

conclusion. The Company also considers whether any provisions in its contracts represent “embedded” derivative instruments, as defined in the accounting standards, and applies the appropriate accounting.

Counterparty Risk and Collateral

Counterparty default risk is considered low because the types of derivatives that the Company enters into are either highly liquid exchange-traded instruments with frequent margin posting requirements or over-the-counter instruments transacted with highly rated financial institutions. Moreover, bilateral collateral posting arrangements are in place with the Company's counterparties, including some suppliers, which require posting of collateral if the fair values of its positions exceed certain thresholds. These agreements call for the posting of collateral in the form of cash if a fair value loss position to the Company's counterparties or the Company exceeds a certain amount, which varies by counterparty.

The Company has elected to present its cash collateral utilizing a gross presentation, in which cash collateral amounts held or provided are not netted against the fair value of outstanding derivative instruments. The Company posted $4.8 million and $14.6 million in collateral with its counterparties, which is classified as both prepaid assets and other assets in the consolidated balance sheets, as of December 31, 2012 and December 31, 2011, respectively. The entire amount of collateral outstanding is associated with derivative contracts.

Hedge Accounting Policies and Presentation

The majority of all derivatives entered into by the Company qualifies for and are designated as cash flow hedges.

All derivatives are recognized on the consolidated balance sheets at their fair value. See discussion regarding fair value measurements in Note 8, “Fair Value Measurements.” The effective portion of changes in the fair value of commodity derivative instruments qualifying as cash flow hedges are reported in other comprehensive income (loss) and are subsequently reclassified into earnings when the forecasted transaction affects earnings. Gains and losses from the ineffective portion or the excluded component of any hedge are recognized in the income statement immediately. The Company formally documents all relationships between hedging instruments and hedged items, as well as the risk-management objective and strategy for undertaking hedge transactions as required by the standards. The Company formally assesses both at hedge inception and on an ongoing basis, whether the derivatives that are used in hedging transactions have been highly effective in offsetting changes in the cash flows of hedged items and whether those derivatives may be expected to remain highly effective in future periods. When it is determined that a derivative is not, or has ceased to be, highly effective as a hedge, the Company discontinues hedge accounting prospectively. When the Company discontinues hedge accounting prospectively, but it continues to be probable that the forecasted transaction will occur, the existing gain or loss on the derivative remains in accumulated other comprehensive income (loss) and is reclassified into earnings when the original forecasted transaction affects earnings. In a situation where it becomes probable that a hedged forecasted transaction will not occur, any gains and/or losses that have been recorded in accumulated other comprehensive income (loss) would be immediately reclassified into earnings. In all situations in which hedge accounting is discontinued and the derivative remains outstanding, the Company will 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.

The Company records realized gains and losses from derivative instruments to the same financial statement line item as the hedged item/forecasted transaction. Changes in unrealized gains and losses for derivatives not designated as a cash flow hedge are recorded directly in earnings each period and are recorded to the same financial statement line item as the associated realized (cash settled) gains and losses.


16
MillerCoors LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)

Results of Derivative Activities

The following tables present the location of all assets and liabilities associated with the Company's hedging instruments within the consolidated balance sheets:
 
 
As of December 31, 2012
 
 
Asset Derivatives
 
Liability Derivatives
 
 
Balance Sheet
Location
 
Fair Value
 
Balance Sheet
Location
 
Fair Value
 
 
(In millions)
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
 
Commodity Contracts
 
Derivative financial instruments—current
 
$
7.8

 
Derivative financial liabilities—current
 
$
(11.8
)
 
 
Derivative financial instruments—long term
 
0.6

 
Derivative financial liabilities—long term
 
(9.2
)
Total derivatives designated as hedging instruments
 
 
 
$
8.4

 
 
 
$
(21.0
)
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
Commodity Contracts
 
Derivative financial instruments—current
 
$
0.3

 
Derivative financial liabilities—current
 
$
(0.1
)
 
 
Derivative financial instruments—long term
 
0.2

 
Derivative financial liabilities—long term
 
(0.2
)
Foreign Exchange Contracts
 
Derivative financial instruments—current
 
0.2

 
Derivative financial liabilities—current
 
—

 
 
Derivative financial instruments—long term
 
0.1

 
Derivative financial liabilities—long term
 
—

Total derivatives not designated as hedging instruments
 
 
 
$
0.8

 
 
 
$
(0.3
)
Total Derivatives
 
 
 
$
9.2

 
 
 
$
(21.3
)


17
MillerCoors LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)

 
 
As of December 31, 2011
 
 
Asset Derivatives
 
Liability Derivatives
 
 
Balance Sheet
Location
 
Fair Value
 
Balance Sheet
Location
 
Fair Value
 
 
(In millions)
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
 
Commodity Contracts
 
Derivative financial instruments—current
 
$
6.9

 
Derivative financial instruments—current
 
$
(31.9
)
 
 
Derivative financial instruments—long term
 
10.0

 
Derivative financial instruments—long term
 
(14.0
)
Total derivatives designated as hedging instruments
 
 
 
$
16.9

 
 
 
$
(45.9
)
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
Commodity Contracts
 
Derivative financial instruments—current
 
$
—

 
Derivative financial instruments—current
 
$
(2.5
)
 
 
Derivative financial instruments—long term
 
—

 
Derivative financial instruments—long term
 
(0.2
)
Foreign Exchange Contracts
 
Derivative financial instruments—current
 
—

 
Derivative financial instruments—current
 
(0.8
)
 
 
Derivative financial instruments—long term
 
—

 
Derivative financial instruments—long term
 
(0.1
)
Total derivatives not designated as hedging instruments
 
 
 
$
—

 
 
 
$
(3.6
)
Total Derivatives
 
 
 
$
16.9

 
 
 
$
(49.5
)

The following tables present the impact of derivative instruments and their location within the consolidated statements of operations and comprehensive income (loss). Amounts are presented gross of tax.

 
 
For the year ended December 31, 2012
 
 
Amount of
Net Gain (Loss) Recognized in OCI
on Derivative
(Effective Portion)
 
Location of
Net Gain (Loss)
Reclassified from
AOCI into Income
(Effective Portion)
 
Amount of
Net Gain (Loss)
Reclassified from
AOCI into Income
(Effective Portion)
 
Location of
Net Gain (Loss)
Reclassified from
AOCI into Income
(Ineffective Portion
and Amount Excluded from
Effectiveness Testing)
 
Amount of
Net Gain (Loss)
Recognized in
Income on Derivative
(Ineffective Portion
and Amount Excluded from
Effectiveness Testing)
 
 
(In millions)
Derivatives in Cash Flow Hedging Relationships:
 
 
 
 
 
 
 
 
 
 
Commodity Contracts
 
$
(5.6
)
 
Cost of Goods Sold
 
$
(25.5
)
 
Cost of Goods Sold
 
$
(8.5
)
Total
 
$
(5.6
)
 
 
 
$
(25.5
)
 
 
 
$
(8.5
)
 
 
 
For the year ended December 31, 2011
 
 
Amount of
Net Gain (Loss) Recognized in OCI
on Derivative
(Effective Portion)
 
Location of
Net Gain (Loss)
Reclassified from
AOCI into Income
(Effective Portion)
 
Amount of
Net Gain (Loss)
Reclassified from
AOCI into Income
(Effective Portion)
 
Location of
Net Gain (Loss)
Reclassified from
AOCI into Income
(Ineffective Portion
and Amount Excluded from
Effectiveness Testing)
 
Amount of
Net Gain (Loss)
Recognized in
Income on Derivative
(Ineffective Portion
and Amount Excluded from
Effectiveness Testing)
 
