Use these links to rapidly review the documentMOLSON COORS BREWING COMPANY AND SUBSIDIARIES INDEXTable of ContentsITEM 8. Financial Statements and Supplementary Data
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One) | ||
ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the Fiscal year ended December | ||
OR | ||
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from |
Commission File Number: 1-14829
Molson Coors Brewing Company
(Exact name of registrant as specified in its charter)
DELAWARE | 84-0178360 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
1225 17th Street, Denver, Colorado 1555 Notre Dame Street East, Montréal, Québec, Canada (Address of principal executive offices) | 80202 H2L 2R5 | |
(Zip Code) |
303-279-6565 (Colorado)
514-521-1786 (Québec)
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Name of each exchange on which registered | |
---|---|---|
Class A Common Stock (voting), $0.01 par value | New York Stock Exchange Toronto Stock Exchange | |
Class B Common Stock (non-voting), $0.01 par value | New York Stock Exchange Toronto Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
Title of class | | |
---|---|---|
None |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ý NO o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES o NO ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ý NO o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filerý | Accelerated filero | |||||
Non-accelerated filero (Do not check if a smaller reporting company) | Smaller reporting companyo |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES o NO ý
The aggregate market value of the registrant's publicly-traded stock held by non-affiliates of the registrant at the close of business on June 29, 2007,27, 2008, was $6,454,558,416$7,819,107,814 based upon the last sales price reported for such date on the New York Stock Exchange and the Toronto Stock Exchange. For purposes of this disclosure, shares of common and exchangeable stock held by persons holding more than 5% of the outstanding shares of stock and shares owned by officers and directors of the registrant as of June 29, 200727, 2008 are excluded in that such persons may be deemed to be affiliates. This determination is not necessarily conclusive of affiliate status.
The number of shares outstanding of each of the registrant's classes of common stock, as of February 15, 2008:13, 2009:
Class A Common Stock—2,674,7722,586,764 shares
Class B Common Stock—149,922,749157,652,202 shares
Exchangeable shares:
As of February 15, 2008,13, 2009, the following number of exchangeable shares was outstanding for Molson Coors Canada, Inc.:
Class A Exchangeable Shares 3,314,1003,172,810
Class B Exchangeable Shares 25,073,03220,435,312
In addition, These Class A and Class B exchangeable shares offer substantially the same economic and voting rights as the respective classes of common shares of the registrant. This is achieved via the following structure: The registrant has outstanding one share each of special Class A and Class B voting stock, through which the holders of Class A exchangeable shares and Class B exchangeable shares of Molson Coors Canada Inc. (a subsidiary of the registrant), respectively, may exercise their voting rights with respect to the registrant. The special Class A and Class B voting stock are entitled to one vote for each of the exchangeable shares, respectively, excluding shares held by the registrant or its subsidiaries, and generally vote together with the Class A common stock and Class B common stock, respectively, on all matters on which the Class A common stock and Class B common stock are entitled to vote. The trustee holder of the special Class A voting stock and the special Class B voting stock has the right to cast a number of votes equal to the number of then outstanding Class A exchangeable shares and Class B exchangeable shares, respectively.
Documents Incorporated by Reference: Portions of the registrant's definitive proxy statement for the registrant's 20082009 annual meeting of stockholders are incorporated by reference under Part III of this Annual Report on Form 10-K.
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
INDEX
Molson Coors Brewing Company ("MCBC" or the "Company") is a leading global brewer of high-quality beers. On February 9, 2005, Adolph Coors Company merged with Molson Inc. (the "Merger"). In connection with the Merger, Adolph Coors Company became the parent of the merged company and changed its name to Molson Coors Brewing Company. Unless otherwise noted in this report, any description of we, us or our includes MCBC (formerly "AdolphMolson Coors Company"Brewing Company ("MCBC" or the "Company"), principally a holding company, and its operating subsidiaries: Molson Canada ("Molson"), operating in Canada; Coors Brewing Company ("CBC"), operating in the United States prior to the formation of MillerCoors LLC ("U.S."MillerCoors"); Coors Brewers Limited ("CBL"), operating in the United Kingdom ("U.K.");and Ireland; and our other corporate entities. Any reference to "Coors" means the Adolph Coors Company prior to the Merger.2005 merger with Molson Inc. (the "Merger"). Any reference to Molson Inc. means Molson prior to the Merger. Any reference to "Molson Coors" means MCBC after the Merger.
Effective July 1, 2008, MCBC and SABMiller plc ("SABMiller") combined the U.S. and Puerto Rico operations of their respective subsidiaries, CBC and Miller Brewing Company ("Miller"), in the MillerCoors joint venture. The results and financial position of U.S. operations, which had historically comprised substantially all of our U.S. reporting segment were, in all material respects, deconsolidated from MCBC prospectively upon formation of MillerCoors. Our interest in MillerCoors is accounted for by us under the equity method of accounting.
Unless otherwise indicated, information in this report is presented in U.S. Dollars ("USD" or "$").
(a) General Development of Business
Molson was founded in 1786, and Coors was founded in 1873. Since each company was founded, theywe have been committed to producing the highest-qualityhighest quality beers. Our brands are designed to appeal to a wide range of consumer tastes, styles and price preferences. Our largest markets are Canada, the United States and the United Kingdom.
Coors was incorporated in June 1913 under the laws of the State of Colorado. In August 2003, Coors changed its state of incorporation to the State of Delaware. During February 2005 upon completion of the Merger, Coors changed its name to Molson Coors Brewing Company.
Joint Ventures and Other Existing Arrangements
MillerCoors joint venture
Effective, July 1, 2008, MCBC and SABMiller combined the U.S. and Puerto Rico operations of their respective subsidiaries, CBC and Miller. Each party contributed its business and related operating assets and certain liabilities into an operating joint venture company. The percentage interests in the profits of the joint venture are 58% for SABMiller and 42% for MCBC. Voting interests are shared 50%-50%, and each investing company has equal board representation within MillerCoors. Each party to the joint venture has agreed not to transfer its economic or voting interests in the joint venture for a period of five years, and certain rights of first refusal apply to any subsequent assignment of such interests.
MCBC and SABMiller expect that the enhanced brand portfolio, scale and combined management strength of the joint venture will allow their businesses to compete more vigorously in the aggressive and rapidly changing U.S. marketplace and thus improve the standalone operational and financial performance of both Miller and CBC through:
of imports likePeroni, Molson brands andPilsner Urquell; craft varieties includingLeinenkugel's, Blue Moon andHenry Weinhard's; and specialty beers likeMiller Chill, Killian's andSparks. MillerCoors will have more flexibility and resources for brand-building initiatives and increased levels of innovation in taste, product attributes and packaging.
Grupo Modelo joint venture
Effective, January 1, 2008, Molson and Grupo Modelo, S.A.B. de C.V. ("Modelo") established a 50%/50% joint venture, Modelo Molson Imports, L.P. ("MMI"), to import, distribute, and market the Modelo beer brand portfolio across all Canadian provinces and territories. Under this new arrangement, Molson's sales team is responsible for selling the brands across Canada on behalf of the joint venture. Modelo will continue to produce the products sold through the joint venture. The new alliance will enable MMI to effectively leverage the existing resources and capabilities of Molson to achieve greater distribution coverage in the Western provinces of Canada. MMI is being accounted for under the equity method of accounting.
Other existing arrangements
Brewers' Retail Inc. is a joint venture beer distribution and retail network for the Ontario region of Canada, owned by Molson, and two other brewers. Brewers' Distributor Ltd. ("BDL") is a distribution operation owned by Molson and one other brewer and pursuant to an operating agreement, BDL acts as an agent for the distribution of the brewers' products in the western provinces of Canada.
Grolsch is a joint venture between CBL and Royal Grolsch N.V. which marketsGrolsch branded beer in the United Kingdom and the Republic of Ireland. The majority of theGrolsch branded beer is produced by CBL under a contract brewing.
To focus on our core competencies in manufacturing, marketing and selling malt beverage products, we have entered into joint venture arrangements with third parties to leverage their strengths in areas such as can and bottle manufacturing, transportation and distribution. These joint ventures have historically included Rocky Mountain Metal Container ("RMMC") (aluminum can manufacturing in the U.S.), Rocky Mountain Bottle Company ("RMBC") (glass bottle manufacturing in the U.S.) and Tradeteam, Ltd. ("Tradeteam") (transportation and distribution in Great Britain within our U.K. segment). Subsequent to the formation of MillerCoors, RMMC and RMBC are consolidated by MillerCoors.
Sale of Kaiser
On January 13, 2006, we sold a 68% equity interest in Cervejarias Kaiser Brasil S.A. ("Kaiser") to FEMSA Cerveza S.A. de C.V. ("FEMSA"). Kaiser is the third largest brewer in Brazil. Kaiser's key brands includeKaiser Pilsen®,Pilsen and Bavaria®Bavaria. Initially, we retained a 15% ownership interest in Kaiser, which was reflected as a cost method investment for accounting purposes during most of 2006. During the fourth quarter of 2006, we divested our remaining 15% interest in Kaiser by exercising a put option. Our financial statements contained in this report present Kaiser as a discontinued operation, as discussed further in Part II—Financial Statements and Supplementary Data, Item 8 Note 4 "DISCONTINUED OPERATIONS" to the Consolidated Financial Statements in Item 8.
Joint Ventures and Other ArrangementsStatements.
Existing arrangements
To focus on our core competencies in manufacturing, marketing and selling malt beverage products, we have entered into joint venture arrangements with third parties over the past decade to leverage their strengths in areas such as can and bottle manufacturing, transportation and distribution. These joint ventures have historically included Rocky Mountain Metal Container ("RMMC") (aluminum can manufacturing in the U.S.), Rocky Mountain Bottle Company ("RMBC") (glass bottle manufacturing in the U.S.) and Tradeteam, Ltd. ("Tradeteam") (transportation and distribution in Great Britain within our Europe segment).
MillerCoors joint venture
On October 9, 2007, MCBC and SABMiller plc (the investing companies) announced that they signed a letter of intent to combine the U.S. and Puerto Rico operations of their respective subsidiaries, CBC and Miller Brewing Company ("Miller"), in a joint venture ("MillerCoors"). Assuming completion of the transaction, MillerCoors will have annual pro forma combined beer sales of 69 million U.S. barrels (81 million hectoliters) and net revenues of approximately $6.6 billion. MCBC and SABMiller expect the transaction to generate approximately $500 million in annual cost synergies to be delivered in full by the third full financial year of combined operations. The parties
signed a definitive joint venture agreement on December 20, 2007 and expect the transaction to close in mid-2008.
SABMiller and MCBC expect that the enhanced brand portfolio, scale and combined management strength of the joint venture will allow their businesses to compete more vigorously in the aggressive and rapidly changing U.S marketplace and thus improve the standalone operational and financial performance of both Miller and CBC through:
Each party will contribute its business and related operating assets and certain liabilities into an operating joint venture company. The percentage interests in the profits of the joint venture will be
58% for SABMiller plc and 42% for MCBC. Voting interests will be shared 50%-50%, and each investing company will have equal board representation within the joint venture company. Each party to the joint venture has agreed not to transfer its economic or voting interests in the joint venture for a period of five years, and certain rights of first refusal will apply to any subsequent assignment of such interests.
The results and financial position of our U.S. segment will, in all material respects, be de-consolidated upon contribution to the joint venture. We will report our interest in the new combined operations using the equity method of accounting.
The proposed joint venture transaction has been submitted for antitrust review and clearance by the U.S. Department of Justice under the Hart-Scott-Rodino Act of 1976, as amended, and to certain other applicable governmental authorities.
Grupo Modelo joint venture
On November 20, 2007, Molson and Grupo Modelo, S.A.B. de C.V. announced a letter of intent to establish a long-term joint venture to import, distribute, and market the Modelo beer brand portfolio across all Canadian provinces and territories. Effective January 1, 2008, both parties have established the joint venture pursuant to executed legally binding definitive agreements. Under the new arrangement, Molson's sales team will be responsible for selling the brands across Canada on behalf of the joint venture. The new alliance will enable Grupo Modelo to effectively tap into the resources and capabilities of Molson to achieve greater distribution coverage in the Western provinces of Canada. Modelo will also benefit from Molson's extensive sales and marketing expertise and unparalleled distribution network in Canada.
(b) Financial Information About Segments
MCBC currently has three operatingoperates the following business segments: Canada, the United States, the United Kingdom, and Europe. Prior to being segregatedGlobal Brand and Market Development (Global Markets). Our Global Markets results are reported as a discontinued operation during the fourth quarter of 2005, Brazil was an operating segment.with our Corporate group's results. A separate operating team manages each segment, and each segment manufactures, markets and sells beer and other beverage products.
See Part II—Financial Statements and Supplementary Data, Item 8 Note 32 "SEGMENT AND GEOGRAPHIC INFORMATION" to the Consolidated Financial Statements in Item 8 for financial information relating to our segments and operations, including geographic information.
(c) Narrative Description of Business
Some of the following statements may describe our expectations regarding future products and business plans, financial results, performance and events. Actual results may differ materially from any such forward-looking statements. Please see Cautionary Statement Pursuant to Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995 beginning on page 18,19, for some of the factors that may negatively impact our performance. The following statements are made, expressly subject to those and other risk factors.
Our financial sales volume from continuing operations totaled 29.7 million barrels in 2008, 41.8 million barrels in 2007, and 41.8 million barrels in 2006, excluding Brazil volume in discontinued operations. The decrease in sales volume is a result of the formation of MillerCoors on July 1, 2008. Our reported sales volumes do not include the CBL factored brands business. The fiscal years ended
December 28, 2008, and December 30, 2007, were 52 week periods and fiscal year ended December 31, 2006, was a 53 week period.
See the Executive Summary in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations for a discussion of our volume reporting policy.
No single customer accounted for more than 10% of our consolidated or segmented sales in 2008, 2007, or 2006.
Our Products
Brands sold in Canada includeCoors Light®Light,Canadian,Molson Canadian®Dry, Molson Dry®Export, Molson® Export, Creemore Springs®,Rickard's Red Ale® and otherRickard's brands, Carling®Carling and Pilsner®.Pilsner as well as a number of other regional brands. We also brew or distribute under license the following brands:Amstel Light®Light under license from Amstel Brouwerij B.V., Heineken®Heineken and Murphy's®Murphy's under license from Heineken Brouwerijen B.V., Asahi®Asahi andAsahi Select®Select under license from Asahi Beer U.S.A. Inc. and Asahi Breweries, Ltd., Corona® under license from Cerveceria Modelo S.A. De C.V. and Canacermex, Inc., Miller Lite®Lite,Miller Genuine Draft®Draft,Milwaukee's Best®Best andMilwaukee's Best Dry®Dry under license from Miller Brewing Company.
Company, a subsidiary of SABMiller,Foster's under license from Foster's Group Limited andTiger under license from Asia Pacific Breweries Limited. Starting on January 1, 2008, we entered into a joint venture agreement with Grupo Modelo, to import, distribute and market the Modelo beer brand portfolio, including theCorona, Coronita, Negra Modelo andPacifico brands, across all Canadian provinces and territories.
Brands sold in the United States include: Coors Light®, Coors®, Coors® Non-Alcoholic, Blue Moon® Belgian White Ale and seasonal Blue Moon brands, George Killian's® Irish Red? Lager, Keystone®, Keystone® Light, Keystone® Ice, and Zima®. We also sell the Molson family MillerCoors sells a wide variety of brands in the United States. Its flagship light brands areCoors Light andMiller Lite. Brands in the domestic premium segment includeCoors Banquet,Miller Genuine Draft andMGD 64. Brands in the domestic super premium segment includeMiller Chill andSparks. Brands in the below premium segment includeMiller High Life,Keystone Light,Icehouse,Mickey's,Milwaukee's Best Light andOld English 800. Craft and import brands include theBlue Moon brands,Henry Weinhard's,George Killian's Irish Red, theLeinenkugel's brands, the Molson brands,Foster's,Peroni Nastro Azzurro,Pilsner Urquell andGrolsch. Brands in the non-alcoholic segment includeCoors Non-Alcoholic andSharp's. MCBC assigned the United States and Puerto Rican ownership rights to the legacy Coors brands, includingCoors Light,Coors Banquet,Keystone Light, and theBlue Moonbrands, to MillerCoors. We retained all ownership of these brands outside the United States and Puerto Rico. MillerCoors licenses the right to brew and sellGeorge Killian's Irish Red. MCBC sells the Molson brands to MillerCoors through related party transactions.
Brands sold in the United Kingdom include: Carling®Carling,C2,Coors Light,Worthington's,Caffrey's, C2®, Coors Light®, Worthington's® ales, Caffrey's®, Reef®, Screamers® and Stones®.Kasteel Cru, as well as a number of smaller regional ale brands. We also sell Grolsch®theGrolsch brands (Grolsch Premium Lager, Grolsch Weizen andGrolsch Blond) in the United Kingdom through a joint venture.venture with Royal Grolsch N.V. and are the exclusive distributor for several brands which are sold under license, includingSol, Dos Equis Amber, Zatec andMagners Draught Cider. Additionally, in order to be able to provide a full line of beer and other beverages to our on-premise customers, we sell factored brands in our Europe segment, which are third party brands for which we provide distribution to retail, typically on a non-exclusive basis. Beginning in 2008, we have entered into a contract brewing and kegging agreement with Scottish & Newcastle U.K. Ltd. for the Fosters®Fosters and Kronenbourg®Kronenbourg brands.
We sold approximately 19% of our 2007 reported volume in the Canada segment, 58% in the United States segment, and 23% in the Europe segment. In 2007, our largest brands accounted for the following percentage of total consolidated volume: Coors Light accounted for approximately 46% of reported volume, Carling for approximately 18%, and Keystone Light for approximately 8%.
Our sales volume from continuing operations totaled 42.1 million barrels in 2007, 42.1 million barrels in 2006 and 40.4 million barrels in 2005, excluding Brazil volume in discontinued operations. The barrel sales figures for periods prior to our Merger on February 9, 2005 do not include barrel sales of our products sold in Canada or the United States through the former Molson Coors Canada or Molson U.S.A. joint ventures. Our reported sales volumes also do not include the CBL factored brands business. The fiscal years ended December 30, 2007, and December 25, 2005, were 52 week periods and fiscal year ended December 31, 2006, was a 53 week period.
No single customer accounted for more than 10% of our consolidated or segmented sales in 2007, 2006 or 2005.
Canada Segment
Molson is Canada's second largest brewer by volume and North America's oldest beer company,company. Measuring market share consistent with prior years, Molson has an approximate 41%41.9% market share in Canada. Due to accounting policy changes arising from the 2008 MillerCoors joint venture, this market share is adjusted to record 50% of any Canada joint venture volume. With this change implemented, Molson has an approximate 40.5% market share in Canada which is virtually unchanged versus a pro forma 2007 level.
Molson brews, markets, sells and nationally distributes a wide variety of beer brands. Molson's portfolio consists of strength or leadershiphas leading brands in all major product and price segments. Molson has strong market share and visibility across retail and on-premise channels. PriorityMolson's focus and investment is leveraged behindon key owned brands (Coors(Coors Light, Molson Canadian, Molson Dry, Molson Export and Rickard's)Rickard's) and key strategic distribution partnerships (including Heineken, Corona and Miller).Coors Light currently has a 12%13% market share and is the largest-selling light beer and the second-best selling beer brand overall in Canada. Molson Canadian currently has an 8% market share and is the third-largest selling beer in Canada.
Our Canada segment consists primarily of the production and sale of the Molson brands,Coors Light, and partner and other brands listed above under "Our Products." The Canada segment also includes our partnership arrangements related to the distribution of beer in Ontario, Brewers Retail Inc. ("BRI"), and the Western provinces, Brewers' Distributor Ltd. ("BDL"). BRI is currently consolidated in our financial statements. See Part II—Financial Statements and Supplementary Data, Item 8 Note 5 "VARIABLE INTEREST ENTITIES" to the Consolidated Financial Statements in Item 8.for further discussion.
Sales and Distribution
Canada
In Canada, provincial governments regulate the beer industry, particularly the regulation ofwith regard to the pricing, mark-up, container management, sale, distribution, and advertising of beer. Distribution and retailing of products containing alcohol involves a wide range and varied degree of Canadian government control through their respective provincial liquor boards.
Province of Ontario
In Ontario, beer may only be purchased at retail outlets operated by BRI, at government-regulated retail outlets operated by the Liquor Control Board of Ontario, approved agents of the Liquor Control Board of Ontario, or at any bar, restaurant, or tavern licensed by the Liquor Control Board of Ontario to sell liquor for on-premise consumption. All brewers pay a service fee, based on their sales volume, through BRI. Molson, together with certain other brewers, participates in the ownership of BRI in proportion to its provincial market share relative to other brewers.brewers in the ownership group. Ontario brewers may deliver directly to BRI's outlets or may choose to use BRI's distribution centers to access retail stores in Ontario, the Liquor Control Board of Ontario system and licensed establishments.
Province of Québec
In Québec, beer is distributed directly by each brewer or through independent agents. Molson is the agent for the licensed brands it distributes. The brewer or agent distributes the products to permit holders for retail sales for on-premise consumption. Québec retail sales for homeoff-premise consumption are made through grocery and convenience stores as well as government operated stores.outlets.
Province of British Columbia
In British Columbia, the government's Liquor Distribution Branch currently controls the regulatory elements of distribution of all alcohol products in the province. Brewers' Distributor Ltd. ("BDL"), which Molson co-owns with a competitor, manages the distribution of Molson's products throughout British Columbia. Consumers can purchase beer at any Liquor Distribution Branch retail outlet, at any independently owned and licensed wine or beer retail store or at any licensed establishment for on-premise consumption. Liquor-primaryEstablishments licensed establishmentsprimarily for on-premise consumptionliquor sales may also be licensed for off-premise consumption.
Province of Alberta
In Alberta, the distribution of beer is managed by independent private warehousing and shipping companies or by a government sponsored system in the case of U.S. sourced products. All sales of liquor in Alberta are made through retail outlets licensed by the Alberta Gaming and Liquor Commission or licensees, such as bars, hotels and restaurants. BDL manages the distribution of Molson's products in Alberta.
Other Provinces
Molson's products are distributed in the provinces of Manitoba and Saskatchewan through local liquor boards. Manitoba and Saskatchewan also have licensed private retailers. BDL manages the distribution of Molson's products in Manitoba and Saskatchewan. In the Maritime Provinces (other than Newfoundland), local liquor boards distribute and retailsell Molson's products. Yukon, Northwest Territories and Nunavat manage distribution and retailsell through government liquor commissioners.
Manufacturing, Production and Packaging
Brewing Raw Materials
Molson's goal is to procure the highest quality materials and services at the lowest prices available. Molson selects global suppliers for materials and services that best meet this goal. Molson also uses hedging instruments to protect frommitigate the risk of volatility in thecertain commodities and foreign exchange markets.
Molson sources barley malt from two primary providers, with commitments through 2009. Hops are purchased from a variety of global suppliers in the U.S., Europe, and New Zealand, with commitments through 2008.2009. Other starch brewing adjuncts are sourced from two main suppliers, both in North America. We do not foresee any significant risk of disruption in the supply of these agricultural products. Molson and CBC in the U.S. have benefited from merger-driven cost synergies related to the acquisition of certain brewing materials. Water used in the brewing process is from local sources in the communities where our breweries operate.
Brewing and Packaging Facilities
Molson has six breweries, strategically located throughout Canada, which brew, bottle, package, market and distribute all owned and licensed brands sold in and exported from Canada. The breweries are as follows: Montréal (Québec), Toronto (Ontario), Vancouver (British Columbia), Moncton (New Brunswick), St. John's (Newfoundland) and Creemore (Ontario). The Montréal and Toronto breweries account for approximately four-fifths of our Canada production.
Packaging Materials
Glass bottles
Molson single sourced glass bottles in 20072008 and has a committed supply through 20082009 from three various suppliers. Availability of glass bottles has not been an issue, and Molson does not expect any difficulties in accessing them. However, the risk of glass bottle supply disruptions has increased with the reduction of local supply alternatives due to the consolidation of the glass bottle industry in North America. The distribution systems in each province generally provide the collection network for returnable bottles. The standard container for beer brewed in Canada is the 341 ml returnable bottle, which represents approximately 63%65% of domestic sales in Canada.
Aluminum cans
Molson single sources aluminum cans and has a committed supply through 2011. Availability of aluminum cans has not been an issue, and Molson does not expect any difficulties in accessing them.
The distribution systems in each province generally provide the collection network for aluminum cans. Aluminum cans account for approximately 26% of domestic sales in Canada.
Kegs
Molson sells approximately 11%9% of its beer volume in stainless steel kegs. A limited number of kegs are purchased every year, and there is no long-term supply commitment.
Other packaging
Crowns, labels, corrugate, and paperboard are purchased from concentrated sources unique to each product. Molson does not foresee difficulties in accessing these products in the near future.
Seasonality of Business
Total industry volume in Canada is sensitive to factors such as weather, changes in demographics, and consumer preferences. Consumption of beer in Canada is also seasonal with approximately 41% of industry sales volume occurring during the four months from May through August.
Competitive Conditions
20072008 Canada Beer Industry Overview
Since 2001, the premium beer category in Canada has gradually lost volume to the super-premium and "value" (below premium) categories. The growth of the value category slowed in 2006 and 2007, and the price gap between premium and value brands was relatively stable, although the number of value brands increased. In 2007, we increased regular selling prices for our premium brands in select markets, but used targeted feature price activity to generate growth.
The Canadian brewing industry is a mature market. It is characterized by aggressive competition for volume and market share from regional brewers, microbrewers and certain foreign brewers, as well as Molson's main domestic competitor. These competitive pressures require significant annual investment in marketing and selling activities.
There are three major beer segments based on price: super premium, which includes imports; premium, which includes the majority of domestic brands and the light sub-segment; and value.
Since 2001, the premium beer category in Canada has gradually lost volume to the super-premium and value (below premium) categories. The growth of the value category slowed in 2006 and 2007, and the price gap between premium and value brands remained relatively stable in 2008, although the number of value brands being marketed by competitors increased. In 2008, we increased selling prices for our premium brands in select markets, but constantly monitor competitive activity to ensure we appropriately balance pricing with volume growth.
During 2007,2008, estimated industry sales volume in Canada, including sales of imported beers, increased by 0.9%1.1% on a year-over-year basis.
Our Competitive Position
The Canada brewing industry is comprised principally of two major brewers, Molson and Labatt, whose combined market share is approximately 84%85% of beer sold in Canada. The Ontario and Québec markets account for approximately 62%63% of the total beer market in Canada.
Our malt beverages also compete with other alcohol beverages, including wine and spirits, and thus our competitive position is affected by consumer preferences between and among these other categories. Sales of wine and spirits have grown faster than sales of beer in recent years, resulting in a reduction in the beer segment's lead in the overall alcoholic beverages market.
United States Segment
Coors Brewing Company isPrior to the third-largest brewer by volume in the United States, with an approximate 11% market share.formation of MillerCoors, CBC produces, markets,produced, marketed, and sellssold the Coors portfolio of brands in the United States and its territories and includesincluded the results of the Rocky Mountain Metal CorporationRMMC and Rocky Mountain Bottle CorporationRMBC joint ventures. The U.S. segment also includes Coors brand volume, primarily Coors Light, that is sold outside of the United States and its territories, primarily Mexico and the Caribbean, as well asincluded sales of Molson brand products sold in the United States.
Effective July 1, 2008, MCBC's equity investment in MillerCoors will represent our U.S. operating segment going forward.
On October 9, 2007, MCBCMillerCoors is currently the second-largest brewer by volume in the United States, with an approximate 29% market share. MillerCoors produces, markets, and SABMiller plc (the investing companies) announced that they signedsells a letterbroad portfolio of intent to combinebrands in the U.S.United States and Puerto Rico operations of their respective subsidiaries, CBC and Miller Brewing Company, in a joint venture ("MillerCoors"). The parties signed a definitive joint venture agreement on December 20, 2007. See discussion in this Item 1 under "Joint Ventures and Other Arrangements" for further information regarding MillerCoors.Rico.
Sales and Distribution
In the United States, beer is generally distributed through a three-tier system consisting of manufacturers, distributors and retailers. A national network of approximately 560700 independent distributors purchases ourMillerCoors' products and distributes them to retail accounts. We estimateMillerCoors estimates that approximately 20%19% of our product is sold on-premise in bars and restaurants, and the other 80%81% is sold off-premise in liquor stores, convenience stores, grocery stores, and other retail outlets. We also own three distributorshipsMillerCoors wholly owns a distributorship, which collectively handled approximately 2%less than 1% of ourtheir total U.S. segment's volume in 2007. One of these owned distributors is under contract to be sold, and closing is anticipated in March 2008. Approximately 47% of our volume passes through one of our 11 satellite re-distribution centers throughout the United States prior to being sold to distributors. In Puerto Rico, we market and sell Coors Light through an independent distributor. Coors Light is the leading beer brand in Puerto Rico. Sales in Puerto Rico represented less than 3% of our U.S. sales volume in 2007. We also sell our products in several other Caribbean markets. Cerveceria Cuauhtemoc Moctezuma, S.A. de C.V., a subsidiary of FEMSA Cerveza, is the sole and exclusive importer, marketer, seller and distributor of Coors Light in Mexico.
Manufacturing, Production and Packaging in the United States
Brewing Raw Materials
We useMillerCoors uses the highest-qualityhighest quality water, hops and barley and hopsother cereal grains to brew ourits products. We malt 100%MillerCoors malts a portion of ourits production requirements, using barley purchased under yearly contracts from a network of independent farmers located in five regions in the western United States. HopsOther barley, malt, and starchescereal grains are purchased from suppliers primarily in the United States. We haveHops are purchased from suppliers in the United States and New Zealand and other European countries. MillerCoors has access or acquired water rights to provide for and to sustain brewing operations in case of a prolonged drought in Colorado. CBC also usesthe regions for which they have operations. MillerCoors utilizes hedging instruments to manage risks associated with volatility in the commodities (including aluminum for cans and ends) and foreign exchange markets.
Brewing and Packaging Facilities
We have two production There are eight major breweries/packaging facilities inwhich provide MillerCoors products to distributors across the United States. We ownStates and operate the world's largest single-site brewery located in Golden, Colorado. We also operate a second brewing facility located in the Shenandoah Valley in Elkton, Virginia.Puerto Rico. The Golden brewery has thebreweries have capacity to brew and package 22approximately 85 million barrels and 16 million barrels annually, respectively. The Shenandoah brewery has a production capacity of approximately 7 million barrels. The Shenandoah facility sources its barley malt from the Golden malting facility. All products shipped to Puerto Rico or otherwise exported outside the U.S. are brewed and packaged at the Shenandoah facility. The U.S. segmentbeer annually. MillerCoors imports Molson productsbrands and a portion of another U.S. brand volume from various Molson breweries. MillerCoors importsPeroni, Pilsner Urquell, Grolsch, and other smaller import brands from SABMiller.
Packaging Materials
Aluminum cans
Approximately 61%Over half of our U.S. products sold were packaged in aluminum cans in 2007. We2008. A portion of aluminum cans were purchased approximately 80% of those cans from RMMC, oura joint venture with Ball Corporation ("Ball"), whose production facility is located adjacent to the brewery in Golden, Colorado. In addition to ourthe supply agreement with RMMC, we also haveMillerCoors has a commercial supply agreement with Ball to purchase cans and ends in excess of what is supplied through RMMC.RMMC; these agreements have various expiration dates. The RMMC joint venture agreement is scheduled to expire in 2012. Aluminum is an exchange-traded commodity, and its price can be volatile. We utilize hedging instruments to manage risks associated with this volatility. The RMMC joint venture agreement is scheduled to expire in 2012.
Glass bottles
We packaged approximately 28%Less than half of our U.S. products in 20072008 were packaged in glass bottles. RMBC, oura joint venture with Owens-Brockway Glass Container, Inc. ("Owens"), produces approximately 60%a portion of ourtheir U.S. glass bottle requirements at ourits glass manufacturing facility in Wheat Ridge, Colorado. OurThe joint venture with
Owens, as well as a supply agreement with Owens for the glass bottles we requirerequired in excess of joint ventureRMBC's production, expires in 2015.
Kegs
The remaining 11% of U.S. production volume we sold in 20072008 was packaged in quarter, half, and one-sixth barrel stainless steel kegs. A limited number of kegs are purchased each year, and there is no long-term supply agreement.
Other packaging
Crowns, labels, corrugate and paperboard are purchased from concentrated sources unique to each product. We purchase most of our paperboard from a subsidiary of Graphic Packaging Corporation ("GPC"), a related party discussed further in Note 20 to the Consolidated Financial Statements in Item 8. CBCMillerCoors does not foresee difficulties in accessing packaging products in the future.
Contract Manufacturing
MillerCoors has an agreement with S&P Company whereby MillerCoors will brew, package, and ship products for sale to Pabst Brewing Company through 2014. Additionally, MillerCoors produces beer under contract for our Global Brands and Market Development group, Miller Brewing International and Foster's LLC.
Seasonality of the Business
OurMillerCoors' U.S. sales volumes are normally lowest in the firstwinter months (first and fourth quartersquarters) and highest in the secondsummer months (second and third quarters.quarters).
Competitive Conditions
Known Trends and Competitive Conditions
Industry and competitive information in this section and elsewhere in this report was compiled from various industry sources, including beverage analyst reports (Beer Marketer's Insights, Impact Databank and The Beer Institute), and MillerCoors distributors. While management believes that these sources are reliable, we cannot guarantee the accuracy of data and estimates obtained from these sources.
20072008 U.S. Beer Industry Overview
The beer industry in the United States is highly competitive, and increasingly fragmented, with a profusionthe two largest brewers, of offerings inwhich MillerCoors is the above-premium category. With respect to premium lager-style beer, three major brewers controlsmaller, occupy approximately 77%78% of the market.category. The combination of Miller and Coors in mid-2008 was designed to create a stronger U.S. brewer with the scale, operational efficiency and distribution platform to compete more effectively against larger brewers, both domestic and global. Growing or even maintaining market share has required increasing investments in marketing and sales.marketing. U.S. beer industry shipments had an annual growth rate during the past 10 years of 0.9%1.0%, compared with 0.7% in 2008. Front-line pricing pressure and 1.4% in 2007. Price discounting in the U.S. beer industry was less intense in 2008, 2007 and 2006, comparedcontrasted with a high level of promotions in the second half of 2005.
Since the change in the Excise Tax structure in Puerto Rico in June 2002, the beer market there has been in modest decline. Additionally, while this market has traditionally been split among U.S. imports, other foreign imports and local brewers, due to the tax advantage held by the local brewer, the Medalla brand has gained significant share in the past several years. Coors Light remains the market leader in Puerto Rico with an approximate 45% market share.
Our Competitive Position
Our malt beverages compete The MillerCoors portfolio of beers competes with numerous above-premium,above premium, premium, low-calorie, popular-priced,popular priced, non-alcoholic, and imported brands. These competing brands are produced by international, national, regional local,
and internationallocal brewers. We competeMillerCoors competes most directly with Anheuser-Busch and SAB MillerInbev ("SAB"A-B Inbev"). We, but also competecompetes with imported and craft beer brands. According toBeer Marketer's Insights estimates, we areMillerCoors is the nation's third-largestsecond-largest brewer, selling approximately 11%29% of the total 20072008 U.S. brewing industry shipments (including exports and U.S. shipments of imports). This compares to Anheuser-Busch's 48% share and SAB's 18%A-B Inbev's 49% share.
OurMillerCoors' malt beverages also compete with other alcohol beverages, including wine and spirits, and thus our competitive position is affected by consumer preferences between and among these other categories. Sales of wine and spirits have grown faster than sales of beer in recent years, resulting in a reduction in the beer segment's lead in the overall alcoholic beveragesalcohol beverage market.
EuropeUnited Kingdom Segment
Coors Brewers Limited is the United Kingdom's second-largest beer company with unit volume sales of approximately 9.79.0 million U.S. barrels in 2007.2008. CBL has an approximate 21%20% share of the U.K. beer market, Western Europe's second-largest market. Sales are primarily in England and Wales, with the Carling brand (a mainstream lager) representing more than three-fourths of CBL's total beer volume. The EuropeU.K. segment consists of our production and sale of the CBL brands principally in the U.K., our joint venture arrangement for the production and distribution ofGrolsch brands in the U.K. and the Republic of Ireland, factored brand sales (beverage brands owned by other companies, but sold and delivered to retail by us), and our Tradeteam joint venture arrangement with DHL (formerly Exel Logistics) for the distribution of products throughout Great Britain. Our Europe segment also manages a small volume of sales, primarily of Coors products, in Asia and other export markets.
Sales and Distribution
United Kingdom
In the U.K., beer is generally distributed through a two-tier system consisting of manufacturers and retailers. Unlike the U.S., where manufacturers are generally not permitted to distribute beer directly to retail, the large majority of our beer in the U.K. is sold directly to retailers. It is also common in the U.K. for brewers to distribute beer, wine, spirits, and other products owned and produced by other companies ("factored" brands) to the on-premise channel where products are consumed in bars(bars and restaurants.restaurants). Approximately 30%32% of CBL's net sales value in 20072008 was thesecomposed of "factored" brands. Factored brand sales are included in our net sales and cost of goods sold when ultimately sold but are not included in the reported volumes.
Distribution activities for CBL are conducted by Tradeteam, which operates a system of satellite warehouses and a transportation fleet. Tradeteam also manages the transportation of malt to the CBL breweries.
Over the past three decades, volumes have shifted from the higher margin on-premise channel, where products are consumed in pubs and restaurants, to the lower margin off-premise channel, also referred to as the "take-home" market.
On-Premise Market Channel
The on-premise channel accounted for approximately 60%58% of our U.K. sales volumes in 2007.2008. The on-premise channel is generally segregated further into two more specific categories: multiple on-premise and free on-premise. Multiple on-premise refers to those customers that own a number of pubs and restaurants and free on-premise refers to individual owner-operators of pubs and restaurants. The on-going market trend from the higher-margin free on-premise category to the lower-margin multiple on-premise category places downward pressure on the profitability of our EuropeU.K. segment. In 2007,2008, CBL sold approximately 70%69% and 30%31% of its on-premise volume to multiple and free on-premise
customers, respectively. In recent years, pricing competition in the on-premise channel has intensified as the retail pub chains have consolidated. As a result, the larger pub chains have been able to negotiate lower beer prices from brewers. A national smoking ban was enacted in 2007 affecting all pubs and restaurants in the U.K., which has had an unfavorable impact on beer volume sold in this channel.
The installation and maintenance of draught beer dispensing equipment in the on-premise channel is generally the responsibility of the brewer in the U.K. Accordingly, CBL owns equipment used to
dispense beer from kegs to consumers. This includes beer lines, cooling equipment, taps, and countermounts.
Similar to other U.K. brewers, CBL has traditionally used loans to secure supply relationships with customers in the on-premise market. Loans are normally granted at below-market rates of interest, with the outlet purchasing beer at lower-than-average discount levels to compensate. We reclassify a portion of sales revenue asto interest income to reflect the economic substance of these loans.
Off-Premise Market Channel
The off-premise channel accounted for approximately 40%42% of our U.K. sales volume in 2007.2008. The off-premise market includes sales to supermarket chains, convenience stores, liquor store chains, distributors, and wholesalers. The off-premise channel has become increasingly concentrated among a small number of super-store chains, placing increasing downward pressure on pricing.
Asia
We continue to develop markets in Asia, which are managed by the Europe segment's management team. We have a Japanese business which is currently focused on the Zima and Coors brands. Our business in China is principally focused on the Coors Light brand. Product sold in Japan and China is contract brewed by a third party in China. The small amount of remaining Asia volume is exported from the U.S.
Manufacturing, Production and Packaging
Brewing Raw Materials
We use high quality water, barley and hops to brew our products. During 2007,2008, CBL produced more than 95%approximately 97% of its required malt using barley purchased from sources in the U.K. CBL does not anticipate significant challenges in procuring quality malt for the foreseeable future. Malt sourced externally iswas committed through 20082009 and is produced through a toll malting agreement where CBL purchases the required barley and pays a conversion fee to the malt vendor. Hops and adjunct starches used in the brewing process are purchased from agricultural sources in the United Kingdom and on the European continent. CBL does not anticipate difficulties in accessing these agricultural products going forward, although prices have risen dramaticallycontinued to rise over the past year.
We ensure high quality water by obtaining our water from private water sources that are carefully chosen for their purity and are regularly tested to ensure their ongoing purity and to confirm that we meet all the requirements of the U.K. private water regulations are met.regulations. Public water supplies are used as back-up to the private supplies in some breweries, and these are again tested regularly to ensure their ongoing purity.
Brewing and Packaging Facilities
We operate three breweries in the U.K. The Burton-on-Trent brewery, located in the Midlands region of England, is the largest brewery in the United Kingdom and accounts for approximately two-thirds of CBL's production. Smaller breweries are located in Tadcaster and Alton. Product sold in Ireland is produced by contract brewers.
Packaging Materials
Kegs and casks
We used kegs and casks for approximately 56%53% of our U.K. products in 2007,2008, reflecting a high percentage of product sold on-premise. In April 2007, CBL purchased the existing keg population that had been owned and managed by a third-party service provider which was placed in receivership early in 2007. A limited number of additional kegs will be purchased every year, and there is no long-term supply commitment.
Cans
Approximately 36%38% of our U.K. products were packaged in steel cans with aluminum ends in 2007.2008. All of our cans are purchased through a supply contract with Ball.
Glass bottles
Approximately 5%6% of our U.K. products are packaged in glass bottles purchased through supply contracts with third-party suppliers.
Other packaging
The remaining 3% of our U.K. sales are shipped in bulk tanker for other brewers to package.
Crowns, labels, corrugate, and paperboard are purchased from concentrated sources unique to each product. CBL does not foresee difficulties in accessing these or other packaging materials in the foreseeable future.
Seasonality of Business
In the U.K., the beer industry is subject to seasonal sales fluctuations primarily influenced by holiday periods, weather and by certain major televised sporting events. Peak selling seasons occur during the summer and during the Christmas and New Year periods. The Christmas/New Year holiday peak is most pronounced in the off-premise channel. Consequently, our largest quarters by volume are the second and fourth quarters, and the smallest are the first and third. Weather conditions can significantly impact sales volumes, as noted during 2008 and 2007 when unusually cool, rainy weather in the summer months resulted in lower sales volumes.
Competitive Conditions
20072008 U.K. Beer Industry Overview
FromAfter being relatively stable between 2000 to 2003, U.K. beer consumption has since seen four5 years of decline. This has been driven by a number of factors, including changes in consumers' lifestyles, falling discretionary income and pressure from other drinks categories, notably wine. These factors are expected to continue to affect the beer market in the near future. In 2007,2008, beer consumption declined by approximately 4%5.5%, with performance affected by a poor summer weather and the impact of smoking bans in England, Wales and Northern Ireland.
On-premise sales fell by 6.5%9.3% in 2007,2008, with the smoking bans accelerating the switch from on- to off-premise. A widening price differential between the on-premise (higher prices) and the off-premise (lower prices) has tended to benefit off-premise.off-premise sales. Off-premise sales in 2007 dipped into decline, down 0.1%.2008 were virtually unchanged from the prior year.
The industry has also experienced a steady trend away from ales and towards lager. Sales of lagers accounted for 75% of the U.K. market in 2007. While lager volume has been growing,2008. Continuing in 2008, was the long-term trend of the market shifting from ales including
stouts, have declined during this period, and this trend has accelerated in the last few years.to lager. The top 10 beer brands now represent approximately 66% of the total market, compared to only 34% in 1995.
Our Competitive Position
Our beers compete not only with similar products from competitors, but also with other alcohol beverages, including wines, spirits, and ciders. With the exception of stout, where we do not have our own brand, our brand portfolio gives us strong representation in all major beer categories. Our strength in the growing lager category withCarling,Grolsch,Coors Light, andC2 positions us well to take advantage of the continuing trend toward lagers. Our portfolio has been strengthened by the introduction of a range of imported and specialty beer brands, such asSol,Zatec,Palm, andKasteel Cru.Cru.
Our principal competitors are Scottish & Newcastle U.K. Ltd., Inbev U.K. Ltd., and Carlsberg U.K. Ltd. We are the U.K.'s second-largest brewer, with a market share of approximately 21% (excluding20%
(excluding factored brands sales), based on AC Nielsen information. This compares to Scottish & Newcastle U.K. Ltd.'s share of approximately 25%, Inbev U.K. Ltd.'s share of approximately 18%, and Carlsberg U.K. Ltd.'s share of approximately 12%13%. In 2007,2008, CBL had a small declinegain in its share of the U.K. beer market.
Global Brand and Market Development and Corporate
The objectives of the Global Brand and Market Development ("Global Markets") group are to grow and expand our business and brand portfolios in global development markets. Our current businesses in Asia, continental Europe, Mexico and the Caribbean (excluding Puerto Rico) are included in Global Markets and combined with our corporate business activities for reporting purposes. Corporate also includes corporate interest and certain other general and administrative costs that are not allocated to any of the operating segments.
Asia
Our Japanese business is currently focused on theZima and Coors brands. Our business in China is principally focused onCoors Light. Product sold in Japan and China is contract brewed by a third party in China. The small amount of remaining volume sold in Asia is exported from the U.S. under a brewing agreement with MillerCoors.
Europe
Our European business is focused on selling Carling, Caffrey's and small amount ofCoors Light to the British tourist destinations in continental Europe focused primarily in but not limited to Spain, Greece, Sweden and Cyprus. We also sell products to British Military in Germany. The products are produced and exported by our CBL breweries through agreements with independent distributors.
Mexico Central America and the Caribbean
Coors Light is sold in Mexico through an exclusive licensing agreement with Cerveceria Cuauhtemoc Moctezuma, S.A. de C.V. ("CCM"), a subsidiary of FEMSA Cerveza. CCM is responsible for the brewing of our products sold in Mexico. In addition, our products sold in a number of non-Puerto Rico Caribbean and Panama markets are produced under a brewing agreement by MillerCoors and are exported to and sold through agreements with independent distributors.
Corporate
Corporate includes interest and certain other general and administrative 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, accounting, treasury, insurance and risk management. Corporate also includes certain royalty income and administrative costs related to the management of intellectual property.
Other Information
Global Intellectual Property
We own trademarks on the majority of the brands we produce and have licenses for the remainder. We also hold several patents on innovative processes related to product formula, can making, can decorating, and certain other technical operations. These patents have expiration dates through 2021. We are not reliant on royalty or other revenue from third parties for our financial success. Therefore, these expirations are not expected to have a significant impact on our business.
Inflation
Inflation is typically a factor in the segments in which we operate and we experience inflationary trends in specific areas, such as freight and fuel, costs, which were significantly higher in 2007 when compared to prior years.agricultural commodities (barley, corn and hops), aluminum packaging materials and employment costs. Inflation in diesel fuel costs impacts the U.S. segment most significantly due to the geographic size of the U.S. market and the concentration of production at fewer facilities. The U.S. segment is also the most exposed to inflation in aluminum prices, since it packages the majority of its product in aluminum cans. Barley prices are expectedEach of our segments has different levels of exposure to increase in 2008 as a resultinflation based on the specific characteristics of lower supplies as farmers grow an increasingly large corn crop due to the demand for ethanol.market.
Regulation
Canada
In Canada, provincial governments regulate the production, marketing, distribution, selling, and pricing of beer (including the establishment of minimum prices), and impose commodity taxes and license fees in relation to the production and sale of beer. In 2007,2008, Canada excise taxes totaled $558$564.5 million or $68.40$74.72 per barrel sold. In addition, the federal government regulates the advertising, labeling, quality control, and international trade of beer, and also imposes commodity taxes, consumption taxes, excise taxes, and in certain instances, custom duties on imported beer. Further, certain bilateral and multilateral treaties entered into by the federal government, provincial governments and certain foreign governments, especially with the United States, affect the Canadian beer industry.
United States
In the U.S., the beer business is regulated by federal, state, and local governments. These regulations govern many parts of ourMillerCoors operations, including brewing, marketing and advertising, transportation, distributor relationships, sales, and environmental issues. To operate ourtheir facilities, wethey must obtain and maintain numerous permits, licenses and approvals from various governmental agencies, including the U.S. Treasury Department; Alcohol and Tobacco Tax and Trade Bureau; the U.S. Department of Agriculture; the U.S. Food and Drug Administration; state alcohol regulatory agencies as well asagencies; and state and federal environmental agencies.
Governmental entities also levy taxes and may require bonds to ensure compliance with applicable laws and regulations. U.S. federal excise taxes on malt beverages are currently $18 per barrel. State excise taxes also are levied at varying rates that ranged in 2007 fromwith a highU.S. mean of $32.10$1.22 per barrel in Alaska to a low of $0.60 per barrel in Wyoming. In 2007, U.S. excise taxes totaled $437 million or $18.04 per barrel sold.2008.
EuropeUnited Kingdom
In the U.K., regulations apply to many parts of our operations and products, including brewing, food safety, labeling and packaging, marketing and advertising, environmental, health and safety, employment, and data protection regulations. To operate our breweries and carry on business in the United Kingdom, we must obtain and maintain numerous permits and licenses from local Licensing Justices and governmental bodies, including Her Majesty's Revenue & Customs ("HMRC"); the Office of Fair Trading; the Data Protection Commissioner and the Environment Agency.
The U.K. government levies excise taxes on all alcohol beverages at varying rates depending on the type of product and its alcohol content by volume. In 2007,2008, we incurred approximately $1.1 billion in excise taxes on gross revenues of approximately $2.6$2.4 billion, or approximately $117.49$118.88 per barrel.
Environmental Matters
Canada
Our Canadian brewing operations are subject to provincial environmental regulations and local permit requirements. Each of our Canadian breweries, other than the St. John's brewery, has water treatment facilities to pre-treat waste water before it goes to the respective local governmental facility for final treatment. We have environmental programs in Canada including organization, monitoring and verification, regulatory compliance, reporting, education and training, and corrective action.
Molson sold a chemical specialties business in 1996. The company is still responsible for certain aspects of environmental remediation, undertaken or planned, at those chemical specialties business locations. We have established provisions for the costs of these remediation programs.
United States
We are one of a number of entities named by the Environmental Protection Agency ("EPA") as a potentially responsible party ("PRP") at the Lowry Superfund site. This landfill is owned by the City and County of Denver ("Denver") and is managed by Waste Management of Colorado, Inc. ("Waste Management"). In 1990, we recorded a pretax charge of $30 million, a portion of which was put into a trust in 1993 as part of a settlement with Denver and Waste Management regarding then outstanding litigation. Our settlement was based on an assumed remediation cost of $120 million (in 1992 adjusted dollars). The settlement requires us to pay a portion of future costs in excess of that amount.
Considering uncertainties at the site, including what additional remedial actions may be required by the EPA, new technologies, and what costs are included in the determination of when the $120 million threshold is reached, the estimate of our liability may change as facts further develop. We cannot predict the amount or timing of any such change, but additional accruals could be required in the future.
We are aware of groundwater contamination at some of our properties in Colorado resulting from historical, ongoing, or nearby activities. There may also be other contamination of which we are currently unaware.
From time to time, we have been notified that we are or may be a PRP under the Comprehensive Environmental Response, Compensation, and Liability Act or similar state laws for the cleanup of other sites where hazardous substances have allegedly been released into the environment. While we cannot predict our eventual aggregate cost for the environmental and related matters in which we may be or are currently involved, we believe that any payments, if required, for these matters would be made over a period of time in amounts that would not be material in any one year to our operating results, cash flows, or our financial or competitive position. We believe adequate reserves have been provided for losses that are probable and estimable.
EuropeUnited Kingdom
We are subject to the requirements of government and local environmental and occupational health and safety laws and regulations. Compliance with these laws and regulations did not materially affect our 20072008 capital expenditures, earnings or competitive position, and we do not anticipate that they will do so in 2008.2009.
Environmental expenditures at each of our segments for 2008, 2007 2006 and 20052006 to evaluate and remediate such sites were not material.
Employees and Employee Relations
Canada
We have approximately 3,0002,700 full-time employees in our Canada segment. Approximately 63% of this total workforce is represented by trade unions. Workplace change initiatives are continuing and as a result, joint union and management steering committees established in most breweries are focusing on customer service, quality, continuous improvement, employee training, and a growing degree of employee involvement in all areas of brewery operations. We believe that relations with our Canada employees are good.
United States
We haveMillerCoors has approximately 4,100 employees in our U.S. segment. Less than 1%9,000 employees. Approximately 33% of our U.S.its work force is represented by unions. We believe that MillerCoors' relations with its U.S. employees are good.
We have approximately 180 employees in our corporate headquarters in Denver, Colorado. We believe that relations with our U.S. employees are good.
EuropeUnited Kingdom
We have approximately 2,6002,300 employees in our EuropeU.K. segment. Approximately 21%29% of this total workforce is represented by trade unions, primarily at our Burton-on-Trent and Tadcaster breweries. The agreements do not have expiration dates and negotiations are conducted annually. We believe that relations with our EuropeU.K. employees are good.
(d) Financial Information about Foreign and Domestic Operations and Export Sales
See Part II—Financial Statements and Supplementary Data, Item 8 Note 2 "SEGMENT AND GEOGRAPHIC INFORMATION" to the Consolidated Financial Statements in Item 8 for discussion of sales, operating income, and identifiable assets attributable to our country of domicile, the United States, and all foreign countries.
(e) Available Information
Our internet website is http://www.molsoncoors.com. Through a direct link to our reports at the SEC's website at http://www.sec.gov, we make available, free of charge on our website, our annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports as soon as reasonably practicable after we electronically file or furnish such materials to the SEC.
In addition, all of Molson Coors' directors and employees, including its Chief Executive Officer, Chief Financial Officer, and other senior financial officers, are bound by Molson Coors' Code of Business Conduct, which complies with the requirements of the New York Stock Exchange and the SEC to ensure that the business of Molson Coors is conducted in a legal and ethical manner. The Code of Business Conduct covers all areas of professional conduct, including employment policies, conflicts of interest, fair dealing, and the protection of confidential information, as well as strict adherence to all laws and regulations applicable to the conduct of our business. Molson Coors intends to disclose future amendments to, or waivers from, certain provisions of the Code of Business Conduct for executive officers and directors on its website within four business days following the date of such amendment or waiver.
Cautionary Statement Pursuant to Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995
This document and the documents incorporated in this document by reference contain forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact contained in this document and the materials accompanying this document are forward-looking statements.
Forward-looking statements are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Frequently, but not always, forward-looking statements are identified by the use of the future tense and by words such as "believes," "expects," "anticipates," "intends," "will," "may," "could," "would," "projects," "continues," "estimates," or similar expressions. Forward-looking statements are not guarantees of future performance and actual results could differ materially from those indicated by forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our or our industry's actual results, level of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by the forward-looking statements.
The forward-looking statements contained or incorporated by reference in this document are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act") and are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. These statements include declarations regarding our plans, intentions, beliefs, or current expectations.
Among the important factors that could cause actual results to differ materially from those indicated by forward-looking statements are the risks and uncertainties described under "Risk Factors" and elsewhere in this document and in our other filings with the SEC.
Forward-looking statements are expressly qualified in their entirety by this cautionary statement. The forward-looking statements included in this document are made as of the date of this document and we do not undertake any obligation to update forward-looking statements to reflect new information, subsequent events or otherwise.
Executive Officers and Directors
The following tables set forth certain information regarding our Executive Officers and Directors as of February 13, 2009:
Executive Officers
Name | Age | Position | |||
---|---|---|---|---|---|
Kevin T. Boyce | 53 | President and Chief Executive Officer of Molson Canada | |||
Peter H. Coors | 62 | Chairman of the Board of the Company, Executive Director of Coors Brewing Company, and Chairman of the Board of MillerCoors LLC | |||
Stewart Glendinning | 43 | Chief Financial Officer and a Director of MillerCoors LLC | |||
Ralph P. Hargrow | 56 | Chief People Officer | |||
Mark Hunter | 46 | President and Chief Executive Officer of Coors Brewers Limited | |||
Cathy Noonan | 52 | Chief Shared Services Officer | |||
David Perkins | 55 | President, Global Brand and Market Development, and a Director of MillerCoors LLC | |||
Peter Swinburn | 56 | President, Chief Executive Officer and a Director, and a Director of MillerCoors LLC | |||
Gregory L. Wade | 60 | Chief Supply Chain Officer | |||
Samuel D. Walker | 50 | Chief Legal Officer, Corporate Secretary, and Managing Director of MillerCoors LLC |
Board of Directors
Name | Age | Position | |||
---|---|---|---|---|---|
Francesco Bellini | 61 | Chairman, President and Chief Executive Officer of Neurochem Inc. | |||
Rosalind G. Brewer | 46 | Senior Vice President and Division President of Operations and Regional General Manager of Wal-Mart Stores, Inc. | |||
John E. Cleghorn | 67 | Chairman of the Board of Canadian Pacific Railway | |||
Peter H. Coors | 62 | Chairman of the Board of the Company, Executive Director of Coors Brewing Company, and Chairman of the Board of MillerCoors LLC | |||
Melissa Coors Osborn | 37 | Director of Organizational Development of MillerCoors LLC | |||
Charles M. Herington | 49 | Executive Vice President, Avon Products Inc., and President, Avon Latin America | |||
Franklin W. Hobbs | 61 | Operating partner of One Equity Partners and Director of Lord, Abbett & CO | |||
Andrew T. Molson | 41 | Partner and Vice Chairman of RES PUBLICA Consulting Group | |||
Eric H. Molson | 71 | Vice Chairman of the Board of the Company, and Director of the Montréal General Hospital Corporation and Foundation, the Canadian Irish Studies Foundation and Vie des Arts | |||
Iain J.G. Napier | 59 | Non-executive Chairman of Imperial Tobacco Group and McBride, and non-executive Director of Collins Stewart and John Menzies | |||
David P. O'Brien | 67 | Chairman of the Board of the Royal Bank of Canada, and Chairman of the Board of EnCana Corporation | |||
Pamela H. Patsley | 51 | Executive Chairman of the Board of MoneyGram International, and a Director of Dr. Pepper Snapple Group, Inc. | |||
H. Sanford Riley | 57 | President and Chief Executive Officer of Richardson Financial Group, Ltd. | |||
Peter Swinburn | 56 | President and Chief Executive Officer of the Company, and a Director of MillerCoors LLC |
The reader should carefully consider the following factors and the other information contained within this document. The most important factors that could influence the achievement of our goals,
and cause actual results to differ materially from those expressed in the forward-looking statements, include, but are not limited to, the following:
Risks Specific to Our Company
If Pentland and the Coors Trust do not agree on a matter submitted to stockholders, generally the matter will not be approved, even if beneficial to us or favored by other stockholders. Pentland Securities (a company controlled by Eric Molson, a related party) ("Pentland") and the Coors Trust, which together control more than two-thirds of our Class A common stock and Class A exchangeable shares, have voting trust agreements through which they have combined their voting power over the shares of our Class A common stock and the Class A exchangeable shares that they own. In the event that these two stockholders do not agree to vote in favor of a matter submitted to a stockholder vote (other than the election of directors), the voting trustees will be required to vote all of the Class A common stock and Class A exchangeable shares deposited in the voting trusts against the matter. There is no other mechanism in the voting trust agreements to resolve a potential deadlock between these stockholders. Therefore, if either Pentland or the Coors Trust is unwilling to vote in favor of a transaction that is subject to a stockholder vote, we would be unable to complete the transaction even if our board, management or other stockholders believe the transaction is beneficial for Molson Coors.
Our success as an enterprise depends largely on the success of three primaryrelatively few products in threeseveral mature markets; the failure or weakening of one or more of these products or markets could materially adversely affect our financial results. The combination of the Molson Canadian andCoors Light brands represented more than 44%53% of our Canada segment's sales volume in 2007. Although we currently have 14 products2008. Similarly, MillerCoors is dependent onMiller Lite andCoors Light in ourthe U.S. portfolio, Coors Light represented more than 66% of our U.S. segment's sales volume for 2007. Carling lager is the best-selling brand in the United Kingdom and represented more than 78%80% of our European segment'sU.K. segment sales volume in 2007.2008. Consequently, any material shift in consumer preferences away from these brands, or from the categories in which they compete, would have a disproportionately large adverse impact on our business. Moreover, each of our three major markets is mature, and in each we face large competitors who have greater financial, marketing, and distribution resources and are more diverse in terms of their geographies and brand portfolios.
Poor investment performance of pension plan holdings and other factors impacting pension plan costs could unfavorably impact liquidity and results of operations. Our costs of providing defined benefit pension plans are dependent upon a number of factors, such as the rates of return on the plans' assets, discount rates, the level of interest rates used to measure the required minimum funding levels of the plans, exchange rate fluctuations, future government regulation, and our required and/or voluntary contributions made to the plans. While we comply with the minimum funding requirements, we have certain qualified pension plans with obligations which exceededexceed the value of the plans' assets. The recent significant worldwide decline in equity prices and in the value of other financial investments, together with unfavorable foreign exchange rate movements, has significantly increased our pension liabilities. Without sustained growth in the pension investments over time to increase the value of the plans' assets and depending upon the other factors as listed above, we could be required to fund the plans with significant amounts of cash. Such cash funding obligations could have a material impact on our cash flows, credit rating and cost of borrowing, financial position, or results of operations.
We rely on a small number of suppliers to obtain the packaging we need to operate our business. The inability to obtain materials could unfavorably affect our ability to produce our products. For our U.S. business, weWe purchase mostcertain types of our paperboard and container suppliespackaging materials from a single supplier or a small number of suppliers. This packaging (including aluminum cans, aluminum can sheet, glass bottles and paperboard) is unique and is not produced by any other supplier. Additionally, we are contractually obligated to purchase substantially all our can and bottle needs in the United States and Canada from our container joint ventures or from our partners in those ventures, Ball Corporation (RMMC) and Owens-Brockway Glass Container, Inc. (RMBC).a limited number of suppliers. Consolidation of the glass bottle industry in North Americapackaging materials suppliers has reduced local
supply alternatives and increased risks of glass bottle supply disruptions. CBL has a single source for its can supply (Ball). The inability of any of these
suppliers to meet our production requirements, or those of MillerCoors, without sufficient time to develop an alternative source could have a material adverse effect on our business.
Our United States and Europe production is concentrated among a small number of production facilities, so we could be more vulnerable than our competitors to transportation disruptions, fuel increases and natural disasters. In the United States and Europe, respectively, we have primary production facilities in Golden, Colorado and Burton-on-Trent, England. In both segments, our competitors are more geographically dispersed. As a result, we ship our products greater distances than some of our competitors, making us more vulnerable to fluctuations in costs such as fuel, as well as the impact of any localized natural disasters impacting these two facilities. During 2007, we brought on-line our Shenandoah brewery located in Elkton, Virginia to reduce risk in the United States segment associated with having a significant single site production facility.
Consolidation of brewers worldwide may lead to the termination of one or more manufacturer/distribution agreements, which could have a material adverse effect on our business. We manufacture and/or distribute products of other beverage companies, including those of one or more competitors, through various licensing, distribution or other arrangements in Canada and the United Kingdom. Beer industry consolidation may increase the competitive environment, straining our current and future relationships with our partners. The loss of one or more of these arrangements could have a material adverse effect on the results of one or more reporting segments.
Because we will continue to face intense global competition, operating results may be unfavorably impacted. The brewing industry is highly competitive and requires substantial human and capital resources. Competition in our markets could require us to reduce prices or increase capital and other expenditures or cause us to lose sales volume, any of which could have a material adverse effect on our business and financial results. In addition, in some of our markets, our primary competitors have substantially greater financial, marketing, production and distribution resources than Molson Coors has. In all of the markets in which Molson Coors operates, aggressive marketing strategies by our main competitors could adversely affect our financial results.
We may not properly execute, or realize the anticipated $250 million of cost savings or benefits from, our ongoing strategic initiatives. Our success is partly dependent upon properly executing and realizing cost savings or other benefits from the additional cost savings initiatives identified during 2007. These initiatives are primarily designed to make the company more efficient across the whole of the business, which is a necessity in our highly competitive industry. These initiatives are often complex, and a failure to implement them properly may, in addition to not meeting projected cost savings or benefits, result in a strain on the company's sales, manufacturing, logistics, customer service, or finance and accounting functions. Any of these results could have a material adverse effect on the business and financial results of the company.
Changes in tax, environmental or other regulations or failure to comply with existing licensing, trade and other regulations could have a material adverse effect on our financial condition. Our business is highly regulated by federal, state, provincial, and local laws and regulations in various countries regarding such matters as licensing requirements, trade and pricing practices, labeling, advertising, promotion and marketing practices, relationships with distributors, environmental matters, smoking bans at on-premise locations, and other matters. Failure to comply with these laws and regulations or changes in these laws and regulations or in tax, environmental, excise tax levels imposed or any other laws or regulations could result in the loss, revocation or suspension of our licenses, permits or approvals and could have a material adverse effect on our business, financial condition, and results of operations. Additionally, the combination of the Miller and Coors businesses may expose Molson Coors to regulatory risk arising from the legacy Miller portfolio.
Our consolidated financial statements are subject to fluctuations in foreign exchange rates, most significantly the British pound ("GBP") and the Canadian dollar ("CAD"). We hold assets and incur liabilities, earn revenues and pay expenses in different currencies, most significantly in Canada and in
the United Kingdom. Since our financial statements are presented in U.S. Dollars ("USD"), we must translate our assets, liabilities, income and expenses into USD at current exchange rates. Increases and decreases in the value of the USD will affect, perhaps adversely, the value of these items in our financial statements, even if their local currency value has not changed. We have active hedging programs to address foreign exchange rate changes. However, to the extent that we fail to adequately manage the foregoingthese risks, including if our hedging arrangements do not effectively or completely hedge changes in foreign currency rates, our results of operations may be adversely impacted.
Our operations face significant commodity price change exposure which could materially and adversely affect our operating results. We use a large volume of agricultural and other raw materials to produce our products, including barley, barley malt, hops, corn, other various starches, water, and packaging materials, including aluminum, cardboard and other paper products. We also use a significant amount of diesel fuel in our operations. The supply and price of these raw materials and commodities can be affected by a number of factors beyond our control, including market demand, global geopolitical events (especially as to their impact on crude oil prices and the resulting impact on diesel fuel prices), frosts, droughts and other weather conditions, economic factors affecting growth decisions, plant diseases, and theft. To the extent any of the foregoing factors affect the prices of ingredients or packaging, our results of operations could be materially and adversely impacted. We have active hedging programs to address commodity price changes. However, to the extent we fail to adequately manage the foregoingthese risks, including if our hedging arrangements do not effectively or completely hedge changes in commodity price risks, including price risk associated with diesel fuel and aluminum, both of which are at historically high price levels, our results of operations may be adversely impacted.
We could be adversely affected by overall declines in the beer market. Consumer trends in some global markets indicate increases in consumer preference for wine and spirits, as well as for lower priced, value segment beer brands, which could result in loss of volume or a deterioration of operating margins.
The success of our business relies heavily on brand image, reputation, and product quality. Deterioration to our brand equity may have a material effect toon our operations and financial results. It is important we have the ability to maintain and increase the image and reputation of our existing products. The image and reputation of our products may be reduced in the future; concerns about product quality, even when unsubstantiated, could be harmful to our image and reputation of our products. Restoring the image and reputation of our operations may be costly; operations and financial results may be adversely impacted.
Due to a high concentration of unionized workers in the United Kingdom, Canada and Canada,at MillerCoors in the U.S., we could be significantly affected by labor strikes, work stoppages, or other employee-related issues. Approximately 63%, 29% and 33% of Molson's total workforcethe Molson, CBL and approximately 21% of CBL's total workforce isMillerCoors workforces, respectively, are represented by trade unions. Although we believe relations with our employees and the MillerCoors employees are good, stringent labor laws in the U.K. expose us to a greater risk of loss should we experience labor disruptions in that market.
Changes to the regulation of the distribution systems for our products could adversely impact our business. In 2006, the U.S. Supreme Court ruled that certain state regulations of interstate wine shipments are unlawful. As a result of this decision, states may alter the three-tier distribution system that has historically applied to the distribution of products now sold through MillerCoors (including our products.on-U.S. products). Changes to the three-tier distribution system could have a materially adverse impact on our business.MillerCoors. Further, in certain Canadian provinces, our products are distributed through joint venture arrangements that are mandated and regulated by provincial government regulators. If provincial regulation should change, effectively eliminating the distribution channels, the costs to adjust our distribution methods could have a material adverse impact on our business.
Because of our reliance on third-party service providers for certain administrative functions, we could experience a disruption to our business. We rely exclusively on one information services provider worldwide for our information technology functions including network, help desk, hardware, and software configurationconfiguration. Additionally, during the first quarter of 2008, we signed a contract with another third-party service provider to outsource a significant portion of work associated with our finance and accounting, human resources, and other information technology functions. We will begin transitioningtransitioned much of the work to our service provider induring 2008, and will continue that process, specifically for HR related activities during the first half of 2008, and the transition will continue through the end of the year.2009. If one of these service providers were to fail and we were unable
to find a suitable replacement in a timely manner, we could be unable to properly administer our information technology systems or other administrative tasks associated with the outsourced functions.
We may incur impairments of the carrying value of our goodwill and other intangible assets that have indefinite useful lives. In connection with various business combinations, we have allocated material amounts of the related purchase prices to goodwill and other intangible assets that are considered to have indefinite useful lives. These assets are tested for impairment at least annually, using estimates and assumptions affected by factors such as economic and industry conditions and changes in operating performance. In Canada, a significant portion of the purchase price of the 2005 merger between Molson and Coors was allocated to Molson's core brands, which have been assigned an indefinite life. Projected declines in sales volume or net price realization, or projected increases in costs to produce these brands, could cause an impairment in their value. Further, in the event that the adverse financial impact of current trends with respect to our U.K. business continues and is worse than we anticipate, we may be required to record impairment charges. These charges could be material and could adversely impact our results of operations.
Risks Specific to Our Discontinued Operations
Indemnities provided to the purchaser of 83% of the Cervejarias Kaiser Brasil S.A. ("Kaiser") business in Brazil could result in future cash outflows and statement of operations charges. In 2006, we sold our 83% ownership interest in Kaiser to FEMSA Cerveza S.A. de C.V. ("FEMSA"). The terms of our 2006 agreement require us to indemnify FEMSA for exposures related to certain tax, civil and labor contingencies and certain purchased tax credits. The ultimate resolution of these claims is not under our control, and we cannot predict the outcomes of administrative and judicial proceedings that will occur with regard to these claims. It is possible that we will have to make cash outlays to FEMSA with regard to these indemnities. While the fair values of theseThese indemnity obligations are recorded as liabilities on our balance sheet in conjunction with the sale, we could incur future statement of operations charges as facts further develop resulting in changes to our fair value estimates or changes in our assessment of probability of loss on these items. Due to the uncertainty involved in the ultimate outcome and timing of these contingencies, significant adjustments to the carrying value of our indemnity liabilities and corresponding statement of operations charges/credits could result in the future.
Risks Specific to the Canada Segment
We may be required to provide funding to the entity that owns the Montréal Canadiens hockey club and certain related entertainment businesses pursuant to the guarantees given to the National Hockey League ("NHL"). Pursuant to certain guarantees given to the NHL as a minority owner of the Montréal Canadiens professional hockey club (majority ownership was sold by Molson in 2001) and certain related entertainment businesses, Molson may have to provide funding to the Club (joint and severally based on our 19.9% ownership) to meet its obligations and its operating expenses if the Club cannot meet its obligations under various agreements.
We may experience continued discounting in Canada. Price discounting in Quebec, especially in the Quebec off-premise channel, negatively impacted our volume performance and margins in our Canadian segment in 2008. The continuation, or the increase of such discounting, in Quebec or other in provinces, could further adversely impact our business.
Risks Specific to the U.S. Segment and MillerCoors
The proposed MillerCoors joint venture transaction is subject to the receipt of consents and approvals from government entities that could delay or prevent completion of the venture transaction or impose conditions on the venture, which could result in a material adverse effect on the business or financial condition of the joint venture as well as on our business and financial results. Completion of the joint venture transaction is conditioned upon the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Act, and the approval of the transaction by certain other regulatory authorities. If such regulatory clearances are not obtained, we will not be able to complete the transaction, which could have a material adverse effect on our business and financial results. In addition, a substantial delay in obtaining satisfactory approvals or the imposition of unfavorable terms or conditions in the approvals could have a material adverse effect on the business and financial results of the joint venture as well as on our business and financial results.
We may not realize the cost savings and other benefits we currently anticipate from the MillerCoors joint venture transaction due to challenges associated with integrating operations, technologies, sales, and other aspects of the operations. The success of the joint venture transaction, if approved,MillerCoors will depend in part on the success of the management of the ventureteam in integrating the operations, technologies, and personnel of MCBC's and SABMiller's respectiveformer U.S. operations following the completion of the transaction.operations. The failure of the ventureMillerCoors to
integrate the two operations or otherwise to realize the anticipated benefits of the joint venture transaction, including the estimated $500 million annual cost savings described elsewhere in this document,that we previously projected, could negativelyunfavorably impact the results of operations of the joint venture.MillerCoors. In addition, the overall integration of MCBC and SABMiller's respective U.S. operations is a complex undertaking and, accordingly, may result in unanticipated operational problems, expenses and liabilities, and diversion of management's attention.
The challenges involved in this integration include the following:
Any adverse financial, operation or other events affecting MillerCoors could adversely affect our financial results or prospects.
We do not fully control the operations and administration of MillerCoors, our investment in which represents our interests in the U.S. beer business. We jointly control MillerCoors with SABMiller, and hold 42% economic interest in it. MillerCoors management is responsible for the day to day operations of the business including brewing, distribution, sales, marketing (including the growth and preservation of brand equities), finance, information technology, human resources, legal, technical operations, safety, environmental compliance, and relationships with governments. As we do not have full control over the activities of MillerCoors, our results of operations for those ventures are dependent upon the efforts of MillerCoors management, our ability to govern the joint venture effectively with SABMiller, and factors beyond our control that may affect SABMiller. Additionally, our disclosure controls and procedures with respect to MillerCoors are necessarily substantially more limited than those we maintain with respect to our consolidated subsidiaries.
MillerCoors is highly dependent on independent distributors in the United States to sell ourits products, with no assurance that these distributors will effectively sell its and our products. We sellMillerCoors sells all of its products and our non-U.S. products in the United States to distributors for resale to retail outlets. Some of ourthese distributors are at a competitive disadvantage because they are smaller than the largest distributors in their markets. Our distributors also sell products that compete with our products. These distributors may give our competitors' products higher priority, thereby reducing sales of our products. In addition, the regulatory environment of many states makes it very difficult to change distributors. Consequently, if we areMillerCoors is not allowed or areis unable to replace unproductive or inefficient distributors, ourtheir business, financial position, and results of operation may be adversely affected. Consolidation of distributors is expected to occur following the formation of MillerCoors. The current state of the financial and credit markets may make it more difficult for consolidation among distributors to occur.
A failure to successfully upgrade certain information technology systems in early 2008 could cause disruption in our business. During early 2008, we are upgrading certain modulesTable of key information technology systems in the United States and the United Kingdom. A failure to successfully accomplish these upgrades could adversely affect our ability to take orders, plan and schedule production, ship products, and bill customers for shipments.Contents
Risks Specific to the EuropeUnited Kingdom Segment
Sales volume trends in the United Kingdom brewing industry reflect movement from on-premise channels to off-premise channels, a trend which unfavorably impacts our profitability. In recent years, beer volume sales in the U.K. have been shifting from pubs and restaurants (on-premise) to retail stores (off-premise), for the industry in general. A ban on smoking in pubs and restaurants across the whole of the U.K. enacted in 2007 is acceleratingaccelerated this trend. Margins on sales to off-premise customers tend to be lower than margins on sales to on-premise customers, henceand, as a result, continuation of these trends couldwould further adversely impact our profitability.
In the event that a significant pub chain were to go bankrupt, or experience similar financial difficulties, our business could be adversely impacted. We extend credit to pub chains in the U.K. in which some cases the amounts are significant. The continuing challenging economic environment in the U.K. has caused business at on-premise outlets to slow in late 2008 and early 2009, and some pub chains may face increasing financial difficulty if economic conditions do not improve. In the event that a pub chain were to be unable to pay amounts owed to the Company as a result of bankruptcy or similar financial difficulties, our business could be adversely impacted.
Consolidation of pubs and growth in the size of pub chains in the United Kingdom could unfavorably impact pricing. The trend toward consolidation of pubs, away from independent pub and club operations, is continuing in the United Kingdom. These larger entities have stronger price negotiating power, and therefore continuation of this trend could impact CBL's ability to obtain favorable pricing in the on-premise channel (due to the spillover effect of reduced negotiating leverage) and could reduce our revenues and profit margins. In addition, these larger customers continue to move to purchasing directly more of the products that, in the past, we have provided as part of our factored business. Further consolidation could contribute to an adverse financial impact.
We depend exclusively on one logistics provider in England, Wales, and Scotland for distribution of our CBL products. We are a party to a joint venture with DHL ("Tradeteam"). Tradeteam handles all of the physical distribution for CBL in England, Wales and Scotland, except where a different distribution system is requested by a customer. If Tradeteam were unable to continue distribution of our products and we were unable to find a suitable replacement in a timely manner, we could experience significant disruptions in our business that could have an adverse financial impact.
We may incur impairments of the carrying value of our goodwill and other intangible assets that have indefinite useful lives. In connection with various business combinations, we have allocated material amounts of the related purchase prices to goodwill and other intangible assets that are considered to have indefinite useful lives. These assets are tested for impairment at least annually, using estimates and assumptions affected by factors such as economic and industry conditions and changes in operating performance. In the event that the adverse financial impact of current trends with respect to our U.K. business continue and are worse than we anticipate, we may be required to record impairment charges. These charges could be material and could adversely impact our results of operations.
ITEM 1B. Unresolved Staff Comments
None.
As of December 30, 2007,28, 2008, our major facilities were:
Facility | Location | Character | ||
---|---|---|---|---|
Canada | ||||
Administrative Offices | Toronto, Ontario | Canada Segment Headquarters | ||
Montréal, Québec | Corporate Headquarters | |||
St Johns, Newfoundland | Packaged malt beverages | |||
Montréal, Québec | ||||
Creemore, Ontario | ||||
Moncton, New Brunswick | ||||
Toronto, Ontario | ||||
Vancouver, British Columbia | ||||
Retail stores | Ontario Province(1) | Beer retail stores | ||
Distribution warehouses | Québec Province(2) | Distribution centers | ||
Ontario Province(3) | ||||
United | ||||
Administrative Offices | Denver, Colorado(4) | Corporate Headquarters | ||
Administrative Office | Burton-on-Trent, Staffordshire | |||
Burton-on-Trent, Staffordshire Tadcaster Brewery, Yorkshire Alton Brewery, Hampshire | Malt and spirit-based | |||
Burton-on-Trent, Staffordshire | Malting facility | |||
Distribution warehouse | Burton-on-Trent, Staffordshire | Distribution center |
We believe our facilities are well maintained and suitable for their respective operations. In 2007,2008, our operating facilities were not capacity constrained.
Beginning in May 2005, several purported shareholder class actions were filed in the United States and Canada, including Federalfederal courts in Delaware and Colorado and provincial courts in Ontario and Québec, alleging, among other things, that the Company and its affiliated entities, including Molson Inc., and certain officers and directors misled stockholders by failing to disclose first quarter (January-March) 2005 U.S. business trends prior toin connection with the Merger vote in January 2005.Merger. The
Colorado case has since beenwas transferred to Delaware and consolidated with those cases. One of the lawsuits filed in Delaware federal court also alleges that the Company failed to comply with U.S. GAAP in its filings with the U.S. Securities and Exchange Commission. The Québec Superior Court heard arguments in October 2007 regarding the plaintiffs' motion to authorize a class in that case. We opposed the motion. We expect
During the first quarter of 2008, the Company agreed in principle with counsel for plaintiffs in all pending securities cases in Delaware, Québec, and Ontario to settle all such claims on a written decisionworldwide basis. Pursuant to the settlement, the Company would pay, except one case discussed below, a total of $6.0 million in several months.settlement, which amounts would be paid by the Company's insurance carrier. The Company believes these lawsuits are without merit and will vigorously defend them.
MCBC and many other brewers and distilled spirits manufacturers were suedsettlement agreement is awaiting final approval in the various courts regarding advertising practices and underage consumption. All ofin which the suits were brought by the same law firm and allege that each defendant intentionally marketed its productscases are pending. We anticipate receiving such approval in April 2009. This agreement in principle did not settle one remaining case in Delaware. That case seeks to "children and other underage consumers." In essence, each suit sought,recover on behalf of certain Molson Coors employees who invested in Company securities around the same time through two employee retirement savings plans. The complaint in that case essentially relies on the same allegations as the other shareholder lawsuits. This case has been settled for $0.2 million, an undefined classamount that will be paid by the Company's insurance carrier.
From time to time, we have been notified that we are or may be a potentially responsible party ("PRP") under the Comprehensive Environmental Response, Compensation and Liability Act or similar state laws for the cleanup of parentsother sites where hazardous substances have allegedly been released into the environment. For example, we are one of approximately 60 entities named by the Environmental Protection Agency ("EPA") as a PRP at the Lowry Superfund site. This landfill is owned by the City and guardians,County of Denver and is managed by Waste Management of Colorado, Inc. ("Waste Management"). In the fourth quarter of 2008, we were informed that the State of Colorado may bring an injunctionaction against the City and unspecified moneyCounty of Denver and Waste Management for the Lowry Superfund Site to recover for natural resources damages. In each suit, the manufacturers advanced motionsevent that the State of Colorado were to bring such an action against the City and County of Denver and Waste management, Denver and Waste Management would likely bring an action against the PRPs to recover a portion of the amount of such claim. Although no formal action has been brought, the State of Colorado is informally asserting total damages of approximately $10 million. However, the Company is potentially liable for dismissalonly a portion of those damages. The Company will defend any such claims vigorously.
CBL replaced a bonus plan in the United Kingdom with a different plan under which a bonus was not paid in 2003. A group of employees pursued a claim against CBL with respect to this issue with an employment tribunal. During the second quarter of 2005, the tribunal ruled against CBL. CBL appealed this ruling, and the appeal was heard in the first quarter of 2006, where most impacts of the initial tribunal judgments were overturned. However, the employment appeal tribunal remitted two specific issues back to a new employment tribunal. CBL appealed the employment appeal tribunal's judgment. In January 2007, the appeal decision ruled in the Company's favor, holding that the employment tribunal had no jurisdiction to hear the employees' claims, and the claims were dismissed. Employee claims in this matter were filed during the third quarter of 2008 in a U.K. county court. A trial date is expected in 2009. CBL will defend the claims vigorously. If CBL were held to be liable to the courts. Allclaimants, the amounts of the lawsuits have been dismissed with prejudice.liability would be immaterial. If such liabilities were asserted by other groups of employees and upheld in subsequent litigation, the potential loss could be higher.
We are involved in other disputes and legal actions arising in the ordinary course of our business. While it is not feasible to predict or determine the outcome of these proceedings, in our opinion, based on a review with legal counsel, none of these disputes and legal actions is expected to have a material impact on our consolidated financial position, results of operations or cash flows. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters, for example, including the above-described advertising practices case, may arise from time to time that may harm our business.
ITEM 4. Submission of Matters to a Vote of Security Holders
In connection with entering into the MillerCoors joint venture transaction, certain stockholders affiliated with members of the Coors and Molson families, and collectively owning a majority of the outstanding Molson Coors' Class A common and exchangeable shares, executed and delivered stockholder consents approving the transaction. However, the Company does not expect that it will need to rely on such consent in connection with the transaction and, in any event, will not need any vote or consent from any other stockholders in connection with the transaction.None.
ITEM 5. Market for the Registrant's Common Equity and Issuer Purchases of Equity Securities
Our Class B non-voting common stock is traded on the New York Stock Exchange and the Toronto Stock Exchange under the symbol "TAP." Prior to the Merger, our Class B non-voting common stock was traded on the New York Stock Exchange, under the symbol "RKY" (since March 11, 1999) and prior to that was quoted on the NASDAQ National Market under the symbol "ACCOB."
In connection with the Merger and effective February 9, 2005, we now have Class A and Class B common stock trading on the New York Stock Exchange under the symbols "TAP A" and "TAP," respectively, and on the Toronto Stock Exchange as "TAP.A" and "TAP.B," respectively. In addition, our indirect subsidiary, Molson Coors Canada Inc., has Exchangeable Class A and Exchangeable Class B shares trading on the Toronto Stock Exchange under the symbols "TPX.A" and "TPX.B," respectively. The Class A and B exchangeable shares are a means for shareholders to defer tax in Canada and have substantially the same economic and voting rights as the respective common shares. The exchangeable shares can be exchanged for Molson Coors Class A or B common stock at any time and at the exchange ratios described in the Merger documents, and receive the same dividends. At the time of exchange, shareholders' taxes are due. The exchangeable shares have voting rights through special voting shares held by a trustee, and the holders thereof are able to elect members of the Board of Directors. The approximate number of record security holders by class of stock at February 15, 2008,13, 2009, is as follows:
Title of class | Number of record security holders | |||
---|---|---|---|---|
Class A common stock, voting, $0.01 par value | 29 | |||
Class B common stock, non-voting, $0.01 par value | 3,144 | |||
Class A exchangeable shares | 282 | |||
Class B exchangeable shares | 2,962 |
The following table sets forth the high and low sales prices per share of our Class A common stock and dividends paid for each fiscal quarter of 20072008 and 20062007 as reported by the New York Stock Exchange, adjusted to give effect to the 2-for-1 stock split effective October 3, 2007.
| High | Low | Dividends | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| High | Low | Dividends | ||||||||||||||||
2008 | |||||||||||||||||||
First quarter | $ | 53.48 | $ | 43.74 | $ | 0.16 | |||||||||||||
Second quarter | $ | 58.48 | $ | 52.70 | $ | 0.20 | |||||||||||||
Third quarter | $ | 58.00 | $ | 47.00 | $ | 0.20 | |||||||||||||
Fourth quarter | $ | 47.16 | $ | 35.50 | $ | 0.20 | |||||||||||||
2007 | |||||||||||||||||||
First quarter | $ | 48.00 | $ | 38.00 | $ | 0.16 | $ | 48.00 | $ | 38.00 | $ | 0.16 | |||||||
Second quarter | $ | 52.50 | $ | 44.50 | $ | 0.16 | $ | 52.50 | $ | 44.50 | $ | 0.16 | |||||||
Third quarter | $ | 50.15 | $ | 40.00 | $ | 0.16 | $ | 50.15 | $ | 40.00 | $ | 0.16 | |||||||
Fourth quarter | $ | 57.00 | $ | 49.40 | $ | 0.16 | $ | 57.00 | $ | 49.40 | $ | 0.16 | |||||||
2006 | |||||||||||||||||||
First quarter | $ | 35.25 | $ | 30.63 | $ | 0.16 | |||||||||||||
Second quarter | $ | 36.43 | $ | 32.85 | $ | 0.16 | |||||||||||||
Third quarter | $ | 35.56 | $ | 32.84 | $ | 0.16 | |||||||||||||
Fourth quarter | $ | 38.00 | $ | 32.75 | $ | 0.16 |
The following table sets forth the high and low sales prices per share of our Class B common stock and dividends paid for each fiscal quarter of 20072008 and 20062007 as reported by the New York Stock Exchange, adjusted to give effect to the 2-for-1 stock split effective October 3, 2007.
| High | Low | Dividends | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| High | Low | Dividends | ||||||||||||||||
2008 | |||||||||||||||||||
First quarter | $ | 54.83 | $ | 43.58 | $ | 0.16 | |||||||||||||
Second quarter | $ | 59.51 | $ | 52.12 | $ | 0.20 | |||||||||||||
Third quarter | $ | 58.83 | $ | 45.57 | $ | 0.20 | |||||||||||||
Fourth quarter | $ | 47.94 | $ | 35.00 | $ | 0.20 | |||||||||||||
2007 | |||||||||||||||||||
First quarter | $ | 47.56 | $ | 37.56 | $ | 0.16 | $ | 47.56 | $ | 37.56 | $ | 0.16 | |||||||
Second quarter | $ | 49.62 | $ | 43.57 | $ | 0.16 | $ | 49.62 | $ | 43.57 | $ | 0.16 | |||||||
Third quarter | $ | 50.77 | $ | 40.46 | $ | 0.16 | $ | 50.77 | $ | 40.46 | $ | 0.16 | |||||||
Fourth quarter | $ | 57.66 | $ | 49.45 | $ | 0.16 | $ | 57.66 | $ | 49.45 | $ | 0.16 | |||||||
2006 | |||||||||||||||||||
First quarter | $ | 35.39 | $ | 30.38 | $ | 0.16 | |||||||||||||
Second quarter | $ | 37.04 | $ | 31.72 | $ | 0.16 | |||||||||||||
Third quarter | $ | 35.95 | $ | 32.72 | $ | 0.16 | |||||||||||||
Fourth quarter | $ | 38.50 | $ | 32.13 | $ | 0.16 |
The following table sets forth the high and low sales prices per share of our Exchangeable Class A shares and dividends paid for each fiscal quarter of 20072008 and 20062007 as reported by the Toronto Stock Exchange, adjusted to give effect to the 2-for-1 stock split effective October 3, 2007.
| High | Low | Dividends | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| High | Low | Dividends | ||||||||||||||
2008 | |||||||||||||||||
First quarter | CAD 55.00 | CAD 46.26 | $ | 0.16 | |||||||||||||
Second quarter | CAD 58.87 | CAD 54.00 | $ | 0.20 | |||||||||||||
Third quarter | CAD 56.01 | CAD 47.92 | $ | 0.20 | |||||||||||||
Fourth quarter | CAD 56.49 | CAD 41.01 | $ | 0.20 | |||||||||||||
2007 | |||||||||||||||||
First quarter | CAD 55.00 | CAD 45.50 | $ | 0.16 | CAD 55.00 | CAD 45.50 | $ | 0.16 | |||||||||
Second quarter | CAD 55.00 | CAD 48.25 | $ | 0.16 | CAD 55.00 | CAD 48.25 | $ | 0.16 | |||||||||
Third quarter | CAD 50.50 | CAD 45.51 | $ | 0.16 | CAD 50.50 | CAD 45.51 | $ | 0.16 | |||||||||
Fourth quarter | CAD 56.61 | CAD 49.50 | $ | 0.16 | CAD 56.61 | CAD 49.50 | $ | 0.16 | |||||||||
2006 | |||||||||||||||||
First quarter | CAD 39.77 | CAD 35.09 | $ | 0.16 | |||||||||||||
Second quarter | CAD 38.95 | CAD 37.25 | $ | 0.16 | |||||||||||||
Third quarter | CAD 39.00 | CAD 37.50 | $ | 0.16 | |||||||||||||
Fourth quarter | CAD 44.50 | CAD 37.82 | $ | 0.16 |
The following table sets forth the high and low sales prices per share of our Exchangeable Class B shares and dividends paid for each fiscal quarter of 20072008 and 20062007 as reported by the Toronto Stock Exchange, adjusted to give effect to the 2-for-1 stock split effective October 3, 2007.
| High | Low | Dividends | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| High | Low | Dividends | ||||||||||||||
2008 | |||||||||||||||||
First quarter | CAD 55.29 | CAD 43.40 | $ | 0.16 | |||||||||||||
Second quarter | CAD 60.32 | CAD 53.05 | $ | 0.20 | |||||||||||||
Third quarter | CAD 58.28 | CAD 47.00 | $ | 0.20 | |||||||||||||
Fourth quarter | CAD 57.77 | CAD 41.00 | $ | 0.20 | |||||||||||||
2007 | |||||||||||||||||
First quarter | CAD 54.96 | CAD 44.01 | $ | 0.16 | CAD 54.96 | CAD 44.01 | $ | 0.16 | |||||||||
Second quarter | CAD 55.01 | CAD 46.15 | $ | 0.16 | CAD 55.01 | CAD 46.15 | $ | 0.16 | |||||||||
Third quarter | CAD 52.00 | CAD 42.90 | $ | 0.16 | CAD 52.00 | CAD 42.90 | $ | 0.16 | |||||||||
Fourth quarter | CAD 56.50 | CAD 48.12 | $ | 0.16 | CAD 56.50 | CAD 48.12 | $ | 0.16 | |||||||||
2006 | |||||||||||||||||
First quarter | CAD 41.25 | CAD 34.61 | $ | 0.16 | |||||||||||||
Second quarter | CAD 41.65 | CAD 35.50 | $ | 0.16 | |||||||||||||
Third quarter | CAD 40.50 | CAD 36.62 | $ | 0.16 | |||||||||||||
Fourth quarter | CAD 44.68 | CAD 36.26 | $ | 0.16 |
PERFORMANCE GRAPH
The following graph compares Molson Coors Brewing Company'sCoors' cumulative total stockholder return over the last five fiscal years with the Standard and Poor's 500 Index® and the Russell 3000 Beverage Brewers Wineries Industry Index a group of peer companies which includes Molson Coors, Brewing Company, Anheuser-Busch Companies, Inc., The Boston Beer Company, Inc., and Constellation Brands Inc., (collectively, the "Peer Group")(1). Note that Anheuser-Busch Companies, Inc. de-listed from the New York Stock Exchange following the completion of its merger with InBev. As such, the "Peer Group" excludes Anheuser-Busch Companies, Inc. effective November 19, 2008. The graph assumes $100 was invested on December 29, 2002,28, 2003, (the last trading day of fiscal year 2002)2003) in Molson Coors common stock, the Standard and Poor's 500 Index® and the Peer Group, and assumes reinvestment of all dividends.
