10-Q 1 tap201833110q.htm 10-Q Document
Use these links to rapidly review the document
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________________
FORM 10-Q
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended March 31, 2018
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______ .
Commission File Number: 1-14829
taplogoa03a01a04a01a07.jpg
Molson Coors Brewing Company
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
 
84-0178360
(I.R.S. Employer Identification No.)
1801 California Street, Suite 4600, Denver, Colorado, USA
1555 Notre Dame Street East, Montréal, Québec, Canada
(Address of principal executive offices)
 
80202
H2L 2R5
(Zip Code)
303-927-2337 (Colorado)
514-521-1786 (Québec)
(Registrant's telephone number, including area code)
_______________________________________________________________


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company o
 
Emerging growth company o
 
 
(Do not check if a smaller reporting company)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý


Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of April 26, 2018:
Class A Common Stock — 2,560,668 shares
Class B Common Stock — 195,585,037 shares

Exchangeable shares:
As of April 26, 2018, the following number of exchangeable shares were outstanding for Molson Coors Canada, Inc.:
Class A Exchangeable shares — 2,878,432 shares
Class B Exchangeable shares — 14,691,564 shares
The Class A exchangeable shares and Class B exchangeable shares are shares of the share capital in Molson Coors Canada Inc., a wholly-owned subsidiary of the registrant. They are publicly traded on the Toronto Stock Exchange under the symbols TPX.A and TPX.B, respectively. These shares are intended to provide substantially the same economic and voting rights as the corresponding class of Molson Coors common stock in which they may be exchanged. In addition to the registered Class A common stock and the Class B common stock, the registrant has also issued and outstanding one share each of a Special Class A voting stock and Special Class B voting stock. The Special Class A voting stock and the Special Class B voting stock provide the mechanism for holders of Class A exchangeable shares and Class B exchangeable shares to be provided instructions to vote with the holders of the Class A common stock and the Class B common stock, respectively. The holders of the Special Class A voting stock and Special Class B voting stock are entitled to one vote for each outstanding Class A exchangeable share and Class B exchangeable share, respectively, excluding shares held by the registrant or its subsidiaries, and generally vote together with the Class A common stock and Class B common stock, respectively, on all matters on which the Class A common stock and Class B common stock are entitled to vote. The Special Class A voting stock and Special Class B voting stock are subject to a voting trust arrangement. The trustee which holds the Special Class A voting stock and the Special Class B voting stock is required to cast a number of votes equal to the number of then-outstanding Class A exchangeable shares and Class B exchangeable shares, respectively, but will only cast a number of votes equal to the number of Class A exchangeable shares and Class B exchangeable shares as to which it has received voting instructions from the owners of record of those Class A exchangeable shares and Class B exchangeable shares, other than the registrant or its subsidiaries, respectively, on the record date, and will cast the votes in accordance with such instructions so received.
 



MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
INDEX
 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2


Glossary of Terms and Abbreviations
Acquisition
Refers to the acquisition of SABMiller plc's ("SABMiller") 58% economic interest and 50% voting interest in MillerCoors LLC ("MillerCoors") and all trademarks, contracts and other assets primarily related to the "Miller International Business," as defined in the purchase agreement, outside of the U.S. and Puerto Rico from Anheuser-Busch InBev SA/NV ("ABI"), on October 11, 2016.
AOCI    
Accumulated other comprehensive income (loss)
CAD    
Canadian dollar
CZK
Czech Koruna
DBRS
A global credit rating agency in Toronto
DSUs
Deferred stock units
EBITDA
Earnings before interest, tax, depreciation and amortization
EPS    
Earnings per share
EUR
Euro
FASB    
Financial Accounting Standards Board
GBP    
British Pound
HRK
Croatian Kuna
JPY    
Japanese Yen
Moody’s
Moody’s Investors Service Limited, a nationally recognized statistical rating organization designated by the SEC
OCI
Other comprehensive income (loss)
OPEB    
Other postretirement benefit plans
PSUs
Performance share units
RSD    
Serbian Dinar
RSUs
Restricted stock units
S&P 500
Standard & Poor’s 500 Index®
SEC
Securities and Exchange Commission
Standard & Poor’s
Standard and Poor’s Ratings Services, a nationally recognized statistical rating organization designated by the SEC
SOSARs
Stock-only stock appreciation rights
STRs
Sales-to-retailers
STWs
Sales-to-wholesalers
U.K.
United Kingdom
U.S.    
United States
U.S. GAAP
Accounting principles generally accepted in the United States of America
USD or $
U.S. dollar
VIEs
Variable interest entities


3


Cautionary Statement Pursuant to Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). From time to time, we may also provide oral or written forward-looking statements in other materials we release to the public. Such forward-looking statements are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995.
Statements that refer to projections of our future financial performance, anticipated trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements, and include, but are not limited to, statements under the headings "Management's Discussion and Analysis of Financial Condition and Results of Operations," and under the heading "Outlook for 2018" therein, relating to overall volume trends, consumer preferences, pricing trends, industry forces, cost reduction strategies, anticipated results, anticipated synergies, anticipated tax rates and benefits, expectations for funding future capital expenditures and operations, debt service capabilities, shipment levels and profitability, market share and the sufficiency of capital resources. In addition, statements that we make in this report that are not statements of historical fact may also be forward-looking statements. Words such as "expects," "goals," "plans," "believes," "continues," "may," "anticipate," "seek," "estimate," "outlook," "trends," "future benefits," "potential," "projects," "strategies," and variations of such words and similar expressions are intended to identify forward-looking statements.
Forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those indicated (both favorably and unfavorably). These risks and uncertainties include, but are not limited to those described under the heading "Risk Factors," elsewhere throughout this report, and those described from time to time in our past and future reports filed with the SEC, including in our Annual Report on Form 10-K for the year ended December 31, 2017. Caution should be taken not to place undue reliance on any such forward-looking statements. Forward-looking statements speak only as of the date when made and we undertake no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise.
Market and Industry Data
The market and industry data used in this Quarterly Report on Form 10-Q are based on independent industry publications, customers, trade or business organizations, reports by market research firms and other published statistical information from third parties, as well as information based on management’s good faith estimates, which we derive from our review of internal information and independent sources. 


4


PART I. FINANCIAL INFORMATION

ITEM 1.    

MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
 
Three Months Ended
 
March 31, 2018
 
March 31, 2017
Sales
$
2,868.0

 
$
2,913.8

Excise taxes
(536.5
)
 
(465.1
)
Net sales
2,331.5

 
2,448.7

Cost of goods sold
(1,535.7
)
 
(1,372.3
)
Gross profit
795.8

 
1,076.4

Marketing, general and administrative expenses
(681.1
)
 
(705.3
)
Special items, net
314.8

 
(6.7
)
Operating income (loss)
429.5

 
364.4

Interest income (expense), net
(83.2
)
 
(96.6
)
Other pension and postretirement benefits (costs), net
10.0

 
13.3

Other income (expense), net
1.1

 
(0.2
)
Income (loss) before income taxes
357.4

 
280.9

Income tax benefit (expense)
(74.9
)
 
(65.9
)
Net income (loss)
282.5

 
215.0

Net (income) loss attributable to noncontrolling interests
(4.4
)
 
(6.5
)
Net income (loss) attributable to Molson Coors Brewing Company
$
278.1

 
$
208.5

 
 
 
 
Net income (loss) attributable to Molson Coors Brewing Company per share:
 
 
 
Basic
$
1.29

 
$
0.97

Diluted
$
1.28

 
$
0.96

 
 
 
 
Weighted-average shares outstanding:
 
 
 
Basic
215.8

 
215.0

Dilutive effect of share-based awards
0.8

 
1.5

Diluted
216.6

 
216.5

 
 
 
 
Anti-dilutive securities excluded from the computation of diluted EPS
0.5

 
0.2

 
 
 
 
Dividends declared and paid per share
$
0.41

 
$
0.41

See notes to unaudited condensed consolidated financial statements.

5


MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN MILLIONS)
(UNAUDITED)
 
Three Months Ended
 
March 31, 2018
 
March 31, 2017
Net income (loss) including noncontrolling interests
$
282.5

 
$
215.0

Other comprehensive income (loss), net of tax:
 
 
 
Foreign currency translation adjustments
74.1

 
81.6

Unrealized gain (loss) on derivative and non-derivative financial instruments
(25.8
)
 
(8.6
)
Reclassification of derivative (gain) loss to income
1.1

 

Amortization of net prior service (benefit) cost and net actuarial (gain) loss to income
1.7

 
(1.0
)
Ownership share of unconsolidated subsidiaries' other comprehensive income (loss)
(1.2
)
 
1.1

Total other comprehensive income (loss), net of tax
49.9

 
73.1

Comprehensive income (loss)
332.4

 
288.1

Comprehensive (income) loss attributable to noncontrolling interests
(5.2
)
 
(6.9
)
Comprehensive income (loss) attributable to Molson Coors Brewing Company
$
327.2

 
$
281.2

See notes to unaudited condensed consolidated financial statements.


