73
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN MILLIONS) |
| | | | | | | | | | | |
| For the Years Ended |
| December 31, 2018 | | December 31, 2017 | | December 31, 2016 |
| | As Restated | | As Restated |
Cash flows from operating activities: | | | | | |
Net income (loss) including noncontrolling interests | $ | 1,134.6 |
| | $ | 1,587.8 |
| | $ | 1,599.8 |
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | |
Revaluation gain on previously held 42% equity interest in MillerCoors and AOCI reclassification | — |
| | — |
| | (2,965.0 | ) |
Inventory step-up in cost of goods sold | — |
| | — |
| | 82.0 |
|
Depreciation and amortization | 857.5 |
| | 812.8 |
| | 388.4 |
|
Amortization of debt issuance costs and discounts | 12.7 |
| | 23.2 |
| | 66.5 |
|
Share-based compensation | 42.6 |
| | 58.3 |
| | 29.9 |
|
(Gain) loss on sale or impairment of properties and other assets, net | (8.1 | ) | | (0.4 | ) | | 396.0 |
|
Equity income in MillerCoors | — |
| | — |
| | (488.6 | ) |
Distributions from MillerCoors | — |
| | — |
| | 488.6 |
|
Unrealized (gain) loss on foreign currency fluctuations and derivative instruments, net | 193.1 |
| | (124.3 | ) | | (20.7 | ) |
Income tax (benefit) expense | 225.2 |
| | (204.6 | ) | | 1,454.3 |
|
Income tax (paid) received | 32.3 |
|
| 86.0 |
| | (165.0 | ) |
Interest expense, excluding interest amortization | 304.2 |
| | 338.8 |
| | 262.3 |
|
Interest paid | (308.7 | ) |
| (350.3 | ) | | (162.5 | ) |
Pension expense (benefit) | (57.2 | ) |
| (67.8 | ) | | (11.6 | ) |
Pension contributions paid | (8.9 | ) |
| (310.0 | ) | | (12.1 | ) |
Change in current assets and liabilities (net of impact of business combinations) and other: | | | | | |
Receivables | (38.4 | ) | | (7.2 | ) | | 65.6 |
|
Inventories | (10.6 | ) | | 21.3 |
| | (23.2 | ) |
Payables and other current liabilities | 27.6 |
| | 31.0 |
| | 144.9 |
|
Other assets and other liabilities | (66.6 | ) | | (28.3 | ) | | (2.7 | ) |
Net cash provided by operating activities | 2,331.3 |
| | 1,866.3 |
| | 1,126.9 |
|
Cash flows from investing activities: | | | | | |
Additions to properties | (651.7 | ) | | (599.6 | ) | �� | (341.8 | ) |
Proceeds from sales of properties and other assets | 32.5 |
| | 60.5 |
| | 174.5 |
|
Payment for completion of Acquisition, net of cash acquired | — |
|
| — |
| | (11,961.0 | ) |
Investment in MillerCoors | — |
| | — |
| | (1,253.7 | ) |
Return of capital from MillerCoors | — |
| | — |
| | 1,086.9 |
|
Other | (49.9 | ) | | 0.9 |
| | 8.5 |
|
Net cash used in investing activities | (669.1 | ) | | (538.2 | ) | | (12,286.6 | ) |
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (IN MILLIONS) |
| | | | | | | | | | | |
| For the Years Ended |
| December 31, 2018 | | December 31, 2017 | | December 31, 2016 |
| | As Restated | | As Restated |
Cash flows from financing activities: | | | | | |
Proceeds from issuance of common stock, net | — |
| | — |
| | 2,525.6 |
|
Exercise of stock options under equity compensation plans | 16.0 |
| | 4.0 |
| | 11.2 |
|
Dividends paid | (354.2 | ) | | (353.4 | ) | | (352.9 | ) |
Payments on debt and borrowings | (319.8 | ) | | (3,000.1 | ) | | (223.9 | ) |
Proceeds on debt and borrowings | — |
| | 1,536.0 |
| | 9,460.6 |
|
Debt issuance costs | (0.5 | ) | | (7.0 | ) | | (60.7 | ) |
Net proceeds from (payments on) revolving credit facilities and commercial paper | (374.3 | ) | | 374.3 |
| | (1.1 | ) |
Other | 23.9 |
| | (50.2 | ) | | (40.9 | ) |
Net cash provided by (used in) financing activities | (1,008.9 | ) | | (1,496.4 | ) | | 11,317.9 |
|
Cash and cash equivalents: | | | | | |
Net increase (decrease) in cash and cash equivalents | 653.3 |
| | (168.3 | ) | | 158.2 |
|
Effect of foreign exchange rate changes on cash and cash equivalents | (14.0 | ) | | 26.0 |
| | (28.2 | ) |
Balance at beginning of year | 418.6 |
| | 560.9 |
| | 430.9 |
|
Balance at end of year | $ | 1,057.9 |
| | $ | 418.6 |
| | $ | 560.9 |
|
MOLSON COORS BEVERAGE COMPANY AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS) | | | | | | | | | | | | | | | | | |
| For the Years Ended |
| December 31, 2021 | | December 31, 2020 | | December 31, 2019 |
Cash flows from operating activities: | | | | | |
Net income (loss) including noncontrolling interests | $ | 1,008.5 | | | $ | (945.7) | | | $ | 246.2 | |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | | | |
Depreciation and amortization | 786.1 | | | 922.0 | | | 859.0 | |
Amortization of debt issuance costs and discounts | 6.7 | | | 8.1 | | | 13.6 | |
Share-based compensation | 32.1 | | | 24.2 | | | 8.5 | |
(Gain) loss on sale or impairment of properties and other assets, net | 9.1 | | | 1,553.5 | | | 614.7 | |
Unrealized (gain) loss on foreign currency fluctuations and derivative instruments, net | (233.8) | | | (111.4) | | | 18.9 | |
Income tax (benefit) expense | 230.5 | | | 301.8 | | | 233.7 | |
Income tax (paid) received | (227.0) | | | (127.0) | | | (57.0) | |
Interest expense, excluding amortization of debt issuance costs and discounts | 253.6 | | | 266.0 | | | 272.4 | |
Interest paid | (256.2) | | | (271.9) | | | (285.0) | |
Change in current assets and liabilities (net of impact of business combinations) and other: | | | | | |
Receivables | (137.6) | | | 160.8 | | | 38.5 | |
Inventories | (143.9) | | | (46.2) | | | (17.7) | |
Payables and other current liabilities | 285.5 | | | (50.1) | | | (53.0) | |
Other assets and other liabilities | (40.1) | | | 11.6 | | | 4.5 | |
Net cash provided by (used in) operating activities | 1,573.5 | | | 1,695.7 | | | 1,897.3 | |
Cash flows from investing activities: | | | | | |
Additions to properties | (522.6) | | | (574.8) | | | (593.8) | |
Proceeds from sales of properties and other assets | 26.0 | | | 158.8 | | | 115.9 | |
| | | | | |
| | | | | |
| | | | | |
Other | (13.3) | | | 2.4 | | | 44.6 | |
Net cash provided by (used in) investing activities | (509.9) | | | (413.6) | | | (433.3) | |
Cash flows from financing activities: | | | | | |
| | | | | |
Exercise of stock options under equity compensation plans | 4.6 | | | 4.1 | | | 1.6 | |
Dividends paid | (147.8) | | | (125.3) | | | (424.4) | |
| | | | | |
Payments on debt and borrowings | (1,006.6) | | | (918.9) | | | (1,586.2) | |
Proceeds on debt and borrowings | — | | | 1.5 | | | 3.0 | |
Net proceeds from (payments on) revolving credit facilities and commercial paper | 1.4 | | | — | | | (4.7) | |
Other | (23.8) | | | (31.8) | | | 3.7 | |
Net cash provided by (used in) financing activities | (1,172.2) | | | (1,070.4) | | | (2,007.0) | |
Cash and cash equivalents: | | | | | |
Net increase (decrease) in cash and cash equivalents | (108.6) | | | 211.7 | | | (543.0) | |
Effect of foreign exchange rate changes on cash and cash equivalents | (24.1) | | | 35.0 | | | 8.5 | |
Balance at beginning of year | 770.1 | | | 523.4 | | | 1,057.9 | |
Balance at end of year | $ | 637.4 | | | $ | 770.1 | | | $ | 523.4 | |
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND NONCONTROLLING INTERESTS (IN MILLIONS) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | MCBC Stockholders' Equity | | |
| | | Common stock | | Exchangeable | | | | | | Accumulated other | | Common Stock 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 |
Balance as of December 31, 2015 | $ | 7,063.1 |
| | $ | — |
| | $ | 1.7 |
| | $ | 108.2 |
| | $ | 603.0 |
| | $ | 4,000.4 |
| | $ | 4,505.2 |
| | $ | (1,704.1 | ) | | $ | (471.4 | ) | | $ | 20.1 |
|
Exchange of shares | — |
| | — |
| | — |
| | (0.1 | ) | | (31.8 | ) | | 31.9 |
| | — |
| | — |
| | — |
| | — |
|
Shares issued under equity compensation plan | (1.1 | ) | | — |
| | — |
| | — |
| | — |
| | (1.1 | ) | | — |
| | — |
| | — |
| | — |
|
Amortization of share-based compensation | 32.3 |
| | — |
| | — |
| | — |
| | — |
| | 32.3 |
| | — |
| | — |
| | — |
| | — |
|
Replacement share-based awards issued in conjunction with Acquisition | 46.4 |
| | — |
| | — |
| | — |
| | — |
| | 46.4 |
| | — |
| | — |
| | — |
| | — |
|
Acquisition of businesses | 186.3 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 186.3 |
|
Purchase of noncontrolling interest | (0.1 | ) | | — |
| | — |
| | — |
| | — |
| | 0.1 |
| | — |
| | — |
| | — |
| | (0.2 | ) |
Net income (loss) including noncontrolling interests - As Restated | 1,599.8 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,593.9 |
| | — |
| | — |
| | 5.9 |
|
Other comprehensive income (loss), net of tax | 129.4 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 132.3 |
| | — |
| | (2.9 | ) |
Issuance of common stock | 2,525.6 |
| | — |
| | 0.3 |
| | — |
| | — |
| | 2,525.3 |
| | — |
| | — |
| | — |
| | — |
|
Distributions and dividends to noncontrolling interests | (6.2 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (6.2 | ) |
Dividends declared and paid - $1.64 per share | (352.9 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (352.9 | ) | | — |
| | — |
| | — |
|
Balance as of December 31, 2016 - As Restated | $ | 11,222.6 |
| | $ | — |
| | $ | 2.0 |
| | $ | 108.1 |
| | $ | 571.2 |
| | $ | 6,635.3 |
| | $ | 5,746.2 |
| | $ | (1,571.8 | ) | | $ | (471.4 | ) | | $ | 203.0 |
|
Exchange of shares | — |
| | — |
| | — |
| | (0.4 | ) | | (18.0 | ) | | 18.4 |
| | — |
| | — |
| | — |
| | — |
|
Shares issued under equity compensation plan | (22.9 | ) | | — |
| | — |
| | — |
| | — |
| | (22.9 | ) | | — |
| | — |
| | — |
| | — |
|
Amortization of share-based compensation | 57.3 |
| | — |
| | — |
| | — |
| | — |
| | 57.3 |
| | — |
| | — |
| | — |
| | — |
|
Acquisition of business and purchase of noncontrolling interest | 1.8 |
| | — |
| | — |
| | — |
| | — |
| | 0.4 |
| | — |
| | — |
| | — |
| | 1.4 |
|
Net income (loss) including noncontrolling interests - As Restated | 1,587.8 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,565.6 |
| | — |
| | — |
| | 22.2 |
|
MOLSON COORS BEVERAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND NONCONTROLLING INTERESTS
(IN MILLIONS)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Molson Coors Beverage Company Stockholders' Equity | | |
| | | Common stock | | Exchangeable | | | | | | Accumulated other | | Common Stock 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 |
Balance as of December 31, 2018 | $ | 13,735.8 | | | $ | — | | | $ | 2.0 | | | $ | 103.2 | | | $ | 557.6 | | | $ | 6,773.1 | | | $ | 7,692.9 | | | $ | (1,150.0) | | | $ | (471.4) | | | $ | 228.4 | |
Exchange of shares | — | | | — | | | — | | | (0.7) | | | 0.2 | | | 0.5 | | | — | | | — | | | — | | | — | |
Shares issued under equity compensation plan | (8.3) | | | — | | | 0.1 | | | — | | | — | | | (8.4) | | | — | | | — | | | — | | | — | |
Amortization of share-based compensation | 8.3 | | | — | | | — | | | — | | | — | | | 8.3 | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | |
Purchase of noncontrolling interest | 0.6 | | | — | | | — | | | — | | | — | | | 0.1 | | | — | | | — | | | — | | | 0.5 | |
Deconsolidation of VIE | (1.7) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1.7) | |
Net income (loss) including noncontrolling interests | 246.2 | | | — | | | — | | | — | | | — | | | — | | | 241.7 | | | — | | | — | | | 4.5 | |
Other comprehensive income (loss), net of tax | 63.2 | | | — | | | — | | | — | | | — | | | — | | | — | | | 62.6 | | | — | | | 0.6 | |
Adoption of lease accounting standard | 32.0 | | | — | | | — | | | — | | | — | | | — | | | 32.0 | | | — | | | — | | | — | |
Reclassification of stranded tax effects | — | | | — | | | — | | | — | | | — | | | — | | | 74.8 | | | (74.8) | | | — | | | — | |
Contributions from noncontrolling interests | 34.1 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 34.1 | |
Distributions and dividends to noncontrolling interests | (12.7) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (12.7) | |
Dividends declared | (424.4) | | | — | | | — | | | — | | | — | | | — | | | (424.4) | | | — | | | — | | | — | |
Balance as of December 31, 2019 | $ | 13,673.1 | | | $ | — | | | $ | 2.1 | | | $ | 102.5 | | | $ | 557.8 | | | $ | 6,773.6 | | | $ | 7,617.0 | | | $ | (1,162.2) | | | $ | (471.4) | | | $ | 253.7 | |
Exchange of shares | — | | | — | | | — | | | (0.2) | | | (140.0) | | | 140.2 | | | — | | | — | | | — | | | — | |
Shares issued under equity compensation plan | (0.5) | | | — | | | — | | | — | | | — | | | (0.5) | | | — | | | — | | | — | | | — | |
Amortization of share-based compensation | 24.2 | | | — | | | — | | | — | | | — | | | 24.2 | | | — | | | — | | | — | | | — | |
Acquisition of business and purchase of noncontrolling interest | (0.2) | | | — | | | — | | | — | | | — | | | 0.3 | | | — | | | — | | | — | | | (0.5) | |
| | | | | | | | | | | | | | | | | | | |
Net income (loss) including noncontrolling interests | (945.7) | | | — | | | — | | | — | | | — | | | — | | | (949.0) | | | — | | | — | | | 3.3 | |
Other comprehensive income (loss), net of tax | (3.4) | | | — | | | — | | | — | | | — | | | — | | | — | | | (5.6) | | | — | | | 2.2 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Contributions from noncontrolling interests | 16.3 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 16.3 | |
Distributions and dividends to noncontrolling interests | (18.7) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (18.7) | |
Dividends declared | (123.8) | | | — | | | — | | | — | | | — | | | — | | | (123.8) | | | — | | | — | | | — | |
Balance as of December 31, 2020 | $ | 12,621.3 | | | $ | — | | | $ | 2.1 | | | $ | 102.3 | | | $ | 417.8 | | | $ | 6,937.8 | | | $ | 6,544.2 | | | $ | (1,167.8) | | | $ | (471.4) | | | $ | 256.3 | |
Exchange of shares | — | | | — | | | — | | | (0.1) | | | — | | | 0.1 | | | — | | | — | | | — | | | — | |
Shares issued under equity compensation plan | 0.6 | | | — | | | — | | | — | | | — | | | 0.6 | | | — | | | — | | | — | | | — | |
Amortization of share-based compensation | 32.1 | | | — | | | — | | | — | | | — | | | 32.1 | | | — | | | — | | | — | | | — | |
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND NONCONTROLLING INTERESTS (Continued) (IN MILLIONS) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | MCBC Stockholders' Equity | | |
| | | Common stock | | Exchangeable | | | | | | Accumulated other | | Common Stock 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 |
Other comprehensive income (loss), net of tax | 714.3 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 711.8 |
| | — |
| | 2.5 |
|
Distributions and dividends to noncontrolling interests | (20.2 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (20.2 | ) |
Dividends declared and paid - $1.64 per share | (353.4 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (353.4 | ) | | — |
| | — |
| | — |
|
Balance as of December 31, 2017 - As Restated | $ | 13,187.3 |
| | $ | — |
| | $ | 2.0 |
| | $ | 107.7 |
| | $ | 553.2 |
| | $ | 6,688.5 |
| | $ | 6,958.4 |
| | $ | (860.0 | ) | | $ | (471.4 | ) | | $ | 208.9 |
|
Exchange of shares | — |
| | — |
| | — |
| | (4.5 | ) | | 4.4 |
| | 0.1 |
| | — |
| | — |
| | — |
| | — |
|
Shares issued under equity compensation plan | 2.8 |
| | — |
| | — |
| | — |
| | — |
| | 2.8 |
| | — |
| | — |
| | — |
| | — |
|
Amortization of share-based compensation | 42.2 |
| | — |
| | — |
| | — |
| | — |
| | 42.2 |
| | — |
| | — |
| | — |
| | — |
|
Formation of consolidated joint venture (Note 4) | 44.3 |
| | — |
| | — |
| | — |
| | — |
| | 39.4 |
| | — |
| | — |
| | — |
| | 4.9 |
|
Purchase of noncontrolling interest | (0.2 | ) | | — |
| | — |
| | — |
| | — |
| | 0.1 |
| | — |
| | — |
| | — |
| | (0.3 | ) |
Net income (loss) including noncontrolling interests | 1,134.6 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,116.5 |
| | — |
| | — |
| | 18.1 |
|
Other comprehensive income (loss), net of tax | (292.0 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (290.0 | ) | | — |
| | (2.0 | ) |
Adoption of new accounting pronouncement (Note 2)
| (27.8 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (27.8 | ) | | — |
| | — |
| | — |
|
Contributions from noncontrolling interests
| 21.6 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 21.6 |
|
Distributions and dividends to noncontrolling interests | (22.8 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (22.8 | ) |
Dividends declared and paid - $1.64 per share | (354.2 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (354.2 | ) | | — |
| | — |
| | — |
|
Balance as of December 31, 2018 | $ | 13,735.8 |
| | $ | — |
| | $ | 2.0 |
| | $ | 103.2 |
| | $ | 557.6 |
| | $ | 6,773.1 |
| | $ | 7,692.9 |
| | $ | (1,150.0 | ) | | $ | (471.4 | ) | | $ | 228.4 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Molson Coors Beverage Company Stockholders' Equity | | |
| | | Common stock | | Exchangeable | | | | | | Accumulated other | | Common Stock 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 |
Purchase of noncontrolling interest | (0.2) | | | — | | | — | | | — | | | — | | | 0.3 | | | — | | | — | | | — | | | (0.5) | |
Net income (loss) including noncontrolling interests | 1,008.5 | | | — | | | — | | | — | | | — | | | — | | | 1,005.7 | | | — | | | — | | | 2.8 | |
Other comprehensive income (loss), net of tax | 161.3 | | | — | | | — | | | — | | | — | | | — | | | — | | | 161.8 | | | — | | | (0.5) | |
Contributions from noncontrolling interests | 3.2 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 3.2 | |
Distributions and dividends to noncontrolling interests | (14.3) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (14.3) | |
Dividends declared | (148.4) | | | — | | | — | | | — | | | — | | | — | | | (148.4) | | | — | | | — | | | — | |
Balance as of December 31, 2021 | $ | 13,664.1 | | | $ | — | | | $ | 2.1 | | | $ | 102.2 | | | $ | 417.8 | | | $ | 6,970.9 | | | $ | 7,401.5 | | | $ | (1,006.0) | | | $ | (471.4) | | | $ | 247.0 | |
See notes to consolidated financial statements.
MOLSON COORS BREWINGBEVERAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and Summary of Significant Accounting Policies
Unless otherwise noted in this report, any description of "we","we," "us" or "our" includes Molson Coors BrewingBeverage Company ("MCBC" or the "Company"), principally a holding company, and its operating and non-operating subsidiaries included within our reporting segments and Corporate. Oursegments. As of December 31, 2021, we changed the names of our reporting segments include: MillerCoors LLC ("MillerCoors"to the Americas and EMEA&APAC segments (formerly named the North America segment and Europe segment, respectively) to better reflect the geographic locations encompassed within the reportable segments. This change to our segment names had no impact on the composition of our segments, our financial position, results of operations, cash flow or U.S. segment), operatingsegment level results previously reported. Our Americas segment operates in the U.S.; Molson Coors, Canada ("MCC" or Canada segment), operatingand various countries in Canada; Molson Coors Europe (Europe segment), operatingthe Caribbean, Latin and South America, and our EMEA&APAC segment operates in Bulgaria, Croatia, Czech Republic, Hungary, Montenegro, the Republic of Ireland, Romania, Serbia, the U.K. and, various other European countries;countries, and Molson Coors International ("MCI" or International segment), operating in various other countries.certain countries within the Middle East, Africa and Asia Pacific.
Unless otherwise indicated, comparisons are to comparable prior periods, and 2018, 20172021, 2020 and 20162019 refers to the 12twelve months ended December 31, 2018,2021, December 31, 2017,2020 and December 31, 2016,2019, respectively. On October 11, 2016, we completed the acquisition of SABMiller plc's ("SABMiller") 58% economic interest and 50% voting interest in 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 (the "Acquisition") from Anheuser-Busch InBev SA/NV ("ABI"), and MillerCoors, previously a joint venture between MCBC and SABMiller, became a wholly-owned subsidiary of MCBC. Accordingly, for periods prior to October 11, 2016, our 42% economic ownership interest in MillerCoors was accounted for under the equity method of accounting, and, therefore, its results of operations were reported as equity income in MillerCoors in the consolidated statements of operations, and our 42% share of MillerCoors' net assets was reported as investment in MillerCoors in the consolidated balance sheets. Beginning October 11, 2016, MillerCoors was fully consolidated and continues to be reported as our U.S. segment. See Note 4, "Acquisition and Investments" for further discussion. 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.
Cybersecurity Incident
During March 2021, we experienced a systems outage that was caused by a cybersecurity incident. We engaged leading forensic information technology firms and legal counsel to assist our investigation into the incident and we restored our systems after working to get the systems back up as quickly as possible. Despite these actions, we experienced delays and disruptions to our business, including brewery operations, production and shipments. This incident caused us to not produce or ship as much as we otherwise would have in the first quarter of 2021. Subsequently, in the balance of 2021, we made progress recovering from the incident with increased shipments and have operationally recovered as of December 31, 2021. In addition, we incurred certain incremental one-time costs of $2.4 million for the year ended December 31, 2021 related to consultants, experts and data recovery efforts, net of insurance recoveries.
Coronavirus Global Pandemic
Starting at the end of the first quarter of 2020, the coronavirus pandemic has had a material adverse effect on our operations, liquidity, financial condition and results of operations. In 2021, we saw improvements in the marketplace related to the coronavirus global pandemic as on-premise locations began to re-open around the world at varying degrees, despite setbacks in certain markets related to the outbreak of new variants. The extent to which our operations will continue to be impacted by the coronavirus pandemic will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including the level of governmental or societal orders or restrictions on public gatherings and on-premise venues, including any vaccine mandates or testing requirements, the severity and duration of the coronavirus pandemic by market, including outbreaks of variants, changes in consumer behavior, the rate of vaccination and the efficacy of vaccines against the coronavirus and related variants. We continue to actively monitor the ongoing evolution of the coronavirus pandemic and resulting impacts to our business.
During 2020, we recorded charges of $15.5 million within cost of goods sold related to temporary "thank you" pay for certain essential Americas segment brewery employees. Additionally, in order to support and demonstrate our commitment to the continued viability of the many bars and restaurants which were negatively impacted by the coronavirus pandemic, during the first quarter of 2020, we initiated temporary keg relief programs in many of our markets. We committed to provide customers with reimbursements for untapped kegs that met certain established return requirements in conjunction with the voluntary programs. As a result, during 2020, we recognized a reduction to net sales of $30.3 million reflecting estimated sales returns and reimbursements through these keg relief programs.
Further, during 2020, we recognized charges of $12.1 million within cost of goods sold related to obsolete finished goods keg inventories that were not expected to be sold within our freshness specifications, as well as the costs to facilitate the above mentioned keg returns.
We continue to monitor the impacts on our customers’ liquidity and capital resources and therefore our ability to collect, or the timeliness of collection of our accounts receivable. While these receivables are not concentrated in any specific customer and our allowance on these receivables factors in expected credit loss, continued disruption and declines in the global economy could result in difficulties in our ability to collect and require increases to our allowance for doubtful accounts. As of December 31, 2021 and December 31, 2020, our allowance for trade receivables was approximately $19 million and $18 million, respectively, and allowance activity was immaterial during the year ended December 31, 2021.
In response to the ongoing impacts of the coronavirus pandemic, various governmental authorities globally announced relief programs, which among other items, provided temporary deferrals of non-income based tax payments, which positively impacted our operating cash flows in 2020. These temporary net tax payment deferrals of approximately $25 million and $130 million as of December 31, 2021 and December 31, 2020, respectively, were primarily included within accounts payable and other current liabilities on our audited consolidated balance sheets. Of the $130 million of temporary net tax payment deferrals as of December 31, 2020, approximately $105 million was repaid during the year ended December 31, 2021, with approximately $25 million outstanding as of December 31, 2021. The majority of the remaining balance is expected to be paid during the year ended December 31, 2022.
We protected and supported our liquidity position in response to the global economic uncertainty created by the coronavirus pandemic. Beginning with the second quarter of 2020 through the second quarter of 2021, our board of directors suspended our regular quarterly dividends on our Class A and Class B common and exchangeable shares. A quarterly dividend was reinstated in the third quarter of 2021.
Revitalization Plan
On October 28, 2019, we initiated a revitalization plan designed to allow us to invest across our portfolio to drive long-term, sustainable success. The revitalization plan established Chicago, Illinois as our Americas segment operational headquarters. We closed our office in Denver, Colorado and consolidated certain administrative functions into our other existing office locations. As of January 1, 2020, we changed our name to Molson Coors Beverage Company and changed our management structure to 2 segments - Americas and EMEA&APAC. We began to incur charges related to these restructuring activities during the fourth quarter of 2019 and we recognized severance and retention charges of $4.0 million, $35.6 million and $41.2 million during the years ended December 31, 2021, December 31, 2020 and December 31, 2019, respectively. As of December 31, 2021, the revitalization plan restructuring charges were substantially complete.
Principles of Consolidation
Our consolidated financial statements include our accounts and our majority-owned and controlled domestic and foreign subsidiaries, as well as certain VIEs for which we are the primary beneficiary. All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
Our consolidated financial statements are prepared in accordance with U.S. GAAP. These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions used to determine certain amounts that affect the financial statements are reasonable, based on information available at the time they are made. To the extent there are differences between these estimates and actual results, our consolidated financial statements may be materially affected.
Restatement of Previously Issued Consolidated Financial Statements for Income Tax Accounting Errors
As part of preparing our 2018 consolidated financial statements, MCBC identified errors in the accounting for income taxes related to the deferred tax liabilities for our partnership in MillerCoors. Following the Acquisition in 2016, MillerCoors continued as a partnership for tax purposes until 2018, at which point the partnership was dissolved. Upon the dissolution of the MillerCoors partnership, we changed our outside basis deferred tax liability for our investment in the partnership to separate deferred tax positions for each of the individual book-tax basis differences in the underlying assets and liabilities of MillerCoors. In doing so, we identified a difference between the deferred tax liabilities recorded and the deferred tax liabilities required related to our acquired partnership interest in MillerCoors. Specifically, upon closing of the Acquisition and completion of the related deferred income tax calculations associated with the remeasurement of the previously held equity interest in MillerCoors, we did not reconcile the outside basis deferred income tax liability for the investment in the partnership to the book-tax differences in the underlying assets and liabilities within the partnership, which would have identified the difference resulting from the Acquisition. As a result of completing this reconciliation as part of preparing our 2018 consolidated financial statements, we concluded that the previously issued 2017 and 2016 consolidated financial statements were misstated. Accordingly, we have restated our 2016 consolidated financial statements to increase deferred tax liabilities (and related subtotals) and corresponding deferred tax expense by $399.1 million, with a corresponding decrease to net income
and earnings per share. For 2017, the change to the deferred tax liabilities caused by the aforementioned error required revaluation due to the effects of the 2017 Tax Act. This impact, along with further insignificant income tax errors in the recorded tax effects related to the remeasurement of the previously held equity interest in MillerCoors, resulted in a required correction to decrease deferred tax liabilities and deferred tax expense by $151.4 million, resulting in increases to our net income and earnings per share for the year ended December 31, 2017. These adjustments resulted in an aggregate increase to our deferred tax liabilities and total liabilities and a corresponding decrease in retained earnings and total equity of $247.7 million as of December 31, 2017. These errors had no impact on any period prior to the Acquisition (which was completed during the fourth quarter of 2016), and, further, there is no impact on the previously disclosed cash tax benefits resulting from the election to treat the Acquisition as an asset acquisition for U.S. tax purposes and accordingly the related tax benefit. Impacts to the condensed consolidated statements of cash flow are limited to changes within operating activities as noted below, and, therefore, there are no impacts on the operating, investing or financing subtotals. Refer to Note 20, "Quarterly Financial Information (Unaudited)," for the impact of correcting these previously reported errors on our unaudited quarterly results.
The impacts of these corrections to fiscal years 2016 and 2017 are as follows:
|
| | | | | | | | | | | | | | | |
| Year Ended | | Year Ended |
| December 31, 2017 | | December 31, 2016 |
| As Reported | | As Restated | | As Reported | | As Restated |
| (In millions) |
Consolidated Statements of Operations: | | | | | | | |
Income tax benefit (expense) | $ | 53.2 |
| | $ | 204.6 |
| | $ | (1,055.2 | ) | | $ | (1,454.3 | ) |
Net income (loss) | $ | 1,436.4 |
| | $ | 1,587.8 |
| | $ | 1,998.9 |
| | $ | 1,599.8 |
|
Net income (loss) attributable to Molson Coors Brewing Company | $ | 1,414.2 |
| | $ | 1,565.6 |
| | $ | 1,993.0 |
| | $ | 1,593.9 |
|
Basic net income (loss) attributable to Molson Coors Brewing Company per share | $ | 6.57 |
| | $ | 7.27 |
| | $ | 9.40 |
| | $ | 7.52 |
|
Diluted net income (loss) attributable to Molson Coors Brewing Company per share | $ | 6.53 |
| | $ | 7.23 |
| | $ | 9.34 |
| | $ | 7.47 |
|
|
| | | | | | | | | | | | | | | |
| Year Ended | | Year Ended |
| December 31, 2017 | | December 31, 2016 |
| As Reported | | As Restated | | As Reported | | As Restated |
| (In millions) |
Consolidated Statements of Comprehensive Income: | | | | | | | |
Net income (loss) including noncontrolling interests | $ | 1,436.4 |
| | $ | 1,587.8 |
| | $ | 1,998.9 |
| | $ | 1,599.8 |
|
Comprehensive income (loss) | $ | 2,150.7 |
| | $ | 2,302.1 |
| | $ | 2,128.3 |
| | $ | 1,729.2 |
|
Comprehensive income (loss) attributable to Molson Coors Brewing Company | $ | 2,126.0 |
| | $ | 2,277.4 |
| | $ | 2,125.3 |
| | $ | 1,726.2 |
|
|
| | | | | | | | | | | | | | | |
| As of | | As of |
| December 31, 2017 | | December 31, 2016 |
| As Reported | | As Restated | | As Reported | | As Restated |
| (In millions) |
Consolidated Balance Sheets: | | | | | | | |
Deferred tax liabilities | $ | 1,648.6 |
| | $ | 1,896.3 |
| | $ | 1,699.0 |
| | $ | 2,098.1 |
|
Total liabilities | $ | 16,811.9 |
| | $ | 17,059.6 |
| | $ | 17,719.8 |
| | $ | 18,118.9 |
|
Retained earnings | $ | 7,206.1 |
| | $ | 6,958.4 |
| | $ | 6,145.3 |
| | $ | 5,746.2 |
|
Total Molson Coors Brewing Company stockholders' equity | $ | 13,226.1 |
| | $ | 12,978.4 |
| | $ | 11,418.7 |
| | $ | 11,019.6 |
|
Total equity | $ | 13,435.0 |
| | $ | 13,187.3 |
| | $ | 11,621.7 |
| | $ | 11,222.6 |
|
|
| | | | | | | | | | | | | | | |
| Year Ended | | Year Ended |
| December 31, 2017 | | December 31, 2016 |
| As Reported | | As Restated | | As Reported | | As Restated |
| (In millions) |
Consolidated Statements of Cash Flows: | | | | | | |
Net income (loss) including noncontrolling interests | $ | 1,436.4 |
| | $ | 1,587.8 |
| | $ | 1,998.9 |
| | $ | 1,599.8 |
|
Income tax (benefit) expense | $ | (53.2 | ) | | $ | (204.6 | ) | | $ | 1,055.2 |
| | $ | 1,454.3 |
|
The impacts of the restatement have been reflected throughout the financial statements, including the applicable footnotes, as appropriate.
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).Our net sales represent the sale of beer, malt beverages 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 where
legally permitted, 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.service. 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 ActivitiesIncome Taxes
Income taxes are accounted for in accordance with U.S. GAAP. Judgment is required in determining our consolidated provision for income taxes. In the ordinary course of our global business, there are many transactions for which the ultimate tax outcome is uncertain. Additionally, our income tax provision is based on calculations and assumptions that are subject to examination by many different tax authorities.
We contract manufactureare periodically subject to tax controversies in various foreign and domestic jurisdictions, which can involve questions regarding our tax positions and result in additional income tax liabilities assessed against us. Settlement of any challenge resulting from these tax controversies can result in no change, a complete disallowance, or some partial adjustment reached through negotiations or litigation. We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained based on its technical merits. We measure and record the tax benefits from such a position based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Our estimated liabilities related to these matters are adjusted in the period in which the uncertain tax position is effectively settled, the statute of limitations for examination expires or when additional information becomes available. Our liability for unrecognized tax benefits requires the use of assumptions and significant judgment to estimate the exposures associated with
our various filing positions. Although we believe that the judgments and estimates made are reasonable, actual results could differ and resulting adjustments could materially affect our effective tax rate and tax provision.
When cash is available after satisfying working capital needs and all other brewers in somebusiness obligations, we may distribute cash from a foreign subsidiary to its U.S. parent and record the tax impact associated with the distribution. However, to the extent current earnings of our markets.foreign operations exist and are not otherwise distributed or planned to be distributed, such earnings accumulate. These contractual agreements require usaccumulated earnings are considered permanently reinvested in our foreign operations. We currently would not expect the aggregate of these permanently reinvested earnings, which are largely in deficit positions for U.S. tax purposes, to brew, packageresult in any material U.S. taxes, if distributed.
We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. We evaluate our ability to realize the tax benefits associated with deferred tax assets by assessing the adequacy of future expected taxable income, including the reversal of existing temporary differences, historical and ship certain brandsprojected operating results, and the availability of prudent and feasible tax planning strategies. The realization of tax benefits is evaluated by jurisdiction and the realizability of these assets can vary based on the character of the tax attribute and the carryforward periods specific to each jurisdiction. In the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax asset would decrease income tax expense in the period a determination was made. Likewise, should we determine that we would not be able to realize all or part of our net deferred tax asset in the future, an adjustment to the deferred tax asset would increase income tax expense in the period such determination was made.
There are proposed or pending tax law changes in various jurisdictions in which we do business. As discussed in Part II—Item 8 Financial Statements and Supplementary Data, Note 6, "Income Tax", we recognize the impacts of changes in tax law upon enactment, and therefore, proposed changes in tax law, regulations and rules are not reflected within our tax provision. As a result, such changes may, upon ultimate enactment, result in material impacts to our financial statements. New Accounting Pronouncements
New Accounting Pronouncements Not Yet Adopted
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of our global operations, we are exposed to market risks associated with foreign currency exchange fluctuations, volatile interest rates and commodity price risks. To manage our exposure to these brewers, who then sellmarket risks, we enter into certain supplier-based and market-based hedging transactions. Such transactions are allowed under our risk management policy and are monitored closely with clear controls around the productsactivities. Our market-based transactions include a variety of derivative financial instruments, none of which are used for trading or speculative purposes. The counterparties to their own customersthese market-based transactions are generally highly rated institutions. Our objective is to manage our exposures and to decrease the volatility of our earnings and cash flows as a result of changes in underlying rates and costs.
Interest Rate Risk
We are exposed to volatility in interest rates with regard to our current and future debt offerings. Specifically, we are exposed to U.S. Department of Treasury rates, Canadian government rates and LIBOR, or any such LIBOR alternative like SONIA, SOFR or EURIBOR, for example. We may from time to time enter into interest rate swaps on our current debt obligations as our hedging strategy is to achieve our desired fixed-to-floating rate debt profile such that we manage the volatility in earnings as well as the cost of funding our operations. Further, we may enter into forward starting interest rate swaps to manage our exposure to the volatility of interest rates associated with future interest payments on a forecasted debt issuance.
The following table presents our fixed rate debt and forward starting interest rate swaps as well as the impact of an absolute 1% adverse change in interest rates on their respective markets.fair values. Notional amounts and fair values are presented in USD based on the applicable exchange rate as of December 31, 2021 and December 31, 2020, respectively.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Notional amounts | | Fair Value Asset/(Liability) | | Effect of 1% Adverse Change |
Revenues under contract brewing arrangements
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | | As of December 31, 2021 | | As of December 31, 2020 | | As of December 31, 2021 | | As of December 31, 2020 | | As of December 31, 2021 | | As of December 31, 2020 |
USD denominated fixed rate debt | | $ | 5,400.0 | | | $ | 6,400.0 | | | $ | (5,952.7) | | | $ | (7,211.4) | | | $ | (200.0) | | | $ | (213.2) | |
Foreign currency denominated fixed rate debt | | $ | 1,701.0 | | | $ | 1,763.1 | | | $ | (1,763.1) | | | $ | (1,861.3) | | | $ | (10.5) | | | $ | (6.5) | |
Forward starting interest rate swaps | | $ | 1,500.0 | | | $ | 1,500.0 | | | $ | (170.8) | | | $ | (221.5) | | | $ | (160.5) | | | $ | (177.1) | |
Foreign Exchange Risk
Foreign currency exchange risk is inherent in our operations primarily due to operating results that are recognized whendenominated in currencies other than the USD. We closely monitor our obligationoperations in each country and seek to adopt appropriate strategies that are responsive to foreign currency fluctuations. Our financial risk management policy is intended to offset a portion of the potentially unfavorable impact of exchange rates on our earnings and cash flows.
Changes in foreign currency exchange rates affect the translation of local currency balances of foreign subsidiaries, transaction gains and losses associated with intercompany loans with foreign subsidiaries, royalty agreements and transactions denominated in currencies other than the USD, and their related cash flows, specifically related to the finished productpurchase of production inputs and imports, as well as our foreign currency-denominated debt. See Part II - Item, 8. Financial Statements and Supplementary Data, Note 1. "Basis of Presentation and Summary of Significant Accounting Policies" for our accounting policy over the accounting for translation adjustments and foreign currency transactions. Approximately $3.0 billion, or 30%, of our net sales was denominated in functional currencies other than the USD for the year ended December 31, 2021. As a result, fluctuations in foreign currency exchange rates other than the USD, particularly the CAD and the GBP, may have a material impact on our reported results. For the year ended December 31, 2021, net sales denominated in CAD and GBP was approximately $1.3 billion and $1.0 billion, respectively.
We manage our foreign currency exposures through foreign currency forward contracts and net investment hedges. Our EUR foreign-denominated debt is fulfilled and controla net investment hedge against our investment in our Europe business in order to hedge a portion of the product transfersforeign currency translational impacts. The changes in fair value of the net investment hedge due to thesethe fluctuations in the spot rate is recorded to AOCI. Our foreign currency forward contracts manage our exposure related to certain royalty agreements, the purchase of production inputs and imports that are denominated in currencies other brewers.than the functional entity's local currency and other foreign currency exchange exposure.
From time to time, we may enter into cross currency swaps. We settled the cross currency swaps associated with the $1.0 billion notes when they were repaid on July 15, 2021 and had no cross currency swaps outstanding as of December 31, 2021.
The following table includes details of our foreign currency forwards used to hedge our foreign exchange rate risk as well as the impact of a hypothetical 10% adverse change in the related foreign currency exchange rates on the fair value of the foreign currency forwards. Notional amounts and fair values are presented in USD based on the applicable exchange rate as of December 31, 2021 and December 31, 2020. The majority of our outstanding foreign currency forwards will mature in fiscal 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Notional amounts | | Fair Value Asset/(Liability) | | Effect of 10% Adverse Change |
(in millions) | | As of December 31, 2021 | | As of December 31, 2020 | | As of December 31, 2021 | | As of December 31, 2020 | | As of December 31, 2021 | | As of December 31, 2020 |
Foreign currency denominated fixed rate debt | | $ | 1,701.0 | | | $ | 1,763.1 | | | $ | (1,763.1) | | | $ | (1,861.3) | | | $ | (171.9) | | | $ | (190.4) | |
Foreign currency Forwards | | $ | 170.8 | | | $ | 181.2 | | | $ | (1.5) | | | $ | (4.9) | | | $ | (19.0) | | | $ | (20.5) | |
Commodity Price Risk
We are exposed to the volatility in commodity prices as we use commodities in the production and distribution of our products. We specifically hedge our exposure to fluctuations in the price of natural gas, aluminum, barley and wheat. We utilize market-based derivatives and long-term supplier-based contracts, specifically a combination of purchase orders, long-term supply contracts and over-the-counter financial instruments to mitigate our commodity price risk by establishing price certainty for commodities that are used in our supply chain.
