Acquisition and Investments

Acquisition

On October 11, 2016, we completed the Acquisition for $12.0 billion in cash, subject to a downward adjustment as described in the purchase agreement. Prior to the Acquisition, MCBC owned a 50% voting and 42% economic interest in MillerCoors and MillerCoors was accounted for under the equity method of accounting. Following the completion of the Acquisition, MillerCoors, which was previously a joint venture between MCBC and SABMiller, became a wholly-owned subsidiary of MCBC and its results were fully consolidated by MCBC prospectively beginning on October 11, 2016.

We have a downward purchase price adjustment, as described in the purchase agreement, if the unaudited U.S. GAAP earnings before interest, tax, depreciation and amortization ("EBITDA") for the Miller International Business for the twelve months prior to closing is below $70 million. The determination for the amount of the downward purchase price adjustment, if any, is ongoing pursuant to the terms of the purchase agreement.

Under the acquisition method of accounting, MCBC recorded all assets acquired and liabilities assumed at their respective acquisition-date fair values. The excess of total consideration, including the estimated fair value of our previously held equity interest in MillerCoors, over the net identifiable assets acquired and liabilities assumed was recorded as goodwill. The detailed valuation analyses necessary to assess the fair values of the tangible and intangible assets acquired and liabilities assumed and goodwill recognized have been completed, however, the analyses are preliminary in nature and are subject to adjustment as additional information is obtained about the facts and circumstances that existed as of the Acquisition date. Therefore, there may be adjustments to the valuation of our previously held equity interest, as well as to the assigned values of acquired assets and assumed liabilities, including but not limited to brands and other intangible assets and property, plant and equipment that may give rise to increases or decreases in the amounts of depreciation and amortization expense.

During the second quarter of 2017, we recorded an adjustment to our preliminary purchase price allocation primarily related to certain accrued liabilities, resulting in an increase to goodwill of $18.5 million. There were no other changes to our allocated amounts during the first half of 2017. The final determination of the fair values will be completed within the measurement period of up to one year from the Acquisition date as permitted under U.S. GAAP and any adjustments to provisional amounts that are identified during the measurement period will be recorded in the reporting period in which the adjustment is determined. The size and complexity of the Acquisition could necessitate the need to use the full one year measurement period to adequately analyze and assess a number of the factors used in establishing the asset and liability fair values. Any potential adjustments made could be material in relation to these preliminary values.

Unaudited Pro Forma Financial Information

The following unaudited pro forma financial information gives effect to the Acquisition and the completed financing as if they were completed on January 1, 2016, the first day of our 2016 fiscal year and the pro forma adjustments are based on items that are factually supportable, are directly attributable to the Acquisition and are expected to have a continuing impact on MCBC's results of operations. The unaudited pro forma financial information has been calculated after applying MCBC’s accounting policies and adjusting the results of MillerCoors to reflect the additional depreciation and amortization that would have been charged assuming the preliminary fair value adjustments to property, plant and equipment and intangible assets had been applied from January 1, 2016, together with the consequential tax effects. Pro forma adjustments have been made to remove non-recurring transaction-related costs included in historical results as well as to reflect the incremental interest expense to be prospectively incurred on the debt and term loans issued to finance the Acquisition, in addition to other pro forma adjustments. See the below table for significant non-recurring costs. Also, see Note 7, "Other Income and Expense" for details related to certain financing-related expenses incurred.

Additionally, the following unaudited pro forma financial information does not reflect the impact of the acquisition of the Miller global brand portfolio and other assets primarily related to the Miller International Business as we are not able to estimate the historical results of operations from this business and have concluded, based on the limited information available to MCBC, that it is insignificant to the overall Acquisition. The preliminary purchase price allocation reflects the estimated value allocated to the Miller global brand portfolio reported within identifiable intangible assets subject to amortization. Based on the limited information regarding such brands received to date, this estimated value allocated to these brands remains subject to change as additional information, reflective of the performance of the brands as of the Acquisition date, becomes available.

The unaudited pro forma financial information below does not reflect the realization of any expected ongoing synergies relating to the integration of MillerCoors. Further, the unaudited pro forma financial information should not be considered indicative of the results that would have occurred if the Acquisition and related financing had been consummated on January 1, 2016, nor are they indicative of future results.



	Three Months Ended		Six Months Ended
	June 30, 2016
	(in millions)
Net sales	$	3,109.2	$	5,570.6
Net income from continuing operations attributable to MCBC	$	309.3	$	566.7
Net income attributable to MCBC	$	307.5	$	564.4
Net income from continuing operations attributable to MCBC per share:
Basic	$	1.44	$	2.64
Diluted	$	1.43	$	2.62

For the three and six months ended June 30, 2016, the following non-recurring charges (benefits) directly attributable to the Acquisition were made as adjustments to our pro forma results to remove the impact from our historical operating results within the below noted line items.