6


MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT PAR VALUE)
(UNAUDITED)
 
As of
 
March 31, 2018
 
December 31, 2017
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
197.9

 
$
418.6

Accounts receivable, net
779.3

 
733.8

Other receivables, net
168.0

 
168.2

Inventories, net
665.6

 
591.5

Other current assets, net
326.2

 
277.6

Total current assets
2,137.0

 
2,189.7

Properties, net
4,680.8

 
4,673.7

Goodwill
8,442.7

 
8,405.5

Other intangibles, net
14,237.6

 
14,296.5

Other assets
686.4

 
681.5

Total assets
$
30,184.5

 
$
30,246.9

Liabilities and equity
 
 
 
Current liabilities:
 
 
 
Accounts payable and other current liabilities
$
2,537.1

 
$
2,684.5

Current portion of long-term debt and short-term borrowings
1,591.3

 
714.8

Total current liabilities
4,128.4

 
3,399.3

Long-term debt
9,527.0

 
10,598.7

Pension and postretirement benefits
838.0

 
848.5

Deferred tax liabilities
1,688.7

 
1,648.6

Other liabilities
338.9

 
316.8

Total liabilities
16,521.0

 
16,811.9

Commitments and contingencies (Note 14)


 


Molson Coors Brewing Company stockholders' equity
 
 
 
Capital stock:
 
 
 
Preferred stock, $0.01 par value (authorized: 25.0 shares; none issued)

 

Class A common stock, $0.01 par value per share (authorized: 500.0 shares; issued and outstanding: 2.6 shares and 2.6 shares, respectively)

 

Class B common stock, $0.01 par value per share (authorized: 500.0 shares; issued: 205.1 shares and 204.7 shares, respectively)
2.0

 
2.0

Class A exchangeable shares, no par value (issued and outstanding: 2.9 shares and 2.9 shares, respectively)
107.7

 
107.7

Class B exchangeable shares, no par value (issued and outstanding: 14.7 shares and 14.7 shares, respectively)
553.2

 
553.2

Paid-in capital
6,697.4

 
6,688.5

Retained earnings
7,367.9

 
7,206.1

Accumulated other comprehensive income (loss)
(810.9
)
 
(860.0
)
Class B common stock held in treasury at cost (9.5 shares and 9.5 shares, respectively)
(471.4
)
 
(471.4
)
Total Molson Coors Brewing Company stockholders' equity
13,445.9

 
13,226.1

Noncontrolling interests
217.6

 
208.9

Total equity
13,663.5

 
13,435.0

Total liabilities and equity
$
30,184.5

 
$
30,246.9

See notes to unaudited condensed consolidated financial statements.

7


MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)
 
Three Months Ended
 
March 31, 2018
 
March 31, 2017
Cash flows from operating activities:
 
 
 
Net income (loss) including noncontrolling interests
$
282.5


$
215.0

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 

Depreciation and amortization
213.7

 
197.1

Amortization of debt issuance costs and discounts
4.1

 
6.5

Share-based compensation
14.8

 
15.5

(Gain) loss on sale or impairment of properties and other assets, net
0.7

 
(4.4
)
Unrealized (gain) loss on foreign currency fluctuations and derivative instruments, net
83.5

 
(62.4
)
Income tax (benefit) expense
74.9

 
65.9

Income tax (paid) received
(8.9
)
 
(10.9
)
Interest expense, excluding interest amortization
79.3

 
91.7

Interest paid
(115.2
)
 
(120.7
)
Pension expense (benefit)
(14.9
)
 
(16.3
)
Pension contributions paid
(2.5
)
 
(36.0
)
Change in current assets and liabilities and other
(296.8
)
 
(459.3
)
Net cash provided by (used in) operating activities
315.2

 
(118.3
)
Cash flows from investing activities:
 

 
 

Additions to properties
(208.3
)
 
(180.0
)
Proceeds from sales of properties and other assets
1.6

 
42.0

Other
(45.4
)
 
5.9

Net cash provided by (used in) investing activities
(252.1
)
 
(132.1
)
Cash flows from financing activities:
 

 
 

Exercise of stock options under equity compensation plans
6.1

 
0.3

Dividends paid
(88.5
)
 
(88.3
)
Debt issuance costs

 
(3.7
)
Payments on debt and borrowings
(0.8
)
 
(1,501.1
)
Proceeds on debt and borrowings

 
1,536.0

Net proceeds from (payments on) revolving credit facilities and commercial paper
(248.7
)
 
131.0

Change in overdraft balances and other
42.0

 
6.1

Net cash provided by (used in) financing activities
(289.9
)
 
80.3

Cash and cash equivalents:
 

 
 

Net increase (decrease) in cash and cash equivalents
(226.8
)
 
(170.1
)
Effect of foreign exchange rate changes on cash and cash equivalents
6.1

 
4.2

Balance at beginning of year
418.6

 
560.9

Balance at end of period
$
197.9

 
$
395.0

See notes to unaudited condensed consolidated financial statements.

8


MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND NONCONTROLLING INTERESTS
(IN MILLIONS)
(UNAUDITED)
 
 
 
MCBC Stockholders' Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated
 
Common Stock
 
 
 
 
 
Common stock
 
Exchangeable
 
 
 
 
 
other
 
held in
 
Non
 
 
 
issued
 
shares issued
 
Paid-in-
 
Retained
 
comprehensive
 
treasury
 
controlling
 
Total
 
Class A
 
Class B
 
Class A
 
Class B
 
capital
 
earnings
 
income (loss)
 
Class B
 
interests
As of December 31, 2016
$
11,621.7

 
$

 
$
2.0

 
$
108.1

 
$
571.2

 
$
6,635.3

 
$
6,145.3

 
$
(1,571.8
)
 
$
(471.4
)
 
$
203.0

Exchange of shares

 

 

 
0.3

 
(3.6
)
 
3.3

 

 

 

 

Shares issued under equity compensation plan
(23.5
)
 

 

 

 

 
(23.5
)
 

 

 

 

Amortization of share-based compensation
14.8

 

 

 

 

 
14.8

 

 

 

 

Acquisition of business and purchase of noncontrolling interest
2.1

 

 

 

 

 

 

 

 

 
2.1

Net income (loss) including noncontrolling interests
215.0

 

 

 

 

 

 
208.5

 

 

 
6.5

Other comprehensive income (loss), net of tax
73.1

 

 

 

 

 

 

 
72.7

 

 
0.4

Dividends declared and paid
(88.3
)
 

 

 

 

 

 
(88.3
)
 

 

 

As of March 31, 2017
$
11,814.9

 
$

 
$
2.0

 
$
108.4

 
$
567.6

 
$
6,629.9


$
6,265.5


$
(1,499.1
)

$
(471.4
)
 
$
212.0


 
 

MCBC Stockholders' Equity

 
 
 









 
 
 
 
Accumulated
 
Common Stock

 
 
 

Common stock

Exchangeable


 
 
 
other
 
held in

Non
 
 

issued

shares issued

Paid-in-
 
Retained
 
comprehensive
 
treasury

controlling
 
Total

Class A

Class B

Class A

Class B

capital
 
earnings
 
income (loss)
 
Class B

interests
As of December 31, 2017
$
13,435.0


$


$
2.0


$
107.7


$
553.2


$
6,688.5

 
$
7,206.1

 
$
(860.0
)
 
$
(471.4
)

$
208.9

Shares issued under equity compensation plan
(5.8
)









(5.8
)
 

 

 



Amortization of share-based compensation
14.7










14.7

 

 

 



Net income (loss) including noncontrolling interests
282.5











 
278.1

 

 


4.4

Other comprehensive income (loss), net of tax
49.9











 

 
49.1

 


0.8

Adoption of new accounting pronouncement (see Note 2)
(27.8
)
 

 

 

 

 

 
(27.8
)
 

 

 

Contributions from noncontrolling interests
6.4

 

 

 

 

 

 

 

 

 
6.4

Dividends declared and paid
(91.4
)










 
(88.5
)
 

 


(2.9
)
As of March 31, 2018
$
13,663.5


$


$
2.0


$
107.7


$
553.2


$
6,697.4

 
$
7,367.9

 
$
(810.9
)
 
$
(471.4
)

$
217.6


See notes to unaudited condensed consolidated financial statements.