Molson Coors Brewing Company
Comparison of Five-Year Cumulative Total Return
| At Fiscal-Year End | At Fiscal-Year End | |||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | |||||||||||||||||||||||||
Molson Coors(2) | $ | 100 | $ | 95 | $ | 127 | $ | 116 | $ | 136 | $ | 188 | $ | 100.00 | $ | 133.62 | $ | 121.98 | $ | 143.39 | $ | 198.25 | $ | 181.66 | |||||||||||||
S&P 500 | $ | 100 | $ | 127 | $ | 143 | $ | 153 | $ | 174 | $ | 185 | $ | 100.00 | $ | 112.36 | $ | 119.98 | $ | 136.73 | $ | 145.24 | $ | 87.76 | |||||||||||||
Peer Group | $ | 100 | $ | 111 | $ | 114 | $ | 104 | $ | 120 | $ | 131 | |||||||||||||||||||||||||
Peer Group(1) | $ | 100.00 | $ | 102.85 | $ | 93.54 | $ | 107.94 | $ | 117.80 | $ | 159.25 |
ITEM 6. Selected Financial Data
The table below summarizes selected financial information for the five years ended as noted. For further information, refer to our consolidated financial statements and notes thereto presented under Item 8, Part II—Financial Statements and Supplementary Data.Data, Item 8.
| 2007(1) | 2006(1)(2) | 2005(1)(2)(3) | 2004(1)(2)(3) | 2003(1)(2)(3) | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In thousands, except per share data) | ||||||||||||||||
Consolidated Statement of Operations: | |||||||||||||||||
Gross sales | $ | 8,319,673 | $ | 7,901,614 | $ | 7,417,702 | $ | 5,819,727 | $ | 5,387,220 | |||||||
Beer excise taxes | (2,129,081 | ) | (2,056,629 | ) | (1,910,796 | ) | (1,513,911 | ) | (1,387,107 | ) | |||||||
Net sales | 6,190,592 | 5,844,985 | 5,506,906 | 4,305,816 | 4,000,113 | ||||||||||||
Cost of goods sold | (3,702,921 | ) | (3,481,081 | ) | (3,306,949 | ) | (2,741,694 | ) | (2,586,783 | ) | |||||||
Gross profit | 2,487,671 | 2,363,904 | 2,199,957 | 1,564,122 | 1,413,330 | ||||||||||||
Marketing, general and administrative | (1,734,408 | ) | (1,705,405 | ) | (1,632,516 | ) | (1,223,219 | ) | (1,105,959 | ) | |||||||
Special items, net | (112,194 | ) | (77,404 | ) | (145,392 | ) | 7,522 | — | |||||||||
Operating income | 641,069 | 581,095 | 422,049 | 348,425 | 307,371 | ||||||||||||
Interest expense, net | (99,875 | ) | (126,781 | ) | (113,603 | ) | (53,189 | ) | (61,950 | ) | |||||||
Debt extinguishment costs | (24,478 | ) | — | — | — | — | |||||||||||
Other income (expense), net | 17,662 | 17,736 | (13,245 | ) | 12,946 | 8,397 | |||||||||||
Income from continuing operations before income taxes | 534,378 | 472,050 | 295,201 | 308,182 | 253,818 | ||||||||||||
Income tax expense | (4,186 | ) | (82,405 | ) | (50,264 | ) | (95,228 | ) | (79,161 | ) | |||||||
Income from continuing operations before minority interests | 530,192 | 389,645 | 244,937 | 212,954 | 174,657 | ||||||||||||
Minority interests(4) | (15,318 | ) | (16,089 | ) | (14,491 | ) | (16,218 | ) | — | ||||||||
Income from continuing operations | 514,874 | 373,556 | 230,446 | 196,736 | 174,657 | ||||||||||||
Loss from discontinued operations, net of tax(5) | (17,682 | ) | (12,525 | ) | (91,826 | ) | — | — | |||||||||
Cumulative effect of change in accounting principle, net of tax(6) | — | — | (3,676 | ) | — | — | |||||||||||
Net income | $ | 497,192 | $ | 361,031 | $ | 134,944 | $ | 196,736 | $ | 174,657 | |||||||
Basic income (loss) per share: | |||||||||||||||||
Continuing operations | $ | 2.88 | $ | 2.17 | $ | 1.45 | $ | 2.65 | $ | 2.41 | |||||||
Discontinued operations | (0.10 | ) | (0.07 | ) | (0.58 | ) | — | — | |||||||||
Cumulative effect of change in accounting principle | — | — | (0.02 | ) | — | — | |||||||||||
Basic net income per share | $ | 2.78 | $ | 2.10 | $ | 0.85 | $ | 2.65 | $ | 2.41 | |||||||
Diluted income (loss) per share: | |||||||||||||||||
Continuing operations | $ | 2.84 | $ | 2.16 | $ | 1.44 | $ | 2.60 | $ | 2.39 | |||||||
Discontinued operations | (0.10 | ) | (0.08 | ) | (0.57 | ) | — | — | |||||||||
Cumulative effect of change in accounting principle | — | — | (0.03 | ) | — | — | |||||||||||
Diluted net income per share | $ | 2.74 | $ | 2.08 | $ | 0.84 | $ | 2.60 | $ | 2.39 | |||||||
| 2008(1) | 2007(1) | 2006(1)(2) | 2005(1)(2)(3) | 2004(1)(2)(3) | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In millions, except per share data) | ||||||||||||||||
Consolidated Statement of Operations: | |||||||||||||||||
Net sales(4) | $ | 4,774.3 | $ | 6,190.6 | $ | 5,845.0 | $ | 5,506.9 | $ | 4,305.8 | |||||||
Income from continuing operations | $ | 400.1 | $ | 514.9 | $ | 373.6 | $ | 230.4 | $ | 196.7 | |||||||
Income from continuing operations per share: | |||||||||||||||||
Basic | $ | 2.19 | $ | 2.88 | $ | 2.17 | $ | 1.45 | $ | 2.65 | |||||||
Diluted | $ | 2.16 | $ | 2.84 | $ | 2.16 | $ | 1.44 | $ | 2.60 | |||||||
Consolidated Balance Sheet data: | |||||||||||||||||
Total assets | $ | 10,416.6 | $ | 13,451.6 | $ | 11,603.4 | $ | 11,799.3 | $ | 4,657.5 | |||||||
Current portion of long-term debt | $ | 0.1 | $ | 4.2 | $ | 4.0 | $ | 348.1 | $ | 38.5 | |||||||
Long-term debt | $ | 1,831.7 | $ | 2,260.6 | $ | 2,129.8 | $ | 2,136.7 | $ | 893.7 | |||||||
Other information: | |||||||||||||||||
Dividends per share of common stock | $ | 0.76 | $ | 0.64 | $ | 0.64 | $ | 0.64 | $ | 0.41 |
Consolidated Balance Sheet data: | |||||||||||||||||
Cash and cash equivalents | $ | 377,023 | $ | 182,186 | $ | 39,413 | $ | 123,013 | $ | 19,440 | |||||||
Working capital (deficit) | $ | 41,237 | $ | (341,760 | ) | $ | (768,374 | ) | $ | 91,319 | $ | (54,874 | ) | ||||
Total assets | $ | 13,451,566 | $ | 11,603,413 | $ | 11,799,265 | $ | 4,657,524 | $ | 4,444,740 | |||||||
Current portion of long-term debt and other short-term borrowings | $ | 4,281 | $ | 4,441 | $ | 348,102 | $ | 38,528 | $ | 91,165 | |||||||
Long-term debt | $ | 2,260,596 | $ | 2,129,845 | $ | 2,136,668 | $ | 893,678 | $ | 1,159,838 | |||||||
Stockholder's equity | $ | 7,149,391 | $ | 5,817,356 | $ | 5,324,717 | $ | 1,601,166 | $ | 1,267,376 | |||||||
Consolidated Cash Flow data: | |||||||||||||||||
Cash provided by operations | $ | 616,037 | $ | 833,244 | $ | 422,275 | $ | 499,908 | $ | 528,828 | |||||||
Cash used in investing activities | $ | (439,147 | ) | $ | (294,813 | ) | $ | (312,708 | ) | $ | (67,448 | ) | $ | (214,614 | ) | ||
Cash provided by (used in) financing activities | $ | 8,435 | $ | (401,239 | ) | $ | (188,775 | ) | $ | (335,664 | ) | $ | (357,393 | ) | |||
Other information: | |||||||||||||||||
Barrels of beer and other beverages sold | 42,051 | 42,143 | 40,431 | 32,703 | 32,735 | ||||||||||||
Dividends per share of common stock | $ | 0.64 | $ | 0.64 | $ | 0.64 | $ | 0.41 | $ | 0.41 | |||||||
Depreciation and amortization | $ | 345,843 | $ | 438,354 | $ | 392,814 | $ | 265,921 | $ | 236,821 | |||||||
Capital expenditures and additions to intangible assets | $ | 428,349 | $ | 446,376 | $ | 406,045 | $ | 211,530 | $ | 240,458 |
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Executive Summary
The following table highlights summarized components of our condensed consolidated summary of operations for the years ended December 28, 2008, December 30, 2007, and December 31, 2006 and December 25, 2005.2006.
| For the Years Ended | For the Years Ended | |||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 30, 2007 | % change | December 31, 2006(1) | % change | December 25, 2005(1) | December 28, 2008 | % change | December 30, 2007 | % change | December 31, 2006(1)(2) | |||||||||||||||||||
| (In thousands, except percentages and per share data) | (Volumes in thousands, dollars in millions, except percentages and per share data) | |||||||||||||||||||||||||||
Volume in barrels | 42,051 | (0.2 | )% | 42,143 | 4.2 | % | 40,431 | 29,656 | (29.0 | )% | 41,796 | (0.0 | )% | 41,806 | |||||||||||||||
Net sales | $ | 6,190,592 | 5.9 | % | $ | 5,844,985 | 6.1 | % | $ | 5,506,906 | $ | 4,774.3 | (22.9 | )% | $ | 6,190.6 | 5.9 | % | $ | 5,845.0 | |||||||||
Income from continuing operations | $ | 514,874 | 37.8 | % | $ | 373,556 | 62.1 | % | $ | 230,446 | $ | 400.1 | (22.3 | )% | $ | 514.9 | 37.8 | % | $ | 373.6 | |||||||||
Diluted income per share from continuing operations | $ | 2.84 | 31.5 | % | $ | 2.16 | 50.0 | % | $ | 1.44 | $ | 2.16 | (23.9 | )% | $ | 2.84 | 31.5 | % | $ | 2.16 |
The following table highlights summarized components of our sales volume for the years ended December 28, 2008, December 30, 2007 (actual and pro forma) and December 31, 2006.
| For the years ended | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 28, 2008 | December 30, 2007 | December 30, 2007 | December 31, 2006 | ||||||||||
| Actual | Pro forma(1) | Actual | Actual | ||||||||||
Volume in U.S. barrels (in thousands): | ||||||||||||||
Financial volume | 29,656 | 29,439 | 41,796 | 41,806 | ||||||||||
Royalty volume | 256 | 214 | 214 | 124 | ||||||||||
Owned volume | 29,912 | 29,653 | 42,010 | 41,930 | ||||||||||
Proportionate share of equity investment sales-to-retail(2) | 13,781 | 13,868 | — | — | ||||||||||
Total worldwide beer volume | 43,693 | 43,521 | 42,010 | 41,930 | ||||||||||
Worldwide beer volume is composed of our financial volume, royalty volume and proportionate share of equity investment sales-to-retail. Financial volume represents owned beer brands sold to unrelated external customers within our geographical markets. Royalty beer volume consists of product produced and sold by third parties under various license and contract-brewing agreements. Equity investment sales-to-retail brands volume represents the company's ownership percentage share of volume in its subsidiaries accounted for under the equity method, including MillerCoors and Modelo Molson Imports, L.P.
20072008 Key Financial Highlights:
Our performance in 20072008 demonstrated that our brand growth strategies and cost-reduction efforts continue to strengthen our competitive capabilities and financial performance. We achieved revenuea few highlights from a year full of challenges—but also transformation and profit growth, despite substantial competitive and inflationary cost challenges in each ofprogress—for our major markets. We achievedcompany. The following are several critical successes in 2007:2008:
Synergies and other cost savings initiatives
First,For the full year, we exceeded our three-year $175 million merger synergies target and wrapped up this program with $180achieved $87 million of savings, delivered, including an incremental $5 millionwhich exceeded our 2008 goal by $10 million. These cost reductions include our 42% share of merger-related synergies in 2007. Second, we are already ahead of schedule on our three-year, $250 million Resources for Growth ("RFG") cost reduction initiatives. We achieved $91savings initiatives that were carried forward by MillerCoors in the back half of 2008. The benefit MillerCoors' cost savings will generate, which we expect to realize through higher income from the joint venture, which are in addition to the $500 million of committed MillerCoors cost synergies, will enable us to deliver on our overall commitment to cost savings duringinitiatives. Our share of these assumed RFG savings was $6 million in the second half. For the entire RFG program, which began in 2007, we have now delivered $178 million of our total projected $250 million in savings.
MillerCoors is progressing towards its stated goal of $500 million of synergies in the first yearthree years of the program, which is $25 million more than the initial 2007 target. We exceeded our first-year cost target by more than 37% by accelerating a number of our cost reduction programs, particularly in our North American supply chain. Combining both cost reduction programs, we captured $146combined operations. Since combining operations, MillerCoors has delivered $28 million in synergies. The timing to achieve MillerCoors' original goal of $50 million in synergies in the first twelve months of operations has accelerated, and MillerCoors now expects to realize $128 million of synergies by June 30, 2009. By the end of calendar year 2009, MillerCoors expects to achieve a total 2007 savings.of $238 million in synergies surpassing its original forecast of $225 million. While the timing of synergy delivery has accelerated, MillerCoors' goal remains $500 million in three years.
Components of our Statement of Operations
Net sales—Our net sales represent almost exclusively the sale of beer and other malt beverages, the vast majority of which are brands that we own and brew ourselves. We import or brew and sell certain non-owned partner brands under licensing and related arrangements. We also sell certain "factored" brands, as a distributor, to on-premise customers in the United Kingdom (Europe segment).Kingdom.
Cost of goods sold—Our cost of goods sold includeincludes costs we incur to make and ship beer. These costs include brewing materials, such as barley, in the United States and United Kingdom where we manufacture the majority of our own malt. In Canada, we purchase malt from third parties. Hops andhops, various grains areand other key brewing materials purchased by all of our segments.purchased. Packaging materials, including costs for glass bottles, aluminum and steel cans, and cardboard and paperboard are also included in our cost of goods sold. Our cost of goods sold also include both direct and indirect labor, freight costs, utilities, maintenance costs, depreciation, and other manufacturing overheads, as well as the cost to purchaser of "factored" brands.brands from suppliers.
Marketing, general and administrative—These costs include media advertising (television, radio, print), tactical advertising (signs, banners, point-of-sale materials) and promotion costs planned and executed on both local and national levels within our operating segments. These costs also include our marketing and sales organizations, including labor and other overheads. This classification also includesinclude general and administrative costs for functions such as finance, legal, human resources and information technology, which consist primarily of labor and outside services. Last, this line item includes amortization costs associated with intangible assets, as well as certain depreciation costs related to non-production equipment.
Special Items—These are unique, infrequent andand/or unusual items which affect our statement of operations, and are discussed in each segment's Results of Operations discussion.
Equity income in MillerCoors— This item represents our proportionate share for the period of the undistributed net income (loss) of our investment in MillerCoors accounted for under the equity method. Such amount typically reflects adjustments similar to those made in preparing consolidated
statements, including 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—Interest costs associated with borrowings to finance our operations are classified here. Interest income in the EuropeU.K. segment is associated with trade loans receivable from customers.
Debt extinguishment costs—The costs are associated with payments to settle the notes at fair value given interest rates at the time of extinguishment, incentive payments to note holders for early tendering of the notes, and a write-off of the proportionate amount of unamortized discount and issuance fees associated with the extinguished debt.
Other income (expense)—This classification includes primarily gains and losses associated with activities not directly related to brewing and selling beer. For instance, gains or losses on sales of non-operating assets, our share of income or loss associated with our ownership in Tradeteam and the Montréal Canadiens hockey club, and certain foreign exchange gains and losses are classified here.
Discussions of statement of operations line items such as minority interests and discontinued operations and cumulative effect of a change in accounting principle are discussed in detail elsewhere in MD&A and in the Notes to the Consolidated Part II—Financial Statements inand Supplementary Data, Item 8.
Depreciation
Depreciation and amortization expense decreased from 2008 versus 2007 excluding special items, as a result of the formation of MillerCoors. There were no other material factors contributing to the reduction in depreciation and amortization expense as experienced in 2007.
We realized a 6% decrease related to depreciation and amortization expense of assets in 2007 versus 2006 excluding special items, due to the net effect of five factors:
Depreciation and amortization expense increased approximately 4% from 2005 to 2006 excluding special items.
Income Taxes
Our full year effective tax rate wasrates were approximately 20%, 1% in 2007 and 17% in both2008, 2007 and 2006, and 2005.respectively. Our 2008, 2007 and 2006 effective tax rates were significantly lower than the federal statutory rate of 35% primarily due to the following:following factors, lower effective income tax rates applicable to our Canadian and U.K. businesses, and one time benefits from revaluing our deferred tax assets and liabilities to give effect to reductions in foreign income tax rates and tax law changes. Our 2005 effective tax rate was lower than the federal statutory rate
Table of 35% primarily due to lower income tax rates applicable to our Canadian and U.K. businesses and a one time benefit resulting from the reversal of a previously recognized deferred tax liability due to our election to treat our portion of all foreign subsidiary earnings through December 25, 2005, as permanently reinvested under the accounting guidance of APB 23 "Accounting for Income Taxes—Special Areas" and SFAS 109 "Accounting for Income Taxes."Contents
Discontinued Operations
The Company's former Brazil business, Kaiser, which was acquired as part of the Merger, is reported as a discontinued operation due to the sale of aan 83% controlling interest in the business in 2006. See Part II—Financial Statements and Supplementary Data, Item 8 Note 4 "DISCONTINUED OPERATIONS" to the Consolidated Financial Statements in Item 8.for further discussion.
The loss from discontinued operations of $12.1 million for the year ended 2008 is associated with adjustments to the indemnity liabilities due to changes in estimates and foreign exchange losses.
The net loss from discontinued operations of $17.7 million for the year ended 2007 is composed of the following components:
The loss from discontinued operations of $12.5 million for the year ended 2006 is composed of the following components:
During 2005, Kaiser generated pre-tax losses of $91.8 million, due to operating losses and special charges associated with increasing reserves for contingent liabilities.
In conjunction with this transaction, the purchaser (FEMSA) assumed $63 million of financial debt and assumed contingent liabilities of approximately $260 million, related primarily to tax claims, subject to our indemnification. WeAs a result, we have a level of continuing potential exposure to these contingent liabilities of Kaiser, as well as previously disclosed but less than probable unaccrued claims, due to certain indemnities provided to FEMSA pursuant to the sales and purchase agreement.claims. While we believe that all significant contingencies were disclosed as part of the sale process and adequately reserved for on Kaiser's financial statements, resolution of contingencies and claims above reserved or otherwise disclosed amounts could, under some circumstances, result in additional cash outflows for Molson Coors because of transaction-related indemnity provisions. We have recorded these indemnity liabilities at fair value and have a carrying value at December 28, 2008, and December 30, 2007, of $133.2 million and $155.0 million.million, respectively. Due to the uncertainty involved with the ultimate outcome and timing of these contingencies, there could be significant adjustments in the future.
Cumulative Effect of Change in Accounting Principle
Molson Coors has adopted Financial Accounting Standards Board Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143" (FIN 47) under which companies must recognize potential long-term liabilities related to the eventual retirement of assets. As a result of adopting FIN 47, we recorded a cumulative non-cash expense of $3.7 million, after tax, in the 2005 fourth quarter, reported as Cumulative Effect of Change in Accounting Principle in the Company's statement of operations. These liabilities represent accumulated remediation and restoration costs expected to be incurred up to 30 years in the future for anticipated asset retirements. Costs related to FIN 47 were not significant in 2007 or 2006. We do not expect FIN 47-related expense to have a significant impact on our on-going annual operating results.
Results of Operations
Canada Segment
Our Canada segment consists primarily of Molson's beer business, including the production and sale of the Molson brands,Coors Light and other licensed brands, principally in Canada. Effective, January 1, 2008, Molson and Grupo Modelo, S.A.B. de C.V. established a joint venture, Modelo Molson Imports, L.P. ("MMI"), to import, distribute, and market the Modelo beer brand portfolio across all Canadian provinces and territories. Under this arrangement, Molson's sales teams are responsible for promoting and selling the brands across Canada on behalf of the joint venture. The alliance will enable Grupo Modelo to effectively utilize the resources and capabilities of Molson to achieve greater distribution coverage in the Western provinces of Canada. The MMI joint venture is accounted for using the equity method. The Canada segment also includes our joint venture arrangements related to the distribution of beer in Ontario and the Western provinces, through Brewers Retail, Inc. ("BRI") (consolidated under FIN 46R),a consolidated joint venture, and in the Western provinces, Brewers' Distributor Ltd. ("BDL"). a joint venture accounted for under the equity method.
Table of Contents Before the Merger in February 2005,
See "Outlook for 2009" for discussion of forward looking trends regarding the Canada segment consisted of Coors Brewing Company's 50.1% interest in the Coors Canada Partnership ("CCP"), through which the Coors Light business in Canada was conducted. CCP contracted with Molson for the brewing, distribution and the sale of Coors Light products, while CCP managed all marketing activities in Canada. In connection with the Merger, CCP was dissolved into the Canadian business. Coors accounted for its interest in CCP using the equity method of accounting.segment.
The following represents the Canada segment's historical and pro forma results:
| | Fiscal year ended | | Fiscal year ended | |||||||||||||||||||||||||||||||||
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| | December 30, 2007(1) (Actual) | % change | December 31, 2006(1) (Actual) | % change | December 25, 2005(1)(3) (Actual) | % change | December 25, 2005(4) (Pro forma) | | December 28, 2008(1) | % change | December 30, 2007(1) | % change | December 31, 2006(1) | |||||||||||||||||||||||
| | (In thousands, except percentages) | | (Volumes in thousands, dollars in millions, except percentages) | |||||||||||||||||||||||||||||||||
Volume in barrels(2) | Volume in barrels(2) | 8,153 | (1.6 | )% | 8,282 | 11.1 | % | 7,457 | 1.6 | % | 8,148 | Volume in barrels(2) | 7,554 | (4.4 | )% | 7,901 | (0.6 | )% | 7,946 | ||||||||||||||||||
Net sales | Net sales | $ | 1,913,175 | 6.7 | % | $ | 1,793,608 | 17.4 | % | $ | 1,527,306 | 10.2 | % | $ | 1,627,721 | Net sales | $ | 1,864.4 | (2.6 | )% | $ | 1,913.3 | 6.7 | % | $ | 1,793.6 | |||||||||||
Cost of goods sold | Cost of goods sold | (984,973 | ) | 11.5 | % | (883,649 | ) | 11.7 | % | (790,859 | ) | 8.0 | % | (818,297 | ) | Cost of goods sold | (980.8 | ) | (0.4 | )% | (984.9 | ) | 11.5 | % | (883.6 | ) | |||||||||||
Gross profit | 928,202 | 2.0 | % | 909,959 | 23.6 | % | 736,447 | 12.4 | % | 809,424 | Gross profit | 883.6 | (4.8 | )% | 928.4 | 2.0 | % | 910.0 | |||||||||||||||||||
Marketing, general and administrative expenses | Marketing, general and administrative expenses | (447,630 | ) | 1.8 | % | (439,920 | ) | 16.5 | % | (377,545 | ) | 3.4 | % | (425,468 | ) | Marketing, general and administrative expenses | (421.3 | ) | (5.9 | )% | (447.6 | ) | 1.7 | % | (440.0 | ) | |||||||||||
Special items, net | Special items, net | (75,159 | ) | N/M | — | N/M | (5,161 | ) | N/M | (5,161 | ) | Special items, net | (10.9 | ) | N/M | (75.2 | ) | N/M | — | ||||||||||||||||||
Operating income | 405,413 | (13.7 | )% | 470,039 | 32.9 | % | 353,741 | 24.1 | % | 378,795 | Operating income | 451.4 | 11.3 | % | 405.6 | (13.7 | )% | 470.0 | |||||||||||||||||||
Other income (expense), net | 21,526 | N/M | 13,228 | N/M | (2,183 | ) | N/M | (1,490 | ) | ||||||||||||||||||||||||||||
Other income, net | Other income, net | 7.0 | N/M | 21.7 | N/M | 13.3 | |||||||||||||||||||||||||||||||
Earnings before income taxes | $ | 426,939 | (11.7 | )% | $ | 483,267 | 37.5 | % | $ | 351,558 | 28.1 | % | $ | 377,305 | Earnings before income taxes | $ | 458.4 | 7.3 | % | $ | 427.3 | (11.6 | )% | $ | 483.3 | ||||||||||||
N/M = Not meaningful
Foreign currency impact on results
Our Canada segment (as stated in USD) was unfavorably impacted by a 0.5% year-over-year decrease in the value of the CAD against the USD in 2008 versus 2007. The Canada segment benefited from a 7% year-over-year increase in the value of the CAD against the USD in 2007 versus 2006. Similarly, the Canada segment benefited from a 6% year-over-year increase in the value of CAD against USD in 2006 versus 2005.
Volume and net sales
With the completion of the MillerCoors joint venture, our net sales and cost of goods sold related to products sold by Molson in Canada for U.S. distribution, which were previously treated as inter-company transactions and eliminated upon consolidation, are now included in Canada segment results. The sales volume continues to be excluded from our Canada results, as this volume is reported by MillerCoors. This reporting had the effect of increasing net sales per barrel by approximately 5% to 6% and increasing cost of goods sold per barrel approximately 9% to 10% in the third and fourth quarter 2008, with minimal impact on gross profit.
For the fifty-two weeks ended December 28 2008, sales volume in Canada decreased by 4.4% to 7.6 million barrels versus prior year volume of 7.9 million barrels for the 52 weeks ended December 30, 2007. This decline is entirely the result of excluding our reported Modelo volumes in 2008 with the creation of our joint venture. Excluding this factor, full year sales volume of 7.6 million barrels increased 0.1% on a comparable basis versus prior year.
Our Canada comparable sales to retail ("STRs") for 2008 increased 0.8% versus the prior calendar year driven by mid-single-digit growth of our strategic brands lead byCoors Light andCarling, which experienced double-digit growth compared to the prior year. In addition, theRickard's andCreemore brands, as well as our partner import brands, all grew at high single-digit rates on a full year basis. These increases were partially offset by declines in non-strategic brands and other premium brands.
Canada industry volumes grew an estimated 1.1% in 2008 compared to the prior calendar year. As a result, Molson experienced a slight market share decrease on a full year comparable basis. This
decrease was driven by softness in the Québec market, partially offset by strong performance in the Ontario and Atlantic markets.
On a full year basis, 2008 net sales revenue declined $48.9 million or 2.6% versus prior year.
For the full year 2008, net sales revenue was $246.84 per barrel, an increase of 1.9% over 2007 net sales revenue of $242.15 per barrel. Excluding the effects of a U.S. production contract with Foster's that was terminated in the fourth quarter 2007, the Modelo Molson joint venture and the impact of sales to MillerCoors as disclosed above, net sales per barrel increased 2.3% as a result of higher net pricing and favorable sales mix of our products, including sales increases of our higher-revenue per barrel partner-import brands.
For the 52 weeks ended December 30, 2007, sales volume in Canada decreased by 1.6%0.6% to 7.9 million barrels versus prior year volume of 7.95 million barrels for the fifty-three weeks ended December 31, 2006. Excluding the effects associated with the change in the volume reporting policy, sales volume for 2007 of 8.2 million barrels decreased 1.6% versus prior year volume of 8.3 million barrels for the 53 weeks ended December 31, 2006. The 53rd53rd week in 2006 delivered approximately 130,000 barrels, accounting for all of the year-over-year decrease. In addition, ourthe termination of the Foster's U.S. production contract was terminated early in the fourth quarter 2007, drivingdrove a further sales volume reduction in the current fiscal year.2007. Excluding the
impact of the 53rd53rd week in 2006 and the volume reductions attributable to Foster's and other exported volume, comparable sales volume in Canada increased by approximately 1.5% or 110,000 barrels.
Our Canada STRs for 2007 increased 1.0% versus the prior calendar year driven by mid-single-digit growth of our Molson strategic brands, lead byCoors Light, which experienced high single-digitdouble-digit growth compared to the prior year. In addition, theRickard's,Creemore andCarling brands, and our partner import brands, all grew at double-digit rates on a full year basis. These increases were partially offset by declines in non-strategic brands and other premium brands.
Canada industry volumes grew an estimated 0.9% in 2007 compared to the prior calendar year. As a result, Molson experienced a slight market share increase on a full year basis, fueled by share growth over the key summer selling period and the strength of our strategic brands. This represents the first time Molson has achieved share growth in the past six years.
On a full year basis, 2007 net sales revenue grew $119.6 million or 6.7% versus prior year with approximately 2% growth in local currency on a per barrel basis.
For the full year 2007, net sales revenue was $242.15 per barrel, an increase of 7.3% over 2006 net sales revenue of $225.72 per barrel. Excluding the effects associated with the change in the volume reporting policy, net sales revenue was $234.66 per barrel, an increase of 8.4% over 2006 net sales revenue of $216.57 per barrel.$216.57. An approximate 7% appreciation in the value of CAD against USD during the year increased net sales revenue by approximately $114 million or $14.00 per barrel. Net pricing contributed half of the remaining increase with the year over year impact of modest general price increases being partially offset by increased price discounting in Québec and Ontario during the past year.Ontario. Improved sales mix from increased import sales, which are at higher than average retail prices, and decreased export sales, which are at lower than average retail prices, accounted for the remaining net increase. The decrease in export sales can be attributed to the termination of our Foster's US production contract in the fourth quarter of 2007.
For the 53 weeks ended December 31, 2006, sales volume in Canada increased by 11.1% to 8.3 million barrels versus prior year volume of 7.5 million barrels for the fiscal period beginning February 9, 2005 and ended December 25, 2005. On a pro forma basis, sales volume increased 1.6% to 8.3 million barrels versus 2005 pro forma volume of 8.1 million. The 53rd week in 2006 accounted for approximately 130,000 barrels, providing the year-over-year increase.
On a pro forma basis, Molson strategic brands grew at mid-single-digit rates in 2006, lead by Coors Light, Rickard's and our partner import brands, all of which grew at double-digit rates on a full year basis. These increases were partially offset by declines in non-strategic brands and other premium brands, reductions in contract packaging of non-owned brands for export shipment and the discontinuation of Molson Kick and A Marca Bavaria.
For the year ended December 31, 2006, net sales revenue was $216.57 per barrel, an increase of 8.4% over comparable 2005 net sales revenue of $199.77 per barrel. An approximate 6% appreciation in the value of CAD against USD during the year increased net sales revenue by approximately $115 million. The remainder of the increase was driven by the year over year impact of modest general price increases and improved sales mix from increased import sales, which were at higher than average retail prices. These improvements were partially offset by increased price discounting during the year, predominantly in Ontario and Québec.
Cost of goods sold and gross profit
CostFull year 2008 cost of goods sold per barrel increased $101.3 million, or 11.5%, in 2007 versus prior year with approximately 7% growth3.3% in local currency versus 2007. Excluding current year impacts of the termination of the Foster's contract, the changes associated with
MMI and sales to MillerCoors, cost of goods sold per barrel increased 7.4% on a comparable basis in local currency. The underlying cost of goods increase was due to the net effect of three factors:
For the full year 2007, cost of goods sold on a per barrel basis.
Forbasis was $124.66 per barrel, an increase of 12.1% over 2006 cost of goods sold of $111.20 per barrel. Excluding the effects associated with the change in the volume reporting policy for the full year 2007, cost of goods sold on a per barrel basis was $120.81 per barrel, an increase of 13.2% over 2006 cost of goods sold of $106.70 per barrel. After adjusting for the approximate 7% appreciation in the value of CAD against USD, cost of goods sold increased by slightly less than 7% in
2007 in local currency. Inflationary cost increases across nearly all inputs drove approximately 3% of the increase in cost of goods sold per barrel, but was completely offset by the implementation of synergies and other cost savings initiatives in the year. The impacts of increased import sales, lower export sales due to the Foster's contract termination and non-cash adjustments in both the current and prior years of certain foreign currency positions to their market values account for the increase in cost of goods sold per barrel.
Cost of goods sold increased 8.0% to $883.6 million for the year ended December 31, 2006, from $818.3 million in the same period for 2005 on a pro forma basis. For the same period, in local currency, cost of goods sold per barrel in Canada decreased approximately 1% as inflationary and other cost increases were completely offset by the implementation of synergies and other cost savings initiatives, lower input costs related to favorable foreign currency, and lower employee-related expenses.
Marketing, general and administrative expenses
For the full year, marketing, general and administrative expenses were $421.3 million, a decrease of $26.3 million or 5.9% lower versus prior year. In local currency total marketing, general, and administrative expenses decreased 7.3% versus the prior year driven by lower intangible amortization, combined with the elimination of all expenses associated with the Modelo brands, which are now managed by MMI.
For the full year 2007, marketing, general and administrative expenses were $447.6 million, an increase of $7.7 million or 1.8% from 2006. In local currency, total marketing, general and administrative expenses decreased by 4% driven by lower G&Ageneral and administrative costs through reduced intangible amortization expense and a focus on more efficient general and administrative spending, including lower employee costs and other cost savings. In addition, 2006 included certain nonrecurring costs including contract costs incurred to achieve longer term information technology synergies, and additional costs associated with the additional week in 2006 results. Promotional spending and brand investments were relatively flat in 2007 compared to the prior year.
Marketing, general and administrative expenses increased $62.4 million for 2006. This was an increase of $14.5 million or 3.4% on a comparable, pro forma basis. In local currency, total marketing, general and administrative expenses decreased by approximately 3.5% due to lower promotional spending and brand investments in 2006, due in part to the initial promotional launch of Molson Kick and A Marca Bavaria in 2005, and partly to offset price discounting. These costs were partially offset by higher employee expenses and one-time costs in 2006.
Special items, net
The Canada segment recognized $10.9 million of special items expense during 2008. The special items represent costs associated with ongoing Edmonton brewery closing expenses, restructuring activities, and an asset impairment. See Part II—Financial Statements and Supplementary Data, Item 8 Note 8 "SPECIAL ITEMS, NET" to the Consolidated Financial Statements for further discussion.
The Canada segment recognized $75.2 million of special items expense during 2007. The special items represent $46.5 million relating to the Edmonton brewery closure, in which significant charges included a $31.9 million impairment charge on the carrying value of the fixed assets and an additional $14.6 million charge for severance and other costs associated with closing the brewery. Current plans are to demolish the building and sell the land, which has a carrying value of $10.1 million at December 30, 2007. Other charges include $24.1 million relating to the Foster's intangible asset impairment and $4.5$4.6 million relating to employee termination costs associated with production and sales, general and administrative functions. See Part II—Financial Statements and Supplementary Data,
Item 8 Note 8 "SPECIAL ITEMS, NET" to the Consolidated Financial Statements in Item 8 for further discussion.
There were no special items in 2006. Special items of $5.2 million in 2005 were attributable primarily to restructuring the sales and marketing organizations in Canada.
Other income (expense) income,, net
Other income in 2008 was $14.7 million lower than the prior year largely due to cycling the gain on the sale of our equity investment in the House of Blues Canada which resulted in an approximate $16.7 million income benefit in 2007.
Other income in 2007 was $8.3 million higher than the prior year largely due to a gain on the sale of our equity investment in the House of Blues Canada which resulted in an approximate $16.7 million income benefit in the year. This was partially offset by the non-recurrence of the approximate $9.0 million gain in 2006 from the reduction of guarantee liabilities related to our investment in the MontrealMontréal Canadiens hockey club in the prior year (see next paragraph).year.
In 2006, other income increased $15.4 million over the prior year on a pro forma basis which primarily represents equity earnings and amortization expense related to the Montréal Canadiens hockey club ("the Club"), which improved over the prior year. During the year,first two quarters of 2008 and all of 2007 and 2006, the entities which control and own a majority of the Club purchased the preferred shares in the Club held by Molson. In addition, Molson was released from a direct guarantee associated with the Club's debt financing, resulting in an approximate $9.0 million income benefit associated with the reduction in the exposure attributable to such guarantees.
Other expense in 2005 represents the equity losses in the Montréal Canadiens Hockey Club.
United States Segment
The United States("U.S.") segment produces, markets,produced, marketed and sellssold the Coors and Molson portfoliosportfolio of leading beer brands in the United States and its territoriesPuerto Rico and includes the results of the Rocky Mountain Metal Corporation ("RMMC") and Rocky Mountain Bottle Corporation, ("RMBC")which are consolidated joint ventures consolidated under FIN 46R.ventures. The U.S. segment also includes Coors brand volume thatsales of Molson products in the United States. As of July 1, 2008, MillerCoors began operations.The results and financial position of our U.S. segment operations were prospectively deconsolidated upon contribution to the joint venture, and our interest in MillerCoors is soldbeing accounted for and reported by us under the equity method of accounting. MCBC's equity investment in MexicoMillerCoors will represent our U.S. operating segment going forward. See Part II—Financial Statements and Supplementary Data, Item 8 Note 1 "BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES" to the Caribbean.Consolidated Financial Statements regarding the MillerCoors joint venture.
| Fiscal year ended | ||||||||||||||
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| December 30, 2007(1) | % change | December 31, 2006(1) | % change | December 25, 2005(1) | ||||||||||
| (In thousands, except percentages) | ||||||||||||||
Volume in barrels(2) | 24,247 | 3.3 | % | 23,471 | 3.6 | % | 22,645 | ||||||||
Net sales | $ | 2,764,976 | 5.5 | % | $ | 2,619,879 | 5.9 | % | $ | 2,474,956 | |||||
Cost of goods sold | (1,715,058 | ) | 4.2 | % | (1,645,598 | ) | 7.9 | % | (1,525,060 | ) | |||||
Gross profit | 1,049,918 | 7.8 | % | 974,281 | 2.6 | % | 949,896 | ||||||||
Marketing, general and administrative expenses | (754,738 | ) | 1.3 | % | (744,795 | ) | 0.7 | % | (739,315 | ) | |||||
Special items, net | (9,492 | ) | N/M | (73,652 | ) | N/M | (68,081 | ) | |||||||
Operating income | 285,688 | 83.3 | % | 155,834 | 9.4 | % | 142,500 | ||||||||
Other income (expense), net | 148 | N/M | 3,238 | N/M | (457 | ) | |||||||||
Earnings before income taxes | $ | 285,836 | 79.7 | % | $ | 159,072 | 12.0 | % | $ | 142,043 | |||||
We review first below the results and financial position of our U.S. segment operations on an as reported basis, reflecting our operation of the segment for the first six months of 2008 and of the joint venture for the second six months of 2008, and then review the results and financial position of the U.S. segment on a pro forma basis for the six month period ended December 30, 2007.
See "Outlook for 2009" for discussion of forward looking trends regarding the United States segment.
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| December 28, 2008(1) | % change | December 30, 2007(1) | % change | December 31, 2006(1) | ||||||||||||
| (Volumes in thousands, dollars in millions, except percentages) | ||||||||||||||||
Volume in barrels(2) | 12,693 | (47.4 | )% | 24,111 | 3.4 | % | 23,328 | ||||||||||
Net sales | $ | 1,504.8 | (45.4 | )% | $ | 2,754.8 | 5.6 | % | $ | 2,609.3 | |||||||
Cost of goods sold | (915.1 | ) | (46.3 | )% | (1,703.2 | ) | 4.2 | % | (1,634.3 | ) | |||||||
Gross profit | 589.7 | (43.9 | )% | 1,051.6 | 7.9 | % | 975.0 | ||||||||||
Marketing, general and administrative expenses | (413.3 | ) | (45.3 | )% | (755.7 | ) | 1.5 | % | (744.8 | ) | |||||||
Special items, net | (69.3 | ) | N/M | (9.5 | ) | N/M | (73.7 | ) | |||||||||
Equity income in MillerCoors | 155.6 | N/M | — | N/M | — | ||||||||||||
Operating income | 262.7 | (8.3 | )% | 286.4 | 83.0 | % | 156.5 | ||||||||||
Other income, net | 2.3 | N/M | — | N/M | 3.2 | ||||||||||||
Earnings before income taxes | $ | 265.0 | (7.5 | )% | $ | 286.4 | 79.3 | % | $ | 159.7 | |||||||
N/M = Not meaningful
Our discussion of U.S. segment results of operations consists of two parts. A discussion of the first half of 2008 (prior to the formation of MillerCoors) versus the first half of 2007 is presented below, along with a discussion of results of 2007 versus 2006. A discussion of the last half of 2008 (after the formation of MillerCoors) is presented immediately afterward, with a comparison to the same period in 2007 on a pro forma basis.
Before the formation of MillerCoors on July 1, 2008:
Volume and net sales
Sales volume to wholesalers increased by 7.2% in the first half of 2008 while STRs were up 5.7% during the same period, withCoors Light,Coors Banquet,Keystone Light andBlue Moon driving increased volume. Net sales per barrel increased by 3.8% in 2008, due to price increases and higher revenue from commercial can sales.
Sales volume to wholesalers grew 3.3% in 2007 compared to 2006, due to strong STR growth, partially offset by a difference in the timing of our fiscal calendar. Our 50-states U.S. distributors' STRs increased 4.6% and we continued to grow market share throughout 2007. This sales increase was driven by mid-single-digit growth forCoors Light, along with mid-double-digitstrong double-digit growth ofBlue Moon and low-double-digit growth ofKeystone Light.Light. AlsoCoors Banquet grew at a mid-single-digit rate on a year-over-year basis, benefiting from redesigned packaging and advertising. In addition, our brand portfolio showed broad growth in 45 states out of 50 states in all major channels in 2007. This continued volume momentum was driven by building our brand equities, through our Coors Light "Rocky Mountain Cold Refreshment" positioning, as well as focused alignment with our distributor network and improving our effectiveness with chain retail accounts.basis.
Net sales per barrel increased 2.2% in 2007 due to higher base pricing and reduced discounting compared to the level of price promotion activity we experienced during 2006 and 2005.
Sales volume to wholesalers grew 3.6% in 2006 compared to 2005. Without the 53rd week in 2006, volume growth would have been approximately 2.2%. The growth was driven by volume increases in the Coors Light, Keystone Light and Blue Moon brands, and the addition of Molson brands sold in the United States. Net sales per barrel increased 2.1% from 2005 to 2006 as a result of favorable pricing.2006.
Cost of goods sold
Cost of goods sold per barrel increased by 3.4% in the first half of 2008. The year to date change is the result of higher commodity, transportation and packaging material costs partially offset by cost
savings initiatives. Cost savings initiatives, offset more than half of our U.S. inflation during the first half of 2008.
Cost of goods sold increased marginally to $70.73 per barrel in 2007 versus $70.11 per barrel in 2006. The net increase in cost of goods sold was driven by an increase in commodity, transportation and packaging costs, more than 60% offset by our merger synergies and other operations cost-reduction initiatives.
Cost of goods sold increased by 4.1% to $70.11 per barrel in 2006 from $67.35 per barrel in 2005. The increase in cost of goods sold per barrel was driven by higher freight, diesel fuel, packaging materials, and utilities costs. Inflation alone would have accounted for an increase of approximately 5% in cost of goods per barrel. However, these unfavorable factors were partially offset by favorable cost trends from supply chain cost management, labor productivity and merger synergies.
Marketing, general and administrative expenses
Marketing, general and administrative expenses were up 8.0% in the first half of 2008. Marketing investments increased at a low-single-digit rate, while general and administrative expenses grew at a low-double digit rate due to the organization achieving our stock-based long-term incentive payout targets.
Marketing, general and administrative expenses increased by $9.9 million, or 1.3%, in 2007 versus 2006. Marketing investments decreased at a low-single-digit rate, while general and administrative expenses grew at a mid-single digit rate due to higher employee incentive programs.
Marketing, general and administrative expenses increased by $5.5 million, or 0.7%, in 2006 versus 2005. Our stock-based long-term incentive program primarily drove the year-over-year increase, along with modest increases in our advertising and sales expenses. The total increase was partially offset by reductions of certain overhead and personnel-related costs.
Special items, net
Special charges for the first half of 2008 were primarily a result of an impairment of an intangible asset associated with Molson brands sold in the U.S., and costs associated specifically with the MillerCoors transaction composed of employee retention and integration planning costs, partially offset by the net gain from the sale of the wholly owned distributor facilities in Boise, Idaho, and Glenwood Springs, Colorado. See Part II—Financial Statements and Supplementary Data, Item 8 Note 8 "SPECIAL ITEMS, NET" and Note 12 "GOODWILL AND INTANGIBLE ASSETS" to the Consolidated Financial Statements for further discussion.
We recognized $9.5 million of special charges in 2007 compared to $73.7 million of net special charges in 2006. In 2007, the special charges were related to employee retention costs in anticipation of the proposed MillerCoors joint venture and a newly initiated program focused on long term labor savings across the supply chain areas. Special items, net, in the U.S. segment in 2006 were associated primarily with the closure and sale of the Memphis brewery, completed in the third quarter of 2006. In 2006, we recorded approximately $60 million in accelerated depreciation on brewery assets and impairments of fixed assets, reflecting their sales value, $12.5 million for accruals of severance and other costs associated with the plant closure, and a $3.1 million increase in the estimate of costs to withdraw from a multi-employer pension plan benefiting former Memphis workers. Memphis-related accelerated depreciation was higher in 2006 than in 2005 due to a lower sales price for the Memphis plant than our original estimate in 2005.
The 2006 special items were partially offset by the receipt of a $2.4 million cash distribution from bankruptcy proceedings of a former insurance carrier for a claim related to our environmental obligations at the Lowry Superfund site in Denver, Colorado. We recorded the cash receipt as a special benefit consistent with the classification of the charge recorded in a previous year. The estimated environmental liability associated with this site was not impacted by the proceeds received. See Part II—Financial Statements and Supplementary Data, Item 8 Note 8 "SPECIAL ITEMS, NET" to the Consolidated Financial Statements in Item 8 for further discussion.
Special items in the U.S. segment in 2005 were associated primarily with the planned closure of the Memphis brewery in 2006. We recorded $33.3 million in accelerated depreciation on brewery assets,
$3.2 million in direct impairments of assets, $1.7 million for accruals of severance and associated benefits, and $25.0 million representing an estimate of costs to withdraw from a multi-employer pension plan for Memphis workers. We recorded an additional $4.9 million of restructuring charges associated with restructuring brewery operations in Golden, Colorado.
Other income (expense), net
Other income was higher in 2008 versus 2007 primarily due to a $1.9 million gain on the disposal of non-operating long-lived assets.
Other income was lower in 2007 versus 2006 primarily due to the recognition of a portion of a previously deferred gain on the sale of real estate. This amount was recognized in the second quarter of 2006 upon the satisfaction of certain conditions pertaining to the sale contract.
Other income was higher in 2006 versus 2005 primarily due toAfter the recognitionformation of a portion of a previously deferred gainMillerCoors on the sale of real estate discussed above.
July 1, 2008Europe Segment:
The Europeresults of operations for MillerCoors for the six months ended December 28, 2008, and pro forma results of operations for the six month period ended December 30, 2007 are as follows:
| MillerCoors LLC Results of Operations For the six months ended | | |||||||||
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| December 31, 2008 | December 31, 2007 | % change | ||||||||
| Actual | Pro Forma | | ||||||||
| (Volumes in thousands, dollars in millions, except percentages) | ||||||||||
Volumes | 34,737 | 35,648 | (2.6 | )% | |||||||
Sales | $ | 4,329.4 | $ | 4,238.9 | 2.1 | % | |||||
Excise taxes | (640.0 | ) | (643.6 | ) | (0.6 | )% | |||||
Net sales | 3,689.4 | 3,595.3 | 2.6 | % | |||||||
Cost of goods sold | (2,326.0 | ) | (2,268.4 | ) | 2.5 | % | |||||
Gross profit | 1,363.4 | 1,326.9 | 2.8 | % | |||||||
Marketing, general and administrative expenses | (1,032.4 | ) | (1,053.1 | ) | (2.0 | )% | |||||
Contract settlement | — | 43.1 | N/M | ||||||||
Special items, net | (103.8 | ) | (28.2 | ) | N/M | ||||||
Operating income | 227.2 | 288.7 | (21.3 | )% | |||||||
Other income (expense), net | 2.9 | (0.1 | ) | N/M | |||||||
Income from continuing operations before income taxes and minority interests | 230.1 | 288.6 | (20.3 | )% | |||||||
Income tax expense | (3.3 | ) | — | N/M | |||||||
Income from continuing operations before minority interests | 226.8 | 288.6 | (21.4 | )% | |||||||
Minority interests | (4.4 | ) | (6.8 | ) | N/M | ||||||
Net Income | $ | 222.4 | $ | 281.8 | (21.1 | )% | |||||
N/M = Not meaningful
This pro forma combined financial information has been derived from the historical financial results of the respective U.S. businesses of MCBC and Miller, giving effect to the MillerCoors transaction and other related adjustments, described below. These pro forma results are not necessarily indicative of the results of operations that would have been achieved had the MillerCoors transaction taken place at the beginning of the pro forma period, and do not purport to be indicative of future operating results.
MILLERCOORS LLC
UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT
For the Six Months Ended December 31, 2007
| MCBC's U.S. Business Contributed to MillerCoors | Miller's U.S. Business Contributed to MillerCoors | Pro Forma Adjustments | | MillerCoors Pro Forma Results | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net sales | $ | 1,411.6 | $ | 2,179.6 | $ | 4.1 | C | $ | 3,595.3 | |||||||
Cost of goods sold | (884.5 | ) | (1,404.9 | ) | 16.6 | C | ||||||||||
4.4 | D | (2,268.4 | ) | |||||||||||||
Gross profit | 527.1 | 774.7 | 25.1 | 1,326.9 | ||||||||||||
Marketing, general and administrative | (374.1 | ) | (621.9 | ) | (22.5 | ) | C | |||||||||
(29.2 | ) | A | ||||||||||||||
(3.1 | ) | B | ||||||||||||||
(2.3 | ) | D | (1,053.1 | ) | ||||||||||||
Contract settlement | — | 43.1 | — | 43.1 | ||||||||||||
Special items | (9.5 | ) | (18.7 | ) | — | (28.2 | ) | |||||||||
Operating income | 143.5 | 177.2 | (32.0 | ) | 288.7 | |||||||||||
Interest, net | — | 1.0 | 1.0 | |||||||||||||
Other, net | (0.8 | ) | (1.5 | ) | 1.2 | C | (1.1 | ) | ||||||||
Pretax income | 142.7 | 176.7 | (30.8 | ) | 288.6 | |||||||||||
Income tax expense | — | — | — | — | ||||||||||||
Income before minority interests | 142.7 | 176.7 | (30.8 | ) | 288.6 | |||||||||||
Minority interests | (7.1 | ) | 0.3 | — | (6.8 | ) | ||||||||||
Net income | $ | 135.6 | $ | 177.0 | $ | (30.8 | ) | $ | 281.8 | |||||||
Description of Pro Forma Adjustments
The following represents MCBC's proportional share of MillerCoors net income reported under the equity method (in millions):
| Twenty-six weeks ended December 31, 2008 | ||||
---|---|---|---|---|---|
MillerCoors net income | $ | 222.4 | |||
MCBC economic interest | 42 | % | |||
MCBC proportionate share of MillerCoors net income | 93.4 | ||||
MillerCoors accounting policy elections(1)(2) | 27.7 | ||||
Amortization of the difference between MCBC contributed cost basis and proportional share of the underlying equity in net assets of MillerCoors(1)(3) | 36.7 | ||||
Share-based compensation adjustment(1) | (2.2 | ) | |||
Equity Income in MillerCoors | $ | 155.6 | |||
The discussions below highlight the MillerCoors results of operations for the six months ended December 28, 2008, versus pro forma results for the same period in 2007.
Volume and net sales
Total reported volume declined 2.6% during the six months ended December 31, 2008, versus the six months ended December 31, 2007. Contract packaging volume declined 4.6% during the period, while sales volume to wholesalers declined 2.3% due largely to a higher depletion of distributor inventories since July 1, 2008, versus the same period in 2007. Domestic STRs increased 0.1% during the period (STRs decreased 0.7% when adjusting for trading day differences). STR performance reflects strong growth in five of MillerCoors' six focus brands (Coors Light andMiller High Life reflecting single digit growth, with double digit growth experienced inMGD64,Blue Moon, andKeystone Light), which was largely offset by reductions inMiller Lite andMiller Chill performance. STR trends slowed during the fourth quarter, in line with an industry-wide slowdown and during a time of significant price increases.
Total net sales per barrel increased 5.3% in 2008 due to higher domestic business base pricing and reduced discounting compared to the level of price promotion activity we experienced during the second half of 2007. Revenue increases were due in part to the acceleration of price increases from early 2008 to the fall of 2008.
Cost of goods sold
Cost of goods sold increased to $66.96 per barrel in the six months ending December 31, 2008, versus $63.63 per barrel in the six months ending December 31, 2007. The net increase in cost of goods sold was driven by an increase in commodity, transportation and packaging costs, partly offset by the
MillerCoors legacy cost-reduction initiatives (internally named Resources for Growth and Project Unicorn).
Marketing, general and administrative expenses
Marketing, general and administrative expenses decreased by $20.7 million, or 2.0%, in 2008 versus 2007. Reductions were largely realized in general and administrative expenses and reflect the realization of organizational and non-organizational synergy savings during the period. Marketing investments increased slightly, as incremental spending onMGD64 launch costs, increases inCoors Light media spending, and tactical sales expenses were partly offset by the non-recurrence of prior yearMiller Chill launch costs.
Contract Settlement
During the second half of 2007, Miller recognized a $43.1 million nonrecurring contract settlement from an aluminum supplier. The contract settlement relates to periods prior to 2007.
Special Items
MillerCoors recognized $103.8 million of special charges in 2008 compared to $28.2 million of net special charges in 2007. In 2008, the special charges were for integration related expenses for the MillerCoors joint venture and the impairment of theSparks brand. MCBC's equity method accounting includes a favorable basis amortization income adjustment which offsets our 42% ($27.3 million) share of the $65.1 millionSparksimpairment charge. Integration charges in 2008 include costs for severance, relocation, sales office closures and consulting costs. In 2007, the special charges were related to employee retention costs in anticipation of the MillerCoors joint venture and a newly initiated program focused on long term labor savings across the supply chain areas.
United Kingdom Segment
The United Kingdom segment consists of our production and sale of the CBL brands principally in the United Kingdom, our consolidated joint venture arrangement for the production and distribution ofGrolsch in the United Kingdom and Republic of Ireland, (consolidated under FIN 46R beginning in 2004), factored brand sales (beverage brands owned by other companies but sold and delivered to retail by us) and ourthe equity method Tradeteam joint venture arrangement with DHL for the distribution of products throughout Great Britain (Tradeteam). Our Europe segment also includes a small volumeBritain.
Table of sales in Asia and other export markets.Contents
| Fiscal year ended | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 30, 2007(1) | % change | December 31, 2006(1) | % change | December 25, 2005(1) | ||||||||||
| (In thousands, except percentages) | ||||||||||||||
Volume in barrels(2) | 9,652 | (7.1 | )% | 10,390 | 0.6 | % | 10,329 | ||||||||
Net sales | $ | 1,506,945 | 5.7 | % | $ | 1,426,337 | (5.0 | )% | $ | 1,501,299 | |||||
Cost of goods sold | (1,000,445 | ) | 5.4 | % | (949,513 | ) | (4.1 | )% | (989,740 | ) | |||||
Gross profit | 506,500 | 6.2 | % | 476,824 | (6.8 | )% | 511,559 | ||||||||
Marketing, general and administrative expenses | (421,557 | ) | 5.3 | % | (400,469 | ) | (6.9 | )% | (429,973 | ) | |||||
Special items, net | (14,104 | ) | N/M | (9,034 | ) | N/M | (13,841 | ) | |||||||
Operating income | 70,839 | 5.2 | % | 67,321 | (0.6 | )% | 67,745 | ||||||||
Interest income(3) | 11,459 | (2.0 | )% | 11,687 | (9.9 | )% | 12,978 | ||||||||
Other (expense) income, net | (174 | ) | N/M | 4,824 | N/M | (14,174 | ) | ||||||||
Earnings before income taxes | $ | 82,124 | (2.0 | )% | $ | 83,832 | 26.0 | % | $ | 66,549 | |||||
See "Outlook for 2009" for discussion of forward looking trends regarding the United Kingdom segment.
| Fiscal year ended | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 28, 2008(1) | % change | December 30, 2007(1) | % change | December 31, 2006(1) | ||||||||||||
| (Volumes in thousands, dollars in millions, except percentages) | ||||||||||||||||
Volume in barrels(2) | 9,039 | (3.8 | )% | 9,399 | (7.5 | )% | 10,166 | ||||||||||
Net sales | $ | 1,342.2 | (7.8 | )% | $ | 1,455.6 | 5.7 | % | $ | 1,377.5 | |||||||
Cost of goods sold | (906.9 | ) | (7.2 | )% | (976.9 | ) | 5.2 | % | (929.0 | ) | |||||||
Gross profit | 435.3 | (9.1 | )% | 478.7 | 6.7 | % | 448.5 | ||||||||||
Marketing, general and administrative expenses | (360.9 | ) | (6.6 | )% | (386.5 | ) | 5.3 | % | (367.1 | ) | |||||||
Special items, net | 4.5 | N/M | (14.1 | ) | N/M | (7.8 | ) | ||||||||||
Operating income | 78.9 | 1.0 | % | 78.1 | 6.1 | % | 73.6 | ||||||||||
Interest income(3) | 10.7 | (7.0 | )% | 11.5 | (1.7 | )% | 11.7 | ||||||||||
Other (expense) income, net | (4.2 | ) | N/M | (0.1 | ) | N/M | 4.8 | ||||||||||
Earnings before income taxes | $ | 85.4 | (4.6 | )% | $ | 89.5 | (0.7 | )% | $ | 90.1 | |||||||
N/M = Not meaningful
Foreign currency impact on results
Our EuropeUnited Kingdom segment results were positivelynegatively affected by an 8% year-over-year increasedecrease in the value of the British Pound Sterling (GBP or £)("GBP") against the USD in 2007.2008. In 2006,2007, the GBP strengthened versus the USD resulting in a 1%an 8% appreciation impact to USD earnings before income taxes.taxes over 2006.
Volume and net sales
Our EuropeUnited Kingdom segment owned-brand volumes decreased 7.1%4% in 2008 versus 2007, reflecting poor summer weather, continuing effects from smoking bans in the first half of 2008, and a weakening economy in the U.K.
Our United Kingdom segment net revenue per barrel in local currency increased by 4% in 2008, with approximately 2% of this change related to non-owned factored brands that we deliver to retail, and our contract brewing arrangements which began mid-year. Comparable U.K. owned-brand net revenue per barrel in local currency increased by 4% in the year, due mainly to improved pricing in both the on-premise and the off-premise channels, along with favorable brand mix.
Our United Kingdom segment owned-brand volumes decreased in 2007 on a reported 52 week versus 53 week basis. After excluding the 53rd week, volume decreased 5.8%6% due to an extended period of unusually rainy and cool weather conditions throughout the summer in 2007, and the impact of the enacted smoking bans on the U.K. on-premise channel beer market in the second half of 2007.
For the year ended 2006, beer volume in our on-premise business, which represented approximately two-thirdsTable of our Europe volume and an even greater proportion of our margin, declined by slightly more than 2% compared to 2005. This compared to an overall industry on-premise channel decline of 4.3% yielding a small market share gain for CBL. Our off-premise volume for 2006 increased by approximately 2% over 2005, with Carling accounting for most of the gain. We experienced a small off-premise market share decline in 2006.
As in 2006, in addition to the volume trends mentioned above, in 2005 we experienced unfavorable pricing in both the on-premise and the off-premise channels, as well as a decrease in the sales value of factored brands. These reductions were further compounded by unfavorable channel and brand mix.Contents
Our EuropeUnited Kingdom segment net revenue per barrel in local currency increased by 5% in 2007, with approximately 3% of this change related to non-owned factored brands that we deliver to retail. In particular, we acquired the Cameron'sCamerons on-premise distribution business early in the third quarter. The addition of this business will raise our Europe net sales per barrel and cost of goods per barrel several percentage points for the next year, due to a step-up in our factored brand sales. U.K. owned-brand net revenue per barrel in local currency increased nearly 3% in the year, due mainly to improved pricing improvements predominantly in the on-premise channel.
Net sales for the Europe segment decreased 5% in 2006, while volume increased 0.6% from 2005. The 53rd week in 2006 contributed approximately 140,000 barrels of sales volume, providing the year-over-year increase. Net sales in local currency decreased by approximately 6.5%. The 52 week volume decline was driven by premium lagers, flavored alcohol beverages and ales. This decline was partially offset by growth of the Carling brand. CBL's overall volume increase for 2006 year drove a slight market share increase for the company versus an overall industry decline in 2005.
Cost of goods sold
Cost of goods sold per barrel in local currency increased by 5%4% in the year, with approximately 2% of this change related to factored brand sales, and contract brewing sales. Comparable cost of goods sold for our U.K. owned brands increased about 6% per barrel in local currency, driven by input cost inflation, higher pension costs, and the impact of spreading fixed costs over lower sales volume, partly offset by cost savings.
Cost of goods sold per barrel in local currency increased by 5% in 2007, with approximately 4% of this change related to factored brand sales, including Cameron's.Camerons. Cost of goods sold for our U.K. owned brands increased about 1% per barrel in local currency, driven by input cost inflation and the impact of spreading the fixed costs over lower sales volume, partly offset by cost savings.
Cost of goods sold per barrel in local currency decreased approximately 6% in 2006 versus 2005. The change to net reporting for certain factored brand sales accounted for approximately $46 million of the decrease in the year to date cost of goods sold. The remaining decrease was driven by cost savings from our supply chain restructuring initiatives begun in 2005 and lower distribution costs, partly offset by increased energy costs.
Marketing, general and administrative expenses
EuropeMarketing, general and administrative expenses in the U.K. were relatively flat compared to 2007 in local currency. Marketing spending decreased by approximately 9% as management took action to reduce spending in line with the trading environment. General and administrative costs increased 6% compared to 2007 predominantly due to higher bad debt and pension charges.
In 2007, marketing, general and administrative expenses in the U.K. decreased approximately 3% in local currency. Marketing spending increased 2% due to the continued roll-out of our new advertising campaigns forCarling, C2, and re-launchingCoors Light.Light. General and administrative costs decreased 6% compared to 2006 due to cost reduction programs.
In 2006, Europe marketing, general and administrative expenses decreased 6.9%, and 7.4%, respectively on a per barrel basis versus 2005. This decrease was primarily the result of cost reduction initiatives we announced and began implementing during 2005 and rigorous cost control throughout the year.
Special items, net
We recognized a net special credit of $4.5 million in 2008 and $14.1 million of special charges 2007. The 2008 items were predominately employee termination costs associated with the U.K. supply chain and back office restructuring efforts offset by a one-time gain on the sale of non core business assets of $2.7 million and a one time pension gain of $10.4 million due to the cessation of employee service credit to its defined benefit pension plan. The 2007 items are noted below. See Part II—Financial Statements and Supplementary Data, Item 8 Note 8 "SPECIAL ITEMS, NET" to the Consolidated Financial Statements for further discussion.
We recognized $14.1 million and $9.0$7.8 million of special charges in 2007 and 2006, respectively. The 2007 items were predominately employee termination costs associated with the U.K. supply chain and back office restructuring efforts and an increased pension liability in recognition of our existing pension benefit in accordance with U.K. law. The 2006 items were also a result of charges recognized as part of restructuring the supply chain operation and back office organization, combined with costs incurred in closing our sales operation in Russia, partly offset by thea pension curtailment gain.gain due to the reduction in our workforce. See Part II—Financial Statements and Supplementary Data, Item 8 Note 8 "SPECIAL ITEMS, NET" to the Consolidated Financial Statements in Item 8 for further discussion.
Other (expense) income, net
We incurred net other expense of $0.2$4.2 million and $0.1 in 2008 and 2007, respectively. The increase noted is due to profit from our distribution joint venture, Tradeteam, being included in other income in 2007, but reclassified to cost of goods sold in 2008.
We incurred net other expense of $0.1 million in 2007 as compared to a net other income of $4.8 million for the prior year.2006. The decrease noted is due to a non-recurring gain recognized on a sale of a surplus property in 2006, partly offset by improved year-over-year profit performance by our distribution joint venture, Tradeteam.
Other income of $4.8 million in 2006 represented a $19.0 million improvement over 2005, driven by improved Tradeteam profitability, our joint venture partner for the distribution of product, profits on the sale of surplus real estate, and lower non-operating leasehold expenses.
Interest income
Interest income is earned on trade loans to U.K. on-premise customers. Interest income in local currency versus the prior years was flat in 2008 and decreased by 2.0% and 9.9%2% in 2007. The year over year change for 2007 and 2006 respectively, asis also a result of lower loan balances versuswhen compared to the prior years.year.
Global Markets and Corporate
Global Markets includes results of operations in developing markets around the world, including Asia, Mexico, the Caribbean (not including Puerto Rico) and continental Europe. Corporate includes interest and certain other general and administrative costs that are not allocated to the operating segments. The majority of these corporate costs relates to worldwide finance
and administrative functions, such as corporate affairs, legal, human resources, insurance, and risk management.
| Fiscal year ended | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 30, 2007(1) | % change | December 31, 2006(1)(3) | % change | December 25, 2005(1)(3) | ||||||||||
| (In thousands, except percentages) | ||||||||||||||
Net sales(2) | $ | 5,496 | 6.5 | % | $ | 5,161 | 54.3 | % | $ | 3,345 | |||||
Cost of goods sold | (2,445 | ) | 5.3 | % | (2,321 | ) | 79.9 | % | (1,290 | ) | |||||
Gross profit | 3,051 | 7.4 | % | 2,840 | 38.2 | % | 2,055 | ||||||||
Marketing, general and administrative expenses | (110,483 | ) | (8.1 | )% | (120,221 | ) | 40.3 | % | (85,683 | ) | |||||
Special items, net | (13,439 | ) | N/M | 5,282 | N/M | (58,309 | ) | ||||||||
Operating loss | (120,871 | ) | 7.8 | % | (112,099 | ) | (21.0 | )% | (141,937 | ) | |||||
Interest expense, net | (111,334 | ) | (19.6 | )% | (138,468 | ) | 9.4 | % | (126,581 | ) | |||||
Debt extinguishment costs | (24,478 | ) | N/M | — | N/M | — | |||||||||
Other (expense) income, net | (3,838 | ) | N/M | (3,554 | ) | N/M | 3,569 | ||||||||
Loss before income taxes | $ | (260,521 | ) | 2.5 | % | $ | (254,121 | ) | (4.1 | )% | $ | (264,949 | ) | ||
Global Markeets and Corporate
| Fiscal year ended | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 28, 2008(1) | % change | December 30, 2007(1) | % change | December 31, 2006(1) | ||||||||||||
| (Volumes in thousands, dollars in millions, except percentages) | ||||||||||||||||
Volume in barrels(2) | 370 | (3.9 | )% | 385 | 5.2 | % | 366 | ||||||||||
Net sales | $ | 62.9 | (6.0 | )% | $ | 66.9 | 3.7 | % | $ | 64.5 | |||||||
Cost of goods sold | (38.0 | ) | 0.3 | % | (37.9 | ) | 11.1 | % | (34.1 | ) | |||||||
Gross profit | 24.9 | (14.1 | )% | 29.0 | (4.6 | )% | 30.4 | ||||||||||
Marketing, general and | (137.7 | ) | (4.8 | )% | (144.6 | ) | (5.8 | )% | (153.5 | ) | |||||||
Special items, net | (58.2 | ) | N/M | (13.4 | ) | N/M | 4.0 | ||||||||||
Operating loss | (171.0 | ) | 32.6 | % | (129.0 | ) | 8.3 | % | (119.1 | ) | |||||||
Interest expense, net | (96.7 | ) | (13.2 | )% | (111.4 | ) | (19.5 | )% | (138.4 | ) | |||||||
Debt extinguishment costs | (12.4 | ) | N/M | (24.5 | ) | N/M | — | ||||||||||
Other expense, net | (13.5 | ) | N/M | (3.9 | ) | N/M | (3.5 | ) | |||||||||
Loss before income taxes | $ | (293.6 | ) | 9.2 | % | $ | (268.8 | ) | 3.0 | % | $ | (261.0 | ) | ||||
N/M = Not meaningful
Volume, net sales and cost of goods sold
Volume, net sales and cost of goods sold reflect our operations in Asia, continental Europe, Mexico and the Company's intellectual property, including trademarksCaribbean (excluding Puerto Rico) and brands.
Marketing, general and administrative expenses
Corporate marketing,Marketing, general and administrative expenses in 2008 were $137.7 million, down $6.9 million from 2007. This decrease was largely attributed to transfers of allocable costs to the operating segments from the corporate center, lower legal fees and reduced severance fees partially offset by increased incentive compensation.
Marketing, general and administrative expenses in 2007 were $110.5$144.6 million, down $9.7$8.9 million from 2006. This decrease was largely attributed to transfers of allocable costs to the operating segments from the corporate center, lower legal fees and reduced severance fees partially offset by increased incentive pay resulting from improved operating performance over prior year.
Marketing, general and administrative expenses were higher in 2006 versus 2005, primarily due to increased incentive pay, split equally between our stock-based long term incentive plan, including the effect of adopting FAS123R accounting treatment for expensing equity-based compensation, and higher incentive pay resulting from improved profit and cash performance. Additionally, increased costs resulted from the full ramp up of new and ongoing costs to build strong corporate center capabilities, which include Sarbanes-Oxley compliance, corporate governance, finance, legal, commercial development, and human resources, and the transfer of global costs from operating segments to the Corporate center.
Special items, net
The $58.2 million of special items in 2008 were a result of $28.8 million of deal costs and integration planning costs associated with the formation of MillerCoors. We also recognized $22.8 million of transition costs paid to our third-party vendor associated with the start-up of our outsourced administrative functions. Last, we incurred $6.6 million associated with other strategic initiatives. See Part II—Financial Statements and Supplementary Data, Item 8 Note 8 "SPECIAL ITEMS, NET" to the Consolidated Financial Statements for further discussion.
The $13.4 million of special items in 2007 were a result of costs incurred associated with the proposed MillerCoors joint venture, and consist primarily of outside professional services. The special benefit of $5.3$4.0 million for 2006 was a result of adjusting$5.3 million adjustment to the floor provided on the exercise price of stock options held by former Coors officers who left the Company under change in control agreements following the Merger.Merger, partially offset by costs incurred in closing our sales operations in Russia. We did not recognize a charge related to the floor provided on the exercise price
of the stock options as the stock price exceeded the floor price in 2008 and 2007. See Part II—Financial Statements and Supplementary Data, Item 8 Note 8 "SPECIAL ITEMS, NET" to the Consolidated Financial Statements in Item 8.for further discussion.
Interest expense, net
CorporateNet interest expense totaled $96.7 million for 2008, $14.7 million lower than the prior year. The decrease was primarily a result of lower average net debt levels outstanding. We also recognized a $12.4 million charge as a result of the debt extinguishment costs during 2008. See Part II—Financial Statements and Supplementary Data, Item 8 Note 13 "DEBT AND CREDIT ARRANGEMENTS" to the Consolidated Financial Statements for further discussion.
Net interest expense totaled $111.3 million for 2007, $27.1 million lower than the prior year. The decrease was primarily a result of lower average net debt levels outstanding. We also recognized a $24.5 million charge as a result of the debt extinguishment costs during 2007. See Part II—Financial Statements and Supplementary Data, Item 8 Note 13 "DEBT AND CREDIT ARRANGEMENTS" to the Consolidated Financial Statements in Item 8.
Interest expense, net was $138.5 million during 2006, versus $126.6 million during 2005. Interest expense, net increased due to higher interest rates on permanent financing (as opposed to short-term temporary financing in place through September 2005 following the Merger), 53rd week impact and a stronger Canadian dollar and British Pound Sterling. These increased costs were partially offset by the benefit of lower overall debt levels due to debt repayments in 2006.for further discussion.
Other income (expense), net
Other expense, net in 2008 increased from 2007 due to greater foreign currency exchange losses throughout the current year. Other expense, net in 2007 increased from 2006 due to greater foreign currency exchange losses throughout the current year. 2006 includes primarily foreign exchange losses, while the other income, net in 2005 includes primarily foreign exchange gains.
Liquidity and Capital Resources
Our primary sources of liquidity are cash provided by operating activities, external borrowings and asset monetizations. As of December 28, 2008, and December 30, 2007, and December 31, 2006, we had net working capital of $41.2$121.0 million and a working capital deficit of $341.8$41.3 million, respectively. We commonly operate at a low level of working capital or working capital deficits given the relatively quick turnover of our receivables and inventory. Our higher net working capital at December 30, 2007 was due to higher balances associated with cash, accounts receivable, inventories, and lower balances for accounts payable and other accrued expenses. We had total cash and cash equivalents of $216.2 million at December 28, 2008, compared to $377.0 million at December 30, 2007, compared to $182.22007. Long-term debt was $1,831.7 million and $2,260.6 million at December 31, 2006. Long-term debt was $2,260.6 million28, 2008, and $2,129.8 million at December 30, 2007, and December 31, 2006, respectively. Debt as of the end of 2007 consists2008 consisted primarily of bondsnotes with longer-term maturities. We believe that cash flows from operations, including distributions from MillerCoors, and cash provided by short-term borrowings, when necessary, will be sufficientmore than adequate to meet our ongoing operating requirements, scheduled principal and interest payments on debt, dividend payments and anticipated capital expenditures. Our business generates positive operating cash flow, and our debt maturities are of a longer-term nature. As a result, we believe the current unstable state of the financial and credit markets will not significantly impact our liquidity in the near term. However, our liquidity could be impacted significantly by a decrease in demand for our products, which could arise from competitive circumstances, a downturn in consumer spending, a decline in the acceptability of alcohol beverages or any of the other factors we describe in Item 1A. "Risk Factors."
Operating Activities
Net cash provided by operating activities of $411.5 million for the 52 weeks ended December 28, 2008, was lower by $204.5 million from the 52-week period ending December 30, 2007. Our 2008 operating cash flow and related comparisons to 2007 were influenced by a number of discrete factors.
amounts effectively amount to prepayments of amounts that could be due over the next one to three years if aluminum and other commodity prices stay at their currently low levels.)
Net cash provided by operating activities of $616.0 million for the 52 weeks ended December 30, 2007, was lower by $217.2 million from the 53-week period ending December 31, 2006. Net income was higher by $136.2 million in 2007 versus 2006, the reasons for which are discussed in detail in the Results of Operations discussion in this section. However, various non-cash components of net income resulted in a lower amount of our expenses in 2007 versus 2006 by $135.4 million. Therefore, net income adjusted for its various non-cash components was effectively flat year over year. These non-cash components consisted of depreciation and amortization (lower in 2007 by $92.5 million), amortization of debt costs, share-based compensation and related tax benefits, gains and losses on sales of assets, impairment losses on long-lived assets, and deferred taxes. The lower operating cash flows in 2007 were therefore due primarily to cash movements associated with working capital and other assets and liabilities. Specifically, collections on accounts receivable were lower in 2007 due primarily to lower
collections in the U.K., where the 53-week year in 2006 resulted in an extra week of collections in that year. Cash paid for inventories was higher in 2007 as our Canada segment increased finished goods and packaging materials inventories in anticipation of an expansion of business in western Canada as a result of a new joint venture agreement with Modelo. Cash outflows associated with accrued expenses and other liabilities were greater in 2007 versus 2006 due to higher defined benefit pension contributions of $47.6 million, a one-time payment to a non-employer pension plan associated with our former Memphis, Tennessee, brewery of $27.6 million, and higher cash taxes of $39.2 million. Offsetting these items was lower cash paid for interest of $28.1 million.
We expect that 20082009 operating cash flows will continue to be higher than those realizedchallenged by a difficult operating environment, and MillerCoors continuing investments as part of their $500 million synergy generation initiatives. Also, our indemnity obligations to FEMSA related to our discontinued business in 2007. However, integration efforts associated with the proposed MillerCoors joint venture could result in unanticipated costs in 2008.
Our net cash provided by operating activities in 2006 was $833.2 million,Brazil represent an increase of $411.0 million from 2005. Net income was higher by $226.1 million in 2006 versus 2005. However, much of the improvement from 2005 to 2006 wasongoing risk due to the uncertain nature of those obligations. Offsetting these risks is a numberpositive pricing environment in nearly all of unfavorable itemsour markets early in 2005. First, cash paid for income taxes was lower by $162.7 million during 2006 versus 2005. Second,2009, and the expectation that MillerCoors will begin delivering substantial cost synergies in early 2005 we made a $138.0 million Canadian tax payment triggered by the Merger, a one-time liquidity event that was not repeated in 2006. Third, our pension funding in 2006 was lower by $55.1 million primarily due to a special voluntary funding to the U.S. plan in 2005. Finally, we paid out $21.0 million for Merger-related costs and severance payments to officers under change in control and severance agreements of $24.0 million in 2005.2009.
Investing Activities
Net cash used in investing activities of $269.5 million for the year ended December 28, 2008 was lower by $169.6 million compared to 2007. The primary reason for the variance between years was lower additions to properties in 2008. Higher additions in 2007 were related to the completion of the build-out and conversion of CBC's Shenandoah, Virginia facility from a packaging facility to a full brewery and packaging facility. The Shenandoah facility was contributed to MillerCoors in 2008 along with CBC's other assets and liabilities. 2007 additions also included CBL's $90.0 million expenditure for the purchase of kegs in the U.K. from our former third party logistics service provider. Investing activities were also favorable by $45.6 million due to purchases in 2007 and subsequent sales in 2008 of investment securities. We also purchased a U.K. wholesaler business for $26.7 million in 2007, with no comparable purchases in 2008. 2008 outflows included $84.3 million of cash contributed to MillerCoors at its initial formation.
Net cash used in investing activities of $439.1 million for the year ended December 30, 2007 was higher by $144.3 million compared to 2006. The primary reason for the variance between years was lower cash inflows associated with sales of assets and businesses. In 2007, these proceeds totaled approximately $38.1 million, with the largest proceeds associated with the sale of our investment in the House of Blues Canada business, which resulted in $30.0 million of proceeds. However, in 2006, we collected $145.1 million of proceeds,proceeds; specifically, we collected $79.5 million from the sale of the Kaiser business in Brazil, $36.5 million from the sale of our preferred equity interests in the MontrealMontréal Canadiens hockey club, and $29.1 million from various other sales. In 2007, we spent $26.7 million to acquire an on-premise distribution business in the U.K., while we had no business acquisitions in 2006, and invested $22.8 million in short-term investments, versus no such investments in 2006. Partially offsetting these items in 2007 versus 2006, additions to properties and intangible assets were lower by $18.0 million due primarily to higher capital additions in 2006 associated with the build-out of the Shenandoah brewery in the U.S., offset by CBL's large purchase of kegs in April 2007 of $90.0 million.
Net cash used in investing activities of $294.8 million for the year ended December 31, 2006, was lower by $17.9 million compared to the same period in 2005. Additions to properties were higher in 2006 by $40.3 million as compared to 2005, due primarily to spending in Canada and the U.S. related to the build-out of the Moncton, New Brunswick, and Elkton, Virginia, breweries. In 2006, we recognized proceeds of $83.7 million on the sale of the Kaiser business in Brazil, partially offset by $4.2 million of transaction costs. Proceeds from sales of properties and intangible assets were lower by $13.3 million year over year. 2005 proceeds included a significant collection of a note related to a 2004 sale of property in the U.K. causing proceeds to exceed 2006 levels, which included the sale of the Memphis plant in the U.S. and various real estate sales in the U.K. On June 30, 2006, as part of a general refinancing of the Montréal Canadiens Hockey team (the Club), Molson sold its preferred equity interest in the Montréal Canadiens hockey club to entities which control and own a majority interest in the Club. Total proceeds coincident with the transaction were CAD $41.6 million (USD $36.5 million). We retain a 19.9% common equity interest in the Club as well as board representation.
The transaction structure is consistent with our long-term commitment to the Club and its success, and helps to ensure the Club's long-term presence in Montréal.
Financing Activities
Our debt position significantly affects our financing activity. See Part II—Financial Statements and Supplementary Data, Item 8 Note 13 "DEBT AND CREDIT ARRANGEMENTS" to the Consolidated Financial Statements in Item 8 of this report for a summary of our debt position at December 30, 200728, 2008 and December 31, 2006.30, 2007.
Net cash used in financing activities totaled $266.9 million in 2008, compared to net cash provided of $8.4 million during 2007, an unfavorable variance of $275.3 million. We collected $150.5 million less in proceeds from employee exercises of stock options in 2008 versus 2007. During 2008, we repaid $181.3 million of long-term notes through early retirement. During 2007, our primary activities involved refinancing a significant portion of our debt portfolio by issuing $575.0 million in convertible notes, while repaying $625.0 million of our previously existing senior notes. We also spent a net $49.7 million for the purchase of a note hedge and sale of warrants associated with the convertible notes and $10.2 million for costs directly associated with the convertible notes offering.
Net cash provided by financing activities totaled $8.4 million in 2007, compared to net cash used of $401.2 million during 2006, a favorable variance of $409.7 million. We collected $126.2 million more in proceeds from employee exercises of stock options in 2007 versus 2006. DuringDebt-related cash flows during 2007 our primary activities involved refinancing a significant portion of our debt portfolio by issuing $575.0 million in convertible notes, while repaying $625.0��million of our previously existing senior notes. We also spent a net $49.7 million for the purchase of a note hedge and sale of warrants associated with the convertible notes and $10.2 million for costs directly associated with the convertible notes offering.were discussed above. During 2006, most of our activity associated with debt obligations was associated with repayments, which totaled $355.4 million.
Net cash used for financing activities was $401.2 million for 2006 compared to $188.8 million of cash used in financing activities during 2005. Net repayments of debt were approximately $356.2 million for 2006, encompassing all activity in our various debt and credit facilities (including those associated with discontinued operations). Net repayments of debt during 2005 were approximately $108.9 million (including those associated with discontinued operations). The increased levels of debt repayment were due primarily to a higher level of operating cash flows generated by the business in 2006 versus 2005. Proceeds from stock option exercises in 2006 were $83.3 million exceeding 2005 exercises by $28.1 million. Proceeds in 2006 were impacted by significant exercises of stock options during the fourth quarter.
Capital Resources
See Part II—Financial Statements and Supplementary Data, Item 8 Note 13 "DEBT AND CREDIT ARRANGEMENTS" to the Consolidated Financial Statements in Item 8, for a complete discussion and presentation of all borrowings and available sources of borrowing, including lines of credit. Additionally, asAs discussed in the Financing Activities section above, during the second quarter of 2007, we issued $575.0 million of senior convertible notes, with a coupon rate of interest of 2.5%. In the third quarter of 2007, we used the proceeds of the convertible notes issuance, combined with other sources of cash, to retire $625.0 million of 6.375% senior notes due 2012 and fund additional related charges as noted above.
The vast majority of our remaining debt borrowings as of December 30, 2007, consist of publicly traded notes totaling $2.1 billion principal amount, with maturities ranging from 2010 to 2015. Our remaining debt other than the notes consists of various notes payable of $215.9 million at consolidated joint ventures, which mature in 2011 and 2013. We maintain two primary financing vehicles to manage short-term liquidity requirements through periods of lower operating cash flow. First, we maintain a $500 million commercial paper program. As a back-stop for our commercial paper program we maintain a $750 million revolving multi-currency bank credit facility. There were no outstanding borrowings under either of these financing vehicles as of December 30, 2007.
We expect to take a balanced approach to our alternatives in 2008 and beyond, which could include restructuring of consolidated joint venture debt obligations, modest repurchases of stock, dividend increases, pension plan funding elections, reinvesting cash into our existing businesses and preserving cash flexibility for potential strategic investments. Any repurchases of MCBC stock on the open market would require a board-approved plan, which does not currently exist.
On February 7, 2008, we announced a tender for and repurchase of any and all principal amount of our remaining 6.375% $225 million Senior Notes due 2012, with the tender period running through February 14, 2008. The amount actually repurchased was $180.4 million. The net costs of $11.7$12.4 million related to this extinguishment of debt and termination of related interest rate swaps will bewas recorded in the first quarter of 2008. The debt extinguishment was funded by existing cash resources.
The vast majority of our remaining debt borrowings as of December 28, 2008, consisted of publicly traded notes totaling $1.7 billion principal amount, with maturities ranging from 2010 to 2015. Our remaining debt other than the notes consists of various notes payable of $176.0 million at consolidated
joint ventures, which mature in 2011. We maintain a $750 million revolving multi-currency bank credit facility to manage short-term liquidity requirements through periods of lower operating cash flow. There were no outstanding borrowings under this financing vehicle as of December 28, 2008. We maintained a $500 million commercial paper program through 2008 and in prior years. We had not borrowed under the commercial paper program since 2006. In consideration of the costs to maintain the program, as well as the relatively high interest costs that would be incurred should we borrow under the program given our credit rating standings and the current financial credit markets, we anticipate that we will close our commercial paper program in February 2009.
While the start-up of MillerCoors entails potential demands for capital for integration and restructuring efforts, we will need to consider different alternatives for the use of cash generated from operations. We expect to take a balanced approach to our alternatives in 2009 and beyond, which could include pension plan funding elections, dividend increases, stock repurchases, reinvesting cash into our existing businesses and preserving cash flexibility for potential strategic investments. Any repurchases of MCBC stock on the open market would require a board-approved plan, which does not currently exist.
Credit markets in the United States and across the globe are currently unstable due to the recent financial crisis. Based on communications with lenders that are party to our $750 million committed credit facility, we have no indication of any issues with our ability to draw on such credit facility if the need arose. We currently have no borrowings outstanding under this facility.
Credit Rating
AsOn July 3, 2008, Moody's affirmed our Baa2/Prime2 ratings and changed the outlook to positive from developing, following the formation of February 15, 2008, ourMillerCoors. Our long-term credit rating with Standard &and Poor's is BBB. On February 11, 2009, Standard and Moody'sPoor's announced it had placed MCBC on credit watch with regardnegative implications. Standard and Poor's indicated that if any downgrade were to occur, it would be limited to one notch (BBB-), which is still "investment grade," but only one notch above "below investment grade." Any future downgrade to "below investment grade" would increase borrowing costs under our long-term debt was BBBrevolving line of credit (under which there were no borrowings as of December 28, 2008), and Baa2, respectively. We had no commercial paper borrowings outstanding at December 30, 2007.trigger certain collateral requirements on out-of-the money derivative liabilities, as discussed in Part II—Financial Statements and Supplementary Data, Item 8 Note 18 "DERIVATIVE INSTRUMENTS" to the Consolidated Financial Statements.