The following table includes details of our commodity swaps and options used to hedge commodity price risk as well as the impact of a hypothetical 10% adverse change in the related commodity prices on the fair value of the derivatives. Notional amounts and fair values are presented in USD based on the applicable exchange rate as of December 31, 2021 and December 31, 2020. Approximately 62% of commodity swaps mature in 2022, 33% mature in 2023, and 5% mature in 2024 and thereafter.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Notional amounts | | Fair Value Asset/(Liability) | | Effect of 10% Adverse Change |
(in millions) | | As of December 31, 2021 | | As of December 31, 2020 | | As of December 31, 2021 | | As of December 31, 2020 | | As of December 31, 2021 | | As of December 31, 2020 |
Swaps | | $ | 722.1 | | | $ | 918.9 | | | $ | 300.8 | | | $ | 65.2 | | | $ | (95.7) | | | $ | (96.0) | |
Options | | $ | 68.2 | | | $ | 16.8 | | | $ | 0.1 | | | $ | — | | | $ | — | | | $ | — | |
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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MANAGEMENT'S REPORT
The preparation, integrity and objectivity of the financial statements and all other financial information included in this annual report are the responsibility of the management of Molson Coors Beverage Company. The financial statements have been prepared in accordance with generally accepted accounting principles in the United States, applying estimates based on management's best judgment where necessary. Management believes that all material uncertainties have been appropriately accounted for and disclosed.
Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2021, based on the framework and criteria established in Internal Control—Integrated Framework (2013 Framework), issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon its assessment, management concluded that, as of December 31, 2021, the Company's internal control over financial reporting was effective.
PricewaterhouseCoopers LLP, the Company's independent registered public accounting firm, provides an objective, independent audit of the consolidated financial statements and internal control over financial reporting. Their accompanying report is based upon an examination conducted in accordance with standards of the Public Company Accounting Oversight Board (United States), including tests of accounting procedures, records and internal control.
The Board of Directors, operating through its Audit Committee composed of independent, outside directors, monitors the Company's accounting control systems and reviews the results of the Company's auditing activities. The Audit Committee meets at least quarterly, either separately or jointly, with representatives of management, PricewaterhouseCoopers LLP, and internal auditors. To ensure complete independence, PricewaterhouseCoopers LLP and the Company's internal auditors have full and free access to the Audit Committee and may meet with or without the presence of management.
| | | | | | | | |
/s/ GAVIN D.K. HATTERSLEY | | /s/ TRACEY I. JOUBERT |
Gavin D.K. Hattersley | | Tracey I. Joubert |
President & Chief Executive Officer | | Chief Financial Officer |
Molson Coors Beverage Company | | Molson Coors Beverage Company |
February 23, 2022 | | February 23, 2022 |
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Molson Coors Beverage Company
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Molson Coors Beverage Company and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, of comprehensive income (loss), of stockholders’ equity and noncontrolling interests and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2021 appearing under Item 15(c) (collectively referred to as the “consolidated financial statements”).We also have licensing agreementsaudited the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with third party partners who brewaccounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and distributefor its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our productsaudits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in various markets acrossaccordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our segments. Under these agreements,audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are compensatedfree of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the amountassessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of products sold by our partnersInternal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in these markets at an agreed upon royalty rate or profit percentage. We applyaccordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the sales-based royalty practical expedient to these licensing arrangementsmaintenance of records that, in reasonable detail, accurately and recognize revenue as product is sold by our partners atfairly reflect the agreed upon rate.
We have evaluated these other revenue generating activities under the disaggregation disclosure criteria outlined within the guidancetransactions 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.Variable Consideration
Our revenue generating activities include variable consideration which is recorded as a reductiondispositions 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 determinationassets of the reduction of the transaction price for variable consideration requirescompany; (ii) provide reasonable assurance 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 andtransactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a reductionmaterial effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The reversalcritical audit matter communicated below is a matter arising from the current period audit of revenuethe consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill Impairment Assessment - Americas Reporting Unit
As described in Notes 1 and 10 to the consolidated financial statements, the Company’s goodwill balance related to the Americas reporting unit as of December 31, 2021 is recorded upon$6,153 million. The carrying value of goodwill is evaluated for impairment at the reporting unit level at least annually or when an interim triggering event occurs that would indicate that impairment may have taken place. The Company’s annual impairment test is performed as of the first day of the fiscal fourth quarter. As disclosed by management, the evaluation involves comparing the reporting unit’s fair value to its carrying value. If the reporting unit’s carrying value exceeds its fair value, the Company would recognize an impairment loss in an amount equal to the excess up to the total amount of goodwill allocated to the reporting unit. A combination of a discounted cash flow analysis and market approach is used to determine the fair value of the reporting unit. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. Examples of events or circumstances that could reasonably be expected to negatively affect the underlying key assumptions and ultimately impact the estimated fair value of the Company’s reporting unit may include (i) as disclosed by management, growth rates for sales, costs and profits, which are based on various long-range financial and operational plans; (ii) prolonged weakening of economic conditions; or (iii) significant unfavorable changes in tax rates, environmental or other regulations, including interpretations thereof, terminal growth rates, market multiples and / or weighted average cost of capital utilized in the discounted cash flow analysis.
The principal considerations for our determination that performing procedures relating to the product will be recalledgoodwill impairment assessment for the Americas reporting unit is a critical audit matter are (i) the significant judgment by management when determining the fair value of the Americas reporting unit; (ii) a high degree of auditor judgment, subjectivity and destroyed. We estimateeffort in performing procedures and evaluating management’s significant assumptions related to the costs required to facilitate product returns and record them inweighted average cost of goods soldcapital, growth rates for sales, and market multiples; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including controls over the valuation of the Americas reporting unit. These procedures also included, among others (i) testing management’s process for determining the fair value of the Americas reporting unit; (ii) evaluating the appropriateness of the discounted cash flow analysis and market approach; (iii) testing the completeness and accuracy of underlying data used in the discounted cash flow analysis and market approach; and (iv) evaluating the reasonableness of significant assumptions used by management related to the weighted average cost of capital, growth rates for sales, and market multiples. Evaluating the significant assumptions related to growth rates for sales involved evaluating whether the assumptions used were reasonable considering (i) the current and past performance of the Americas reporting unit; (ii) the consistency with external market and industry data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of (i) the appropriateness of the Company’s discounted cash flow analysis and market approach and (ii) the reasonableness of the weighted average cost of capital and market multiple significant assumptions.
/s/ PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
February 23, 2022
We have served as required.the Company’s auditor since 1974.
During
MOLSON COORS BEVERAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE DATA) | | | | | | | | | | | | | | | | | |
| For the Years Ended |
| December 31, 2021 | | December 31, 2020 | | December 31, 2019 |
Sales | $ | 12,449.9 | | | $ | 11,723.8 | | | $ | 13,009.1 | |
Excise taxes | (2,170.2) | | | (2,069.8) | | | (2,429.7) | |
Net sales | 10,279.7 | | | 9,654.0 | | | 10,579.4 | |
Cost of goods sold | (6,226.3) | | | (5,885.7) | | | (6,378.2) | |
Gross profit | 4,053.4 | | | 3,768.3 | | | 4,201.2 | |
Marketing, general and administrative expenses | (2,554.5) | | | (2,437.0) | | | (2,728.0) | |
Special items, net | (44.5) | | | (1,740.2) | | | (708.8) | |
Operating income (loss) | 1,454.4 | | | (408.9) | | | 764.4 | |
Other income (expense), net | | | | | |
Interest expense | (260.3) | | | (274.6) | | | (280.9) | |
Interest income | 2.0 | | | 3.3 | | | 8.2 | |
Other pension and postretirement benefits (costs), net | 46.4 | | | 30.3 | | | 2.9 | |
Other income (expense), net | (3.5) | | | 6.0 | | | (14.7) | |
Total other income (expense), net | (215.4) | | | (235.0) | | | (284.5) | |
Income (loss) before income taxes | 1,239.0 | | | (643.9) | | | 479.9 | |
Income tax benefit (expense) | (230.5) | | | (301.8) | | | (233.7) | |
Net income (loss) | 1,008.5 | | | (945.7) | | | 246.2 | |
Net (income) loss attributable to noncontrolling interests | (2.8) | | | (3.3) | | | (4.5) | |
Net income (loss) attributable to Molson Coors Beverage Company | $ | 1,005.7 | | | $ | (949.0) | | | $ | 241.7 | |
| | | | | |
Net income (loss) attributable to Molson Coors Beverage Company per share: | | | | | |
Basic | $ | 4.63 | | | $ | (4.38) | | | $ | 1.12 | |
Diluted | $ | 4.62 | | | $ | (4.38) | | | $ | 1.11 | |
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Weighted-average shares outstanding: | | | | | |
Basic | 217.1 | | | 216.8 | | | 216.6 | |
Dilutive effect of share-based awards | 0.5 | | | — | | | 0.3 | |
Diluted | 217.6 | | | 216.8 | | | 216.9 | |
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Anti-dilutive securities excluded from computation of diluted EPS | 1.8 | | | 2.7 | | | 1.3 |
See notes to consolidated financial statements.
MOLSON COORS BEVERAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN MILLIONS) | | | | | | | | | | | | | | | | | |
| For the Years Ended |
| December 31, 2021 | | December 31, 2020 | | December 31, 2019 |
Net income (loss) including noncontrolling interests | $ | 1,008.5 | | | $ | (945.7) | | | $ | 246.2 | |
Other comprehensive income (loss), net of tax: | | | | | |
Foreign currency translation adjustments | (28.4) | | | 113.6 | | | 177.6 | |
Reclassification of cumulative translation adjustment to income (loss) | 7.5 | | | — | | | — | |
Unrealized gain (loss) on derivative instruments | 37.4 | | | (85.7) | | | (84.2) | |
Reclassification of derivative (gain) loss to income | 5.5 | | | (0.4) | | | 0.5 | |
Pension and other postretirement benefit adjustments | 118.4 | | | (39.9) | | | (39.8) | |
Amortization of net prior service (benefit) cost and net actuarial (gain) loss to income and settlement | 5.4 | | | (5.2) | | | 19.7 | |
| | | | | |
Ownership share of unconsolidated subsidiaries' other comprehensive income (loss) | 15.5 | | | 14.2 | | | (10.6) | |
Total other comprehensive income (loss), net of tax | 161.3 | | | (3.4) | | | 63.2 | |
Comprehensive income (loss) | 1,169.8 | | | (949.1) | | | 309.4 | |
Comprehensive (income) loss attributable to noncontrolling interests | (2.3) | | | (5.5) | | | (5.1) | |
Comprehensive income (loss) attributable to Molson Coors Beverage Company | $ | 1,167.5 | | | $ | (954.6) | | | $ | 304.3 | |
See notes to consolidated financial statements.
MOLSON COORS BEVERAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT PAR VALUE)
| | | | | | | | | | | |
| As of |
| December 31, 2021 | | December 31, 2020 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 637.4 | | | $ | 770.1 | |
Accounts and other receivables: | | | |
Trade, less allowance for doubtful accounts of $19.0 and $18.1, respectively | 662.7 | | | 549.6 | |
Affiliate receivables | 16.2 | | | 8.4 | |
Other receivables, less allowance for doubtful accounts of $2.5 and $2.4, respectively | 200.5 | | | 129.1 | |
Inventories, less allowance for obsolete inventories of $25.8 and $22.0, respectively | 804.7 | | | 664.3 | |
Other current assets, net | 457.2 | | | 297.3 | |
Total current assets | 2,778.7 | | | 2,418.8 | |
Properties, less accumulated depreciation of $3,507.2 and $3,416.4, respectively | 4,192.4 | | | 4,250.3 | |
Goodwill | 6,152.6 | | | 6,151.0 | |
Other intangibles, less accumulated amortization of $1,406.3 and $1,206.5, respectively | 13,286.8 | | | 13,556.1 | |
Other assets | 1,208.5 | | | 954.9 | |
Total assets | $ | 27,619.0 | | | $ | 27,331.1 | |
Liabilities and equity | | | |
Current liabilities: | | | |
Accounts payable and other current liabilities (includes affiliate payables of $4.1 and $0.5, respectively) | $ | 3,107.3 | | | $ | 2,889.5 | |
Current portion of long-term debt and short-term borrowings | 514.9 | | | 1,020.1 | |
Total current liabilities | 3,622.2 | | | 3,909.6 | |
Long-term debt | 6,647.2 | | | 7,208.2 | |
Pension and postretirement benefits | 654.4 | | | 763.2 | |
Deferred tax liabilities | 2,704.6 | | | 2,381.6 | |
Other liabilities | 326.5 | | | 447.2 | |
Total liabilities | 13,954.9 | | | 14,709.8 | |
Commitments and contingencies (Note 18) | 0 | | 0 |
Molson Coors Beverage 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 (authorized: 500.0 shares; issued and outstanding: 2.6 shares and 2.6 shares, respectively) | — | | | — | |
Class B common stock, $0.01 par value (authorized: 500.0 shares; issued: 210.1 shares and 209.8 shares, respectively) | 2.1 | | | 2.1 | |
Class A exchangeable shares, no par value (issued and outstanding: 2.7 shares and 2.7 shares, respectively) | 102.2 | | | 102.3 | |
Class B exchangeable shares, no par value (issued and outstanding: 11.1 shares and 11.1 shares, respectively) | 417.8 | | | 417.8 | |
Paid-in capital | 6,970.9 | | | 6,937.8 | |
Retained earnings | 7,401.5 | | | 6,544.2 | |
Accumulated other comprehensive income (loss) | (1,006.0) | | | (1,167.8) | |
Class B common stock held in treasury at cost (9.5 shares and 9.5 shares, respectively) | (471.4) | | | (471.4) | |
Total Molson Coors Beverage Company stockholders' equity | 13,417.1 | | | 12,365.0 | |
Noncontrolling interests | 247.0 | | | 256.3 | |
Total equity | 13,664.1 | | | 12,621.3 | |
Total liabilities and equity | $ | 27,619.0 | | | $ | 27,331.1 | |
See notes to consolidated financial statements.
MOLSON COORS BEVERAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS) | | | | | | | | | | | | | | | | | |
| For the Years Ended |
| December 31, 2021 | | December 31, 2020 | | December 31, 2019 |
Cash flows from operating activities: | | | | | |
Net income (loss) including noncontrolling interests | $ | 1,008.5 | | | $ | (945.7) | | | $ | 246.2 | |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | | | |
Depreciation and amortization | 786.1 | | | 922.0 | | | 859.0 | |
Amortization of debt issuance costs and discounts | 6.7 | | | 8.1 | | | 13.6 | |
Share-based compensation | 32.1 | | | 24.2 | | | 8.5 | |
(Gain) loss on sale or impairment of properties and other assets, net | 9.1 | | | 1,553.5 | | | 614.7 | |
Unrealized (gain) loss on foreign currency fluctuations and derivative instruments, net | (233.8) | | | (111.4) | | | 18.9 | |
Income tax (benefit) expense | 230.5 | | | 301.8 | | | 233.7 | |
Income tax (paid) received | (227.0) | | | (127.0) | | | (57.0) | |
Interest expense, excluding amortization of debt issuance costs and discounts | 253.6 | | | 266.0 | | | 272.4 | |
Interest paid | (256.2) | | | (271.9) | | | (285.0) | |
Change in current assets and liabilities (net of impact of business combinations) and other: | | | | | |
Receivables | (137.6) | | | 160.8 | | | 38.5 | |
Inventories | (143.9) | | | (46.2) | | | (17.7) | |
Payables and other current liabilities | 285.5 | | | (50.1) | | | (53.0) | |
Other assets and other liabilities | (40.1) | | | 11.6 | | | 4.5 | |
Net cash provided by (used in) operating activities | 1,573.5 | | | 1,695.7 | | | 1,897.3 | |
Cash flows from investing activities: | | | | | |
Additions to properties | (522.6) | | | (574.8) | | | (593.8) | |
Proceeds from sales of properties and other assets | 26.0 | | | 158.8 | | | 115.9 | |
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Other | (13.3) | | | 2.4 | | | 44.6 | |
Net cash provided by (used in) investing activities | (509.9) | | | (413.6) | | | (433.3) | |
Cash flows from financing activities: | | | | | |
| | | | | |
Exercise of stock options under equity compensation plans | 4.6 | | | 4.1 | | | 1.6 | |
Dividends paid | (147.8) | | | (125.3) | | | (424.4) | |
| | | | | |
Payments on debt and borrowings | (1,006.6) | | | (918.9) | | | (1,586.2) | |
Proceeds on debt and borrowings | — | | | 1.5 | | | 3.0 | |
Net proceeds from (payments on) revolving credit facilities and commercial paper | 1.4 | | | — | | | (4.7) | |
Other | (23.8) | | | (31.8) | | | 3.7 | |
Net cash provided by (used in) financing activities | (1,172.2) | | | (1,070.4) | | | (2,007.0) | |
Cash and cash equivalents: | | | | | |
Net increase (decrease) in cash and cash equivalents | (108.6) | | | 211.7 | | | (543.0) | |
Effect of foreign exchange rate changes on cash and cash equivalents | (24.1) | | | 35.0 | | | 8.5 | |
Balance at beginning of year | 770.1 | | | 523.4 | | | 1,057.9 | |
Balance at end of year | $ | 637.4 | | | $ | 770.1 | | | $ | 523.4 | |
MOLSON COORS BEVERAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND NONCONTROLLING INTERESTS
(IN MILLIONS)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Molson Coors Beverage Company Stockholders' Equity | | |
| | | Common stock | | Exchangeable | | | | | | Accumulated other | | Common Stock 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 |
Balance as of December 31, 2018 | $ | 13,735.8 | | | $ | — | | | $ | 2.0 | | | $ | 103.2 | | | $ | 557.6 | | | $ | 6,773.1 | | | $ | 7,692.9 | | | $ | (1,150.0) | | | $ | (471.4) | | | $ | 228.4 | |
Exchange of shares | — | | | — | | | — | | | (0.7) | | | 0.2 | | | 0.5 | | | — | | | — | | | — | | | — | |
Shares issued under equity compensation plan | (8.3) | | | — | | | 0.1 | | | — | | | — | | | (8.4) | | | — | | | — | | | — | | | — | |
Amortization of share-based compensation | 8.3 | | | — | | | — | | | — | | | — | | | 8.3 | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | |
Purchase of noncontrolling interest | 0.6 | | | — | | | — | | | — | | | — | | | 0.1 | | | — | | | — | | | — | | | 0.5 | |
Deconsolidation of VIE | (1.7) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1.7) | |
Net income (loss) including noncontrolling interests | 246.2 | | | — | | | — | | | — | | | — | | | — | | | 241.7 | | | — | | | — | | | 4.5 | |
Other comprehensive income (loss), net of tax | 63.2 | | | — | | | — | | | — | | | — | | | — | | | — | | | 62.6 | | | — | | | 0.6 | |
Adoption of lease accounting standard | 32.0 | | | — | | | — | | | — | | | — | | | — | | | 32.0 | | | — | | | — | | | — | |
Reclassification of stranded tax effects | — | | | — | | | — | | | — | | | — | | | — | | | 74.8 | | | (74.8) | | | — | | | — | |
Contributions from noncontrolling interests | 34.1 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 34.1 | |
Distributions and dividends to noncontrolling interests | (12.7) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (12.7) | |
Dividends declared | (424.4) | | | — | | | — | | | — | | | — | | | — | | | (424.4) | | | — | | | — | | | — | |
Balance as of December 31, 2019 | $ | 13,673.1 | | | $ | — | | | $ | 2.1 | | | $ | 102.5 | | | $ | 557.8 | | | $ | 6,773.6 | | | $ | 7,617.0 | | | $ | (1,162.2) | | | $ | (471.4) | | | $ | 253.7 | |
Exchange of shares | — | | | — | | | — | | | (0.2) | | | (140.0) | | | 140.2 | | | — | | | — | | | — | | | — | |
Shares issued under equity compensation plan | (0.5) | | | — | | | — | | | — | | | — | | | (0.5) | | | — | | | — | | | — | | | — | |
Amortization of share-based compensation | 24.2 | | | — | | | — | | | — | | | — | | | 24.2 | | | — | | | — | | | — | | | — | |
Acquisition of business and purchase of noncontrolling interest | (0.2) | | | — | | | — | | | — | | | — | | | 0.3 | | | — | | | — | | | — | | | (0.5) | |
| | | | | | | | | | | | | | | | | | | |
Net income (loss) including noncontrolling interests | (945.7) | | | — | | | — | | | — | | | — | | | — | | | (949.0) | | | — | | | — | | | 3.3 | |
Other comprehensive income (loss), net of tax | (3.4) | | | — | | | — | | | — | | | — | | | — | | | — | | | (5.6) | | | — | | | 2.2 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Contributions from noncontrolling interests | 16.3 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 16.3 | |
Distributions and dividends to noncontrolling interests | (18.7) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (18.7) | |
Dividends declared | (123.8) | | | — | | | — | | | — | | | — | | | — | | | (123.8) | | | — | | | — | | | — | |
Balance as of December 31, 2020 | $ | 12,621.3 | | | $ | — | | | $ | 2.1 | | | $ | 102.3 | | | $ | 417.8 | | | $ | 6,937.8 | | | $ | 6,544.2 | | | $ | (1,167.8) | | | $ | (471.4) | | | $ | 256.3 | |
Exchange of shares | — | | | — | | | — | | | (0.1) | | | — | | | 0.1 | | | — | | | — | | | — | | | — | |
Shares issued under equity compensation plan | 0.6 | | | — | | | — | | | — | | | — | | | 0.6 | | | — | | | — | | | — | | | — | |
Amortization of share-based compensation | 32.1 | | | — | | | — | | | — | | | — | | | 32.1 | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Molson Coors Beverage Company Stockholders' Equity | | |
| | | Common stock | | Exchangeable | | | | | | Accumulated other | | Common Stock 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 |
Purchase of noncontrolling interest | (0.2) | | | — | | | — | | | — | | | — | | | 0.3 | | | — | | | — | | | — | | | (0.5) | |
Net income (loss) including noncontrolling interests | 1,008.5 | | | — | | | — | | | — | | | — | | | — | | | 1,005.7 | | | — | | | — | | | 2.8 | |
Other comprehensive income (loss), net of tax | 161.3 | | | — | | | — | | | — | | | — | | | — | | | — | | | 161.8 | | | — | | | (0.5) | |
Contributions from noncontrolling interests | 3.2 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 3.2 | |
Distributions and dividends to noncontrolling interests | (14.3) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (14.3) | |
Dividends declared | (148.4) | | | — | | | — | | | — | | | — | | | — | | | (148.4) | | | — | | | — | | | — | |
Balance as of December 31, 2021 | $ | 13,664.1 | | | $ | — | | | $ | 2.1 | | | $ | 102.2 | | | $ | 417.8 | | | $ | 6,970.9 | | | $ | 7,401.5 | | | $ | (1,006.0) | | | $ | (471.4) | | | $ | 247.0 | |
See notes to consolidated financial statements.
MOLSON COORS BEVERAGE COMPANY AND SUBSIDIARIES
NOTES TO 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 Beverage Company ("MCBC" or the "Company"), principally a holding company, and its operating and non-operating subsidiaries included within our reporting segments. As of December 31, 2021, we changed the names of our reporting segments to the Americas and EMEA&APAC segments (formerly named the North America segment and Europe segment, respectively) to better reflect the geographic locations encompassed within the reportable segments. This change to our segment names had no impact on the composition of our segments, our financial position, results of operations, cash flow or segment level results previously reported. Our Americas segment operates in the U.S., Canada and various countries in the Caribbean, Latin and South America, and our EMEA&APAC segment operates in Bulgaria, Croatia, Czech Republic, Hungary, Montenegro, the Republic of Ireland, Romania, Serbia, the U.K., various other European countries, and certain countries within the Middle East, Africa and Asia Pacific.
Unless otherwise indicated, comparisons are to comparable prior periods, and 2021, 2020 and 2019 refers to the twelve months ended December 31, 2018, adjustments2021, December 31, 2020 and December 31, 2019, respectively.
Unless otherwise indicated, information in this report is presented in USD and comparisons are to revenue from performance obligations satisfiedcomparable 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.
Cybersecurity Incident
During March 2021, we experienced a systems outage that was caused by a cybersecurity incident. We engaged leading forensic information technology firms and legal counsel to assist our investigation into the incident and we restored our systems after working to get the systems back up as quickly as possible. Despite these actions, we experienced delays and disruptions to our business, including brewery operations, production and shipments. This incident caused us to not produce or ship as much as we otherwise would have in the prior period due to changes in estimates in variable consideration were immaterial.
Significant Financing Component and Costs to Obtain Contracts
In certainfirst quarter 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 twelve months ended December 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 result2021. Subsequently, in the recognitionbalance of contract assets or liabilities. No such assets or liabilities existed2021, we made progress recovering from the incident with increased shipments and have operationally recovered as of December 31, 2018, or2021. In addition, we incurred certain incremental one-time costs of $2.4 million for the year ended 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 expense2021 related to costs incurredconsultants, experts and data recovery efforts, net of insurance recoveries.
Coronavirus Global Pandemic
Starting at the end of the first quarter of 2020, the coronavirus pandemic has had a material adverse effect on our operations, liquidity, financial condition and results of operations. In 2021, we saw improvements in the marketplace related to deliver productthe coronavirus global pandemic as on-premise locations began to re-open around the world at varying degrees, despite setbacks in certain markets related to the outbreak of new variants. The extent to which our operations will continue to be impacted by the coronavirus pandemic will depend largely on future developments, which are recognizedhighly uncertain and cannot be accurately predicted, including the level of governmental or societal orders or restrictions on public gatherings and on-premise venues, including any vaccine mandates or testing requirements, the severity and duration of the coronavirus pandemic by market, including outbreaks of variants, changes in consumer behavior, the rate of vaccination and the efficacy of vaccines against the coronavirus and related variants. We continue to actively monitor the ongoing evolution of the coronavirus pandemic and resulting impacts to our business.
During 2020, we recorded charges of $15.5 million within cost of goods sold.sold related to temporary "thank you" pay for certain essential Americas segment brewery employees. Additionally, in order to support and demonstrate our commitment to the continued viability of the many bars and restaurants which were negatively impacted by the coronavirus pandemic, during the first quarter of 2020, we initiated temporary keg relief programs in many of our markets. We accountcommitted to provide customers with reimbursements for shippinguntapped kegs that met certain established return requirements in conjunction with the voluntary programs. As a result, during 2020, we recognized a reduction to net sales of $30.3 million reflecting estimated sales returns and handling activitiesreimbursements through these keg relief programs.
Further, during 2020, we recognized charges of $12.1 million within cost of goods sold related to obsolete finished goods keg inventories that occur after control has transferredwere not expected to be sold within our freshness specifications, as a fulfillment costwell as opposed to a separate performance obligation, and the costs to facilitate the above mentioned keg returns.
We continue to monitor the impacts on our customers’ liquidity and capital resources and therefore our ability to collect, or the timeliness of shippingcollection of our accounts receivable. While these receivables are not concentrated in any specific customer and handling are recognized concurrently with the related revenue.
Excise Taxes
Excise taxes remitted to tax authorities are government-imposed excise taxesour allowance on beer. Excise taxes are shownthese receivables factors in a separate line itemexpected credit loss, continued disruption and declines in the consolidated statementsglobal economy could result in difficulties in our ability to collect and require increases to our allowance for doubtful accounts. As of operationsDecember 31, 2021 and December 31, 2020, our allowance for trade receivables was approximately $19 million and $18 million, respectively, and allowance activity was immaterial during the year ended December 31, 2021.
In response to the ongoing impacts of the coronavirus pandemic, various governmental authorities globally announced relief programs, which among other items, provided temporary deferrals of non-income based tax payments, which positively impacted our operating cash flows in 2020. These temporary net tax payment deferrals of approximately $25 million and $130 million as a reduction of sales. Excise taxes are recognized as a current liabilityDecember 31, 2021 and December 31, 2020, respectively, were primarily included within accounts payable and other current liabilities on theour audited consolidated balance sheets,sheets. Of the $130 million of temporary net tax payment deferrals as of December 31, 2020, approximately $105 million was repaid during the year ended December 31, 2021, with approximately $25 million outstanding as of December 31, 2021. The majority of the remaining balance is expected to be paid during the year ended December 31, 2022.
We protected and supported our liquidity position in response to the global economic uncertainty created by the coronavirus pandemic. Beginning with the liability subsequently reducedsecond quarter of 2020 through the second quarter of 2021, our board of directors suspended our regular quarterly dividends on our Class A and Class B common and exchangeable shares. A quarterly dividend was reinstated in the third quarter of 2021.
Revitalization Plan
On October 28, 2019, we initiated a revitalization plan designed to allow us to invest across our portfolio to drive long-term, sustainable success. The revitalization plan established Chicago, Illinois as our Americas segment operational headquarters. We closed our office in Denver, Colorado and consolidated certain administrative functions into our other existing office locations. As of January 1, 2020, we changed our name to Molson Coors Beverage Company and changed our management structure to 2 segments - Americas and EMEA&APAC. We began to incur charges related to these restructuring activities during the fourth quarter of 2019 and we recognized severance and retention charges of $4.0 million, $35.6 million and $41.2 million during the years ended December 31, 2021, December 31, 2020 and December 31, 2019, respectively. As of December 31, 2021, the revitalization plan restructuring charges were substantially complete.
Principles of Consolidation
Our consolidated financial statements include our accounts and our majority-owned and controlled domestic and foreign subsidiaries, as well as certain VIEs for which we are the primary beneficiary. All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
Our consolidated financial statements are prepared in accordance with U.S. GAAP. These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions used to determine certain amounts that affect the financial statements are reasonable, based on information available at the time they are made. To the extent there are differences between these estimates and actual results, our consolidated financial statements may be materially affected.
Revenue Recognition
Our net sales represent the sale of beer, malt beverages and other adjacencies, 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 taxesrelated goods are remittedshipped or delivered to the tax authority.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 where
legally permitted, 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 Goods Soldrevenue unless we receive a distinct good or service. 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., 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 to makethe risk of loss at times we are in possession of the inventory and ship beerfor the receivables due from the customers. Revenues for owned brands, partner and other malt beverages. These costs include brewing materials, such as barley, hops and various grains. Packaging materials, such as glass bottles, aluminum cans, cardboard and paperboard are also included in our cost of goods sold. Additionally, our cost of goods sold include both direct and indirect labor, shipping and handling including freight costs, utilities, maintenance costs, warehousing costs, purchasing and receiving costs, depreciation, promotional packaging, other manufacturing overheads and costs to purchase factored and other non-ownedimported brands, from suppliers, as well as factored brands are recognized at the estimated cost to facilitate product returns.
Marketing, General and Administrative Expenses
Our marketing, general and administrative expenses include media advertising (television, radio, digital, print), tactical advertising (signs, banners, point-of-sale materials) and promotion costs on both local and national levels within our operating segments. The creative portion of our advertising activitiespoint in time when control is expensed as incurred. Production costs of advertising and promotional materials are expensed when the advertising is first run. Marketing, general and administrative expenses also include integration costs of $38.8 million and $70.6 million for 2018 and 2017, respectively, and acquisition and integration costs of $108.4 million for 2016 associated with the Acquisition.
This classification includes general and administrative costs for functions such as finance, legal, human resources and information technology, along with acquisition and integration costs as noted above, which consist primarily of labor and outside services, as well as bad debt expense related to our allowance for doubtful accounts. Unless capitalization is allowed or required by U.S. GAAP, legal costs are expensed when incurred. These costs also include our marketing and sales organizations, including labor and other overheads. This line item additionally includes amortization costs associated with intangible assets, as well as certain depreciation costs related to non-production equipment and share-based compensation.
Share-based compensation is recognized using a straight-line method over the vesting period of the awards. We include estimated forfeitures expected to occur when calculating share-based compensation expense. Our share-based compensation plan and the awards within it contain provisions that accelerate vesting of awards upon change in control, retirement, disability or death of eligible employees and directors. Our share-based awards are considered vested when the employee's retention of the award is no longer contingent on providing service, which for certain awards can result in immediate recognition for awards granted to retirement-eligible individuals or accelerated recognition for awards granted to individuals that will become retirement eligible within the stated vesting period. Also, if less than the stated vesting period, we recognize these costs over the period from the grant datetransferred to the date retirement eligibility is achieved.
Special Items
Our special items represent charges incurred or benefits realized 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; specifically, such items are considered to be one of the following:
•infrequent or unusual items,
•impairment or asset abandonment-related losses,
•restructuring charges and other atypical employee-related costs, or
•fees on termination of significant operating agreements and gains (losses) on disposal of investments.
The items classified as special items are not necessarily non-recurring, however, they are deemed to be incremental to income earned or costs incurred by the company in conducting normal operations, and therefore are presented separately from other components of operating income.
Equity Income in MillerCoors
On October 11, 2016, following the close of the Acquisition, MillerCoors became a wholly-owned subsidiary of MCBC and as a result, MCBC owns 100% of the outstanding equity and voting interests of MillerCoors. Prior to October 11, 2016, MCBC's equity income in MillerCoors represented our proportionate share for the period of the net income of our investment in MillerCoors accounted for under the equity method. This amount reflected adjustments to eliminate intercompany gains and
losses, and to amortize, if appropriate, any difference between cost and underlying equity in net assets upon the formation of MillerCoors.
Interest Expense, net
Our interest costs are associated with borrowings to finance our operations and acquisitions. Interest earned on our cash and cash equivalents across our business is recorded as interest income. Changes in estimates (if any) to mandatorily redeemable noncontrolling interest liabilities, which are presented within other current and non-current liabilities on the consolidated balance sheet, are also recognized within interest expense.
We capitalize interest cost as a part of the original cost of acquiring certain fixed assets if the cost of the capital expenditure and the expected time to complete the project are considered significant.
Other Income (Expense)
Our other income (expense) classification primarily includes gains and losses associated with activities not directly related to brewing and selling beer and other malt beverages. For instance, aggregate unrealized and realized foreign exchange gains and losses resulting from remeasurement and settlement of foreign-denominated monetary assets and liabilities, as well as certain gains or losses on sales of non-operating assets and the mark-to-market activity associated with warrants are classified in this line item. These gains and losses are reported in the operating segment in which they occur; however, foreign exchange gains and losses on intercompany balances related to financing and other treasury-related activities are reported within the Corporate segment. The initial recording of foreign-denominated transactions are classified based on the nature of the transaction, with the unrealized or realized foreign exchange gains or losses resulting from the subsequent remeasurement of the monetary asset or liability, and its ultimate settlement, classified in other income (expense).
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,customer as discussed in Note 18, "Commitments and Contingencies," within discontinued operations and have accordingly reclassified the activity into other income within continuing operations of the consolidated statements of operations, and the liabilities into other current and long-term liabilities within the consolidated balance sheets. This change has been applied retrospectively and prospectively. As a result, we reclassified a foreign exchange gain of $1.5 million and a loss of $2.8 million from discontinued operations to other income (expense), net for the fiscal years 2017 and 2016, respectively.above.Income Taxes
Income taxes are accounted for in accordance with U.S. GAAP. Judgment is required in determining our consolidated provision for income taxes. In the ordinary course of our global business, there are many transactions for which the ultimate tax outcome is uncertain. Additionally, our income tax provision is based on calculations and assumptions that are subject to examination by many different tax authorities.
We are periodically subject to tax controversies in various foreign and domestic jurisdictions, which can involve questions regarding our tax positions and result in additional income tax liabilities assessed against us. Settlement of any challenge resulting from these tax controversies can result in no change, a complete disallowance, or some partial adjustment reached through negotiations or litigation. We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained based on its technical merits. We measure and record the tax benefits from such a position based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Our estimated liabilities related to these matters are adjusted in the period in which the uncertain tax position is effectively settled, the statute of limitations for examination expires or when additional information becomes available. Our liability for unrecognized tax benefits requires the use of assumptions and significant judgment to estimate the exposures associated with
our various filing positions. Although we believe that the judgments and estimates made are reasonable, actual results could differ and resulting adjustments could materially affect our effective tax rate and tax provision.
When cash is available after satisfying working capital needs and all other business obligations, we may distribute cash from a foreign subsidiary to its U.S. parent and record the tax impact associated with the distribution. However, to the extent current earnings of our foreign operations exist and are not otherwise distributed or planned to be distributed, such earnings accumulate. These accumulated earnings are considered permanently reinvested in our foreign operations. We currently would not expect the aggregate of these permanently reinvested earnings, which are largely in deficit positions for U.S. tax purposes, to result in any material U.S. taxes, if distributed.
We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. We evaluate our ability to realize the tax benefits associated with deferred tax assets by assessing the adequacy of future expected taxable income, including the reversal of existing temporary differences, historical and projected operating results, and the availability of prudent and feasible tax planning strategies. The realization of tax benefits is evaluated by jurisdiction and the realizability of these assets can vary based on the character of the tax attribute and the carryforward periods specific to each jurisdiction. In the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax asset would decrease income tax expense in the period a determination was made. Likewise, should we determine that we would not be able to realize all or part of our net deferred tax asset in the future, an adjustment to the deferred tax asset would increase income tax expense in the period such determination was made.
There are proposed or pending tax law changes in various jurisdictions in which we do business. As discussed in Part II—Item 8 Financial Statements and Supplementary Data, Note 6, "Income Tax", we recognize the impacts of changes in tax law upon enactment, and therefore, proposed changes in tax law, regulations and rules are not reflected within our tax provision. As a result, such changes may, upon ultimate enactment, result in material impacts to our financial statements. New Accounting Pronouncements
New Accounting Pronouncements Not Yet Adopted
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of our global operations, we are exposed to market risks associated with foreign currency exchange fluctuations, volatile interest rates and commodity price risks. To manage our exposure to these market risks, we enter into certain supplier-based and market-based hedging transactions. Such transactions are allowed under our risk management policy and are monitored closely with clear controls around the activities. Our market-based transactions include a variety of derivative financial instruments, none of which are used for trading or speculative purposes. The counterparties to these market-based transactions are generally highly rated institutions. Our objective is to manage our exposures and to decrease the volatility of our earnings and cash flows as a result of changes in underlying rates and costs.
Interest Rate Risk
We are exposed to volatility in interest rates with regard to our current and future debt offerings. Specifically, we are exposed to U.S. Department of Treasury rates, Canadian government rates and LIBOR, or any such LIBOR alternative like SONIA, SOFR or EURIBOR, for example. We may from time to time enter into interest rate swaps on our current debt obligations as our hedging strategy is to achieve our desired fixed-to-floating rate debt profile such that we manage the volatility in earnings as well as the cost of funding our operations. Further, we may enter into forward starting interest rate swaps to manage our exposure to the volatility of interest rates associated with future interest payments on a forecasted debt issuance.
The following table presents our fixed rate debt and forward starting interest rate swaps as well as the impact of an absolute 1% adverse change in interest rates on their respective fair values. Notional amounts and fair values are presented in USD based on the applicable exchange rate as of December 31, 2021 and December 31, 2020, respectively.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Notional amounts | | Fair Value Asset/(Liability) | | Effect of 1% Adverse Change |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | | As of December 31, 2021 | | As of December 31, 2020 | | As of December 31, 2021 | | As of December 31, 2020 | | As of December 31, 2021 | | As of December 31, 2020 |
USD denominated fixed rate debt | | $ | 5,400.0 | | | $ | 6,400.0 | | | $ | (5,952.7) | | | $ | (7,211.4) | | | $ | (200.0) | | | $ | (213.2) | |
Foreign currency denominated fixed rate debt | | $ | 1,701.0 | | | $ | 1,763.1 | | | $ | (1,763.1) | | | $ | (1,861.3) | | | $ | (10.5) | | | $ | (6.5) | |
Forward starting interest rate swaps | | $ | 1,500.0 | | | $ | 1,500.0 | | | $ | (170.8) | | | $ | (221.5) | | | $ | (160.5) | | | $ | (177.1) | |
Foreign Exchange Risk
Foreign currency exchange risk is inherent in our operations primarily due to operating results that are denominated in currencies other than the USD. We closely monitor our operations in each country and seek to adopt appropriate strategies that are responsive to foreign currency fluctuations. Our financial risk management policy is intended to offset a portion of the potentially unfavorable impact of exchange rates on our earnings and cash flows.
Approximately $3.0 billion, or 30%, of our net sales was denominated in functional currencies other than the USD for the year ended December 31, 2021. As a result, fluctuations in foreign currency exchange rates other than the USD, particularly the CAD and the GBP, may have a material impact on our reported results. For the year ended December 31, 2021, net sales denominated in CAD and GBP was approximately $1.3 billion and $1.0 billion, respectively.
We manage our foreign currency exposures through foreign currency forward contracts and net investment hedges. Our EUR foreign-denominated debt is a net investment hedge against our investment in our Europe business in order to hedge a portion of the foreign currency translational impacts. The changes in fair value of the net investment hedge due to the fluctuations in the spot rate is recorded to AOCI. Our foreign currency forward contracts manage our exposure related to certain royalty agreements, the purchase of production inputs and imports that are denominated in currencies other than the functional entity's local currency and other foreign currency exchange exposure.
From time to time, we may enter into cross currency swaps. We settled the cross currency swaps associated with the $1.0 billion notes when they were repaid on July 15, 2021 and had no cross currency swaps outstanding as of December 31, 2021.
The following table includes details of our foreign currency forwards used to hedge our foreign exchange rate risk as well as the impact of a hypothetical 10% adverse change in the related foreign currency exchange rates on the fair value of the foreign currency forwards. Notional amounts and fair values are presented in USD based on the applicable exchange rate as of December 31, 2021 and December 31, 2020. The majority of our outstanding foreign currency forwards will mature in fiscal 2022.
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| | Notional amounts | | Fair Value Asset/(Liability) | | Effect of 10% Adverse Change |
(in millions) | | As of December 31, 2021 | | As of December 31, 2020 | | As of December 31, 2021 | | As of December 31, 2020 | | As of December 31, 2021 | | As of December 31, 2020 |
Foreign currency denominated fixed rate debt | | $ | 1,701.0 | | | $ | 1,763.1 | | | $ | (1,763.1) | | | $ | (1,861.3) | | | $ | (171.9) | | | $ | (190.4) | |
Foreign currency Forwards | | $ | 170.8 | | | $ | 181.2 | | | $ | (1.5) | | | $ | (4.9) | | | $ | (19.0) | | | $ | (20.5) | |
Commodity Price Risk
We are exposed to the volatility in commodity prices as we use commodities in the production and distribution of our products. We specifically hedge our exposure to fluctuations in the price of natural gas, aluminum, barley and wheat. We utilize market-based derivatives and long-term supplier-based contracts, specifically a combination of purchase orders, long-term supply contracts and over-the-counter financial instruments to mitigate our commodity price risk by establishing price certainty for commodities that are used in our supply chain.
