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MOLSON COORS BREWING CO 10-Q 2010

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Table of Contents

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 10-Q


ý

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly period ended September 25, 2010

OR

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from          to          .

Commission File Number: 1-14829

LOGO

Molson Coors Brewing Company
(Exact name of registrant as specified in its charter)

DELAWARE
(State or other jurisdiction of incorporation or organization)
  84-0178360
(I.R.S. Employer Identification No.)

1225 17th Street, Denver, Colorado, USA
1555 Notre Dame Street East, Montréal, Québec, Canada

(Address of principal executive offices)

 

80202
H2L 2R5

(Zip Code)

303-927-2337 (Colorado)
514-521-1786 (Québec)

(Registrant's telephone number, including area code)



         Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

         Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o.

         Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ý   Accelerated filer o   Non-accelerated filer o
(Do not check if a
smaller reporting company)
  Smaller reporting company o

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

         Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of October 29, 2010:

Class A Common Stock—2,594,664 shares
Class B Common Stock—161,143,330 shares

         Exchangeable shares:

         As of October 29, 2010, the following number of exchangeable shares was outstanding for Molson Coors Canada, Inc.:

Class A Exchangeable shares—3,056,895 shares
Class B Exchangeable shares—19,316,769 shares

         These Class A and Class B exchangeable shares offer substantially the same economic and voting rights as the respective classes of common shares of the registrant. This is achieved via the following structure: The registrant has outstanding one share of special Class A voting stock, through which the holders of Class A exchangeable shares and Class B exchangeable shares of Molson Coors Canada Inc. (a subsidiary of the registrant), respectively, may exercise their voting rights with respect to the registrant. The special Class A and Class B voting stock are entitled to one vote for each of the exchangeable share classes, respectively, excluding shares held by the registrant or its subsidiaries, and generally vote together with the Class A common stock and Class B common stock, respectively, on all matters on which the Class A common stock and Class B common stock are entitled to vote. The trustee holder of the special Class A voting stock and the special Class B voting stock has the right to cast a number of votes equal to the number of then outstanding Class A exchangeable shares and Class B exchangeable shares, respectively.


Table of Contents


MOLSON COORS BREWING COMPANY AND SUBSIDIARIES

INDEX

 
   
  Page(s)  

PART I. FINANCIAL INFORMATION

 

Item 1.

 

Financial Statements (Unaudited)

    4  

 

Condensed Consolidated Statements of Operations for the thirteen and thirty-nine weeks ended September 25, 2010 and September 26, 2009

    4  

 

Condensed Consolidated Balance Sheets at September 25, 2010 and December 26, 2009

    5  

 

Condensed Consolidated Statements of Cash Flows for the thirty-nine weeks ended September 25, 2010 and September 26, 2009

    7  

 

Notes to Unaudited Condensed Consolidated Financial Statements

    8  

Item 2.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

    46  

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

    63  

Item 4.

 

Controls and Procedures

    64  

PART II. OTHER INFORMATION

 

Item 1.

 

Legal Proceedings

   
65
 

Item 1A.

 

Risk Factors

    66  

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

    66  

Item 3.

 

Defaults Upon Senior Securities

    66  

Item 4.

 

[Removed and Reserved]

    66  

Item 5.

 

Other Information

    66  

Item 6.

 

Exhibits

    67  

2


Table of Contents

CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

        This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). From time to time, we may also provide oral or written forward-looking statements in other materials we release to the public. Such forward-looking statements are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995.

        Statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements, and include, but are not limited to, statements under the headings "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Outlook for 2010" relating to overall volume trends, consumer preferences, pricing trends, industry forces, cost reduction strategies, anticipated results, anticipated synergies, expectations for funding future capital expenditures and operations, debt service capabilities, shipment levels and profitability, market share and the sufficiency of capital resources. In addition, statements that we make in this report that are not statements of historical fact may also be forward-looking statements. Words such as "expects," "goals," "plans," "believes," "continues," "may," "anticipate," "seek," "estimate," "outlook," "trends," "future benefits," "strategies," and variations of such words and similar expressions are intended to identify forward-looking statements.

        Forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those indicated (both favorably and unfavorably). These risks and uncertainties include, but are not limited to those described in Part II, "Item 1A. Risk Factors", elsewhere throughout this report, in our Annual Report, and those described from time to time in our future reports filed with the Securities and Exchange Commission ("SEC"). Caution should be taken not to place undue reliance on any such forward-looking statements. Forward-looking statements speak only as of the date when made and we undertake no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise.

3


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PART I. FINANCIAL INFORMATION

ITEM I.    FINANCIAL STATEMENTS

        


MOLSON COORS BREWING COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN MILLIONS, EXCEPT PER SHARE DATA)

(UNAUDITED)

 
  Thirteen Weeks Ended   Thirty-Nine Weeks Ended  
 
  September 25,
2010
  September 26,
2009
  September 25,
2010
  September 26,
2009
 

Sales

  $ 1,260.1   $ 1,250.3   $ 3,489.7   $ 3,234.9  

Excise taxes

    (385.1 )   (396.6 )   (1,070.4 )   (1,023.3 )
                   
 

Net sales

    875.0     853.7     2,419.3     2,211.6  

Cost of goods sold

    (457.4 )   (472.6 )   (1,336.6 )   (1,251.3 )
                   
 

Gross profit

    417.6     381.1     1,082.7     960.3  

Marketing, general and administrative expenses

    (248.9 )   (240.7 )   (747.6 )   (653.3 )

Special items, net

    (3.1 )   (4.3 )   (21.5 )   (21.6 )

Equity income in MillerCoors

    135.3     101.2     389.9     332.4  
                   
 

Operating income

    300.9     237.3     703.5     617.8  

Interest expense, net

    (23.9 )   (22.5 )   (73.7 )   (62.3 )

Other income, net

    41.6     55.9     54.4     29.1  
                   
 

Income from continuing operations before income taxes

    318.6     270.7     684.2     584.6  

Income tax expense

    (60.7 )   (25.3 )   (124.6 )   (71.3 )
                   