MillerCoors
AsMillerCoors distributes its excess cash to its owners, SABMiller and MCBC, on a result of the announcement of the proposed58%/42% basis, respectively. MillerCoors joint venture, credit rating agenciesdoes not carry significant debt obligations, and there are no restrictions from external sources on its ability to make cash distributions to its owners. However, we expect that our 2009 operating cash flows and investing cash flows will be unfavorably impacted by MillerCoors' internal cash flow requirements. We anticipate that MillerCoors will spend approximately $170 million in the U.S.2009 related to restructuring and Canada (Moody'sintegration costs, and DBRS) have placed MCBC's credit standingcapital spending, to capture synergies. Also, MillerCoors' contributions to its defined benefit pension plans are expected to be $100-$140 million in developing status.2009.
Capital Expenditures
In 2007,2008, we spent $428.3$230.5 million (including approximately $16.3$21.4 million spent at consolidated joint ventures) on capital improvement projects worldwide. Of this, approximately 42%38% was in support of the EuropeanU.K. segment, with the remainder split between the U.S. (33%first half of 2008 (24%), Canada (22%(32%) and Global Markets and Corporate (2%(6%) segments.. The capital expenditure plan for 20082009 is expected to be approximately $315$140 million, including approximately $35 million of spending byexcluding MillerCoors and our consolidated joint ventures. Capital expenditures in 2008 are expected to be lower than 2007 primarily due to the completion
Contractual Obligations and Commercial Commitments
Contractual Cash Obligations as of December 30, 200728, 2008
| | Payments due by period | | Payments due by period | |||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | | Total | Less than 1 year | 1 - 3 years | 3 - 5 years | More than 5 years | |||||||||||||||||||||
| | (In thousands) | | (In millions) | |||||||||||||||||||||||||||||
Total debt, including current maturities(1) | Total debt, including current maturities(1) | $ | 2,264,877 | $ | 4,281 | $ | 308,452 | $ | 456,452 | $ | 1,495,692 | Total debt, including current maturities(1) | $ | 1,831.8 | $ | 0.1 | $ | 476.1 | $ | 619.4 | $ | 736.2 | |||||||||||
Interest payments(2) | Interest payments(2) | 590,593 | 105,233 | 205,457 | 147,808 | 132,095 | Interest payments(2) | 380.3 | 80.9 | 137.2 | 97.6 | 64.6 | |||||||||||||||||||||
Derivative payments(2) | Derivative payments(2) | 3,280,682 | 163,317 | 677,980 | 2,439,385 | — | Derivative payments(2) | 2,525.8 | 117.3 | 590.2 | 1,818.3 | — | |||||||||||||||||||||
Retirement plan expenditures(3) | Retirement plan expenditures(3) | 498,145 | 193,482 | 66,550 | 70,243 | 167,870 | Retirement plan expenditures(3) | 184.2 | 78.5 | 19.7 | 21.8 | 64.2 | |||||||||||||||||||||
Operating leases | Operating leases | 323,207 | 77,413 | 109,774 | 59,465 | 76,555 | Operating leases | 225.5 | 53.8 | 77.2 | 45.6 | 48.9 | |||||||||||||||||||||
Capital leases | Capital leases | 2,123 | 1,092 | 783 | 248 | — | Capital leases | 0.4 | 0.4 | — | — | — | |||||||||||||||||||||
Other long-term obligations(4) | Other long-term obligations(4) | 2,873,666 | 1,078,821 | 962,844 | 438,154 | 393,847 | Other long-term obligations(4) | 3,750.4 | 634.0 | 1,147.4 | 406.8 | 1,562.2 | |||||||||||||||||||||
Total obligations | $ | 9,833,293 | $ | 1,623,639 | $ | 2,331,840 | $ | 3,611,755 | $ | 2,266,059 | Total obligations | $ | 8,898.4 | $ | 965.0 | $ | 2,447.8 | $ | 3,009.5 | $ | 2,476.1 | ||||||||||||
200728, 2008 exchange rates) payment due the cross currency swap counterparty in 2012, and CAD $355 million ($362291 million at December 30, 200728, 2008 exchange rates) payment due the cross currency swap counterparty in 2010.2010, and CAD $100 million ($82 million at December 28, 2008 exchange rates) payment due the cross currency swap counterparty in 20011. Current floating interest rates and currency exchange rates are assumed to be constant throughout the periods presented. We anticipate receiving a total of $2,685$2,315 million in fixed and floating rate payments from our counterparties under the swap arrangements, which offset the payments included in the table. As interest rates increase, payments to or receipts from our counterparties will also increase. Net interest payments, including swap receipts and payments over the periods are as follows (in thousands):
| Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
$ | 1,132,409 | $ | 118,831 | $ | 288,027 | $ | 593,456 | $ | 132,095 |
Net interest payments, including swap receipts and payments by period | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Total | Less than 1 year | 1 - 3 years | 3 - 5 years | More than 5 years | ||||||||||
(In millions) | ||||||||||||||
$ | 590.6 | $ | 78.8 | $ | 128.0 | $ | 319.2 | $ | 64.6 |
Not included in these contractual cash obligations are $285.9$230.4 million of unrecognized tax benefits and $124.8 million of indemnities provided to FEMSA for which we are unable to make estimates for timing of theany related cash payments.
Other Commercial Commitments as of December 30, 200728, 2008
| Amount of commitment expiration per period | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Total amounts committed | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | ||||||||||
| (In thousands) | ||||||||||||||
Standby letters of credit | $ | 58,022 | $ | 57,392 | $ | 630 | $ | — | $ | — |
| Amount of commitment expiration per period | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Total amounts committed | Less than 1 year | 1 - 3 years | 3 - 5 years | More than 5 years | |||||||||||
| (In millions) | |||||||||||||||
Standby letters of credit | $ | 34.5 | $ | 34.5 | $ | — | $ | — | $ | — |
Advertising and Promotions
As of December 31, 2007,28, 2008, our aggregate commitments for advertising and promotions, including marketing at sports arenas, stadiums and other venues and events, total approximately $1.1 billion$281 million over the next five years and thereafter. Our advertising and promotions commitments are included in other long-term obligations in the contractual cash obligations table above.
Pension Plans
Our consolidated, unfunded pension position at the end of 20072008 was approximately $175$319 million, a decreasean increase of $184$144 million from the end of 2006. The funded positions of pension plans2007. Our unfunded position in eachthe U.K. increased from $91.3 million at the end of the Canada, U.S. and U.K. businesses improved due2007 to asset returns, higher interest rates (which have$222.9 million at the effectend of decreasing2008, despite employer contributions of $127.5 million, actuarial gains to the discounted pension liabilities)benefit obligation of $167.1 million (due mainly to a higher discount rate in 2008), contributionsand a $98.5 million reduction to the plans,net liability as a result of foreign exchange translation (GBP weakened versus the USD during 2008). Offsetting these items was a $371.0 million loss on plan changesassets. Our unfunded position in Canada increased from $63.6 million to $89.2 million, despite $100.4 million of employer contributions, actuarial gains to the discounted benefit obligation of $197.1 million (due mainly to a higher discount rate in 2008), and reductionsa $25.6 million reduction to the net liability as a result of foreign exchange translation (CAD weakened versus the USD during 2008). Offsetting these items was a $194.5 million loss on plan assets. Our contribution of the CBC pension plan to MillerCoors had little impact because it was largely funded at the end of 2007. The decline in U.K. staffing levels.the market value of the plans' assets was the result of the global financial and economic crisis in late 2008. Approximately $49$29.6 million of the underfunded pension position at the end of 20072008 was the responsibility of the minority owners of BRI. See discussion below regardingPart II—Financial Statements and Supplementary Data, Item 8 Note 16 "EMPLOYEE RETIREMENT PLANS" to the adoptionConsolidated Financial Statements for more detail on the funded status ofSFAS No. 158 "Employers' Accounting for Defined Benefit Pension and Other Postretirement Benefits—an amendment of FASB Statements No. 87, 88, 106, and 132(R)." these plans.
We fund pension plans to meet the minimum requirements set forth in applicable employee benefits laws. Sometimes we voluntarily increase funding levels to meet expense and asset return forecasts in any given year. Pension contributions on a consolidated basis were $203$228.6 million in 2007, reflecting statutory2008, which include a discretionary $100 million contribution levels in Canada and the United Kingdom, and $1.3 million of voluntary contributions in the United States.Kingdom. MillerCoors contributed $71 million to its pension plans in the last half of 2008. We anticipate making approximately $164$69.4 million (including approximately $20.8 million at consolidated joint ventures) of both statutory and voluntary contributions to our pension plans in 2008.
Consolidated2009. We have taken numerous steps in recent years to reduce our exposure to these long-term obligations, including the closure of the U.K. pension expense was $21 millionplan to future earning of service credit in 2007, a decreaselate 2008. However, the cash requirements of $12 million from 2006. Decreases inthese plans, and their dependence upon the U.S. and Canadaglobal financial markets for their financial health, will continue to require potentially significant amounts of $10 million and $2 million, respectively, were attributable mainly to higher expected returns on plan assets in 2007. We anticipate pension expense on a consolidated basis for 2008 to approximate $23 million.cash funding.
Postretirement Benefit Plans
Our consolidated, unfunded postretirement benefit position at the end of 20072008 was approximately $470$210.2 million, an increasea decrease of $68$259.8 million from the end of 2006.2007. Benefits paid under our postretirement benefit plans were approximately $25$17.6 million in 20072008 and $22$24.5 million in 2006.2007. The largest component of this decrease was the contribution of the U.S. plan to MillerCoors, which had $146.3 million unfunded position when contributed. Actuarial gains due to higher discount rates and
liability reductions due to foreign exchange translation accounted for the remainder of the decrease. Under our postretirement benefit plans, we expect payments of approximately $30$9.1 million in 2008.2009. See discussion below regardingPart II—Financial Statements and Supplementary Data, Item 8 Note 17 "POSTRETIREMENT BENEFITS" to the adoption ofSFAS No. 158 "Employers' AccountingConsolidated Financial Statements for Defined Benefit Pension and Other Postretirement Benefits—an amendment of FASB Statements No. 87, 88, 106, and 132(R)."
Consolidated postretirement benefit expense was $39.3 million in 2007, an increase of $4.1 million from 2006, attributable mainly to our Canada segmentmore detail on these plans. We anticipate postretirement benefit expense on a consolidated basis for 2008 of approximately $32 million.
Contingencies
In the ordinary course of business or in the course of the sale of a business, we enter into contractual arrangements under which we may agree to indemnify third-parties from any losses or guarantees incurred relating to pre-existing conditions for losses or guarantees arising from certain events as defined within the particular contract, which may include, for example, litigation or claims relating to past performance. Such indemnification obligations may not be subject to maximum loss clauses. See Part II—Financial Statements and Supplementary Data, Item 8 Note 20 "COMMITMENTS AND CONTINGENCIES" to the Consolidated Financial Statements in Item 8 under the captions "Environmental,"Environmental," "Indemnity"Indemnity Obligations—Sale of Kaiser"Kaiser" and "MontréSee Part II—Financial Statements and Supplementary Data, Item 8 Note 3 "EQUITY INVESTMENTS" to the Consolidated Financial Statements under the caption "Montréal Canadiens.Canadiens."
MillerCoors-Sparks
Sparks, a MillerCoors brand, is a leading product in the caffeinated alcohol beverages category. During 2008, a task force of the National Association of Attorneys General, the umbrella organization for the states' attorneys general in the U.S., had expressed concern about this category and product (collectively, the "AGs' Investigations"). In December 2008, MillerCoors reached an agreement with the AGs to reformulate the Sparks products to remove all caffeine, guarana, ginseng and taurine. In addition, with limited exceptions, MillerCoors agreed to not produce any additional products containing caffeine or guarana, and also made certain changes to its marketing to reflect concerns raised by the AGs. MillerCoors also agreed to pay $0.6 million for the costs of the AGs' Investigations.
In September 2008, a public interest litigation group filed suit against MillerCoors in a local court in the District of Columbia, alleging thatSparks is an "adulterated product" because it contains caffeine and other ingredients that the group claims have not been determined by the U.S. Food & Drug Administration (FDA) to be generally recognized as safe for use in alcoholic beverages (D.C. Superior Court No. 2008 CA 6605). Because of the above-referenced AG agreement, MillerCoors is confident that this lawsuit will be dismissed.
Off-Balance Sheet Arrangements
As of December 30, 2007,28, 2008, we did not have any material off-balance sheet arrangements (as defined in Item 303(a)(4)(ii) of Regulation S-K).
Outlook for 20082009
We will continue our quest to becomefocus on being a world-class, brand-led Company. We will promote our strategic brands by investing in the "front end" of our business—our marketing and sales activities. We will do so with a complete commitment to corporate social responsibility. For 2008 and beyond,
In 2009, we will remain focusedcontinue to focus on building strong brands, and reducing costs in each of our segments to provide additional resources for growth. The results are encouraging:
To continue our brand building progress:generating cash.
our brands, while ensuring that we continue to be price competitive on a market-by-market basis. Also, late in 2008,Blue Moon production was moved from our Montréal brewery to MillerCoors, and we have taken action to reduce staffing levels and other costs to offset the momentumnegative financial impact of Coors Light, including leveraging the successful launch of the "Cold Certified" can and will introduce new advertising for all of the Molson brands.lower production levels.
There are a few additional considerations regarding sales volume in 2008:
Regarding costs, our management teams continue to exceed their goals for reducing costs in each segment.business. The current inflationary environment presents a significant challenge coupled with the seasonally small profit fourth quarter, which will compound the margin impactfor us to overcome by continuing to drive pricing and cost savings across many areas of inflation.our business.
Finally, with initiatives already underwayregard to foreign currency impacts, if the Canadian Dollar and British Pound remain consistent relative to the U.S. Dollar, we may face substantial currency translation impacts in the supply chainfirst three quarters of 2009 when compared with the 2008 actual results for those periods:
Beginning in 2007 thatthe first quarter of 2009, we expect to deconsolidate Brewers Retail Inc. ("BRI"), which operates the Ontario beer stores. BRI is a variable interest entity, and until now we have entered into an agreement with Scottish & Newcastleheld a majority of the variable interests in it, requiring its consolidation. Since our variable interests are based on market share and usage levels of BRI's services, another variable interest holder's acquisition activity has caused our variable interests to contract brew and keg selected Scottish & Newcastle lager brands. Brewing will begin arounddecrease, causing us to no longer be the middle of 2008 and reach full production in 2010, whenprimary beneficiary. Upon deconsolidation we will be producing up to 2.6 million barrels (3 million hectolitres) of lageraccount for Scottish & Newcastle annually. This will generate additional income and fixed cost leverage in our U.K. brewing footprint.
MillerCoors joint venture
On October 9, 2007, MCBC and SABMiller plc (the investing companies) announced that they signed a letter of intent to combine the U.S. and Puerto Rico operations of their respective subsidiaries, CBC and Miller Brewing Company, in a joint venture ("MillerCoors"). Assuming completion of the transaction, MillerCoors will have annual pro forma combined beer sales of 69 million U.S. barrels (81 million hectoliters) and net revenues of approximately $6.6 billion. MCBC and SABMiller expect the transaction to generate approximately $500 million in annual cost synergies to be delivered in full by the third full financial year of combined operations. The parties signed a definitive joint venture agreement on December 20, 2007 and expect the transaction to close in mid-2008. Additional information regarding the rationale for the transaction is provided in Item 1, Business, under the caption "Joint Ventures and Other Arrangements."
Each party will contribute its business and related operating assets and certain liabilities into an operating joint venture company. The percentage interests in the profits of the joint venture will be 58% for SABMiller plc and 42% for MCBC. Voting interests will be shared 50%-50%, and each investing company will have equal board representation within the joint venture company. Each party to the joint venture has agreed not to transfer its economic or voting interests in the joint venture for a period of five years, and certain rights of first refusal will apply to any subsequent assignment of such interests.
The results and financial position of our U.S. segment will, in all material respects, be de-consolidated upon contribution to the joint venture. We will report our interest in the new combined operationsBRI using the equity method of accounting.
The proposed joint venture transaction has been submitted for antitrust review This change will decrease Canada pretax income and clearance bydecrease Corporate interest expense a similar amount, resulting in no significant impact on consolidated results of operations. In 2008, we reported approximately $10 million related to BRI pretax income and interest expense. Upon adoption of FASB issued Financial Accounting Standards No. 160, "Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51" ("SFAS 160"), we may record a one-time gain or loss related to deconsolidation of BRI as we apply fair value accounting to the U.S. Departmentdeconsolidation of Justice under the Hart-Scott-Rodino Act of 1976, as amended, and to certain other applicable governmental authorities.this entity.
Global Markets and Corporate
We forecast full-year 20082009 global markets and corporate general and administrative expense of approximately $110$150 million, plus or minus $5 million. Approximately, one-fifth of this expense is related to our Resources for Growth cost-reduction program.
Goodwill
Because there is goodwill included in the carrying value of our three segments, the fair value of the applicable reporting unit was compared to its carrying value during the third quarter of 2007 to determine whether there was any goodwill impairment. Most of the goodwill associated with the U.S. and Canada segments originated in the Merger. Similarly, we tested indefinite-lived intangible assets for impairment during the third quarter of 2007, most of which relate to our Canada and Europe segments.
A portion of the Merger goodwill was allocated to the U.S. segment, based on the level of Merger synergy savings expected to accrue to the U.S. segment over time. Our testing during the third quarter of 2007 indicated that the fair values of the reporting units in the U.S. and Canada exceeded their carrying values, resulting in no impairments of goodwill in 2007. However, a reduction in the fair value of the U.S. or Canada segment in the future could lead to goodwill impairment. We also have significant indefinite-lived intangible assets in Canada, associated primarily with core, non-core, and partner beer brands, as well as distribution rights. These intangible assets were also evaluated for impairment during the third quarter of 2007, and we determined that their fair values exceeded their carrying values. A reduction in the fair values of these intangibles could lead to impairment charges in the future. Reductions in fair value could occur for a number of reasons, including cost increases due to inflation, an unfavorable beer pricing environment, declines in industry or company-specific beer volume sales, termination of brewing and/or distribution agreements with other brewers.
The goodwill associated with the Europe segment originated in the 2002 purchase of the CBL business by Coors. Our testing during the third quarter of 2007 indicated that the fair value of the CBL reporting unit exceeded its carrying value, resulting in no impairments of goodwill. However, a slight reduction in the fair value of the CBL reporting unit in the future could lead to goodwill impairment. We also have a significant indefinite-lived intangible asset in Europe, associated with the Carling brand, which was also tested in the third quarter of 2007, and no impairment was warranted. Future reductions in the fair value of the Europe business or of specific intangibles could occur for a number of reasons, including cost increases due to inflation, an unfavorable beer pricing environment, and declines in industry or company-specific beer volume sales, which could result in possible impairment of these assets.5%.
Interest
We anticipate 20082009 corporate net interest expense of approximately $95$90 million to $100 million,at December 28, 2008 foreign exchange rates, excluding the debt extinguishment costs and U.K. trade loan interest income. This $13 million reduction from 2007 is attributable to the debt repayments and debt restructurings we have undertaken in the past year to strengthen our financial foundation, partially offset by the interest cost as a result of the stronger CAD.
Tax
Our tax rate is volatile and may move up or down with changes in, among other things, the amount and source of income or loss, our ability to utilize foreign tax credits, changes in tax laws, and the movement of liabilities established pursuant to FIN 48 for uncertain tax positions as statute of limitations expire or positions are otherwise effectively settled. During 2008,2009, the Company expects to recognize a $50 to $60 million income tax benefit due to a reduction in unrecognized tax benefits. This income tax benefit is primarily due to penalties and interest associated with issues subject to audits that we believe are going to close in the next year. As a result, we anticipate that our 20082009 effective tax rate on income will be in the range of 10%16% to 15%20%. We note, however, that there are other pending tax law changes in Canada that, if enacted, would result in an approximate $120$100 million additional decrease to the unrecognized tax benefits.benefit liabilities. This one-time, non-cash income tax benefit would be recognized in the quarter in which the bill is enacted. In addition, there are other pending law changes in the U.S., U.K., and Canada that, if enacted, could have an impact on our effective tax rate.
Other
During the first quarter of 2008, we signed a contract with a third-party service provider to outsource a significant portion of our general and administrative back office functions in all of our operating segments and in our corporate office. This outsourcing initiative is a key component of our Resources for Growth cost reduction program. We expect to incur both transition costs and one-time employee termination costs associated during 2008 with this outsourcing initiative.
Critical Accounting Policies and Estimates
Management's discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. We review our accounting policies on an on-going basis. The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances. By their nature, estimates are subject to uncertainty. Actual results may differ materially from these estimates under different assumptions or conditions. We have identified the accounting estimates below as critical to our financial condition and results of operations.
Pension and Postretirement Benefits
We have defined benefit plans that cover the majority of our employees in Canada the United States, and the United Kingdom. We also have postretirement welfare plans in Canada and the United States that provide medical benefits for retirees and eligible dependents and life insurance for certain retirees. The accounting for these plans is subject to the guidance provided in Statement of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions" ("SFAS 87") and Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions" ("SFAS 106") andSFAS No. 158 "Employers' Accounting for Defined Benefit Pension and Other Postretirement Benefits—an amendment of FASB Statements No. 87, 88, 106, and 132(R).". These statements require that management make certain assumptions relating to the long-term rate of return on plan assets, discount rates used to measure future obligations and expenses, salary increases, inflation, health care cost trend rates and other assumptions. We believe that the accounting estimates related to our pension and postretirement plans are critical accounting estimates because they are highly susceptible to change from period to period based on market conditions.
At the end of each fiscal year, we perform an analysis of high quality corporate bonds and compare the results to appropriate indices and industry trends to support the discount rates used in determining our pension liabilities in Canada, the United States, and the United Kingdom.Canada. We reference a published bond index rate whose duration reflects our obligations in determining our discount rate with respect to U.K. pension liabilities. Discount rates and expected rates of return on plan assets are selected at the end of a given fiscal year and impact expense in the subsequent year. A 50 basis point change in certain assumptions made at the beginning of 20072008 would have had the following effects on 20072008 pension expense:
| Impact to 2007 pension costs -50 basis points (unfavorable) favorable | ||||||
---|---|---|---|---|---|---|---|
| Reduction | Increase | |||||
| (In millions) | ||||||
Description of pension sensitivity item | |||||||
Expected return on Canada salary plan assets, 5.00% in 2007 | $ | (1.6 | ) | $ | 1.6 | ||
Expected return on Canada hourly plan assets, 7.90% in 2007 | $ | (3.8 | ) | $ | 3.8 | ||
Expected return on Canada—BRI plan assets, 7.50% in 2007 | $ | (2.8 | ) | $ | 2.8 | ||
Expected return on U.S. plan assets, 8.75% in 2007 | $ | (4.0 | ) | $ | 4.0 | ||
Expected return on U.K. plan assets, 7.80% in 2007 | $ | (10.4 | ) | $ | 10.4 | ||
Discount rate on Canada salary projected benefit obligation, 5.00% in 2007 | $ | 0.6 | $ | (0.5 | ) | ||
Discount rate on Canada hourly projected benefit obligation, 5.00% in 2007 | $ | (1.0 | ) | $ | 0.4 | ||
Discount rate on Canada—BRI projected benefit obligation, 5.00% in 2007 | $ | (1.7 | ) | $ | 1.2 | ||
Discount rate on U.S. projected benefit obligation, 6.10% in 2007 | $ | (4.4 | ) | $ | 5.0 | ||
Discount rate on U.K. projected benefit obligation, 5.10% in 2007 | $ | (15.6 | ) | $ | 5.2 |
| Impact to 2008 pension costs -50 basis points (unfavorable) favorable | ||||||
---|---|---|---|---|---|---|---|
Description of pension sensitivity item | Reduction | Increase | |||||
| (In millions) | ||||||
Expected return on Canada salary plan assets, 4.90% | $ | (1.3 | ) | $ | 1.3 | ||
Expected return on Canada hourly plan assets, 7.85% | $ | (3.4 | ) | $ | 3.4 | ||
Expected return on Canada—BRI plan assets, 7.60% | $ | (2.3 | ) | $ | 2.3 | ||
Expected return on U.K. plan assets, 7.50% | $ | (7.8 | ) | $ | 7.8 | ||
Discount rate on Canada salary pension expense, 5.25% | $ | 0.5 | $ | (0.4 | ) | ||
Discount rate on Canada hourly pension expense, 5.25% | $ | (0.2 | ) | $ | 0.1 | ||
Discount rate on Canada—BRI pension expense, 5.25% | $ | (1.4 | ) | $ | 1.4 | ||
Discount rate on U.S. pension expense, 6.45% | $ | — | $ | — | |||
Discount rate on U.K. pension expense, 6.00% | $ | (12.8 | ) | $ | 2.2 |
Certain components of pension and postretirement benefits expense are impacted by methodologies that normalize, or "smooth," changes to the funded status of the liabilities with respect to their recognition in the income statement. We employ two primary methodologies in this respect: the "market-related value" approach for assets valuation and the "corridor approach" for amortizing actuarial gains and losses.
expected return on plan assets (a component of pension expense) will be calculated. However, those losses continue to be amortized into the "market-related value" pools of assets through 2013. Therefore, if asset values do not recover or recover more slowly than they declined, future years' pension expense will continue to be impacted by the losses experienced in late 2008.
Such gains and losses impact the funded status of our plans when they are measured, with an offset in other comprehensive income, thereby deferring their recognition in the income statement. We employ a "corridor" approach for determining the potential amortization of these gains and losses as a component of pension and postretirement plans' expense. To the extent gains and losses are greater than a set threshold or "outside the corridor," the difference is amortized over the remaining working life of the plan's participants. If a plan has been closed, such as our U.K. Plan as of April 1, 2009, the remaining life of all plan participants (including retirees) is used for the amortization period. The corridor is defined as the greater of 10% of a plan's projected benefit obligation or 10% of a plan's assets.
The "market-related value" approach for asset impacts the amortization of gains and losses because any one year's plan assets' gains or losses are amortized over a five year period (20% per year) when determining the gains and losses to be compared to the 10% corridor. Similar to the impact on expected return on plan assets discussed above, this may result in significant movements in pension expense for several years following a significant loss or gain, such as the loss we experienced in 2008 due to the global financial crisis.
Additionally, increases in discount rates, such as we experienced in 2008, created gains in our plans, which offset asset losses within the corridor. As a result, we will reflect little if any amortization of gains or losses in 2009 pension expense for the U.K. and Canada plans because their relevant gains and losses are inside the corridor. However, the significant asset losses from late 2008 will continue to enter into the calculation of gains and losses to be compared against the corridor through 2013. To the extent that asset values do not recover, or do not recover as rapidly as they declined, this factor creates risk of higher pension expense in future years due to the potential amortization of losses.
The table above demonstrates the potential impact of the amortization of gains and losses, specifically with regard to the last line showing the hypothetical impact on 2008 pension expense of a 50 basis point decrease the U.K. plan's discount rate. Had the discount rate chosen for the U.K. plan at the end of 2007 been 5.5% instead of 6.0%, the U.K. plan's losses would have exceeded the corridor and higher pension expense for 2008 in the amount of $12.8 million would have been recognized due the amortization of a portion of those losses.
MillerCoors also employs a corridor approach with regard to amortizing gains and losses present in their pension and postretirement plans. However, MillerCoors uses the "market value" approach to determine plan asset gains and losses to be compared to the corridor, meaning there is no smoothing of those asset gains and losses over five years. As a result, MillerCoors pension expense is subject to additional volatility when compared to MCBC's plan. As a result, their 2009 pension expense will be significantly higher than 2008 pension expense, unfavorably impacting our equity method income in 2009 from MillerCoors.
See Part II—Financial Statements and Supplementary Data, Item 8 Note 16 "EMPLOYEE RETIREMENT PLANS" and Note 17 "POSTRETIREMENT BENEFITS" to the Consolidated Financial Statements, for further information about the financial status of these plans.
Assumed health care cost trend rates have a significant effect on the amounts reported for the retiree health care plan. A one-percentage-pointone-percentage point change in assumed health care cost trend rates would have the following effects:
| 1% point increase (unfavorable) | 1% point decrease favorable | 1% point increase (unfavorable) | 1% point decrease favorable | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In millions) | (In millions) | |||||||||||
Canada plans (Molson) | |||||||||||||
Effect on total of service and interest cost components | $ | (1.8 | ) | $ | 2.0 | $ | (1.7 | ) | $ | 1.4 | |||
Effect on postretirement benefit obligation | $ | (19.9 | ) | $ | 21.9 | $ | (13.4 | ) | $ | 12.2 | |||
Canada plans (BRI) | |||||||||||||
Effect on total of service and interest cost components | $ | (1.0 | ) | $ | 1.3 | $ | (1.1 | ) | $ | 0.8 | |||
Effect on postretirement benefit obligation | $ | (9.9 | ) | $ | 11.8 | $ | (7.8 | ) | $ | 6.5 | |||
U.S. plan | |||||||||||||
Effect on total of service and interest cost components | $ | (0.7 | ) | $ | 0.8 | $ | (0.5 | ) | $ | 0.4 | |||
Effect on postretirement benefit obligation | $ | (8.1 | ) | $ | 9.0 | $ | (0.2 | ) | $ | 0.2 |
Equity assets are well diversified between domestic and other international investments, with additional diversification in the domestic category through allocations to large-cap, small-cap and growth and value investments. Relative allocations reflect the demographics of the respective plan
participants. The following compares target asset allocation percentages with actual asset allocations at December 30, 2007:28, 2008:
| Canada plans assets | U.S. plan assets | U.K. plan assets | Canada plans assets | U.K. plan assets | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Target allocations | Actual allocations | Target allocations | Actual allocations | Target allocations | Actual allocations | Target allocations | Actual allocations | Target allocations | Actual allocations | ||||||||||||||||
Equities | 53 | % | 51 | % | 46 | % | 43 | % | 53 | % | 53 | % | 42.0 | % | 35.2 | % | 50.0 | % | 43.3 | % | ||||||
Fixed income | 47 | % | 49 | % | 45 | % | 48 | % | 40 | % | 40 | % | 58.0 | % | 64.3 | % | 40.0 | % | 42.3 | % | ||||||
Real estate | — | — | 9 | % | 9 | % | 7 | % | 7 | % | 0.0 | % | 0.0 | % | 7.0 | % | 6.5 | % | ||||||||
Other | 0.0 | % | 0.5 | % | 3.0 | % | 7.9 | % |
Contingencies, Environmental and Litigation Reserves
We estimate the range of liability related to environmental matters or other legal actions where the amount and range of loss can be estimated. We record our best estimate of a loss when the loss is considered probable. As additional information becomes available, we assess the potential liability related to any pending matter and revise our estimates. Costs that extend the life, increase the capacity or improve the safety or efficiency of Company-ownedcompany-owned assets or are incurred to mitigate or prevent future environmental contamination may be capitalized. Other environmental costs are expensed when incurred. We also expense legal costs as incurred. See Part II—Financial Statements and Supplementary Data, Item 8 Note 20 "COMMITMENTS AND CONTINGENCIES" to the Consolidated Financial Statements in Item 8 for a discussion of our contingencies, environmental and litigation reserves at December 30, 2007.28, 2008.
In 2006, we sold our interest in the Kaiser business. While we reduced our risk profile as a result of this transaction, we retained risk by providing indemnities to the buyer for certain purchased tax credits and for other tax, labor and civil contingencies in general. These are referenced in the section called "Contingencies" above and discussed in Part II—Financial Statements and Supplementary Data, Item 8 Note 20 "COMMITMENTS AND CONTINGENCIES" to the Consolidated Financial Statements in Item 8. We account for these indemnity obligations at fair value in accordance with FASB Interpretation No. 45 ("FIN 45"),Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. We do not amortize these liabilities, but rather make periodic estimates of their fair values, and record changes in these values through discontinued operations on the statement of operations.Statements.
We use multiple probability-weighted scenarios in determining the fair values of indemnity liabilities. As discussed in Part II—Financial Statements and Supplementary Data, Item 8 Note 20
"COMMITMENTS AND CONTINGENCIES" to the Consolidated Financial Statements, in Item 8, we have recorded a fairprobable loss liabilities of $51.4 million and have estimated the value liability of $116.7 million related to contingenciesthe indemnity liability associated with purchased tax credits at $69.3 million, based on a total exposure of $382.0$306.0 million with regard to those liabilities. Our estimates assume an 80% likelihood thatIf the claims will progress through judicial processes, and assume equally likely scenarios (i.e., 40%-40%) of 1) no payments ever occurring and 2) payments of the full exposure in future years with potential refunds in years following the initial payment. Ifindemnity obligations were recorded as probable losses, our estimate were adjusted to assume a full 80% probability of some payment occurring (rather than 40%), the value of the liabilityliabilities would increasehave been higher by $67.2approximately $17.1 million to $183.9 million.at December 28, 2008.
Goodwill and Other Intangible Asset Valuation
We evaluate the carrying value of our goodwill and indefinite-lived intangible assets for impairment annually, and we evaluate our other intangible assets for impairment when there is evidence that certain events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. We completed the evaluations of goodwill and indefinite-lived intangible assets during the third quarter of 2007.2008. With regard to goodwill, the fair values of our reporting units exceeded their carrying values, allowing us to conclude that no impairments of goodwill have occurred. With regard to our indefinite-lived intangible assets, most significantly Molson's core brands sold in Canada, theCarling brand sold in the U.K., and distribution rights to sellCoors Light in Canada, the fair values of the assets also exceeded their carrying values. Significant judgments and assumptions were required in the evaluation of goodwill and intangible assets for impairment. See Part II—Financial Statements and Supplementary Data, Item 8 Note 12 "GOODWILL AND INTANGIBLES" to the Consolidated Financial Statements for further discussion and presentation of these amounts.
We use a combination of discounted cash flowsflow analyses and evaluations of values derived from market comparable transactions and market earnings multiples of comparable public companies to determine the fair value of reporting units. Our cash flow projections are based on various long-range financial and operational plans of the Company and considered, when necessary, various scenarios, both favorable and unfavorable. In 2007,2008, discount rates used for fair value estimates for reporting units was 9.0%9%. These rates are based on weighted average cost of capital, driven by, among other factors, the prevailing interest rates in geographies where these businesses operate, as well as the credit ratings and financing abilities and opportunities of each reporting unit. We use an excess earnings approach to determine the fair values of our indefinite-lived intangible assets. Discount rates used for testing of indefinite-lived intangibles ranged from 8.5%9% to 10.0%10%. These rates largely reflect the rates for the overall enterprise valuations, with some level of premium associated with the specificity of the intangibles themselves. Our reporting units operate in relatively mature beer markets, where we are reliant on a major brand for a high percentage of sales. Changes in the factors used in the estimates, including thedeclines in industry or company-specific beer volume sales, margin erosion, termination of brewing and/or distribution agreements with other brewers, and discount rates used, could have a significant impact on the fair values of the reporting units and, consequently, may result in goodwill or indefinite-lived intangible asset impairment charges in the future.
Derivatives and Other Financial Instruments
The following tables present a roll forward of the fair values of debt and derivative contracts outstanding as well as their maturity dates and how those fair values were obtained (in thousands)millions):
Fair value of contracts outstanding at December 31, 2006 | $ | (2,381,833 | ) | ||
Contracts realized or otherwise settled during the period | (13,665 | ) | |||
Fair value of new contracts entered into during the period | (844,322 | ) | |||
Other changes in fair value | 400,085 | ||||
Fair value of contracts outstanding at December 30, 2007 | $ | (2,839,735 | ) | ||
| Fair value of contracts at December 30, 2007 | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Maturities less than 1 year | Maturities 1-3 years | Maturities 4-5 years | Maturities in excess of 5 years | Total fair value | |||||||||||
Source of fair value | ||||||||||||||||
Prices actively quoted | $ | — | $ | (301,872 | ) | $ | (236,180 | ) | $ | (1,586,773 | ) | $ | (2,124,825 | ) | ||
Prices provided by other external sources | $ | (23,835 | ) | $ | (280,133 | ) | $ | (410,942 | ) | $ | — | $ | (714,910 | ) |
Fair value of contracts outstanding at December 30, 2007 | $ | (2,839.7 | ) | ||
Contracts realized or otherwise settled during the period | 454.0 | ||||
Fair value of new contracts entered into during the period | 22.3 | ||||
Other changes in fair value | 404.8 | ||||
Fair value of contracts outstanding at December 28, 2008 | $ | (1,958.6 | ) | ||
| Fair value of contracts at December 28, 2008 | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Source of fair value | Maturities less than 1 year | Maturities 1 - 3 years | Maturities 4 - 5 years | Maturities in excess of 5 years | Total fair value | |||||||||||
Prices actively quoted | $ | — | $ | (302.3 | ) | $ | (46.8 | ) | $ | (1,299.3 | ) | $ | (1,648.4 | ) | ||
Prices provided by other external sources | 30.6 | (339.4 | ) | — | — | (308.8 | ) | |||||||||
Prices based on models and other valuation methods | (1.4 | ) | — | — | — | (1.4 | ) | |||||||||
$ | 29.2 | $ | (641.7 | ) | $ | (46.8 | ) | $ | (1,299.3 | ) | $ | (1,958.6 | ) | |||
We use derivatives in the normal course of business to manage our exposure to fluctuations in production and packaging material prices, interest rates and foreign currency exchange rates. By policy, we do not enter into such contractsrates, and for trading or speculative purposes.other strategic purposes related to our core business. We record our derivatives on the Consolidated Balance Sheet as assets or liabilities at fair value in accordance with Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities, as amended and interpreted, incorporating FASB Statements No. 137, 138 and 149" ("SFAS 133").value. Such accounting is complex, as evidenced by significant interpretations of the primary accounting standard, which continues to evolve, as well asare the significant judgments and estimates involved in the estimation of fair value in the absence of quoted market values. These estimates are based upon valuation methodologies deemed appropriate in the circumstances; however, the use of different assumptions could have a material effect on the estimated fair value amounts. The fair values of our derivatives are determined primarily from observable inputs that generally fall into Level 2 in the fair value hierarchy defined by SFAS No. 157, "Fair Value Measurements." See Part II—Financial Statements and Supplementary Data, Item 8 Note 1 "BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES" under the caption "Adoption of New Accounting Pronouncements" to the Consolidated Financial Statements for further discussion. The fair values of our derivatives include credit risk adjustments to account for counterparties' credit risk (for derivative assets) and MCBC's non-performance risk (for derivative liabilities). These non-performance reserves resulted in a $7 million favorable adjustment to other comprehensive income, mainly because derivative liabilities exceed derivative assets as of the end of 2008.
Our market-sensitive derivative and other financial instruments, as defined by the Securities and Exchange Commission ("SEC"), are foreign currency forward contracts, commodity swaps, interest rate swaps, and cross currency swaps. See discussions also in Item 7A, "Quantitativeswaps and Qualitative Disclosures About Market Risk" and Note 18 to the Consolidated Financial Statements in Item 8.total return equity swaps. We monitor foreign exchange risk, interest rate risk, commodity risk, equity price risk and related derivatives using two techniques, value-at-risk and sensitivity analysis.
We use value-at-risk to monitor the foreign exchange and interest rate risk of our cross currency swaps. The value-at-risk methodology provides an estimate of the level of a one-day loss that may be equaled or exceeded due to changes in the fair value of these foreign exchange rate and interest rate-sensitive financial instruments. The type of value-at-risk model used to estimate the maximum potential one-day loss in the fair value is a variance/covariance method. The value-at-risk model assumes normal market conditions and a 95% confidence level. There are various modeling techniques that can be used to compute value-at-risk. The computations used to derive our values take into account various correlations between currency rates and interest rates. The correlations have been determined by observing foreign exchange currency market changes and interest rate changes over the most recent one-year period. We have excluded anticipated transactions, firm commitments, cash balances and accounts receivable and payable denominated in foreign currencies from the value-at-risk calculation, some of which these instruments are intended to hedge.
Value-at-risk is a statistical measure of risk that estimates the loss that may be experienced with a given level of confidence over a given period of time. Specifically, as reported herein, value-at-risk is the maximum expected one-day loss at 95% confidence, that is, only 5% of the time or 1 day in 20 is the loss expected to exceed the value-at-risk. Value-at-risk is not intended to represent actual losses that may occur, nor does it represent the full extent of losses that may occur. Actual future gains and losses will differ from those estimated by value-at-risk because of changes or differences in market rates and interrelationships, hedging instruments, hedge percentages, timing and other factors.
The one-day value-at-risk at 95% confidence of our cross currency swaps was $22.7 million, $10.6 million and $12.2 million at December 30, 2007, December 31, 2006, and December 25, 2005, respectively. Such a hypothetical loss in fair value is a combination of the foreign exchange and interest rate components of the cross currency swap. Value changes due to the foreign exchange component would be offset completely by increases in the value of our inter-company loan, the underlying transaction being hedged. The hypothetical loss in fair value attributable to the interest rate component would be deferred until termination or maturity.
We have performed a sensitivity analysis to estimate our exposure to market risk of interest rates, foreign exchange rates, commodity prices and commodityequity prices. The sensitivity analysis reflects the impact of a hypothetical 10% adverse change in the applicable market interest rates, foreign exchange rates, commodity prices and commodity prices.equity price, specifically the stock price of Foster's Group ("Foster's") (ASX:FGL). During the third quarter of 2008, we entered into a cash settled total return swap with a Deutsche Bank in order to gain an economic exposure to Foster's, a major global brewer. The swap gives MCBC exposure to nearly 5% of Foster's outstanding common stock. The volatility of the applicable rates and prices are dependent on many factors that cannot be forecast with reliable accuracy. Therefore, actual changes in fair values could differ significantly from the results presented in the table below.
We are required to post collateral with the counterparty if the swap is in an out-of-the-money position. If our credit ratings with Standard & Poor's and Moody's with regard to our long-term debt remain at an investment grade level, we are required to post collateral for only that portion of the out-of-the-money liability exceeding $20.0 million. If either of our credit ratings falls below investment grade, we must post collateral for the entire out-of-the-money liability. As of December 28, 2008, neither party to this swap agreement has posted any collateral. The volatility of the applicable rates and prices are dependent on many factors that cannot be forecast with reliable accuracy. Therefore, actual changes in fair values could differ significantly from the results presented in the table below.
The following table presents the results of the sensitivity analysis, which reflects the impact of a hypothetical 10% adverse change in the applicable market interest rates, foreign exchange rates, and commodity prices of our derivative and debt portfolio:
| As of | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | December 30, 2007 | December 31, 2006 | |||||||||||||
| | (In thousands) | | As of | ||||||||||||
Estimated fair value volatility | Estimated fair value volatility | Estimated fair value volatility | December 28, 2008 | December 30, 2007 | ||||||||||||
| | (In millions) | ||||||||||||||
Foreign currency risk: | Foreign currency risk: | Foreign currency risk: | ||||||||||||||
Forwards | $ | (45,476 | ) | $ | (21,278 | ) | Forwards | $ | (16.6 | ) | $ | (45.5 | ) | |||
Interest rate risk: | Interest rate risk: | Interest rate risk: | ||||||||||||||
Debt, swaps | $ | (95,018 | ) | $ | (64,720 | ) | Debt, swaps | $ | (74.5 | ) | $ | (95.0 | ) | |||
Commodity price risk: | Commodity price risk: | Commodity price risk: | ||||||||||||||
Swaps | $ | (19,121 | ) | $ | (6,165 | ) | Swaps | $ | — | $ | (19.1 | ) | ||||
Cross currency risk: | Cross currency risk: | |||||||||||||||
Swaps | $ | (6.5 | ) | $ | (5.2 | ) | ||||||||||
Equity price risk: | Equity price risk: | |||||||||||||||
Cash settled total return swap | $ | (33.9 | ) | $ | — |
Income Tax Assumptions
We account for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Judgment is required in determining our worldwide 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 adjust our income tax provision in the period it is probable that actual results will differ from our estimates. Tax law and rate changes are reflected in the income tax provision in the period in which such changes are enacted.
We apply a two-step process to determine the amount of tax benefit to be recognized in cases where uncertainty exists. First, the tax position is evaluated to determine the likelihood that it will be sustained upon examination. If the tax position is deemed "more-likely-than-not" to be sustained, the tax position is then valued to determine the amount of benefit to be recognized in the financial statements. Our balance sheet reflects liabilities for such unrecognized tax benefits of $230.4 million as of December 28, 2008. During 2009, we expect to recognize a $50 million to $60 million income tax benefit due to a reduction in income tax benefits, related mainly to penalties and interest associated with issues subject to audits we believe are going to close in the next year. There are other pending tax law changes in Canada that, if enacted, would decrease our unrecognized tax benefits by approximately $100 million.
We have elected to treat our portion of all foreign subsidiary earnings through December 30, 200728, 2008, as permanently reinvested under the accounting guidance of APB 23 and SFAS 109. As of December 30, 2007,28, 2008, approximately $1.1 billion$970 million of retained earnings attributable to foreign subsidiaries was considered to be indefinitely invested. Our intention is to reinvest the indefinitely invested earnings permanently or to repatriate the earnings when it is tax effective to do so. It is not practicable to determine the amount of incremental taxes that might arise were these earnings to be remitted. However, we believe that U.S. foreign tax credits would largely eliminate any U.S. taxes and offset any foreign withholding taxes due upon remittance.
We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. While we consider future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, 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 increase income 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 be charged to income in the period such determination was made. Reductions to the valuation allowance related to the Merger with Molson or the acquisition of CBL that relate to deferred taxes arising from those events would reduce goodwill, unless the reduction was caused by a change in law, in which case the adjustment would impact earnings.
Consolidations under FIN 46R
RMMC and RMBC arewere dedicated predominantly to our packaging and distribution activities and were formed with companies which have core competencies in the aluminum and glass container businesses. Effective July 1, 2008, RMMC and RMBC were contributed to MillerCoors (who consolidates their results) and de-consolidated by MCBC. The CBL joint venture with Grolsch was formed to provide a long-term relationship with that brand's owner in a key segment of the U.K. beer market. We also consolidate the financial position and results of Brewers Retail, Inc. ("BRI"), of which Molson owns just over 50%, and provides all distribution and retail sales of beer in the province of Ontario in Canada. Our ownership of BRI is determined by our market share in the province of Ontario. Our market share and ownership percentage could be reduced as a result of lower trade or consolidation of certain of our competitors.
Adoption of New Accounting Pronouncements
FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109"
On January 1, 2007, we adopted the FASB's Interpretation No. 48, "Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109" ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements. FIN 48 prescribes a two-step process to determine the amount of tax benefit to be recognized. However, the tax position must be evaluated to determine the likelihood that it will be sustained upon examination. If the tax position is deemed "more-likely-than-not" to be sustained, the tax position is then valued to
determine the amount of benefit to be recognized in the financial statements. As a result of the adoption of FIN 48, we increased tax-related liabilities by a total of $132.1 million and recorded $3.9 million as a current liability for unrecognized tax benefits and $128.2 million as a non-current liability for unrecognized tax benefits. The cumulative effect of applying the new requirement has been recorded as a reduction to the beginning balance of retained earnings in the amount of $105.4 million, an increase to goodwill in the amount of $2.3 million and an increase to deferred tax assets of $24.4 million. The adjustment to goodwill reflects changes to liabilities for uncertain tax positions established in the opening balance sheet of the acquisition of CBL in 2002 and the Merger in 2005.
As a result of the adoption of FIN 48, as of January 1, 2007, we had $297.4 million of unrecognized tax benefits, of which approximately $257 million would, if recognized, affect our effective tax rate.
We recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense. Approximately $78 million of anticipated interest and penalty payments were accrued at January 1, 2007, in unrecognized tax benefits.
SFAS No. 158 "Employers' Accounting for Defined Benefit Pension and Other Postretirement Benefits—an amendment of FASB Statements No. 87, 88, 106, and 132(R)"
SFAS 158 was issued in September 2006 and was effective for our annual fiscal year ending December 31, 2006. The standard, which is an amendment to SFAS 87, 88, 106 and 132R, requires an employer to recognize the funded status of any defined benefit pension and/or other postretirement benefit plans as an asset or liability in its statement of financial position. Funded status is the difference between the projected benefit obligation and the market value of plan assets for defined benefit pension plans, and is the difference between the accumulated benefit obligation and the market value of plan assets (if any) for other post retirement benefit plans. SFAS 158 also requires an employer to recognize changes in that funded status in the year in which the changes occur through other comprehensive income. As a result of the adoption of SFAS 158, liabilities related to our defined benefit pension and postretirement plans increased by $245.0 million and our accumulated other comprehensive income, net of related deferred income taxes, decreased by approximately $172 million as of December 31, 2006. A portion of the change in the accumulated other comprehensive income related to the adoption of SFAS 158 will be recognized in the statement of operations as a component of net periodic pension benefit cost. See Notes 1, 16 and 17 to the Consolidated Financial Statements in Item 8 for a detailed discussion regarding the adoption of SFAS 158.
SFAS No. 123R "Share-Based Payment"
Statement of Financial Accounting Standard No. 123R ("SFAS 123R") was issued in December 2004 and became effective for us in the first quarter of 2006. SFAS 123R requires all share-based payments to qualified individuals, including grants of employee stock options, to be recognized as compensation in the financial statements based on their grant date fair values. Prior to the adoption, under the guidance for qualifying stock option grants with no intrinsic value on the date of grant, we presented pro forma share-based compensation expense for our stock option program in the notes to our financial statements. We have elected to use the modified prospective application method of implementing SFAS 123R, which does not require restatement of prior periods. Under the modified prospective application method, awards that are granted, modified, or settled after adoption of SFAS 123R are prospectively measured and accounted for in accordance with SFAS 123R. Unvested equity-classified awards that were granted prior to the adoption of SFAS 123R will continue to be accounted for in accordance with SFAS 123, except that the fair value amounts are recognized in the statement of operations and are subject to the forfeiture provisions of SFAS 123R. In March 2005, the SEC issued Staff Accounting Bulletin No. 107 ("SAB 107") to assist preparers by simplifying some of the implementation challenges of SFAS 123R. In particular, SAB 107 provides supplemental
implementation guidance on SFAS 123R, including guidance on valuation methods, classification of compensation expense, inventory capitalization of share-based compensation cost, income tax effects, disclosures in Management's Discussion and Analysis and several other issues. We applied the principles of SAB 107 in conjunction with our adoption of SFAS 123R in the first quarter of 2006.
SFAS 123R requires a calculation of the APIC Pool balance consisting of excess tax benefits available to absorb related share-based compensation. FASB Staff Position FAS 123R-3,Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards ("FSP 123R-3"), which was issued on November 10, 2005, provides a practical transition election related to accounting for the tax effects of share-based payment awards to employees. Specifically, this FSP allows a company to elect the alternative or simplified method to calculate the opening APIC Pool balance. We have adopted such alternative method provisions to calculate the beginning balance of the APIC Pool in the financial statements ended December 31, 2006. This adoption did not have any impact on our financial statements.
The effect of adoption of SFAS 123R in 2006 was an additional expense of $6.1 million pretax, $4.4 million after tax, or $0.02 per diluted share. Since adoption of SFAS 123R we have evaluated different types of instruments as share based awards and we currently use a combination of restricted stock unit awards, performance share awards, deferred stock awards, and stock settled stock appreciation rights.
FASB Interpretation No. 47 "Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143"
In March 2005, the FASB issued FASB Interpretation No. 47—"Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143" ("FIN 47"), which clarifies the term "conditional asset retirement obligation" as used in SFAS No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"). Specifically, FIN 47 provides that an asset retirement obligation is conditional when either the timing and (or) method of settling the obligation is conditioned on a future event. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair market value of the liability can be reasonably estimated. Uncertainty about the timing and (or) method of settlement of a conditional asset retirement obligation should be factored into the measurement of the liability when sufficient information exists.
We adopted FIN 47 on December 25, 2005, which resulted in an increase to properties of $0.5 million, goodwill of $2.2 million, minority interest of $1.1 million, and liabilities of $9.6 million related to asset retirement obligations. For asset retirement obligations related to the properties acquired in the acquisition of Molson Inc. as of February 9, 2005, such obligations increased the goodwill amounts recognized upon the acquisition by $2.2 million as such properties were recorded at the appraised fair market value at the acquisition date. These asset retirement obligations relate primarily to clean-up, removal, or replacement activities and related costs for asbestos, coolants, waste water, oils and other contaminants that may be contained within our manufacturing properties.
The adoption of FIN 47 was reflected in our financial statements as the cumulative effect of the change in accounting principle with the catch-up adjustment of $3.7 million, net of tax benefit of $2.2 million, in the 2005 statement of operations. This adjustment represents a depreciation charge and an accretion of a liability from the time the obligation originated, which is either from the time of the acquisition or the construction of related long-lived assets, through December 25, 2005.
Inherent in the fair value calculation of asset retirement obligations are numerous assumptions and judgments including the ultimate settlement amounts, inflation factors, credit adjusted discount rates, timing of settlement, and changes in the legal, regulatory, environmental and political environments. To the extent future revisions to these assumptions impact the fair value of the existing asset retirement obligation liability, a corresponding adjustment will be made to the asset balance. If the obligation is
settled for other than the carrying amount of the liability, we will recognize a gain or loss upon the settlement. The net value of the asset retirement obligation liabilities calculated on a pro-forma basis as if the standard had been retrospectively applied to December 25, 2005 was $9.6 million.
New Accounting Pronouncements
SFAS No. 157 "Fair Value Measurements"
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements," (SFAS 157) which, in part, is effective for us beginning in fiscal year 2008. This statement defines fair value, establishes a framework for measuring fair value and expands the related disclosure requirements. The statement indicates, among other things, that a fair value measurement assumes that the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. Subsequent to the issuance of SFAS 157, the FASB issued FASB Staff Positions (FSP) 157-1, "Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13" and FSP 157-2 "Effective Date of FASB Statement No. 157." FSP 157-1 excludes, in certain circumstances, SFAS 13 and other accounting pronouncements that address fair value measurements for purposes of lease classification or measurement under Statement 13 from the provision of SFAS 157. FSP 157-2 delays the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. For the instruments subject to the effective day delay under FSP 157-2, the effective day to adopt the fair value provisions for us will be the first quarter of 2009. While FSP 157-c has not been finalized or approved, it clarifies the principles in SFAS 157 on the fair value measurement of liabilities. Based upon our evaluation of the statements and subsequent pronouncements issued to date, we believe that the adoption of the statement for financial assets and liabilities routinely measured and recorded or disclosed at their fair values, will not have a significant impact on the determination or reporting of our financial results. The company is currently evaluating the impacts, if any, the adoption of the provisions of Statement No. 157 for non-financial assets and liabilities that are recognized or disclosed on a non-recurring basis.
SFAS No. 159 "The Fair Value Option for Financial Assets and Financial Liabilities. Including an amendment of FASB Statement No. 115"
In February 2007, the FASB issued Statement No. 159 ("SFAS 159"). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The objective of this Statement is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities using different measurement techniques. The fair value measurement provisions are elective and can be applied to individual financial instruments. SFAS 159 requires additional disclosures related to the fair value measurements included in the entity's financial statements. This Statement is effective for us as of the beginning of our 2008 fiscal year. We do not intend to adopt the fair value measurement provisions of SFAS 159.
SFAS No. 141R "Business Combinations"
In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations" (SFAS 141R)("SFAS 141R"), which replaces SFAS No. 141, "Business Combinations." Under the provisions of SFAS 141R, acquisition costs will generally be expensed as incurred; noncontrolling interests will be valued at fair value at the acquisition date; in-process research and development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date; restructuring costs associated with a business combination will generally be expensed subsequent to the acquisition date; and changes
in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. SFAS 141(R)141R will be effective, on a prospective basis, for all business combinations for which the acquisition date is after the beginning of our fiscal year 2009, with the exception of the accounting for valuation allowances on deferred taxes and acquired tax contingencies for which the adoption is retrospective. We are currently evaluating the effects, if any, that SFAS 141R maywill have on our financial statements. The immediate impact of the income tax accounting provisions will increase volatility to our effective tax rate in 2009 and subsequent years. We have no business combination activity in process as of December 28, 2008. However, if we were to initiate business combination activity in 2009, the application of FAS 141R would have an immediate impact on our financial results as it requires acquisition costs to be expensed as incurred. Also, the significant differences in purchase price accounting required by FAS 141R could add volatility to our results if we complete acquisitions in future periods.
SFAS No. 160 "Noncontrolling interests in Consolidated Financial Statements"
In December 2007, the FASB issued Financial Accounting Standards No. 160, "Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51" (SFAS 160)("SFAS 160") and is effective for us beginning in fiscal year 2008.2009. This Statement requires the recognition of a noncontrolling interest, or(formerly referred to as minority interest,interest), as equity in the consolidated financial statements and separate from the parent's equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. It also amends certain of ARB No. 51's consolidation procedures for consistency with the requirements of SFAS 141(R).141R, including procedures associated with the deconsolidation of a subsidiary. This statement also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. We are currently evaluating this new statement and anticipate thatThe adoption of SFAS 160 in the statementfirst quarter of 2009 will not have a significant impact onrequire the reportingreclassification of our resultsreported non-controlling interests to stockholders' equity. The adoption of operations.SFAS 160 will also change our reported Net Income in the first quarter of 2009, which will include the
share of Net Income attributable to non-controlling interests. A new deduction will be presented at the bottom of the income statement to arrive at a new bottom-line total indicating net income attributable to the consolidating parent company. Earnings per share will still be calculated on net income attributable to the consolidating parent company.
Proposed Accounting Pronouncements Due to a change in our ownership level of BRI, we expect to deconsolidate this entity from our financial statements during the first quarter of 2009, and begin to account for it under the equity method at that time. As a result, we may record a gain or loss upon BRI's deconsolidation due to SFAS 160's requirement that we apply fair value to our equity interest.
Proposed FASB Staff Position APB 14-a,14-1, "Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement)"
The In May 2008, the FASB in August 2007 proposed FASB staff position (FSP)issued FSP No. APB 14-a, "Accounting14-1,"Accounting for Convertible Debt Instruments That May Be Settled in Cash Uponupon Conversion (Including Partial Cash Settlement)" ("FSP APB 14-a"14-1"). The proposedThis FSP specifiesrequires that issuers of suchconvertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) should separately account for the liability and equity (conversion feature) components inof the instruments. As a manner that will reflectresult, interest expense should be imputed and recognized based upon the entity's nonconvertible debt borrowing rate, on the instrument's issuance date whenwhich will result in incremental non-cash interest cost is recognized in subsequent periods.expense, and as result, lower net income. Our 2007 2.5% Convertible Senior Notes due July 30, 2013 are within the scopewill be subject to FSP APB 14-1. Prior to FSP APB 14-1, Accounting Principles Board Opinion No. 14,"Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants" ("APB 14"), provided that no portion of the proposedproceeds from the issuance of the instrument should be attributable to the conversion feature. Our preliminary analyses have determined that if the liability and equity components of the Convertible Senior Notes had been separately valued at the time of their issuance on June 15, 2007, the amount allocated to long-term debt would have been approximately $463 million, and the amount allocated to equity would have been approximately $112 million. When we are required to retroactively adopt FSP APB 14-a; therefore if14-1 in fiscal 2009, interest expense for fiscal 2007 and 2008 will be increased retrospectively by non-cash amounts of approximately $9.0 million and $17.0 million, respectively. We anticipate recording additional non-cash interest expense on the FSP APB 14-a is issued as proposed, we would be requiredConvertible Senior Notes in 2009 through 2013 of approximately $18 million to record$20 million annually, thereby increasing the carrying value of the debt portionsto $575 million by its maturity date in July 2013. Further, we expect that the carrying amount of ourthe 2.5% Convertible Senior Notes at their fair value on the datewill be discounted (decreased) and additional paid-in capital increased by approximately $86 million as of issuance and amortize the discount into interest expense over the lifeDecember 29, 2008.
FASB Staff Position FASB 142-3 "Determination of the debt. However, there wouldUseful Life of Intangible Assets"
In April 2008, the FASB issued FSP No. FASB 142-3, "Determination of the Useful Life of Intangible Assets" ("FSP FAS 142-3"). This FSP amends the factors that should be no effect on our cash interest payments. If theconsidered in developing renewal or extension assumptions used to determine recognized intangible asset under SFAS Statement No. 142, "Goodwill and Other Intangible Assets." This FSP is issued as proposed, we expect the increase in non-cash interest expenseapplies to recognized on our consolidatedintangible assets that are accounted for pursuant to SFAS No. 142. For a recognized intangible asset, an entity will be required to disclose information that enables users of financial statements to be significant. As currently proposed, FSP APB 14-a would be applied retrospectivelyassess the extent to all periods presented. FSP APB 14-a is currently in redeliberationswhich expected future cash flows associated with the FASB followingasset are affected by the end of its comment period in October 2007. The final contententity's intent and/or ability to renew or extend the arrangement. This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008 and effective dateearly adoption is prohibited. We do not believe the adoption of FSP APB 14-a are dependent upon future FASB actionFAS 142-3 will have a significant impact on this matter.our financial statements.
Related Party Transactions
Transactions with Management and Others
We employed members of the Coors and Molson families, who collectively owned 84%86% of the votingclass A share,shares, common and exchangeable, stock of the Company throughout 2007.2008. Hiring and placement decisions are made based upon merit, and compensation packages offered are commensurate with policies in place for all employees of the Company.
As of December 30, 2007, various Coors28, 2008, the Molson Foundation and other entities controlled by the Molson family trusts collectively owned approximately 42%43% of our Class A common and exchangeable stock, approximately 13%3% of our Class B common and exchangeable stock. As of December 28, 2008, various Coors family trusts collectively owned approximately 43% of our Class A common and exchangeable stock, approximately 12% of our Class B common and approximately 30% of Graphic Packaging Corporation's ("GPC") commonexchangeable stock.
Certain Business Relationships
We purchase a large portion of our paperboard packaging requirements from GPC, a related party. Our payments under the GPC packaging agreement in 2007, 2006See Part II—Financial Statements and 2005 totaled $85.7 million, $74.0 million and $75.3 million, respectively. Related accounts payable balances included in Affiliates Accounts Payable onSupplementary Data, Item 8 Note 3 "EQUITY INVESTMENTS" to the Consolidated Balance Sheets were $0.1 million and $0.8 million at December 30, 2007, and December 31, 2006, respectively.
We obtain public relations services from National Public Relations, Inc., aFinancial Statements regarding our significant related party. Our payments as a result of the services provided in 2007, 2006 and 2005 totaled $0.5 million, $0.2 million and $0.1 million, respectively.party transactions.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business, weWe are exposed to fluctuations in interest rates, foreign currencies, and the prices of production and packaging materials. We have established policies and procedures to govern the strategic management of these exposures through a variety of financial instruments. By policy, we do not enter into any contracts for the purpose of trading or speculation.
Our objective in managing our exposure to fluctuations in interest rates, foreign currency exchange rates, and production and packaging materials prices is to decrease the volatility of our earnings and cash flows affected by potential changes in underlying rates and prices. To achieve this objective, we enter into foreign currency forward contracts, commodity swaps, interest rate swaps, and cross currency swaps, the values of which change in the opposite direction of the anticipated cash flows. We also use derivatives for other strategic purposes related to our core business. We do not hedge the value of net investments in foreign-currency-denominated operations or translated earnings of foreign subsidiaries. Our primary foreign currency exposures are the Canadian dollar ("CAD"), and the British pound sterling ("GBP" or "£").
Derivatives are either exchange-traded instruments or over-the-counter agreements entered into with highly rated financial institutions. No losses on over-the-counter agreements due to counterparty credit issues are anticipated. All over-the-counter agreements are entered into with counterparties rated no lower than A (Standard & Poor's) or A2 (Moody's). In some instances our counterparties and we have reciprocal collateralization agreements with our counterparties regarding fair value positions in excess of certain thresholds. These agreements call for the posting of collateral in the form of cash, treasury securities or letters of credit if a fair value loss position to our counterparties or us exceeds a certain amount. At December 30, 2007,28, 2008, no collateral was posted by our counterparties or us.
Details of all other market-sensitive derivative and other financial instruments, including their fair values, are included in the table below. These instruments include long-term fixed rate debt, foreign
currency forwards, commodity swaps, interest rate swaps, and cross-currencycross currency swaps. See related value-at-riskvalue at risk and sensitivity analysis in theDerivatives and Other Financial Instruments section of Item 7.
| | Expected maturity date | | | | Notional amounts by expected maturity date | | | |||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | December 30, 2007 | December 31, 2006 | | December 28, 2008 | December 30, 2007 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| | December | | December | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | 2008 | 2009 | 2010 | 2011 | 2012 | Thereafter | Total | Fair value | Fair value | | 2009 | 2010 | 2011 | 2012 | 2013 | Thereafter | Total | Fair value | Fair value | |||||||||||||||||||||||||||||||||||||||
| | (In thousands) | | (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Long-term debt: | Long-term debt: | Long-term debt: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
USD $300 million, 4.85% fixed rate, due 2010(1) | $ | — | $ | — | $ | (300,000 | ) | $ | — | $ | — | $ | — | $ | (300,000 | ) | $ | (301,872 | ) | $ | (293,517 | ) | USD $300 million, 4.85% fixed rate, due 2010(1) | $ | — | $ | (300.0 | ) | $ | — | $ | — | $ | — | $ | — | $ | (300.0 | ) | $ | (302.3 | ) | $ | (301.9 | ) | ||||||||||||||
CAD $200 million, 7.5% fixed rate, due 2011(2) | — | — | — | (203,728 | ) | — | — | (203,728 | ) | (217,398 | ) | (192,320 | ) | CAD $200 million, 7.5% fixed rate, due 2011(2) | — | — | (163.7 | ) | — | — | — | (163.7 | ) | (169.1 | ) | (217.4 | ) | ||||||||||||||||||||||||||||||||
USD $225 million, 6.375% fixed rate, due 2012(3)(4) | — | — | — | — | (225,000 | ) | — | (225,000 | ) | (236,180 | ) | (880,626 | ) | USD $45 million, 6.375% fixed rate, due 2012(3) | — | — | — | (44.6 | ) | — | — | (44.6 | ) | (46.8 | ) | (236.2 | ) | ||||||||||||||||||||||||||||||||
CAD $900 million, 5.0% fixed rate, due 2015(1) | — | — | — | — | — | (916,777 | ) | (916,777 | ) | (895,508 | ) | (762,240 | ) | CAD $900 million, 4.85% fixed rate, due 2015(1) | — | — | — | — | — | (736.5 | ) | (736.5 | ) | (669.6 | ) | (895.5 | ) | ||||||||||||||||||||||||||||||||
US $575 million, 2.5% convertible bonds, due 2013(5) | — | — | — | — | — | (575,000 | ) | (575,000 | ) | (691,265 | ) | — | USD $575 million, 2.5% convertible bonds, due 2013(4) | — | — | — | — | — | (575.0 | ) | (575.0 | ) | (629.7 | ) | (691.3 | ) | |||||||||||||||||||||||||||||||||
USD $27 million, 7.2% fixed rate, due 2013 | — | — | — | — | — | — | — | — | (27.3 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency management: | Foreign currency management: | Foreign currency management: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Forwards | 264,386 | 132,862 | 63,695 | — | — | — | 460,943 | (24,886 | ) | 7,133 | Forwards | 190.8 | 110.1 | 18.6 | — | — | — | 319.5 | 52.1 | (24.9 | ) | ||||||||||||||||||||||||||||||||||||||
Cross currency swaps(1)(3) | — | — | 300,000 | — | 2,116,396 | — | 2,416,396 | (472,544 | ) | (268,656 | ) | Cross currency swaps(1)(3) | — | 300.0 | — | 1,545.4 | — | — | 1,845.4 | (197.3 | ) | (472.5 | ) | ||||||||||||||||||||||||||||||||||||
Commodity pricing management: | Commodity pricing management: | Commodity pricing management: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Swaps | 135,941 | 60,741 | 5,715 | — | — | — | 202,397 | (9,980 | ) | 7,436 | Swaps | 5.1 | 1.1 | — | — | — | — | 6.2 | (1.6 | ) | (10.0 | ) | |||||||||||||||||||||||||||||||||||||
Fixed price contracts | — | — | — | — | — | — | — | — | (956 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
Interest rate pricing management: | Interest rate pricing management: | Interest rate pricing management: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest rate swaps(2)(4) | — | — | — | 101,864 | 201,200 | — | 303,064 | 9,899 | 1,913 | Interest rate swaps(2) | — | — | 81.8 | — | — | — | 81.8 | 7.2 | 9.9 | ||||||||||||||||||||||||||||||||||||||||
Equity pricing management: | Equity pricing management: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash settled total return swap | 339.5 | — | — | — | — | — | 339.5 | (1.4 | ) | — |
Simultaneously with the U.S. private placement we entered into a cross currency swap transaction for the entire USD $300.0 million issue amount and for the same maturity. In this transaction we exchanged our $300.0 million for a CAD $355.5 million obligation with a third party. The terms of the transaction are such that the Company will pay interest at a rate of 4.28% to the third party on the amount of CAD $355.5 million and will receive interest at a rate of 4.85% on the $300.0 million amount. There was an exchange of principal at the inception of this transaction and there will be a subsequent exchange of principal at the termination of the transaction. We have designated this transaction as a hedge of the variability of the cash flows associated with the payment of interest and principal on the USD securities. Consistent with FAS 133 accounting, all changes in the value of the transaction due to foreign exchange will be recorded through the statement of operations and will be offset by a revaluation of the associated debt instrument. Changes in the value of the transaction due to interest rates will be recorded to other comprehensive income.
GBP. Upon final exchange, we will provide GBP to the counterparty and receive USD. The cross currency swaps have been designated as cash flow hedges.
ITEM 8. Financial Statements and Supplementary Data
Index to Financial Statements | Page | ||
---|---|---|---|
Consolidated Financial Statements: | |||
Report of Independent Registered Public Accounting Firm | |||
Consolidated Statements of Operations and Comprehensive Income for each of the three years in the period ended December | |||
Consolidated Balance Sheets at December | |||
Consolidated Statements of Cash Flows for each of the three years in the period ended December | |||
Consolidated Statements of Stockholders' Equity for each of the three years in the period ended December | |||
Notes to Consolidated Financial Statements |
MANAGEMENT'S REPORT TO STOCKHOLDERS
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 Brewing Company. The financial statements have been prepared in accordance with generally accepted accounting principles, applying estimates based on management's best judgment where necessary. Management believes that all material uncertainties have been appropriately accounted for and disclosed.
The established system of accounting procedures and related internal controls provide reasonable assurance that the assets are safeguarded against loss and that the policies and procedures are implemented by qualified personnel. The Company's management assessed the effectiveness of the Company's internal control over financial reporting as of December 28, 2008. In making this assessment, the Company's management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) inInternal Control—Integrated Framework. Based upon its assessment, management concluded that, as of December 28, 2008, 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 controls.
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.
Peter Swinburn | ||
Molson Coors Brewing Company | ||
Molson Coors Brewing Company | ||
February 24, 2009 | February |
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders
of Molson Coors Brewing Company:
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Molson Coors Brewing Company and its subsidiaries at December 30, 200728, 2008 and December 31, 2006,30, 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 30, 200728, 2008 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a) (2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 30, 200728, 2008 based on criteria established inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedule, 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 Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. 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.
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for conditional asset retirement obligations in 2005, the manner in which it accounts for share-based compensation and defined benefit pension and other postretirement plans in 2006 and the manner in which it accounts for uncertain tax positions in 2007.
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.
PricewaterhouseCoopers LLP
Denver, Colorado
February 21, 200824, 2009
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(IN THOUSANDS,MILLIONS, EXCEPT PER SHARE DATA)
| | For the Years Ended | | For the Years Ended | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | December 30, 2007 | December 31, 2006(1) | December 25, 2005(1) | | December 28, 2008 | December 30, 2007 | December 31, 2006(1) | ||||||||||||||
Sales | Sales | $ | 8,319,673 | $ | 7,901,614 | $ | 7,417,702 | Sales | $ | 6,651.8 | $ | 8,319.7 | $ | 7,901.6 | ||||||||
Excise taxes | Excise taxes | (2,129,081 | ) | (2,056,629 | ) | (1,910,796 | ) | Excise taxes | (1,877.5 | ) | (2,129.1 | ) | (2,056.6 | ) | ||||||||
Net sales | 6,190,592 | 5,844,985 | 5,506,906 | Net sales | 4,774.3 | 6,190.6 | 5,845.0 | |||||||||||||||
Cost of goods sold | Cost of goods sold | (3,702,921 | ) | (3,481,081 | ) | (3,306,949 | ) | Cost of goods sold | (2,840.8 | ) | (3,702.9 | ) | (3,481.1 | ) | ||||||||
Gross profit | 2,487,671 | 2,363,904 | 2,199,957 | Gross profit | 1,933.5 | 2,487.7 | 2,363.9 | |||||||||||||||
Marketing, general and administrative expenses | Marketing, general and administrative expenses | (1,734,408 | ) | (1,705,405 | ) | (1,632,516 | ) | Marketing, general and administrative expenses | (1,333.2 | ) | (1,734.4 | ) | (1,705.4 | ) | ||||||||
Special items, net | Special items, net | (112,194 | ) | (77,404 | ) | (145,392 | ) | Special items, net | (133.9 | ) | (112.2 | ) | (77.4 | ) | ||||||||
Equity income in MillerCoors | Equity income in MillerCoors | 155.6 | — | — | ||||||||||||||||||
Operating income | 641,069 | 581,095 | 422,049 | Operating income | 622.0 | 641.1 | 581.1 | |||||||||||||||
Other income (expense), net | ||||||||||||||||||||||
Other (expense) income, net | Other (expense) income, net | |||||||||||||||||||||
Interest expense | (126,462 | ) | (143,070 | ) | (131,106 | ) | Interest expense | (103.3 | ) | (126.5 | ) | (143.0 | ) | |||||||||
Interest income | 26,587 | 16,289 | 17,503 | Interest income | 17.3 | 26.6 | 16.3 | |||||||||||||||
Debt extinguishment costs | (24,478 | ) | — | — | Debt extinguishment costs | (12.4 | ) | (24.5 | ) | — | ||||||||||||
Other income (expense), net | 17,662 | 17,736 | (13,245 | ) | Other (expense) income, net | (8.4 | ) | 17.7 | 17.7 | |||||||||||||
Total other expense | (106,691 | ) | (109,045 | ) | (126,848 | ) | Total other expense | (106.8 | ) | (106.7 | ) | (109.0 | ) | |||||||||
Income from continuing operations before income taxes and minority interests | 534,378 | 472,050 | 295,201 | Income from continuing operations before income taxes and minority interests | 515.2 | 534.4 | 472.1 | |||||||||||||||
Income tax expense | Income tax expense | (4,186 | ) | (82,405 | ) | (50,264 | ) | Income tax expense | (102.9 | ) | (4.2 | ) | (82.4 | ) | ||||||||
Income from continuing operations before minority interests | 530,192 | 389,645 | 244,937 | Income from continuing operations before minority interests | 412.3 | 530.2 | 389.7 | |||||||||||||||
Minority interests in net income of consolidated entities | Minority interests in net income of consolidated entities | (15,318 | ) | (16,089 | ) | (14,491 | ) | Minority interests in net income of consolidated entities | (12.2 | ) | (15.3 | ) | (16.1 | ) | ||||||||
Income from continuing operations | 514,874 | 373,556 | 230,446 | Income from continuing operations | 400.1 | 514.9 | 373.6 | |||||||||||||||
Loss from discontinued operations, net of tax | Loss from discontinued operations, net of tax | (17,682 | ) | (12,525 | ) | (91,826 | ) | Loss from discontinued operations, net of tax | (12.1 | ) | (17.7 | ) | (12.6 | ) | ||||||||
Income before cumulative effect of change in accounting principle | 497,192 | 361,031 | 138,620 | Net income | $ | 388.0 | $ | 497.2 | $ | 361.0 | ||||||||||||
Cumulative effect of change in accounting principle, net of tax | — | — | (3,676 | ) | ||||||||||||||||||
Net income | $ | 497,192 | $ | 361,031 | $ | 134,944 | ||||||||||||||||
Other comprehensive income, net of tax: | ||||||||||||||||||||||
Other comprehensive (loss) income, net of tax: | Other comprehensive (loss) income, net of tax: | |||||||||||||||||||||
Foreign currency translation adjustments | 795,060 | 157,207 | 122,971 | Foreign currency translation adjustments | (1,281.0 | ) | 795.0 | 157.2 | ||||||||||||||
Unrealized (loss) gain on derivative instruments | (3,428 | ) | 18,347 | (19,276 | ) | Unrealized gain (loss) on derivative instruments | 49.0 | (3.4 | ) | 18.4 | ||||||||||||
Realized loss (gain) reclassified to net income | 2,933 | (4,605 | ) | (8,404 | ) | Realized gain (loss) reclassified to net income | 3.9 | 2.9 | (4.6 | ) | ||||||||||||
Pension and other other postretirement benefit adjustments | (6,614 | ) | 131,126 | (6,203 | ) | Ownership share of MillerCoors other comprehensive loss | (211.2 | ) | — | — | ||||||||||||
Pension and other other postretirement benefit adjustments | (196.9 | ) | (6.6 | ) | 131.1 | |||||||||||||||||
Comprehensive income | $ | 1,285,143 | $ | 663,106 | $ | 224,032 | ||||||||||||||||
Comprehensive (loss) income | Comprehensive (loss) income | $ | (1,248.2 | ) | $ | 1,285.1 | $ | 663.1 | ||||||||||||||
Basic income (loss) per share: | Basic income (loss) per share: | Basic income (loss) per share: | ||||||||||||||||||||
From continuing operations | $ | 2.88 | $ | 2.17 | $ | 1.45 | ||||||||||||||||
From discontinued operations | (0.10 | ) | (0.07 | ) | (0.58 | ) | From continuing operations | $ | 2.19 | $ | 2.88 | $ | 2.17 | |||||||||
Cumulative effect of change in accounting principle | — | — | (0.02 | ) | From discontinued operations | (0.07 | ) | (0.10 | ) | (0.07 | ) | |||||||||||
Basic net income per share | Basic net income per share | $ | 2.78 | $ | 2.10 | $ | 0.85 | Basic net income per share | $ | 2.12 | $ | 2.78 | $ | 2.10 | ||||||||
Diluted income (loss) per share: | Diluted income (loss) per share: | Diluted income (loss) per share: | ||||||||||||||||||||
From continuing operations | $ | 2.84 | $ | 2.16 | $ | 1.44 | From continuing operations | $ | 2.16 | $ | 2.84 | $ | 2.16 | |||||||||
From discontinued operations | (0.10 | ) | (0.08 | ) | (0.57 | ) | From discontinued operations | (0.07 | ) | (0.10 | ) | (0.08 | ) | |||||||||
Cumulative effect of change in accounting principle | — | — | (0.03 | ) | ||||||||||||||||||
Diluted net income per share | Diluted net income per share | $ | 2.74 | $ | 2.08 | $ | 0.84 | Diluted net income per share | $ | 2.09 | $ | 2.74 | $ | 2.08 | ||||||||
Weighted average shares—basic | Weighted average shares—basic | 178,681 | 172,166 | 158,806 | Weighted average shares—basic | 182.6 | 178.7 | 172.2 | ||||||||||||||
Weighted average shares—diluted | Weighted average shares—diluted | 181,437 | 173,312 | 160,072 | Weighted average shares—diluted | 185.5 | 181.4 | 173.3 |
See notes to consolidated financial statements
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)MILLIONS)
| | As of | | As of | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | December 30, 2007 | December 31, 2006 | | December 28, 2008 | December 30, 2007 | |||||||||||
Assets | Assets | Assets | |||||||||||||||
Current assets: | Current assets: | Current assets: | |||||||||||||||
Cash and cash equivalents | $ | 377,023 | $ | 182,186 | Cash and cash equivalents | $ | 216.2 | $ | 377.0 | ||||||||
Accounts and notes receivable: | Accounts and notes receivable: | ||||||||||||||||
Trade, less allowance for doubtful accounts of $8,827 and $10,363, respectively | 758,526 | 679,507 | Trade, less allowance for doubtful accounts of $7.9 and $8.8, respectively | 432.9 | 758.5 | ||||||||||||
Affiliates | — | 4,002 | Affiliates | 39.6 | — | ||||||||||||
Current notes receivable and other receivables, less allowance for doubtful accounts of $3,181 and $3,439, respectively | 112,626 | 145,090 | Current notes receivable and other receivables, less allowance for doubtful accounts of $3.3 and $3.2, respectively | 162.9 | 112.6 | ||||||||||||
Inventories: | Inventories: | ||||||||||||||||
Finished, less allowance for obsolete inventories of $995 and $1,057, respectively | 163,955 | 138,449 | Finished, less allowance for obsolete inventories | 89.1 | 164.0 | ||||||||||||
In process | 40,673 | 38,692 | In process | 13.4 | 40.7 | ||||||||||||
Raw materials | 82,323 | 80,918 | Raw materials | 43.3 | 82.3 | ||||||||||||
Packaging materials, less allowance for obsolete inventories of $579 and $1,807, respectively | 82,570 | 61,479 | Packaging materials, less allowance for obsolete inventories | 46.3 | 82.6 | ||||||||||||
Total inventories | 369,521 | 319,538 | Total inventories | 192.1 | 369.6 | ||||||||||||
Maintenance and operating supplies, less allowance for obsolete supplies of $10,556 and $9,554, respectively | 34,782 | 32,639 | Maintenance and operating supplies, less allowance for obsolete supplies of $4.6 and $10.6, respectively | 14.8 | 34.8 | ||||||||||||
Other current assets, less allowance for advertising supplies of $948 and $871, respectively | 100,899 | 84,277 | Other current assets, less allowance for advertising supplies | 47.1 | 100.9 | ||||||||||||
Deferred tax assets | 17,901 | 6,477 | Deferred tax assets | — | 17.9 | ||||||||||||
Discontinued operations | 5,536 | 4,640 | Discontinued operations | 1.5 | 5.5 | ||||||||||||
Total current assets | 1,776,814 | 1,458,356 | Total current assets | 1,107.1 | 1,776.8 | ||||||||||||
Properties, less accumulated depreciation of $2,714,170 and $2,615,000, respectively | 2,696,153 | 2,421,484 | |||||||||||||||
Properties, less accumulated depreciation of $673.5 and $2,715.1, respectively | Properties, less accumulated depreciation of $673.5 and $2,715.1, respectively | 1,301.9 | 2,696.2 | ||||||||||||||
Goodwill | Goodwill | 3,346,486 | 2,968,676 | Goodwill | 1,298.0 | 3,346.5 | |||||||||||
Other intangibles, less accumulated amortization of $312,067 and $221,867, respectively | 5,039,363 | 4,395,294 | |||||||||||||||
Other intangibles, less accumulated amortization of $274.9 and $312.1, respectively | Other intangibles, less accumulated amortization of $274.9 and $312.1, respectively | 3,923.4 | 5,039.4 | ||||||||||||||
Investment in MillerCoors | Investment in MillerCoors | 2,418.7 | — | ||||||||||||||
Deferred tax assets | Deferred tax assets | 336,907 | 131,349 | Deferred tax assets | 105.3 | 336.9 | |||||||||||
Notes receivable, less allowance for doubtful accounts of $7,930 and $10,318, respectively | 71,239 | 75,243 | |||||||||||||||
Notes receivable, less allowance for doubtful accounts of $8.1 and $7.9, respectively | Notes receivable, less allowance for doubtful accounts of $8.1 and $7.9, respectively | 51.8 | 71.2 | ||||||||||||||
Other assets | Other assets | 179,502 | 148,694 | Other assets | 203.4 | 179.5 | |||||||||||
Discontinued operations | Discontinued operations | 5,102 | 4,317 | Discontinued operations | 7.0 | 5.1 | |||||||||||
Total assets | Total assets | $ | 13,451,566 | $ | 11,603,413 | Total assets | $ | 10,416.6 | $ | 13,451.6 | |||||||
(continued)
See notes to consolidated financial statements.
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(IN THOUSANDS,MILLIONS, EXCEPT SHARE DATA)PAR VALUE)
| | As of | | As of | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | December 30, 2007 | December 31, 2006 | | December 28, 2008 | December 30, 2007 | |||||||||||
Liabilities and stockholders' equity | Liabilities and stockholders' equity | Liabilities and stockholders' equity | |||||||||||||||
Current liabilities: | Current liabilities: | Current liabilities: | |||||||||||||||
Accounts payable: | Accounts payable: | ||||||||||||||||
Trade | $ | 351,595 | $ | 388,281 | Trade | $ | 152.8 | $ | 351.6 | ||||||||
Affiliates | 29,104 | 31,369 | Affiliates | 17.7 | 29.1 | ||||||||||||
Accrued expenses and other liabilities | 1,189,134 | 1,225,406 | Accrued expenses and other liabilities | 690.8 | 1,189.1 | ||||||||||||
Deferred tax liabilities | 120,605 | 116,329 | Deferred tax liabilities | 107.8 | 120.6 | ||||||||||||
Short-term borrowings | 55 | 432 | Short-term borrowings | — | 0.1 | ||||||||||||
Current portion of long-term debt | 4,226 | 4,009 | Current portion of long-term debt | 0.1 | 4.2 | ||||||||||||
Discontinued operations | 40,858 | 34,290 | Discontinued operations | 16.9 | 40.8 | ||||||||||||
Total current liabilities | 1,735,577 | 1,800,116 | Total current liabilities | 986.1 | 1,735.5 | ||||||||||||
Long-term debt | Long-term debt | 2,260,596 | 2,129,845 | Long-term debt | 1,831.7 | 2,260.6 | |||||||||||
Pension and post-retirement benefits | Pension and post-retirement benefits | 677,786 | 753,697 | Pension and post-retirement benefits | 581.0 | 677.8 | |||||||||||
Derivative hedging instruments | Derivative hedging instruments | 477,450 | 269,253 | Derivative hedging instruments | 225.9 | 477.4 | |||||||||||
Deferred tax liabilities | Deferred tax liabilities | 605,377 | 607,000 | Deferred tax liabilities | 399.4 | 605.4 | |||||||||||
Unrecognized tax benefits | Unrecognized tax benefits | 285,921 | — | Unrecognized tax benefits | 230.4 | 285.9 | |||||||||||
Other liabilities | Other liabilities | 90,926 | 93,721 | Other liabilities | 47.6 | 90.9 | |||||||||||
Discontinued operations | Discontinued operations | 124,791 | 85,643 | Discontinued operations | 124.8 | 124.8 | |||||||||||
Total liabilities | 6,258,424 | 5,739,275 | Total liabilities | 4,426.9 | 6,258.3 | ||||||||||||
Commitments and contingencies (Note 20) | Commitments and contingencies (Note 20) | Commitments and contingencies (Note 20) | |||||||||||||||
Minority interests | Minority interests | 43,751 | 46,782 | Minority interests | 9.4 | 43.8 | |||||||||||
Stockholders' equity | Stockholders' equity | Stockholders' equity | |||||||||||||||
Capital stock: | Capital stock: | ||||||||||||||||
Preferred stock, non-voting, no par value (authorized: 25,000,000 shares; none issued) | — | — | Preferred stock, non-voting, no par value (authorized: 25.0 shares; none issued) | — | — | ||||||||||||
Class A common stock, voting, $0.01 par value (authorized: 500,000,000 shares; issued and outstanding: 2,674,772 shares at December 30, 2007 and December 31, 2006, respectively) | 27 | 27 | Class A common stock, voting, $0.01 par value (authorized: 500.0 shares; issued and outstanding: 2.7 shares at | — | — | ||||||||||||
Class B common stock, non-voting, $0.01 par value (authorized: 500,000,000 shares; issued and outstanding: 149,638,230 shares and 133,216,966 shares at December 30, 2007 and December 31, 2006, respectively) | 1,496 | 1,332 | Class B common stock, non-voting, $0.01 par value (authorized: 500.0 shares; issued and outstanding: 157.1 shares | 1.6 | 1.5 | ||||||||||||
Class A exchangeable shares (issued and outstanding: 3,315,899 shares and 3,314,250 shares at December 30, 2007 and December 31, 2006, respectively) | 124,760 | 124,699 | Class A exchangeable shares (issued and outstanding: 3.2 shares and 3.3 shares at December 28, 2008 and December 30, 2007, respectively) | 119.4 | 124.8 | ||||||||||||
Class B exchangeable shares (issued and outstanding: 25,123,570 shares and 34,843,536 shares at December 30, 2007 and December 31, 2006, respectively) | 945,275 | 1,310,989 | Class B exchangeable shares (issued and outstanding: 20.9 shares and 25.1 shares at December 28, 2008 and | 786.3 | 945.3 | ||||||||||||
Total capital stock | 1,071,558 | 1,437,047 | Total capital stock | 907.3 | 1,071.6 | ||||||||||||
Paid-in capital | 3,022,449 | 2,389,876 | Paid-in capital | 3,270.4 | 3,022.5 | ||||||||||||
Retained earnings | 1,950,455 | 1,673,455 | Retained earnings | 2,199.4 | 1,950.5 | ||||||||||||
Accumulated other comprehensive income | 1,104,929 | 316,978 | Accumulated other comprehensive (loss) income | (396.8 | ) | 1,104.9 | |||||||||||
Total stockholders' equity | 7,149,391 | 5,817,356 | Total stockholders' equity | 5,980.3 | 7,149.5 | ||||||||||||
Total liabilities and stockholders' equity | Total liabilities and stockholders' equity | $ | 13,451,566 | $ | 11,603,413 | Total liabilities and stockholders' equity | $ | 10,416.6 | $ | 13,451.6 | |||||||
See notes to consolidated financial statements.