The following table includes details of our commodity swaps and options used to hedge commodity price risk as well as the impact of a hypothetical 10% adverse change in the related commodity prices on the fair value of the derivatives. Notional amounts and fair values are presented in USD based on the applicable exchange rate as of December 31, 2021 and December 31, 2020. Approximately 62% of commodity swaps mature in 2022, 33% mature in 2023, and 5% mature in 2024 and thereafter.
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| | Notional amounts | | Fair Value Asset/(Liability) | | Effect of 10% Adverse Change |
(in millions) | | As of December 31, 2021 | | As of December 31, 2020 | | As of December 31, 2021 | | As of December 31, 2020 | | As of December 31, 2021 | | As of December 31, 2020 |
Swaps | | $ | 722.1 | | | $ | 918.9 | | | $ | 300.8 | | | $ | 65.2 | | | $ | (95.7) | | | $ | (96.0) | |
Options | | $ | 68.2 | | | $ | 16.8 | | | $ | 0.1 | | | $ | — | | | $ | — | | | $ | — | |
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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MANAGEMENT'S REPORT
The preparation, integrity and objectivity of the financial statements and all other financial information included in this annual report are the responsibility of the management of Molson Coors Beverage Company. The financial statements have been prepared in accordance with generally accepted accounting principles in the United States, applying estimates based on management's best judgment where necessary. Management believes that all material uncertainties have been appropriately accounted for and disclosed.
Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2021, based on the framework and criteria established in Internal Control—Integrated Framework (2013 Framework), issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon its assessment, management concluded that, as of December 31, 2021, the Company's internal control over financial reporting was effective.
PricewaterhouseCoopers LLP, the Company's independent registered public accounting firm, provides an objective, independent audit of the consolidated financial statements and internal control over financial reporting. Their accompanying report is based upon an examination conducted in accordance with standards of the Public Company Accounting Oversight Board (United States), including tests of accounting procedures, records and internal control.
The Board of Directors, operating through its Audit Committee composed of independent, outside directors, monitors the Company's accounting control systems and reviews the results of the Company's auditing activities. The Audit Committee meets at least quarterly, either separately or jointly, with representatives of management, PricewaterhouseCoopers LLP, and internal auditors. To ensure complete independence, PricewaterhouseCoopers LLP and the Company's internal auditors have full and free access to the Audit Committee and may meet with or without the presence of management.
| | | | | | | | |
/s/ GAVIN D.K. HATTERSLEY | | /s/ TRACEY I. JOUBERT |
Gavin D.K. Hattersley | | Tracey I. Joubert |
President & Chief Executive Officer | | Chief Financial Officer |
Molson Coors Beverage Company | | Molson Coors Beverage Company |
February 23, 2022 | | February 23, 2022 |
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Molson Coors Beverage Company
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Molson Coors Beverage Company and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, of comprehensive income (loss), of stockholders’ equity and noncontrolling interests and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2021 appearing under Item 15(c) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill Impairment Assessment - Americas Reporting Unit
As described in Notes 1 and 10 to the consolidated financial statements, the Company’s goodwill balance related to the Americas reporting unit as of December 31, 2021 is $6,153 million. The carrying value of goodwill is evaluated for impairment at the reporting unit level at least annually or when an interim triggering event occurs that would indicate that impairment may have taken place. The Company’s annual impairment test is performed as of the first day of the fiscal fourth quarter. As disclosed by management, the evaluation involves comparing the reporting unit’s fair value to its carrying value. If the reporting unit’s carrying value exceeds its fair value, the Company would recognize an impairment loss in an amount equal to the excess up to the total amount of goodwill allocated to the reporting unit. A combination of a discounted cash flow analysis and market approach is used to determine the fair value of the reporting unit. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. Examples of events or circumstances that could reasonably be expected to negatively affect the underlying key assumptions and ultimately impact the estimated fair value of the Company’s reporting unit may include (i) as disclosed by management, growth rates for sales, costs and profits, which are based on various long-range financial and operational plans; (ii) prolonged weakening of economic conditions; or (iii) significant unfavorable changes in tax rates, environmental or other regulations, including interpretations thereof, terminal growth rates, market multiples and / or weighted average cost of capital utilized in the discounted cash flow analysis.
The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment for the Americas reporting unit is a critical audit matter are (i) the significant judgment by management when determining the fair value of the Americas reporting unit; (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating management’s significant assumptions related to the weighted average cost of capital, growth rates for sales, and market multiples; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including controls over the valuation of the Americas reporting unit. These procedures also included, among others (i) testing management’s process for determining the fair value of the Americas reporting unit; (ii) evaluating the appropriateness of the discounted cash flow analysis and market approach; (iii) testing the completeness and accuracy of underlying data used in the discounted cash flow analysis and market approach; and (iv) evaluating the reasonableness of significant assumptions used by management related to the weighted average cost of capital, growth rates for sales, and market multiples. Evaluating the significant assumptions related to growth rates for sales involved evaluating whether the assumptions used were reasonable considering (i) the current and past performance of the Americas reporting unit; (ii) the consistency with external market and industry data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of (i) the appropriateness of the Company’s discounted cash flow analysis and market approach and (ii) the reasonableness of the weighted average cost of capital and market multiple significant assumptions.
/s/ PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
February 23, 2022
We have served as the Company’s auditor since 1974.
MOLSON COORS BEVERAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE DATA) | | | | | | | | | | | | | | | | | |
| For the Years Ended |
| December 31, 2021 | | December 31, 2020 | | December 31, 2019 |
Sales | $ | 12,449.9 | | | $ | 11,723.8 | | | $ | 13,009.1 | |
Excise taxes | (2,170.2) | | | (2,069.8) | | | (2,429.7) | |
Net sales | 10,279.7 | | | 9,654.0 | | | 10,579.4 | |
Cost of goods sold | (6,226.3) | | | (5,885.7) | | | (6,378.2) | |
Gross profit | 4,053.4 | | | 3,768.3 | | | 4,201.2 | |
Marketing, general and administrative expenses | (2,554.5) | | | (2,437.0) | | | (2,728.0) | |
Special items, net | (44.5) | | | (1,740.2) | | | (708.8) | |
Operating income (loss) | 1,454.4 | | | (408.9) | | | 764.4 | |
Other income (expense), net | | | | | |
Interest expense | (260.3) | | | (274.6) | | | (280.9) | |
Interest income | 2.0 | | | 3.3 | | | 8.2 | |
Other pension and postretirement benefits (costs), net | 46.4 | | | 30.3 | | | 2.9 | |
Other income (expense), net | (3.5) | | | 6.0 | | | (14.7) | |
Total other income (expense), net | (215.4) | | | (235.0) | | | (284.5) | |
Income (loss) before income taxes | 1,239.0 | | | (643.9) | | | 479.9 | |
Income tax benefit (expense) | (230.5) | | | (301.8) | | | (233.7) | |
Net income (loss) | 1,008.5 | | | (945.7) | | | 246.2 | |
Net (income) loss attributable to noncontrolling interests | (2.8) | | | (3.3) | | | (4.5) | |
Net income (loss) attributable to Molson Coors Beverage Company | $ | 1,005.7 | | | $ | (949.0) | | | $ | 241.7 | |
| | | | | |
Net income (loss) attributable to Molson Coors Beverage Company per share: | | | | | |
Basic | $ | 4.63 | | | $ | (4.38) | | | $ | 1.12 | |
Diluted | $ | 4.62 | | | $ | (4.38) | | | $ | 1.11 | |
| | | | | |
Weighted-average shares outstanding: | | | | | |
Basic | 217.1 | | | 216.8 | | | 216.6 | |
Dilutive effect of share-based awards | 0.5 | | | — | | | 0.3 | |
Diluted | 217.6 | | | 216.8 | | | 216.9 | |
| | | | | |
Anti-dilutive securities excluded from computation of diluted EPS | 1.8 | | | 2.7 | | | 1.3 |
See notes to consolidated financial statements.
MOLSON COORS BEVERAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN MILLIONS) | | | | | | | | | | | | | | | | | |
| For the Years Ended |
| December 31, 2021 | | December 31, 2020 | | December 31, 2019 |
Net income (loss) including noncontrolling interests | $ | 1,008.5 | | | $ | (945.7) | | | $ | 246.2 | |
Other comprehensive income (loss), net of tax: | | | | | |
Foreign currency translation adjustments | (28.4) | | | 113.6 | | | 177.6 | |
Reclassification of cumulative translation adjustment to income (loss) | 7.5 | | | — | | | — | |
Unrealized gain (loss) on derivative instruments | 37.4 | | | (85.7) | | | (84.2) | |
Reclassification of derivative (gain) loss to income | 5.5 | | | (0.4) | | | 0.5 | |
Pension and other postretirement benefit adjustments | 118.4 | | | (39.9) | | | (39.8) | |
Amortization of net prior service (benefit) cost and net actuarial (gain) loss to income and settlement | 5.4 | | | (5.2) | | | 19.7 | |
| | | | | |
Ownership share of unconsolidated subsidiaries' other comprehensive income (loss) | 15.5 | | | 14.2 | | | (10.6) | |
Total other comprehensive income (loss), net of tax | 161.3 | | | (3.4) | | | 63.2 | |
Comprehensive income (loss) | 1,169.8 | | | (949.1) | | | 309.4 | |
Comprehensive (income) loss attributable to noncontrolling interests | (2.3) | | | (5.5) | | | (5.1) | |
Comprehensive income (loss) attributable to Molson Coors Beverage Company | $ | 1,167.5 | | | $ | (954.6) | | | $ | 304.3 | |
See notes to consolidated financial statements.
MOLSON COORS BEVERAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT PAR VALUE)
| | | | | | | | | | | |
| As of |
| December 31, 2021 | | December 31, 2020 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 637.4 | | | $ | 770.1 | |
Accounts and other receivables: | | | |
Trade, less allowance for doubtful accounts of $19.0 and $18.1, respectively | 662.7 | | | 549.6 | |
Affiliate receivables | 16.2 | | | 8.4 | |
Other receivables, less allowance for doubtful accounts of $2.5 and $2.4, respectively | 200.5 | | | 129.1 | |
Inventories, less allowance for obsolete inventories of $25.8 and $22.0, respectively | 804.7 | | | 664.3 | |
Other current assets, net | 457.2 | | | 297.3 | |
Total current assets | 2,778.7 | | | 2,418.8 | |
Properties, less accumulated depreciation of $3,507.2 and $3,416.4, respectively | 4,192.4 | | | 4,250.3 | |
Goodwill | 6,152.6 | | | 6,151.0 | |
Other intangibles, less accumulated amortization of $1,406.3 and $1,206.5, respectively | 13,286.8 | | | 13,556.1 | |
Other assets | 1,208.5 | | | 954.9 | |
Total assets | $ | 27,619.0 | | | $ | 27,331.1 | |
Liabilities and equity | | | |
Current liabilities: | | | |
Accounts payable and other current liabilities (includes affiliate payables of $4.1 and $0.5, respectively) | $ | 3,107.3 | | | $ | 2,889.5 | |
Current portion of long-term debt and short-term borrowings | 514.9 | | | 1,020.1 | |
Total current liabilities | 3,622.2 | | | 3,909.6 | |
Long-term debt | 6,647.2 | | | 7,208.2 | |
Pension and postretirement benefits | 654.4 | | | 763.2 | |
Deferred tax liabilities | 2,704.6 | | | 2,381.6 | |
Other liabilities | 326.5 | | | 447.2 | |
Total liabilities | 13,954.9 | | | 14,709.8 | |
Commitments and contingencies (Note 18) | 0 | | 0 |
Molson Coors Beverage 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 (authorized: 500.0 shares; issued and outstanding: 2.6 shares and 2.6 shares, respectively) | — | | | — | |
Class B common stock, $0.01 par value (authorized: 500.0 shares; issued: 210.1 shares and 209.8 shares, respectively) | 2.1 | | | 2.1 | |
Class A exchangeable shares, no par value (issued and outstanding: 2.7 shares and 2.7 shares, respectively) | 102.2 | | | 102.3 | |
Class B exchangeable shares, no par value (issued and outstanding: 11.1 shares and 11.1 shares, respectively) | 417.8 | | | 417.8 | |
Paid-in capital | 6,970.9 | | | 6,937.8 | |
Retained earnings | 7,401.5 | | | 6,544.2 | |
Accumulated other comprehensive income (loss) | (1,006.0) | | | (1,167.8) | |
Class B common stock held in treasury at cost (9.5 shares and 9.5 shares, respectively) | (471.4) | | | (471.4) | |
Total Molson Coors Beverage Company stockholders' equity | 13,417.1 | | | 12,365.0 | |
Noncontrolling interests | 247.0 | | | 256.3 | |
Total equity | 13,664.1 | | | 12,621.3 | |
Total liabilities and equity | $ | 27,619.0 | | | $ | 27,331.1 | |
See notes to consolidated financial statements.
MOLSON COORS BEVERAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS) | | | | | | | | | | | | | | | | | |
| For the Years Ended |
| December 31, 2021 | | December 31, 2020 | | December 31, 2019 |
Cash flows from operating activities: | | | | | |
Net income (loss) including noncontrolling interests | $ | 1,008.5 | | | $ | (945.7) | | | $ | 246.2 | |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | | | |
Depreciation and amortization | 786.1 | | | 922.0 | | | 859.0 | |
Amortization of debt issuance costs and discounts | 6.7 | | | 8.1 | | | 13.6 | |
Share-based compensation | 32.1 | | | 24.2 | | | 8.5 | |
(Gain) loss on sale or impairment of properties and other assets, net | 9.1 | | | 1,553.5 | | | 614.7 | |
Unrealized (gain) loss on foreign currency fluctuations and derivative instruments, net | (233.8) | | | (111.4) | | | 18.9 | |
Income tax (benefit) expense | 230.5 | | | 301.8 | | | 233.7 | |
Income tax (paid) received | (227.0) | | | (127.0) | | | (57.0) | |
Interest expense, excluding amortization of debt issuance costs and discounts | 253.6 | | | 266.0 | | | 272.4 | |
Interest paid | (256.2) | | | (271.9) | | | (285.0) | |
Change in current assets and liabilities (net of impact of business combinations) and other: | | | | | |
Receivables | (137.6) | | | 160.8 | | | 38.5 | |
Inventories | (143.9) | | | (46.2) | | | (17.7) | |
Payables and other current liabilities | 285.5 | | | (50.1) | | | (53.0) | |
Other assets and other liabilities | (40.1) | | | 11.6 | | | 4.5 | |
Net cash provided by (used in) operating activities | 1,573.5 | | | 1,695.7 | | | 1,897.3 | |
Cash flows from investing activities: | | | | | |
Additions to properties | (522.6) | | | (574.8) | | | (593.8) | |
Proceeds from sales of properties and other assets | 26.0 | | | 158.8 | | | 115.9 | |
| | | | | |
| | | | | |
| | | | | |
Other | (13.3) | | | 2.4 | | | 44.6 | |
Net cash provided by (used in) investing activities | (509.9) | | | (413.6) | | | (433.3) | |
Cash flows from financing activities: | | | | | |
| | | | | |
Exercise of stock options under equity compensation plans | 4.6 | | | 4.1 | | | 1.6 | |
Dividends paid | (147.8) | | | (125.3) | | | (424.4) | |
| | | | | |
Payments on debt and borrowings | (1,006.6) | | | (918.9) | | | (1,586.2) | |
Proceeds on debt and borrowings | — | | | 1.5 | | | 3.0 | |
Net proceeds from (payments on) revolving credit facilities and commercial paper | 1.4 | | | — | | | (4.7) | |
Other | (23.8) | | | (31.8) | | | 3.7 | |
Net cash provided by (used in) financing activities | (1,172.2) | | | (1,070.4) | | | (2,007.0) | |
Cash and cash equivalents: | | | | | |
Net increase (decrease) in cash and cash equivalents | (108.6) | | | 211.7 | | | (543.0) | |
Effect of foreign exchange rate changes on cash and cash equivalents | (24.1) | | | 35.0 | | | 8.5 | |
Balance at beginning of year | 770.1 | | | 523.4 | | | 1,057.9 | |
Balance at end of year | $ | 637.4 | | | $ | 770.1 | | | $ | 523.4 | |
MOLSON COORS BEVERAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND NONCONTROLLING INTERESTS
(IN MILLIONS)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Molson Coors Beverage Company Stockholders' Equity | | |
| | | Common stock | | Exchangeable | | | | | | Accumulated other | | Common Stock 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 |
Balance as of December 31, 2018 | $ | 13,735.8 | | | $ | — | | | $ | 2.0 | | | $ | 103.2 | | | $ | 557.6 | | | $ | 6,773.1 | | | $ | 7,692.9 | | | $ | (1,150.0) | | | $ | (471.4) | | | $ | 228.4 | |
Exchange of shares | — | | | — | | | — | | | (0.7) | | | 0.2 | | | 0.5 | | | — | | | — | | | — | | | — | |
Shares issued under equity compensation plan | (8.3) | | | — | | | 0.1 | | | — | | | — | | | (8.4) | | | — | | | — | | | — | | | — | |
Amortization of share-based compensation | 8.3 | | | — | | | — | | | — | | | — | | | 8.3 | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | |
Purchase of noncontrolling interest | 0.6 | | | — | | | — | | | — | | | — | | | 0.1 | | | — | | | — | | | — | | | 0.5 | |
Deconsolidation of VIE | (1.7) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1.7) | |
Net income (loss) including noncontrolling interests | 246.2 | | | — | | | — | | | — | | | — | | | — | | | 241.7 | | | — | | | — | | | 4.5 | |
Other comprehensive income (loss), net of tax | 63.2 | | | — | | | — | | | — | | | — | | | — | | | — | | | 62.6 | | | — | | | 0.6 | |
Adoption of lease accounting standard | 32.0 | | | — | | | — | | | — | | | — | | | — | | | 32.0 | | | — | | | — | | | — | |
Reclassification of stranded tax effects | — | | | — | | | — | | | — | | | — | | | — | | | 74.8 | | | (74.8) | | | — | | | — | |
Contributions from noncontrolling interests | 34.1 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 34.1 | |
Distributions and dividends to noncontrolling interests | (12.7) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (12.7) | |
Dividends declared | (424.4) | | | — | | | — | | | — | | | — | | | — | | | (424.4) | | | — | | | — | | | — | |
Balance as of December 31, 2019 | $ | 13,673.1 | | | $ | — | | | $ | 2.1 | | | $ | 102.5 | | | $ | 557.8 | | | $ | 6,773.6 | | | $ | 7,617.0 | | | $ | (1,162.2) | | | $ | (471.4) | | | $ | 253.7 | |
Exchange of shares | — | | | — | | | — | | | (0.2) | | | (140.0) | | | 140.2 | | | — | | | — | | | — | | | — | |
Shares issued under equity compensation plan | (0.5) | | | — | | | — | | | — | | | — | | | (0.5) | | | — | | | — | | | — | | | — | |
Amortization of share-based compensation | 24.2 | | | — | | | — | | | — | | | — | | | 24.2 | | | — | | | — | | | — | | | — | |
Acquisition of business and purchase of noncontrolling interest | (0.2) | | | — | | | — | | | — | | | — | | | 0.3 | | | — | | | — | | | — | | | (0.5) | |
| | | | | | | | | | | | | | | | | | | |
Net income (loss) including noncontrolling interests | (945.7) | | | — | | | — | | | — | | | — | | | — | | | (949.0) | | | — | | | — | | | 3.3 | |
Other comprehensive income (loss), net of tax | (3.4) | | | — | | | — | | | — | | | — | | | — | | | — | | | (5.6) | | | — | | | 2.2 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Contributions from noncontrolling interests | 16.3 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 16.3 | |
Distributions and dividends to noncontrolling interests | (18.7) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (18.7) | |
Dividends declared | (123.8) | | | — | | | — | | | — | | | — | | | — | | | (123.8) | | | — | | | — | | | — | |
Balance as of December 31, 2020 | $ | 12,621.3 | | | $ | — | | | $ | 2.1 | | | $ | 102.3 | | | $ | 417.8 | | | $ | 6,937.8 | | | $ | 6,544.2 | | | $ | (1,167.8) | | | $ | (471.4) | | | $ | 256.3 | |
Exchange of shares | — | | | — | | | — | | | (0.1) | | | — | | | 0.1 | | | — | | | — | | | — | | | — | |
Shares issued under equity compensation plan | 0.6 | | | — | | | — | | | — | | | — | | | 0.6 | | | — | | | — | | | — | | | — | |
Amortization of share-based compensation | 32.1 | | | — | | | — | | | — | | | — | | | 32.1 | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Molson Coors Beverage Company Stockholders' Equity | | |
| | | Common stock | | Exchangeable | | | | | | Accumulated other | | Common Stock 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 |
Purchase of noncontrolling interest | (0.2) | | | — | | | — | | | — | | | — | | | 0.3 | | | — | | | — | | | — | | | (0.5) | |
Net income (loss) including noncontrolling interests | 1,008.5 | | | — | | | — | | | — | | | — | | | — | | | 1,005.7 | | | — | | | — | | | 2.8 | |
Other comprehensive income (loss), net of tax | 161.3 | | | — | | | — | | | — | | | — | | | — | | | — | | | 161.8 | | | — | | | (0.5) | |
Contributions from noncontrolling interests | 3.2 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 3.2 | |
Distributions and dividends to noncontrolling interests | (14.3) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (14.3) | |
Dividends declared | (148.4) | | | — | | | — | | | — | | | — | | | — | | | (148.4) | | | — | | | — | | | — | |
Balance as of December 31, 2021 | $ | 13,664.1 | | | $ | — | | | $ | 2.1 | | | $ | 102.2 | | | $ | 417.8 | | | $ | 6,970.9 | | | $ | 7,401.5 | | | $ | (1,006.0) | | | $ | (471.4) | | | $ | 247.0 | |
See notes to consolidated financial statements.
MOLSON COORS BEVERAGE COMPANY AND SUBSIDIARIES
NOTES TO 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 Beverage Company ("MCBC" or the "Company"), principally a holding company, and its operating and non-operating subsidiaries included within our reporting segments. As of December 31, 2021, we changed the names of our reporting segments to the Americas and EMEA&APAC segments (formerly named the North America segment and Europe segment, respectively) to better reflect the geographic locations encompassed within the reportable segments. This change to our segment names had no impact on the composition of our segments, our financial position, results of operations, cash flow or segment level results previously reported. Our Americas segment operates in the U.S., Canada and various countries in the Caribbean, Latin and South America, and our EMEA&APAC segment operates in Bulgaria, Croatia, Czech Republic, Hungary, Montenegro, the Republic of Ireland, Romania, Serbia, the U.K., various other European countries, and certain countries within the Middle East, Africa and Asia Pacific.
Unless otherwise indicated, comparisons are to comparable prior periods, and 2021, 2020 and 2019 refers to the twelve months ended December 31, 2021, December 31, 2020 and December 31, 2019, respectively.
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.
Cybersecurity Incident
During March 2021, we experienced a systems outage that was caused by a cybersecurity incident. We engaged leading forensic information technology firms and legal counsel to assist our investigation into the incident and we restored our systems after working to get the systems back up as quickly as possible. Despite these actions, we experienced delays and disruptions to our business, including brewery operations, production and shipments. This incident caused us to not produce or ship as much as we otherwise would have in the first quarter of 2021. Subsequently, in the balance of 2021, we made progress recovering from the incident with increased shipments and have operationally recovered as of December 31, 2021. In addition, we incurred certain incremental one-time costs of $2.4 million for the year ended December 31, 2021 related to consultants, experts and data recovery efforts, net of insurance recoveries.
Coronavirus Global Pandemic
Starting at the end of the first quarter of 2020, the coronavirus pandemic has had a material adverse effect on our operations, liquidity, financial condition and results of operations. In 2021, we saw improvements in the marketplace related to the coronavirus global pandemic as on-premise locations began to re-open around the world at varying degrees, despite setbacks in certain markets related to the outbreak of new variants. The extent to which our operations will continue to be impacted by the coronavirus pandemic will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including the level of governmental or societal orders or restrictions on public gatherings and on-premise venues, including any vaccine mandates or testing requirements, the severity and duration of the coronavirus pandemic by market, including outbreaks of variants, changes in consumer behavior, the rate of vaccination and the efficacy of vaccines against the coronavirus and related variants. We continue to actively monitor the ongoing evolution of the coronavirus pandemic and resulting impacts to our business.
During 2020, we recorded charges of $15.5 million within cost of goods sold related to temporary "thank you" pay for certain essential Americas segment brewery employees. Additionally, in order to support and demonstrate our commitment to the continued viability of the many bars and restaurants which were negatively impacted by the coronavirus pandemic, during the first quarter of 2020, we initiated temporary keg relief programs in many of our markets. We committed to provide customers with reimbursements for untapped kegs that met certain established return requirements in conjunction with the voluntary programs. As a result, during 2020, we recognized a reduction to net sales of $30.3 million reflecting estimated sales returns and reimbursements through these keg relief programs.
Further, during 2020, we recognized charges of $12.1 million within cost of goods sold related to obsolete finished goods keg inventories that were not expected to be sold within our freshness specifications, as well as the costs to facilitate the above mentioned keg returns.
We continue to monitor the impacts on our customers’ liquidity and capital resources and therefore our ability to collect, or the timeliness of collection of our accounts receivable. While these receivables are not concentrated in any specific customer and our allowance on these receivables factors in expected credit loss, continued disruption and declines in the global economy could result in difficulties in our ability to collect and require increases to our allowance for doubtful accounts. As of December 31, 2021 and December 31, 2020, our allowance for trade receivables was approximately $19 million and $18 million, respectively, and allowance activity was immaterial during the year ended December 31, 2021.
In response to the ongoing impacts of the coronavirus pandemic, various governmental authorities globally announced relief programs, which among other items, provided temporary deferrals of non-income based tax payments, which positively impacted our operating cash flows in 2020. These temporary net tax payment deferrals of approximately $25 million and $130 million as of December 31, 2021 and December 31, 2020, respectively, were primarily included within accounts payable and other current liabilities on our audited consolidated balance sheets. Of the $130 million of temporary net tax payment deferrals as of December 31, 2020, approximately $105 million was repaid during the year ended December 31, 2021, with approximately $25 million outstanding as of December 31, 2021. The majority of the remaining balance is expected to be paid during the year ended December 31, 2022.
We protected and supported our liquidity position in response to the global economic uncertainty created by the coronavirus pandemic. Beginning with the second quarter of 2020 through the second quarter of 2021, our board of directors suspended our regular quarterly dividends on our Class A and Class B common and exchangeable shares. A quarterly dividend was reinstated in the third quarter of 2021.
Revitalization Plan
On October 28, 2019, we initiated a revitalization plan designed to allow us to invest across our portfolio to drive long-term, sustainable success. The revitalization plan established Chicago, Illinois as our Americas segment operational headquarters. We closed our office in Denver, Colorado and consolidated certain administrative functions into our other existing office locations. As of January 1, 2020, we changed our name to Molson Coors Beverage Company and changed our management structure to 2 segments - Americas and EMEA&APAC. We began to incur charges related to these restructuring activities during the fourth quarter of 2019 and we recognized severance and retention charges of $4.0 million, $35.6 million and $41.2 million during the years ended December 31, 2021, December 31, 2020 and December 31, 2019, respectively. As of December 31, 2021, the revitalization plan restructuring charges were substantially complete.
Principles of Consolidation
Our consolidated financial statements include our accounts and our majority-owned and controlled domestic and foreign subsidiaries, as well as certain VIEs for which we are the primary beneficiary. All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
Our consolidated financial statements are prepared in accordance with U.S. GAAP. These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions used to determine certain amounts that affect the financial statements are reasonable, based on information available at the time they are made. To the extent there are differences between these estimates and actual results, our consolidated financial statements may be materially affected.
Revenue Recognition
Our net sales represent the sale of beer, malt beverages and other adjacencies, 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 where
legally permitted, 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. 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., 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.
Disaggregation of Revenue
We have evaluated our primary revenue generating activities under the disaggregation disclosure criteria outlined within the guidance and concluded that disclosure at the geographical segment level depicts how the nature, amount, timing and uncertainty of revenues and cash flows are affected by economic factors. We have also evaluated our other revenue generating activities and concluded that these activities are immaterial for separate disclosure. See Note 3, "Segment Reporting," for disclosure of revenues by geographic segment. 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.
For the years ended December 31, 2021 and December 31, 2020, 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 years ended December 31, 2021 or December 31, 2020.
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 and fulfill contracts 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 December 31, 2021 or December 31, 2020. 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 Taxes
Excise taxes remitted to tax authorities are government-imposed excise taxes on beer. Excise taxes are shown in a separate line item in the 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 consolidated balance sheets, with the liability subsequently reduced when the taxes are remitted to the tax authority.
Cost of Goods Sold
Our cost of goods sold includes costs we incur to make and ship beer and other malt beverages. These costs include brewing materials, such as barley, hops and various grains. Packaging materials, such as glass bottles, aluminum cans, cardboard and paperboard are also included in our cost of goods sold. Additionally, our cost of goods sold include both direct and indirect labor, shipping and handling including freight costs, utilities, maintenance costs, warehousing costs, purchasing and receiving costs, depreciation, promotional packaging, other manufacturing overheads and costs to purchase factored and other non-owned brands from suppliers, as well as the estimated cost to facilitate product returns.
Marketing, General and Administrative Expenses
Our marketing, general and administrative expenses include media advertising (television, radio, digital, print), tactical advertising (signs, banners, point-of-sale materials) and promotion costs on both local and national levels within our operating segments. The creative portion of our advertising activities is expensed as incurred. Production costs of advertising and promotional materials are expensed when the advertising is first run. Included in marketing, general and administrative expenses is total marketing and advertising expenses which were approximately $1.1 billion, $0.9 billion and $1.2 billion in 2021, 2020 and 2019, respectively. Marketing, general and administrative expenses also included integration costs of $25 million in 2019. There were no integration costs recorded in 2021 or 2020 as the activity related to the acquisition of the remaining portion of MillerCoors, which occurred on October 11, 2016 (the "Acquisition"), was completed by the end of 2019.
This classification also includes general and administrative costs for functions such as finance, legal, human resources and information technology, along with integration costs as noted above. These costs primarily consist of labor and outside services, as well as bad debt expense related to our allowance for doubtful accounts. Unless capitalization is allowed or required
by U.S. GAAP, legal costs are expensed when incurred. These costs also include our marketing and sales organizations, including labor and other overheads. This line item additionally includes amortization costs associated with intangible assets, as well as certain depreciation costs related to non-production equipment and share-based compensation.
Share-based compensation is recognized using a straight-line method over the vesting period of the awards. We include estimated forfeitures expected to occur when calculating share-based compensation expense. Our share-based compensation plan and the awards within it contain provisions that accelerate vesting of awards upon change in control, retirement, disability or death of eligible employees and directors. Our share-based awards are considered vested when the employee's retention of the award is no longer contingent on providing service, which for certain awards can result in immediate recognition for awards granted to retirement-eligible individuals or accelerated recognition for awards granted to individuals that will become retirement eligible within the stated vesting period. Also, if less than the stated vesting period, we recognize these costs over the period from the grant date to the date retirement eligibility is achieved.
Special Items, net
Our special items represent charges incurred or benefits realized 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; specifically, such items are considered to be one of the following:
•infrequent or unusual items,
•impairment or asset abandonment-related losses,
•restructuring charges and other atypical employee-related costs, or
•fees on termination of significant operating agreements and gains (losses) on disposal of investments.
The items classified as special items are not necessarily non-recurring, however, they are deemed to be incremental to income earned or costs incurred by us in conducting normal operations, and therefore are presented separately from other components of operating income.
Interest Expense, net
Our interest costs are associated with borrowings to finance our operations and acquisitions. Interest earned on our cash and cash equivalents across our business is recorded as interest income.
We capitalize interest cost as a part of the original cost of acquiring certain fixed assets if the cost of the capital expenditure and the expected time to complete the project are considered significant.
Other Income (Expense)
Our other income (expense) classification primarily includes gains and losses associated with activities not directly related to our operations. For instance, aggregate unrealized and realized foreign exchange gains and losses resulting from the remeasurement and settlement of foreign-denominated monetary assets and liabilities, as well as certain gains or losses on sales of non-operating assets and the mark-to-market activity associated with warrants and other equity securities are classified in this line item. These gains and losses are reported in the operating segment in which they occur; however, foreign exchange gains and losses on intercompany balances related to financing and other treasury-related activities remain unallocated. The initial recording of foreign-denominated transactions are classified based on the nature of the transaction, with the unrealized or realized foreign exchange gains or losses resulting from the subsequent remeasurement of the monetary asset or liability, and its ultimate settlement, classified in other income (expense).
Income Taxes
Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of our assets, liabilities, and certain unrecognized gains and losses recorded in accumulated other comprehensive income (loss). We apply the intraperiod tax allocation rules to allocate our provision for income taxes between continuing operations and other categories of earnings, such as other comprehensive income (loss), when we meet the criteria prescribed by U.S. GAAP.
We provide for taxes thatWhen cash is available after satisfying working capital needs and all other business obligations, we may be payable if undistributed earnings of overseas subsidiaries weredistribute such cash from a foreign subsidiary to be remittedits U.S. parent and record the tax impact associated with the distribution. However, to the U.S., except for thoseextent current earnings thatwe consider to be permanently reinvested. However, we continue to monitor the impacts of the 2017 Tax Act, as defined in Note 6, "Income Tax," including yet to be issued regulations and interpretations, on the tax consequences of future repatriations. Future sales of foreign subsidiaries are not exempt from capital gains tax in the U.S. under the 2017 Tax Act. However, we have no plans to dispose of any of our foreign subsidiariesoperations exist and are not recording deferredotherwise distributed or planned to be distributed, such earnings accumulate. These accumulated earnings are considered permanently reinvested in our foreign operations. We currently would not expect the aggregate of these permanently reinvested earnings, which are largely in deficit positions for U.S. tax purposes, to result in any material U.S. taxes, on outside basis differences in foreign subsidiaries for the sale of a foreign subsidiary.if distributed.
The tax benefit from an uncertain tax position is recognized only if it is more likely than notdetermined that the tax position will more likely be sustained based on its technical merits. We measure and record the tax benefits from such a position based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Interest, penalties and offsetting positions related to unrecognized tax benefits are recognized as a component of income tax expense. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized.
We account for the tax effects of global intangible low-taxed income (“GILTI”) as a component of income tax expense in the period the tax arises, to the extent applicable.
Other Comprehensive Income (Loss)
OCI represents income and losses for the reporting period, including the related tax impacts, which are excluded from net income (loss) and recognized directly within AOCI as a component of equity. OCI also includes amounts reclassified to income during the reporting period that were previously recognized within AOCI. Amounts remaining within AOCI are expected to be
reclassified out of AOCI in the future, at which point they will be recognized within the consolidated statement of operations as a component of net income (loss). We recognize OCI related to the translation of assets and liabilities of our foreign subsidiaries which are denominated in currencies other than USD, unrealized gains and losses on the effective portion of our derivatives designated in cash flow hedging relationships and derivative and non-derivative instruments designated in net investment hedging relationships, actuarial gains and losses and prior service costs related to our pension and other post-retirement benefit plans, as well as our proportionate share of our equity method investments' OCI. Additionally, when we do not have the expectation or intent to cash settle certain of our intercompany note receivable and note payable positions in the foreseeable future; therefore,future, the remeasurement of these instruments is recorded as a component of foreign currency translation adjustments within OCI. We release stranded tax effects from AOCI using either a specific identification approach or portfolio approach based on the nature of the underlying item.
Earnings Per Share
Basic EPS was computed using the weighted-average number of shares of common stock outstanding during the period. Diluted EPS includes the additional dilutive effect of our potentially dilutive securities, which include RSUs, DSUs, PSUs and stock options. The dilutive effects of our potentially dilutive securities are calculated using the treasury stock method. Our calculation of weighted-average shares includes Class A common stock and Class B common stock, and Class A exchangeable shares and Class B exchangeable shares. All classes of stock have in effect the same dividend rights and share equitably in undistributed earnings. Holders of Class A common stock receive dividends only to the extent dividends are declared and paid to holders of Class B common stock. See Note 8, "Stockholders' Equity" for further discussion of the Class A common stock and Class B common stock and Class A exchangeable shares and Class B exchangeable shares. We have no unvested outstanding equity share awards that contain non-forfeitable rights to dividends. Dividends
Dividends per share paid to shareholders were $0.68, $0.57 and $1.96 during the years ended December 31, 2021, 2020 and 2019, respectively. In response to the global economic uncertainty created by the coronavirus pandemic, our Board of Directors suspended our regular quarterly dividend on our Class A and Class B common and exchangeable shares in May 2020. A quarterly dividend was reinstated during the third quarter of 2021.
Cash and Cash Equivalents
Cash consists of cash on hand and bank deposits. Cash equivalents represent highly liquid investments with original maturities of three months or less. Our cash deposits are maintained with multiple, reputable financial institutions.
Supplementary cash flowNon-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. Additionally, the initial recognition of the warrants discussed in See Note 16, “Derivative Instruments4, "Investments" and Hedging Activities”Note 13 represents a non-cash financing activity in 2018. In 2016, total Acquisition consideration includes non-cash investing activity related to the issuance of replacement share-based compensation awards, as well as the elimination of a net payable owed by MCBC to MillerCoors. During 2018 and 2017, we had non-cash activities related to the recognition of capital leases, and during 2017, we, "Share-Based Payments" for further discussion. We also had non-cash activities related to the acquisition of a business. We also hadother non-cash activities related to capital expenditures incurred but not yet paid of $206.6 million, $171.9 million and $214.9 million during each period presented. This aggregate2021, 2020 and 2019, respectively.In June 2021, we rolled forward our July 2021 $250.0 million forward starting interest rate swap to May 2022 through a cashless settlement. The unrealized loss on the 2021 forward starting interest rate swap at the time of the transaction was factored into the effective interest rate assigned to the new May 2022 forward starting interest rate swap. See Note 16, "Derivative Instruments and Hedging Activities" for further details. Other than the activity mentioned above and the supplemental non-cash activity totaled $236.5 million, $265.5 million and $177.4 million, for 2018, 2017 and 2016, respectively.
Thererelated to the recognition of leases discussed in Note 19, "Leases," there was no other significant non-cash activity in 2018, 20172021, 2020 and 2016 other than mentioned above. See Note 4, "Acquisition and Investments,"Note 10, "Goodwill and Intangible Assets,"Note 13, "Share-Based Payments," and Note 16, “Derivative Instruments and Hedging Activities” for further discussion.2019.
Accounts Receivable and Notes Receivable
We record accounts and notes receivable at net realizable value. This carrying value includes an appropriate allowance for estimated uncollectible amounts to reflect any loss anticipated on the accounts and notes receivable balances. We calculate this allowance based on our country-specific history of write-offs, level of past-due accounts based on the contractual terms of the receivables and our relationships with and the economic status of our customers, which may be impacted by current macroeconomic and regulatory factors specific to the country of origin. This methodology takes into consideration historical loss experience and current and forecasted changes in cash flows based on internal and external information.
In the U.K., loans are extended to a portion of the retail outlets that sell our brands. An allowance for credit losses is maintained to provide for loan losses deemed to be probable related to specifically identified loans and for losses in the loan portfolio that have been incurred at the balance sheet date. We establish ouran allowance through a provision for loan losses charged against earnings and recorded in marketing, general and administrative expenses. Loan balances that are written off are recorded against the allowance as a write-off. Activity within the allowance for credit losses was immaterial for fiscal years 2018, 20172021, 2020 and 2016.2019.
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined by the first-in, first-out ("FIFO") method. We regularly assess the shelf-life of our inventories and reserve for those inventories when it becomes apparent the product will not be sold within our freshness specifications.
Other current assets
Other current assets include prepaid assets, maintenance and operating supplies, promotion materials and derivative assets that are expected to be recognized or realized within the next 12 months. Maintenance and operating supplies include our inventories of spare parts, which are kept on hand for repairs and maintenance of machinery and equipment. The majority of spare parts within our business include motors, fillers and other components that are required to maintain a normal level of production in the event that expected maintenance and/or repairs are required. These parts are inventoried within current assets as they are reasonably expected to be used during the normal operating cycle of the business and are reserved for excess and obsolescence, as appropriate. The allowance for obsolete supplies was $9.2$18.3 million and $7.4$16.4 million as of December 31, 2018,2021, and December 31, 2017,2020, respectively.
Properties
Properties are stated at original cost less accumulated depreciation. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets, which are reviewed periodically and have the following ranges: buildings and improvements: 20-40 years; machinery and equipment: 3-25 years; furniture and fixtures: 3-10 years; returnable containers: 2-15 years; and software: 3-5 years. Land is not depreciated, and construction in progress is not depreciated until ready for service. Costs of enhancements or modifications that substantially extend the capacity or useful life of an asset are capitalized and depreciated accordingly. Ordinary repairs and maintenance are expensed as incurred. When property is retiredsold or otherwise disposed of, the cost and accumulated depreciation are removed from our consolidated balance sheets and the resulting gain or loss, if any, is reflected in our consolidated statements of operations. Long-lived assets are evaluated for impairment whenever events or changes in circumstances indicate the carrying value of an asset (or asset group) may not be recoverable. Our asset groups are generally identified at the segment level with the exception of certain craft breweries or other locations which may operate on a more stand-alone basis, such as our Truss LP joint venture. During the year ended December 31, 2021, we did not identify any triggering events related to our asset groups which required performance of an impairment test.
