TAP 2011.9.24 10Q
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________________
FORM 10-Q
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 24, 2011
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______ .
Commission File Number: 1-14829
Molson Coors Brewing Company
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
 
84-0178360
(I.R.S. Employer Identification No.)
1225 17th Street, Denver, Colorado, USA
1555 Notre Dame Street East, Montréal, Québec, Canada
(Address of principal executive offices)
 
80202
H2L 2R5
(Zip Code)
303-927-2337 (Colorado)
514-521-1786 (Québec)
(Registrant's telephone number, including area code)
_______________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.
Large accelerated filer ý
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company o
 
 
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý
Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of October 28, 2011:
Class A Common Stock— 2,583,694 shares
Class B Common Stock—156,283,195 shares
Exchangeable shares:
As of October 28, 2011, the following number of exchangeable shares was outstanding for Molson Coors Canada, Inc.:
Class A Exchangeable shares—2,939,707 shares
Class B Exchangeable shares—19,260,989 shares
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 of special Class A 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 share classes, 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.
 
Table of Contents

MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
INDEX
 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2
Cautionary Statement Pursuant to Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). From time to time, we may also provide oral or written forward-looking statements in other materials we release to the public. Such forward-looking statements are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995.
Statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements, and include, but are not limited to, statements under the headings "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Outlook for 2011" relating to overall volume trends, consumer preferences, pricing trends, industry forces, cost reduction strategies, anticipated results, anticipated synergies, expectations for funding future capital expenditures and operations, debt service capabilities, shipment levels and profitability, market share and the sufficiency of capital resources. In addition, statements that we make in this report that are not statements of historical fact may also be forward- looking statements. Words such as "expects," "goals," "plans," "believes," "continues," "may," "anticipate," "seek," "estimate," "outlook," "trends," "future benefits," "strategies," and variations of such words and similar expressions are intended to identify forward-looking statements.
Forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those indicated (both favorably and unfavorably). These risks and uncertainties include, but are not limited to those described under the heading "Risk Factors," elsewhere throughout this report, and those described from time to time in our past and future reports filed with the Securities and Exchange Commission, including in our Annual Report on Form 10-K for the year ended December 25, 2010. Caution should be taken not to place undue reliance on any such forward-looking statements. Forward-looking statements speak only as of the date when made and we undertake no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise.

3
Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

 MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
 
Thirteen Weeks Ended
 
Thirty-Nine Weeks Ended
 
September 24, 2011
 
September 25, 2010
 
September 24, 2011
 
September 25, 2010
Sales
$
1,393.9

 
$
1,260.1

 
$
3,774.3

 
$
3,489.7

Excise taxes
(439.5
)
 
(385.1
)
 
(1,195.9
)
 
(1,070.4
)
Net sales
954.4

 
875.0

 
2,578.4

 
2,419.3

Cost of goods sold
(550.5
)
 
(457.4
)
 
(1,501.6
)
 
(1,336.6
)
Gross profit
403.9

 
417.6

 
1,076.8

 
1,082.7

Marketing, general and administrative expenses
(248.2
)
 
(248.9
)
 
(759.1
)
 
(747.6
)
Special items, net
(0.1
)
 
(3.1
)
 
(11.1
)
 
(21.5
)
Equity income in MillerCoors
99.4

 
135.3

 
372.4

 
389.9

Operating income (loss)
255.0

 
300.9

 
679.0

 
703.5

Interest income (expense), net
(27.3
)
 
(23.9
)
 
(81.8
)
 
(73.7
)
Other income (expense), net
(2.3
)
 
41.6

 
(4.8
)
 
54.4

Income (loss) from continuing operations before income taxes
225.4

 
318.6

 
592.4

 
684.2

Income tax benefit (expense)
(31.1
)
 
(60.7
)
 
(90.4
)
 
(124.6
)
Net income (loss) from continuing operations
194.3

 
257.9

 
502.0

 
559.6

Income (loss) from discontinued operations, net of tax
2.7

 
(0.9
)
 
1.5

 
41.1

Net income (loss) including noncontrolling interests
197.0

 
257.0

 
503.5

 
600.7

Less: Net (income) loss attributable to noncontrolling interests
0.4

 
(0.9
)
 
(0.4
)
 
(2.8
)
Net income (loss) attributable to Molson Coors Brewing Company
$
197.4

 
$
256.1

 
$
503.1

 
$
597.9

Basic net income (loss) attributable to Molson Coors Brewing Company per share:
 
 
 
 
 
 
 
From continuing operations
$
1.05

 
$
1.39

 
$
2.69

 
$
3.00

From discontinued operations
0.01

 
(0.01
)
 
0.01

 
0.22

Basic net income per share
$
1.06

 
$
1.38

 
$
2.70

 
$
3.22

Diluted net income (loss) attributable to Molson Coors Brewing Company per share:
 
 
 
 
 
 
 
From continuing operations
$
1.05

 
$
1.38

 
$
2.67

 
$
2.98

From discontinued operations
0.01

 
(0.01
)
 
0.01

 
0.22

Diluted net income per share
$
1.06

 
$
1.37

 
$
2.68

 
$
3.20

Weighted average shares—basic
185.0

 
186.0

 
186.3

 
185.7

Weighted average shares—diluted
186.2

 
187.4

 
187.8

 
187.1

Amounts attributable to Molson Coors Brewing Company
 
 
 
 
 
 
 
Net income (loss) from continuing operations
$
194.7

 
$
257.0

 
$
501.6

 
$
556.8

Income (loss) from discontinued operations, net of tax
2.7

 
(0.9
)
 
1.5

 
41.1

Net income (loss) attributable to Molson Coors Brewing Company
$
197.4

 
$
256.1

 
$
503.1

 
$
597.9

See notes to unaudited condensed consolidated financial statements.

4
Table of Contents

MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
(UNAUDITED)

 
As of
 
September 24, 2011
 
December 25, 2010
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
987.2

 
$
1,217.6

Accounts receivable, net
574.0

 
570.8

Other receivables, net
149.7

 
158.7

Inventories:
 
 
 
Finished, net
138.0

 
134.3

In process
18.1

 
16.6

Raw materials
35.3

 
32.1

Packaging materials, net
9.7

 
12.0

Total inventories, net
201.1

 
195.0

Other assets, net
84.9

 
78.2

Deferred tax assets
0.3

 
—

Discontinued operations
0.3

 
0.6

Total current assets
1,997.5

 
2,220.9

Properties, net
1,365.6

 
1,388.7

Goodwill
1,499.7

 
1,489.1

Other intangibles, net
4,566.0

 
4,655.1

Investment in MillerCoors
2,589.7

 
2,574.1

Deferred tax assets
217.6

 
188.2

Notes receivable, net
40.5

 
43.0

Other assets
153.3

 
138.5

Total assets
$
12,429.9

 
$
12,697.6

Liabilities and equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
261.8

 
$
268.2

Accrued expenses and other liabilities
623.3

 
804.6

Derivative hedging instruments
104.0

 
26.4

Deferred tax liabilities
236.3

 
219.6

Current portion of long-term debt and short-term borrowings
46.4

 
1.1

Discontinued operations
13.7

 
14.0

Total current liabilities
1,285.5

 
1,333.9

Long-term debt
1,901.3

 
1,959.6

Pension and post-retirement benefits
439.8

 
458.6

Derivative hedging instruments
198.2

 
404.8

Deferred tax liabilities
426.4

 
466.7

Unrecognized tax benefits
84.0

 
80.8

Other liabilities
133.6

 
126.4

Discontinued operations
22.3

 
24.2

Total liabilities
4,491.1

 
4,855.0

Commitments and contingencies (Note 15)


 