 
(In millions)
Derivatives in Cash Flow Hedging Relationships:
 
 
 
 
 
 
 
 
 
 
Commodity Contracts
 
$
(100.3
)
 
Cost of Goods Sold
 
$
13.9

 
Cost of Goods Sold
 
$
(4.7
)
Total
 
$
(100.3
)
 
 
 
$
13.9

 
 
 
$
(4.7
)


18
MillerCoors LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)

 
 
 
 
For the years ended
 
 
 
 
December 31, 2012
 
December 31, 2011
 
 
Location of
Net Gain (Loss) Recognized
in Income on Derivative
 
Amount of
Net Gain (Loss) Recognized
in Income on Derivative
 
Amount of
Net Gain (Loss) Recognized
in Income on Derivative
 
 
 
 
(In millions)
Derivatives not in Hedging Relationship:
 
 
 
 
 
 
Commodity Contracts
 
Cost of Goods Sold
 
$
(0.3
)
 
$
0.1

Foreign Exchange Contracts
 
Cost of Goods Sold
 
0.4

 
—

Foreign Exchange Contracts
 
Other Income, net
 
—

 
(1.1
)
Total
 
 
 
$
0.1

 
$
(1.0
)

Approximately $1.2 million in unrealized net losses that are expected to be reclassified into earnings within the next calendar year are included in the Company's total net unrealized losses from commodity cash flow hedges as of December 31, 2012.

10. Other Current Liabilities
Other current liabilities consist of:
 
 
As of
 
 
December 31, 2012
 
December 31, 2011
 
 
(In millions)
Accrued excise and non-income related taxes
 
$
75.6

 
$
71.1

Customer deposits on containers
 
57.7

 
57.0

Insurance
 
12.6

 
13.0

Current portion of long-term debt
 
4.5

 
4.6

Other
 
21.6

 
24.9

Total other current liabilities
 
$
172.0

 
$
170.6


11. Employee Retirement Plans
Defined Contribution Plans

Essentially all employees of the Company are covered by a qualified defined contribution plan, the provisions of which vary by employee group. Contributions by the Company to qualified defined contribution plans were $48.3 million, $45.1 million and $43.6 million for the years ended December 31, 2012, December 31, 2011 and December 31, 2010, respectively.

The Company provides a non-qualified defined contribution plan designed to provide allocations to employees with annual earnings exceeding the Internal Revenue Service (“IRS”) compensation limit for qualified plans. The plan provides an allocation of 9% of compensation earned above the IRS compensation limit. Contributions to this plan by the Company were $1.2 million, $1.3 million and $1.0 million for the years ended December 31, 2012, December 31, 2011 and December 31, 2010, respectively.

Multi-employer Pension Plans

The Company and a third party were responsible for the Milwaukee Brewery Workers' Pension Plan (“MBW Plan”). On November 24, 2009, the Company received a letter from the trustees of the MBW Plan rejecting the Company's position that the MillerCoors joint venture transaction qualified as exempt under Employee Retirement Income Security Act (“ERISA”) Section 4204.  ERISA Section 4204 provides that, if certain conditions are met, the sale of assets of a participating employer will not be considered a withdrawal and, therefore, the seller is exempt from withdrawal liability.  However, the trustees did not assess a withdrawal liability and the Company does not believe a withdrawal liability was triggered.  Rather, the trustees invited the Company to enter into discussions regarding a mutually satisfactory resolution of the MBW Plan's withdrawal liability claims.


19
MillerCoors LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)

As a result of discussions between the Company and the trustees of the MBW Plan on various options to remedy the situation, the Company elected an option whereby it will assume the assets and liabilities of the MBW Plan. As of September 30, 2011, the Company determined it was probable that the Company would assume the assets and liabilities of the MBW Plan and prospectively changed the accounting for the MBW Plan from defined contribution plan accounting to defined benefit plan accounting. As of that date, the Company recorded a charge of $50.9 million, included in special items, to recognize the net liability of the MBW Plan on its balance sheet. As of December 31, 2012, the Company completed negotiations with the trustees of the MBW Plan and assumed the assets and liabilities of the MBW Plan.

In addition to the MBW Plan, the Company participates in and makes contributions to other multi-employer pension plans. Contributions to multi-employer pension plans were $7.8 million, $12.6 million and $13.1 million for the years ended December 31, 2012, December 31, 2011 and December 31, 2010, respectively.

Defined Benefit Plans

The Company offers defined benefit plans that cover salaried non-union, hourly non-union and union employees while maintaining separate benefit structures across the various employee groups. Benefit accruals for the majority of salaried non-union employees have been frozen and the plans are closed to new entrants.

Benefits for eligible hourly non-union employees are generally based on pay and service. Benefit accruals for hourly union employees are the subject of collective bargaining and are based on a flat rate per year of service. Through the collective bargaining process, agreement has been reached to cease benefit accruals and the plans are closed to new entrants.

The actuarial method used is the unit credit method.


20
MillerCoors LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)

Total defined benefit plan expense, excluding the 2011 charge associated with the planned assumption of the MBW Plan, was $47.7 million, $92.4 million and $86.2 million for the years ended December 31, 2012, December 31, 2011 and December 31, 2010, respectively. The accumulated benefit obligation, changes in the projected benefit obligation and plan assets and funded status of the pension plans are as follows:
 
 
As of
 
 
December 31, 2012
 
December 31, 2011
 
 
(In millions)
Actuarial present value of accumulated benefit obligation
 
$
3,074.2

 
$
2,822.8

Change in projected benefit obligation:
 
 
 
 
Projected benefit obligation, beginning of year
 
$
2,867.6

 
$
2,434.3

Planned assumption of MBW Plan
 
—

 
104.8

Service cost
 
19.1

 
20.0

Curtailments
 
(11.7
)
 
—

Interest cost
 
111.5

 
121.4

Actuarial loss
 
278.4

 
337.4

Benefits paid
 
(154.2
)
 
(150.3
)
Projected benefit obligation, end of year
 
$
3,110.7

 
$
2,867.6

Change in plan assets:
 
 
 
 
Fair value of plan assets, beginning of year
 
$
2,263.2

 
$
1,928.7

Planned assumption of MBW Plan
 
—

 
53.9

Actual return on plan assets
 
278.8

 
352.7

Employer contributions
 
118.0

 
86.3

Administrative expenses
 
(8.8
)
 
(8.1
)
Benefits paid
 
(154.2
)
 
(150.3
)
Fair value of plan assets, end of year
 
$
2,497.0

 
$
2,263.2

Funded status at end of year:
 
 
 
 
Projected benefit obligation
 
$
(3,110.7
)
 
$
(2,867.6
)
Fair value of plan assets
 
2,497.0

 
2,263.2

Funded status—underfunded
 
$
(613.7
)
 
$
(604.4
)
Amounts recognized in the consolidated balance sheets:
 
 
 
 
Current liabilities
 
$
(2.6
)
 
$
(2.3
)
Noncurrent liabilities
 
(611.1
)
 
(602.1
)
Total
 
$
(613.7
)
 
$
(604.4
)
Amounts included in accumulated other comprehensive (income) loss:
 
 
 
 
Net actuarial loss
 
$
974.6

 
$
897.7

Prior service cost (credit)
 
0.5

 
(1.9
)
Total
 
$
975.1

 
$
895.8


The estimated prior service cost and net actuarial loss for defined benefit pension plans that will be amortized from accumulated other comprehensive loss into net periodic pension cost over the next fiscal year are $0.1 million and $29.7 million, respectively.