 

Income from continuing operations

    257.9     245.4     559.6     513.3  

(Loss) income from discontinued operations, net of tax

    (0.9 )   (9.0 )   41.1     (12.9 )
                   
 

Net income

    257.0     236.4     600.7     500.4  

Less: Net income attributable to noncontrolling interests

    (0.9 )   (1.1 )   (2.8 )   (2.1 )
                   
 

Net income attributable to Molson Coors Brewing Company

  $ 256.1   $ 235.3   $ 597.9   $ 498.3  
                   

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

                         
 

From continuing operations

  $ 1.39   $ 1.32   $ 3.00   $ 2.78  
 

From discontinued operations

    (0.01 )   (0.05 )   0.22     (0.07 )
                   

Basic net income per share

  $ 1.38   $ 1.27   $ 3.22   $ 2.71  
                   

Diluted income (loss) attributable to Molson Coors Brewing Company per share:

                         
 

From continuing operations

  $ 1.38   $ 1.31   $ 2.98   $ 2.75  
 

From discontinued operations

    (0.01 )   (0.05 )   0.22     (0.07 )
                   

Diluted net income per share

  $ 1.37   $ 1.26   $ 3.20   $ 2.68  
                   

Weighted average shares—basic

    186.0     184.6     185.7     184.2  

Weighted average shares—diluted

    187.4     186.2     187.1     185.6  

Amounts attributable to Molson Coors Brewing Company

                         
 

Income from continuing operations, net of tax

  $ 257.0   $ 244.3   $ 556.8   $ 511.2  
 

(Loss) income from discontinued operations, net of tax

    (0.9 )   (9.0 )   41.1     (12.9 )
                   
 

Net income attributable to Molson Coors Brewing Company

  $ 256.1   $ 235.3   $ 597.9   $ 498.3  
                   

See notes to unaudited condensed consolidated financial statements.

4


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MOLSON COORS BREWING COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN MILLIONS)

(UNAUDITED)

 
  As of  
 
  September 25,
2010
  December 26,
2009
 

Assets

             

Current assets:

             
 

Cash and cash equivalents

  $ 763.5   $ 734.2  
 

Accounts receivable, net

    530.9     566.7  
 

Other receivables, net

    247.0     150.5  
 

Inventories:

             
   

Finished, net

    113.7     111.1  
   

In process

    18.4     18.3  
   

Raw materials

    35.2     43.6  
   

Packaging materials, net

    63.5     63.2  
           
 

Total inventories, net

    230.8     236.2  
 

Other assets, net

   
83.5
   
65.3
 
 

Discontinued operations

    2.1     9.9  
           
   

Total current assets

    1,857.8     1,762.8  

Properties, net

   
1,294.5
   
1,292.5
 

Goodwill

    1,496.0     1,475.0  

Other intangibles, net

    4,608.7     4,534.7  

Investment in MillerCoors

    2,606.7     2,613.6  

Deferred tax assets

    112.8     177.9  

Notes receivable, net

    46.0     48.7  

Other assets

    116.2     115.9  
           

Total assets

  $ 12,138.7   $ 12,021.1  
           

See notes to unaudited condensed consolidated financial statements.

5


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MOLSON COORS BREWING COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN MILLIONS, EXCEPT PAR VALUE)

(UNAUDITED)

 
  As of  
 
  September 25,
2010
  December 26,
2009
 

Liabilities and equity

             

Current liabilities:

             
 

Accounts payable

  $ 195.6   $ 210.3  
 

Accrued expenses and other liabilities

    812.8     745.0  
 

Deferred tax liabilities

    191.1     167.1  
 

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

        300.3  
 

Discontinued operations

    16.9     158.2  
           
   

Total current liabilities

    1,216.4     1,580.9  

Long-term debt

    1,447.2     1,412.7  

Pension and post-retirement benefits

    821.6     823.8  

Derivative hedging instruments

    388.0     374.2  

Deferred tax liabilities

    434.9     468.0  

Unrecognized tax benefits

    67.9     65.0  

Other liabilities

    90.4     185.0  

Discontinued operations

    19.4     18.7  
           
 

Total liabilities

    4,485.8     4,928.3  

Commitments and contingencies (Note 15)

         

Molson Coors Brewing Company stockholders' equity

             
 

Capital stock:

             
   

Preferred stock, non-voting, no par value (authorized: 25.0 shares; none issued)

         
   

Class A common stock, voting, $0.01 par value per share (authorized: 500.0 shares; issued and outstanding: 2.6 shares at September 25, 2010 and December 26, 2009)

         
   

Class B common stock, non-voting, $0.01 par value per share (authorized: 500.0 shares; issued and outstanding: 161.1 shares and 159.4 shares at September 25, 2010 and December 26, 2009, respectively)

    1.6     1.6  
   

Class A exchangeable shares, no par value (issued and outstanding: 3.1 shares and 3.2 shares at September 25, 2010 and December 26, 2009, respectively)

    115.0     119.1  
   

Class B exchangeable shares, no par value (issued and outstanding: 19.4 shares and 20.2 shares at September 25, 2010 and December 26, 2009, respectively)

    728.6     761.8  
 

Paid-in capital

    3,508.1     3,441.5  
 

Retained earnings

    3,184.6     2,734.9  
 

Accumulated other comprehensive income

    67.6     20.7  
           
   

Total Molson Coors Brewing Company stockholders' equity

    7,605.5     7,079.6  

Noncontrolling interests

    47.4     13.2  
           
   

Total equity

    7,652.9     7,092.8  
           

Total liabilities and equity

  $ 12,138.7   $ 12,021.1  
           

See notes to unaudited condensed consolidated financial statements.