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)MILLIONS)
| | For the Years Ended | | For the Years Ended | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | December 30, 2007 | December 31, 2006 | December 25, 2005 | | December 28, 2008 | December 30, 2007 | December 31, 2006 | |||||||||||||||||||
Cash flows from operating activities: | Cash flows from operating activities: | Cash flows from operating activities: | |||||||||||||||||||||||||
Net income | Net income | $ | 497,192 | $ | 361,031 | $ | 134,944 | Net income | $ | 388.0 | $ | 497.2 | $ | 361.0 | |||||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||||||||||||
Depreciation and amortization | 345,843 | 438,354 | 392,814 | Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||||||||
Amortization of debt issuance costs and discounts | 4,823 | 3,621 | 22,446 | Depreciation and amortization | 273.4 | 345.8 | 438.4 | ||||||||||||||||||||
Share-based compensation | 37,387 | 22,143 | 12,397 | Amortization of debt issuance costs and discounts | 1.3 | 4.8 | 3.6 | ||||||||||||||||||||
Loss (gain) on sale or impairment of properties and intangibles | 66,317 | (2,055 | ) | 11,116 | Share-based compensation | 55.9 | 37.4 | 22.1 | |||||||||||||||||||
Gain on sale of House of Blues Canada equity investment | (16,694 | ) | — | — | Loss (gain) on sale or impairment of properties and intangibles | 39.2 | 49.6 | (11.0 | ) | ||||||||||||||||||
Gain coincident with the sale of preferred equity holdings of Montréal Canadiens | — | (8,984 | ) | — | Excess tax benefits from share-based compensation | (8.3 | ) | (28.1 | ) | (7.5 | ) | ||||||||||||||||
Excess tax benefits from share-based compensation | (28,135 | ) | (7,474 | ) | — | Deferred income taxes | 85.1 | (97.9 | ) | 1.4 | |||||||||||||||||
Deferred income taxes | (97,948 | ) | 1,368 | (23,049 | ) | (Gain) loss on foreign currency fluctuations and derivative instruments | (1.5 | ) | 7.1 | (4.6 | ) | ||||||||||||||||
Loss (gain) on foreign currency fluctuations and derivative instruments | 7,136 | (4,578 | ) | (9,266 | ) | Equity income in MillerCoors | (155.6 | ) | — | — | |||||||||||||||||
Cumulative effect of a change in accounting principle, net of tax | — | — | 3,676 | Distributions from MillerCoors | 136.5 | — | — | ||||||||||||||||||||
Equity in net income of unconsolidated affiliates | (6,602 | ) | (8,026 | ) | (37 | ) | Equity in net income of other unconsolidated affiliates | (24.1 | ) | (6.6 | ) | (8.0 | ) | ||||||||||||||
Distributions from unconsolidated affiliates | 9,350 | 10,164 | 8,612 | Distributions from other unconsolidated affiliates | 7.5 | 9.3 | 10.2 | ||||||||||||||||||||
Minority interest in net income of consolidated entities | 15,318 | 16,089 | 14,491 | Minority interest in net income of consolidated entities | 12.2 | 15.3 | 16.1 | ||||||||||||||||||||
Change in current assets and liabilities (net of assets acquired and liabilities assumed in business combinations) and other: | Change in current assets and liabilities (net of assets acquired and liabilities assumed in business combinations) and other: | ||||||||||||||||||||||||||
Receivables | (47,715 | ) | 57,734 | 9,071 | Receivables | (128.2 | ) | (47.7 | ) | 57.7 | |||||||||||||||||
Inventories | (23,133 | ) | 7,825 | 47,233 | Inventories | 39.3 | (23.1 | ) | 7.8 | ||||||||||||||||||
Payables | (27,483 | ) | 4,151 | 16,724 | Payables | (10.5 | ) | (27.5 | ) | 4.1 | |||||||||||||||||
Other assets and other liabilities | (137,236 | ) | (71,527 | ) | (281,460 | ) | Other assets and other liabilities | (310.8 | ) | (137.2 | ) | (71.5 | ) | ||||||||||||||
Operating cash flows of discontinued operations | 17,617 | 13,408 | 62,563 | Operating cash flows of discontinued operations | 12.1 | 17.6 | 13.4 | ||||||||||||||||||||
Net cash provided by operating activities | Net cash provided by operating activities | 616,037 | 833,244 | 422,275 | Net cash provided by operating activities | 411.5 | 616.0 | 833.2 | |||||||||||||||||||
Cash flows from investing activities: | Cash flows from investing activities: | Cash flows from investing activities: | |||||||||||||||||||||||||
Additions to properties and intangible assets | (428,349 | ) | (446,376 | ) | (406,045 | ) | Additions to properties and intangible assets | (230.5 | ) | (428.3 | ) | (446.4 | ) | ||||||||||||||
Proceeds from sales of properties and intangible assets | 8,046 | 29,118 | 42,450 | Proceeds from sales of businesses and other assets | 38.8 | 38.1 | 29.1 | ||||||||||||||||||||
Purchases of investment securities, net | (22,777 | ) | — | — | Proceeds from sales (purchases) of investment securities, net | 22.8 | (22.8 | ) | — | ||||||||||||||||||
Acquisition of subsidiaries, net of cash acquired | (26,700 | ) | — | (16,561 | ) | Acquisition of businesses, net of cash acquired | — | (26.7 | ) | — | |||||||||||||||||
Proceeds in conjunction with the sale of preferred equity holdings of Montréal Canadiens | — | 36,520 | — | Proceeds in conjunction with the sale of preferred equity holdings of Montréal Canadiens | — | — | 36.5 | ||||||||||||||||||||
Proceeds from sale of House of Blues Canada equity investment | 30,008 | — | — | Investment in MillerCoors | (84.3 | ) | — | — | |||||||||||||||||||
Cash recognized on Merger with Molson | — | — | 73,540 | Investment in and advances to an unconsolidated affiliate | (6.9 | ) | — | — | |||||||||||||||||||
Cash expended for Merger-related costs | — | — | (20,382 | ) | Trade loan repayments from customers | 25.8 | 32.3 | 34.2 | |||||||||||||||||||
Trade loan repayments from customers | 32,352 | 34,152 | 42,460 | Trade loans advanced to customers | (31.5 | ) | (32.9 | ) | (28.0 | ) | |||||||||||||||||
Trade loans advanced to customers | (32,952 | ) | (27,982 | ) | (25,369 | ) | Other | (3.7 | ) | 1.2 | 0.3 | ||||||||||||||||
Other | 1,225 | 290 | 16 | Discontinued operations—proceeds from sale of majority stake in Kaiser, net of costs to sell | — | — | 79.5 | ||||||||||||||||||||
Discontinued operations—proceeds from sale of majority stake in Kaiser, net of costs to sell | — | 79,465 | — | ||||||||||||||||||||||||
Discontinued operations—additions to properties and intangible assets | — | — | (2,817 | ) | |||||||||||||||||||||||
Net cash used in investing activities | Net cash used in investing activities | (439,147 | ) | (294,813 | ) | (312,708 | ) | Net cash used in investing activities | (269.5 | ) | (439.1 | ) | (294.8 | ) | |||||||||||||
(continued)
See notes to consolidated financial statements.
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(IN THOUSANDS)MILLIONS)
| | For the Years Ended | | For the Years Ended | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | December 30, 2007 | December 31, 2006 | December 25, 2005 | | December 28, 2008 | December 30, 2007 | December 31, 2006 | ||||||||||||||
Cash flows from financing activities: | Cash flows from financing activities: | Cash flows from financing activities: | ||||||||||||||||||||
Exercise of stock options under equity compensation plans | 209,531 | 83,348 | 55,229 | Exercise of stock options under equity compensation plans | 59.0 | 209.5 | 83.4 | |||||||||||||||
Excess tax benefits from share-based compensation | 28,135 | 7,474 | — | Excess tax benefits from share-based compensation | 8.3 | 28.1 | 7.5 | |||||||||||||||
Dividends paid | (114,783 | ) | (110,563 | ) | (109,960 | ) | Dividends paid | (139.1 | ) | (114.8 | ) | (110.5 | ) | |||||||||
Dividends paid to minority interest holders | (16,986 | ) | (17,790 | ) | (10,569 | ) | Dividends paid to minority interest holders | (20.3 | ) | (17.0 | ) | (17.8 | ) | |||||||||
Proceeds from issuances of long-term debt | — | — | 1,037,814 | Proceeds from issuances of long-term debt | 16.0 | — | — | |||||||||||||||
Proceeds from issuance of convertible debt | 575,000 | — | — | Proceeds from issuance of convertible debt | — | 575.0 | — | |||||||||||||||
Debt issuance costs | (10,209 | ) | (120 | ) | (11,457 | ) | Debt issuance costs | — | (10.2 | ) | (0.1 | ) | ||||||||||
Sale of warrants | 56,991 | — | — | Sale of warrants | — | 57.0 | — | |||||||||||||||
Purchase of call options | (106,656 | ) | — | — | Purchase of call options | — | (106.7 | ) | — | |||||||||||||
Payments on long-term debt and capital lease obligations | (631,038 | ) | (7,361 | ) | (584,056 | ) | Payments on long-term debt and capital lease obligations | (181.3 | ) | (631.0 | ) | (7.4 | ) | |||||||||
Proceeds from short-term borrowings | 179,187 | 83,664 | 1,050,686 | Proceeds from short-term borrowings | 54.5 | 179.2 | 83.7 | |||||||||||||||
Payments on short-term borrowings | (180,511 | ) | (98,110 | ) | (1,887,558 | ) | Payments on short-term borrowings | (47.3 | ) | (180.5 | ) | (98.1 | ) | |||||||||
Net proceeds from (payments on) commercial paper | — | (167,379 | ) | 165,795 | Net proceeds from (payments on) commercial paper | — | — | (167.4 | ) | |||||||||||||
Net proceeds from (payments on) revolving credit facilities | (6,109 | ) | (166,177 | ) | 151,273 | Net proceeds from (payments on) revolving credit facilities | 1.1 | (6.1 | ) | (166.2 | ) | |||||||||||
Change in overdraft balances and other | 20,733 | (1,441 | ) | 8,159 | Change in overdraft balances and other | (29.8 | ) | 20.7 | (1.5 | ) | ||||||||||||
Settlements of debt-related derivatives | 5,150 | (5,900 | ) | (11,285 | ) | Proceeds (payments) on settlements of debt-related derivatives | 12.0 | 5.2 | (5.9 | ) | ||||||||||||
Financing cash flows of discontinued operations | — | (884 | ) | (42,846 | ) | Financing cash flows of discontinued operations | — | — | (0.9 | ) | ||||||||||||
Net cash provided by (used in) financing activities | 8,435 | (401,239 | ) | (188,775 | ) | |||||||||||||||||
Net cash (used in) provided by financing activities | Net cash (used in) provided by financing activities | (266.9 | ) | 8.4 | (401.2 | ) | ||||||||||||||||
Cash and cash equivalents: | Cash and cash equivalents: | Cash and cash equivalents: | ||||||||||||||||||||
Net increase in cash and cash equivalents | 185,325 | 137,192 | (79,208 | ) | Net (decrease) increase in cash and cash equivalents | (124.9 | ) | 185.3 | 137.2 | |||||||||||||
Effect of foreign exchange rate changes on cash and cash equivalents | 9,512 | 5,581 | (4,392 | ) | Effect of foreign exchange rate changes on cash and cash equivalents | (35.9 | ) | 9.5 | 5.6 | |||||||||||||
Balance at beginning of year | 182,186 | 39,413 | 123,013 | Balance at beginning of year | 377.0 | 182.2 | 39.4 | |||||||||||||||
Balance at end of period | $ | 377,023 | $ | 182,186 | $ | 39,413 | ||||||||||||||||
Balance at end of year | Balance at end of year | $ | 216.2 | $ | 377.0 | $ | 182.2 | |||||||||||||||
See notes to consolidated financial statements.
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)MILLIONS)
| Common stock issued | | | | | | | |||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Exchangeable shares issued | | | Accumulated other comprehensive income | | |||||||||||||||||||||||||||||||||||||||||||||||
| Paid-in capital | Retained earnings | | |||||||||||||||||||||||||||||||||||||||||||||||||
| Class A | Class B | Class A | Class B | Accumulated other comprehensive income | |||||||||||||||||||||||||||||||||||||||||||||||
Balances at December 26, 2004 | $ | 26 | $ | 728 | $ | — | $ | — | $ | 104,508 | $ | 1,398,003 | $ | 97,901 | ||||||||||||||||||||||||||||||||||||||
Shares issued under equity compensation plans, including related tax benefit | — | 24 | — | — | 84,999 | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Shares issued in the Merger with Molson Inc. | 2 | 242 | 183,384 | 2,420,040 | 917,898 | — | — | 3,521,566 | ||||||||||||||||||||||||||||||||||||||||||||
Exchange of shares | — | 242 | (38,378 | ) | (867,557 | ) | 905,693 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Amortization of restricted stock | — | — | — | — | 2,890 | — | — | 2,890 | ||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income, net of tax | — | — | — | — | — | — | 89,088 | 89,088 | | Common stock issued | Exchangeable shares issued | | | | | |||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | 134,944 | — | 134,944 | | | | Accumulated other comprehensive income (loss) | | |||||||||||||||||||||||||||||||||||||||
Cash dividends—$0.41 per share | — | — | — | — | — | (109,960 | ) | — | (109,960 | ) | | Paid-in capital | Retained earnings | | ||||||||||||||||||||||||||||||||||||||
| Class A | Class B | Class A | Class B | Accumulated other comprehensive income (loss) | |||||||||||||||||||||||||||||||||||||||||||||||
Balances at December 25, 2005 | Balances at December 25, 2005 | 28 | 1,236 | 145,006 | 1,552,483 | 2,015,988 | 1,422,987 | 186,989 | 5,324,717 | Balances at December 25, 2005 | $ | — | $ | 1.2 | $ | 145.0 | $ | 1,552.5 | $ | 2,016.0 | $ | 1,423.0 | $ | 187.0 | ||||||||||||||||||||||||||||
Shares issued under equity compensation plans, including related tax benefit | — | 28 | — | — | 84,227 | — | — | 84,255 | Shares issued under equity compensation plans, including related tax benefit | — | — | — | — | 84.3 | — | — | ||||||||||||||||||||||||||||||||||||
Exchange of shares | (1 | ) | 68 | (20,307 | ) | (241,494 | ) | 261,734 | — | — | — | Exchange of shares | — | 0.1 | (20.3 | ) | (241.5 | ) | 261.7 | — | — | — | ||||||||||||||||||||||||||||||
Amortization of stock based compensation | — | — | — | — | 27,927 | — | — | 27,927 | Amortization of stock based compensation | — | — | — | — | 27.9 | — | — | 27.9 | |||||||||||||||||||||||||||||||||||
Other comprehensive income, net of tax | — | — | — | — | — | — | 302,075 | 302,075 | Other comprehensive income, net of tax | — | — | — | — | — | — | 302.1 | 302.1 | |||||||||||||||||||||||||||||||||||
Adjustment to adopt SFAS 158, net of tax (Note 1) | — | — | — | — | — | — | (172,086 | ) | (172,086 | ) | Adjustment to adopt SFAS 158, net of tax | — | — | — | — | — | — | (172.1 | ) | (172.1 | ) | |||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | 361,031 | — | 361,031 | Net income | — | — | — | — | — | 361.0 | — | 361.0 | |||||||||||||||||||||||||||||||||||
Cash dividends—$0.64 per share | — | — | — | — | — | (110,563 | ) | — | (110,563 | ) | Cash dividends—$0.64 per share | — | — | — | — | — | (110.5 | ) | — | (110.5 | ) | |||||||||||||||||||||||||||||||
Balances at December 31, 2006 | Balances at December 31, 2006 | 27 | 1,332 | 124,699 | 1,310,989 | 2,389,876 | 1,673,455 | 316,978 | 5,817,356 | Balances at December 31, 2006 | — | 1.3 | 124.7 | 1,311.0 | 2,389.9 | 1,673.5 | 317.0 | 5,817.4 | ||||||||||||||||||||||||||||||||||
Shares issued under equity compensation plans, including related tax benefit | — | 67 | — | — | 238,674 | — | — | 238,741 | Shares issued under equity compensation plans, including related tax benefit | — | 0.1 | — | — | 238.7 | — | — | 238.8 | |||||||||||||||||||||||||||||||||||
Exchange of shares | — | 97 | 61 | (365,714 | ) | 365,556 | — | — | — | Exchange of shares | — | 0.1 | 0.1 | (365.7 | ) | 365.5 | — | — | — | |||||||||||||||||||||||||||||||||
Amortization of stock based compensation | — | — | — | — | 37,387 | — | — | 37,387 | Amortization of stock based compensation | — | — | — | — | 37.4 | — | — | 37.4 | |||||||||||||||||||||||||||||||||||
Other comprehensive income, net of tax | — | — | — | — | — | — | 787,951 | 787,951 | Other comprehensive income, net of tax | — | — | — | — | — | — | 787.9 | 787.9 | |||||||||||||||||||||||||||||||||||
Adjustment to adopt FIN 48 (Note 1) | — | — | — | — | — | (105,409 | ) | — | (105,409 | ) | Adjustment to adopt FIN 48 | — | — | — | — | — | (105.4 | ) | — | (105.4 | ) | |||||||||||||||||||||||||||||||
Sale of warrants | — | — | — | — | 56,991 | — | — | 56,991 | Sale of warrants | — | — | — | — | 57.0 | — | — | 57.0 | |||||||||||||||||||||||||||||||||||
Purchase of call options, net of tax | — | — | — | — | (66,035 | ) | — | — | (66,035 | ) | Purchase of call options, net of tax | — | — | — | — | (66.0 | ) | — | — | (66.0 | ) | |||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | 497,192 | — | 497,192 | Net income | — | — | — | — | — | 497.2 | — | 497.2 | |||||||||||||||||||||||||||||||||||
Cash dividends—$0.64 per share | — | — | — | — | — | (114,783 | ) | — | (114,783 | ) | Cash dividends—$0.64 per share | — | — | — | — | — | (114.8 | ) | — | (114.8 | ) | |||||||||||||||||||||||||||||||
Balances at December 30, 2007 | Balances at December 30, 2007 | $ | 27 | $ | 1,496 | $ | 124,760 | $ | 945,275 | $ | 3,022,449 | $ | 1,950,455 | $ | 1,104,929 | $ | 7,149,391 | Balances at December 30, 2007 | — | 1.5 | 124.8 | 945.3 | 3,022.5 | 1,950.5 | 1,104.9 | 7,149.5 | ||||||||||||||||||||||||||
Shares issued under equity compensation plans, including related tax benefit | — | — | — | — | 24.6 | — | — | 24.6 | ||||||||||||||||||||||||||||||||||||||||||||
Exchange of shares | — | 0.1 | (5.4 | ) | (159.0 | ) | 164.3 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Amortization of stock based compensation | — | — | — | — | 59.0 | — | — | 59.0 | ||||||||||||||||||||||||||||||||||||||||||||
Contribution to MillerCoors, net of tax | — | — | — | — | — | — | 134.5 | 134.5 | ||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss, net of tax | — | — | — | — | — | — | (1,636.2 | ) | (1,636.2 | ) | ||||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | 388.0 | — | 388.0 | ||||||||||||||||||||||||||||||||||||||||||||
Cash dividends—$0.76 per share | — | — | — | — | — | (139.1 | ) | — | (139.1 | ) | ||||||||||||||||||||||||||||||||||||||||||
Balances at December 28, 2008 | Balances at December 28, 2008 | $ | — | $ | 1.6 | $ | 119.4 | $ | 786.3 | $ | 3,270.4 | $ | 2,199.4 | $ | (396.8 | ) | $ | 5,980.3 | ||||||||||||||||||||||||||||||||||
See notes to consolidated financial statements.
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and Summary of Significant Accounting Policies
On February 9, 2005, Adolph Coors Company merged with Molson Inc. (the "Merger"). In connection with the Merger, Adolph Coors Company became the parent of the merged Company and changed its name to Molson Coors Brewing Company. Unless otherwise noted in this report, any description of we, us or our includes Molson Coors Brewing Company ("MCBC" or the "Company"), principally a holding company, and its operating subsidiaries: Coors Brewing CompanyMolson Canada ("CBC"Molson"), operating in the United States ("U.S.");Canada; Coors Brewers Limited ("CBL"), operating in the United Kingdom ("U.K."); Molson CanadaCoors Brewing Company ("Molson"CBC"), operatingwhich operated in Canada;the United States ("U.S.") prior to the formation of MillerCoors LLC ("MillerCoors") (see below); and our other corporate entities. Any reference to "Coors" means
Effective July 1, 2008, MCBC and SABMiller plc ("SABMiller") combined the Adolph CoorsU.S. and Puerto Rico operations of their respective subsidiaries, CBC and Miller Brewing Company prior to("Miller"). The results and financial position of U.S. operations, which had historically comprised substantially all of our U.S. reporting segment were, in all material respects, deconsolidated from MCBC prospectively upon formation of MillerCoors. Our interest in MillerCoors is accounted for by us under the Merger. Any reference to Molson Inc. means Molson prior to the Merger. Any reference to "Molson Coors" means MCBC after the Merger.equity method of accounting. See Note 2, "Segment and Geographic Information," and Note 3, "Equity Investments."
Unless otherwise indicated, information in this report is presented in U.S. dollars ("USD" or "$").
Our Fiscal Year
Our fiscal year is a 52 or 53 week period ending on the last Sunday in December. The fiscal years ended December 30, 2007,28, 2008 and December 25, 2005,30, 2007, were 52 week periods and fiscal year ended December 31, 2006, was a 53 week period.
Principles of Consolidation
Our consolidated financial statements include our accounts and our majority-owned and controlled domestic and foreign subsidiaries, as well as entities consolidated under FASB Interpretation No. 46R,Consolidation of Variable Interest Entities—An Interpretation of ARB 51 ("FIN 46R"). All significant intercompany accounts and transactions have been eliminated in consolidation.
Reporting Periods Presented
The accompanying consolidated financial statements do not include the results of Molson and Kaiser (presented as a discontinued operation) prior to the Merger on February 9, 2005. Further, the results of Kaiser and our joint venture, Brewers Retail Inc. (BRI), consolidated under FIN 46R, are reported one month in arrears since the date of the Merger for this and future reporting periods. For the year ended December 31, 2006, Kaiser's results include the results for December 2005 through January 13, 2006, (the date of the sale) and for the year ended December 25, 2005, Kaiser's results include the results for February 9, 2005 (the date of the merger) through November 2005. For the year ended December 25, 2005, BRI's results include the results for February 9, 2005, (the date of the Merger) through November 2005..
Stock Split
On August 1, 2007, our Board of Directors declared a two-for-one stock split issued in the form of a dividend for all classes of capital stock, with a record date of September 19, 2007, and an effective date of October 3, 2007. All share and per share data included in the consolidated financial statements and accompanying notes have been adjusted to reflect this stock split.
Use of Estimates
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Basis of Presentation and Summary of Significant Accounting Policies (Continued)
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 material differences between these estimates and actual results, our consolidated financial statements may be affected.
Reclassifications
Certain reclassifications have been made to the 20052006 and 20062007 financial statements to conform to the 20072008 presentation.
Revenue Recognition
Depending upon the method of distribution, revenue is recognized when the significant risks and rewards of ownership are transferred to the customer or distributor, which is either at the time of shipment to distributors or upon delivery of product to retail customers.
In Canada, revenue is recognized when the significant risks and rewards of ownership are transferred to the customer or distributor, which is either at the time of shipment to distributors or upon delivery of product to retail customers.
In the United States, customers are principally independent distributors or wholesalers. Revenue is recognized when product is shipped and the risk of loss transfers to the distributors or wholesalers.
Revenue is recognized in the Europe segment when product is received by our customers, who are principally independent retailers in the United Kingdom. In the United Kingdom, excise taxes are included in the purchase price we pay the vendor on beverages for the factored brands business purchased from third parties for resale, and are included in our net sales and cost of goods sold when ultimately sold.
The cost of various programs, such as price promotions, rebates and coupon programs are treated as a reduction of sales. Sales of products are for cash or otherwise agreed upon credit terms. Revenue is stated net of incentives, discounts and returns.
Outside of unusual circumstances, if product is returned, it is generally for failure to meet our quality standards, not caused by customer actions. Products that do not meet our high quality standards are returned and destroyed. We do not have standard terms that permit return of product. We estimate the costs for product returns and record those costs in cost of goods sold each period. We reduce revenue at the value of the original sales price in the period that the product is returned.
Cost of Goods Sold
Our cost of goods sold includes beer raw materials, packaging materials (including promotional packaging), manufacturing costs, plant administrative support and overheads, inbound and outbound freight charges, purchasing and receiving costs, inspection costs, warehousing, and internal transfer costs.
Equity Method Accounting
We generally apply the equity method of accounting to 20% to 50% owned investments where we exercise significant influence, except for certain joint ventures that must be consolidated as variable interest entities under FIN 46R. These equity method investments include our equity ownership in MillerCoors in the U.S., Tradeteam (a transportation and logistics services company in the U.K.), and investments in Modelo Molson Imports, L.P., the Montréal Canadiens, BDL and House of Blues, all in Canada. See Note 3, "Equity Investments."
There are no related parties that own interests in our equity method investments as of December 28, 2008.
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Basis of Presentation and Summary of Significant Accounting Policies (Continued)
interest entities under FIN 46R. These investments primarily involve equity ownership in transportation services in our Europe segment (Tradeteam) and an investment in the Montréal Canadiens in Canada.
There are no related parties that own interests in our equity method investments as of December 30, 2007.
Marketing, General and Administrative Expenses
Our marketing, general and administrative expenses consist predominately of advertising, sales staff costs, and non-manufacturing administrative, and overhead costs. The creative portion of our advertising activities is expensed as incurred. Production costs of advertising and promotional materials are generally expensed when the advertising is first run. Advertising expense was $610.0 million, $858.1 million, $906.9 million, and $729.1$906.9 million for years 2008, 2007, 2006, and 2005,2006, respectively. Prepaid advertising costs of $8.1 million and $27.3 million, entirely recorded in current and $46.8 million ($43.8 million in current and $3.0 million in non-current) were included in other current assets and other non-current assets in the Consolidated Balance Sheets at December 30, 2007,28, 2008, and December 31, 2006,30, 2007, respectively.
Trade Loans
CBL extends loans to a portion of the retail outlets that sell our brands. Some of these loans provide for no interest to be payable, and others provide for payment of a below market interest rate. In return, the retail outlets receive smaller discounts on beer and other beverage products purchased from us, with the net result being CBL attaining a market return on the outstanding loan balance. We therefore reclassify a portion of beer revenue into interest income to reflect a market rate of interest on these loans. In 2008, 2007 2006 and 2005,2006, these amounts were $10.7 million, $11.5 million and $11.7 million, and $13.1 million, respectively. We have included thisThis interest income is included in the EuropeU.K. segment since it is related solely to CBL.
Trade loan receivables are classified as either other receivables or non-current notes receivable in our Consolidated Balance Sheets. At December 30, 2007,28, 2008, and December 31, 2006,30, 2007, total loans outstanding, net of allowances, were $98.4$68.8 million and $99.7$98.4 million, respectively.
Allowance for Doubtful Accounts
Canada's distribution channels are highly regulated by provincial regulation and experience few collectibility problems. However, Canada does have direct sales to retail customers for which an allowance is recorded based upon expected collectibility and historical experience.
In the U.S. segment, our allowance for doubtful accounts and customer credit risk are insignificant, as the majority of the U.S. segment accounts receivable balance is generated from sales to independent distributors with whom collection occurs through electronic funds transfer. Also, in the United States, we secure substantially all of our product sale credit risk with purchase money security interests in inventory and proceeds, personal guarantees and other letters of credit.
Because the majority of CBL sales are directly to retail customers, and because of the industry practice of making trade loans to customers, our ability to manage credit risk in this business is critical. At CBL, we provide allowances for uncollectible trade receivables and trade loans associated with the ability to collect outstanding receivables from our customers. Generally, provisions are recorded to cover the full exposure to a specific customer at the point the account is considered uncollectible. Accounts are
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Basis of Presentation and Summary of Significant Accounting Policies (Continued)
typically deemed uncollectible based on the sales channel, after becoming either one hundred twenty days or one hundred eighty days overdue. We record the provision in marketing, general and administrative expenses. Provisions are reversed upon recoverability of the account or at the point an account is written off.
We are not able to predict changes in financial condition of our customers, and if circumstances related to our customers deteriorate, our estimates of the recoverability of our trade receivables and trade loans could be materially affected.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out ("FIFO") methodmethod. Prior to the formation of MillerCoors, substantially all of the inventories in Europe and Canada andthe United States were determined on the last-in, first-out ("LIFO") method for substantially all inventories in the United States.method. As of December 30, 2007,
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1. Basis of Presentation and December 31, 2006, Summary of Significant Accounting Policies (Continued)
the percentage of total inventories on the LIFO method was approximately 25% and 30%, respectively.. Current cost in the United States, determined on the FIFO method, exceeded LIFO cost by $47.9 million and $43.9 million at December 30, 2007, and December 31, 2006, respectively.2007.
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. There were no allowances for obsolete finished or packaging materials at December 28, 2008. At December 30, 2007, the allowances for obsolete inventories were $1.0 million for finished inventories and $0.6 million for packaging materials.
Fair Value of Financial Instruments
The carrying amounts of our cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued liabilities, approximate fair value as recorded due to the short-term maturity of these instruments. The fair value of long-term obligations for derivatives was estimated by discounting the future cash flows using market interest rates.rates, adjusted for non-performance credit risk associated with our counterparties (assets) or with MCBC (liabilities), see Note 18, "Derivative Instruments." Assuming current market rates for similar instruments, the fair value of long-term debt exceeds the carrying value by approximately $104.7 millionis presented in Note 13, "Debt and $26.7 million at December 30, 2007 and December 31, 2006, respectively.Credit Arrangements."
Foreign Currency Translation
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. Revenue and expenses are translated at the average exchange rates during the period. Translation adjustments resulting from this process are reported as a separate component of other comprehensive income.
Factored Brands
In addition to supplying our own brands, CBL sells other beverage companies' products to on-premise customers to provide them with a full range of products for their retail outlets. These factored brand sales are included in our financial results, but the related volume is not included in our reported sales volumes. We refer to this as the "factored brand business." In the factored brand business, CBL normally purchases factored brand inventory, taking orders from customers for such brands, and invoicing customers for the product and related costs of delivery. In accordance with EITF 99-19, "Reporting Revenue Gross as a Principal Versus Net as an Agent," sales under the factored brands are generally reported on a gross income basis. However, CBL's relationship with a large
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1. Basis of Presentation and Summary of Significant Accounting Policies (Continued)
on-premise customer changed in 2005, resulting in net reporting of sales and cost of sales as an agent for that customer in our consolidated statement of operations on a prospective basis from the date of change in our contract terms. The change in accounting recognition from gross to net reporting reflects a change in the substance of CBL's status as transaction agent whereby there has been a transfer of credit risk from CBL to the owner and supplier of the factored brands effective in 2005.
Goodwill and Other Intangible Asset Valuation
We evaluate the carrying value of our goodwill and indefinite-lived intangible assets for impairment at least annually, and we evaluate our other intangible assets for impairment when there is evidence that certain events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Significant judgments and assumptions are required in the evaluation of goodwill and intangible assets for impairment. See Note 12.12, "Goodwill and Intangible Assets."
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Statement of Cash Flows Data
Cash equivalents represent highly liquid investments with original maturities of 90 days or less. The fair value of these investments approximates their carrying value. The following presents our supplemental cash flow information:
| For the fiscal years ended | For the fiscal years ended | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 30, 2007 | December 31, 2006 | December 25, 2005 | December 28, 2008 | December 30, 2007 | December 31, 2006 | |||||||||||||
| (In millions) | (In millions) | |||||||||||||||||
Cash paid for interest(1) | $ | 104.4 | $ | 132.5 | $ | 109.9 | $ | 84.2 | $ | 104.4 | $ | 132.5 | |||||||
Cash paid for taxes | $ | 77.6 | $ | 38.4 | $ | 202.1 | $ | 71.5 | $ | 77.6 | $ | 38.4 | |||||||
Receipt of note upon sale of property | $ | — | $ | 1.7 | $ | — | $ | 2.8 | $ | — | $ | 1.7 | |||||||
Issuance of restricted stock, net of forfeitures | $ | 11.1 | $ | 11.3 | $ | 9.9 | $ | 28.2 | $ | 11.1 | $ | 11.3 | |||||||
Issuance of performance shares, net of forfeitures | $ | 1.6 | $ | 65.3 | $ | — | $ | 0.9 | $ | 1.6 | $ | 65.3 | |||||||
Tax benefit from exercise of stock options | $ | 28.1 | $ | 7.4 | $ | 6.7 | $ | 8.3 | $ | 28.1 | $ | 7.4 |
See Note 3, "Equity Investments," for a summary of assets and liabilities contributed to MillerCoors, the formation of which was a significant non-cash activity.
Adoption of New Accounting Pronouncements
FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109"
On January 1, 2007, we adopted the FASB's Interpretation No. 48, "Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109" ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements. FIN 48 prescribes a two-step process to determine the amount of tax benefit to be recognized. However, the tax position must be evaluated to determine the likelihood that it will be sustained upon examination. If the tax position is deemed "more-likely-than-not" to be sustained, the tax position is then valued to determine the amount of benefit to be recognized in the financial statements. As a result of the adoption of FIN 48, we increased tax-relatedtax related liabilities by a total of $132.1 million and recorded $3.9 million as a current liability for unrecognized tax benefits and $128.2 million as a non-current liability for unrecognized tax benefits. The cumulative effect of applying the new requirement has been
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Basis of Presentation and Summary of Significant Accounting Policies (Continued)
recorded as a reduction to the beginning balance of retained earnings in the amount of $105.4 million, an increase to goodwill in the amount of $2.3 million (See Note 12)12, "Goodwill and Intangible Assets") and an increase to deferred tax assets of $24.4 million. The adjustment to goodwill reflects the changes to liabilities for uncertain tax positions established in the opening balance sheet of theregarding our historical merger and acquisition of CBL in 2002 and the Merger in 2005.activity. See Note 7, "Income Taxes," for further discussion.
SFAS No. 157 "Fair Value Measurements"
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements," ("SFAS 157") which was, in part, effective for us beginning in fiscal year 2008. This statement defines fair value, establishes a framework for measuring fair value and expands the related disclosure requirements. The
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Basis of Presentation and Summary of Significant Accounting Policies (Continued)
statement indicates, among other things, that a fair value measurement assumes that the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. Subsequent to the issuance of SFAS 157, the FASB issued FASB Staff Positions ("FSP") 157-1, "Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13" and FSP FAS 157-2 "Effective Date of FASB Statement No. 157." FSP FAS 157-1 excludes from the scope of SFAS 157, in certain circumstances, SFAS 13 and other accounting pronouncements that address fair value measurements for purposes of lease classification or measurement under SFAS 13. FSP FAS 157-2 delays the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. For the instruments subject to the delay in the effective date under FSP FAS 157-2, the effective date to adopt the fair value provisions for us will be the first quarter of 2009.
In October 2008, the FASB issued FSP FAS 157-3, "Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active." This FSP clarifies the application of SFAS No. 157 in a market that is not active and applies to financial assets within the scope of accounting pronouncements that require or permit fair value measurements in accordance with SFAS No. 157. FSP FAS 157-3 was effective upon issuance, including prior periods for which financial statements have not been issued. Accordingly, we adopted this guidance effective September 28, 2008. Our adoption of this guidance did not have a material effect on our consolidated financial position or results of operations.
The table below summarizes our financial assets and liabilities that are measured at fair value on a recurring basis as of December 28, 2008. Upon adoption of SFAS 157, in the first quarter of 2008, we considered our indemnity obligations related to our discontinued operations from Kaiser (see Note 20, "Commitments and Contingencies") to be within the scope of the first phase of SFAS 157 adoption in 2008. During the fourth quarter of 2008, we determined that the principles of SFAS 157 should be applied to these liabilities in the second phase of adoption in 2009, because of the non-routine nature of fair value determinations associated with these obligations. As a result, these indemnity obligations have been excluded from the table below.
SFAS 157 establishes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques (market approach, income approach and cost approach). We utilize a combination of market and income approaches to value derivative instruments, and use an income approach for valuing our indemnity obligations. 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).
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1. Basis of Presentation and Summary of Significant Accounting Policies (Continued)
Level 3—Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability. We develop these inputs based on the best information available, including our own data.
The following presents our assets and liabilities that are measured at fair value based on a recurring basis:
| | Fair Value Measurements at December 28, 2008 Using | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Total carrying value at December 28, 2008 | |||||||||||||
| Quoted prices in active markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||
| (In millions) | |||||||||||||
Derivatives liabilities, net | $ | (141.0 | ) | $ | — | $ | (151.5 | ) | $ | 10.5 | ||||
Total | $ | (141.0 | ) | $ | — | $ | (151.5 | ) | $ | 10.5 | ||||
The table below illustrates a rollforward of the amounts included in our consolidated balance sheet for derivative financial instruments that we have classified within Level 3 under SFAS 157. The determination to classify a financial instrument within Level 3 is based upon the significance of the unobservable factors used in determining the overall fair value of the instrument. Since financial instruments classified as Level 3 typically include a combination of observable components (that is, components that are actively quoted and can be validated to external sources) and unobservable components, the gains and losses in the table below may include changes in fair value due in part to observable market factors, or changes to our assumptions on the unobservable components. Depending upon the information readily observable in the market, and/or the use of unobservable inputs, which are significant to the overall valuation, the classification of any individual financial instrument may differ from one measurement date to the next. In the event that there is a movement to/from the classification of an instrument as Level 3, we have reflected such items in the table below within the "Transfers In/Out of Level 3" caption. We manage our overall risk at the portfolio level, and in the execution of our strategy, we may use a combination of financial instruments, which may be classified within any level. Since Level 1 and Level 2 risk management instruments are not included in the rollforward below, the gains or losses in the table do not reflect the effect of our total risk management activities.
| Rollforward of Level 3 Inputs | ||||
---|---|---|---|---|---|
Balance at December 31, 2007 | $ | — | |||
Total gains or losses (realized/unrealized) | |||||
Included in earnings (or change in net assets) | — | ||||
Included in AOCI | — | ||||
Purchases, issuances and settlements | — | ||||
Transfers In/Out of Level 3 | 10.5 | ||||
Balance at December 28, 2008 | $ | 10.5 | |||
In 2009 and in accordance with FSP FAS 157-2, we will adopt the fair value provisions for those non-financial assets and liabilities that are measured at fair value on a nonrecurring basis including goodwill, intangibles, indemnity (guarantee) obligations, and debt. Based on our evaluation of this
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Basis of Presentation and Summary of Significant Accounting Policies (Continued)
statement, we do not believe the adoption of FSP FAS 157-2 will have a significant impact on our financial results or position.
Following is a list of asset and liabilities that are recognized or disclosed at fair value for which, we will apply the provisions of SFAS 157 in 2009:
SFAS No. 158 "Employers' Accounting for Defined Benefit Pension and Other Postretirement Benefits—an amendment of FASB Statements No. 87, 88, 106, and 132(R)"
SFAS 158 was issued in September 2006 and was effective for our annual fiscal year ending December 31, 2006. The standard, which is an amendment to SFAS 87, 88, 106, and 132(R), requires an employer to recognize the funded status of any defined benefit pension and/or other postretirement benefit plans as an asset or liability in its statement of financial position. Funded status is the difference between the projected benefit obligation and the market value of plan assets for defined benefit pension plans, and is the difference between the accumulated benefit obligation and the market value of plan assets (if any) for other postretirement benefit plans. SFAS 158 also requires an employer to recognize changes in that funded status in the year in which the changes occur through other comprehensive income. As a result of the adoption of SFAS 158, liabilities related to our defined benefit pension and postretirement benefit plans increased by $245 million and our accumulated other comprehensive income, net of related deferred income taxes, decreased by approximately $172 million as of December 31, 2006. A portion of the change in accumulated other comprehensive income related to the adoption of SFAS 158 will beis being recognized in the statement of operations as a component of net periodic pension benefit cost in future periods. See Notes 16, "Employee Retirement Plans" and 17, for a detailed discussion regarding the adoption of SFAS 158."Postretirement Benefits."
In addition, this statement requires companies to measure plan assets and obligations at the date of their year-end statement of financial position, with limited exceptions. This measurement date provision will bewas effective for our annual 2008 year end and willdid not have an impact on the Company's financial statements as we currently measure plan assets and obligations as of our fiscal year-end.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Basis of Presentation and Summary of Significant Accounting Policies (Continued)
The impact of adopting SFAS 158 is displayed in the table below:
| As of December 31, 2006 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
| Before Application of SFAS 158 | Adjustments | After Application of SFAS 158 | |||||||||
| (In thousands) | |||||||||||
Assets | ||||||||||||
Other intangibles | $ | 16,931 | $ | (16,931 | ) | $ | — | |||||
Other assets | 13,645 | 3,611 | 17,256 | |||||||||
Deferred tax assets | 102,069 | 86,631 | 188,700 | |||||||||
Liabilities | ||||||||||||
Defined Benefit Pension Plans | — | 2,028 | 2,028 | |||||||||
Postretirement Benefit Plans | 17,511 | 6,480 | 23,991 | |||||||||
Accrued expenses and other liabilities | 17,511 | 8,508 | 26,019 | |||||||||
Defined Benefit Pension Plans | 232,056 | 142,632 | 374,688 | |||||||||
Postretirement Benefit Plans | 284,165 | 94,257 | 378,422 | |||||||||
Pension and postretirement benefits | $ | 516,221 | $ | 236,889 | $ | 753,110 | ||||||
Stockholders' Equity | ||||||||||||
Accumulated Other Comprehensive Income | $ | (134,735 | ) | $ | (172,086 | ) | $ | (306,821 | ) |
SFAS No. 123R "Share-Based Payment"
SFAS 123R was issued in December 2004 and became effective for us in the first quarter of 2006. SFAS 123R requires all share-based payments to qualified individuals, including grants of employee stock options, to be recognized as compensation cost in the financial statements based on their grant date fair values. Prior to the adoption, under the guidance for qualifying stock option grants with no intrinsic value on the date of grant, we presented pro forma share-based compensation expense for our stock option program in the notes to our financial statements. We have elected to use the modified prospective application method of implementing SFAS 123R, which does not require restatement of prior periods. Under the modified prospective application method, awards that are granted, modified, or settled after adoption of SFAS 123R are prospectively measured and accounted for in accordance with SFAS 123R. Unvested equity-classified awards that were granted prior to the adoption of SFAS 123R will continue to be accounted for in accordance with SFAS 123, except that the fair value amounts are recognized in the statement of operations and are subject to the forfeiture provisions of SFAS 123R. In March 2005, the SEC issued Staff Accounting Bulletin No. 107 ("SAB 107") to assist preparers by simplifying some of the implementation challenges of SFAS 123R. In particular, SAB 107 provides supplemental implementation guidance on SFAS 123R, including guidance on valuation methods, classification of compensation expense, inventory capitalization of share-based compensation cost, income tax effects, disclosures in Management's Discussion and Analysis and several other issues. We applied the principles of SAB 107 in conjunction with our adoption of SFAS 123R in the first quarter of 2006.
SFAS 123R requires a determination of excess tax benefits available to absorb related share-based compensation. FASB Staff Position 123R-3,Transition Election Related to Accounting for the Tax Effects
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Basis of Presentation and Summary of Significant Accounting Policies (Continued)
of Share-Based Payment Awards ("FSP 123R-3"), which was issued on November 10, 2005, provides a practical transition election related to accounting for the tax effects of share-based payment awards to employees. Specifically, this FSP allows a company to elect the alternative or simplified method to calculate the opening balance. We have adopted such alternative method provisions to calculate the beginning balance of the excess tax benefits. This adoption did not have any impact on our financial statements.
The effect of adoption of SFAS 123R in 2006 was an additional expense of $6.1 million pretax, $4.4 million after tax, or $0.02 per diluted share. (See Note 14.)
The following table illustrates the pro forma effects for the year ended December 25, 2005, if the Company followed the fair value provisions of SFAS 123R during such period (per share amounts adjusted to give effect to the 2-for-1 stock split effective October 3, 2007):
| Year ended December 25, 2005 | ||||
---|---|---|---|---|---|
| (In thousands, except per share data) | ||||
Net income, as reported | $ | 134,944 | |||
Add: total stock-based compensation expense, net of related tax | 14,978 | ||||
Deduct: total stock-based compensation expense determined under the fair value based method for all awards, net of related tax | (65,327 | ) | |||
Pro forma net income | $ | 84,595 | |||
Net income per share: | |||||
Basic—as reported | $ | 0.85 | |||
Basic—pro forma | $ | 0.53 | |||
Diluted—as reported | $ | 0.84 | |||
Diluted—pro forma | $ | 0.53 |
FASB Interpretation No. 47 "Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143"
In March 2005, the FASB issued FASB Interpretation No. 47 "Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143," ("FIN 47") which clarifies the term "conditional asset retirement obligation" as used in SFAS No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"). Specifically, FIN 47 provides that an asset retirement obligation is conditional when either the timing and (or) method of settling the obligation is conditioned on a future event. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair market value of the liability can be reasonably estimated. Uncertainty about the timing and (or) method of settlement of a conditional asset retirement obligation should be factored into the measurement of the liability when sufficient information exists.
We adopted FIN 47 on December 25, 2005, which resulted in an increase to properties of $0.5 million, goodwill of $2.2 million, minority interest of $1.1 million, and liabilities of $9.6 million related to asset retirement obligations. For asset retirement obligations related to the properties
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Basis of Presentation and Summary of Significant Accounting Policies (Continued)
acquired in the acquisition of Molson Inc. as of February 9, 2005, such obligations increased the goodwill amounts recognized upon the acquisition by $2.2 million as such properties were recorded at the appraised fair market value at the acquisition date. These asset retirement obligations relate primarily to clean-up, removal, or replacement activities and related costs for asbestos, coolants, waste water, oils and other contaminants contained that maybe within our manufacturing properties.
The adoption of FIN 47 was reflected in our financial statements as the cumulative effect of the change in accounting principle with the catch-up adjustment of $3.7 million, net of tax benefit of $2.2 million, in the 2005 statement of operations. This adjustment represents a depreciation charge and an accretion of a liability from the time the obligation originated, which is either from the time of the acquisition or the construction of related long-lived assets, through December 25, 2005.
Inherent in the fair value calculation of asset retirement obligations are numerous assumptions and judgments including the ultimate settlement amounts, inflation factors, credit adjusted discount rates, timing of settlement, and changes in the legal, regulatory, environmental and political environments. To the extent future revisions to these assumptions impact the fair value of the existing asset retirement obligation liability, a corresponding adjustment will be made to the asset balance. If the obligation is settled for other than the carrying amount of the liability, we will recognize a gain or loss upon the settlement.
New Accounting Pronouncements
SFAS No. 157 "Fair Value Measurements"
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements," (SFAS 157) which, in part, is effective for us beginning in fiscal year 2008. This statement defines fair value, establishes a framework for measuring fair value and expands the related disclosure requirements. The statement indicates, among other things, that a fair value measurement assumes that the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. Subsequent to the issuance of SFAS 157, the FASB issued FASB Staff Positions (FSP) 157-1, "Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13" and FSP 157-2 "Effective Date of FASB Statement No. 157." FSP 157-1 excludes, in certain circumstances, SFAS 13 and other accounting pronouncements that address fair value measurements for purposes of lease classification or measurement under Statement 13 from the provision of SFAS 157. FSP 157-2 delays the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. For the instruments subject to the effective day delay under FSP 157-2, the effective day to adopt the fair value provisions for us will be the first quarter of 2009. While FSP 157-c has not been finalized or approved, it clarifies the principles in SFAS 157 on the fair value measurement of liabilities. Based upon our evaluation of the statements and subsequent pronouncements issued to date, we believe that the adoption of the statement for financial assets and liabilities routinely measured and recorded or disclosed at their fair values, will not have a significant impact on the determination or reporting of our financial results. The company is currently evaluating the impacts, if any, the adoption of the provisions of Statement No. 157 for non-financial assets and liabilities that are recognized or disclosed on a non-recurring basis.
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Basis of Presentation and Summary of Significant Accounting Policies (Continued)
SFAS No. 159 "The Fair Value Option for Financial Assets and Financial Liabilities. Including an amendment of FASB Statement No. 115"
In February 2007, the FASB issued Statement No. 159 ("SFAS 159"). SFAS 159 which permits entities an option to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The objective of this Statement is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Basis of Presentation and Summary of Significant Accounting Policies (Continued)
related assets and liabilities using different measurement techniques. The fair value measurement provisions are elective and can be applied to individual financial instruments. SFAS 159 requires additional disclosures related to the fair value measurements included in the entity's financial statements. This Statement iswas effective for us as of the beginning of our 2008 fiscal year. We dohave not intend to adoptadopted the fair value measurement provisions of SFAS 159.
FASB Staff Position FIN 39-1, "Amendment of FASB Interpretation No. 39"
In April 2007, the FASB issued FSP No. FIN 39-1, "Amendment of FASB Interpretation No. 39" ("FSP FIN 39-1"), effective in the 2008 fiscal reporting year for MCBC. FSP FIN 39-1 addresses the issue of gross versus net balance sheet presentation of a company's derivative positions, specifically with respect to those positions that are with the same external counterparty. Master netting arrangements with counterparties can impact the manner in which otherwise unrelated derivatives are settled, because they are with the same external counterparty. FSP FIN 39-1 also requires that companies address gross versus net presentation with regard to the payment or collection of cash collateral on derivative liabilities and assets, respectively. FSP FIN 39-1 requires that companies make an accounting policy selection in 2008 regarding whether they will present derivative positions subject to master netting arrangements with external counterparties on a gross or net basis. The FSP must be adopted as a change in accounting policy, and prior years' balance sheet presentation conformed to the 2008 presentation. We have elected to present such derivative positions on a gross basis, consistent with their presentation in past years. Therefore, the adoption of FSP FIN 39-1 had no impact on our financial statements for the periods presented.
New Accounting Pronouncements
SFAS No. 141R "Business Combinations"
In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations" ("SFAS 141R"), which replaces SFAS No. 141, "Business Combinations." Under the provisions of SFAS 141R, acquisition costs will generally be expensed as incurred; noncontrolling interests will be valued at fair value at the acquisition date; in-process research and development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date; restructuring costs associated with a business combination will generally be expensed subsequent to the acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. SFAS 141(R)141R will be effective, on a prospective basis, for all business combinations for which the acquisition date is after the beginning of our fiscal year 2009, with the exception of the accounting for valuation allowances on deferred taxes and acquired tax contingencies for which the adoption is retrospective. We are currently evaluating the effects if any, that SFAS 141R maywill have on our financial statements. The impact of the income tax accounting provisions will increase volatility to our effective tax rate in 2009 and subsequent years. We have no business combination activity in process as of December 28, 2008. However, if we were to initiate business combination activity in 2009, the application of FAS 141R would have an immediate impact on our financial results as it requires acquisition costs to be expensed as incurred. Also, the significant differences in purchase price accounting required by FAS 141R could add volatility to our results if we complete acquisitions in future periods.
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Basis of Presentation and Summary of Significant Accounting Policies (Continued)
SFAS No. 160 "Noncontrolling interests in Consolidated Financial Statements"
In December 2007, the FASB issued Financial Accounting Standards No. 160, "Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51" ("SFAS 160") and is effective for us beginning in fiscal year 2008.2009. This Statement requires the recognition of a noncontrolling interest, or(formerly referred to as minority interest,interest), as equity in the consolidated financial statements and separate from the parent's equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. It also amends certain of ARB No. 51's consolidation procedures for consistency with the requirements of SFAS 141(R).141R, including procedures associated with the deconsolidation of a subsidiary. This statement also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. WeThe adoption of SFAS 160 in the first quarter of 2009 will require the reclassification of our reported non-controlling interests to stockholders' equity. The adoption of SFAS 160 will also change our reported Net Income in the first quarter of 2009, which will include the share of Net Income attributable to non-controlling interests. A new deduction will be presented at the bottom of the income statement to arrive at a new bottom-line total indicating net income attributable to the consolidating parent company. Earnings per share will still be calculated on net income attributable to the consolidating parent company.
Due to a change in our ownership level of BRI, we expect to deconsolidate this entity from our financial statements during the first quarter of 2009, and begin to account for it under the equity method at that time. As a result, we may record a gain or loss upon BRI's deconsolidated due to SFAS 160's requirement that we apply fair value to our equity interest.
SFAS No. 161 "Disclosures about Derivative Instruments and Hedging Activities. Including an amendment of FASB Statement No. 133"
In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133," (SFAS "161") as amended and interpreted, which requires enhanced disclosures about an entity's derivative and hedging activities and thereby improves the transparency of financial reporting. Disclosing the fair values of derivative instruments and their gains and losses in a tabular format provides a more complete picture of the location in an entity's financial statements of both the derivative positions existing at period end and the effect of using derivatives during the reporting period. Entities are currently evaluating this new statementrequired to provide enhanced disclosures about (a) how and anticipate that the statement willwhy an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008 because SFAS 161 addresses disclosures only. The Company does not expect SFAS 161 to have a significantmaterial impact on the reporting of our results of operations.
Proposed Accounting Pronouncementsits financial statements.
Proposed FASB Staff Position APB 14-a,14-1, "Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement)"
The In May 2008, the FASB in August 2007 proposed FASB Staff Positionissued FSP No. APB 14-a, "Accounting14-1,"Accounting for Convertible Debt Instruments That May Be Settled in Cash Uponupon Conversion (Including Partial Cash Settlement)" ("FSP APB 14-1"). This FSP requires that issuers of convertible debt instruments that may be settled in cash upon
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Basis of Presentation and Summary of Significant Accounting Policies (Continued)
("FSP APB 14-a"). The proposed FSP APB 14-a specifies that issuers of such instrumentsconversion (including partial cash settlement) should separately account for the liability and equity (conversion feature) components inof the instruments. As a manner that will reflectresult, interest expense should be imputed and recognized based upon the entity's nonconvertible debt borrowing rate, on the instrument's issuance date whenwhich will result in incremental non-cash interest cost is recognized in subsequent periods.expense, and as result, lower net income. Our 2007 2.5% Convertible Senior Notes due July 30, 2013 are within the scopewill be subject to FSP APB 14-1. Prior to FSP APB 14-1, Accounting Principles Board Opinion No. 14,"Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants" ("APB 14"), provided that no portion of the proposedproceeds from the issuance of the instrument should be attributable to the conversion feature. Our preliminary analyses have determined that if the liability and equity components of the Convertible Senior Notes had been separately valued at the time of their issuance on June 15, 2007, the amount allocated to long-term debt would have been approximately $463 million, and the amount allocated to equity would have been approximately $112 million. When we are required to retroactively adopt FSP APB 14-a; therefore if FSP APB 14-a is issued as proposed, we would14-1 in fiscal 2009, interest expense for fiscal 2007 and 2008 will be requiredincreased retrospectively by non-cash amounts of approximately $9.0 million and $17.0 million, respectively. We anticipate recording additional non-cash interest expense on the Convertible Senior Notes in 2009 through 2013 of approximately $18 million to record$20 million annually, thereby increasing the carrying value of the debt portionsto $575 million by its maturity date in July 2013. Further, we expect that the carrying amount of ourthe 2.5% Convertible Senior Notes at their fair value on the datewill be discounted (decreased) and additional paid-in capital increased by approximately $86 million as of issuance and amortize the discount into interest expense over the lifeDecember 29, 2008.
FASB Staff Position FASB 142-3 "Determination of the debt. However, there wouldUseful Life of Intangible Assets"
In April 2008, the FASB issued FSP No. FASB 142-3, "Determination of the Useful Life of Intangible Assets" ("FSP FAS 142-3"). This FSP amends the factors that should be no effect on our cash interest payments. If theconsidered in developing renewal or extension assumptions used to determine recognized intangible asset under SFAS Statement No. 142, "Goodwill and Other Intangible Assets." This FSP APB 14-a is issued as proposed, we expect the increase in non-cash interest expenseapplies to recognized on our consolidatedintangible assets that are accounted for pursuant to SFAS No. 142. For a recognized intangible asset, an entity will be required to disclose information that enables users of financial statements to be significant. As currently proposed,assess the extent to which expected future cash flows associated with the asset are affected by the entity's intent and/or ability to renew or extend the arrangement. This FSP APB 14-a will beis effective for financial statements issued for fiscal years beginning after December 15, 2008 and would be applied retrospectively to all periods presented.early adoption is prohibited. We do not believe the adoption of FSP APB 14-a is currently in redeliberation with the FASB following the end of its comment period in October 2007. The final content and effective date of the FSP APB 14-a are dependent upon future FASB actionFAS 142-3 will have a significant impact on this matter.
2. Molson Mergerour financial statements.
Merger TransactionFSP FAS 132(R)-1, "Employers' Disclosures about Postretirement Benefit Plan Assets"
On February 9, 2005,In December 2008, the Merger was effected throughFASB issued FSP FAS 132(R)-1, "Employers' Disclosures about Postretirement Benefit Plan Assets." This FSP amends SFAS No. 132 (revised 2003), "Employers' Disclosures about Pensions and Other Postretirement Benefits," to provide guidance on an exchangeemployer's disclosures about plan assets of stock, in which Molson Inc. shareholders received stock in MCBC accordinga defined benefit pension or other postretirement plan on investment policies and strategies, major categories of plan assets, inputs and valuation techniques used to an exchange ratio, depending uponmeasure the typefair value of stock held. Also, Molson Inc. shareholders were permitted to receive a combinationplan assets and significant concentrations of common stockrisk within plan assets. This FSP shall be effective for fiscal years ending after December 15, 2009, with earlier application permitted. Upon initial application, the provisions of MCBC and exchangeable shares in a subsidiarythis FSP are not required for earlier periods that are presented for comparative purposes. We are currently evaluating the disclosure requirements of MCBC, Molson Coors Canada, Inc. Canadian resident holders who received exchangeable shares in the Merger defer paying income taxes on the transaction until such time as they exchange the shares for common stock or otherwise dispose of them.this new FSP.
Pro Forma Results
The results of Molson, Inc. have been included in the consolidated financial statements since February 9, 2005.
The following unaudited, pro forma information shows the results of our operations for the year ended December 25, 2005, as if the Merger had occurred at the beginning of the period. The pro forma results for 2005 include special charges of $169.3 million, consisting of post-Merger charges and Merger-related charges incurred by Molson prior to February 9, 2005.
| Year ended December 25, 2005 (Pro forma) | ||
---|---|---|---|
| (In millions, except per share amounts) | ||
Net sales | $ | 5,613.1 | |
Income from continuing operations before income taxes, minority interests and cumulative effect of change in accounting principle | $ | 290.3 | |
Net income | $ | 93.4 | |
Basic net income per share | $ | 0.56 | |
Diluted net income per share | $ | 0.55 |
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Molson Merger (Continued)
Allocation of Purchase Price
The Merger's equity consideration was valued at $3.6 billion, including the exchange of 93.4 million equivalent shares of stock at a market price of $37.63 per share, the exchange of stock options valued at $4.0 million, and Merger-related costs incurred by Coors, of which $16.0 million was incurred prior to the Merger. Coors was considered the accounting acquirer in the Merger, requiring the purchase consideration to be allocated to Molson's and Kaiser's (now presented as discontinued operations) assets and liabilities based upon their fair values, with the residual to goodwill.
3. Segment and Geographic Information
Our reporting segments are driven bybased on the key geographic regions in which we operate, which are the basis on which our chief operating decision maker evaluates the performance of the business. The Company operates in the reporting segments listed below. Our Brazil segment, which was composed of Kaiser, was sold in 2006, and is reflected as a discontinued operation.
MCBC adjusted its operating and reporting structure in the first quarter of fiscal 2008 to reflect a re-alignment of responsibility associated with certain developing beer markets. All segment data except for Canada has been retrospectively adjusted to give effect to these new segments. A summary of our revised operating segments is provided below:
Reportable segments
Canada
The Canada segment consists of our production, marketing and sales of the Molson and family of brands,Coors Light and other brands, principally in Canada; our joint venture arrangement related to the distribution and retail sale of beer in Ontario, BRI (consolidated under FIN 46R); and our joint venture arrangement (accounted as an equity investment) related to the distribution of beer in the western provinces, Brewers' Distributor Ltd. ("BDL"). The Canada segment also includes our equity interest in the Montréal Canadiens Hockey Club.Club, and Modelo Molson Imports, L.P.
We have an agreement with Heineken N.V. (Netherlands) that grants us the right to import, market, and sell Heineken products throughout Canada and with Miller Brewing Co., a subsidiary of SABMiller, to brew, market, and sell several Miller brands, and distribute and sell imported Miller brands. We also have the right to contract brew and packageAsahi for the U.S. market.
On November 20, 2007,Effective, January 1, 2008, Molson and Grupo Modelo, S.A.B. de C.V. announced that they signedestablished a letter of intent to establish a long-term joint venture Modelo Molson Imports, L.P. ("MMI"), to import, distribute, and market the Corona and Modelo beer brand portfoliobrands across all Canadian provinces and territories. Effective January 1, 2008, both parties have established the joint venture pursuant to executed legally binding definitive agreements. Under the new arrangement, Molson's sales team will beis responsible for selling the brands across Canada on behalf of the joint venture. The new alliance will enable Grupo ModeloMMI to effectively tap intoleverage the existing resources and capabilities of Molson to achieve greater distribution coverage in the Western provinces of Canada. Modelo will also benefit from Molson's extensive sales and marketing expertise and unparalleled distribution network in Canada.The MMI joint venture is being accounted for under the equity method.
United States (U.S.)
As discussed in Note 1, "Basis of Presentation and Significant Accounting Policies," effective July 1, 2008, MillerCoors LLC ("MillerCoors") began operations. The results and financial position of our U.S. segment consistsoperations were deconsolidated upon contribution to the joint venture, and our interest in MillerCoors is being accounted for and reported by us under the equity method of accounting. MCBC's equity investment in MillerCoors will represent our U.S. operating segment going forward.
As part of the production, marketing, and sales ofadjustment to the Coors and Molson portfolios of brandsreporting structure in the United Statesfirst quarter, our beer business in Mexico, the Caribbean (other than Puerto Rico), and its territories, its military bases worldwide, Mexico,sales outside the U.S. have been transferred from this operating segment to our non-reportable segment called Global Brands and the Caribbean; Coors Distributing Company, which consists of Company-owned beer distributorships in Colorado and Idaho; and Rocky Mountain Metal ContainerMarket Development ("RMMC"Global Markets") and Rocky Mountain Bottle Company ("RMBC") joint ventures consolidated under FIN 46R.Corporate, discussed below.
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3.2. Segment and Geographic Information (Continued)
On October 9, 2007, MCBC and SABMiller plc (the investing companies) announced that they signed a letter of intent to combine the U.S. and Puerto Rico operations of their respective subsidiaries, CBC and Miller Brewing Company, in a joint venture ("MillerCoors"). The parties signed a definitive joint venture agreement on December 20, 2007. See discussion in Note 22.
EuropeUnited Kingdom (U.K.)
The EuropeU.K. segment consists of our production, marketing and sales of the CBL brands (the largest of which isCarling), principally in the U.K.; and the Republic of Ireland; our joint venture arrangement relating to the production and distribution of theGrolsch brands (consolidated under FIN 46R) in the U.K. and the Republic of Ireland; and our joint venture arrangement ("Tradeteam") for the physical distribution of products throughout Great Britain ("Tradeteam") and sales of Molson Coors brands in AsiaBritain.
Non-reportable segment and other export markets.business activities
Global Markets and Corporate
Global Markets includes results of operations in developing markets around the world, including Asia, Mexico, the Caribbean (not including Puerto Rico) and continental Europe. Corporate includes interest and certain other general and administrative costs that are not allocated to any of the operating segments. The majority of these corporate costs relatesrelate to worldwide administrative functions, such as corporate affairs, legal, human resources, accounting, treasury, insurance and risk management. Corporate also includes certain royalty income and administrative costs related to the management of intellectual property.
Summarized financial information
No single customer accounted for more than 10% of our sales. Net sales represent sales to third party external customers. Inter-segment sales revenues are insignificant and eliminated in consolidation.
The following tables represent consolidated net sales, consolidated interest expense, consolidated interest income, and reconciliations of amounts shown as income (loss) from continuing operations before income taxes and after pre-tax minority interests for each segment, to income (loss) from continuing operations before income taxes and income from continuing operations shown on the consolidated statements of operations:
| Year ended December 30, 2007 | Year ended December 28, 2008 | ||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Canada | U.S. | Europe | Corporate | Consolidated | Canada | U.S. | U.K. | Global Markets and Corporate | Consolidated | ||||||||||||||||||||||
| (In thousands) | (In millions) | ||||||||||||||||||||||||||||||
Net sales | $ | 1,913,175 | $ | 2,764,976 | $ | 1,506,945 | $ | 5,496 | $ | 6,190,592 | $ | 1,864.4 | $ | 1,504.8 | $ | 1,342.2 | $ | 62.9 | $ | 4,774.3 | ||||||||||||
Interest expense | $ | — | $ | — | $ | — | $ | (126,462 | ) | $ | (126,462 | ) | — | — | — | (103.3 | ) | (103.3 | ) | |||||||||||||
Interest income | $ | — | $ | — | $ | 11,459 | $ | 15,128 | $ | 26,587 | — | — | 10.7 | 6.6 | 17.3 | |||||||||||||||||
Debt extinguishment costs | $ | — | $ | — | $ | — | $ | (24,478 | ) | $ | (24,478 | ) | — | — | — | (12.4 | ) | (12.4 | ) | |||||||||||||
Income (loss) from continuing operations before income taxes and minority interests | $ | 426,939 | $ | 285,836 | $ | 82,124 | $ | (260,521 | ) | $ | 534,378 | $ | 458.4 | $ | 265.0 | $ | 85.4 | $ | (293.6 | ) | $ | 515.2 | ||||||||||
Income tax expense | (4,186 | ) | (102.9 | ) | ||||||||||||||||||||||||||||
Income before minority interests | 530,192 | 412.3 | ||||||||||||||||||||||||||||||
Minority interests | (15,318 | ) | (12.2 | ) | ||||||||||||||||||||||||||||
Income from continuing operations | $ | 514,874 | $ | 400.1 | ||||||||||||||||||||||||||||
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3.2. Segment and Geographic Information (Continued)
| Year ended December 31, 2006 | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Canada | U.S. | Europe | Corporate | Consolidated | |||||||||||
| (In thousands) | |||||||||||||||
Net sales | $ | 1,793,608 | $ | 2,619,879 | $ | 1,426,337 | $ | 5,161 | $ | 5,844,985 | ||||||
Interest expense | $ | — | $ | — | $ | — | $ | (143,070 | ) | $ | (143,070 | ) | ||||
Interest income | $ | — | $ | — | $ | 11,687 | $ | 4,602 | $ | 16,289 | ||||||
Income (loss) from continuing operations before income taxes and minority interests | $ | 483,267 | $ | 159,072 | $ | 83,832 | $ | (254,121 | ) | $ | 472,050 | |||||
Income tax expense | (82,405 | ) | ||||||||||||||
Income before minority interests | 389,645 | |||||||||||||||
Minority interests | (16,089 | ) | ||||||||||||||
Income from continuing operations | $ | 373,556 | ||||||||||||||
| Year ended December 25, 2005 | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Canada | U.S. | Europe | Corporate | Consolidated | |||||||||||
| (In thousands) | |||||||||||||||
Net sales | $ | 1,527,306 | $ | 2,474,956 | $ | 1,501,299 | $ | 3,345 | $ | 5,506,906 | ||||||
Interest expense | $ | — | $ | — | $ | — | $ | (131,106 | ) | $ | (131,106 | ) | ||||
Interest income | $ | — | $ | — | $ | 12,978 | $ | 4,525 | $ | 17,503 | ||||||
Income (loss) from continuing operations before income taxes and minority interests | $ | 351,558 | $ | 142,043 | $ | 66,549 | $ | (264,949 | ) | $ | 295,201 | |||||
Income tax expense | (50,264 | ) | ||||||||||||||
Income before minority interests | 244,937 | |||||||||||||||
Minority interests | (14,491 | ) | ||||||||||||||
Income from continuing operations | $ | 230,446 | ||||||||||||||
| Year ended December 30, 2007 | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Canada | U.S. | U.K. | Global Markets and Corporate | Consolidated | |||||||||||
| (In millions) | |||||||||||||||
Net sales | $ | 1,913.2 | $ | 2,754.8 | $ | 1,455.6 | $ | 67.0 | $ | 6,190.6 | ||||||
Interest expense | — | — | — | (126.5 | ) | (126.5 | ) | |||||||||
Interest income | — | — | 11.5 | 15.1 | 26.6 | |||||||||||
Debt extinguishment costs | — | — | — | (24.5 | ) | (24.5 | ) | |||||||||
Income (loss) from continuing operations before income taxes and minority interests | $ | 426.9 | $ | 286.6 | $ | 89.5 | $ | (268.6 | ) | $ | 534.4 | |||||
Income tax expense | (4.2 | ) | ||||||||||||||
Income before minority interests | 530.2 | |||||||||||||||
Minority interests | (15.3 | ) | ||||||||||||||
Income from continuing operations | $ | 514.9 | ||||||||||||||
The following table represents total assets by reporting segment:
| As of | ||||||
---|---|---|---|---|---|---|---|
| December 30, 2007 | December 31, 2006 | |||||
| (in thousands) | ||||||
Canada | $ | 7,378,624 | $ | 5,999,733 | |||
United States | 2,831,237 | 2,576,547 | |||||
Europe | 2,883,877 | 2,868,462 | |||||
Corporate | 347,190 | 149,714 | |||||
Discontinued operations | 10,638 | 8,957 | |||||
Consolidated total assets | $ | 13,451,566 | $ | 11,603,413 | |||
| Year ended December 31, 2006 | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Canada | U.S. | U.K. | Global Markets and Corporate | Consolidated | |||||||||||
| (In millions) | |||||||||||||||
Net sales | $ | 1,793.6 | $ | 2,609.3 | $ | 1,377.6 | $ | 64.5 | $ | 5,845.0 | ||||||
Interest expense | — | — | — | (143.0 | ) | (143.0 | ) | |||||||||
Interest income | — | — | 11.7 | 4.6 | 16.3 | |||||||||||
Income (loss) from continuing operations before income taxes and minority interests | $ | 483.3 | $ | 159.7 | $ | 90.1 | $ | (261.0 | ) | $ | 472.1 | |||||
Income tax expense | (82.4 | ) | ||||||||||||||
Income before minority interests | $ | 389.7 | ||||||||||||||
Minority interests | (16.1 | ) | ||||||||||||||
Income from continuing operations | $ | 373.6 | ||||||||||||||
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3.2. Segment and Geographic Information (Continued)
The following table represents total assets by reporting segment:
| As of | |||||||
---|---|---|---|---|---|---|---|---|
| December 28, 2008 | December 30, 2007 | ||||||
| (in millions) | |||||||
Canada(1) | $ | 5,688.1 | $ | 7,075.8 | ||||
United States | 2,418.7 | 3,133.4 | ||||||
United Kingdom(1) | 2,024.2 | 2,867.3 | ||||||
Global Markets and Corporate | 277.1 | 364.5 | ||||||
Discontinued operations | 8.5 | 10.6 | ||||||
Consolidated total assets | $ | 10,416.6 | $ | 13,451.6 | ||||
The following table represents cash flow information by segment:
| | For the years ended | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | December 30, 2007 | December 31, 2006 | December 25, 2005 | | For the years ended | |||||||||||||||||
| | (In thousands) | | December 28, 2008 | December 30, 2007 | December 31, 2006 | |||||||||||||||||
Depreciation and amortization(1): | |||||||||||||||||||||||
| | (In millions) | |||||||||||||||||||||
Depreciation and amortization(1): | Depreciation and amortization(1): | ||||||||||||||||||||||
Canada | $ | 139,863 | $ | 140,840 | $ | 108,031 | Canada | $ | 118.3 | $ | 139.9 | $ | 140.8 | ||||||||||
United States | 97,422 | 187,482 | 172,870 | United States(2) | 51.3 | 97.4 | 187.5 | ||||||||||||||||
Europe | 105,603 | 108,459 | 111,802 | United Kingdom | 99.3 | 105.6 | 108.5 | ||||||||||||||||
Corporate | 2,955 | 1,573 | 111 | Global Markets and Corporate | 4.5 | 2.9 | 1.6 | ||||||||||||||||
Consolidated depreciation and amortization | $ | 345,843 | $ | 438,354 | $ | 392,814 | Consolidated depreciation and amortization | $ | 273.4 | $ | 345.8 | $ | 438.4 | ||||||||||
Capital expenditures(2): | |||||||||||||||||||||||
Capital expenditures: | Capital expenditures: | ||||||||||||||||||||||
Canada | $ | 95,742 | $ | 89,452 | $ | 120,476 | Canada | $ | 72.7 | $ | 95.7 | $ | 89.5 | ||||||||||
United States | 142,538 | 286,613 | 198,600 | United States(2) | 55.9 | 142.5 | 286.6 | ||||||||||||||||
Europe | 181,822 | 64,185 | 86,601 | United Kingdom | 88.2 | 181.8 | 64.2 | ||||||||||||||||
Corporate | 8,247 | 6,126 | 368 | Global Markets and Corporate | 13.7 | 8.3 | 6.1 | ||||||||||||||||
Consolidated capital expenditures | $ | 428,349 | $ | 446,376 | $ | 406,045 | Consolidated capital expenditures | $ | 230.5 | $ | 428.3 | $ | 446.4 | ||||||||||
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Segment and intangible assets, excluding assets acquired in the Merger.Geographic Information (Continued)
The following table represents sales by geographic segment:
| For the years ended | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| December 30, 2007 | December 31, 2006 | December 25, 2005 | ||||||||
| (In thousands) | ||||||||||
Net sales to unaffiliated customers(1): | |||||||||||
Canada | $ | 1,877,602 | $ | 1,752,264 | $ | 1,525,900 | |||||
United States and its territories | 2,757,811 | 2,612,240 | 2,467,738 | ||||||||
United Kingdom | 1,417,992 | 1,324,489 | 1,418,407 | ||||||||
Other foreign countries | 137,187 | 155,992 | 94,861 | ||||||||
Consolidated net sales | $ | 6,190,592 | $ | 5,844,985 | $ | 5,506,906 | |||||
| For the years ended | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 28, 2008 | December 30, 2007 | December 31, 2006 | |||||||||
| (In millions) | |||||||||||
Net sales to unaffiliated customers(1): | ||||||||||||
Canada | $ | 1,804.6 | $ | 1,877.6 | $ | 1,752.3 | ||||||
United States and its territories(2) | 1,565.7 | 2,757.8 | 2,612.2 | |||||||||
United Kingdom | 1,311.3 | 1,418.0 | 1,324.5 | |||||||||
Other foreign countries | 92.7 | 137.2 | 156.0 | |||||||||
Consolidated net sales | $ | 4,774.3 | $ | 6,190.6 | $ | 5,845.0 | ||||||
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Segment and Geographic Information (Continued)
The following table represents long-lived assets by geographic segment:
| As of | |||||||
---|---|---|---|---|---|---|---|---|
| December 30, 2007 | December 31, 2006 | ||||||
| (In thousands) | |||||||
Long-lived assets(1): | ||||||||
Canada | $ | 1,056,566 | $ | 914,403 | ||||
United States and its territories | 1,037,093 | 989,100 | ||||||
United Kingdom | 602,064 | 517,672 | ||||||
Other foreign countries | 430 | 309 | ||||||
Consolidated long-lived assets | $ | 2,696,153 | $ | 2,421,484 | ||||
| As of | ||||||||
---|---|---|---|---|---|---|---|---|---|
| December 28, 2008 | December 30, 2007 | |||||||
| (In millions) | ||||||||
Long-lived assets(1): | |||||||||
Canada(2) | $ | 835.4 | $ | 1,056.6 | |||||
United States and its territories(3) | 34.2 | 1,037.1 | |||||||
United Kingdom(2) | 431.8 | 602.1 | |||||||
Other foreign countries | 0.5 | 0.4 | |||||||
Consolidated long-lived assets | $ | 1,301.9 | $ | 2,696.2 | |||||
3. Equity Investments
Investment in MillerCoors
Effective July 1, 2008, MCBC and SABMiller combined the U.S. and Puerto Rico operations of their respective subsidiaries, CBC and Miller. In connection with the closing of the joint venture transaction, each of Molson Coors, CBC, SABMiller and Miller entered into an Amended and
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Equity Investments (Continued)
Restated Operating Agreement (the "LLC Operating Agreement"). The LLC Operating Agreement is the primary operating document governing the joint venture, MillerCoors.
Pursuant to the LLC Operating Agreement, MillerCoors has a Board of Directors consisting of five MCBC-appointed directors and five SABMiller-appointed directors. The percentage interests in the profits of MillerCoors will be 58% for SABMiller and 42% for MCBC, and voting interests will be shared 50%-50%. Each party to the joint venture has agreed not to transfer its economic or voting interests in the joint venture for a period of five years, and certain rights of first refusal will apply to any subsequent assignment of such interests.
The results and financial position of U.S. operations, which had historically comprised substantially all of our U.S. reporting segment were, in all material respects, deconsolidated from MCBC prospectively upon formation of MillerCoors. Our interest in the new combined operations is accounted for under the equity method of accounting.
The following table summarizes the carrying values of net assets contributed to MillerCoors on July 1, 2008 (in millions):
| As of | ||||
---|---|---|---|---|---|
| July 1, 2008 | ||||
Current assets | $ | 684.9 | |||
Property, plant and equipment | 1,004.3 | ||||
Goodwill | 1,608.8 | ||||
Total assets contributed | 3,298.0 | ||||
Current liabilities | 573.2 | ||||
Noncurrent liabilities | 204.3 | ||||
Total liabilities | 777.5 | ||||
Accumulated other comprehensive loss(1) | (211.9 | ) | |||
Net assets contributed | $ | 2,732.4 | |||
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Equity Investments (Continued)
Summarized financial information for MillerCoors is as follows (in millions):
Condensed Balance sheet
| As of | ||||
---|---|---|---|---|---|
| December 31, 2008 | ||||
Current assets | $ | 849.0 | |||
Noncurrent assets(1) | 8,853.2 | ||||
Total assets | $ | 9,702.2 | |||
Current liabilities | $ | 1,033.6 | |||
Noncurrent liabilities | 1,412.3 | ||||
Total liabilities | 2,445.9 | ||||
Minority interests | 29.4 | ||||
Owners' equity(1) | 7,226.9 | ||||
Total liabilities and owner's equity | $ | 9,702.2 | |||
Results of operations
| For the six months ended | |||
---|---|---|---|---|
| December 31, 2008 | |||
| Actual | |||
Net sales | $ | 3,689.4 | ||
Cost of goods sold | (2,326.0 | ) | ||
Gross profit | $ | 1,363.4 | ||
Operating income | $ | 227.2 | ||
Net Income | $ | 222.4 |
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Equity Investments (Continued)
The following represents MCBC's proportional share in MillerCoors of net income reported under the equity method (in millions):
| Twenty-six weeks ended | ||||
---|---|---|---|---|---|
| December 31, 2008 | ||||
MillerCoors net income | $ | 222.4 | |||
MCBC economic interest | 42 | % | |||
MCBC proportionate share of MillerCoors net income | 93.4 | ||||
MillerCoors accounting policy elections(1)(2) | 27.7 | ||||
Amortization of the difference between MCBC contributed cost basis and proportional share of the underlying equity in net assets of MillerCoors(1)(3) | 36.7 | ||||
Share-based compensation adjustment(1) | (2.2 | ) | |||
Equity Income in MillerCoors | $ | 155.6 | |||
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Equity Investments (Continued)
During the twenty-six weeks ended December 28, 2008, we recorded $51.3 million and $2.9 million of sales of beer to MillerCoors and purchase of beer from MillerCoors, respectively. In addition, we recorded $5.8 million and $0.6 million of service agreement charges to MillerCoors and purchases of service agreement costs from MillerCoors, respectively. As of December 28, 2008, we had $20.2 million due from MillerCoors related to activities mentioned above.
MCBC assigned the United States and Puerto Rican rights to the legacy Coors brands, includingCoors Light,Coors Banquet,Keystone Light and theBlue Moon brands, to MillerCoors. We retained all ownership rights of these brands outside of the United States and Puerto Rico. In addition, we maintain numerous water rights in Colorado. We lease these water rights to MillerCoors at no cost for use at their Golden, Colorado brewery.
There were no undistributed earnings in MillerCoors as of December 28, 2008.
All Other Equity Investments
Tradeteam Ltd.
Tradeteam Ltd., the joint venture between CBL and DHL in which CBL has a 49.9% interest, has an exclusive contract with CBL to provide transportation and logistics services in England and Wales until at least 2010. Our approximate financial commitments under the distribution contract with Tradeteam are as follows:
| Amount | ||||
---|---|---|---|---|---|
| (In millions) | ||||
2009 | $ | 116.0 | |||
2010 | 119.4 | ||||
2011 | 123.0 | ||||
2012 | 126.7 | ||||
2013 | 130.5 | ||||
Thereafter | 620.0 | ||||
Total | $ | 1,235.6 | |||
The financial commitments on termination of the distribution agreement are to essentially take over property, assets and people used by Tradeteam to deliver the service to CBL, paying Tradeteam's net book value for assets acquired.
Services provided under the Tradeteam, Ltd. contract were approximately $146.6 million, $157.5 million, and $155.0 million for the years ended December 28, 2008, December 30, 2007, and December 31, 2006, respectively. As of December 28, 2008 and December 30, 2007, we had $2.3 million and $1.5 million due to Tradeteam for services provided.
Montréal Canadiens
Molson Canada owns a 19.9% common ownership interest in the Montréal Canadiens professional hockey club (the "Club") and, prior to June 30, 2006, Molson also owned a preferred interest. On June 30, 2006, entities which control and own a majority of the Club purchased the preferred equity
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Equity Investments (Continued)
held by Molson Canada. Subsequent to the transaction, Molson Canada still retains 19.9% common equity interest in the Club, as well as Board representation at the Club and related entities.
Also, coincident with the disposition of our preferred interest, Molson Canada was released from a direct guarantee of the Club's debt financing. The shareholders of the Club (the majority owner and Molson Canada) and the National Hockey League ("NHL") are parties to a consent agreement, which requires the purchaser and Molson to abide by funding requirements included in the terms of the shareholders' agreement. In addition, Molson Canada continues to be a guarantor of the majority owner's obligations under a land lease. We have evaluated our risk exposure related to these financial guarantees and recorded the fair values of these guarantees accordingly. As of December 28, 2008 and December 30, 2007, we had $4.9 million and $7.0 million due to the Canadiens.
Brewers' Distributor Ltd.
Brewers' Distributor Ltd. (BDL) is a distribution operation owned by Molson and Labatt Breweries of Canada (collectively, the "Members") and pursuant to an operating agreement, acts as an agent for the distribution of their products in the western provinces of Canada. The two Members share 50%/50% voting control of this business.
BDL charges Molson and Labatt 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 Members 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 its owners. Administrative fees under the contract were approximately $52.8 million, $51.4 million, and $51.3 million for the years ended December 28, 2008, December 30, 2007, and December 31, 2006, respectively. As of December 28, 2008 and December 30, 2007, we had $15.6 million due from and $4.7 million due to BDL, respectively, related to services under the administrative fees agreement.
Modelo Molson Imports, L.P.
Effective, January 1, 2008, Molson and Grupo Modelo, S.A.B. de C.V. established a joint venture, Modelo Molson Imports, L.P. ("MMI"), to import, distribute, and market the Modelo beer brand portfolio across all Canadian provinces and territories. Under the new arrangement, Molson's sales team is responsible for selling the brands across Canada on behalf of the joint venture. The new alliance will enable MMI to effectively leverage the existing resources and capabilities of Molson to achieve greater distribution coverage in the Western provinces of Canada. Molson holds a 50% ownership interest in MMI and accounts for it under the equity method. During 2008, we incurred $13.8 million of costs payable to MMI. As of December 28, 2008, we had $3.8 million due to MMI related to activities provided by the existing operating agreement.
House of Blues Concerts Canada
House of Blues Concerts Canada ("HOB") partnership was formed to promote, produce and commercially exploit concerts in Canada; in which Molson had a 50% interest. During 2007, we sold our investment in the House of Blues Canada business, which resulted in $30.0 million of proceeds and recognized a gain of $16.7 million.
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Equity Investments (Continued)
Summarized financial information for Tradeteam, Ltd., the Montréal Canadiens, BDL, MMI and HOB combined is as follows (in millions):
Results of operations
| For the year ended | For the year ended | For the year ended | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| December 28, 2008 | December 30, 2007 | December 31, 2006 | |||||||
Net sales | $ | 926.8 | $ | 768.5 | $ | 806.4 | ||||
Cost of goods sold | (565.2 | ) | (509.0 | ) | (531.4 | ) | ||||
Gross profit | $ | 361.6 | $ | 259.5 | $ | 275.0 | ||||
Operating income | $ | 90.1 | $ | 38.6 | $ | 70.2 | ||||
Net Income | $ | 63.2 | $ | 16.2 | $ | 50.9 |
Condensed Combined Balance sheet
| As of | As of | ||||||
---|---|---|---|---|---|---|---|---|
| December 28, 2008 | December 30, 2007 | ||||||
Current assets | $ | 261.4 | $ | 120.5 | ||||
Noncurrent assets | 179.8 | 232.8 | ||||||
Total assets | $ | 441.2 | $ | 353.3 | ||||
Current liabilities | $ | (300.8 | ) | $ | (257.0 | ) | ||
Noncurrent liabilities | (177.6 | ) | (196.7 | ) | ||||
Total liabilities | (478.4 | ) | (453.7 | ) | ||||
Minority interests | — | — | ||||||
Owners' deficit | 37.2 | 100.4 | ||||||
Total liabilities and owner's deficit | $ | (441.2 | ) | $ | (353.3 | ) | ||
There were no significant undistributed earnings as of December 28, 2008 or December 30, 2007 for any of the companies included in other equity investments above.
4. Discontinued Operations
On January 13, 2006, we sold a 68% equity interest in our Brazilian unit, Cervejarias Kaiser Brasil S.A. ("Kaiser"), to FEMSA Cerveza S.A. de C.V. ("FEMSA") for $68.0 million cash, less $4.2 million of transaction costs, including the assumption by FEMSA of Kaiser-related debt and certain contingencies. Kaiser represented our previously-reported Brazil operating segment that we acquired on February 9, 2005 as part of the Merger.segment. We retained a 15% interest in Kaiser throughout most of 2006, which we accounted for under the cost method, and had one seat out of seven on its board. Another global brewer held a 17% equity interest in the Kaiser business at the time of this transaction. As part of the sale, we also received a put option to sell to FEMSA our remaining 15% interest in Kaiser for the greater of $15.0 million or fair market value through January 2009 and at fair market value thereafter. The value of the put option favorably impacted the calculation of the loss on the sale of Kaiser recorded in the first quarter of 2006. During the fourth quarter of 2006, we exercised the put option on our remaining 15% interest which had a carrying value of $2.0 million at the time of the sale, and received a cash payment of $15.7 million,
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Discontinued Operations (Continued)
including $0.6 million of accrued interest. As a result, we had no ownership interest remaining in Kaiser as of December 31, 2006. We sold Kaiser to allow us to focus on our Canada, United States and Europe markets. Prior to the acquisition of 68% of Kaiser, FEMSA was, and remains, the largest distributor of Kaiser products in Brazil. We have reflected the results of operations, financial position, and cash flows for the former Brazil segment in our financial statements as discontinued operations.
The terms of the sale agreement require us to indemnify FEMSA for exposures related to certain tax, civil and labor contingencies arising prior to FEMSA's purchase of Kaiser (See Note 20)20, "Commitments and Contingencies").
For the periods we had a controlling interest, Kaiser had $57.8 million and $244.7 million of net sales and $2.3 million and $100.5 million of pre-tax losses during the yearsyear ended December 31, 2006 and December 25, 2005, respectively.2006. The 2006 period included the month of December 2005 and the first thirteen days of January 2006, since we reported Kaiser's results one month in arrears. The 2005 period included the period between February 9, 2005 (the date of the Merger) and November 30, 2005, again due to our reporting Kaiser one month in arrears in 2005. The accounting for our interest in Kaiser changed after the reduction in our ownership in January 2006, resulting in accounting for our
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Discontinued Operations (Continued)
interest under the cost method until the exercise of our put option of our remaining ownership interest in the fourth quarter of 2006.
The table below summarizes the loss from discontinued operations, net of tax, presented on our consolidated statements of operations:
| For the years ended | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 30, 2007 | December 31, 2006 | December 31, 2005 | For the years ended | |||||||||||||||
| (In thousands) | | December 28, 2008 | December 30, 2007 | December 31, 2006 | ||||||||||||||
Loss from operations of Kaiser prior to sale on January 13, 2006 Kaiser | $ | — | $ | 2,293 | $ | 91,826 | |||||||||||||
| (In millions) | ||||||||||||||||||
Loss from operations of Kaiser prior to sale on January 13, 2006 | $ | — | $ | — | $ | 2.3 | |||||||||||||
(Gain) loss on sale of 68% Kaiser(1) | (2,693 | ) | 2,797 | — | — | (2.7 | ) | 2.8 | |||||||||||
Loss on exercise of put option on remaining 15% interest in Kaiser(2) | — | 4,447 | — | — | — | 4.5 | |||||||||||||
Adjustments to indemnity liabilities due to changes in estimates, foreign exchange gains and losses, and accretion expense (See Note 20) | 20,375 | 2,988 | — | 12.1 | 20.4 | 3.0 | |||||||||||||
Loss from discontinued operations, tax affected | $ | 17,682 | $ | 12,525 | $ | 91,826 | $ | 12.1 | $ | 17.7 | $ | 12.6 | |||||||
As of December 28, 2008, included in current and non-current assets of discontinued operations on the balance sheet are $1.5 million and $7.0 million, respectively, of deferred tax assets associated with these indemnity liabilities. As of December 30, 2007, included in current and non-current assets of discontinued operations on the balance sheet are $5.5 million and $5.1 million, respectively, of deferred tax assets associated with these indemnity liabilities. In addition to the indemnity liabilities discussed above, current liabilities
As of December 31, 2006, included in current and non-current assets of discontinued operations on the balance sheet are $4.6 million and $4.3 million, respectively, of deferred tax assets associated with these indemnity liabilities. In addition to the indemnity liabilities discussed above, current liabilities of discontinued operations include deferred tax liabilities of $8.9 million, as of the 2006 fiscal-year end.
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Variable Interest Entities
FASB Interpretation No. 46R, Consolidation of Variable Interest Entities—An Interpretation of ARB51 ("FIN 46R") expands the scope of ARB51 and can require consolidation of "variable interest entities"entities ("VIE"). Once an entity is determined to be a VIE, the party with the controlling financial interest, the primary beneficiary, is required to consolidate it. We have or had investments in VIEs, of which we are the primary beneficiary. These include or included Brewers' Retail Inc. ("BRI") (effective with the Merger on February 9, 2005), Rocky Mountain Metal Container, Rocky Mountain Bottle Company, and Grolsch (U.K.) Limited. Accordingly, we have or had consolidated these four joint ventures.
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Variable Interest Entities (Continued)
Brewers' Retail Inc.