21
MillerCoors LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)

Effective January 3, 2011, the Company combined the MillerCoors LLC Pension Plan (the “Miller Pension Plan”) and the MillerCoors LLC Retirement Plan (the “Coors Retirement Plan”) (individually a “Plan,” collectively the “Plans”) into a single master trust, with assets allocated to each of the two Plans. The assets of these Plans are invested in a similar fashion using a Liability Driven Investment (“LDI”) approach intended to minimize the impact of interest rate changes on the Plans' funded status. Following is a comparison of target asset allocations to actual asset allocations:
 
 
As of
 
 
December 31, 2012
 
December 31, 2011
 
 
Coors Retirement Plans
 
Miller Pension Plan
 
Coors Retirement Plans
 
Miller Pension Plan
 
 
Target
Allocation
 
Actual
Allocation
 
Target
Allocation
 
Actual
Allocation
 
Target
Allocation
 
Actual
Allocation
 
Target
Allocation
 
Actual
Allocation
Equity securities
 
24
%
 
26
%
 
18
%
 
19
%
 
23
%
 
19
%
 
18
%
 
16
%
Fixed income securities1
 
76
%
 
74
%
 
82
%
 
81
%
 
77
%
 
81
%
 
82
%
 
84
%
Total
 
100
%
 
100
%
 
100
%
 
100
%
 
100
%
 
100
%
 
100
%
 
100
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1 Includes cash held in short term investment funds

The MBW Plan follows a traditional asset allocation approach. Following is a comparison of target asset allocations to actual asset allocations for the MBW Plan:
 
 
As of
 
 
December 31, 2012
 
December 31, 2011
 
 
Target
Allocation
 
Actual
Allocation
 
Target
Allocation
 
Actual
Allocation
Equity securities
 
60
%
 
55
%
 
60
%
 
51
%
Fixed income securities1
 
20
%
 
25
%
 
20
%
 
31
%
Hedge funds
 
10
%
 
8
%
 
10
%
 
8
%
Real estate
 
10
%
 
12
%
 
10
%
 
10
%
Total
 
100
%
 
100
%
 
100
%
 
100
%
 
 
 
 
 
 
 
 
 
1 Includes cash held in short term investment fund
 
 
 
 
 
 
 
 

Effective December 31, 2012, all three plans (the Coors Retirement Plan, the Miller Pension Plan and the MBW Plan) were merged into a single plan. The MillerCoors LLC Pension Plan is the surviving plan and will continue to be managed using the LDI approach described above. Beginning January 1, 2013, the assets of all three plans (the Coors Retirement Plan, the Miller Pension Plan and the MBW Plan) will be merged into a single trust. The assets of the MBW Plan will be liquidated early in 2013 and re-invested in line with the LDI approach described above.

A portion of Plan assets is allocated to a growth, or return seeking, portfolio investing in a diversified pool of assets including both U.S. and international equity and fixed income securities intended to generate incremental returns relative to a risk free rate in order to meet future liability growth. Additionally, a portion of Plan assets is allocated to an interest rate immunizing portfolio comprised of long duration fixed income securities, Treasury strips and derivative overlay positions designed to offset changes in the value of pension liabilities and mitigate funded status volatility resulting from changes in interest rates. Finally, a portion of Plan assets is allocated to a portfolio of cash and cash equivalents designed to meet short-term liquidity needs, reduce overall risk and provide collateral for certain derivative positions. Allocations between the growth portfolio, immunizing portfolio and liquidity portfolio are outlined in the Plans' formal Investment Policy Statement and are determined based on the estimated funded status, with specific asset allocations prescribed for various ranges of funded status.

Equity securities primarily include investments in commingled equity funds, large and small cap domestic equities, and international equities including both developed (EAFE) and emerging markets. Fixed income securities include commingled bond funds, a limited partnership bond fund, corporate bonds, non-government backed collateralized obligations and mortgage backed securities, U.S. government agency securities and strips, government bonds/notes/bills/strips, and municipal and provincial bonds and notes. Fixed income securities also include derivatives such as interest rate swaps and swaptions.


22
MillerCoors LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)

Commingled fund holdings for the Coors Retirement Plan, the Miller Pension Plan, and the MBW Plan combined as of December 31, 2012 are outlined below:
Manager
 
Fund Name
 
Sector
 
% of Total Portfolio
Prudential
 
US Long Duration Corp Bond Fd J
 
Long Duration Fixed Income
 
12.4
%
SSgA
 
Russell 1000 Index Fund
 
US Large Cap Equity
 
7.1
%
Marathon
 
Marathon-London Group Trust
 
EAFE Equity - Active
 
2.9
%
Pyrford
 
Pyrford International Trust
 
EAFE Equity - Active
 
2.4
%
SSgA
 
MSCI EAFE Index Fund
 
EAFE Equity - Passive
 
3.2
%
Amundi
 
Global Emerging Mkts Equity Fund
 
Emerging Mkts Equity
 
2.0
%
Robeco
 
Global EM Equity II Fund
 
Emerging Mkts Equity
 
1.9
%
Wellington
 
JPM PAG EM Debt Fund
 
Emerging Mkts Debt
 
1.9
%
Delaware Investment Advisors
 
Labor Select Int'l Equity Portfolio
 
International Equity
 
0.1
%
PIMCO
 
PIMCO Total Return Fund
 
Fixed Income
 
0.2
%
Western Asset Management
 
Western Asset Core Plus Inst Select
 
Fixed Income
 
0.2
%
Arden ERISA Fund, Ltd.
 
Arden ERISA Fund, Ltd.
 
Hedge Fund
 
0.1
%
Lighthouse V Fund Ltd.
 
Lighthouse V Fund Ltd.
 
Hedge Fund
 
0.1
%
New Tower Trust Company
 
Multi-Employer Property Trust
 
Real Estate
 
0.2
%
Total
 
 
 
 
 
34.7
%

The Company has established prudent and specific investment guidelines and has hired investment managers to manage plan assets after carefully considering the management firm's structure, investment process, research capabilities, and performance relative to peers, and believes that no significant concentrations of risk exist with any given investment manager or within any single category of assets.

Investment return assumptions for all plans have been determined by applying projected capital asset pricing model market return assumptions provided by the Company's defined benefit plan advisor, to plan assets on a weighted average basis, with consideration given to target allocations for each asset class.

Fair Value of Plan Investments

Fair values of the Company's combined plan investments (the Coors Retirement Plan, the Miller Pension Plan and the MBW Plan) as of December 31, 2012 and December 31, 2011 are outlined below.


23
MillerCoors LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)

 
 
Fair value measurements as of December 31, 2012
 
 
Total
 
Quoted prices in active markets
(Level 1)
 
Significant observable inputs
(Level 2)
 
Significant unobservable inputs
(Level 3)
 
 
(In millions)
Cash—Non-Interest Bearing
 
$
12.9

 
$
12.9

 
$
—

 
$
—

Receivables
 
 
 
 
 
 
 
 
Accrued Income
 
12.1

 
12.1

 
—

 
—

Cash Collateral Receivable
 
0.6

 
—

 
—

 
0.6

Receivable for Withdrawal Liability from Third Party
 
4.0

 
—

 
—

 
4.0

Receivable for Securities Sold
 
27.9

 
27.9

 
—

 
—

Total Receivables
 
$
44.6

 
$
40.0

 
$
—

 
$
4.6

Investments
 
 
 
 
 
 
 
 
Cash - Interest Bearing
 
 
 
 

 
 

 
 
Invested Cash
 
—

 
—

 
—

 
—

Short Term Investment Funds (STIF)
 
38.5

 
—

 
38.5

 
—

Commingled Funds/Common/Collective Trusts
 


 
 
 
 
 
 
Bond Funds
 
362.2

 
—

 
362.2

 
—

Equity Funds - U.S.
 