Returnable containers are recorded at acquisition cost and consist of returnable bottles, kegs, pallets and crates that are both in our direct control within our breweries, warehouses and distribution facilities and those that we indirectly control in the market through our agreements with our customers and other brewers and for which a deposit is received. The deposits received on our returnable containers in the market are recorded as deposit liabilities, included as current liabilities within accounts payable and other current liabilities in the consolidated balance sheets. We estimate that the loss, breakage and deterioration of our returnable containers is comparable to the depreciation calculated on an estimated useful life of up to 4 years for bottles, 5 years for pallets, 7 years for crates, and 15 years for returnable kegs. We also own and maintain other equipment in the market related to delivery of our products to end consumers, for example on-premise dispense equipment and refrigeration units. This equipment is recorded at acquisition cost and depreciated over lives of up to 7 years, depending on the market, reflecting the use of the equipment, as well as the loss and deterioration of the asset.
The costs of acquiring or developing internal-use computer software, including directly-related payroll costs for internal resources, are capitalized and classified within properties. Software maintenance and training costs are expensed in the period incurred. Implementation costs incurred in hosting arrangements that are service contracts are also capitalized within properties. Software maintenanceother assets and training costs are expensed in the period incurred.immaterial.
Properties held under capitalfinance lease are depreciated using the straight-line method over the estimated useful life or the lease term, whichever is shorter, and the related depreciation is included in depreciation expense. CapitalFinance lease assets for which ownership is transferred at the end of the lease, or there is a bargain purchase option that we are reasonably certain to exercise, are amortized over the useful life that would be assigned if the asset were owned.
Goodwill and Other Intangible Assets
Goodwill is allocated to the reporting unit in which the business that created the goodwill resides. A reporting unit is an operating segment, or a business unit one level below that operating segment, for which discrete financial information is prepared and regularly reviewed by segment management. As of the date of the completion of our annual2021 impairment test, performed as of October 1, the operations in each of the specific regions within our U.S., Canada, Europe and International segments are considered components based on the availability of discrete financial information and the regular review by segment management. Wetesting, we have concluded that the components within the U.S., Canada and Europe segments each meet the criteria as having similar economic characteristics and thereforewe have aggregated these components into the U.S., Canada and Europe2 reporting units, respectively. Additionally, we determined that the components within our International segment do not meet the criteria for aggregation with the exception of the operations of our India businesses, which constitute a separate reporting unit. Americas and EMEA&APAC. See further discussion in Note 10, "Goodwill and Intangibles." As required, we evaluate the carrying value of our goodwill and indefinite-lived intangible assets for impairment at the reporting unit level at least annually or when an interim triggering event occurs that would indicate that impairment may have taken place. Our annual test is performed as of the first day of our fiscal fourth quarter. We continuously monitor the performance of our other definite-lived intangible assets and evaluate for impairment when evidence exists that certain events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Significant judgments and assumptions are required in such impairment evaluations. Definite-lived intangible assets are stated at cost less accumulated
amortization. Amortization is recorded using the straight-line method over the estimated lives of the assets as this approximates the pattern in which the assets economic benefits are consumed.
Equity Method Investments
We apply the equity method of accounting to 20% to 50% owned investments where we exercise significant influence or VIEs for which we are not the primary beneficiary. We use the cumulative earnings approach for determining cash flow presentation of cash distributions received from equity method investees.investments. Distributions received are included in our consolidated statements of cash flows as operating activities, unless the cumulative distributions exceed our portion of the cumulative equity in the net earnings of the equity method investment, in which case the excess distributions are deemed to be returns of the investment and are classified as investing activities in our consolidated statements of cash flows. EquitySee Note 4, "Investments" for further information regarding our equity method investments as of December 31, 2018, include Brewers' Retail, Inc. ("BRI") and Brewers' Distributor Ltd. ("BDL") in Canada.investments. There are no related parties that own interests in our equity method investments as of December 31, 2018.2021.
Derivative Hedging Instruments
We use derivatives as part of our normal business operations to manage our exposure to fluctuations in interest rates, foreign currency exchange, commodity prices, production and packaging material costs and for other strategic purposes related to our core business. We enter into derivatives for risk management purposes only, including derivatives designated in hedge accounting relationships as well as those derivatives utilized as economic hedges. We do not enter into derivatives for trading or speculative purposes. We recognize our derivatives on the consolidated balance sheets as assets or liabilities at fair value and are classified in either current or non-current assets or liabilities based on each contract's respective unrealized gain or loss position and each contract's respective maturity. Our policy is to present all derivative balances on a gross basis, without regard to counterparty master netting agreements or similar arrangements. Further, our current derivative agreements do not allow us to net positions with the same counterparty and therefore, we present our derivative positions gross in our consolidated balance sheets.
Changes in fair values of outstanding cash flow and net investment hedges are recorded in OCI, until earnings are affected by the variability of cash flows of the underlying hedged item or the sale of the underlying net investment, respectively. Effective cash flow hedges offset the gains or losses recognized on the underlying exposure in the consolidated statements of operations, or for net investment hedges, the foreign exchange translation gain or loss recognized in AOCI. Changes in fair value of outstanding fair value hedges and the offsetting changes in fair value of the hedged item are recognized in earnings. Changes in fair value of the derivative attributable to components allowed to be excluded from the assessment of hedge effectiveness are deferred in AOCI and recognized in earnings over the life of the hedge.
We record realized gains and losses from derivative instruments in the same financial statement line item as the hedged item/forecasted transaction. Changes in unrealized gains and losses for derivatives not designated in a hedge accounting relationship are recorded directly in earnings each period and are also recorded in the same financial statement line item as the hedged item/forecasted transaction. Cash flows from the settlement of derivatives, including both economic hedges and those designated in hedge accounting relationships, appear in the consolidated statements of cash flows in the same categories as the cash flows of the hedged item.item unless the instruments are deemed to contain an other-than-insignificant financing element, in which case the cash flows related to this instrument will be classified as financing activities.
In accordance with authoritative accounting guidance, we do not record the fair value of derivatives for which we have elected the Normal Purchase Normal Sale ("NPNS") exemption. We account for these contracts on an accrual basis, recording realized settlements related to these contracts in the same financial statement line items as the corresponding transaction.
Leases
We account for leases in accordance with Accounting Standards Codification (“ASC”) Topic 842, Leases, which we adopted on January 1, 2019, electing not to adjust comparative periods presented and applying a modified retrospective transition approach as of the effective date of adoption.
We enter into contractual arrangements for the utilization of certain non-owned assets, primarily real estate and equipment, which are evaluated as finance or operating leases upon commencement, and are accounted for accordingly. Specifically, under ASC 842, a contract is or contains a lease when, (1) the contract contains an explicitly or implicitly identified asset and (2) the customer obtains substantially all of the economic benefits from the use of that underlying asset and directs how and for what purpose the asset is used during the term of the contract in exchange for consideration. We assess whether an arrangement is or contains a lease at inception of the contract. For all contractual arrangements deemed to be leases (other than short-term leases), as of the lease commencement date, we recognize on the consolidated balance sheet a liability for our obligation related to the lease and a corresponding asset representing our right to use the underlying asset over the period of use.
For leases that qualify as short-term leases, we have elected, for all classes of underlying assets, to not apply the balance sheet recognition requirements of ASC 842, and instead, we recognize the lease payments in the consolidated statements of operations on a straight-line basis over the lease term. We have also made the election, for our existing real estate and equipment classes of underlying assets, to account for lease and non-lease components as a single lease component.
Our leases have remaining lease terms of up to approximately 17 years. Certain of our lease agreements contain options to extend or early terminate the agreement. The lease term used to calculate the right-of-use ("ROU") asset and lease liability at commencement includes the impacts of options to extend or terminate the lease when it is reasonably certain that we will exercise that option. When determining whether it is reasonably certain that we will exercise an option at commencement, we consider various existing economic factors, including real estate strategies, the nature, length, and terms of the agreement, as well as the uncertainty of the condition of leased equipment at the end of the lease term. Based on these determinations, we generally conclude that the exercise of renewal options would not be reasonably certain in determining the lease term at commencement. Assumptions made at the commencement date are re-evaluated upon occurrence of certain events requiring a lease modification. Additionally, for certain equipment leases involving groups of similar leased assets with similar lease terms, we apply a portfolio approach to effectively account for the operating lease right-of-use assets and liabilities.
The discount rate used to calculate the present value of the future minimum lease payments is the rate implicit in the lease, when readily determinable. As the rate implicit in the lease is rarely readily determinable, we use our incremental borrowing rate relative to the leased asset in all other cases.
Certain of our leases include variable payments, primarily for items such as property taxes, insurance, maintenance, and other operating expenses associated with leased assets. These variable payments are excluded from the measurement of our lease assets and liabilities and are recognized in the period in which the obligation for those payments is incurred. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Lease-related expense is recorded within either cost of goods sold or marketing, general and administrative expenses on the consolidated statements of operations, depending on the function of the underlying leased asset, with the exception of interest on finance lease liabilities, which is recorded within interest expense on the consolidated statements of operations.
Pension and Postretirement Benefits
We maintain retirement plans for the majority of our employees. We offer different types of plans within each segment, including defined benefit plans, defined contribution plans and OPEB plans. Each plan is managed locally and in accordance with respective local laws and regulations. Our equity investments, BRI and BDL, maintain defined benefit, defined contribution and postretirement benefitOPEB plans as well.
We recognize the underfunded or overfunded status of a defined benefit postretirement plan as an asset or liability in the consolidated balance sheets and recognize changes in the funded status in the year in which the changes occur within OCI.sheets. The funded status of a plan, measured as the difference between the fair value of plan assets and the projected benefit obligation, and the related net periodic pension cost are calculated using a number of significant actuarial assumptions. Changes in net periodic pension cost and funding status may occur in the future due to changes in these assumptions.
We use the fair value approach to calculate the market-related value of pension plan assets used to determine net periodic pension cost, which includes measuring the market-related value of plan assets at fair value for purposes of determining the expected return on plan assets and amount of gain or loss subject to amortization.
Projected benefit obligation is the actuarial present value as of the measurement date of all benefits attributed by the plan benefit formula to employee service rendered before the measurement date using assumptions as to future compensation levels and years of service if the plan benefit formula is based on those future compensation levels and years of service. Accumulated benefit obligation is the actuarial present value of benefits (whether vested or unvested) attributed by the plan benefit formula to employee service rendered before the measurement date and based on employee service and compensation, if applicable, prior to that date. Accumulated benefit obligation differs from projected benefit obligation in that it includes no assumption about future compensation levels and years of service.
We employ the corridor approach for determining each plan's potential amortization from AOCI of deferred gains and losses, which occur when actual experience differs from estimates, into our net periodic pension and postretirement benefit cost. This approach defines the "corridor" as the greater of 10% of the projected benefit obligation or 10% of the market-related value of plan assets and requires amortization of the excess net gain or loss that exceeds the corridor over the average remaining service periods of active plan participants. For plans closed to new entrants and the future accrual of benefits, the average remaining life expectancy of all plan participants (including retirees) is used.
Fair Value Measurements
The carrying amounts of our cash and cash equivalents, accounts receivable, accounts payable and other current liabilities approximate fair value as recorded due to the short-term nature of these instruments. In addition, the carrying amounts of our trade loan receivables, net of allowances, approximate fair value. The fair value of derivatives is estimated by discounting the estimated future cash flows utilizing observable market interest, foreign exchange and commodity rates adjusted for non-performance credit risk associated with our counterparties (assets) or with MCBC (liabilities)., as appropriate. Additionally, the fair value of warrants is estimated using the Black-Scholes valuation model. See Note 16, "Derivative Instruments and Hedging Activities" for additional information. Based on current market rates for similar instruments, the fair value of long-term debt is presented in Note 11, "Debt." U.S. GAAP guidance for fair value includes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques (market approach, income approach and cost approach). Our financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy.
The three levels of the hierarchy are as follows:
Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date.
Level 2—Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are less active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from, or corroborated by, observable market data by correlation or other means (market corroborated inputs).
Level 3—Unobservable inputs that reflect the assumptions that we believe market participants would use in pricing the asset or liability. We develop these inputs based on the best information available, including our own data.
Foreign CurrencyNew Accounting Pronouncements Not Yet Adopted
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of our global operations, we are exposed to market risks associated with foreign currency exchange fluctuations, volatile interest rates and commodity price risks. To manage our exposure to these market risks, we enter into certain supplier-based and market-based hedging transactions. Such transactions are allowed under our risk management policy and are monitored closely with clear controls around the activities. Our market-based transactions include a variety of derivative financial instruments, none of which are used for trading or speculative purposes. The counterparties to these market-based transactions are generally highly rated institutions. Our objective is to manage our exposures and to decrease the volatility of our earnings and cash flows as a result of changes in foreign currenciesunderlying rates and costs.
Interest Rate Risk
We are exposed to volatility in interest rates with regard to our current and future debt offerings. Specifically, we are exposed to U.S. Department of Treasury rates, Canadian government rates and LIBOR, or any such LIBOR alternative like SONIA, SOFR or EURIBOR, for example. We may from time to time enter into interest rate swaps on our current debt obligations as our hedging strategy is to achieve our desired fixed-to-floating rate debt profile such that arewe manage the functional currenciesvolatility in earnings as well as the cost of funding our operations. Further, we may enter into forward starting interest rate swaps to manage our exposure to the volatility of interest rates associated with future interest payments on a forecasted debt issuance.
See Part II - Item 8. Financial Statements and Supplementary Data, Note 11. "Debt" for the respective operations are translated at the prevailing exchange rate at the balance sheet date. Translation adjustments resulting from this process are reported as a separate componentmaturity dates of OCI. Gains and losses from foreign currency transactions are included in earnings for the period. Revenue and expenses are translated at the average exchange rates during the period.our outstanding debt instruments. 2. New Accounting Pronouncements
Adoption of New Accounting Pronouncements
Pension and Other Postretirement Benefit Plans
In August 2018, the FASB issued authoritative guidance intended to add, remove, and clarify disclosure requirements related to defined benefit pension and other postretirement plans. This guidance is effective for annual periods after
December 15, 2020, with early adoption permitted. We early adopted this guidance in the fourth quarter of 2018 on a retrospective basis. The adoption of this guidance did not have an impact on our financial position or results of operations.
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 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 following table showspresents our fixed rate debt and forward starting interest rate swaps as well as the (increase) decreaseimpact of an absolute 1% adverse change in interest rates on their respective fair values. Notional amounts and fair values are presented in USD based on the applicable exchange rate as of December 31, 2021 and December 31, 2020, respectively.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Notional amounts | | Fair Value Asset/(Liability) | | Effect of 1% Adverse Change |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | | As of December 31, 2021 | | As of December 31, 2020 | | As of December 31, 2021 | | As of December 31, 2020 | | As of December 31, 2021 | | As of December 31, 2020 |
USD denominated fixed rate debt | | $ | 5,400.0 | | | $ | 6,400.0 | | | $ | (5,952.7) | | | $ | (7,211.4) | | | $ | (200.0) | | | $ | (213.2) | |
Foreign currency denominated fixed rate debt | | $ | 1,701.0 | | | $ | 1,763.1 | | | $ | (1,763.1) | | | $ | (1,861.3) | | | $ | (10.5) | | | $ | (6.5) | |
Forward starting interest rate swaps | | $ | 1,500.0 | | | $ | 1,500.0 | | | $ | (170.8) | | | $ | (221.5) | | | $ | (160.5) | | | $ | (177.1) | |
Foreign Exchange Risk
Foreign currency exchange risk is inherent in our operations primarily due to operating results that are denominated in currencies other than the USD. We closely monitor our operations in each country and seek to adopt appropriate strategies that are responsive to foreign currency fluctuations. Our financial risk management policy is intended to offset a portion of the potentially unfavorable impact of exchange rates on our earnings and cash flows.
Changes in foreign currency exchange rates affect the translation of local currency balances of foreign subsidiaries, transaction gains and losses associated with intercompany loans with foreign subsidiaries, royalty agreements and transactions denominated in currencies other than the USD, and their related cash flows, specifically related to the purchase of production inputs and imports, as well as our foreign currency-denominated debt. See Part II - Item, 8. Financial Statements and Supplementary Data, Note 1. "Basis of Presentation and Summary of Significant Accounting Policies" for our accounting policy over the respective line item withinaccounting for translation adjustments and foreign currency transactions. Approximately $3.0 billion, or 30%, of our net sales was denominated in functional currencies other than the consolidated statement of operations for consolidated and segment reporting amountsUSD for the year ended December 31, 2017. There was no2021. As a result, fluctuations in foreign currency exchange rates other than the USD, particularly the CAD and the GBP, may have a material impact to the International segment in 2017.
|
| | | | | | | | | | | | | | | | | | | |
| Corporate | | Europe | | U.S. | | Canada | | Consolidated |
Cost of goods sold | $ | — |
| | $ | (27.5 | ) | | $ | 7.3 |
| | $ | 0.7 |
| | $ | (19.5 | ) |
Marketing, general and administrative expenses | — |
| | (18.6 | ) | | (0.6 | ) | | (0.4 | ) | | (19.6 | ) |
Special items, net | — |
| | — |
| | (5.4 | ) | | (2.9 | ) | | (8.3 | ) |
Other pension and postretirement benefits (costs), net | 47.4 |
| | — |
| | — |
| | — |
| | 47.4 |
|
Total | $ | 47.4 |
| | $ | (46.1 | ) | | $ | 1.3 |
| | $ | (2.6 | ) | | $ | — |
|
The following table shows the (increase) decrease for the respective line item within the consolidated statement of operations for consolidated and segment reporting amounts foron our reported results. For the year ended December 31, 2016.2021, net sales denominated in CAD and GBP was approximately $1.3 billion and $1.0 billion, respectively.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Corporate | | International | | Europe | | U.S. | | Canada | | Consolidated |
Cost of goods sold | $ | — |
| | $ | — |
| | $ | (7.3 | ) | | $ | (1.0 | ) | | $ | (3.2 | ) | | $ | (11.5 | ) |
Marketing, general and administrative expenses | 0.1 |
| | 0.1 |
| | (4.8 | ) | | (1.4 | ) | | (1.4 | ) | | (7.4 | ) |
Special items, net | — |
| | — |
| | — |
| | — |
| | 10.5 |
| | 10.5 |
|
Other pension and postretirement benefits (costs), net | 8.4 |
| | — |
| | — |
| | — |
| | — |
| | 8.4 |
|
Total | $ | 8.5 |
| | $ | 0.1 |
| | $ | (12.1 | ) | | $ | (2.4 | ) | | $ | 5.9 |
| | $ | — |
|
Revenue Recognition
In May 2014,We manage our foreign currency exposures through foreign currency forward contracts and net investment hedges. Our EUR foreign-denominated debt is a net investment hedge against our investment in our Europe business in order to hedge a portion of the FASB issued authoritative guidanceforeign currency translational impacts. The changes in fair value of the net investment hedge due to the fluctuations in the spot rate is recorded to AOCI. Our foreign currency forward contracts manage our exposure related to new accounting requirements forcertain royalty agreements, the recognitionpurchase of revenue from contractsproduction inputs and imports that are denominated in currencies other than the functional entity's local currency and other foreign currency exchange exposure.
From time to time, we may enter into cross currency swaps. We settled the cross currency swaps associated 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$1.0 billion notes when they were repaid on July 15, 2021 and related amendmentshad no cross currency swaps outstanding as of January 1, 2018, applying the modified retrospective transition approachDecember 31, 2021.
The following table includes details of our foreign currency forwards used to all contracts. Based onhedge 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 customersforeign exchange rate risk as well as the timingimpact of recognition of certain promotional discounts. Specifically, certain cash payments to customers were previously recorded within marketing, general and administrative expensesa hypothetical 10% adverse change in the consolidated statements of operations. Uponrelated foreign currency exchange rates on the adoptionfair value of the new guidance, manyforeign currency forwards. Notional amounts and fair values are presented in USD based on the applicable exchange rate as of these cash payments did not meet the specific criteria within the new guidance of providing a “distinct” good or service,December 31, 2021 and therefore, were required to be presented as a reduction of revenue.December 31, 2020. The impact of this change resulted in a reduction of revenue and marketing, general and administrative expenses by approximately $60 million during 2018, primarily within our Canada segment, with no impact to net income. Furthermore,
upon adoption of the new guidance, certainmajority of our promotional discounts whichoutstanding foreign currency forwards will mature in fiscal 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Notional amounts | | Fair Value Asset/(Liability) | | Effect of 10% Adverse Change |
(in millions) | | As of December 31, 2021 | | As of December 31, 2020 | | As of December 31, 2021 | | As of December 31, 2020 | | As of December 31, 2021 | | As of December 31, 2020 |
Foreign currency denominated fixed rate debt | | $ | 1,701.0 | | | $ | 1,763.1 | | | $ | (1,763.1) | | | $ | (1,861.3) | | | $ | (171.9) | | | $ | (190.4) | |
Foreign currency Forwards | | $ | 170.8 | | | $ | 181.2 | | | $ | (1.5) | | | $ | (4.9) | | | $ | (19.0) | | | $ | (20.5) | |
Commodity Price Risk
We 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. This change in recognition timing has shifted financial statement recognition primarily amongst quarters, however, the full-year impact was not 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 primarilyexposed to the accelerated recognitionvolatility in commodity prices as we use commodities in the production and distribution of certain promotional discounts. Resultsour products. We specifically hedge our exposure to fluctuations in the price of natural gas, aluminum, barley and wheat. We utilize market-based derivatives and long-term supplier-based contracts, specifically a combination of purchase orders, long-term supply contracts and over-the-counter financial instruments to mitigate our commodity price risk by establishing price certainty for reporting periods beginning after January 1, 2018,commodities that are presented under the new guidance, while prior period amounts have not been adjusted and continue to be reportedused in accordance with historical accounting guidance. our supply chain.
The following tables provide a comparisontable includes details of our current period results of operationscommodity swaps and financial position under the new guidance, versus our financial statements if the historical guidance had continuedoptions used to be applied:
|
| | | | | | | | | | | |
| Year ended December 31, 2018 |
| Under Historical Guidance | | As Reported Under New Guidance | | Effect of Change |
| (In millions, except per share data) |
Consolidated Statement of Operations: | |
Sales | $ | 13,393.5 |
| | $ | 13,338.0 |
| | $ | (55.5 | ) |
Excise taxes | (2,568.4 | ) | | (2,568.4 | ) | | — |
|
Net sales | 10,825.1 |
| | 10,769.6 |
| | (55.5 | ) |
Cost of goods sold | (6,584.8 | ) | | (6,584.8 | ) | | — |
|
Gross profit | 4,240.3 |
| | 4,184.8 |
| | (55.5 | ) |
Marketing, general and administrative expenses | (2,862.4 | ) | | (2,802.7 | ) | | 59.7 |
|
Special items, net | 249.7 |
| | 249.7 |
| | — |
|
Operating income (loss) | 1,627.6 |
| | 1,631.8 |
| | 4.2 |
|
Interest expense | (306.2 | ) | | (306.2 | ) | | — |
|
Interest income | 11.4 |
| | 8.0 |
| | (3.4 | ) |
Other pension and postretirement benefits (costs), net | 38.2 |
| | 38.2 |
| | — |
|
Other income (expense), net | (12.0 | ) | | (12.0 | ) | | — |
|
Income (loss) before income taxes | 1,359.0 |
| | 1,359.8 |
| | 0.8 |
|
Income tax benefit (expense) | (225.1 | ) | | (225.2 | ) | | (0.1 | ) |
Net income (loss) | 1,133.9 |
| | 1,134.6 |
| | 0.7 |
|
Net (income) loss attributable to noncontrolling interests | (18.1 | ) | | (18.1 | ) | | — |
|
Net income (loss) attributable to MCBC | $ | 1,115.8 |
| | $ | 1,116.5 |
| | $ | 0.7 |
|
Basic net income (loss) attributable to MCBC per share | $ | 5.17 |
| | $ | 5.17 |
| | $ | — |
|
Diluted net income (loss) attributable to MCBC per share | $ | 5.15 |
| | $ | 5.15 |
| | $ | — |
|
|
| | | | | | | | | | | |
| As of December 31, 2018 |
| Under Historical Guidance | | As Reported Under New Guidance | | Effect of Change |
| (In millions) |
Consolidated Balance Sheet: | |
Assets | | | | | |
Trade accounts receivable, net | $ | 735.9 |
| | $ | 736.0 |
| | $ | 0.1 |
|
Other current assets, net | $ | 242.4 |
| | $ | 245.6 |
| | $ | 3.2 |
|
Liabilities and equity | | | | | |
Accounts payable and other current liabilities | $ | 2,667.4 |
| | $ | 2,706.4 |
| | $ | 39.0 |
|
Deferred tax liabilities | $ | 2,137.7 |
| | $ | 2,128.9 |
| | $ | (8.8 | ) |
Retained earnings | $ | 7,720.0 |
| | $ | 7,692.9 |
| | $ | (27.1 | ) |
Accumulated other comprehensive income (loss)
| $ | (1,150.2 | ) | | $ | (1,150.0 | ) | | $ | 0.2 |
|
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,hedge commodity price risk as well as the impact of a hypothetical 10% adverse change in the timingrelated commodity prices on the fair value of recognitionthe derivatives. Notional amounts and fair values are presented in USD based on the applicable exchange rate as of certain promotional discountsDecember 31, 2021 and cash paymentsDecember 31, 2020. Approximately 62% of commodity swaps mature in 2022, 33% mature in 2023, and 5% mature in 2024 and thereafter.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Notional amounts | | Fair Value Asset/(Liability) | | Effect of 10% Adverse Change |
(in millions) | | As of December 31, 2021 | | As of December 31, 2020 | | As of December 31, 2021 | | As of December 31, 2020 | | As of December 31, 2021 | | As of December 31, 2020 |
Swaps | | $ | 722.1 | | | $ | 918.9 | | | $ | 300.8 | | | $ | 65.2 | | | $ | (95.7) | | | $ | (96.0) | |
Options | | $ | 68.2 | | | $ | 16.8 | | | $ | 0.1 | | | $ | — | | | $ | — | | | $ | — | |
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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MANAGEMENT'S REPORT
The preparation, integrity and objectivity of the financial statements and all other financial information included in this annual report are the responsibility of the management of Molson Coors Beverage Company. The financial statements have been prepared in accordance with generally accepted accounting principles in the United States, applying estimates based on management's best judgment where necessary. Management believes that all material uncertainties have been appropriately accounted for and disclosed.
Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2021, based on the framework and criteria established in Internal Control—Integrated Framework (2013 Framework), issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon its assessment, management concluded that, as of December 31, 2021, the Company's internal control over financial reporting was effective.
PricewaterhouseCoopers LLP, the Company's independent registered public accounting firm, provides an objective, independent audit of the consolidated financial statements and internal control over financial reporting. Their accompanying report is based upon an examination conducted in accordance with standards of the Public Company Accounting Oversight Board (United States), including tests of accounting procedures, records and internal control.
The Board of Directors, operating through its Audit Committee composed of independent, outside directors, monitors the Company's accounting control systems and reviews the results of the Company's auditing activities. The Audit Committee meets at least quarterly, either separately or jointly, with representatives of management, PricewaterhouseCoopers LLP, and internal auditors. To ensure complete independence, PricewaterhouseCoopers LLP and the Company's internal auditors have full and free access to customers. This adoption had no impact to ourthe Audit Committee and may meet with or without the presence of management.
| | | | | | | | |
/s/ GAVIN D.K. HATTERSLEY | | /s/ TRACEY I. JOUBERT |
Gavin D.K. Hattersley | | Tracey I. Joubert |
President & Chief Executive Officer | | Chief Financial Officer |
Molson Coors Beverage Company | | Molson Coors Beverage Company |
February 23, 2022 | | February 23, 2022 |
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Molson Coors Beverage Company
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Molson Coors Beverage Company and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, of comprehensive income (loss), of stockholders’ equity and noncontrolling interests and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2021 appearing under Item 15(c) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from operating, investingthe current period audit of the consolidated financial statements that was communicated or financing activities. required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill Impairment Assessment - Americas Reporting Unit
As described in Notes 1 and 10 to the consolidated financial statements, the Company’s goodwill balance related to the Americas reporting unit as of December 31, 2021 is $6,153 million. The carrying value of goodwill is evaluated for impairment at the reporting unit level at least annually or when an interim triggering event occurs that would indicate that impairment may have taken place. The Company’s annual impairment test is performed as of the first day of the fiscal fourth quarter. As disclosed by management, the evaluation involves comparing the reporting unit’s fair value to its carrying value. If the reporting unit’s carrying value exceeds its fair value, the Company would recognize an impairment loss in an amount equal to the excess up to the total amount of goodwill allocated to the reporting unit. A combination of a discounted cash flow analysis and market approach is used to determine the fair value of the reporting unit. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. Examples of events or circumstances that could reasonably be expected to negatively affect the underlying key assumptions and ultimately impact the estimated fair value of the Company’s reporting unit may include (i) as disclosed by management, growth rates for sales, costs and profits, which are based on various long-range financial and operational plans; (ii) prolonged weakening of economic conditions; or (iii) significant unfavorable changes in tax rates, environmental or other regulations, including interpretations thereof, terminal growth rates, market multiples and / or weighted average cost of capital utilized in the discounted cash flow analysis.
The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment for the Americas reporting unit is a critical audit matter are (i) the significant judgment by management when determining the fair value of the Americas reporting unit; (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating management’s significant assumptions related to the weighted average cost of capital, growth rates for sales, and market multiples; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including controls over the valuation of the Americas reporting unit. These procedures also included, among others (i) testing management’s process for determining the fair value of the Americas reporting unit; (ii) evaluating the appropriateness of the discounted cash flow analysis and market approach; (iii) testing the completeness and accuracy of underlying data used in the discounted cash flow analysis and market approach; and (iv) evaluating the reasonableness of significant assumptions used by management related to the weighted average cost of capital, growth rates for sales, and market multiples. Evaluating the significant assumptions related to growth rates for sales involved evaluating whether the assumptions used were reasonable considering (i) the current and past performance of the Americas reporting unit; (ii) the consistency with external market and industry data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of (i) the appropriateness of the Company’s discounted cash flow analysis and market approach and (ii) the reasonableness of the weighted average cost of capital and market multiple significant assumptions.
/s/ PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
February 23, 2022
We have served as the Company’s auditor since 1974.
MOLSON COORS BEVERAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE DATA) | | | | | | | | | | | | | | | | | |
| For the Years Ended |
| December 31, 2021 | | December 31, 2020 | | December 31, 2019 |
Sales | $ | 12,449.9 | | | $ | 11,723.8 | | | $ | 13,009.1 | |
Excise taxes | (2,170.2) | | | (2,069.8) | | | (2,429.7) | |
Net sales | 10,279.7 | | | 9,654.0 | | | 10,579.4 | |
Cost of goods sold | (6,226.3) | | | (5,885.7) | | | (6,378.2) | |
Gross profit | 4,053.4 | | | 3,768.3 | | | 4,201.2 | |
Marketing, general and administrative expenses | (2,554.5) | | | (2,437.0) | | | (2,728.0) | |
Special items, net | (44.5) | | | (1,740.2) | | | (708.8) | |
Operating income (loss) | 1,454.4 | | | (408.9) | | | 764.4 | |
Other income (expense), net | | | | | |
Interest expense | (260.3) | | | (274.6) | | | (280.9) | |
Interest income | 2.0 | | | 3.3 | | | 8.2 | |
Other pension and postretirement benefits (costs), net | 46.4 | | | 30.3 | | | 2.9 | |
Other income (expense), net | (3.5) | | | 6.0 | | | (14.7) | |
Total other income (expense), net | (215.4) | | | (235.0) | | | (284.5) | |
Income (loss) before income taxes | 1,239.0 | | | (643.9) | | | 479.9 | |
Income tax benefit (expense) | (230.5) | | | (301.8) | | | (233.7) | |
Net income (loss) | 1,008.5 | | | (945.7) | | | 246.2 | |
Net (income) loss attributable to noncontrolling interests | (2.8) | | | (3.3) | | | (4.5) | |
Net income (loss) attributable to Molson Coors Beverage Company | $ | 1,005.7 | | | $ | (949.0) | | | $ | 241.7 | |
| | | | | |
Net income (loss) attributable to Molson Coors Beverage Company per share: | | | | | |
Basic | $ | 4.63 | | | $ | (4.38) | | | $ | 1.12 | |
Diluted | $ | 4.62 | | | $ | (4.38) | | | $ | 1.11 | |
| | | | | |
Weighted-average shares outstanding: | | | | | |
Basic | 217.1 | | | 216.8 | | | 216.6 | |
Dilutive effect of share-based awards | 0.5 | | | — | | | 0.3 | |
Diluted | 217.6 | | | 216.8 | | | 216.9 | |
| | | | | |
Anti-dilutive securities excluded from computation of diluted EPS | 1.8 | | | 2.7 | | | 1.3 |
See notes to consolidated financial statements.
MOLSON COORS BEVERAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN MILLIONS) | | | | | | | | | | | | | | | | | |
| For the Years Ended |
| December 31, 2021 | | December 31, 2020 | | December 31, 2019 |
Net income (loss) including noncontrolling interests | $ | 1,008.5 | | | $ | (945.7) | | | $ | 246.2 | |
Other comprehensive income (loss), net of tax: | | | | | |
Foreign currency translation adjustments | (28.4) | | | 113.6 | | | 177.6 | |
Reclassification of cumulative translation adjustment to income (loss) | 7.5 | | | — | | | — | |
Unrealized gain (loss) on derivative instruments | 37.4 | | | (85.7) | | | (84.2) | |
Reclassification of derivative (gain) loss to income | 5.5 | | | (0.4) | | | 0.5 | |
Pension and other postretirement benefit adjustments | 118.4 | | | (39.9) | | | (39.8) | |
Amortization of net prior service (benefit) cost and net actuarial (gain) loss to income and settlement | 5.4 | | | (5.2) | | | 19.7 | |
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Ownership share of unconsolidated subsidiaries' other comprehensive income (loss) | 15.5 | | | 14.2 | | | (10.6) | |
Total other comprehensive income (loss), net of tax | 161.3 | | | (3.4) | | | 63.2 | |
Comprehensive income (loss) | 1,169.8 | | | (949.1) | | | 309.4 | |
Comprehensive (income) loss attributable to noncontrolling interests | (2.3) | | | (5.5) | | | (5.1) | |
Comprehensive income (loss) attributable to Molson Coors Beverage Company | $ | 1,167.5 | | | $ | (954.6) | | | $ | 304.3 | |
See notes to consolidated financial statements.
MOLSON COORS BEVERAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT PAR VALUE)
| | | | | | | | | | | |
| As of |
| December 31, 2021 | | December 31, 2020 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 637.4 | | | $ | 770.1 | |
Accounts and other receivables: | | | |
Trade, less allowance for doubtful accounts of $19.0 and $18.1, respectively | 662.7 | | | 549.6 | |
Affiliate receivables | 16.2 | | | 8.4 | |
Other receivables, less allowance for doubtful accounts of $2.5 and $2.4, respectively | 200.5 | | | 129.1 | |
Inventories, less allowance for obsolete inventories of $25.8 and $22.0, respectively | 804.7 | | | 664.3 | |
Other current assets, net | 457.2 | | | 297.3 | |
Total current assets | 2,778.7 | | | 2,418.8 | |
Properties, less accumulated depreciation of $3,507.2 and $3,416.4, respectively | 4,192.4 | | | 4,250.3 | |
Goodwill | 6,152.6 | | | 6,151.0 | |
Other intangibles, less accumulated amortization of $1,406.3 and $1,206.5, respectively | 13,286.8 | | | 13,556.1 | |
Other assets | 1,208.5 | | | 954.9 | |
Total assets | $ | 27,619.0 | | | $ | 27,331.1 | |
Liabilities and equity | | | |
Current liabilities: | | | |
Accounts payable and other current liabilities (includes affiliate payables of $4.1 and $0.5, respectively) | $ | 3,107.3 | | | $ | 2,889.5 | |
Current portion of long-term debt and short-term borrowings | 514.9 | | | 1,020.1 | |
Total current liabilities | 3,622.2 | | | 3,909.6 | |
Long-term debt | 6,647.2 | | | 7,208.2 | |
Pension and postretirement benefits | 654.4 | | | 763.2 | |
Deferred tax liabilities | 2,704.6 | | | 2,381.6 | |
Other liabilities | 326.5 | | | 447.2 | |
Total liabilities | 13,954.9 | | | 14,709.8 | |
Commitments and contingencies (Note 18) | 0 | | 0 |
Molson Coors Beverage 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 (authorized: 500.0 shares; issued and outstanding: 2.6 shares and 2.6 shares, respectively) | — | | | — | |
Class B common stock, $0.01 par value (authorized: 500.0 shares; issued: 210.1 shares and 209.8 shares, respectively) | 2.1 | | | 2.1 | |
Class A exchangeable shares, no par value (issued and outstanding: 2.7 shares and 2.7 shares, respectively) | 102.2 | | | 102.3 | |
Class B exchangeable shares, no par value (issued and outstanding: 11.1 shares and 11.1 shares, respectively) | 417.8 | | | 417.8 | |
Paid-in capital | 6,970.9 | | | 6,937.8 | |
Retained earnings | 7,401.5 | | | 6,544.2 | |
Accumulated other comprehensive income (loss) | (1,006.0) | | | (1,167.8) | |
Class B common stock held in treasury at cost (9.5 shares and 9.5 shares, respectively) | (471.4) | | | (471.4) | |
Total Molson Coors Beverage Company stockholders' equity | 13,417.1 | | | 12,365.0 | |
Noncontrolling interests | 247.0 | | | 256.3 | |
Total equity | 13,664.1 | | | 12,621.3 | |
Total liabilities and equity | $ | 27,619.0 | | | $ | 27,331.1 | |
See notes to consolidated financial statements.
MOLSON COORS BEVERAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS) | | | | | | | | | | | | | | | | | |
| For the Years Ended |
| December 31, 2021 | | December 31, 2020 | | December 31, 2019 |
Cash flows from operating activities: | | | | | |
Net income (loss) including noncontrolling interests | $ | 1,008.5 | | | $ | (945.7) | | | $ | 246.2 | |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | | | |
Depreciation and amortization | 786.1 | | | 922.0 | | | 859.0 | |
Amortization of debt issuance costs and discounts | 6.7 | | | 8.1 | | | 13.6 | |
Share-based compensation | 32.1 | | | 24.2 | | | 8.5 | |
(Gain) loss on sale or impairment of properties and other assets, net | 9.1 | | | 1,553.5 | | | 614.7 | |
Unrealized (gain) loss on foreign currency fluctuations and derivative instruments, net | (233.8) | | | (111.4) | | | 18.9 | |
Income tax (benefit) expense | 230.5 | | | 301.8 | | | 233.7 | |
Income tax (paid) received | (227.0) | | | (127.0) | | | (57.0) | |
Interest expense, excluding amortization of debt issuance costs and discounts | 253.6 | | | 266.0 | | | 272.4 | |
Interest paid | (256.2) | | | (271.9) | | | (285.0) | |
Change in current assets and liabilities (net of impact of business combinations) and other: | | | | | |
Receivables | (137.6) | | | 160.8 | | | 38.5 | |
Inventories | (143.9) | | | (46.2) | | | (17.7) | |
Payables and other current liabilities | 285.5 | | | (50.1) | | | (53.0) | |
Other assets and other liabilities | (40.1) | | | 11.6 | | | 4.5 | |
Net cash provided by (used in) operating activities | 1,573.5 | | | 1,695.7 | | | 1,897.3 | |
Cash flows from investing activities: | | | | | |
Additions to properties | (522.6) | | | (574.8) | | | (593.8) | |
Proceeds from sales of properties and other assets | 26.0 | | | 158.8 | | | 115.9 | |
| | | | | |
| | | | | |
| | | | | |
Other | (13.3) | | | 2.4 | | | 44.6 | |
Net cash provided by (used in) investing activities | (509.9) | | | (413.6) | | | (433.3) | |
Cash flows from financing activities: | | | | | |
| | | | | |
Exercise of stock options under equity compensation plans | 4.6 | | | 4.1 | | | 1.6 | |
Dividends paid | (147.8) | | | (125.3) | | | (424.4) | |
| | | | | |
Payments on debt and borrowings | (1,006.6) | | | (918.9) | | | (1,586.2) | |
Proceeds on debt and borrowings | — | | | 1.5 | | | 3.0 | |
Net proceeds from (payments on) revolving credit facilities and commercial paper | 1.4 | | | — | | | (4.7) | |
Other | (23.8) | | | (31.8) | | | 3.7 | |
Net cash provided by (used in) financing activities | (1,172.2) | | | (1,070.4) | | | (2,007.0) | |
Cash and cash equivalents: | | | | | |
Net increase (decrease) in cash and cash equivalents | (108.6) | | | 211.7 | | | (543.0) | |
Effect of foreign exchange rate changes on cash and cash equivalents | (24.1) | | | 35.0 | | | 8.5 | |
Balance at beginning of year | 770.1 | | | 523.4 | | | 1,057.9 | |
Balance at end of year | $ | 637.4 | | | $ | 770.1 | | | $ | 523.4 | |
MOLSON COORS BEVERAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND NONCONTROLLING INTERESTS
(IN MILLIONS)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Molson Coors Beverage Company Stockholders' Equity | | |
| | | Common stock | | Exchangeable | | | | | | Accumulated other | | Common Stock 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 |
Balance as of December 31, 2018 | $ | 13,735.8 | | | $ | — | | | $ | 2.0 | | | $ | 103.2 | | | $ | 557.6 | | | $ | 6,773.1 | | | $ | 7,692.9 | | | $ | (1,150.0) | | | $ | (471.4) | | | $ | 228.4 | |
Exchange of shares | — | | | — | | | — | | | (0.7) | | | 0.2 | | | 0.5 | | | — | | | — | | | — | | | — | |
Shares issued under equity compensation plan | (8.3) | | | — | | | 0.1 | | | — | | | — | | | (8.4) | | | — | | | — | | | — | | | — | |
Amortization of share-based compensation | 8.3 | | | — | | | — | | | — | | | — | | | 8.3 | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | |
Purchase of noncontrolling interest | 0.6 | | | — | | | — | | | — | | | — | | | 0.1 | | | — | | | — | | | — | | | 0.5 | |
Deconsolidation of VIE | (1.7) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1.7) | |
Net income (loss) including noncontrolling interests | 246.2 | | | — | | | — | | | — | | | — | | | — | | | 241.7 | | | — | | | — | | | 4.5 | |
Other comprehensive income (loss), net of tax | 63.2 | | | — | | | — | | | — | | | — | | | — | | | — | | | 62.6 | | | — | | | 0.6 | |
Adoption of lease accounting standard | 32.0 | | | — | | | — | | | — | | | — | | | — | | | 32.0 | | | — | | | — | | | — | |
Reclassification of stranded tax effects | — | | | — | | | — | | | — | | | — | | | — | | | 74.8 | | | (74.8) | | | — | | | — | |
Contributions from noncontrolling interests | 34.1 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 34.1 | |
Distributions and dividends to noncontrolling interests | (12.7) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (12.7) | |
Dividends declared | (424.4) | | | — | | | — | | | — | | | — | | | — | | | (424.4) | | | — | | | — | | | — | |
Balance as of December 31, 2019 | $ | 13,673.1 | | | $ | — | | | $ | 2.1 | | | $ | 102.5 | | | $ | 557.8 | | | $ | 6,773.6 | | | $ | 7,617.0 | | | $ | (1,162.2) | | | $ | (471.4) | | | $ | 253.7 | |
Exchange of shares | — | | | — | | | — | | | (0.2) | | | (140.0) | | | 140.2 | | | — | | | — | | | — | | | — | |
Shares issued under equity compensation plan | (0.5) | | | — | | | — | | | — | | | — | | | (0.5) | | | — | | | — | | | — | | | — | |
Amortization of share-based compensation | 24.2 | | | — | | | — | | | — | | | — | | | 24.2 | | | — | | | — | | | — | | | — | |
Acquisition of business and purchase of noncontrolling interest | (0.2) | | | — | | | — | | | — | | | — | | | 0.3 | | | — | | | — | | | — | | | (0.5) | |
| | | | | | | | | | | | | | | | | | | |
Net income (loss) including noncontrolling interests | (945.7) | | | — | | | — | | | — | | | — | | | — | | | (949.0) | | | — | | | — | | | 3.3 | |
Other comprehensive income (loss), net of tax | (3.4) | | | — | | | — | | | — | | | — | | | — | | | — | | | (5.6) | | | — | | | 2.2 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Contributions from noncontrolling interests | 16.3 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 16.3 | |
Distributions and dividends to noncontrolling interests | (18.7) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (18.7) | |
Dividends declared | (123.8) | | | — | | | — | | | — | | | — | | | — | | | (123.8) | | | — | | | — | | | — | |
Balance as of December 31, 2020 | $ | 12,621.3 | | | $ | — | | | $ | 2.1 | | | $ | 102.3 | | | $ | 417.8 | | | $ | 6,937.8 | | | $ | 6,544.2 | | | $ | (1,167.8) | | | $ | (471.4) | | | $ | 256.3 | |
Exchange of shares | — | | | — | | | — | | | (0.1) | | | — | | | 0.1 | | | — | | | — | | | — | | | — | |
Shares issued under equity compensation plan | 0.6 | | | — | | | — | | | — | | | — | | | 0.6 | | | — | | | — | | | — | | | — | |
Amortization of share-based compensation | 32.1 | | | — | | | — | | | — | | | — | | | 32.1 | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Molson Coors Beverage Company Stockholders' Equity | | |
| | | Common stock | | Exchangeable | | | | | | Accumulated other | | Common Stock 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 |
Purchase of noncontrolling interest | (0.2) | | | — | | | — | | | — | | | — | | | 0.3 | | | — | | | — | | | — | | | (0.5) | |
Net income (loss) including noncontrolling interests | 1,008.5 | | | — | | | — | | | — | | | — | | | — | | | 1,005.7 | | | — | | | — | | | 2.8 | |
Other comprehensive income (loss), net of tax | 161.3 | | | — | | | — | | | — | | | — | | | — | | | — | | | 161.8 | | | — | | | (0.5) | |
Contributions from noncontrolling interests | 3.2 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 3.2 | |
Distributions and dividends to noncontrolling interests | (14.3) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (14.3) | |
Dividends declared | (148.4) | | | — | | | — | | | — | | | — | | | — | | | (148.4) | | | — | | | — | | | — | |
Balance as of December 31, 2021 | $ | 13,664.1 | | | $ | — | | | $ | 2.1 | | | $ | 102.2 | | | $ | 417.8 | | | $ | 6,970.9 | | | $ | 7,401.5 | | | $ | (1,006.0) | | | $ | (471.4) | | | $ | 247.0 | |
See notes to consolidated financial statements.