9


MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation and Summary of Significant Accounting Policies
Unless otherwise noted in this report, any description of "we," "us" or "our" includes Molson Coors Brewing Company ("MCBC" or the "Company"), principally a holding company, and its operating and non-operating subsidiaries included within our reporting segments and Corporate. Our reporting segments include: MillerCoors LLC ("MillerCoors" or U.S. segment), operating in the United States; Molson Coors Canada ("MCC" or Canada segment), operating in Canada; Molson Coors Europe (Europe segment), operating in Bulgaria, Croatia, Czech Republic, Hungary, Montenegro, Republic of Ireland, Romania, Serbia, the United Kingdom and various other European countries; and Molson Coors International ("MCI" or International segment), operating in various other countries.
Unless otherwise indicated, information in this report is presented in USD and comparisons are to comparable prior periods. Our primary operating currencies, other than USD, include the CAD, the GBP, and our Central European operating currencies such as the EUR, CZK, HRK and RSD.
The accompanying unaudited condensed consolidated interim financial statements reflect all adjustments which are necessary for a fair statement of the financial position, results of operations and cash flows for the periods presented in accordance with U.S. GAAP. Such unaudited interim condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations.
These unaudited condensed consolidated interim financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2017 ("Annual Report"), and have been prepared on a consistent basis with the accounting policies described in Note 1 of the Notes to the Audited Consolidated Financial Statements included in our Annual Report, except as noted below and in Note 2, "New Accounting Pronouncements". We adopted both the FASB's new revenue recognition standard and the presentation of net periodic pension and other postretirement benefit cost standard effective January 1, 2018.
Our historical unaudited condensed consolidated financial statements have been revised to reflect the retrospective application of our change in accounting policy for calculating the market-related value of pension plan assets used to determine net periodic pension cost as discussed in our Annual Report.
The results of operations for the three months ended March 31, 2018, are not necessarily indicative of the results that may be achieved for the full year.
Non-Cash Activity
Non-cash activity includes non-cash issuances of share-based awards, as well as non-cash investing activities related to movements in our guarantee of indebtedness of certain equity method investments. See Note 4, "Investments" and Note 5, "Share-Based Payments" for further discussion. We also had non-cash activities related to capital expenditures incurred but not yet paid, and the recognition of capital leases. These non-cash activities are excluded from our unaudited condensed consolidated statements of cash flows and were $155.8 million and $176.0 million for the three months ended March 31, 2018, and March 31, 2017, respectively.
Discontinued Operations
We no longer present the activity related to foreign exchange movements nor the liabilities associated with our indemnities resulting from the historical sale of the Kaiser business (as discussed in Note 19 of the Notes included in our Annual Report) within discontinued operations and have accordingly reclassified the activity into other income within continuing operations of the unaudited condensed consolidated statements of operations, and the liabilities into other current and long-term liabilities within the unaudited condensed consolidated balance sheets. This change has been applied retrospectively and prospectively. As a result, we reclassified a foreign exchange loss from discontinued operations to other income (expense), net of $0.6 million for the three months ended March 31, 2017.
Revenue Recognition
We account for revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, which we adopted on January 1, 2018, using the modified retrospective transition approach (see Note 2, "New Accounting Pronouncements" for impacts of adoption).

10


Our net sales represent the sale of beer and other malt beverages (including adjacencies, such as cider and hard soda), net of excise tax. Sales are stated net of incentives, discounts and returns. Sales of products are for cash or otherwise agreed upon credit terms. Our payment terms vary by location and customer, however, the time period between when revenue is recognized and when payment is due is not significant. Our revenue generating activities have a single performance obligation and are recognized at the point in time when control transfers and our obligation has been fulfilled, which is when the related goods are shipped or delivered to the customer, depending upon the method of distribution and shipping terms. Where our products are sold under consignment arrangements, revenue is not recognized until control has transferred, which is when the product is sold to the end customer. Revenue is measured as the amount of consideration we expect to receive in exchange for the sale of our product. The cost of various programs, such as price promotions, rebates and coupons are treated as a reduction of sales. In certain of our markets, we make cash payments to customers such as slotting or listing fees, or payments for other marketing or promotional activities. These cash payments are recorded as a reduction of revenue unless we receive a distinct good or service as defined under ASC 606. Specifically, a good or service is considered distinct when it is separately identifiable from other promises in the contract, we receive a benefit from the good or service, and the benefit is separable from the sale of our product to the customer.
Certain payments made to customers are conditional on the achievement of volume targets, marketing commitments, or both. If paid in advance, we record such payments as prepayments and amortize them over the relevant period to which the customer commitment is made (generally up to five years). When the payment is not for a distinct good or service, or fair value cannot be reasonably estimated, the amortization of the prepayment or the cost as incurred is recorded as a reduction of revenue. Where a distinct good or service is received and fair value can be reasonably estimated, the cost is included as marketing, general and administrative expenses. The amounts deferred are reassessed regularly for recoverability over the contract period and are impaired where there is objective evidence that the benefits will not be realized or the asset is otherwise not recoverable. Separately, as discussed below, we analyze whether these advance payments contain a significant financing component for potential adjustment to the transaction price.
Our primary revenue generating activity represents the sale of beer and other malt beverages to customers, including both domestic and exported product sales. Our customer could be a distributor, retail or on-premise outlet, depending on the market. The majority of our revenues are generated from brands that we own and brew ourselves, however, we also import or brew and sell certain non-owned partner brands under licensing and related arrangements. In addition, primarily in the U.K., as well as certain other countries in our Europe segment, we sell other beverage companies' products to on-premise customers to provide them with a full range of products for their retail outlets. We refer to this as the "factored brand business." Sales from this business are included in our net sales and cost of goods sold when ultimately sold. In the factored brand business, we normally purchase inventory, which includes excise taxes charged by the vendor, take orders from customers for such brands, negotiate with the customers on pricing and invoice customers for the product and related costs of delivery. In addition, we incur the risk of loss at times we are in possession of the inventory and for the receivables due from the customers. Revenues for owned brands, partner and imported brands, as well as factored brands are recognized at the point in time when control is transferred to the customer as discussed above.
Other Revenue Generating Activities
We contract manufacture for other brewers in some of our markets. These contractual agreements require us to brew, package and ship certain brands to these brewers, who then sell the products to their own customers in their respective markets. Revenues under contract brewing arrangements are recognized when our obligation related to the finished product is fulfilled and control of the product transfers to these other brewers.
We also have licensing agreements with third party partners who brew and distribute our products in various markets across our segments. Under these agreements, we are compensated based on the amount of products sold by our partners in these markets at an agreed upon royalty rate or profit percentage. We apply the sales-based royalty practical expedient to these licensing arrangements and recognize revenue as product is sold by our partners at the agreed upon rate.
We have evaluated these other revenue generating activities under the disaggregation disclosure criteria outlined within the guidance and concluded that these other revenue generating activities are immaterial for separate disclosure. See Note 3, "Segment Reporting", for disclosure of revenues by geographic segment.

11


Variable Consideration
Our revenue generating activities include variable consideration which is recorded as a reduction of the transaction price based upon expected amounts at the time revenue for the corresponding product sale is recognized. For example, customer promotional discount programs are entered into with certain distributors for certain periods of time. The amount ultimately reimbursed to distributors is determined based upon agreed-upon promotional discounts which are applied to distributors sales to retailers. Other common forms of variable consideration include volume rebates for meeting established sales targets, and coupons and mail-in rebates offered to the end consumer. The determination of the reduction of the transaction price for variable consideration requires that we make certain estimates and assumptions that affect the timing and amounts of revenue and liabilities recorded. We estimate this variable consideration, including analyzing for a potential constraint on variable consideration, by taking into account factors such as the nature of the promotional activity, historical information and current trends, availability of actual results, and expectations of customer and consumer behavior.
We do not have standard terms that permit return of product; however, in certain markets where returns occur we estimate the amount of returns as variable consideration based on historical return experience and adjust our revenue accordingly. Products that do not meet our high quality standards are returned by the customer or recalled and destroyed and are recorded as a reduction of revenue. The reversal of revenue is recorded upon determination that the product will be recalled and destroyed. We estimate the costs required to facilitate product returns and record them in cost of goods sold as required.
During the three months ended March 31, 2018, adjustments to revenue from performance obligations satisfied in the prior period due to changes in estimates in variable consideration were immaterial.
Significant Financing Component and Costs to Obtain Contracts
In certain of our businesses where such practices are legally permitted, we make loans or advanced payments to retail outlets that sell our brands. For arrangements that do not span greater than one year, we apply the practical expedient available under ASC 606 and do not adjust the transaction price for the effects of a potential significant financing component. We further analyze arrangements that span greater than one year on an ongoing basis to determine whether a significant financing component exists. No such arrangements existed during the three months ended March 31, 2018.
Advance payments to customers, where legally permitted, are deferred and amortized as a reduction to revenue over the expected period of benefit and tested for recoverability as appropriate. All other costs to obtain contracts and fulfill are expensed as incurred based on the nature, significance and expected benefit of these costs relative to the contract.
Contract Assets and Liabilities
We continually evaluate whether our revenue generating activities and advanced payment arrangements with customers result in the recognition of contract assets or liabilities. No such assets or liabilities existed as of March 31, 2018, or December 31, 2017. Separately, trade accounts receivable, including affiliate receivables, approximates receivables from contracts with customers.
Shipping and Handling
Freight costs billed to customers for shipping and handling are recorded as revenue. Shipping and handling expense related to costs incurred to deliver product are recognized within cost of goods sold. We account for shipping and handling activities that occur after control has transferred as a fulfillment cost as opposed to a separate performance obligation, and the costs of shipping and handling are recognized concurrently with the related revenue.
Excise Tax
Excise tax remitted to tax authorities are government-imposed excise taxes on beer. Excise taxes are shown in a separate line item in the unaudited condensed consolidated statements of operations as a reduction of sales. Excise taxes are recognized as a current liability within accounts payable and other current liabilities on the unaudited condensed consolidated balance sheets, with the liability subsequently reduced when the taxes are remitted to the tax authority.