177.7

 
—

 
177.7

 
—

Equity Funds - International
 
314.5

 
—

 
314.5

 
—

Hedge Funds
 
3.8

 
—

 
—

 
3.8

Real Estate Funds
 
4.8

 
—

 
—

 
4.8

Common Stock
 


 
 
 
 
 
 
Common Stock - Depository Receipts
 
2.2

 
2.2

 
—

 
—

Common Stock Excluding Depository Receipts
 
73.7

 
73.7

 
—

 
—

Fixed Income Securities
 


 
 
 
 
 
 
Bond Fund - Limited Partnership
 
48.2

 
—

 
—

 
48.2

Corporate Bonds
 
770.7

 
—

 
766.2

 
4.5

Derivative Contracts - Interest Rate Swaps
 
18.4

 
—

 
17.7

 
0.7

Derivative Contracts - Interest Rate Swaptions
 
11.8

 
—

 
11.8

 
—

Foreign Government Bonds
 
0.5

 
—

 
0.5

 
—

Government Agency Debt
 
73.2

 
—

 
72.9

 
0.3

Government Agency Strips
 
7.9

 
—

 
7.9

 
—

Municipal & Provincial Bonds
 
36.4

 
—

 
36.4

 
—

Non-Gov't Backed Collateralized Obligations & MBS
 
13.0

 
—

 
13.0

 
—

U.S. Government Bonds
 
106.2

 
—

 
106.2

 
—

U.S. Government Notes
 
101.4

 
—

 
101.4

 
—

U.S. Treasury Bills
 
7.6

 
—

 
7.6

 
—

U.S. Treasury Strips
 
294.8

 
—

 
294.8

 
—

Mutual Funds
 


 
 
 
 
 
 
Bond Funds
 
5.1

 
5.1

 
—

 
—

Total Investments
 
$
2,472.6

 
$
81.0

 
$
2,329.3

 
$
62.3

Liabilities
 
 
 
 
 
 
 
 
Cash Collateral Payable
 
(0.1
)
 
—

 
—

 
(0.1
)
Payable on Derivative Contracts
 
(0.7
)
 
—

 
(0.7
)
 
—

Payable on Margins
 
(0.1
)
 
(0.1
)
 
—

 
—

Due for Securities Purchased
 
(32.2
)
 
(32.2
)
 
—

 
—

Total Liabilities
 
$
(33.1
)
 
$
(32.3
)
 
$
(0.7
)
 
$
(0.1
)
Net Assets Available for Benefits
 
$
2,497.0

 
$
101.6

 
$
2,328.6

 
$
66.8


24
MillerCoors LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)


 
 
Fair value measurements as of December 31, 2011
 
 
Total
 
Quoted prices in active markets
(Level 1)
 
Significant observable inputs
(Level 2)
 
Significant unobservable inputs
(Level 3)
 
 
(In millions)
Cash—Non-Interest Bearing
 
$
0.1

 
$
0.1

 
$
—

 
$
—

Receivables
 
 
 
 
 
 
 
 
Accrued Income
 
11.9

 
11.9

 
—

 
—

Cash Collateral Receivable
 
1.5

 
—

 
—

 
1.5

Receivable for Foreign Currency Purchased
 
2.9

 
2.9

 
—

 
—

Receivable for Withdrawal Liability from Third Party
 
8.0

 
—

 
—

 
8.0

Receivable for Securities Sold
 
15.3

 
15.3

 
—

 
—

Total Receivables
 
$
39.6

 
$
30.1

 
$
—

 
$
9.5

Investments
 
 
 
 
 
 
 
 
Cash - Interest Bearing
 
 
 
 
 
 
 
 
Short Term Investment Funds (STIF)
 
55.1

 
—

 
55.1

 
—

Commingled Funds/Common/Collective Trusts
 
 
 
 
 
 
 
 
Bond Funds
 
312.4

 
—

 
312.4

 
—

Equity Funds - U.S.
 
160.1

 
—

 
160.1

 
—

Equity Funds - International
 
156.0

 
—

 
156.0

 
—

Hedge Funds
 
3.6

 
—

 
—

 
3.6

Real Estate Funds
 
4.7

 
—

 
—

 
4.7

Common Stock
 
 
 
 
 
 
 
 
Common Stock - Depository Receipts
 
19.7

 
19.7

 
—

 
—

Common Stock Excluding Depository Receipts
 
45.3

 
45.3

 
—

 
—

Fixed Income Securities
 
 
 
 
 
 
 
 
Bond Fund - Limited Partnership
 
42.3

 
—

 
—

 
42.3

Corporate Bonds
 
693.9

 
—

 
693.5

 
0.4

Derivative Contracts - Interest Rate Swaps
 
29.0

 
—

 
29.0

 
—

Derivative Contracts - Interest Rate Swaptions
 
2.8

 
—

 
2.8

 
—

Government Agencies
 
72.9

 
—

 
72.5

 
0.4

Government Bonds
 
135.1

 
—

 
135.1

 
—

Gov't Backed Collateralized Obligations & MBS
 
17.3

 
—

 
17.3

 
—

Municipal & Provincial Bonds
 
37.1

 
—

 
37.1

 
—

Non-Gov't Backed Collateralized Obligations & MBS
 
11.6

 
—

 
11.6

 
—

U.S. Treasury bills
 
34.3

 
—

 
34.3

 
—

U.S. Treasury Strips
 
382.5

 
—

 
382.5

 
—

Mutual Funds
 
 
 
 
 
 
 
 
Bond Funds
 
4.8

 
4.8

 
—

 
—

Equity Funds - International Emerging Markets
 
22.7

 
22.7

 
—

 
—

Total Investments
 
$
2,243.2

 
$
92.5

 
$
2,099.3

 
$
51.4

Liabilities
 
 
 
 
 
 
 
 
Cash Collateral Payable
 
(0.1
)
 
—

 
—

 
(0.1
)
Payable on Derivative Contracts
 
(0.4
)
 
—

 
(0.4
)
 
—

Due for Derivative Contracts
 
(2.9
)
 
(2.9
)
 
—

 
—

Due for Securities Purchased
 
(16.3
)
 
(16.3
)
 
—

 
—

Total Liabilities
 
$
(19.7
)
 
$
(19.2
)
 
$
(0.4
)
 
$
(0.1
)
Net Assets Available for Benefits
 
$
2,263.2

 
$
103.5

 
$
2,098.9

 
$
60.8



25
MillerCoors LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)

Change in value of Level 3 assets are as follows:
 
 
For the year ended December 31, 2012
 
 
Bond Fund Limited Partnership
 
Cash Collateral Receivable
 
Cash Collateral Payable
 
Corporate Bonds
 
Derivative IR Swaps
 
Government Agencies
 
Hedge Funds
 
Real
Estate
 
Receivable MBW Plan
 
Total
 
 
(In millions)
Balance, prior
year ending
 
$
42.2

 
$
1.5

 
$
(0.1
)
 
$
0.4

 
$
—

 
$
0.5

 
$
3.6

 
$
4.7

 
$
8.0

 
$
60.8

Beginning of year
fair value adjustments
 
0.9

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
0.9

Transfers in/(out)
beginning of year
 
—

 
—

 
—

 
1.4

 
—

 
—

 
—

 
—

 
—

 
1.4

Purchases and
other acquisitions
 
—

 
1.3

 
—

 
2.1

 
—

 
0.3

 
—

 
—

 
—

 
3.7

Sales and other settlements
 
—

 
(2.2
)
 