MOLSON COORS BEVERAGE COMPANY AND SUBSIDIARIES
NOTES TO 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 Beverage Company ("MCBC" or the "Company"), principally a holding company, and its operating and non-operating subsidiaries included within our significant accounting policies for revenue recognition pursuantreporting segments. As of December 31, 2021, we changed the names of our reporting segments to the new guidance.
FinancialAmericas and Commodity Risks
In August 2017,EMEA&APAC segments (formerly named the FASB issued authoritative guidance intendedNorth America segment and Europe segment, respectively) 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, bothbetter reflect the geographic locations encompassed within the reportable segments. This change to our segment names had no impact on the facecomposition of our segments, our financial position, results of operations, cash flow or segment level results previously reported. Our Americas segment operates in the U.S., Canada and various countries in the Caribbean, Latin and South America, and our EMEA&APAC segment operates in Bulgaria, Croatia, Czech Republic, Hungary, Montenegro, the Republic of Ireland, Romania, Serbia, the U.K., various other European countries, and certain countries within the Middle East, Africa and Asia Pacific.
Unless otherwise indicated, comparisons are to comparable prior periods, and 2021, 2020 and 2019 refers to the twelve months ended December 31, 2021, December 31, 2020 and December 31, 2019, respectively.
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.
Cybersecurity Incident
During March 2021, we experienced a systems outage that was caused by a cybersecurity incident. We engaged leading forensic information technology firms and legal counsel to assist our investigation into the incident and we restored our systems after working to get the systems back up as quickly as possible. Despite these actions, we experienced delays and disruptions to our business, including brewery operations, production and shipments. This incident caused us to not produce or ship as much as we otherwise would have in the footnotes.first quarter of 2021. Subsequently, in the balance of 2021, we made progress recovering from the incident with increased shipments and have operationally recovered as of December 31, 2021. In addition, this guidance makeswe incurred certain targetedincremental one-time costs of $2.4 million for the year ended December 31, 2021 related to consultants, experts and data recovery efforts, net of insurance recoveries.
Coronavirus Global Pandemic
Starting at the end of the first quarter of 2020, the coronavirus pandemic has had a material adverse effect on our operations, liquidity, financial condition and results of operations. In 2021, we saw improvements in the marketplace related to simplify the applicationcoronavirus global pandemic as on-premise locations began to re-open around the world at varying degrees, despite setbacks in certain markets related to the outbreak of hedge accounting guidance. This guidancenew variants. The extent to which our operations will continue to be impacted by the coronavirus pandemic will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including the level of governmental or societal orders or restrictions on public gatherings and on-premise venues, including any vaccine mandates or testing requirements, the severity and duration of the coronavirus pandemic by market, including outbreaks of variants, changes in consumer behavior, the rate of vaccination and the efficacy of vaccines against the coronavirus and related variants. We continue to actively monitor the ongoing evolution of the coronavirus pandemic and resulting impacts to our business.
During 2020, we recorded charges of $15.5 million within cost of goods sold related to temporary "thank you" pay for certain essential Americas segment brewery employees. Additionally, in order to support and demonstrate our commitment to the continued viability of the many bars and restaurants which were negatively impacted by the coronavirus pandemic, during the first quarter of 2020, we initiated temporary keg relief programs in many of our markets. We committed to provide customers with reimbursements for untapped kegs that met certain established return requirements in conjunction with the voluntary programs. As a result, during 2020, we recognized a reduction to net sales of $30.3 million reflecting estimated sales returns and reimbursements through these keg relief programs.
Further, during 2020, we recognized charges of $12.1 million within cost of goods sold related to obsolete finished goods keg inventories that were not expected to be sold within our freshness specifications, as well as the costs to facilitate the above mentioned keg returns.
We continue to monitor the impacts on our customers’ liquidity and capital resources and therefore our ability to collect, or the timeliness of collection of our accounts receivable. While these receivables are not concentrated in any specific customer and our allowance on these receivables factors in expected credit loss, continued disruption and declines in the global economy could result in difficulties in our ability to collect and require increases to our allowance for doubtful accounts. As of December 31, 2021 and December 31, 2020, our allowance for trade receivables was approximately $19 million and $18 million, respectively, and allowance activity was immaterial during the year ended December 31, 2021.
In response to the ongoing impacts of the coronavirus pandemic, various governmental authorities globally announced relief programs, which among other items, provided temporary deferrals of non-income based tax payments, which positively impacted our operating cash flows in 2020. These temporary net tax payment deferrals of approximately $25 million and $130 million as of December 31, 2021 and December 31, 2020, respectively, were primarily included within accounts payable and other current liabilities on our audited consolidated balance sheets. Of the $130 million of temporary net tax payment deferrals as of December 31, 2020, approximately $105 million was repaid during the year ended December 31, 2021, with approximately $25 million outstanding as of December 31, 2021. The majority of the remaining balance is effective for annual periods beginning afterexpected to be paid during the year ended December 15, 2018, including interim periods within those annual periods,31, 2022.
We protected and supported our liquidity position in response to the global economic uncertainty created by the coronavirus pandemic. Beginning with early adoption permitted. We early adopted this guidance during the second quarter of 2018. All transition requirements have been applied to hedging relationships existing2020 through the second quarter of 2021, our board of directors suspended our regular quarterly dividends on our Class A and Class B common and exchangeable shares. A quarterly dividend was reinstated in the datethird quarter of adoption and the effect2021.
For considerations of the adoption is reflectedeffects of the coronavirus pandemic and related potential impairment risks to our goodwill and indefinite-lived intangible assets, see Note 10, "Goodwill and Intangible Assets." Revitalization Plan
On October 28, 2019, we initiated a revitalization plan designed to allow us to invest across our portfolio to drive long-term, sustainable success. The revitalization plan established Chicago, Illinois as our Americas segment operational headquarters. We closed our office in Denver, Colorado and consolidated certain administrative functions into our other existing office locations. As of January 1, 2018. The adoption2020, we changed our name to Molson Coors Beverage Company and changed our management structure to 2 segments - Americas and EMEA&APAC. We began to incur charges related to these restructuring activities during the fourth quarter of 2019 and we recognized severance and retention charges of $4.0 million, $35.6 million and $41.2 million during the years ended December 31, 2021, December 31, 2020 and December 31, 2019, respectively. As of December 31, 2021, the revitalization plan restructuring charges were substantially complete.
Principles of Consolidation
Our consolidated financial statements include our accounts and our majority-owned and controlled domestic and foreign subsidiaries, as well as certain VIEs for which we are the primary beneficiary. All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
Our consolidated financial statements are prepared in accordance with U.S. GAAP. These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions used to determine certain amounts that affect the financial statements are reasonable, based on information available at the time they are made. To the extent there are differences between these estimates and actual results, our consolidated financial statements may be materially affected.
Revenue Recognition
Our net sales represent the sale of beer, malt beverages and other adjacencies, 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 resultsignificant. 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 cumulativereduction of sales. In certain of our markets where
legally permitted, 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. 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 opening balancetransaction price.
Our primary revenue generating activity represents the sale of retained earningsbeer 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., 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.
Disaggregation of Revenue
We have evaluated our primary revenue generating activities under the disaggregation disclosure criteria outlined within the guidance and concluded that disclosure at the geographical segment level depicts how the nature, amount, timing and uncertainty of revenues and cash flows are affected by economic factors. We have also evaluated our other revenue generating activities and concluded that these activities are immaterial for separate disclosure. See Note 3, "Segment Reporting," for disclosure of revenues by geographic segment. 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.
For the years ended December 31, 2021 and December 31, 2020, 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 years ended December 31, 2021 or December 31, 2020.
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 and fulfill contracts 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 January 1, 2018,December 31, 2021 or December 31, 2020. Separately, trade accounts receivable, including affiliate receivables, approximates receivables from contracts with customers.
Shipping and didHandling
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 Taxes
Excise taxes remitted to tax authorities are government-imposed excise taxes on beer. Excise taxes are shown in a separate line item in the 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 consolidated balance sheets, with the liability subsequently reduced when the taxes are remitted to the tax authority.
Cost of Goods Sold
Our cost of goods sold includes costs we incur to make and ship beer and other malt beverages. These costs include brewing materials, such as barley, hops and various grains. Packaging materials, such as glass bottles, aluminum cans, cardboard and paperboard are also included in our cost of goods sold. Additionally, our cost of goods sold include both direct and indirect labor, shipping and handling including freight costs, utilities, maintenance costs, warehousing costs, purchasing and receiving costs, depreciation, promotional packaging, other manufacturing overheads and costs to purchase factored and other non-owned brands from suppliers, as well as the estimated cost to facilitate product returns.
Marketing, General and Administrative Expenses
Our marketing, general and administrative expenses include media advertising (television, radio, digital, print), tactical advertising (signs, banners, point-of-sale materials) and promotion costs on both local and national levels within our operating segments. The creative portion of our advertising activities is expensed as incurred. Production costs of advertising and promotional materials are expensed when the advertising is first run. Included in marketing, general and administrative expenses is total marketing and advertising expenses which were approximately $1.1 billion, $0.9 billion and $1.2 billion in 2021, 2020 and 2019, respectively. Marketing, general and administrative expenses also included integration costs of $25 million in 2019. There were no integration costs recorded in 2021 or 2020 as the activity related to the acquisition of the remaining portion of MillerCoors, which occurred on October 11, 2016 (the "Acquisition"), was completed by the end of 2019.
This classification also includes general and administrative costs for functions such as finance, legal, human resources and information technology, along with integration costs as noted above. These costs primarily consist of labor and outside services, as well as bad debt expense related to our allowance for doubtful accounts. Unless capitalization is allowed or required
by U.S. GAAP, legal costs are expensed when incurred. These costs also include our marketing and sales organizations, including labor and other overheads. This line item additionally includes amortization costs associated with intangible assets, as well as certain depreciation costs related to non-production equipment and share-based compensation.
Share-based compensation is recognized using a straight-line method over the vesting period of the awards. We include estimated forfeitures expected to occur when calculating share-based compensation expense. Our share-based compensation plan and the awards within it contain provisions that accelerate vesting of awards upon change in control, retirement, disability or death of eligible employees and directors. Our share-based awards are considered vested when the employee's retention of the award is no longer contingent on providing service, which for certain awards can result in immediate recognition for awards granted to retirement-eligible individuals or accelerated recognition for awards granted to individuals that will become retirement eligible within the stated vesting period. Also, if less than the stated vesting period, we recognize these costs over the period from the grant date to the date retirement eligibility is achieved.
Special Items, net
Our special items represent charges incurred or benefits realized 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; specifically, such items are considered to be one of the following:
•infrequent or unusual items,
•impairment or asset abandonment-related losses,
•restructuring charges and other atypical employee-related costs, or
•fees on termination of significant operating agreements and gains (losses) on disposal of investments.
The items classified as special items are not necessarily non-recurring, however, they are deemed to be incremental to income earned or costs incurred by us in conducting normal operations, and therefore are presented separately from other components of operating income.
Interest Expense, net
Our interest costs are associated with borrowings to finance our operations and acquisitions. Interest earned on our cash and cash equivalents across our business is recorded as interest income.
We capitalize interest cost as a part of the original cost of acquiring certain fixed assets if the cost of the capital expenditure and the expected time to complete the project are considered significant.
Other Income (Expense)
Our other income (expense) classification primarily includes gains and losses associated with activities not directly related to our operations. For instance, aggregate unrealized and realized foreign exchange gains and losses resulting from the remeasurement and settlement of foreign-denominated monetary assets and liabilities, as well as certain gains or losses on sales of non-operating assets and the mark-to-market activity associated with warrants and other equity securities are classified in this line item. These gains and losses are reported in the operating segment in which they occur; however, foreign exchange gains and losses on intercompany balances related to financing and other treasury-related activities remain unallocated. The initial recording of foreign-denominated transactions are classified based on the nature of the transaction, with the unrealized or realized foreign exchange gains or losses resulting from the subsequent remeasurement of the monetary asset or liability, and its ultimate settlement, classified in other income (expense).
Income Taxes
Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of our assets, liabilities, and certain unrecognized gains and losses recorded in accumulated other comprehensive income (loss). We apply the intraperiod tax allocation rules to allocate our provision for income taxes between continuing operations and other categories of earnings, such as other comprehensive income (loss), when we meet the criteria prescribed by U.S. GAAP.
When cash is available after satisfying working capital needs and all other business obligations, we may distribute such cash from a foreign subsidiary to its U.S. parent and record the tax impact associated with the distribution. However, to the extent current earnings of our foreign operations exist and are not otherwise distributed or planned to be distributed, such earnings accumulate. These accumulated earnings are considered permanently reinvested in our foreign operations. We currently would not expect the aggregate of these permanently reinvested earnings, which are largely in deficit positions for U.S. tax purposes, to result in any material U.S. taxes, if distributed.
The tax benefit from an uncertain tax position is recognized only if it is determined that the tax position will more likely be sustained based on its technical merits. We measure and record the tax benefits from such a position based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Interest, penalties and offsetting positions related to unrecognized tax benefits are recognized as a component of income tax expense. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized.
Other Comprehensive Income (Loss)
OCI represents income and losses for the reporting period, including the related tax impacts, which are excluded from net income (loss) and recognized directly within AOCI as a component of equity. OCI also includes amounts reclassified to income during the reporting period that were previously recognized within AOCI. Amounts remaining within AOCI are expected to be reclassified out of AOCI in the future, at which point they will be recognized within the consolidated statement of operations as a component of net income (loss). We recognize OCI related to the translation of assets and liabilities of our foreign subsidiaries which are denominated in currencies other than USD, unrealized gains and losses on the effective portion of our derivatives designated in cash flow hedging relationships and derivative and non-derivative instruments designated in net investment hedging relationships, actuarial gains and losses and prior service costs related to our pension and other post-retirement benefit plans, as well as our proportionate share of our equity method investments' OCI. Additionally, when we do not have any other materialthe expectation or intent to cash settle certain of our intercompany note receivable and note payable positions in the foreseeable future, the remeasurement of these instruments is recorded as a component of foreign currency translation adjustments within OCI. We release stranded tax effects from AOCI using either a specific identification approach or portfolio approach based on the nature of the underlying item.
Earnings Per Share
Basic EPS was computed using the weighted-average number of shares of common stock outstanding during the period. Diluted EPS includes the additional dilutive effect of our potentially dilutive securities, which include RSUs, DSUs, PSUs and stock options. The dilutive effects of our potentially dilutive securities are calculated using the treasury stock method. Our calculation of weighted-average shares includes Class A common stock and Class B common stock, and Class A exchangeable shares and Class B exchangeable shares. All classes of stock have in effect the same dividend rights and share equitably in undistributed earnings. Holders of Class A common stock receive dividends only to the extent dividends are declared and paid to holders of Class B common stock. See Note 8, "Stockholders' Equity" for further discussion of the Class A common stock and Class B common stock and Class A exchangeable shares and Class B exchangeable shares. We have no unvested outstanding equity share awards that contain non-forfeitable rights to dividends. Dividends
Dividends per share paid to shareholders were $0.68, $0.57 and $1.96 during the years ended December 31, 2021, 2020 and 2019, respectively. In response to the global economic uncertainty created by the coronavirus pandemic, our Board of Directors suspended our regular quarterly dividend on our resultsClass A and Class B common and exchangeable shares in May 2020. A quarterly dividend was reinstated during the third quarter of operations,2021.
Cash and Cash Equivalents
Cash consists of cash on hand and bank deposits. Cash equivalents represent highly liquid investments with original maturities of three months or less. Our cash deposits are maintained with multiple, reputable financial position or cash flows. All required disclosures underinstitutions.
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 13, "Share-Based Payments" for further discussion. We also had other non-cash activities related to capital expenditures incurred but not yet paid of $206.6 million, $171.9 million and $214.9 million during 2021, 2020 and 2019, respectively. In June 2021, we rolled forward our July 2021 $250.0 million forward starting interest rate swap to May 2022 through a cashless settlement. The unrealized loss on the 2021 forward starting interest rate swap at the time of the transaction was factored into the effective interest rate assigned to the new guidance have been made in May 2022 forward starting interest rate swap. See Note 16, "Derivative Instruments and Hedging Activities.Activities" for further details. Other than the activity mentioned above and the supplemental non-cash activity related to the recognition of leases discussed in Note 19, "Leases," there was no other significant non-cash activity in 2021, 2020 and 2019.
Accounts Receivable and Notes Receivable
We record accounts and notes receivable at net realizable value. This carrying value includes an appropriate allowance for estimated uncollectible amounts to reflect any loss anticipated on the accounts and notes receivable balances. We calculate this allowance based on our country-specific history of write-offs, level of past-due accounts based on the contractual terms of the receivables and our relationships with and the economic status of our customers, which may be impacted by current macroeconomic and regulatory factors specific to the country of origin. This methodology takes into consideration historical loss experience and current and forecasted changes in cash flows based on internal and external information.
In the U.K., loans are extended to a portion of the retail outlets that sell our brands. We establish an allowance through a provision for loan losses charged against earnings and recorded in marketing, general and administrative expenses. Loan balances that are written off are recorded against the allowance as a write-off. Activity within the allowance for credit losses was immaterial for fiscal years 2021, 2020 and 2019.
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined by the first-in, first-out ("FIFO") method. We regularly assess the shelf-life of our inventories and reserve for those inventories when it becomes apparent the product will not be sold within our freshness specifications.
Other current assets
Other current assets include prepaid assets, maintenance and operating supplies, promotion materials and derivative assets that are expected to be recognized or realized within the next 12 months. Maintenance and operating supplies include our inventories of spare parts, which are kept on hand for repairs and maintenance of machinery and equipment. The majority of spare parts within our business include motors, fillers and other components that are required to maintain a normal level of production in the event that expected maintenance and/or repairs are required. These parts are inventoried within current assets as they are reasonably expected to be used during the normal operating cycle of the business and are reserved for excess and obsolescence, as appropriate. The allowance for obsolete supplies was $18.3 million and $16.4 million as of December 31, 2021, and December 31, 2020, respectively.
Properties
Properties are stated at original cost less accumulated depreciation. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets, which are reviewed periodically and have the following ranges: buildings and improvements: 20-40 years; machinery and equipment: 3-25 years; furniture and fixtures: 3-10 years; returnable containers: 2-15 years; and software: 3-5 years. Land is not depreciated, and construction in progress is not depreciated until ready for service. Costs of enhancements or modifications that substantially extend the capacity or useful life of an asset are capitalized and depreciated accordingly. Ordinary repairs and maintenance are expensed as incurred. When property is sold or otherwise disposed of, the cost and accumulated depreciation are removed from our consolidated balance sheets and the resulting gain or loss, if any, is reflected in our consolidated statements of operations. Long-lived assets are evaluated for impairment whenever events or changes in circumstances indicate the carrying value of an asset (or asset group) may not be recoverable. Our asset groups are generally identified at the segment level with the exception of certain craft breweries or other locations which may operate on a more stand-alone basis, such as our Truss LP joint venture. During the year ended December 31, 2021, we did not identify any triggering events related to our asset groups which required performance of an impairment test.
Returnable containers are recorded at acquisition cost and consist of returnable bottles, kegs, pallets and crates that are both in our direct control within our breweries, warehouses and distribution facilities and those that we indirectly control in the market through our agreements with our customers and other brewers and for which a deposit is received. The deposits received on our returnable containers in the market are recorded as deposit liabilities, included as current liabilities within accounts payable and other current liabilities in the consolidated balance sheets. We estimate that the loss, breakage and deterioration of our returnable containers is comparable to the depreciation calculated on an estimated useful life of up to 4 years for bottles, 5 years for pallets, 7 years for crates, and 15 years for returnable kegs. We also own and maintain other equipment in the market related to delivery of our products to end consumers, for example on-premise dispense equipment and refrigeration units. This equipment is recorded at acquisition cost and depreciated over lives of up to 7 years, depending on the market, reflecting the use of the equipment, as well as the loss and deterioration of the asset.
The costs of acquiring or developing internal-use computer software, including directly-related payroll costs for internal resources, are capitalized and classified within properties. Software maintenance and training costs are expensed in the period incurred. Implementation costs incurred in hosting arrangements that are service contracts are capitalized within other assets and are immaterial.
Properties held under finance lease are depreciated using the straight-line method over the estimated useful life or the lease term, whichever is shorter, and the related depreciation is included in depreciation expense. Finance lease assets for which ownership is transferred at the end of the lease, or there is a purchase option that we are reasonably certain to exercise, are amortized over the useful life that would be assigned if the asset were owned.
Goodwill and Other Intangible Assets
Goodwill is allocated to the reporting unit in which the business that created the goodwill resides. A reporting unit is an operating segment, or a business unit one level below that operating segment, for which discrete financial information is prepared and regularly reviewed by segment management. As of the date of the completion of our 2021 impairment testing, we have concluded that we have 2 reporting units, Americas and EMEA&APAC. See further discussion in Note 10, "Goodwill and Intangibles." As required, we evaluate the carrying value of our goodwill and indefinite-lived intangible assets for impairment at the reporting unit level at least annually or when an interim triggering event occurs that would indicate that impairment may have taken place. Our annual test is performed as of the first day of our fiscal fourth quarter. We continuously monitor the performance of our other definite-lived intangible assets and evaluate for impairment when evidence exists that certain events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Significant judgments and assumptions are required in such impairment evaluations. Definite-lived intangible assets are stated at cost less accumulated amortization. Amortization is recorded using the straight-line method over the estimated lives of the assets as this approximates the pattern in which the assets economic benefits are consumed.
Equity Method Investments
We apply the equity method of accounting to 20% to 50% owned investments where we exercise significant influence or VIEs for which we are not the primary beneficiary. We use the cumulative earnings approach for determining cash flow presentation of cash distributions received from equity method investments. Distributions received are included in our consolidated statements of cash flows as operating activities, unless the cumulative distributions exceed our portion of the cumulative equity in the net earnings of the equity method investment, in which case the excess distributions are deemed to be returns of the investment and are classified as investing activities in our consolidated statements of cash flows. See Note 4, "Investments" for further information regarding our equity method investments. There are no related parties that own interests in our equity method investments as of December 31, 2021.
Derivative Hedging Instruments
We use derivatives as part of our normal business operations to manage our exposure to fluctuations in interest rates, foreign currency exchange, commodity prices, production and packaging material costs and for other strategic purposes related to our core business. We enter into derivatives for risk management purposes only, including derivatives designated in hedge accounting relationships as well as those derivatives utilized as economic hedges. We do not enter into derivatives for trading or speculative purposes. We recognize our derivatives on the consolidated balance sheets as assets or liabilities at fair value and are classified in either current or non-current assets or liabilities based on each contract's respective unrealized gain or loss position and each contract's respective maturity. Our policy is to present all derivative balances on a gross basis, without regard to counterparty master netting agreements or similar arrangements. Further, our current derivative agreements do not allow us to net positions with the same counterparty and therefore, we present our derivative positions gross in our consolidated balance sheets.
Changes in fair values of outstanding cash flow and net investment hedges are recorded in OCI, until earnings are affected by the variability of cash flows of the underlying hedged item or the sale of the underlying net investment, respectively. Effective cash flow hedges offset the gains or losses recognized on the underlying exposure in the consolidated statements of operations, or for net investment hedges, the foreign exchange translation gain or loss recognized in AOCI. Changes in fair value of outstanding fair value hedges and the offsetting changes in fair value of the hedged item are recognized in earnings. Changes in fair value of the derivative attributable to components allowed to be excluded from the assessment of hedge effectiveness are deferred in AOCI and recognized in earnings over the life of the hedge.
We record realized gains and losses from derivative instruments in the same financial statement line item as the hedged item/forecasted transaction. Changes in unrealized gains and losses for derivatives not designated in a hedge accounting relationship are recorded directly in earnings each period and are also recorded in the same financial statement line item as the hedged item/forecasted transaction. Cash flows from the settlement of derivatives, including both economic hedges and those designated in hedge accounting relationships, appear in the consolidated statements of cash flows in the same categories as the cash flows of the hedged item unless the instruments are deemed to contain an other-than-insignificant financing element, in which case the cash flows related to this instrument will be classified as financing activities.
In accordance with authoritative accounting guidance, we do not record the fair value of derivatives for which we have elected the Normal Purchase Normal Sale ("NPNS") exemption. We account for these contracts on an accrual basis, recording realized settlements related to these contracts in the same financial statement line items as the corresponding transaction.
Leases
We account for leases in accordance with Accounting Standards Codification (“ASC”) Topic 842, Leases, which we adopted on January 1, 2019, electing not to adjust comparative periods presented and applying a modified retrospective transition approach as of the effective date of adoption.
We enter into contractual arrangements for the utilization of certain non-owned assets, primarily real estate and equipment, which are evaluated as finance or operating leases upon commencement, and are accounted for accordingly. Specifically, under ASC 842, a contract is or contains a lease when, (1) the contract contains an explicitly or implicitly identified asset and (2) the customer obtains substantially all of the economic benefits from the use of that underlying asset and directs how and for what purpose the asset is used during the term of the contract in exchange for consideration. We assess whether an arrangement is or contains a lease at inception of the contract. For all contractual arrangements deemed to be leases (other than short-term leases), as of the lease commencement date, we recognize on the consolidated balance sheet a liability for our obligation related to the lease and a corresponding asset representing our right to use the underlying asset over the period of use.
For leases that qualify as short-term leases, we have elected, for all classes of underlying assets, to not apply the balance sheet recognition requirements of ASC 842, and instead, we recognize the lease payments in the consolidated statements of operations on a straight-line basis over the lease term. We have also made the election, for our existing real estate and equipment classes of underlying assets, to account for lease and non-lease components as a single lease component.
Our leases have remaining lease terms of up to approximately 17 years. Certain of our lease agreements contain options to extend or early terminate the agreement. The lease term used to calculate the right-of-use ("ROU") asset and lease liability at commencement includes the impacts of options to extend or terminate the lease when it is reasonably certain that we will exercise that option. When determining whether it is reasonably certain that we will exercise an option at commencement, we consider various existing economic factors, including real estate strategies, the nature, length, and terms of the agreement, as well as the uncertainty of the condition of leased equipment at the end of the lease term. Based on these determinations, we generally conclude that the exercise of renewal options would not be reasonably certain in determining the lease term at commencement. Assumptions made at the commencement date are re-evaluated upon occurrence of certain events requiring a lease modification. Additionally, for certain equipment leases involving groups of similar leased assets with similar lease terms, we apply a portfolio approach to effectively account for the operating lease right-of-use assets and liabilities.
The discount rate used to calculate the present value of the future minimum lease payments is the rate implicit in the lease, when readily determinable. As the rate implicit in the lease is rarely readily determinable, we use our incremental borrowing rate relative to the leased asset in all other cases.
Certain of our leases include variable payments, primarily for items such as property taxes, insurance, maintenance, and other operating expenses associated with leased assets. These variable payments are excluded from the measurement of our lease assets and liabilities and are recognized in the period in which the obligation for those payments is incurred. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Lease-related expense is recorded within either cost of goods sold or marketing, general and administrative expenses on the consolidated statements of operations, depending on the function of the underlying leased asset, with the exception of interest on finance lease liabilities, which is recorded within interest expense on the consolidated statements of operations.
Pension and Postretirement Benefits
We maintain retirement plans for the majority of our employees. We offer different types of plans within each segment, including defined benefit plans, defined contribution plans and OPEB plans. Each plan is managed locally and in accordance with respective local laws and regulations. Our equity investments, BRI and BDL, maintain defined benefit, defined contribution and OPEB plans as well.
We recognize the underfunded or overfunded status of a defined benefit postretirement plan as an asset or liability in the consolidated balance sheets. The funded status of a plan, measured as the difference between the fair value of plan assets and the projected benefit obligation, and the related net periodic pension cost are calculated using a number of significant actuarial assumptions. Changes in net periodic pension cost and funding status may occur in the future due to changes in these assumptions.
We use the fair value approach to calculate the market-related value of pension plan assets used to determine net periodic pension cost, which includes measuring the market-related value of plan assets at fair value for purposes of determining the expected return on plan assets and amount of gain or loss subject to amortization.
Projected benefit obligation is the actuarial present value as of the measurement date of all benefits attributed by the plan benefit formula to employee service rendered before the measurement date using assumptions as to future compensation levels and years of service if the plan benefit formula is based on those future compensation levels and years of service. Accumulated benefit obligation is the actuarial present value of benefits (whether vested or unvested) attributed by the plan benefit formula to employee service rendered before the measurement date and based on employee service and compensation, if applicable, prior to that date. Accumulated benefit obligation differs from projected benefit obligation in that it includes no assumption about future compensation levels and years of service.
We employ the corridor approach for determining each plan's potential amortization from AOCI of deferred gains and losses, which occur when actual experience differs from estimates, into our net periodic pension and postretirement benefit cost. This approach defines the "corridor" as the greater of 10% of the projected benefit obligation or 10% of the market-related value of plan assets and requires amortization of the excess net gain or loss that exceeds the corridor over the average remaining service periods of active plan participants. For plans closed to new entrants and the future accrual of benefits, the average remaining life expectancy of all plan participants (including retirees) is used.
Fair Value Measurements
The carrying amounts of our cash and cash equivalents, accounts receivable, accounts payable and other current liabilities approximate fair value as recorded due to the short-term nature of these instruments. In addition, the carrying amounts of our trade loan receivables, net of allowances, approximate fair value. The fair value of derivatives is estimated by discounting the estimated future cash flows utilizing observable market interest, foreign exchange and commodity rates adjusted for non-performance credit risk associated with our counterparties (assets) or with MCBC (liabilities), as appropriate. Additionally, the fair value of warrants is estimated using the Black-Scholes valuation model. See Note 16, "Derivative Instruments and Hedging Activities" for additional information. Based on current market rates for similar instruments, the fair value of long-term debt is presented in Note 11, "Debt." U.S. GAAP guidance for fair value includes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques (market approach, income approach and cost approach). Our financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy.
The three levels of the hierarchy are as follows:
Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date.
Level 2—Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are less active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from, or corroborated by, observable market data by correlation or other means (market corroborated inputs).
Level 3—Unobservable inputs that reflect the assumptions that we believe market participants would use in pricing the asset or liability. We develop these inputs based on the best information available, including our own data.
New Accounting Pronouncements Not Yet Adopted
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of our global operations, we are exposed to market risks associated with foreign currency exchange fluctuations, volatile interest rates and commodity price risks. To manage our exposure to these market risks, we enter into certain supplier-based and market-based hedging transactions. Such transactions are allowed under our risk management policy and are monitored closely with clear controls around the activities. Our market-based transactions include a variety of derivative financial instruments, none of which are used for trading or speculative purposes. The counterparties to these market-based transactions are generally highly rated institutions. Our objective is to manage our exposures and to decrease the volatility of our earnings and cash flows as a result of changes in underlying rates and costs.
Interest Rate Risk
We are exposed to volatility in interest rates with regard to our current and future debt offerings. Specifically, we are exposed to U.S. Department of Treasury rates, Canadian government rates and LIBOR, or any such LIBOR alternative like SONIA, SOFR or EURIBOR, for example. We may from time to time enter into interest rate swaps on our current debt obligations as our hedging strategy is to achieve our desired fixed-to-floating rate debt profile such that we manage the volatility in earnings as well as the cost of funding our operations. Further, we may enter into forward starting interest rate swaps to manage our exposure to the volatility of interest rates associated with future interest payments on a forecasted debt issuance.
The following table presents our fixed rate debt and forward starting interest rate swaps as well as the impact of an absolute 1% adverse change in interest rates on their respective fair values. Notional amounts and fair values are presented in USD based on the applicable exchange rate as of December 31, 2021 and December 31, 2020, respectively.
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| | Notional amounts | | Fair Value Asset/(Liability) | | Effect of 1% Adverse Change |
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(in millions) | | As of December 31, 2021 | | As of December 31, 2020 | | As of December 31, 2021 | | As of December 31, 2020 | | As of December 31, 2021 | | As of December 31, 2020 |
USD denominated fixed rate debt | | $ | 5,400.0 | | | $ | 6,400.0 | | | $ | (5,952.7) | | | $ | (7,211.4) | | | $ | (200.0) | | | $ | (213.2) | |
Foreign currency denominated fixed rate debt | | $ | 1,701.0 | | | $ | 1,763.1 | | | $ | (1,763.1) | | | $ | (1,861.3) | | | $ | (10.5) | | | $ | (6.5) | |
Forward starting interest rate swaps | | $ | 1,500.0 | | | $ | 1,500.0 | | | $ | (170.8) | | | $ | (221.5) | | | $ | (160.5) | | | $ | (177.1) | |
Foreign Exchange Risk
Foreign currency exchange risk is inherent in our operations primarily due to operating results that are denominated in currencies other than the USD. We closely monitor our operations in each country and seek to adopt appropriate strategies that are responsive to foreign currency fluctuations. Our financial risk management policy is intended to offset a portion of the potentially unfavorable impact of exchange rates on our earnings and cash flows.
Approximately $3.0 billion, or 30%, of our net sales was denominated in functional currencies other than the USD for the year ended December 31, 2021. As a result, fluctuations in foreign currency exchange rates other than the USD, particularly the CAD and the GBP, may have a material impact on our reported results. For the year ended December 31, 2021, net sales denominated in CAD and GBP was approximately $1.3 billion and $1.0 billion, respectively.
We manage our foreign currency exposures through foreign currency forward contracts and net investment hedges. Our EUR foreign-denominated debt is a net investment hedge against our investment in our Europe business in order to hedge a portion of the foreign currency translational impacts. The changes in fair value of the net investment hedge due to the fluctuations in the spot rate is recorded to AOCI. Our foreign currency forward contracts manage our exposure related to certain royalty agreements, the purchase of production inputs and imports that are denominated in currencies other than the functional entity's local currency and other foreign currency exchange exposure.
From time to time, we may enter into cross currency swaps. We settled the cross currency swaps associated with the $1.0 billion notes when they were repaid on July 15, 2021 and had no cross currency swaps outstanding as of December 31, 2021.
The following table includes details of our foreign currency forwards used to hedge our foreign exchange rate risk as well as the impact of a hypothetical 10% adverse change in the related foreign currency exchange rates on the fair value of the foreign currency forwards. Notional amounts and fair values are presented in USD based on the applicable exchange rate as of December 31, 2021 and December 31, 2020. The majority of our outstanding foreign currency forwards will mature in fiscal 2022.
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| | Notional amounts | | Fair Value Asset/(Liability) | | Effect of 10% Adverse Change |
(in millions) | | As of December 31, 2021 | | As of December 31, 2020 | | As of December 31, 2021 | | As of December 31, 2020 | | As of December 31, 2021 | | As of December 31, 2020 |
Foreign currency denominated fixed rate debt | | $ | 1,701.0 | | | $ | 1,763.1 | | | $ | (1,763.1) | | | $ | (1,861.3) | | | $ | (171.9) | | | $ | (190.4) | |
Foreign currency Forwards | | $ | 170.8 | | | $ | 181.2 | | | $ | (1.5) | | | $ | (4.9) | | | $ | (19.0) | | | $ | (20.5) | |
Commodity Price Risk
We are exposed to the volatility in commodity prices as we use commodities in the production and distribution of our products. We specifically hedge our exposure to fluctuations in the price of natural gas, aluminum, barley and wheat. We utilize market-based derivatives and long-term supplier-based contracts, specifically a combination of purchase orders, long-term supply contracts and over-the-counter financial instruments to mitigate our commodity price risk by establishing price certainty for commodities that are used in our supply chain.
The following table includes details of our commodity swaps and options used to hedge commodity price risk as well as the impact of a hypothetical 10% adverse change in the related commodity prices on the fair value of the derivatives. Notional amounts and fair values are presented in USD based on the applicable exchange rate as of December 31, 2021 and December 31, 2020. Approximately 62% of commodity swaps mature in 2022, 33% mature in 2023, and 5% mature in 2024 and thereafter.
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| | Notional amounts | | Fair Value Asset/(Liability) | | Effect of 10% Adverse Change |
(in millions) | | As of December 31, 2021 | | As of December 31, 2020 | | As of December 31, 2021 | | As of December 31, 2020 | | As of December 31, 2021 | | As of December 31, 2020 |
Swaps | | $ | 722.1 | | | $ | 918.9 | | | $ | 300.8 | | | $ | 65.2 | | | $ | (95.7) | | | $ | (96.0) | |
Options | | $ | 68.2 | | | $ | 16.8 | | | $ | 0.1 | | | $ | — | | | $ | — | | | $ | — | |
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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MANAGEMENT'S REPORT
The preparation, integrity and objectivity of the financial statements and all other financial information included in this annual report are the responsibility of the management of Molson Coors Beverage Company. The financial statements have been prepared in accordance with generally accepted accounting principles in the United States, applying estimates based on management's best judgment where necessary. Management believes that all material uncertainties have been appropriately accounted for and disclosed.
Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2021, based on the framework and criteria established in Internal Control—Integrated Framework (2013 Framework), issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon its assessment, management concluded that, as of December 31, 2021, the Company's internal control over financial reporting was effective.
PricewaterhouseCoopers LLP, the Company's independent registered public accounting firm, provides an objective, independent audit of the consolidated financial statements and internal control over financial reporting. Their accompanying report is based upon an examination conducted in accordance with standards of the Public Company Accounting Oversight Board (United States), including tests of accounting procedures, records and internal control.
The Board of Directors, operating through its Audit Committee composed of independent, outside directors, monitors the Company's accounting control systems and reviews the results of the Company's auditing activities. The Audit Committee meets at least quarterly, either separately or jointly, with representatives of management, PricewaterhouseCoopers LLP, and internal auditors. To ensure complete independence, PricewaterhouseCoopers LLP and the Company's internal auditors have full and free access to the Audit Committee and may meet with or without the presence of management.
