Income Tax (Tables)

12 Months Ended

Dec. 31, 2016

Pretax income for computation of income tax provision

Our income (loss) from continuing operations before income taxes on which the provision for income taxes was computed is as follows:



	For the years ended
	December 31, 2016			December 31, 2015			December 31, 2014
	(In millions)
Domestic	$	3,396.9		$	746.1		$	736.2
Foreign	(361.6		)	(335.4		)	(149.9		)
Total	$	3,035.3		$	410.7		$	586.3

Current and deferred provisions of income tax expense (benefits)

Income tax expense (benefit) includes the following current and deferred provisions:



	For the years ended
	December 31, 2016		December 31, 2015			December 31, 2014
	(In millions)
Current:
Federal	$	83.4	$	116.1		$	78.4
State	12.0		11.8			12.9
Foreign	31.9		25.2			(22.5		)
Total current tax expense (benefit)	$	127.3	$	153.1		$	68.8
Deferred:
Federal	$	684.8	$	(26.1	)	$	27.6
State	99.9		(5.8		)	2.0
Foreign	138.7		(69.4		)	(29.4		)
Total deferred tax expense (benefit)	$	923.4	$	(101.3	)	$	0.2
Total income tax expense (benefit) from continuing operations	$	1,050.7	$	51.8		$	69.0

The increase in income tax expense for 2016 versus 2015 was driven by the income tax effects of the pretax gain recognized on the fair value remeasurement of our previously held equity interest in MillerCoors and the reclassification of the accumulated other comprehensive loss related to our historical 42% interest in MillerCoors (see Note 4, “Acquisition and Investments”). This resulted in the recognition of net deferred income tax expense of approximately $850 million upon completion of the Acquisition. In addition, we recognized incremental deferred income tax expense in 2016 as a result of the remeasurement of our deferred tax liability associated with our Molson core brand intangible asset to the Canadian ordinary income tax rate upon reclassification from indefinite-lived to definite-lived subject to amortization (see Note 11, “Goodwill and Intangible Assets”). This incremental deferred tax expense more than offset the deferred tax benefit associated with the pretax impairment charge. These increases were also slightly offset by the release of certain valuation allowances in 2016.

Computation of effective income tax rate

Our effective tax rate varies from the U.S. federal statutory income tax rate as follows:



	For the years ended
	December 31, 2016		December 31, 2015		December 31, 2014
Statutory Federal income tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal benefits	2.4	%	1.6	%	2.5	%
Effect of foreign tax rates and tax planning	(1.8	)%	(29.2	)%	(24.3	)%
Effect of Molson brand useful life change	6.4	%	—	%	—	%
Effect of unrecognized tax benefits	—	%	(3.5	)%	(3.9	)%
Change in valuation allowance	(0.5	)%	8.2	%	0.4	%
Acquisition related permanent items	(7.7	)%	—	%	—	%
Other, net	0.8	%	0.5	%	2.1	%
Effective tax rate	34.6	%	12.6	%	11.8	%

The increase in the effective income tax rate for 2016 versus 2015 was primarily driven by higher pretax income in 2016 resulting from the Acquisition related revaluation gain discussed above, along with the inclusion of 100% of MillerCoors' pretax income following the completion of the Acquisition, each of which were taxed at the U.S. federal and state income tax rates. Additionally, deferred tax expense was not required to be recorded on the difference between our historical tax basis in goodwill and the new book basis in goodwill resulting from the remeasurement of our previously held equity interest in MillerCoors. This resulted in a partially offsetting decrease to the effective tax rate, which is presented in the Acquisition related permanent items line in the table above, as a portion of the revaluation gain was not tax effected. The increase in our effective income tax rate in 2016 was also impacted by the remeasurement of the deferred tax liability on our Molson core brand intangible asset to the Canadian ordinary income tax rate as discussed above. Our effective income tax rates in 2015 and 2014 were significantly lower than the federal statutory rate of 35% primarily due to lower effective income tax rates applicable to our foreign businesses, driven by lower statutory income tax rates and tax planning impacts on statutory taxable income. The statutory income tax rates in the countries in Europe in which we operate range from 9% to 21%. Canada has a statutory income tax rate of approximately 26%. In addition, during 2015 and 2014, our effective tax rate was also positively impacted by the favorable resolution of unrecognized tax benefits in various taxing jurisdictions as further discussed below.