Brewers' Retail Inc. is a joint venture beer distribution and retail network for the Ontario region of Canada, owned by Molson, Labatt and Sleeman brewers. Ownership percentages fluctuate with sales volumes. At December 30, 2007,28, 2008, our ownership percentage was approximately 52%50.4%. BRI operates on a breakeven basis. The three owners guarantee BRI's debt of approximately $215$176 million and $184$216 million at December 28, 2008 and pension liabilities of approximately $42 million and $49 million, respectively, at December 30, 2007, respectively. Since our variable interests are based on market share and December 31, 2006, respectively.usage levels of BRI's services, another variable interest holder's acquisition activity has caused our variable interests to decrease subsequent to our year end. We anticipate that effective the first quarter of 2009 we will no longer be the primary beneficiary and thus will deconsolidate BRI.
Rocky Mountain Metal Container
RMMC, a Colorado limited liability company, is a joint venture with Ball Corporation in which we holdMillerCoors holds a 50% interest. We havePrior to the formation of MillerCoors on July 1, 2008, CBC held the 50% interest in RMMC. MillerCoors has a can and end supply agreement with RMMC. Under this agreement, RMMC supplies usMillerCoors with substantially all the can and end requirements for ourits Golden brewery. RMMC manufactures these cans and ends at ourMillerCoors' manufacturing facilities, which RMMC is operating under a use and license agreement. The results and financial position of RMMC were consolidated in our financial statements in 2006 and 2007 and first half of 2008. After July 1, 2008, RMMC is consolidated by MillerCoors and its results and financial position are reflected through our equity method accounting for MillerCoors. RMMC is a non-taxable entity. Accordingly, for the periods RMMC was consolidated, income tax expense on the accompanying statements of operations only includes taxes related to our share of the joint venture income or loss. The Company isMCBC remains the guarantor of approximately $27.3$43.3 million and $32.0$27.3 million of RMMC debt at December 30, 200728, 2008 and December 31, 2006,30, 2007, respectively.
Rocky Mountain Bottle Company
RMBC, a Colorado limited liability company, is a joint venture with Owens-Brockway Glass Container, Inc. ("Owens") in which we hold a 50% interest. RMBC produces glass bottles at ourMillerCoors' glass manufacturing facility for use at ourits Golden brewery.and other breweries. Under this agreement, RMBC supplies oura portion of MillerCoors' bottle requirements, and Owens also has a separate commercial contract to supply the majoritya portion of ourMillerCoors' bottle requirements not met by RMBC. The results and financial position of RMBC were consolidated in our financial statements in 2006, 2007 and the first half of 2008. While MCBC maintains a legal ownership interest in RMBC, MillerCoors now consolidates RMBC as its primary beneficiary as a result of other variable interests it holds. As a result, the results and financial position of RMBC are reflected through our equity method
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Variable Interest Entities (Continued)
accounting for MillerCoors as of July 1, 2008. RMBC is a non-taxable entity. Accordingly, for the periods RMBC was consolidated by us, income tax expense in our consolidated statements of operations only includes taxes related to our share of the joint venture income or loss.
Grolsch
Grolsch is a joint venture between CBL and Royal Grolsch N.V. in which we hold a 49% interest. The Grolsch joint venture marketsGrolsch branded beer in the United Kingdom and the Republic of Ireland. The majority of theGrolsch branded beer is produced by CBL under a contract brewing arrangement with the joint venture. CBL and Royal Grolsch N.V. sell beer to the joint venture, which sells the beer back to CBL (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 the United Kingdom. Accordingly, income tax expense in our Consolidated Statements of Operations includes taxes related to the entire income of the joint venture.
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Variable Interest Entities (Continued)
The following summarizes the assets and results of operations of our consolidated joint ventures (including minority interests):
| For the years ended | For the years ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 30, 2007 | December 31, 2006 | December 25, 2005 | December 28, 2008 | December 30, 2007 | December 31, 2006 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total Assets(1) | Revenues(2) | Pre-tax income | Total Assets(1) | Revenues(2) | Pre-tax income | Total Assets(1) | Revenues(2) | Pre-tax income | Total Assets(1) | Revenues(2) | Pre-tax income | Total Assets(1) | Revenues(2) | Pre-tax income | Total Assets(1) | Revenues(2) | Pre-tax income | |||||||||||||||||||||||||||||||||||||
| (In thousands) | (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
BRI | $ | 442,704 | $ | 274,419 | $ | 2,212 | $ | 332,613 | $ | 263,570 | $ | 136 | $ | 324,160 | $ | 180,562 | $ | — | $ | 373.5 | $ | 271.1 | $ | — | $ | 442.7 | $ | 274.4 | $ | 2.2 | $ | 332.6 | $ | 263.6 | $ | 0.1 | |||||||||||||||||||
RMMC | $ | 66,498 | $ | 295,114 | $ | 5,809 | $ | 66,427 | $ | 245,371 | $ | 12,346 | $ | 54,411 | $ | 219,365 | $ | 8,925 | |||||||||||||||||||||||||||||||||||||
RMBC | $ | 40,998 | $ | 95,546 | $ | 20,206 | $ | 36,592 | $ | 96,009 | $ | 19,056 | $ | 42,756 | $ | 90,855 | $ | 15,438 | |||||||||||||||||||||||||||||||||||||
RMMC(3) | $ | — | $ | 157.6 | $ | 3.7 | $ | 66.5 | $ | 295.1 | $ | 5.8 | $ | 66.4 | $ | 245.4 | $ | 12.3 | |||||||||||||||||||||||||||||||||||||
RMBC(3) | $ | — | $ | 56.5 | $ | 14.7 | $ | 41.0 | $ | 95.5 | $ | 20.2 | $ | 36.6 | $ | 96.0 | $ | 19.1 | |||||||||||||||||||||||||||||||||||||
Grolsch | $ | 30,141 | $ | 77,583 | $ | 10,129 | $ | 39,219 | $ | 79,007 | $ | 11,531 | $ | 30,724 | $ | 76,045 | $ | 12,083 | $ | 16.7 | $ | 61.2 | $ | 8.5 | $ | 30.1 | $ | 77.6 | $ | 10.1 | $ | 39.2 | $ | 79.0 | $ | 11.5 |
Suez Energy Generation NA
In 1995, we sold a power plant located at
Table of our relationship with Suez, we believe we may have a variable interest as defined by FIN 46R. We have no legal right or ability to receive or review Suez' financial information. As a result, after exhaustive efforts, we were unable to conclude as to whether Suez is a variable interest entity, and if so, whether we are the primary beneficiary as defined by FIN 46R. We incurred net expenses of $36.7 million, $41.3 million and $35.3 million for the years ended December 30, 2007, December 31, 2006 and December 25, 2005, respectively, under our agreement with Suez.Contents
6. Other Income (Expense), net
| For the years ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| December 30, 2007 | December 31, 2006 | December 25, 2005 | |||||||
| (In thousands) | |||||||||
(Loss) gain on disposals of non-operating long-lived assets | $ | (342 | ) | $ | 8,730 | $ | (2,665 | ) | ||
Gain coincident with the sale of preferred equity holdings of Montréal Canadiens | — | 8,984 | — | |||||||
Gain on sale of House of Blues Canada equity investment | 16,694 | — | — | |||||||
Equity in income (loss) of unconsolidated affiliates, net | 4,318 | 3,911 | (9,429 | ) | ||||||
(Loss) gain from foreign exchange and derivatives | (1,553 | ) | (2,555 | ) | 3,454 | |||||
Asset impairments | (1,706 | ) | — | (1,259 | ) | |||||
Loss on non-operating leases | (1,773 | ) | (1,898 | ) | (4,718 | ) | ||||
Other, net | 2,024 | 564 | 1,372 | |||||||
Other income (expense), net | $ | 17,662 | $ | 17,736 | $ | (13,245 | ) | |||
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Other Income (Expense), net (Continued)
Montréal Canadiens Preferred Equity Holdings Sale
| For the years ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| December 28, 2008 | December 30, 2007 | December 31, 2006 | |||||||
| (In millions) | |||||||||
Gain (loss) on disposals of non-operating long-lived assets | $ | 1.7 | $ | (0.3 | ) | $ | 8.7 | |||
Gain coincident with the sale of preferred equity holdings of Montréal Canadiens | — | — | 9.0 | |||||||
Gain on sale of House of Blues Canada equity investment | — | 16.7 | — | |||||||
Equity in income of unconsolidated affiliates, other than MillerCoors, net | 3.1 | 4.3 | 3.9 | |||||||
Loss from foreign exchange and derivatives(1) | (7.4 | ) | (1.5 | ) | (2.6 | ) | ||||
Environmental liability provisions | (4.4 | ) | — | — | ||||||
Asset impairments | (0.2 | ) | (1.7 | ) | — | |||||
Loss on non-operating leases | (2.4 | ) | (1.8 | ) | (1.9 | ) | ||||
Other, net | 1.2 | 2.0 | 0.6 | |||||||
Other (expense) income, net | $ | (8.4 | ) | $ | 17.7 | $ | 17.7 | |||
7. Income Taxes
The pre-tax income (loss) on which the provision for income taxes was computed is as follows:
| For the years ended | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| December 30, 2007 | December 31, 2006 | December 25, 2005 | ||||||||
| (In thousands) | ||||||||||
Domestic | $ | 378,371 | $ | (50,543 | ) | $ | (49,369 | ) | |||
Foreign | 156,007 | 522,593 | 344,570 | ||||||||
Total | $ | 534,378 | $ | 472,050 | $ | 295,201 | |||||
Income tax expense (benefit) includes the following current and deferred provisions:
| For the years ended | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| December 30, 2007 | December 31, 2006 | December 25, 2005 | ||||||||
| (In thousands) | ||||||||||
Current: | |||||||||||
Federal | $ | 69,850 | $ | 24,503 | $ | 33,017 | |||||
State | 6,509 | (331 | ) | 1,963 | |||||||
Foreign | 25,775 | 56,865 | 38,333 | ||||||||
Total current tax expense | 102,134 | 81,037 | 73,313 | ||||||||
Deferred: | |||||||||||
Federal | (15,698 | ) | (7,581 | ) | (77,159 | ) | |||||
State | (759 | ) | (2,987 | ) | (3,965 | ) | |||||
Foreign | (81,491 | ) | 11,936 | 58,075 | |||||||
Total deferred tax (benefit) expense | (97,948 | ) | 1,368 | (23,049 | ) | ||||||
Total income tax expense from continuing operations | $ | 4,186 | $ | 82,405 | $ | 50,264 | |||||
| For the years ended | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| December 28, 2008 | December 30, 2007 | December 31, 2006 | ||||||||
| (In millions) | ||||||||||
Domestic | $ | 388.5 | $ | 378.4 | $ | (50.5 | ) | ||||
Foreign | 126.7 | 156.0 | 522.6 | ||||||||
Total | $ | 515.2 | $ | 534.4 | $ | 472.1 | |||||
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Income Taxes (Continued)
Income tax expense (benefit) includes the following current and deferred provisions:
| For the years ended | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| December 28, 2008 | December 30, 2007 | December��31, 2006 | ||||||||
| (In millions) | ||||||||||
Current: | |||||||||||
Federal | $ | (8.1 | ) | $ | 69.8 | $ | 24.5 | ||||
State | 0.4 | 6.5 | (0.3 | ) | |||||||
Foreign | 25.5 | 25.8 | 56.8 | ||||||||
Total current tax expense | $ | 17.8 | $ | 102.1 | $ | 81.0 | |||||
Deferred: | |||||||||||
Federal | $ | 65.7 | $ | (15.7 | ) | $ | (7.5 | ) | |||
State | 16.4 | (0.7 | ) | (3.0 | ) | ||||||
Foreign | 3.0 | (81.5 | ) | 11.9 | |||||||
Total deferred tax expense (benefit) | $ | 85.1 | $ | (97.9 | ) | $ | 1.4 | ||||
Total income tax expense from continuing operations | $ | 102.9 | $ | 4.2 | $ | 82.4 | |||||
Our income tax expense varies from the amount expected by applying the statutory federal corporate tax rate to income as follows:
| For the years ended | |||||||
---|---|---|---|---|---|---|---|---|
| December 30, 2007 | December 31, 2006 | December 25, 2005 | |||||
| (In thousands) | |||||||
Statutory Federal income tax rate | 35.0 | % | 35.0 | % | 35.0 | % | ||
State income taxes, net of federal benefits | 0.8 | % | (0.3 | )% | 0.4 | % | ||
Effect of foreign tax rates | (17.6 | )% | (7.8 | )% | (7.8 | )% | ||
Effect of foreign tax law and rate changes | (15.1 | )% | (14.5 | )% | — | |||
Effect of treating all past foreign subsidiary earnings as permanently reinvested | — | — | (11.8 | )% | ||||
Other, net | (2.3 | )% | 5.1 | % | 1.2 | % | ||
Effective tax rate | 0.8 | % | 17.5 | % | 17.0 | % | ||
Our deferred taxes are composed of the following:
| As of | |||||||
---|---|---|---|---|---|---|---|---|
| December 30, 2007 | December 31, 2006 | ||||||
| (In thousands) | |||||||
Current deferred tax assets: | ||||||||
Compensation related obligations | $ | 12,780 | $ | 12,193 | ||||
Postretirement benefits | 6,813 | — | ||||||
Accrued liabilities and other | 43,342 | 33,760 | ||||||
Valuation allowance | (383 | ) | (85 | ) | ||||
Total current deferred tax assets | 62,552 | 45,868 | ||||||
Current deferred tax liabilities: | ||||||||
Partnership investments | 148,364 | 135,997 | ||||||
Balance sheet reserves and accruals | 16,272 | 14,375 | ||||||
Other | 620 | 5,348 | ||||||
Total current deferred tax liabilities | 165,256 | 155,720 | ||||||
Net current deferred tax assets(1) | $ | — | $ | — | ||||
Net current deferred tax liabilities(1) | $ | 102,704 | $ | 109,852 | ||||
| For the years ended | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| December 28, 2008 | December 30, 2007 | December 31, 2006 | ||||||||
Statutory Federal income tax rate | 35.0 | % | 35.0 | % | 35.0 | % | |||||
State income taxes, net of federal benefits | 1.3 | % | 0.8 | % | (0.3 | )% | |||||
Effect of foreign tax rates | (20.5 | )% | (17.6 | )% | (7.8 | )% | |||||
Effect of foreign tax law and rate changes | — | (15.1 | )% | (14.5 | )% | ||||||
Other, net | 4.2 | % | (2.3 | )% | 5.1 | % | |||||
Effective tax rate | 20.0 | % | 0.8 | % | 17.5 | % | |||||
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Income Taxes (Continued)
Non-current deferred tax assets: | ||||||||
Compensation related obligations | $ | 111,567 | $ | 89,635 | ||||
Postretirement benefits | 149,635 | 178,347 | ||||||
Foreign exchange losses | 280,964 | 104,409 | ||||||
Deferred foreign tax credits | 4,200 | — | ||||||
Tax loss carryforwards | 27,111 | 39,848 | ||||||
Accrued liabilities and other | 26,795 | 46,381 | ||||||
Hedging | 1,587 | — | ||||||
Valuation allowance | (21,216 | ) | (18,722 | ) | ||||
Total non-current deferred tax assets | 580,643 | 439,898 | ||||||
Non-current deferred tax liabilities: | ||||||||
Fixed assets | 158,686 | 226,844 | ||||||
Partnership investments | 15,210 | 16,243 | ||||||
Intangibles | 659,622 | 654,370 | ||||||
Hedging | 15,595 | 5,074 | ||||||
Other | — | 13,018 | ||||||
Total non-current deferred tax liabilities | 849,113 | 915,549 | ||||||
Net non-current deferred tax asset(1) | $ | — | $ | — | ||||
Net non-current deferred tax liability(1) | $ | 268,470 | $ | 475,651 | ||||
Our deferred taxes are composed of the following:
| As of | |||||||
---|---|---|---|---|---|---|---|---|
| December 28, 2008 | December 30, 2007 | ||||||
| (In millions) | |||||||
Current deferred tax assets: | ||||||||
Compensation related obligations | $ | 0.8 | $ | 12.8 | ||||
Postretirement benefits | — | 6.8 | ||||||
Accrued liabilities and other | 49.0 | 43.4 | ||||||
Valuation allowance | (0.1 | ) | (0.4 | ) | ||||
Total current deferred tax assets | 49.7 | 62.6 | ||||||
Current deferred tax liabilities: | ||||||||
Partnership investments | 146.3 | 148.4 | ||||||
Balance sheet reserves and accruals | 11.2 | 16.3 | ||||||
Other | — | 0.6 | ||||||
Total current deferred tax liabilities | 157.5 | 165.3 | ||||||
Net current deferred tax assets(1) | — | — | ||||||
Net current deferred tax liabilities(1) | $ | 107.8 | $ | 102.7 | ||||
Non-current deferred tax assets: | ||||||||
Compensation related obligations | $ | 20.9 | $ | 111.6 | ||||
Postretirement benefits | 294.6 | 149.6 | ||||||
Foreign exchange losses | 65.6 | 280.9 | ||||||
Convertible debt | 31.4 | — | ||||||
Hedging | 12.1 | — | ||||||
Deferred foreign tax credits | — | 4.2 | ||||||
Tax loss carryforwards | 25.8 | 27.1 | ||||||
Accrued liabilities and other | 30.0 | 26.8 | ||||||
Fixed assets | 1.0 | 1.6 | ||||||
Valuation allowance | (12.8 | ) | (21.2 | ) | ||||
Total non-current deferred tax assets | 468.6 | 580.6 | ||||||
Non-current deferred tax liabilities: | ||||||||
Fixed assets | 84.2 | 158.7 | ||||||
Partnership investments | 158.0 | 15.2 | ||||||
Intangibles | 512.1 | 659.6 | ||||||
Hedging | 3.0 | 15.6 | ||||||
Other | 5.4 | — | ||||||
Total non-current deferred tax liabilities | 762.7 | 849.1 | ||||||
Net non-current deferred tax asset(1) | $ | — | $ | — | ||||
Net non-current deferred tax liability(1) | $ | 294.1 | $ | 268.5 | ||||
| As of | |||||||
---|---|---|---|---|---|---|---|---|
| December 28, 2008 | December 30, 2007 | ||||||
| (In millions) | |||||||
Domestic net current deferred tax assets | $ | — | $ | 17.9 | ||||
Domestic net current deferred tax liabilities | 39.0 | — | ||||||
Foreign net current deferred tax liabilities | 68.8 | 120.6 | ||||||
Net current deferred tax liabilities | $ | 107.8 | $ | 102.7 | ||||
Domestic net non-current deferred tax assets | $ | 105.3 | $ | 336.9 | ||||
Foreign net non-current deferred tax liabilities | 399.4 | 605.4 | ||||||
Net non-current deferred tax liabilities | $ | 294.1 | $ | 268.5 | ||||
| As of | ||||||
---|---|---|---|---|---|---|---|
| December 30, 2007 | December 31, 2006 | |||||
| (In thousands) | ||||||
Domestic net current deferred tax assets | $ | 17,901 | $ | 6,477 | |||
Foreign net current deferred tax liabilities | 120,605 | 116,329 | |||||
Net current deferred tax liabilities | $ | 102,704 | $ | 109,852 | |||
Domestic net non-current deferred tax assets | $ | 336,907 | $ | 131,349 | |||
Foreign net non-current deferred tax liabilities | 605,377 | 607,000 | |||||
Net non-current deferred tax liabilities | $ | 268,470 | $ | 475,651 | |||
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Income Taxes (Continued)
Our full year effective tax rate wasrates were approximately 20% in 2008, 1% in 2007, and 17% in both 2006 and 2005.2006. Our 2007 and 2006 effective tax rates were significantly lower than the federal statutory rate of 35% primarily due to the following: lower effective income tax rates applicable to our Canadian and U.K. businesses, and one time benefits from revaluing our deferred tax assets and liabilities to give effect to reductions in foreign income tax rates and tax law changes. Our 2005 effective tax rate was lower than
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Income Taxes (Continued)
the federal statutory rate of 35% primarily due to lower income tax rates applicable to our Canadian and U.K. businesses and a one time benefit resulting from the reversal of a previously recognized deferred tax liability due to our election to treat our portion of all foreign subsidiary earnings through December 25, 2005, as permanently reinvested under the accounting guidance of APB 23 "Accounting for Income Taxes-Special Areas" and SFAS 109 "Accounting for Income Taxes."
The Company has U.S. federal and state net operating losses and foreign tax credit carryforwards. The tax effect of these attributes is $2.6 million at December 28, 2008, and $7.0 million at December 30, 2007, and $2.7 million at December 31, 2006, which will expire between 20082009 and 2028.2029. The Company believes that a portion of the deferred tax asset attributable to these losses and credit carryforwards is not, more likely than not, to be realized and has established a valuation allowance in the amount of $6.9$2.1 million and $1.3$6.9 million at December 30, 2007,28, 2008, and December 31, 2006,30, 2007, respectively. The change in valuation allowance from December 31, 200630, 2007 to December 30, 2007,28, 2008, is primarily attributable to the limitationrelease of foreign tax creditscredit limitations resulting from unrecognized tax benefits. In addition, the Company has Canadian federal and provincial net operating loss and capital loss carryforwards. The tax effect of these attributes is $14.4 million at December 28, 2008 and $12.4 million at December 30, 2007 and $25 million at December 31, 2006.2007. The Canadian loss carryforwards will expire between 2013 through 2027.2028. The Company believes that a portion of the deferred tax asset attributable to the Canadian loss carryforwards is not, more likely than not, to be realized and has established a valuation allowance in the amount of $2.1 million and $2.7 million and $5.3 millionat December 28, 2008 and December 30, 2007, and December 31, 2006, respectively. The change from December 31, 200630, 2007 to December 30, 2007,28, 2008, is attributable to the closing of the federal audit and revaluing the deferred tax asset accordingly.fluctuation in foreign exchange rates. In addition, the Company has U.K. capital loss carryforwards. The tax effect of these attributes was $8.6 million at December 28, 2008, and $12.0 million at December 30, 2007, and $12.2 million at December 31, 2006.2007. The U.K. capital loss carryforwards do not have a limit in time to be used; however, the Company believes that the deferred tax asset associated with these U.K. loss carryforwards is not, more likely than not, to be realized and has established a valuation allowance for the full amount, $12.0$8.6 million and $12.2$12.0 million at December 30, 200728, 2008 and December 31, 2006,30, 2007, respectively. The change from December 31, 200630, 2007 to December 30, 2007,28, 2008, is primarily attributable to revaluingfluctuation in foreign exchange rates.
The Company did not recognize windfall tax benefits from stock-based compensation because the deductions did not reduce income taxes payable. The total amount of the U.S. net operating loss is $14.3 million, all of which will be recorded to additional paid in capital when realized. The $14.3 million of net operating loss is not included in the deferred tax asset associated withreconciliation above. The Company uses the capital loss carryforwards as a resultwith-and-without approach to allocate the utilization of the U.K. income tax rate reduction.attributes.
Annual tax provisions include amounts considered sufficient to pay assessments that may result from examination of prior year tax returns; however, the amount ultimately paid upon resolution of issues may differ materially from the amount accrued. On January 1, 2007, we adopted the provisionsAs of FIN 48, and we recognized an approximate $132.1 million increase in liabilities for uncertain tax positions. As a result, as of January 1,December 30, 2007, we had $297.4$286.2 million of unrecognized tax benefits. Since January 1,December 30, 2007, unrecognized tax benefits decreased by $11.2$56.8 million. This reduction represents the net of increases due to fluctuation in foreign exchange rates, additional unrecognized tax benefits, accrued penalties, and interest accrued for the current year andmore than offset by decreases primarily due to fluctuation in foreign exchange rates, tax years closing or being effectively settled and payments made to tax authorities with regard to unrecognized tax benefits during 2007,2008, resulting in total unrecognized tax benefits of $286.2$229.4 million as of December 30, 2007.28, 2008. Approximately $267$225 million would, if recognized, affect the effective tax rate.rate as of December 28, 2008 compared with $267 million as of December 30, 2007. During 2008,2009, the Company expects to recognize a $50 to $60 million income tax benefit due to a reduction in unrecognized tax benefits. This income tax benefit is primarily due to
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Income Taxes (Continued)
penalties and interest associated with issues subject to audits that we believe are going to close in the next year. We note, however, that there are other pending tax law changes in Canada that if enacted, would result in an approximate $120 million decrease to the unrecognized tax benefits. Thisa one-time, non-cash income tax benefit
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Income Taxes (Continued)
which would be recognized to the income tax provision in the quarter in which the bill is enacted. This would decrease our unrecognized tax benefits by approximately $100 million. We recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense. Anticipated interest and penalty payments of $35.0 million and $53.1 million were accrued in unrecognized tax benefits as of December 30, 2007, in unrecognized tax benefits. For the year ended28, 2008 and December 30, 2007, werespectively. We recognized an income tax benefit of $18.1 million and $20.9 million for the net reduction of interest and penalties on unrecognized tax benefits.benefits as of December 28, 2008 and December 30, 2007, respectively.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands)millions):
Balance at January 1, 2007 | $ | 269,339 | |||
Additions for tax positions related to the current year | 32,742 | ||||
Additions for tax positions of prior years | 18,253 | ||||
Reductions for tax positions of prior years | (61,193 | ) | |||
Settlements | (18,218 | ) | |||
Release due to statute expiration | (2,233 | ) | |||
Foreign currency adjustment | 29,801 | ||||
Balance at December 30, 2007 | $ | 268,491 | |||
| For the years ended | |||||||
---|---|---|---|---|---|---|---|---|
| December 28, 2008 | December 30, 2007 | ||||||
| (In millions) | |||||||
Balance at beginning of year | $ | 268.5 | $ | 269.3 | ||||
Additions for tax positions related to the current year | 20.8 | 32.7 | ||||||
Additions for tax positions of prior years | 8.9 | 18.3 | ||||||
Reductions for tax positions of prior years | (38.8 | ) | (61.2 | ) | ||||
Settlements | (4.8 | ) | (18.2 | ) | ||||
Release due to statue expiration | (4.2 | ) | (2.2 | ) | ||||
Foreign currency adjustment | (44.9 | ) | 29.8 | |||||
Balance at end of year | $ | 205.5 | $ | 268.5 | ||||
We file income tax returns in most of the federal, state, and provincial jurisdictions in the U.S., U.K., Canada and the Netherlands. TaxIn the U.S., tax years through 2004 are closed or have been effectively settled through examination in theexamination. The U.S. The Internal Revenue Service has commenced examination of the 2005 and 2006to 2007 tax years, and we expect the examination to conclude in late 2008.2009. In addition, we have entered into the Compliance Assurance Process program whereby the Internal Revenue Service will be examining certain 20072008 transactions in the current year. TaxIn Canada, tax years through 20032004 are closed or have been effectively settled through examination in Canada. Tax year 2004 is currently under examination in Canada and is expected to settle in late 2008. Taxexamination. In the U.K., tax years through 20012006 are closed or have been effectively settled through examination in the U.K. We are currently under examination for tax years 2002 through 2004 in the U.K. and expect the examinations to conclude in early 2008.examination. Tax years through 20052006 are closed or have been effectively settled through examination in the Netherlands.
We have elected to treat our portion of all foreign subsidiary earnings through December 30, 200728, 2008, as permanently reinvested under the accounting guidance of APB 23 and SFAS 109. As of December 30, 2007,28, 2008, approximately $1.1 billion$970 million of retained earnings attributable to foreign subsidiaries was considered to be indefinitely invested. The Company's intention is to reinvest the indefinitely invested earnings permanently or to repatriate the earnings when it is tax effective to do so. It is not practicable to determine the amount of incremental taxes that might arise were these earnings to be remitted. However, the Company believes that U.S. foreign tax credits would largely eliminate any U.S. taxes and offset any foreign withholding taxes due on remittance.
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Special Items, net
We have incurred charges or gains that are not indicative of our core operations. As such, we have separately classified these costs as special operating items.
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Special Items, net (Continued)
We have incurred charges or gains that are not indicative of our core operations. As such, we have separately classified these costs as special operating items.
Summary of Special Items
The table below details special items recorded in the previous three years, by program.
| For the years ended | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| December 30, 2007 | December 31, 2006 | December 25, 2005 | ||||||||
| (in thousands) | ||||||||||
Canada—Edmonton brewery asset impairment charge | $ | 31,940 | $ | — | $ | — | |||||
Canada—Foster's distribution right intangible asset impairment charge | 24,131 | — | — | ||||||||
Canada.—Restructuring and related costs associated with the Edmonton brewery closure | 14,573 | — | — | ||||||||
Canada—Restructuring charge | 4,515 | — | 5,161 | ||||||||
U.S.—Costs associated with the proposed MillerCoors joint venture | 6,724 | — | — | ||||||||
U.S.—Other restructuring charges | 2,768 | — | — | ||||||||
U.S.—Memphis brewery accelerated depreciation | — | 60,463 | 36,471 | ||||||||
U.S.—Restructuring and other costs associated with the Golden and Memphis breweries | — | 12,517 | 6,610 | ||||||||
U.S.—Memphis brewery pension withdrawal cost | — | 3,080 | 25,000 | ||||||||
U.S.—Insurance recovery—environmental | — | (2,408 | ) | — | |||||||
Europe—Gains on disposals of long-lived assets | — | — | (2,980 | ) | |||||||
Europe—Restructuring charge | 10,187 | 13,042 | 14,332 | ||||||||
Europe—Pension curtailment gain | — | (5,261 | ) | — | |||||||
Europe—Other, including certain exit costs | 3,917 | 1,253 | 2,489 | ||||||||
Corporate—(Gain) loss on change in control agreements for Coors executives | (502 | ) | (5,282 | ) | 38,802 | ||||||
Corporate—Other severance costs for Molson executives | — | — | 14,555 | ||||||||
Corporate—Costs associated with the proposed MillerCoors joint venture | 13,941 | — | — | ||||||||
Corporate—Other costs | — | — | 4,952 | ||||||||
Total special items | $ | 112,194 | $ | 77,404 | $ | 145,392 | |||||
| For the years ended | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| December 28, 2008 | December 30, 2007 | December 31, 2006 | ||||||||
| (In millions) | ||||||||||
Canada—Restructuring and related costs associated with brewery operations and administrative functions | $ | 7.3 | $ | 19.2 | $ | — | |||||
Canada—Brewery asset impairment charges | 3.6 | 31.9 | — | ||||||||
Canada—Impairment of Foster's distribution right intangible asset | — | 24.1 | — | ||||||||
U.S.—Costs associated with the MillerCoors joint venture | 37.9 | 6.7 | — | ||||||||
U.S.—Impairment of Molson brands intangible asset | 50.6 | — | — | ||||||||
U.S.—Impairments of fixed assets | 2.6 | — | — | ||||||||
U.S.—Gain on sale of distribution businesses | (21.8 | ) | — | — | |||||||
U.S.—Other restructuring charges | — | 2.8 | — | ||||||||
U.S.—Memphis brewery accelerated depreciation | — | — | 60.5 | ||||||||
U.S.—Restructuring and other costs associated with the Golden and Memphis breweries | — | — | 12.5 | ||||||||
U.S.—Memphis brewery pension withdrawal cost | — | — | 3.1 | ||||||||
U.S.—Insurance recovery—environmental | — | — | (2.4 | ) | |||||||
U.K.—Restructuring charges and related exit costs | 8.6 | 14.1 | 13.0 | ||||||||
U.K.—Pension curtailment gain | (10.4 | ) | — | (5.3 | ) | ||||||
U.K.—Gain on sale of non-core business | (2.7 | ) | — | — | |||||||
Corporate—Gain on change in control agreements for Coors executives | — | (0.5 | ) | (5.3 | ) | ||||||
Global Markets and Corporate—Costs associated with the MillerCoors joint venture | 28.8 | 13.9 | — | ||||||||
Global Markets and Corporate—Transition costs associated with outsourcing agreement | 22.8 | — | — | ||||||||
Global Markets and Corporate—Strategic and other | 6.6 | — | 1.3 | ||||||||
Total special items | $ | 133.9 | $ | 112.2 | $ | 77.4 | |||||
Canada Segment
In 2008, we incurred $6.2 million of costs associated with the closed Edmonton brewery, an asset held for sale. The costs were associated with clean-up, remediation and general up-keep of the facility as it is prepared for sale. The facility was closed in 2007 and an impairment charge was recorded at
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Special Items, net (Continued)
that time (see below). We also incurred $3.6 million of asset impairment and employee termination charges at the Montréal brewery as a result of MillerCoors' decision to shift Blue Moon production to its facilities in the U.S. Last, $1.1 million of employee termination costs were incurred associated with outsourcing of administrative functions. We expect to incur minimal costs associated with the Edmonton brewery closure in 2009.
In 2007, we closed our brewery in Edmonton, Alberta, and transferred the facility's production to our other breweries in Canada. We recorded a pretax non-cash impairment charge of approximately $31.9 million in the third quarter of 2007 associated with the carrying amount of fixed assets at the Edmonton brewery in excess of estimated market value. Current plans are to demolish the building and sell the land, which has a carrying value of $10.1 million as of December 30, 2007. Approximately 130 employees were impacted by the brewery's closure. We recognized $6.1 million for severance and other
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Special Items, net (Continued)
employee related costs and $8.5 million of other costs associated with the brewery's closure in 2007. We expect to incur additional minimal costs associated with the Edmonton brewery closure in 2008.
In May 2007, we also recognized an intangible asset impairment charge of $24.1 million as a result of the Foster's contract termination. See Note 12, "Goodwill and Intangible Assets," for further discussion.
In the first quarter of 2007, the Canada segment initiated a restructuring program focused on labor savings across production, sales, and general and administrative functions, as well as on the reduction of overhead expenses. We recognized $4.5$4.6 million for severance and other related costs throughout the course of the year. The restructuring program resulted in a reduction of 126 full-time employees in 2007, and we expect to fully realize the restructuring program benefits in 2008.
The Canada segment restructured its sales and marketing organizations in the fourth quarter of 2005, and recorded $0.8 million of asset write-offs and lease exit costs, and $4.4 million of severance and other exit costs. The restructuring efforts impacted 46 employees.
The following summarizes the activity in the Canada segment restructuring accruals:
| Severance and other employee-related costs | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| (In thousands) | |||||||||
Balance at December 26, 2004 | $ | — | ||||||||
Charges incurred | 4,443 | |||||||||
Payments made | (580 | ) | ||||||||
Foreign currency and other adjustments | (13 | ) | | Severance and other employee-related costs | ||||||
| (In millions) | |||||||||
Balance at December 25, 2005 | Balance at December 25, 2005 | $ | 3,850 | Balance at December 25, 2005 | $ | 3.9 | ||||
Charges incurred | — | Charges incurred | — | |||||||
Payments made | (3,209 | ) | Payments made | (3.2 | ) | |||||
Foreign currency and other adjustments | (33 | ) | Foreign currency and other adjustments | (0.1 | ) | |||||
Balance at December 31, 2006 | Balance at December 31, 2006 | $ | 608 | Balance at December 31, 2006 | $ | 0.6 | ||||
Charges incurred | 10,051 | Charges incurred | 10.0 | |||||||
Payments made | (7,240 | ) | Payments made | (7.2 | ) | |||||
Foreign currency and other adjustments | 764 | Foreign currency and other adjustments | 0.8 | |||||||
Balance at December 30, 2007 | Balance at December 30, 2007 | $ | 4,183 | Balance at December 30, 2007 | $ | 4.2 | ||||
Charges incurred | 1.8 | |||||||||
Payments made | (4.1 | ) | ||||||||
Foreign currency and other adjustments | (0.5 | ) | ||||||||
Balance at December 28, 2008 | Balance at December 28, 2008 | $ | 1.4 | |||||||
U.S. Segment
During the first six months of 2008, prior to the formation of MillerCoors, our U.S. segment incurred a number of special charges and income items, detailed below. It should be noted that
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Special Items, net (Continued)
MillerCoors continues with significant restructuring efforts as part of the overall program to deliver synergy savings. We realize our portion of those costs through our equity method income pickup from MillerCoors.
Costs incurred by our U.S. segment during the first six months of 2008 include $30.3 million of employee retention and incremental bonus costs and $7.6 million of integration planning costs in the period leading up to the MillerCoors formation. Note also the MillerCoors deal costs and integration planning costs were also incurred in the Corporate group (see below). The U.S. segment also realized net $21.8 million gain on the sale of two beer distribution businesses in Colorado. An intangible asset impairment charge of $50.6 million was incurred related to the decline in value of Molson brands sold in the U.S. (see Note 12, "Goodwill and Intangible Assets"). Last, a $2.6 million impairment charge was recorded related to certain brewing assets.
In the third quarter of 2007, the U.S. segment began a restructuring program focused on labor savings across supply chain functions. We recognized $2.8 million of expense for severance and other employee related costs in 2007 related to a reduction of 34 full-time employees and we expect to realize the restructuring program benefits in less than one year. Also in 2007, we incurred $6.7 million of employee retention costs in anticipation of the proposed MillerCoors joint venture.
In 2006, the U.S. segment recognized $73.7 million of net special items. $60.5 million of these items related to accelerated depreciation and impairments of fixed assets, $3.1 million of additional costs related to our to withdrawal from the Memphis hourly workers multi-employer pension plan (which was paid in the third quarter of 2007) and $12.5 million related to employee termination costs and other incremental costs that were the direct result of the Memphis plant closure. The Memphis
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Special Items, net (Continued)
plant was closed and sold during the third quarter of 2006 (see below). U.S. segment special items in 2006 were partially offset by the benefit of a $2.4 million cash distribution from bankruptcy proceedings of a former insurance carrier for a claim related to our environmental obligations at the Lowry Superfund site in Denver, Colorado. The cash received did not impact our estimated environmental liability associated with this site.
In 2005, $36.5 million of these charges related to accelerated depreciation, $25.0 million was expensed as the initial estimate of the cost required to withdraw from the Memphis hourly workers multi-employer pension plan and the remaining $6.6 million included employee termination costs and other incremental costs that were the direct result of the Memphis plant closure. Charges for accelerated depreciation are larger in 2006 than in 2005 due to 1) reductions in salvage value estimates of the Memphis brewery, and 2) acceleration of the plant's closing date. Retention and severance costs for the Memphis employees were expensed over the service period during which such benefits were earned by the employees.
The following summarizes the activity in the U.S. segment restructuring accruals:
| Severance and other employee-related costs | Closing and other costs | Total | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In thousands) | |||||||||||||||||||||
Balance at December 26, 2004 | $ | — | $ | — | $ | — | ||||||||||||||||
Charges incurred | 29,475 | 1,800 | 31,275 | |||||||||||||||||||
Payments made | (1,875 | ) | (1,800 | ) | (3,675 | ) | | Severance and other employee-related costs | Closing and other costs | Total | ||||||||||||
| (In millions) | |||||||||||||||||||||
Balance at December 25, 2005 | Balance at December 25, 2005 | $ | 27,600 | $ | — | $ | 27,600 | Balance at December 25, 2005 | $ | 27.6 | $ | — | $ | 27.6 | ||||||||
Charges incurred | 9,763 | 4,614 | 14,377 | Charges incurred | 9.8 | 4.6 | 14.4 | |||||||||||||||
Payments made | (9,718 | ) | (4,173 | ) | (13,891 | ) | Payments made | (9.7 | ) | (4.2 | ) | (13.9 | ) | |||||||||
Balance at December 31, 2006 | Balance at December 31, 2006 | $ | 27,645 | $ | 441 | $ | 28,086 | Balance at December 31, 2006 | $ | 27.7 | $ | 0.4 | $ | 28.1 | ||||||||
Charges incurred | 2,768 | — | 2,768 | Charges incurred | 2.7 | — | 2.7 | |||||||||||||||
Payments made | (27,832 | ) | (441 | ) | (28,273 | ) | Payments made | (27.8 | ) | (0.4 | ) | (28.2 | ) | |||||||||
Balance at December 30, 2007 | Balance at December 30, 2007 | $ | 2,581 | $ | — | $ | 2,581 | Balance at December 30, 2007 | $ | 2.6 | $ | — | $ | 2.6 | ||||||||
Charges incurred | (0.1 | ) | — | (0.1 | ) | |||||||||||||||||
Payments made | (2.5 | ) | — | (2.5 | ) | |||||||||||||||||
Balance at December 28, 2008 | Balance at December 28, 2008 | $ | — | $ | — | $ | — | |||||||||||||||
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Special Items, net (Continued)
The liability for severance and other employee-related costs in 2006 included a $27.6 million estimated payment required for our withdrawal from the hourly workers multi-employer pension plan associated with our Memphis brewery and was paid in September 2007. All production from the Memphis location was relocated to a different Company-owned facility or outsourced. The Memphis brewery was sold in September 2006 to an investment group led by a former employee. The Memphis brewery assets were depreciated to a value that approximated the sale price; therefore, the loss from the final disposition of the assets and liabilities associated with Memphis was insignificant. We entered into a distribution agreement with the new Memphis brewery owners. Management believes that the terms of the sale of the Memphis plant and three-year distribution agreement are market reflective arms-length.
EuropeU.K. Segment
During 2008, the U.K. segment recognized a $10.4 million pension gain associated with the cessation of employee service credit to its defined benefit pension plan (see Note 16, "Employee Retirement Plans"). The EuropeU.K. segment also realized a gain on the sale of a business of $2.7 million. Offsetting these items were $8.6 million of employee termination costs associated with restructuring efforts related to supply chain and administrative functions.
The U.K. segment recognized special items of $14.1 million $9.0 million, and $13.8 million in 2007, 2006, and 2005, respectively. Both of these special charges in 2007 and 2006 were predominantlyrelated primarily to employee termination costs associated with supply chain and back-office restructuring efforts in the
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Special Items, net (Continued)
U.K. As a result, we have reduced levels by a further 85 employees in 2007 in which we expect to realize the restructuring plan benefits in just over one year. In addition, we recognized increased liabilities in recognition of an existing pension benefit obligation in accordance with U.K. law of $3.9 million during the third quarter of 2007.
The 2006 netspecial items were comprisedcomposed of $13.0 million of employee termination costs associated with the U.K. supply chain and back office restructuring efforts, and $1.3 million of costs associated with exiting the Russia market, partially offset by a $5.3 million pension curtailment gain. The pension curtailment resulted from changes in the plan and reductions in headcount from restructuring efforts and isas discussed in Note 16. The 2005 special items reflect $14.3 million of employee termination costs and asset impairment charges of $2.5 million, partly offset by $3.0 million of income associated with long-lived assets, consisting of gains on sales of assets and a one-time development profit on the sale of real estate formerly held by the company.16, "Employee Retirement Plans."
During 2006, the supply chain and back office restructuring efforts impacted approximately 250 and 120 employees, respectively. Pursuant to the restructuring plan, 263 employees terminated employment under the plan during 2006. Charges for employee termination costs have, in some cases, been recognized over the course of the employees' remaining service period if there was a significant period of time between initial notification and termination of employment.
The 2005 special items reflect $14.3 millionTable of employee termination costs and asset impairment charges of $2.5 million, partly offset by $3.0 million of income associated with long-lived assets, consisting of gains on sales of assets and a one-time development profit on the sale of real estate formerly held by the company.Contents
The following summarizes the activity in the Europe segment restructuring accruals:
| Severance and other employee-related costs | Closing and other costs | Total | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| (In thousands) | ||||||||||
Balance at December 26, 2004 | $ | — | $ | — | $ | — | |||||
Charges incurred | 14,120 | 185 | 14,305 | ||||||||
Payments made | (3,367 | ) | (185 | ) | (3,552 | ) | |||||
Foreign currency and other adjustments | 282 | — | 282 | ||||||||
Balance at December 25, 2005 | $ | 11,035 | $ | — | $ | 11,035 | |||||
Charges incurred | 13,403 | 456 | 13,859 | ||||||||
Payments made | (21,450 | ) | (487 | ) | (21,937 | ) | |||||
Foreign currency and other adjustments | 1,028 | 31 | 1,059 | ||||||||
Balance at December 31, 2006 | $ | 4,016 | $ | — | $ | 4,016 | |||||
Charges incurred | 10,187 | — | 10,187 | ||||||||
Payments made | (11,799 | ) | — | (11,799 | ) | ||||||
Foreign currency and other adjustments | 74 | — | 74 | ||||||||
Balance at December 30, 2007 | $ | 2,478 | $ | — | $ | 2,478 | |||||
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Special Items, net (Continued)
The following summarizes the activity in the U.K. segment restructuring accruals:
| Severance and other employee-related costs | Closing and other costs | Total | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| (In millions) | ||||||||||
Balance at December 25, 2005 | $ | 11.0 | $ | — | $ | 11.0 | |||||
Charges incurred | 13.4 | 0.5 | 13.9 | ||||||||
Payments made | (21.4 | ) | (0.5 | ) | (21.9 | ) | |||||
Foreign currency and other adjustments | 1.0 | — | 1.0 | ||||||||
Balance at December 31, 2006 | $ | 4.0 | $ | — | $ | 4.0 | |||||
Charges incurred | 10.2 | — | 10.2 | ||||||||
Payments made | (11.8 | ) | — | (11.8 | ) | ||||||
Foreign currency and other adjustments | 0.1 | — | 0.1 | ||||||||
Balance at December 30, 2007 | $ | 2.5 | $ | — | $ | 2.5 | |||||
Charges incurred | 8.6 | — | 8.6 | ||||||||
Payments made | (7.9 | ) | — | (7.9 | ) | ||||||
Foreign currency and other adjustments | (1.1 | ) | — | (1.1 | ) | ||||||
Balance at December 28, 2008 | $ | 2.1 | $ | — | $ | 2.1 | |||||
Global Markets and Corporate Costs
During 2008, the Corporate group recognized $28.8 million of deal costs and integration planning costs associated with the formation of MillerCoors. We also recognized $22.8 million of transition costs paid to our third-party vendor associated with the start-up of our outsourced administrative functions. In January 2008, we signed a contract with a third-party service provider to outsource a significant portion of our general and administrative back-office functions in all of our operating segments and in our corporate office. This outsourcing initiative is a key component of our Resources for Growth cost reduction program. Last, we incurred $6.6 million associated with other strategic initiatives.
The Corporate segment recognized net special expenses of $13.4 million, a special benefit of $5.3 million and special charges of $58.3 million in 2007,2006 and 2005, respectively. The costs reported as special items recorded in 2007 of $13.4 million are associated with the proposed MillerCoors joint venture, and consist primarily of outside professional services. These charges were partially offset by a reversal of an excise tax accrual for ana former employee that exercised options under the control agreement following the Merger.agreement.
The special items for 2006 were comprised of $1.3 million of costs associated with exiting the Russia market and a $5.3 million benefit as a result of adjusting to the floor provided on the exercise price of stock options held by former Coors officers who left the Company under change in control agreements following the Merger.agreements. We did not recognize a charge related to the floor provided on the exercise price of the stock options, as the stock price exceeded the floor price throughout 2007.
Coors had agreements with executive officers,2008 and certain other members of management, relating to a change of control of Coors (referred to above). The Merger, which occurred on February 9, 2005, constituted a change in control of Coors under these agreements. These employees were entitled to severance benefits if triggering events specified in the agreement occurred. Upon a triggering event, the officer would receive a multiple of annual salary and bonus and continued health, pension and life insurance benefits. For terminated officers, stock option exercises are subject to a floor market price equal to the price of Coors' stock on the date of the change of control ($36.75). This potential cash award is recorded as a liability and is marked to market each period with the change in MCBC's stock price, up to the price at the date of the Merger and has a five year term from February 2005 to February 2010. When the price of the Company's stock rises to the option floor, it results in a reduction of this liability. To the extent the Company's stock price falls below the Merger price, additional charges are necessary. We recorded zero and $5.9 million liability as of December 31, 2006 and December 25, 2005, respectively, related to stock option floor. The cost or benefit associated with the stock option exercise price floor is included in the statement of cash flows as share-based compensation as a non-cash increase or decrease to net income in determining cash flows from operating activities.
The 2005 special items were associated with $31.8 million of severance and other benefits paid to twelve former Coors officers who exercised change in control rights, $6.9 million were a result of providing an exercise price floor on stock options, including additional payroll related taxes to be paid on behalf of a former Coors officer that exercised stock options under the change in control agreement associated with these potential awards, $14.6 million of severance and share-based compensation and benefits paid to two former Molson officers who left the Company during the second quarter of 2005 following the Merger, and $5.0 million of merger-related costs that did not qualify for capitalization under purchase accounting.2007.
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Stockholders' Equity
Changes to the number of shares of capital stock issued were as follows:
| Common stock issued | Exchangeable shares issued | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Class A | Class B | Class A | Class B | ||||||||||||||||||||
| (Share amounts in thousands) | |||||||||||||||||||||||
Balances at December 26, 2004 | 2,521 | 72,785 | — | — | ||||||||||||||||||||
Shares issued under equity compensation plans | — | 2,428 | — | — | ||||||||||||||||||||
Shares issued in the Merger with Molson, Inc. | 134 | 24,250 | 4,874 | 64,320 | | Common stock issued | Exchangeable shares issued | |||||||||||||||||
Shares exchanged for common stock | 36 | 24,042 | (1,020 | ) | (23,058 | ) | | Class A | Class B | Class A | Class B | |||||||||||||
| (Share amounts in millions) | |||||||||||||||||||||||
Balances at December 25, 2005 | Balances at December 25, 2005 | 2,691 | 123,505 | 3,854 | 41,262 | Balances at December 25, 2005 | 2.7 | 123.5 | 3.9 | 41.3 | ||||||||||||||
Shares issued under equity compensation plans | — | 2,742 | — | — | Shares issued under equity compensation plans | — | 2.7 | — | — | |||||||||||||||
Shares exchanged for common stock | (16 | ) | 6,970 | (540 | ) | (6,418 | ) | Shares exchanged for common stock | — | 7.0 | (0.6 | ) | (6.5 | ) | ||||||||||
Balances at December 31, 2006 | Balances at December 31, 2006 | 2,675 | 133,217 | 3,314 | 34,844 | Balances at December 31, 2006 | 2.7 | 133.2 | 3.3 | 34.8 | ||||||||||||||
Shares issued under equity compensation plans | — | 6,704 | — | — | Shares issued under equity compensation plans | — | 6.7 | — | — | |||||||||||||||
Shares exchanged for common stock | — | 9,717 | 2 | (9,720 | ) | Shares exchanged for common stock | — | 9.7 | — | (9.7 | ) | |||||||||||||
Balances at December 30, 2007 | Balances at December 30, 2007 | 2,675 | 149,638 | 3,316 | 25,124 | Balances at December 30, 2007 | 2.7 | 149.6 | 3.3 | 25.1 | ||||||||||||||
Shares issued under equity compensation plans | — | 3.1 | — | — | ||||||||||||||||||||
Shares exchanged for common stock | — | 4.4 | (0.1 | ) | (4.2 | ) | ||||||||||||||||||
Balances at December 28, 2008 | Balances at December 28, 2008 | 2.7 | 157.1 | 3.2 | 20.9 | |||||||||||||||||||
Preferred Stock
At December 28, 2008 and December 30, 2007, and December 31, 2006, 2525.0 million shares of no par value preferred stock were authorized but not issued.
Class A and Class B Common Stock
Dividend Rights
Subject to the rights of the holders of any series of preferred stock, stockholders of Molson Coors Class A common stock (Class A common stock) are entitled to receive, from legally available funds, dividends when and as declared by the board of directors of Molson Coors, except that so long as any shares of Molson Coors Class B common stock (Class B common stock) are outstanding, no dividend will be declared or paid on the Class A common stock unless at the same time a dividend in an amount per share (or number per share, in the case of a dividend paid in the form of shares) equal to the dividend declared or paid on the Class A common stock is declared or paid on the Class B common stock.
Voting Rights
Except in limited circumstances, including the right of the holders of the Class B common stock and special Class B voting stock voting together as a single class to elect three directors to the Molson Coors board of directors, the right to vote for all purposes is vested exclusively in the holders of the Class A common stock and special Class A voting stock, voting together as a single class. The holders of Class A common stock are entitled to one vote for each share held, without the right to cumulate votes for the election of directors.
An affirmative vote is required of a majority of the votes entitled to be cast by the holders of the Class A common stock and special Class A voting stock (through which holders of Class A
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Stockholders' Equity (Continued)
exchangeable shares vote), voting together as a single class, prior to the taking of certain actions, including:
Pentland and the Coors Trust, which together control more than two-thirds of the Company's Class A common and exchangeable stock, have voting trust agreements through which they have combined their voting power over the shares of our Class A common stock and the Class A exchangeable shares that they own. However, in the event that these two stockholders do not agree to vote in favor of a matter submitted to a stockholder vote (other than the election of directors), the voting trustees will be required to vote all of the Class A common stock and Class A exchangeable shares deposited in the voting trusts against the matter. There is no other mechanism in the voting trust agreements to resolve a potential deadlock between these stockholders.
The Molson Coors certificate of incorporation provides the holders of Class B common stock and special Class B voting stock (through which holders of Class B exchangeable shares vote), voting together as a single class, the right to elect three directors to the Molson Coors board of directors. In addition, the holders of Class B common stock and special Class B voting stock, voting together as a single class, have the right to vote on specified transactional actions. Except in the limited circumstances provided in the certificate of incorporation, the right to vote for all other purposes is vested exclusively in the holders of the Class A common stock and special Class A voting stock, voting together as a single class. The holders of Class B common stock are entitled to one vote for each share held with respect to each matter on which holders of the Class B common stock are entitled to vote, without the right to cumulate votes for the election of directors.
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Stockholders' Equity (Continued)
Rights Upon Dissolution or Wind Up
If Molson Coors liquidates, dissolves or winds up its affairs, the holders of Class A common stock, together with the holders of the Class B common stock, would be entitled to receive, after Molson Coors' creditors have been paid and the holders of any then outstanding series of preferred stock have received their liquidation preferences, all of the remaining assets of Molson Coors in proportion to their share holdings. Holders of Class A and Class B common stock would not have pre-emptive rights to acquire any securities of Molson Coors. The outstanding shares of Class A and Class B common stock would be fully paid and non-assessable.
Conversion Rights
The Molson Coors certificate of incorporation provides for the right of holders of Class A common stock to convert their stock into Class B common stock on a one-for-one basis at any time.
Exchangeable Shares
The Class A exchangeable shares and Class B exchangeable shares were issued by Molson Coors Canada Inc. ("MCCI") a wholly-owned subsidiary. The exchangeable shares are substantially the economic equivalent of the corresponding shares of Class A and Class B common stock that a Molson shareholder in the Merger would have received if the holder had elected to receive shares of Molson Coors common stock. Holders of exchangeable shares also receive, through a voting trust, the benefit of Molson Coors voting rights, entitling the holder to one vote on the same basis and in the same circumstances as one corresponding share of Molson Coors common stock.
The exchangeable shares are exchangeable at any time, at the option of the holder on a one-for-one basis for corresponding shares of Molson Coors common stock.
Holders of exchangeable shares are entitled to receive, subject to applicable law, dividends as follows:
The declaration dates, record dates and payment dates for dividends on the exchangeable shares are the same as the relevant dates for the dividends on the shares of corresponding Molson Coors common stock.
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Earnings Per Share
Basic net income per common share was computed using the weighted average number of shares of common stock outstanding during the period. Diluted net income per share includes the additional dilutive effect of our potentially dilutive securities, which include certain stock options ("options"), stock-only stock appreciation rights ("SOSAR"), restricted stock units ("RSU"), deferred stock units ("DSU"), performance shares ("PSU"), and limited stock appreciation rights ("LOSAR"). The dilutive effecteffects of options, LOSARs, SOSARs, RSUs and DSUs,our potentially dilutive securities are calculated using the treasury stock method. Diluted net income per share could also be impacted by our convertible debt and related warrants outstanding if they were in the money.
The following summarizes the effect of dilutive securities on diluted EPS:
| | For the years ended | | For the years ended | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | December 30, 2007 | December 31, 2006(1) | December 25, 2005(1) | | December 28, 2008 | December 30, 2007 | December 31, 2006(1) | ||||||||||||||
| | (In thousands, except per share amounts) | | (In millions, except per share amounts) | ||||||||||||||||||
Net income | Net income | $ | 497,192 | $ | 361,031 | $ | 134,944 | Net income | $ | 388.0 | $ | 497.2 | $ | 361.0 | ||||||||
Weighted average shares for basic EPS | Weighted average shares for basic EPS | 178,681 | 172,166 | 158,806 | Weighted average shares for basic EPS | 182.6 | 178.7 | 172.2 | ||||||||||||||
Effect of dilutive securities: | Effect of dilutive securities: | Effect of dilutive securities: | ||||||||||||||||||||
Options, LOSARs and SOSARs | 2,487 | 1,018 | 994 | Options, LOSARs and SOSARs | 1.8 | 2.5 | 1.0 | |||||||||||||||
RSUs and DSUs | 269 | 128 | 272 | RSUs and DSUs | 1.1 | 0.2 | 0.1 | |||||||||||||||
Weighted average shares for diluted EPS | Weighted average shares for diluted EPS | 181,437 | 173,312 | 160,072 | Weighted average shares for diluted EPS | 185.5 | 181.4 | 173.3 | ||||||||||||||
Basic income (loss) per share: | Basic income (loss) per share: | Basic income (loss) per share: | ||||||||||||||||||||
From continuing operations | $ | 2.88 | $ | 2.17 | $ | 1.45 | From continuing operations | $ | 2.19 | $ | 2.88 | $ | 2.17 | |||||||||
From discontinued operations | (0.10 | ) | (0.07 | ) | (0.58 | ) | From discontinued operations | (0.07 | ) | (0.10 | ) | (0.07 | ) | |||||||||
Cumulative effect of the change in accounting principle | — | — | (0.02 | ) | ||||||||||||||||||
Basic income per share | Basic income per share | $ | 2.78 | $ | 2.10 | $ | 0.85 | Basic income per share | $ | 2.12 | $ | 2.78 | $ | 2.10 | ||||||||
Diluted income (loss) per share: | Diluted income (loss) per share: | Diluted income (loss) per share: | ||||||||||||||||||||
From continuing operations | $ | 2.84 | $ | 2.16 | $ | 1.44 | ||||||||||||||||
From discontinued operations | (0.10 | ) | (0.08 | ) | (0.57 | ) | From continuing operations | $ | 2.16 | $ | 2.84 | $ | 2.16 | |||||||||
Cumulative effect of the change in accounting principle | — | — | (0.03 | ) | From discontinued operations | (0.07 | ) | (0.10 | ) | (0.08 | ) | |||||||||||
Diluted income per share | Diluted income per share | $ | 2.74 | $ | 2.08 | $ | 0.84 | Diluted income per share | $ | 2.09 | $ | 2.74 | $ | 2.08 | ||||||||
Dividends per share | Dividends per share | $ | 0.64 | $ | 0.64 | $ | 0.64 | Dividends per share | $ | 0.76 | $ | 0.64 | $ | 0.64 | ||||||||
Our calculation of weighted average shares includes all four classes of our outstanding stock: Class A and Class B Common, and Class A and Class B Exchangeable. Exchangeable shares are the equivalent of common shares, by class, in all respects. All classes of stock have in effect the same dividend rights and share equitably in undistributed earnings. Class A shareholders receive dividends only to the extent dividends are declared and paid to Class B shareholders. See Note 9, "Stockholders' Equity," for further discussion of the features of Class A and B Common shares and Class A and B Exchangeable shares.
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Earnings Per Share (Continued)
The following anti-dilutive securities were excluded from the computation of the effect of dilutive securities on earnings per share for the following periods:
| For the years ended | |||||
---|---|---|---|---|---|---|
| December 30, 2007 | December 31, 2006(1) | December 25, 2005(1) | |||
| (In thousands) | |||||
Options, SOSARs and RSUs(2) | 141 | 8,091 | 7,972 | |||
PSUs—2.1 million, 1.5 million outstanding at December 30, 2007 and December 31, 2006, respectively(3) | 2,094 | 1,529 | — | |||
Shares issuable upon assumed conversion of the 2.5% Convertible Senior Notes to issue Class B common shares, 10.5 million at December 30, 2007(4) | 5,741 | — | — | |||
Warrants to issue Class B common shares, 10.5 million at December 30, 2007(4) | 5,741 | — | — | |||
13,717 | 9,620 | 7,972 | ||||
| For the years ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| December 28, 2008 | December 30, 2007 | December 31, 2006(1) | |||||||
| | (In millions) | | |||||||
Options, SOSARs and RSUs(2) | 0.3 | 0.2 | 8.1 | |||||||
PSUs | — | 2.1 | 1.5 | |||||||
Shares issuable upon assumed conversion of the 2.5% Convertible Senior Notes to issue Class B common shares(3) | 10.5 | 5.7 | — | |||||||
Warrants to issue Class B common shares(3) | 10.5 | 5.7 | — | |||||||
21.3 | 13.7 | 9.6 | ||||||||
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Properties
The cost of properties and related accumulated depreciation and amortization consists of the following:
| | As of | | As of | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | December 30, 2007 | December 31, 2006 | | December 28, 2008 | December 30, 2007 | ||||||||||
| | (In thousands) | | (In millions) | ||||||||||||
Land and improvements | Land and improvements | $ | 233,482 | $ | 208,717 | Land and improvements | $ | 117.7 | $ | 233.5 | ||||||
Buildings and improvements | Buildings and improvements | 1,069,826 | 969,405 | Buildings and improvements | 391.3 | 1,069.8 | ||||||||||
Machinery and equipment | Machinery and equipment | 3,422,497 | 2,849,074 | Machinery and equipment | 1,145.0 | 3,422.5 | ||||||||||
Furniture and fixtures | Furniture and fixtures | 569,834 | 612,876 | Furniture and fixtures | 269.5 | 569.8 | ||||||||||
Natural resource properties | Natural resource properties | 6,012 | 6,012 | Natural resource properties | 3.0 | 6.0 | ||||||||||
Construction in progress | Construction in progress | 109,639 | 390,400 | Construction in progress | 48.9 | 109.7 | ||||||||||
Total properties cost | Total properties cost | 5,411,290 | 5,036,484 | Total properties cost | 1,975.4 | 5,411.3 | ||||||||||
Less accumulated depreciation and amortization | (2,715,137 | ) | (2,615,000 | ) | Less accumulated depreciation and amortization | (673.5 | ) | (2,715.1 | ) | |||||||
Net properties | Net properties | $ | 2,696,153 | $ | 2,421,484 | Net properties | $ | 1,301.9 | $ | 2,696.2 | ||||||
The decreases in values from 2007 to 2008 are attributable to transfers to the MillerCoors joint venture and also to the strengthening currency of the USD against GBP and CAD.
Depreciation expense was $230.1 million, $283.4 million $363.0 million and $326.4$363.0 million for fiscal years 2008, 2007, 2006 and 2005,2006, respectively. Certain equipment held under capital lease is classified as equipment and amortized using the straight-line method or estimated useful life, whichever is shorter over the lease term. Lease amortization is included in depreciation expense. Expenditures for new facilities and improvements that substantially extend the capacity or useful life of an asset are capitalized. Start-up costs associated with manufacturing facilities, but not related to construction, are expensed as incurred. Ordinary repairs and maintenance are expensed as incurred.
CBL owns and maintains the dispensing equipment in on-premise retail outlets. Dispensing equipment that transfers the beer from the keg in the cellar to the glass is capitalized at cost upon installation and depreciated on a straight-line basis over lives of up to 7 years, depending on the nature and usage of the equipment. Labor and materials used to install dispensing equipment are capitalized and depreciated over 2 years. Dispensing equipment awaiting installation is held in inventory and valued at the lower of cost or market. Ordinary repairs and maintenance are expensed as incurred.
The following table details the ranges of the useful economic lives assigned to depreciable property, plant and equipment for the periods presented:
Useful Economic Lives as of December 28, 2008 | ||
---|---|---|
Buildings and improvements | 20 - 40 years | |
Machinery and equipment | 3 - 25 years | |
Furniture and fixtures | 3 - 10 years |
In the first quarter of 2007, we completed a re-evaluation of the estimated useful lives of a substantial portion of our property, plant and equipment on a global basis, in light of improvements in maintenance, new technology and changes in expected patterns of usage.
The following table details the ranges of the useful economic lives assigned to depreciable property, plant and equipment:
These changes in depreciable lives are reflected as a change in estimate and are being recognized prospectively beginning in the first quarter of 2007. These changes to existing depreciating property,
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Properties (Continued)
quarter of 2007. These changes to existing depreciating property, plant and equipment as of January 1, 2007, resulted in a reduction of approximately $34.1 million in our consolidated depreciation expense for the year ended December 30, 2007.
12. Goodwill and Intangible Assets
The following summarizes the changes in goodwill:
| | For the years ended | | For the years ended | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | December 30, 2007 | December 31, 2006 | | December 28, 2008 | December 30, 2007 | ||||||||||
| | (In thousands) | | (In millions) | ||||||||||||
Balance at beginning of year | Balance at beginning of year | $ | 2,968,676 | $ | 2,871,320 | Balance at beginning of year | $ | 3,346.5 | $ | 2,968.7 | ||||||
Foreign currency translation | 362,941 | 120,751 | Contribution to MillerCoors | (1,608.8 | ) | — | ||||||||||
Goodwill arising upon acquisition of an on-premise distribution business in the U.K. | 22,147 | — | Foreign currency translation | (438.2 | ) | 362.9 | ||||||||||
Adoption of FIN 48 (See Notes 1 and 7) | 2,278 | — | Goodwill arising upon acquisition of an on-premise distribution business in the U.K. | — | 22.2 | |||||||||||
Unrecognized tax benefits adjustments subsequent to adoption of FIN 48 | (9,587 | ) | — | Adoption of FIN 48 (See Notes 1 and 7) | — | 2.3 | ||||||||||
Deferred tax purchase accounting adjustments | 31 | — | Unrecognized tax benefits adjustments subsequent to adoption of FIN 48 | (0.1 | ) | (9.6 | ) | |||||||||
Adjustments related to merger with Molson Inc. | — | (23,395 | ) | Transfer from goodwill to intangible assets | (1.4 | ) | — | |||||||||
Balance at end of year | Balance at end of year | $ | 3,346,486 | $ | 2,968,676 | Balance at end of year | $ | 1,298.0 | $ | 3,346.5 | ||||||
Goodwill was allocated between our reportable segments as follows:
| | As of | | As of | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | December 30, 2007 | December 31, 2006 | | December 28, 2008 | December 30, 2007 | |||||||||
| | (In thousands) | | (In millions) | |||||||||||
Canada | Canada | $ | 1,066,470 | $ | 724,196 | Canada | $ | 614.8 | $ | 763.7 | |||||
United States | United States | 1,347,038 | 1,350,571 | United States | — | 1,649.8 | |||||||||
Europe | 932,978 | 893,909 | |||||||||||||
United Kingdom | United Kingdom | 683.2 | 933.0 | ||||||||||||
Consolidated | $ | 3,346,486 | $ | 2,968,676 | Consolidated | $ | 1,298.0 | $ | 3,346.5 | ||||||
We are required to perform goodwill and indefinite-lived intangible asset impairment tests on at least an annual basis and more frequently in certain circumstances. We completed the required impairment testing during the third quarter of 20072008 and determined that there were no impairments of goodwill or other indefinite-lived intangible assets.
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Goodwill and Intangible Assets (Continued)
The following table presents details of our intangible assets, other than goodwill, as of December 30, 2007:28, 2008:
| | Useful life | Gross | Accumulated amortization | Net | | Useful life | Gross | Accumulated amortization | Net | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | (Years) | (In thousands) | | (Years) | (In millions) | ||||||||||||||||||||
Intangible assets subject to amortization: | Intangible assets subject to amortization: | Intangible assets subject to amortization: | ||||||||||||||||||||||||
Brands | 3-35 | $ | 320,253 | $ | (121,153 | ) | $ | 199,100 | ||||||||||||||||||
Distribution rights | 2-23 | 363,382 | (164,865 | ) | 198,517 | Brands | 3 - 35 | $ | 247.1 | $ | (107.9 | ) | $ | 139.2 | ||||||||||||
Patents and technology and distribution channels | 3-10 | 35,406 | (20,692 | ) | 14,714 | Distribution rights | 2 - 23 | 289.0 | (149.4 | ) | 139.6 | |||||||||||||||
Other | 5-34 | 11,738 | (5,357 | ) | 6,381 | Patents and technology and distribution channels | 3 - 10 | 25.8 | (17.6 | ) | 8.2 | |||||||||||||||
Intangible assets not subject to amortization: | Intangible assets not subject to amortization: | Intangible assets not subject to amortization: | ||||||||||||||||||||||||
Brands | Indefinite | 3,561,103 | — | 3,561,103 | Brands | Indefinite | 2,790.8 | — | 2,790.8 | |||||||||||||||||
Distribution networks | Indefinite | 1,030,474 | — | 1,030,474 | Distribution networks | Indefinite | 827.9 | — | 827.9 | |||||||||||||||||
Other | Indefinite | 29,074 | — | 29,074 | Other | Indefinite | 17.7 | — | 17.7 | |||||||||||||||||
Total | Total | $ | 5,351,430 | $ | (312,067 | ) | $ | 5,039,363 | Total | $ | 4,198.3 | $ | (274.9 | ) | $ | 3,923.4 | ||||||||||
The following table presents details of our intangible assets, other than goodwill, as of December 31, 2006:30, 2007:
| | Useful life | Gross | Accumulated amortization | Net | | Useful life | Gross | Accumulated amortization | Net | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | (Years) | (In thousands) | | (Years) | (In millions) | ||||||||||||||||||||
Intangible assets subject to amortization: | Intangible assets subject to amortization: | Intangible assets subject to amortization: | ||||||||||||||||||||||||
Brands | 3-35 | $ | 288,681 | $ | (94,465 | ) | $ | 194,216 | Brands | 3 - 35 | $ | 320.3 | $ | (121.2 | ) | $ | 199.1 | |||||||||
Distribution rights | 2-23 | 334,342 | (104,595 | ) | 229,747 | Distribution rights | 2 - 23 | 363.4 | (164.9 | ) | 198.5 | |||||||||||||||
Patents and technology and distribution channels | 3-10 | 32,289 | (17,754 | ) | 14,535 | Patents and technology and distribution channels | 3 - 10 | 35.4 | (20.7 | ) | 14.7 | |||||||||||||||
Other | 5-34 | 11,737 | (5,053 | ) | 6,684 | Other | 5 - 34 | 11.7 | (5.3 | ) | 6.4 | |||||||||||||||
Intangible assets not subject to amortization: | Intangible assets not subject to amortization: | Intangible assets not subject to amortization: | ||||||||||||||||||||||||
Brands | Indefinite | 3,054,144 | — | 3,054,144 | Brands | Indefinite | 3,561.1 | — | 3,561.1 | |||||||||||||||||
Distribution networks | Indefinite | 867,672 | — | 867,672 | Distribution networks | Indefinite | 1,030.5 | — | 1,030.5 | |||||||||||||||||
Other | Indefinite | 28,296 | — | 28,296 | Other | Indefinite | 29.1 | — | 29.1 | |||||||||||||||||
Total | Total | $ | 4,617,161 | $ | (221,867 | ) | $ | 4,395,294 | Total | $ | 5,351.5 | $ | (312.1 | ) | $ | 5,039.4 | ||||||||||
The incremental change in the gross carrying amounts of intangibles from December 31, 200630, 2007 to December 30, 2007,28, 2008, is primarily due to the impact of foreign exchange rate fluctuations, as a significant amount of intangibles are denominated in foreign currencies, specifically, the Canadian dollar (CAD) and the British pound sterling (GBP).sterling.
During the second quarter of 2008, we recognized an impairment charge of $50.6 million associated with a Molson brands intangible asset, an asset which represented the value of the Molson brands sold in the U.S. only. This intangible asset was not subject to amortization. While our accounting policy calls for annual testing of indefinite-lived intangible assets in the third quarter of each year, we noted unfavorable operating results and a change in management's strategic initiatives associated with these brands, and as a result tested the intangible for impairment in the second quarter of 2008.
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Goodwill and Intangible Assets (Continued)
The Molson U.S. brands intangible asset was created at the time of the merger between Coors and Molson in 2005. Molson brands which are marketed and sold in the U.S. by CBC have been declining in recent years. In addition, increases in packaging and freight costs on imported products combined with continued volume declines have significantly impacted the overall profitability of the Molson brands in the U.S. While management continues to believe that the Molson brands play an important role in the U.S. brand portfolio and will continue to be actively marketed by MillerCoors, it was determined that the value of the intangible brand asset has been impaired. This conclusion was based upon discounted cash flow analyses of the brands, using excess earnings approach, which indicated that the fair value of Molson U.S. brands were less than their carrying value. In 2008, the Company therefore recognized a $50.6 million non-cash charge to write-off the carrying value of the Molson brands sold in the U.S.
In May 2007, we received a court ruling recognizing the validity of the Foster's Group Limited (Foster's) termination notice purporting to provide twelve months' notice of its intention to terminate the Foster's U.S. License Agreement due to the Mergermerger between Coors and Molson in 2005. As a result of this notice, we evaluated the fair value of the amortizable distribution right intangible asset, as computed, utilizing undiscounted cash flows, compared to its present carrying value. Based on this evaluation, we recorded an impairment charge of $24.1 million in the second quarter of 2007. The charge is included in the
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Goodwill and Intangible Assets (Continued)
special items, net caption in the accompanying consolidated statements of operations for the year ended December 30, 2007. See Note 8, "Special Items, net," for summary of special items.
Based on foreign exchange rates as of December 30, 2007,28, 2008, the estimated future amortization expense of intangible assets is as follows:
Fiscal Year | Amount | Amount | |||||
---|---|---|---|---|---|---|---|
| (In thousands) | (In millions) | |||||
2008 | $ | 46,985 | |||||
2009 | $ | 46,985 | $ | 37.0 | |||
2010 | $ | 46,985 | $ | 37.0 | |||
2011 | $ | 45,513 | $ | 35.9 | |||
2012 | $ | 31,946 | $ | 25.2 | |||
2013 | $ | 24.8 |
Amortization expense of intangible assets was $43.3 million, $62.4 million, $75.4 million and $66.4$75.4 million for the years ended December 28, 2008, December 30, 2007, and December 31, 2006, and December 25, 2005, respectively.
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Debt and Credit Arrangements
Our total long-term borrowings as of December 30, 200728, 2008 and December 31, 2006,30, 2007, were composed of the following:
| | As of | | As of | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | December 30, 2007 | December 31, 2006 | | December 28, 2008 | December 30, 2007 | ||||||||||
| | (In thousands) | | (In millions) | ||||||||||||
Senior notes: | Senior notes: | Senior notes: | ||||||||||||||
U.S. $225 million 6.375% due 2012(1) | $ | 231,662 | $ | 847,705 | U.S. $45.5 million 6.375% due 2012(1) | $ | 45.5 | $ | 231.6 | |||||||
U.S. $300 million 4.85% due 2010(2) | 300,000 | 300,000 | U.S. $300 million 4.85% due 2010(2) | 300.0 | 300.0 | |||||||||||
CAN $900 million 5% due 2015(2) | 915,008 | 770,254 | CAD $900 million 5% due 2015(2) | 735.3 | 915.0 | |||||||||||
Convertible debt 2.5% due 2013(3) | Convertible debt 2.5% due 2013(3) | 575,000 | — | Convertible debt 2.5% due 2013(3) | 575.0 | 575.0 | ||||||||||
Commercial paper(4) | Commercial paper(4) | — | — | Commercial paper(4) | — | — | ||||||||||
Credit facility(5) | Credit facility(5) | — | — | Credit facility(5) | — | — | ||||||||||
Other notes payable issued by: | Other notes payable issued by: | Other notes payable issued by: | — | — | ||||||||||||
RMMC joint venture 7.2% due 2013 | 27,273 | 31,818 | RMMC joint venture 7.2% due 2013(6) | — | 27.3 | |||||||||||
BRI joint venture 7.5% due 2015 | 215,879 | 184,077 | BRI joint venture 7.5% due 2011(7) | 176.0 | 215.9 | |||||||||||
Total long-term debt (including current portion) | Total long-term debt (including current portion) | 2,264,822 | 2,133,854 | Total long-term debt (including current portion) | 1,831.8 | 2,264.8 | ||||||||||
Less: current portion of long-term debt | Less: current portion of long-term debt | (4,226 | ) | (4,009 | ) | Less: current portion of long-term debt | (0.1 | ) | (4.2 | ) | ||||||
Total long-term debt | Total long-term debt | $ | 2,260,596 | $ | 2,129,845 | Total long-term debt | $ | 1,831.7 | $ | 2,260.6 | ||||||
Total fair value | Total fair value | $ | 1,817.5 | $ | 2,369.6 | |||||||||||
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Debt and Credit Arrangements (Continued)
notes, after deducting estimated expenses and underwriting fees, were approximately $841 million. The notes were subsequently exchanged for publicly registered notes with the same terms. On July 11, 2007, we repurchased $625.0$625 million aggregate principal amount of our 6.375% $850 million Senior Notes due 2012. The cash consideration paid of approximately $651 million included principal amounts of notes purchased and accrued but unpaid interest up to, but not including, the settlement date. The cash consideration paid also included an early tender payment of $20.00 for each $1,000 principal amount of Senior Notes tendered on or before June 22, 2007. This amount was in addition to the principal amounts of notes and interest, if any, paid to the bond holders whose bonds were repurchased. This early extinguishment of debt resulted in a charge of approximately $24.5 million in the third quarter of 2007. The loss comprised a $14.1 million payment to settle the notes at fair value given interest rates at the time of extinguishment, a $6.6 million incentive payment to note holders for early tendering of the notes, and a $3.8 million write-off of the proportionate amount of unamortized discount and issuance fees associated with the extinguished debt. The debt extinguishment was funded, in part, with proceeds from the issuance of $575 million aggregate principal amount of 2.5% Convertible Senior Notes, issued on June 15, 2007. The remaining source of funds for the early extinguishment was existing cash
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Debt and Credit Arrangements (Continued)
resources. On February 7, 2008, we announced a tender for repurchase of any and all principal amount of our remaining $225 million of 6.375% Senior Notes due 2012, with the tender period running through February 14, 2008. The amount actually repurchased was $180.4 million with $45.5 million outstanding as of December 28, 2008. The net costs of $12.4 million related to this extinguishment of debt and termination of related interest rate swaps was recorded in the first quarter of 2008. The net debt extinguishment costs comprised a $21.4 million payment to settle the notes at fair value given interest rates at the time of extinguishment, a $1.7 million write-off of the proportionate amount of unamortized discount, issuance fees and transaction costs, offset by a $10.7 million gain from the termination of the interest rate swap associated with the extinguished debt. The debt extinguishment was funded by existing cash resources.
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Debt and Credit Arrangements (Continued)
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Debt and Credit Arrangements (Continued)
After January 30, 2013, holders may surrender their Notes for conversion any time prior to the close of business on the business day immediately preceding the maturity date regardless of whether any of the conditions listed above have been satisfied. Upon conversion of the Notes, holders of the Notes will receive the par value amount of each bond in cash and the shares of our Class B common stock (subject to our right to deliver cash in lieu of all or a portion of those shares) in satisfaction of the conversion feature if, on the day of conversion, the MCBC stock price exceeds the conversion price. The conversion price for each $1,000 aggregate principal amount of notes is $54.76 per share of our Class B common stock, which represents a 25% premium above the stock price on the day of the issuance of the Notes and corresponds to the initial conversion ratio of 18.263 shares per each $1,000 aggregate principal amount of notes. The conversion ratio and conversion price are subject to customary adjustments for certain events and provisions, as defined in the Indenture. If, upon conversion, the MCBC stock price is below the conversion price, adjusted as necessary, a cash payment for the par value amount of the Notes will be made. We accounted for the Notes pursuant to EITF Issue 90-19,Convertible Bonds with Issuer Option to Settle for Cash upon Conversion, that is, we did not separate and assign values to the conversion feature of the Notes but rather accounted for the entire agreement as one debt instrument as the conversion feature met the requirements of EITF Issue 00-19,Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock.
In connection with the issuance of the Notes, we incurred approximately $10.2 million of deferred debt issuance costs which will be amortized as interest expense over the life of the Notes.
The proceeds of the convertible note offering were used as follows:
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Debt and Credit Arrangements (Continued)
Convertible Note Hedge and Warrants:
In connection with the issuance of the Notes, we entered into a privately-negotiated convertible note hedge transaction. The convertible note hedge (the "purchased call options") will cover up to approximately 10.5 million shares of our Class B common stock. The purchased call options, if exercised by us, require the counterparty to deliver to us shares of MCBC Class B common stock adequate to meet our net share settlement obligations under the convertible notes and are expected to reduce the potential dilution to our Class B common stock to be issued upon
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Debt and Credit Arrangements (Continued)
conversion of the Notes, if any. Separately and concurrently, we also entered into warrant transactions with respect to our Class B common stock pursuant to which we may be required to issue to the counterparty up to approximately 10.5 million shares of our Class B common stock. The warrant price is $70.09 which represents a 60% premium above the stock price on the date of the warrant transaction. The warrants expire on February 20, 2014.
We used approximately $50 million of the net proceeds from the issuance of the 2.5% Convertible Senior Notes, to pay for the cost to us of the purchased call options, partially offset by the proceeds to us from the warrant transaction. The net cost of these transactions, net of tax, was recorded in the Stockholder's Equity section of the balance sheet as of December 30, 2007.
The purchased call options and warrants are separate transactions entered into by the Company, and they are not part of the terms of the Notes and do not affect the holders' rights under the Notes.
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Debt and Credit Arrangements (Continued)
Our total short-term borrowings consist of various uncommitted lines of credits, short-term bank loans, and overdraft facilities as summarized below:
| | As of | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | December 30, 2007 | December 31, 2006 | | As of | ||||||||||
| | (In thousands) | | December 28, 2008 | December 30, 2007 | ||||||||||
U.S. lines of credit | |||||||||||||||
| | (In millions) | |||||||||||||
U.S. $ lines of credit | U.S. $ lines of credit | ||||||||||||||
Three lines totaling $50 million | One line totaling $20 million | ||||||||||||||
Interest rates at 5.90% | $ | — | $ | — | Interest rates at USD LIBOR + 1.5% | $ | — | $ | — | ||||||
Canadian bank overdraft facilities | Canadian bank overdraft facilities | Canadian bank overdraft facilities | |||||||||||||
Two lines totaling $40 million ($27 million) | One line totaling CAD $30 million ($25 million) | ||||||||||||||
Interest rates at U.S. Prime and Cdn Prime | — | 180 | Interest rates at U.S. Prime and Cdn Prime | — | — | ||||||||||
British Pound lines of credit and bank overdraft facility | British Pound lines of credit and bank overdraft facility | British Pound lines of credit and bank overdraft facility | |||||||||||||
Three lines totaling £30 million ($57 million) | Three lines totaling GBP £30 million ($44 million) | ||||||||||||||
Interest rates at 6.60% | — | 59 | Interest rates at GBP LIBOR +1.5% | — | — | ||||||||||
Japanese Yen lines of credit | Japanese Yen lines of credit | Japanese Yen lines of credit | |||||||||||||
Two lines totaling 1.1 billion Yen ($9 million) | Two lines totaling 1.1 billion Yen ($12 million) | ||||||||||||||
Interest rates at <1.00% | 55 | 193 | Interest rates at <1.00% | — | 0.1 | ||||||||||
Total short-term borrowings | Total short-term borrowings | $ | 55 | $ | 432 | Total short-term borrowings | $ | — | $ | 0.1 | |||||
As of December 30, 2007,28, 2008, the aggregate principal debt maturities of long-term debt and short-term borrowings for the next five fiscal years are as follows:
| | Amount | |||||||
---|---|---|---|---|---|---|---|---|---|
| | (In thousands) | | Amount | |||||
2008 | $ | 4,281 | |||||||
| | (In millions) | |||||||
2009 | 2009 | 4,226 | 2009 | $ | 0.1 | ||||
2010 | 2010 | 304,226 | 2010 | 300.1 | |||||
2011 | 2011 | 220,106 | 2011 | 176.1 | |||||
2012 | 2012 | 236,346 | 2012 | 44.5 | |||||
2013 | 2013 | 574.8 | |||||||
Thereafter | Thereafter | 1,495,692 | Thereafter | 736.2 | |||||
Total | $ | 2,264,877 | Total | $ | 1,831.8 | ||||
Under the terms of some of our debt facilities, we must comply with certain restrictions. These restrictions include restrictions on debt secured by certain types of mortgages, certain threshold percentages of secured consolidated net tangible assets, and restrictions on certain types of sale lease-back transactions. As of December 30, 2007,28, 2008, we were in compliance with all of these restrictions.
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Debt and Credit Arrangements (Continued)
Interest
Interest incurred, capitalized and expensed were as follows:
| For the years ended | For the years ended | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 30, 2007 | December 31, 2006 | December 25, 2005 | December 28, 2008 | December 30, 2007 | December 31, 2006 | ||||||||||||||
| (In thousands) | (In millions) | ||||||||||||||||||
Interest incurred | $ | 135,952 | $ | 156,793 | $ | 137,601 | $ | 104.4 | $ | 136.0 | $ | 156.7 | ||||||||
Interest capitalized | (9,490 | ) | (13,723 | ) | (6,495 | ) | (1.1 | ) | (9.5 | ) | (13.7 | ) | ||||||||
Interest expensed | $ | 126,462 | $ | 143,070 | $ | 131,106 | $ | 103.3 | $ | 126.5 | $ | 143.0 | ||||||||
14. Share-Based Payments
In the first quarter of 2006, we adopted the Financial Accounting Standards Board Statement No. 123, "Share-Based Payment" ("SFAS 123R"). The Company adopted SFAS 123R using the modified prospective method of adoption, which does not require restatement of prior periods.
SFAS 123R requires a determination of excess tax benefits available to absorb related share—basedshare-based compensation. FASB Staff Position 123R-3,Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards ("FSP FAS 123R-3"), which was issued on November 10, 2005, provides a practical transition election related to accounting for the tax effects of share-based payment awards to employees. Specifically, this FSP allows a company to elect the alternative or simplified method to calculate the opening excess tax benefits balance. We adopted such alternative method provisions to calculate the beginning balance of the excess tax benefit in the financial statements ended December 31, 2006. Under the new standard, excess income tax benefits, if any, from share-based compensation are presented as financing activities rather than operating activities in the statements of cash flows. This adoption did not have any impact on our financial statements.
At December 30, 2007,28, 2008, we had three stock-based compensation plans.
The 1990 Equity Incentive Plan
The 1990 Equity Incentive Plan ("EI Plan") generally provides for two types of grants for our employees: stock options and restricted stock awards. The stock options have a term of 10 years and one-third of the stock option award vests in each of the three successive years after the date of grant. There were no awards granted under the Company's EI Plan in 2007,2008, and we are not expecting to grant any new awards under this plan.
Equity Compensation Plan for Non-Employee Directors
The Equity Compensation Plan for Non-Employee Directors ("EC Plan") provides for awards of the Company's Class B shares of restricted stock or options for Class B shares. Awards vest after completion of the director's annual term. The compensation cost associated with the EC plan is amortized over the directors' term. There were no awards granted under the Company's EC Plan in 2007,2008, and we are not expecting to grant any new awards under this plan.
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. Share-Based Payments (Continued)
Molson Coors Brewing Company Incentive Compensation Plan
During 2008, 2007, and 2006, we issued the following awards related to Class B common shares to certain directors, officers, and other eligible employees, pursuant to the Molson Coors Brewing Company Incentive Compensation Plan ("MCBC IC Plan"): stock options, ("options"), stock-only stock appreciation rights ("SOSAR"), restricted stock units ("RSU"), deferred stock units ("DSU"), performance shares ("PSU"),SOSARs, RSUs, DSUs, PSUs, and limited stock appreciation rights ("LOSAR").LOSARs.
Options are granted with an exercise price equal to the market value of a share of common stock on the date of grant. Stock options have a term of 10 years and generally vest over three years. No options were granted in 2008 or 2007.
SOSARs were granted for the first time in the fifty-two weeks ended December 30, 2007. SOSARs were granted with an exercise price equal to the market value of a share of common stock on the date of grant. The SOSARs entitle the award recipient to receive shares of the Company's stock with a fair market value equal to the excess of the trading price over the exercise price of such shares on the date of the exercise. SOSARs have a term of ten years and generally vest over three years. During the fifty-two weeks ended December 30,2008, we granted 0.6 million SOSARs with a weighted-average fair market value of $14.40 each. During 2007, we granted 957,6461.0 million SOSARs with a weighted-average fair market value of $13.23 each.
RSU awards are issued at the market value equal to the price of our stock at the date of the grant and vest over the period of three years. In 2008, we granted 0.6 million RSUs with a weighted-average market value of $56.43 each. In 2007, we granted 256,4080.3 million RSUs with a weighted-average market value of $46.24 each. In 2006, we granted 364,2200.4 million RSUs with a weighted-average marketed value of $34.35 each.
DSU awards, under the Directors' Stock Plan pursuant to the MCBC IC Plan, are elected by the non-employee directors of Molson Coors Brewing Company by enabling them to receive all or one-half of their annual cash retainer payments in our stock. The deferred stock unit awards are issued at the market value equal to the average day's price on the date of the grant and generally vest over the annual service period. In 2008, we granted a small number of DSUs with the weighted-average market value of $50.38 each. In 2007, we granted 9,746a small number of DSUs with the weighted-average market value of $48.66 each. In 2006, we granted 5,962a small number of DSUs with the weighted-average market value of $36.20 each.
PSU awards are earned over the estimated expected term to achieve projectedcertain financial targets, which were established on March 16, 2006 at the time of the initial grant. As of DecemberMarch 30, 2007,2008, these financial targets were expected to be achieved by the endfor all PSU awards outstanding. As a result of our first half of fiscal year 2009 at which point these shares will fully vest. The estimated date of achievement ofachieving these financial targets, could be acceleratedwe recognized the remaining $34.4 million expense before taxes in tothe first quarter of 2008 as our plans are refined and financial results become available. Performance sharesassociated with the outstanding PSU awards. PSUs are granted at the market value of our stock aton the date of the grant and havegrant. In 2008, a termsmall number of five years.these shares were granted under this plan at the weighted-average market value of $50.37 per share. In 2007, 176,0810.2 million shares were granted under this plan at the weighted-average market value of $44.31 per share. In 2006, we granted 2,147,6762.1 million PSUs with the weighted-average market value of $34.55 each.