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/s/ GAVIN D.K. HATTERSLEY | | /s/ TRACEY I. JOUBERT |
Gavin D.K. Hattersley | | Tracey I. Joubert |
President & Chief Executive Officer | | Chief Financial Officer |
Molson Coors Beverage Company | | Molson Coors Beverage Company |
February 23, 2022 | | February 23, 2022 |
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Molson Coors Beverage Company
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Molson Coors Beverage Company and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, of comprehensive income (loss), of stockholders’ equity and noncontrolling interests and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2021 appearing under Item 15(c) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill Impairment Assessment - Americas Reporting Unit
As described in Notes 1 and 10 to the consolidated financial statements, the Company’s goodwill balance related to the Americas reporting unit as of December 31, 2021 is $6,153 million. The carrying value of goodwill is evaluated for impairment at the reporting unit level at least annually or when an interim triggering event occurs that would indicate that impairment may have taken place. The Company’s annual impairment test is performed as of the first day of the fiscal fourth quarter. As disclosed by management, the evaluation involves comparing the reporting unit’s fair value to its carrying value. If the reporting unit’s carrying value exceeds its fair value, the Company would recognize an impairment loss in an amount equal to the excess up to the total amount of goodwill allocated to the reporting unit. A combination of a discounted cash flow analysis and market approach is used to determine the fair value of the reporting unit. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. Examples of events or circumstances that could reasonably be expected to negatively affect the underlying key assumptions and ultimately impact the estimated fair value of the Company’s reporting unit may include (i) as disclosed by management, growth rates for sales, costs and profits, which are based on various long-range financial and operational plans; (ii) prolonged weakening of economic conditions; or (iii) significant unfavorable changes in tax rates, environmental or other regulations, including interpretations thereof, terminal growth rates, market multiples and / or weighted average cost of capital utilized in the discounted cash flow analysis.
The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment for the Americas reporting unit is a critical audit matter are (i) the significant judgment by management when determining the fair value of the Americas reporting unit; (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating management’s significant assumptions related to the weighted average cost of capital, growth rates for sales, and market multiples; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including controls over the valuation of the Americas reporting unit. These procedures also included, among others (i) testing management’s process for determining the fair value of the Americas reporting unit; (ii) evaluating the appropriateness of the discounted cash flow analysis and market approach; (iii) testing the completeness and accuracy of underlying data used in the discounted cash flow analysis and market approach; and (iv) evaluating the reasonableness of significant assumptions used by management related to the weighted average cost of capital, growth rates for sales, and market multiples. Evaluating the significant assumptions related to growth rates for sales involved evaluating whether the assumptions used were reasonable considering (i) the current and past performance of the Americas reporting unit; (ii) the consistency with external market and industry data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of (i) the appropriateness of the Company’s discounted cash flow analysis and market approach and (ii) the reasonableness of the weighted average cost of capital and market multiple significant assumptions.
/s/ PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
February 23, 2022
We have served as the Company’s auditor since 1974.
MOLSON COORS BEVERAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE DATA) | | | | | | | | | | | | | | | | | |
| For the Years Ended |
| December 31, 2021 | | December 31, 2020 | | December 31, 2019 |
Sales | $ | 12,449.9 | | | $ | 11,723.8 | | | $ | 13,009.1 | |
Excise taxes | (2,170.2) | | | (2,069.8) | | | (2,429.7) | |
Net sales | 10,279.7 | | | 9,654.0 | | | 10,579.4 | |
Cost of goods sold | (6,226.3) | | | (5,885.7) | | | (6,378.2) | |
Gross profit | 4,053.4 | | | 3,768.3 | | | 4,201.2 | |
Marketing, general and administrative expenses | (2,554.5) | | | (2,437.0) | | | (2,728.0) | |
Special items, net | (44.5) | | | (1,740.2) | | | (708.8) | |
Operating income (loss) | 1,454.4 | | | (408.9) | | | 764.4 | |
Other income (expense), net | | | | | |
Interest expense | (260.3) | | | (274.6) | | | (280.9) | |
Interest income | 2.0 | | | 3.3 | | | 8.2 | |
Other pension and postretirement benefits (costs), net | 46.4 | | | 30.3 | | | 2.9 | |
Other income (expense), net | (3.5) | | | 6.0 | | | (14.7) | |
Total other income (expense), net | (215.4) | | | (235.0) | | | (284.5) | |
Income (loss) before income taxes | 1,239.0 | | | (643.9) | | | 479.9 | |
Income tax benefit (expense) | (230.5) | | | (301.8) | | | (233.7) | |
Net income (loss) | 1,008.5 | | | (945.7) | | | 246.2 | |
Net (income) loss attributable to noncontrolling interests | (2.8) | | | (3.3) | | | (4.5) | |
Net income (loss) attributable to Molson Coors Beverage Company | $ | 1,005.7 | | | $ | (949.0) | | | $ | 241.7 | |
| | | | | |
Net income (loss) attributable to Molson Coors Beverage Company per share: | | | | | |
Basic | $ | 4.63 | | | $ | (4.38) | | | $ | 1.12 | |
Diluted | $ | 4.62 | | | $ | (4.38) | | | $ | 1.11 | |
| | | | | |
Weighted-average shares outstanding: | | | | | |
Basic | 217.1 | | | 216.8 | | | 216.6 | |
Dilutive effect of share-based awards | 0.5 | | | — | | | 0.3 | |
Diluted | 217.6 | | | 216.8 | | | 216.9 | |
| | | | | |
Anti-dilutive securities excluded from computation of diluted EPS | 1.8 | | | 2.7 | | | 1.3 |
See notes to consolidated financial statements.
MOLSON COORS BEVERAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN MILLIONS) | | | | | | | | | | | | | | | | | |
| For the Years Ended |
| December 31, 2021 | | December 31, 2020 | | December 31, 2019 |
Net income (loss) including noncontrolling interests | $ | 1,008.5 | | | $ | (945.7) | | | $ | 246.2 | |
Other comprehensive income (loss), net of tax: | | | | | |
Foreign currency translation adjustments | (28.4) | | | 113.6 | | | 177.6 | |
Reclassification of cumulative translation adjustment to income (loss) | 7.5 | | | — | | | — | |
Unrealized gain (loss) on derivative instruments | 37.4 | | | (85.7) | | | (84.2) | |
Reclassification of derivative (gain) loss to income | 5.5 | | | (0.4) | | | 0.5 | |
Pension and other postretirement benefit adjustments | 118.4 | | | (39.9) | | | (39.8) | |
Amortization of net prior service (benefit) cost and net actuarial (gain) loss to income and settlement | 5.4 | | | (5.2) | | | 19.7 | |
| | | | | |
Ownership share of unconsolidated subsidiaries' other comprehensive income (loss) | 15.5 | | | 14.2 | | | (10.6) | |
Total other comprehensive income (loss), net of tax | 161.3 | | | (3.4) | | | 63.2 | |
Comprehensive income (loss) | 1,169.8 | | | (949.1) | | | 309.4 | |
Comprehensive (income) loss attributable to noncontrolling interests | (2.3) | | | (5.5) | | | (5.1) | |
Comprehensive income (loss) attributable to Molson Coors Beverage Company | $ | 1,167.5 | | | $ | (954.6) | | | $ | 304.3 | |
See notes to consolidated financial statements.
MOLSON COORS BEVERAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT PAR VALUE)
| | | | | | | | | | | |
| As of |
| December 31, 2021 | | December 31, 2020 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 637.4 | | | $ | 770.1 | |
Accounts and other receivables: | | | |
Trade, less allowance for doubtful accounts of $19.0 and $18.1, respectively | 662.7 | | | 549.6 | |
Affiliate receivables | 16.2 | | | 8.4 | |
Other receivables, less allowance for doubtful accounts of $2.5 and $2.4, respectively | 200.5 | | | 129.1 | |
Inventories, less allowance for obsolete inventories of $25.8 and $22.0, respectively | 804.7 | | | 664.3 | |
Other current assets, net | 457.2 | | | 297.3 | |
Total current assets | 2,778.7 | | | 2,418.8 | |
Properties, less accumulated depreciation of $3,507.2 and $3,416.4, respectively | 4,192.4 | | | 4,250.3 | |
Goodwill | 6,152.6 | | | 6,151.0 | |
Other intangibles, less accumulated amortization of $1,406.3 and $1,206.5, respectively | 13,286.8 | | | 13,556.1 | |
Other assets | 1,208.5 | | | 954.9 | |
Total assets | $ | 27,619.0 | | | $ | 27,331.1 | |
Liabilities and equity | | | |
Current liabilities: | | | |
Accounts payable and other current liabilities (includes affiliate payables of $4.1 and $0.5, respectively) | $ | 3,107.3 | | | $ | 2,889.5 | |
Current portion of long-term debt and short-term borrowings | 514.9 | | | 1,020.1 | |
Total current liabilities | 3,622.2 | | | 3,909.6 | |
Long-term debt | 6,647.2 | | | 7,208.2 | |
Pension and postretirement benefits | 654.4 | | | 763.2 | |
Deferred tax liabilities | 2,704.6 | | | 2,381.6 | |
Other liabilities | 326.5 | | | 447.2 | |
Total liabilities | 13,954.9 | | | 14,709.8 | |
Commitments and contingencies (Note 18) | 0 | | 0 |
Molson Coors Beverage 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 (authorized: 500.0 shares; issued and outstanding: 2.6 shares and 2.6 shares, respectively) | — | | | — | |
Class B common stock, $0.01 par value (authorized: 500.0 shares; issued: 210.1 shares and 209.8 shares, respectively) | 2.1 | | | 2.1 | |
Class A exchangeable shares, no par value (issued and outstanding: 2.7 shares and 2.7 shares, respectively) | 102.2 | | | 102.3 | |
Class B exchangeable shares, no par value (issued and outstanding: 11.1 shares and 11.1 shares, respectively) | 417.8 | | | 417.8 | |
Paid-in capital | 6,970.9 | | | 6,937.8 | |
Retained earnings | 7,401.5 | | | 6,544.2 | |
Accumulated other comprehensive income (loss) | (1,006.0) | | | (1,167.8) | |
Class B common stock held in treasury at cost (9.5 shares and 9.5 shares, respectively) | (471.4) | | | (471.4) | |
Total Molson Coors Beverage Company stockholders' equity | 13,417.1 | | | 12,365.0 | |
Noncontrolling interests | 247.0 | | | 256.3 | |
Total equity | 13,664.1 | | | 12,621.3 | |
Total liabilities and equity | $ | 27,619.0 | | | $ | 27,331.1 | |
See notes to consolidated financial statements.
MOLSON COORS BEVERAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS) | | | | | | | | | | | | | | | | | |
| For the Years Ended |
| December 31, 2021 | | December 31, 2020 | | December 31, 2019 |
Cash flows from operating activities: | | | | | |
Net income (loss) including noncontrolling interests | $ | 1,008.5 | | | $ | (945.7) | | | $ | 246.2 | |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | | | |
Depreciation and amortization | 786.1 | | | 922.0 | | | 859.0 | |
Amortization of debt issuance costs and discounts | 6.7 | | | 8.1 | | | 13.6 | |
Share-based compensation | 32.1 | | | 24.2 | | | 8.5 | |
(Gain) loss on sale or impairment of properties and other assets, net | 9.1 | | | 1,553.5 | | | 614.7 | |
Unrealized (gain) loss on foreign currency fluctuations and derivative instruments, net | (233.8) | | | (111.4) | | | 18.9 | |
Income tax (benefit) expense | 230.5 | | | 301.8 | | | 233.7 | |
Income tax (paid) received | (227.0) | | | (127.0) | | | (57.0) | |
Interest expense, excluding amortization of debt issuance costs and discounts | 253.6 | | | 266.0 | | | 272.4 | |
Interest paid | (256.2) | | | (271.9) | | | (285.0) | |
Change in current assets and liabilities (net of impact of business combinations) and other: | | | | | |
Receivables | (137.6) | | | 160.8 | | | 38.5 | |
Inventories | (143.9) | | | (46.2) | | | (17.7) | |
Payables and other current liabilities | 285.5 | | | (50.1) | | | (53.0) | |
Other assets and other liabilities | (40.1) | | | 11.6 | | | 4.5 | |
Net cash provided by (used in) operating activities | 1,573.5 | | | 1,695.7 | | | 1,897.3 | |
Cash flows from investing activities: | | | | | |
Additions to properties | (522.6) | | | (574.8) | | | (593.8) | |
Proceeds from sales of properties and other assets | 26.0 | | | 158.8 | | | 115.9 | |
| | | | | |
| | | | | |
| | | | | |
Other | (13.3) | | | 2.4 | | | 44.6 | |
Net cash provided by (used in) investing activities | (509.9) | | | (413.6) | | | (433.3) | |
Cash flows from financing activities: | | | | | |
| | | | | |
Exercise of stock options under equity compensation plans | 4.6 | | | 4.1 | | | 1.6 | |
Dividends paid | (147.8) | | | (125.3) | | | (424.4) | |
| | | | | |
Payments on debt and borrowings | (1,006.6) | | | (918.9) | | | (1,586.2) | |
Proceeds on debt and borrowings | — | | | 1.5 | | | 3.0 | |
Net proceeds from (payments on) revolving credit facilities and commercial paper | 1.4 | | | — | | | (4.7) | |
Other | (23.8) | | | (31.8) | | | 3.7 | |
Net cash provided by (used in) financing activities | (1,172.2) | | | (1,070.4) | | | (2,007.0) | |
Cash and cash equivalents: | | | | | |
Net increase (decrease) in cash and cash equivalents | (108.6) | | | 211.7 | | | (543.0) | |
Effect of foreign exchange rate changes on cash and cash equivalents | (24.1) | | | 35.0 | | | 8.5 | |
Balance at beginning of year | 770.1 | | | 523.4 | | | 1,057.9 | |
Balance at end of year | $ | 637.4 | | | $ | 770.1 | | | $ | 523.4 | |
MOLSON COORS BEVERAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND NONCONTROLLING INTERESTS
(IN MILLIONS)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Molson Coors Beverage Company Stockholders' Equity | | |
| | | Common stock | | Exchangeable | | | | | | Accumulated other | | Common Stock 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 |
Balance as of December 31, 2018 | $ | 13,735.8 | | | $ | — | | | $ | 2.0 | | | $ | 103.2 | | | $ | 557.6 | | | $ | 6,773.1 | | | $ | 7,692.9 | | | $ | (1,150.0) | | | $ | (471.4) | | | $ | 228.4 | |
Exchange of shares | — | | | — | | | — | | | (0.7) | | | 0.2 | | | 0.5 | | | — | | | — | | | — | | | — | |
Shares issued under equity compensation plan | (8.3) | | | — | | | 0.1 | | | — | | | — | | | (8.4) | | | — | | | — | | | — | | | — | |
Amortization of share-based compensation | 8.3 | | | — | | | — | | | — | | | — | | | 8.3 | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | |
Purchase of noncontrolling interest | 0.6 | | | — | | | — | | | — | | | — | | | 0.1 | | | — | | | — | | | — | | | 0.5 | |
Deconsolidation of VIE | (1.7) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1.7) | |
Net income (loss) including noncontrolling interests | 246.2 | | | — | | | — | | | — | | | — | | | — | | | 241.7 | | | — | | | — | | | 4.5 | |
Other comprehensive income (loss), net of tax | 63.2 | | | — | | | — | | | — | | | — | | | — | | | — | | | 62.6 | | | — | | | 0.6 | |
Adoption of lease accounting standard | 32.0 | | | — | | | — | | | — | | | — | | | — | | | 32.0 | | | — | | | — | | | — | |
Reclassification of stranded tax effects | — | | | — | | | — | | | — | | | — | | | — | | | 74.8 | | | (74.8) | | | — | | | — | |
Contributions from noncontrolling interests | 34.1 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 34.1 | |
Distributions and dividends to noncontrolling interests | (12.7) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (12.7) | |
Dividends declared | (424.4) | | | — | | | — | | | — | | | — | | | — | | | (424.4) | | | — | | | — | | | — | |
Balance as of December 31, 2019 | $ | 13,673.1 | | | $ | — | | | $ | 2.1 | | | $ | 102.5 | | | $ | 557.8 | | | $ | 6,773.6 | | | $ | 7,617.0 | | | $ | (1,162.2) | | | $ | (471.4) | | | $ | 253.7 | |
Exchange of shares | — | | | — | | | — | | | (0.2) | | | (140.0) | | | 140.2 | | | — | | | — | | | — | | | — | |
Shares issued under equity compensation plan | (0.5) | | | — | | | — | | | — | | | — | | | (0.5) | | | — | | | — | | | — | | | — | |
Amortization of share-based compensation | 24.2 | | | — | | | — | | | — | | | — | | | 24.2 | | | — | | | — | | | — | | | — | |
Acquisition of business and purchase of noncontrolling interest | (0.2) | | | — | | | — | | | — | | | — | | | 0.3 | | | — | | | — | | | — | | | (0.5) | |
| | | | | | | | | | | | | | | | | | | |
Net income (loss) including noncontrolling interests | (945.7) | | | — | | | — | | | — | | | — | | | — | | | (949.0) | | | — | | | — | | | 3.3 | |
Other comprehensive income (loss), net of tax | (3.4) | | | — | | | — | | | — | | | — | | | — | | | — | | | (5.6) | | | — | | | 2.2 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Contributions from noncontrolling interests | 16.3 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 16.3 | |
Distributions and dividends to noncontrolling interests | (18.7) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (18.7) | |
Dividends declared | (123.8) | | | — | | | — | | | — | | | — | | | — | | | (123.8) | | | — | | | — | | | — | |
Balance as of December 31, 2020 | $ | 12,621.3 | | | $ | — | | | $ | 2.1 | | | $ | 102.3 | | | $ | 417.8 | | | $ | 6,937.8 | | | $ | 6,544.2 | | | $ | (1,167.8) | | | $ | (471.4) | | | $ | 256.3 | |
Exchange of shares | — | | | — | | | — | | | (0.1) | | | — | | | 0.1 | | | — | | | — | | | — | | | — | |
Shares issued under equity compensation plan | 0.6 | | | — | | | — | | | — | | | — | | | 0.6 | | | — | | | — | | | — | | | — | |
Amortization of share-based compensation | 32.1 | | | — | | | — | | | — | | | — | | | 32.1 | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Molson Coors Beverage Company Stockholders' Equity | | |
| | | Common stock | | Exchangeable | | | | | | Accumulated other | | Common Stock 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 |
Purchase of noncontrolling interest | (0.2) | | | — | | | — | | | — | | | — | | | 0.3 | | | — | | | — | | | — | | | (0.5) | |
Net income (loss) including noncontrolling interests | 1,008.5 | | | — | | | — | | | — | | | — | | | — | | | 1,005.7 | | | — | | | — | | | 2.8 | |
Other comprehensive income (loss), net of tax | 161.3 | | | — | | | — | | | — | | | — | | | — | | | — | | | 161.8 | | | — | | | (0.5) | |
Contributions from noncontrolling interests | 3.2 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 3.2 | |
Distributions and dividends to noncontrolling interests | (14.3) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (14.3) | |
Dividends declared | (148.4) | | | — | | | — | | | — | | | — | | | — | | | (148.4) | | | — | | | — | | | — | |
Balance as of December 31, 2021 | $ | 13,664.1 | | | $ | — | | | $ | 2.1 | | | $ | 102.2 | | | $ | 417.8 | | | $ | 6,970.9 | | | $ | 7,401.5 | | | $ | (1,006.0) | | | $ | (471.4) | | | $ | 247.0 | |
See notes to consolidated financial statements.
MOLSON COORS BEVERAGE COMPANY AND SUBSIDIARIES
NOTES TO 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 Beverage Company ("MCBC" or the "Company"), principally a holding company, and its operating and non-operating subsidiaries included within our reporting segments. As of December 31, 2021, we changed the names of our reporting segments to the Americas and EMEA&APAC segments (formerly named the North America segment and Europe segment, respectively) to better reflect the geographic locations encompassed within the reportable segments. This change to our segment names had no impact on the composition of our segments, our financial position, results of operations, cash flow or segment level results previously reported. Our Americas segment operates in the U.S., Canada and various countries in the Caribbean, Latin and South America, and our EMEA&APAC segment operates in Bulgaria, Croatia, Czech Republic, Hungary, Montenegro, the Republic of Ireland, Romania, Serbia, the U.K., various other European countries, and certain countries within the Middle East, Africa and Asia Pacific.
Unless otherwise indicated, comparisons are to comparable prior periods, and 2021, 2020 and 2019 refers to the twelve months ended December 31, 2021, December 31, 2020 and December 31, 2019, respectively.
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.
Cybersecurity Incident
During March 2021, we experienced a systems outage that was caused by a cybersecurity incident. We engaged leading forensic information technology firms and legal counsel to assist our investigation into the incident and we restored our systems after working to get the systems back up as quickly as possible. Despite these actions, we experienced delays and disruptions to our business, including brewery operations, production and shipments. This incident caused us to not produce or ship as much as we otherwise would have in the first quarter of 2021. Subsequently, in the balance of 2021, we made progress recovering from the incident with increased shipments and have operationally recovered as of December 31, 2021. In addition, we incurred certain incremental one-time costs of $2.4 million for the year ended December 31, 2021 related to consultants, experts and data recovery efforts, net of insurance recoveries.
Coronavirus Global Pandemic
Starting at the end of the first quarter of 2020, the coronavirus pandemic has had a material adverse effect on our operations, liquidity, financial condition and results of operations. In 2021, we saw improvements in the marketplace related to the coronavirus global pandemic as on-premise locations began to re-open around the world at varying degrees, despite setbacks in certain markets related to the outbreak of new variants. The extent to which our operations will continue to be impacted by the coronavirus pandemic will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including the level of governmental or societal orders or restrictions on public gatherings and on-premise venues, including any vaccine mandates or testing requirements, the severity and duration of the coronavirus pandemic by market, including outbreaks of variants, changes in consumer behavior, the rate of vaccination and the efficacy of vaccines against the coronavirus and related variants. We continue to actively monitor the ongoing evolution of the coronavirus pandemic and resulting impacts to our business.
During 2020, we recorded charges of $15.5 million within cost of goods sold related to temporary "thank you" pay for certain essential Americas segment brewery employees. Additionally, in order to support and demonstrate our commitment to the continued viability of the many bars and restaurants which were negatively impacted by the coronavirus pandemic, during the first quarter of 2020, we initiated temporary keg relief programs in many of our markets. We committed to provide customers with reimbursements for untapped kegs that met certain established return requirements in conjunction with the voluntary programs. As a result, during 2020, we recognized a reduction to net sales of $30.3 million reflecting estimated sales returns and reimbursements through these keg relief programs.
Further, during 2020, we recognized charges of $12.1 million within cost of goods sold related to obsolete finished goods keg inventories that were not expected to be sold within our freshness specifications, as well as the costs to facilitate the above mentioned keg returns.
We continue to monitor the impacts on our customers’ liquidity and capital resources and therefore our ability to collect, or the timeliness of collection of our accounts receivable. While these receivables are not concentrated in any specific customer and our allowance on these receivables factors in expected credit loss, continued disruption and declines in the global economy could result in difficulties in our ability to collect and require increases to our allowance for doubtful accounts. As of December 31, 2021 and December 31, 2020, our allowance for trade receivables was approximately $19 million and $18 million, respectively, and allowance activity was immaterial during the year ended December 31, 2021.
In response to the ongoing impacts of the coronavirus pandemic, various governmental authorities globally announced relief programs, which among other items, provided temporary deferrals of non-income based tax payments, which positively impacted our operating cash flows in 2020. These temporary net tax payment deferrals of approximately $25 million and $130 million as of December 31, 2021 and December 31, 2020, respectively, were primarily included within accounts payable and other current liabilities on our audited consolidated balance sheets. Of the $130 million of temporary net tax payment deferrals as of December 31, 2020, approximately $105 million was repaid during the year ended December 31, 2021, with approximately $25 million outstanding as of December 31, 2021. The majority of the remaining balance is expected to be paid during the year ended December 31, 2022.
We protected and supported our liquidity position in response to the global economic uncertainty created by the coronavirus pandemic. Beginning with the second quarter of 2020 through the second quarter of 2021, our board of directors suspended our regular quarterly dividends on our Class A and Class B common and exchangeable shares. A quarterly dividend was reinstated in the third quarter of 2021.
Revitalization Plan
On October 28, 2019, we initiated a revitalization plan designed to allow us to invest across our portfolio to drive long-term, sustainable success. The revitalization plan established Chicago, Illinois as our Americas segment operational headquarters. We closed our office in Denver, Colorado and consolidated certain administrative functions into our other existing office locations. As of January 1, 2020, we changed our name to Molson Coors Beverage Company and changed our management structure to 2 segments - Americas and EMEA&APAC. We began to incur charges related to these restructuring activities during the fourth quarter of 2019 and we recognized severance and retention charges of $4.0 million, $35.6 million and $41.2 million during the years ended December 31, 2021, December 31, 2020 and December 31, 2019, respectively. As of December 31, 2021, the revitalization plan restructuring charges were substantially complete.
Principles of Consolidation
Our consolidated financial statements include our accounts and our majority-owned and controlled domestic and foreign subsidiaries, as well as certain VIEs for which we are the primary beneficiary. All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
Our consolidated financial statements are prepared in accordance with U.S. GAAP. These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions used to determine certain amounts that affect the financial statements are reasonable, based on information available at the time they are made. To the extent there are differences between these estimates and actual results, our consolidated financial statements may be materially affected.
Revenue Recognition
Our net sales represent the sale of beer, malt beverages and other adjacencies, 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 where
legally permitted, 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. 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., 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.
Disaggregation of Revenue
We have evaluated our primary revenue generating activities under the disaggregation disclosure criteria outlined within the guidance and concluded that disclosure at the geographical segment level depicts how the nature, amount, timing and uncertainty of revenues and cash flows are affected by economic factors. We have also evaluated our other revenue generating activities and concluded that these activities are immaterial for separate disclosure. See Note 3, "Segment Reporting," for disclosure of revenues by geographic segment. 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.
For the years ended December 31, 2021 and December 31, 2020, 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 years ended December 31, 2021 or December 31, 2020.
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 and fulfill contracts 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 December 31, 2021 or December 31, 2020. 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 Taxes
Excise taxes remitted to tax authorities are government-imposed excise taxes on beer. Excise taxes are shown in a separate line item in the 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 consolidated balance sheets, with the liability subsequently reduced when the taxes are remitted to the tax authority.
Cost of Goods Sold
Our cost of goods sold includes costs we incur to make and ship beer and other malt beverages. These costs include brewing materials, such as barley, hops and various grains. Packaging materials, such as glass bottles, aluminum cans, cardboard and paperboard are also included in our cost of goods sold. Additionally, our cost of goods sold include both direct and indirect labor, shipping and handling including freight costs, utilities, maintenance costs, warehousing costs, purchasing and receiving costs, depreciation, promotional packaging, other manufacturing overheads and costs to purchase factored and other non-owned brands from suppliers, as well as the estimated cost to facilitate product returns.
Marketing, General and Administrative Expenses
Our marketing, general and administrative expenses include media advertising (television, radio, digital, print), tactical advertising (signs, banners, point-of-sale materials) and promotion costs on both local and national levels within our operating segments. The creative portion of our advertising activities is expensed as incurred. Production costs of advertising and promotional materials are expensed when the advertising is first run. Included in marketing, general and administrative expenses is total marketing and advertising expenses which were approximately $1.1 billion, $0.9 billion and $1.2 billion in 2021, 2020 and 2019, respectively. Marketing, general and administrative expenses also included integration costs of $25 million in 2019. There were no integration costs recorded in 2021 or 2020 as the activity related to the acquisition of the remaining portion of MillerCoors, which occurred on October 11, 2016 (the "Acquisition"), was completed by the end of 2019.
This classification also includes general and administrative costs for functions such as finance, legal, human resources and information technology, along with integration costs as noted above. These costs primarily consist of labor and outside services, as well as bad debt expense related to our allowance for doubtful accounts. Unless capitalization is allowed or required
by U.S. GAAP, legal costs are expensed when incurred. These costs also include our marketing and sales organizations, including labor and other overheads. This line item additionally includes amortization costs associated with intangible assets, as well as certain depreciation costs related to non-production equipment and share-based compensation.
Share-based compensation is recognized using a straight-line method over the vesting period of the awards. We include estimated forfeitures expected to occur when calculating share-based compensation expense. Our share-based compensation plan and the awards within it contain provisions that accelerate vesting of awards upon change in control, retirement, disability or death of eligible employees and directors. Our share-based awards are considered vested when the employee's retention of the award is no longer contingent on providing service, which for certain awards can result in immediate recognition for awards granted to retirement-eligible individuals or accelerated recognition for awards granted to individuals that will become retirement eligible within the stated vesting period. Also, if less than the stated vesting period, we recognize these costs over the period from the grant date to the date retirement eligibility is achieved.
Special Items, net
Our special items represent charges incurred or benefits realized 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; specifically, such items are considered to be one of the following:
•infrequent or unusual items,
•impairment or asset abandonment-related losses,
•restructuring charges and other atypical employee-related costs, or
•fees on termination of significant operating agreements and gains (losses) on disposal of investments.
The items classified as special items are not necessarily non-recurring, however, they are deemed to be incremental to income earned or costs incurred by us in conducting normal operations, and therefore are presented separately from other components of operating income.
Interest Expense, net
Our interest costs are associated with borrowings to finance our operations and acquisitions. Interest earned on our cash and cash equivalents across our business is recorded as interest income.
We capitalize interest cost as a part of the original cost of acquiring certain fixed assets if the cost of the capital expenditure and the expected time to complete the project are considered significant.
Other Income (Expense)
Our other income (expense) classification primarily includes gains and losses associated with activities not directly related to our operations. For instance, aggregate unrealized and realized foreign exchange gains and losses resulting from the remeasurement and settlement of foreign-denominated monetary assets and liabilities, as well as certain gains or losses on sales of non-operating assets and the mark-to-market activity associated with warrants and other equity securities are classified in this line item. These gains and losses are reported in the operating segment in which they occur; however, foreign exchange gains and losses on intercompany balances related to financing and other treasury-related activities remain unallocated. The initial recording of foreign-denominated transactions are classified based on the nature of the transaction, with the unrealized or realized foreign exchange gains or losses resulting from the subsequent remeasurement of the monetary asset or liability, and its ultimate settlement, classified in other income (expense).
Income Taxes
Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of our assets, liabilities, and certain unrecognized gains and losses recorded in accumulated other comprehensive income (loss). We apply the intraperiod tax allocation rules to allocate our provision for income taxes between continuing operations and other categories of earnings, such as other comprehensive income (loss), when we meet the criteria prescribed by U.S. GAAP.
When cash is available after satisfying working capital needs and all other business obligations, we may distribute such cash from a foreign subsidiary to its U.S. parent and record the tax impact associated with the distribution. However, to the extent current earnings of our foreign operations exist and are not otherwise distributed or planned to be distributed, such earnings accumulate. These accumulated earnings are considered permanently reinvested in our foreign operations. We currently would not expect the aggregate of these permanently reinvested earnings, which are largely in deficit positions for U.S. tax purposes, to result in any material U.S. taxes, if distributed.
The tax benefit from an uncertain tax position is recognized only if it is determined that the tax position will more likely be sustained based on its technical merits. We measure and record the tax benefits from such a position based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Interest, penalties and offsetting positions related to unrecognized tax benefits are recognized as a component of income tax expense. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized.
Other Comprehensive Income (Loss)
OCI represents income and losses for the reporting period, including the related tax impacts, which are excluded from net income (loss) and recognized directly within AOCI as a component of equity. OCI also includes amounts reclassified to income during the reporting period that were previously recognized within AOCI. Amounts remaining within AOCI are expected to be reclassified out of AOCI in the future, at which point they will be recognized within the consolidated statement of operations as a component of net income (loss). We recognize OCI related to the translation of assets and liabilities of our foreign subsidiaries which are denominated in currencies other than USD, unrealized gains and losses on the effective portion of our derivatives designated in cash flow hedging relationships and derivative and non-derivative instruments designated in net investment hedging relationships, actuarial gains and losses and prior service costs related to our pension and other post-retirement benefit plans, as well as our proportionate share of our equity method investments' OCI. Additionally, when we do not have the expectation or intent to cash settle certain of our intercompany note receivable and note payable positions in the foreseeable future, the remeasurement of these instruments is recorded as a component of foreign currency translation adjustments within OCI. We release stranded tax effects from AOCI using either a specific identification approach or portfolio approach based on the nature of the underlying item.
Earnings Per Share
Basic EPS was computed using the weighted-average number of shares of common stock outstanding during the period. Diluted EPS includes the additional dilutive effect of our potentially dilutive securities, which include RSUs, DSUs, PSUs and stock options. The dilutive effects of our potentially dilutive securities are calculated using the treasury stock method. Our calculation of weighted-average shares includes Class A common stock and Class B common stock, and Class A exchangeable shares and Class B exchangeable shares. All classes of stock have in effect the same dividend rights and share equitably in undistributed earnings. Holders of Class A common stock receive dividends only to the extent dividends are declared and paid to holders of Class B common stock. See Note 8, "Stockholders' Equity" for further discussion of the Class A common stock and Class B common stock and Class A exchangeable shares and Class B exchangeable shares. We have no unvested outstanding equity share awards that contain non-forfeitable rights to dividends. Dividends
Dividends per share paid to shareholders were $0.68, $0.57 and $1.96 during the years ended December 31, 2021, 2020 and 2019, respectively. In response to the global economic uncertainty created by the coronavirus pandemic, our Board of Directors suspended our regular quarterly dividend on our Class A and Class B common and exchangeable shares in May 2020. A quarterly dividend was reinstated during the third quarter of 2021.
Cash and Cash Equivalents
Cash consists of cash on hand and bank deposits. Cash equivalents represent highly liquid investments with original maturities of three months or less. Our cash deposits are maintained with multiple, reputable financial institutions.
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 13, "Share-Based Payments" for further discussion. We also had other non-cash activities related to capital expenditures incurred but not yet paid of $206.6 million, $171.9 million and $214.9 million during 2021, 2020 and 2019, respectively. In June 2021, we rolled forward our July 2021 $250.0 million forward starting interest rate swap to May 2022 through a cashless settlement. The unrealized loss on the 2021 forward starting interest rate swap at the time of the transaction was factored into the effective interest rate assigned to the new May 2022 forward starting interest rate swap. See Note 16, "Derivative Instruments and Hedging Activities" for further details. Other than the activity mentioned above and the supplemental non-cash activity related to the recognition of leases discussed in Note 19, "Leases," there was no other significant non-cash activity in 2021, 2020 and 2019.
Accounts Receivable and Notes Receivable
We record accounts and notes receivable at net realizable value. This carrying value includes an appropriate allowance for estimated uncollectible amounts to reflect any loss anticipated on the accounts and notes receivable balances. We calculate this allowance based on our country-specific history of write-offs, level of past-due accounts based on the contractual terms of the receivables and our relationships with and the economic status of our customers, which may be impacted by current macroeconomic and regulatory factors specific to the country of origin. This methodology takes into consideration historical loss experience and current and forecasted changes in cash flows based on internal and external information.
In the U.K., loans are extended to a portion of the retail outlets that sell our brands. We establish an allowance through a provision for loan losses charged against earnings and recorded in marketing, general and administrative expenses. Loan balances that are written off are recorded against the allowance as a write-off. Activity within the allowance for credit losses was immaterial for fiscal years 2021, 2020 and 2019.
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined by the first-in, first-out ("FIFO") method. We regularly assess the shelf-life of our inventories and reserve for those inventories when it becomes apparent the product will not be sold within our freshness specifications.
Other current assets
Other current assets include prepaid assets, maintenance and operating supplies, promotion materials and derivative assets that are expected to be recognized or realized within the next 12 months. Maintenance and operating supplies include our inventories of spare parts, which are kept on hand for repairs and maintenance of machinery and equipment. The majority of spare parts within our business include motors, fillers and other components that are required to maintain a normal level of production in the event that expected maintenance and/or repairs are required. These parts are inventoried within current assets as they are reasonably expected to be used during the normal operating cycle of the business and are reserved for excess and obsolescence, as appropriate. The allowance for obsolete supplies was $18.3 million and $16.4 million as of December 31, 2021, and December 31, 2020, respectively.
Properties
Properties are stated at original cost less accumulated depreciation. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets, which are reviewed periodically and have the following ranges: buildings and improvements: 20-40 years; machinery and equipment: 3-25 years; furniture and fixtures: 3-10 years; returnable containers: 2-15 years; and software: 3-5 years. Land is not depreciated, and construction in progress is not depreciated until ready for service. Costs of enhancements or modifications that substantially extend the capacity or useful life of an asset are capitalized and depreciated accordingly. Ordinary repairs and maintenance are expensed as incurred. When property is sold or otherwise disposed of, the cost and accumulated depreciation are removed from our consolidated balance sheets and the resulting gain or loss, if any, is reflected in our consolidated statements of operations. Long-lived assets are evaluated for impairment whenever events or changes in circumstances indicate the carrying value of an asset (or asset group) may not be recoverable. Our asset groups are generally identified at the segment level with the exception of certain craft breweries or other locations which may operate on a more stand-alone basis, such as our Truss LP joint venture. During the year ended December 31, 2021, we did not identify any triggering events related to our asset groups which required performance of an impairment test.
Returnable containers are recorded at acquisition cost and consist of returnable bottles, kegs, pallets and crates that are both in our direct control within our breweries, warehouses and distribution facilities and those that we indirectly control in the market through our agreements with our customers and other brewers and for which a deposit is received. The deposits received on our returnable containers in the market are recorded as deposit liabilities, included as current liabilities within accounts payable and other current liabilities in the consolidated balance sheets. We estimate that the loss, breakage and deterioration of our returnable containers is comparable to the depreciation calculated on an estimated useful life of up to 4 years for bottles, 5 years for pallets, 7 years for crates, and 15 years for returnable kegs. We also own and maintain other equipment in the market related to delivery of our products to end consumers, for example on-premise dispense equipment and refrigeration units. This equipment is recorded at acquisition cost and depreciated over lives of up to 7 years, depending on the market, reflecting the use of the equipment, as well as the loss and deterioration of the asset.
The costs of acquiring or developing internal-use computer software, including directly-related payroll costs for internal resources, are capitalized and classified within properties. Software maintenance and training costs are expensed in the period incurred. Implementation costs incurred in hosting arrangements that are service contracts are capitalized within other assets and are immaterial.
Properties held under finance lease are depreciated using the straight-line method over the estimated useful life or the lease term, whichever is shorter, and the related depreciation is included in depreciation expense. Finance lease assets for which ownership is transferred at the end of the lease, or there is a purchase option that we are reasonably certain to exercise, are amortized over the useful life that would be assigned if the asset were owned.
Goodwill and Other Intangible Assets
Goodwill is allocated to the reporting unit in which the business that created the goodwill resides. A reporting unit is an operating segment, or a business unit one level below that operating segment, for which discrete financial information is prepared and regularly reviewed by segment management. As of the date of the completion of our 2021 impairment testing, we have concluded that we have 2 reporting units, Americas and EMEA&APAC. See further discussion in Note 10, "Goodwill and Intangibles." As required, we evaluate the carrying value of our goodwill and indefinite-lived intangible assets for impairment at the reporting unit level at least annually or when an interim triggering event occurs that would indicate that impairment may have taken place. Our annual test is performed as of the first day of our fiscal fourth quarter. We continuously monitor the performance of our other definite-lived intangible assets and evaluate for impairment when evidence exists that certain events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Significant judgments and assumptions are required in such impairment evaluations. Definite-lived intangible assets are stated at cost less accumulated amortization. Amortization is recorded using the straight-line method over the estimated lives of the assets as this approximates the pattern in which the assets economic benefits are consumed.
Equity Method Investments
We apply the equity method of accounting to 20% to 50% owned investments where we exercise significant influence or VIEs for which we are not the primary beneficiary. We use the cumulative earnings approach for determining cash flow presentation of cash distributions received from equity method investments. Distributions received are included in our consolidated statements of cash flows as operating activities, unless the cumulative distributions exceed our portion of the cumulative equity in the net earnings of the equity method investment, in which case the excess distributions are deemed to be returns of the investment and are classified as investing activities in our consolidated statements of cash flows. See Note 4, "Investments" for further information regarding our equity method investments. There are no related parties that own interests in our equity method investments as of December 31, 2021.
Derivative Hedging Instruments
We use derivatives as part of our normal business operations to manage our exposure to fluctuations in interest rates, foreign currency exchange, commodity prices, production and packaging material costs and for other strategic purposes related to our core business. We enter into derivatives for risk management purposes only, including derivatives designated in hedge accounting relationships as well as those derivatives utilized as economic hedges. We do not enter into derivatives for trading or speculative purposes. We recognize our derivatives on the consolidated balance sheets as assets or liabilities at fair value and are classified in either current or non-current assets or liabilities based on each contract's respective unrealized gain or loss position and each contract's respective maturity. Our policy is to present all derivative balances on a gross basis, without regard to counterparty master netting agreements or similar arrangements. Further, our current derivative agreements do not allow us to net positions with the same counterparty and therefore, we present our derivative positions gross in our consolidated balance sheets.
Changes in fair values of outstanding cash flow and net investment hedges are recorded in OCI, until earnings are affected by the variability of cash flows of the underlying hedged item or the sale of the underlying net investment, respectively. Effective cash flow hedges offset the gains or losses recognized on the underlying exposure in the consolidated statements of operations, or for net investment hedges, the foreign exchange translation gain or loss recognized in AOCI. Changes in fair value of outstanding fair value hedges and the offsetting changes in fair value of the hedged item are recognized in earnings. Changes in fair value of the derivative attributable to components allowed to be excluded from the assessment of hedge effectiveness are deferred in AOCI and recognized in earnings over the life of the hedge.
We record realized gains and losses from derivative instruments in the same financial statement line item as the hedged item/forecasted transaction. Changes in unrealized gains and losses for derivatives not designated in a hedge accounting relationship are recorded directly in earnings each period and are also recorded in the same financial statement line item as the hedged item/forecasted transaction. Cash flows from the settlement of derivatives, including both economic hedges and those designated in hedge accounting relationships, appear in the consolidated statements of cash flows in the same categories as the cash flows of the hedged item unless the instruments are deemed to contain an other-than-insignificant financing element, in which case the cash flows related to this instrument will be classified as financing activities.