Composition of deferred tax assets and liabilities

The table below summarizes our deferred tax assets and liabilities:



	As of
	December 31, 2016			December 31, 2015
	(In millions)
Non-current deferred tax assets:
Compensation related obligations	$	22.2		$	19.3
Pension and postretirement benefits	35.6			61.2
Tax credit carryforwards	13.0			1.5
Tax loss carryforwards	1,004.8			897.9
Accrued liabilities and other	46.1			32.3
Other	7.5			10.0
Valuation allowance	(901.7		)	(824.9		)
Total non-current deferred tax assets	$	227.5		$	197.3
Non-current deferred tax liabilities:
Fixed assets	72.5			69.7
Partnership investments	922.0			169.7
Foreign exchange gain/loss	43.0			48.7
Intangible assets	800.5			644.0
Other	13.8			13.9
Total non-current deferred tax liabilities	$	1,851.8		$	946.0
Net non-current deferred tax assets	—			—
Net non-current deferred tax liabilities	$	1,624.3		$	748.7

MillerCoors continues to be treated as a partnership for U.S. federal and state income tax purposes following the completion of the Acquisition. Accordingly, the deferred tax consequences are recognized based on the difference between the financial reporting basis and tax basis of the investments in the partnership at the investor level. The overall increase to net deferred tax liabilities in 2016 is primarily attributable to the approximate $1.1 billion deferred tax liability recognized on the fair value remeasurement of our previously held equity interest in MillerCoors. This increase was partially offset by the recognition of deferred tax assets in acquisition accounting related to certain temporary differences associated with the acquired 58% interest in MillerCoors. This increase was also partially offset by the acceleration of taxable income in 2016 related to our investment in MillerCoors, which was previously deferred, as MillerCoors was required to change to a calendar year end for U.S. federal and state income tax purposes upon MCBC obtaining 100% ownership.

Separately, during 2016, we recorded additional tax loss carryforwards in certain European jurisdictions in the aggregate of $139.7 million, primarily driven by investment losses recognized based on local statutory accounting requirements. As the carryforwards were generated in jurisdictions where we do not have operations, we concluded that it was more likely than not that the net operating losses would not be realized, and thus recorded a full valuation allowance on the associated deferred tax assets. The recognition of these deferred tax assets and fully offsetting valuation allowance resulted in a zero net impact to the consolidated statement of operations, balance sheet and statement of cash flows. This valuation allowance increase was partially offset by the release of valuation allowances in certain U.S., Canada and European jurisdictions, along with foreign exchange impacts as a significant portion of our valuation allowances relate to jurisdictions outside of the U.S.

Our deferred tax valuation allowances are primarily the result of uncertainties regarding the future realization of recorded tax benefits on tax loss carryforwards from operations in various jurisdictions. The measurement of deferred tax assets is reduced by a valuation allowance if, based upon available evidence, it is more likely than not that the deferred tax assets will not be realized. We have evaluated the realizability of our deferred tax assets in each jurisdiction by assessing the adequacy of expected taxable income, including the reversal of existing temporary differences, historical and projected operating results and the availability of prudent and feasible tax planning strategies. Based on this analysis, we have determined that the valuation allowances recorded in each period presented are appropriate.

We have deferred tax assets for U.S. tax carryforwards that expire between 2017 and 2036 of $17.8 million and $4.5 million at December 31, 2016, and December 31, 2015, respectively. We have foreign tax loss carryforwards that expire between 2017 and 2036 of $151.0 million and $160.5 million as of December 31, 2016, and December 31, 2015, respectively. We have foreign tax loss carryforwards that do not expire of $849.0 million and $734.4 million as of December 31, 2016, and December 31, 2015, respectively. The significant increase in foreign tax loss carryforwards that do not expire is primarily driven by the tax loss carryforwards related to certain European jurisdictions specifically mentioned above, and for which a full valuation allowance exists.