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MOLSON COORS BREWING COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN MILLIONS)

(UNAUDITED)

 
  Thirty-Nine Weeks Ended  
 
  September 25,
2010
  September 26,
2009
 

Cash flows from operating activities:

             

Net income

  $ 600.7   $ 500.4  
 

Adjustments to reconcile net income to net cash provided by operating activities:

             
   

Depreciation and amortization

    133.8     135.3  
   

Share-based compensation

    21.4     16.8  
   

Loss on sale and impairment of properties and intangibles

    13.7     3.4  
   

Deferred income taxes

    59.2     111.8  
   

Equity income in MillerCoors

    (389.9 )   (332.4 )
   

Distributions from MillerCoors

    389.9     351.5  
   

Equity in net income of other unconsolidated affiliates

    (8.9 )   (2.3 )
   

Distributions from other unconsolidated affiliates

    8.6     3.6  
   

Excess tax benefits from share-based compensation

    (1.3 )   (18.2 )
   

Change in current assets and liabilities and other

    (60.2 )   (116.0 )
   

(Gain) loss from discontinued operations

    (41.1 )   12.9  
           

Net cash provided by operating activities

    725.9     666.8  
           

Cash flows from investing activities:

             
 

Additions to properties

    (77.7 )   (71.7 )
 

Proceeds from sales of properties and intangible assets

    3.7     3.9  
 

Acquisition of business

    (19.8 )   (19.6 )
 

Change in restricted cash balances

    (14.9 )    
 

Payment on discontinued operations

    (96.0 )    
 

Investment in MillerCoors

    (863.1 )   (346.5 )
 

Return of capital from MillerCoors

    848.6     237.3  
 

Deconsolidation of Brewers' Retail, Inc. 

        (26.1 )
 

Investment in and advances to an unconsolidated affiliate

    (6.9 )   (8.6 )
 

Trade loan repayments from customers

    12.5     17.5  
 

Trade loans advanced to customers

    (7.3 )   (12.7 )
           

Net cash used in investing activities

    (220.9 )   (226.5 )
           

Cash flows from financing activities:

             
 

Exercise of stock options under equity compensation plans

    13.5     25.5  
 

Excess tax benefits from share-based compensation

    1.3     18.2  
 

Dividends paid

    (148.7 )   (125.8 )
 

Dividends paid to noncontrolling interests holders

    (0.9 )    
 

Payments on long-term debt and capital lease obligations

    (300.0 )   (0.3 )
 

Proceeds from short-term borrowings

    3.1     10.0  
 

Payments on short-term borrowings

    (8.1 )   (10.1 )
 

Payments on settlements of debt-related derivatives

    (42.0 )    
 

Change in overdraft balances and other

    (3.1 )   (9.1 )
           

Net cash used in financing activities

    (484.9 )   (91.6 )
           

Cash and cash equivalents:

             
 

Net increase in cash and cash equivalents

    20.1     348.7  
 

Effect of foreign exchange rate changes on cash and cash equivalents

    9.2     0.2  
 

Balance at beginning of year

    734.2     216.2  
           

Balance at end of period

  $ 763.5   $ 565.1  
           

See notes to unaudited condensed consolidated financial statements.

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MOLSON COORS BREWING COMPANY AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THIRTEEN AND THIRTY-NINE WEEKS ENDED SEPTEMBER 25, 2010

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: MillerCoors LLC ("MillerCoors") which is accounted for by us under the equity method of accounting, Molson Coors Brewing Company (UK) Limited ("MCBC-UK"), Molson Coors Canada ("MCC") and our other operating entities as further described in Note 1 of the Notes to the Audited Consolidated Financial Statements (the "Notes") included in our Annual Report on Form 10-K for the year ended December 26, 2009 ("Annual Report").

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

        The accompanying unaudited condensed consolidated interim financial statements reflect all adjustments which are necessary for a fair statement of the financial position, results of operations and cash flows for the periods presented in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). Such unaudited interim financial statements have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations.

        These unaudited condensed consolidated interim financial statements should be read in conjunction with our Annual Report, supplemented by our 8-K filed on September 28, 2010 and have been prepared on a consistent basis with the accounting policies described in Note 1 of the Notes. The results of operations for the thirteen and thirty-nine week periods ended September 25, 2010, are not necessarily indicative of the results that may be achieved for the full fiscal year. Certain prior period amounts have been reclassified to conform to current period presentation.

        MCBC follows a 52/53 week fiscal reporting calendar. The third fiscal quarters of 2010 and 2009 consisted of thirteen weeks ended on September 25, 2010 and September 26, 2009, respectively. The first three fiscal quarters of 2010 and 2009 consisted of thirty-nine weeks ended on September 25, 2010 and September 26, 2009, respectively. Fiscal year 2010 consists of 52 weeks ending on December 25, 2010 and fiscal year 2009 consisted of the 52 weeks ended December 26, 2009.

        Unless otherwise indicated, third quarter refers to the thirteen week periods ended September 25, 2010 and September 26, 2009, and the first three quarters refer to the thirty-nine week periods ended September 25, 2010 and September 26, 2009.

        Brewers' Retail, Inc. ("BRI"), a consolidated subsidiary through February 28, 2009, and subsequently accounted for under the equity method of accounting reports results one month in arrears in the accompanying unaudited condensed consolidated interim financial statements.

        MillerCoors follows a monthly reporting calendar. The third quarter and first three quarters of 2010 and 2009 consisted of three and nine months ended September 30, 2010 and September 30, 2009, respectively.

2. NEW ACCOUNTING PRONOUNCEMENTS

Adoption of New Accounting Pronouncements

Consolidation of Variable Interest Entities

        In June 2009, the Financial Accounting Standards Board ("FASB") issued authoritative guidance related to the consolidation of variable interest entities ("VIEs"), which requires an enterprise to determine whether its variable interests give it a controlling financial interest. The primary beneficiary of a VIE is the enterprise that has both (1) the power to direct the activities of a VIE that most significantly impact the entity's economic performance, and (2) the obligation to absorb losses of the

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Table of Contents


MOLSON COORS BREWING COMPANY AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE THIRTEEN AND THIRTY-NINE WEEKS ENDED SEPTEMBER 25, 2010

2. NEW ACCOUNTING PRONOUNCEMENTS (Continued)


entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE. This guidance also requires ongoing reassessments of whether an enterprise is the primary beneficiary of a VIE requiring consolidation. The guidance was effective for our first quarter ended March 27, 2010. The adoption of this guidance did not impact our financial results. See also Note 4, "INVESTMENTS" for further disclosure of our VIE.