In accordance with authoritative accounting guidance, we do not record the fair value of derivatives for which we have elected the Normal Purchase Normal Sale ("NPNS") exemption. We account for these contracts on an accrual basis, recording realized settlements related to these contracts in the same financial statement line items as the corresponding transaction.
Leases
We account for leases in accordance with Accounting Standards Codification (“ASC”) Topic 842, Leases, which we adopted on January 1, 2019, electing not to adjust comparative periods presented and applying a modified retrospective transition approach as of the effective date of adoption.
We enter into contractual arrangements for the utilization of certain non-owned assets, primarily real estate and equipment, which are evaluated as finance or operating leases upon commencement, and are accounted for accordingly. Specifically, under ASC 842, a contract is or contains a lease when, (1) the contract contains an explicitly or implicitly identified asset and (2) the customer obtains substantially all of the economic benefits from the use of that underlying asset and directs how and for what purpose the asset is used during the term of the contract in exchange for consideration. We assess whether an arrangement is or contains a lease at inception of the contract. For all contractual arrangements deemed to be leases (other than short-term leases), as of the lease commencement date, we recognize on the consolidated balance sheet a liability for our obligation related to the lease and a corresponding asset representing our right to use the underlying asset over the period of use.
For leases that qualify as short-term leases, we have elected, for all classes of underlying assets, to not apply the balance sheet recognition requirements of ASC 842, and instead, we recognize the lease payments in the consolidated statements of operations on a straight-line basis over the lease term. We have also made the election, for our existing real estate and equipment classes of underlying assets, to account for lease and non-lease components as a single lease component.
Our leases have remaining lease terms of up to approximately 17 years. Certain of our lease agreements contain options to extend or early terminate the agreement. The lease term used to calculate the right-of-use ("ROU") asset and lease liability at commencement includes the impacts of options to extend or terminate the lease when it is reasonably certain that we will exercise that option. When determining whether it is reasonably certain that we will exercise an option at commencement, we consider various existing economic factors, including real estate strategies, the nature, length, and terms of the agreement, as well as the uncertainty of the condition of leased equipment at the end of the lease term. Based on these determinations, we generally conclude that the exercise of renewal options would not be reasonably certain in determining the lease term at commencement. Assumptions made at the commencement date are re-evaluated upon occurrence of certain events requiring a lease modification. Additionally, for certain equipment leases involving groups of similar leased assets with similar lease terms, we apply a portfolio approach to effectively account for the operating lease right-of-use assets and liabilities.
The discount rate used to calculate the present value of the future minimum lease payments is the rate implicit in the lease, when readily determinable. As the rate implicit in the lease is rarely readily determinable, we use our incremental borrowing rate relative to the leased asset in all other cases.
Certain of our leases include variable payments, primarily for items such as property taxes, insurance, maintenance, and other operating expenses associated with leased assets. These variable payments are excluded from the measurement of our lease assets and liabilities and are recognized in the period in which the obligation for those payments is incurred. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Lease-related expense is recorded within either cost of goods sold or marketing, general and administrative expenses on the consolidated statements of operations, depending on the function of the underlying leased asset, with the exception of interest on finance lease liabilities, which is recorded within interest expense on the consolidated statements of operations.
Pension and Postretirement Benefits
We maintain retirement plans for the majority of our employees. We offer different types of plans within each segment, including defined benefit plans, defined contribution plans and OPEB plans. Each plan is managed locally and in accordance with respective local laws and regulations. Our equity investments, BRI and BDL, maintain defined benefit, defined contribution and OPEB plans as well.
We recognize the underfunded or overfunded status of a defined benefit postretirement plan as an asset or liability in the consolidated balance sheets. The funded status of a plan, measured as the difference between the fair value of plan assets and the projected benefit obligation, and the related net periodic pension cost are calculated using a number of significant actuarial assumptions. Changes in net periodic pension cost and funding status may occur in the future due to changes in these assumptions.
We use the fair value approach to calculate the market-related value of pension plan assets used to determine net periodic pension cost, which includes measuring the market-related value of plan assets at fair value for purposes of determining the expected return on plan assets and amount of gain or loss subject to amortization.
Projected benefit obligation is the actuarial present value as of the measurement date of all benefits attributed by the plan benefit formula to employee service rendered before the measurement date using assumptions as to future compensation levels and years of service if the plan benefit formula is based on those future compensation levels and years of service. Accumulated benefit obligation is the actuarial present value of benefits (whether vested or unvested) attributed by the plan benefit formula to employee service rendered before the measurement date and based on employee service and compensation, if applicable, prior to that date. Accumulated benefit obligation differs from projected benefit obligation in that it includes no assumption about future compensation levels and years of service.
We employ the corridor approach for determining each plan's potential amortization from AOCI of deferred gains and losses, which occur when actual experience differs from estimates, into our net periodic pension and postretirement benefit cost. This approach defines the "corridor" as the greater of 10% of the projected benefit obligation or 10% of the market-related value of plan assets and requires amortization of the excess net gain or loss that exceeds the corridor over the average remaining service periods of active plan participants. For plans closed to new entrants and the future accrual of benefits, the average remaining life expectancy of all plan participants (including retirees) is used.
Fair Value Measurements
The carrying amounts of our cash and cash equivalents, accounts receivable, accounts payable and other current liabilities approximate fair value as recorded due to the short-term nature of these instruments. In addition, the carrying amounts of our trade loan receivables, net of allowances, approximate fair value. The fair value of derivatives is estimated by discounting the estimated future cash flows utilizing observable market interest, foreign exchange and commodity rates adjusted for non-performance credit risk associated with our counterparties (assets) or with MCBC (liabilities), as appropriate. Additionally, the fair value of warrants is estimated using the Black-Scholes valuation model. See Note 16, "Derivative Instruments and Hedging Activities" for additional information. Based on current market rates for similar instruments, the fair value of long-term debt is presented in Note 11, "Debt." U.S. GAAP guidance for fair value includes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques (market approach, income approach and cost approach). Our financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy.
The three levels of the hierarchy are as follows:
Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date.
Level 2—Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are less active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from, or corroborated by, observable market data by correlation or other means (market corroborated inputs).
Level 3—Unobservable inputs that reflect the assumptions that we believe market participants would use in pricing the asset or liability. We develop these inputs based on the best information available, including our own data.
Foreign Currency
Assets and liabilities recorded in foreign currencies that are the functional currencies for the respective operations are translated at the prevailing exchange rate at the balance sheet date. Translation adjustments resulting from this process are reported as a separate component of OCI. Gains and losses from foreign currency transactions are included in earnings for the period. Revenue and expenses are translated at the average exchange rates during the respective period throughout the year.
Subsequent Events
On February 22, 2022, the Board of Directors declared a quarterly dividend of $0.38 per share.
On February 17, 2022, the Board of Directors approved a share repurchase program up to an aggregate of $200 million of our Company's Class B common stock through March 31, 2026, with repurchases primarily intended to offset annual employee equity award grants.
2. New Accounting Pronouncements
New Accounting Pronouncements Recently Adopted
In December 2019, the FASB issued authoritative guidance intended to simplify the accounting for income taxes. This guidance eliminated certain exceptions to the general approach to the income tax accounting model and added new guidance to reduce the complexity in accounting for income taxes. We adopted this guidance in the first quarter of 2021, which did not have a material impact on our financial statements.
In March 2020, the FASB issued authoritative guidance which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform and are effective for all entities upon issuance, March 12, 2020 through December 31, 2022. The guidance permits a company to elect certain optional expedients and exceptions when affected by the changes in reference rate reform. We have elected to adopt optional expedients impacting our derivative instruments with maturity dates extending beyond the expected discontinuance date of LIBOR. In addition, in October 2021, we amended our revolving credit facility to replace LIBOR with designated replacement rates for any future borrowings denominated in EUR or GBP. The adoption of, and future elections under Accounting Standard Update ("ASU") 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, and ASU 2021-01, Reference Rate Reform (Topic 848): Scope, did not and are not expected to have a material impact on our accounting policies or consolidated financial statements. We will continue to evaluate the impact of reference rate reform on our other contracts and assess the impacts of adopting incremental portions of this guidance on our financial statements.
New Accounting Pronouncements Not Yet Adopted
In August 2018,November 2021, the FASB issued authoritative guidance intended to address a customer’sprovide consistent and transparent disclosures around government assistance by requiring disclosures of the type of government assistance, our accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. This guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The guidance also requires presentation of the capitalized implementation costs in the statement of financial position and in the statement of cash flows in the same line item that a prepayment for the fees of the associated hosting arrangement would be presented,government assistance and the expense related to the capitalized implementation costs to be presented in the same line item in the statement of operations as the fees associated with the hosting element (service) of the arrangement.effect on our financial statements. This guidance is effective for us in our annual periods beginning afterreport for the year ended December 15, 2019, including interim periods within those annual periods, with early adoption permitted.31, 2022. We can either adopt the amendments in this guidance prospectively or retrospectively. We are currently evaluating the potential impact on our financial position, results of operations, and statement of cash flows upon adoption of this guidance whichand do not expect it will result in the change in presentation of capitalized implementation costs related to hosting arrangements from properties to other assets on the consolidated balance sheet, as well as the expense related to such costs no longer being classified as depreciation expense and cash flows related to those costs no longer being presented as investing activities.
In February 2018, the FASB issued authoritative guidance intended to improve the usefulness of financial information related to the enactment of the 2017 Tax Act, as defined in Note 6, "Income Tax." This guidance provides an option to reclassify from AOCI to retained earnings the stranded tax effects resulting from the change in the U.S. federal corporate income tax rate ashave 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 potentialmaterial impact on our financial statements in order to determine whether to elect to make this reclassification upon adoption of this guidance.
In February 2016,as the FASB issued authoritative guidance intended to increase transparency and comparability among organizations by requiring the recognition of lease assets and liabilities on the balance sheet and disclosure of key information about leasing arrangements. We will adopt this guidance and all related amendments applying the modified retrospective transition approach to all lease arrangements as of the effective date of adoption, January 1, 2019. Additionally, for existing leases as of the effective date, we will elect the package of practical expedients available at transition to not reassess the historical lease determination, lease classification and initial direct costs.
For operating leases, the adoption of this new guidance is currently expected to result in the recognition of right-of-use ("ROU") assets of between approximately $150 million and $160 million, and aggregate current and non-current lease liabilities of between approximately $160 million and $170 million, as of the effective date of adoption, including immaterial reclassifications of prepaid and deferred rent balances into ROU assets. Additionally, as a result of the cumulative impact of adopting the new guidance, we expect to record a net increase to opening retained earnings of between $30 million and $35 million as of January 1, 2019, with the offsetting impact within other assets, related to our share of the accelerated recognition of deferred gains on non-qualifying and other sale-leaseback transactions by an equity method investment within our Canada segment. We are in the process of finalizing this transition adjustment calculation, which will be completed during the first quarter of 2019. Additionally, while our accounting for finance leases will remain unchanged at adoption, we will prospectively change the presentation of finance lease liabilities within the consolidated balance sheets to be presented within current portion of long-term debt and short-term borrowings and long-term debt, as appropriate. The adoption of this guidance is not expected to impact our cash flows from operating, investing, or financing activities. impacts disclosures only.
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 consolidated financial statements.
3. Segment Reporting
Our reporting segments are based on the key geographic regions in which we operate and include the Americas and EMEA&APAC segments. Our Americas segment operates in the U.S., Canada and various countries in Latin and South America and our EMEA&APAC segment operates in Bulgaria, Croatia, Czech Republic, Hungary, Montenegro, the Republic of Ireland, Romania, Serbia, the U.K., various other European countries and certain countries within the Middle East, Africa and Asia Pacific. We also have certain activity that is not allocated to our segments, which are the basis on which our chief operating decision maker evaluates the performance of the business.has been reflected as “Unallocated” below.
Reporting Segments
United StatesAmericas
The U.S.Americas segment consists of our production, marketing and sales of our brands and other owned and licensed brands in the U.S. Prior to the completion of the Acquisition on October 11, 2016, MillerCoors was a limited liability company that we jointly owned with SABMiller, Canada and which operatedvarious countries in the U.S.Latin and Puerto Rico. See Note 4, "Acquisition and Investments" for further discussion. Effective January 1, 2017, the results of the MillerCoors Puerto Rico business, which were previously reported as part of the U.S. segment, are reported within the International segment.South America. We have not recast historical resultscontract brewing agreements to brew, package and ship products for these changes onPabst and TYC, and a contract brewing agreement with Labatt USA Operating Co, LLC to brew and package certain Labatt brands for export. We have an agreement with Heineken that grants us the basis of materiality. Canadaright to import, market, distribute and sell certain Heineken products in Canada.
The Canada segment consists of our production, marketing and sales of our brands and other owned and licensed brands in Canada. The CanadaAmericas segment also includes BRI, our joint venture arrangement related to the distribution and retail sale of beer in Ontario, and BDL, our joint venture arrangement related to the distribution of beer in the western provinces. BothAdditionally, in the third quarter of 2020, we formed TYC, a joint venture equally owned by MCBC and DGY West that, pursuant to an operating agreement, was formed to expand commercialization of Yuengling's brands for any new market expansion outside of Yuengling's then 22-state footprint and New England in the U.S. During the third quarter of 2021, TYC commenced retail operations with its first product sales in the state of Texas. BRI, BDL and BDLTYC are all accounted for as equity method investments.
We have an agreement with Heineken N.V. ("Heineken") that grants us the right to import, market, distribute and sell Heineken products. Additionally, as a result of the Acquisition, beginning October 11, 2016, we have the right to brew or import, market, distribute and sell certain Miller brands in Canada. We also contract brew and package certain Labatt and Asahi brands for the U.S. market.
EuropeEMEA&APAC
The EuropeEMEA&APAC segment consists of our production, marketing and sales of our brands as well as a number of smaller regional brands in the U.K., the Republic of Ireland and Central Europe. As a result of and various other European countries, along with certain countries within the Acquisition, a portion of the operating results of the international Miller brand portfolio are reported in the Europe segment.Additionally, effective January 1, 2017, European markets including Sweden, Spain, Germany, UkraineMiddle East, Africa and Russia, which were previously reported underAsia Pacific. In our InternationalEMEA&APAC segment, are reported within our Europe segment. Our European businesswe also hashave licensing agreements and distribution agreements with various other brewers.
Unallocated
International
The objective of the International segment is to grow and expand our business and brand portfolio in new and existing markets, including emerging markets, outside the U.S., Canada, and Europe segments. The International segment includes operations in Latin America (the Caribbean, Central America, Mexico and South America), Asia Pacific (Australia, India, Japan and South Korea) and South Africa and surrounding markets. International operates through a combination of export and license arrangements, in addition to our India business that produces, markets and sells our products and our Japan business that imports, markets and sells our and certain other third-party products. As a result of the Acquisition, effective January 1, 2017, European markets including Sweden, Spain, Germany, Ukraine and Russia, which were previously reported under our International segment, are reported within our Europe segment while the results of the MillerCoors Puerto Rico business, which were previously reported as part of the U.S. segment, are reported within the International segment.
Corporate
Corporate is not a reportable segment and"Unallocated" activity primarily includes interest and certain other general and administrativefinancing-related costs that are not allocated to any of the operating segments. The majority of these corporate costs relate to worldwide administrative functions, such as corporate affairs, legal, human resources, information technology, finance, internal audit, insurance, ethicsinterest expense and compliance, risk management, global growth, supply chainincome, foreign exchange gains and commercial initiatives, as well as acquisition, integrationlosses on intercompany balances related to financing and financing costs associated with the Acquisition. Additionally, Corporate includes the results of our water resourcesother treasury-related activities, and energy operations in Colorado 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 is reported within each operating segment and all other components remain unallocated.
Summarized Financial Information
No single customer accounted for more than 10% of our consolidated sales in 2018, 2017 or 2016. 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, for fiscal year 2018 are U.S. segment sales of $104.5 million to our International segment and $19.0 million to our Canada segment, as well as approximately $12 million of Canada inter-segment sales to the U.S.
The following tables represent consolidated net sales, interest expense, interest income and reconciliations of amounts shown as income (loss) before income taxes to income (loss) attributable to MCBC. Income (loss) before income taxes includes the impact of special items; refer to Note 7, "Special Items" for further discussion. Income (loss) before income taxes for 2017 and 2016 has been adjusted to reflect the adoption of the new accounting pronouncement resulting in the reclassification of all non-service components of pension and other postretirement costs to Corporate as discussed in Note 2, "New Accounting Pronouncements." Additionally, various costs associated with the Acquisition, including its related financing, were recorded in 2018, 2017 and 2016; refer to Note 4, "Acquisition and Investments" for details. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2018 |
| U.S. | | Canada | | Europe | | International | | Corporate(1) | | Inter-segment net sales eliminations | | Consolidated |
| (In millions) |
Net sales | $ | 7,259.9 |
| | $ | 1,392.1 |
| | $ | 2,002.6 |
| | $ | 250.1 |
| | $ | 0.8 |
| | $ | (135.9 | ) | | $ | 10,769.6 |
|
Interest expense | 8.8 |
| | — |
| | (5.6 | ) | | — |
| | (309.4 | ) | | — |
| | (306.2 | ) |
Interest income | — |
| | — |
| | 0.5 |
| | — |
| | 7.5 |
| | — |
| | 8.0 |
|
Income (loss) before income taxes | $ | 1,320.7 |
| | $ | 157.0 |
| | $ | 186.4 |
| | $ | (2.7 | ) | | $ | (301.6 | ) | | $ | — |
| | $ | 1,359.8 |
|
Income tax benefit (expense) | |
| | |
| | |
| | |
| | | | | | (225.2 | ) |
Net income (loss) | |
| | |
| | |
| | |
| | | | | | 1,134.6 |
|
Net (income) loss attributable to noncontrolling interests | |
| | |
| | |
| | |
| | | | | | (18.1 | ) |
Net income (loss) attributable to MCBC | |
| | |
| | |
| | |
| | | | | | $ | 1,116.5 |
|
| |
(1) | During the first quarter of 2018, we recorded a gain of $328.0 million related to the Adjustment Amount as defined and further discussed in Note 4, "Acquisition and Investments." Additionally, related to the unrealized mark-to-market |
valuation on our commodity hedge positions, we recorded unrealized losses of $166.2 million for the year ended December 31, 2018, compared to unrealized gains of $123.3 million for the year ended December 31, 2017.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2017 |
| U.S. | | Canada | | Europe(1) | | International | | Corporate(2) | | Inter-segment net sales eliminations | | Consolidated |
| | | | | | | As Restated |
| (In millions) |
Net sales | $ | 7,505.7 |
| | $ | 1,458.0 |
| | $ | 1,940.7 |
| | $ | 264.0 |
| | $ | 0.9 |
| | $ | (166.5 | ) | | $ | 11,002.8 |
|
Interest expense | 13.1 |
| | — |
| | — |
| | — |
| | (362.4 | ) | | — |
| | (349.3 | ) |
Interest income | — |
| | — |
| | 3.6 |
| | — |
| | 2.4 |
| | — |
| | 6.0 |
|
Income (loss) before income taxes | $ | 1,394.2 |
| | $ | 210.2 |
| | $ | 234.9 |
| | $ | (19.7 | ) | | $ | (436.4 | ) | | $ | — |
| | $ | 1,383.2 |
|
Income tax benefit (expense) | |
| | |
| | |
| | |
| | | | | | 204.6 |
|
Net income (loss) | |
| | |
| | |
| | |
| | | | | | 1,587.8 |
|
Net (income) loss attributable to noncontrolling interests | |
| | |
| | |
| | |
| | | | | | (22.2 | ) |
Net income (loss) attributable to MCBC | |
| | |
| | |
| | |
| | | | | | $ | 1,565.6 |
|
| |
(1) | In the first quarter of 2017, we recorded a provision for an estimate of uncollectible receivables of approximately $11 million related to Agrokor, a large customer in Croatia. We have subsequently reduced this exposure and as of December 31, 2018, our estimated provision of uncollectible receivables from Agrokor totals approximately $3 million. The settlement plan related to this matter was approved in October 2018, and did not have a significant impact on our financial statements. 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 18, "Commitments and Contingencies" for details. |
| |
(2) | Related to the unrealized mark-to-market valuation on our commodity hedge positions, we recorded unrealized gains of $123.3 million for the twelve months ended December 31, 2017, compared to unrealized gains of $23.1 million for the twelve months ended December 31, 2016. |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2016 |
| U.S.(1) | | Canada | | Europe(2) | | International | | Corporate | | Inter-segment net sales eliminations | | Consolidated |
| | | | | | | As Restated |
| (In millions) |
Net sales | $ | 1,566.6 |
| | $ | 1,425.7 |
| | $ | 1,760.2 |
| | $ | 163.6 |
| | $ | 1.0 |
| | $ | (32.1 | ) | | $ | 4,885.0 |
|
Interest expense | — |
| | — |
| | — |
| | — |
| | (271.6 | ) | | — |
| | (271.6 | ) |
Interest income | — |
| | — |
| | 3.6 |
| | — |
| | 23.6 |
| | — |
| | 27.2 |
|
Income (loss) before income taxes | $ | 3,568.0 |
| | $ | (119.7 | ) | | $ | 137.6 |
| | $ | (39.6 | ) | | $ | (492.2 | ) | | $ | — |
| | $ | 3,054.1 |
|
Income tax benefit (expense) | |
| | | | |
| | |
| | | | | | (1,454.3 | ) |
Net income (loss) | |
| | | | |
| | |
| | | | | | 1,599.8 |
|
Net (income) loss attributable to noncontrolling interests | |
| | | | |
| | |
| | | | | | (5.9 | ) |
Net income (loss) attributable to MCBC | |
| | | | |
| | |
| | | | | | $ | 1,593.9 |
|
| |
(1) | Prior to October 11, 2016, MCBC’s 42% share of MillerCoors' results of operations was reported as equity income in MillerCoors in the consolidated statements of operations. As a result of the Acquisition, beginning October 11, 2016, MillerCoors' results were fully consolidated into MCBC’s consolidated financial statements. The above table reflects this treatment accordingly. Also included in net income attributable to MCBC is a net special items gain of approximately $3.0 billion related to the fair value remeasurement of our pre-existing 42% interest in MillerCoors over its carrying value, as well as the reclassification of the loss related to MCBC's historical AOCI on our 42% interest in MillerCoors. Refer to Note 4, "Acquisition and Investments" for further discussion. |
| |
(2) | During the fourth quarter of 2016, we recorded a charge of approximately $50 million within excise taxes due to assessments received from a local country regulatory authority in Europe related to indirect tax calculations. See Note 18, "Commitments and Contingencies" for further discussion. |
The following table presents total assets and select cash flow information by segment:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Assets | | Depreciation and amortization | | Capital expenditures |
| As of December 31, | | For the years ended December 31, | | For the years ended December 31, |
| 2018 | | 2017 | | 2018 | | 2017 | | 2016 | | 2018 | | 2017 | | 2016 |
| (In millions) |
U.S.(1) | $ | 19,057.1 |
| | $ | 19,353.6 |
| | $ | 514.0 |
| | $ | 485.7 |
| | $ | 105.7 |
| | $ | 322.0 |
| | $ | 351.5 |
| | $ | 105.4 |
|
Canada | 4,640.5 |
| | 4,835.7 |
| | 141.9 |
| | 131.2 |
| | 98.4 |
| | 165.3 |
| | 99.9 |
| | 72.2 |
|
Europe | 5,430.0 |
| | 5,522.0 |
| | 188.0 |
| | 182.3 |
| | 175.7 |
| | 150.0 |
| | 131.6 |
| | 144.4 |
|
International | 274.1 |
| | 294.8 |
| | 9.9 |
| | 9.6 |
| | 5.1 |
| | 3.1 |
| | 2.3 |
| | 4.9 |
|
Corporate | 708.1 |
| | 240.8 |
| | 3.7 |
| | 4.0 |
| | 3.5 |
| | 11.3 |
| | 14.3 |
| | 14.9 |
|
Consolidated | $ | 30,109.8 |
| | $ | 30,246.9 |
| | $ | 857.5 |
| | $ | 812.8 |
| | $ | 388.4 |
| | $ | 651.7 |
| | $ | 599.6 |
| | $ | 341.8 |
|
| |
(1) | For the year ended December 31, 2016, represents MillerCoors' activity for the post-Acquisition period of October 11, 2016, through December 31, 2016. |
The following table presents net sales by geography, based on the location of the customer:
|
| | | | | | | | | | | |
| For the years ended |
| December 31, 2018 | | December 31, 2017 | | December 31, 2016 |
| (In millions) |
Net sales to unaffiliated customers: | | | | | |
United States and its territories(1) | $ | 7,272.1 |
| | $ | 7,493.6 |
| | $ | 1,622.4 |
|
Canada | 1,298.2 |
| | 1,358.4 |
| | 1,344.4 |
|
United Kingdom | 1,184.6 |
| | 1,172.8 |
| | 1,071.4 |
|
Other foreign countries(2) | 1,014.7 |
| | 978.0 |
| | 846.8 |
|
Consolidated net sales | $ | 10,769.6 |
| | $ | 11,002.8 |
| | $ | 4,885.0 |
|
| |
(1) | Prior to October 11, 2016, MCBC’s 42% share of MillerCoors' results of operations was reported as equity income in MillerCoors in the consolidated statements of operations. As a result of the completion of the Acquisition, beginning October 11, 2016, MillerCoors' results of operations were fully consolidated into MCBC’s consolidated financial statements and included in the U.S. segment. Net sales from the period October 11, 2016, through December 31, 2016, reflect the consolidation of MillerCoors in the U.S. segment. |
| |
(2) | Reflects net sales from the individual countries within our Central European operations (included in our Europe segment), as well as our International segment, for which no individual country has total net sales exceeding 10% of the total consolidated net sales. |
The following table presents net properties by geographic location:
|
| | | | | | | |
| As of |
| December 31, 2018 | | December 31, 2017 |
| (In millions) |
Net properties: | | | |
United States and its territories | $ | 2,943.0 |
| | $ | 3,025.0 |
|
Canada | 719.7 |
| | 673.0 |
|
United Kingdom | 396.5 |
| | 392.6 |
|
Other foreign countries(1) | 549.1 |
| | 583.1 |
|
Consolidated net properties | $ | 4,608.3 |
| | $ | 4,673.7 |
|
| |
(1) | Reflects net properties within the individual countries included in our Central European operations (included in our Europe segment), as well as our International segment, for which no individual country has total net properties exceeding 10% of the total consolidated net properties. |
4. Acquisition andEquity Method Investments
Acquisition
On October 11, 2016, we completed the Acquisition for $12.0 billion in cash, subject to a downward purchase price 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. 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 consolidated statement of operations in our Corporate segment and within cash provided by operating activities within our consolidated statement of cash flows for the year ended December 31, 2018. MCBC and ABI also agreed to certain mutual releases as further described in the settlement agreement.
Prior to the Acquisition, MCBC owned a 50% voting and 42% economic interest in MillerCoors and MillerCoors was accounted for underWe apply the equity method of accounting. Followingaccounting to 20% to 50% owned investments where we exercise significant influence or VIEs for which we are not the completionprimary beneficiary. We use the cumulative earnings approach for determining cash flow presentation of cash distributions received from equity method investments. Distributions received are included in our consolidated statements of cash flows as operating activities, unless the cumulative distributions exceed our portion of the Acquisition, MillerCoors,cumulative equity in the net earnings of the equity method investment, in which was previously a joint venture between MCBCcase the excess distributions are deemed to be returns of the investment and SABMiller, became a wholly-owned subsidiary of MCBC and its results were fully consolidated by MCBC prospectively beginning on October 11, 2016.
The operating results of MillerCoors are reportedclassified as investing activities in our U.S. segment and the operating resultsconsolidated statements of the international Miller brand portfoliocash flows. See Note 4, "Investments" for further information regarding our equity method investments.There are reportedno related parties that own interests in our Canada segment, Europe segment and International segment. Additionally, effective January 1, 2017, the resultsequity method investments as of the MillerCoors Puerto Rico business, which were previously reportedDecember 31, 2021.
Derivative Hedging Instruments
We use derivatives as part of
our normal business operations to manage our exposure to fluctuations in interest rates, foreign currency exchange, commodity prices, production and packaging material costs and for other strategic purposes related to our core business. We enter into derivatives for risk management purposes only, including derivatives designated in hedge accounting relationships as well as those derivatives utilized as economic hedges. We do not enter into derivatives for trading or speculative purposes. We recognize our derivatives on the
U.S. segment,consolidated balance sheets as assets or liabilities at fair value and are
reported withinclassified in either current or non-current assets or liabilities based on each contract's respective unrealized gain or loss position and each contract's respective maturity. Our policy is to present all derivative balances on a gross basis, without regard to counterparty master netting agreements or similar arrangements. Further, our current derivative agreements do not allow us to net positions with the
International segment. See Note 3, "Segment Reporting"same counterparty and therefore, we present our derivative positions gross in our consolidated balance sheets. Changes in fair values of outstanding cash flow and net investment hedges are recorded in OCI, until earnings are affected by the variability of cash flows of the underlying hedged item or the sale of the underlying net investment, respectively. Effective cash flow hedges offset the gains or losses recognized on the underlying exposure in the consolidated statements of operations, or for more information on our reporting segments.
Undernet investment hedges, 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 estimatedforeign exchange translation gain or loss recognized in AOCI. Changes in fair value of our previously held equity interestoutstanding fair value hedges and the offsetting changes in MillerCoors,fair value of the hedged item are recognized in earnings. Changes in fair value of the derivative attributable to components allowed to be excluded from the assessment of hedge effectiveness are deferred in AOCI and recognized in earnings over the net identifiablelife of the hedge.
We record realized gains and losses from derivative instruments in the same financial statement line item as the hedged item/forecasted transaction. Changes in unrealized gains and losses for derivatives not designated in a hedge accounting relationship are recorded directly in earnings each period and are also recorded in the same financial statement line item as the hedged item/forecasted transaction. Cash flows from the settlement of derivatives, including both economic hedges and those designated in hedge accounting relationships, appear in the consolidated statements of cash flows in the same categories as the cash flows of the hedged item unless the instruments are deemed to contain an other-than-insignificant financing element, in which case the cash flows related to this instrument will be classified as financing activities.
In accordance with authoritative accounting guidance, we do not record the fair value of derivatives for which we have elected the Normal Purchase Normal Sale ("NPNS") exemption. We account for these contracts on an accrual basis, recording realized settlements related to these contracts in the same financial statement line items as the corresponding transaction.
Leases
We account for leases in accordance with Accounting Standards Codification (“ASC”) Topic 842, Leases, which we adopted on January 1, 2019, electing not to adjust comparative periods presented and applying a modified retrospective transition approach as of the effective date of adoption.
We enter into contractual arrangements for the utilization of certain non-owned assets, acquiredprimarily real estate and liabilities assumed was recordedequipment, which are evaluated as goodwill. During 2017,finance or operating leases upon commencement, and are accounted for accordingly. Specifically, under ASC 842, a contract is or contains a lease when, (1) the contract contains an explicitly or implicitly identified asset and (2) the customer obtains substantially all of the economic benefits from the use of that underlying asset and directs how and for what purpose the asset is used during the term of the contract in exchange for consideration. We assess whether an arrangement is or contains a lease at inception of the contract. For all contractual arrangements deemed to be leases (other than short-term leases), as of the lease commencement date, we recorded adjustments torecognize on the consolidated balance sheet a liability for our preliminary purchase price allocation, primarilyobligation related to the lease and a corresponding asset representing our right to use the underlying asset over the period of use.
For leases that qualify as short-term leases, we have elected, for all classes of underlying assets, to not apply the balance sheet recognition requirements of ASC 842, and instead, we recognize the lease payments in the consolidated statements of operations on a straight-line basis over the lease term. We have also made the election, for our existing real estate and equipment classes of underlying assets, to account for lease and non-lease components as a single lease component.
Our leases have remaining lease terms of up to approximately 17 years. Certain of our lease agreements contain options to extend or early terminate the agreement. The lease term used to calculate the right-of-use ("ROU") asset and lease liability at commencement includes the impacts of options to extend or terminate the lease when it is reasonably certain that we will exercise that option. When determining whether it is reasonably certain that we will exercise an option at commencement, we consider various existing economic factors, including real estate strategies, the nature, length, and terms of the agreement, as well as the uncertainty of the condition of leased equipment at the end of the lease term. Based on these determinations, we generally conclude that the exercise of renewal options would not be reasonably certain in determining the lease term at commencement. Assumptions made at the commencement date are re-evaluated upon occurrence of certain deferred taxevents requiring a lease modification. Additionally, for certain equipment leases involving groups of similar leased assets partially offset bywith similar lease terms, we apply a portfolio approach to effectively account for the recognitionoperating lease right-of-use assets and liabilities.
The discount rate used to calculate the present value of certain accrued liabilities. The net impact of these changes was a decrease to goodwill of $92.1 million. There were no other changes to our allocated amounts during 2017, and our purchase price allocationthe future minimum lease payments is now finalized.
Separately, earlythe rate implicit in the fourth quarter of 2017, and priorlease, when readily determinable. As the rate implicit in the lease is rarely readily determinable, we use our incremental borrowing rate relative to the completionleased asset in all other cases.
Certain of our one yearleases include variable payments, primarily for items such as property taxes, insurance, maintenance, and other operating expenses associated with leased assets. These variable payments are excluded from the measurement of our lease assets and liabilities and are recognized in the period we completedin which the allocationobligation for those payments is incurred. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Lease-related expense is recorded within either cost of goodwill to our reporting units,goods sold or marketing, general and administrative expenses on the consolidated statements of operations, depending on the function of the underlying leased asset, with the goodwill predominantly assigned toexception of interest on finance lease liabilities, which is recorded within interest expense on the U.S. reporting unit,consolidated statements of operations.
We have elected to treatmaintain retirement plans for the Acquisitionmajority of our employees. We offer different types of plans within each segment, including defined benefit plans, defined contribution plans and OPEB plans. Each plan is managed locally and in accordance with respective local laws and regulations. Our equity investments, BRI and BDL, maintain defined benefit, defined contribution and OPEB plans as well.
We recognize the underfunded or overfunded status of a defined benefit postretirement plan as an asset acquisition for U.S. tax purposes and accordingly currently expect to receive substantial tax benefits foror liability in the first 15 years followingconsolidated balance sheets. The funded status of a plan, measured as the closedifference between the fair value of the Acquisition. Theplan assets and liabilities acquiredthe projected benefit obligation, and the related net periodic pension cost are calculated using a number of significant actuarial assumptions. Changes in net periodic pension cost and funding status may occur in the future due to changes in these assumptions.
connection withWe use the Acquisition relatedfair value approach to calculate the remaining 58% ownership were stepped upmarket-related value of pension plan assets used to determine net periodic pension cost, which includes measuring the market-related value of plan assets at fair value for tax purposes and thusof determining the carrying value of theseexpected return on plan assets and liabilities relatedamount of gain or loss subject to amortization.
Projected benefit obligation is the purchase price for the 58% interest primarily equals the tax basisactuarial present value as of the acquisitionmeasurement date of all benefits attributed by the plan benefit formula to employee service rendered before the measurement date using assumptions as to future compensation levels and years of service if the plan benefit formula is based on those future compensation levels and years of service. Accumulated benefit obligation is the actuarial present value of benefits (whether vested or unvested) attributed by the plan benefit formula to employee service rendered before the measurement date and based on employee service and compensation, if applicable, prior to that date. Accumulated benefit obligation differs from projected benefit obligation in that it includes no assumption about future compensation levels and years of service.
We employ the corridor approach for determining each plan's potential amortization from AOCI of deferred gains and losses, which occur when actual experience differs from estimates, into our net periodic pension and postretirement benefit cost. This approach defines the "corridor" as the greater of 10% of the projected benefit obligation or 10% of the market-related value of plan assets and requires amortization of the excess net gain or loss that exceeds the corridor over the average remaining service periods of active plan participants. For plans closed to new entrants and the future accrual of benefits, the average remaining life expectancy of all plan participants (including retirees) is used.
Fair Value Measurements
The totalcarrying amounts of our cash paidand cash equivalents, accounts receivable, accounts payable and other current liabilities approximate fair value as recorded due to ABI in October 2016 to complete the Acquisition,short-term nature of these instruments. In addition, the carrying amounts of our trade loan receivables, net of cash acquiredallowances, approximate fair value. The fair value of $39.0 million,derivatives is presented as a cash outflow within investing activities during 2016. Additionally,estimated by discounting the estimated future cash flows provided by operating activities during 2016 include outflowsutilizing observable market interest, foreign exchange and commodity rates adjusted for non-performance credit risk associated with our counterparties (assets) or with MCBC (liabilities), as appropriate. Additionally, the fair value of $90.3 million primarily related to transaction and other acquisition costs.
U.S. GAAP guidance for fair value includes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques (market approach, income approach and cost approach). Our financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy.
The three levels of the hierarchy are as follows:
Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date.
Level 2—Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are less active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from, or corroborated by, observable market data by correlation or other means (market corroborated inputs).
Level 3—Unobservable inputs that reflect the assumptions that we believe market participants would use in pricing the asset or liability. We develop these inputs based on the best information available, including our own data.
Foreign Currency
Assets and liabilities recorded in foreign currencies that are the functional currencies for the respective operations are translated at the prevailing exchange rate at the balance sheet date. Translation adjustments resulting from this process are reported as a separate component of OCI. Gains and losses from foreign currency transactions are included in earnings for the period. Revenue and expenses are translated at the average exchange rates during the respective period throughout the year.
Subsequent Events
On February 22, 2022, the Board of Directors declared a quarterly dividend of $0.38 per share.
On February 17, 2022, the Board of Directors approved a share repurchase program up to an aggregate of $200 million of our Company's Class B common stock through March 31, 2026, with repurchases primarily intended to offset annual employee equity award grants.
2. New Accounting Pronouncements
New Accounting Pronouncements Recently Adopted
In December 2019, the FASB issued authoritative guidance intended to simplify the accounting for income taxes. This guidance eliminated certain exceptions to the financing and hedging strategies completed in relationgeneral approach to the Acquisition.
Our fiscal year 2016 consolidated statement of operations includes net salesincome tax accounting model and added new guidance to reduce the complexity in accounting for income before taxes of approximately $1.6 billion and $3.1 billion, respectively, attributable to MillerCoors since the Acquisition date. The income includes the net gain of approximately $3.0 billion related to the Acquisition as discussed below.
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,taxes. We adopted this guidance in the first dayquarter of 2021, which did not have a material impact on our 2016 fiscal yearfinancial statements.
In March 2020, the FASB issued authoritative guidance which provides optional expedients and the pro forma adjustmentsexceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are based on itemsmet. The amendments apply only to contracts, hedging relationships and other transactions that are factually supportable, are directly attributablereference LIBOR or another reference rate expected to the Acquisition,be discontinued because of reference rate reform and are effective for all entities upon issuance, March 12, 2020 through December 31, 2022. The guidance permits a company to elect certain optional expedients and exceptions when affected by the changes in reference rate reform. We have elected to adopt optional expedients impacting our derivative instruments with maturity dates extending beyond the expected discontinuance date of LIBOR. In addition, in October 2021, we amended our revolving credit facility to replace LIBOR with designated replacement rates for any future borrowings denominated in EUR or GBP. The adoption of, and future elections under Accounting Standard Update ("ASU") 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, and ASU 2021-01, Reference Rate Reform (Topic 848): Scope, did not and are not expected to have a continuingmaterial impact on MCBC's results of operations. The unaudited pro forma financial information has been calculated after applying MCBC’sour accounting policies and adjusting the historical results of MillerCoorsor consolidated financial statements. We will continue to reflect the additional depreciation and amortization that would have been charged assuming the 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 5, "Other Income and Expense" and Note 11, "Debt" for details related to financing-related expenses incurred. Additionally, the following unaudited pro forma financial information does not reflectevaluate the impact of reference rate reform on our other contracts and assess the acquisitionimpacts of adopting incremental portions of this guidance on our financial statements.
New Accounting Pronouncements Not Yet Adopted
In November 2021, the FASB issued authoritative guidance intended to provide consistent and transparent disclosures around government assistance by requiring disclosures of the Miller global brand portfoliotype of government assistance, our accounting for the government assistance 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, basedeffect on the limited information available to MCBC, that itour financial statements. This guidance is insignificant to the overall Acquisition. The purchase price allocation reflects estimated value allocated to the Miller global brand portfolio reported within identifiable intangible assets subject to amortization.
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.
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| | | |
| For the year ended |
| December 31, 2016 |
| (in millions) |
Net sales | $ | 10,983.2 |
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Net income attributable to MCBC | $ | 291.8 |
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Net income attributable to MCBC per share: | |
Basic | $ | 1.36 |
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Diluted | $ | 1.35 |
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For the year ended December 31, 2016, the following non-recurring charges (benefits) directly attributable to the Acquisition were made as adjustments toeffective for us in our pro forma results to remove the impact from our historical operating results within the below noted line items.