Molson Coors Brewing Company stockholders' equity
 
 
 
Capital stock:
 
 
 
Preferred stock, non-voting, no par value (authorized: 25.0 shares; none issued)
—

 
—

Class A common stock, voting, $0.01 par value per share (authorized: 500.0 shares; issued and outstanding: 2.6 shares at September 24, 2011 and December 25, 2010, respectively)
—

 
—

Class B common stock, non-voting, $0.01 par value per share (authorized: 500.0 shares; issued: 162.6 shares and 162.0 shares at September 24, 2011 and December 25, 2010, respectively)
1.6

 
1.6

Class A exchangeable shares, no par value (issued and outstanding: 2.9 shares and 3.0 shares at September 24, 2011 and December 25, 2010, respectively)
110.5

 
111.2

Class B exchangeable shares, no par value (issued and outstanding: 19.3 shares and 19.2 shares at September 24, 2011 and December 25, 2010, respectively)
724.8

 
725.0

Paid-in capital
3,567.2

 
3,548.4

Retained earnings
3,574.5

 
3,241.5

Accumulated other comprehensive income
189.5

 
171.1

Class B common stock held in treasury at cost (6.3 shares and zero shares at September 24, 2011 and December 25, 2010, respectively)
(271.1
)
 
—

Total Molson Coors Brewing Company stockholders' equity
7,897.0

 
7,798.8

Noncontrolling interests
41.8

 
43.8

Total equity
7,938.8

 
7,842.6

Total liabilities and equity
$
12,429.9

 
$
12,697.6

See notes to unaudited condensed consolidated financial statements.

5
Table of Contents

MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)
 
Thirty-Nine Weeks Ended
 
September 24, 2011
 
September 25, 2010
Cash flows from operating activities:
 
 
 
Net income (loss) including noncontrolling interests
$
503.5

 
$
600.7

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
161.3

 
151.9

Share-based compensation
19.4

 
21.4

Loss on sale or impairment of properties and intangibles
13.8

 
13.7

Deferred income taxes
25.5

 
59.2

Equity income in MillerCoors
(372.4
)
 
(389.9
)
Distributions from MillerCoors
372.4

 
389.9

Equity in net income of other unconsolidated affiliates
(18.7
)
 
(8.9
)
Distributions from other unconsolidated affiliates
23.1

 
8.6

Excess tax benefits from share-based compensation
(1.1
)
 
(1.3
)
Change in current assets and liabilities and other
(121.9
)
 
(61.0
)
(Gain) loss from discontinued operations
(1.5
)
 
(41.1
)
Net cash provided by operating activities
603.4

 
743.2

Cash flows from investing activities:
 
 
 
Additions to properties
(126.3
)
 
(95.0
)
Proceeds from sales of properties and intangible assets
1.5

 
3.7

Acquisition of businesses, net of cash acquired
(41.3
)
 
(19.8
)
Change in restricted cash balances
2.7

 
(14.9
)
Payment on discontinued operations
—

 
(96.0
)
Investment in MillerCoors
(657.3
)
 
(863.1
)
Return of capital from MillerCoors
627.2

 
848.6

Proceeds from settlements of derivative instruments
15.4

 
—

Investment in and advances to an unconsolidated affiliate
(99.4
)
 
(6.9
)
Trade loan repayments from customers
14.2

 
12.5

Trade loans advanced to customers
(7.6
)
 
(7.3
)
Net cash used in investing activities
(270.9
)
 
(238.2
)
Cash flows from financing activities:
 
 
 
Exercise of stock options under equity compensation plans
8.5

 
13.5

Excess tax benefits from share-based compensation
1.1

 
1.3

Payments for purchase of treasury stock
(271.1
)
 
—

Dividends paid
(170.1
)
 
(148.7
)
Dividends paid to noncontrolling interests holders
(2.3
)
 
(0.9
)
Debt issuance costs
(2.2
)
 
—

Payments on long-term debt and capital lease obligations
(0.2
)
 
(300.0
)
Proceeds from short-term borrowings
6.8

 
3.1

Payments on short-term borrowings
(18.3
)
 
(8.1
)
Payments on settlements of debt-related derivatives
(99.2
)
 
(42.0
)
Net (payments) proceeds from revolving credit facilities
1.5

 
—

Change in overdraft balances and other
(10.8
)
 
(3.1
)
Net cash used in financing activities
(556.3
)
 
(484.9
)
Cash and cash equivalents:
 
 
 
Net increase (decrease) in cash and cash equivalents
(223.8
)
 
20.1

Effect of foreign exchange rate changes on cash and cash equivalents
(6.6
)
 
9.2

Balance at beginning of year
1,217.6

 
734.2

Balance at end of period
$
987.2

 
$
763.5

See notes to unaudited condensed consolidated financial statements.

6
Table of Contents

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

1. Basis of Presentation and Summary of Significant Accounting Policies
Unless otherwise noted in this report, any description of "we", "us" or "our" includes Molson Coors Brewing Company ("MCBC" or the "Company"), principally a holding company, and its operating subsidiaries: MillerCoors LLC ("MillerCoors") which is accounted for by us under the equity method of accounting, Molson Coors Brewing Company (UK) Limited ("MCBC-UK"), Molson Coors Canada ("MCC") and our other operating entities as further described in Note 1 of the Notes to the Audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 25, 2010 ("Annual Report").
Unless otherwise indicated, information in this report is presented in U.S. dollars ("USD" or "$").
The accompanying unaudited condensed consolidated interim financial statements reflect all adjustments which are necessary for a fair statement of the financial position, results of operations and cash flows for the periods presented in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). Such unaudited interim financial statements have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations.
These unaudited condensed consolidated interim financial statements should be read in conjunction with our Annual Report and have been prepared on a consistent basis with the accounting policies described in Note 1 of the Notes. The results of operations for the 13 and 39 week periods ended September 24, 2011, are not necessarily indicative of the results that may be achieved for the full fiscal year.
During the fourth quarter of 2010, we changed the classification of returnable bottles and pallets to non-current assets within Properties, net which were previously classified as current assets within Inventories—Packaging Materials, and have applied the classification change retrospectively in accordance with U.S. GAAP. This impacted the condensed consolidated statements of cash flows for the 39 weeks ended September 25, 2010, as discussed in Note 22 of the Notes to the Audited Consolidated Financial Statements in our Annual Report.
We follow a 52/53 week fiscal reporting calendar. The third fiscal quarter of 2011 and 2010 consisted of 13 weeks ended on September 24, 2011, and September 25, 2010, respectively. The first three quarters of 2011 and 2012 consisted of 39 weeks ended on September 24, 2011, and September 25, 2010, respectively. Fiscal year 2011 consists of 53 weeks ending on December 31, 2011, and fiscal year 2010 consisted of the 52 weeks ended December 25, 2010.
Unless otherwise indicated, third quarter refers to the 13 week periods ended September 24, 2011, and September 25, 2010, and first three quarters refers to the 39 week periods ended on September 24, 2011, and September 25, 2010.
MillerCoors follows a monthly reporting calendar. The third quarter and first three quarters of 2011 and 2010 consisted of three months and nine months ended September 30, 2011, and September 30, 2010, respectively.
Our significant accounting policies are presented in Note 1 of the Notes to the Audited Consolidated Financial Statements in our Annual Report and did not significantly change in the third quarter or first three quarters of 2011.
Consistent with the disclosure in the Annual Report, these significant accounting policies include our treatment of the allowance for credit losses on our MCBC-UK trade loan portfolio. This allowance is maintained to provide for loan losses deemed to be probable related to specifically identified loans and for losses in the loan portfolio that have been incurred at the balance sheet date. We establish our allowance through a provision for loan losses charged against earnings and recorded in marketing, general & administrative expenses. Loan balances that are written off are recorded against the allowance as a write-off. A rollforward of the allowance for the first three quarters ended September 24, 2011, is as follows (in millions):