3. SEGMENT REPORTING

        Our reportable segments consist of Canada, the United States ("U.S.") and the United Kingdom ("U.K.") and our non-reportable segment and other business activities include Molson Coors International ("MCI") and Corporate.

        The following table sets forth net sales by segment:

 
  Thirteen Weeks Ended   Thirty-Nine Weeks Ended  
 
  September 25,
2010
  September 26,
2009
  September 25,
2010
  September 26,
2009
 
 
  (In millions)
 

Canada

  $ 539.8   $ 493.8   $ 1,471.8   $ 1,289.5  

U.K. 

    313.4     338.5     888.9     867.6  

MCI and Corporate

    21.8     21.4     58.6     54.5  
                   
 

Consolidated

  $ 875.0   $ 853.7   $ 2,419.3   $ 2,211.6  
                   

        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:

 
  Thirteen Weeks Ended   Thirty-Nine Weeks Ended  
 
  September 25,
2010
  September 26,
2009
  September 25,
2010
  September 26,
2009
 
 
  (In millions)
 

Canada

  $ 161.6   $ 135.7   $ 347.8   $ 322.1  

U.S. 

    135.3     101.2     389.9     332.4  

U.K. 

    34.3     32.4     67.8     65.0  

MCI and Corporate

    (12.6 )   1.4     (121.3 )   (134.9 )
                   
 

Consolidated

  $ 318.6   $ 270.7   $ 684.2   $ 584.6  
                   

        The following table sets forth total assets by segment:

 
  As of  
 
  September 25,
2010
  December 26,
2009
 
 
  (In millions)
 

Canada

  $ 6,285.7   $ 6,402.0  

U.S. 

    2,606.7     2,613.6  

U.K. 

    2,342.7     2,359.8  

MCI and Corporate

    901.5     635.8  

Discontinued operations

    2.1     9.9  
           
 

Total assets

  $ 12,138.7   $ 12,021.1  
           

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MOLSON COORS BREWING COMPANY AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE THIRTEEN AND THIRTY-NINE WEEKS ENDED SEPTEMBER 25, 2010

4. INVESTMENTS

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

        Authoritative guidance related to the consolidation of VIEs requires that we continually reassess whether we are the primary beneficiary of VIEs in which we have an interest. As such, the conclusion regarding the primary beneficiary status is subject to change and we continually evaluate circumstances that could require consolidation or deconsolidation.

Equity Investments

MillerCoors

        Summarized U.S. GAAP financial information for MillerCoors is as follows:

Condensed balance sheets

 
  As of  
 
  September 30,
2010
  December 31,
2009
 
 
  (In millions)
 

Current assets

  $ 973.4   $ 808.5  

Noncurrent assets

    8,886.5     9,025.0  
           
 

Total assets

  $ 9,859.9   $ 9,833.5  
           

Current liabilities

  $ 849.2   $ 885.4  

Noncurrent liabilities

    1,310.0     1,278.4  
           
 

Total liabilities

    2,159.2     2,163.8  

Noncontrolling interests

    25.8     28.1  

Interest attributable to shareholders'

    7,674.9     7,641.6  
           

Total liabilities and equity

  $ 9,859.9   $ 9,833.5  
           

Results of operations

 
  For the Three Months Ended   For the Nine Months Ended  
 
  September 30,
2010
  September 30,
2009
  September 30,
2010
  September 30,
2009
 
 
  (In millions)
 

Net sales

  $ 2,015.9   $ 2,009.5   $ 5,850.9   $ 5,862.1  

Cost of goods sold

    (1,226.7 )   (1,266.6 )   (3,590.1 )   (3,618.8 )
                   

Gross profit

  $ 789.2   $ 742.9   $ 2,260.8   $ 2,243.3  

Operating income

  $ 320.8   $ 232.2   $ 930.1   $ 759.4  

Net income attributable to MillerCoors

  $ 313.0   $ 229.7   $ 912.8   $ 740.6  

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MOLSON COORS BREWING COMPANY AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE THIRTEEN AND THIRTY-NINE WEEKS ENDED SEPTEMBER 25, 2010

4. INVESTMENTS (Continued)

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

 
  Thirteen Weeks Ended   Thirty-Nine Weeks Ended  
 
  September 25,
2010
  September 26,
2009
  September 25,
2010
  September 26,
2009
 
 
  (In millions, except percentages)
 

Net income attributable to MillerCoors

  $ 313.0   $ 229.7   $ 912.8   $ 740.6  
 

MCBC economic interest

    42 %   42 %   42 %   42 %
                   
 

MCBC proportionate share of MillerCoors net income

    131.5     96.5     383.4     311.1  
 

MillerCoors accounting policy elections(1)

                7.3  
 

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

    2.5     2.4     4.4     9.3  
 

Share-based compensation adjustment(3)

    1.3     2.3     2.1     4.7  
                   

Equity income in MillerCoors

  $ 135.3   $ 101.2   $ 389.9   $ 332.4  
                   

(1)
MillerCoors made its initial accounting policy elections upon formation, impacting certain asset and liability balances contributed by us. 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 Coors Brewing Company ("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)
Our net investment in MillerCoors is based on the carrying values of the net assets we contributed to the joint venture which is less than our proportional share of underlying equity (42%) of MillerCoors (contributed by both CBC and Miller Brewing Company) by approximately $626 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. This also includes the impact of impairments and other adjustments occurring since formation that affect the basis difference.

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

        During the thirteen weeks ended September 25, 2010, we had $8.7 million of sales of beer to MillerCoors and $2.1 million of purchases of beer from 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 25, 2010, we had $27.9 million of sales of beer to MillerCoors and $6.3 million of purchases of beer from MillerCoors. During 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.