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| | | | |
| For the year ended | |
| December 31, 2016 | |
| (In millions) | |
Non-recurring charges (benefits) | | Location |
Recognition of inventory fair value step-up | $ | 82.0 |
| Cost of goods sold |
Revaluation gain on previously held 42% equity interest in MillerCoors and AOCI loss reclassification
| $ | (2,965.0 | ) | Special items, net |
Other transaction-related costs | $ | 79.7 |
| Marketing, general and administrative expenses |
Bridge loan - amortization of financing costs | $ | 63.4 |
| Other income (expense) |
Foreign currency forwards and transactional foreign currency - net gain | $ | (4.5 | ) | Other income (expense) |
Term loan - commitment fee | $ | 4.0 |
| Interest expense, net |
Swaption - unrealized loss | $ | 36.4 |
| Interest expense, net |
Interest income earned on money market and fixed rate deposit accounts | $ | (19.0 | ) | Interest income, net |
Fair Value of Consideration Transferred
The purchase consideration was comprised of the following (in millions):
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| | | |
Total cash consideration | $ | 12,000.0 |
|
Replacement share-based awards issued in conjunction with Acquisition(1) | 46.4 |
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Elimination of MCBC's net payable to MillerCoors(2) | (8.0 | ) |
Total consideration | $ | 12,038.4 |
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Previously held equity interest in MillerCoors(3) | 6,090.0 |
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Total consideration and value to be allocated to net assets | $ | 18,128.4 |
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(1) | In connection with the Acquisition, MCBC issued replacement share-based compensation awards to various MillerCoors' employees who had awards outstanding under the historical MillerCoors share-based compensation plan. The fair value of the replacement awards associated with services rendered through the date of the Acquisition was recognized as a non-cash component of the total purchase consideration. See Note 13, "Share-Based Payments" for further information. |
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(2) | Represents the net payable owed by MCBC to MillerCoors as of the closing date which became an intercompany payable upon completion of the Acquisition. |
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(3) | The acquisition of MillerCoors is considered a step acquisition, and accordingly, we remeasured our pre-existing 42% equity interest in MillerCoors immediately prior to completion of the Acquisition to its estimated fair value of approximately $6.1 billion. As a result of the remeasurement, we recorded a net gain of approximately $3.0 billion within special items, net during the fourth quarter of 2016, representing the excess of the approximate $6.1 billion estimated fair value of our pre-existing 42% equity interest over its transaction date carrying value of approximately $2.7 billion. This net gain also includes the reclassification of our accumulated other comprehensive loss related to our previously held equity interest of $458.3 million in the fourth quarter of 2016 as further discussed below. Additionally, related to our pre-existing 42% equity interest, we recorded incremental deferred income tax expense and a corresponding deferred tax liability of approximately $1.5 billion upon completion of the Acquisition. This deferred tax adjustment has been restated to reflect the correction of the error discussed in Note 1, "Basis of Presentation and Summary of Significant Accounting Policies." |
As discussed above, our revaluation gain is net of a loss of $458.3 million related to the reclassification of our historical AOCI related to our 42% interest in MillerCoors, thereby removing the historical balance from our balance sheet. The reclassified AOCI loss is related to historical net unrealized losses on derivative positions previously designated by MillerCoors as cash flow hedges and historical pension and other postretirement benefit actuarial losses.
The associated income tax benefit of $200.1 million related to this reclassified AOCI loss was recorded as a component of the income tax benefit (expense) line item on the consolidated statement of operationsannual report for the year ended December 31, 2016.2022. We can either adopt the amendments in this guidance prospectively or retrospectively. We are currently evaluating the impact of this guidance and do not expect it will have a material impact on our financial statements as the guidance impacts disclosures only.
Allocation of Consideration Transferred
The acquisition of MillerCoors was reflectedOther 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 consolidated financial statementsstatements.
3. Segment Reporting
Our reporting segments are based on the key geographic regions in which we operate and include the Americas and EMEA&APAC segments. Our Americas segment operates in the U.S., Canada and various countries in Latin and South America and our EMEA&APAC segment operates in Bulgaria, Croatia, Czech Republic, Hungary, Montenegro, the Republic of Ireland, Romania, Serbia, the U.K., various other European countries and certain countries within the Middle East, Africa and Asia Pacific. We also have certain activity that is not allocated to our segments, which has been reflected as a step acquisition using the acquisition method of accounting. As such, we remeasured our pre-existing 42% equity interest in MillerCoors to fair value as discussed above. “Unallocated” below.
Reporting Segments
Americas
The fair value measurementAmericas segment consists of our previously held equity interest immediately prior to the completion of the Acquisition is based on significant inputs not observable in the market,production, marketing and thus represents a Level 3 measurement. Specifically, the approach used in determining the fair valuesales of our pre-existing 42% equity interest in MillerCoors, while considering an allocation of the total $12.0 billion purchase price attributable to the Acquisitionbrands and the nature of the Acquisition, also incorporated an income valuation approach using inputs including discount rateother owned and terminal growth rate.
Under the acquisition method, 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 following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the Acquisition date (in millions):
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Total current assets(1) | $ | 1,061.8 |
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Property, plant and equipment(2) | 2,998.9 |
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Other intangible assets(3) | 9,875.0 |
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Other assets(4) | 462.3 |
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Total current liabilities | (1,190.1 | ) |
Pension and postretirement benefits | (1,009.7 | ) |
Other non-current liabilities | (208.3 | ) |
Total identifiable net assets acquired | $ | 11,989.9 |
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Goodwill(5) | 6,323.5 |
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Fair value of noncontrolling interests(6) | (185.0 | ) |
Total consideration and value to be allocated to net assets | $ | 18,128.4 |
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(1) | Includes inventories of $505.4 million, trade receivables of $344.3 million, other receivables of $40.2 million as well as cash acquired of $39.0 million. The fair value of inventories was determined based on the estimated selling price of the inventory less the remaining manufacturing and selling costs and a normal profit margin on those manufacturing and selling efforts. The estimated step-up in fair value of inventory of $82.0 million increased cost of goods sold over approximately one month as the acquired inventory was sold. For all other current assets acquired, the fair values approximate the carrying values. |
(2)The fair value of property, plant and equipment was determined by using certain estimates and assumptions that are not observable in the market and thus represent a Level 3 measurement. The fair value and remaining useful life of property, plant and equipment are estimated as follows: |
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| Fair value |
| Remaining useful life |
| (In millions) |
| (Years) |
Land | $ | 156.8 |
|
| N/A |
Buildings and improvements | 413.0 |
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| 3-40 |
Machinery and equipment | 1,927.7 |
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| 3-25 |
Software | 152.4 |
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| 1-5 |
Returnable containers | 89.8 |
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| 1-15 |
Construction in progress | 259.2 |
|
| N/A |
Acquired property, plant and equipment | $ | 2,998.9 |
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(3) | The fair value of identifiable intangible assets was estimated using significant assumptions that are not observable in the market and thus represent a Level 3 measurement. The excess earnings approach was primarily used and significant assumptions included the amount and timing of projected cash flows, a discount rate selected to measure the risk inherent in the future cash flows, and the assessment of the asset’s life cycle, including competitive trends and other factors. The fair value and remaining useful life of identifiable intangible assets was estimated as follows: |
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| | | | | |
| Fair value | | Remaining useful life |
| (In millions) | | (Years) |
Brands not subject to amortization | $ | 7,320.0 |
| | Indefinite |
Brands subject to amortization | 2,030.0 |
| | 10-30 |
Other intangible assets not subject to amortization | 320.0 |
| | Indefinite |
Other intangible assets subject to amortization | 205.0 |
| | 2-40 |
Total acquired identifiable intangible assets | $ | 9,875.0 |
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Brands not subject to amortization include the Coors and Miller families oflicensed brands in the U.S. Brands subject, Canada and various countries in Latin and South America. We have contract brewing agreements to amortization includebrew, package and ship products for Pabst and TYC, and a contract brewing agreement with Labatt USA Operating Co, LLC to brew and package certain Labatt brands for export. We have an agreement with Heineken that grants us the right to import, market, distribute and sell certain Heineken products in Canada.
The Americas segment also includes BRI, our joint venture arrangement related to the distribution and retail sale of beer in Ontario, and BDL, our joint venture arrangement related to the distribution of beer in the western provinces. Additionally, in the third quarter of 2020, we formed TYC, a joint venture equally owned by MCBC and DGY West that, pursuant to an operating agreement, was formed to expand commercialization of Yuengling's brands for any new market expansion outside of Yuengling's then 22-state footprint and New England in the U.S. During the third quarter of 2021, TYC commenced retail operations with its first product sales in the state of Texas. BRI, BDL and TYC are all accounted for as equity method investments.
EMEA&APAC
The EMEA&APAC segment consists of our production, marketing and sales of our brands as well as a number of smaller regional brands in the U.S.U.K., Central Europe and various other European countries, along with certain countries within the Middle East, Africa and Asia Pacific. In our EMEA&APAC segment, we also have licensing agreements and distribution agreements with various other brewers.
Unallocated
"Unallocated" activity primarily includes financing-related costs such as interest expense and income, foreign exchange gains and losses on intercompany balances related to financing and other treasury-related activities, and the Miller global brand portfolio.Other intangible assetsunrealized changes in fair value on our commodity swaps not subject to amortization include water rights. Other intangible assets subject to amortization include certain distribution rights, naming rights and favorable contracts.
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(4) | Includes estimated deferred tax assets of approximately $430 million which were presented as non-current deferred tax liabilities upon consolidation by MCBC due to jurisdictional netting. |
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(5) | The goodwill arising from the Acquisition is primarily attributable to expected improvements to our global scale and agility, operational synergies and acceleration of the MCBC growth strategy, as well as the assembled workforce. We have predominantly allocated the goodwill generated in the Acquisition to our U.S. reporting unit, with a portion allocated to the Canada and Europe reporting units. All of the tax basis goodwill generated in the Acquisition is expected to be deductible for U.S. federal and state tax purposes. |
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(6) | MillerCoors has jointly held interests in multiple entities that are fully consolidated. The related fair value of the noncontrolling interest in each entity was estimated by applying the market and income valuation approaches. The fair value of MillerCoors' noncontrolling interest was estimated using significant assumptions that are not observable in the market and thus represent a Level 3 measurement. |
Summarized financial information for MillerCoors for the periods priordesignated in hedging relationships recorded within cost of goods sold, which are later reclassified when realized to the Acquisition, under the equity method of accounting, is as follows:
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| | | |
| For the period January 1 through October 10 |
| 2016 |
| (In millions) |
Net sales | $ | 6,125.4 |
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Cost of goods sold | (3,426.6 | ) |
Gross profit | $ | 2,698.8 |
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Operating income(1) | $ | 1,183.6 |
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Net income attributable to MillerCoors(1) | $ | 1,157.2 |
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(1) | Results include net special charges primarily related to the closure of the Eden, North Carolina, brewery. For the pre-Acquisition periods of January 1, 2016, through October 10, 2016, MillerCoors recorded net special charges of $85.6 million, including $103.2 million of accelerated depreciation in excess of normal depreciation associated with the closure of the Eden brewery, and a postretirement benefit curtailment gain related to the closure of Eden of $25.7 million. |
The following represents our proportionate share in net income attributable to MillerCoors reported under the equity method of accounting prior to the Acquisition:
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| | | |
| For the period January 1 through October 10 |
| 2016 |
| (In millions, except percentages) |
Net income attributable to MillerCoors | $ | 1,157.2 |
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MCBC's economic interest | 42 | % |
MCBC's proportionate share of MillerCoors' net income | 486.0 |
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Amortization of the difference between MCBC's contributed cost basis and proportionate share of the underlying equity in net assets of MillerCoors | 3.3 |
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Share-based compensation adjustment(1) | (0.7 | ) |
U.S. import tax benefit(2) | 12.3 |
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Equity income in MillerCoors | $ | 500.9 |
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(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. |
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(2) | Represents a benefit associated with an anticipated refund to CBC of U.S. federal excise tax paid on products imported by CBC based on qualifying volumes exported by CBC from the U.S. The anticipated refund is recorded within other non-current assets on the consolidated balance sheet as of December 31, 2018. |
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 December 31, 2018, or December 31, 2017. We have not provided any financial support to any of our VIEs during 2018 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. See below under "Affiliate Transactions" for further details.
Authoritative guidance related to the consolidation of VIEs requires that we continually reassess whether we are the primary beneficiary of VIEssegment in which we have an interest. As such, the conclusion regardingunderlying exposure resides. Additionally, only the primary beneficiary statusservice cost component of net periodic pension and OPEB cost is subject to changereported within each operating segment and we continually evaluate circumstances that could require consolidation or deconsolidation. As of December 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”), Rocky Mountain Bottle Company (“RMBC”) and Truss LP ("Truss"). Our unconsolidated VIEs are BRI and BDL.
Both BRI and BDL have outstanding third-party debt which is guaranteed by their respective shareholders. As a result, we have a guarantee liability of $35.9 million and $38.1 million recorded as of December 31, 2018, and December 31, 2017, respectively, which is presented within accounts payable andall other current liabilities on the 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 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.components remain unallocated.
Equity Method Investments
Brewers' Retail Inc.We apply the equity method of accounting to 20% to 50% owned investments where we exercise significant influence or VIEs for which we are not the primary beneficiary. We use the cumulative earnings approach for determining cash flow presentation of cash distributions received from equity method investments. Distributions received are included in our consolidated statements of cash flows as operating activities, unless the cumulative distributions exceed our portion of the cumulative equity in the net earnings of the equity method investment, in which case the excess distributions are deemed to be returns of the investment and are classified as investing activities in our consolidated statements of cash flows. See Note 4, "Investments" for further information regarding our equity method investments.There are no related parties that own interests in our equity method investments as of December 31, 2021.
Derivative Hedging Instruments
We use derivatives as part of our normal business operations to manage our exposure to fluctuations in interest rates, foreign currency exchange, commodity prices, production and packaging material costs and for other strategic purposes related to our core business. We enter into derivatives for risk management purposes only, including derivatives designated in hedge accounting relationships as well as those derivatives utilized as economic hedges. We do not enter into derivatives for trading or speculative purposes. We recognize our derivatives on the consolidated balance sheets as assets or liabilities at fair value and are classified in either current or non-current assets or liabilities based on each contract's respective unrealized gain or loss position and each contract's respective maturity. Our policy is to present all derivative balances on a gross basis, without regard to counterparty master netting agreements or similar arrangements. Further, our current derivative agreements do not allow us to net positions with the same counterparty and therefore, we present our derivative positions gross in our consolidated balance sheets.
Changes in fair values of outstanding cash flow and net investment hedges are recorded in OCI, until earnings are affected by the variability of cash flows of the underlying hedged item or the sale of the underlying net investment, respectively. Effective cash flow hedges offset the gains or losses recognized on the underlying exposure in the consolidated statements of operations, or for net investment hedges, the foreign exchange translation gain or loss recognized in AOCI. Changes in fair value of outstanding fair value hedges and the offsetting changes in fair value of the hedged item are recognized in earnings. Changes in fair value of the derivative attributable to components allowed to be excluded from the assessment of hedge effectiveness are deferred in AOCI and recognized in earnings over the life of the hedge.
We record realized gains and losses from derivative instruments in the same financial statement line item as the hedged item/forecasted transaction. Changes in unrealized gains and losses for derivatives not designated in a hedge accounting relationship are recorded directly in earnings each period and are also recorded in the same financial statement line item as the hedged item/forecasted transaction. Cash flows from the settlement of derivatives, including both economic hedges and those designated in hedge accounting relationships, appear in the consolidated statements of cash flows in the same categories as the cash flows of the hedged item unless the instruments are deemed to contain an other-than-insignificant financing element, in which case the cash flows related to this instrument will be classified as financing activities.
In accordance with authoritative accounting guidance, we do not record the fair value of derivatives for which we have elected the Normal Purchase Normal Sale ("NPNS") exemption. We account for these contracts on an accrual basis, recording realized settlements related to these contracts in the same financial statement line items as the corresponding transaction.
Leases
We account for leases in accordance with Accounting Standards Codification (“ASC”) Topic 842, Leases, which we adopted on January 1, 2019, electing not to adjust comparative periods presented and applying a modified retrospective transition approach as of the effective date of adoption.
We enter into contractual arrangements for the utilization of certain non-owned assets, primarily real estate and equipment, which are evaluated as finance or operating leases upon commencement, and are accounted for accordingly. Specifically, under ASC 842, a contract is or contains a lease when, (1) the contract contains an explicitly or implicitly identified asset and (2) the customer obtains substantially all of the economic benefits from the use of that underlying asset and directs how and for what purpose the asset is used during the term of the contract in exchange for consideration. We assess whether an arrangement is or contains a lease at inception of the contract. For all contractual arrangements deemed to be leases (other than short-term leases), as of the lease commencement date, we recognize on the consolidated balance sheet a liability for our obligation related to the lease and a corresponding asset representing our right to use the underlying asset over the period of use.
For leases that qualify as short-term leases, we have elected, for all classes of underlying assets, to not apply the balance sheet recognition requirements of ASC 842, and instead, we recognize the lease payments in the consolidated statements of operations on a straight-line basis over the lease term. We have also made the election, for our existing real estate and equipment classes of underlying assets, to account for lease and non-lease components as a single lease component.
Our leases have remaining lease terms of up to approximately 17 years. Certain of our lease agreements contain options to extend or early terminate the agreement. The lease term used to calculate the right-of-use ("ROU") asset and lease liability at commencement includes the impacts of options to extend or terminate the lease when it is reasonably certain that we will exercise that option. When determining whether it is reasonably certain that we will exercise an option at commencement, we consider various existing economic factors, including real estate strategies, the nature, length, and terms of the agreement, as well as the uncertainty of the condition of leased equipment at the end of the lease term. Based on these determinations, we generally conclude that the exercise of renewal options would not be reasonably certain in determining the lease term at commencement. Assumptions made at the commencement date are re-evaluated upon occurrence of certain events requiring a lease modification. Additionally, for certain equipment leases involving groups of similar leased assets with similar lease terms, we apply a portfolio approach to effectively account for the operating lease right-of-use assets and liabilities.
The discount rate used to calculate the present value of the future minimum lease payments is the rate implicit in the lease, when readily determinable. As the rate implicit in the lease is rarely readily determinable, we use our incremental borrowing rate relative to the leased asset in all other cases.
Certain of our leases include variable payments, primarily for items such as property taxes, insurance, maintenance, and other operating expenses associated with leased assets. These variable payments are excluded from the measurement of our lease assets and liabilities and are recognized in the period in which the obligation for those payments is incurred. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Lease-related expense is recorded within either cost of goods sold or marketing, general and administrative expenses on the consolidated statements of operations, depending on the function of the underlying leased asset, with the exception of interest on finance lease liabilities, which is recorded within interest expense on the consolidated statements of operations.
Pension and Postretirement Benefits
We maintain retirement plans for the majority of our employees. We offer different types of plans within each segment, including defined benefit plans, defined contribution plans and OPEB plans. Each plan is managed locally and in accordance with respective local laws and regulations. Our equity investments, BRI and BDL, maintain defined benefit, defined contribution and OPEB plans as well.
We recognize the underfunded or overfunded status of a defined benefit postretirement plan as an asset or liability in the consolidated balance sheets. The funded status of a plan, measured as the difference between the fair value of plan assets and the projected benefit obligation, and the related net periodic pension cost are calculated using a number of significant actuarial assumptions. Changes in net periodic pension cost and funding status may occur in the future due to changes in these assumptions.
We use the fair value approach to calculate the market-related value of pension plan assets used to determine net periodic pension cost, which includes measuring the market-related value of plan assets at fair value for purposes of determining the expected return on plan assets and amount of gain or loss subject to amortization.
Projected benefit obligation is the actuarial present value as of the measurement date of all benefits attributed by the plan benefit formula to employee service rendered before the measurement date using assumptions as to future compensation levels and years of service if the plan benefit formula is based on those future compensation levels and years of service. Accumulated benefit obligation is the actuarial present value of benefits (whether vested or unvested) attributed by the plan benefit formula to employee service rendered before the measurement date and based on employee service and compensation, if applicable, prior to that date. Accumulated benefit obligation differs from projected benefit obligation in that it includes no assumption about future compensation levels and years of service.
We employ the corridor approach for determining each plan's potential amortization from AOCI of deferred gains and losses, which occur when actual experience differs from estimates, into our net periodic pension and postretirement benefit cost. This approach defines the "corridor" as the greater of 10% of the projected benefit obligation or 10% of the market-related value of plan assets and requires amortization of the excess net gain or loss that exceeds the corridor over the average remaining service periods of active plan participants. For plans closed to new entrants and the future accrual of benefits, the average remaining life expectancy of all plan participants (including retirees) is used.
Fair Value Measurements
The carrying amounts of our cash and cash equivalents, accounts receivable, accounts payable and other current liabilities approximate fair value as recorded due to the short-term nature of these instruments. In addition, the carrying amounts of our trade loan receivables, net of allowances, approximate fair value. The fair value of derivatives is estimated by discounting the estimated future cash flows utilizing observable market interest, foreign exchange and commodity rates adjusted for non-performance credit risk associated with our counterparties (assets) or with MCBC (liabilities), as appropriate. Additionally, the fair value of warrants is estimated using the Black-Scholes valuation model. See Note 16, "Derivative Instruments and Hedging Activities" for additional information. Based on current market rates for similar instruments, the fair value of long-term debt is presented in Note 11, "Debt." U.S. GAAP guidance for fair value includes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques (market approach, income approach and cost approach). Our financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy.
The three levels of the hierarchy are as follows:
Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date.
Level 2—Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are less active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from, or corroborated by, observable market data by correlation or other means (market corroborated inputs).
Level 3—Unobservable inputs that reflect the assumptions that we believe market participants would use in pricing the asset or liability. We develop these inputs based on the best information available, including our own data.
Foreign Currency
Assets and liabilities recorded in foreign currencies that are the functional currencies for the respective operations are translated at the prevailing exchange rate at the balance sheet date. Translation adjustments resulting from this process are reported as a separate component of OCI. Gains and losses from foreign currency transactions are included in earnings for the period. Revenue and expenses are translated at the average exchange rates during the respective period throughout the year.
Subsequent Events
On February 22, 2022, the Board of Directors declared a quarterly dividend of $0.38 per share.
On February 17, 2022, the Board of Directors approved a share repurchase program up to an aggregate of $200 million of our Company's Class B common stock through March 31, 2026, with repurchases primarily intended to offset annual employee equity award grants.
2. New Accounting Pronouncements
New Accounting Pronouncements Recently Adopted
In December 2019, the FASB issued authoritative guidance intended to simplify the accounting for income taxes. This guidance eliminated certain exceptions to the general approach to the income tax accounting model and added new guidance to reduce the complexity in accounting for income taxes. We adopted this guidance in the first quarter of 2021, which did not have a material impact on our financial statements.
In March 2020, the FASB issued authoritative guidance which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform and are effective for all entities upon issuance, March 12, 2020 through December 31, 2022. The guidance permits a company to elect certain optional expedients and exceptions when affected by the changes in reference rate reform. We have elected to adopt optional expedients impacting our derivative instruments with maturity dates extending beyond the expected discontinuance date of LIBOR. In addition, in October 2021, we amended our revolving credit facility to replace LIBOR with designated replacement rates for any future borrowings denominated in EUR or GBP. The adoption of, and future elections under Accounting Standard Update ("ASU") 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, and ASU 2021-01, Reference Rate Reform (Topic 848): Scope, did not and are not expected to have a material impact on our accounting policies or consolidated financial statements. We will continue to evaluate the impact of reference rate reform on our other contracts and assess the impacts of adopting incremental portions of this guidance on our financial statements.
New Accounting Pronouncements Not Yet Adopted
In November 2021, the FASB issued authoritative guidance intended to provide consistent and transparent disclosures around government assistance by requiring disclosures of the type of government assistance, our accounting for the government assistance and the effect on our financial statements. This guidance is effective for us in our annual report for the year ended December 31, 2022. We can either adopt the amendments in this guidance prospectively or retrospectively. We are currently evaluating the impact of this guidance and do not expect it will have a material impact on our financial statements as the guidance impacts disclosures only.
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 consolidated financial statements.
3. Segment Reporting
Our reporting segments are based on the key geographic regions in which we operate and include the Americas and EMEA&APAC segments. Our Americas segment operates in the U.S., Canada and various countries in Latin and South America and our EMEA&APAC segment operates in Bulgaria, Croatia, Czech Republic, Hungary, Montenegro, the Republic of Ireland, Romania, Serbia, the U.K., various other European countries and certain countries within the Middle East, Africa and Asia Pacific. We also have certain activity that is not allocated to our segments, which has been reflected as “Unallocated” below.
Reporting Segments
Americas
The Americas segment consists of our production, marketing and sales of our brands and other owned and licensed brands in the U.S., Canada and various countries in Latin and South America. We have contract brewing agreements to brew, package and ship products for Pabst and TYC, and a contract brewing agreement with Labatt USA Operating Co, LLC to brew and package certain Labatt brands for export. We have an agreement with Heineken that grants us the right to import, market, distribute and sell certain Heineken products in Canada.
The Americas segment also includes BRI, our joint venture arrangement related to the distribution and retail sale of beer in Ontario, and BDL, our joint venture arrangement related to the distribution of beer in the western provinces. Additionally, in the third quarter of 2020, we formed TYC, a joint venture equally owned by MCBC and DGY West that, pursuant to an operating agreement, was formed to expand commercialization of Yuengling's brands for any new market expansion outside of Yuengling's then 22-state footprint and New England in the U.S. During the third quarter of 2021, TYC commenced retail operations with its first product sales in the state of Texas. BRI, BDL and TYC are all accounted for as equity method investments.
EMEA&APAC
The EMEA&APAC segment consists of our production, marketing and sales of our brands as well as a number of smaller regional brands in the U.K., Central Europe and various other European countries, along with certain countries within the Middle East, Africa and Asia Pacific. In our EMEA&APAC segment, we also have licensing agreements and distribution agreements with various other brewers.
Unallocated
"Unallocated" activity primarily includes financing-related costs such as interest expense and income, foreign exchange gains and losses on intercompany balances related to financing and other treasury-related activities, and 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 is reported within each operating segment and all other components remain unallocated.
Summarized Financial Information
No single customer accounted for more than 10% of our consolidated sales in 2021, 2020 or 2019. Consolidated net sales represent sales to third-party external customers less excise taxes. Inter-segment transactions impacting net sales and income (loss) before income taxes eliminate upon consolidation and are primarily related to the Americas segment sales to, and royalties received from, the EMEA&APAC segment.
The following tables represent consolidated net sales, interest expense, interest income and reconciliations of amounts shown as income (loss) before income taxes to income (loss) attributable to MCBC. Income (loss) before income taxes includes the impact of special items; refer to Note 7, "Special Items" for further discussion. Additionally, integration costs of $25 million were recorded within marketing, general and administrative expenses for 2019, primarily within our Americas segment. No integration costs were recorded in the years ended December 31, 2021 or 2020. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2021 |
| Americas | | EMEA&APAC | | Unallocated | | Inter-segment net sales eliminations | | Consolidated |
| (In millions) |
Net sales | $ | 8,485.0 | | | $ | 1,802.3 | | | $ | — | | | $ | (7.6) | | | $ | 10,279.7 | |
Interest expense | (1.4) | | | (5.8) | | | (253.1) | | | — | | | (260.3) | |
Interest income | — | | | 0.2 | | | 1.8 | | | — | | | 2.0 | |
Income (loss) before income taxes | $ | 1,176.5 | | | $ | 32.9 | | | $ | 29.6 | | | $ | — | | | $ | 1,239.0 | |
Income tax benefit (expense) | | | | | | | | | (230.5) | |
Net income (loss) | | | | | | | | | 1,008.5 | |
Net (income) loss attributable to noncontrolling interests | | | | | | | | | (2.8) | |
Net income (loss) attributable to MCBC | | | | | | | | | $ | 1,005.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2020 |
| Americas | | EMEA&APAC | | Unallocated | | Inter-segment net sales eliminations | | Consolidated |
| (In millions) |
Net sales | $ | 8,237.0 | | | $ | 1,431.9 | | | $ | — | | | $ | (14.9) | | | $ | 9,654.0 | |
Interest expense | (2.6) | | | (5.7) | | | (266.3) | | | — | | | (274.6) | |
Interest income | 0.2 | | | 0.3 | | | 2.8 | | | — | | | 3.3 | |
Income (loss) before income taxes | $ | 1,080.5 | | | $ | (1,603.7) | | | $ | (120.7) | | | $ | — | | | $ | (643.9) | |
Income tax benefit (expense) | | | | | | | | | (301.8) | |
Net income (loss) | | | | | | | | | (945.7) | |
Net (income) loss attributable to noncontrolling interests | | | | | | | | | (3.3) | |
Net income (loss) attributable to MCBC | | | | | | | | | $ | (949.0) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2019 |
| Americas | | EMEA&APAC | | Unallocated | | Inter-segment net sales eliminations | | Consolidated |
| (In millions) |
Net sales | $ | 8,618.2 | | | $ | 1,986.4 | | | $ | — | | | $ | (25.2) | | | $ | 10,579.4 | |
Interest expense | 2.8 | | | (6.2) | | | (277.5) | | | — | | | (280.9) | |
Interest income | — | | | 0.5 | | | 7.7 | | | — | | | 8.2 | |
Income (loss) before income taxes | $ | 645.0 | | | $ | 102.4 | | | $ | (267.5) | | | $ | — | | | $ | 479.9 | |
Income tax benefit (expense) | | | | | | | | | (233.7) | |
Net income (loss) | | | | | | | | | 246.2 | |
Net (income) loss attributable to noncontrolling interests | | | | | | | | | (4.5) | |
Net income (loss) attributable to MCBC | | | | | | | | | $ | 241.7 | |
The following table presents total assets and select cash flow information by segment.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Assets | | Depreciation and amortization | | Capital expenditures |
| As of December 31, | | For the years ended December 31, | | For the years ended December 31, |
| 2021 | | 2020 | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
| (In millions) |
Americas | $ | 23,653.5 | | | $ | 23,375.6 | | | $ | 601.4 | | | $ | 743.0 | | | $ | 676.9 | | | $ | 405.0 | | | $ | 461.4 | | | $ | 450.7 | |
EMEA&APAC | 3,965.5 | | | 3,955.5 | | | 184.7 | | | 179.0 | | | 182.1 | | | 117.6 | | | 113.4 | | | 143.1 | |
Consolidated | $ | 27,619.0 | | | $ | 27,331.1 | | | $ | 786.1 | | | $ | 922.0 | | | $ | 859.0 | | | $ | 522.6 | | | $ | 574.8 | | | $ | 593.8 | |
The following table presents net sales by geography, based on the location of the customer.
| | | | | | | | | | | | | | | | | |
| For the years ended |
| December 31, 2021 | | December 31, 2020 | | December 31, 2019 |
| (In millions) |
Net sales to unaffiliated customers | | | | | |
United States and its territories | $ | 7,168.7 | | | $ | 7,016.1 | | | $ | 7,244.9 | |
Canada | 1,188.4 | | | 1,111.6 | | | 1,231.3 | |
United Kingdom | 959.1 | | | 663.7 | | | 1,119.1 | |
Other foreign countries(1) | 963.5 | | | 862.6 | | | 984.1 | |
Consolidated net sales | $ | 10,279.7 | | | $ | 9,654.0 | | | $ | 10,579.4 | |
(1)Reflects net sales within certain countries in Europe, Latin America, South America, the Middle East, Africa and Asia. No individual country has total net sales exceeding 10% of the total consolidated net sales.
The following table presents net properties and operating ROU assets by geographic location. See Note 19, "Lease" for further information on our operating ROU assets and Note 9, "Properties" for further information on our net properties. | | | | | | | | | | | |
| As of |
| December 31, 2021 | | December 31, 2020 |
| (In millions) |
Net properties and operating ROU assets | | | |
United States and its territories | $ | 2,294.1 | | | $ | 2,457.1 | |
Canada | 1,114.6 | | | 974.8 | |
United Kingdom | 383.2 | | | 398.9 | |
Other foreign countries(1) | 519.6 | | | 555.7 | |
Consolidated net properties and operating ROU assets | $ | 4,311.5 | | | $ | 4,386.5 | |
(1)Reflects net properties and operating ROU assets within certain countries in Europe, Latin America, South America, Africa and Asia. No individual country has total net properties or operating ROU assets exceeding 10% of the total consolidated net properties or operating ROU assets, respectively.
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, we have consolidated these entities. None of our consolidated VIEs held debt as of December 31, 2021 or December 31, 2020. We have not provided any financial support to any of our VIEs during 2021 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. See below under "Affiliate Transactions" for further details.
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. Our consolidated VIEs are Cobra Beer Partnership, Ltd. ("Cobra U.K."), RMMC, RMBC and Truss, as well as other immaterial entities. Our unconsolidated VIEs are BRI, BDL and TYC, as well as other immaterial investments.
Both BRI and BDL have outstanding third-party debt which is guaranteed by their respective shareholders. As a result, we have a guarantee liability of $38.1 million and $38.2 million recorded as of December 31, 2021 and December 31, 2020, respectively, which is presented within accounts payable and other current liabilities on the 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 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.
Equity Method Investments
BRI
BRI is a beer distribution and retail network for the Ontario region of Canada, with majority of the ownership residing with MCC,Molson Canada 2005, Labatt Breweries of Canada LP (a subsidiary of ABI) and Sleeman Breweries Ltd. (a subsidiary of Sapporo International). BRI charges its owners administrative fees that are designed so the entity operates on a cash neutral basis. This
administrative fee is based on costs incurred, net of other revenues earned, and is allocated in accordance with the operating agreement to its owners based on volume of products. Contractual provisions cause participation in governance and other interests to fluctuate based on this calculated market share requiring frequent primary beneficiary evaluations. However, based on the existing structure, control is shared, and remains shared through such changes, and therefore we do not anticipate becoming the primary beneficiary in the foreseeable future. We consider BRI an affiliate. See "Affiliate Transactions" section below summarizing our transactions and balances with affiliates, including BRI.
We have an obligation to proportionately fund BRI's operations. As a result of this obligation, we continue to record our proportional share of BRI's net income or loss and OCI activity, including when we have a negative equity method balance. As of December 31, 2018,2021 and December 31, 2017,2020, we had a positive equity method investment balance of $13.8$43.9 million and $2.8$31.9 million, respectively. The increase to our net investment balance from prior year was primarily driven by equity earnings. See "Affiliate Transactions" below for BRI affiliate transactions including administrative fees charged to MCBC under the agreement with BRI which are recorded in cost of goods sold, as well as for BRI affiliate due to and due from balances as of December 31, 2018,2021 and December 31, 2017,2020, respectively, related to trade receivables and payables for sales to external customers and costs incurred by BRI offset by administrative fees charged and paid by MCBC (which may be in a payable or receivable position depending on the amount under or over charged).
Brewers' Distributor Ltd.BDL
BDL is a distribution operation owned by MCCMolson Canada 2005 and Labatt Breweries of Canada LP (a subsidiary of ABI) that, pursuant to an operating agreement, acts as an agent for the distribution of their products in the western provinces of Canada. The two2 owners share 50% - 50%equal voting control of this business. We consider BDL an affiliate. See "Affiliate Transactions" section below summarizing our transactions and balances with affiliates, including BDL.
BDL charges the owners administrative fees that are designed so the entity operates at break-even profit levels. This administrative fee is based on costs incurred, net of other revenues earned, and is allocated in accordance with the operating agreement to the owners based on volume of products. No other parties are allowed to sell beer through BDL, which does not take legal title to the beer distributed for the owners. As of December 31, 2018, and December 31, 2017, ourOur investment in BDL was $30.0$33.2 million and $33.2$27.0 million respectively. The decrease in our investment balance from prior year is primarily attributable to a decrease in our guaranteeas of BDL's third-party debt obligations.December 31, 2021 and December 31, 2020, respectively. See "Affiliate Transactions" section below for BDL affiliate transactions including administrative fees charged to MCBC under the agreement with BDL which are recorded in cost of goods sold, as well as for BDL affiliate due to and due from balances as of December 31, 2018,2021 and December 31, 2017,2020, respectively, related to trade receivables and payables for sales to external customers and costs incurred by BDL offset by administrative fees charged and paid by MCBC (which may be in a payable or receivable position depending on the amount under or over charged).
Other
In the third quarter of 2020, we formed TYC, a joint venture equally owned by MCBC and DGY West that, pursuant to an operating agreement, was formed to expand commercialization of Yuengling's brands for any new market expansion outside of Yuengling's then 22-state footprint and New England in the U.S. During the third quarter of 2021, TYC commenced retail operations with its first product sales in the state of Texas. We have concluded that TYC is a VIE for which we are not the primary beneficiary, and therefore is accounted for as an equity method investment.
We have certain other immaterial equity investments we enter into from time to time that align with our organizational strategies and growth initiatives.
Our equity method investments are not considered significant for disclosure of financial information on either an individual or aggregated basis and there were no significant undistributed earnings as of December 31, 2018,2021 or December 31, 2017,2020, for any of these companies.
Affiliate Transactions
All transactions with our equity method investments are considered related party transactions and recorded within our affiliate accounts. The following table summarizes transactions with affiliates: |
| | | | | | | | | | | |
| For the years ended |
| December 31, 2018 | | December 31, 2017 | | December 31, 2016 |
| (In millions) |
Beer sales to MillerCoors(1) | $ | — |
| | $ | — |
| | $ | 7.5 |
|
Beer purchases from MillerCoors(1) | $ | — |
| | $ | — |
| | $ | 32.0 |
|
Service agreement costs and other charges to MillerCoors(1) | $ | — |
| | $ | — |
| | $ | 1.9 |
|
Service agreement costs and other charges from MillerCoors(1) | $ | — |
| | $ | — |
| | $ | 0.9 |
|
Administrative fees, net charged from BRI | $ | 94.0 |
| | $ | 93.5 |
| | $ | 85.8 |
|
Administrative fees, net charged from BDL | $ | 40.2 |
| | $ | 37.3 |
| | $ | 34.3 |
|
| |
(1) | For 2016, represents MillerCoors' activity for the pre-Acquisition period of January 1, 2016, through October 10, 2016, when MillerCoors was an equity method investment. |
Amounts due tofrom and due fromto affiliates as of December 31, 2018,2021 and December 31, 2017,2020, respectively, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Amounts due from affiliates | | Amounts due to affiliates |
| December 31, 2021 | | December 31, 2020 | | December 31, 2021 | | December 31, 2020 |
| (In millions) |
BRI | $ | 3.3 | | | $ | 6.0 | | | $ | 0.4 | | | $ | — | |
BDL | 6.2 | | | 2.1 | | | 3.1 | | | — | |
Other | 6.7 | | | 0.3 | | | 0.6 | | | 0.5 | |
Total | $ | 16.2 | | | $ | 8.4 | | | $ | 4.1 | | | $ | 0.5 | |
|
| | | | | | | | | | | | | | | |
| Amounts due from affiliates | | Amounts due to affiliates |
| December 31, 2018 | | December 31, 2017 | | December 31, 2018 | | December 31, 2017 |
| (In millions) |
BRI | $ | 7.7 |
| | $ | 4.4 |
| | $ | — |
| | $ | — |
|
BDL | 0.7 |
| | 1.1 |
| | — |
| | — |
|
Other | — |
| | — |
| | 0.1 |
| | 0.4 |
|
Total | $ | 8.4 |
| | $ | 5.5 |
| | $ | 0.1 |
| | $ | 0.4 |
|
Consolidated VIEs
Rocky Mountain Metal Container
RMMC, a Colorado limited liability company, is a joint venture with Ball Corporation in which we hold a 50% interest. Our U.S. business has a can and end supply agreement with RMMC. Under this agreement, we purchase substantially all of the output of RMMC. RMMC manufactures cans and ends at our facilities, which RMMC is operating under a use and license agreement. As RMMC is a limited liability company (“LLC”), the tax consequences flow to the joint venture partners.
Rocky Mountain Bottle Company
RMBC, a Colorado limited liability company, is a joint venture with Owens-Brockway Glass Container, Inc. in which we hold a 50% interest. Our U.S. business has a supply agreement with RMBC under which we agree to purchase output approximating the agreed upon annual plant capacity of RMBC. RMBC manufactures bottles at our facilities, which RMBC is operating under a lease agreement. As RMBC is an LLC, the tax consequences flow to the joint venture partners.
Cobra U.K.
We hold a 50.1% interest in Cobra U.K., which owns the worldwide rights to the Cobra beer brand (with the exception of the Indian sub-continent, owned by Cobra India). The noncontrolling interest is held by the founder of the Cobra beer brand. We consolidate the results and financial position of Cobra U.K., and it is reported within our Europe operatingEMEA&APAC segment.
Grolsch
Grolsch is a joint venture between us and Royal Grolsch N.V. (a member of Asahi Group Holdings, Ltd.) in which we hold a 49% interest. The Grolsch joint venture markets Grolsch brands in the U.K. and the Republic of Ireland. The majority of the Grolsch brands are produced by us under a contract brewing arrangement with the joint venture. MCBC and Royal Grolsch N.V. sell beer to the joint venture, which sells the beer back to MCBC (for onward sale to customers) for a price equal to what it paid, plus a marketing and overhead charge and a profit margin. Grolsch is a taxable entity in Europe. Accordingly, income tax expense in our consolidated statements of operations includes taxes related to the entire income of the joint venture. We consolidate the results and financial position of Grolsch and it is reported within our Europe operating segment.
Truss
On October 4, 2018, a wholly-owned subsidiary within our Canadian business completed the formation of Truss LP, an independent Canadian joint venture with HEXO Corp. ("HEXO") to pursue opportunities to develop, produce and market non-alcoholic, cannabis-infused beverages once legal in Canada. Truss is structured as a standalone start-up company with its own board of directors and an independent management team. We maintain a 57.5% controlling interest in Truss, which is a VIE that is consolidated. In connection withTruss subleases the formationlocation of Truss, HEXO also issued warrants to our Canadian subsidiary, which are further discussedits production facility in Note 16, "Derivative Instruments and Hedging Activities."
Belleville, Ontario from HEXO.
The following summarizes the assets and liabilities of our consolidated VIEs (including noncontrolling interests):
| | | | | | | | | | | | | | | | | | | | | | | |
| As of |
| December 31, 2021 | | December 31, 2020 |
| Total Assets | | Total Liabilities | | Total Assets | | Total Liabilities |
| (In millions) |
RMMC/RMBC | $ | 204.9 | | | $ | 19.1 | | | $ | 239.3 | | | $ | 17.9 | |
Other | $ | 70.8 | | | $ | 14.8 | | | $ | 93.4 | | | $ | 18.0 | |
Grolsch Deconsolidation
In 2019, we received termination notices of our Grolsch U.K. Ltd. ("Grolsch") joint venture arrangement, as well as the related brewing and distribution agreements for the Grolsch brands in the U.K. and Ireland. We therefore reassessed our status as the primary beneficiary of the joint venture and concluded that we were no longer able to exert control over the operations or direction of the joint venture or otherwise influence the activities that most significantly impact the economics of the entity. As a result, we deconsolidated the joint venture and recorded an aggregate immaterial loss on the deconsolidation and termination of the Grolsch business in special items, net, in the consolidated statements of operations in 2019.
6. Income Tax