—

 
—

 
—

 
—

 
—

 
—

 
(4.0
)
 
(6.2
)
Additional security related items
 
—

 
—

 
—

 
—

 
—

 
(0.5
)
 
—

 
—

 
—

 
(0.5
)
Change in unrealized
gain/(loss) (“UGL”)
 
10.2

 
—

 
—

 
0.5

 
0.7

 
—

 
0.2

 
(0.2
)
 
—

 
11.4

Change in UGL due
to transfer in/(out)
 
(5.1
)
 
—

 
—

 
0.1

 
—

 
—

 
—

 
0.3

 
—

 
(4.7
)
Realized gain/(loss)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Transfers in/(out)
end of year
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Balance, current
year ending
 
$
48.2

 
$
0.6

 
$
(0.1
)
 
$
4.5

 
$
0.7

 
$
0.3

 
$
3.8

 
$
4.8

 
$
4.0

 
$
66.8


Valuation Methodologies - All Plans

Outlined below are the valuation techniques used to determine the fair value of various types of plan investments:

•
Cash (interest and non-interest bearing) (Level 1) - Valued at cost.

•
Commingled Funds / Common / Collective Trusts - Excluding Real Estate (Level 2) - These are trusts established for the collective investment of assets contributed from employee benefit plans maintained by more than one plan sponsor. Units are valued based on the fair value of the fund's underlying investments, with the fund valued at Net Asset Value observable only indirectly via fund managers by fund participants. Real Estate Funds are valued by investment managers and independent appraisers on a periodic basis and since data is not readily observable are classified as Level 3.

•
Common Collective Fund - Real Estate Fund (Level 3) - An open-end commingled real estate equity fund. Real estate investments, related acquisition or construction commitments and real estate notes receivable are stated at fair value. Equity investments are primarily rental properties valued based on the capitalization of estimated future cash flows. The value of the fund is reported at Net Asset Value per unit outstanding.

•
Common Stock and Depository Receipts (Level 1) - Valued using the official close, last trade, bid or ask price (all readily observable inputs) reported on the active market or exchange on which the individual securities are traded.

•
Fixed Income - Bond Fund-Limited Partnership (Level 3) - This fund invests in debt securities, both U.S. and non-U.S., of non-investment grade (i.e., high yield) companies and high yield loans, many of which may be thinly traded. Valuation is typically based on independent pricing sources; however at times when such information may not be available the valuation may involve uncertainties and judgmental determinations.

•
Fixed Income - Corporate Bonds, Non-Government Backed Collateralized Obligations & Mortgage Backed Securities (MBS) (Level 2, unless priced by the Investment Manager or by a service not readily available to the public, then Level 3) - Priced by brokers based on structured product markets, interest rate movements, new issue information, issuer ratings, dealer quotes, trade prices, etc., which are either directly or indirectly observable.

•
Fixed Income - Derivative Contracts - Credit Default Swaps, Interest Rate Forwards / Options / Swaps / Swaptions (Level 2 unless priced by Investment Manager, then Level 3) - Priced using relatively observable inputs including

26
MillerCoors LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)

yields, interest rate curves and spreads. Exchange traded derivatives are typically priced using the last trade price, representing the last price at which the security was last traded on the exchange. Futures Contracts are valued using exchange traded quotes that are readily observable in the market and are therefore classified as Level 1.

•
Fixed Income - Government Agencies, Government Bonds, Government Backed Collateralized Obligations and Mortgage Backed Securities (MBS), U.S. Treasury Bills and U.S. Treasury Strips (Level 2) - Priced based on dealer quotes, bond market activity, trade execution data, interest rate movements and volatilities, LIBOR/Swap forward curves and credit spreads, all of which are either directly or indirectly observable.

•
Fixed Income - Municipal & Provincial Bonds (Level 2) - Priced using data obtained from market makers, brokers, dealers and analysts. Data includes information on current trades, bid-wanted lists and offerings, general information on market movements, direction, trends and specific data on specialty issues, all of which are either directly or indirectly observable.

•
Hedge Funds (Level 3) - Allocate assets among various investment managers, limited partnerships, investment funds and investment vehicles employing a variety of strategies. Investments are valued at Net Asset Value as reported by the various fund managers.

•
Short Term Investment Funds (STIF) (Level 2) - Units are valued based on the fair value of the fund's underlying investments, with the fund valued at Net Asset Value observable only indirectly via fund managers by fund participants.

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

Pension Expense

The following represents the Company's net periodic pension cost:
 
 
For the years ended
 
 
December 31, 2012
 
December 31, 2011
 
December 31, 2010
 
 
(In millions)
Components of net periodic pension cost:
 
 
 
 
 
 
  Service cost
 
$
19.1

 
$
20.0

 
$
17.7

  Administrative expenses
 
8.7

 
8.6

 
7.6

  Interest cost
 
111.5

 
121.4

 
122.2

  Expected return on plan assets
 
(144.4
)
 
(121.0
)
 
(128.3
)
  Amortization of prior service (credit)/cost
 
(0.1
)
 
(0.2
)
 
1.2

  Amortization of actuarial loss
 
55.2

 
63.6

 
51.8

  Curtailment (gain)/loss, including termination benefits
 
(2.3
)
 
—

 
14.0

Net periodic pension cost
 
$
47.7

 
$
92.4

 
$
86.2



27
MillerCoors LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)

Pension expense is actuarially calculated annually based on data available at the beginning of each year. Assumptions used in the calculations are determined for the Coors Retirement Plan, Miller Pension Plan and MBW Plan and include the settlement discount rate, expected rate of return on investments and rate of compensation increases and are detailed in the table below.

 
 
Coors Plan
 
Miller Plan
 
MBW Plan
 
 
For the years ended
 
For the years ended
 
For the years ended
 
 
December 31, 2012
 
December 31, 2011
 
December 31, 2012
 
December 31, 2011
 
December 31, 2012
 
December 31,
2011
Weighted average assumptions:
 
 
 
 
 
 
 
 
 
 
 
 
Discount rate1
 
3.55
%
 
4.01
%
 
3.55
%
 
4.17
%
 
3.55
%
 
3.91
%
Expected return on plan assets
 
6.00
%
 
6.70
%
 
6.00
%
 
6.00
%
 
6.00
%
 
7.50
%
Rate of compensation increases
 
2.50
%
 
2.50
%
 
—
%
 
—
%
 
—
%
 
—
%
 
 
 
 
 
 
 
 
 
 
 
 
 
1 Rate utilized, as determined separately for the Coors Retirement Plan, Miller Pension Plan and MBW Plan using the Citigroup Pension Liability Index and combined projected cash flows from each plan in 2011 (combined in 2012), at year-end for the following year's pension expense and related balance sheet amounts at current year-end.

Contributions

The Company expects that its contributions to the defined benefit plans will be in the range of $90 million to $110 million during 2013.

Benefit Payments

The benefits expected to be paid by the defined benefit plans for the years ending December 31 are as follows:
 
Amount
 
(In millions)
2013
$
162.5

2014
163.8

2015
164.0

2016
166.5

2017
169.3

2018-2022
880.6


The most recent valuation of the pension plans was completed by an independent actuary as of December 31, 2012.

Pension Plan Curtailment and Special Termination Benefits

Beginning January 1, 2013, active hourly and salaried non-exempt participants hired prior to 2008 are no longer eligible for service accruals under the Coors Retirement Plan. This plan design change, announced in 2012, resulted in curtailment income of $2.3 million, which is reflected in net periodic pension cost for the year ended December 31, 2012.