12


Net Periodic Pension Cost Revised Accounting Policy
The following table presents the impacts to our quarterly information resulting from the retrospective application of our change in accounting policy for calculating the market-related value of pension plan assets used to determine net periodic pension cost effective in the fourth quarter of 2017 as discussed in Note 1 of the Notes of our Annual Report. The below "As Adjusted" amounts have been further adjusted to reflect the adoption of the accounting standard on the presentation of net periodic pension and postretirement benefit cost. See Note 2, "New Accounting Pronouncements".
 
Three Months Ended
 
Three Months Ended
 
Three Months Ended
 
Three Months Ended
 
March 31, 2017
 
June 30, 2017
 
September 30, 2017
 
December 31, 2017
 
As Reported
 
As Adjusted
 
As Reported
 
As Adjusted
 
As Reported
 
As Adjusted
 
Under Prior Method
 
As Adjusted
 
(In millions)
Unaudited Condensed Consolidated Statements of Operations:
Cost of goods sold
$
(1,372.9
)
 
$
(1,367.7
)
 
$
(1,756.1
)
 
$
(1,750.7
)
 
$
(1,589.6
)
 
$
(1,584.1
)
 
$
(1,520.3
)
 
$
(1,514.7
)
Marketing, general and administrative expenses
$
(702.8
)
 
$
(699.5
)
 
$
(781.2
)
 
$
(777.8
)
 
$
(782.8
)
 
$
(779.2
)
 
$
(779.4
)
 
$
(775.9
)
Special items, net
$
(3.8
)
 
$
(3.8
)
 
$
(16.5
)
 
$
(16.5
)
 
$
(4.1
)
 
$
(4.1
)
 
$
(3.7
)
 
$
(3.7
)
Income tax benefit (expense)
$
(64.6
)
 
$
(65.9
)
 
$
(123.0
)
 
$
(125.2
)
 
$
(145.3
)
 
$
(147.4
)
 
$
392.4

 
$
391.7

Net income (loss) attributable to MCBC
$
201.3

 
$
208.5

 
$
323.3

 
$
329.9

 
$
280.0

 
$
287.0

 
$
580.4

 
$
588.8

Basic net income (loss) attributable to MCBC per share
$
0.94

 
$
0.97

 
$
1.50

 
$
1.53

 
$
1.30

 
$
1.33

 
$
2.69

 
$
2.73

Diluted net income (loss) attributable to MCBC per share
$
0.93

 
$
0.96

 
$
1.49

 
$
1.52

 
$
1.29

 
$
1.33

 
$
2.68

 
$
2.72


13


2. New Accounting Pronouncements
New Accounting Pronouncements Recently Adopted
Pension and Other Postretirement Benefit Plans
In March 2017, the FASB issued authoritative guidance intended to improve the consistency, transparency and usefulness of financial information related to defined benefit pension or other postretirement plans. Under the new guidance, an employer must disaggregate the service cost component from the other components of net benefit cost within the statements of operations. Specifically, the new guidance requires us to report only the service cost component in the same line item as other compensation costs arising from services rendered by the pertinent employees during the period; while the other components of net benefit cost are now presented in the unaudited condensed consolidated statements of operations separately from the service cost component and outside of operating income. The amendments in this update also allow only the service cost component to be eligible for capitalization when applicable. We have also determined that only service cost will be reported within each operating segment and all other components will be reported within the Corporate segment. The guidance related to the income statement presentation of service costs and other pension and postretirement benefit costs is applied retrospectively, while the capitalization of service costs component is applied prospectively. We adopted this guidance as of January 1, 2018, which was a classification adjustment only and had no impact to our consolidated net income. The adoption of this guidance resulted in the following retrospective adjustments within our unaudited condensed consolidated results of operations:
 
Three Months Ended March 31, 2017
 
As Adjusted - Pension Methodology(1)
 
As Adjusted - Accounting Standard Update
 
(In millions)
Unaudited Condensed Consolidated Statement of Operations:
 
 
 
Cost of goods sold
$
(1,367.7
)
 
$
(1,372.3
)
Marketing, general and administrative expenses
$
(699.5
)
 
$
(705.3
)
Special items, net
$
(3.8
)
 
$
(6.7
)
Operating income (loss)
$
377.7

 
$
364.4

Other pension and postretirement benefits (costs), net
$

 
$
13.3

(1)
As discussed in detail within Note 1, "Basis of Presentation and Summary of Significant Accounting Policies", our historical unaudited condensed consolidated financial statements have been revised to reflect the retrospective application of our change in accounting policy for calculating the market-related value of pension plan assets used to determine net periodic pension cost. The change was effective in the fourth quarter of 2017.
The following table shows the (increase) decrease for the respective line item within the unaudited condensed consolidated statement of operations for segment reporting for the three months ended March 31, 2017:
 
Corporate
 
Europe
 
U.S.
 
Canada
Cost of goods sold
$

 
$
(6.6
)
 
$
1.8

 
$
0.2

Marketing, general and administrative expenses

 
(4.7
)
 
(0.8
)
 
(0.3
)
Special items, net

 

 

 
(2.9
)
Other pension and postretirement benefits (costs), net
13.3

 

 

 

Total
$
13.3

 
$
(11.3
)
 
$
1.0

 
$
(3.0
)
Revenue Recognition
In May 2014, the FASB issued authoritative guidance related to new accounting requirements for the recognition of revenue from contracts with customers. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for the goods or services.
We adopted this guidance and related amendments as of January 1, 2018, applying the modified retrospective transition approach to all contracts. Based on our comprehensive assessment of the new guidance, including our evaluation of the five-step approach outlined within the guidance, we concluded that the adoption did not have a significant impact to our core revenue generating activities. However, the adoption resulted in a change in presentation of certain cash payments made to

14


customers as well as the timing of recognition of certain promotional discounts. Specifically, certain cash payments to customers were previously recorded within marketing, general and administrative expenses in the unaudited condensed consolidated statements of operations. Upon the adoption of the new guidance, many of these cash payments did not meet the specific criteria within the new guidance of providing a “distinct” good or service, and therefore, were required to be presented as a reduction of revenue. Based on foreign exchange rates as of March 31, 2018, we currently anticipate that the impact of this change will result in a reduction of revenue and marketing, general and administrative expenses by approximately $70 million to $90 million during 2018, primarily within our Canada segment, with no impact to net income. However, actual results may differ from these estimates. Furthermore, upon adoption of the new guidance, certain of our promotional discounts which are deemed variable consideration under the new guidance, are now recognized at the time of the related shipment of product, which is earlier than recognized under historical guidance. We anticipate that this change in recognition timing will shift financial statement recognition primarily amongst quarters, however, do not anticipate that the full-year impact will be significant to our financial results. We also evaluated the requirements of the new guidance on our other revenue generating activities such as contract brewing and license arrangements, and concluded that no changes to our historical accounting treatment was required.
As a result of the cumulative impact of adopting the new guidance, we recorded a reduction to opening retained earnings of $27.8 million as of January 1, 2018, with an offsetting increase primarily within accounts payable and other current liabilities and the related tax effects, related primarily to the accelerated recognition of certain promotional discounts. Results for reporting periods beginning after January 1, 2018, are presented under the new guidance, while prior period amounts have not been adjusted and continue to be reported in accordance with historical accounting guidance. The following tables provide a comparison of our current period results of operations and financial position under the new guidance, versus our financial statements if the historical guidance had continued to be applied:
 