Balance at December 25, 2010
$
9.1

Provision for loan loss
(0.8
)
Write-offs
(1.1
)
Foreign currency and other adjustments
0.1

Balance at September 24, 2011
$
7.3


7
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2. New Accounting Pronouncements
Adoption of New Accounting Pronouncements
Goodwill Impairment Analysis
In December 2010, the Financial Accounting Standards Board ("FASB") issued authoritative guidance related to the evaluation of goodwill impairment testing for reporting units with zero or negative carrying amounts. Upon adoption of the guidance and annually thereafter, an entity with reporting units that have carrying amounts that are zero or negative is required to assess whether it is more likely than not that the reporting units' goodwill is impaired. If the entity determines that it is more likely than not that the goodwill of one or more of its reporting units is impaired, the entity should perform Step 2 of the goodwill impairment test for those reporting units. The guidance was effective for our first quarter 2011. The adoption of this guidance did not impact our financial position or results from operations.
New Accounting Pronouncements Not Yet Adopted
Fair Value Measurement
In May 2011, the FASB issued authoritative guidance related to fair value measurement and disclosure requirements. The new guidance results in a consistent definition of fair value and convergence between U.S. GAAP and International Financial Reporting Standards ("IFRS") on both how to measure fair value and on what disclosures to provide about fair value measurements. The guidance is effective for our quarter ending March 31, 2012. We are currently evaluating the impact that this guidance may have on the reporting of our financial position or results from operations.
Presentation of Other Comprehensive Income
In June 2011, the FASB issued authoritative guidance related to the presentation of other comprehensive income. Upon adoption of the guidance, an entity has the option to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Additionally, the entity is required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement where the components of net income and the components of other comprehensive income are presented. The guidance is effective for our quarter ending March 31, 2012, although the FASB has recently proposed the deferral of the requirement to present reclassifications of other comprehensive income on the face of the income statement. The impact of this guidance is limited to a change in the presentation of our results.
Goodwill Impairment Testing
In September 2011, the FASB issued authoritative guidance related to goodwill impairment testing. The new guidance permits an entity to first assess qualitative factors to whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If it is concluded that this is the case, it is necessary to perform the two-step goodwill impairment test. Otherwise, the two-step goodwill impairment test is not required. This guidance is effective for annual and interim goodwill impairment tests performed for our fiscal years beginning January 1, 2012. The impact of this guidance will not have an impact on our financial position or results from operations.


8
Table of Contents

3. Segment Reporting
Our reportable operating segments consist of Canada, the United States ("U.S.") and the United Kingdom ("U.K.") and our non-reportable operating segment and other business activities include Molson Coors International ("MCI") and Corporate.
The following table sets forth net sales by segment:

 
 
Thirteen Weeks Ended
 
Thirty-Nine Weeks Ended
 
 
September 24, 2011
 
September 25, 2010
 
September 24, 2011
 
September 25, 2010
 
 
(In millions)
Canada
$
598.9

 
$
539.8

 
$
1,557.4

 
$
1,471.8

U.K. 
327.2

 
313.4

 
943.6

 
888.9

MCI and Corporate
31.5

 
21.8

 
81.9

 
58.6

Eliminations(1)
(3.2
)
 
—

 
(4.5
)
 
—

 
Consolidated
$
954.4

 
$
875.0

 
$
2,578.4

 
$
2,419.3

 
 
 
 
 
 
 
 
 
(1)
Represents intersegment sales from the U.K. segment to the MCI segment.
Across each of our segments, no single customer accounted for more than 10% of our sales. Net sales represent sales to third-party external customers and affiliates. Intersegment revenues are eliminated in consolidation.
The following table sets forth income (loss) from continuing operations before income taxes by segment:

 
 
Thirteen Weeks Ended
 
Thirty-Nine Weeks Ended
 
 
September 24, 2011
 
September 25, 2010
 
September 24, 2011
 
September 25, 2010
 
 
(In millions)
Canada
$
162.0

 
$
161.6

 
$
346.0

 
$
347.8

U.S. 
99.4

 
135.3

 
372.4

 
389.9

U.K. 
25.3

 
34.3

 
64.4

 
67.8

MCI and Corporate
(61.3
)
 
(12.6
)
 
(190.4
)
 
(121.3
)
 
Consolidated
$
225.4

 
$
318.6

 
$
592.4

 
$
684.2

The following table sets forth total assets by segment:
 
 
As of
 
 
September 24, 2011
 
December 25, 2010
 
 
(In millions)
Canada
$
6,467.0

 
$
6,548.9

U.S. 
2,589.6

 
2,574.1

U.K. 
2,172.4

 
2,276.2

MCI and Corporate
1,200.6

 
1,297.8

Discontinued operations
0.3

 
0.6

 
Consolidated
$
12,429.9

 
$
12,697.6


4. Investments
The investments included within this footnote include both equity method and consolidated investments. Those entities identified as variable interest entities ("VIEs") have been evaluated to determine whether we are the primary beneficiary. The VIEs included under Consolidated Investments below are those for which we have concluded that we are the primary beneficiary and accordingly consolidate these entities. We have not provided any financial support to any of our VIEs during the quarter that we were not previously contractually obligated to provide.

9
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Authoritative guidance related to the consolidation of VIEs requires that we continually reassess whether we are the primary beneficiary of VIEs in which we have an interest. As such, the conclusion regarding the primary beneficiary status is subject to change and we continually evaluate circumstances that could require consolidation or deconsolidation.
Equity Investments
MillerCoors
Summarized U.S. GAAP financial information for MillerCoors is as follows:
Condensed balance sheets
 
As of
 
September 30, 2011
 
December 31, 2010
 
(In millions)
Current assets
$
960.7

 
$
815.9

Non-current assets
8,790.0

 
8,972.1

Total assets
$
9,750.7

 
$
9,788.0

Current liabilities
$
912.6

 
$
932.9

Non-current liabilities
1,254.2

 
1,273.4

Total liabilities
2,166.8

 
2,206.3

Noncontrolling interests
33.2

 
30.5

Owners' equity
7,550.7

 
7,551.2

Total liabilities and equity
$
9,750.7

 
$
9,788.0

Results of operations
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2011
 
September 30, 2010
 
September 30, 2011
 
September 30, 2010
 
(In millions)
Net sales
$
1,964.9

 
$
2,015.9

 
$
5,796.3

 
$
5,850.9

Cost of goods sold
(1,213.3
)
 
(1,226.7
)
 
(3,545.1
)
 
(3,590.1
)
Gross profit
$
751.6

 
$
789.2

 
$
2,251.2

 
$
2,260.8

Operating income(1)
$
179.2

 
$
320.8

 
$
824.3

 
$
930.1

Net income attributable to MillerCoors(1)
$
176.4

 
$
313.0

 
$
809.8

 
$
912.8

(1) Results for three months and nine months ended September 30, 2011, include special charges of $60.0 million for a write-down in the value of the Sparks brand and a $50.9 million charge resulting from the planned assumption of the Milwaukee Brewery Worker's Pension Plan, an under-funded multi-employer pension plan.