As part of collective bargaining in 2010, cessation of benefit accruals were negotiated to occur when the current labor agreements expire for two of the hourly unions at the Milwaukee brewery. This resulted in a curtailment loss of $14.0 million which is reflected in net periodic pension cost for the year ended December 31, 2010.


28
MillerCoors LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)

Change in Accumulated Other Comprehensive Loss

Changes in pension plan assets and benefit obligations recognized in accumulated other comprehensive loss are as follows:
 
Amount
 
(In millions)
Accumulated other comprehensive loss as of December 31, 2010:
$
853.9

Amortization of prior service credit
0.2

Amortization of actuarial loss
(63.6
)
Current period actuarial loss
105.3

Accumulated other comprehensive loss as of December 31, 2011:
$
895.8

Amortization of prior service credit
0.1

Amortization of actuarial loss
(55.2
)
Current period actuarial loss
143.8

Curtailments
(9.4
)
Accumulated other comprehensive loss as of December 31, 2012:
$
975.1


12. Postretirement Benefits
The Company has postretirement plans that provide medical benefits, life insurance and, in some cases, dental and vision coverage for retirees and eligible dependents. The plans are not funded. The Company's postretirement health plan qualifies for the federal subsidy under the Medicare Prescription Drug Improvement and Modernization Act of 2003 (“the Act”) because the prescription drug benefits provided under the Company's postretirement health care plan for Medicare eligible retirees generally require lower premiums from covered retirees and have lower copayments 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 net benefits paid, including prescription drugs, were $41.8 million and $39.7 million for the years ended December 31, 2012 and December 31, 2011, respectively. Subsidies of $1.0 million and $1.4 million were received for the years ended December 31, 2012 and December 31, 2011, respectively.

The Company's net periodic postretirement benefit cost, changes in the projected benefit obligation and plan assets and funded status of the postretirement benefit plans are as follows:
 
 
For the years ended
 
 
December 31, 2012
 
December 31, 2011
 
December 31, 2010
 
 
(In millions)
Components of net periodic postretirement benefit cost:
 
 
 
 
 
 
Service cost
 
$
12.6

 
$
11.3

 
$
10.7

Interest cost
 
31.4

 
34.1

 
34.6

Amortization of prior service credit
 
(6.1
)
 
(6.0
)
 
(6.4
)
Amortization of actuarial loss
 
11.8

 
4.2

 
1.2

Special termination benefits / curtailment loss
 
—

 
0.9

 
—

Net periodic postretirement benefit cost
 
$
49.7

 
$
44.5

 
$
40.1



29
MillerCoors LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)

 
 
As of
 
 
December 31, 2012
 
December 31, 2011
 
 
(In millions)
Change in projected benefit obligation:
 
 
 
 
Projected benefit obligation, beginning of year
 
$
781.0

 
$
681.1

Service cost
 
12.6

 
11.3

Interest cost
 
31.4

 
34.1

Plan amendments
 
(0.2
)
 
(1.3
)
Actuarial loss
 
12.9

 
89.5

ERRP proceeds
 
—

 
5.1

Special termination benefits / curtailment loss
 
—

 
0.9

Benefits paid
 
(41.8
)
 
(39.7
)
Projected benefit obligation, end of year
 
$
795.9

 
$
781.0

Change in plan assets:
 
 
 
 
Fair value of plan assets, beginning of year
 
$
—

 
$
—

Employer contributions
 
41.8

 
39.7

Benefits paid
 
(41.8
)
 
(39.7
)
Fair value of plan assets, end of year
 
$
—

 
$
—

Funded status at end of year:
 
 
 
 
Projected benefit obligation
 
$
(795.9
)
 
$
(781.0
)
Fair value of plan assets
 
—

 
—

Funded status—underfunded
 
$
(795.9
)
 
$
(781.0
)
Amounts recognized in the consolidated balance sheets:
 
 
 
 
Current liabilities
 
$
(44.3
)
 
$
(39.9
)
Noncurrent liabilities
 
(751.6
)
 
(741.1
)
Total
 
$
(795.9
)
 
$
(781.0
)
Amounts included in accumulated other comprehensive (income) loss:
 
 
 
 
Net actuarial loss
 
$
163.6

 
$
162.5

Prior service benefit
 
(17.3
)
 
(23.2
)
Total
 
$
146.3

 
$
139.3


The estimated prior service credit and net actuarial loss for defined benefit postretirement plans that will be amortized from accumulated other comprehensive loss into net periodic postretirement benefit cost over the next year are ($6.1) million and $11.8 million, respectively. The obligations under these plans were determined by the terms of the plans, together with the relevant actuarial assumptions and health care cost trend rates. These assumptions have been determined separately for retirees who were former employees of Coors and retirees who were former employees of Miller and are detailed in the table below.

 
 
For the year ended December 31, 2012
 
 
Former Employees of Coors
 
Former Employees of Miller
Discount Rate
 
3.59%
 
3.59%
Health Care Cost Trend Rate
 
Ranging ratable from 7.5%
in 2012 to 5.0% in 2018
 
Ranging ratable from 7.5%
in 2012 to 5.0% in 2018
 
 
 
For the year ended December 31, 2011
 
 
Former Employees of Coors
 
Former Employees of Miller
Discount Rate
 
4.01%
 
4.17%
Health Care Cost Trend Rate
 
Ranging ratable from 8.0%
in 2011 to 5.0% in 2018
 
Ranging ratable from 8.0%
in 2011 to 5.0% in 2018

30
MillerCoors LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)

The assumed health care cost trend rates have a significant effect on the amounts reported for other postretirement benefits. A 1% change in the assumed health care cost trend rate would have the following effects:
 
 
1% Increase
 
1% Decrease
 
 
(In millions)
Effect on total of service and interest cost components
 
$
6.0

 
$
(5.3
)
Effect on postretirement benefit obligation
 
99.6

 
(81.8
)

Benefit Payments

The benefits expected to be paid by the plans for the years ending December 31 are as follows:
 
Amount
 
(In millions)
2013
$
44.3

2014
44.7

2015
44.9

2016
44.9

2017
45.1

2018-2022
219.1


Change in Accumulated Other Comprehensive Loss

Changes in postretirement benefit plan assets and benefit obligations recognized in accumulated other comprehensive loss were as follows:
 
Amount
 
(In millions)
Accumulated other comprehensive loss as of December 31, 2010:
$
49.3

Amortization of prior service credit
6.0

Amortization of actuarial loss
(4.2
)
Current period actuarial loss
89.5

Prior service credit/plan amendments
(1.3
)
Accumulated other comprehensive loss as of December 31, 2011:
$
139.3

Amortization of prior service credit
6.1

Amortization of actuarial loss
(11.8
)
Current period actuarial loss
12.9

Prior service credit/plan amendments
(0.2
)
Accumulated other comprehensive loss as of December 31, 2012:
$
146.3



31
MillerCoors LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)

13. Debt
The Company's total long-term borrowings are comprised of the following:
 
 
As of
 
 
December 31, 2012
 
December 31, 2011
 
 
(In millions)
RMMC joint venture 7.2% notes
 
$
4.5

 
$
9.1

RMMC joint venture borrowings
 
16.0

 
16.0

Promissory notes
 
3.1

 
3.1

Total long-term debt (including current portion)
 
$
23.6

 
$
28.2

Less: current portion of long-term debt
 
(4.5
)
 
(4.6
)
Long-term debt
 
$
19.1

 
$
23.6


On January 24, 2002 and July 1, 2002, RMMC completed the private placement of $50 million principal amount of 7.2% senior notes (Series A and B, respectively), due 2013. The senior notes were amended on August 31, 2004 which effectively changed the notes from secured to unsecured. The notes include annual payments of principal, as well as optional prepayment and redemption provisions (make-whole provisions). The optional prepayment and redemption price is equal to 100% of the principal amount paid, interest accrued thereon, as well as the make-whole amount. The notes are guaranteed by Molson Coors.