LOSARs entitle the employee to receive shares of MCBC Class B common shares with a fair market value equal to the excess of the trading price of such shares on the date of the exercise, but not to exceed a pre-determined ceiling, and the trading price on the date of the grant. No LOSARs were granted in 2008 or 2007. In 2006, we granted 0.2 million LOSARs with the weighted-average market value of $2.15 per share.
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. Share-Based Payments (Continued)
As of December 30, 2007,28, 2008, there were 2,562,1441.6 million shares of the Company's stock available for the issuance of the options, SOSAR, RSU, DSU, PSU, and LOSAR awards under the MCBC IC Plan.
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. Share-Based Payments (Continued) As a result of the formation of MillerCoors, we will record the fair value impact related to stock-based compensation for former CBC employees now employed by MillerCoors who hold previously granted MCBC stock-awards on a quarterly basis. The additional mark-to-market cost is related to stock awards to be settled in MCBC Class B common stock. Under Emerging Issues Task Force No. 00-12, "Accounting by an Investor for Stock-Based Compensation Granted to Employees of an Equity Method Investee," MillerCoors will recognize the fair value of the stock-based compensation incurred by MCBC on its behalf, and a corresponding capital contribution, as the costs are incurred on its behalf (that is, in the same periods as if we had paid cash to those MillerCoors employees following guidance set forth in Emerging Issues Task Force No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services"). In addition, we will recognize all of the stock-based compensation expense associated with all preexisting equity awards to be settled in MCBC Class B common stock held by former CBC employees now employed by MillerCoors through our proportionate share of equity investment earnings in MillerCoors and will make an adjustment to reflect remaining costs not reflected in the proportionate share of equity investment earnings in MillerCoors calculation. The mark-to-market stock-based compensation expense, related to MCBC equity awards, during the fifty-two weeks ended December 28, 2008 was $3.1 million.
The following table summarizes components of the equity-based compensation recorded as expense:
| | For the years ended | | For the years ended | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | December 30, 2007 | December 31, 2006 | December 25, 2005 | | December 28, 2008 | December 30, 2007 | December 31, 2006 | ||||||||||||||
| | (In thousands) | | (In millions) | ||||||||||||||||||
Options, SOSARs and LOSARs | Options, SOSARs and LOSARs | Options, SOSARs and LOSARs | ||||||||||||||||||||
Pre-tax compensation expense | $ | 10,296 | $ | 478 | $ | 11,726 | Pre-tax compensation expense | $ | 9.9 | $ | 10.3 | $ | 0.5 | |||||||||
Tax expense (benefit) | (3,130 | ) | 376 | (1,997 | ) | Tax (benefit) expense | (2.9 | ) | (3.1 | ) | 0.3 | |||||||||||
After-tax compensation expense | $ | 7,166 | $ | 854 | $ | 9,729 | After-tax compensation expense | 7.0 | 7.2 | 0.8 | ||||||||||||
RSUs and DSUs | RSUs and DSUs | RSUs and DSUs | ||||||||||||||||||||
Pre-tax compensation expense | $ | 7,577 | $ | 6,673 | $ | 6,327 | Pre-tax compensation expense | 14.9 | 7.6 | 6.6 | ||||||||||||
Tax (benefit) | (2,231 | ) | (2,144 | ) | (1,078 | ) | Tax (benefit) | (4.4 | ) | (2.2 | ) | (2.1 | ) | |||||||||
After-tax compensation expense | $ | 5,346 | $ | 4,529 | $ | 5,249 | After-tax compensation expense | 10.5 | 5.4 | 4.5 | ||||||||||||
PSUs | PSUs | PSUs | ||||||||||||||||||||
Pre-tax compensation expense | $ | 19,514 | $ | 14,993 | $ | — | Pre-tax compensation expense | 34.2 | 19.5 | 15.0 | ||||||||||||
Tax (benefit) | (5,676 | ) | (4,228 | ) | — | Tax (benefit) | (9.9 | ) | (5.7 | ) | (4.2 | ) | ||||||||||
After-tax compensation expense | $ | 13,838 | $ | 10,765 | $ | — | After-tax compensation expense | 24.3 | 13.8 | 10.8 | ||||||||||||
Total after-tax compensation expense | $ | 26,350 | $ | 16,148 | $ | 14,978 | Total after-tax compensation expense | $ | 41.8 | $ | 26.4 | $ | 16.1 | |||||||||
Included in the pre-tax stock option compensation expense is the mark-to-market stock option floor adjustment of $5.8 million benefit and the $5.9 million charge for the yearsyear ended December 31, 2006 and December 25, 2005, respectively.2006. The mark-to-market stock option floor adjustment relates to adjusting to the floor provided on the exercise price of stock
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. Share-Based Payments (Continued)
options held by former Coors officers who left the Company under change in control agreements following the Merger.agreements. The stock option floor adjustment was included in special items in the statements of operations. As a result of the stock price exceeding the floor, no mark-to-market stock option floor adjustment was recognized in 2008 or 2007. Included in the restricted stock compensation expense was the DSU amortization of $0.5 million and $0.2$0.5 million for the year ended December 30, 200728, 2008 and December 31, 2006,30, 2007, respectively.
The fair value of each option, SOSAR and LOSAR granted in 2008, 2007 2006 and 20052006 was determined on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:
| For the years ended | For the years ended | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 30, 2007 | December 31, 2006 | December 25, 2005 | December 28, 2008 | December 30, 2007 | December 31, 2006 | |||||||||||||
Risk-free interest rate | 4.64% | 4.48% | 4.18% | 3.05% | 4.64% | 4.48% | |||||||||||||
Dividend yield | 1.40% | 1.86% | 1.80% | 1.41% | 1.40% | 1.86% | |||||||||||||
Volatility range | 21.8%-26.8% | 21.90%-30.09% | 24.66%-41.37% | 25.3% - 26.8% | 21.8% - 26.8% | 21.9% - 30.1% | |||||||||||||
Weighted-average volatility | 25.30% | 27.84% | 26.83% | 25.43% | 25.30% | 27.84% | |||||||||||||
Expected term (years) | 3.5-7.0 | 3.5-7.0 | 3.5-7.0 | 3.5 - 7.0 | 3.5 - 7.0 | 3.5 - 7.0 | |||||||||||||
Weighted-average fair market value | $ | 13.23 | $ | 9.43 | $ | 8.58 | $ | 14.40 | $ | 13.23 | $ | 9.43 |
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. Share-Based Payments (Continued)
The risk-free interest rates utilized for periods throughout the contractual life of the options are based on a zero-coupon U.S. Treasury security yield at the time of grant. Expected volatility is based on historical volatility of our stock. The expected term of options is estimated based upon observations of historical employee option exercise patterns and trends. The range of 3.5 years to 7.0 years results from separate groups of employees who exhibit different historical exercise behavior.
Options and SOSARs outstanding at December 30, 2007,28, 2008, changes during 2007,2008, and shares available for grant under all of our plans are presented below:
| | | | Options exercisable at year-end | |||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Outstandin options | Weighted- average exercise price | Aggregate intrinsic value | Shares | Weighted- average exercise price | Aggregate intrinsic value | |||||||||||||||||||||||||||||||||||||
Outstanding as of December 31, 2006 | 15,525,844 | $ | 32.06 | $ | 96,370,837 | 14,363,424 | $ | 31.94 | $ | 90,964,423 | |||||||||||||||||||||||||||||||||
Granted | 957,646 | $ | 45.79 | ||||||||||||||||||||||||||||||||||||||||
Exercised | (6,659,362 | ) | $ | 46.98 | | Shares outstanding | Shares exercisable at year-end | ||||||||||||||||||||||||||||||||||||
Forfeited | (173,764 | ) | $ | 52.09 | | Shares | Weighted- average exercise price | Weighted- average remaining contractual life (years) | Aggregate intrinsic value | Shares | Weighted- average exercise price | Weighted- average remaining contractual life (years) | Aggregate intrinsic value | ||||||||||||||||||||||||||||||
| (In millions, except per share amounts) | ||||||||||||||||||||||||||||||||||||||||||
Outstanding as of December 30, 2007 | Outstanding as of December 30, 2007 | 9,650,364 | $ | 33.70 | $ | 177,784,105 | 8,386,498 | $ | 32.74 | $ | 162,503,142 | Outstanding as of December 30, 2007 | 9.7 | $ | 33.70 | 5.40 | $ | 177.8 | 8.4 | $ | 32.74 | 4.90 | $ | 162.5 | |||||||||||||||||||
Granted | 0.6 | $ | 57.09 | ||||||||||||||||||||||||||||||||||||||||
Exercised | (1.8 | ) | $ | 43.80 | |||||||||||||||||||||||||||||||||||||||
Forfeited | 0.1 | $ | 38.80 | ||||||||||||||||||||||||||||||||||||||||
Outstanding as of December 28, 2008 | Outstanding as of December 28, 2008 | 8.6 | $ | 35.60 | 5.22 | $ | 95.3 | 6.9 | $ | 33.00 | 4.51 | $ | 97.0 | ||||||||||||||||||||||||||||||
The total intrinsic values of options exercised during 2008, 2007 and 2006 and 2005 were $37.8 million, $85.2 million and $20.7 million, and $21.1 million, respectively.
The following table summarizes information about During 2008, cash received from stock options outstanding at December 30, 2007:exercises was $57.0 million and the total tax benefit to be realized for the tax deductions from these option exercises was $8.3 million.
| Options outstanding | Options exercisable | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Range of exercise prices | Shares | Weighted- average remaining contractual life (years) | Weighted- average exercise price | Shares | Weighted- average remaining contractual life (years) | Weighted- average exercise price | ||||||||
$14.90-$29.88 | 2,756,692 | 3.38 | $ | 26.57 | 2,732,888 | 3.34 | $ | 26.54 | ||||||
$30.24-$34.99 | 3,556,282 | 5.58 | $ | 33.57 | 2,981,044 | 5.09 | $ | 33.52 | ||||||
$35.54-$38.60 | 2,309,546 | 6.05 | $ | 37.30 | 2,309,546 | 6.05 | $ | 37.30 | ||||||
$40.94-$45.79 | 1,027,844 | 8.77 | $ | 45.18 | 363,020 | 7.61 | $ | 44.05 | ||||||
9,650,364 | 5.40 | $ | 33.70 | 8,386,498 | 4.90 | $ | 32.74 | |||||||
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. Share-Based Payments (Continued)
The summary of activity of unvested restricted stock units, deferred stock unitsRSUs, DSUs, and performance sharesPSUs during 20072008 is presented below:
| Shares | Weighted-average grant date fair value | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Non-vested as of December 31, 2006 | 2,620,480 | $ | 34.24 | |||||||||||
Granted | 442,235 | $ | 45.53 | |||||||||||
Vested | (91,494 | ) | $ | 33.36 | ||||||||||
Forfeited | (253,131 | ) | $ | 35.56 | | Shares | Weighted-average grant date fair value | |||||||
| (In millions, except per share amounts) | |||||||||||||
Non-vested as of December 30, 2007 | Non-vested as of December 30, 2007 | 2,718,090 | $ | 35.98 | Non-vested as of December 30, 2007 | 2.7 | $ | 35.98 | ||||||
Granted | 0.6 | $ | 56.14 | |||||||||||
Vested | (2.0 | ) | $ | 35.35 | ||||||||||
Forfeited | (0.2 | ) | $ | 37.61 | ||||||||||
Non-vested as of December 28, 2008 | Non-vested as of December 28, 2008 | 1.1 | $ | 48.06 | ||||||||||
The total fair values of restricted stock unitsRSUs, DSUs and deferred stock unitsPSUs vested during 2008, 2007 and 2006 and 2005 were $116.2 million, $3.4 million $2.4 million and $8.9$2.4 million, respectively. As of December 30, 2007,28, 2008, there was $59approximately $34 million of total unrecognized compensation cost from all share-based compensation arrangements granted under the plans, related to unvested shares. This compensation is expected to be recognized over a weighted-average period of approximately 1.71.3 years. During 2007, cash received from stock options exercises was $209 million and the total tax benefit to be realized for the tax deductions from these option exercises was $29.8 million.
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. Accumulated Other Comprehensive Income (Loss)
| Foreign currency translation adjustments | Unrealized gain (loss) on available- for-sale securities and derivative instruments | Pension and Postretirement Benefits adjustments | Accumulated other comprehensive income (loss) | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In thousands) | |||||||||||||
As of December 26, 2004 | $ | 341,341 | $ | 16,218 | $ | (259,658 | ) | $ | 97,901 | |||||
Foreign currency translation adjustments | 146,677 | — | — | 146,677 | ||||||||||
Unrealized loss on derivative instruments | — | (31,374 | ) | — | (31,374 | ) | ||||||||
Reclassification adjustment on derivative instruments | — | (13,763 | ) | — | (13,763 | ) | ||||||||
Minimum pension liability adjustment | — | — | (34,203 | ) | (34,203 | ) | ||||||||
Effect of foreign currency fluctuation on foreign-denominated pension | — | — | 10,834 | 10,834 | ||||||||||
Tax (expense) benefit | (23,707 | ) | 17,458 | 17,166 | 10,917 | |||||||||
As of December 25, 2005 | 464,311 | (11,461 | ) | (265,861 | ) | 186,989 | ||||||||
Foreign currency translation adjustments | 116,214 | — | — | 116,214 | ||||||||||
Unrealized gain on derivative instruments | — | 29,522 | — | 29,522 | ||||||||||
Reclassification adjustment on derivative instruments | — | (7,493 | ) | — | (7,493 | ) | ||||||||
Minimum pension liability adjustment | — | — | 179,221 | 179,221 | ||||||||||
Effect of foreign currency fluctuation on foreign-denominated pension | — | — | (724 | ) | (724 | ) | ||||||||
Adjustment to adopt SFAS 158 | — | — | (258,717 | ) | (258,717 | ) | ||||||||
Tax benefit (expense) | 40,993 | (8,287 | ) | 39,260 | 71,966 | |||||||||
As of December 31, 2006 | 621,518 | 2,281 | (306,821 | ) | 316,978 | |||||||||
Foreign currency translation adjustments | 697,262 | — | — | 697,262 | ||||||||||
Unrealized gain on derivative instruments | — | 4,551 | — | 4,551 | ||||||||||
Reclassification adjustment on derivative instruments | — | (5,075 | ) | — | (5,075 | ) | ||||||||
Pension and other other postretirement benefit adjustments | — | — | 13,475 | 13,475 | ||||||||||
Effect of foreign currency fluctuation on foreign-denominated pension | — | — | (11,780 | ) | (11,780 | ) | ||||||||
Tax benefit (expense) | 97,798 | 29 | (8,309 | ) | 89,518 | |||||||||
As of December 30, 2007 | $ | 1,416,578 | $ | 1,786 | $ | (313,435 | ) | $ | 1,104,929 | |||||
The significant increases to other comprehensive income due to foreign currency translation adjustments result from the continued strengthening of the CAD and GBP versus the USD. We have
| Foreign currency translation adjustments | Unrealized gain (loss) on derivative instruments | Pension and Postretirement Benefits adjustments | Equity Method Investments (MillerCoors) | Accumulated other comprehensive income (loss) | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In millions) | ||||||||||||||||
As of December 25, 2005 | $ | 464.3 | $ | (11.4 | ) | $ | (265.9 | ) | $ | — | $ | 187.0 | |||||
Foreign currency translation adjustments | 116.2 | — | — | — | 116.2 | ||||||||||||
Unrealized gain on derivative instruments | — | 29.5 | — | — | 29.5 | ||||||||||||
Reclassification adjustment on derivative instruments | — | (7.5 | ) | — | — | (7.5 | ) | ||||||||||
Minimum pension liability adjustment | — | — | 179.2 | — | 179.2 | ||||||||||||
Effect of foreign currency fluctuation on foreign-denominated pension | — | — | (0.7 | ) | — | (0.7 | ) | ||||||||||
Adjustment to adopt SFAS 158 | — | — | (258.7 | ) | — | (258.7 | ) | ||||||||||
Tax benefit (expense) | 41.0 | (8.3 | ) | 39.3 | — | 72.0 | |||||||||||
As of December 31, 2006 | 621.5 | 2.3 | (306.8 | ) | — | 317.0 | |||||||||||
Foreign currency translation adjustments | 697.3 | — | — | — | 697.3 | ||||||||||||
Unrealized gain on derivative instruments | — | 4.5 | — | — | 4.5 | ||||||||||||
Reclassification adjustment on derivative instruments | — | (5.1 | ) | — | — | (5.1 | ) | ||||||||||
Pension and other other postretirement benefit adjustments | — | — | 13.5 | — | 13.5 | ||||||||||||
Effect of foreign currency fluctuation on foreign-denominated pension | — | — | (11.8 | ) | — | (11.8 | ) | ||||||||||
Tax benefit (expense) | 97.8 | — | (8.3 | ) | — | 89.5 | |||||||||||
As of December 30, 2007 | 1,416.6 | 1.7 | (313.4 | ) | — | 1,104.9 | |||||||||||
Foreign currency translation adjustments | (1,311.3 | ) | — | — | — | (1,311.3 | ) | ||||||||||
Unrealized gain on derivative instruments | — | 70.4 | — | — | 70.4 | ||||||||||||
Reclassification adjustment on derivative instruments | — | 4.9 | — | — | 4.9 | ||||||||||||
Pension and other other postretirement benefit adjustments | — | — | (349.5 | ) | — | (349.5 | ) | ||||||||||
Effect of foreign currency fluctuation on foreign-denominated pension | — | — | 46.3 | — | 46.3 | ||||||||||||
Contribution to MillerCoors | — | (31.3 | ) | 243.2 | — | 211.9 | |||||||||||
Ownership share of MillerCoors, other comprehensive loss | — | — | — | (338.9 | ) | (338.9 | ) | ||||||||||
Tax benefit (expense) | 30.3 | (10.4 | ) | 16.9 | 127.7 | 164.5 | |||||||||||
As of December 28, 2008 | $ | 135.6 | $ | 35.3 | $ | (356.5 | ) | $ | (211.2 | ) | $ | (396.8 | ) | ||||
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. Accumulated Other Comprehensive Income (Loss) (Continued)
The significant fluctuations to other comprehensive income due to foreign currency translation adjustments result from the strengthening of the CAD and GBP versus the USD in 2006 and 2007, and the subsequent reversal of those trends in 2008. We have significant levels of net assets denominated in these currencies due to our operations in those countries, and therefore other comprehensive income increases and/or decreases when those items are translated to our reporting currency, which is USD.
The significant decrease in other comprehensive income due to pension and other post retirement benefit adjustments is due mainly to declines in pension trust asset values in the latter part of 2008. The decrease associated with our 42% interest in MillerCoors' other comprehensive income is similarly related to a decline in pension asset values of MillerCoors plans, as well as other comprehensive losses associated with increased derivative liabilities related to aluminum hedging efforts at MillerCoors.
16. Employee Retirement Plans
Defined Benefit Plans
The Company offersmaintains retirement plans in Canada, the United StatesKingdom and the United Kingdom that cover substantially all its employees. Benefits for all employees are generally based on salary and years of service.States. Plan funding strategies are influenced by employee benefits laws and tax laws. The Company's U.K. plan includes provision for employee contributions and inflation-based benefit increases for retirees. The U.K. defined benefit plan was closed to new employees in April 2006.
Total defined benefit pension plan expense was $21.5 million, $32.8 million and $64.8 million in 2007, 2006, and 2005, respectively. The aggregate funded position of the Company's plans resultedwas closed to all new employee service credit effective in the recognition of an additional minimum liabilityApril 2009 (see subsequent discussion in 2005.this note).
Canada U.S. and U.K. plan assets consist of bond holdings, equity securities smaller holdings of bonds, and smaller holdings of real estate. Equity assets are well diversified between international and domestic investments, with additional diversification in the domestic category through allocations to large-cap, small-cap, and growth and value investments. Relative allocations reflect the demographics of the respective plan participants.
The following compares target asset allocation percentages with actual asset allocations at December 30, 2007:28, 2008:
| Canada plans assets | U.S. plan assets | U.K. plan assets | Canada plans assets | U.K. plan assets | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Target allocations | Actual allocations | Target allocations | Actual allocations | Target allocations | Actual allocations | Target allocations | Actual allocations | Target allocations | Actual allocations | ||||||||||||||||
Equities | 53 | % | 51 | % | 46 | % | 43 | % | 53 | % | 53 | % | 42.0 | % | 35.2 | % | 50.0 | % | 43.3 | % | ||||||
Fixed income | 47 | % | 49 | % | 45 | % | 48 | % | 40 | % | 40 | % | 58.0 | % | 64.3 | % | 40.0 | % | 42.3 | % | ||||||
Real estate | — | — | 9 | % | 9 | % | 7 | % | 7 | % | 0.0 | % | 0.0 | % | 7.0 | % | 6.5 | % | ||||||||
Other | 0.0 | % | 0.5 | % | 3.0 | % | 7.9 | % |
Investment return assumptions for all plans have been determined by applying the returns to assets on a weighted average basis and adding an active management premium where appropriate. The deviations between the target allocations and the actual allocations are attributable to the large declines in the fair value of equities in 2008.
It is expected that contributions to the Canada, U.S.U.K. and U.K.Corporate plans during 20082009 will be approximately $164$69.4 million collectively (including supplemental executive plans)plans and plans of consolidated joint ventures). This amount excludes MillerCoors' contributions to its defined benefit pension plans, as MillerCoors is not consolidated in our financial statements.
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. Employee Retirement Plans (Continued)
The following represents our net periodic pension cost:
| For the year ended December 30, 2007 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Canada plans | U.S. plans | U.K. plan | Consolidated | ||||||||||
| (In thousands) | |||||||||||||
Components of net periodic pension cost (benefit): | ||||||||||||||
Service cost—benefits earned during the year | $ | 33,681 | $ | 17,347 | $ | 40,557 | $ | 91,585 | ||||||
Interest cost on projected benefit obligation | 88,376 | 57,361 | 119,269 | 265,006 | ||||||||||
Expected return on plan assets | (111,017 | ) | (69,934 | ) | (162,348 | ) | (343,299 | ) | ||||||
Amortization of prior service cost | 962 | 43 | 2,522 | 3,527 | ||||||||||
Amortization of net actuarial loss | 555 | 13,833 | 4,124 | 18,512 | ||||||||||
Special termination benefits | 367 | — | — | 367 | ||||||||||
Less expected participant and national insurance contributions | (3,736 | ) | — | (10,510 | ) | (14,246 | ) | |||||||
Net periodic pension cost (benefit) | $ | 9,188 | $ | 18,650 | $ | (6,386 | ) | $ | 21,452 | |||||
| For the year ended December 31, 2006 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Canada plans | U.S. plans | U.K. plan | Consolidated | ||||||||||
| (In thousands) | |||||||||||||
Components of net periodic pension cost: | ||||||||||||||
Service cost—benefits earned during the year | $ | 32,822 | $ | 19,658 | $ | 36,716 | $ | 89,196 | ||||||
Interest cost on projected benefit obligation | 81,745 | 54,616 | 102,140 | 238,501 | ||||||||||
Expected return on plan assets | (101,491 | ) | (64,252 | ) | (140,693 | ) | (306,436 | ) | ||||||
Amortization of prior service cost (benefit) | 1,456 | 43 | (6,171 | ) | (4,672 | ) | ||||||||
Amortization of net actuarial loss | — | 18,927 | 10,708 | 29,635 | ||||||||||
Less expected participant and national insurance contributions | (3,525 | ) | — | (9,918 | ) | (13,443 | ) | |||||||
Net periodic pension cost (benefit) | $ | 11,007 | $ | 28,992 | $ | (7,218 | ) | $ | 32,781 | |||||
| For the year ended December 25, 2005 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Canada plans | U.S. plans | U.K. plan | Consolidated | ||||||||||
| (In thousands) | |||||||||||||
Components of net periodic pension cost: | ||||||||||||||
Service cost—benefits earned during the year | $ | 24,110 | $ | 20,891 | $ | 35,540 | $ | 80,541 | ||||||
Interest cost on projected benefit obligation | 71,975 | 53,527 | 103,411 | 228,913 | ||||||||||
Expected return on plan assets | (78,429 | ) | (60,065 | ) | (127,736 | ) | (266,230 | ) | ||||||
Amortization of prior service cost | 554 | 5,464 | — | 6,018 | ||||||||||
Amortization of net transition/obligation | 3,804 | 3,890 | — | 7,694 | ||||||||||
Amortization of net actuarial loss | — | 17,107 | 4,759 | 21,866 | ||||||||||
Less expected participant and national insurance contributions | (3,524 | ) | — | (10,522 | ) | (14,046 | ) | |||||||
Net periodic pension cost | $ | 18,490 | $ | 40,814 | $ | 5,452 | $ | 64,756 | ||||||
| For the year ended December 28, 2008 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Canada plans | U.S. plans | U.K. plan | Consolidated | ||||||||||
| (In millions) | |||||||||||||
Components of net periodic pension cost (benefit): | ||||||||||||||
Service cost—benefits earned during the year | $ | 31.4 | $ | 8.4 | $ | 26.6 | $ | 66.4 | ||||||
Interest cost on projected benefit obligation | 93.4 | 30.2 | 127.6 | 251.2 | ||||||||||
Expected return on plan assets | (118.2 | ) | (35.1 | ) | (150.1 | ) | (303.4 | ) | ||||||
Amortization of prior service cost | 2.2 | (0.2 | ) | (1.9 | ) | 0.1 | ||||||||
Amortization of net actuarial loss | — | 4.1 | 1.0 | 5.1 | ||||||||||
Special termination benefits | 0.7 | — | — | 0.7 | ||||||||||
Administration expenses | 2.4 | 0.6 | 4.7 | 7.7 | ||||||||||
Less expected participant and National Insurance contributions | (2.7 | ) | — | (4.4 | ) | (7.1 | ) | |||||||
Net periodic pension cost | $ | 9.2 | $ | 8.0 | $ | 3.5 | $ | 20.7 | ||||||
| For the year ended December 30, 2007 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Canada plans | U.S. plans | U.K. plan | Consolidated | ||||||||||
| (In millions) | |||||||||||||
Components of net periodic pension cost (benefit): | ||||||||||||||
Service cost—benefits earned during the year | $ | 33.7 | $ | 17.3 | $ | 40.6 | $ | 91.6 | ||||||
Interest cost on projected benefit obligation | 88.4 | 57.4 | 119.2 | 265.0 | ||||||||||
Expected return on plan assets | (111.1 | ) | (69.9 | ) | (162.3 | ) | (343.3 | ) | ||||||
Amortization of prior service cost | 0.9 | 0.1 | 2.5 | 3.5 | ||||||||||
Amortization of net actuarial loss | 0.6 | 13.8 | 4.1 | 18.5 | ||||||||||
Special termination benefits | 0.4 | — | — | 0.4 | ||||||||||
Less expected participant and National Insurance contributions | (3.7 | ) | — | (10.5 | ) | (14.2 | ) | |||||||
Net periodic pension cost (benefit) | $ | 9.2 | $ | 18.7 | $ | (6.4 | ) | $ | 21.5 | |||||
| For the year ended December 31, 2006 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Canada plans | U.S. plans | U.K. plan | Consolidated | ||||||||||
| (In millions) | |||||||||||||
Components of net periodic pension cost (benefit): | ||||||||||||||
Service cost—benefits earned during the year | $ | 32.8 | $ | 19.7 | $ | 36.7 | $ | 89.2 | ||||||
Interest cost on projected benefit obligation | 81.7 | 54.6 | 102.2 | 238.5 | ||||||||||
Expected return on plan assets | (101.5 | ) | (64.2 | ) | (140.7 | ) | (306.4 | ) | ||||||
Amortization of prior service cost | 1.5 | — | (6.2 | ) | (4.7 | ) | ||||||||
Special termination benefits | — | 18.9 | 10.7 | 29.6 | ||||||||||
Less expected participant and National Insurance contributions | (3.5 | ) | — | (9.9 | ) | (13.4 | ) | |||||||
Net periodic pension cost (benefit) | $ | 11.0 | $ | 29.0 | $ | (7.2 | ) | $ | 32.8 | |||||
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. Employee Retirement Plans (Continued)
The changes in the projected benefit obligation, plan assets and the funded status of the pension plans are as follows:
| | As of December 30, 2007 | | As of December 28, 2008 | ||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Underfunded | Overfunded | | | Underfunded | Overfunded | | ||||||||||||||||||||||||||||||||||||||||||||||
| | Canada plans | U.S. plans | U.K. plan | Total | Canada plans | US plan | Total | Consolidated | | Canada plans | U.S. plans | U.K. plan | Total | Canada plans | U.S. plan | Total | Consolidated | ||||||||||||||||||||||||||||||||||||
| | (In thousands) | | (In millions) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Change in projected benefit obligation: | Change in projected benefit obligation: | Change in projected benefit obligation: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Prior year projected benefit obligation | $ | 1,396.3 | $ | 22.3 | $ | 2,341.2 | $ | 3,759.8 | $ | 533.4 | $ | 949.9 | $ | 1,483.3 | $ | 5,243.1 | ||||||||||||||||||||||||||||||||||||||
Changes in current year (Underfunded)/Overfunded position | (69.5 | ) | 949.9 | — | 880.4 | 69.5 | (949.9 | ) | (880.4 | ) | — | |||||||||||||||||||||||||||||||||||||||||||
Prior year projected benefit obligation | $ | 1,304,007 | $ | 968,069 | $ | 2,256,946 | $ | 4,529,022 | $ | 334,260 | $ | — | $ | 334,260 | $ | 4,863,282 | Projected benefit obligation at beginning of year | 1,326.8 | 972.2 | 2,341.2 | 4,640.2 | 602.9 | — | 602.9 | 5,243.1 | |||||||||||||||||||||||||||||
Changes in current year Overfunded/(Underfunded) position | 60,036 | (946,014 | ) | — | (885,978 | ) | (60,036 | ) | 946,014 | 885,978 | — | Contribution of plans to MillerCoors | — | (942.1 | ) | — | (942.1 | ) | — | — | — | (942.1 | ) | |||||||||||||||||||||||||||||||
Service cost, net of expected employee contributions | 22.0 | 8.4 | 22.2 | 52.6 | 6.9 | — | 6.9 | 59.5 | ||||||||||||||||||||||||||||||||||||||||||||||
Projected benefit obligation at beginning of year | $ | 1,364,043 | $ | 22,055 | $ | 2,256,946 | $ | 3,643,044 | $ | 274,224 | $ | 946,014 | $ | 1,220,238 | $ | 4,863,282 | Interest cost | 64.8 | 30.2 | 127.6 | 222.6 | 28.6 | — | 28.6 | 251.2 | |||||||||||||||||||||||||||||
Service cost, net of expected employee contributions | 24,810 | 192 | 30,047 | 55,049 | 5,416 | 17,155 | 22,571 | 77,620 | Amendments | 21.5 | — | — | 21.5 | — | — | — | 21.5 | |||||||||||||||||||||||||||||||||||||
Interest cost | 64,021 | 1,304 | 119,269 | 184,594 | 24,355 | 56,057 | 80,412 | 265,006 | Actual employee contributions | 2.6 | — | 4.1 | 6.7 | — | — | — | 6.7 | |||||||||||||||||||||||||||||||||||||
Amendments | 730 | 23 | — | 753 | — | (6,167 | ) | (6,167 | ) | (5,414 | ) | Settlement | (10.5 | ) | — | (10.5 | ) | — | — | — | (10.5 | ) | ||||||||||||||||||||||||||||||||
Actual employee contributions | 2,703 | — | 7,647 | 10,350 | 753 | — | 753 | 11,103 | Curtailments | — | 0.1 | (6.2 | ) | (6.1 | ) | — | — | — | (6.1 | ) | ||||||||||||||||||||||||||||||||||
Special termination benefits | 1,946 | — | — | 1,946 | — | — | — | 1,946 | Actuarial gain | (150.9 | ) | (13.1 | ) | (167.1 | ) | (331.1 | ) | (46.2 | ) | — | (46.2 | ) | (377.3 | ) | ||||||||||||||||||||||||||||||
Curtailments | (2,469 | ) | — | — | (2,469 | ) | — | — | — | (2,469 | ) | Benefits paid | (62.7 | ) | (48.8 | ) | (113.6 | ) | (225.1 | ) | (37.9 | ) | — | (37.9 | ) | (263.0 | ) | |||||||||||||||||||||||||||
Actuarial (gain) loss | (234,893 | ) | 15 | 561 | (234,317 | ) | 192,256 | (9,418 | ) | 182,838 | (51,479 | ) | Foreign currency exchange rate change | (246.1 | ) | — | (603.8 | ) | (849.9 | ) | (112.2 | ) | — | (112.2 | ) | (962.1 | ) | |||||||||||||||||||||||||||
Benefits paid | (61,090 | ) | (1,280 | ) | (116,626 | ) | (178,996 | ) | (33,128 | ) | (53,708 | ) | (86,836 | ) | (265,832 | ) | ||||||||||||||||||||||||||||||||||||||
Foreign currency exchange rate change | 236,466 | — | 43,329 | 279,795 | 69,536 | — | 69,536 | 349,331 | Projected benefit obligation at end of year | $ | 967.5 | $ | 6.9 | $ | 1,604.4 | $ | 2,578.8 | $ | 442.1 | $ | — | $ | 442.1 | $ | 3,020.9 | |||||||||||||||||||||||||||||
Projected benefit obligation at end of year | $ | 1,396,267 | $ | 22,309 | $ | 2,341,173 | $ | 3,759,749 | $ | 533,412 | $ | 949,933 | $ | 1,483,345 | $ | 5,243,094 | Actuarial present value of accumulated benefit obligation | $ | 964.2 | $ | 6.5 | $ | 1,553.2 | $ | 2,523.9 | $ | 440.5 | $ | — | $ | 440.5 | $ | 2,964.4 | |||||||||||||||||||||
Change in plan assets: | Change in plan assets: | Change in plan assets: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Prior year projected benefit obligation | $ | 1,111,698 | $ | 830,090 | $ | 2,179,511 | $ | 4,121,299 | $ | 351,515 | $ | — | $ | 351,515 | $ | 4,472,814 | Prior year fair value of assets | $ | 1,233.6 | $ | — | $ | 2,249.9 | $ | 3,483.5 | $ | 595.7 | $ | 951.7 | $ | 1,547.4 | $ | 5,030.9 | |||||||||||||||||||||
Changes in current year Overfunded/(Underfunded) position | 60,451 | (830,090 | ) | — | (769,639 | ) | (60,450 | ) | 830,089 | 769,639 | — | Changes in current year (Underfunded)/Overfunded position | (67.9 | ) | 951.7 | — | 883.8 | 67.9 | (951.7 | ) | (883.8 | ) | — | |||||||||||||||||||||||||||||||
Fair value of assets at beginning of year | $ | 1,172,149 | $ | — | $ | 2,179,511 | $ | 3,351,660 | $ | 291,065 | $ | 830,089 | $ | 1,121,154 | $ | 4,472,814 | Fair value of assets at beginning of year | 1,165.7 | 951.7 | 2,249.9 | 4,367.3 | 663.6 | — | 663.6 | 5,030.9 | |||||||||||||||||||||||||||||
Actual return on plan assets | (153,314 | ) | — | 116,220 | (37,094 | ) | 231,859 | 101,995 | 333,854 | 296,760 | Contribution of plans to MillerCoors | — | (867.1 | ) | — | (867.1 | ) | — | — | — | (867.1 | ) | ||||||||||||||||||||||||||||||||
Employer contributions | 67,648 | 1,280 | 31,669 | 100,597 | 28,807 | 73,331 | 102,138 | 202,735 | Actual return on plan assets | (173.9 | ) | (36.5 | ) | (371.0 | ) | (581.4 | ) | (20.6 | ) | — | (20.6 | ) | (602.0 | ) | ||||||||||||||||||||||||||||||
Actual employee contributions | 2,052 | — | 7,647 | 9,699 | 753 | — | 753 | 10,452 | Employer contributions | 69.9 | 0.7 | 127.5 | 198.1 | 30.5 | — | 30.5 | 228.6 | |||||||||||||||||||||||||||||||||||||
Benefits and plan expenses paid | (61,090 | ) | (1,280 | ) | (127,036 | ) | (189,406 | ) | (33,128 | ) | (53,708 | ) | (86,836 | ) | (276,242 | ) | Special termination benefits | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Foreign currency exchange rate change | 206,138 | — | 41,872 | 248,010 | 76,380 | — | 76,380 | 324,390 | Actual employee contributions | 2.6 | — | 4.0 | 6.6 | — | — | — | 6.6 | |||||||||||||||||||||||||||||||||||||
Settlement | (10.5 | ) | — | — | (10.5 | ) | — | — | — | (10.5 | ) | |||||||||||||||||||||||||||||||||||||||||||
Fair value of plan assets at end of year | $ | 1,233,583 | $ | — | $ | 2,249,883 | $ | 3,483,466 | $ | 595,736 | $ | 951,707 | $ | 1,547,443 | $ | 5,030,909 | Administration expenses | (1.9 | ) | — | — | (1.9 | ) | (1.3 | ) | — | (1.3 | ) | (3.2 | ) | ||||||||||||||||||||||||
Benefits and plan expenses paid | (62.7 | ) | (48.8 | ) | (123.6 | ) | (235.1 | ) | (37.9 | ) | — | (37.9 | ) | (273.0 | ) | |||||||||||||||||||||||||||||||||||||||
Foreign currency exchange rate change | (206.0 | ) | — | (505.3 | ) | (711.3 | ) | (126.7 | ) | — | (126.7 | ) | (838.0 | ) | ||||||||||||||||||||||||||||||||||||||||
Fair value of plan assets at end of year | $ | 783.2 | $ | — | $ | 1,381.5 | $ | 2,164.7 | $ | 507.6 | $ | — | $ | 507.6 | $ | 2,672.3 | ||||||||||||||||||||||||||||||||||||||
Funded status: | Funded status: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Projected benefit obligation at end of year | $ | (967.5 | ) | $ | (6.9 | ) | $ | (1,604.4 | ) | $ | (2,578.8 | ) | $ | (442.1 | ) | $ | — | $ | (442.1 | ) | $ | (3,020.9 | ) | |||||||||||||||||||||||||||||||
Fair value of plan assets at end of year | 783.2 | — | 1,381.5 | 2,164.7 | 507.6 | — | 507.6 | 2,672.3 | ||||||||||||||||||||||||||||||||||||||||||||||
Funded status—(Underfunded)/Overfunded | (184.3 | ) | (6.9 | ) | (222.9 | ) | (414.1 | ) | 65.5 | — | 65.5 | (348.6 | ) | |||||||||||||||||||||||||||||||||||||||||
Less: Minority interests | 29.6 | — | — | 29.6 | — | — | — | 29.6 | ||||||||||||||||||||||||||||||||||||||||||||||
Funded status after minority interests—(Underfunded)/Overfunded | $ | (154.7 | ) | $ | (6.9 | ) | $ | (222.9 | ) | $ | (384.5 | ) | $ | 65.5 | $ | — | $ | 65.5 | $ | (319.0 | ) | |||||||||||||||||||||||||||||||||
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. Employee Retirement Plans (Continued)
Funded status: | |||||||||||||||||||||||||||
Projected benefit obligation at end of year | $ | (1,396,267 | ) | $ | (22,309 | ) | $ | (2,341,173 | ) | $ | (3,759,749 | ) | $ | (533,412 | ) | $ | (949,933 | ) | $ | (1,483,345 | ) | $ | (5,243,094 | ) | |||
Fair value of plan assets at end of year | 1,233,583 | — | 2,249,883 | 3,483,466 | 595,736 | 951,707 | 1,547,443 | 5,030,909 | |||||||||||||||||||
Funded status—(Underfunded)/Overfunded | $ | (162,684 | ) | $ | (22,309 | ) | $ | (91,290 | ) | $ | (276,283 | ) | $ | 62,324 | $ | 1,774 | $ | 64,098 | $ | (212,185 | ) | ||||||
Less: Minority interests | 36,825 | — | — | 36,825 | — | — | — | 36,825 | |||||||||||||||||||
Funded status after minority interests— (Underfunded)/Overfunded | $ | (125,859 | ) | $ | (22,309 | ) | $ | (91,290 | ) | $ | (239,458 | ) | $ | 62,324 | $ | 1,774 | $ | 64,098 | $ | (175,360 | ) | ||||||
Amounts recognized in the Consolidated Balance Sheet: | |||||||||||||||||||||||||||
Other assets | $ | — | $ | — | $ | — | $ | — | $ | 62,324 | $ | 1,774 | $ | 64,098 | $ | 64,098 | |||||||||||
Accrued expenses and other liabilities | (784 | ) | (1,858 | ) | — | (2,642 | ) | — | — | — | (2,642 | ) | |||||||||||||||
Pension and postretirement benefits | (125,075 | ) | (20,451 | ) | (91,290 | ) | (236,816 | ) | — | — | — | (236,816 | ) | ||||||||||||||
Net amounts recognized | $ | (125,859 | ) | $ | (22,309 | ) | $ | (91,290 | ) | $ | (239,458 | ) | $ | 62,324 | $ | 1,774 | $ | 64,098 | $ | (175,360 | ) | ||||||
Amounts in Accumulated Other Comprehensive Income not yet recognized as components of net periodic pension cost or (benefit), pre-tax: | |||||||||||||||||||||||||||
Net actuarial loss | $ | 52,804 | $ | 4,157 | $ | 182,970 | $ | 239,931 | $ | (22,018 | ) | $ | 179,541 | $ | 157,523 | $ | 397,454 | ||||||||||
Net prior service cost (benefit) | 18,989 | 20 | (25,217 | ) | (6,208 | ) | 2,092 | (6,266 | ) | (4,174 | ) | (10,382 | ) | ||||||||||||||
Total not yet recognized | $ | 71,793 | $ | 4,177 | $ | 157,753 | $ | 233,723 | $ | (19,926 | ) | $ | 173,275 | $ | 153,349 | $ | 387,072 | ||||||||||
| As of December 28, 2008 | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Underfunded | Overfunded | | ||||||||||||||||||||||||
| Canada plans | U.S. plans | U.K. plan | Total | Canada plans | U.S. plan | Total | Consolidated | |||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||
Amounts recognized in the Consolidated Balance Sheet: | |||||||||||||||||||||||||||
Other assets | $ | — | $ | — | $ | — | $ | — | $ | 65.5 | $ | — | $ | 65.5 | $ | 65.5 | |||||||||||
Accrued expenses and other liabilities | (0.7 | ) | (4.8 | ) | — | (5.5 | ) | — | — | — | (5.5 | ) | |||||||||||||||
Pension and postretirement benefits | (154.0 | ) | (2.1 | ) | (222.9 | ) | (379.0 | ) | — | — | — | (379.0 | ) | ||||||||||||||
Net amounts recognized | $ | (154.7 | ) | $ | (6.9 | ) | $ | (222.9 | ) | $ | (384.5 | ) | $ | 65.5 | $ | — | $ | 65.5 | $ | (319.0 | ) | ||||||
Amounts in Accumulated Other Comprehensive Loss (Income) not yet recognized as components of net periodic pension cost or (benefit), pre-tax: | |||||||||||||||||||||||||||
Net actuarial loss (gain) | $ | 132.6 | $ | 0.3 | $ | 400.3 | $ | 533.2 | $ | (4.9 | ) | $ | — | $ | (4.9 | ) | $ | 528.3 | |||||||||
Net prior service cost | 32.2 | — | — | 32.2 | 1.5 | — | 1.5 | 33.7 | |||||||||||||||||||
Total not yet recognized | $ | 164.8 | $ | 0.3 | $ | 400.3 | $ | 565.4 | $ | (3.4 | ) | $ | — | $ | (3.4 | ) | $ | 562.0 | |||||||||
Changes in plan assets and benefit obligations recognized in other comprehensive loss were as follows:
| Canada plans | U.S. plan | U.K. plan | Total | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In millions) | ||||||||||||
Accumulated other comprehensive loss as of December 31, 2006 | $ | 45.3 | $ | 238.9 | $ | 110.6 | $ | 394.8 | |||||
Amortization of prior service costs | (0.9 | ) | (0.1 | ) | (2.5 | ) | (3.5 | ) | |||||
Amortization of net actuarial loss | (0.6 | ) | (13.8 | ) | (4.1 | ) | (18.5 | ) | |||||
Current year actuarial (gain) loss | — | (41.5 | ) | 46.7 | 5.2 | ||||||||
Amendments | 0.7 | (6.1 | ) | — | (5.4 | ) | |||||||
Curtailments | (0.9 | ) | — | — | (0.9 | ) | |||||||
Foreign currency exchange rate change | 8.3 | — | 7.1 | 15.4 | |||||||||
Accumulated other comprehensive loss as of December 30, 2007 | $ | 51.9 | $ | 177.4 | $ | 157.8 | $ | 387.1 | |||||
Contribution to MillerCoors | — | (231.8 | ) | — | (231.8 | ) | |||||||
Amortization of prior service costs | (2.3 | ) | 0.2 | 1.9 | (0.2 | ) | |||||||
Amortization of net actuarial loss | — | (4.1 | ) | (1.0 | ) | (5.1 | ) | ||||||
Current year actuarial loss | 115.7 | 58.6 | 353.9 | 528.2 | |||||||||
Amendments | 21.5 | — | — | 21.5 | |||||||||
Curtailments | — | — | 10.4 | 10.4 | |||||||||
Foreign currency exchange rate change | (25.4 | ) | — | (122.7 | ) | (148.1 | ) | ||||||
Accumulated other comprehensive loss as of December 28, 2008 | $ | 161.4 | $ | 0.3 | $ | 400.3 | $ | 562.0 | |||||
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. Employee Retirement Plans (Continued)
ChangesAmortization Amounts Expected to be Recognized in plan assets and benefit obligations recognized in other comprehensive income were as follows:Net Periodic Pension Cost During Fiscal Year Ending December 27, 2009, pre-tax:
| As of December 30, 2007 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Canada plans | U.S. plan | U.K. plan | Total | |||||||||
Accumulated other comprehensive income as of December 31, 2006 | $ | 45,286 | $ | 238,935 | $ | 110,562 | $ | 394,783 | |||||
Amortization of prior service costs | (962 | ) | (43 | ) | (2,522 | ) | (3,527 | ) | |||||
Amortization of net actuarial loss | (555 | ) | (13,833 | ) | (4,124 | ) | (18,512 | ) | |||||
Current year acturial loss/(gain) | 8 | (41,463 | ) | 46,689 | 5,234 | ||||||||
Amendments | 730 | (6,144 | ) | — | (5,414 | ) | |||||||
Curtailments | (891 | ) | — | — | (891 | ) | |||||||
Foreign currency exchange rate change | 8,251 | — | 7,148 | 15,399 | |||||||||
Accumulated other comprehensive income as of December 30, 2007 | $ | 51,867 | $ | 177,452 | $ | 157,753 | $ | 387,072 | |||||
| Amount | |||||||
---|---|---|---|---|---|---|---|---|
| (In thousands) | Amount | ||||||
Amortization Amounts Expected to be Recognized in Net Periodic Pension Cost During Fiscal Year Ending December 28, 2008, pre-tax: | ||||||||
| (In millions) | |||||||
Amortization of net prior service benefit | $ | (958 | ) | $ | 2.3 | |||
Amortization of actuarial net loss | $ | 9,290 | $ | 1.8 |
| As of December 30, 2007 | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | Overfunded | | |||||||||||||||||||||
| Underfunded | | |||||||||||||||||||||||||
| Canada plans | | | | |||||||||||||||||||||||
| Canada plans | U.S. plans | U.K. plan | Total | U.S. plan | Total | Consolidated | ||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||
Change in projected benefit obligation: | |||||||||||||||||||||||||||
Prior year projected benefit obligation | $ | 1,304.0 | $ | 968.1 | $ | 2,256.9 | $ | 4,529.0 | $ | 334.3 | $ | — | $ | 334.3 | $ | 4,863.3 | |||||||||||
Changes in current year Overfunded/(Underfunded) position | 60.0 | (946.0 | ) | — | (886.0 | ) | (60.0 | ) | 946.0 | 886.0 | — | ||||||||||||||||
Projected benefit obligation at beginning of year | $ | 1,364.0 | $ | 22.1 | $ | 2,256.9 | $ | 3,643.0 | $ | 274.3 | $ | 946.0 | $ | 1,220.3 | $ | 4,863.3 | |||||||||||
Service cost, net of expected employee contributions | 24.8 | 0.2 | 30.0 | 55.0 | 5.4 | 17.2 | 22.6 | 77.6 | |||||||||||||||||||
Interest cost | 64.0 | 1.3 | 119.3 | 184.6 | 24.4 | 56.0 | 80.4 | 265.0 | |||||||||||||||||||
Amendments | 0.8 | — | — | 0.8 | — | (6.2 | ) | (6.2 | ) | (5.4 | ) | ||||||||||||||||
Actual employee contributions | 2.7 | — | 7.7 | 10.4 | 0.7 | — | 0.7 | 11.1 | |||||||||||||||||||
Special termination benefits | 2.0 | — | — | 2.0 | — | — | — | 2.0 | |||||||||||||||||||
Curtailments | (2.5 | ) | — | — | (2.5 | ) | — | — | — | (2.5 | ) | ||||||||||||||||
Actuarial (gain) loss | (234.9 | ) | — | 0.6 | (234.3 | ) | 192.2 | (9.4 | ) | 182.8 | (51.5 | ) | |||||||||||||||
Benefits paid | (61.1 | ) | (1.3 | ) | (116.6 | ) | (179.0 | ) | (33.1 | ) | (53.7 | ) | (86.8 | ) | (265.8 | ) | |||||||||||
Foreign currency exchange rate change | 236.5 | — | 43.3 | 279.8 | 69.5 | — | 69.5 | 349.3 | |||||||||||||||||||
Projected benefit obligation at end of year | $ | 1,396.3 | $ | 22.3 | $ | 2,341.2 | $ | 3,759.8 | $ | 533.4 | $ | 949.9 | $ | 1,483.3 | $ | 5,243.1 | |||||||||||
Actuarial present value of accumulated benefit obligation | $ | 1,391.8 | $ | 22.1 | $ | 2,166.9 | $ | 3,580.8 | $ | 531.8 | $ | 924.7 | $ | 1,456.5 | $ | 5,037.3 | |||||||||||
Change in plan assets: | |||||||||||||||||||||||||||
Prior year fair value of assets | $ | 1,111.7 | $ | 830.1 | $ | 2,179.5 | $ | 4,121.3 | $ | 351.5 | $ | — | $ | 351.5 | $ | 4,472.8 | |||||||||||
Changes in current year Overfunded/(Underfunded) position | 60.5 | (830.1 | ) | — | (769.6 | ) | (60.5 | ) | 830.1 | 769.6 | 0.0 | ||||||||||||||||
Fair value of assets at beginning of year | $ | 1,172.2 | $ | — | $ | 2,179.5 | $ | 3,351.7 | $ | 291.0 | $ | 830.1 | $ | 1,121.1 | $ | 4,472.8 | |||||||||||
Actual return on plan assets | (153.3 | ) | — | 116.2 | (37.1 | ) | 231.9 | 102.0 | 333.9 | 296.8 | |||||||||||||||||
Employer contributions | 67.6 | 1.3 | 31.7 | 100.6 | 28.8 | 73.3 | 102.1 | 202.7 | |||||||||||||||||||
Special termination benefits | — | — | — | — | — | — | — | — | |||||||||||||||||||
Actual employee contributions | 2.1 | — | 7.6 | 9.7 | 0.7 | — | 0.7 | 10.4 | |||||||||||||||||||
Benefits and plan expenses paid | (61.1 | ) | (1.3 | ) | (127.0 | ) | (189.4 | ) | (33.1 | ) | (53.7 | ) | (86.8 | ) | (276.2 | ) | |||||||||||
Foreign currency exchange rate change | 206.1 | — | 41.9 | 248.0 | 76.4 | — | 76.4 | 324.4 | |||||||||||||||||||
Fair value of plan assets at end of year | $ | 1,233.6 | $ | — | $ | 2,249.9 | $ | 3,483.5 | $ | 595.7 | $ | 951.7 | $ | 1,547.4 | $ | 5,030.9 | |||||||||||
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. Employee Retirement Plans (Continued)
As of December 31, 2006 | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Underfunded | Overfunded | | ||||||||||||||||||
| Canada plans | U.S. plans | U.K. plan | Total | Canada plans | Consolidated | |||||||||||||||
| (In thousands) | | | ||||||||||||||||||
Change in projected benefit obligation: | |||||||||||||||||||||
Projected benefit obligation at beginning of year | $ | 1,254,761 | $ | 973,231 | $ | 2,018,353 | $ | 4,246,345 | $ | 338,943 | $ | 4,585,288 | |||||||||
Service cost, net of expected employee contributions | 26,062 | 19,658 | 26,798 | 72,518 | 3,235 | 75,753 | |||||||||||||||
Interest cost | 64,837 | 54,616 | 102,140 | 221,593 | 16,908 | 238,501 | |||||||||||||||
Amendments | 5,011 | — | — | 5,011 | — | 5,011 | |||||||||||||||
Actual employee contributions | 3,524 | — | 6,631 | 10,155 | 1 | 10,156 | |||||||||||||||
Special termination benefits | — | — | 8,633 | 8,633 | — | 8,633 | |||||||||||||||
Curtailments | — | — | (20,939 | ) | (20,939 | ) | — | (20,939 | ) | ||||||||||||
Actuarial loss (gain) | 8,900 | (25,869 | ) | (37,543 | ) | (54,512 | ) | 1,213 | (53,299 | ) | |||||||||||
Benefits paid | (57,322 | ) | (53,567 | ) | (108,164 | ) | (219,053 | ) | (26,046 | ) | (245,099 | ) | |||||||||
Foreign currency exchange rate change | (1,766 | ) | — | 261,037 | 259,271 | 6 | 259,277 | ||||||||||||||
Projected benefit obligation at end of year | $ | 1,304,007 | $ | 968,069 | $ | 2,256,946 | $ | 4,529,022 | $ | 334,260 | $ | 4,863,282 | |||||||||
Change in plan assets: | |||||||||||||||||||||
Fair value of assets at beginning of year | $ | 952,772 | $ | 756,841 | $ | 1,756,108 | $ | 3,465,721 | $ | 319,758 | $ | 3,785,479 | |||||||||
Actual return on plan assets | 133,522 | 103,653 | 256,535 | 493,710 | 37,817 | 531,527 | |||||||||||||||
Employer contributions | 83,813 | 23,163 | 27,220 | 134,196 | 20,954 | 155,150 | |||||||||||||||
Special termination benefits | — | — | 8,614 | 8,614 | — | 8,614 | |||||||||||||||
Actual employee contributions | 3,524 | — | 6,631 | 10,155 | 1 | 10,156 | |||||||||||||||
Benefits and plan expenses paid | (57,322 | ) | (53,567 | ) | (116,209 | ) | (227,098 | ) | (26,046 | ) | (253,144 | ) | |||||||||
Foreign currency exchange rate change | (4,611 | ) | — | 240,612 | 236,001 | (968 | ) | 235,033 | |||||||||||||
Fair value of plan assets at end of year | $ | 1,111,698 | $ | 830,090 | $ | 2,179,511 | $ | 4,121,299 | $ | 351,516 | $ | 4,472,815 | |||||||||
Funded status: | |||||||||||||||||||||
Projected benefit obligation at end of year | $ | (1,304,007 | ) | $ | (968,069 | ) | $ | (2,256,946 | ) | $ | (4,529,022 | ) | $ | (334,260 | ) | $ | (4,863,282 | ) | |||
Fair value of plan assets at end of year | 1,111,698 | 830,090 | 2,179,511 | 4,121,299 | 351,516 | 4,472,815 | |||||||||||||||
Funded status—(Underfunded)/Overfunded | $ | (192,309 | ) | $ | (137,979 | ) | $ | (77,435 | ) | $ | (407,723 | ) | $ | 17,256 | $ | (390,467 | ) | ||||
Less: Minority interests | 31,007 | — | — | 31,007 | — | 31,007 | |||||||||||||||
Funded status after minority interests— (Underfunded)/Overfunded | $ | (161,302 | ) | $ | (137,979 | ) | $ | (77,435 | ) | $ | (376,716 | ) | $ | 17,256 | $ | (359,460 | ) | ||||
Amounts recognized in the Consolidated Balance Sheet: | |||||||||||||||||||||
Other assets | $ | — | $ | — | $ | — | $ | — | $ | 17,256 | $ | 17,256 | |||||||||
Accrued expenses and other liabilities | (660 | ) | (1,368 | ) | — | (2,028 | ) | — | (2,028 | ) | |||||||||||
Pension and postretirement benefits | (160,642 | ) | (136,611 | ) | (77,435 | ) | (374,688 | ) | — | (374,688 | ) | ||||||||||
Net amounts recognized | $ | (161,302 | ) | $ | (137,979 | ) | $ | (77,435 | ) | $ | (376,716 | ) | $ | 17,256 | $ | (359,460 | ) | ||||
Amounts in Accumulated Other Comprehensive Income not yet recognized as components of net periodic pension cost or (benefit), pre-tax: | |||||||||||||||||||||
Net actuarial loss | $ | 56,486 | $ | 238,994 | $ | 175,284 | $ | 470,764 | $ | 9,511 | $ | 480,275 | |||||||||
Net prior service cost (benefit) | 19,347 | (59 | ) | (64,722 | ) | (45,434 | ) | — | (45,434 | ) | |||||||||||
Net transition obligation (asset) | (26,936 | ) | — | — | (26,936 | ) | (13,122 | ) | (40,058 | ) | |||||||||||
Total not yet recognized | $ | 48,897 | $ | 238,935 | $ | 110,562 | $ | 398,394 | $ | (3,611 | ) | $ | 394,783 | ||||||||
| As of December 30, 2007 | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | Overfunded | | |||||||||||||||||||||
| Underfunded | | |||||||||||||||||||||||||
| Canada plans | | | | |||||||||||||||||||||||
| Canada plans | U.S. plans | U.K. plan | Total | U.S. plan | Total | Consolidated | ||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||
Funded status: | |||||||||||||||||||||||||||
Projected benefit obligation at end of year | $ | (1,396.3 | ) | $ | (22.3 | ) | $ | (2,341.2 | ) | $ | (3,759.8 | ) | $ | (533.4 | ) | $ | (949.9 | ) | $ | (1,483.3 | ) | $ | (5,243.1 | ) | |||
Fair value of plan assets at end of year | 1,233.6 | — | 2,249.9 | 3,483.5 | 595.7 | 951.7 | 1,547.4 | 5,030.9 | |||||||||||||||||||
Funded status—(Underfunded)/Overfunded | $ | (162.7 | ) | $ | (22.3 | ) | $ | (91.3 | ) | $ | (276.3 | ) | $ | 62.3 | $ | 1.8 | $ | 64.1 | $ | (212.2 | ) | ||||||
Less: Minority interests | 36.8 | — | — | 36.8 | — | — | — | 36.8 | |||||||||||||||||||
Funded status after minority interests—(Underfunded)/Overfunded | $ | (125.9 | ) | $ | (22.3 | ) | $ | (91.3 | ) | $ | (239.5 | ) | $ | 62.3 | $ | 1.8 | $ | 64.1 | $ | (175.4 | ) | ||||||
Amounts recognized in the Consolidated Balance Sheet: | |||||||||||||||||||||||||||
Other assets | $ | — | $ | — | $ | — | $ | — | $ | 62.3 | $ | 1.8 | $ | 64.1 | $ | 64.1 | |||||||||||
Accrued expenses and other liabilities | (0.8 | ) | (1.9 | ) | — | (2.7 | ) | — | — | — | (2.7 | ) | |||||||||||||||
Pension and postretirement benefits | (125.1 | ) | (20.4 | ) | (91.3 | ) | (236.8 | ) | — | — | — | (236.8 | ) | ||||||||||||||
Net amounts recognized | $ | (125.9 | ) | $ | (22.3 | ) | $ | (91.3 | ) | $ | (239.5 | ) | $ | 62.3 | $ | 1.8 | $ | 64.1 | $ | (175.4 | ) | ||||||
Amounts in Accumulated Other Comprehensive Loss (Income) not yet recognized as components of net periodic pension cost or (benefit), pre-tax: | |||||||||||||||||||||||||||
Net actuarial loss (gain) | $ | 52.8 | $ | 4.2 | $ | 182.9 | $ | 239.9 | $ | (22.0 | ) | $ | 179.6 | $ | 157.6 | $ | 397.5 | ||||||||||
Net prior service cost (benefit) | 19.0 | — | (25.2 | ) | (6.2 | ) | 2.1 | (6.3 | ) | (4.2 | ) | (10.4 | ) | ||||||||||||||
Total not yet recognized | $ | 71.8 | $ | 4.2 | $ | 157.7 | $ | 233.7 | $ | (19.9 | ) | $ | 173.3 | $ | 153.4 | $ | 387.1 | ||||||||||
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. Employee Retirement Plans (Continued)
Pension expense is actuarially calculated annually based on data available at the beginning of each year. Assumptions used in the calculation include the settlement discount rate selected and disclosed at the end of the previous year as well as other assumptions detailed in the table below.
| For the years ended | |||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | December 30, 2007 | ||||||||||||||||||||||||||
| For the years ended | December 28, 2008 | ||||||||||||||||||||||||||||
| December 30, 2007 | December 31, 2006 | | U.S. plans | | |||||||||||||||||||||||||
| Canada plans | U.S. plans | U.K. plan | Canada plans | U.S. plans | U.K. plan | Canada plans | U.S. plans | U.K. plan | Canada plans | U.K. plan | |||||||||||||||||||
Weighted average assumptions: | ||||||||||||||||||||||||||||||
Settlement discount rate(1) | 5.25% | 6.45 | % | 6.00 | % | 5.00% | 6.10 | % | 5.10 | % | 6.1% - 6.6% | 4.7% - 6.2% | 6.45 | % | 5.25% | 6.45 | % | 6.00 | % | |||||||||||
Rate of compensation increase | 3.00% | 3.00 | % | 4.35 | % | 3.00% | 3.00 | % | 4.25 | % | 2.5% - 3.0% | 3.00% | 4.15 | % | 3.00% | 3.00 | % | 4.35 | % | |||||||||||
Expected return on plan assets | 4.9%-7.80% | 7.80 | % | 7.50 | % | 5.00%-7.90% | 8.75 | % | 7.80 | % | 4.4% - 7.05% | N/A | 7.45 | % | 4.9% - 7.80% | 7.80 | % | 7.50 | % |
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. Employee Retirement Plans (Continued)
Expected Cash Flows
Information about expected cash flows for the consolidated retirement plans (including consolidated joint ventures) follows:
Expected benefit payments | Amount | Amount | |||||
---|---|---|---|---|---|---|---|
| (In thousands) | (In millions) | |||||
2008 | $ | 316,903 | |||||
2009 | $ | 309,693 | $ | 186.9 | |||
2010 | $ | 308,433 | $ | 188.3 | |||
2011 | $ | 311,849 | $ | 194.7 | |||
2012 | $ | 324,507 | $ | 201.3 | |||
2013-2017 | $ | 1,735,051 | |||||
2013 | $ | 207.9 | |||||
2014-2018 | $ | 1,138.2 |
U.K. Plan Curtailment
During October 2008, we announced a plan for the cessation of employee service credit with regard to retirement benefits in the CBL pension plan. Following negotiations with employee groups, it was announced in December that employee service credit would cease with regard to the earning of pension benefits, effective April 4, 2009. This cessation of benefits was a curtailment event. As a result, we recognized a pension gain of $10.4 million, representing the immediate recognition of previously unamortized prior service benefit. The $6.2 million reduction of the projected benefit obligation as a result of the curtailment was netted against actuarial losses reflected in the plan's remeasurement, and therefore was not recognized as a gain on the income statement. Given the timing of the curtailment event in December 2008, the year-end plan remeasurement results were used with regard to the determination of the curtailment on the projected benefit obligation.
As a result of employee restructuring activities associated with the EuropeU.K. segment supply chain operations, a pension curtailment was recognized in the second quarter of 2006. The curtailment triggered a significant event that resulted in the re-measurement of the pension assets and liabilities as of April 30, 2006. The table below represents the projected benefit obligation and the funded status as of December 31, 2006, the curtailment measurement date of April 30, 2006, and the changes in their status from December 25, 2005, for the U.K. plan.
As a result of the curtailment, a gain of $5.3 million was recognized and presented as a special item in the statement of operations in the second quarter of 2006. This gain arose from the reduction in estimated future working lifetimes of plan participants resulting in the acceleration of the recognition of a prior service benefit. This prior service benefit was generated by plan changes in previous years and was deferred on the balance sheet and amortized into earnings over the then-expected working lifetime of plan participants of approximately 10 years.
In addition, this curtailment event required a remeasurement of the projected benefit obligation and plan assets, which resulted in an $11.8 million reduction in the projected benefit obligation at April 30, 2006, as shown below, which was recognized in other comprehensive income in 2006.
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. Employee Retirement Plans (Continued)
The changes in the projected benefit obligation, plan assets and the funded status of the U.K. pension plan are as follows:
| U.K. Plan | U.K. Plan | ||||||
---|---|---|---|---|---|---|---|---|
| December 25, 2005 to April 30, 2006 | April 30, 2006 to December 31, 2006 | ||||||
| (In thousands) | |||||||
Actuarial present value of accumulated benefit obligation | $ | 1,847,391 | $ | 2,038,020 | ||||
Change in projected benefit obligation: | ||||||||
Projected benefit obligation at beginning of year | $ | 2,018,353 | $ | 2,048,842 | ||||
Service cost, net of expected employee contributions | 9,733 | 17,065 | ||||||
Interest cost | 31,640 | 70,500 | ||||||
Actual employee contributions | 2,407 | 4,224 | ||||||
Curtailment gain | (11,771 | ) | (535 | ) | ||||
Actuarial (gain) loss | (80,830 | ) | 43,287 | |||||
Benefits paid | (25,439 | ) | (82,725 | ) | ||||
Foreign currency exchange rate change | 104,749 | 156,288 | ||||||
Projected benefit obligation as of measurement date | $ | 2,048,842 | $ | 2,256,946 | ||||
Change in plan assets: | ||||||||
Fair value of assets at beginning of year | $ | 1,756,108 | $ | 1,933,993 | ||||
Actual return on plan assets | 96,044 | 160,491 | ||||||
Employer contributions | 10,524 | 25,310 | ||||||
Actual employee contributions | 2,407 | 4,224 | ||||||
Benefits and plan expenses paid | (27,986 | ) | (88,223 | ) | ||||
Foreign currency exchange rate change | 96,896 | 143,716 | ||||||
Fair value of plan assets as of measurement date | $ | 1,933,993 | $ | 2,179,511 | ||||
Funded status at measurement date: | ||||||||
Market value at measurement date | $ | 1,933,993 | $ | 2,179,511 | ||||
Projected benefit obligation at measurement date | (2,048,842 | ) | (2,256,946 | ) | ||||
Deficit at measurement date | $ | (114,849 | ) | $ | (77,435 | ) | ||
Pension expense for the U.K. plan was actuarially calculated for the remainder of 2006, following the curtailment using data available as of the measurement date of April 30, 2006. Assumptions as of December 25, 2005, were applied to related balance sheet amounts as of that date and for the pension
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. Employee Retirement Plans (Continued)
expense through April 30, 2006. The table below details assumptions applied to our accounting for the U.K. pension plan as of the last three measurement dates.
| U.K. plan | |||||||
---|---|---|---|---|---|---|---|---|
| December 31, 2006 | April 30, 2006 | December 25, 2005 | |||||
Weighted average assumptions: | ||||||||
Settlement discount rate | 5.10 | % | 5.15 | % | 4.75 | % | ||
Rate of compensation increase | 4.25 | % | 4.25 | % | 4.00 | % | ||
Expected return on plan assets | 7.80 | % | 7.80 | % | 7.80 | % | ||
Price inflation rate | 2.75 | % | 2.75 | % | 2.50 | % |
Multiemployer Plan
Certain of our former employees in Memphis participated in a multi-employer union retirement plan, into which we made contributions on their behalf. Contributions totaled $27.6 million $1.2 million and $1.8$1.2 million in 2007 2006 and 2005,2006, respectively. The increase in contributions in 2007 was a result of the final payment to the union upon withdrawal from the pension plan. There were no contributions in 2008.
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. Employee Retirement Plans (Continued)
Defined Contribution Plan
Canadian employees typically participate in the defined contribution portion of the registered pension plans. The employer contributions range from 3% to 5.5% of employee compensation. Our contributions in 2008, 2007 and 2006 were $4.0 million, $3.7 million and $3.2 million, respectively.
During 2008, U.S. employees arewere eligible to participate in the Coors Savings and Investment Plan, a qualified voluntary defined contribution plan. We match 50% of our hourly and salaried non-exempt and 75% of our salaried exempt employees' contributions up to 6% of employee compensation. Both employee and employer contributions arewere made in cash in accordance with participant investment elections. There arewere no minimum amounts that are required to be invested in CBC stock. Our contributions in 2008, 2007 and 2006 and 2005 were $5.3 million, $8.4 million, $7.8 million and $8.0$7.8 million, respectively.
With the closure of the CBL pension plan to future service credit, effective in April 2009, all employees will benefit from increased Company contributions to the CBL defined contribution plan. From April 2006, new employees of the U.K. business were not entitled to join the Company's defined benefit pension plan. TheseInstead these employees were and still are instead given an opportunity to participate in a defined contribution plan. Under this plan the Company will match employee contributions up to a maximum of 7% of the employee's compensation. Company contributions in 20072008 to this plan were $1.5 million and $0.3 million for 2007. Going forward the company's contributions to defined contribution plans will increase following the closure of the defined benefit plan and insignificant for 2006.the transfer of these members to a defined contribution plan from April 4, 2009.
17. Postretirement Benefits
CBCCanadian and MolsonU.S. employees in the Corporate center have postretirement plans that provide medical benefits and life insurance for retirees and eligible dependents. The plans are not funded.
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. Postretirement Benefits (Continued)
The obligations under these plans were determined by the application of the terms of medical and life insurance plans, together with relevant actuarial assumptions and health care cost trend rates detailed in the table below.
| For the years ended | For the years ended | |||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 30, 2007 | December 31, 2006 | December 28, 2008 | December 30, 2007 | |||||||||||||||||||||||||||
| Molson Canada plans | BRI Canada plans | U.S. plan | Molson Canada plans | BRI Canada plans | U.S. plan | Molson Canada plans | BRI Canada plans | U.S. plan | Molson Canada plans | BRI Canada plans | U.S. plan | |||||||||||||||||||
Key assumptions: | |||||||||||||||||||||||||||||||
Settlement discount rate | 5.25% | 5.25% | 6.45% | 5.00% | 5.00% | 5.85% | 6.50% | 4.5%-6.5% | 6.30% | 5.25% | 5.25% | 6.45% | |||||||||||||||||||
Health care cost trend rate | Ranging ratably from 9.30% in 2008 to 5.00% in 2015 | Ranging ratably from 9.00% in 2008 to 5.00% in 2016 | Ranging ratably from 9.00% in 2008 to 5.00% in 2012 | Ranging ratably from 10.00% in 2007 to 5.00% in 2017 | Ranging ratably from 10.00% in 2007 to 5.00% in 2017 | Ranging ratably from 9.00% in 2007 to 5.00% in 2009 | Ranging ratably from 9% in 2009 to 5.00% in 2017 | Ranging ratably from 8.50% in 2009 to 5.00% in 2016 | Ranging ratably from 8.30% in 2009 to 5.00% in 2022 | Ranging ratably from 9.30% in 2008 to 5.00% in 2015 | Ranging ratably from 9.00% in 2008 to 5.00% in 2016 | Ranging ratably from 9.00% in 2008 to 5.00% in 2012 |
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. Postretirement Benefits (Continued)
Our net periodic postretirement benefit cost and changes in the projected benefit obligation of the postretirement benefit plans are as follows:
| For the year ended December 30, 2007 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| Canada plans | U.S. plan | Consolidated | |||||||
| (In thousands) | |||||||||
Components of net periodic postretirement benefit cost: | ||||||||||
Service cost���benefits earned during the period | $ | 9,408 | $ | 2,637 | $ | 12,045 | ||||
Interest cost on projected benefit obligation | 14,372 | 7,906 | 22,278 | |||||||
Amortization of prior service cost | 60 | 306 | 366 | |||||||
Amortization of net actuarial loss | 1,245 | 3,321 | 4,566 | |||||||
Net periodic postretirement benefit cost | $ | 25,085 | $ | 14,170 | $ | 39,255 | ||||
| For the year ended December 31, 2006 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| Canada plans | U.S. plan | Consolidated | |||||||
| (In thousands) | |||||||||
Components of net periodic postretirement benefit cost: | ||||||||||
Service cost—benefits earned during the period | $ | 8,201 | $ | 3,135 | $ | 11,336 | ||||
Interest cost on projected benefit obligation | 12,528 | 7,383 | 19,911 | |||||||
Amortization of prior service cost | 56 | 209 | 265 | |||||||
Amortization of net actuarial loss | 808 | 2,842 | 3,650 | |||||||
Net periodic postretirement benefit cost | $ | 21,593 | $ | 13,569 | $ | 35,162 | ||||
| For the year ended December 28, 2008 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| Canada plans | U.S. plan | Consolidated | ||||||||
| (In millions) | ||||||||||
Components of net periodic postretirement benefit cost: | |||||||||||
Service cost—benefits earned during the period | $ | 7.3 | $ | 1.3 | $ | 8.6 | |||||
Interest cost on projected benefit obligation | 15.4 | 4.8 | 20.2 | ||||||||
Amortization of prior service cost | 0.1 | 0.1 | 0.2 | ||||||||
Amortization of net actuarial loss | 0.1 | 2.1 | 2.2 | ||||||||
Net periodic postretirement benefit cost | $ | 22.9 | $ | 8.3 | $ | 31.2 | |||||
| For the year ended December 30, 2007 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| Canada plans | U.S. plan | Consolidated | ||||||||
| (In millions) | ||||||||||
Components of net periodic postretirement benefit cost: | |||||||||||
Service cost—benefits earned during the period | $ | 9.4 | $ | 2.6 | $ | 12.0 | |||||
Interest cost on projected benefit obligation | 14.4 | 7.9 | 22.3 | ||||||||
Amortization of prior service cost | 0.1 | 0.3 | 0.4 | ||||||||
Amortization of net actuarial loss | 1.2 | 3.4 | 4.6 | ||||||||
Net periodic postretirement benefit cost | $ | 25.1 | $ | 14.2 | $ | 39.3 | |||||
| For the year ended December 31, 2006 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| Canada plans | U.S. plan | Consolidated | ||||||||
| (In millions) | ||||||||||
Components of net periodic postretirement benefit cost: | |||||||||||
Service cost—benefits earned during the period | $ | 8.2 | $ | 3.1 | $ | 11.3 | |||||
Interest cost on projected benefit obligation | 12.5 | 7.4 | 19.9 | ||||||||
Amortization of prior service cost | 0.1 | 0.2 | 0.3 | ||||||||
Amortization of net actuarial loss | 0.8 | 2.9 | 3.7 | ||||||||
Net periodic postretirement benefit cost | $ | 21.6 | $ | 13.6 | $ | 35.2 | |||||
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. Postretirement Benefits (Continued)
| For the year ended December 25, 2005 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| Canada plans | U.S. plan | Consolidated | ||||||||
| (In thousands) | ||||||||||
Components of net periodic postretirement benefit cost: | |||||||||||
Service cost—benefits earned during the period | $ | 5,047 | $ | 3,089 | $ | 8,136 | |||||
Interest cost on projected benefit obligation | 10,238 | 6,445 | 16,683 | ||||||||
Amortization of prior service benefit | — | (19 | ) | (19 | ) | ||||||
Amortization of net actuarial (benefit) loss | (1,602 | ) | 1,873 | 271 | |||||||
Net periodic postretirement benefit cost | $ | 13,683 | $ | 11,388 | $ | 25,071 | |||||
| As of December 30, 2007 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| Canada Plans | U.S. Plan | Consolidated | ||||||||
| (In thousands) | ||||||||||
Change in projected postretirement benefit obligation: | |||||||||||
Projected postretirement benefit obligation at beginning of year | $ | 262,643 | $ | 139,770 | $ | 402,413 | |||||
Service cost | 9,408 | 2,637 | 12,045 | ||||||||
Interest cost | 14,372 | 7,906 | 22,278 | ||||||||
Actuarial (gain) loss | (12,200 | ) | 20,453 | 8,253 | |||||||
Benefits paid, net of participant contributions | (9,360 | ) | (15,141 | ) | (24,501 | ) | |||||
Foreign currency exchange rate change | 49,497 | — | 49,497 | ||||||||
Projected postretirement benefit obligation at end of year | $ | 314,360 | $ | 155,625 | $ | 469,985 | |||||
Funded status—Unfunded: | |||||||||||
Accumulated postretirement benefit obligation | $ | (314,360 | ) | $ | (155,625 | ) | $ | (469,985 | ) | ||
Amounts recognized in the Consolidated Balance Sheet: | |||||||||||
Accrued expenses and other liabilities | $ | (11,324 | ) | $ | (18,514 | ) | $ | (29,838 | ) | ||
Pension and postretirement benefits | (303,036 | ) | (137,110 | ) | (440,146 | ) | |||||
Net amounts recognized | $ | (314,360 | ) | $ | (155,624 | ) | $ | (469,984 | ) | ||
Amounts in Accumulated Other Comprehensive Income unrecognized as components of net periodic pension cost, pre-tax: | |||||||||||
Net actuarial loss | $ | 35,849 | $ | 73,754 | $ | 109,603 | |||||
Net prior service cost | 260 | 2,554 | 2,814 | ||||||||
Total unrecognized | $ | 36,109 | $ | 76,308 | $ | 112,417 | |||||
| As of December 28, 2008 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| Canada Plans | U.S. Plan | Consolidated | ||||||||
| (In millions) | ||||||||||
Change in projected postretirement benefit obligation: | |||||||||||
Projected postretirement benefit obligation at beginning of year | $ | 314.4 | $ | 155.6 | $ | 470.0 | |||||
Contribution to MillerCoors | — | (146.3 | ) | (146.3 | ) | ||||||
Service cost | 6.7 | 1.3 | 8.0 | ||||||||
Interest cost | 15.4 | 4.8 | 20.2 | ||||||||
Actuarial gain | (62.9 | ) | (6.0 | ) | (68.9 | ) | |||||
Benefits paid, net of participant contributions | (9.9 | ) | (7.7 | ) | (17.6 | ) | |||||
Foreign currency exchange rate change | (55.2 | ) | — | (55.2 | ) | ||||||
Projected postretirement benefit obligation at end of year | $ | 208.5 | $ | 1.7 | $ | 210.2 | |||||
Funded status—Unfunded: | |||||||||||
Accumulated postretirement benefit obligation | $ | (208.5 | ) | $ | (1.7 | ) | $ | (210.2 | ) | ||
Amounts recognized in the Consolidated Balance Sheet: | |||||||||||
Accrued expenses and other liabilities | $ | (9.0 | ) | $ | — | $ | (9.0 | ) | |||
Pension and postretirement benefits | (199.5 | ) | (1.7 | ) | (201.2 | ) | |||||
Net amounts recognized | $ | (208.5 | ) | $ | (1.7 | ) | $ | (210.2 | ) | ||
Amounts in Accumulated Other Comprehensive (Income) Loss unrecognized as components of net periodic pension cost, pre-tax: | |||||||||||
Net actuarial (gain) loss | $ | (25.9 | ) | $ | 0.8 | $ | (25.1 | ) | |||
Net prior service cost | 0.1 | — | 0.1 | ||||||||
Total unrecognized | $ | (25.8 | ) | $ | 0.8 | $ | (25.0 | ) | |||
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. Postretirement Benefits (Continued)
Changes in plan assets and benefit obligations recognized in other comprehensive incomeloss (income) were as follows:
| As of December 30, 2007 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| Canada plans | U.S. plan | Total | |||||||
Accumulated other comprehensive income as of December 31, 2006 | $ | 41,256 | $ | 59,482 | $ | 100,738 | ||||
Amortization of prior service costs | (60 | ) | (306 | ) | (366 | ) | ||||
Amortization of net actuarial loss | (1,245 | ) | (3,321 | ) | (4,566 | ) | ||||
Current year acturial (gain)/loss | (10,461 | ) | 20,453 | 9,992 | ||||||
Foreign currency exchange rate change | 6,619 | — | 6,619 | |||||||
Accumulated other comprehensive income as of December 30, 2007 | $ | 36,109 | $ | 76,308 | $ | 112,417 | ||||
| Amount | ||
---|---|---|---|
| (In thousands) | ||
Amortization Amounts Expected to be Recognized in Net Periodic Postretirement Cost During Fiscal Year Ending December 28, 2008 (pre-tax): | |||
Amortization of net prior service cost | $ | 371 | |
Amortization of actuarial net loss | $ | 4,693 |
| As of December 31, 2006 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| Canada Plans | U.S. Plan | Consolidated | |||||||
| (In thousands) | |||||||||
Change in projected postretirement benefit obligation: | ||||||||||
Projected postretirement benefit obligation at beginning of year | $ | 240,228 | $ | 137,178 | $ | 377,406 | ||||
Service cost | 8,201 | 3,135 | 11,336 | |||||||
Interest cost | 12,528 | 7,383 | 19,911 | |||||||
Actuarial loss | 9,463 | 6,779 | 16,242 | |||||||
Plan amendment | 337 | — | 337 | |||||||
Benefits paid, net of participant contributions | (7,426 | ) | (14,705 | ) | (22,131 | ) | ||||
Foreign currency exchange rate change | (688 | ) | — | (688 | ) | |||||
Projected postretirement benefit obligation at end of year | $ | 262,643 | $ | 139,770 | $ | 402,413 | ||||
Funded status—Unfunded: | ||||||||||
Accumulated postretirement benefit obligation | $ | (262,643 | ) | $ | (139,770 | ) | $ | (402,413 | ) | |
Amounts recognized in the Consolidated Balance Sheet: | ||||||||||
Accrued expenses and other liabilities | $ | (9,270 | ) | $ | (14,721 | ) | $ | (23,991 | ) | |
Pension and postretirement benefits | (253,373 | ) | (125,049 | ) | (378,422 | ) | ||||
Net amounts recognized | $ | (262,643 | ) | $ | (139,770 | ) | $ | (402,413 | ) | |
| Canada plans | U.S. plan | Total | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| (In millions) | |||||||||
Accumulated other comprehensive loss as of December 31, 2006 | $ | 41.2 | $ | 59.5 | $ | 100.7 | ||||
Amortization of prior service costs | (0.1 | ) | (0.3 | ) | (0.4 | ) | ||||
Amortization of net actuarial loss | (1.2 | ) | (3.3 | ) | (4.5 | ) | ||||
Current year acturial (gain)/loss | (10.4 | ) | 20.4 | 10.0 | ||||||
Foreign currency exchange rate change | 6.6 | — | 6.6 | |||||||
Accumulated other comprehensive loss as of December 30, 2007 | $ | 36.1 | $ | 76.3 | $ | 112.4 | ||||
Contribution to MillerCoors | — | (67.3 | ) | (67.3 | ) | |||||
Amortization of prior service costs | (0.1 | ) | (0.2 | ) | (0.3 | ) | ||||
Amortization of net actuarial loss | — | (2.1 | ) | (2.1 | ) | |||||
Current year acturial gain | (62.9 | ) | (5.9 | ) | (68.8 | ) | ||||
Foreign currency exchange rate change | 1.1 | — | 1.1 | |||||||
Accumulated other comprehensive (income) loss as of December 28, 2008 | $ | (25.8 | ) | $ | 0.8 | $ | (25.0 | ) | ||
Amortization Amounts Expected to be Recognized in Net Periodic Postretirement Cost During Fiscal Year Ending December 27, 2009 (pre-tax):
| Amount | |||
---|---|---|---|---|
| (In millions) | |||
Amortization of net prior service cost | $ | 0.1 | ||
Amortization of actuarial net loss | $ | (0.7 | ) |
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. Postretirement Benefits (Continued)
| As of December 31, 2006 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| Canada Plans | U.S. Plan | Consolidated | |||||||
| (In thousands) | |||||||||
Amounts in Accumulated Other Comprehensive Income unrecognized as components of net periodic pension cost, pre-tax: | ||||||||||
Net actuarial loss | $ | 40,982 | $ | 56,622 | $ | 97,604 | ||||
Net prior service cost | 274 | 2,860 | 3,134 | |||||||
Total unrecognized | $ | 41,256 | $ | 59,482 | $ | 100,738 | ||||
| As of December 30, 2007 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| Canada Plans | U.S. Plan | Consolidated | ||||||||
| (In millions) | ||||||||||
Change in projected postretirement benefit obligation: | |||||||||||
Projected postretirement benefit obligation at beginning of year | $ | 262.6 | $ | 139.8 | $ | 402.4 | |||||
Service cost | 9.4 | 2.6 | 12.0 | ||||||||
Interest cost | 14.4 | 7.9 | 22.3 | ||||||||
Actuarial (gain) loss | (12.2 | ) | 20.5 | 8.3 | |||||||
Benefits paid, net of participant contributions | (9.3 | ) | (15.2 | ) | (24.5 | ) | |||||
Foreign currency exchange rate change | 49.5 | — | 49.5 | ||||||||
Projected postretirement benefit obligation at end of year | $ | 314.4 | $ | 155.6 | $ | 470.0 | |||||
Funded status—Unfunded: | |||||||||||
Accumulated postretirement benefit obligation | $ | (314.4 | ) | $ | (155.6 | ) | $ | (470.0 | ) | ||
Amounts recognized in the Consolidated Balance Sheet: | |||||||||||
Accrued expenses and other liabilities | $ | (11.3 | ) | $ | (18.5 | ) | $ | (29.8 | ) | ||
Pension and postretirement benefits | (303.1 | ) | (137.1 | ) | (440.2 | ) | |||||
Net amounts recognized | $ | (314.4 | ) | $ | (155.6 | ) | $ | (470.0 | ) | ||
Amounts in Accumulated Other Comprehensive Loss unrecognized as components of net periodic pension cost, pre-tax: | |||||||||||
Net actuarial loss | $ | 35.8 | $ | 73.8 | $ | 109.6 | |||||
Net prior service cost | 0.3 | 2.5 | 2.8 | ||||||||
Total unrecognized | $ | 36.1 | $ | 76.3 | $ | 112.4 | |||||
Expected Cash Flows
Information about expected cash flows for the consolidated post-retirement plans follows:
| Amount | ||||||
---|---|---|---|---|---|---|---|
| (In thousands) | Amount | |||||
2008 | $ | 29,838 | |||||
| (In millions) | ||||||
2009 | $ | 32,487 | $ | 9.1 | |||
2010 | $ | 34,061 | $ | 9.6 | |||
2011 | $ | 35,433 | $ | 10.1 | |||
2012 | $ | 34,808 | $ | 10.6 | |||
2013 | $ | 11.2 | |||||
Thereafter | $ | 167,971 | $ | 64.2 |
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. Postretirement Benefits (Continued)
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects:
| 1% point increase (unfavorable) | 1% point decrease favorable | 1% point increase (unfavorable) | 1% point decrease favorable | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In millions) | (In millions) | |||||||||||
Canada plans (Molson) | |||||||||||||
Effect on total of service and interest cost components | $ | (1.8 | ) | $ | 2.0 | $ | (1.7 | ) | $ | 1.4 | |||
Effect on postretirement benefit obligation | $ | (19.9 | ) | $ | 21.9 | $ | (13.4 | ) | $ | 12.2 | |||
Canada plans (BRI) | |||||||||||||
Effect on total of service and interest cost components | $ | (1.0 | ) | $ | 1.3 | $ | (1.1 | ) | $ | 0.8 | |||
Effect on postretirement benefit obligation | $ | (9.9 | ) | $ | 11.8 | $ | (7.8 | ) | $ | 6.5 | |||
U.S. plan | |||||||||||||
Effect on total of service and interest cost components | $ | (0.7 | ) | $ | 0.8 | $ | (0.5 | ) | $ | 0.4 | |||
Effect on postretirement benefit obligation | $ | (8.1 | ) | $ | 9.0 | $ | (0.2 | ) | $ | 0.2 |
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
18. Derivative Instruments
Market Risk Management Policies
In the normal course of business, weWe are exposed to fluctuations in interest rates, the value of foreign currencies and production and packaging materials prices. We have established policies and procedures that govern the strategic management of these exposures through the use of a variety of financial instruments. By policy, we do not enter into such contracts for trading purposes or for the purpose of speculation.
Our objective in managing our exposure to fluctuations in interest rates, foreign currency exchange rates and production and packaging materials prices is to decrease the volatility of our earnings and cash flows affected by changes in the underlying rates and prices. To achieve this objective, we enter into foreign currency forward contracts, commodity swaps, interest rate swaps, and cross currency swaps, the values of which change in the opposite direction of the anticipated cash flows. Our primary foreign currency exposures are the Canadian dollar ("CAD"), and the British Pound Sterling ("GBP" or "£").
Derivatives are either exchange-traded instruments or over-the-counter agreements entered into with highly rated financial institutions. We are exposed to credit-related losses in the event of non-performance by counterparties to hedging instruments and do not enter into master netting arrangements.instruments. The counterparties to derivative transactions are major financial institutions with investment grade credit ratings of at least A (Standard & Poor's), A2 (Moody's) or better. However, this does not eliminate our exposure to credit risk with these institutions. This credit risk is generally limited to the unrealized gains in such contracts should any of these counterparties fail to perform as contracted. To manage this risk, we have established counterparty credit guidelines that are monitored and reported to management according to prescribed guidelines. We utilize a portfolio of financial institutions either headquartered or operating in the same countries we conduct our business. As a result of the above considerations, we consider the risk of counterparty default to be minimal. In some instances our counterparties and we have reciprocal collateralization agreements regarding fair value positions in excess of certain thresholds. These agreements call for the posting of collateral in the form of cash, treasury securities or letters of credit if a fair value loss position to our counterparties or us exceeds a certain amount. At December 30, 2007,28, 2008, no collateral was posted by our counterparties or us.
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
18. Derivative Instruments (Continued)
Derivative Accounting Policies
The majority of all derivatives entered into by the Company qualify for, and are designated as, foreign-currency cash flow hedges, commodity cash flow hedges or fair value hedges, including those derivatives hedging foreign currency denominated firm commitments as per the definitions of Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities, as amended and interpreted, incorporating FASB Statements No. 137, 138 and 149" ("SFAS No. 133").