Three Months Ended March 31, 2018
 
Under Historical Guidance
 
As Reported Under New Guidance
 
Effect of Change
 
(In millions, except per share data)
Unaudited Condensed Consolidated Statement of Operations:
 
Sales
$
2,884.1

 
$
2,868.0

 
$
(16.1
)
Excise taxes
(536.5
)
 
(536.5
)
 

Net sales
2,347.6

 
2,331.5

 
(16.1
)
Cost of goods sold
(1,535.7
)
 
(1,535.7
)
 

Gross profit
811.9

 
795.8

 
(16.1
)
Marketing, general and administrative expenses
(694.2
)
 
(681.1
)
 
13.1

Special items, net
314.8

 
314.8

 

Operating income (loss)
432.5

 
429.5

 
(3.0
)
Interest income (expense), net
(82.4
)
 
(83.2
)
 
(0.8
)
Other pension and postretirement benefits (costs), net
10.0

 
10.0

 

Other income (expense), net
1.1

 
1.1

 

Income (loss) before income taxes
361.2

 
357.4

 
(3.8
)
Income tax benefit (expense)
(75.7
)
 
(74.9
)
 
0.8

Net income (loss)
285.5

 
282.5

 
(3.0
)
Net (income) loss attributable to noncontrolling interests
(4.4
)
 
(4.4
)
 

Net income (loss) attributable to MCBC
$
281.1

 
$
278.1

 
$
(3.0
)
Basic net income (loss) attributable to MCBC per share
$
1.30

 
$
1.29

 
$
(0.01
)
Diluted net income (loss) attributable to MCBC per share
$
1.30

 
$
1.28

 
$
(0.02
)

15


 
As of March 31, 2018
 
Under Historical Guidance
 
As Reported Under New Guidance
 
Effect of Change
 
(In millions)
Unaudited Condensed Consolidated Balance Sheet:
 
Assets
 
 
 
 
 
Accounts receivable, net
$
779.2

 
$
779.3

 
$
0.1

Other current assets, net
$
321.4

 
$
326.2

 
$
4.8

Liabilities and equity
 
 
 
 
 
Accounts payable and other current liabilities
$
2,491.6

 
$
2,537.1

 
$
45.5

Deferred tax liabilities
$
1,698.5

 
$
1,688.7

 
$
(9.8
)
Retained earnings
$
7,398.7

 
$
7,367.9

 
$
(30.8
)
These changes are primarily driven by the reclassification of certain cash payments to customers from marketing, general and administrative expenses to a reduction of revenue, as well as the change in the timing of recognition of certain promotional discounts and cash payments to customers. This adoption had no impact to our cash flows from operating, investing or financing activities. See Note 1, "Basis of Presentation and Summary of Significant Accounting Policies" for further details on our significant accounting policies for revenue recognition pursuant to the new guidance.
New Accounting Pronouncements Not Yet Adopted
In February 2018, the FASB issued authoritative guidance intended to improve the usefulness of financial information related to the enactment of the 2017 U.S. Tax Cuts and Jobs Act (the "2017 Tax Act"). This guidance provides an option to reclassify from accumulated other comprehensive income to retained earnings the stranded tax effects resulting from the change in the U.S. federal corporate income tax rate as a result of the 2017 Tax Act. This guidance is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods, with early adoption permitted. We are currently evaluating the potential impact on our financial statements in order to determine whether to elect to make this reclassification upon adoption of this guidance.

In August 2017, the FASB issued authoritative guidance intended to refine and expand hedge accounting for both financial and commodity risks. The revised guidance will create more transparency around how economic results are presented, both on the face of the financial statements and in the footnotes. In addition, this guidance makes certain targeted improvements to simplify the application of hedge accounting guidance. This guidance is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods, with early adoption permitted. We are currently evaluating the potential impact on our financial position and results of operations upon adoption of this guidance, and do not anticipate that such impact will be significant.
In February 2016, the FASB issued authoritative guidance intended to increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. Under the new guidance, lessees will be required to recognize a right-of-use asset and a lease liability, measured on a discounted basis, at the commencement date for all leases with terms greater than twelve months. Additionally, this guidance will require disclosures to help investors and other financial statement users to better understand the amount, timing, and uncertainty of cash flows arising from leases, including qualitative and quantitative requirements. The guidance should be applied under a modified retrospective transition approach. This guidance is effective for annual reporting periods beginning after December 15, 2018, including interim periods within those annual periods, with early adoption permitted. We are currently evaluating the potential impact on our financial position and results of operations upon adoption of this guidance. This guidance will result in our existing operating leases, for certain real estate and equipment, to be recognized on our balance sheet. We will further analyze our lease arrangements as we complete our assessment and implementation of this new guidance.
Other than the items noted above, there have been no new accounting pronouncements not yet effective or adopted in the current year that we believe have a significant impact, or potential significant impact, to our unaudited condensed consolidated interim financial statements.
3. Segment Reporting
Our reporting segments are based on the key geographic regions in which we operate, which are the basis on which our chief operating decision maker evaluates the performance of the business. Our reporting segments consist of the U.S., Canada, Europe and International. Corporate is not a segment and primarily includes interest and certain other general and

16


administrative costs that are not allocated to any of the operating segments as well as the unrealized changes in fair value on our commodity swaps not designated in hedging relationships recorded within cost of goods sold, which are later reclassified when realized to the segment in which the underlying exposure resides. Additionally, only the service cost component of net periodic pension and OPEB cost are now reported within each operating segment, as discussed in Note 2, "New Accounting Pronouncements", and all other components are reported, retrospectively and prospectively, within the Corporate segment in accordance with how our chief operating decision maker evaluates the performance of our business.
No single customer accounted for more than 10% of our consolidated sales for the three months ended March 31, 2018, or March 31, 2017. Consolidated net sales represent sales to third-party external customers less excise taxes. Inter-segment transactions impacting net sales revenues and income (loss) before income taxes eliminate in consolidation and are primarily related to U.S. segment sales to the other segments.
The following tables present net sales, income (loss) before income taxes and total assets by segment:
 
Three Months Ended
 
March 31, 2018
 
March 31, 2017
 
(In millions)
U.S.
$
1,647.8

 
$
1,749.9

Canada
283.8

 
291.1

Europe
374.3

 
381.6

International
57.5

 
61.8

Corporate
0.2

 
0.3

Inter-segment net sales eliminations
(32.1
)
 
(36.0
)
Consolidated net sales
$
2,331.5

 
$
2,448.7

 
Three Months Ended
 
March 31, 2018
 
March 31, 2017(4)
 
(In millions)
U.S.
$
261.7

 
$
316.6

Canada(1)
9.1

 
20.9

Europe(2)
(29.9
)
 
27.0

International
3.7

 
1.5

Corporate(3)
112.8

 
(85.1
)
Consolidated income (loss) before income taxes
$
357.4

 
$
280.9

(1)
During the first quarter of 2017, we received payment and recorded a gain of CAD 10.6 million, or $8.1 million, resulting from a purchase price adjustment related to the historical sale of Molson Inc.’s ownership interest in the Montreal Canadiens, which is considered an affiliate of MCBC.
(2)
During the three months ended March 31, 2017, we recorded a provision for an estimate of uncollectible receivables of approximately $11 million related to Agrokor, a large customer in Croatia. The proceedings related to this matter have been formally extended to, and are currently expected to be resolved by, July 2018. Separately, during the first quarter of 2017, we released an indirect tax loss contingency, which was initially recorded in the fourth quarter of 2016, for a benefit of approximately $50 million. See Note 14, "Commitments and Contingencies" for details.
(3)
During the three months ended March 31, 2018, we recorded a gain of $328.0 million related to the Adjustment Amount as defined and further discussed in Note 6, "Special Items". Additionally, related to the unrealized mark-to-market valuation on our commodity hedge positions, we recorded an unrealized loss of $84.7 million during the three months ended March 31, 2018, compared to an unrealized gain of $63.1 million during the three months ended March 31, 2017.
(4)
Segment results for the three months ended March 31, 2017, have been adjusted to reflect the adoption of the new accounting pronouncement for pension and other postretirement benefit costs as well as the reclassification of all non-service costs components of pension and other postretirement costs to Corporate. See Note 2, "New Accounting Pronouncements" for further details.