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MOLSON COORS BREWING COMPANY AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE THIRTEEN AND THIRTY-NINE WEEKS ENDED SEPTEMBER 25, 2010

4. INVESTMENTS (Continued)

        During the thirteen weeks ended September 25, 2010, we recorded $1.4 million of service agreement and other charges to MillerCoors and $0.1 million of service agreement costs from MillerCoors. For the 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 25, 2010, we recorded $3.7 million of service agreement and other charges to MillerCoors and $1.1 million of service agreement costs from MillerCoors. For the thirty-nine weeks ended September 26, 2009, we recorded $8.5 million of service agreement and other charges to MillerCoors and $1.1 million of service agreement costs from MillerCoors.

        As of September 25, 2010 and December 26, 2009, we had $3.9 million and $5.4 million net receivables due from MillerCoors, included within Accounts receivable, net, related to the activities mentioned above.

Brewers' Retail Inc. and Brewers' Distribution Ltd.

        BRI, a VIE, is the beer distribution and retail network for the Ontario Province of Canada, owned by MCC, Labatt and Sleeman brewers. BRI operates on a break-even basis. MCBC had historically consolidated BRI as its primary beneficiary. During the first quarter of 2009, acquisition activity by another BRI owner caused our variable interest to decrease to a level indicating that we are no longer the primary beneficiary, and, as a result, we deconsolidated BRI from our financial statements and applied the equity method of accounting prospectively.

        Brewers' Distributor Ltd. ("BDL"), our equity method joint venture, is a distributor owned by MCC and Labatt and, pursuant to an operating agreement, acts as an agent for the distribution of ours, Labatt's and other brewers' products in western provinces of Canada. The owners share 50%/50% voting control.

        We are exposed to the risk of funding requirements related to the defined benefit plans of BRI and BDL, as a result of potential changes in the fair value of the respective plan's assets and liabilities. Specifically, the fair value of each entity's plan assets can fluctuate due to changes in the market value of the investments held by the respective plans, and the respective plan liabilities can fluctuate due to changes in discount rates and other actuarial assumptions. These fluctuations would result in a change in the respective plan's funded status and thereby the required contributions of BRI and BDL. Although we are exposed to these changes, we currently expect BRI and BDL to continue to meet the current and future plan funding requirements.

Consolidated Investments

        The following summarizes the assets of our consolidated VIEs (including noncontrolling interests). The amounts below exclude receivables from the Company. None of our consolidated VIEs held debt as of September 25, 2010 or December 26, 2009.

 
  As of  
 
  September 25,
2010
  December 26,
2009
 
 
  (In millions)
 

Grolsch

  $ 17.1   $ 22.7  

Cobra

  $ 34.1   $ 32.3  

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MOLSON COORS BREWING COMPANY AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE THIRTEEN AND THIRTY-NINE WEEKS ENDED SEPTEMBER 25, 2010

4. INVESTMENTS (Continued)

        The following summarizes the results of operations of our consolidated VIEs (including noncontrolling interests).

 
  For the Thirteen Weeks Ended   For the Thirty-Nine Weeks Ended  
 
  September 25, 2010   September 26, 2009   September 25, 2010   September 26, 2009  
 
  Revenues   Pre-tax
income
  Revenues   Pre-tax
income
  Revenues   Pre-tax
income
  Revenues   Pre-tax
income
 
 
  (In millions)
 

BRI(1)

  $   $   $   $   $   $   $ 40.4   $  

Grolsch(2)

  $ 7.2   $ 1.0   $ 9.0   $ 1.3   $ 23.0   $ 3.3   $ 26.3   $ 4.1  

Cobra

  $ 9.9   $ 1.8   $ 10.2   $ 1.0   $ 27.8   $ 5.1   $ 12.5   $ 1.4  

(1)
The revenues shown for BRI are for the first two months of 2009 as BRI was deconsolidated as of February 28, 2009.

(2)
Substantially all such sales for Grolsch are made to the Company and as such, are eliminated in consolidation.

Granville Island Brewing Co, Ltd.

        During the fourth quarter of 2009, our subsidiary, Creemore Springs, entered into an agreement to acquire Granville Island Brewing Company, Ltd. and Mainland Beverage Distribution Ltd (collectively, "Granville Island"). Beginning in the fourth quarter of 2009, Granville Island was classified as a VIE and was consolidated by MCBC as the primary beneficiary. Pursuant to the agreement entered into in 2009, we acquired 100% of the outstanding stock in the second quarter of 2010 and, as a result, Granville Island is no longer classified as a VIE. We continue to consolidate the results and financial position of Granville Island, and it is reported within our Canada segment.

Molson Coors Si'hai Brewing (China) Co., Ltd.

        During the third quarter of 2010, MCI paid $34.7 million for a controlling 51% interest in Molson Coors Si'hai Brewing (China) Co., Ltd. ("MC-Si'hai"), a newly formed venture with the previous owner of the Si'hai beer brand and production facilities, Hebei Si'hai Beer Company. This purchase price included approximately $14.9 million of cash contributed to MC-Si'hai and designated for certain future capital expenditures of the venture. The acquisition resulted in the recognition of goodwill of $9.6 million and other intangible assets of $7.0 million. We consolidate the results and financial position of MC-Si'hai, and it is reported within our MCI and Corporate segment. While at the time of the issuance of our financial statements purchase accounting had not yet been finalized, we do not anticipate any future material adjustments to recorded amounts. We have not presented pro forma information as the acquisition of MC-Si'hai is not material to our financial position or results of operations.

5. SHARE-BASED COMPENSATION

        During the first three quarters of 2010 and 2009, we recognized share-based compensation related to the following Class B Common Stock awards to certain directors, officers, and other eligible employees, pursuant to the Molson Coors Brewing Company Incentive Compensation Plan ("Incentive Compensation Plan"): restricted stock units ("RSU"); deferred stock units ("DSU"); performance units ("PU"); stock options; and stock-only stock appreciation rights ("SOSAR").