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The following represents MCBC's proportional share in net income attributable to MillerCoors reported under the equity method:
 
 
Thirteen Weeks Ended
 
Thirty-Nine Weeks Ended
 
 
September 24, 2011
 
September 25, 2010
 
September 24, 2011
 
September 25, 2010
 
 
(In millions, except percentages)
Net income attributable to MillerCoors
$
176.4

 
$
313.0

 
$
809.8

 
$
912.8

MCBC economic interest
42
%
 
42
%
 
42
%
 
42
%
MCBC proportionate share of MillerCoors net income
74.1

 
131.5

 
340.1

 
383.4

Amortization of the difference between MCBC contributed cost basis and proportional share of the underlying equity in net assets of MillerCoors(1)
27.7

 
2.5

 
32.6

 
4.4

Share-based compensation adjustment(2)
(2.4
)
 
1.3

 
(0.3
)
 
2.1

Equity income in MillerCoors
$
99.4

 
$
135.3

 
$
372.4

 
$
389.9

 
 
 
 
 
 
 
 
 
(1)
Our net investment in MillerCoors is based on the carrying values of the net assets contributed to the joint venture which is less than our proportional share of underlying equity (42%) of MillerCoors (contributed by both Coors Brewing Company ("CBC") and Miller Brewing Company ("Miller")) by approximately $564 million as of September 24, 2011. This difference, with the exception of goodwill and land, is being amortized as additional equity income over the remaining useful lives of the contributed long-lived amortizing assets. During the third quarter of 2011, MillerCoors recognized an impairment charge of $60.0 million associated with its Sparks brand intangible asset. Our portion, $25.2 million, or 42% of the charge, is offset by an adjustment to our basis amortization above. This adjustment represents accelerated amortization attributable to our proportionate share of the underlying basis of the asset class in which Sparks was contributed.
(2)
The net adjustment is to record all share-based compensation associated with pre-existing equity awards to be settled in Class B common stock held by former CBC employees now employed by MillerCoors and to eliminate all share-based compensation impacts related to pre-existing SABMiller plc equity awards held by former Miller employees now employed by MillerCoors. As of the end of the second quarter of 2011, the share-based awards granted to former CBC employees now employed by MillerCoors became fully vested, as such; no further adjustments will be recorded related to these awards.
During the third quarter of 2011, we had $6.2 million of beer sales to MillerCoors and $2.0 million of beer purchases from MillerCoors. During the third quarter of 2010, we had $8.7 million of beer sales to MillerCoors and $2.1 million of beer purchases from MillerCoors. During the first three quarters of 2011, we had $23.7 million of beer sales to MillerCoors and $6.7 million of beer purchases from MillerCoors. During the first three quarters of 2010, we had $27.9 million of beer sales to MillerCoors and $6.3 million of beer purchases from MillerCoors.
For the third quarter of 2011, we recorded $1.7 million of service agreement and other charges to MillerCoors and $0.3 million of service agreement costs from MillerCoors. For the third quarter of 2010, we recorded $1.4 million of service agreement and other charges to MillerCoors and $0.1 million of service agreement costs from MillerCoors. For the first three quarters of 2011, we recorded $5.1 million of service agreement and other charges to MillerCoors and $0.9 million of service agreement costs from MillerCoors. For the first three quarters of 2010, we recorded $3.7 million of service agreement and other charges to MillerCoors and $1.1 million of service agreement costs from MillerCoors.
As of September 24, 2011 and December 25, 2010, we had $0.4 million of net payables due to MillerCoors and $1.3 million of net receivables due from MillerCoors, respectively.

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Consolidated Investments
The following summarizes the assets of our consolidated VIEs, including noncontrolling interests. The amounts below exclude receivables from us. None of our consolidated VIEs held debt as of September 24, 2011 or December 25, 2010.
 
As of
 
September 24, 2011
 
December 25, 2010
 
Total assets
 
Total assets
 
(In millions)
Grolsch
$
15.0

 
$
14.1

Cobra U.K.
$
29.6

 
$
32.7

The following summarizes the results of operations of our consolidated VIEs (including noncontrolling interests).
 
Thirteen Weeks Ended
 
Thirty-Nine Weeks Ended
 
September 24, 2011
 
September 25, 2010
 
September 24, 2011
 
September 25, 2010
 
Revenues
 
Pre-tax income
 
Revenues
 
Pre-tax income
 
Revenues
 
Pre-tax income
 
Revenues
 
Pre-tax income
 
(In millions)
Grolsch(1)
$
6.8

 
$
1.0

 
$
7.2

 
$
1.0

 
$
19.7

 
$
2.8

 
$
23.0

 
$
3.3

Cobra U.K.
$
10.1

 
$
1.7

 
$
9.9

 
$
1.8

 
$
28.7

 
$
4.8

 
$
27.8

 
$
5.1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

(1)
Substantially all such sales for Grolsch are made to us and as such, are eliminated in consolidation.

5. Share-Based Payments
During the first three quarters of 2011 and 2010, we recognized share-based compensation expense related to the following Class B common stock awards to certain directors, officers and other eligible employees, pursuant to the Molson Coors Brewing Company Incentive Compensation Plan ("Incentive Compensation Plan"): restricted stock units ("RSU"), deferred stock units ("DSU"), performance units ("PU"), stock options and stock-only stock appreciation rights ("SOSAR").
The following table summarizes components of the share-based compensation expense:
 
Thirteen Weeks Ended
 
Thirty-Nine Weeks Ended
 
September 24, 2011
 
September 25, 2010
 
September 24, 2011
 
September 25, 2010
 
(In millions)
Stock options and SOSARs
 
 
 
 
 
 
 
Pre-tax compensation expense
$
0.8

 
$
0.8

 
$
4.7

 
$
5.5

Tax benefit
(0.2
)
 
(0.2
)
 
(1.3
)
 
(1.5
)
After-tax compensation expense
$
0.6

 
$
0.6

 
$
3.4

 
$
4.0

RSUs and DSUs
 
 
 
 
 
 
 
Pre-tax compensation expense
$
2.5

 
$
3.9

 
$
7.9

 
$
12.2

Tax benefit
(0.7
)
 
(1.0
)
 
(2.0
)
 
(3.2
)
After-tax compensation expense
$
1.8

 
$
2.9

 
$
5.9

 
$
9.0

PUs
 
 
 
 
 
 
 
Pre-tax compensation expense
$
1.7

 
$
1.8

 
$
6.7

 
$
5.5

Tax benefit
(0.5
)
 
(0.4
)
 
(2.0
)
 
(1.3
)
After-tax compensation expense
$
1.2

 
$
1.4

 
$
4.7

 
$
4.2

Total after-tax compensation expense
$
3.6

 
$
4.9

 
$
14.0

 
$
17.2

During the first three quarters of 2011, we granted 0.7 million stock options, 0.3 million RSUs and 0.6 million PUs, all of which were outstanding other than an insignificant amount of cancellations as of September 24, 2011.
The mark-to-market share-based compensation expense before tax, related to our share-based awards granted to former

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Table of Contents

CBC employees now employed by MillerCoors, recorded during the first three quarters of 2011, was a $0.1 million benefit. These awards were fully vested as of the end of the second quarter of 2011, as such, we recorded no adjustment in the third quarter 2011, and no further adjustments will be recorded related to these awards. For the third quarter and first three quarters of 2010, the amounts were expenses of $0.7 million and $1.8 million, respectively. These amounts are included in the table above.
As of September 24, 2011, there was $30.0 million of total unrecognized pre-tax compensation expense related to non-vested shares from share-based compensation arrangements granted under the Incentive Compensation Plan. This compensation expense is expected to be recognized over a weighted-average period of approximately 1.4 years.
The following table represents the summary of stock options and SOSARs outstanding as of September 24, 2011, and the activity during the first three quarters of 2011:

 
Outstanding
options
 
Weighted-average
exercise price per
share
 
Weighted-average
remaining
contractual life
(years)
 
Aggregate
intrinsic value
 
(In millions, except per share amounts and years)
Outstanding as of December 25, 2010
6.8

 
$37.92
 
4.89

 
$
91.6

Granted
0.7

 
$44.23
 
 