17


Income (loss) before income taxes includes the impact of special items. Refer to Note 6, "Special Items" for further discussion.
 
As of
 
March 31, 2018
 
December 31, 2017
 
(In millions)
U.S.
$
19,319.4

 
$
19,353.6

Canada
4,688.5


4,835.7

Europe
5,691.6


5,522.0

International
275.6


294.8

Corporate
209.4


240.8

Consolidated total assets
$
30,184.5


$
30,246.9

4. Investments
Our investments include both equity method and consolidated investments. Those entities identified as 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 March 31, 2018, or December 31, 2017. 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 March 31, 2018, and December 31, 2017, our consolidated VIEs are Cobra Beer Partnership, Ltd. ("Cobra U.K."), Grolsch U.K. Ltd. ("Grolsch"), Rocky Mountain Metal Container ("RMMC") and Rocky Mountain Bottle Company ("RMBC"). 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 $52.2 million and $38.1 million recorded as of March 31, 2018, and December 31, 2017, 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
 
March 31, 2018
 
December 31, 2017
 
Total Assets
 
Total Liabilities
 
Total Assets
 
Total Liabilities
 
(In millions)
Grolsch
$
4.9

 
$
0.1

 
$
4.8

 
$
0.2

Cobra U.K.
$
17.7

 
$
1.2

 
$
20.2

 
$
2.1

RMMC
$
72.9

 
$
4.7

 
$
74.4

 
$
4.4

RMBC
$
67.6

 
$
6.4

 
$
56.2

 
$
4.6


5. Share-Based Payments
We have one share-based compensation plan, the MCBC Incentive Compensation Plan (the "Incentive Compensation Plan"), as of March 31, 2018, and all outstanding awards fall under this plan. During the three months ended March 31, 2018, and March 31, 2017, we recognized share-based compensation expense related to the following Class B common stock awards to certain directors, officers and other eligible employees, pursuant to the Incentive Compensation Plan: RSUs, DSUs, PSUs and stock options.

18


 
Three Months Ended
 
March 31, 2018
 
March 31, 2017
 
(In millions)
Pretax compensation expense
$
14.8

 
$
15.5

Tax benefit
(1.6
)
 
(5.3
)
After-tax compensation expense
$
13.2

 
$
10.2

As of March 31, 2018, there was $84.4 million of total unrecognized compensation expense from all share-based compensation arrangements granted under the Incentive Compensation Plan, related to unvested awards. This total compensation expense is expected to be recognized over a weighted-average period of 2.2 years.
 
RSUs and DSUs
 
PSUs
 
Units
 
Weighted-average
grant date fair value
per unit
 
Units
 
Weighted-average
grant date fair value
per unit
 
(In millions, except per unit amounts)
Non-vested as of December 31, 2017
1.0

 
$95.80
 
0.4

 
$89.57
Granted
0.4

 
$74.20
 
0.2

 
$78.30
Vested
(0.3
)
 
$91.55
 
(0.1
)
 
$75.10
Forfeited

 
$—
 

 
$—
Non-vested as of March 31, 2018
1.1

 
$89.93
 
0.5

 
$86.95
The weighted-average fair value per unit for the non-vested PSUs is $86.76 as of March 31, 2018.
 
Stock options and SOSARs
 
Awards
 
Weighted-average
exercise price per
share
 
Weighted-average
remaining contractual life
(years)
 
Aggregate
intrinsic value
 
(In millions, except per share amounts and years)
Outstanding as of December 31, 2017
1.5
 
$63.60
 
4.6
 
$
31.3

Granted
0.2
 
$78.79
 
 
 
 
Exercised
(0.1)
 
$47.96
 
 
 
 
Forfeited
 
$—
 
 
 
 
Outstanding as of March 31, 2018
1.6
 
$66.80
 
5.0
 
$
20.3

Expected to vest as of March 31, 2018
0.4
 
$85.39
 
9.0
 
$

Exercisable as of March 31, 2018
1.2
 
$61.32
 
3.9
 
$
20.3

The total intrinsic values of stock options and SOSARs exercised during the three months ended March 31, 2018, and March 31, 2017, were $4.6 million and $4.8 million, respectively. During the three months ended March 31, 2018, and March 31, 2017, cash received from stock option exercises was $6.1 million and $0.3 million, respectively, and total tax benefits realized, including excess tax benefits, from share-based awards vested or exercised was $5.4 million and $17.0 million, respectively.
The fair value of each option granted in the first quarter of 2018 and 2017 was determined on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:
 
Three Months Ended
 
March 31, 2018
 
March 31, 2017
Risk-free interest rate
2.65%
 
2.04%
Dividend yield
2.08%
 
1.64%
Volatility range
22.36%-24.14%
 
22.40%-22.88%
Weighted-average volatility
22.81%
 
22.52%
Expected term (years)
5.3
 
5.1
Weighted-average fair market value
$15.44
 
$18.66

19


The risk-free interest rates utilized for periods throughout the contractual life of the stock options are based on a zero-coupon U.S. Treasury security yield at the time of grant. Expected volatility is based on a combination of historical and implied volatility of our stock. The expected term of stock options is estimated based upon observations of historical employee option exercise patterns and trends of those employees granted options in the respective year.
The fair value of the market metric for each PSU granted in the first quarter of 2018 and 2017 was determined on the date of grant using a Monte Carlo model to simulate total stockholder return for MCBC and peer companies with the following weighted-average assumptions:
 
Three Months Ended
 
March 31, 2018
 
March 31, 2017
Risk-free interest rate
2.34%
 
1.59%
Dividend yield
2.08%
 
1.64%
Volatility range
13.03%-81.87%
 
13.71%-80.59%
Weighted-average volatility
22.76%
 
24.24%
Expected term (years)
2.8
 
2.8
Weighted-average fair market value
$78.30
 
$97.13
The risk-free interest rates utilized for periods throughout the expected term of the PSUs are based on a zero-coupon U.S. Treasury security yield at the time of grant. Expected volatility is based on historical volatility of our stock as well as the stock of our peer firms, as shown within the volatility range above, for a period from the grant date consistent with the expected term. The expected term of PSUs is calculated based on the grant date to the end of the performance period.
As of March 31, 2018, there were 3.5 million shares of the Company's Class B common stock available for issuance as awards under the Incentive Compensation Plan.
6. Special Items
We have incurred charges or realized benefits that either we do not believe to be indicative of our core operations, or we believe are significant to our current operating results warranting separate classification. As such, we have separately classified these charges (benefits) as special items.
 
Three Months Ended
 
March 31, 2018
 
March 31, 2017
 
(In millions)
Employee-related charges
 
 
 
Restructuring
$
3.9

 
$
0.9

Impairments or asset abandonment charges
 
 
 
U.S. - Asset abandonment(1)
1.5

 
2.0

Canada - Asset abandonment(2)
6.1

 
1.2

Europe - Asset abandonment(3)
1.7

 
2.6

Termination fees and other (gains) losses
 
 
 
Acquisition purchase price adjustment settlement gain(4)
(328.0
)
 

Total Special items, net
$
(314.8
)
 
$
6.7

(1)
Charges for the three months ended March 31, 2018, relate to the planned closure of the Colfax, California, cidery, and consist primarily of accelerated depreciation in excess of normal depreciation. Charges for the three months ended March 31, 2017, relate to the closure of the Eden, North Carolina, brewery.
(2)
For the three months ended March 31, 2018, we incurred charges consisting primarily of accelerated depreciation in excess of normal depreciation related to the planned closures of the Vancouver and Montreal breweries, which are currently expected to occur in 2019 and 2021, respectively. Charges for the three months ended March 31, 2017, relate primarily to accelerated depreciation in excess of normal depreciation related to the above mentioned planned closure of the Vancouver brewery.