The Company considers whether any provisions in non-derivative contracts represent "embedded" derivative instruments as described in SFAS No. 133. As of December 30, 2007,28, 2008, we have concluded that no "embedded" derivative instruments warrant separate fair value accounting under SFAS No. 133.
We use derivatives in the normal course of business to manage our exposure to fluctuations in production and packaging material prices, interest rates, and foreign currency exchange rates, and for the other strategic purposes related to our core business. All derivatives are recognized on the balance sheet at their fair value. The fair values of our derivatives include credit risk adjustments to account for counterparties' credit risk as well as MCBC's non-performance risk. These reserves resulted in a net $7 million favorable adjustment to other comprehensive income, since derivatives in total were in a net liability position at year end. Unrealized gain positions are recorded as other current assets or other non-current assets. Unrealized loss positions are recorded as other liabilities or other non-current liabilities. Changes in unrealized gains and losses from fair
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
18. Derivative Instruments (Continued)
value hedges are classified in the statement of operations consistent with the classification of the corresponding income or expense line item being hedged. Changes in fair values of outstanding cash flow hedges that are highly effective as per the definition of SFAS 133 are recorded in other comprehensive income, until earnings are affected by the variability of cash flows of the underlying hedged transaction. In most cases amounts recorded in other comprehensive income will be released to earnings at maturity of the related derivative. The recognition of effective hedge results in the consolidated statement of income offsets the gains or losses on the underlying exposure. Cash flows from derivative transactions are classified according to the nature of the risk being hedged.
We formally document all relationships between hedging instruments and hedged items, as well as the risk-management objective and strategy for undertaking hedge transactions. This process includes linking all derivatives either to specific assets and liabilities on the balance sheet or specific firm commitments or forecasted transactions. We also formally assess, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions have been highly effective in offsetting changes in the cash flows of hedged items and whether those derivatives may be expected to remain highly effective in future periods. When it is determined that a derivative is not, or has ceased to be, highly effective as a hedge, we discontinue hedge accounting prospectively, as discussed below.
We discontinue hedge accounting prospectively, as per SFAS No. 133, when (1) the derivative is no longer highly effective in offsetting changes in the cash flows of a hedged item (including hedged items such as firm commitments or forecasted transactions); (2) the derivative expires or is sold, terminated, or exercised; (3) it is no longer probable that the forecasted transaction will occur; or (4) management determines that designating the derivative as a hedging instrument is no longer appropriate.
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
18. Derivative Instruments (Continued)
When we discontinue hedge accounting but it continues to be probable that the forecasted transaction will occur in the originally expected period, the gain or loss on the derivative remains in accumulated other comprehensive income and is reclassified into earnings when the forecasted transaction affects earnings. However, if it is no longer probable that a forecasted transaction will occur by the end of the originally specified time period or within an additional two-month period of time thereafter, the gains and losses that were accumulated in other comprehensive income will be recognized immediately in earnings. In all situations in which hedge accounting is discontinued and the derivative remains outstanding, we will carry the derivative at its fair value on the balance sheet until maturity, recognizing future changes in the fair value in current-periodcurrent period earnings. Any hedge ineffectiveness, as per SFAS No. 133, is recorded in current-periodcurrent period earnings in other expense (income), net. Effectiveness is assessed based on the comparison of current forward rates to the rates established on our hedges.
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
18. Derivative Instruments (Continued)
Following are the notional transaction amounts and fair values for our outstanding derivatives, summarized by risk category and instrument type.
| | For the years ended | | For the years ended | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | December 30, 2007 | December 31, 2006 | | December 28, 2008 | December 30, 2007 | ||||||||||||||||||||||
| | Notional Amount | Fair Value | Notional Amount | Fair Value | | Notional Amount | Fair Value | Notional Amount | Fair Value | ||||||||||||||||||
| | (In thousands) | | (In millions) | ||||||||||||||||||||||||
Foreign Currency | Foreign Currency | Foreign Currency | ||||||||||||||||||||||||||
Forwards | $ | 460,943 | $ | (24,886 | ) | $ | 220,455 | $ | 7,133 | Forwards | $ | 319.5 | $ | 52.1 | $ | 460.9 | $ | (24.9 | ) | |||||||||
Swaps | 2,416,396 | (472,544 | ) | 1,411,704 | (268,656 | ) | Swaps | 1,845.5 | (197.3 | ) | 2,416.4 | (472.5 | ) | |||||||||||||||
Total foreign currency | Total foreign currency | 2,877,339 | (497,430 | ) | 1,632,159 | (261,523 | ) | Total foreign currency | 2,165.0 | (145.2 | ) | 2,877.3 | (497.4 | ) | ||||||||||||||
Interest rate: | Interest rate: | Interest rate: | ||||||||||||||||||||||||||
Swaps | 303,064 | 9,899 | 286,971 | 1,913 | Swaps | 81.8 | 7.2 | 303.1 | 9.9 | |||||||||||||||||||
Commodity price: | Commodity price: | Commodity price: | ||||||||||||||||||||||||||
Swaps | 202,397 | (9,980 | ) | 49,723 | 7,436 | Swaps | 6.3 | (1.6 | ) | 202.4 | (10.0 | ) | ||||||||||||||||
Equity price: | Equity price: | |||||||||||||||||||||||||||
Fixed price contracts | — | — | 4,125 | (956 | ) | Cash settled total return swap | 339.5 | (1.4 | ) | — | — | |||||||||||||||||
Total commodity price | 202,397 | (9,980 | ) | 53,848 | 6,480 | |||||||||||||||||||||||
Total outstanding derivatives | Total outstanding derivatives | $ | 3,382,800 | $ | (497,511 | ) | $ | 1,972,978 | $ | (253,130 | ) | Total outstanding derivatives | $ | 2,592.6 | $ | (141.0 | ) | $ | 3,382.8 | $ | (497.5 | ) | ||||||
The table below shows pre-tax derivative gains and losses deferred in other comprehensive income in shareholders equity as of December 28, 2008, December 30, 2007 and December 31, 2006 and December 25, 2005.2006. Gains and losses deferred as of December 30, 200728, 2008 are generally expected to be recognized as the underlying transactions occur. The amounts ultimately recognized may differ, favorably or unfavorably, from those shown due to the fact that some of our derivative positions are not yet settled and therefore remain subject to ongoing market price fluctuations. As noted, effective gains and losses are deferred over time and recognized simultaneously with the impact of the underlying transactions. The ineffective gains and
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
18. Derivative Instruments (Continued)
losses are recognized immediately when it was evident they did not precisely offset changes in the underlying transaction.
| For the years ended | For the years ended | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 30, 2007 | December 31, 2006 | December 25, 2005 | December 28, 2008 | December 30, 2007 | December 31, 2006 | ||||||||||||||
| (In thousands) | (In millions) | ||||||||||||||||||
Net deferred (gain) loss | $ | (8,669 | ) | $ | (9,364 | ) | $ | 11,922 | $ | (53.0 | ) | $ | (8.7 | ) | $ | (9.4 | ) | |||
Net ineffective loss (gain) | $ | 1,313 | $ | (3,050 | ) | $ | (15 | ) | $ | — | $ | 1.3 | $ | (3.1 | ) |
Significant Hedged Positions
Upon the Merger and inIn connection with our debt offerings (Note 13)13, "Debt and Credit Arrangements"), we added various derivative instruments held by Molson that hedged currency, commodity, and interest rate risk in a similar manner as Coors.
Prior to issuing the notes on September 22, 2005 (See Note 13)13, "Debt and Credit Arrangements"), we entered into a bond forward transaction for a portion of the Canadian offering. The bond forward transaction effectively established, in advance, the yield of the government of Canada bond rates over which the Company's private placement was priced. At the time of the private placement offering and pricing, the government of
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
18. Derivative Instruments (Continued)
Canada bond rate was trading at a yield lower than that locked in with the Company's interest rate lock. This resulted in a loss of $4.0 million on the bond forward transaction. Per FAS 133 accounting, the loss will be amortized over the life of the Canadian issued private placement and will serve to increase the Company's effective cost of borrowing by 4.9 basis points compared to the stated coupon on the issue.
Simultaneously with the September 22, 2005, U.S. private placement (See Note 13)13, "Debt and Credit Arrangements"), we entered into a cross currency swap transaction for the entire USD $300.0 million issue amount and for the same maturity. In this transaction we exchanged our USD $300.0 million for a CAD $355.5 million obligation with a third party. The terms of the transaction are such that the Company will pay interest at a rate of 4.28% to the third party on the amount of CAD $355.5 million and will receive interest at a rate of 4.85% on the USD $300.0 million amount. There was an exchange of principal at the inception of this transaction, and there will be a subsequent exchange of principal at the termination of the transaction. We have designated this transaction as a hedge of the variability of the cash flows associated with the payment of interest and principal on the USD securities. Consistent with FAS 133 accounting, all changes in the value of the transaction due to foreign exchange will be recorded in earnings and will be offset by a revaluation of the associated debt instrument. Changes in the value of the transaction due to interest rates will be recorded to other comprehensive income.
As of December 30, 2007,28, 2008, we are a party to other cross currency swaps totaling GBP £530.0 million (USD $774.0 million at the date of entering the transaction). The swaps included an initial exchange of principal on the settlement date of our 6.375% private placement fixed rate debt (see Note 13)13, "Debt and Credit Arrangements") and will require final principal exchange in May 2012. The swaps also call for an exchange of fixed GBP interest payments for fixed USD interest receipts. At the initial principal exchange, we paid USD to a counterparty and received GBP. Upon final exchange, we will provide GBP to the counterparty and receive USD. The cross currency swaps have been designated as cash flow hedges of the changes in value of the future GBP interest and principal
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
18. Derivative Instruments (Continued)
receipts that results from changes in the USD to GBP exchange rates on an intercompany loan between our EuropeU.K. subsidiary and U.S. subsidiary.
We entered into interest rate swap agreements related to our 6.375% fixed rate debt. These interest rate swaps convert $201.2 million notional amount from fixed rates to floating rates and mature in 2012. We will receive fixed USD interest payments semi-annually at a rate of 6.375% per annum and pay a rate to our counterparty based on a credit spread plus the three-month LIBOR rate, thereby exchanging a fixed interest obligation for a floating interest rate obligation. There was no exchange of principal at the inception of the swaps. We designated the interest rate swaps as a fair value hedge of the changes in the fair value of the $201.2 million fixed rate debt attributable to changes in the LIBOR swap rates.
The BRI joint venture is a party to interest rate swaps, converting CAD $100.0 million notional amount of the CAD $200.0 million 7.5% fixed rate debt. The interest rate swaps convert the CAD $100.0 million to floating rates and mature in 2011. There was no exchange of principal at the inception of the swaps. During July 2006, we entered into and designated the interest rate swaps as a fair value hedge of the changes in the fair value of the CAD $100.0 million fixed rate debt attributable to changes in the LIBOR swap rates. Prior to the inception of this fair value hedge, the interest rate swaps held by BRI were the only Molson Inc. derivative instruments that did not qualify for hedge
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
18. Derivative Instruments (Continued)
accounting under SFAS 133. Mark-to-market changes on these interest rate swaps were recorded as interest expense. We anticipate deconsolidating BRI from our financial statements in 2009. If BRI is deconsolidated these notes payable will not be presented as part of MCBC debt obligations including the associated interest rate swaps.
On April 10, 2007, we undertook an internal reorganization resulting in certain transfers and realignment of assets, liabilities and consolidated subsidiaries. These changes had no impact on our consolidated financial statements. Concurrent with the realignment, we entered into several cross currency swaps to hedge the foreign currency impact of inter-company British pound (GBP) debt in a Canadian dollar (CAD) functional currency subsidiary. The cross currency swaps are designated as cash flow hedges of forecasted CAD cash flows related to GBP interest and principal payments on the inter-company loans that may fluctuate or be uncertain due to changes in the GBP to CAD exchange rate. The notional amount of the swaps is GBP 530 million. The fair value of the new cross currency swaps depends on the relationship between GBP and CAD foreign exchange rates and interest rates. Generally, the fair value of the new cross currency swaps will be stated as a liability if CAD strengthens against GBP, and will be stated as an asset if CAD weakens against GBP. The net effect of this swap eliminates our external GBP interest expense, replacing it with CAD interest expense.
As of December 30, 2007, $20.928, 2008, $28.5 million of deferred losses on both outstanding and matured derivatives accumulated in other comprehensive income are expected to be reclassified to earnings during the next twelve months as a result of expected gains or losses on underlying hedged transactions also being recorded in earnings. Actual amounts ultimately reclassified to earnings are dependent on the applicable rates in effect when derivatives contracts that are currently outstanding mature. As of December 30, 2007,28, 2008, the maximum term over which we are hedging exposures to the variability of cash flows for all forecasted and recorded transactions is 10four years.
Other Derivatives
During 2008, we entered into a cash settled total return swap with Deutsche Bank in order to gain an exposure of Foster's, a major global brewer. This swap gives MCBC exposure to nearly 5% of Foster's outstanding common stock. As of December 28, 2008, the notional amount of the swap was $339.5 million.
The fair value of the cash settled total return swap as of December 28, 2008, was ($1.4) million (out-of-the money liability). We are not applying hedge accounting to the derivative, so all unrealized gains and losses flow directly through the income statement, classified in Other Income (Expense) in the Global Markets and Corporate segment. The swap will, unless the derivative contract is amended, mature in 2009.
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
18. Derivative Instruments (Continued)
We may be required to post collateral with the counterparty if the swap is in an out-of-the-money position. If our credit ratings with Standard & Poor's and Moody's with regard to our long-term debt remain at an investment grade level, we are required to post collateral for only that portion of the out-of-the-money liability exceeding $20.0 million. If our credit ratings fall below investment grade with either rating services, we must post collateral for the entire out-of-the-money liability.
19. Accrued expenses and other liabilities
| | As of | | As of | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | December 30, 2007 | December 31, 2006 | | December 28, 2008 | December 30, 2007 | |||||||||
| | (In thousands) | | (In millions) | |||||||||||
Accrued compensation | Accrued compensation | $ | 171,034 | $ | 155,508 | Accrued compensation | $ | 44.8 | $ | 171.0 | |||||
Accrued excise taxes | Accrued excise taxes | 292,640 | 295,556 | Accrued excise taxes | 197.2 | 292.6 | |||||||||
Accrued selling and marketing costs | Accrued selling and marketing costs | 155,173 | 147,576 | Accrued selling and marketing costs | 73.2 | 155.2 | |||||||||
Accrued brewing operations costs | Accrued brewing operations costs | 341,779 | 324,601 | Accrued brewing operations costs | 275.0 | 341.8 | |||||||||
Accrued income taxes payable | — | 132,780 | |||||||||||||
Other | Other | 228,508 | 169,385 | Other | 100.6 | 228.5 | |||||||||
Accrued expenses and other liabilities | $ | 1,189,134 | $ | 1,225,406 | Accrued expenses and other liabilities | $ | 690.8 | $ | 1,189.1 | ||||||
Accrued brewing operations costs consist of amounts owed for beer raw materials, packaging materials, freight charges, utilities, and other manufacturing and distribution costs. The decreases in values from 2007 to 2008 are attributable to transfers to the MillerCoors joint venture and also to the strengthening currency of the USD against GBP and CAD.
20. Commitments and Contingencies
Letters of Credit
As of December 30, 2007,28, 2008, we had approximately $58.0$34.5 million outstanding in letters of credit with financial institutions. These letters expire at different points in 2008 and 2009. Approximately $16.7$0.6 million of the letters contain a feature that automatically renews the letter for an additional year
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
20. Commitments and Contingencies (Continued)
if no cancellation notice is submitted. These letters of credit are being maintained as security for deferred compensation payments, reimbursements to insurance companies, reimbursements to the trustee for pension payments, deductibles or retention payments made on our behalf, various payments due to governmental agencies, and for operations of underground storage tanks.
Power Supplies
In 1995, Coors Energy Company ("CEC"), a wholly owned subsidiary, sold a power plant located at the Golden brewery location to Suez (see Note 5). We have an agreement to purchase substantially all of the electricity and steam produced by Suez and needed to operate the brewery's Golden facilities through 2020. Our financial commitment under this agreement is divided between a fixed, non-cancelable cost, which adjusts annually for inflation, and a variable cost, which is generally based on fuel cost and our electricity and steam use. Total purchases, fixed and variable, under this contract in 2007, 2006 and 2005 were $39.0 million, $43.7 million and $37.7 million, respectively.
Supply Contracts
We have various long-term supply contracts with unaffiliated third parties and our joint venture partners to purchase materials used in production and packaging, such as starch, cans and glass. The supply contracts provide that we purchase certain minimum levels of materials throughout the terms of the contracts. The future aggregate minimum required purchase commitments under these supply contracts are shown in the table below. The amounts in the table do not represent all anticipated payments under long-term contracts. Rather, they represent unconditional and legally enforceable committed expenditures:
| Amount | |||
---|---|---|---|---|
| (In thousands) | |||
2008 | $ | 375,909 | ||
2009 | 127,481 | |||
2010 | 63,738 | |||
2011 | 46,462 | |||
2012 | 510 | |||
Thereafter | 357 | |||
Total | $ | 614,457 | ||
Our total purchases under these contracts in 2007, 2006 and 2005 were approximately $715.9 million, $661.8 million, and $587.0 million, respectively.
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
20. Commitments and Contingencies (Continued)
Englandpayments under long-term contracts. Rather, they represent unconditional and Wales Distribution Contractlegally enforceable committed expenditures:
| Amount | ||||
---|---|---|---|---|---|
| (In millions) | ||||
2009 | $ | 236.0 | |||
2010 | 119.3 | ||||
2011 | 84.2 | ||||
2012 | 4.0 | ||||
2013 | 2.3 | ||||
Thereafter | 0.8 | ||||
Total | $ | 446.6 | |||
Tradeteam Ltd., the joint venture between CBLOur total purchases under these contracts in 2008, 2007 and DHL, has an exclusive contract with CBL to provide distribution services in England & Wales until at least 2010. The approximate future financial commitments under the distribution contract are as follows:
| Amount | |||
---|---|---|---|---|
| (In thousands) | |||
2008 | $ | 163,137 | ||
2009 | 166,399 | |||
2010 | 127,295 | |||
2011 | — | |||
2012 | — | |||
Thereafter | — | |||
Total | $ | 456,831 | ||
The financial commitments on termination of the distribution agreement are to essentially take over property, assets and people used by Tradeteam to deliver the service to CBL, paying Tradeteam's net book value for assets acquired.
Purchases under the Tradeteam, Ltd. contract2006 were approximately $157.5$1,073.9 million, $155.0$715.9 million, and $161.0$661.8 million, for the years ended December 30, 2007, December 31, 2006, and December 25, 2005, respectively.
Graphic Packaging Corporation
We havehad a packaging supply agreement with a subsidiary of Graphic Packaging Corporation, a related party, under which we purchasepurchased our U.S. segment paperboard requirements. This contract was held by CBC, and now is held by MillerCoors. Our payments under the packaging agreement in the first half of 2008, and the full years of 2007 and 2006 and 2005 totaled $42.7 million, $85.7 million, and $74.0 million, and $75.3 million, respectively. We expect payments in 2008 to be approximately the same as 2007. Related accounts payable balances included in Affiliates accounts payable on the Consolidated Balance Sheets were $0.1 million and $0.8 million as of December 30, 2007, and December 31, 2006, respectively.2007.
Advertising and Promotions
We have various long-term non-cancelable commitments for advertising, sponsorships and promotions, including marketing at sports arenas, stadiums and other venues and events. From time to
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
20. Commitments and Contingencies (Continued)
time, MCBC guarantees the financial performance under certain contracts on behalf of its subsidiaries. At December 30, 2007,28, 2008, these future commitments are as follows:
| | Amount | |||||||
---|---|---|---|---|---|---|---|---|---|
| | (In thousands) | | Amount | |||||
2008 | $ | 327,501 | |||||||
| | (In millions) | |||||||
2009 | 2009 | 205,641 | 2009 | $ | 73.7 | ||||
2010 | 2010 | 171,706 | 2010 | 55.1 | |||||
2011 | 2011 | 155,307 | 2011 | 41.3 | |||||
2012 | 2012 | 165,162 | 2012 | 22.4 | |||||
2013 | 2013 | 21.2 | |||||||
Thereafter | Thereafter | 93,462 | Thereafter | 67.1 | |||||
Total | $ | 1,118,779 | Total | $ | 280.8 | ||||
Total advertising expense was $610.0 million, $858.1 million, and $906.9 million in 2008, 2007 and $729.1 million in 2007, 2006, respectively.
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
20. Commitments and 2005, respectively.Contingencies (Continued)
Leases
We lease certain office facilities and operating equipment under cancelable and non-cancelable agreements accounted for as operating leases. Future minimum lease payments under operating leases that have initial or remaining non-cancelable terms in excess of one year are as follows:
| | Amount | |||||||
---|---|---|---|---|---|---|---|---|---|
| | (In thousands) | | Amount | |||||
2008 | $ | 77,413 | |||||||
| | (In millions) | |||||||
2009 | 2009 | 59,863 | 2009 | $ | 53.8 | ||||
2010 | 2010 | 49,911 | 2010 | 45.4 | |||||
2011 | 2011 | 33,897 | 2011 | 31.8 | |||||
2012 | 2012 | 25,568 | 2012 | 25.1 | |||||
2013 | 2013 | 20.5 | |||||||
Thereafter | Thereafter | 76,555 | Thereafter | 48.9 | |||||
Total | $ | 323,207 | Total | $ | 225.5 | ||||
Total rent expense was $62.2 million, $81.2 million, and $70.7 million $60.8 million in 2008, 2007 2006 and 2005,2006, respectively.
Environmental
When we determine that it is probable that a liability for environmental matters or other legal actions exists and the amount of the loss is reasonably estimable, an estimate of the future costs are recorded as a liability in the financial statements. Costs that extend the life, increase the capacity or improve the safety or efficiency of Company-owned assets or are incurred to mitigate or prevent future environmental contamination may be capitalized. Other environmental costs are expensed when incurred.
From time to time, we have been notified that we are or may be a potentially responsible party ("PRP") under the Comprehensive Environmental Response, Compensation and Liability Act or
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
20. Commitments and Contingencies (Continued)
similar state laws for the cleanup of other sites where hazardous substances have allegedly been released into the environment. We cannot predict with certainty the total costs of cleanup, our share of the total cost, the extent to which contributions will be available from other parties, the amount of time necessary to complete the cleanups or insurance coverage.
We are one of a number of entities named by the Environmental Protection Agency ("EPA") as a PRP at the Lowry Superfund site. This landfill is owned by the City and County of Denver ("Denver") and is managed by Waste Management of Colorado, Inc. ("Waste Management"). In 1990, we recorded a pretax charge of $30.0 million, a portion of which was put into a trust in 1993 as part of a settlement with Denver and Waste Management regarding the then-outstanding litigation. Our settlement was based on an assumed remediation cost of $120.0 million (in 1992 adjusted dollars). We are obligated to pay a portion of future costs, if any, in excess of that amount.
Waste Management provides us with updated annual cost estimates through 2032. We reviewed these cost estimates in the assessment of our accrual related to this issue. We use certain assumptions that differ from Waste Management's estimates to assess our expected liability. Our expected liability (based on the $120.0 million threshold being met) is based on our best estimates available.
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
20. Commitments and Contingencies (Continued)
The assumptions used are as follows:
Based on these assumptions, the present value and gross amount of the costs at December 30, 2007,28, 2008, are $2.3$3.8 million and $3.8$5.2 million, respectively. Accordingly, we believe that the existing liability is adequate as of December 30, 2007.28, 2008. We did not assume any future recoveries from insurance companies in the estimate of our liability, and none are expected.
Considering the estimates extend through the year 2032 and the related uncertainties at the site, including what additional remedial actions may be required by the EPA, new technologies and what costs are included in the determination of when the $120.0 million threshold is reached, the estimate of our liability may change as facts further develop. We cannot predict the amount of any such change, but additional accruals in the future are possible.
We are aware of groundwater contamination at some of our properties in Colorado resulting from historical, ongoing or nearby activities. There may also be other contamination of which we are currently unaware.
In October 2006 we were notified by the EPA that we are a PRP, along with approximately 60 other parties, at the Cooper Drum site in southern California. Certain of Molson's former non-beer business operations, which were discontinued and sold in the mid-1990s prior to the merger with Coors, were involved at this site. We responded to the EPA with information regarding our past involvement with the site. We are not yet able to estimate any potential liability associated with this site.
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
20. Commitments During the third quarter of 2008 we were notified by the EPA that we are a PRP, along with others, at the East Rutherford and Contingencies (Continued)Berry's Creek sites in New Jersey. Certain of Molson's former non-beer business operations, which were discontinued and sold in the mid-1990s, were involved at this site. We accrued a liability in the amount of $3.9 million during the third quarter of 2008, which represents our estimable loss at this time. Potential losses associated with the Berry's Creek site could increase as remediation planning progresses.
While we cannot predict the eventual aggregate cost for environmental and related matters in which we are currently involved, we believe that any payments, if required, for these matters would be made over a period of time in amounts that would not be material in any one year to our operating results, cash flows or our financial or competitive position. We believe adequate reserves have been provided for losses that are probable and estimable.
Indemnity Obligations—Sale of Kaiser
As discussed in Note 6,4, we sold our entire equity interest in Kaiser during 2006 to FEMSA. The terms of the sale agreement require us to indemnify FEMSA for certain exposures related to tax, civil, and labor contingencies arising prior to FEMSA's purchase of Kaiser. First, we provided an indemnity
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
20. Commitments and Contingencies (Continued)
for losses Kaiser may incur with respect to tax claims associated with certain previously utilized purchased tax credits. The maximum potential claims amount in this regard, including estimated accumulated legal, penalties and interest, was $382.0$306.0 million as of December 30, 2007. This28, 2008. A portion of our indemnity obligations are considered probable losses, recorded as non-current liabilities in an amount increased by $135.0of $51.4 million from 2006, due primarily to an increase of $85.7 million related to accumulated legal, penalty, and, interest fees. The remaining increase of $49.3 million is the result of the weakening USD relative to the Brazilian Real.at December 28, 2008. Our estimate of the fair value of the indemnity liability associated with the purchased tax credits as of December 30, 200728, 2008 was $116.8$69.3 million, $4.8$3.6 million of which was classified as a current liability and $112.0$65.7 million of which was classified as non-current. Our fair value estimates consider a number of scenarios for the ultimate resolution of these issues, the probabilities of which are influenced not only by legal developments in Brazil but also by management's intentions with regard to various alternatives that could present themselves leading to the ultimate resolution of these issues. Our indemnity obligations (at estimated fair value) related to previously purchased tax credits increased by $39.1 million during 2007 due primarily to an increase in accumulated legal, penalty, and interest fees. The liabilities are also impacted by changes in estimates regarding amounts that could be paid, the timing of such payments, and adjustments to the probabilities assigned to various scenarios.scenarios and foreign exchange.
We also provided indemnity related to all other tax, civil, and labor contingencies existing as of the date of sale. In this regard, however, FEMSA assumed their full share of all of these contingent liabilities that had been previously recorded and disclosed by us prior to the sale on January 13, 2006. However, we may have to provide indemnity to FEMSA if those contingencies settle at amounts greater than those amounts previously recorded or disclosed by us. We will be able to offset any indemnity exposures in these circumstances with amounts that settle favorably to amounts previously recorded. Our exposure related to these indemnity claims is capped at the amount of the sales price of the 68% equity interest of Kaiser, which was $68.0 million. As a result of these contract provisions, our fair value estimates include not only probability-weighted potential cash outflows associated with indemnity provisions, but also probability-weighted cash inflows that could result from favorable settlements, which could occur through negotiation or settlement programs that could arise from the federal or any of the various state governments in Brazil. A portion of our indemnity obligations are considered probable losses, recorded as current liabilities in the amount of $2.2.million at December 28, 2008. The recorded fair value of the total tax, civil, and labor indemnity liability was $38.2$10.1 million as of December 30, 2007, $25.428, 2008, $2.5 million of which is classified as a current liability and $12.8$7.6 million of which is classified as non-current.
Future settlement procedures and related negotiation activities associated with these contingencies are largely outside of our control. The sale agreement requires annual cash settlements relating to the tax, civil, and labor indemnities, the first of which we expect to occur during the first quarter of 2008. Indemnity obligations related to purchased tax credits must be settled upon notification of FEMSA's
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
20. Commitments and Contingencies (Continued)
settlement. Due to the uncertainty involved with the ultimate outcome and timing of these contingencies, significant adjustments to the carrying values of the indemnity obligations have been recorded to date, and additional future adjustments may be required. These liabilities are denominated in Brazilian Reals and have been stated at present value and will, therefore, be subject in the future to foreign exchange gains or losses and to accretion cost, both of which will be recognized in the discontinued operations section of the statement of operations.
The table below provides a summary of contingency reserve balances from December 25, 2005, through December 30, 2007:
| Purchased tax credits indemnity reserve | Tax, civil and labor indemnity reserve | Total indemnity reserves | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| (In thousands) | ||||||||||
Balance at December 25, 2005 | $ | — | $ | — | $ | — | |||||
Provision upon sale of 68% ownership | 52,397 | 42,910 | 95,307 | ||||||||
Exercise of put option on remaining ownership interest | 12,546 | 5,470 | 18,016 | ||||||||
Changes in liability estimates | 12,772 | (15,120 | ) | (2,348 | ) | ||||||
Balance at December 31, 2006 | $ | 77,715 | $ | 33,260 | $ | 110,975 | |||||
Adjustments to indemnity liabilities due to changes in estimates and accretion expense | 21,056 | (1,257 | ) | 19,799 | |||||||
Foreign exchange impact | 18,001 | 6,236 | 24,237 | ||||||||
Balance at December 30, 2007 | $ | 116,772 | $ | 38,239 | $ | 155,011 | |||||
Current liabilities of discontinued operations include current tax liabilities of $10.6 million and $9.0 million as of December 30, 2007 and December 31, 2006, respectively. Included in current and non-current assets of discontinued operations as of December 30, 2007 are $5.5 million and $5.1 million, respectively, of deferred tax assets associated with the indemnity liabilities.
Montréal Canadiens
Molson Canada owns a 19.9% common ownership interest in the Montréal Canadiens professional hockey club (the "Club") and, prior to June 30, 2006, Molson also owned a preferred interest. On June 30, 2006, entities which control and own a majority of the Club purchased the preferred equity held by Molson Canada. Subsequent to the transaction, Molson Canada still retains 19.9% common equity interest in the Club, as well as Board representation at the Club and related entities.
Also, coincident with the disposition of our preferred interest, Molson Canada was released from a direct guarantee of the Club's debt financing. The shareholders of the Club (the majority owner and Molson Canada) and the National Hockey League ("NHL") are parties to a consent agreement, which requires the purchaser and Molson to abide by funding requirements included in the terms of the shareholders' agreement. In addition, Molson Canada continues to be a guarantor of the majority owner's obligations under a land lease. We have evaluated our risk exposure related to these financial guarantees and recorded the fair values of these guarantees accordingly.
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
20. Commitments and Contingencies (Continued)
The table below provides a summary of contingency reserve balances from December 31, 2006, through December 28, 2008:
| Purchased tax credits indemnity reserve | Tax, civil and labor indemnity reserve | Total indemnity reserves | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| (In millions) | ||||||||||
Balance at December 25, 2005 | $ | — | $ | — | $ | — | |||||
Provision upon sale of 68% ownership | 52.4 | 42.9 | 95.3 | ||||||||
Exercise of put option on remaining ownership interest | 12.5 | 5.5 | 18.0 | ||||||||
Changes in liability estimates | 12.8 | (15.1 | ) | (2.3 | ) | ||||||
Balance at December 31, 2006 | $ | 77.7 | $ | 33.3 | $ | 111.0 | |||||
Adjustments to indemnity liabilities due to changes in estimates | 21.1 | (1.3 | ) | 19.8 | |||||||
Foreign exchange impact | 18.0 | 6.2 | 24.2 | ||||||||
Balance at December 30, 2007 | $ | 116.8 | $ | 38.2 | $ | 155.0 | |||||
Adjustments to indemnity liabilities due to changes in estimates | 42.5 | (22.0 | ) | 20.5 | |||||||
Foreign exchange impact | (38.5 | ) | (3.8 | ) | (42.3 | ) | |||||
Balance at December 28, 2008 | $ | 120.8 | $ | 12.4 | $ | 133.2 | |||||
Current liabilities of discontinued operations include current tax liabilities of $8.5 million and $10.6 million as of December 28, 2008 and December 30, 2007, respectively. Included in current and non-current assets of discontinued operations as of December 28, 2008 are $1.5 million and $7.0 million, respectively, of deferred tax assets associated with the indemnity liabilities.
Litigation and Other Disputes
Beginning in May 2005, several purported shareholder class actions were filed in the United States and Canada, including Federalfederal courts in Delaware and Colorado and provincial courts in Ontario and Québec, alleging, among other things, that the Company and its affiliated entities, including Molson Inc., and certain officers and directors misled stockholders by failing to disclose first quarter (January-March) 2005 U.S. business trends prior toin connection with the Merger votemerger between Coors and Molson in January 2005. The Colorado case has since beenwas transferred to Delaware and consolidated with those cases. One of the lawsuits filed in Delaware federal court also alleges that the Company failed to comply with U.S. GAAP in its filings with the U.S. Securities and Exchange Commission. The Québec Superior Court heard arguments in October 2007 regarding the plaintiffs' motion to authorize a class in that case. We opposed the motion. We expect
During the first quarter of 2008, the Company agreed in principle with counsel for plaintiffs in all pending securities cases in Delaware, Québec, and Ontario to settle all such claims on a written decisionworldwide basis. Pursuant to the settlement, the Company would pay, except one case discussed below, a total of $6.0 million in several months.settlement, which amounts would be paid by the Company's insurance carrier. The Company believes these lawsuits are without merit and will vigorously defend them.
MCBC and many other brewers and distilled spirits manufacturers were suedsettlement agreement is awaiting final approval in the various courts regarding advertising practices and underage consumption. All ofin which the suits were brought by the same law firm and allege that each defendant intentionally marketed its productscases are pending. We anticipate receiving such approval in April 2009. This agreement in principle did not settle one remaining case in Delaware. That case seeks to "children and other underage consumers." In essence, each suit sought,recover on behalf of certain Molson Coors employees who invested in Company securities around the same time through two employee retirement savings plans. The complaint in that case essentially relies on the same allegations as the other shareholder
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
20. Commitments and Contingencies (Continued)
lawsuits. This case has been settled for $0.2 million, an undefined classamount that will be paid by the Company's insurance carrier.
From time to time, we have been notified that we are or may be a potentially responsible party ("PRP") under the Comprehensive Environmental Response, Compensation and Liability Act or similar state laws for the cleanup of parentsother sites where hazardous substances have allegedly been released into the environment. For example, we are one of approximately 60 entities named by the Environmental Protection Agency ("EPA") as a PRP at the Lowry Superfund site. This landfill is owned by the City and guardians,County of Denver and is managed by Waste Management of Colorado, Inc. ("Waste Management"). In the fourth quarter of 2008, we were informed that the State of Colorado may bring an injunctionaction against the City and unspecified moneyCounty of Denver and Waste Management for the Lowry Superfund Site to recover for natural resources damages. In each suit, the manufacturers advanced motionsevent that the State of Colorado were to bring such an action against the City and County of Denver and Waste management, Denver and Waste Management would likely bring an action against the PRPs to recover a portion of the amount of such claim. Although no formal action has been brought, the State of Colorado is informally asserting total damages of approximately $10 million. However, the Company is potentially liable for dismissalonly a portion of those damages. The Company will defend any such claims vigorously.
CBL replaced a bonus plan in the United Kingdom with a different plan under which a bonus was not paid in 2003. A group of employees pursued a claim against CBL with respect to this issue with an employment tribunal. During the second quarter of 2005, the tribunal ruled against CBL. CBL appealed this ruling, and the appeal was heard in the first quarter of 2006, where most impacts of the initial tribunal judgments were overturned. However, the employment appeal tribunal remitted two specific issues back to a new employment tribunal. CBL appealed the employment appeal tribunal's judgment. In January 2007, the appeal decision ruled in the Company's favor, holding that the employment tribunal had no jurisdiction to hear the employees' claims, and the claims were dismissed. Employee claims in this matter were filed during the third quarter of 2008 in a U.K. county court. A trial date is expected in 2009. CBL will defend the claims vigorously. If CBL were held to be liable to the courts. Allclaimants, the amounts of the lawsuits have been dismissed with prejudice.liability would be immaterial. If such liabilities were asserted by other groups of employees and upheld in subsequent litigation, the potential loss could be higher.
We are involved in other disputes and legal actions arising in the ordinary course of our business. While it is not feasible to predict or determine the outcome of these proceedings, in our opinion, based on a review with legal counsel, none of these disputes and legal actions is expected to have a material impact on our consolidated financial position, results of operations or cash flows. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters, for example, including the above-described advertising practices case, may arise from time to time that may harm our business.
Insurance
We are self-insured for certain insurable risks consisting primarily of employee health insurance programs, as well as workers' compensation, general liability, automobile liability, and property insurance deductibles or retentions. During 2005 we fully insured future risks for long-term disability, and, in most states, workers' compensation, but maintained a self-insured position for workers' compensation for certain self-insured states and for claims incurred prior to the inception of the insurance coverage in Colorado in 1997. Our reserves accrued at December 28, 2008, and December 30, 2007, were $1.5 million and December 31, 2006, were $15.4 million, and $18.5 million, respectively.
21. MillerCoors joint venture
On October 9, 2007, MCBC and SABMiller plc (the investing companies) announced that they signed a letter of intent to combine the U.S. and Puerto Rico operations of their respective subsidiaries, Coors Brewing Company and Miller Brewing Company, in a joint venture ("MillerCoors"). Assuming completion of the transaction, MillerCoors will have annual pro forma combined beer sales of 69 million U.S. barrels (81 million hectoliters) and pro forma net revenues of approximately $6.6 billion. Molson Coors and SABMiller expect the transaction to generate approximately $500 million in annual cost synergies to be delivered in full by the third full financial year of combined
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
21. MillerCoors joint venture (Continued)
operations. The parties signed a definitive joint venture agreement on December 20, 2007 and expect the transaction to close in mid-2008.
Each party will contribute its business and related operating assets and certain liabilities into an operating joint venture company. The percentage interests in the profits of the joint venture will be 58% for SABMiller plc and 42% for MCBC. Voting interests will be shared 50%-50%, and each investing company will have equal board representation within the joint venture company. Each party to the joint venture has agreed not to transfer its economic or voting interests in the joint venture for a period of five years, and certain rights of first refusal will apply to any subsequent assignment of such interests.
The results and financial position of our U.S. segment will, in all material respects, be de-consolidated upon contribution to the joint venture, and our interest in the new combined operations will be accounted for by us under the equity method of accounting.
The proposed joint venture transaction has been submitted for antitrust review and clearance by the U.S. Department of Justice under the Hart-Scott-Rodino Act of 1976, as amended, and to certain other applicable governmental authorities.
22. Subsequent Events
The tender for and repurchase of 6.375% Senior Notes due 2012 ("tender offer")
On February 7, 2008, we announced a tender for and repurchase of any and all principal amount of our remaining 6.375% $225 million Senior Notes due 2012, with the tender period running through February 14, 2008. The amount actually repurchased was $180.4 million. The net costs of $11.7 million related to this extinguishment of debt and termination of related interest rate swaps will be recorded in the first quarter of 2008. The debt extinguishment was funded by existing cash resources.
Outsourcing Agreement
During the first quarter of 2008, we signed a contract with a third party service provider to outsource a significant portion of our general and administrative back office functions in all of our operating segments and in our corporate office. This outsourcing initiative is a key component of our Resources for Growth cost reduction program. We expect to incur both transition costs and one-time employee termination costs associated during 2008 with this outsourcing initiative.
23. Supplemental Guarantor Information
MCBC (Parent Guarantor and 2007 Issuer) issued $575.0 million of 2.5% Convertible Senior Notes due July 30, 2013 in a registered offering on June 15, 2007 (see Note 10)13, "Debt and Credit Arrangements"). The convertible notes are guaranteed on a senior unsecured basis by CBC (2002 Issuer), Molson Coors International, LP and Molson Coors Capital Finance ULC (together the 2005 Issuers) and certain significant subsidiaries (Subsidiary Guarantors).
On May 7, 2002, the 2002 Issuer completed a public offering of $850.0 million principal amount of 6.375% Senior notes due 2012. During the third quarter of 2007, $625.0 million of the Senior notes was extinguished by the proceeds received from the 2.5% Convertible Senior Notes issued June 15, 2007 and cash on hand. During the first quarter of 2008, $180.4 million of the senior notes was extinguished using existing cash resources. The remaining outstanding Senior notes are guaranteed on a senior and unsecured
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
23. Supplemental Guarantor Information (Continued)
basis by the Parent Guarantor and 2007 Issuer, 2005 Issuers and Subsidiary Guarantors. The guarantees are full and unconditional and joint and several.
On September 22, 2005, the 2005 Issuers completed a public offering of $1.1 billion principal amount of Senior notes composed of USD $300 million 4.85% notes due 2010 and CAD $900.0 million 5.00% notes due 2015. The notes were issued with registration rights and are guaranteed on a senior and unsecured basis by Parent Guarantor and 2007 Issuer, 2002 Issuer and Subsidiary Guarantors. The guarantees are full and unconditional and joint and several. Funds necessary to meet the 2005 Issuers' debt service obligations are provided in large part by distributions or advances from MCBC's other subsidiaries, including Molson, a non-guarantor. Under certain circumstances, contractual and legal restrictions, as well as our financial condition and operating requirements, could limit the 2005 Issuers ability to obtain cash for the purpose of meeting its debt service obligation, including the payment of principal and interest on the notes.
On April 10, 2007, we undertook an internal reorganization resulting in certain transfers and realignment of assets, liabilities and subsidiaries. As a result of these changes, as well as amendments to the indentures covered, the $1.1 billion senior notes issued in 2005 are now also a liability of a new subsidiary, Molson Coors International, LP. The internal reorganization changed the legal structure of the guarantees, mainly affecting the presentation of the 2002 Issuer, the 2005 Issuers, Subsidiary Guarantors, and Subsidiary Non-Guarantors. While there were no significant changes with regard to the status of any entity as a guarantor or non-guarantor, the internal ownership changes resulted in our Canadian and U.K. businesses, which were formally owned by 2002 Issuer, now being majority-owned by a 2005 Issuer. Prior period amounts have not been restated to reflect the new ownership structure which did not exist in prior periods. Any changes to the status of a subsidiary as a guarantor or non-guarantor were not material.
On June 30, 2008, Molson Canada 2005, an indirect wholly owned subsidiary of Molson Coors, guaranteed the obligations of Molson Coors under the Credit Agreements dated as of March 2, 2005. As a result of such guarantee, Molson Canada 2005 became a guarantor under the following (i) the indenture related to the Senior notes dated as of May 7, 2002 and as supplemented; (ii) the indenture related to the Senior notes dated September 22, 2005 and as supplemented; and (iii) the indenture related to the Senior convertible notes dated June 15, 2007 and as supplemented. This change, as well as certain foreign exchange and tax items were reflected accordingly with the appropriate reclassifications to the prior period condensed consolidated financial statements.
On July 1, 2008, MCBC contributed its U.S. business to MillerCoors. The U.S. business was operated primarily by Coors Brewing Company, which is the 2002 Issuer. As a result, Coors Brewing
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
21. Supplemental Guarantor Information (Continued)
Company now holds an equity method interest in MillerCoors, which is not a guarantor, shown as "Investment in MillerCoors" on the condensed consolidating balance sheet as of December 28, 2008.
The following information sets forth Condensed Consolidating Statements of Operations for the years ended December 28, 2008, December 30, 2007 and December 31, 2006, and December 25, 2005, Condensed Consolidating Balance Sheets as of December 30, 2007,28, 2008, and December 31, 2006,30, 2007, and Condensed Consolidating Statements of Cash Flows for the years ended December 28, 2008, December 30, 2007 and December 31, 2006, and December 25, 2005.2006. Investments in subsidiaries are accounted for on the equity method; accordingly, entries necessary to consolidate the Parent Guarantor, the Issuers and all of our subsidiaries are reflected in the eliminations column. In the opinion of management, separate complete financial statements of the Issuers and the Subsidiary Guarantors would not provide additional material information that would be useful in assessing their financial composition.
Consolidated stockholders' equity is equal to that of MCBC, which is the Parent Guarantor and 2007 Issuer, and of Molson Coors Canada, Inc., which is a Subsidiary Non-Guarantor. Molson Coors Canada, Inc. is the issuer of exchangeable shares, which former Molson shareholders received in the Merger.merger between Coors and Molson in 2005.
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
23.21. Supplemental Guarantor Information (Continued)
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED DECEMBER 30, 200728, 2008
(IN THOUSANDS)MILLIONS)
| | Parent Guarantor | 2002 Issuer | 2005 Issuers | Subsidiary Guarantors | Subsidiary Non Guarantors | Eliminations | Consolidated | | Parent Guarantor | 2002 Issuer | 2005 Issuers | Subsidiary Guarantors | Subsidiary Non Guarantors | Eliminations | Consolidated | ||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sales | Sales | $ | — | $ | 2,949,297 | $ | — | $ | 162,571 | $ | 5,207,805 | $ | — | $ | 8,319,673 | Sales | $ | — | $ | 1,739.2 | $ | — | $ | 2,399.3 | $ | 2,513.3 | $ | — | $ | 6,651.8 | ||||||||||||||||
Excise taxes | Excise taxes | — | (435,191 | ) | — | (2,272 | ) | (1,691,618 | ) | — | (2,129,081 | ) | Excise taxes | — | (231.2 | ) | — | (559.8 | ) | (1,086.5 | ) | — | (1,877.5 | ) | ||||||||||||||||||||||
Net sales | — | 2,514,106 | — | 160,299 | 3,516,187 | — | 6,190,592 | Net sales | — | 1,508.0 | — | 1,839.5 | 1,426.8 | — | 4,774.3 | |||||||||||||||||||||||||||||||
Cost of goods sold | Cost of goods sold | (59 | ) | (1,574,768 | ) | — | (128,894 | ) | (1,999,200 | ) | — | (3,702,921 | ) | Cost of goods sold | — | (952.1 | ) | — | (958.7 | ) | (930.0 | ) | — | (2,840.8 | ) | |||||||||||||||||||||
Equity in subsidiary earnings | Equity in subsidiary earnings | 728,168 | (14,771 | ) | 720,025 | — | — | (1,433,422 | ) | — | Equity in subsidiary earnings | 540.6 | (26.5 | ) | 469.6 | — | — | (983.7 | ) | — | ||||||||||||||||||||||||||
Gross profit | 728,109 | 924,567 | 720,025 | 31,405 | 1,516,987 | (1,433,422 | ) | 2,487,671 | Gross profit | 540.6 | 529.4 | 469.6 | 880.8 | 496.8 | (983.7 | ) | 1,933.5 | |||||||||||||||||||||||||||||
Marketing, general and administrative expenses | Marketing, general and administrative expenses | (90,093 | ) | (731,226 | ) | (10 | ) | (29,256 | ) | (883,823 | ) | — | (1,734,408 | ) | Marketing, general and administrative expenses | (102.9 | ) | (418.7 | ) | — | (435.0 | ) | (376.6 | ) | — | (1,333.2 | ) | |||||||||||||||||||
Special items, net | Special items, net | (13,439 | ) | (9,492 | ) | — | — | (89,263 | ) | — | (112,194 | ) | Special items, net | (58.8 | ) | (42.4 | ) | — | (35.1 | ) | 2.4 | — | (133.9 | ) | ||||||||||||||||||||||
Equity income in MillerCoors | Equity income in MillerCoors | — | 155.6 | — | — | — | — | 155.6 | ||||||||||||||||||||||||||||||||||||||
Operating income | 624,577 | 183,849 | 720,015 | 2,149 | 543,901 | (1,433,422 | ) | 641,069 | Operating income | 378.9 | 223.9 | 469.6 | 410.7 | 122.6 | (983.7 | ) | 622.0 | |||||||||||||||||||||||||||||
Interest income (expense), net | (1,944 | ) | (71,162 | ) | (57,691 | ) | 5,116 | 1,328 | — | (124,353 | ) | |||||||||||||||||||||||||||||||||||
Other income (expense), net | 679 | 19 | 167 | (5,839 | ) | 22,636 | — | 17,662 | ||||||||||||||||||||||||||||||||||||||
Interest (expense) income, net | Interest (expense) income, net | (13.2 | ) | (29.9 | ) | (58.2 | ) | 2.8 | 0.1 | — | (98.4 | ) | ||||||||||||||||||||||||||||||||||
Other (expense) income, net | Other (expense) income, net | (6.6 | ) | 3.9 | — | (1.7 | ) | (4.0 | ) | — | (8.4 | ) | ||||||||||||||||||||||||||||||||||
Income (loss) from continuing operations before income taxes | 623,312 | 112,706 | 662,491 | 1,426 | 567,865 | (1,433,422 | ) | 534,378 | Income from continuing operations before income taxes | 359.1 | 197.9 | 411.4 | 411.8 | 118.7 | (983.7 | ) | 515.2 | |||||||||||||||||||||||||||||
Income tax (expense) benefit | Income tax (expense) benefit | (126,055 | ) | (7,172 | ) | (78,367 | ) | (30,843 | ) | 238,251 | — | (4,186 | ) | Income tax (expense) benefit | 28.8 | (125.4 | ) | 30.3 | (30.0 | ) | (6.6 | ) | — | (102.9 | ) | |||||||||||||||||||||
Income (loss) from continuing operations before minority interests | 497,257 | 105,534 | 584,124 | (29,417 | ) | 806,116 | (1,433,422 | ) | 530,192 | Income from continuing operations before minority interests | 387.9 | 72.5 | 441.7 | 381.8 | 112.1 | (983.7 | ) | 412.3 | ||||||||||||||||||||||||||||
Minority interests in net income of consolidated entities | Minority interests in net income of consolidated entities | — | — | — | — | (15,318 | ) | — | (15,318 | ) | Minority interests in net income of consolidated entities | — | — | — | 0.1 | (12.3 | ) | — | (12.2 | ) | ||||||||||||||||||||||||||
Income (loss) from continuing operations | 497,257 | 105,534 | 584,124 | (29,417 | ) | 790,798 | (1,433,422 | ) | 514,874 | Income from continuing operations | 387.9 | 72.5 | 441.7 | 381.9 | 99.8 | (983.7 | ) | 400.1 | ||||||||||||||||||||||||||||
Loss from discontinued operations, net of tax | Loss from discontinued operations, net of tax | (65 | ) | — | — | — | (17,617 | ) | — | (17,682 | ) | Loss from discontinued operations, net of tax | — | — | — | — | (12.1 | ) | — | (12.1 | ) | |||||||||||||||||||||||||
Net income (loss) | $ | 497,192 | $ | 105,534 | $ | 584,124 | $ | (29,417 | ) | $ | 773,181 | $ | (1,433,422 | ) | $ | 497,192 | Net income | $ | 387.9 | $ | 72.5 | $ | 441.7 | $ | 381.9 | $ | 87.7 | $ | (983.7 | ) | $ | 388.0 | ||||||||||||||
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
23.21. Supplemental Guarantor Information (Continued)
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED DECEMBER 28, 2007
(IN MILLIONS)
| Parent Guarantor | 2002 Issuer | 2005 Issuers | Subsidiary Guarantors | Subsidiary Non Guarantors | Eliminations | Consolidated | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sales | $ | — | $ | 2,949.3 | $ | — | $ | 2,622.4 | $ | 2,748.0 | $ | — | $ | 8,319.7 | |||||||||
Excise taxes | — | (435.2 | ) | — | (555.4 | ) | (1,138.5 | ) | — | (2,129.1 | ) | ||||||||||||
Net sales | — | 2,514.1 | — | 2,067.0 | 1,609.5 | — | 6,190.6 | ||||||||||||||||
Cost of goods sold | (0.1 | ) | (1,574.7 | ) | — | (1,095.5 | ) | (1,032.6 | ) | — | (3,702.9 | ) | |||||||||||
Equity in subsidiary earnings | 728.2 | (14.8 | ) | 720.0 | — | — | (1,433.4 | ) | — | ||||||||||||||
Gross profit | 728.1 | 924.6 | 720.0 | 971.5 | 576.9 | (1,433.4 | ) | 2,487.7 | |||||||||||||||
Marketing, general and administrative expenses | (90.1 | ) | (731.2 | ) | — | (484.8 | ) | (428.3 | ) | — | (1,734.4 | ) | |||||||||||
Special items, net | (13.4 | ) | (9.5 | ) | — | (75.2 | ) | (14.1 | ) | — | (112.2 | ) | |||||||||||
Operating income | 624.6 | 183.9 | 720.0 | 411.5 | 134.5 | (1,433.4 | ) | 641.1 | |||||||||||||||
Interest (expense) income, net | (1.9 | ) | (71.2 | ) | (57.7 | ) | 5.9 | 0.5 | — | (124.4 | ) | ||||||||||||
Other income (expense), net | 0.6 | — | 0.2 | 17.4 | (0.5 | ) | — | 17.7 | |||||||||||||||
Income from continuing operations before income taxes | 623.3 | 112.7 | 662.5 | 434.8 | 134.5 | (1,433.4 | ) | 534.4 | |||||||||||||||
Income tax (expense) benefit | (126.0 | ) | (7.2 | ) | (78.4 | ) | (30.9 | ) | 238.3 | — | (4.2 | ) | |||||||||||
Income from continuing operations before minority interests | 497.3 | 105.5 | 584.1 | 403.9 | 372.8 | (1,433.4 | ) | 530.2 | |||||||||||||||
Minority interests in net income of consolidated entities | — | — | — | 1.2 | (16.5 | ) | — | (15.3 | ) | ||||||||||||||
Income from continuing operations | 497.3 | 105.5 | 584.1 | 405.1 | 356.3 | (1,433.4 | ) | 514.9 | |||||||||||||||
Loss from discontinued operations, net of tax | (0.1 | ) | — | — | — | (17.6 | ) | — | (17.7 | ) | |||||||||||||
Net income | $ | 497.2 | $ | 105.5 | $ | 584.1 | $ | 405.1 | $ | 338.7 | $ | (1,433.4 | ) | $ | 497.2 | ||||||||
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
21. Supplemental Guarantor Information (Continued)
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006
(IN THOUSANDS)MILLIONS)
| | Parent Guarantor | 2002 Issuer | 2005 Issuers | Subsidiary Guarantors | Subsidiary Non Guarantors | Eliminations | Consolidated | | Parent Guarantor | 2002 Issuer | 2005 Issuers | Subsidiary Guarantors | Subsidiary Non Guarantors | Eliminations | Consolidated | ||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sales | Sales | $ | — | $ | 2,683,039 | $ | — | $ | 159,433 | $ | 5,059,142 | $ | — | $ | 7,901,614 | Sales | $ | — | $ | 2,683.0 | $ | — | $ | 2,495.8 | $ | 2,722.8 | $ | — | $ | 7,901.6 | ||||||||||||||||
Excise taxes | Excise taxes | — | (401,834 | ) | — | (2,245 | ) | (1,652,550 | ) | — | (2,056,629 | ) | Excise taxes | — | (401.8 | ) | — | (551.0 | ) | (1,103.8 | ) | — | (2,056.6 | ) | ||||||||||||||||||||||
Net sales | — | 2,281,205 | — | 157,188 | 3,406,592 | — | 5,844,985 | Net sales | — | 2,281.2 | — | 1,944.8 | 1,619.0 | — | 5,845.0 | |||||||||||||||||||||||||||||||
Cost of goods sold | Cost of goods sold | — | (1,448,992 | ) | — | (130,984 | ) | (1,901,105 | ) | — | (3,481,081 | ) | Cost of goods sold | — | (1,449.0 | ) | — | (1,003.7 | ) | (1,028.4 | ) | — | (3,481.1 | ) | ||||||||||||||||||||||
Equity in subsidiary earnings | Equity in subsidiary earnings | 418,052 | 470,330 | — | — | — | (888,382 | ) | — | Equity in subsidiary earnings | 418.1 | 470.3 | — | — | — | (888.4 | ) | — | ||||||||||||||||||||||||||||
Gross profit | 418,052 | 1,302,543 | — | 26,204 | 1,505,487 | (888,382 | ) | 2,363,904 | Gross profit | 418.1 | 1,302.5 | — | 941.1 | 590.6 | (888.4 | ) | 2,363.9 | |||||||||||||||||||||||||||||
Marketing, general and administrative expenses | Marketing, general and administrative expenses | (61,873 | ) | (740,140 | ) | 2 | (22,101 | ) | (881,293 | ) | — | (1,705,405 | ) | Marketing, general and administrative expenses | (61.9 | ) | (740.1 | ) | — | (466.9 | ) | (436.5 | ) | — | (1,705.4 | ) | ||||||||||||||||||||
Special items, net | Special items, net | 5,282 | (73,652 | ) | — | — | (9,034 | ) | — | (77,404 | ) | Special items, net | 5.3 | (73.6 | ) | — | — | (9.1 | ) | — | (77.4 | ) | ||||||||||||||||||||||||
Operating income | 361,461 | 488,751 | 2 | 4,103 | 615,160 | (888,382 | ) | 581,095 | Operating income | 361.5 | 488.8 | — | 474.2 | 145.0 | (888.4 | ) | 581.1 | |||||||||||||||||||||||||||||
Interest income (expense), net | Interest income (expense), net | (625 | ) | (65,764 | ) | (55,416 | ) | 1,136 | (6,112 | ) | — | (126,781 | ) | Interest income (expense), net | (0.6 | ) | (65.8 | ) | (55.4 | ) | 1.7 | (6.6 | ) | — | (126.7 | ) | ||||||||||||||||||||
Other income (expense), net | Other income (expense), net | 64 | 3,870 | — | (1,667 | ) | 15,469 | — | 17,736 | Other income (expense), net | — | 3.9 | — | 0.9 | 12.9 | — | 17.7 | |||||||||||||||||||||||||||||
Income (loss) from continuing operations before income taxes | 360,900 | 426,857 | (55,414 | ) | 3,572 | 624,517 | (888,382 | ) | 472,050 | Income (loss) from continuing operations before income taxes | 360.9 | 426.9 | (55.4 | ) | 476.8 | 151.3 | (888.4 | ) | 472.1 | |||||||||||||||||||||||||||
Income tax (expense) benefit | Income tax (expense) benefit | 131 | (8,805 | ) | — | (1,059 | ) | (72,672 | ) | — | (82,405 | ) | Income tax (expense) benefit | 0.1 | (8.8 | ) | — | (1.1 | ) | (72.6 | ) | — | (82.4 | ) | ||||||||||||||||||||||
Income (loss) from continuing operations before minority interests | 361,031 | 418,052 | (55,414 | ) | 2,513 | 551,845 | (888,382 | ) | 389,645 | Income (loss) from continuing operations before minority interests | 361.0 | 418.1 | (55.4 | ) | 475.7 | 78.7 | (888.4 | ) | 389.7 | |||||||||||||||||||||||||||
Minority interests in net income of consolidated entities | Minority interests in net income of consolidated entities | — | — | — | — | (16,089 | ) | — | (16,089 | ) | Minority interests in net income of consolidated entities | — | — | — | — | (16.1 | ) | — | (16.1 | ) | ||||||||||||||||||||||||||
Income (loss) from continuing operations | 361,031 | 418,052 | (55,414 | ) | 2,513 | 535,756 | (888,382 | ) | 373,556 | Income (loss) from continuing operations | 361.0 | 418.1 | (55.4 | ) | 475.7 | 62.6 | (888.4 | ) | 373.6 | |||||||||||||||||||||||||||
Loss from discontinued operations, net of tax | Loss from discontinued operations, net of tax | — | — | — | — | (12,525 | ) | — | (12,525 | ) | Loss from discontinued operations, net of tax | — | — | — | — | (12.6 | ) | — | (12.6 | ) | ||||||||||||||||||||||||||
Net income (loss) | $ | 361,031 | $ | 418,052 | $ | (55,414 | ) | $ | 2,513 | $ | 523,231 | $ | (888,382 | ) | $ | 361,031 | Net income (loss) | $ | 361.0 | $ | 418.1 | $ | (55.4 | ) | $ | 475.7 | $ | 50.0 | $ | (888.4 | ) | $ | 361.0 | |||||||||||||
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
23.21. Supplemental Guarantor Information (Continued)
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF DECEMBER 28, 2008
(IN MILLIONS)
(UNAUDITED)
| Parent Guarantor and 2007 Issuer | 2002 Issuer | 2005 Issuers | Subsidiary Guarantors | Subsidiary Non Guarantors | Eliminations | Consolidated | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Assets | |||||||||||||||||||||||
Current assets: | |||||||||||||||||||||||
Cash and cash equivalents | $ | 84.9 | $ | 0.4 | $ | 0.1 | $ | 24.1 | $ | 106.7 | $ | — | $ | 216.2 | |||||||||
Accounts receivable, net | 9.1 | 10.9 | — | 132.1 | 320.4 | — | 472.5 | ||||||||||||||||
Other receivables, net | 20.2 | 28.1 | (14.9 | ) | 46.4 | 83.1 | — | 162.9 | |||||||||||||||
Total inventories, net | — | — | — | 111.9 | 80.2 | — | 192.1 | ||||||||||||||||
Other assets, net | (0.4 | ) | 3.1 | — | 24.5 | 34.7 | — | 61.9 | |||||||||||||||
Deferred tax assets | (18.3 | ) | 17.5 | — | — | 0.8 | — | — | |||||||||||||||
Discontinued operations | — | — | — | — | 1.5 | — | 1.5 | ||||||||||||||||
Total current assets | 95.5 | 60.0 | (14.8 | ) | 339.0 | 627.4 | — | 1,107.1 | |||||||||||||||
Properties, net | 25.4 | 7.7 | — | 597.7 | 671.1 | — | 1,301.9 | ||||||||||||||||
Goodwill | — | 11.4 | — | 275.2 | 1,011.4 | — | 1,298.0 | ||||||||||||||||
Other intangibles, net | — | 44.4 | — | 3,552.1 | 326.9 | — | 3,923.4 | ||||||||||||||||
Investment in MillerCoors | — | 2,418.7 | — | — | — | — | 2,418.7 | ||||||||||||||||
Net investment in and advances to subsidiaries | 5,646.3 | (1,182.1 | ) | 4,282.9 | — | — | (8,747.1 | ) | — | ||||||||||||||
Deferred tax assets | (2.4 | ) | 18.4 | 100.7 | 15.1 | (26.5 | ) | — | 105.3 | ||||||||||||||
Other assets | 6.6 | 54.9 | 3.9 | 81.5 | 108.3 | — | 255.2 | ||||||||||||||||
Discontinued operations | — | — | — | — | 7.0 | — | 7.0 | ||||||||||||||||
Total assets | $ | 5,771.4 | $ | 1,433.4 | $ | 4,372.7 | $ | 4,860.6 | $ | 2,725.6 | $ | (8,747.1 | ) | $ | 10,416.6 | ||||||||
Liabilities and stockholders' equity | |||||||||||||||||||||||
Current liabilities: | |||||||||||||||||||||||
Accounts payable | $ | 6.8 | $ | 1.7 | $ | — | $ | 61.5 | $ | 100.5 | $ | — | $ | 170.5 | |||||||||
Accrued expenses and other liabilities | 18.9 | 18.1 | 10.3 | 218.7 | 424.8 | — | 690.8 | ||||||||||||||||
Deferred tax liability | 39.0 | — | — | — | 68.8 | — | 107.8 | ||||||||||||||||
Short-term borrowings and current portion of long-term debt | — | 0.3 | (0.2 | ) | — | — | — | 0.1 | |||||||||||||||
Discontinued operations | — | — | — | — | 16.9 | — | 16.9 | ||||||||||||||||
Total current liabilities | 64.7 | 20.1 | 10.1 | 280.2 | 611.0 | — | 986.1 | ||||||||||||||||
Long-term debt | 575.0 | 45.3 | 1,035.5 | — | 175.9 | — | 1,831.7 | ||||||||||||||||
Deferred tax liability | (5.9 | ) | 5.9 | — | — | 399.4 | — | 399.4 | |||||||||||||||
Other liabilities | 63.2 | 10.0 | (9.9 | ) | 485.0 | 536.6 | — | 1,084.9 | |||||||||||||||
Discontinued operations | — | — | — | — | 124.8 | — | 124.8 | ||||||||||||||||
Total liabilities | 697.0 | 81.3 | 1,035.7 | 765.2 | 1,847.7 | — | 4,426.9 | ||||||||||||||||
Minority interests | — | — | — | 5.8 | 3.6 | — | 9.4 | ||||||||||||||||
Total stockholders' equity | 5,074.4 | 1,352.1 | 3,337.0 | 4,089.6 | 874.3 | (8,747.1 | ) | 5,980.3 | |||||||||||||||
Total liabilities and stockholders' equity | $ | 5,771.4 | $ | 1,433.4 | $ | 4,372.7 | $ | 4,860.6 | $ | 2,725.6 | $ | (8,747.1 | ) | $ | 10,416.6 | ||||||||
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
21. Supplemental Guarantor Information (Continued)
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF DECEMBER 30, 2007
(IN MILLIONS)
(UNAUDITED)
| Parent Guarantor and 2007 Issuer | 2002 Issuer | 2005 Issuers | Subsidiary Guarantors | Subsidiary Non Guarantors | Eliminations | Consolidated | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Assets | |||||||||||||||||||||||
Current assets: | |||||||||||||||||||||||
Cash and cash equivalents | $ | 243.7 | $ | 1.4 | $ | 0.1 | $ | 5.6 | $ | 126.2 | $ | — | $ | 377.0 | |||||||||
Accounts receivable, net | — | 89.6 | — | 171.0 | 497.9 | — | 758.5 | ||||||||||||||||
Other receivables, net | 2.6 | 17.2 | 4.7 | 14.8 | 73.3 | — | 112.6 | ||||||||||||||||
Total inventories, net | — | 88.3 | — | 147.6 | 133.7 | — | 369.6 | ||||||||||||||||
Other assets, net | 24.8 | 39.7 | — | 19.9 | 51.3 | — | 135.7 | ||||||||||||||||
Deferred tax assets | (0.2 | ) | 16.5 | — | 1.0 | 0.6 | — | 17.9 | |||||||||||||||
Discontinued operations | — | — | — | — | 5.5 | — | 5.5 | ||||||||||||||||
Total current assets | 270.9 | 252.7 | 4.8 | 359.9 | 888.5 | — | 1,776.8 | ||||||||||||||||
Properties, net | 18.9 | 925.3 | — | 904.4 | 847.6 | — | �� | 2,696.2 | |||||||||||||||
Goodwill | — | 76.4 | — | 934.0 | 2,336.1 | — | 3,346.5 | ||||||||||||||||
Other intangibles, net | — | 23.0 | — | 4,518.9 | 497.5 | — | 5,039.4 | ||||||||||||||||
Net investment in and advances to subsidiaries | 6,188.2 | (465.8 | ) | 7,229.2 | — | — | (12,951.6 | ) | — | ||||||||||||||
Deferred tax assets | 232.3 | 35.3 | 101.0 | (19.9 | ) | (11.8 | ) | — | 336.9 | ||||||||||||||
Other assets | 18.5 | 18.4 | 5.8 | 68.1 | 139.9 | — | 250.7 | ||||||||||||||||
Discontinued operations | — | — | — | — | 5.1 | — | 5.1 | ||||||||||||||||
Total assets | $ | 6,728.8 | $ | 865.3 | $ | 7,340.8 | $ | 6,765.4 | $ | 4,702.9 | $ | (12,951.6 | ) | $ | 13,451.6 | ||||||||
Liabilities and stockholders' equity | |||||||||||||||||||||||
Current liabilities: | |||||||||||||||||||||||
Accounts payable | $ | 5.9 | $ | 143.7 | $ | — | $ | 79.6 | $ | 151.5 | $ | — | $ | 380.7 | |||||||||
Accrued expenses and other liabilities | 35.8 | 285.7 | 22.1 | 287.1 | 558.4 | — | 1,189.1 | ||||||||||||||||
Deferred tax liability | — | — | — | — | 120.6 | — | 120.6 | ||||||||||||||||
Short-term borrowings and current portion of long-term debt | — | (0.1 | ) | (0.2 | ) | — | 4.6 | — | 4.3 | ||||||||||||||
Discontinued operations | — | — | — | — | 40.8 | — | 40.8 | ||||||||||||||||
Total current liabilities | 41.7 | 429.3 | 21.9 | 366.7 | 875.9 | — | 1,735.5 | ||||||||||||||||
Long-term debt | 575.0 | 231.8 | 1,215.2 | — | 238.6 | — | 2,260.6 | ||||||||||||||||
Deferred tax liability | — | — | — | — | 605.4 | — | 605.4 | ||||||||||||||||
Other liabilities | 32.7 | 432.8 | 75.2 | 493.3 | 498.0 | — | 1,532.0 | ||||||||||||||||
Discontinued operations | — | — | — | — | 124.8 | — | 124.8 | ||||||||||||||||
Total liabilities | 649.4 | 1,093.9 | 1,312.3 | 860.0 | 2,342.7 | — | 6,258.3 | ||||||||||||||||
Minority interests | — | — | — | 5.9 | 37.9 | — | 43.8 | ||||||||||||||||
Total stockholders' equity | 6,079.4 | (228.6 | ) | 6,028.5 | 5,899.5 | 2,322.3 | (12,951.6 | ) | 7,149.5 | ||||||||||||||
Total liabilities and stockholders' equity | $ | 6,728.8 | $ | 865.3 | $ | 7,340.8 | $ | 6,765.4 | $ | 4,702.9 | $ | (12,951.6 | ) | $ | 13,451.6 | ||||||||
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
21. Supplemental Guarantor Information (Continued)
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONSCASH FLOWS
FOR THE YEAR ENDED DECEMBER 25, 200528, 2008
(IN THOUSANDS)MILLIONS)
| Parent Guarantor | 2002 Issuer | 2005 Issuers | Subsidiary Guarantors | Subsidiary Non Guarantors | Eliminations | Consolidated | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sales | $ | — | $ | 2,533,888 | $ | — | $ | 146,376 | $ | 4,737,438 | $ | — | $ | 7,417,702 | |||||||||
Excise taxes | — | (388,102 | ) | — | (2,149 | ) | (1,520,545 | ) | — | (1,910,796 | ) | ||||||||||||
Net sales | — | 2,145,786 | — | 144,227 | 3,216,893 | — | 5,506,906 | ||||||||||||||||
Cost of goods sold | — | (1,377,811 | ) | — | (76,301 | ) | (1,852,837 | ) | — | (3,306,949 | ) | ||||||||||||
Equity in subsidiary earnings | 159,109 | 174,730 | — | — | — | (333,839 | ) | — | |||||||||||||||
Gross profit | 159,109 | 942,705 | — | 67,926 | 1,364,056 | (333,839 | ) | 2,199,957 | |||||||||||||||
Marketing, general and administrative expenses | (3,637 | ) | (746,758 | ) | — | (21,626 | ) | (860,495 | ) | — | (1,632,516 | ) | |||||||||||
Special items, net | (17,564 | ) | (98,323 | ) | — | — | (29,505 | ) | — | (145,392 | ) | ||||||||||||
Operating income | 137,908 | 97,624 | — | 46,300 | 474,056 | (333,839 | ) | 422,049 | |||||||||||||||
Interest income (expense), net | (4 | ) | (5,067 | ) | (29,084 | ) | 14,231 | (93,679 | ) | — | (113,603 | ) | |||||||||||
Other (expense) income, net | (431 | ) | 313 | — | 1,369 | (14,496 | ) | — | (13,245 | ) | |||||||||||||
�� | |||||||||||||||||||||||
Income (loss) from continuing operations before income taxes | 137,473 | 92,870 | (29,084 | ) | 61,900 | 365,881 | (333,839 | ) | 295,201 | ||||||||||||||
Income tax (expense) benefit | (2,529 | ) | 62,338 | — | (37,586 | ) | (72,487 | ) | — | (50,264 | ) | ||||||||||||
Income (loss) from continuing operations before minority interests | 134,944 | 155,208 | (29,084 | ) | 24,314 | 293,394 | (333,839 | ) | 244,937 | ||||||||||||||
Minority interests in net income of consolidated entities | — | — | — | — | (14,491 | ) | — | (14,491 | ) | ||||||||||||||
Income (loss) from continuing operations | 134,944 | 155,208 | (29,084 | ) | 24,314 | 278,903 | (333,839 | ) | 230,446 | ||||||||||||||
Loss from discontinued operations, net of tax | — | — | — | — | (91,826 | ) | — | (91,826 | ) | ||||||||||||||
Income (loss) before cumulative effect of change in accounting principle | 134,944 | 155,208 | (29,084 | ) | 24,314 | 187,077 | (333,839 | ) | 138,620 | ||||||||||||||
Cumulative effect of change in accounting principle, net of tax | — | (3,486 | ) | — | — | (190 | ) | — | (3,676 | ) | |||||||||||||
Net income (loss) | $ | 134,944 | $ | 151,722 | $ | (29,084 | ) | $ | 24,314 | $ | 186,887 | $ | (333,839 | ) | $ | 134,944 | |||||||
| Parent Guarantor | 2002 Issuer | 2005 Issuers | Subsidiary Guarantors | Subsidiary Non Guarantors | Consolidated | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net cash (used in) provided by operating activities | $ | (208.6 | ) | $ | (130.3 | ) | $ | (31.5 | ) | $ | 620.5 | $ | 161.4 | $ | 411.5 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||||||
Additions to properties and intangible assets | (13.6 | ) | (52.8 | ) | — | (59.4 | ) | (104.7 | ) | (230.5 | ) | |||||||||
Proceeds from sales of properties and intangible assets | — | 31.5 | — | 1.0 | 6.3 | 38.8 | ||||||||||||||
Proceeds from sales of investments securities | 22.8 | — | — | — | — | 22.8 | ||||||||||||||
Investment in MillerCoors | — | (84.3 | ) | — | — | — | (84.3 | ) | ||||||||||||
Investment in and (advances to) an unconsolidated affiliate | — | — | — | (4.8 | ) | (2.1 | ) | (6.9 | ) | |||||||||||
Trade loan repayments from customers | — | — | — | — | 25.8 | 25.8 | ||||||||||||||
Trade loan advances to customers | — | — | — | — | (31.5 | ) | (31.5 | ) | ||||||||||||
Other | (1.9 | ) | (1.8 | ) | — | — | — | (3.7 | ) | |||||||||||
Net cash used in investing activities | 7.3 | (107.4 | ) | — | (63.2 | ) | (106.2 | ) | (269.5 | ) | ||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||||||
Issuances of stock under equity compensation plans | 59.0 | — | — | — | — | 59.0 | ||||||||||||||
Excess tax benefits from share-based compensation | 8.3 | — | — | — | — | 8.3 | ||||||||||||||
Dividends paid | (118.9 | ) | — | — | — | (20.2 | ) | (139.1 | ) | |||||||||||
Dividends paid to minority interest holders | — | — | — | (8.4 | ) | (11.9 | ) | (20.3 | ) | |||||||||||
Proceeds from issuance of long term debt | — | — | — | — | 16.0 | 16.0 | ||||||||||||||
Payments of long term debt and capital lease obligations | — | (180.4 | ) | — | (0.5 | ) | (0.4 | ) | (181.3 | ) | ||||||||||
Proceeds from short term borrowings | — | — | — | 42.4 | 12.1 | 54.5 | ||||||||||||||
Payments on short term borrowings | — | — | — | (39.9 | ) | (7.4 | ) | (47.3 | ) | |||||||||||
Net proceeds from revolving credit facilities | — | — | — | — | 1.1 | 1.1 | ||||||||||||||
Change in overdraft balances and other | (1.5 | ) | (39.3 | ) | — | 73.7 | (62.7 | ) | (29.8 | ) | ||||||||||
Settlements of debt-related derivatives | — | 12.0 | — | 0.6 | (0.6 | ) | 12.0 | |||||||||||||
Net activity in investments and (advances to) subsidiaries | 95.6 | 444.5 | 31.5 | (594.4 | ) | 22.8 | — | |||||||||||||
Net cash provided by (used in) financing activities | 42.5 | 236.8 | 31.5 | (526.5 | ) | (51.2 | ) | (266.9 | ) | |||||||||||
CASH AND CASH EQUIVALENTS: | ||||||||||||||||||||
Net increase (decrease) in cash and cash equivalents | (158.8 | ) | (0.9 | ) | — | 30.8 | 4.0 | (124.9 | ) | |||||||||||
Effect of foreign exchange rate changes on cash and cash equivalents | — | (0.1 | ) | — | (12.3 | ) | (23.5 | ) | (35.9 | ) | ||||||||||
Balance at beginning of year | 243.7 | 1.4 | 0.1 | 5.6 | 126.2 | 377.0 | ||||||||||||||
Balance at end of period | $ | 84.9 | $ | 0.4 | $ | 0.1 | $ | 24.1 | $ | 106.7 | $ | 216.2 | ||||||||
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
23. Supplemental Guarantor Information (Continued)
MOLSON COORS BREWING COMPANY AND SUBSIDIARIESCONDENSED CONSOLIDATING BALANCE SHEETAS OF DECEMBER 30, 2007(IN THOUSANDS)
| Parent Guarantor | 2002 Issuer | 2005 Issuers | Subsidiary Guarantors | Subsidiary Non Guarantors | Eliminations | Consolidated | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Assets | ||||||||||||||||||||||
Current assets: | ||||||||||||||||||||||
Cash and cash equivalents | $ | 243,757 | $ | 1,357 | $ | 123 | $ | 5,295 | $ | 126,491 | $ | — | $ | 377,023 | ||||||||
Accounts receivable, net | — | 89,567 | — | 9,599 | 659,360 | — | 758,526 | |||||||||||||||
Other receivables, net | 2,642 | 17,185 | 4,692 | 8,256 | 79,851 | — | 112,626 | |||||||||||||||
Total inventories, net | — | 88,252 | — | 4,901 | 276,368 | — | 369,521 | |||||||||||||||
Other assets, net | 24,748 | 39,704 | — | 1,445 | 69,784 | — | 135,681 | |||||||||||||||
Deferred tax asset | (162 | ) | 16,512 | — | 951 | 600 | — | 17,901 | ||||||||||||||
Discontinued operations | — | — | — | — | 5,536 | — | 5,536 | |||||||||||||||
Total current assets | 270,985 | 252,577 | 4,815 | 30,447 | 1,217,990 | — | 1,776,814 | |||||||||||||||
Properties, net | 18,860 | 925,309 | — | 18,910 | 1,733,074 | — | 2,696,153 | |||||||||||||||
Goodwill | — | 76,389 | — | 2,752 | 3,267,345 | — | 3,346,486 | |||||||||||||||
Other intangibles, net | — | 22,977 | — | 10,823 | 5,005,563 | — | 5,039,363 | |||||||||||||||
Net investment in and advances to subsidiaries | 6,188,228 | (465,846 | ) | 7,229,157 | — | — | (12,951,539 | ) | — | |||||||||||||
Deferred tax asset | 232,268 | 35,345 | 101,016 | (19,941 | ) | (11,781 | ) | — | 336,907 | |||||||||||||
Other assets | 18,505 | 18,437 | 5,825 | — | 207,974 | — | 250,741 | |||||||||||||||
Discontinued operations | — | — | — | — | 5,102 | — | 5,102 | |||||||||||||||
Total assets | $ | 6,728,846 | $ | 865,188 | $ | 7,340,813 | $ | 42,991 | $ | 11,425,267 | $ | (12,951,539 | ) | $ | 13,451,566 | |||||||
Liabilities and stockholders' equity | ||||||||||||||||||||||
Current liabilities | ||||||||||||||||||||||
Accounts payable | $ | 5,922 | $ | 143,658 | $ | — | $ | 3,347 | $ | 227,772 | $ | — | $ | 380,699 | ||||||||
Accrued expenses and other liabilities | 35,820 | 285,680 | 22,119 | 26,775 | 818,740 | — | 1,189,134 | |||||||||||||||
Deferred tax liability | — | — | — | — | 120,605 | — | 120,605 | |||||||||||||||
Short-term borrowings and current portion of long-term debt | — | (91 | ) | (228 | ) | — | 4,600 | — | 4,281 | |||||||||||||
Discontinued operations | — | — | — | — | 40,858 | — | 40,858 | |||||||||||||||
Total current liabilities | 41,742 | 429,247 | 21,891 | 30,122 | 1,212,575 | — | 1,735,577 | |||||||||||||||
Long-term debt | 575,000 | 231,753 | 1,215,236 | — | 238,607 | — | 2,260,596 | |||||||||||||||
Deferred tax liability | — | — | — | — | 605,377 | — | 605,377 | |||||||||||||||
Other liabilities | 32,748 | 432,766 | 75,219 | 175,431 | 815,919 | — | 1,532,083 | |||||||||||||||
Discontinued operations | — | — | — | — | 124,791 | — | 124,791 | |||||||||||||||
Total liabilities | 649,490 | 1,093,766 | 1,312,346 | 205,553 | 2,997,269 | — | 6,258,424 | |||||||||||||||
Minority interests | — | — | — | — | 43,751 | — | 43,751 | |||||||||||||||
Total stockholders' equity | 6,079,356 | (228,578 | ) | 6,028,467 | (162,562 | ) | 8,384,247 | (12,951,539 | ) | 7,149,391 | ||||||||||||
Total liabilities and stockholders' equity | $ | 6,728,846 | $ | 865,188 | $ | 7,340,813 | $ | 42,991 | $ | 11,425,267 | $ | (12,951,539 | ) | $ | 13,451,566 | |||||||
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
23. Supplemental Guarantor Information (Continued)
MOLSON COORS BREWING COMPANY AND SUBSIDIARIESCONDENSED CONSOLIDATING BALANCE SHEETAS OF DECEMBER 31, 2006(IN THOUSANDS)
| Parent Guarantor | 2002 Issuer | 2005 Issuers | Subsidiary Guarantors | Subsidiary Non Guarantors | Eliminations | Consolidated | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Assets | ||||||||||||||||||||||
Current assets: | ||||||||||||||||||||||
Cash and cash equivalents | $ | 81,091 | $ | 1,807 | $ | 32 | $ | 4,845 | $ | 94,411 | $ | — | $ | 182,186 | ||||||||
Accounts receivable, net | — | 79,035 | — | 9,078 | 595,396 | — | 683,509 | |||||||||||||||
Other receivables, net | 1,859 | 31,100 | 4,001 | 3,274 | 104,856 | — | 145,090 | |||||||||||||||
Total inventories, net | — | 88,184 | — | 4,859 | 226,495 | — | 319,538 | |||||||||||||||
Other assets, net | 248 | 51,782 | — | 1,476 | 63,410 | — | 116,916 | |||||||||||||||
Deferred tax asset | 23,954 | 19,142 | — | 455 | (37,074 | ) | — | 6,477 | ||||||||||||||
Discontinued operations | — | — | — | — | 4,640 | — | 4,640 | |||||||||||||||
Total current assets | 107,152 | 271,050 | 4,033 | 23,987 | 1,052,134 | — | 1,458,356 | |||||||||||||||
Properties, net | 13,501 | 886,858 | — | 18,850 | 1,502,275 | — | 2,421,484 | |||||||||||||||
Goodwill | — | 11,385 | — | 3,099 | 2,954,192 | — | 2,968,676 | |||||||||||||||
Other intangibles, net | — | 23,281 | — | 10,477 | 4,361,536 | — | 4,395,294 | |||||||||||||||
Net investment in and advances to subsidiaries | 4,256,365 | 6,332,906 | — | — | — | (10,589,271 | ) | — | ||||||||||||||
Deferred tax asset | 448,460 | 82,751 | — | 67,911 | (467,773 | ) | — | 131,349 | ||||||||||||||
Other assets | 10,911 | 23,800 | 5,763 | 10 | 183,453 | — | 223,937 | |||||||||||||||
Discontinued operations | — | — | — | — | 4,317 | — | 4,317 | |||||||||||||||
Total assets | $ | 4,836,389 | $ | 7,632,031 | $ | 9,796 | $ | 124,334 | $ | 9,590,134 | $ | (10,589,271 | ) | $ | 11,603,413 | |||||||
Liabilities and stockholders' equity | ||||||||||||||||||||||
Current liabilities | ||||||||||||||||||||||
Accounts payable | $ | 2,117 | $ | 182,254 | $ | — | $ | 1,994 | $ | 233,285 | $ | — | $ | 419,650 | ||||||||
Accrued expenses and other liabilities | 31,054 | 256,793 | 18,206 | 4,972 | 914,381 | — | 1,225,406 | |||||||||||||||
Deferred tax liability | 45,437 | — | — | (2 | ) | 70,894 | — | 116,329 | ||||||||||||||
Short-term borrowings and current portion of long-term debt | — | (344 | ) | (192 | ) | — | 4,977 | — | 4,441 | |||||||||||||
Discontinued operations | — | — | — | — | 34,290 | — | 34,290 | |||||||||||||||
Total current liabilities | 78,608 | 438,703 | 18,014 | 6,964 | 1,257,827 | — | 1,800,116 | |||||||||||||||
Long-term debt | — | 848,049 | 1,070,446 | — | 211,350 | — | 2,129,845 | |||||||||||||||
Deferred tax liability | 369,449 | 107,989 | — | 1,749 | 127,813 | — | 607,000 | |||||||||||||||
Other liabilities | 6,664 | 545,237 | 7,684 | — | 557,086 | — | 1,116,671 | |||||||||||||||
Discontinued operations | — | — | — | — | 85,643 | — | 85,643 | |||||||||||||||
Total liabilities | 454,721 | 1,939,978 | 1,096,144 | 8,713 | 2,239,719 | — | 5,739,275 | |||||||||||||||
Minority interests | — | — | — | — | 46,782 | — | 46,782 | |||||||||||||||
Total stockholders' equity | 4,381,668 | 5,692,053 | (1,086,348 | ) | 115,621 | 7,303,633 | (10,589,271 | ) | 5,817,356 | |||||||||||||
Total liabilities and stockholders' equity | $ | 4,836,389 | $ | 7,632,031 | $ | 9,796 | $ | 124,334 | $ | 9,590,134 | $ | (10,589,271 | ) | $ | 11,603,413 | |||||||
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
23.21. Supplemental Guarantor Information (Continued)
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 30, 2007
(IN THOUSANDS)MILLIONS)
| | Parent Guarantor | 2002 Issuer | 2005 Issuers | Subsidiary Guarantors | Subsidiary Non Guarantors | Consolidated | | Parent Guarantor | 2002 Issuer | 2005 Issuers | Subsidiary Guarantors | Subsidiary Non Guarantors | Consolidated | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net cash (used in) provided by operating activities | Net cash (used in) provided by operating activities | $ | (159,002 | ) | $ | 129,042 | $ | 239,659 | $ | (56,313 | ) | $ | 462,651 | $ | 616,037 | Net cash (used in) provided by operating activities | $ | (85.7 | ) | $ | 136.2 | $ | (66.7 | ) | $ | 497.5 | $ | 134.7 | $ | 616.0 | ||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | CASH FLOWS FROM INVESTING ACTIVITIES: | CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||||||||||||||||||||||||
Additions to properties and intangible assets | (8,247 | ) | (124,427 | ) | — | (1,850 | ) | (293,825 | ) | (428,349 | ) | |||||||||||||||||||||||||||||
Proceeds from sales of properties and intangible assets | — | 918 | — | (203 | ) | 7,331 | 8,046 | Additions to properties and intangible assets | (8.2 | ) | (124.4 | ) | — | (77.4 | ) | (218.3 | ) | (428.3 | ) | |||||||||||||||||||||
Purchases of investments securities | (22,777 | ) | — | — | — | — | (22,777 | ) | Proceeds from sales of businesses and other assets | — | 0.9 | — | 29.6 | 7.6 | 38.1 | |||||||||||||||||||||||||
Acquisition of subsidiaries, net of cash acquired | — | — | — | — | (26,700 | ) | (26,700 | ) | Purchases of investments securities | (22.8 | ) | — | — | — | — | (22.8 | ) | |||||||||||||||||||||||
Proceeds from sale of House of Blues Canada equity investment | — | — | — | — | 30,008 | 30,008 | Acquisition of businesses, net of cash acquired | — | — | — | — | (26.7 | ) | (26.7 | ) | |||||||||||||||||||||||||
Trade loan repayments from customers | — | — | — | — | 32,352 | 32,352 | Trade loan repayments from customers | — | — | — | — | 32.3 | 32.3 | |||||||||||||||||||||||||||
Trade loan advances to customers | — | — | — | — | (32,952 | ) | (32,952 | ) | Trade loan advances to customers | — | — | — | — | (32.9 | ) | (32.9 | ) | |||||||||||||||||||||||
Other | — | 1,225 | — | — | — | 1,225 | Other | — | 1.2 | — | — | — | 1.2 | |||||||||||||||||||||||||||
Net cash used in investing activities | Net cash used in investing activities | (31,024 | ) | (122,284 | ) | — | (2,053 | ) | (283,786 | ) | (439,147 | ) | Net cash used in investing activities | (31.0 | ) | (122.3 | ) | — | (47.8 | ) | (238.0 | ) | (439.1 | ) | ||||||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | CASH FLOWS FROM FINANCING ACTIVITIES: | CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||||||||||||||||||||||||
Issuances of stock under equity compensation plans | 209,531 | — | — | — | — | 209,531 | Issuances of stock under equity compensation plans | 209.5 | — | — | — | — | 209.5 | |||||||||||||||||||||||||||
Excess tax benefits from share-based compensation | 28,135 | — | — | — | — | 28,135 | Excess tax benefits from share-based compensation | 28.1 | — | — | — | — | 28.1 | |||||||||||||||||||||||||||
Dividends paid | (93,930 | ) | — | — | — | (20,853 | ) | (114,783 | ) | Dividends paid | (93.9 | ) | — | — | — | (20.9 | ) | (114.8 | ) | |||||||||||||||||||||
Dividends paid to minority interest holders | — | — | — | — | (16,986 | ) | (16,986 | ) | Dividends paid to minority interest holders | — | — | — | — | (17.0 | ) | (17.0 | ) | |||||||||||||||||||||||
Proceeds on issuance of convertible debt | 575,000 | — | — | — | — | 575,000 | Proceeds on issuance of convertible debt | 575.0 | — | — | — | — | 575.0 | |||||||||||||||||||||||||||
Debt issuance costs | (10,209 | ) | — | — | — | — | (10,209 | ) | Debt issuance costs | (10.2 | ) | — | — | — | — | (10.2 | ) | |||||||||||||||||||||||
Sale of warrants | 56,991 | — | — | — | — | 56,991 | Sale of warrants | 57.0 | — | — | — | — | 57.0 | |||||||||||||||||||||||||||
Purchase of call options | (106,656 | ) | — | — | — | — | (106,656 | ) | Purchase of call options | (106.7 | ) | — | — | — | — | (106.7 | ) | |||||||||||||||||||||||
Payments of long term debt and capital lease obligations | — | (625,748 | ) | — | — | (5,290 | ) | (631,038 | ) | Payments on long term debt and capital lease obligations | — | (625.7 | ) | — | (0.4 | ) | (4.9 | ) | (631.0 | ) | ||||||||||||||||||||
Proceeds from short term borrowings | — | — | — | — | 179,187 | 179,187 | Proceeds from short term borrowings | — | — | — | 30.9 | 148.3 | 179.2 | |||||||||||||||||||||||||||
Payments on short term borrowings | — | — | — | — | (180,511 | ) | (180,511 | ) | Payments on short term borrowings | — | — | — | (31.6 | ) | (148.9 | ) | (180.5 | ) | ||||||||||||||||||||||
Net proceeds from (payments on) commercial paper | — | — | — | — | — | — | Net proceeds from (payments on) revolving credit facilities | — | — | — | (5.5 | ) | (0.6 | ) | (6.1 | ) | ||||||||||||||||||||||||
Net proceeds from (payments on) revovling credit facilities | (6,109 | ) | (6,109 | ) | Change in overdraft balances and other | (0.1 | ) | 23.6 | — | 3.3 | (6.1 | ) | 20.7 | |||||||||||||||||||||||||||
Change in overdraft balances and other | (91 | ) | 23,595 | — | — | (2,771 | ) | 20,733 | Settlements of debt-related derivatives | 0.1 | — | — | 0.6 | 4.5 | 5.2 | |||||||||||||||||||||||||
Settlements of debt-related derivatives | 53 | 5,097 | 5,150 | Net activity in investments and (advances to) subsidiaries | (379.5 | ) | 587.8 | 66.8 | (460.7 | ) | 185.6 | — | ||||||||||||||||||||||||||||
Net activity in investments and advances (to) subsidiaries | (306,132 | ) | 594,945 | (239,581 | ) | 58,687 | (107,919 | ) | — | |||||||||||||||||||||||||||||||
Net cash provided by (used in) financing activities | Net cash provided by (used in) financing activities | 352,692 | (7,208 | ) | (239,581 | ) | 58,687 | (156,155 | ) | 8,435 | Net cash provided by (used in) financing activities | 279.3 | (14.3 | ) | 66.8 | (463.4 | ) | 140.0 | 8.4 | |||||||||||||||||||||
CASH AND CASH EQUIVALENTS: | CASH AND CASH EQUIVALENTS: | CASH AND CASH EQUIVALENTS: | ||||||||||||||||||||||||||||||||||||||
Net increase (decrease) in cash and cash equivalents | 162,666 | (450 | ) | 78 | 321 | 22,710 | 185,325 | Net increase (decrease) in cash and cash equivalents | 162.6 | (0.4 | ) | 0.1 | (13.7 | ) | 36.7 | 185.3 | ||||||||||||||||||||||||
Effect of foreign exchange rate changes on cash and cash equivalents | — | — | 13 | 129 | 9,370 | 9,512 | Effect of foreign exchange rate changes on cash and cash equivalents | — | — | — | 2.8 | 6.7 | 9.5 | |||||||||||||||||||||||||||
Balance at beginning of year | Balance at beginning of year | 81,091 | 1,807 | 32 | 4,845 | 94,411 | 182,186 | Balance at beginning of year | 81.1 | 1.8 | — | 16.5 | 82.8 | 182.2 | ||||||||||||||||||||||||||
Balance at end of period | Balance at end of period | $ | 243,757 | $ | 1,357 | $ | 123 | $ | 5,295 | $ | 126,491 | $ | 377,023 | Balance at end of period | $ | 243.7 | $ | 1.4 | $ | 0.1 | $ | 5.6 | $ | 126.2 | $ | 377.0 | ||||||||||||||
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
23.21. Supplemental Guarantor Information (Continued)
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2006
(IN THOUSANDS)MILLIONS)
| | Parent Guarantor | 2002 Issuer | 2005 Issuers | Subsidiary Guarantors | Subsidiary Non Guarantors | Consolidated | | Parent Guarantor | 2002 Issuer | 2005 Issuers | Subsidiary Guarantors | Subsidiary Non Guarantors | Consolidated | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net cash (used in) provided by operating activities | Net cash (used in) provided by operating activities | $ | (23,928 | ) | $ | 139,683 | $ | (52,780 | ) | $ | 7,745 | $ | 762,524 | $ | 833,244 | Net cash (used in) provided by operating activities | $ | (31.6 | ) | $ | 148.5 | $ | (53.2 | ) | $ | 525.7 | $ | 243.8 | $ | 833.2 | ||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | CASH FLOWS FROM INVESTING ACTIVITIES: | CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||||||||||||||||||||||||
Additions to properties and intangible assets | (6,068 | ) | (274,605 | ) | — | (1,442 | ) | (164,261 | ) | (446,376 | ) | Additions to properties and intangible assets | (6.1 | ) | (274.6 | ) | — | (71.3 | ) | (94.4 | ) | (446.4 | ) | |||||||||||||||||
Proceeds from sales of properties and intangible assets | — | 10,783 | — | 108 | 18,227 | 29,118 | Proceeds from sales of properties and intangible assets | — | 10.8 | — | 1.3 | 17.0 | 29.1 | |||||||||||||||||||||||||||
Proceeds coincident with the sale of preferred equity holdings of Montréal Canadiens | — | — | — | — | 36,520 | 36,520 | Proceeds coincident with the sale of preferred equity holdings of Montréal Canadiens | — | — | — | — | 36.5 | 36.5 | |||||||||||||||||||||||||||
Trade loan repayments from customers | — | — | — | — | 34,152 | 34,152 | Trade loan repayments from customers | — | — | — | — | 34.2 | 34.2 | |||||||||||||||||||||||||||
Trade loans advanced to customers | — | — | — | — | (27,982 | ) | (27,982 | ) | Trade loans advanced to customers | — | — | — | — | (28.0 | ) | (28.0 | ) | |||||||||||||||||||||||
Discontinued operations—proceeds from sale of majority stake in Kaiser, net of costs to sell | — | (4,454 | ) | — | — | 83,919 | 79,465 | Discontinued operations—proceeds from sale of majority stake in Kaiser, net of costs to sell | — | (4.4 | ) | — | — | 83.9 | 79.5 | |||||||||||||||||||||||||
Other | — | 290 | — | — | — | 290 | Other | — | 0.3 | — | — | — | 0.3 | |||||||||||||||||||||||||||
Net cash used in investing activities | Net cash used in investing activities | (6,068 | ) | (267,986 | ) | — | (1,334 | ) | (19,425 | ) | (294,813 | ) | Net cash used in investing activities | (6.1 | ) | (267.9 | ) | — | (70.0 | ) | 49.2 | (294.8 | ) | |||||||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | CASH FLOWS FROM FINANCING ACTIVITIES: | CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||||||||||||||||||||||||
Issuances of stock under equity compensation plans | 83,348 | — | — | — | — | 83,348 | Issuances of stock under equity compensation plans | 83.4 | — | — | — | — | 83.4 | |||||||||||||||||||||||||||
Excess tax benefits from share-based compensation | 7,474 | — | — | — | — | 7,474 | Excess tax benefits from share-based compensation | 7.5 | — | — | — | — | 7.5 | |||||||||||||||||||||||||||
Dividends paid | (84,078 | ) | 44,028 | — | (44,028 | ) | (26,485 | ) | (110,563 | ) | Dividends paid | (84.1 | ) | 44.0 | — | (44.0 | ) | (26.4 | ) | (110.5 | ) | |||||||||||||||||||
Dividends paid to minority interest holders | — | — | — | — | (17,790 | ) | (17,790 | ) | Dividends paid to minority interest holders | — | — | — | (1.3 | ) | (16.5 | ) | (17.8 | ) | ||||||||||||||||||||||
Payments on long-term debt and capital lease obligations | — | — | — | — | (7,361 | ) | (7,361 | ) | Payments on long-term debt and capital lease obligations | — | — | — | (0.3 | ) | (7.2 | ) | (7.5 | ) | ||||||||||||||||||||||
Proceeds from short-term borrowings | — | — | — | — | 83,664 | 83,664 | Proceeds from short-term borrowings | — | — | — | 23.6 | 60.1 | 83.7 | |||||||||||||||||||||||||||
Payments on short-term borrowings | — | — | — | — | (98,110 | ) | (98,110 | ) | Payments on short-term borrowings | — | — | — | (23.5 | ) | (74.6 | ) | (98.1 | ) | ||||||||||||||||||||||
Net payments on commercial paper | — | (167,379 | ) | — | — | — | (167,379 | ) | Net payments on commercial paper | — | (167.4 | ) | — | — | — | (167.4 | ) | |||||||||||||||||||||||
Net payments on revolving credit facilities | — | — | — | — | (166,177 | ) | (166,177 | ) | Net payments on revolving credit facilities | — | — | — | — | (166.2 | ) | (166.2 | ) | |||||||||||||||||||||||
Change in overdraft balances and other | (4,426 | ) | (8,987 | ) | — | — | 5,952 | (7,461 | ) | Change in overdraft balances and other | (4.5 | ) | (9.0 | ) | — | — | 6.1 | (7.4 | ) | |||||||||||||||||||||
Other—discontinued operations | — | — | — | — | (884 | ) | (884 | ) | Other—discontinued operations | — | — | — | — | (0.9 | ) | (0.9 | ) | |||||||||||||||||||||||
Net activity in investments and advances (to) subsidiaries | 107,771 | 261,179 | 51,540 | 36,487 | (456,977 | ) | — | Net activity in investments and advances (to) subsidiaries | 115.5 | 252.3 | 51.9 | (374.0 | ) | (45.7 | ) | — | ||||||||||||||||||||||||
Net cash provided by (used in) financing activities | Net cash provided by (used in) financing activities | 110,089 | 128,841 | 51,540 | (7,541 | ) | (684,168 | ) | (401,239 | ) | Net cash provided by (used in) financing activities | 117.8 | 119.9 | 51.9 | (419.5 | ) | (271.3 | ) | (401.2 | ) | ||||||||||||||||||||
CASH AND CASH EQUIVALENTS: | CASH AND CASH EQUIVALENTS: | CASH AND CASH EQUIVALENTS: | ||||||||||||||||||||||||||||||||||||||
Net increase (decrease) in cash and cash equivalents | 80,093 | 538 | (1,240 | ) | (1,130 | ) | 58,931 | 137,192 | Net increase (decrease) in cash and cash equivalents | 80.1 | 0.5 | (1.3 | ) | 36.2 | 21.7 | 137.2 | ||||||||||||||||||||||||
Effect of foreign exchange rate changes on cash and cash equivalents | — | — | 1,241 | 400 | 3,940 | 5,581 | Effect of foreign exchange rate changes on cash and cash equivalents | — | — | 1.3 | — | 4.3 | 5.6 | |||||||||||||||||||||||||||
Balance at beginning of year | Balance at beginning of year | 998 | 1,269 | 31 | 5,575 | 31,540 | 39,413 | Balance at beginning of year | 1.0 | 1.3 | — | (19.7 | ) | 56.8 | 39.4 | |||||||||||||||||||||||||
Balance at end of period | Balance at end of period | $ | 81,091 | $ | 1,807 | $ | 32 | $ | 4,845 | $ | 94,411 | $ | 182,186 | Balance at end of period | $ | 81.1 | $ | 1.8 | $ | — | $ | 16.5 | $ | 82.8 | $ | 182.2 | ||||||||||||||
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
23. Supplemental Guarantor Information (Continued)
MOLSON COORS BREWING COMPANY AND SUBSIDIARIESCONDENSED CONSOLIDATING STATEMENT OF CASH FLOWSFOR THE YEAR ENDED DECEMBER 25, 2005(IN THOUSANDS)
| Parent Guarantor | 2002 Issuer | 2005 Issuers | Subsidiary Guarantors | Subsidiary Non Guarantors | Consolidated | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net cash (used in) provided by operating activities | $ | (78,442 | ) | $ | 180,626 | $ | (7,253 | ) | $ | 31,440 | $ | 295,904 | $ | 422,275 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||||||
Additions to properties and intangible assets | (2,357 | ) | (180,161 | ) | — | (1,457 | ) | (222,070 | ) | (406,045 | ) | |||||||||
Proceeds from sales of properties and intangible assets | — | 294 | — | 443 | 41,713 | 42,450 | ||||||||||||||
Acquisition of subsidiaries, net of cash acquired | — | — | — | — | (16,561 | ) | (16,561 | ) | ||||||||||||
Cash recognized on Merger with Molson | — | — | — | — | 73,540 | 73,540 | ||||||||||||||
Cash expended for Merger-related costs | — | (20,382 | ) | — | — | — | (20,382 | ) | ||||||||||||
Trade loan repayments from customers | — | — | — | — | 42,460 | 42,460 | ||||||||||||||
Trade loans advanced to customers | — | — | — | — | (25,369 | ) | (25,369 | ) | ||||||||||||
Other | — | — | — | — | 16 | 16 | ||||||||||||||
Discontinued operations | — | — | — | — | (2,817 | ) | (2,817 | ) | ||||||||||||
Net cash used in investing activities | (2,357 | ) | (200,249 | ) | — | (1,014 | ) | (109,088 | ) | (312,708 | ) | |||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||||||
Issuances of stock under equity compensation plans | 55,228 | — | — | 1 | — | 55,229 | ||||||||||||||
Dividends paid | (76,146 | ) | — | — | — | (33,814 | ) | (109,960 | ) | |||||||||||
Dividends paid to minority interest holders | — | — | — | — | (10,569 | ) | (10,569 | ) | ||||||||||||
Proceeds from (payments on) issuances of long-term debt | — | — | 1,051,056 | — | (13,242 | ) | 1,037,814 | |||||||||||||
Payments on long-term debt and capital lease obligations | — | — | — | — | (584,056 | ) | (584,056 | ) | ||||||||||||
Proceeds from short-term borrowings | — | — | 875,060 | — | 175,626 | 1,050,686 | ||||||||||||||
Payments on short-term borrowings | — | — | — | — | (1,887,558 | ) | (1,887,558 | ) | ||||||||||||
Net proceeds from commercial paper | — | 165,795 | — | — | — | 165,795 | ||||||||||||||
Net (payments on) proceeds from revolving credit facilities | — | (12,500 | ) | (1,025,650 | ) | — | 1,189,423 | 151,273 | ||||||||||||
Debt issuance costs | (4,635 | ) | — | — | — | (6,822 | ) | (11,457 | ) | |||||||||||
Settlements on debt-related derivatives | (11,285 | ) | — | — | — | — | (11,285 | ) | ||||||||||||
Change in overdraft balances and other | — | 8,487 | — | — | (328 | ) | 8,159 | |||||||||||||
Other—discontinued operations | — | — | — | — | (42,846 | ) | (42,846 | ) | ||||||||||||
Net activity in investments and advances from (to) subsidiaries | 115,435 | (157,878 | ) | (893,182 | ) | (28,107 | ) | 963,732 | — | |||||||||||
Net cash provided by (used in) financing activities | 78,597 | 3,904 | 7,284 | (28,106 | ) | (250,454 | ) | (188,775 | ) | |||||||||||
CASH AND CASH EQUIVALENTS: | ||||||||||||||||||||
Net increase (decrease) in cash and cash equivalents | (2,202 | ) | (15,719 | ) | 31 | 2,320 | (63,638 | ) | (79,208 | ) | ||||||||||
Effect of foreign exchange rate changes on cash and cash equivalents | — | — | — | 703 | (5,095 | ) | (4,392 | ) | ||||||||||||
Balance at beginning of year | 3,200 | 16,988 | — | 2,552 | 100,273 | 123,013 | ||||||||||||||
Balance at end of period | $ | 998 | $ | 1,269 | $ | 31 | $ | 5,575 | $ | 31,540 | $ | 39,413 | ||||||||
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
24.22. Quarterly Financial Information (Unaudited)
The following summarizes selected quarterly financial information for each of the two years ended December 30, 200728, 2008 and December 31, 2006.30, 2007. All per share amounts for prior periods were adjusted to reflect the two for one stock split issued in the form of a dividend effective October 3, 2007.