 
 

Exercised
(0.3
)
 
$35.50
 
 

 
 

Forfeited
—

 
$43.43
 
 

 
 

Outstanding as of September 24, 2011
7.2

 
$38.57
 
4.52

 
$
25.3

Exercisable at September 24, 2011
5.9

 
$37.46
 
3.56

 
$
25.3

The total intrinsic value of options exercised during the first three quarters of 2011 and 2010 was $2.7 million and $4.3 million, respectively. During the first three quarters of 2011, cash received from stock option exercises was $8.5 million and the total net tax benefit to be realized for the tax deductions from these option exercises was $0.7 million.
The following table represents non-vested RSUs, DSUs and PUs as of September 24, 2011, and the activity during the first three quarters of 2011:
 
RSUs and DSUs
 
PUs
 
Units
 
Weighted-average
grant date fair value
per unit
 
Units
 
Weighted-average
grant date fair value
per unit
 
(In millions, except
per unit amounts)
 
(In millions, except
per unit amounts)
Non-vested as of December 25, 2010
0.8

 
$49.41
 
2.2

 
$
9.45

Granted
0.3

 
$41.09
 
0.6

 
$
13.51

Vested
(0.4
)
 
$53.72
 
(0.7
)
 
$
6.98

Forfeited
—

 
$43.92
 
(0.1
)
 
$
11.22

Non-vested as of September 24, 2011
0.7

 
$42.17
 
2.0

 
$
11.62

The fair value of each option granted in the first three quarters of 2011 and 2010, respectively, was determined on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:
 
For the Thirty-Nine Weeks Ended
 
September 24, 2011
 
September 25, 2010
Risk-free interest rate
2.60%
 
2.95%
Dividend yield
2.56%
 
2.22%
Volatility range
25.26%-29.35%
 
27.2%-29.5%
Weighted-average volatility
26.25%
 
27.86%
Expected term (years)
4.0-7.7
 
5.0-7.0
Weighted-average fair market value
$9.64
 
$10.95

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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 on the expected term results from separate groups of employees who exhibit different historical exercise behavior.
As of September 24, 2011, there were 3.6 million shares of our Class B common stock available for the issuance of stock options, SOSARs, RSUs, DSUs, PUs and performance share units under the Incentive Compensation Plan.

6. Unusual or Infrequent Items
We have incurred charges or recognized gains that we believe are not indicative of our normal, core operations. As such, we have separately classified these amounts as special operating items.
Summary of Special Items
The table below summarizes special items recorded by segment:
 
 
Thirteen Weeks Ended
 
Thirty-Nine Weeks Ended
 
 
September 24, 2011
 
September 25, 2010
 
September 24, 2011
 
September 25, 2010
 
 
(In millions)
Canada
 
 
 
 
 
 
 
Restructuring, exit and other related costs associated with the Montreal and Edmonton breweries(1)
$
—

 
$
—

 
$
0.6

 
$
0.9

Special termination benefits(2)
0.7

 
—

 
4.7

 
3.2

Flood insurance reimbursement(3)
(0.4
)
 
—

 
(0.3
)
 
—

Software abandonment(4)
—

 
0.4

 
—

 
12.8

BRI Loan Guarantee Adjustment(5)
—

 
—

 
(2.0
)
 
—

Fixed asset adjustment(6)
—

 
—

 
7.6

 
—

U.K.
 
 
 
 
 
 
 
Restructuring charge(7)
(0.5
)
 
2.4

 
2.2

 
3.6

Release of non-income-related tax reserve(8)
—

 
—

 
(2.5
)
 
0.4

Other(9)
0.1

 
—

 
0.1

 
(0.3
)
MCI and Corporate
 
 
 
 
 
 
 
Costs associated with other strategic initiatives(10)
0.2

 
0.3

 
0.7

 
0.9

Total Special items, net
$
0.1

 
$
3.1

 
$
11.1

 
$
21.5

 
 
 
 
 
 
 
 
 
(1)
During the second quarter of 2011 and the first half of 2010, we recognized expenses for restructuring costs associated with employee terminations and impairment of assets at the Montreal and Edmonton breweries.
(2)
During the first three quarters of 2011, we recognized charges related to special termination benefits offered to eligible employees upon election for early retirement as collective bargaining agreements were ratified with MCC impacting the Quebec Hourly Defined Benefit pension plan. Additionally, during the first quarter of 2011 and the first half of 2010, we recognized expenses for special termination benefits related to the Ontario-Atlantic Hourly Defined Benefit pension plan.
(3)
During the third quarter of 2011, we received insurance proceeds in excess of expenses incurred related to flood damages at our Toronto offices, which was partially offset by expenses incurred in the first three quarters of 2011.
(4)
During the second quarter and third quarter of 2010, a capital asset write-off was recorded related to abandonment of sales support software, which had been under development, as a result of a change in strategic direction relative to the use of the software.
(5)
During the second quarter of 2011, we recognized a $2.0 million gain resulting from a reduction of our guarantee of Brewers' Retail, Inc. ("BRI") debt obligations, which is discussed further in Note 15 "Commitments and Contingencies".
(6)
During the second quarter of 2011, we recognized a $7.6 million loss related to the correction of an error in prior

14
Table of Contents

periods to reduce fixed assets in the Canada segment, resulting from the performance of a fixed asset count. The impact of the error and the related correction this year is not material to any prior annual or interim financial statements and is not material to the expected full year results for this fiscal year.
(7)
During the third quarter of 2011, a benefit was realized from an adjustment to a supply chain restructuring accrual. During the first three quarters of 2011 and the first three quarters of 2010, we recognized employee termination costs related to supply chain restructuring activity and company-wide efforts to increase efficiency in certain operations, finance, information technology and human resource activities.
(8)
During 2009, we established a non-income-related tax reserve of $10.4 million that was recorded as a special item. The amount recorded in the first quarter of 2011 represents a release of a portion of this reserve.
(9)
During the third quarter of 2011, we recognized costs related to the integration of our Sharp's Brewery Ltd. acquisition. During the first half of 2010, we recognized a gain due to the release of an accrual of $0.3 million related to a potential repayment of a government grant.
(10)
During the second quarter and third quarter of 2011 and the first three quarters of 2010, we recognized costs related to the acquisition and integration of our China and India joint ventures.
The table below summarizes the activity in the restructuring accruals:
 
Severance and other
employee-related costs
 
Canada
 
U.K.
 
Total
 
(In millions)
Balance at December 25, 2010
$
0.2

 
$
2.2

 
$
2.4

Charges incurred
—

 
2.2

 
2.2

Payments made
(0.1
)
 
(2.0
)
 
(2.1
)
Foreign currency and other adjustments
—

 
(0.1
)
 
(0.1
)
Balance at September 24, 2011
$
0.1

 
$
2.3

 
$
2.4


7. Other Income and Expense
The table below summarizes other income and expense:
 
 
Thirteen Weeks Ended
 
Thirty-Nine Weeks Ended
 
 
September 24, 2011
 
September 25, 2010
 
September 24, 2011
 
September 25, 2010
 
 
(In millions)
Gain (loss) from Foster's total return swap and related financial instruments(1)
$
—

 
$
42.3

 
$
0.8

 
$
57.3

Gain (loss) from other foreign exchange and derivative activity
(2.7
)
 
(0.3
)
 
(6.7
)
 
(3.1
)
Environmental reserve
—

 
—

 
(0.1
)
 
(0.1
)
Other, net
0.4

 
(0.4
)
 
1.2

 
0.3

Other income (expense), net
$
(2.3
)
 
$
41.6

 
$
(4.8
)
 
$
54.4


 
 
 
 
 
 
 
 
(1)
During January 2011, we settled the remaining Foster's total return swap and related financial instruments.