20


(3)
For the three months ended March 31, 2018, and March 31, 2017, we incurred charges consisting primarily of accelerated depreciation in excess of normal depreciation related to the Burton South brewery, which closed during the first quarter of 2018.
(4)
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. This purchase price "Adjustment Amount," as defined in the purchase agreement, required payment to MCBC if the unaudited EBITDA for the Miller International Business for the twelve months prior to closing was below $70 million.
Throughout the process outlined in the purchase agreement, significant uncertainty remained on the ultimate outcome of the Adjustment Amount. As a result, no adjustment to purchase accounting was made through the completion of the measurement period in October 2017. Subsequently, on January 21, 2018, MCBC and ABI entered into a settlement agreement related to the purchase price adjustment under the purchase agreement, and on January 26, 2018, pursuant to the settlement agreement, ABI paid to MCBC $330.0 million, of which $328.0 million constitutes the Adjustment Amount. As this settlement occurred following the finalization of purchase accounting, we recorded the settlement proceeds related to the Adjustment Amount as a gain within special items, net in our unaudited condensed consolidated statement of operations in our Corporate segment and within cash provided by operating activities within our unaudited condensed consolidated statement of cash flows for the three months ended March 31, 2018. MCBC and ABI also agreed to certain mutual releases as further described in the settlement agreement which was filed as an exhibit to a Current Report on Form 8-K filed January 22, 2018.
Restructuring Activities
Beginning in 2016, restructuring initiatives related to the integration of MillerCoors after the completion of the Acquisition were implemented in order to operate a more efficient business and achieve cost saving targets which to-date resulted in reduced employment levels by approximately 103 employees. Total restructuring costs related to integration initiatives represent the majority of the charges within the table below by segment. Severance costs related to these restructuring activities were recorded as special items within our unaudited condensed consolidated statements of operations. As we continually evaluate our cost structure and seek opportunities for further efficiencies and cost savings as part of these initiatives, we may incur additional restructuring related charges in the future, however, we are unable to estimate the amount of charges at this time.
We have continued our ongoing assessment of our supply chain strategies across our segments in order to align with our cost saving objectives. As part of this strategic review, which began in 2014, we have had restructuring activities related to the closure or planned closure of breweries, as well as activities related to business efficiencies. As a result, we have reduced employment levels by a total of 416 employees. Consequently, we recognized severance and other employee-related charges, which we have recorded as special items within our unaudited condensed consolidated statements of operations. We will continue to evaluate our supply chain network and seek opportunities for further efficiencies and cost savings, and we therefore may incur additional restructuring related charges or adjustments to previously recorded charges in the future, however, we are unable to estimate the amount of charges at this time.
The accrued restructuring balances represent expected future cash payments required to satisfy the remaining severance obligations to terminated employees, the majority of which we expect to be paid in the next 9 months.
 
U.S.
 
Canada
 
Europe
 
International
 
Corporate
 
Total
 
(In millions)
As of December 31, 2017
$
0.6

 
$
4.3

 
$
1.8

 
$
0.2

 
$

 
$
6.9

Charges incurred and changes in estimates

 
(0.5
)
 
3.4

 
1.0

 

 
3.9

Payments made
(0.3
)
 
(0.9
)
 
(0.6
)
 
(0.2
)
 

 
(2.0
)
Foreign currency and other adjustments

 
(0.1
)
 

 

 

 
(0.1
)
As of March 31, 2018
$
0.3


$
2.8

 
$
4.6

 
$
1.0

 
$

 
$
8.7


21


 
U.S.
 
Canada
 
Europe
 
International
 
Corporate
 
Total
 
(In millions)
As of December 31, 2016
$
5.1

 
$
5.9

 
$
2.8

 
$
0.2

 
$
0.7

 
$
14.7

Charges incurred and changes in estimates
0.5

 

 

 
0.3

 
0.1

 
0.9

Payments made
(3.6
)
 
(0.4
)
 
(0.3
)
 

 

 
(4.3
)
Foreign currency and other adjustments

 

 

 

 

 

As of March 31, 2017
$
2.0


$
5.5

 
$
2.5

 
$
0.5

 
$
0.8

 
$
11.3


7. Income Tax
 
Three Months Ended
 
March 31, 2018
 
March 31, 2017
Effective tax rate
21
%
 
23
%
The decrease in the effective tax rate during the first quarter of 2018 versus 2017, is primarily driven by the reduction of the statutory U.S. federal corporate income tax rate from 35% to 21% as a result of the 2017 Tax Act. This decrease was partially offset by the impact of discrete items. Specifically, we recognized net discrete tax expense of $5.5 million in the first quarter of 2018, versus an $8.4 million net discrete tax benefit recognized in the first quarter of 2017. This change is driven primarily by the recognition of excess benefits from share-based compensation in the first quarter of 2017, versus other discrete tax expenses recognized in the first quarter of 2018.
Our tax rate is volatile and may move up or down with changes in, among other things, the amount and source of income or loss, our ability to utilize foreign tax credits, excess tax benefits or deficiencies from share-based compensation, changes in tax laws, and the movement of liabilities established pursuant to accounting guidance for uncertain tax positions as statutes of limitations expire, positions are effectively settled, or when additional information becomes available. There are proposed or pending tax law changes in various jurisdictions and other changes to regulatory environments in countries in which we do business that, if enacted, may have an impact on our effective tax rate.
Additionally, we continue to evaluate the impacts of the 2017 Tax Act. As we further understand its implications, as well as the related, and yet to be issued, regulator rules, regulations and interpretations, our effective tax rate could be impacted. For example, subsequent to the enactment, the FASB staff concluded that companies should make an accounting policy election to account for the tax effects of the global intangible low-taxed income (“GILTI”) either as a component of income tax expense in the future period the tax arises, or as a component of deferred taxes on the related investments in foreign subsidiaries. We are currently evaluating the GILTI provisions of the 2017 Tax Act and the related implications and have not finalized our accounting policy election, however, have preliminarily concluded that we will record as a periodic expense as incurred, and therefore, have not recorded deferred taxes for GILTI. We will continue to evaluate in future periods and will finalize our accounting policy election at that time.
We did not make any material adjustments to the amounts recorded as of December 31, 2017, as a result of the 2017 Tax Act, however, we continue to consider these amounts provisional for the reasons discussed above. Additional impacts from the 2017 Tax Act will be recorded as they are identified during the measurement period pursuant to SEC Staff Accounting Bulletin No. 118 ("SAB 118"). Our determination of the tax effects of the 2017 Tax Act will be completed no later than one year from the enactment date as permitted under SAB 118. Any adjustments to provisional amounts that are identified during the measurement period will be recorded and disclosed in the reporting period in which the adjustment is determined. The complexity of the 2017 Tax Act could necessitate the need to use the full one year measurement period to adequately interpret, analyze and conclude upon the tax effects of the 2017 Tax Act as of the enactment date.
8. Goodwill and Intangible Assets
 
U.S.
 
Canada
 
Europe
 
International
 
Consolidated
Changes in Goodwill:
 
 
(In millions)
As of December 31, 2017
$
5,928.5

 
$
932.1

 
$
1,538.0

 
$
6.9

 
$
8,405.5

Business acquisition(1)

 

 
9.8

 

 
9.8

Foreign currency translation

 
(23.8
)
 
51.3

 
(0.1
)
 
27.4

As of March 31, 2018
$
5,928.5


$
908.3

 
$
1,599.1

 
$
6.8

 
$
8,442.7


22


(1)
During the first quarter of 2018, we completed the acquisition of Aspall Cyder Limited, an established premium cider business in the U.K. As part of the preliminary purchase price accounting in the first quarter of 2018, goodwill generated in conjunction with this acquisition has been recorded within our Europe segment, subject to normal purchase accounting adjustments.
The following table presents details of our intangible assets, other than goodwill, as of March 31, 2018:
 
Useful life
 
Gross
 
Accumulated
amortization
 
Net
 
(Years)
 
(In millions)
Intangible assets subject to amortization:
 
 
 
 
 
 
 
Brands
 10 - 50
 
$
5,200.0

 
$
(567.2
)
 
$
4,632.8

License agreements and distribution rights
 15 - 28
 
236.7

 
(104.9
)
 
131.8

Other
 2 - 40
 
149.7

 
(46.7
)
 
103.0

Intangible assets not subject to amortization:
 
 
 
 
 
 
 
Brands
 Indefinite
 
8,248.2

 

 
8,248.2

Distribution networks
 Indefinite
 
784.2

 

 
784.2

Other
 Indefinite
 
337.6

 

 
337.6

Total
 
 
$
14,956.4

 
$
(718.8
)
 
$
14,237.6

The following table presents details of our intangible assets, other than goodwill, as of December 31, 2017:
 
Useful life
 
Gross
 
Accumulated
amortization
 
Net
 
(Years)
 
(In millions)
Intangible assets subject to amortization:
 
 
 
 
 
 
 
Brands
10 - 50
 
$
5,215.3

 
$
(516.0
)
 
$
4,699.3

License agreements and distribution rights
15 - 28
 
236.3

 
(103.9
)
 
132.4

Other
2 - 40
 
148.3

 
(42.4
)
 
105.9

Intangible assets not subject to amortization:
 
 
 
 
 
 
 
Brands
Indefinite
 
8,216.6

 

 
8,216.6

Distribution networks
Indefinite
 
804.7

 

 
804.7

Other
Indefinite
 
337.6

 

 
337.6

Total
 
 
$
14,958.8

 
$
(662.3
)
 
$
14,296.5

The changes in the gross carrying amounts of intangibles from December 31, 2017, to March 31, 2018, are primarily driven by the impact of foreign exchange rates, as a significant amount of intangibles are denominated in foreign currencies.
Based on foreign exchange rates as of March 31, 2018, the estimated future amortization expense of intangible assets is as follows:
Fiscal year
 
Amount
 
 
(In millions)
2018 - remaining
 
$
168.4

2019
 
$
223.9

2020
 
$
222.9

2021
 
$
217.5

2022
 
$
213.4

Amortization expense of intangible assets was $56.6 million and $55.2 million for the three months ended March 31, 2018, and March 31, 2017, respectively. This expense is primarily presented within marketing, general and administrative expenses on the unaudited condensed consolidated statements of operations.