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MOLSON COORS BREWING COMPANY AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE THIRTEEN AND THIRTY-NINE WEEKS ENDED SEPTEMBER 25, 2010

5. SHARE-BASED COMPENSATION (Continued)

        The following table summarizes components of the share-based compensation recorded as expense:

 
  Thirteen Weeks Ended   Thirty-Nine Weeks Ended  
 
  September 25,
2010
  September 26,
2009
  September 25,
2010
  September 26,
2009
 
 
  (In millions)
 

Stock options and SOSARs

                         
 

Pre-tax compensation expense

  $ 0.8   $ 0.7   $ 5.5   $ 5.3  
 

Tax benefit

    (0.2 )   (0.2 )   (1.5 )   (1.6 )
                   
 

After-tax compensation expense

  $ 0.6   $ 0.5   $ 4.0   $ 3.7  
                   

RSUs and DSUs

                         
 

Pre-tax compensation expense

  $ 3.9   $ 4.5   $ 12.2   $ 11.4  
 

Tax benefit

    (1.0 )   (1.3 )   (3.2 )   (3.2 )
                   
 

After-tax compensation expense

  $ 2.9   $ 3.2   $ 9.0   $ 8.2  
                   

PUs

                         
 

Pre-tax compensation expense

  $ 1.8   $ 1.8   $ 5.5   $ 2.7  
 

Tax benefit

    (0.4 )   (0.4 )   (1.3 )   (0.6 )
                   
 

After-tax compensation expense

  $ 1.4   $ 1.4   $ 4.2   $ 2.1  
                   
 

Total after-tax compensation expense

  $ 4.9   $ 5.1   $ 17.2   $ 14.0  
                   

        During the first three quarters of 2010, we granted 0.7 million stock options, 0.3 million total RSUs and DSUs, and 0.7 million PUs, all of which were outstanding as of September 25, 2010.

        The mark-to-market share-based compensation expense before tax, related to MCBC share-based awards granted to former CBC employees now employed by MillerCoors, recorded during the thirteen and thirty-nine weeks ended September 25, 2010, was $0.7 million and $1.8 million, respectively. For the thirteen and thirty-nine weeks ended September 26, 2009, the amounts were $1.3 million and $2.6 million, respectively. These amounts are included in the table above.

        As of September 25, 2010, there was $34.8 million of total unrecognized compensation expense related to non-vested shares from share-based compensation arrangements granted under the Incentive Compensation Plan. This compensation expense is expected to be recognized over a weighted-average period of approximately 1.6 years. During the thirty-nine weeks ended September 25, 2010, cash received from stock option exercises was $13.5 million and the total tax benefit to be realized for the tax deductions from these option exercises was $0.9 million.

        As of September 25, 2010, there were 4.7 million shares of our Class B Common Stock available for the issuance of stock options, SOSARs, RSUs, DSUs, PUs and performance share units.

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MOLSON COORS BREWING COMPANY AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE THIRTEEN AND THIRTY-NINE WEEKS ENDED SEPTEMBER 25, 2010

5. SHARE-BASED COMPENSATION (Continued)

        The following table represents the summary of stock options and SOSARs outstanding as of September 25, 2010, and the activity during the first thirty-nine weeks ended September 25, 2010:

 
  Outstanding
stock options
and SOSARs
  Weighted-average
exercise price
per share
  Weighted-average
remaining
contractual
life (years)
  Aggregate
intrinsic value
 
 
  (In millions, except per share amounts and years)
 

Outstanding as of December 26, 2009

    7.4   $ 37.00     4.94   $ 64.0  
 

Granted

    0.7   $ 43.25              
 

Exercised

    (0.4 ) $ 34.57              
 

Forfeited

    (0.1 ) $ 47.69              
                         

Outstanding as of September 25, 2010

    7.6   $ 37.65     4.74   $ 75.4  
                         

Excercisable at September 25, 2010

    6.3   $ 36.28     3.90   $ 70.9  
                         

        The total intrinsic value of stock options exercised during the thirty-nine weeks ended September 25, 2010, and September 26, 2009, was $4.3 million and $10.9 million, respectively.

        The following table represents non-vested RSUs, PUs and DSUs as of September 25, 2010, and the activity during the first thirty-nine weeks ended September 25, 2010:

 
  Units   Weighted-average
grant date
fair value
per unit
 
 
  (In millions, except
per unit amounts)

 

Non-vested as of December 26, 2009

    3.2   $ 16.60  
 

Granted

    1.0   $ 20.23  
 

Vested

    (1.0 ) $ 16.10  
 

Forfeited

    (0.1 ) $ 28.68  
             

Non-vested as of September 25, 2010

    3.1   $ 17.30  
             

        The fair values of each option granted in the first three quarters of 2010 and 2009, respectively, were determined on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

 
  For the Thirty-Nine
Weeks Ended(1)
 
 
  September 25,
2010
  September 26,
2009
 

Risk-free interest rate

    2.95%     2.46%  

Dividend yield

    2.22%     2.28%  

Volatility range

    27.2% - 29.5%     28.7% - 28.9%  

Weighted-average volatility

    27.86%     28.88%  

Expected term (years)

    5.0 - 7.0         5.0 - 7.0      

Weighted-average fair market value

  $ 10.95       $ 10.33      

(1)
Values primarily relate to options granted during the annual grant which occurred in the first quarter of 2010 and the second quarter of 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.

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MOLSON COORS BREWING COMPANY AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE THIRTEEN AND THIRTY-NINE WEEKS ENDED SEPTEMBER 25, 2010

5. SHARE-BASED COMPENSATION (Continued)


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 bond 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 share-based compensation expense.

6. UNUSUAL OR INFREQUENT ITEMS

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

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MOLSON COORS BREWING COMPANY AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE THIRTEEN AND THIRTY-NINE WEEKS ENDED SEPTEMBER 25, 2010

6. UNUSUAL OR INFREQUENT ITEMS (Continued)

Summary of Special Items

        The table below summarizes special items expense recorded by program:

 
  Thirteen Weeks Ended   Thirty-Nine Weeks Ended  
 
  September 25,
2010
  September 26,
2009
  September 25,
2010
  September 26,
2009
 
 
  (In millions)
 

Canada

                         
 

Restructuring, exit and other related costs associated with the Edmonton and Montreal breweries(1)

  $   $ 3.8   $ 0.9   $ 7.5  
 

Ontario Retiree Pension incentive(2)

            3.2      
 

Pension curtailment(3)

                5.3  
 

Software abandonment(4)

    0.4           12.8        

U.K.