	Three Months Ended			Six Months Ended
	June 30, 2016
	(In millions)
Non-recurring charges (benefits)							Location
Other transaction-related costs	$	19.6		$	34.5		Marketing, general and administrative expenses
Bridge loan - amortization of financing costs	$	20.2		$	38.6		Other income (expense)
Foreign currency forwards and transactional foreign currency loss	$	11.6		$	11.6		Other income (expense)
Term loan - commitment fee	$	1.3		$	2.5		Interest expense, net
Swaption - unrealized loss	$	15.3		$	36.4		Interest expense, net
Interest income earned on money market and fixed rate deposit accounts	$	(3.9	)	$	(6.4	)	Interest income, net

MillerCoors Pre-Acquisition Financial Information

Summarized financial information for MillerCoors for the periods prior to the Acquisition under the equity method of accounting are as follows:

Results of Operations



	Three Months Ended			Six Months Ended
	June 30, 2016
	(in millions)
Net sales	$	2,126.7		$	3,942.8
Cost of goods sold	(1,174.5		)	(2,207.5		)
Gross profit	$	952.2		$	1,735.3
Operating income⁽¹⁾	$	435.7		$	772.2
Net income attributable to MillerCoors⁽¹⁾	$	429.5		$	764.8


(1)	Results include special charges related to the closure of the Eden, North Carolina, brewery of $39.4 million and $76.3 million for the three and six months ended June 30, 2016, respectively, including $33.0 million and $68.9 million of accelerated depreciation in excess of normal depreciation associated with the brewery and $6.4 million and $7.4 million of other charges, respectively.

The following represents our proportionate share in net income attributable to MillerCoors reported under the equity method of accounting prior to the Acquisition:



	Three Months Ended			Six Months Ended
	June 30, 2016
	(in millions, except percentages)
Net income attributable to MillerCoors	$	429.5		$	764.8
MCBC's economic interest	42		%	42		%
MCBC's proportionate share of MillerCoors' net income	180.4			321.2
Amortization of the difference between MCBC's contributed cost basis and proportionate share of the underlying equity in net assets of MillerCoors	1.1			2.2
Share-based compensation adjustment⁽¹⁾	(0.7		)	(0.2		)
U.S. import tax benefit⁽²⁾	11.1			11.1
Equity income in MillerCoors	$	191.9		$	334.3


(1)	The net adjustment is to eliminate all share-based compensation impacts related to pre-existing SABMiller equity awards held by former Miller Brewing Company employees employed by MillerCoors, as well as to add back all share-based compensation impacts related to pre-existing MCBC equity awards held by former MCBC employees who transferred to MillerCoors.


(2)	Represents a benefit associated with an anticipated refund to Coors Brewing Company ("CBC"), a wholly-owned subsidiary of MCBC, of U.S. federal excise tax paid on products imported by CBC based on qualifying volumes exported by CBC from the U.S.

The following table summarizes our transactions with MillerCoors prior to the Acquisition when it was accounted for under the equity method of accounting:



	Three Months Ended		Six Months Ended
	June 30, 2016
	(In millions)
Beer sales to MillerCoors	$	2.6	$	4.6
Beer purchases from MillerCoors	$	12.2	$	22.1
Service agreement costs and other charges to MillerCoors	$	0.6	$	1.3
Service agreement costs and other charges from MillerCoors	$	0.1	$	0.2

Investments

Our investments include both equity method and consolidated investments. Those entities identified as variable interest entities ("VIEs") have been evaluated to determine whether we are the primary beneficiary. The VIEs included under "Consolidated VIEs" below are those for which we have concluded that we are the primary beneficiary and accordingly, consolidate these entities. None of our consolidated VIEs held debt as of June 30, 2017, or December 31, 2016. We have not provided any financial support to any of our VIEs during the year that we were not previously contractually obligated to provide. Amounts due to and due from our equity method investments are recorded as affiliate accounts payable and affiliate accounts receivable.

Authoritative guidance related to the consolidation of VIEs requires that we continually reassess whether we are the primary beneficiary of VIEs in which we have an interest. As such, the conclusion regarding the primary beneficiary status is subject to change and we continually evaluate circumstances that could require consolidation or deconsolidation. As of June 30, 2017, and December 31, 2016, our consolidated VIEs are Cobra Beer Partnership, Ltd. ("Cobra U.K.") and Grolsch U.K. Ltd. ("Grolsch"), Rocky Mountain Metal Container ("RMMC") and Rocky Mountain Bottle Company ("RMBC"). RMMC and RMBC were previously consolidated VIEs of MillerCoors and as a result of the Acquisition, are now MCBC consolidated VIEs. Our unconsolidated VIEs are Brewers Retail Inc. ("BRI") and Brewers' Distributor Ltd. ("BDL").

Both BRI and BDL have outstanding third party debt which is guaranteed by its shareholders. As a result, we have a guarantee liability of $44.8 million and $31.7 million recorded as of June 30, 2017, and December 31, 2016, respectively, which is presented within accounts payable and other current liabilities on the unaudited condensed consolidated balance sheets and represents our proportionate share of the outstanding balance of these debt instruments. The carrying value of the guarantee liability equals fair value, which considers an adjustment for our own non-performance risk and is considered a Level 2 measurement. The offset to the guarantee liability was recorded as an adjustment to our respective equity method investment within the unaudited condensed consolidated balance sheets. The resulting change in our equity method investments during the year due to movements in the guarantee represents a non-cash investing activity.

Consolidated VIEs

The following summarizes the assets and liabilities of our consolidated VIEs (including noncontrolling interests):



	As of
	June 30, 2017				December 31, 2016
	Total Assets		Total Liabilities		Total Assets		Total Liabilities
	(In millions)
Grolsch	$	4.7	$	0.3	$	4.4	$	0.5
Cobra U.K.	$	17.5	$	0.7	$	14.2	$	1.1
RMMC	$	77.3	$	3.9	$	70.2	$	3.5
RMBC	$	54.7	$	2.0	$	53.1	$	2.5