The following table presents our deferred tax assets and liabilities on a net basis:



	As of
	December 31, 2016		December 31, 2015
	(In millions)
Domestic net non-current deferred tax liabilities	$	925.5	$	195.0
Foreign net non-current deferred tax assets	42.0		20.2
Foreign net non-current deferred tax liabilities	740.8		573.9
Net non-current deferred tax liabilities	$	1,624.3	$	748.7

The 2016 and 2015 amounts above exclude $32.7 million and $30.9 million, respectively, of unrecognized tax benefits that have been recorded as a reduction of non-current deferred tax assets, which is presented within non-current deferred tax liabilities due to jurisdictional netting on the consolidated balance sheets.

Schedule of Unrecognized Tax Benefits Roll Forward

A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, is as follows:



	For the years ended
	December 31, 2016			December 31, 2015			December 31, 2014
	(In millions)
Balance at beginning of year	$	39.5		$	59.8		$	137.9
Additions for tax positions related to the current year	1.7			1.8			2.2
Additions for tax positions of prior years	—			2.2			20.4
Reductions for tax positions of prior years	—			(5.5		)	(19.4		)
Settlements	—			(0.9		)	(55.4		)
Release due to statute expiration and legislative changes	(2.3		)	(9.6		)	(18.4		)
Foreign currency adjustment	0.8			(8.3		)	(7.5		)
Balance at end of year	$	39.7		$	39.5		$	59.8

During 2014, we filed an amendment to certain historical U.S. tax returns and concurrently fully settled $19.3 million of unrecognized tax benefits. This settlement amount is included in the table above but did not impact our 2014 effective tax rate as it was settled for the amount of the liability. Additionally, upon expiration of certain statutes of limitations in the U.S., we recognized a $6.3 million benefit to our 2014 income tax expense. The remaining decrease in unrecognized tax positions during 2014 was driven by the $34.9 million settlement of a tax audit and the impact of the resolution of the bilateral advanced pricing agreement (“BAPA”) in Canada that were offset by the intended utilization of deferred tax assets and therefore did not impact our effective tax rate, the favorable resolution of tax audits resolved in Europe resulting in the release of $16.2 million of unrecognized tax positions and the release of unrecognized tax benefits due to expiration of the statute of limitations in Europe and Canada.

Our remaining unrecognized tax benefits as of December 31, 2016, relate to tax years that are currently open, and amounts may differ from those to be determined upon closing of the positions. Annual tax provisions include amounts considered sufficient to pay assessments that may result from examination of prior year tax returns; however, the amount ultimately paid upon resolution of issues may differ materially from the amount accrued.

During 2017, we anticipate that approximately $25 million to $30 million of unrecognized tax benefits will be released due to settlements and closings of statutes of limitations in the U.S., Canada and Europe.

Summary of Positions for which Significant Change in Unrecognized Tax Benefits is Reasonably Possible [Table Text Block]



	For the years ended
	December 31, 2016		December 31, 2015			December 31, 2014
Reconciliation of unrecognized tax benefits balance	(In millions)
Estimated interest and penalties	$	5.7	$	5.3		$	7.2
Offsetting positions	—		(3.7		)	(3.7		)
Unrecognized tax positions	39.7		39.5			59.8
Total unrecognized tax benefits	$	45.4	$	41.1		$	63.3

Presented net against non-current deferred tax assets	$	32.7	$	30.9		$	37.9
Current (included in accounts payable and other current liabilities)	3.0		1.8			—
Non-current (included within other liabilities)	9.7		8.4			25.4
Total unrecognized tax benefits	$	45.4	$	41.1		$	63.3

Amount of unrecognized tax benefits that would impact the effective tax rate, if recognized⁽¹⁾	$	39.7	$	39.5		$	59.8