                         
 

Restructuring charge(5)

    2.4     0.2     3.6     2.2  
 

Costs associated with Cobra Beer partnership(6)

                5.7  
 

Other, net

            0.1      

MCI and Corporate

                         
 

Costs associated with strategic initiatives

    0.3     0.3     0.9     0.9  
                   

Total special items, net

  $ 3.1   $ 4.3   $ 21.5   $ 21.6  
                   

(1)
During the first three quarters of 2010 and the third and first three quarters of 2009, the Canada segment recognized expenses for restructuring costs associated with employee terminations and impairment of assets at the Montréal and Edmonton breweries.

(2)
During the first three quarters of 2010, the Canada segment recognized special termination benefits related to changes to defined benefit pension plans.

(3)
During the first three quarters of 2009, the Canada segment recognized a pension curtailment loss and restructuring costs associated with employee terminations at the Montréal brewery driven by MillerCoors' decision to produce Blue Moon products at its breweries in the U.S.

(4)
During the third and first three quarters of 2010, a capital asset write-off and associated costs were recorded related to abandonment of sales support software, which had been under development, as a result of a change in strategic direction relative to the use of the software.

(5)
During the third quarters and first three quarters of 2010 and 2009, the U.K. segment recognized employee termination costs primarily related to supply chain restructuring activity resulting from ongoing company-wide efforts to increase efficiency throughout the segment.

(6)
During the second quarter of 2009, the U.K. segment recognized costs associated with the Cobra Beer Partnership, Ltd. acquisition and employee severance costs related to individuals not retained subsequent to the acquisition.

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MOLSON COORS BREWING COMPANY AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE THIRTEEN AND THIRTY-NINE WEEKS ENDED SEPTEMBER 25, 2010

6. UNUSUAL OR INFREQUENT ITEMS (Continued)

        The table below summarizes the activity in the restructuring accruals:

 
  Severance and other
employee-related costs
 
 
  Canada   U.K.   Total  
 
  (In millions)
   
 

Balance at December 26, 2009

  $ 0.6   $ 2.3   $ 2.9  
 

Charges incurred

    0.1     3.6     3.7  
 

Payments made

    (0.4 )   (2.5 )   (2.9 )
 

Foreign currency and other adjustments

        (0.1 )   (0.1 )
               

Balance at September 25, 2010

  $ 0.3   $ 3.3   $ 3.6  
               

7. OTHER INCOME AND EXPENSE

        The table below summarizes other income and expense:

 
  Thirteen Weeks Ended   Thirty-Nine Weeks Ended  
 
  September 25,
2010
  September 26,
2009
  September 25,
2010
  September 26,
2009
 
 
  (In millions)
 

Gain from Foster's related derivative instruments(1)

  $ 42.3   $ 59.3   $ 57.3   $ 24.8  

(Losses) gains from other foreign exchange and derivative activity

    (0.3 )   (1.7 )   (3.1 )   5.9  

Losses on non-operating leases, net

    (0.5 )   (0.8 )   (0.6 )   (1.8 )

Environmental litigation provisions

            (0.1 )   (1.0 )

Equity in income of unconsolidated affiliates, net

        (1.0 )       (3.1 )

Other, net

    0.1     0.1     0.9     4.3  
                   

Other income, net

  $ 41.6   $ 55.9   $ 54.4   $ 29.1  
                   

(1)
See further discussion in Note 13, "DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES".

8. DISCONTINUED OPERATIONS

        In 2006, we sold our equity interest in our Brazilian unit, Cervejarias Kaiser Brasil S.A. ("Kaiser") to FEMSA Cerveza S.A. de C.V. ("FEMSA"). The terms of the sale agreement require us to indemnify FEMSA for exposures related to certain tax, civil and labor contingencies arising prior to FEMSA's purchase of Kaiser. In the third quarters of 2010 and 2009, we recognized losses from discontinued operations of $0.9 million and $9.0 million, respectively. During the first three quarters of 2010 and of 2009, we recognized a gain of $41.1 million and a loss of $12.9 million, respectively. We recognized a gain of $42.6 million related to our settlement of a portion of our indemnity liabilities to FEMSA during the first quarter of 2010. See further discussion in Note 15, "COMMITMENTS AND CONTINGENCIES."

9. INCOME TAX

        Our effective tax rate for the third quarter of 2010 was approximately 19%. We anticipate that our 2010 full year effective tax rate will be in the range of 14% to 18%, assuming no changes in tax laws.

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MOLSON COORS BREWING COMPANY AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE THIRTEEN AND THIRTY-NINE WEEKS ENDED SEPTEMBER 25, 2010

9. INCOME TAX (Continued)

        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. In addition, any changes to current tax laws in the U.S., U.K. or Canada, may impact our effective tax rate.

        As of December 26, 2009, we had $71.5 million of uncertain tax benefits. Since December 26, 2009, uncertain tax benefits increased by $3.6 million. This addition is net of increases due to additional uncertain tax positions and interest accrued for the current year and decreases primarily due to fluctuation in foreign exchange rates, certain tax positions closing or being effectively settled, payments made to tax authorities with regard to uncertain tax positions during the third quarter of 2010. This results in a total uncertain tax benefit of $75.1 million as of September 25, 2010. Within the next 12 months, the Company expects to recognize approximately $3 to $7 million of income tax expense related to uncertain tax positions.

        We file income tax returns in most of the federal, state, and provincial jurisdictions in the U.S., U.K., and Canada. Tax years through 2007 are closed or have been effectively settled through examination in the U.S and in the U.K. The 2008 tax year is currently under examination in the U.S. and is expected to conclude in 2011. Tax years through 2004 are closed or have been effectively settled through examination in Canada. Tax year 2005 is currently under examination in Canada.