On July 25, 2008, RMMC entered into a credit agreement with Deutsche Bank in the amount of $16 million. This loan was guaranteed by Molson Coors and bore interest at a variable rate which reset quarterly based on three month LIBOR plus a spread of 1.21%. On December 23, 2011, the loan was refinanced with Wells Fargo Bank. The Company provides a several guarantee on 50% of the outstanding principal amount plus accrued interest, with the remainder of the guarantee provided by Ball. The refinancing released Molson Coors as a guarantor of this debt. The loan bears interest at a variable rate based on LIBOR plus a spread of 1.25%. The all-in rate was 1.50% and 1.63% at December 31, 2012 and December 31, 2011, respectively. The loan becomes due on December 31, 2014, however, the terms of the agreement allow for partial or complete prepayment of the loan without penalty. In addition, the loan includes quarterly debt covenants which require RMMC to maintain Total Funded Debt to EBITDA not greater than 3.75 to 1.00 and EBITDA coverage ratio not less than 1.00 to 1.00. RMMC was in compliance with these covenants as of December 31, 2012.

The Company holds promissory notes with Ball in regard to a loan agreement established as part of the RMMC joint venture. The notes are the result of certain tax benefits received by Ball from the depreciation of assets purchased by the Company. A calculation is performed annually to determine if a loan is made to or from Ball based on the most recent tax filings. Loans made by the Company to Ball are immaterial in amount and netted against the loans from Ball. The notes will become due at the earlier of (i) the tax benefits are no longer received by Ball, (ii) the dissolution of RMMC or (iii) an event of default. Payments against this balance are not expected to be made in the foreseeable future.

The aggregate principal debt maturities of long-term debt borrowings are as follows:
 
Amount
 
(In millions)
2013
$
4.5

2014
16.0

2015
—

2016
—

2017
—

Thereafter
3.1

Total
$
23.6


14. Transactions with Affiliates
Transactions with affiliates include service agreement arrangements, the purchase and sale of beer and other charges for goods and services incurred on behalf of related parties.

32
MillerCoors LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)


The Company participates in four service arrangements that began on July 1, 2008. These agreements are with Miller and Molson Coors, in which the Company serves as both the recipient and provider of services. Each service agreement is made between the two respective parties only. However, for the services supplied to Miller, this also includes Miller Brewing International and other subsidiaries of Miller. Services supplied to Molson Coors also include services to Coors Brewing International and other subsidiaries of Molson Coors. The service agreement charges and other costs to/from Miller and Molson Coors are as follows:
 
 
For the years ended

 
December 31, 2012
 
December 31, 2011
 
December 31, 2010
 
 
(In millions)
To Miller
 
$
1.8

 
$
1.5

 
$
1.4

To Molson Coors
 
1.2

 
1.3

 
1.1

From Molson Coors
 
3.7

 
6.0

 
4.1


Outside of the service agreement, affiliate transactions relate mainly to beer sales and purchases. The following summarizes sales/purchases of beer, hops and other transactions to/from affiliates:
 
 
For the years ended

 
December 31, 2012
 
December 31, 2011
 
December 31, 2010
 
 
(In millions)
Sales of beer to Miller Brewing International
 
$
88.1

 
$
75.1

 
$
72.5

Sales of beer to Molson Coors
 
13.1

 
11.7

 
9.4

Purchases of beer from Molson Coors
 
18.9

 
27.5

 
35.4

Purchases of beer from SABMiller
 
36.8

 
38.3

 
34.9

Sales of hops to SABMiller
 
2.2

 
2.4

 
3.1

Purchase of noncontrolling interest from SABMiller1
 
21.4

 
—

 
—

 
 
 
 
 
 
 
1 In 2012, the Company purchased the remaining 49.9% interest in Foster's USA, LLC from SABMiller.

The Company leases water rights in Colorado for use at the Golden, Colorado brewery from Molson Coors at no cost.

Costs recorded for services provided to RMMC from Ball were $4.5 million, $6.1 million and $5.6 million for the years ended December 31, 2012, December 31, 2011 and December 31, 2010, respectively.

Costs recorded for services provided to RMBC from Owens were $1.1 million, $9.9 million and $5.1 million for the years ended December 31, 2012, December 31, 2011 and December 31, 2010, respectively.

Amounts due from affiliates are as follows:
 
 
As of
 
 
December 31, 2012
 
December 31, 2011
 
 
(In millions)
Miller
 
$
17.1

 
$
17.3

Molson Coors
 
3.3

 
3.5

SABMiller and subsidiaries
 
1.9

 
0.5

Total
 
$
22.3

 
$
21.3


Amounts due from Miller Brewing Company and subsidiaries represent open receivables under the contract brewing arrangement with Miller Brewing International, the service agreement and other charges for goods and services. Amounts due from Molson Coors and subsidiaries relate to costs associated with export beer production, the service agreement, and other charges for goods and services. Amounts due from SABMiller and subsidiaries are mainly associated with hops sales.


33
MillerCoors LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)

Amounts due to affiliates are as follows:
 
 
As of
 
 
December 31, 2012
 
December 31, 2011
 
 
(In millions)
Molson Coors and subsidiaries
 
$
2.5

 
$
5.5

Miller Brewing Company and subsidiaries
 
0.3

 
0.2

SABMiller and subsidiaries
 
2.9

 
2.9

Other
 
3.0

 
3.8

Total
 
$
8.7

 
$
12.4


Amounts due to Molson Coors and subsidiaries relate mainly to the purchase of beer and charges for services provided under the service agreement. Amounts due to Miller Brewing Company and subsidiaries include amounts owed for charges for goods and services. Amounts due to SABMiller and subsidiaries mainly include purchases of beer. Other includes amounts owed to Graphic Packaging Corporation (“GPC”), a related party due to ownership of GPC and the Company by certain Coors family trusts and the Adolph Coors Foundation. The Company recorded costs of $233.0 million, $221.3 million, and $228.1 million for the purchase of packaging materials from GPC for the years ended December 31, 2012, December 31, 2011 and December 31, 2010, respectively.

15. Commitments and Contingencies
The Company leases certain facilities and equipment under non-cancellable agreements pertaining to land and buildings, machinery and equipment, and vehicles accounted for as operating leases. The commitments are with numerous vendors and the term of each commitment can vary in length from one to fifteen years. Future minimum lease payments under these leases as of December 31, 2012 are as follows:
 
Amount
 
(In millions)
2013
$
16.8

2014
14.0

2015
9.9

2016
8.0

2017
6.5

Thereafter
36.8

Total
$
92.0


The minimum lease payments above have not been reduced by minimum sublease rentals of $1.4 million due in the future under non-cancelable subleases.

Total rent expense was $23.3 million, $22.1 million and $21.8 million for the years ended December 31, 2012, December 31, 2011 and December 31, 2010, respectively.

Supply Contracts

The Company has various long-term supply contracts with unrelated third parties to purchase certain materials used in the production and packaging of its products. The contracts are generally at market rate and the terms generally stipulate that the Company must use the designated supplier for an expected minimum percentage of its annual purchase requirements of the specified material. However, the Company is generally not obligated to make any purchases unless it requires supplies of such materials. Supply contracts outstanding as of December 31, 2012 for malt, adjuncts, bottles, labels, cans and other packaging materials expire in various years through 2021.