8. Discontinued Operations
In 2006, we sold our entire equity interest in our Brazilian unit, Cervejarias Kaiser Brasil S.A. ("Kaiser") to FEMSA Cerveza S.A. de C.V. ("FEMSA"). 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. In the third quarters of 2011 and 2010, we recognized a gain of $3.2 million and loss of $0.9 million, respectively, from discontinued operations associated with foreign exchange gains and losses related to indemnities we provided to FEMSA with regard to contingent tax and other liabilities. During the first three quarters of 2011 and 2010, we recognized gains of $2.0 million and $41.1 million, respectively. We recognized a gain of $42.6 million related to our settlement of a portion of our indemnity liabilities to FEMSA during the first quarter of 2010. See further discussion in Note 15 "Commitments and Contingencies".

15
Table of Contents

Additionally, we incurred a loss related to an adjustment in legal reserves of $0.5 million during the third quarter and first three quarters of 2011.
9. Income Tax
Our effective tax rates for the third quarters of 2011 and 2010 were approximately 14% and 19%, respectively. For the first three quarters of 2011 and 2010, our effective tax rates were approximately 15% and 18%, respectively. The decrease from 2010 is primarily due to the tax effects of MillerCoors special charges in the third quarter of 2011 and the tax effect of Foster's total return swap unrealized gain of $42.3 million in the third quarter of 2010.
Our tax rate is volatile and may fluctuate 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 for uncertain tax positions as statutes of limitations expire or positions are otherwise effectively settled. There are proposed or pending tax law changes in the U.S., U.K. and Canada that, if enacted, may impact our effective tax rate.
As of December 25, 2010, we had $84.1 million of uncertain tax benefits. Since December 25, 2010, uncertain tax benefits increased by $6.1 million. This addition is net of increases due to additional uncertain tax benefits and interest accrued for the current year and decreases primarily due to certain tax positions closing or being effectively settled, and payments made to tax authorities with regard to uncertain tax benefits during the third quarter of 2011. This results in a total uncertain tax benefit of $90.2 million as of September 24, 2011.
During the remainder of 2011, we will recognize Canadian dollar ("CAD") 18.6 million of non-cash income tax benefit due primarily to the favorable resolution of unrecognized tax positions that we effectively settled early in the fourth quarter.
We file income tax returns in most of the federal, state, and provincial jurisdictions in the U.S., U.K., and Canada. In the U.S., tax years through 2006 are closed, while exam years 2007 and 2008 have been effectively settled and only remain open pending finalization of an advanced pricing agreement. Tax years through fiscal year ended February 8, 2005, are closed or have been effectively settled through examination in Canada. Tax years through 2008 are closed or have been effectively settled through examination in the U.K.    
10. Earnings per Share ("EPS")
Basic net income per 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 stock options, SOSARs, RSUs, PUs, and DSUs, calculated using the treasury stock method.

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The following summarizes the effect of dilutive securities on diluted EPS:
 
Thirteen Weeks Ended
 
Thirty-Nine Weeks Ended
 
September 24, 2011
 
September 25, 2010
 
September 24, 2011
 
September 25, 2010
 
(In millions)
Amounts attributable to MCBC
 
 
 
 
 
 
 
Net income (loss) from continuing operations
$
194.7

 
$
257.0

 
$
501.6

 
$
556.8

Income (loss) from discontinued operations, net of tax
2.7

 
(0.9
)
 
1.5

 
41.1

Net income (loss) attributable to MCBC
$
197.4

 
$
256.1

 
$
503.1

 
$
597.9

Weighted average shares for basic EPS
185.0

 
186.0

 
186.3

 
185.7

Effect of dilutive securities:
 
 
 
 
 
 
 
Options and SOSARs
0.8

 
0.9

 
0.9

 
0.9

RSUs, PUs and DSUs
0.4

 
0.5

 
0.6

 
0.5

Weighted average shares for diluted EPS
186.2

 
187.4

 
187.8

 
187.1

Basic net income (loss) per share:
 
 
 
 
 
 
 
Continuing operations attributable to MCBC
$
1.05

 
$
1.39

 
$
2.69

 
$
3.00

Discontinued operations attributable to MCBC
0.01

 
(0.01
)
 
0.01

 
0.22

Net income attributable to MCBC
$
1.06

 
$
1.38

 
$
2.70

 
$
3.22

Diluted net income (loss) per share:
 
 
 
 
 
 
 
Continuing operations attributable to MCBC
$
1.05

 
$
1.38

 
$
2.67

 
$
2.98

Discontinued operations attributable to MCBC
0.01

 
(0.01
)
 
0.01

 
0.22

Net income attributable to MCBC
$
1.06

 
$
1.37

 
$
2.68

 
$
3.20

Dividends declared and paid per share
$
0.32

 
$
0.28

 
$
0.92

 
$
0.80

The following anti-dilutive securities were excluded from the computation of the effect of dilutive securities on diluted earnings per share:
 
 
Thirteen Weeks Ended
 
Thirty-Nine Weeks Ended
 
 
September 24, 2011
 
September 25, 2010
 
September 24, 2011
 
September 25, 2010
 
 
(In millions)
Stock options, SOSARs and RSUs(1)
1.0

 
0.7

 
0.6

 
0.9

Shares of Class B common stock issuable upon assumed conversion of the 2.5% Convertible Senior Notes(2)
10.8

 
10.5

 
10.7

 
10.5

Warrants to issue shares of Class B common stock(2)
10.8

 
10.5

 
10.7

 
10.5

 
 
22.6

 
21.7

 
22.0

 
21.9

 
 
 
 
 
 
 
 
 
(1)
Exercise prices exceed the average market price of the common shares or are anti-dilutive due to the impact of the unrecognized compensation cost on the calculation of assumed proceeds in the application of the treasury stock method.
(2)
We issued $575 million of senior convertible notes in June 2007. The impact of a net share settlement of the conversion amount at maturity will begin to dilute earnings per share if and when our stock price reaches $53.40. The impact of stock that could be issued to settle share obligations we could have under the warrants we issued simultaneously with the convertible notes issuance will begin to dilute earnings per share when our stock price reaches $68.10. The potential receipt of MCBC stock from counterparties under our purchased call options when and if our stock price is between $53.40 and $68.10 would be anti-dilutive and excluded from any calculations of earnings per share.

17
Table of Contents

We have no outstanding equity share awards that contain non-forfeitable rights to dividends on unvested shares.
In July 2011, the Board of Directors authorized a new program to repurchase up to $1.2 billion of outstanding shares of Class B common stock in the open market or in privately negotiated transactions over an expected term of three years. We purchased a total of 6.3 million shares of our Class B common stock under the share repurchase program in the third quarter of 2011 for $271.1 million. During the third quarter of 2011, our Board of Directors expanded this program to include the repurchase of the Company's Class A common stock. There are fewer Class A shares available to repurchase on the open market, so the repurchases will continue to be primarily of Class B shares.
11. Goodwill and Intangible Assets
The following summarizes the change in goodwill for the first three quarters of 2011 (in millions):
Balance at December 25, 2010
$
1,489.1

Business acquisitions
19.3

Foreign currency translation
(15.0
)
Historical correction to adjust Properties, net
6.3

Balance at September 24, 2011
$
1,499.7

Goodwill was attributed to our segments as follows:
 
As of
 
September 24, 2011
 
December 25, 2010
 
(In millions)
Canada
$
740.3

 
$
748.6

United Kingdom
741.6

 
731.4

MCI
17.8

 
9.1

Consolidated
$
1,499.7

 
$
1,489.1


The following table presents details of our intangible assets, other than goodwill, as of September 24, 2011:
 
Useful life
 
Gross
 
Accumulated
amortization
 
Net
 
(Years)
 
(In millions)
Intangible assets subject to amortization:
 
 
 
 
 
 
 
Brands
 3 - 40
 
$
315.0

 
$
(172.6
)
 
$
142.4

Distribution rights
 2 - 23
 
339.7

 
(228.6
)
 
111.1

Patents and technology and distribution channels
 3 - 10
 
34.7

 
(28.0
)
 
6.7

Land use rights and other
 2 - 42
 
6.4

 
(0.7
)
 
5.7

Intangible assets not subject to amortization:
 
 
 
 
 
 
 
Brands
 Indefinite
 
3,300.6

 
—

 
3,300.6

Distribution networks
 Indefinite
 
984.0

 
—

 
984.0

Other
 Indefinite
 
15.5

 
—

 
15.5

Total
 
 
$
4,995.9

 
$
(429.9
)
 
$
4,566.0



18
Table of Contents

The following table presents details of our intangible assets, other than goodwill, as of December 25, 2010:
 
Useful life
 
Gross
 
Accumulated
amortization
 
Net
 
(Years)
 
(In millions)
Intangible assets subject to amortization:
 
 
 
 
 
 
 
Brands
3 - 40
 
$
297.3

 
$
(159.6
)
 
$
137.7

Distribution rights
2 - 23
 
345.8

 
(221.6
)
 
124.2

Patents and technology and distribution channels
3 - 10
 
34.6

 
(25.5
)
 
9.1

Land use rights and other
2 - 42
 
6.2

 
(0.1
)
 
6.1

Intangible assets not subject to amortization:
 
 
 
 
 
 
 
Brands
Indefinite
 
3,359.2

 
—

 
3,359.2

Distribution networks
Indefinite
 
1,003.3

 
—

 
1,003.3

Other
Indefinite
 
15.5

 
—

 
15.5

Total
 
 
$
5,061.9

 
$
(406.8
)
 
$
4,655.1

The changes in the gross carrying amounts of intangibles from December 25, 2010 to September 24, 2011 are due to the impact of foreign exchange rates, as a significant amount of intangibles are denominated in foreign currencies, and the first quarter acquisition of Sharp's Brewery Ltd. in the U.K. (approximately $20.4 million).
Based on foreign exchange rates as of September 24, 2011, the following is our estimated amortization expense related to intangible assets for the next five years:
 
 
Amount
 
 
(In millions)
2011
- remaining
$
9.9

2012
 
$
34.6

2013
 
$
33.7

2014
 
$
33.6

2015
 
$
31.1

Amortization expense of intangible assets was $9.7 million and $30.0 million for the third quarter and first three quarters of 2011, respectively, and $10.9 million and $32.9 million for the third quarter and first three quarters of 2010, respectively.
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 performed the required annual impairment testing as of June 26, 2011, and determined that there were no impairments of goodwill or other indefinite-lived intangible assets.

Through our annual impairment testing, it was determined that the fair value of our China reporting unit was not significantly in excess of its carrying value (of which $9.5 million is goodwill as of September 24, 2011). In its first year of operation, the performance of the Molson Coors Si'hai Brewing venture (included in our China reporting unit) did not meet our expectations due to delays in executing our business plans. While we continue to work at resolving the delays, no guarantee can be made that our efforts will be successful. As a consequence, a future goodwill impairment charge related to the China reporting unit may be required.
Regarding definite-lived intangibles, we continuously monitor the performance of the underlying asset for potential triggering events suggesting an impairment review should be performed. No such triggering events were identified in the first three quarters of 2011.


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Table of Contents

12. Debt
Our total long-term borrowings as of September 24, 2011, and December 25, 2010, were composed of the following:
 
As of
 
September 24, 2011
 
December 25, 2010
 
(In millions)
Senior notes:
 
 
 
$850 million 6.375% notes due 2012
$
44.6

 
$
44.6

CAD 900 million 5.0% notes due 2015
875.4

 
892.6

$575 million 2.5% convertible notes due 2013(1)(2)
575.0

 
575.0

CAD 500 million 3.95% Series A notes due 2017
486.3

 
495.9

Less: unamortized debt discounts and other(2)
(35.2
)
 
(48.5
)
Total long-term debt (including current portion)
1,946.1

 
1,959.6

Less: current portion of long-term debt
(44.8
)
 
—

Total long-term debt
$
1,901.3

 
$
1,959.6

Total fair value
$
2,137.7

 
$
2,137.6

 
 
 
 
(1)
The original conversion price for each $1,000 aggregate principal amount of notes was $54.76 per share of our Class B common stock, which represented a 25% premium above the stock price on the day of issuance of the notes and corresponded 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 adjustments for certain events and provisions, as defined in the indenture. As of June 2011, our conversion price and ratio are $53.40 and 18.7251 shares, respectively. Currently, the convertible debt's if-converted value does not exceed the principal.
(2)
During the third quarters of 2011 and 2010, we incurred additional non-cash interest expense of $4.4 million and $4.2 million, respectively. For the first three quarters of 2011 and 2010, the amounts were $13.1 million and $12.6 million, respectively. We also incurred interest expense related to the 2.5% convertible coupon rate of $3.6 million for both the third quarters of 2011 and 2010. For the first three quarters of 2011 and 2010, the amount was $10.8 million for both periods. The combination of non-cash and cash interest resulted in an effective interest rate of 5.86% and 5.95% for the third quarters of 2011 and 2010, respectively. The effective interest rates for the first three quarters of 2011 and 2010 were 5.87% and 5.95%, respectively. As of September 24, 2011, and December 25, 2010, paid in capital in the equity section of our balance sheet includes $103.9 million, ($64.2 million net of tax), representing the equity component of the convertible debt. Further, as of September 24, 2011, and December 25, 2010, $33.2 million and $46.3 million, respectively, of the unamortized debt discount and other balance relates to our $575 million convertible debt. We expect the unamortized discount to continue to amortize through 2013, resulting in non-cash interest expense of approximately $17 million to $18 million annually, thereby increasing the carrying value of the convertible debt to its $575 million face value at maturity in July 2013. The remaining $2.0 million as of September 24, 2011, and December 25, 2010, relates to unamortized debt premiums, discounts, and other on the additional debt balances.
Our short-term borrowings at September 24, 2011, and December 25, 2010, were $1.6 million and $1.1 million, respectively.
During the second quarter of 2011, we terminated our $750 million revolving multicurrency bank credit facility, which was scheduled to expire in August 2011. Additionally, in connection with this termination, we entered into an agreement for a 4-year revolving multicurrency credit facility of $400 million, which provides a $100 million sub-facility available for the issuance of letters of credit. We incurred $2.2 million of issuance costs and up-front fees related to this agreement, which are being amortized over the term of the facility. There were no outstanding borrowings on the $400 million credit facility as of September 24, 2011.
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 September 24, 2011, we were in compliance with all of these restrictions.

20
Table of Contents

13. Derivative Instruments and Hedging Activities
Our risk management and derivative accounting policies are presented in Note 18 of the Notes to the Audited Consolidated Financial Statements in our Annual Report and did not significantly change during the first three quarters of 2011, except as described below.
Significant Derivative/Hedge Positions
Cross Currency Swaps
In September 2011, we cash settled approximately 25% of our British pound ("GBP") 530 million/$774 million and CAD 1.2 billion/GBP 530 million cross currency swaps. The swaps are designated as cash flow hedges of the changes in value of the future GBP cash flows related to GBP 530 million intercompany notes. Simultaneously with the settlement of the swaps, we paid down an equal portion of the outstanding principal of the intercompany notes in the amount of GBP 132.4 million. Prior to settlement, the swaps were in a net liability position of $394.2 million. As a result of the settlement, we extinguished $98.7 million of the outstanding liability, resulting in a net liability of $295.5 million at September 24, 2011, of which $98.5 million is current and $197.0 million is non-current. Cash flow hedge accounting was discontinued on the settled swaps and losses of $0.9 million were reclassified from Accumulated other comprehensive income ("AOCI") to Other income (expense), net related to the hedge termination.
Subsequent to September 24, 2011, we simultaneously extended both the terms of approximately half of the original intercompany notes and cross currency swaps, such that the new maturities are March 2014. Following the refinancing, the extended swaps were in a net liability position of approximately $218.9 million and remain designated as cash flow hedges of the extended intercompany notes. The remaining approximate 25%, due in May 2012, was left unadjusted.
Commodity Swaps
In June 2011, we entered into financial commodity swap contracts to hedge our exposure to changes in the prices of aluminum. These contracts allow us to swap our floating exposure to changes in aluminum prices for a fixed rate. These contracts are not designated in a hedge accounting relationship. As such, changes in fair value of these swaps are recorded in Cost of goods sold in our Condensed Consolidated Statement of Operations. We hedge forecasted purchases of aluminum up to 36 months in the future for use in our supply chain. For purposes of measuring segment operating performance, the unrealized changes in fair value of the aluminum swaps are reported in our non-reportable Corporate business activities outside of segment specific operating results until such time that the exposure we are managing is realized. At that time we will reclassify the gain or loss from Corporate to the operating segment, allowing our operating segments to realize the economic effects of the derivative without the resulting unrealized mark-to-market volatility.  
Derivative Fair Value Measurements
We utilize market approaches to estimate the fair value of our derivative instruments by discounting anticipated future cash flows derived from the derivative's contractual terms and observable market interest, foreign exchange and commodity rates. The fair values of our derivatives also include credit risk adjustments to account for our counterparties' credit risk, as well as our own non-performance risk. As of September 24, 2011, and December 25, 2010, these adjustments resulted in deferred net gains in AOCI of $0.4 million and $2.7 million, respectively, as the fair value of our derivatives were in net liability positions at both period ends.
The table below summarizes our derivative assets and liabilities that were measured at fair value as of September 24, 2011 and December 25, 2010.

 
 
 
September 24, 2011
 
Total carrying
value at
September 24, 2011
 
Quoted prices in
active markets
(Level 1)
 
Significant other
observable inputs
(Level 2)
 
Significant
unobservable
inputs (Level 3)
 
(In millions)
Cross currency swaps
$
(295.5
)
 
$
—

 
$
(295.5
)
 
$
—

Foreign currency forwards
5.5

 
—

 
5.5

 
—

Commodity swaps
(2.0
)
 
—

 
(2.0
)
 
—

Total
$
(292.0
)
 
$
—

 
$
(292.0
)
 
$
—


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Table of Contents

 
 
 
 
December 25, 2010
 
December 25, 2010
 
Quoted prices in
active markets
(Level 1)
 
Significant other
observable inputs
(Level 2)
 
Significant
unobservable
inputs (Level 3)
 
(In millions)
Cross currency swaps
$
(412.2
)
 
$
—

 
$
(412.2
)
 
$
—

Foreign currency forwards
(16.3
)
 
—

 
(16.3
)
 
—

Commodity swaps
(2.0
)
 
—

 
(2.0
)
 
—

Total return swaps
1.2

 
—

 
1.2

 
—

Option contracts
2.9

 
—

 
—

 
2.9

Total
$
(426.4
)
 
$
—

 
$
(429.3
)
 
$
2.9

The table below summarizes derivative valuation activity using significant unobservable inputs (Level 3):
 
 
 
Rollforward of
Level 3 Inputs
 
(In millions)
Balance at December 25, 2010
$
2.9

Total gains or losses (realized/unrealized)
 
Included in earnings (or change in net assets)
1.5

Included in AOCI
—

Purchases
—

Sales
—

Issuances
—

Settlements
(4.4
)
Transfers in/out of Level 3
—

Balance at September 24, 2011
$
—

During the first quarter of 2011, we settled all of our option contracts that were classified as Level 3 as of December 25, 2010. As of September 24, 2011, we had no significant transfers between Level 1 and 2. New derivative contracts transacted during the first three quarters of 2011 are all included in Level 2.
Results of Period Derivative Activity
The tables below include the year to date results of our derivative activity in the Condensed Consolidated Balance Sheets as of September 24, 2011, and December 25, 2010, and the Condensed Consolidated Statements of Operations for the third quarters and first three quarters ended September 24, 2011, and September 25, 2010.

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Table of Contents

Fair Value of Derivative Instruments in the Condensed Consolidated Balance Sheet (in millions)
 
September 24, 2011
 
 
 
Asset derivatives
 
Liability derivatives
 
Notional amount
 
Balance sheet location
 
Fair value
 
Balance sheet location
 
Fair value
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
 
 
Cross currency swaps
USD 1,228.6
 
Other current assets
 
$
—

 
Current derivative liability
 
$
(98.5
)
 
 
 
Other assets
 
—

 
Long term derivative liability
 
(197.0
)
Foreign currency forwards
USD 465.8
 
Other current assets
 
2.4

 
Current derivative liability
 
(3.4
)
 
 
 
Other assets
 
6.5

 
Long term derivative liability
 
—

Commodity swaps
Gigajoules 2.0
 
Other current assets
 
1.1

 
Current derivative liability
 
(0.3
)
 
 
 
Other assets
 
0.2

 
Long term derivative liability
 
—

Total derivatives designated as hedging instruments
 
 
 
 
$
10.2

 
 
 
$
(299.2
)
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
 
Commodity swaps
Metric Tonnes 0
 
Other current assets
 
$
—

 
Current derivative liability
 
$
(1.8
)
 
 
 
Other assets
 
—

 
Long term derivative liability
 
(1.2
)
Total derivatives not designated as hedging instruments
 
 
 
 
$
—

 
 
 
$
(3.0
)

 
December 25, 2010
 
 
 
Asset derivatives
 
Liability derivatives
 
Notional amount
 
Balance sheet location
 
Fair value
 
Balance sheet location
 
Fair value
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
 
 
Cross currency swaps
USD 1,637.1
 
Other current assets
 
$
—

 
Current derivative liability
 
$
(11.2
)
 
 
 
Other assets
 
—

 
Long term derivative liability
 
(401.0
)
Foreign currency forwards
USD 426.0
 
Other current assets
 
0.3

 
Current derivative liability
 
(12.4
)
 
 
 
Other assets
 
0.1

 
Long term derivative liability
 
(3.4
)
Commodity swaps
Gigajoules 2.2
 
Other current assets
 
0.1

 
Current derivative liability
 
(1.8
)
 
 
 
Other assets
 
—

 
Long term derivative liability
 
(0.4
)
Total derivatives designated as hedging instruments
 
 
 
 
$
0.5

 
 
 
$
(430.2
)
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
 
Foreign currency forwards
USD 13.9
 
Other current assets
 
$
—

 
Current derivative liability
 
$
(0.8
)
Total return swaps
Australian dollar ("AUD") 42.1
 
Other current assets
 
1.2

 
Current derivative liability
 
—

Option contracts
FGL.ASX Shares 7.6
 
Other current assets
 
3.1

 
Current derivative liability
 
(0.2
)
Total derivatives not designated as hedging instruments
 
 
 
 
$
4.3

 
 
 
$
(1.0
)
We allocate the current and non-current portion of each contract to the corresponding derivative account above.

23
Table of Contents

The Effect of Derivative Instruments on the Condensed Consolidated Statement of Operations (in millions)
Cash Flow Hedges