| First | Second | Third | Fourth | Full Year | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In thousands, except per share data) | |||||||||||||||||
2007 | ||||||||||||||||||
Sales | $ | 1,651,195 | $ | 2,244,024 | $ | 2,257,233 | $ | 2,167,221 | $ | 8,319,673 | ||||||||
Excise taxes | (422,584 | ) | (567,757 | ) | (571,825 | ) | (566,915 | ) | (2,129,081 | ) | ||||||||
Net sales | 1,228,611 | 1,676,267 | 1,685,408 | 1,600,306 | 6,190,592 | |||||||||||||
Cost of goods sold | (770,162 | ) | (966,897 | ) | (987,304 | ) | (978,558 | ) | (3,702,921 | ) | ||||||||
Gross profit | $ | 458,449 | $ | 709,370 | $ | 698,104 | $ | 621,748 | $ | 2,487,671 | ||||||||
Income from continuing operations | $ | 19,237 | $ | 184,344 | $ | 135,114 | $ | 176,179 | $ | 514,874 | ||||||||
(Loss) income from discontinued operations, net of tax | (14,830 | ) | 619 | (442 | ) | (3,029 | ) | (17,682 | ) | |||||||||
Net income | $ | 4,407 | $ | 184,963 | $ | 134,672 | $ | 173,150 | $ | 497,192 | ||||||||
Basic income (loss) per share: | ||||||||||||||||||
From continuing operations | $ | 0.11 | $ | 1.03 | $ | 0.75 | $ | 0.98 | $ | 2.88 | ||||||||
From discontinued operations | (0.08 | ) | — | — | (0.02 | ) | (0.10 | ) | ||||||||||
Basic net income per share | $ | 0.03 | $ | 1.03 | $ | 0.75 | $ | 0.96 | $ | 2.78 | ||||||||
Diluted income (loss) per share: | ||||||||||||||||||
From continuing operations | $ | 0.11 | $ | 1.02 | $ | 0.74 | $ | 0.96 | $ | 2.84 | ||||||||
From discontinued operations | (0.08 | ) | — | — | (0.01 | ) | (0.10 | ) | ||||||||||
Diluted net income per share | $ | 0.03 | $ | 1.02 | $ | 0.74 | $ | 0.95 | $ | 2.74 | ||||||||
| First | Second | Third | Fourth | Full Year | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In millions, except per share data) | |||||||||||||||||
2008 | ||||||||||||||||||
Sales | $ | 1,816.2 | $ | 2,359.4 | $ | 1,373.8 | $ | 1,102.4 | $ | 6,651.8 | ||||||||
Excise taxes | (459.6 | ) | (602.0 | ) | (452.7 | ) | (363.2 | ) | (1,877.5 | ) | ||||||||
Net sales | 1,356.6 | 1,757.4 | 921.1 | 739.2 | 4,774.3 | |||||||||||||
Cost of goods sold | (835.0 | ) | (1,033.6 | ) | (524.4 | ) | (447.8 | ) | (2,840.8 | ) | ||||||||
Gross profit | $ | 521.6 | $ | 723.8 | $ | 396.7 | $ | 291.4 | $ | 1,933.5 | ||||||||
Income from continuing operations | $ | 46.1 | $ | 93.3 | $ | 170.0 | $ | 90.7 | $ | 400.1 | ||||||||
(Loss) gain from discontinued operations, net of tax | (9.0 | ) | (12.4 | ) | 3.2 | 6.1 | (12.1 | ) | ||||||||||
Net income | $ | 37.1 | $ | 80.9 | $ | 173.2 | $ | 96.8 | $ | 388.0 | ||||||||
Basic income (loss) per share: | ||||||||||||||||||
From continuing operations | $ | 0.25 | $ | 0.51 | $ | 0.93 | $ | 0.50 | $ | 2.19 | ||||||||
From discontinued operations | (0.05 | ) | (0.07 | ) | 0.02 | 0.03 | (0.07 | ) | ||||||||||
Basic net income per share | $ | 0.20 | $ | 0.44 | $ | 0.95 | $ | 0.53 | $ | 2.12 | ||||||||
Diluted income (loss) per share: | ||||||||||||||||||
From continuing operations | $ | 0.25 | $ | 0.50 | $ | 0.92 | $ | 0.49 | $ | 2.16 | ||||||||
From discontinued operations | (0.05 | ) | (0.07 | ) | 0.02 | 0.03 | (0.07 | ) | ||||||||||
Diluted net income per share | $ | 0.20 | $ | 0.43 | $ | 0.94 | $ | 0.52 | $ | 2.09 | ||||||||
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
24.22. Quarterly Financial Information (Unaudited) (Continued)
| First | Second | Third | Fourth | Full Year | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In thousands, except per share data) | |||||||||||||||||
2006 | ||||||||||||||||||
Sales | $ | 1,543,946 | $ | 2,130,047 | $ | 2,126,652 | $ | 2,100,969 | $ | 7,901,614 | ||||||||
Excise taxes | (390,100 | ) | (547,022 | ) | (549,828 | ) | (569,679 | ) | (2,056,629 | ) | ||||||||
Net sales | 1,153,846 | 1,583,025 | 1,576,824 | 1,531,290 | 5,844,985 | |||||||||||||
Cost of goods sold | (726,668 | ) | (919,976 | ) | (907,305 | ) | (927,132 | ) | (3,481,081 | ) | ||||||||
Gross profit | $ | 427,178 | $ | 663,049 | $ | 669,519 | $ | 604,158 | $ | 2,363,904 | ||||||||
(Loss) income from continuing operations | $ | (18,570 | ) | $ | 157,642 | $ | 122,385 | $ | 112,099 | $ | 373,556 | |||||||
Loss from discontinued operations, net of tax | (11,667 | ) | (1,415 | ) | 13,409 | (12,852 | ) | (12,525 | ) | |||||||||
Net (loss) income | $ | (30,237 | ) | $ | 156,227 | $ | 135,794 | $ | 99,247 | $ | 361,031 | |||||||
Basic income (loss) per share: | ||||||||||||||||||
From continuing operations | $ | (0.11 | ) | $ | 0.92 | $ | 0.71 | $ | 0.65 | $ | 2.17 | |||||||
From discontinued operations | (0.07 | ) | (0.01 | ) | 0.08 | (0.08 | ) | (0.07 | ) | |||||||||
Basic net (loss) income per share | $ | (0.18 | ) | $ | 0.91 | $ | 0.79 | $ | 0.57 | $ | 2.10 | |||||||
Diluted income (loss) per share: | ||||||||||||||||||
From continuing operations | $ | (0.11 | ) | $ | 0.92 | $ | 0.70 | $ | 0.64 | $ | 2.16 | |||||||
From discontinued operations | (0.07 | ) | (0.01 | ) | 0.08 | (0.07 | ) | (0.08 | ) | |||||||||
Diluted net (loss) income per share | $ | (0.18 | ) | $ | 0.91 | $ | 0.78 | $ | 0.57 | $ | 2.08 | |||||||
| First | Second | Third | Fourth | Full Year | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In millions, except per share data) | |||||||||||||||||
2007 | ||||||||||||||||||
Sales | $ | 1,651.2 | $ | 2,244.1 | $ | 2,257.2 | $ | 2,167.2 | $ | 8,319.7 | ||||||||
Excise taxes | (422.6 | ) | (567.8 | ) | (571.8 | ) | (566.9 | ) | (2,129.1 | ) | ||||||||
Net sales | 1,228.6 | 1,676.3 | 1,685.4 | 1,600.3 | 6,190.6 | |||||||||||||
Cost of goods sold | (770.1 | ) | (966.9 | ) | (987.3 | ) | (978.6 | ) | (3,702.9 | ) | ||||||||
Gross profit | $ | 458.5 | $ | 709.4 | $ | 698.1 | $ | 621.7 | $ | 2,487.7 | ||||||||
Income from continuing operations | $ | 19.2 | $ | 184.4 | $ | 135.1 | $ | 176.2 | $ | 514.9 | ||||||||
(Loss) gain from discontinued operations, net of tax | (14.8 | ) | 0.6 | (0.4 | ) | (3.1 | ) | (17.7 | ) | |||||||||
Net income | $ | 4.4 | $ | 185.0 | $ | 134.7 | $ | 173.1 | $ | 497.2 | ||||||||
Basic income (loss) per share: | ||||||||||||||||||
From continuing operations | $ | 0.11 | $ | 1.03 | $ | 0.75 | $ | 0.99 | $ | 2.88 | ||||||||
From discontinued operations | (0.08 | ) | — | — | (0.02 | ) | (0.10 | ) | ||||||||||
Basic net income per share | $ | 0.03 | $ | 1.03 | $ | 0.75 | $ | 0.97 | $ | 2.78 | ||||||||
Diluted income (loss) per share: | ||||||||||||||||||
From continuing operations | $ | 0.11 | $ | 1.02 | $ | 0.74 | $ | 0.97 | $ | 2.84 | ||||||||
From discontinued operations | (0.08 | ) | — | — | (0.02 | ) | (0.10 | ) | ||||||||||
Diluted net income per share | $ | 0.03 | $ | 1.02 | $ | 0.74 | $ | 0.95 | $ | 2.74 | ||||||||
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the "Exchange Act") is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to the Company's management, including our Global Chief Executive Officer and Global Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management necessarily applies its judgment in assessing the costs and benefits of such controls and procedures that, by their nature, can only provide reasonable assurance regarding management's control objectives. Also, we have investments in certain unconsolidated entities that we do not control or manage. Consequently, our disclosure controls and procedures with respect to such entities are necessarily substantially more limited than those we maintain with respect to our consolidated subsidiaries.
The Global Chief Executive Officer and the Global Chief Financial Officer, with assistance from other members of management, have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of December 30, 200728, 2008 and, based on their evaluation, have concluded that our disclosure controls and procedures were effective.effective and operating at the reasonable assurance level.
The certifications attached as Exhibits 31 and 32 hereto should be read in conjunction with the disclosures set forth herein.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in the Exchange Act Rule 13a—15(f)13a-15(f). The 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 U. S. 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 the 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 due to changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Global Chief Executive Officer and the Global Chief Financial Officer, with assistance from other members of management, assessed the effectiveness of internal control over financial reporting as of December 30, 2007,28, 2008, based on the criteria established inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its evaluation,
evaluation, management has concluded that our internal control over financial reporting was effective as of December 30, 2007.28, 2008.
The Company's independent registered public accounting firm has audited the effectiveness of the Company's internal control over financial reporting as of December 30, 2007,28, 2008, as stated in the report which appears herein.
Changes in Internal Control over Financial Reporting
There were no other changes in internal control over financial reporting during the quarter ended December 30, 2007, that have materially affected, or are reasonably likely to materially affect the Company's internal control over financial reporting.
During the first quarter of 2008, the Company signed a contract with a third-party service provider to outsource a significant portion of work associated with our finance and accounting, information technology and human resources functions. The outsourcing arrangements impact all three of our operating segments and our corporate headquarters. We will beginbegan transitioning work to the service provider in the first half of 2008, and the transition will continuecontinued through to the end of the year. The outsourcing arrangements are expected to enhance the cost efficiency of these administrative functions. The outsourcing of these functions will havehad an immediate effect with regard to the responsibilities for the performance of certain processes and internal controls over financial reporting. We anticipate that internal controls over financial reporting could be further impacted in the future as many of our outsourced functions benefit from expected innovations and improvements from our service provider.
The Companyformation of MillerCoors has announcedinvolved integrating legacy CBC and Miller processes and controls over their businesses in the planned MillerCoors joint venture, pending government reviewUnited States and approval. We intend to accountPuerto Rico, many of which involve complex systems. In addition, we are accounting for our interest in MillerCoors under the equity method, and as a result, the existence of MillerCoors will potentially impact the scope of the Company's internal controls over financial reporting. In addition, the formation of MillerCoorsIt is anticipated that it will involve significant integration of the prospective owners' currenttake several years to fully integrate all core processes and controls over their businesses in the United States and Puerto Rico, many of which involve complex systems. Last, the Company's corporate headquarters shares a significant portion of its systems and administrative infrastructure with the Unites States business (which is being contributed to MillerCoors),joint venture, and as a result, willwe have had to adapt certain systems, processes and controls to the change brought about by the formation of MillerCoorsMillerCoors. We anticipate work related to separation to be completed in 2009.
There were no other changes in internal control over financial reporting during the quarter ended December 28, 2008, that have materially affected, or are reasonably likely to materially affect the Company's internal control over financial reporting.
None.
ITEM 10. Directors, Executive Officers and Corporate Governance
IncorporatedCertain information required by this Item concerning our executive officers and directors is set forth in Item 1 of Part I "Business—Executive Officers and Directors." Additional information concerning our executive officers, directors and corporate governance is incorporated herein by reference to the Company's definitive proxy statement.
ITEM 11. Executive Compensation
Incorporated by reference to the Company's definitive proxy statement.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information related to Security Ownership of Certain Beneficial Owners and Management is incorporated by reference to the Company's definitive proxy statement.
Equity Compensation Plan Information
The following table summarizes information about the 1990 Adolph Coors Equity Incentive Plan (the "EI Plan"), the Equity Compensation Plan for Non-Employee Directors and the Molson Coors Brewing Company Incentive Compensation Plan as of December 30, 2007.28, 2008. All outstanding awards shown in the table below relate to our Class B common stock.
| A | B | C | A | B | C | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column A) | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column A) | |||||||||||
Equity compensation plans approved by security holders(1)(2) | 12,498,662 | $ | 34.18 | 2,562,144 | |||||||||||||
Equity compensation plans approved by security holders(1) | 9,616,391 | $ | 36.98 | 1,618,589 | |||||||||||||
Equity compensation plans not approved by security holders | None | None | None | None | None | None |
As of December 30, 2007,28, 2008, there were 777,7991.3 million restricted stock units ("RSUs") outstanding. These include shares with respect to which restrictions on ownership (i.e., vesting periods) lapsed as of the Merger on February 9, 2005, as well as RSUs issued subsequent to the Merger.. RSUs previously were granted only to executives. These restricted shares, along with common stock convertible equivalent units, accrue dividends which will be convertible into MCBC Class B stock at the end of three years and were offered to a broader mix of employees beginning in 2006. These instruments are meant to reward exceptional performance and encourage retention. The number granted each year, if any, will be based upon performance.
All unvested securities issued under the EI Plan and the Equity Compensation Plan for Non-Employee Directors vested immediately upon the Merger.merger between Coors and Molson in 2005.
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
Incorporated by reference to the Company's definitive proxy statement.
ITEM 14. Principal Accountant Fees and Services
Incorporated by reference to the Company's definitive proxy statement.
ITEM 15. Exhibits and Financial Statement Schedules
The following are filed as a part of this Report on Form 10-K
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Income and Comprehensive Income for the period ended December 30, 200728, 2008
Consolidated Balance Sheets at December 30, 200728, 2008
Consolidated Statements of Cash Flows for the period ended December 30, 200728, 2008
Consolidated Statements of Stockholders' Equity for the period ended December 30, 200728, 2008
Notes to Consolidated Financial Statements
| | Incorporated by Reference | | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Exhibit Number | | Filed Herewith | ||||||||
Document Description | Form | Exhibit | Filing Date | |||||||
1.1 | Underwriting Agreement, dated as of June 11, 2007, among Molson Coors Brewing Company, the guarantors party thereto, and Deutsche Bank Securities Inc. and Citigroup Global Markets Inc. | 8-K | 1.1 | June 15, 2007 | ||||||
2.1 | Share Purchase Agreement between Coors Worldwide, Inc. and Adolph Coors Company and Interbrew, S.A., Interbrew U.K. Holdings Limited, Brandbrew S.A., and Golden Acquisition Limited dated December 24, 2001 and amended February 1, 2002. | 8-K/A | 2.1 | April 18, 2002 | ||||||
2.2 | Agreement and Plan of Merger dated August 14, 2003 by and between Adolph Coors Company, a Colorado corporation, and Adolph Coors Company, a Delaware corporation. | 8-K | 2.1 | October 6, 2003 | ||||||
2.3 | Combination Agreement, dated as of July 21, 2004, by and among Adolph Coors Company, Coors Canada Inc. and Molson Inc., together with the exhibits U.C. thereto incorporated by reference to Exhibit 2.1 of our Current Report on Form 8-K filed August 4, 2004 as amended by Amendment No. 1 thereto (incorporated by reference to B-II of the Joint Proxy Statement/Management Information Circular on Schedule 14A, filed with the SEC on December 10, 2004) and by Amendment No. 2 thereto. | 8-K | 2.1 | January 14, 2005 | ||||||
2.4 | Plan of Arrangement Including Appendices. | Schedule 14A | Annex D | December 10, 2004 | ||||||
2.5 | Joint Venture Agreement, dated as of December 20, 2007, by and among Molson Coors Brewing Company, Coors Brewing Company, SABMiller plc, Miller Brewing Company, and MillerCoors, LLC. | 8-K | 10.1 | December 21, 2007 | ||||||
3.1 | Restated Certificate of Incorporation of Molson Coors Brewing Company. | Schedule 14A | Annex G | December 9, 2004 |
| | Incorporated by Reference | | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Exhibit Number | | Filed Herewith | |||||||||
Document Description | Form | Exhibit | Filing Date | ||||||||
1.1 | Underwriting Agreement, dated as of June 11, 2007, among Molson Coors Brewing Company, the guarantors party thereto, and Deutsche Bank Securities Inc. and Citigroup Global Markets Inc. | 8-K | 1.1 | June 15, 2007 | |||||||
2.1 | Share Purchase Agreement between Coors Worldwide, Inc. and Adolph Coors Company and Interbrew, S.A., Interbrew U.K. Holdings Limited, Brandbrew S.A., and Golden Acquisition Limited dated December 24, 2001 and amended February 1, 2002. | 8-K/A | 2.1 | April 18, 2002 | |||||||
2.2 | Agreement and Plan of Merger dated August 14, 2003 by and between Adolph Coors Company, a Colorado corporation, and Adolph Coors Company, a Delaware corporation. | 8-K | 2.1 | October 6, 2003 | |||||||
2.3 | Combination Agreement, dated as of July 21, 2004, by and among Adolph Coors Company, Coors Canada Inc. and Molson Inc., together with the exhibits U.C. thereto incorporated by reference to Exhibit 2.1 of our Current Report on Form 8-K filed August 4, 2004 as amended by Amendment No. 1 thereto (incorporated by reference to B-II of the Joint Proxy Statement/Management Information Circular on Schedule 14A, filed with the SEC on December 10, 2004) and by Amendment No. 2 thereto. | 8-K | 2.1 | January 14, 2005 | |||||||
2.4 | Plan of Arrangement Including Appendices. | Schedule 14A | Annex D | December 10, 2004 | |||||||
2.5 | Joint Venture Agreement, dated as of December 20, 2007, by and among Molson Coors Brewing Company, Coors Brewing Company, SABMiller plc, Miller Brewing Company, and MillerCoors, LLC. | 8-K | 10.1 | December 21, 2007 |
3.3 | Second Amended and Restated Bylaws of Molson Coors Brewing Company. | 10-Q | 3.2 | August 7, 2007 | ||||||
4.1 | Indenture, dated as of May 7, 2002, by and among the Issuer, the Guarantors and Deutsche Bank Trust Company Americas, as trustee. | 10-Q | 4.1 | May 15, 2002 | ||||||
4.2 | First Supplemental Indenture, dated as of May 7, 2002 by and among the issuer, the Guarantors and Deutsche Bank Trust Company Americas, as trustee. | 10-Q | 4.2 | May 15, 2002 | ||||||
4.3 | Fourth Supplemental Indenture, dated as of April 10, 2007, by and among the issuer, the Guarantors and Deutsche Bank Trust Company Americas, as trustee. | 10-Q | 4.1 | August 7, 2007 | ||||||
4.4 | Fifth Supplemental Indenture, dated as of February 1, 2008 by and among the issuer, the Guarantors and Deutsche Bank Trust Company Americas, as trustee. | X | ||||||||
4.5 | Registration Rights Agreement, dated as of February 9, 2005, among Adolph Coors Company, Pentland Securities (1981) Inc., 4280661 Canada Inc., Nooya Investments Ltd., Lincolnshire Holdings Limited, 4198832 Canada Inc., BAX Investments Limited, 6339522 Canada Inc., Barleycorn Investments Ltd., DJS Holdings Ltd., 6339549 Canada Inc., Hoopoe Holdings Ltd., 6339603 Canada Inc., and The Adolph Coors, Jr. Trust dated September 12, 1969. | 8-K | 99.2 | February 15, 2005 | ||||||
4.6 | Molson Inc. 1988 Canadian Stock Option Plan, as revised. | S-8 | 4.3 | February 8, 2005 | ||||||
4.7 | Molson Coors Brewing Company Incentive Compensation Plan. | S-8 | 4.3 | April 18, 2005 | ||||||
4.8 | Indenture dated as of September 22, 2005, among Molson Coors Capital Finance ULC, Molson Coors Brewing Company, Coors Brewing Company, Coors Distributing Company, Coors International Market Development, L.L.L.P., Coors Worldwide, Inc., Coors Global Properties, Inc., Coors Intercontinental, Inc., and Coors Brewing Company International, Inc. and TD Banknorth, National Association and the Canada Trust Company as co-trustees. | S-4 | 4.1 | October 19, 2005 | ||||||
4.9 | First Supplemental Indenture dated as of September 22, 2005, among Molson Coors Capital Finance ULC, Molson Coors Brewing Company, Coors Brewing Company, Coors Distributing Company, Coors International Market Development, L.L.L.P., Coors Worldwide, Inc., Coors Global Properties, Inc., Coors Intercontinental, Inc., and Coors Brewing Company International, Inc. and TD Banknorth, National Association as trustee. | S-4 | 4.2 | October 19, 2005 | ||||||
4.10 | Second Supplemental Indenture dated as of September 22, 2005, among Molson Coors Capital Finance ULC, Molson Coors Brewing Company, Coors Brewing Company, Coors Distributing Company, Coors International Market Development, L.L.L.P., Coors Worldwide, Inc., Coors Global Properties, Inc., Coors Intercontinental, Inc., and Coors Brewing Company International, Inc. and The Canada Trust Company as trustee. | S-4 | 4-3 | October 19, 2005 |
| | Incorporated by Reference | | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Exhibit Number | | Filed Herewith | |||||||||
Document Description | Form | Exhibit | Filing Date | ||||||||
3.1 | Restated Certificate of Incorporation of Molson Coors Brewing Company. | Schedule 14A | Annex G | December 9, 2004 | |||||||
3.2 | Second Amended and Restated Bylaws of Molson Coors Brewing Company. | 10-Q | 3.2 | August 7, 2007 | |||||||
4.1 | Indenture, dated as of May 7, 2002, by and among the Issuer, the Guarantors and Deutsche Bank Trust Company Americas, as trustee. | 10-Q | 4.1 | May 15, 2002 | |||||||
4.2 | First Supplemental Indenture, dated as of May 7, 2002 by and among the issuer, the Guarantors and Deutsche Bank Trust Company Americas, as trustee. | 10-Q | 4.2 | May 15, 2002 | |||||||
4.3 | Fourth Supplemental Indenture, dated as of April 10, 2007, by and among the issuer, the Guarantors and Deutsche Bank Trust Company Americas, as trustee. | 10-Q | 4.1 | August 7, 2007 | |||||||
4.4 | Fifth Supplemental Indenture, dated as of February 1, 2008 by and among the issuer, the Guarantors and Deutsche Bank Trust Company Americas, as trustee. | 10-K | 4.4 | February 22, 2008 | |||||||
4.5 | Registration Rights Agreement, dated as of February 9, 2005, among Adolph Coors Company, Pentland Securities (1981) Inc., 4280661 Canada Inc., Nooya Investments Ltd., Lincolnshire Holdings Limited, 4198832 Canada Inc., BAX Investments Limited, 6339522 Canada Inc., Barleycorn Investments Ltd., DJS Holdings Ltd., 6339549 Canada Inc., Hoopoe Holdings Ltd., 6339603 Canada Inc., and The Adolph Coors, Jr. Trust dated September 12, 1969. | 8-K | 99.2 | February 15, 2005 | |||||||
4.6 | Molson Inc. 1988 Canadian Stock Option Plan, as revised. | S-8 | 4.3 | February 8, 2005 | |||||||
4.7 | Molson Coors Brewing Company Incentive Compensation Plan. | S-8 | 4.3 | April 18, 2005 | |||||||
4.8 | Indenture dated as of September 22, 2005, among Molson Coors Capital Finance ULC, Molson Coors Brewing Company, Coors Brewing Company, Coors Distributing Company, Coors International Market Development, L.L.L.P., Coors Worldwide, Inc., Coors Global Properties, Inc., Coors Intercontinental, Inc., and Coors Brewing Company International, Inc. and TD Banknorth, National Association and the Canada Trust Company as co-trustees. | S-4 | 4.1 | October 19, 2005 | |||||||
4.9 | First Supplemental Indenture dated as of September 22, 2005, among Molson Coors Capital Finance ULC, Molson Coors Brewing Company, Coors Brewing Company, Coors Distributing Company, Coors International Market Development, L.L.L.P., Coors Worldwide, Inc., Coors Global Properties, Inc., Coors Intercontinental, Inc., and Coors Brewing Company International, Inc. and TD Banknorth, National Association as trustee. | S-4 | 4.2 | October 19, 2005 |
4.11 | Third Supplemental Indenture dated as of April 10, 2007, among Molson Coors Capital Finance ULC, Molson Coors Brewing Company, Coors Brewing Company, Coors Distributing Company, Coors International Market Development, L.L.L.P., Coors Worldwide, Inc., Coors Global Properties, Inc., Coors Intercontinental, Inc., and Coors Brewing Company International, Inc. and The Canada Trust Company as trustee. | 10-Q | 4.2 | August 7, 2007 | ||||||
4.12 | Fourth Supplemental Indenture dated as of February 1, 2008, among Molson Coors Capital Finance ULC, Molson Coors Brewing Company, Coors Brewing Company, Coors Distributing Company, Coors International Market Development, L.L.L.P., Coors Worldwide, Inc., Coors Global Properties, Inc., Coors Intercontinental, Inc., and Coors Brewing Company International, Inc. and The Canada Trust Company as trustee. | X | ||||||||
4.13 | U.S. $300,000,000 in aggregate principal amount of 4.85% Notes due 2010. | S-4 | 4.4 | October 19, 2005 | ||||||
4.14 | CAD $900,000,000 in aggregate principal amount of 5.00% Notes due 2015. | 10-Q | 4.5 | November 4, 2005 | ||||||
4.15 | Registration Rights Agreement dated as of September 22, 2005, among Molson Coors Capital Finance ULC, Molson Coors Brewing Company, Coors Brewing Company, Coors Distributing Company, Coors International Market Development, L.L.L.P., Coors Worldwide, Inc., Coors Global Properties, Inc., Coors Intercontinental, Inc., and Coors Brewing Company International, Inc. and J.P. Morgan Securities Inc. and Morgan Stanley & Co. Incorporated as representatives of the several initial purchasers named in the related Purchase Agreement. | S-4 | 4.5 | October 19, 2005 | ||||||
4.16 | Exchange Offer Agreement dated as of September 22, 2005, among Molson Coors Capital Finance ULC, Molson Coors Brewing Company, Coors Brewing Company, Coors Distributing Company, Coors International Market Development, L.L.L.P., Coors Worldwide, Inc., Coors Global Properties, Inc., Coors Intercontinental, Inc., and Coors Brewing Company International, Inc. and BMO Nesbitt Burns Inc., TD Securities Inc., J.P. Morgan Securities Inc., Morgan Stanley & Co. Incorporated, Deutsche Bank Securities Inc., Deutsche Bank Securities Limited, J.P. Morgan Securities Canada Inc., and Morgan Stanley Canada Limited, as the initial purchasers named in the related Canadian Purchase Agreement. | 10-Q | 4.7 | November 4, 2005 | ||||||
4.17 | Indenture, dated as of June 15, 2007, among Molson Coors Brewing Company, the guarantors party thereto, and Deutsche Bank Trust Company Americas, as Trustee. | 8-K | 4.1 | June 21, 2007 | ||||||
4.18 | First Supplemental Indenture, dated as of June 15, 2007, among Molson Coors Brewing Company, the guarantors party thereto, and Deutsche Bank Trust Company Americas, as Trustee. | 8-K | 4.2 | June 21, 2007 | ||||||
4.19 | Second Supplemental Indenture, dated as of January 31, 2008, among Molson Coors Brewing Company, the guarantors party thereto, and Deutsche Bank Trust Company Americas, as Trustee. | X |
| | Incorporated by Reference | | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Exhibit Number | | Filed Herewith | |||||||||
Document Description | Form | Exhibit | Filing Date | ||||||||
4.10 | Second Supplemental Indenture dated as of September 22, 2005, among Molson Coors Capital Finance ULC, Molson Coors Brewing Company, Coors Brewing Company, Coors Distributing Company, Coors International Market Development, L.L.L.P., Coors Worldwide, Inc., Coors Global Properties, Inc., Coors Intercontinental, Inc., and Coors Brewing Company International, Inc. and The Canada Trust Company as trustee. | S-4 | 4.3 | October 19, 2005 | |||||||
4.11 | Third Supplemental Indenture dated as of April 10, 2007, among Molson Coors Capital Finance ULC, Molson Coors Brewing Company, Coors Brewing Company, Coors Distributing Company, Coors International Market Development, L.L.L.P., Coors Worldwide, Inc., Coors Global Properties, Inc., Coors Intercontinental, Inc., and Coors Brewing Company International, Inc. and The Canada Trust Company as trustee. | 10-Q | 4.2 | August 7, 2007 | |||||||
4.12 | Fourth Supplemental Indenture dated as of February 1, 2008, among Molson Coors Capital Finance ULC, Molson Coors Brewing Company, Coors Brewing Company, Coors Distributing Company, Coors International Market Development, L.L.L.P., Coors Worldwide, Inc., Coors Global Properties, Inc., Coors Intercontinental, Inc., and Coors Brewing Company International, Inc. and The Canada Trust Company as trustee. | 10-K | 4.12 | February 22, 2008 | |||||||
4.13 | U.S. $300,000,000 in aggregate principal amount of 4.85% Notes due 2010. | S-4 | 4.4 | October 19, 2005 | |||||||
4.14 | CAD $900,000,000 in aggregate principal amount of 5.00% Notes due 2015. | 10-Q | 4.5 | November 4, 2005 | |||||||
4.15 | Registration Rights Agreement dated as of September 22, 2005, among Molson Coors Capital Finance ULC, Molson Coors Brewing Company, Coors Brewing Company, Coors Distributing Company, Coors International Market Development, L.L.L.P., Coors Worldwide, Inc., Coors Global Properties, Inc., Coors Intercontinental, Inc., and Coors Brewing Company International, Inc. and J.P. Morgan Securities Inc. and Morgan Stanley & Co. Incorporated as representatives of the several initial purchasers named in the related Purchase Agreement. | S-4 | 4.5 | October 19, 2005 | |||||||
4.16 | Exchange Offer Agreement dated as of September 22, 2005, among Molson Coors Capital Finance ULC, Molson Coors Brewing Company, Coors Brewing Company, Coors Distributing Company, Coors International Market Development, L.L.L.P., Coors Worldwide, Inc., Coors Global Properties, Inc., Coors Intercontinental, Inc., and Coors Brewing Company International, Inc. and BMO Nesbitt Burns Inc., TD Securities Inc., J.P. Morgan Securities Inc., Morgan Stanley & Co. Incorporated, Deutsche Bank Securities Inc., Deutsche Bank Securities Limited, J.P. Morgan Securities Canada Inc., and Morgan Stanley Canada Limited, as the initial purchasers named in the related Canadian Purchase Agreement. | 10-Q | 4.7 | November 4, 2005 |
4.20 | Third Supplemental Indenture, dated as of February 1, 2008, among Molson Coors Brewing Company, the guarantors party thereto, and Deutsche Bank Trust Company Americas, as Trustee. | X | ||||||||
10.1* | Adolph Coors Company 1990 Equity Incentive Plan effective August 14, 2003, As Corrected and Conformed June 30, 2004. | 10-Q | 10.1 | August 5, 2004 | ||||||
10.2 | Form of CBC Distributorship Agreement. | 10-K | 10.20 | March 28, 1997 | ||||||
10.3* | Adolph Coors Company Equity Compensation Plan for Non-Employee Directors, Amended and Restated effective November 13, 2003, As Corrected and Conformed June 30, 2004. | 10-Q | 10.3 | August 5, 2004 | ||||||
10.4 | Distribution Agreement, dated as of October 5, 1992, between the Company and ACX Technologies, Inc. (incorporated herein by reference to the Distribution Agreement included as Exhibits 2, 19.1 and 19.1A to the Registration Statement on Form 10 filed by ACX Technologies, Inc. (file No. 0-20704) with the SEC on October 6, 1992, as amended). | 10 | 2 19.1 19.1A | October 6, 1992 | ||||||
10.5* | Adolph Coors Company Stock Unit Plan and 1999 Amendment. | 10-K | 10.16 | March 30, 1998 | ||||||
10.6 | Adolph Coors Company Water Augmentation Plan. | 10-K | 10.12 | December 31, 1989 | ||||||
10.7 | Supply agreement between CBC and Ball Metal Beverage Container Corp. dated November 12, 2001 | 10-K | 10.12 | March 29, 2002 | ||||||
10.8 | Supply Agreement between Rocky Mountain Metal Container, LLC and CBC dated November 12, 2001. | 8-K/A | 10.13 | April 18, 2002 | ||||||
10.9* | Adolph Coors Company Deferred Compensation Plan, As Amended and Restated effective January 1, 2002, As Corrected and Conformed June 30, 2004. | 10-Q | 10.16 | August 5, 2004 | ||||||
10.10 | Purchase and sale agreement by and between Graphic Packaging Corporation and Coors Brewing Company (incorporated by reference to Exhibit 99.1 to the Form 8-K dated March 25, 2003, filed by Graphic Packaging International Corporation). | 8-K | 99.1 | March 25, 2003 | ||||||
10.11 | Supply agreement between CBC and Owens-Brockway, Inc. dated July 29, 2003, effective August 1, 2003. | 10-Q | 10.20 | November 12, 2003 | ||||||
10.12 | Commercial Agreement (Packaging Purchasing) by and between Owens-Brockway Glass Container Inc. and Coors Brewing Company effective August 1, 2003. | 10-Q | 10.21 | November 12, 2003 | ||||||
10.13 | U.S. Purchase Agreement dated as of September 15, 2005, among Molson Coors Capital Finance ULC, Molson Coors Brewing Company, Coors Brewing Company, Coors Distributing Company, Coors International Market Development, L.L.L.P., Coors Worldwide, Inc., Coors Global Properties, Inc., Coors Intercontinental, Inc., and Coors Brewing Company International, Inc. and J.P. Morgan Securities Inc. and Morgan Stanley & Co. Incorporated as representatives of the several initial purchasers named therein. | 10-Q | 10.1 | November 4, 2005 |
| | Incorporated by Reference | | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Exhibit Number | | Filed Herewith | |||||||||
Document Description | Form | Exhibit | Filing Date | ||||||||
4.17 | Indenture, dated as of June 15, 2007, among Molson Coors Brewing Company, the guarantors party thereto, and Deutsche Bank Trust Company Americas, as Trustee. | 8-K | 4.1 | June 21, 2007 | |||||||
4.18 | First Supplemental Indenture, dated as of June 15, 2007, among Molson Coors Brewing Company, the guarantors party thereto, and Deutsche Bank Trust Company Americas, as Trustee. | 8-K | 4.2 | June 21, 2007 | |||||||
4.19 | Second Supplemental Indenture, dated as of January 31, 2008, among Molson Coors Brewing Company, the guarantors party thereto, and Deutsche Bank Trust Company Americas, as Trustee. | 10-K | 4.19 | February 22, 2008 | |||||||
4.20 | Third Supplemental Indenture, dated as of February 1, 2008, among Molson Coors Brewing Company, the guarantors party thereto, and Deutsche Bank Trust Company Americas, as Trustee. | 10-K | 4.20 | February 22, 2008 | |||||||
4.21 | Sixth Supplemental Indenture dated as of May 23, 2008, to the Indenture dated May 7, 2002, by and among Coors Brewing Company, the guarantors named therein, and Deutsche Bank Trust Company Americas, as Trustee. | 10-Q | 4.1 | August 6, 2008 | |||||||
4.22 | Seventh Supplemental Indenture dated as of June 27, 2008, to the Indenture dated May 7, 2002, by and among Coors Brewing Company, the guarantors named therein, and Deutsche Bank Trust Company Americas, as Trustee. | 10-Q | 4.2 | August 6, 2008 | |||||||
4.23 | Eighth Supplemental Indenture dated as of June 30, 2008, to the Indenture dated May 7, 2002, by and among Coors Brewing Company, the guarantors named therein, and Deutsche Bank Trust Company Americas, as Trustee. | 10-Q | 4.3 | August 6, 2008 | |||||||
4.24 | Fifth Supplemental Indenture dated as of May 23, 2008, to the Indenture dated September 22, 2005, among Molson Coors Capital Finance ULC, the guarantors named therein, Bank of New York Trust Company, as trustee, and Computershare Trust Company of Canada, as Canadian trustee. | 10-Q | 4.4 | August 6, 2008 | |||||||
4.25 | Sixth Supplemental Indenture dated as of June 27, 2008, to the Indenture dated September 22, 2005, among Molson Coors Capital Finance ULC, the guarantors named therein, Bank of New York Trust Company, as trustee, and Computershare Trust Company of Canada, as Canadian trustee. | 10-Q | 4.5 | August 6, 2008 | |||||||
4.26 | Seventh Supplemental Indenture dated as of June 30, 2008, to the Indenture dated September 22, 2005, among Molson Coors Capital Finance ULC, the guarantors named therein, Bank of New York Trust Company, as trustee, and Computershare Trust Company of Canada, as Canadian trustee. | 10-Q | 4.6 | August 6, 2008 |
10.14 | Canadian Purchase Agreement dated as of September 15, 2005, among Molson Coors Capital Finance ULC, Molson Coors Brewing Company, Coors Brewing Company, Coors Distributing Company, Coors International Market Development, L.L.L.P., Coors Worldwide, Inc., Coors Global Properties, Inc., Coors Intercontinental, Inc., and Coors Brewing Company International, Inc. and BMO Nesbitt Burns Inc., TD Securities Inc., J.P. Morgan Securities Inc., Morgan Stanley & Co. Incorporated, Deutsche Bank Securities Inc., Deutsche Bank Securities Limited, J.P. Morgan Securities Canada Inc., and Morgan Stanley Canada Limited, as the initial purchasers. | 10-Q | 10.2 | November 4, 2005 | ||||||
10.15* | Employment Agreement by and among Molson Coors Brewing Company and W. Leo Kiely III, dated June 27, 2005. | 8-K | 99.1 | July 1, 2005 | ||||||
10.16* | First Amendment to Employee Agreement between Molson Coors Brewing Company and W. Leo Kiely III, dated August 1, 2007. | 10-Q | 10.15 | August 7, 2007 | ||||||
10.17* | Employment Agreement by and among Molson Coors Brewing Company and Peter H. Coors, dated June 27, 2005. | 8-K | 99.2 | July 1, 2005 | ||||||
10.18* | First Amendment to Employment Agreement between Molson Coors Brewing Company and Peter H. Coors, dated August 1, 2007. | 10-Q | 10.16 | August 7, 2007 | ||||||
10.19 | Credit Agreement, dated March 2, 2005, among Molson Coors Brewing Company, Coors Brewing Company, Molson Canada 2005, Molson Inc., Molson Coors Canada Inc. and Coors Brewers Limited; the Lenders party thereto; Wachovia Bank, National Association, as Administrative Agent, Issuing Bank and Swingline Lender; and Bank of Montréal, as Canadian Administrative Agent, Issuing Bank and Swingline Lender. | 8-K | 99.1 | August 7, 2005 | ||||||
10.20 | Subsidiary Guarantee Agreement, dated as of March 2, 2005, among Molson Coors Brewing Company, Coors Brewing Company, Molson Canada 2005, Molson Inc. Molson Coors Canada Inc. and Coors Brewers Limited, each subsidiary of the Company listed on Schedule I thereto and Wachovia Bank, National Association, as Administrative Agent, on behalf of the Lenders under the Credit Agreement referred to above. | 8-K | 99.2 | May 7, 2005 | ||||||
10.21 | Confirmation, dated as of March 8, 2007, to the Credit Agreement, dated March 2, 2005, among Molson Coors Brewing Company, Coors Brewing Company, Molson Canada 2005, Molson Inc., Molson Coors Canada Inc. and Coors Brewers Limited; the Lenders party thereto; Wachovia Bank, National Association, as Administrative Agent, Issuing Bank and Swingline Lender; and Bank of Montreal, as Canadian Administrative Agent, Issuing Bank and Swingline Lender. | 10-Q | 10.1 | August 7, 2007 | ||||||
10.22 | Supplement Nos. 1, 2, 3, 4, 5 and 6, dated as of April 9, 2007, to the Subsidiary Guarantee Agreement, dated March 2, 2005, among Molson Coors Brewing Company, Coors Brewing Company, Molson Canada 2005, Molson Inc., Molson Coors Canada Inc. and Coors Brewers Limited; the Lenders party thereto; Wachovia Bank, National Association, as Administrative Agent, Issuing Bank and Swingline Lender; and Bank of Montreal, as Canadian Administrative Agent, Issuing Bank and Swingline Lender Lender. | 10-Q | 10.2 | August 7, 2007 |
| | Incorporated by Reference | | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Exhibit Number | | Filed Herewith | |||||||||
Document Description | Form | Exhibit | Filing Date | ||||||||
4.27 | Fourth Supplemental Indenture dated as of May 23, 2008, to the Indenture dated June 15, 2007, among Molson Coors Brewing Company, the guarantors named therein, and Deutsche Bank Trust Company Americas, as trustee. | 10-Q | 4.7 | August 6, 2008 | |||||||
4.28 | Fifth Supplemental Indenture dated as of June 27, 2008, to the Indenture dated June 15, 2007, among Molson Coors Brewing Company, the guarantors named therein, and Deutsche Bank Trust Company Americas, as trustee. | 10-Q | 4.8 | August 6, 2008 | |||||||
4.29 | Sixth Supplemental Indenture dated as of June 30, 2008, to the Indenture dated June 15, 2007, among Molson Coors Brewing Company, the guarantors named therein, and Deutsche Bank Trust Company Americas, as trustee. | 10-Q | 4.9 | August 6, 2008 | |||||||
4.30* | Molson Coors Brewing Company Incentive Compensation Plan—Amended and Restated effective January 1, 2008. | 10-Q | 4.1 | November 7, 2008 | |||||||
10.1* | Adolph Coors Company 1990 Equity Incentive Plan effective August 14, 2003, As Corrected and Conformed June 30, 2004. | 10-Q | 10.1 | August 6, 2004 | |||||||
10.2 | Form of CBC Distributorship Agreement. | 10-K | 10.20 | March 28, 1997 | |||||||
10.3* | Adolph Coors Company Equity Compensation Plan for Non-Employee Directors, Amended and Restated effective November 13, 2003, As Corrected and Conformed June 30, 2004. | 10-Q | 10.3 | August 6, 2004 | |||||||
10.4 | Distribution Agreement, dated as of October 5, 1992, between the Company and ACX Technologies, Inc. (incorporated herein by reference to the Distribution Agreement included as Exhibits 2, 19.1 and 19.1A to the Registration Statement on Form 10 filed by ACX Technologies, Inc. (file No. 0-20704) with the SEC on October 6, 1992, as amended). | 10 | 2 19.1 19.1A | October 6, 1992 | |||||||
10.5* | Adolph Coors Company Stock Unit Plan and 1999 Amendment. | 10-K | 10.16 | March 30, 1998 | |||||||
10.6 | Adolph Coors Company Water Augmentation Plan. | 10-K | 10.12 | December 31, 1989 | |||||||
10.7 | Supply agreement between CBC and Ball Metal Beverage Container Corp. dated November 12, 2001. | 10-K | 10.12 | March 29, 2002 | |||||||
10.8 | Supply Agreement between Rocky Mountain Metal Container, LLC and CBC dated November 12, 2001. | 8-K/A | 10.13 | April 18, 2002 | |||||||
10.9* | Adolph Coors Company Deferred Compensation Plan, as Amended and Restated effective January 1, 2002, as Corrected and Conformed June 30, 2004. | 10-Q | 10.16 | August 6, 2004 | |||||||
10.10 | Purchase and sale agreement by and between Graphic Packaging Corporation and Coors Brewing Company (incorporated by reference to Exhibit 99.1 to the Form 8-K dated March 25, 2003, filed by Graphic Packaging International Corporation). | 8-K | 99.1 | March 25, 2003 | |||||||
10.11 | Supply agreement between CBC and Owens-Brockway, Inc. dated July 29, 2003, effective August 1, 2003. | 10-Q | 10.20 | November 12, 2003 |
10.23 | Registration Rights Agreement, dated as of February 9, 2005, among Adolph Coors Company, Pentland Securities (1981) Inc., 4280661 Canada Inc., Nooya Investments Ltd., Lincolnshire Holdings Limited, 4198832 Canada Inc., BAX Investments Limited, 6339522 Canada Inc., Barleycorn Investments Ltd., DJS Holdings Ltd., 6339549 Canada Inc., Hoopoe Holdings Ltd., 6339603 Canada Inc., and The Adolph Coors, Jr. Trust dated September 12, 1969. | 8-K | 99.2 | February 15, 2005 | ||||||
10.24* | Form of Executive Continuity and Protection Program Letter Agreement. | 10-Q | 10.7 | May 11, 2005 | ||||||
10.25* | Employment Agreements by and among Coors Brewing Ltd. and Peter Swinburn, dated March 20, 2002 and April 12, 2005. | 10-Q | 10.1 | August 4, 2006 | ||||||
10.26* | Employment Agreement by and among Molson Inc. and Kevin Boyce dated February 6, 2004. | 10-Q | 10.2 | August 4, 2006 | ||||||
10.27* | Form of Performance Share Grant Agreement granted pursuant to the Molson Coors Incentive Compensation Plan. | 10-Q | 10.4 | August 4, 2006 | ||||||
10.28* | Form of Restricted Stock Unit Agreement granted pursuant to the Molson Coors Incentive Compensation Plan. | 10-Q | 10.5 | August 4, 2006 | ||||||
10.29* | Directors' Stock Plan under the Molson Coors Brewing Company Incentive Compensation Plan. | 10-Q | 10.1 | November 2, 2006 | ||||||
10.30 | First Amendment dated as of August 31, 2006 to the Credit Agreement ("Credit Agreement") dated as of March 2, 2005, among Molson Coors Brewing Company (the "Company"), the subsidiaries of the Company from time to time party thereto, the lenders from time to time party thereto (the "Lenders"), Wachovia Bank, N.A., as administrative agent for the Lenders, and Bank of Montréal, as Canadian administrative agent for the Lenders. | 10-Q | 10.2 | November 2, 2006 | ||||||
10.31 | Reaffirmation Agreement dated as of August 31, 2006 among the Borrowers and Guarantors identified on the signatures pages thereof, and Wachovia Bank, N.A., as administrative agent for the Lenders under the Credit Agreement identified in Exhibit 10.2 to Form 10-Q filed November 2, 2006. | 10-Q | 10.3 | November 2, 2006 | ||||||
10.32* | Molson Coors Brewing Company Change in Control Protection Program. | 8-K | 10.29 | May 23, 2007 | ||||||
10.33 | Equity Derivatives Confirmation, dated as of June 11, 2007, with respect to a warrant transaction entered into between Citibank, N.A. and Molson Coors Brewing Company. | 10-Q | 10.3 | August 7, 2007 | ||||||
10.34 | Equity Derivatives Confirmation, dated as of June 11, 2007, with respect to a share option transaction entered into between Citibank, N.A. and Molson Coors Brewing Company. | 10-Q | 10.4 | August 7, 2007 | ||||||
10.35 | Equity Derivatives Confirmation, dated as of June 11, 2007, with respect to a warrant transaction entered into between Deutsche Bank AG acting through its London branch and Molson Coors Brewing Company. | 10-Q | 10.5 | August 7, 2007 | ||||||
10.36 | Equity Derivatives Confirmation, dated as of June 11, 2007, with respect to a share option transaction entered into between Deutsche Bank AG acting through its London branch and Molson Coors Brewing Company. | 10-Q | 10.6 | August 7, 2007 |
| | Incorporated by Reference | | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Exhibit Number | | Filed Herewith | |||||||||
Document Description | Form | Exhibit | Filing Date | ||||||||
10.12 | Commercial Agreement (Packaging Purchasing) by and between Owens-Brockway Glass Container Inc. and Coors Brewing Company effective August 1, 2003. | 10-Q | 10.21 | November 12, 2003 | |||||||
10.13 | U.S. Purchase Agreement dated as of September 15, 2005, among Molson Coors Capital Finance ULC, Molson Coors Brewing Company, Coors Brewing Company, Coors Distributing Company, Coors International Market Development, L.L.L.P., Coors Worldwide, Inc., Coors Global Properties, Inc., Coors Intercontinental, Inc., and Coors Brewing Company International, Inc. and J.P. Morgan Securities Inc. and Morgan Stanley & Co. Incorporated as representatives of the several initial purchasers named therein. | 10-Q | 10.1 | November 4, 2005 | |||||||
10.14 | Canadian Purchase Agreement dated as of September 15, 2005, among Molson Coors Capital Finance ULC, Molson Coors Brewing Company, Coors Brewing Company, Coors Distributing Company, Coors International Market Development, L.L.L.P., Coors Worldwide, Inc., Coors Global Properties, Inc., Coors Intercontinental, Inc., and Coors Brewing Company International, Inc. and BMO Nesbitt Burns Inc., TD Securities Inc., J.P. Morgan Securities Inc., Morgan Stanley & Co. Incorporated, Deutsche Bank Securities Inc., Deutsche Bank Securities Limited, J.P. Morgan Securities Canada Inc., and Morgan Stanley Canada Limited, as the initial purchasers. | 10-Q | 10.2 | November 4, 2005 | |||||||
10.15* | Employment Agreement by and among Molson Coors Brewing Company and W. Leo Kiely III, dated June 27, 2005. | 8-K | 99.1 | July 1, 2005 | |||||||
10.16* | First Amendment to Employee Agreement between Molson Coors Brewing Company and W. Leo Kiely III, dated August 1, 2007. | 10-Q | 10.15 | August 7, 2007 | |||||||
10.17* | Employment Agreement by and among Molson Coors Brewing Company and Peter H. Coors, dated June 27, 2005. | 8-K | 99.2 | July 1, 2005 | |||||||
10.18* | First Amendment to Employment Agreement between Molson Coors Brewing Company and Peter H. Coors, dated August 1, 2007. | 10-Q | 10.16 | August 7, 2007 | |||||||
10.19 | Credit Agreement, dated March 2, 2005, among Molson Coors Brewing Company, Coors Brewing Company, Molson Canada 2005, Molson Inc., Molson Coors Canada Inc. and Coors Brewers Limited; the Lenders party thereto; Wachovia Bank, National Association, as Administrative Agent, Issuing Bank and Swingline Lender; and Bank of Montréal, as Canadian Administrative Agent, Issuing Bank and Swingline Lender. | 8-K | 99.1 | March 7, 2005 |
10.37 | Equity Derivatives Confirmation, dated as of June 11, 2007, with respect to a warrant transaction entered into between Morgan Stanley & Co. International plc, represented by Morgan Stanley Bank, as its agent, and Molson Coors Brewing Company. | 10-Q | 10.7 | August 7, 2007 | ||||||
10.38 | Equity Derivatives Confirmation, dated as of June 11, 2007, with respect to a share option transaction entered into between Morgan Stanley & Co. International plc, represented by Morgan Stanley Bank, as its agent, and Molson Coors Brewing Company. | 10-Q | 10.8 | August 7, 2007 | ||||||
10.39 | Amendment to Equity Derivatives Confirmation, dated as of June 13, 2007, with respect to a warrant transaction entered into between Citibank, N.A., as its agent, and Molson Coors Brewing Company. | 10-Q | 10.9 | August 7, 2007 | ||||||
10.40 | Amendment to Equity Derivatives Confirmation, dated as of June 13, 2007, with respect to a share option transaction entered into between Citibank, N.A., as its agent, and Molson Coors Brewing Company. | 10-Q | 10.10 | August 7, 2007 | ||||||
10.41 | Amendment to Equity Derivatives Confirmation, dated as of June 13, 2007, with respect to warrant transaction entered into between Deutsche Bank AG acting through its London branch and Molson Coors Brewing Company. | 10-Q | 10.11 | August 7, 2007 | ||||||
10.42 | Amendment to Equity Derivatives Confirmation, dated as of June 13, 2007, with respect to a share option transaction entered into between Deutsche Bank AG acting through its London branch and Molson Coors Brewing Company. | 10-Q | 10.12 | August 7, 2007 | ||||||
10.43 | Amendment to Equity Derivatives Confirmation, dated as of June 13, 2007, with respect to a warrant transaction entered into between Morgan Stanley & Co. International plc, represented by Morgan Stanley Bank, as its agent, and Molson Coors Brewing Company. | 10-Q | 10.13 | August 7, 2007 | ||||||
10.44 | Amendment to Equity Derivatives Confirmation, dated as of June 13, 2007, with respect to a share option transaction entered into between Morgan Stanley & Co. International plc, represented by Morgan Stanley Bank, as its agent, and Molson Coors Brewing Company. | 10-Q | 10.14 | August 7, 2007 | ||||||
10.45 | Joint Venture Agreement, dated December 20, 2007, by and among Molson Coors Brewing Company, Coors Brewing Company, SABMiller plc, Miller Brewing Company, and MillerCoors LLC | 8-K | 10.1 | December 21, 2007 | ||||||
21 | Subsidiaries of the Registrant. | X | ||||||||
23 | Consent of Independent Registered Public Accounting Firm. | X | ||||||||
31.1 | Section 302 Certification of Chief Executive Officer | X | ||||||||
31.2 | Section 302 Certification of Chief Financial Officer | X | ||||||||
32 | Written Statement of Chief Executive Officer and Chief Financial Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350). | X |
| | Incorporated by Reference | | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Exhibit Number | | Filed Herewith | |||||||||
Document Description | Form | Exhibit | Filing Date | ||||||||
10.20 | Subsidiary Guarantee Agreement, dated as of March 2, 2005, among Molson Coors Brewing Company, Coors Brewing Company, Molson Canada 2005, Molson Inc. Molson Coors Canada Inc. and Coors Brewers Limited, each subsidiary of the Company listed on Schedule I thereto and Wachovia Bank, National Association, as Administrative Agent, on behalf of the Lenders under the Credit Agreement referred to above. | 8-K | 99.2 | March 7, 2005 | |||||||
10.21 | Confirmation, dated as of March 8, 2007, to the Credit Agreement, dated March 2, 2005, among Molson Coors Brewing Company, Coors Brewing Company, Molson Canada 2005, Molson Inc., Molson Coors Canada Inc. and Coors Brewers Limited; the Lenders party thereto; Wachovia Bank, National Association, as Administrative Agent, Issuing Bank and Swingline Lender; and Bank of Montréal, as Canadian Administrative Agent, Issuing Bank and Swingline Lender. | 10-Q | 10.1 | August 7, 2007 | |||||||
10.22 | Supplement Nos. 1, 2, 3, 4, 5 and 6, dated as of April 9, 2007, to the Subsidiary Guarantee Agreement, dated March 2, 2005, among Molson Coors Brewing Company, Coors Brewing Company, Molson Canada 2005, Molson Inc., Molson Coors Canada Inc. and Coors Brewers Limited; the Lenders party thereto; Wachovia Bank, National Association, as Administrative Agent, Issuing Bank and Swingline Lender; and Bank of Montréal, as Canadian Administrative Agent, Issuing Bank and Swingline Lender. | 10-Q | 10.2 | August 7, 2007 | |||||||
10.23 | Registration Rights Agreement, dated as of February 9, 2005, among Adolph Coors Company, Pentland Securities (1981) Inc., 4280661 Canada Inc., Nooya Investments Ltd., Lincolnshire Holdings Limited, 4198832 Canada Inc., BAX Investments Limited, 6339522 Canada Inc., Barleycorn Investments Ltd., DJS Holdings Ltd., 6339549 Canada Inc., Hoopoe Holdings Ltd., 6339603 Canada Inc., and The Adolph Coors, Jr. Trust dated September 12, 1969. | 8-K | 99.2 | February 15, 2005 | |||||||
10.24* | Form of Executive Continuity and Protection Program Letter Agreement. | 10-Q | 10.7 | May 11, 2005 | |||||||
10.25* | Employment Agreements by and among Coors Brewing Ltd. and Peter Swinburn, dated March 20, 2002 and April 12, 2005. | 10-Q | 10.1 | August 4, 2006 | |||||||
10.26* | Employment Agreement by and among Molson Inc. and Kevin Boyce dated February 6, 2004. | 10-Q | 10.2 | August 4, 2006 | |||||||
10.27* | Form of Performance Share Grant Agreement granted pursuant to the Molson Coors Incentive Compensation Plan. | 10-Q | 10.4 | August 4, 2006 | |||||||
10.28* | Form of Restricted Stock Unit Agreement granted pursuant to the Molson Coors Incentive Compensation Plan. | 10-Q | 10.5 | August 4, 2006 |
| | Incorporated by Reference | | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Exhibit Number | | Filed Herewith | |||||||||
Document Description | Form | Exhibit | Filing Date | ||||||||
10.29* | Directors' Stock Plan under the Molson Coors Brewing Company Incentive Compensation Plan. | 10-Q | 10.1 | November 2, 2006 | |||||||
10.30 | First Amendment dated as of August 31, 2006 to the Credit Agreement ("Credit Agreement") dated as of March 2, 2005, among Molson Coors Brewing Company (the "Company"), the subsidiaries of the Company from time to time party thereto, the lenders from time to time party thereto (the "Lenders"), Wachovia Bank, N.A., as administrative agent for the Lenders, and Bank of Montréal, as Canadian administrative agent for the Lenders. | 10-Q | 10.2 | November 2, 2006 | |||||||
10.31 | Reaffirmation Agreement dated as of August 31, 2006 among the Borrowers and Guarantors identified on the signatures pages thereof, and Wachovia Bank, N.A., as administrative agent for the Lenders under the Credit Agreement identified in Exhibit 10.2 to Form 10-Q filed November 2, 2006. | 10-Q | 10.3 | November 2, 2006 | |||||||
10.32* | Molson Coors Brewing Company Change in Control Protection Program. | 8-K | 10.29 | May 23, 2007 | |||||||
10.33 | Equity Derivatives Confirmation, dated as of June 11, 2007, with respect to a warrant transaction entered into between Citibank, N.A. and Molson Coors Brewing Company. | 10-Q | 10.3 | August 7, 2007 | |||||||
10.34 | Equity Derivatives Confirmation, dated as of June 11, 2007, with respect to a share option transaction entered into between Citibank, N.A. and Molson Coors Brewing Company. | 10-Q | 10.4 | August 7, 2007 | |||||||
10.35 | Equity Derivatives Confirmation, dated as of June 11, 2007, with respect to a warrant transaction entered into between Deutsche Bank AG acting through its London branch and Molson Coors Brewing Company. | 10-Q | 10.5 | August 7, 2007 | |||||||
10.36 | Equity Derivatives Confirmation, dated as of June 11, 2007, with respect to a share option transaction entered into between Deutsche Bank AG acting through its London branch and Molson Coors Brewing Company. | 10-Q | 10.6 | August 7, 2007 | |||||||
10.37 | Equity Derivatives Confirmation, dated as of June 11, 2007, with respect to a warrant transaction entered into between Morgan Stanley & Co. International plc, represented by Morgan Stanley Bank, as its agent, and Molson Coors Brewing Company. | 10-Q | 10.7 | August 7, 2007 | |||||||
10.38 | Equity Derivatives Confirmation, dated as of June 11, 2007, with respect to a share option transaction entered into between Morgan Stanley & Co. International plc, represented by Morgan Stanley Bank, as its agent, and Molson Coors Brewing Company. | 10-Q | 10.8 | August 7, 2007 | |||||||
10.39 | Amendment to Equity Derivatives Confirmation, dated as of June 13, 2007, with respect to a warrant transaction entered into between Citibank, N.A., as its agent, and Molson Coors Brewing Company. | 10-Q | 10.9 | August 7, 2007 |
| | Incorporated by Reference | | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Exhibit Number | | Filed Herewith | |||||||||
Document Description | Form | Exhibit | Filing Date | ||||||||
10.40 | Amendment to Equity Derivatives Confirmation, dated as of June 13, 2007, with respect to a share option transaction entered into between Citibank, N.A., as its agent, and Molson Coors Brewing Company. | 10-Q | 10.10 | August 7, 2007 | |||||||
10.41 | Amendment to Equity Derivatives Confirmation, dated as of June 13, 2007, with respect to warrant transaction entered into between Deutsche Bank AG acting through its London branch and Molson Coors Brewing Company. | 10-Q | 10.11 | August 7, 2007 | |||||||
10.42 | Amendment to Equity Derivatives Confirmation, dated as of June 13, 2007, with respect to a share option transaction entered into between Deutsche Bank AG acting through its London branch and Molson Coors Brewing Company. | 10-Q | 10.12 | August 7, 2007 | |||||||
10.43 | Amendment to Equity Derivatives Confirmation, dated as of June 13, 2007, with respect to a warrant transaction entered into between Morgan Stanley & Co. International plc, represented by Morgan Stanley Bank, as its agent, and Molson Coors Brewing Company. | 10-Q | 10.13 | August 7, 2007 | |||||||
10.44 | Amendment to Equity Derivatives Confirmation, dated as of June 13, 2007, with respect to a share option transaction entered into between Morgan Stanley & Co. International plc, represented by Morgan Stanley Bank, as its agent, and Molson Coors Brewing Company. | 10-Q | 10.14 | August 7, 2007 | |||||||
10.45 | Joint Venture Agreement, dated December 20, 2007, by and among Molson Coors Brewing Company, Coors Brewing Company, SABMiller plc, Miller Brewing Company, and MillerCoors LLC | 8-K | 10.1 | December 21, 2007 | |||||||
10.46* | Employment agreement between Molson Coors Brewing Company and Peter Swinburn dated April 22, 2008. | 10-Q | 10.1 | May 7, 2008 | |||||||
10.47* | Retention agreement between Molson Coors Brewing Company and Kevin Boyce dated April 23, 2008. | 10-Q | 10.2 | May 7, 2008 | |||||||
10.48 | Amended and Restated Operating Agreement of MillerCoors LLC, dated as of July 1, 2008 | 8-K | 10.1 | July 2, 2008 | |||||||
10.49* | Separation Agreement between Molson Coors Brewing Company and Timothy V. Wolf, dated as of June 30, 2008 | 8-K | 10.2 | July 2, 2008 | |||||||
10.50 | Amendment No. 1 to Joint Venture Agreement dated as of April 4, 2008, to the Joint Venture Agreement dated December 20, 2007, by and among Molson Coors Brewing Company, Coors Brewing Company, SABMiller plc, Miller Brewing Company, and MillerCoors LLC. | 10-Q | 10.1 | August 6, 2008 | |||||||
10.51 | Amendment No. 2 to Joint Venture Agreement dated as of April 4, 2008, to the Joint Venture Agreement dated December 20, 2007, by and among Molson Coors Brewing Company, Coors Brewing Company, SABMiller plc, Miller Brewing Company, and MillerCoors LLC. | 10-Q | 10.2 | August 6, 2008 |
| | Incorporated by Reference | | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Exhibit Number | | Filed Herewith | |||||||||
Document Description | Form | Exhibit | Filing Date | ||||||||
10.52 | Amendment No. 3 to Joint Venture Agreement dated as of July 1, 2008, to the Joint Venture Agreement dated December 20, 2007, by and among Molson Coors Brewing Company, Coors Brewing Company, SABMiller plc, Miller Brewing Company, and MillerCoors LLC | 10-Q | 10.3 | August 6, 2008 | |||||||
10.53* | Employment Agreement by and among Molson Coors Brewing Company and Peter Swinburn effective July 1, 2008. | 10-Q | 10.1 | November 7, 2008 | |||||||
10.54* | Employment Agreement by and among Molson Coors Brewing Company and Stewart Glendinning effective July 1, 2008. | 10-Q | 10.2 | November 7, 2008 | |||||||
10.55 | Form of Employee RSU Award Statement pursuant to the Molson Coors Brewing Company Incentive Compensation Plan. | 10-Q | 10.3 | November 7, 2008 | |||||||
10.56 | Form of Performance Share Plan Award Statement pursuant to the Molson Coors Brewing Company Incentive Compensation Plan | 10-Q | 10.4 | November 7, 2008 | |||||||
10.57* | Amended and Restated Directors' Stock Plan effective January 1, 2008. | 10-Q | 10.5 | November 7, 2008 | |||||||
10.58 | Form of Director RSU Award Statement pursuant to the Molson Coors Brewing Company Incentive Compensation Plan. | 10-Q | 10.6 | November 7, 2008 | |||||||
10.59* | Molson Coors Brewing Company Amended and Restated Change in Control Protection Program effective January 1, 2008 | 10-Q | 10.7 | November 7, 2008 | |||||||
10.60* | Second Amendment to Employment Agreement between Molson Coors Brewing Company and W. Leo Kiely III, dated February 8, 2009 | X | |||||||||
21 | Subsidiaries of the Registrant. | X | |||||||||
23 | Consent of Independent Registered Public Accounting Firm. | X | |||||||||
23.1 | Consent of Independent Registered Public Accounting Firm. | X | |||||||||
31.1 | Section 302 Certification of Chief Executive Officer | X | |||||||||
31.2 | Section 302 Certification of Chief Financial Officer | X | |||||||||
32 | Written Statement of Chief Executive Officer and Chief Financial Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350). | X | |||||||||
99 | Audited Consolidated Financial Statements of MillerCoors LLC and Subsidiaries | X |
(b) Exhibits
The exhibits at 15(a) (3) above are filed pursuant to the requirements of Item 601 of Regulation S-K.
SCHEDULE II
MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)MILLIONS)
| | Balance at beginning of year | Acquired with Molson | Additions charged to costs and expenses | Deductions(1) | Foreign exchange impact | Balance at end of year | | Balance at beginning of year | Additions charged to costs and expenses | Deductions(1) | Assumed by MillerCoors(2) | Foreign exchange impact | Balance at end of year | |||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Allowance for doubtful accounts—trade accounts receivable | Allowance for doubtful accounts—trade accounts receivable | Allowance for doubtful accounts—trade accounts receivable | |||||||||||||||||||||||||||||||||||||
Year ended: | Year ended: | ||||||||||||||||||||||||||||||||||||||
December 30, 2007 | $ | 10,363 | $ | — | $ | 2,491 | $ | (4,439 | ) | $ | 412 | $ | 8,827 | December 28, 2008 | $ | 8.8 | $ | 5.1 | $ | (3.3 | ) | $ | (0.1 | ) | $ | (2.6 | ) | $ | 7.9 | ||||||||||
December 31, 2006 | $ | 9,480 | $ | — | $ | 2,922 | $ | (3,085 | ) | $ | 1,046 | $ | 10,363 | December 30, 2007 | $ | 10.4 | $ | 2.5 | $ | (4.5 | ) | $ | — | $ | 0.4 | $ | 8.8 | ||||||||||||
December 25, 2005 | $ | 9,110 | $ | 1,736 | $ | 1,534 | $ | (2,150 | ) | $ | (750 | ) | $ | 9,480 | December 31, 2006 | $ | 9.5 | $ | 2.9 | $ | (3.1 | ) | $ | — | $ | 1.1 | $ | 10.4 | |||||||||||
Allowance for doubtful accounts—current trade loans | Allowance for doubtful accounts—current trade loans | Allowance for doubtful accounts—current trade loans | |||||||||||||||||||||||||||||||||||||
Year ended: | Year ended: | ||||||||||||||||||||||||||||||||||||||
December 30, 2007 | $ | 3,439 | $ | — | $ | 1,543 | $ | (1,870 | ) | $ | 69 | $ | 3,181 | December 28, 2008 | $ | 3.2 | $ | 2.5 | $ | (1.3 | ) | $ | — | $ | (1.1 | ) | $ | 3.3 | |||||||||||
December 31, 2006 | $ | 3,629 | $ | — | $ | 591 | $ | (1,064 | ) | $ | 283 | $ | 3,439 | December 30, 2007 | $ | 3.4 | $ | 1.6 | $ | (1.9 | ) | $ | — | $ | 0.1 | $ | 3.2 | ||||||||||||
December 25, 2005 | $ | 3,883 | $ | — | $ | 1,024 | $ | (887 | ) | $ | (391 | ) | $ | 3,629 | December 31, 2006 | $ | 3.6 | $ | 0.6 | $ | (1.1 | ) | $ | — | $ | 0.3 | $ | 3.4 | |||||||||||
Allowance for doubtful accounts—long-term trade loans | Allowance for doubtful accounts—long-term trade loans | Allowance for doubtful accounts—long-term trade loans | |||||||||||||||||||||||||||||||||||||
Year ended: | Year ended: | ||||||||||||||||||||||||||||||||||||||
December 30, 2007 | $ | 10,318 | $ | — | $ | 2,070 | $ | (4,664 | ) | $ | 206 | $ | 7,930 | December 28, 2008 | $ | 7.9 | $ | 6.2 | $ | (3.2 | ) | $ | — | $ | (2.8 | ) | $ | 8.1 | |||||||||||
December 31, 2006 | $ | 10,329 | $ | — | $ | 1,774 | $ | (3,193 | ) | $ | 1,408 | $ | 10,318 | December 30, 2007 | $ | 10.3 | $ | 2.1 | $ | (4.7 | ) | $ | — | $ | 0.2 | $ | 7.9 | ||||||||||||
December 25, 2005 | $ | 11,053 | $ | — | $ | 2,916 | $ | (2,523 | ) | $ | (1,117 | ) | $ | 10,329 | December 31, 2006 | $ | 10.3 | $ | 1.8 | $ | (3.2 | ) | $ | — | $ | 1.4 | $ | 10.3 | |||||||||||
Allowance for obsolete inventories and supplies | Allowance for obsolete inventories and supplies | Allowance for obsolete inventories and supplies | |||||||||||||||||||||||||||||||||||||
Year ended: | Year ended: | ||||||||||||||||||||||||||||||||||||||
December 30, 2007 | $ | 13,289 | $ | — | $ | 1,035 | $ | (1,391 | ) | $ | 145 | $ | 13,078 | December 28, 2008 | $ | 13.1 | $ | 1.7 | $ | (1.0 | ) | $ | (7.5 | ) | $ | (1.7 | ) | $ | 4.6 | ||||||||||
December 31, 2006 | $ | 11,933 | $ | — | $ | 4,830 | $ | (4,155 | ) | $ | 681 | $ | 13,289 | December 30, 2007 | $ | 13.3 | $ | 1.0 | $ | (1.4 | ) | $ | — | $ | 0.2 | $ | 13.1 | ||||||||||||
December 25, 2005 | $ | 11,564 | $ | 69 | $ | 16,655 | $ | (15,718 | ) | $ | (637 | ) | $ | 11,933 | December 31, 2006 | $ | 11.9 | $ | 4.8 | $ | (4.1 | ) | $ | — | $ | 0.7 | $ | 13.3 | |||||||||||
Deferred tax valuation account | Deferred tax valuation account | Deferred tax valuation account | |||||||||||||||||||||||||||||||||||||
Year ended: | Year ended: | ||||||||||||||||||||||||||||||||||||||
December 30, 2007 | $ | 18,807 | $ | — | $ | 6,108 | $ | (4,235 | ) | $ | 919 | $ | 21,599 | December 28, 2008 | $ | 21.6 | $ | — | $ | (5.0 | ) | $ | — | $ | (3.7 | ) | $ | 12.9 | |||||||||||
December 31, 2006 | $ | 18,754 | $ | — | $ | 1,292 | $ | (2,775 | ) | $ | 1,536 | $ | 18,807 | December 30, 2007 | $ | 18.8 | $ | 6.1 | $ | (4.2 | ) | $ | — | $ | 0.9 | $ | 21.6 | ||||||||||||
December 25, 2005 | $ | 40,000 | $ | 6,177 | $ | 12,577 | $ | (40,000 | ) | $ | — | $ | 18,754 | December 31, 2006 | $ | 18.8 | $ | 1.3 | $ | (2.8 | ) | $ | — | $ | 1.5 | $ | 18.8 |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
MOLSON COORS BREWING COMPANY | ||||||
By | ||||||
/s/ | ||||||
By | /s/ STEWART GLENDINNING Stewart Glendinning | Chief Financial Officer (Principal Financial Officer) | ||||
By | /s/ WILLIAM G. WATERS William G. Waters | Vice President and |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following directors on behalf of the Registrant and in the capacities and on the date indicated.
By | /s/ PETER H. COORS Peter H. Coors | Chairman | ||
By | /s/ ERIC H. MOLSON Eric H. Molson | Vice Chairman | ||
By | ||||
/s/ FRANCESCO BELLINI Francesco Bellini | Director | |||
By | /s/ ROSALIND G. BREWER Rosalind G. Brewer | Director | ||
By | /s/ JOHN E. CLEGHORN John E. Cleghorn | Director | ||
By | /s/ MELISSA E. COORS OSBORN Melissa E. Coors Osborn | Director | ||
By | /s/ CHARLES M. HERINGTON Charles M. Herington | Director | ||
By | /s/ FRANKLIN W. HOBBS Franklin W. Hobbs | Director |
By | /s/ ANDREW T. MOLSON Andrew T. Molson | Director | ||
By | /s/ DAVID P. O'BRIEN David P. O'Brien | Director | ||
By | /s/ PAMELA H. PATSLEY Pamela H. Patsley | Director | ||
By | /s/ H. SANFORD RILEY H. Sanford Riley | Director | ||
By | /s/ IAIN NAPIER Iain Napier | Director |
February 21, 200824, 2009