34
MillerCoors LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)

Advertising and Promotions

The Company has entered into various long-term non-cancelable commitments pertaining to advertising, marketing services, and promotions. The commitments are with numerous vendors and the term of each commitment can vary in length from one year to several years.

As of December 31, 2012, the future non-cancelable commitments are as follows:
 
Amount
 
(In millions)
2013
$
104.8

2014
98.6

2015
81.0

2016
59.8

2017
38.7

Thereafter
76.3

Total
$
459.2


Environmental

Periodically, the Company is involved in various environmental matters. Although it is difficult to predict the Company's liability with respect to these matters, future payments, if any, would be made over a period of time in amounts that would not be material to the Company's financial position or results of operations. The Company believes that adequate reserves have been provided for environmental costs that are probable as of December 31, 2012.

Letters of Credit

The Company had approximately $16.9 million outstanding in letters of credit, of which $14.9 million support insurance arrangements, as of December 31, 2012. These letters of credit expire at various times throughout 2013 and contain a clause which will automatically renew them for an additional year if no cancellation notice is submitted. The remaining $2.0 million supports the Tax Increment Financing used in conjunction with the Chicago headquarters. This letter of credit increases each December by approximately $0.9 million until 2016 and may be extended annually thereafter, with a final expiration of December 9, 2021.

Litigation and Other Disputes

The Company and its subsidiaries are involved in disputes and legal actions arising in the ordinary course of business. While it is not feasible to predict or determine the outcome of these proceedings, management believes, based on a review with legal counsel, none of these disputes and legal actions is expected to have a material impact on the Company's 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 the Company. The Company believes adequate reserves have been provided for probable legal costs as of December 31, 2012.

Guarantees

The Company guarantees approximately $8.0 million of RMMC's $16.0 million term loan with Wells Fargo Bank. See Note 13, “Debt,” for further discussion.

16. Share-Based Payments

As of December 31, 2012, the Company had two significant share-based compensation plans.

Share appreciation rights (“SARs”)

The Company issues SARs to certain employees that are granted with an exercise price equal to the fair value of a share of its internally valued stock on the date of grant. The shares are valued using the income and market approaches. The SARs have a term of seven to ten years and vest proportionally over 2½ to 5 years depending on the specific issuance. The Company values

35
MillerCoors LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)

the SARs using the Black-Scholes value model. The Company accounts for the awards on a liability basis as the SARs are settled in cash.

Performance shares

Performance shares are granted to certain employees and are based on achieving certain performance targets at the end of the performance period. The performance period is generally three years and vesting occurs at the end of the performance period if the performance targets are achieved. The ultimate number of performance shares awarded will be determined at the close of the performance period based on performance against the pre-determined targets for the specific grant. Employees will receive a cash payment based on the number of performance shares earned at the fair value on the vesting date. The Company accounts for the awards on a liability basis as the performance shares are settled in cash.

Information on the Company's performance share plan is presented below:
 
 
As of
 
 
December 31, 2012
 
December 31, 2011
 
December 31, 2010
Shares issued during the year
 
2,199,858

 
1,681,582

 
1,825,691

Unvested shares
 
3,619,045

 
3,087,199

 
3,287,445

Weighted average fair value
 
$
12.72

 
$
10.20

 
$
11.36


The performance share payments are dependent on the Company achieving certain performance targets for the year ending December 31, 2014 for the 2012 issuance, the year ending December 31, 2013 for the 2011 issuance and for the year ended December 31, 2012 for the 2010 issuance. Based on actual results to date, the weighted average assumed performance achievement as of December 31, 2012, is 72% of the targeted awards. The ultimate fair value cash payments of the performance shares will be expensed over the performance period for the shares that are expected to ultimately vest. There was $31.0 million of unrecognized compensation cost related to the unvested shares based on the year-end target performance assumptions as of December 31, 2012.

The following table summarizes components of the cash-based compensation recorded as expense/(income):
 
 
For the years ended
 
 
December 31, 2012
 
December 31, 2011
 
December 31, 2010
 
 
(In millions)
SARs
 
$
16.8

 
$
(2.1
)
 
$
8.7

Performance shares
 
0.6

 
11.7

 
17.9

Total
 
$
17.4

 
$
9.6

 
$
26.6


The fair value of SARs granted in 2012, 2011 and 2010 was determined on the date of grant using the Black-Scholes model with the following weighted-average assumptions:
 
 
December 31, 2012
 
December 31, 2011
 
December 31, 2010
Expected life (in years)
 
6.0

4.0

6.0

6.0

4.0

Expected volatility
 
29.0
%
0.3

25.0
%
0.25

30.0
%
Dividend yield
 
—
%
—

—
%
—

—
%
Risk-free interest rate
 
1.09
%
0.022

2.36
%
0.0236

2.20
%
Weighted average fair market value (per share)
 
$
3.26

2.74

$
3.49

3.49

$
2.74


The risk-free interest rate utilized is based on the yield on a U.S. Government Bond with a maturity equal to the term of the grant. Expected volatility is based on comparable company volatility in the last three years. The dividend yield is 0% due to the internally valued shares not paying dividends. The expected life is estimated based upon observations of historical employee option exercise patterns and trends of that of the Shareholders.


36
MillerCoors LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)

SARs outstanding as of December 31, 2012 and the changes during the year are presented below:
 
 
SARs
 
Weighted average exercise price
 
Weighted average remaining contractual life
 
Aggregate intrinsic value
 
 
 
 
(Per share)
 
(Years)
 
(In millions)
As of December 31, 2011
 
4,118,387

 
$
10.56

 
5.7

 
$
0.8

Granted
 
4,207,477

 
10.56

 
 
 
 
Exercised
 
(2,164,000
)
 
10.30

 
 
 
 
Forfeited
 
(28,850
)
 
10.65

 
 
 
 
As of December 31, 2012
 
6,133,014

 
$
10.64

 
7.3

 
$
12.8


SARs exercisable and unvested are presented below:
 
 
SARs
 
Weighted average exercise price
 
Weighted average remaining contractual life
 
Aggregate intrinsic value
 
 
 
 
(Per share)
 
(Years)
 
(In millions)
SARs exercisable
 
 
 
 
 
 
 
 
December 31, 2012
 
2,697,505

 
$
10.54

 
6.3

 
$
5.9

December 31, 2011
 
2,075,996

 
10.22

 
5.0

 
0.6

SARs unvested
 
 
 
 
 
 
 
 
December 31, 2012
 
3,435,509

 
$
10.72

 
8.2

 
$
6.9

December 31, 2011
 
2,042,391

 
10.91

 
6.4

 
0.2


Total compensation cost related to unvested SARs not yet recognized was $6.5 million as of December 31, 2012. This compensation expense is expected to be recognized over a weighted average period of approximately 1.8 years.

17. Subsequent Events
The Company has evaluated subsequent events through the date that the financial statements were issued, February 15, 2013, and has determined that there are no events to report.


37
MillerCoors LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)

QuickLinks

Exhibit 99

Report of Independent Registered Public Accounting Firm

MillerCoors LLC and Subsidiaries Consolidated Balance Sheets (In millions, except shares)

MillerCoors LLC and Subsidiaries Consolidated Statements of Operations and Comprehensive Income (Loss) (In millions)

MillerCoors LLC and Subsidiaries Consolidated Statements of Cash Flows (In millions)

MillerCoors LLC and Subsidiaries Consolidated Statements of Shareholders' Investment (In millions)

MillerCoors LLC and Subsidiaries Notes to Consolidated Financial Statements

38