23


Annual Goodwill Impairment Testing
We completed our required annual goodwill and indefinite-lived intangible impairment testing as of October 1, 2017, the first day of our fourth quarter, and concluded there were no impairments of goodwill within our reporting units or our indefinite-lived intangible assets.
Key Assumptions
Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. The key assumptions used to derive the estimated fair values of our reporting units and indefinite-lived intangibles are discussed in Part II—Item 8 Financial Statements, Note 11, "Goodwill and Intangible Assets" in our Annual Report.
Based on known facts and circumstances, we evaluate and consider recent events and uncertain items, as well as related potential implications, as part of our annual assessment and incorporate into the analyses as appropriate. These facts and circumstances are subject to change and may impact future analyses. For example, subsequent to the completion of our annual impairment testing, we considered the implications of the enactment of the 2017 Tax Act on our U.S. reporting unit and indefinite-lived brand valuations. The results of our preliminary analysis indicated that the implications are expected to be favorable, keeping all other assumptions constant.
While historical performance and current expectations have resulted in fair values of our reporting units and indefinite-lived intangible assets in excess of carrying values, if our assumptions are not realized, it is possible that an impairment charge may need to be recorded in the future.
Indefinite and Definite-Lived Intangibles
Regarding indefinite and definite-lived intangibles, we continuously monitor the performance of the underlying assets for potential triggering events suggesting an impairment review should be performed. No such triggering events were identified in the first quarter of 2018 that resulted in an impairment.


24


9. Debt
Debt obligations
 
As of
 
March 31, 2018
 
December 31, 2017
 
(In millions)
Long-term debt:
 
 
 
CAD 400 million 2.25% notes due 2018
$
310.1

 
$
318.2

CAD 500 million 2.75% notes due 2020
387.6

 
397.7

CAD 500 million 2.84% notes due 2023
387.6

 
397.7

CAD 500 million 3.44% notes due 2026
387.6

 
397.7

$500 million 1.45% notes due 2019
500.0

 
500.0

$500 million 1.90% notes due 2019(1)
498.8

 
498.5

$500 million 2.25% notes due 2020(1)
498.4

 
498.2

$1.0 billion 2.10% notes due 2021
1,000.0

 
1,000.0

$500 million 3.5% notes due 2022(1)
511.5

 
512.2

$2.0 billion 3.0% notes due 2026
2,000.0

 
2,000.0

$1.1 billion 5.0% notes due 2042
1,100.0

 
1,100.0

$1.8 billion 4.2% notes due 2046
1,800.0

 
1,800.0

EUR 500 million notes due 2019
616.2

 
600.3

EUR 800 million 1.25% notes due 2024
985.9

 
960.4

Other long-term debt
52.0

 
22.1

Less: unamortized debt discounts and debt issuance costs
(73.2
)
 
(75.9
)
Total long-term debt (including current portion)
10,962.5

 
10,927.1

Less: current portion of long-term debt
(1,435.5
)
 
(328.4
)
Total long-term debt
$
9,527.0

 
$
10,598.7

 
 
 
 
Short-term borrowings:
 
 
 
Commercial paper program(2)
$
128.0

 
$
379.0

Other short-term borrowings(3)
27.8

 
7.4

Current portion of long-term debt
1,435.5

 
328.4

Current portion of long-term debt and short-term borrowings
$
1,591.3

 
$
714.8

(1)
The fair value hedges related to these notes have been settled and are being amortized over the life of the respective note.
(2)
As of March 31, 2018, the outstanding borrowings under our commercial paper program had a weighted-average effective interest rate and tenor of 2.45% and 11 days, respectively, compared to a weighted-average effective interest rate and tenor of 1.84% and 45 days, respectively, as of December 31, 2017.
(3)
As of March 31, 2018, we had $4.8 million in bank overdrafts and $29.3 million in bank cash related to our cross-border, cross-currency cash pool, for a net positive position of $24.5 million. As of December 31, 2017, we had $1.2 million in bank overdrafts and $37.8 million in bank cash related to our cross-border, cross-currency cash pool for a net positive position of $36.6 million. We had total outstanding borrowings of $5.2 million and $3.2 million under our two JPY overdraft facilities as of March 31, 2018, and December 31, 2017, respectively. In addition, we have GBP and CAD lines of credit. As of March 31, 2018, we had $14.7 million of bank overdrafts related to our GBP line of credit and no borrowings under our CAD line of credit. As of December 31, 2017 we had no borrowings under either line of credit. The remaining balance primarily relates to short-term borrowings.
Debt Fair Value Measurements
We utilize market approaches to estimate the fair value of certain outstanding borrowings by discounting anticipated future cash flows derived from the contractual terms of the obligations and observable market interest and foreign exchange rates. As of March 31, 2018, and December 31, 2017, the fair value of our outstanding long-term debt (including the current

25


portion of long-term debt) was approximately $10.8 billion and $11.2 billion, respectively. All senior notes are valued based on significant observable inputs and classified as Level 2 in the fair value hierarchy. The carrying values of all other outstanding long-term borrowings and our short-term borrowings approximate their fair values and are also classified as Level 2 in the fair value hierarchy.
Revolving Credit Facility
As of March 31, 2018, we had approximately $1.4 billion available to draw under our $1.5 billion revolving multi-currency credit facility, as the borrowing capacity is reduced by borrowings under our commercial paper program. We had no other borrowings drawn on this revolving credit facility as of March 31, 2018. The maximum leverage ratio of this facility is 5.25x debt to EBITDA, with a decline to 4.00x debt to EBITDA as of the last day of the fiscal quarter ending December 31, 2020.
Under the terms of each of our debt facilities, we must comply with certain restrictions. These include customary events of default and specified representations and warranties and covenants, including, among other things, covenants that restrict our ability to incur certain additional priority indebtedness, create or permit liens on assets, or engage in mergers or consolidations. As of March 31, 2018, we were in compliance with all of these restrictions and have met all debt payment obligations. All of our outstanding senior notes as of March 31, 2018, rank pari-passu.

10. Inventories
 
As of
 
March 31, 2018
 
December 31, 2017
 
(In millions)
Finished goods
$
274.0

 
$
222.3

Work in process
95.4

 
85.2

Raw materials
226.4

 
231.7

Packaging materials
69.8

 
52.3

Inventories, net
$
665.6

 
$
591.5


11. Accumulated Other Comprehensive Income (Loss)
 
MCBC shareholders
 
Foreign
currency
translation
adjustments
 
Gain (loss) on
derivative
instruments
 
Pension and
postretirement
benefit
adjustments
 
Equity method
investments
 
Accumulated
other
comprehensive
income (loss)
 
(In millions)
As of December 31, 2017
$
(314.6
)
 
$
(110.9
)
 
$
(375.0
)
 
$
(59.5
)
 
$
(860.0
)
Foreign currency translation adjustments
83.1

 

 
(1.1
)
 

 
82.0

Unrealized gain (loss) on derivative and non-derivative financial instruments

 
(34.0
)
 

 

 
(34.0
)
Reclassification of derivative (gain) loss to income

 
1.4

 

 

 
1.4

Amortization of net prior service (benefit) cost and net actuarial (gain) loss to income

 

 
1.9

 

 
1.9

Ownership share of unconsolidated subsidiaries' other comprehensive income (loss)

 

 

 
(1.6
)
 
(1.6
)
Tax benefit (expense)
(8.7
)
 
7.9

 
(0.2
)
 
0.4

 
(0.6
)
As of March 31, 2018
$
(240.2
)
 
$
(135.6
)
 
$
(374.4
)
 
$
(60.7
)
 
$
(810.9
)

26



Reclassifications from AOCI to income:
 
Three Months Ended
 
 
 
March 31, 2018
 
March 31, 2017
 
 
 
Reclassifications from AOCI
 
Location of gain (loss)
recognized in income
 
(In millions)
 
 
Gain/(loss) on cash flow hedges: