MOLSON COORS BREWING CO, 10-Q filed on 11/5/2009
Quarterly Report
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)
In Millions, except Per Share data
3 Months Ended
Sep. 26, 2009
9 Months Ended
Sep. 26, 2009
3 Months Ended
Sep. 28, 2008
9 Months Ended
Sep. 28, 2008
Sales
$ 1,250.3 
$ 3,234.9 
$ 1,373.8 
$ 5,549.5 
Excise taxes
(396.6)
(1,023.3)
(452.7)
(1,514.3)
Net sales
853.7 
2,211.6 
921.1 
4,035.2 
Cost of goods sold
(472.6)
(1,251.3)
(524.4)
(2,392.9)
Gross profit
381.1 
960.3 
396.7 
1,642.3 
Marketing, general and administrative expenses
(240.7)
(653.3)
(236.8)
(1,136.6)
Special items, net
(4.3)
(21.6)
(24.8)
(136.1)
Equity income in MillerCoors
101.2 
332.4 
106.5 
106.5 
Operating income
237.3 
617.8 
241.6 
476.1 
Interest expense, net
(22.5)
(62.3)
(25.6)
(80.4)
Debt extinguishment costs
 
 
 
(12.4)
Other income, net
55.9 
29.1 
7.7 
6.4 
Income from continuing operations before income taxes
270.7 
584.6 
223.7 
389.7 
Income tax expense
(25.3)
(71.3)
(54.9)
(74.9)
Income from continuing operations
245.4 
513.3 
168.8 
314.8 
(Loss) income from discontinued operations, net of tax
(9.0)
(12.9)
3.2 
(18.1)
Net income
236.4 
500.4 
172.0 
296.7 
Less: Net income attributable to noncontrolling interests
(1.1)
(2.1)
(0.7)
(11.6)
Net income attributable to Molson Coors Brewing Company
235.3 
498.3 
171.3 
285.1 
Basic income (loss) per share:
 
 
 
 
Continuing operations attributable to Molson Coors Brewing Company (in dollars per share)
1.32 
2.78 
0.91 
1.66 
Discontinued operations attributable to Molson Coors Brewing Company (in dollars per share)
(0.05)
(0.07)
0.02 
(0.10)
Net income attributable to Molson Coors Brewing Company (in dollars per share)
1.27 
2.71 
0.93 
1.56 
Diluted income (loss) per share:
 
 
 
 
Continuing operations attributable to Molson Coors Brewing Company (in dollars per share)
1.31 
2.75 
0.90 
1.63 
Discontinued operations attributable to Molson Coors Brewing Company (in dollars per share)
(0.05)
(0.07)
0.02 
(0.10)
Net income attributable to Molson Coors Brewing Company (in dollars per share)
1.26 
2.68 
0.92 
1.53 
Weighted average shares - basic (in shares)
184.6 
184.2 
183.5 
182.3 
Weighted average shares - diluted (in shares)
186.2 
185.6 
185.7 
185.5 
Amounts attributable to Molson Coors Brewing Company
 
 
 
 
Income from continuing operations, net of tax
244.3 
511.2 
168.1 
303.2 
(Loss) income from discontinued operations, net of tax
(9.0)
(12.9)
3.2 
(18.1)
Net income attributable to Molson Coors Brewing Company
$ 235.3 
$ 498.3 
$ 171.3 
$ 285.1 
CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)
In Millions
Sep. 26, 2009
Dec. 28, 2008
Assets
 
 
Current assets:
 
 
Cash and cash equivalents
$ 565.1 
$ 216.2 
Accounts receivable, net
501.2 
472.5 
Other receivables, net
160.6 
162.9 
Inventories:
 
 
Finished, net
101.2 
89.1 
In process
18.9 
13.4 
Raw materials
43.6 
43.3 
Packaging materials, net
60.0 
46.3 
Total inventories, net
223.7 
192.1 
Other assets, net
47.6 
61.9 
Discontinued operations
9.6 
1.5 
Total current assets
1,507.8 
1,107.1 
Properties, net
1,251.8 
1,301.9 
Goodwill
1,441.4 
1,298.0 
Other intangibles, net
4,372.3 
3,923.4 
Investment in MillerCoors
2,588.1 
2,418.7 
Deferred tax assets
121.9 
75.3 
Notes receivable, net
50.2 
51.8 
Other assets
157.7 
203.4 
Discontinued operations
 
7.0 
Total assets
11,491.2 
10,386.6 
Liabilities and equity
 
 
Current liabilities:
 
 
Accounts payable
185.4 
170.5 
Accrued expenses and other liabilities
633.1 
690.8 
Deferred tax liabilities
123.8 
107.8 
Current portion of long-term debt and short-term borrowings
300.1 
0.1 
Discontinued operations
155.5 
16.9 
Total current liabilities
1,397.9 
986.1 
Long-term debt
1,376.6 
1,752.0 
Pension and post-retirement benefits
489.9 
581.0 
Derivative hedging instruments
328.2 
225.9 
Deferred tax liabilities
527.0 
399.4 
Unrecognized tax benefits
170.7 
230.4 
Other liabilities
148.4 
47.6 
Discontinued operations
18.4 
124.8 
Total liabilities
4,457.1 
4,347.2 
Molson Coors Brewing Company stockholders' equity
 
 
Capital stock:
 
 
Preferred stock, non-voting, no par value (authorized: 25.0 shares; none issued)
0.0 
0.0 
Paid-in capital
3,412.5 
3,334.6 
Retained earnings
2,557.2 
2,184.9 
Accumulated other comprehensive income (loss)
162.2 
(371.4)
Total Molson Coors Brewing Company stockholders' equity
7,018.7 
6,055.4 
Noncontrolling interests
15.4 
(16.0)
Total equity
7,034.1 
6,039.4 
Total liabilities and equity
11,491.2 
10,386.6 
Class A common stock, voting
 
 
Common stock
0.0 
0.0 
Class B common stock, non-voting
 
 
Common stock
1.6 
1.6 
Exchangeable shares, Class A, Class of stock
 
 
Exchangeable shares
119.1 
119.4 
Exchangeable shares, Class B, Class of stock
 
 
Exchangeable shares
$ 766.1 
$ 786.3 
CONDENSED CONSOLIDATED BALANCE SHEETS PARENTHETICAL
Share data in Millions, except Per Share data
Sep. 26, 2009
Dec. 28, 2008
Preferred stock, non-voting no par value (in dollars per share)
Preferred stock, non-voting, authorized (in shares)
25.0 
25.0 
Preferred stock, non-voting, issued (in shares)
0.0 
0.0 
Class A common stock, voting
 
 
Common stock, par value (in dollars per share)
0.01 
0.01 
Common stock, authorized (in shares)
500.0 
500.0 
Common stock, issued (in shares)
2.6 
2.7 
Common stock, outstanding (in shares)
2.6 
2.7 
Class B common stock, non-voting
 
 
Common stock, par value (in dollars per share)
0.01 
0.01 
Common stock, authorized (in shares)
500.0 
500.0 
Common stock, issued (in shares)
158.9 
157.1 
Common stock, outstanding (in shares)
158.9 
157.1 
Exchangeable shares, Class A, Class of stock
 
 
Exchangeable shares, issued (in shares)
3.2 
3.2 
Exchangeable shares, outstanding (in shares)
3.2 
3.2 
Exchangeable shares, Class B, Class of stock
 
 
Exchangeable shares, issued (in shares)
20.4 
20.9 
Exchangeable shares, outstanding (in shares)
20.4 
20.9 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Millions
9 Months Ended
Sep. 26, 2009
Sep. 28, 2008
Cash flows from operating activities:
 
 
Net income
$ 500.4 
$ 296.7 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
135.3 
224.4 
Share-based compensation
16.8 
51.8 
Loss on sale or impairment of properties and intangibles
3.4 
36.4 
Deferred income taxes
111.8 
60.5 
Equity income in MillerCoors
(332.4)
(106.5)
Distributions from MillerCoors
351.5 
58.8 
Equity in net income of other unconsolidated affiliates
(2.3)
(15.2)
Distributions from other unconsolidated affiliates
3.6 
2.0 
Excess tax benefits from share-based compensation
(18.2)
 
Change in current assets and liabilities and other
(116.0)
(231.4)
Discontinued operations
12.9 
18.1 
Net cash provided by operating activities
666.8 
395.6 
Cash flows from investing activities:
 
 
Additions to properties
(71.7)
(176.5)
Proceeds from sales of properties and intangible assets
3.9 
35.7 
Proceeds from sale of investment securities, net
 
22.8 
Acquisition of business
(19.6)
 
Investment in MillerCoors
(346.5)
(78.8)
Return of capital from MillerCoors
237.3 
 
Deconsolidation of Brewers' Retail, Inc.
(26.1)
 
Investment in and advances to an unconsolidated affiliate
(8.6)
(9.0)
Trade loan repayments from customers
17.5 
20.4 
Trade loans advanced to customers
(12.7)
(27.9)
Other
 
(1.7)
Net cash used in investing activities
(226.5)
(215.0)
Cash flows from financing activities:
 
 
Exercise of stock options under equity compensation plans
25.5 
51.6 
Excess tax benefits from share-based compensation
18.2 
 
Dividends paid
(125.8)
(102.2)
Dividends paid to noncontrolling interests holders
 
(20.3)
Proceeds from issuance of long term debt
 
16.0 
Payments on long-term debt and capital lease obligations
(0.3)
(181.2)
Proceeds from short-term borrowings
10.0 
41.8 
Payments on short-term borrowings
(10.1)
(40.8)
Net proceeds from revolving credit facilities
 
1.0 
Change in overdraft balances and other
(9.1)
2.1 
Settlements of debt-related derivatives
 
12.0 
Net cash used in financing activities
(91.6)
(220.0)
Cash and cash equivalents:
 
 
Net increase (decrease) in cash and cash equivalents
348.7 
(39.4)
Effect of foreign exchange rate changes on cash and cash equivalents
0.2 
(3.1)
Balance at beginning of year
216.2 
377.0 
Balance at end of period
$ 565.1 
$ 334.5 
BASIS OF PRESENTATION
BASIS OF PRESENTATION

1. BASIS OF PRESENTATION

        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 Company ("CBC"), operating in the United States ("U.S."); Molson Coors Brewing Company (UK) Limited ("MCBC-UK"), formerly referred to as Coors Brewers Limited ("CBL"), operating in the United Kingdom ("U.K."); Molson Coors Canada ("MCC"), operating in Canada; and our other corporate entities. Any reference to "Coors" means the Adolph Coors Company prior to the 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"). 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 LLC ("MillerCoors"). Our interest in MillerCoors is accounted for by us under the equity method of accounting. See Note 3 "SEGMENT REPORTING," and Note 4 "EQUITY INVESTMENTS."

        Unless otherwise indicated, information in this report is presented in U.S. dollars ("USD" or "$").

Unaudited Condensed Consolidated Financial Statements

        The accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, which are necessary for a fair statement of the financial position, results of operations and cash flows for the periods presented. The accompanying condensed consolidated financial statements include our accounts, the accounts of our majority owned subsidiaries, equity method investments, and certain variable interest entities of which we are the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation. These condensed consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 28, 2008. The results of operations for the thirteen and thirty-nine week periods ended September 26, 2009, are not necessarily indicative of the results that may be achieved for the full fiscal year.

        The December 28, 2008 condensed consolidated balance sheet data is consistent with our audited financial statements, other than the impact of the adoption of guidance related to noncontrolling interests in consolidated financial statements and accounting for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) as described below, but does not include all disclosures required by accounting principles generally accepted in the United States of America ("U.S. GAAP").

Reporting Periods Presented

        MCBC follows a 52/53 week fiscal reporting calendar. The third fiscal quarter of 2009 and 2008 consisted of thirteen weeks ending on September 26, 2009 and September 28, 2008, respectively. The first three fiscal quarters of 2009 and 2008 consisted of thirty-nine weeks ending on September 26, 2009 and September 28, 2008, respectively. Fiscal years 2009 and 2008 consist of 52 weeks ending on December 26, 2009 and December 28, 2008, respectively.

        The results from Brewers' Retail, Inc. ("BRI"), a consolidated subsidiary through February 28, 2009, are reported one month in arrears in the accompanying unaudited condensed consolidated financial statements. Due to a change in our ownership level of BRI, we deconsolidated this entity from our financial statements as of March 1, 2009, and began to prospectively account for it under the equity method of accounting. See Note 11 "VARIABLE INTEREST ENTITIES," for further discussion.

        MillerCoors follows a monthly reporting calendar. The third quarter and first three quarters of 2009 consisted of three and nine months ended September 30, 2009, respectively. The third quarter of 2008 consists of the period July 1, 2008, the date of formation, to September 30, 2008.

Use of estimates

        Our condensed consolidated financial statements are prepared in accordance with U.S. GAAP. These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions 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 condensed consolidated financial statements may be affected.

NEW ACCOUNTING PRONOUNCEMENTS
NEW ACCOUNTING PRONOUNCEMENTS

2. NEW ACCOUNTING PRONOUNCEMENTS

Reclassifications and Retroactive Application of New Accounting Pronouncements

        During the first quarter of 2009, we adopted new pronouncements related to noncontrolling interests in consolidated financial statements and accounting for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement), both of which required retrospective applications. See discussions below under Adoption of New Accounting Pronouncements. In addition, certain prior period amounts have been reclassified to conform to the current period presentation.

Adoption of New Accounting Pronouncements

The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles

        In June 2009, the FASB issued "The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles," which reorganizes authoritative guidance and accounting principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with U.S. GAAP. This codification is effective for financial statements issued for interim and annual periods ending after September 15, 2009. Our adoption of the codification in the third quarter of 2009 resulted in the elimination of numerical references to authoritative guidance throughout our financial statement disclosures. Adoption of the codification did not have an impact on our consolidated financial position, results of operations or cash flows.

Business Combinations and Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies

        In December 2007, the FASB revised the authoritative guidance for business combinations, which establishes principles and requirements for the manner in which the acquirer in a business combination (i) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree, (ii) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase and (iii) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. In addition to new financial statements disclosures, this guidance also changes the accounting treatment for certain specific items, including the expensing of acquisition costs and restructuring costs associated with a business combination, and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date which generally affects income tax expense. This guidance applies prospectively to business combinations for which the acquisition date is on or after the beginning of the Company's fiscal 2009 period, with the exception of the accounting for valuation allowances on deferred tax assets and acquired tax contingencies, for which the adoption is retrospective. The adoption of this guidance did not have a material impact on our consolidated financial position and results of operations in the first three quarters of 2009.

Fair Value Measurements and Disclosures

        The FASB issued authoritative guidance for fair value measurements in September 2006. This guidance defines fair value, establishes a framework for measuring fair value and expands disclosures about assets and liabilities measured at fair value in the financial statements. Effective December 31, 2007, we adopted the provisions of the guidance for financial assets and liabilities, as well as other assets and liabilities carried at fair value on a recurring basis. These provisions were applied prospectively and did not have a material impact on the consolidated financial position, results of operations or cash flows of the Company (see Note 15 "FAIR VALUE MEASUREMENTS," for disclosures related to financial assets and liabilities). Effective December 29, 2008, we adopted the provisions of the guidance related to nonfinancial assets and liabilities. The adoption of these provisions did not have a material impact on the consolidated financial position, results of operations or cash flows of the Company.

Noncontrolling Interests in Consolidated Financial Statements

        In December 2007, the FASB issued a statement regarding noncontrolling interests in consolidated financial statements that is effective for us beginning in fiscal year 2009. This statement requires the recognition of a noncontrolling interest (previously referred to as minority interest) as a component of equity in the consolidated financial statements and separate from the parent's equity. The amount of net income attributable to the noncontrolling interest is included in consolidated net income in the consolidated statement of operations. It also amends existing guidance to be consistent with the revised guidance for business combinations discussed above, including procedures associated with the deconsolidation of a subsidiary. As such, our adoption of this statement impacted the accounting for the deconsolidation of Brewers' Retail, Inc. ("BRI") in the first quarter of 2009. Changes to noncontrolling interests reflected in total equity during the first three quarters of 2009 resulted from $2.1 million of net earnings, establishment of the non-controlling interest in Cobra Beer Partnership Ltd of $9.6 million, and the effects of deconsolidating BRI ($19.6 million). Changes to the individual components of accumulated other comprehensive income attributable to noncontrolling interests were insignificant. See Note 11 "VARIABLE INTEREST ENTITIES" for further discussion. This statement also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest.

Disclosures about Derivative Instruments and Hedging Activities

        In March 2008, the FASB issued a pronouncement regarding disclosures about derivative instruments and hedging activities, an amendment of a previously issued statement, 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 required to provide enhanced disclosures around (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedged items are accounted for under the guidance and its related interpretations, and (iii) how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. This guidance is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The implementation of this standard did not have a material impact on the consolidated financial position, results of operations, or cash flows of the Company although it did result in additional disclosures. See Note 14 "DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES," for further information and disclosures.

Subsequent Events

        In May 2009, the FASB issued guidance related to, subsequent events, which formalizes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, this guidance sets forth: (i) The period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (ii) The circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and (iii) The disclosures that an entity should make about events or transactions that occurred after the balance sheet date.

        In accordance with this guidance, we have applied these requirements to interim and annual financial periods ending after June 15, 2009.

        For the interim financial period ended September 26, 2009, subsequent events were evaluated through November 4, 2009, the date the financial statements were issued.

Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement)

        In May 2008, the FASB issued guidance regarding accounting for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) that applies to all convertible debt instruments that have a "net settlement feature", which means that such convertible debt instruments, by their terms, may be settled either wholly or partially in cash upon conversion. This guidance requires issuers of convertible debt instruments that may be settled wholly or partially in cash upon conversion to separately account for the liability and equity components in a manner reflective of the issuers' nonconvertible debt borrowing rate. The Company retrospectively adopted this guidance on December 29, 2008, impacting historical accounting for our 2007 2.5% Convertible Senior Notes due July 30, 2013 ("Convertible Senior Notes"). Considering interest rates applicable at the time of the Convertible Senior Notes issuance on June 15, 2007, we determined that the historical liability and equity components would have been valued using an effective 6.08% interest rate. As such the amount allocated to the long-term debt at that date is $471.1 million, and the pretax amount allocated to equity is $103.9 million. The retrospective adoption increased non-cash interest expense by $15.8 million and $8.4 million for the fifty-two weeks ended December 28, 2008 and December 30, 2007, respectively. We also will record additional non-cash interest expense representing the amortization of the debt discount on the Convertible Senior Notes in 2009 through 2013 of approximately $16 million to $18 million annually, thereby increasing the carrying value of the long-term debt to its $575 million face value at maturity in July 2013.

        During the thirteen weeks ended September 26, 2009 and September 28, 2008, we incurred additional non-cash interest expense of $4.1 million and $4.0 million, respectively. For the thirty-nine weeks ended September 26, 2009 and September 28, 2008 the amounts were $12.2 million and $11.8 million, respectively. The additional non-cash interest expense impact (net of tax) to net income per share was a decrease of $0.02 and $0.06 for each of the thirteen and thirty-nine weeks ended September 26, 2009 and September 28, 2008, respectively.

        We also incurred interest expense related to the 2.5% coupon rate of $3.6 million for both thirteen week periods ended September 26, 2009 and September 28, 2008. For the thirty-nine weeks ended September 26, 2009 and September 28, 2008 the amount was $10.8 million for each period. The combination of non-cash and cash interest resulted in an effective interest rate of 6.07% and 6.16% for the thirteen weeks ended September 26, 2009 and September 28, 2008, respectively. The effective interest rates for the thirty-nine weeks ended September 26, 2009 and September 28, 2008 were 6.04% and 6.14%, respectively.

        As of September 26, 2009 and December 28, 2008, 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 Senior Notes. Long-term debt was reduced by the unamortized discount associated with the Convertible Senior Notes of $67.5 million and $79.7 million as of September 26, 2009 and December 28, 2008, respectively.

Determination of the Useful Life of Intangible Assets

        In April 2008, the FASB issued guidance regarding the determination of the useful life of intangible assets. This position amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful lives of recognized intangible assets under a previously issued statement related to goodwill and other intangible assets. For a recognized intangible asset, an entity will be required to disclose information that enables users of financial statements to 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 guidance is effective for financial statements issued for fiscal years beginning after December 15, 2008 and for intangible assets acquired after that date. Early adoption is prohibited. The adoption of this guidance did not have a significant impact our financial statements.

Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly

        In April 2009, the FASB issued guidance around the determination of fair value when the volume and level of activity for the asset or liability have significantly decreased and identifying circumstances that indicate that a transaction is orderly. This position provides additional guidance for estimating fair value in accordance with the Fair Value Measurements and Disclosures pronouncement mentioned above and addresses when the volume and level of activity for the asset or liability have significantly decreased. This also includes guidance on identifying circumstances that indicate a transaction is not orderly. This guidance is effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. The adoption of this guidance did not have an impact on the determination or reporting of our financial results.

Interim Disclosures about Fair Value of Financial Instruments

        In April 2009, the FASB issued guidance over interim disclosures about fair value of financial instruments. This guidance amends a previously issued statement regarding disclosures about fair value of financial instruments, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This guidance also amends previous guidance over interim financial reporting to require those disclosures in summarized financial information at interim reporting periods. This guidance is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. We adopted these disclosure requirements effective with our second quarter ended June 28, 2009. See Note 13 "DEBT," Note 14 "DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES," and Note 15 "FAIR VALUE MEASUREMENTS," for further information and disclosures. The adoption of this guidance did not have an impact on the determination or reporting of our financial results.

Recognition and Presentation of Other-Than-Temporary Impairments

        In April 2009, the FASB issued guidance related to the recognition and presentation of other-than-temporary impairments. This guidance amends the other-than-temporary impairment guidance for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. This guidance does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. This guidance was effective for our second quarter ended June 28, 2009. The adoption of this guidance did not have a significant impact on the determination or reporting of our financial results.

New Accounting Pronouncements Not Yet Adopted

Employers' Disclosures about Postretirement Benefit Plan Assets

        In December 2008, the FASB issued guidance regarding employers' disclosures about postretirement benefit plan assets. This guidance amends a previous statement regarding employers' disclosures about pensions and other postretirement benefits to provide guidance on an employer's disclosures about plan assets of a defined benefit pension or other postretirement plan on investment policies and strategies, major categories of plan assets, inputs and valuation techniques used to measure the fair value of plan assets and significant concentrations of risk within plan assets. This guidance is effective for our fiscal year ending December 26, 2009. Upon initial application, the provisions of this guidance are not required for earlier periods that are presented for comparative purposes. We are currently evaluating the disclosure requirements of this new guidance.

Amendments to FASB Interpretation, Consolidation of Variable Interest Entities

        In June 2009, the FASB issued amendments with regards to the consolidation of variable interest entities, which requires an enterprise to determine whether its variable interest or interests give it a controlling financial interest in a variable interest entity. The primary beneficiary of a variable interest entity is the enterprise that has both (1) the power to direct the activities of a variable interest entity that most significantly impact the entity's economic performance, and (2) the obligation to absorb losses of the entity that could potentially be significant to the variable interest entity or the right to receive benefits from the entity that could potentially be significant to the variable interest entity. This amendment also requires ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. The guidance is effective for our first quarter ending March 27, 2010. While we have not yet completed our evaluation, we do not expect this adoption to have a material impact on our consolidated financial statements.

Measuring Liabilities at Fair Value

        In August 2009, the FASB amended previously issued guidance related to the fair value measurements and disclosures to provide clarification around valuation techniques to be employed in circumstances in which a quoted price for an identical liability in an active market is not available, including the impact of restrictions that prevent the transfer of the liability. This interpretation also clarifies that both a quoted price for an identical liability in an active market and the quoted price for an identical liability when traded as an asset in an active market are Level 1 fair value measurements, to the extent that no adjustments to the quoted price are required. This guidance is effective for our fourth quarter and fiscal year ending December 26, 2009. We do not expect the adoption of this guidance to have a significant impact on the determination or reporting of our financial results.

SEGMENT REPORTING
SEGMENT REPORTING

3. SEGMENT REPORTING

        A summary of our operating segment structure is provided below:

Reportable segments

  • Canada

        The Canada segment consists of our production, marketing and sales of the Molson family of brands, Coors Light and other owned and partner brands, principally in Canada. The Canada segment includes our joint venture arrangements related to the distribution and retail sale of beer in Ontario, through BRI; and the distribution of beer in the western provinces, through Brewers' Distributor Ltd. ("BDL"). The Canada segment also includes our equity interest in the Montréal Canadiens Hockey Club, and Modelo Molson Imports, L.P.

  • United States ("U.S.")

        As discussed in Note 1 "BASIS OF PRESENTATION," effective July 1, 2008, MillerCoors began operations. The results and financial position of our CBC business 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 represents our entire U.S. reporting segment for the thirteen and thirty-nine weeks ended September 26, 2009 and for the thirteen weeks ended September 28, 2008.

        For the first twenty-six weeks of 2008, our U.S. segment consisted of the production, marketing, and sales of the Coors and Molson portfolios of brands in the United States and Puerto Rico, presented on a consolidated basis.

  • United Kingdom ("U.K.")

        The U.K. segment includes the production, marketing, and sale of our brands in the U.K. and our royalty arrangements in the Republic of Ireland. During the second quarter of 2009, we purchased a 50.1% ownership of Cobra Beer Partnership, Ltd discussed in Note 11 "VARIABLE INTEREST ENTITIES."

Non-reportable segment and other business activities

  • Molson Coors International ("MCI") and Corporate

        MCI was formerly known and referred to within our financial statements as Global Brands and Market Development ("Global Markets").

        These results represent our unallocated corporate general and administrative costs, net interest costs associated with financing activities, and results of operations associated with certain global markets, including Mexico, Latin America (other than Puerto Rico), Asia and continental Europe. The asset levels and results of operations from this non-reportable segment and other business activities are not material enough to merit separate disclosure as a reportable segment.

        The following table sets forth net sales by segment (in millions):

 
  Thirteen Weeks Ended   Thirty-Nine Weeks Ended  
 
  September 26,
2009
  September 28,
2008
  September 26,
2009
  September 28,
2008
 

Canada(1)

  $ 493.8   $ 541.7   $ 1,289.5   $ 1,513.6  

U.S.(2)

        12.9         1,504.8  

U.K. 

    338.5     348.8     867.6     1,026.3  

MCI and Corporate

    21.4     17.7     54.5     46.1  

Intersegment sales elimination(1)

                (55.6 )
                   
 

Consolidated

  $ 853.7   $ 921.1   $ 2,211.6   $ 4,035.2  
                   

(1)
Beginning in the third quarter of 2009, management adjusted internal financial reporting to conform sales reporting for the pre-MillerCoors periods to the post-MillerCoors periods. As a result, Canada segment sales for the nine months ended September 28, 2008, are higher than reported in prior periods due to the inclusion of $55.6 million of intersegment/intercompany sales, which were eliminated upon consolidation.

(2)
As a result of the MillerCoors formation on July 1, 2008, and MCBC's prospective equity accounting for MillerCoors, sales shown above for the thirteen weeks ended September 28, 2008, present MCBC's former U.S. segment net sales for a single day of June 30, 2008, and our proportional share of net income for the period July 1, 2008, through September 28, 2008. Sales shown for the thirty-nine weeks ended September 28, 2008, represent MCBC's former U.S. segment net sales for the twenty-six weeks ended June 29, 2008, plus net sales for a single day of June 30, 2008 and our proportional share of net income for the period July 1, 2008, through September 28, 2008.

        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. Unless otherwise disclosed, intersegment revenues are insignificant and eliminated in consolidation.

        The following table sets forth income (loss) from continuing operations before income taxes by segment (in millions):

 
  Thirteen Weeks Ended   Thirty-Nine Weeks Ended  
 
  September 26,
2009
  September 28,
2008
  September 26,
2009
  September 28,
2008
 

Canada

  $ 135.7   $ 148.0   $ 322.1   $ 364.7  

U.S.(1)

    101.2     110.5     332.4     215.9  

U.K. 

    32.4     30.5     65.0     44.9  

MCI and Corporate

    1.4     (65.3 )   (134.9 )   (235.8 )
                   
 

Consolidated

  $ 270.7   $ 223.7   $ 584.6   $ 389.7  
                   

(1)
As a result of the MillerCoors formation on July 1, 2008, MCBC's equity investment in MillerCoors now represents our U.S. operating segment.

        The following table sets forth total assets by segment (in millions):

 
  As of  
 
  September 26, 2009   December 28, 2008  

Canada

  $ 6,162.4   $ 5,688.1  

U.S. 

    2,588.1     2,418.7  

U.K. 

    2,223.7     2,024.2  

MCI and Corporate

    507.4     247.1  

Discontinued operations

    9.6     8.5  
           
 

Total assets

  $ 11,491.2   $ 10,386.6  
           
EQUITY INVESTMENTS
EQUITY INVESTMENTS

4. EQUITY INVESTMENTS

MillerCoors

        Summarized financial information for MillerCoors is as follows (in millions):

Condensed balance sheet

 
  As of  
 
  September 30, 2009   December 31, 2008  

Current assets

  $ 912   $ 849  

Noncurrent assets

    8,924     8,853  
           
 

Total assets

  $ 9,836   $ 9,702  
           

Current liabilities

 
$

947
 
$

1,034
 

Noncurrent liabilities

    1,309     1,412  
           
 

Total liabilities

    2,256     2,446  

Shareholders' investment

    7,554     7,227  

Noncontrolling interests

    26     29  
           

Total shareholders' investment

    7,580     7,256  
           

Total liabilities and shareholders' investment

  $ 9,836   $ 9,702  
           

Results of operations

 
  For the three months ended   For the nine months ended  
 
  September 30, 2009   September 30, 2008   September 30, 2009   September 30, 2008  

Net sales

  $ 2,009.5   $ 1,949.7   $ 5,862.1   $ 1,949.7  

Cost of goods sold

    (1,266.6 )   (1,236.9 )   (3,618.8 )   (1,236.9 )
                   

Gross profit

  $ 742.9   $ 712.8   $ 2,243.3   $ 712.8  

Operating income

  $ 232.2   $ 171.1   $ 759.4   $ 171.1  

Net income attributable to MillerCoors

  $ 229.7   $ 168.2   $ 740.6   $ 168.2  

        The following represents MCBC's proportional share in net income attributable to MillerCoors reported under the equity method (in millions):

 
  Thirteen Weeks Ended   Thirty-nine Weeks Ended  
 
  September 26, 2009   September 28, 2008   September 26, 2009   September 28, 2008  

Net income attributable to MillerCoors

  $ 229.7   $ 168.2   $ 740.6   $ 168.2  
 

MCBC economic interest

    42 %   42 %   42 %   42 %
                   
 

MCBC proportionate share of MillerCoors net income

    96.5     70.6     311.1     70.6  
 

Accounting policy elections(1)

        31.8     7.3     31.8  
 

Amortization of the difference between MCBC contributed cost basis and proportional share of the underlying equity in net assets of MillerCoors(2)

    2.4     6.0     9.3     6.0  
 

Share-based compensation adjustment(3)

    2.3     (1.9 )   4.7     (1.9 )
                   

Equity Income in MillerCoors

  $ 101.2   $ 106.5   $ 332.4   $ 106.5  
                   

(1)
MillerCoors made its initial accounting policy elections upon formation, impacting certain asset and liability balances contributed by MCBC. Our investment basis in MillerCoors is based upon the book value of the net assets we contributed. These adjustments reflect the favorable impact to our investment as a result of the differences resulting from accounting policy elections, the most significant of which was MillerCoors' election to value contributed CBC inventories using the first in, first out (FIFO) method, rather than the last in, first out (LIFO) method, which had previously been applied. This adjustment has been phased in over the expected turnover of the related inventories; which was concluded in the first quarter of 2009.

(2)
MCBC's net investment in MillerCoors is based on the carrying values of the net assets it contributed to the joint venture which is less than our proportional share of underlying equity (42%) of MillerCoors (contributed by both Coors and Miller) by approximately $633.4 million. This difference is being amortized as additional equity income over the remaining useful lives of long-lived assets giving rise to the difference. For non-depreciable assets, such as goodwill, no adjustment is being recorded.

(3)
The net adjustment is to record all stock-based compensation associated with preexisting equity awards to be settled in MCBC Class B common stock held by former CBC employees now employed by MillerCoors and to eliminate all stock-based compensation impacts related to preexisting SABMiller equity awards held by Miller employees now employed by MillerCoors.

        During the thirteen weeks ended September 26, 2009, we had $9.1 million of sales of beer to MillerCoors and $3.0 million of purchases of beer from MillerCoors. For the thirty-nine weeks ended September 26, 2009, we had $30.3 million of sales of beer to MillerCoors and $7.3 million of purchases of beer from MillerCoors. During the thirteen and thirty-nine weeks ended September 28, 2008, we had $28.4 million of sales of beer to MillerCoors and $1.4 million of purchases of beer from MillerCoors.

        For the thirteen weeks ended September 26, 2009, we recorded $2.2 million of service agreement and other charges to MillerCoors and $0.4 million of service agreement costs from MillerCoors. For the thirty-nine weeks ended September 26, 2009, we had $8.5 million of service agreement and other charges to MillerCoors and $1.1 million of service agreement costs from MillerCoors. We did not record charges related to these items during the thirteen or thirty-nine weeks ended September 28, 2008.

        As of September 26, 2009 and December 28, 2008, we had $7.1 million and $20.2 million net receivables due from MillerCoors, included within Accounts receivable, net, related to the activities mentioned above.

Montréal Canadiens

        As of September 26, 2009, Molson Hockey Holdings Inc. ("MHHI"), a wholly-owned subsidiary of the Company, owned a 19.9% common ownership interest in the Montréal Canadiens professional hockey club (the "Club"). An independent party owned the controlling 80.1% common ownership interest in the Club. During the third quarter, Racine Limited Partnership / Société en commandite Racine ("Racine"), an investment group involving certain members of the Molson family, reached agreement with the majority owners to purchase the controlling 80.1% common ownership interest in the Club, as well as the Bell Centre arena in Montréal.

        The general partner of Racine and one of its limited partners are entities affiliated with Andrew and Geoff Molson who are both members of the board of directors of the Company. Geoff and Andrew Molson are among the directors of the entity that is the general partner of Racine's general partner.

Subsequent Event

        In connection with Racine's purchase of the Club and the Bell Centre, on October 9, 2009, MHHI entered into an agreement to sell its 19.9% common ownership interest in the Montréal Canadiens to Racine. Closing of the transaction is subject to the approval by the National Hockey League as well as other customary conditions. Upon closing of the transaction, the Company will receive net proceeds estimated at approximately $63 million (CAD) which is equal to the sale price for the Company's interest reduced by a portion of debt obligations of the Club assumed by the buyer. The Company will retain its guarantee obligations related to the new owners' rent obligations for the land underneath the Bell Centre. We expect to record a gain of approximately $50 million (CAD) on the sale in the fourth quarter of 2009 or the first quarter 2010. In addition, the existing sponsorship agreement between the Company and the Montréal Canadiens remains in place.

        As a result, the sale is a related party transaction. Any ongoing related party activities with Racine will be disclosed as required.

SHARE-BASED PAYMENTS
SHARE-BASED PAYMENTS

5. SHARE-BASED PAYMENTS

        During the first three quarters of 2009 and 2008, we recognized share-based compensation related to the following Class B common share awards to certain directors, officers, and other eligible employees, pursuant to the Molson Coors Brewing Company Incentive Compensation Plan: restricted stock units ("RSU"), deferred stock units ("DSU"), performance units ("PU"), performance share units ("PSU"), stock options, and stock-only stock appreciation rights ("SOSAR").

        The following table summarizes components of the equity-based compensation recorded as expense (in millions):

 
  Thirteen Weeks Ended   Thirty-Nine Weeks Ended  
 
  September 26,
2009
  September 28,
2008
  September 26,
2009
  September 28,
2008
 

Stock options and SOSARs

                         
 

Pre-tax compensation expense

  $ 0.7   $ 2.3   $ 5.3   $ 9.1  
 

Tax benefit

    (0.2 )   (0.7 )   (1.6 )   (2.8 )
                   
 

After-tax compensation expense

  $ 0.5   $ 1.6   $ 3.7   $ 6.3  
                   

RSUs and DSUs

                         
 

Pre-tax compensation expense

  $ 4.5   $ 8.2   $ 11.4   $ 14.0  
 

Tax benefit

    (1.3 )   (2.6 )   (3.2 )   (4.4 )
                   
 

After-tax compensation expense

  $ 3.2   $ 5.6   $ 8.2   $ 9.6  
                   

PUs and PSUs

                         
 

Pre-tax compensation expense

  $ 1.8   $   $ 2.7   $ 34.3  
 

Tax benefit

    (0.4 )       (0.6 )   (9.9 )
                   
 

After-tax compensation expense

  $ 1.4   $   $ 2.1   $ 24.4  
                   
 

Total after-tax compensation expense

  $ 5.1   $ 7.2   $ 14.0   $ 40.3  
                   

        PUs were granted for the first time during the second quarter of 2009. Participating employees are granted PUs based on a target value established at the date of grant and vest upon completion of a service requirement. The payout value can range from zero to two times the target value based on achievement of a specified adjusted earnings per share target. Adjusted earnings per share is an internal measure calculated from our actual diluted earnings per share adjusted for special items and other significant benefits or charges as approved by the Company's compensation committee. Upon satisfaction of the vesting requirement, the PU award value is calculated by multiplying the number of PUs granted by actual cumulative adjusted earnings per share over the specific performance period. The PU award value can be settled in cash or shares, or partly in cash and partly in shares, at the discretion of the Company. If settled in shares, it will be based on the closing MCBC Class B common stock price on the date of vesting. Prior to vesting, no shares are issued and PUs have no voting rights. We are unable to predict the vesting date share price and as a result, have determined that the PUs will be accounted for as liabilities, resulting in variable compensation expense until settled. The variability of compensation expense will arise primarily from changing estimates of adjusted earnings per share. Changes in MCBC Class B common stock prices during the vesting period will not impact compensation expense but will impact the number of shares ultimately issued if the awards are settled in stock. Compensation expense is determined based upon the estimated award value and recognized over the requisite service period of the grant once we have determined that achievement of the performance condition is probable. If in the future it becomes improbable that the performance condition will be met, previously recognized compensation cost will be reversed, and no compensation cost will be recognized. The service condition vesting periods range from one to three years.

        During the second quarter of 2009, we granted 2.4 million PUs, all of which were outstanding as of September 26, 2009. The aggregate intrinsic value of PUs outstanding at September 26, 2009 was $15.3 million. Total compensation expense recognized for PUs for the thirteen and thirty-nine weeks ended September 26, 2009, totaled $1.8 million and $2.7 million, respectively.

        PSU awards were granted March 16, 2006 and were earned over the estimated expected term to achieve projected financial targets, which were established at the time of the initial grant. As of March 30, 2008, these financial targets were achieved for all PSU awards outstanding. As a result of achieving these financial targets associated with the outstanding PSU awards, we recognized the remaining $34.3 million expense before taxes in the first quarter of 2008. PSUs were granted at the market value of our stock on the date of the grant. There were no PSU awards outstanding as of September 26, 2009.

        We 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. The mark-to-market stock-based compensation expense before tax, related to MCBC equity awards, during the thirteen and thirty-nine weeks ended September 26, 2009, was $1.3 million and $2.6 million, respectively.

        As of September 26, 2009, there was $39.6 million of total unrecognized compensation expense related to non-vested shares from share-based compensation arrangements granted under the plans. This compensation expense is expected to be recognized over a weighted-average period of approximately 1.6 years. During the thirty-nine weeks ended September 26, 2009, cash received from stock option exercises was $25.5 million and the total tax benefit to be realized for the tax deductions from these option exercises was $18.2 million.

        As of September 26, 2009, there were 0.5 million shares of our stock approved by the Board of Directors and available for the issuance of stock options, SOSARs, LOSARs, RSUs, DSUs, PUs and PSUs.

        The following table represents the summary of stock options and SOSARs outstanding at September 26, 2009, and the activity during the first thirty-nine weeks of 2009 (in millions, except for per share amounts and years):

 
  Outstanding options   Weighted-average
exercise price per
share
  Weighted-
average
remaining
contractual life
(years)
  Aggregate intrinsic
value
 

Outstanding as of December 28, 2008

    8.3   $ 35.60     5.22   $ 95.3  
 

Granted

    0.7   $ 36.37              
 

Exercised

    (0.8 ) $ 44.54              
 

Forfeited

    (0.1 ) $ 45.07              
                         

Outstanding as of September 26, 2009

    8.1   $ 36.37     5.03   $ 98.2  
                         

Excercisable at September 26, 2009

   
6.8
 
$

34.40
   
4.17
 
$

93.7
 
                         

        The total intrinsic value of options exercised during the thirty-nine weeks ended September 26, 2009 and September 28, 2008 was $10.9 million and $37.8 million, respectively.

        The following table represents non-vested RSUs and DSUs at September 26, 2009, and the activity during the first thirty-nine weeks of 2009 (in millions, except per share amounts):

 
  Shares   Weighted-average
grant date fair value
per share
 

Non-vested as of December 28, 2008

    1.1   $ 48.06  
 

Granted

    0.2   $ 41.96  
 

Vested

    (0.3 ) $ 35.54  
 

Forfeited

      $ 52.52  
             

Non-vested as of September 26, 2009

    1.0   $ 49.63  
             

        Total fair values of RSUs and DSUs that vested during the thirty-nine weeks ended September 26, 2009, were $10.3 million.

        The fair values of each option and SOSAR granted in the first three quarters of 2009 and 2008, respectively, were determined on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

 
  For the Thirteen Weeks Ended   For the Thirty-Nine Weeks Ended  
 
  September 26, 2009(1)   September 28, 2008   September 26, 2009   September 28, 2008  

Risk-free interest rate

        3.27 %   2.46 %   3.07 %

Dividend yield

        1.45 %   2.28 %   1.39 %

Volatility range

        25.3% - 26.4 %   28.7% - 28.9 %   25.3% - 26.4 %

Weighted-average volatility

        25.54 %   28.88 %   25.40 %

Expected term (years)

        3.5 - 7.0     5.0 - 7.0     3.5 - 7.0  

(1)
There were no equity awards granted that required a fair value calculation for the thirteen weeks ended September 26, 2009.

        The valuation of stock options is a significant accounting estimate which requires us to use judgments and assumptions that are likely to have a material impact on our financial statements. Annually, we make assumptions regarding future stock price volatility, employee exercise behavior, and dividend yield. We estimate our future stock price volatility using the historical volatility over the expected term of the option.

        Our expected term represents the period of time that options granted are expected to be outstanding based on historical option exercise activity and employee post-vesting cancellations within the valuation model. Separate groups of employees with differing historical exercise behavior were segregated for valuation purposes. The weighted-average expected term for all employee groups is presented in the table above. Our valuation model assumes that dividends and our share price increase in line with earnings, resulting in a constant dividend yield. The risk-free interest rate for periods during the expected term of the options is based on the yield on a U.S. Treasury zero-coupon of comparable duration.

        To the extent that actual outcomes differ from our assumptions, we are not required to true up grant-date fair value-based expense to final intrinsic values. However, these differences can impact the classification of cash tax benefits realized upon exercise of stock options. Furthermore, historical data has a significant bearing on our forward-looking assumptions. Significant variances between actual and predicted experience could lead to prospective revisions in our assumptions, which could then significantly impact the year-over-year comparability of stock-based compensation expense.

UNUSUAL OR INFREQUENT ITEMS
UNUSUAL OR INFREQUENT ITEMS

6. UNUSUAL OR INFREQUENT ITEMS

        We have incurred charges or gains that we believe are not indicative of our normal, recurring operations. As such, we have separately classified these costs as special operating items.

Summary of Special Items

        The table below summarizes special items recorded by program (in millions):

 
  Thirteen Weeks Ended   Thirty-Nine Weeks Ended  
 
  September 26,
2009
  September 28,
2008
  September 26,
2009
  September 28,
2008
 

Canada—Restructuring, exit and other related costs associated with the Edmonton and Montréal breweries

  $ 3.8   $ 3.0   $ 7.5   $ 4.9  

Canada—Pension curtailment

            5.3      

U.S.—Costs associated with the MillerCoors joint venture

                37.9  

U.S.—Impairment of Molson brands intangible asset

                50.6  

U.S.—Impairment of fixed assets

                2.6  

U.S.—Gain on sale of distribution business

                (21.8 )

U.K.—Restructuring charge

    0.2     2.6     2.2     7.3  

U.K.—Costs associated with Cobra Beer partnership

            5.7      

U.K.—Gain on sale of non-core business

        (2.7 )       (2.7 )

U.K.—Other, including certain exit costs

        0.3         0.8  

MCI and Corporate—Costs associated with outsourcing and other strategic initiatives

    0.3     11.6     0.9     29.2  

MCI and Corporate—Costs associated with MillerCoors joint venture

        10.0         27.3  
                   
 

Total special items

  $ 4.3   $ 24.8   $ 21.6   $ 136.1  
                   

Canada Segment

        During the third quarter of 2009, the Canada segment recognized $0.2 million of restructuring costs associated with employee terminations at the Montréal brewery driven by MillerCoors' 2008 decision to produce Blue Moon products at its breweries in the U.S. The segment also recognized $3.6 million of other costs, including a $3.5 million impairment of the held-for-sale value of the former Edmonton brewery due to effect of real estate market declines.

        During the third quarter of 2008, the Canada segment recognized $0.7 million of restructuring costs associated with a company-wide effort to increase efficiency in certain finance, information technology and human resource activities by outsourcing portions of those functions. The Canada segment also recognized $0.4 million of costs associated with maintaining and preparing the closed Edmonton brewery for sale and a $1.9 million impairment related to certain Montréal brewery assets.

        During the first three quarters of 2009, the Canada segment recognized a $5.3 million pension curtailment loss (see Note 16 "PENSION AND OTHER POSTRETIREMENT BENEFITS") and $3.1 million of restructuring costs associated with employee terminations at the Montréal brewery driven by MillerCoors' 2008 decision to produce Blue Moon products at its breweries in the U.S. The segment also recognized $4.4 million of Edmonton brewery site preparation and impairment closure costs during the first three quarters of 2009. During the first three quarters of 2008, and in addition to the charges incurred during the third quarter of 2008, we recognized a total of $2.1 million of costs associated with the closure of the Edmonton brewery.

        The following summarizes the activity in the Canada segment restructuring accruals (in millions):

 
  Severance and other
employee-related costs
 

Balance at December 28, 2008

  $ 1.4  
 

Charges incurred

    3.1  
 

Payments made

    (3.5 )
 

Foreign currency and other adjustments

    0.2  
       

Balance at September 26, 2009

  $ 1.2  
       

U.S. Segment

        As discussed in Note 1 "BASIS OF PRESENTATION," effective July 1, 2008, MillerCoors LLC began operations. MCBC's equity income in MillerCoors includes our former U.S. operating segment results, including special items.

        Prior to the formation of MillerCoors on July 1, 2008, the U.S. segment recognized an impairment of an intangible asset of $50.6 million associated with Molson brands sold in the U.S. The U.S. also recognized $37.9 million of costs associated specifically with the MillerCoors transaction, $30.3 million of which were related to employee retention costs, and $7.6 million of which were related to integration planning. Also, impairment charges related to fixed assets at the Golden brewery of $2.6 million were recorded, and a net gain of $21.8 million on the sale of two corporate beer distributorships. We sold our Boise, Idaho, beer distributorship for $25.2 million, resulting in a gain of $24.2 million.

        All restructuring liabilities related to the U.S. operating business were assumed by MillerCoors on July 1, 2008.

U.K. Segment

        The U.K. segment recognized $0.2 million and $2.6 million of employee termination costs in the 2009 and 2008 third quarters, respectively. These related to supply chain restructuring activity and company-wide efforts to increase efficiency in certain finance, information technology and human resource activities by outsourcing portions of those functions. The U.K. segment recognized $2.5 million of costs associated with the Cobra Beer Partnership, Ltd. acquisition for the thirty-nine weeks ended September 26, 2009 (see Note 11 "VARIABLE INTEREST ENTITIES"). The U.K. segment also recognized employee severance costs of $3.2 million related to individuals not retained subsequent to the Cobra Beer Partnership, Ltd. acquisition for the thirty-nine weeks ended September 26, 2009.

        Amounts recognized for the thirty-nine weeks ended September 28, 2008, included a gain of $2.7 million on the sale of a non-core business in the third quarter and $7.3 million of costs associated with the similar cost-saving restructuring efforts discussed above for the third quarter of 2008.

        The following summarizes the activity in the U.K. segment restructuring accruals (in millions):

 
  Severance and other
employee-related costs
 

Balance at December 28, 2008

  $ 2.1  
 

Charges incurred

    5.2  
 

Payments made

    (5.3 )
 

Foreign currency and other adjustments

    0.3  
       

Balance at September 26, 2009

  $ 2.3  
       

MCI and Corporate

        During the third quarter of 2008, MCI and Corporate recognized costs associated with the formation of MillerCoors of $10.0 million, consisting primarily of outside professional services related to the planning and integration efforts involved in the start-up of MillerCoors. Additionally, 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. During the thirteen weeks ended September 28, 2008, we incurred $5.2 million of external transition costs associated with this outsourcing initiative. In the third quarter of 2008 we incurred $6.4 million of costs associated with efforts associated with other strategic initiatives.

        During the first three quarters of 2009, we incurred $0.9 million of costs associated with other strategic initiatives. During the first three quarters of 2008, MCI and Corporate recognized costs related with the formation of MillerCoors of $27.3 million and incurred $29.2 million of external transition costs associated with our outsourcing and other strategic initiatives.

OTHER INCOME AND EXPENSE
OTHER INCOME AND EXPENSE

7. OTHER INCOME AND EXPENSE

        The table below summarizes other income and expense (in millions):

 
  Thirteen Weeks Ended   Thirty-Nine Weeks Ended  
 
  September 26,
2009
  September 28,
2008
  September 26,
2009
  September 28,
2008
 

Equity loss of other unconsolidated affiliates, net

  $ (1.0 ) $ (1.5 ) $ (3.1 ) $ (0.3 )

Gains from foreign exchange and derivatives

    57.6     12.2     30.7     9.4  

Losses on non-operating leases, net

    (0.8 )   (0.2 )   (1.8 )   (1.0 )

Environmental litigation provisions

        (3.6 )   (1.0 )   (3.6 )

(Losses) gains on disposals of non-operating long-lived assets

        (0.1 )       1.8  

Other, net

    0.1     0.9     4.3     0.1  
                   

Other income, net

  $ 55.9   $ 7.7   $ 29.1   $ 6.4  
                   

        During the third quarter of 2008, we entered into a cash settled total return swap with Deutsche Bank in order to gain an economic exposure to Foster's Group ("Foster's") (ASX:FGL), a major global brewer (see Note 14 "DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES"). Included in the amount presented in the table above in "Gains from foreign exchange and derivatives," is the $59.3 million and $24.8 million net gain recognized on the fair value of the swap during the thirteen and thirty-nine weeks ended September 26, 2009, respectively. The gains are partially offset and supplemented by realized and unrealized foreign currency gains for the thirteen and thirty-nine weeks ended September 26, 2009, respectively.

DISCONTINUED OPERATIONS
DISCONTINUED OPERATIONS

8. DISCONTINUED OPERATIONS

        In 2006, we sold our equity interest in the entity that comprised our previously-reported Brazil operating segment, Cervejarias Kaiser Brasil S.A. ("Kaiser") to FEMSA Cerveza S.A. de C.V. ("FEMSA"). As discussed in Note 17 "COMMITMENTS AND CONTINGENCIES," we indemnified FEMSA with respect to certain tax contingencies and other liabilities. We have reflected the results of operations, financial position, and cash flows for the former Brazil segment in our financial statements as discontinued operations.

        We recognized a loss from discontinued operations of $9.0 million for the third quarter of 2009 and a gain of $3.2 million in the third quarter of 2008. For the thirty-nine weeks ended September 26, 2009, and September 28, 2008, we recognized losses of $12.9 million and $18.1 million, respectively. The losses for the periods presented were associated with changes in estimates of the carrying value of the indemnity related liabilities, foreign exchange gains and losses and accretion expense related to indemnities we provided to FEMSA with regard to contingent tax and other liabilities, which are discussed further in Note 17 "COMMITMENTS AND CONTINGENCIES."

INCOME TAX
INCOME TAX

9. INCOME TAX

        Our effective tax rate for the third quarter of 2009 was approximately 9%. This rate was below our prior full year outlook due to the favorable resolution of unrecognized tax positions in the quarter, which was one quarter earlier than anticipated. Looking forward, we anticipate that our 2009 full-year effective tax rate will be in the range of (2%) to 2%. Our anticipated full-year rate is lower than our previous guidance due to the favorable resolution of unrecognized tax positions that the Company effectively settled early in the beginning of the fourth quarter of 2009.

        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. We note that there are pending tax law changes in the U.S., U.K. and Canada that, if enacted, may impact our effective tax rate.

        During the third quarter of 2009, a valuation allowance of $9 million was released in the UK segment. The release relates to a deferred tax asset for capital loss carryforwards, which the Company now believes would be recognizable in a future period.

        As of December 28, 2008, we had $229.5 million of unrecognized tax benefits. Since December 28, 2008, unrecognized tax benefits decreased by $55.5 million, of which $28.7 million occurred in the third quarter. This reduction is net of increases due to additional unrecognized tax benefits and interest accrued for the current year and decreases primarily due to certain tax years closing or being effectively settled, fluctuations in foreign exchange rates, and payments made to tax authorities with regard to unrecognized tax benefits during the first three quarters of 2009. This results in a total unrecognized tax benefit of $174.0 million as of September 26, 2009. During the remainder of 2009, the Company expects to recognize approximately $100 million to $110 million of non-cash income tax benefit due primarily to the favorable resolution of unrecognized tax positions on intercompany transactions that the Company 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., Canada and the Netherlands. Tax years through 2006 are closed or have been effectively settled through examination in the U.S. The Internal Revenue Service has commenced examination of the 2007 to 2008 tax years. We expect the examination of the 2007 tax year to conclude in late 2009, and we expect the examination of the 2008 tax year to conclude in early 2010. Tax years through 2004 are closed or have been effectively settled through examination in Canada. Tax year 2005 is currently under examination in Canada and is expected to settle in late 2009. Tax years through 2006 are closed or have been effectively settled through examination in the U.K. Tax years through 2006 are closed or have been effectively settled through examination in the Netherlands.

EARNINGS PER SHARE ("EPS")
EARNINGS PER SHARE ("EPS")

10. EARNINGS PER SHARE ("EPS")

        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 stock options, SOSARs, RSUs, PUs, PSUs and DSUs, calculated using the treasury stock method. For the thirteen and thirty-nine weeks ended September 26, 2009, diluted net income per share was not impacted by our convertible debt and related warrants outstanding as they were not in the money for the thirteen and thirty-nine weeks ended September 26, 2009.

        The following summarizes the effect of dilutive securities on diluted EPS (in millions except per share amounts):

 
  Thirteen Weeks Ended   Thirty-Nine Weeks Ended  
 
  September 26,
2009
  September 28,
2008
  September 26,
2009
  September 28,
2008
 

Amounts attributable to MCBC

                         
 

Income from continuing operations, net of tax

  $ 244.3   $ 168.1   $ 511.2   $ 303.2  
 

(Loss) income from discontinued operations, net of tax

    (9.0 )   3.2     (12.9 )   (18.1 )
                   

Net income attributable to MCBC

  $ 235.3   $ 171.3   $ 498.3   $ 285.1  
                   

Weighted average shares for basic EPS

    184.6     183.5     184.2     182.3  

Effect of dilutive securities:

                         
 

Stock options, LOSARs and SOSARs

    1.3     1.8     1.0     2.1  
 

RSUs, PSUs and DSUs

    0.3     0.4     0.4     1.1  
                   

Weighted average shares for diluted EPS

    186.2     185.7     185.6     185.5  
                   

Basic income (loss) per share:

                         
 

Continuting operations attributable to MCBC

  $ 1.32   $ 0.91   $ 2.78   $ 1.66  
 

Discontinued operations attributable to MCBC

    (0.05 )   0.02     (0.07 )   (0.10 )
                   

Net income attributable to MCBC

  $ 1.27   $ 0.93   $ 2.71   $ 1.56  
                   

Diluted income (loss) per share:

                         
 

Continuing operations attributable to MCBC

  $ 1.31   $ 0.90   $ 2.75   $ 1.63  
 

Discontinued operations attributable to MCBC

    (0.05 )   0.02     (0.07 )   (0.10 )
                   

Net income attributable to MCBC

  $ 1.26   $ 0.92   $ 2.68   $ 1.53  
                   

Dividends per share

  $ 0.24   $ 0.20   $ 0.68   $ 0.56  
                   

        The following anti-dilutive securities were excluded from the computation of the effect of dilutive securities on earnings per share for the following periods (in millions):

 
  Thirteen Weeks Ended   Thirty-Nine Weeks Ended  
 
  September 26,
2009
  September 28,
2008
  September 26,
2009
  September 28,
2008
 

Stock options, SOSARs and RSUs(1)

    0.6     0.4     0.7     0.2  

PUs—2.4 million units outstanding at September 26, 2009(2)

                 

Shares issuable upon assumed conversion of the 2.5% Convertible Senior Notes to issue Class B common shares(3)

    10.5     10.5     10.5     10.5  

Warrants to issue Class B common shares(3)

    10.5     10.5     10.5     10.5  
                   
 

Total anti-dilutive securities

    21.6     21.4     21.7     21.2  
                   

(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)
All necessary performance conditions required have not yet been achieved (see Note 5 "SHARE-BASED PAYMENTS").

(3)
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 when our stock price reaches $54.76. 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 $70.09. The potential receipt of MCBC stock from counterparties under our purchased call options when and if our stock price is between $54.76 and $70.09 would be anti-dilutive and excluded from any calculations of earnings per share.

        Effective December 29, 2008, we adopted guidance in regards to determining whether instruments granted in share-based payment transactions are participating securities. This guidance clarifies that share-based payment awards that entitle their holders to receive non-forfeitable dividends prior to vesting should be considered participating securities. We have no outstanding equity share awards that contain non-forfeitable rights to dividends on unvested shares; therefore the adoption had no impact to our financial statements or earnings per share calculation.

VARIABLE INTEREST ENTITIES
VARIABLE INTEREST ENTITIES

11. VARIABLE INTEREST ENTITIES

Brewers' Retail Inc.

        Brewers' Retail, Inc. (BRI) is a beer distribution and retail network for the Ontario region of Canada, owned by MCC, Labatt and Sleeman brewers. BRI is a variable interest entity, and operates on a break-even basis. MCBC has historically consolidated BRI as its primary beneficiary. Contractual provisions cause our variable interests to fluctuate requiring frequent evaluations as to primary beneficiary status. Acquisition activity by another BRI owner caused our variable interest to decrease to a level indicating that we are no longer the primary beneficiary. As a result, we deconsolidated BRI from our financial statements during the first quarter of 2009.

        Our deconsolidation resulted from a change in variable interests that fluctuate between the variable interest holders based on market and business circumstances, so there were no proceeds from the sale of subsidiary stock or assets. BRI's liabilities exceeded its assets at the date of deconsolidation (negative book value), by $90.3 million. We recorded a liability of $74.3 million associated with the recognition of the fair value of our proportionate share of the guarantee we maintain with regard to BRI's debt obligations. Because we have an obligation to proportionately fund BRI's obligations, the remaining difference between net carrying value and the fair value of our retained equity interest in BRI was recorded as an adjustment to our BRI investment, effectively resulting in a negative equity method basis.

Cobra Beer Partnership, Ltd

        During the second quarter of 2009, MCBC-UK purchased 50.1% of Cobra Beer Partnership, Ltd ("CBPL"), which owns the United Kingdom and world-wide rights to the Cobra beer brand (with the exception of the Indian sub-continent area). The addition of the Cobra beer brands broadens our specialty beer portfolio and provides access to additional on-premise outlets (primarily ethnic restaurants) in the U.K. MCBC-UK paid GBP £12.0 million (USD $19.6 million) for its controlling 50.1% interest in CBPL, and incurred a GBP £2.0 million (USD $3.2 million) charge for employee termination costs after the completion of the acquisition. The non-controlling interest is held by the founder of the Cobra beer brand. The acquisition resulted in the recognition of goodwill of $7.3 million and other intangible assets of $20.8 million. We consolidate the results and financial position of CBPL and it is reported within our U.K. operating segment. We have not presented pro forma information, as the acquisition of CBPL is not material to our results of operations or financial position.

GOODWILL AND INTANGIBLE ASSETS
GOODWILL AND INTANGIBLE ASSETS

12. GOODWILL AND INTANGIBLE ASSETS

        The following summarizes the change in goodwill for the thirty-nine weeks ended September 26, 2009 (in millions):

Balance at December 28, 2008

  $ 1,298.0  
 

Business acquisition

    7.3  
 

Foreign currency translation

    136.1  
       

Balance at September 26, 2009

  $ 1,441.4  
       

        The following summarizes goodwill allocated between our reportable segments (in millions):

 
  As of  
 
  September 26, 2009   December 28, 2008  

Canada

  $ 687.8   $ 614.8  

U.K. 

    753.6     683.2  
           
 

Consolidated

  $ 1,441.4   $ 1,298.0  
           

        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 2009 and determined that there were no impairments of goodwill or other indefinite-lived intangible assets.

        The following table presents details of our intangible assets, other than goodwill, as of September 26, 2009 (in millions):

 
  Useful life   Gross   Accumulated
amortization
  Net  
 
  (Years)
   
   
   
 

Intangible assets subject to amortization:

                         
 

Brands

    2 - 40   $ 287.0   $ (132.8 ) $ 154.2  
 

Distribution rights

    2 - 23     322.9     (182.4 )   140.5  
 

Patents and technology, distribution channels and customer relationships

    3 - 10     35.8     (21.5 )   14.3  

Intangible assets not subject to amortization:

                         
 

Brands

    Indefinite     3,120.6         3,120.6  
 

Distribution networks

    Indefinite     927.2         927.2  
 

Other

    Indefinite     15.5         15.5  
                     

Total

        $ 4,709.0   $ (336.7 ) $ 4,372.3  
                     

        The following table presents details of our intangible assets, other than goodwill, as of December 28, 2008 (in millions):

 
  Useful life   Gross   Accumulated
amortization
  Net  
 
  (Years)
   
   
   
 

Intangible assets subject to amortization:

                         
 

Brands

    3 - 35   $ 247.1   $ (107.9 ) $ 139.2  
 

Distribution rights

    2 - 23     289.0     (149.4 )   139.6  
 

Patents and technology and distribution channels

    3 - 10     25.8     (17.6 )   8.2  

Intangible assets not subject to amortization:

                         
 

Brands

    Indefinite     2,790.8         2,790.8  
 

Distribution networks

    Indefinite     827.9         827.9  
 

Other

    Indefinite     17.7         17.7  
                     

Total

        $ 4,198.3   $ (274.9 ) $ 3,923.4  
                     

        The incremental change in the gross carrying amounts of intangibles from December 28, 2008 to September 26, 2009, is primarily due to the impact of foreign exchange rates, as a significant amount of intangibles are denominated in foreign currencies and the impact of the 50.1% purchase of CBPL.

        Based on foreign exchange rates as of September 26, 2009, the estimated future amortization expense of finite-lived intangible assets is as follows for the next five years (in millions):

 
  Amount  

2009—remaining

  $ 10.6  

2010

  $ 42.5  

2011

  $ 41.3  

2012

  $ 29.4  

2013

  $ 29.0  

        Amortization expense of intangible assets was $10.6 million and $29.6 million for the thirteen and thirty-nine weeks ended September 26, 2009, and $11.1 million and $34.0 million for the thirteen and thirty-nine weeks ended September 28, 2008, respectively.

DEBT
DEBT

13. DEBT

        The table below summarizes total debt (in millions):

 
  As of  
 
  September 26, 2009   December 28, 2008  

Senior notes:

             
 

U.S. $44.6 million 6.375% due 2012

  $ 45.3   $ 45.5  
 

U.S. $300 million 4.85% due 2010

    300.0     300.0  
 

CAD $900 million 5% due 2015

    823.8     735.3  

U.S. $575 million Convertible debt 2.5% due 2013(1)

    507.6     495.3  

Other notes payable issued by:

             
 

BRI joint venture CAD $200 million 7.5% due 2011(2)

        176.0  
           

Total long-term debt (including current portion)

    1,676.7     1,752.1  

Less: current portion of long-term debt

    (300.1 )   (0.1 )
           

Total long-term debt

  $ 1,376.6   $ 1,752.0  
           

Total fair value

 
$

1,849.6
 
$

1,817.5
 
           

(1)
See Note 2 "NEW ACCOUNTING PRONOUNCEMENTS," for further discussion regarding the changes in accounting for convertible debt instruments.

(2)
In the first quarter of 2009, we deconsolidated BRI and now use equity method accounting regarding this entity, refer to Note 11 "VARIABLE INTEREST ENTITIES" for further discussion.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

14. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Overview and Risk Management Policies

        As a part of our ongoing business operations, we are exposed to fluctuations in interest rates, foreign currency exchange rates, commodity prices and production and packaging materials costs. We have established policies and procedures that govern the risk management of these exposures. As a part of our overall risk management strategy, we use derivatives in the normal course of business to manage our exposure to fluctuations in certain commodities, production inputs, packaging material prices, interest rates, foreign currency exchange rates, and for other strategic purposes related to our core business.

        Our primary objective in managing these exposures 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 a variety of financial derivatives, including foreign currency forward contracts, commodity swaps, commodity forward contracts, interest rate swaps, and cross currency swaps, the values of which change in the opposite direction of the anticipated future cash flows. By policy, all of our financial derivatives are over-the-counter ("OTC") swap agreements entered into with highly-rated financial institutions.

        We also enter into physical hedging agreements directly with our suppliers, as a part of our risk management strategy, as an added instrument to manage our exposure to certain commodities. We have concluded that some of these contracts are derivatives and have elected the 'Normal Purchase Normal Sales' ("NPNS") exemption on certain of these physical hedging derivative contracts. See 'Derivative Accounting Policies' section below for additional information.

        In addition to entering into derivatives as a part of our risk management strategy, we occasionally transact derivatives for other strategic purposes. At September 26, 2009, we held cash settled total return swaps.

Counterparty Risk

        While, by policy, the counterparties for any of the financial derivatives we enter into are major institutions with investment grade credit ratings of at least A- (Standard & Poor's), A3 (Moody's) or better, we are exposed to credit-related losses in the event of non-performance by counterparties. 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 policy and guidelines that are monitored and reported to management according to prescribed guidelines. We utilize a portfolio of institutions either headquartered or operating in the same countries we conduct our business. In calculating the fair value of our derivative balances, we also record an adjustment to recognize the risk of counterparty credit and MCBC non-performance risk.

Derivative Accounting Policies

Overview

        The majority of all derivative contracts entered into by the Company qualify for, and are designated as cash flow hedges, in accordance with FASB issued guidance.

        We have also elected the NPNS exemption for certain contracts, which require physical delivery of commodities. These contracts are typically transacted with our suppliers and include risk management features that allow us to fix the price on specific volumes of purchases for specified delivery months. As these contracts have been elected as NPNS, they are not carried on the balance sheet at fair value.

        The Company also considers whether any provisions in our contracts represent "embedded" derivative instruments as defined in the guidance. As of September 26, 2009, we have concluded that no "embedded" derivative instruments warrant separate fair value accounting.

Hedge Accounting Policies

        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, specifically 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 when (1) the derivative is no longer highly effective in offsetting changes in the cash flows of a forecasted future transaction; (2) the derivative expires or is sold, terminated, or exercised; (3) it is no longer probable that the forecasted transaction will occur; (4) management determines that designating the derivative as a hedging instrument is no longer appropriate; or (5) management decides to cease hedge accounting.

        When we discontinue hedge accounting prospectively, but it continues to be probable that the forecasted transaction will occur in the originally expected period, the existing gain or loss on the derivative remains in accumulated other comprehensive income ("AOCI") 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 in AOCI are recognized immediately in earnings. In all situations in which hedge accounting is discontinued and the derivative remains outstanding, we carry the derivative at its fair value on the balance sheet until maturity, recognizing future changes in the fair value in current period earnings.

Presentation

        Derivatives are recognized on the balance sheet at their fair value. See our discussion regarding fair value measurements in Note 15 "FAIR VALUE MEASUREMENTS". The fair values of our derivatives include credit risk adjustments to account for our counterparties' credit risk, as well as MCBC's own non-performance risk. These adjustments resulted in a $4 million net increase as of September 26, 2009 to other comprehensive income ("OCI"), as the fair value of these derivatives was in a net liability position. This represents a $3 million net decrease year to date, as these adjustments resulted in a $7 million net increase to OCI as of December 28, 2008.

        In accordance with FASB issued guidance, we do not record the fair value of derivatives for which we have elected the NPNS election. We account for these contracts on an accrual basis, recording realized settlements related to these contracts to the same financial statement line items as the corresponding transaction.

        For derivative contracts recorded on the balance sheet, MCBC allocates the current and non-current portion of each contract's fair value to the appropriate asset/liability line item. Unrealized gain positions are recorded as other current assets or other non-current assets. Unrealized loss positions are recorded as other current liabilities or other non-current liabilities. Our policy is to present all derivative balances on a gross basis, without regard to counterparty master netting agreements or similar arrangements.

        We record realized gains and losses from derivative instruments to the same financial statement line item as the hedged item/forecasted transaction. Changes in unrealized gains and losses for derivatives not designated as either a cash flow hedge or fair value hedge are recorded directly in earnings each period and are recorded to the same financial statement line item as the associated realized (cash settled) gains and losses.

        Changes in fair values (to the extent of hedge effectiveness) of outstanding cash flow hedges are recorded in OCI, until earnings are affected by the variability of cash flows of the underlying hedged transaction. In most cases, amounts recorded in OCI will be released to earnings at maturity of the related derivative. The recognition of effective hedge results in the condensed consolidated statement of income offsets the gains or losses on the underlying exposure. Any ineffectiveness is recorded directly into earnings each period.

Significant Derivative/Hedge Positions

Cross Currency Swaps

        Simultaneous with the September 22, 2005, 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 of September 2010. In this transaction we exchanged our USD $300.0 million for a CAD $355.5 million obligation with a third party. The swaps also call for an exchange of fixed CAD interest payments for fixed USD interest receipts. 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. Changes in the value of the transaction due to foreign exchange are recorded in earnings and are offset by a revaluation of the associated debt instrument. Changes in the value of the transaction due to interest rates are recorded to OCI.

        On April 10, 2007, we entered into several cross currency swaps that mature in May 2012 to hedge the foreign currency impact of intercompany GBP debt in a 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 intercompany 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 (CAD $1.2 billion at inception). The swaps also call for an exchange of fixed GBP interest receipts for fixed CAD interest payments. The cross currency swaps have been designated as cash flow hedges of the changes in value of the future CAD interest and principal payments that results from changes in the GBP to CAD exchange rates on an intercompany loan between our U.K. and Corporate segments.

        As of September 26, 2009, we are also a party to other cross currency swaps totaling GBP £530 million (USD $774 million at inception). The swaps included an initial exchange of principal and will require final principal exchange in May 2012. The swaps call for an exchange of fixed GBP interest payments for fixed USD interest receipts. At the initial principal exchange, we paid USD to our 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 receipts that results from changes in the USD to GBP exchange rates on an intercompany loan between our U.K. and Corporate segments.

Forward Starting Interest Rate Swaps

        In order to manage our exposure to the volatility of the interest rates associated with the future interest payments on a forecasted debt refinance, we have transacted forward starting interest rate swap. These swaps have a total notional value of CAD $200 million with an average fixed rate of 3.3%. These forward starting interest rate swap contracts have an effective date starting in 2010 and have a termination date in 2017, mirroring the term of the forecasted debt issuance. Under these agreements we are required to early terminate these swaps in 2010, at the time we expect to issue the forecasted debt. We have designated these contracts as a cash flow hedge on a portion of the interest payments on a future forecasted debt issuance.

Foreign Currency Forwards

        As of period end, we had financial foreign exchange forward contracts in place to manage our exposure to foreign currency fluctuations. We hedge foreign currency exposure related to certain royalty agreements, exposure associated with the purchase of production inputs and imports that are denominated in currencies other than the functional entity's local currency, and other foreign exchanges exposures. MCBC uses foreign currency forward contracts to hedge these future forecasted transactions with up to a thirty-six month horizon.

Commodity Swaps

        As of period end, we had financial commodity swap contracts in place to hedge certain future expected purchases of natural gas. Essentially, these contracts allow us to swap our floating exposure to natural gas prices for a fixed rate. These contracts are either marked-to-market, with changes in fair value recognized in cost of goods sold, or have been designated as cash flow hedges of forecasted natural gas purchases. The fair value of these swaps depends upon the market rates in relation to our fixed rate under the swap agreements at period end. MCBC uses these swaps to hedge forecasted purchases up to twenty-four months in advance.

Total Return Swaps

        In 2008, we entered into a series of cash settled total return swaps. We transacted these swaps for the purpose of gaining exposure to Foster's, a major global brewer. MCBC is not applying hedge accounting to these swaps, which are, therefore, marked-to-market each period. All unrealized gains and losses related to these swaps are recorded directly to the income statement and are classified as other income (expense) in MCI and Corporate.

        Under the initial agreements, these total return swaps were scheduled to mature this year. However, during the second quarter of this year we amended these total return swap agreements with our counterparty to extend the maturity date by one year. As such, the current swaps are contracted to settle in 2010.

Liquidity Risk

        Given that the fair value of our derivative instruments are based upon market rates and prices and that the volatility of these rates and prices are dependent on many factors that cannot be forecasted with reliable accuracy, we are exposed to liquidity risks related to these contracts. We cash settle the fair value of each contract upon settlement with our counterparties. The settlement values of our contracts could differ significantly from the current fair values. As such, we are exposed to liquidity risk related to unfavorable changes in the fair value of our derivative contracts.

        We may be forced to cash settle all or a portion of our derivative contracts before the expected settlement date upon occurrence of certain contractual triggers including a change of control termination event, a default event including a downgrade to "below investment" grade by Moody's or Standard and Poor's, or other breach of agreement event. This could have a negative impact on our cash position. For derivative contracts that we have designated as hedging instruments, early cash settlement would result in the timing of our hedge settlement not being matched to the cash settlement of the forecasted transaction or firm commitment. We may also decide to cash settle all or a portion of our derivative contracts before the expected settlement date through negotiations with our counterparties, which could also potentially impact our liquidity.

        Due to the nature of agreements with our counterparties, we are not able to net positions with the same counterparty across business units. Thus, in the event of default, we may be required to early settle all out-of-the-money contracts at fair value, without the benefit of netting the fair value of any in-the-money positions against this exposure.

Collateral

        For the majority of our derivative transactions, we do not receive and are not required to post collateral unless a change of control event has occurred. This termination event would give either party the right to early-terminate all outstanding swap transactions in the event that the other party consolidates, merges with, or transfers all or substantially all its assets to, another entity, and the creditworthiness of the surviving entity that has assumed such party's obligations is "materially weaker" than that of such party.

        We may be required to post collateral with our counterparty if our total return swaps are in an out-of-the-money position. If our credit ratings with Moody's and Standard and Poor's with regard to our long-term debt remain at an investment grade level, we are required to post collateral for the portion of the out-of-the-money liability exceeding a pre-established threshold. If our credit ratings fall below investment grade with both ratings services, we must post collateral for the entire out-of-the-money liability. As of September 26, 2009, our total return swaps were in-the-money, therefore we did not have any collateral posted with our counterparty.

Results of Period Derivative Activity

        The tables below include the year to date results of our derivative activity in the Condensed Consolidated Balance Sheet as of September 26, 2009 and the Condensed Consolidated Statement of Operations for the thirteen and thirty-nine weeks ended September 26, 2009.

Fair Value of Derivative Instruments in the Condensed Consolidated Balance Sheet (in millions)

 
  As of September 26, 2009  
 
   
  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 1,990.8   Other current assets   $   Accrued expenses   $ (32.2 )

 

        Other assets       Long term derivative liability     (322.4 )

Forward starting interest rate swaps

    USD 183.3   Other current assets     3.8   Accrued expenses      

Foreign currency forwards

    USD 342.8   Other current assets     9.4   Accrued expenses     (3.8 )

 

        Other assets     3.7   Long term derivative liability     (5.5 )

Commodity swaps

    Gigajoules 0.8   Other current assets       Accrued expenses     (1.3 )

 

        Other assets       Long term derivative liability      
                         

Total derivatives designated as hedging instruments

            $ 16.9       $ (365.2 )
                         

Derivatives not designated as hedging instruments:

                           

Total return swap

    AUD 496.5   Other current assets   $ 29.4   Accrued expenses   $  

Diesel swaps

    Liters 0.8   Other current assets       Accrued expenses     (0.2 )

Commodity swaps

    Gigajoules 0.5   Other current assets       Accrued expenses     (3.1 )

 

        Other assets       Long term derivative liability     (0.3 )
                         

Total derivatives not designated as hedging instruments

            $ 29.4       $ (3.6 )
                         

        MCBC allocates the current and non-current portion of each contract to the corresponding derivative account above.

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

For the Thirteen Weeks Ended September 26, 2009  
Derivatives in cash
flow hedge
relationships
  Amount of
gain (loss)
recognized in
OCI
on derivative
(effective portion)
  Location of gain (loss)
reclassified from AOCI
into income
(effective portion)
  Amount of
gain (loss)
recognized
from AOCI
on derivative
(effective portion)
  Location of gain (loss)
recognized in
income on derivative
(ineffective portion
and amount
excluded from
effectiveness testing)
  Amount of gain (loss)
recognized in
income on derivative
(ineffective portion
and amount
excluded from
effectiveness testing)
 

Cross currency contracts(1)

  $ 1.9   Other income (expense), net   $ 14.9   Other income (expense), net   $  

 

        Interest expense, net     (2.0 ) Interest expense, net      

Forward starting interest rate swaps

    (2.4 ) Interest expense, net       Interest expense, net      

Foreign currency forwards

    (17.2 ) Other income (expense), net     (0.6 ) Other income (expense), net      

 

        Cost of goods sold     2.8   Cost of goods sold      

 

        General and administrative expenses     (0.2 ) General and administrative expenses      

Commodity swaps

    0.6   Cost of goods sold     (1.0 ) Cost of goods sold      
                       

Total

  $ (17.1 )     $ 13.9       $  
                       

Note:
Amounts recognized in AOCI are gross of taxes

For the Thirty-Nine Weeks Ended September 26, 2009  
Derivatives in cash
flow hedge
relationships
  Amount of
gain (loss)
recognized in
OCI
on derivative
(effective portion)
  Location of gain (loss)
reclassified from AOCI
into income
(effective portion)
  Amount of
gain (loss)
recognized
from AOCI
on derivative
(effective portion)
  Location of gain (loss)
recognized in
income on derivative
(ineffective portion
and amount
excluded from
effectiveness testing)
  Amount of gain (loss)
recognized in
income on derivative
(ineffective portion
and amount
excluded from
effectiveness testing)
 

Cross currency contracts(1)

  $ (1.3 ) Other income (expense), net   $ (106.6 ) Other income (expense), net   $  

 

        Interest expense, net     (3.3 ) Interest expense, net      

Forward starting interest rate swaps

    3.4   Interest expense, net       Interest expense, net      

Foreign currency forwards

    (49.3 ) Other income (expense), net     4.6   Other income (expense), net      

 

        Cost of goods sold     13.3   Cost of goods sold      

 

        General and administrative expenses     (0.3 ) General and administrative expenses      

Commodity swaps

    0.6   Cost of goods sold     (2.7 ) Cost of goods sold      
                       

Total

  $ (46.6 )     $ (95.0 )     $  
                       

Note:
Amounts recognized in AOCI are gross of taxes

(1)
The foreign exchange gain (loss) component of these cross currency swaps is offset by the corresponding gain (loss) on the hedged forecasted transactions in Other income (expense), net and Interest expense, net.

        During the period we recorded no significant ineffectiveness related to these cash flow hedges.

Other Derivatives (in millions)

For the Thirteen Weeks Ended September 26, 2009  
Derivatives not in hedging
relationship
  Location of gain (loss) recognized in
income on derivative
  Amount of gain (loss) recognized in
income on derivative
 

Cash settled total return swap

  Other income (expense), net   $ 59.3  

Physical commodity contracts

  Cost of goods sold     (7.0 )
           

 

      $ 52.3  
           

 

For the Thirty-Nine Weeks Ended September 26, 2009  
Derivatives not in hedging
relationship
  Location of gain (loss) recognized in
income on derivative
  Amount of gain (loss) recognized in
income on derivative
 

Cash settled total return swap

  Other income (expense), net   $ 24.8  

Physical commodity contracts

  Cost of goods sold     (8.0 )
           

 

      $ 16.8  
           
FAIR VALUE MEASUREMENTS
FAIR VALUE MEASUREMENTS

15. FAIR VALUE MEASUREMENTS

        The table below summarizes our assets and liabilities that were measured at fair value as of September 26, 2009. Derivative liabilities are financial instruments measured at fair value on a recurring basis, and the principles of new fair value measurements and disclosures were applied to their balances during the first phase of adoption in 2008. See Note 2 "NEW ACCOUNTING PRONOUNCEMENTS."

        The guarantees related to indemnity obligation incurred upon the sale of the Kaiser business in Brazil to FEMSA are discussed in more detail in Note 17 "COMMITMENTS AND CONTINGENCIES." Certain of those indemnity obligations are considered to be probable losses and are carried at the best estimate of the loss ($137.7 million as of September 26, 2009), as opposed to fair value. The remainder of the Kaiser indemnity obligations ($24.0 million as of September 26, 2009) are less than probable and the reserve is an estimate of the fair value of our obligation to stand ready to perform under the guarantees. It is these fair value reserves that are shown below as utilizing Level 3 inputs.

        The guarantee related to BRI's debt obligation was recorded during the first quarter of 2009 upon the deconsolidation of and initiation of equity method accounting for BRI. See Note 11 "VARIABLE INTEREST ENTITIES," for a discussion of the deconsolidation of BRI and associated fair value measurements.

        The FASB issued guidance for fair value 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).

        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 and non-recurring basis (in millions):

 
   
  Fair Value Measurements at
September 26, 2009 Using
 
 
  Total carrying
value at
September 26,
2009
 
 
  Quoted prices in
active markets
(Level 1)
  Significant other
observable inputs
(Level 2)
  Significant
unobservable
inputs (Level 3)
 

Recurring measurements:

                         
 

Derivatives liabilities, net

  $ (322.5 ) $   $ (322.5 ) $  

Nonrecurring measurements:

                         
 

Guarantee—Kaiser indemnity obligation(1)

    (24.0 )           (24.0 )
 

Guarantee—BRI debt obligations(1)(2)

    (87.0 )           (87.0 )
 

Equity Investment—BRI(1)(3)

    (18.6 )           (18.6 )
 

Edmonton Brewery(4)

    5.5             5.5  
                   
   

Total

  $ (446.6 ) $   $ (322.5 ) $ (124.1 )
                   

(1)
Non-financial assets and liabilities for which the fair value provisions were applied during the first quarter of 2009.

(2)
Represents MCBC's proportionate share of BRI's debt obligations, adjusted for the risk of our non-performance.

(3)
Represents our proportionate share to fund the operations of BRI.

(4)
Represents held-for-sale value of the former Edmonton brewery.

        See Note 8 "DISCONTINUED OPERATIONS" and Note 17 "COMMITMENTS AND CONTINGENCIES" for further discussion related to Kaiser indemnity obligations. See Note 11 "VARIABLE INTEREST ENTITIES" for further discussion related to BRI. See Note 6 "UNUSUAL OR INFREQUENT ITEMS" for further discussion related to the impairment of Edmonton Brewery.

        The table below summarizes items that are valued on a recurring basis using significant unobservable inputs (Level 3) (in millions):

 
  Rollforward of
Derivative
liabilities, net
 

Balance at December 28, 2008

  $ 10.5  

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 September 26, 2009

  $  
       

        The carrying amounts of our cash and cash equivalents, accounts receivable, notes 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, adjusted for non-performance credit risk associated with our counterparties (assets) or with MCBC (liabilities), see Note 14 "DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES." Assuming current market rates for similar instruments, the fair value of long-term debt is presented in Note 13 "DEBT."

PENSION AND OTHER POSTRETIREMENT BENEFITS
PENSION AND OTHER POSTRETIREMENT BENEFITS

16. PENSION AND OTHER POSTRETIREMENT BENEFITS

        We sponsor defined benefit retirement plans in Canada, the United Kingdom and the United States. Additionally, we offer other postretirement benefits to the majority of our Canadian and U.S. employees. On July 1, 2008, substantially all of the defined benefit and other postretirement benefit plans, post-employment benefit obligations and related plan assets in the United States were transferred to MillerCoors.

        The net periodic pension costs under retirement plans and other postretirement benefits were as follows (in millions):

 
  Thirteen Weeks Ended September 26, 2009  
 
  Canada plans   U.S. plans   U.K. plans   Total  

Defined Benefit Plans

                         
 

Service cost

  $ 3.5   $   $ 1.2   $ 4.7  
 

Interest cost

    16.8     0.1     28.3     45.2  
 

Expected return on plan assets

    (16.6 )       (32.2 )   (48.8 )
 

Amortization of prior service cost

    0.1             0.1  
 

Less expected participant contributions

    (0.5 )       (0.1 )   (0.6 )
                   
 

Net periodic pension cost (benefit)

  $ 3.3   $ 0.1   $ (2.8 ) $ 0.6  
                   

Other Postretirement Benefits

                         
 

Service cost—benefits earned during the period

  $ 0.6   $ 0.1   $   $ 0.7  
 

Interest cost on projected benefit obligation

    2.2             2.2  
 

Amortization of prior service benefit

    (0.7 )           (0.7 )
 

Amortization of net actuarial gain

    (0.3 )           (0.3 )
                   
 

Net periodic postretirement benefit cost

  $ 1.8   $ 0.1   $   $ 1.9  
                   

 

 
  Thirteen Weeks Ended September 28, 2008  
 
  Canada plans   U.S. plans   U.K. plans   Total  

Defined Benefit Plans

                         
 

Service cost

  $ 8.1   $   $ 6.7   $ 14.8  
 

Interest cost

    23.7         32.4     56.1  
 

Expected return on plan assets

    (30.2 )       (38.1 )   (68.3 )
 

Administrative expenses

    0.6         1.2     1.8  
 

Amortization of prior service cost (benefit)

    0.4         (0.5 )   (0.1 )
 

Amortization of net actuarial loss

            0.3     0.3  
 

Less expected participant contributions

    (0.7 )       (1.1 )   (1.8 )
                   
 

Net periodic pension cost

  $ 1.9   $   $ 0.9   $ 2.8  
                   

Other Postretirement Benefits

                         
 

Service cost—benefits earned during the period

  $ 2.4   $   $   $ 2.4  
 

Interest cost on projected benefit obligation

    3.9             3.9  
 

Amortization of net actuarial loss

    0.1             0.1  
                   
 

Net periodic postretirement benefit cost

  $ 6.4   $   $   $ 6.4  
                   

 

 
  Thirty-Nine Weeks Ended September 26, 2009  
 
  Canada plans   U.S. plans   U.K. plans   Total  

Defined Benefit Plans

                         
 

Service cost

  $ 11.3   $   $ 3.4   $ 14.7  
 

Interest cost

    52.2     0.3     79.5     132.0  
 

Expected return on plan assets

    (51.2 )       (90.4 )   (141.6 )
 

Amortization of prior service cost

    0.6             0.6  
 

Amortization of net actuarial loss

    0.1     0.4         0.5  
 

Curtailment loss

    5.3             5.3  
 

Less expected participant contributions

    (1.4 )       (0.3 )   (1.7 )
                   
 

Net periodic pension cost (benefit)

  $ 16.9   $ 0.7   $ (7.8 ) $ 9.8  
                   

Other Postretirement Benefits

                         
 

Service cost—benefits earned during the period

  $ 2.3   $ 0.1   $   $ 2.4  
 

Interest cost on projected benefit obligation

    7.0     0.1         7.1  
 

Amortization of prior service benefit

    (1.7 )           (1.7 )
 

Amortization of net actuarial gain

    (0.7 )           (0.7 )
                   
 

Net periodic postretirement benefit cost

  $ 6.9   $ 0.2   $   $ 7.1  
                   

 

 
  Thirty-Nine Weeks Ended September 28, 2008  
 
  Canada plans   U.S. plans   U.K. plans   Total  

Defined Benefit Plans

                         
 

Service cost

  $ 24.8   $ 8.3   $ 20.8   $ 53.9  
 

Interest cost

    72.6     29.9     100.1     202.6  
 

Expected return on plan assets

    (92.6 )   (35.1 )   (117.7 )   (245.4 )
 

Administrative expenses

    1.9     0.6     3.7     6.2  
 

Amortization of prior service cost (benefit)

    1.1     (0.2 )   (1.5 )   (0.6 )
 

Amortization of net actuarial loss

        4.1     0.8     4.9  
 

Less expected participant contributions

    (2.1 )       (3.4 )   (5.5 )
                   
 

Net periodic pension cost

  $ 5.7   $ 7.6   $ 2.8   $ 16.1  
                   

Other Postretirement Benefits

                         
 

Service cost—benefits earned during the period

  $ 7.3   $ 1.2   $   $ 8.5  
 

Interest cost on projected benefit obligation

    12.1     4.7         16.8  
 

Amortization of prior service cost

        0.2         0.2  
 

Amortization of net actuarial loss

    0.4     2.1         2.5  
                   
 

Net periodic postretirement benefit cost

  $ 19.8   $ 8.2   $   $ 28.0  
                   

        During the first quarter of 2009, our Canada segment finalized a plan to reduce headcount at our brewery in Montréal, and the final plan was agreed to with the employee labor union. The reduction in workforce stemmed from MillerCoors' 2008 decision to brew and package Blue Moon products at its facilities in the U.S. This workforce reduction resulted in a curtailment of pension benefits during the first quarter of 2009. The plan remeasurement resulted in a decrease to projected benefit obligations of $2.6 million, reflected as an increase to other comprehensive income. The curtailment of pension benefits resulted in an increase to the projected benefit obligation of $5.3 million, reflected as a curtailment loss on the income statement, classified in Special Items, net.

        Also during the first quarter of 2009, our Canada segment decided to amend certain postretirement benefits, specifically benefits entitling retirees to free beer. The combined impact to the projected benefit obligation of the benefit reduction and the plan remeasurement was a decrease of $15.3 million, all of which was applied as an increase to other comprehensive income. This prior service benefit will be amortized as a reduction to postretirement benefit expense over approximately six years.

        See Note 11 "VARIABLE INTEREST ENTITIES" for a discussion of the deconsolidation of BRI during the first quarter of 2009, which reduced the carrying values of pension and postretirement benefits on the condensed consolidated balance sheet.

        During the third quarter of 2009, employer contributions paid to the defined benefit plans for Canada were $10.8 million. There were no contributions to the U.K. or U.S. plans in the third quarter. Contributions paid to the defined benefit plans for the first three quarters of 2009 were $35.1 million and $7.6 million for the Canada and U.K. plans, respectively. Expected total fiscal year 2009 employer contributions to Canada, U.S. and U.K. defined benefits plans are approximately $58.0 million.

COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES

17. COMMITMENTS AND CONTINGENCIES

Kaiser and Other Indemnity Obligations

  • Kaiser

        As discussed in Note 8 "DISCONTINUED OPERATIONS," 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.

        We provided a full indemnity for any losses Kaiser may incur, including legal fees and other costs, with respect to tax claims associated with certain purchased tax credits, which are generally classified into two categories. The maximum potential claims amount for the first category, including estimated accumulated legal penalties and interest, was $416.5 million as of September 26, 2009. A portion of these indemnity obligations are considered probable losses recorded as current liabilities in the amount of $137.7 million as of September 26, 2009. Additionally, our estimate of the fair value of the indemnity liability associated with the balance of this group of purchased tax credits recorded as of September 26, 2009 was $4.7 million, which was classified as a current liability. The maximum potential claims amount for the second category of purchased tax credits, which we believe present far less risk, was $247.3 million as of September 26, 2009. This category generally consists of cases in which Kaiser has received favorable rulings, but continues to manage formalities of the Brazilian legal system to bring such rulings to their final conclusion. We have recorded a fair value estimate of the indemnity liability associated with this second group of purchased tax credits in an amount of $9.9 million as of September 26, 2009, 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.

        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 or 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 our 68% equity interest of Kaiser, which was $68 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 resulting from negotiation or settlement programs that might arise from the federal or state governments in Brazil. The recorded fair value of the total tax, civil and labor indemnity liability was $9.4 million as of September 26, 2009, which is classified as non-current.

        Future settlement procedures and related negotiation activities associated with these contingencies are largely outside of our control and will be handled by FEMSA. Indemnity obligations related to purchased tax credits must be paid by us upon notification of FEMSA's settlement with local jurisdictions. 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 resulted in the past and could result in the future. These liabilities are denominated in Brazilian reais 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. During the second quarter of 2009, the Brazilian government enacted a tax amnesty. The amnesty has not changed our assessment of the merits of the underlying tax disputes. The amnesty makes it more attractive for FEMSA to resolve certain liabilities through settlement rather than continued litigation. In the quarter, we provided our consent to FEMSA for them to proceed to resolve the first category (noted above) of purchased credits via the amnesty program. As a result, a larger portion of our estimated liabilities associated with purchased tax credit cases are now considered probable losses under the indemnities, and are classified as current liabilities to reflect our estimates of the timing of potential resolution. We are in discussions with FEMSA regarding the terms of the amnesty settlement and its economic impact on each party. We can make no assurances regarding the outcome of those discussions.

        The table below provides a summary of reserves associated with the Kaiser indemnity obligations from December 28, 2008, through September 26, 2009 (in millions):

 
  Indemnity Obligations  
 
  Purchased tax
credits
indemnity
reserve
  Tax, civil and
labor
indemnity
reserve
  Total
indemnity
reserves
 

Balance at December 28, 2008

  $ 120.8   $ 12.4   $ 133.2  
 

Changes in estimates

    (5.9 )   (6.4 )   (12.3 )
 

Foreign exchange impact

    37.4     3.4     40.8  
               

Balance at September 26, 2009

  $ 152.3   $ 9.4   $ 161.7  
               

Litigation and Other Disputes

        In 1999, Molson Inc. entered an agreement for the distribution of Molson products in Brazil. In 2000, Molson terminated the distribution agreement and then entered into a settlement agreement with the distributor providing for a payment to the distributor of approximately $150,000. Notwithstanding having entered into a settlement agreement, and in violation of the terms of the agreement, the distributor sued Molson Inc. The Appellate Court of Rio de Janeiro set aside the settlement agreement and determined that Molson Inc. was liable to the distributor, with the amount of actual damages to be determined through subsequent proceedings. An appeal of the liability decision is currently pending before the Brazilian Superior Court of Justice. In later proceedings, the case was remanded to a state trial court to determine the amount of damages. The trial court retained an expert who provided a report adopting the position of the distributor and recommending damages based on the distributor's anticipated profits at the time of entering into the distributor agreement rather than actual damages incurred. Molson Inc. challenged the irregularity of the expert process, the impartiality of the expert, as well as the report's specific recommendation regarding damages. The trial court scheduled a hearing to investigate the impartiality of the expert and then, after the plaintiff's expert failed to come to court and notwithstanding Molson Inc.'s challenge, cancelled the hearing and ruled in the distributor's favor. Molson Inc. filed an appeal before the Appellate Court of Rio de Janeiro which is pending. Thereafter, the State Court Judge handed down a decision in the distributor's favor granting the full amount of the lost anticipated profits alleged by the plaintiff, approximately $42 million. Such judgment was rendered during the third quarter of 2009. Molson Inc. has appealed the judgment, and a state appellate court in Rio de Janeiro has entered an injunction to prevent the distributor from executing on the judgment pending appeal. We continue to believe that a material loss in this case is not probable. Molson Inc. will continue to vigorously defend the case.

        Beginning in May 2005, several purported shareholder class actions were filed in the United States and Canada, including federal 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 in connection with the Merger. The Colorado case was transferred to Delaware and consolidated with those cases. The Québec Superior Court heard arguments in October 2007 regarding the plaintiffs' motion to authorize a class action in that case. We opposed the motion.

        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 worldwide basis, except in one case discussed below. Pursuant to the settlement, the Company would pay a total of $6.0 million, which amounts would be paid by the Company's insurance carrier. During the second quarter of 2009, the settlement agreements were approved by all pertinent courts, and the time for appeal has run, resulting in the final resolution of these cases. A related case which sought to recover on behalf of certain Molson Coors employees who invested in Company securities around the same time through two employee retirement savings plans has been settled for an immaterial amount and was covered by insurance.

        MCBC-UK replaced a profit sharing 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 MCBC-UK with respect to this issue with an employment tribunal. During the second quarter of 2005, the tribunal ruled against MCBC-UK. MCBC-UK 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. MCBC-UK appealed the employment appeal tribunal's judgment. In January 2007, the appeals court 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 in Birmingham County Court during the third quarter of 2008. The case was decided in our favor in October 2009. We will continue to defend the case vigorously if further appeals are made by the claimants. If MCBC-UK were held to be liable to the claimants, the amounts of the liability would be immaterial. If such liabilities were asserted by other groups of employees and upheld in subsequent litigation, the potential loss would 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, may arise from time to time that may harm our business.

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 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.

Lowry

        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 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 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 million threshold being met) is based on our best estimates available.

        The assumptions used are as follows:

  • trust management costs are included in projections with regard to the $120 million threshold, but are expensed only as incurred;

    income taxes, which we believe are not an included cost, are excluded from projections with regard to the $120 million threshold;

    a 2.5% inflation rate for future costs; and

    certain operations and maintenance costs were discounted using a 2.94% risk-free rate of return.

        Based on these assumptions, the present value and gross amount of the costs at September 26, 2009, are approximately $3.8 million and $5.2 million, respectively. Accordingly, we believe that the existing liability is adequate as of September 26, 2009. 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 million threshold is reached the estimate of our liability may change as further facts develop. We cannot predict the amount of any such change, but additional accruals in the future are possible.

        In April 2009, we received a written notice relating to the Lowry site, that the State of Colorado intends to seek compensation from MCBC and other parties to recover for natural resources damages. The State of Colorado has informally asserted total damages of up to $10 million. However, the Company is potentially liable for only a portion of those damages. The Company will defend any such claims vigorously.

Other

        In the past, we were notified by the EPA that we are a PRP, along with others, in regards to certain former business sites. Molson Inc.'s former non-beer business operations, which were discontinued and sold in the mid-1990s, were involved at these sites. Specifically, East Rutherford and Barry's Creek sites in New Jersey, Chamblee and Smyrna sites in Georgia, and City of Industry and Cooper Drum sites in California. We responded to the EPA with information regarding our past involvement with these sites. As of September 26, 2009 and December 28, 2008, we have accrued estimated liabilities for the East Rutherford, Barry's Creek, Chamblee, Smyrna and City of Industry sites totaling $7.2 million and $8.2 million, respectively. We are not yet able to estimate any potential liability associated with the Cooper Drum site.

        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.

COMPREHENSIVE INCOME (LOSS)
COMPREHENSIVE INCOME (LOSS)

18. COMPREHENSIVE INCOME (LOSS)

        The following summarizes the components of comprehensive income (loss) (in millions):

 
  Thirteen Weeks Ended   Thirty-Nine Weeks Ended  
 
  September 26,
2009
  September 28,
2008
  September 26,
2009
  September 28,
2008
 

Net income

  $ 236.4   $ 172.0   $ 500.4   $ 296.7  
                   

Other comprehensive income (loss), net of tax:

                         
 

Foreign currency translation adjustments, net of tax

    111.3     (220.2 )   486.6     (363.7 )
 

Amortization of net prior service costs and net actuarial losses, net of tax

    (0.6 )   0.5     11.3     5.4  
 

Unrealized (loss) gain on derivative instruments, net of tax

    (6.3 )   (5.3 )   (16.5 )   12.2  
 

Realized loss reclassed to net income on derivative instruments, net of tax

    (1.3 )   (0.8 )   (12.8 )   (1.7 )
 

Ownership share of unconsolidated subsidiaries' other comprehensive income (loss), net of tax(1)

   
24.2
   
(53.0

)
 
42.1
   
(53.0

)
                   
 

Total other comprehensive income (loss), net of tax

  $ 127.3   $ (278.8 ) $ 510.7   $ (400.8 )
                   

Comprehensive income (loss)

    363.7     (106.8 )   1,011.1     (104.1 )
 

Comprehensive income attributable to the noncontrolling interest

    (1.1 )   (0.8 )   (2.1 )   (11.8 )
                   

Comprehensive income (loss) attributable to MCBC

  $ 362.6   $ (107.6 ) $ 1,009.0   $ (115.9 )
                   

(1)
Consisting of unrealized gains and losses on derivative instruments, and changes to pension liabilities related to our proportional share of our unconsolidated subsidiaries, reported net of our effective tax rate.
SUPPLEMENTAL GUARANTOR INFORMATION
SUPPLEMENTAL GUARANTOR INFORMATION

19. 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. 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 first quarter of 2008, $180.4 million of the Senior notes was extinguished by using existing cash resources. 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. The remaining outstanding Senior notes are guaranteed on a senior and unsecured 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. 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 June 30, 2008, Molson Canada 2005, an indirect wholly owned subsidiary of Molson Coors, guaranteed the obligations of Molson Coors under the credit facility 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 is effective for our 2008 third quarter and was reflected accordingly with the appropriate reclassifications to the prior period condensed consolidated financial statements.

        The following information sets forth Condensed Consolidating Statements of Operations for the thirteen and thirty-nine weeks ended September 26, 2009, and September 28, 2008; Condensed Consolidating Balance Sheets as of September 26, 2009, and December 28, 2008; and Condensed Consolidating Statements of Cash Flows for the thirty-nine weeks ended September 26, 2009 and September 28, 2008. 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.


MOLSON COORS BREWING COMPANY (MCBC) AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THIRTEEN WEEKS ENDED SEPTEMBER 26, 2009
(IN MILLIONS)
(UNAUDITED)

 
  Parent
Guarantor and
2007 Issuer
  2002
Issuer
  2005
Issuers
  Subsidiary
Guarantors
  Subsidiary
Non-Guarantors
  Eliminations   Consolidated  

Sales

  $   $ 12.8   $   $ 640.1   $ 597.4   $   $ 1,250.3  

Excise taxes

                (158.3 )   (238.3 )       (396.6 )
                               
 

Net sales

        12.8         481.8     359.1         853.7  

Cost of goods sold

        (11.5 )       (232.6 )   (228.5 )       (472.6 )

Equity in subsidiary earnings

    508.0     (158.3 )   136.8             (486.5 )    
                               
 

Gross profit (loss)

    508.0     (157.0 )   136.8     249.2     130.6     (486.5 )   381.1  

Marketing, general and administrative expenses

    (28.4 )   (4.6 )       (111.4 )   (96.3 )       (240.7 )

Special items, net

    (0.3 )           (3.8 )   (0.2 )       (4.3 )

Equity income in MillerCoors

        101.2                     101.2  
                               
 

Operating income (loss)

    479.3     (60.4 )   136.8     134.0     34.1     (486.5 )   237.3  

Interest (expense) income, net

    (8.2 )   (2.0 )   (14.2 )   (0.4 )   2.3         (22.5 )

Other income (expense), net

    59.5     (1.8 )       0.4     (2.2 )       55.9  
                               
 

(Loss) income from continuing operations before income taxes

    530.6     (64.2 )   122.6     134.0     34.2     (486.5 )   270.7  

Income tax (expense) benefit

    (295.3 )   439.4     (215.0 )   85.2     (39.6 )       (25.3 )
                               
 

Income (loss) from continuing operations

    235.3     375.2     (92.4 )   219.2     (5.4 )   (486.5 )   245.4  

Loss from discontinued operations, net of tax

                    (9.0 )       (9.0 )
                               
 

Net income (loss)

    235.3     375.2     (92.4 )   219.2     (14.4 )   (486.5 )   236.4  
 

Less: Net income attributable to noncontrolling interests

                    (1.1 )       (1.1 )
                               
 

Net income (loss) attributable to MCBC

  $ 235.3   $ 375.2   $ (92.4 ) $ 219.2   $ (15.5 ) $ (486.5 ) $ 235.3  
                               

MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THIRTEEN WEEKS ENDED SEPTEMBER 28, 2008
(IN MILLIONS)
(UNAUDITED)

 
  Parent
Guarantor and
2007 Issuer
  2002 Issuer   2005 Issuers   Subsidiary
Guarantors
  Subsidiary
Non-Guarantors
  Eliminations   Consolidated  

Sales

  $   $ 46.1   $   $ 675.1   $ 652.6   $   $ 1,373.8  

Excise taxes

        (1.9 )       (163.8 )   (287.0 )       (452.7 )
                               
 

Net sales

        44.2         511.3     365.6         921.1  

Cost of goods sold

        (38.7 )       (251.6 )   (234.1 )       (524.4 )

Equity in subsidiary earnings

    264.3     (202.3 )   163.8             (225.8 )    
                               
 

Gross profit (loss)

    264.3     (196.8 )   163.8     259.7     131.5     (225.8 )   396.7  

Marketing, general and administrative expenses

    (16.4 )   (12.1 )       (112.0 )   (96.3 )       (236.8 )

Special items, net

    (21.3 )   (0.3 )       (3.0 )   (0.2 )       (24.8 )

Equity income in MillerCoors

        106.5                     106.5  
                               
 

Operating income (loss)

    226.6     (102.7 )   163.8     144.7     35.0     (225.8 )   241.6  

Interest (expense) income, net

    (7.7 )   (4.1 )   (14.7 )   1.0     (0.1 )       (25.6 )

Other expense, net

    13.8     (1.1 )       0.3     (5.3 )       7.7  
                               
 

Income (loss) from continuing operations before income taxes

    232.7     (107.9 )   149.1     146.0     29.6     (225.8 )   223.7  

Income tax (expense) benefit

    (61.4 )   213.7     (143.3 )   (59.4 )   (4.5 )       (54.9 )
                               
 

Income (loss) from continuing operations

    171.3     105.8     5.8     86.6     25.1     (225.8 )   168.8  

Gain from discontinued operations, net of tax

                    3.2         3.2  
                               
 

Net income (loss)

    171.3     105.8     5.8     86.6     28.3     (225.8 )   172.0  

Less: Net income attributable to noncontrolling interests

                0.1     (0.8 )       (0.7 )
                               
 

Net income (loss) attributable to MCBC

  $ 171.3   $ 105.8   $ 5.8   $ 86.7   $ 27.5   $ (225.8 ) $ 171.3  
                               

MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THIRTY-NINE WEEKS ENDED SEPTEMBER 26, 2009
(IN MILLIONS)
(UNAUDITED)

 
  Parent
Guarantor and
2007 Issuer
  2002 Issuer   2005 Issuers   Subsidiary
Guarantors
  Subsidiary
Non-Guarantors
  Eliminations   Consolidated  

Sales

  $   $ 39.5   $   $ 1,649.8   $ 1,545.6   $   $ 3,234.9  

Excise taxes

                (396.7 )   (626.6 )       (1,023.3 )
                               
 

Net sales

        39.5         1,253.1     919.0         2,211.6  

Cost of goods sold

        (36.8 )       (631.2 )   (583.3 )       (1,251.3 )

Equity in subsidiary earnings

    584.0     (55.0 )   367.9             (896.9 )    
                               
 

Gross profit (loss)

    584.0     (52.3 )   367.9     621.9     335.7     (896.9 )   960.3  

Marketing, general and administrative expenses

    (71.2 )   (25.5 )       (300.0 )   (256.6 )       (653.3 )

Special items, net

    (0.9 )           (12.8 )   (7.9 )       (21.6 )

Equity income in MillerCoors

        332.4                     332.4  
                               
 

Operating income

    511.9     254.6     367.9     309.1     71.2     (896.9 )   617.8  

Interest (expense) income, net

    (24.5 )   (3.0 )   (39.9 )   (0.9 )   6.0         (62.3 )

Other income (expense), net

    25.7     6.3         1.4     (4.3 )       29.1  
                               
 

Income (loss) from continuing operations before income taxes

    513.1     257.9     328.0     309.6     72.9     (896.9 )   584.6  

Income tax (expense) benefit

    (14.8 )   (36.4 )   (16.2 )   10.9     (14.8 )       (71.3 )
                               
 

Income (loss) from continuing operations

    498.3     221.5     311.8     320.5     58.1     (896.9 )   513.3  

Loss from discontinued operations, net of tax

                    (12.9 )       (12.9 )
                               
 

Net income (loss)

    498.3     221.5     311.8     320.5     45.2     (896.9 )   500.4  

Less: Net income attributable to noncontrolling interests

                    (2.1 )       (2.1 )
                               
 

Net income (loss) attributable to MCBC

  $ 498.3   $ 221.5   $ 311.8   $ 320.5   $ 43.1   $ (896.9 ) $ 498.3  
                               

MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THIRTY-NINE WEEKS ENDED SEPTEMBER 28, 2008
(IN MILLIONS)
(UNAUDITED)

 
  Parent
Guarantor and
2007 Issuer
  2002
Issuer
  2005
Issuers
  Subsidiary
Guarantors
  Subsidiary
Non-Guarantors
  Eliminations   Consolidated  

Sales

  $   $ 1,713.2   $   $ 1,898.0   $ 1,938.3   $   $ 5,549.5  

Excise taxes

        (231.3 )       (440.6 )   (842.4 )       (1,514.3 )
                               
 

Net sales

        1,481.9         1,457.4     1,095.9         4,035.2  

Cost of goods sold

        (928.9 )       (752.1 )   (711.9 )       (2,392.9 )

Equity in subsidiary earnings

    454.2     (81.4 )   338.8             (711.6 )    
                               
 

Gross profit

    454.2     471.6     338.8     705.3     384.0     (711.6 )   1,642.3  

Marketing, general and administrative expenses

    (84.2 )   (409.2 )       (344.9 )   (298.3 )       (1,136.6 )

Equity income in MillerCoors

        106.5                     106.5  

Special items, net

    (56.3 )   (43.2 )       (31.2 )   (5.4 )       (136.1 )
                               
 

Operating income

    313.7     125.7     338.8     329.2     80.3     (711.6 )   476.1  

Interest (expense) income, net

    (21.8 )   (27.9 )   (45.3 )   3.1     (0.9 )       (92.8 )

Other (expense) income, net

    13.7     (1.3 )       (1.3 )   (4.7 )       6.4  
                               
 

Income from continuing operations before income taxes

    305.6     96.5     293.5     331.0     74.7     (711.6 )   389.7  

Income tax (expense) benefit

    (20.6 )   25.0     (59.1 )   (9.3 )   (10.9 )       (74.9 )
                               
 

Income from continuing operations

    285.0     121.5     234.4     321.7     63.8     (711.6 )   314.8  

Loss from discontinued operations, net of tax

                    (18.1 )       (18.1 )
                               
 

Net income

    285.0     121.5     234.4     321.7     45.7     (711.6 )   296.7  

Less: Net income attributable to noncontrolling interests

                0.1     (11.7 )       (11.6 )
                               
 

Net income attributable to MCBC

  $ 285.0   $ 121.5   $ 234.4   $ 321.8   $ 34.0   $ (711.6 ) $ 285.1  
                               

MOLSON COORS BREWING COMPANY (MCBC) AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF SEPTEMBER 26, 2009
(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

  $ 286.4   $   $ 0.1   $ 176.5   $ 102.1   $   $ 565.1  
 

Accounts receivable, net

    1.8     6.3         156.5     336.6         501.2  
 

Other receivables, net

    45.2     37.6     (0.8 )   35.7     42.9         160.6  
 

Total inventories, net

                132.6     91.1         223.7  
 

Other assets, net

    3.2     1.2         16.5     26.7         47.6  
 

Deferred tax assets

    (18.3 )   17.5             0.8          
 

Discontinued operations

                    9.6         9.6  
                               

Total current assets

    318.3     62.6     (0.7 )   517.8     609.8         1,507.8  

Properties, net

    29.8     7.4         749.3     465.3         1,251.8  

Goodwill

        11.4         323.9     1,106.1         1,441.4  

Other intangibles, net

        44.7         3,953.3     374.3         4,372.3  

Investment in MillerCoors

        2,588.0             0.1         2,588.1  

Net investment in and advances to subsidiaries

    6,382.2     (1,293.5 )   5,096.7             (10,185.4 )    

Deferred tax assets

    10.5     11.0     100.7     15.1     (15.4 )       121.9  

Other assets

    6.8     14.8     4.1     78.4     103.8         207.9  
                               

Total assets

  $ 6,747.6   $ 1,446.4   $ 5,200.8   $ 5,637.8   $ 2,644.0   $ (10,185.4 ) $ 11,491.2  
                               

Liabilities and equity

                                           

Current liabilities:

                                           
 

Accounts payable

  $ 6.0   $ 1.3   $   $ 71.3   $ 106.8   $   $ 185.4  
 

Accrued expenses and other liabilities

    23.2     27.5     23.0     282.9     276.5         633.1  
 

Deferred tax liability

    39.3                 84.5         123.8  
 

Short-term borrowings and current portion of long-term debt

        0.3     299.8                 300.1  
 

Discontinued operations

                    155.5         155.5  
                               

Total current liabilities

    68.5     29.1     322.8     354.2     623.3         1,397.9  

Long-term debt

    507.6     45.1     823.9                 1,376.6  

Deferred tax liability

    (16.8 )   16.8             527.0         527.0  

Other liabilities

    39.3     80.4     (0.1 )   613.5     404.1         1,137.2  

Discontinued operations

                    18.4         18.4  
                               

Total liabilities

    598.6     171.4     1,146.6     967.7     1,572.8         4,457.1  

Total MCBC stockholders' equity

    6,149.0     1,275.1     4,054.2     4,670.1     1,055.7     (10,185.4 )   7,018.7  

Noncontrolling interests

        (0.1 )           15.5         15.4  
                               

Total equity

    6,149.0     1,275.0     4,054.2     4,670.1     1,071.2     (10,185.4 )   7,034.1  
                               

Total liabilities and equity

  $ 6,747.6   $ 1,446.4   $ 5,200.8   $ 5,637.8   $ 2,644.0   $ (10,185.4 ) $ 11,491.2  
                               

MOLSON COORS BREWING COMPANY (MCBC) 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

    (32.4 )   18.4     100.7     15.1     (26.5 )       75.3  

Other assets

    6.6     54.9     3.9     81.5     108.3         255.2  

Discontinued operations

                    7.0         7.0  
                               

Total assets

  $ 5,741.4   $ 1,433.4   $ 4,372.7   $ 4,860.6   $ 2,725.6   $ (8,747.1 ) $ 10,386.6  
                               

Liabilities and 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

    495.3     45.3     1,035.5         175.9         1,752.0  

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

    617.3     81.3     1,035.7     765.2     1,847.7         4,347.2  

Total MCBC stockholders' equity

    5,124.1     1,352.1     3,337.0     4,115.0     874.3     (8,747.1 )   6,055.4  

Noncontrolling interests

                (19.6 )   3.6         (16.0 )
                               

Total equity

    5,124.1     1,352.1     3,337.0     4,095.4     877.9     (8,747.1 )   6,039.4  
                               

Total liabilities and equity

  $ 5,741.4   $ 1,433.4   $ 4,372.7   $ 4,860.6   $ 2,725.6   $ (8,747.1 ) $ 10,386.6  
                               

MOLSON COORS BREWING COMPANY (MCBC) AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THIRTY-NINE WEEKS ENDED SEPTEMBER 26, 2009
(IN MILLIONS)
(UNAUDITED)

 
  Parent
Guarantor and
2007 Issuer
  2002 Issuer   2005 Issuers   Subsidiary
Guarantors
  Subsidiary
Non-Guarantors
  Consolidated  

Net cash (used in) provided by operating activities

  $ (79.5 ) $ 398.8   $ (49.5 ) $ 300.6   $ 96.4   $ 666.8  
                           

CASH FLOWS FROM INVESTING ACTIVITIES:

                                     
 

Additions to properties and intangible assets

    (8.0 )           (22.2 )   (41.5 )   (71.7 )
 

Proceeds from sales of properties and intangible assets, net

    1.2             0.7     2.0     3.9  
 

Deconsolidation of BRI

                (26.1 )       (26.1 )
 

Investment in and advances to an unconsolidated affiliate

                    (8.6 )   (8.6 )
 

Trade loan repayments from customers

                    17.5     17.5  
 

Trade loans advanced to customers

                    (12.7 )   (12.7 )
 

Acquisition of business

                    (19.6 )   (19.6 )
 

Investment in MillerCoors

        (346.5 )               (346.5 )
 

Return of capital from MillerCoors

        237.3                 237.3  
                           

Net cash (used in) provided by investing activities

    (6.8 )   (109.2 )       (47.6 )   (62.9 )   (226.5 )
                           

CASH FLOWS FROM FINANCING ACTIVITIES:

                                     
 

Issuances of stock under equity compensation plans

    25.5                     25.5  
 

Excess tax benefits from share-based compensation

    18.2                     18.2  
 

Dividends paid

    (109.4 )               (16.4 )   (125.8 )
 

Payments on long-term debt and capital lease obligations

                (0.1 )   (0.2 )   (0.3 )
 

Change in overdraft balances and other

                (0.3 )   (8.9 )   (9.2 )
 

Net activity in investments and advances (to) from subsidiaries

    353.5     (290.1 )   49.5     (101.0 )   (11.9 )    
                           

Net cash provided by (used in) financing activities

    287.8     (290.1 )   49.5     (101.4 )   (37.4 )   (91.6 )
                           

CASH AND CASH EQUIVALENTS:

                                     
 

Net increase (decrease) in cash and cash equivalents

    201.5     (0.5 )       151.6     (3.9 )   348.7  
 

Effect of foreign exchange rate changes on cash and cash equivalents

        0.1         0.8     (0.7 )   0.2  

Balance at beginning of year

    84.9     0.4     0.1     24.1     106.7     216.2  
                           

Balance at end of period

  $ 286.4   $   $ 0.1   $ 176.5   $ 102.1   $ 565.1  
                           

MOLSON COORS BREWING COMPANY (MCBC) AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THIRTY-NINE WEEKS ENDED SEPTEMBER 28, 2008
(IN MILLIONS)
(UNAUDITED)

 
  Parent
Guarantor and
2007 Issuer
  2002
Issuer
  2005
Issuers
  Subsidiary
Guarantors
  Subsidiary
Non-Guarantors
  Consolidated  

Net cash (used in) provided by operating activities

  $ (179.8 ) $ 38.7   $ (38.6 ) $ 466.5   $ 108.8   $ 395.6  
                           

CASH FLOWS FROM INVESTING ACTIVITIES:

                                     
 

Additions to properties and intangible assets

    (11.2 )   (52.8 )       (37.3 )   (75.2 )   (176.5 )
 

Proceeds from sales of properties and intangible assets, net

        28.8         1.0     5.9     35.7  
 

Proceeds from sale of investment securities, net

    22.8                     22.8  
 

Investment in and advances to an unconsolidated affiliate

        (78.8 )       6.4     (15.4 )   (87.8 )
 

Trade loan repayments from customers

                    20.4     20.4  
 

Trade loans advanced to customers

                    (27.9 )   (27.9 )
 

Other

    (1.9 )   0.2                 (1.7 )
                           

Net cash provided by (used in) investing activities

    9.7     (102.6 )       (29.9 )   (92.2 )   (215.0 )
                           

CASH FLOWS FROM FINANCING ACTIVITIES:

                                     
 

Issuances of stock under equity compensation plans

    51.6                     51.6  
 

Excess tax benefits from share-based compensation

                         
 

Dividends paid

    (87.0 )           (8.4 )   (27.1 )   (122.5 )
 

Proceeds from long-term borrowings

                    16.0     16.0  
 

Payments on long-term debt and capital lease obligations

        (180.4 )       (0.5 )   (0.3 )   (181.2 )
 

Net proceeds from revolving credit facilities

                    1.0     1.0  
 

Change in overdraft balances and other

    (0.9 )   (16.4 )       17.7     2.7     3.1  
 

Settlements of debt-related derivatives

        12.0         0.5     (0.5 )   12.0  
 

Net activity in investments and advances from (to) subsidiaries

    102.0     247.7     38.6     (396.6 )   8.3      
                           

Net cash provided by (used in) financing activities

    65.7     62.9     38.6     (387.3 )   0.1     (220.0 )
                           

CASH AND CASH EQUIVALENTS:

                                     
 

Net (decrease) increase in cash and cash equivalents

    (104.4 )   (1.0 )       49.3     16.7     (39.4 )
 

Effect of foreign exchange rate changes on cash and cash equivalents

                (0.2 )   (2.9 )   (3.1 )

Balance at beginning of year

    243.7     1.4     0.1     5.6     126.2     377.0  
                           

Balance at end of period

  $ 139.3   $ 0.4   $ 0.1   $ 54.7   $ 140.0   $ 334.5  
                           
DOCUMENT AND ENTITY INFORMATION (USD $)
Oct. 23, 2009
9 Months Ended
Sep. 26, 2009
Jun. 27, 2008
Entity [Text Block]
 
 
 
Entity Registrant Name
 
MOLSON COORS BREWING CO 
 
Entity Central Index Key
 
0000024545 
 
Document Type
 
10-Q 
 
Document Period End Date
 
09/26/2009 
 
Amendment Flag
 
FALSE 
 
Current Fiscal Year End Date
 
12/28 
 
Entity Well-known Seasoned Issuer
 
Yes 
 
Entity Voluntary Filers
 
No 
 
Entity Current Reporting Status
 
Yes 
 
Entity Filer Category
 
Large Accelerated Filer 
 
Entity Public Float
 
 
$ 7,819,107,814 
Entity Common Stock, Shares Outstanding
 
 
Class A common stock, voting
 
 
 
Entity [Text Block]
 
 
 
Entity Common Stock, Shares Outstanding
2,594,664 
 
 
Class B common stock, non-voting
 
 
 
Entity [Text Block]
 
 
 
Entity Common Stock, Shares Outstanding
158,966,415 
 
 
Exchangeable shares, Class A, Class of stock
 
 
 
Entity [Text Block]
 
 
 
Entity Exchangeable, Shares Outstanding
3,164,905 
 
 
Exchangeable shares, Class B, Class of stock
 
 
 
Entity [Text Block]
 
 
 
Entity Exchangeable, Shares Outstanding
20,310,533