10. EARNINGS PER SHARE ("EPS")

        Basic net income per share was computed using the weighted average number of shares of common stock outstanding during the period. Diluted net income per share includes the additional dilutive effect of our potentially dilutive securities, which include stock options, SOSARs, RSUs, PUs, and DSUs, calculated using the treasury stock method.

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MOLSON COORS BREWING COMPANY AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE THIRTEEN AND THIRTY-NINE WEEKS ENDED SEPTEMBER 25, 2010

10. EARNINGS PER SHARE ("EPS") (Continued)

        The following summarizes the effect of dilutive securities on diluted EPS:

 
  Thirteen Weeks Ended   Thirty-Nine Weeks Ended  
 
  September 25,
2010
  September 26,
2009
  September 25,
2010
  September 26,
2009
 
 
  (In millions)
 

Amounts attributable to MCBC

                         

Income from continuing operations, net of tax

  $ 257.0   $ 244.3   $ 556.8   $ 511.2  

(Loss) income from discontinued operations, net of tax

    (0.9 )   (9.0 )   41.1     (12.9 )
                   

Net income attributable to MCBC

  $ 256.1   $ 235.3   $ 597.9   $ 498.3  
                   

Weighted average shares for basic EPS

    186.0     184.6     185.7     184.2  

Effect of dilutive securities:

                         
 

Stock options and SOSARs

    0.9     1.3     0.9     1.0  
 

RSUs, PUs and DSUs

    0.5     0.3     0.5     0.4  
                   

Weighted average shares for diluted EPS

    187.4     186.2     187.1     185.6  
                   

Basic income (loss) per share:

                         
 

Continuing operations attributable to MCBC

  $ 1.39   $ 1.32   $ 3.00   $ 2.78  
 

Discontinued operations attributable to MCBC

    (0.01 )   (0.05 )   0.22     (0.07 )
                   

Net income attributable to MCBC

  $ 1.38   $ 1.27   $ 3.22   $ 2.71  
                   

Diluted income (loss) per share:

                         
 

Continuing operations attributable to MCBC

  $ 1.38   $ 1.31   $ 2.98   $ 2.75  
 

Discontinued operations attributable to MCBC

    (0.01 )   (0.05 )   0.22     (0.07 )
                   

Net income attributable to MCBC

  $ 1.37   $ 1.26   $ 3.20   $ 2.68  
                   

Dividends declared and paid per share

  $ 0.28   $ 0.24   $ 0.80   $ 0.68  
                   

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

 
  Thirteen Weeks Ended   Thirty-Nine Weeks Ended  
 
  September 25,
2010
  September 26,
2009
  September 25,
2010
  September 26,
2009
 
 
  (In millions)
 

Stock options, SOSARs and RSUs(1)

    0.7     0.6     0.9     0.7  

Shares issuable upon assumed conversion of the 2.5% Convertible Senior Notes to issue Class B common shares(2)

    10.5     10.5     10.5     10.5  

Warrants to issue Class B common shares(2)

    10.5     10.5     10.5     10.5  
                   

    21.7     21.6     21.9     21.7  
                   

(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.

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MOLSON COORS BREWING COMPANY AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE THIRTEEN AND THIRTY-NINE WEEKS ENDED SEPTEMBER 25, 2010

10. EARNINGS PER SHARE ("EPS") (Continued)

(2)
We issued $575 million of senior convertible notes in June 2007. The impact of a net share settlement of the conversion amount at maturity will begin to dilute earnings per share when our stock price reaches $54.01. The impact of stock that could be issued to settle share obligations we could have under the warrants we issued simultaneously with the convertible notes issuance will begin to dilute earnings per share when our stock price reaches $68.95. The potential receipt of MCBC stock from counterparties under our purchased call options when and if our stock price is between $54.01 and $68.95 would be anti-dilutive and excluded from any calculations of earnings per share.

        We have no outstanding equity share awards that contain non-forfeitable rights to dividends on unvested shares.

11. GOODWILL AND INTANGIBLE ASSETS

        The following summarizes the change in goodwill for the thirty-nine weeks ended September 25, 2010 (in millions):

Balance at December 26, 2009

  $ 1,475.0  
 

Foreign currency translation

    11.6  
 

Business acquisition

    9.6  
 

Other

    (0.2 )
       

Balance at September 25, 2010

  $ 1,496.0  
       

        Goodwill was attributed to our segments as follows:

 
  As of  
 
  September 25,
2010
  December 26,
2009
 
 
  (In millions)
 

Canada

  $ 737.2   $ 720.7  

United Kingdom

    749.2     754.3  

MCI and Corporate

    9.6      
           
 

Consolidated

  $ 1,496.0   $ 1,475.0  
           

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MOLSON COORS BREWING COMPANY AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE THIRTEEN AND THIRTY-NINE WEEKS ENDED SEPTEMBER 25, 2010

11. GOODWILL AND INTANGIBLE ASSETS (Continued)

        The following table presents details of our intangible assets, other than goodwill, as of September 25, 2010:

 
  Useful life   Gross   Accumulated
amortization
  Net  
 
  (Years)
  (In millions)
 

Intangible assets subject to amortization:

                       
 

Brands

  3 - 40   $ 293.1   $ (150.9 ) $ 142.2  
 

Distribution rights

  2 - 23     341.7     (214.9 )   126.8  
 

Patents and technology and distribution

                       
   

channels

  3 - 10     35.4     (25.2 )   10.2  
 

Other

  2 - 42     6.4         6.4  

Intangible assets not subject to amortization:

                       
 

Brands

  Indefinite     3,319.8         3,319.8  
 

Distribution networks

  Indefinite     987.8         987.8  
 

Other

  Indefinite     15.5         15.5  
                   

Total

      $ 4,999.7   $ (391.0 ) $ 4,608.7  
                   

        The following table presents details of our intangible assets, other than goodwill, as of December 26, 2009:

 
  Useful life   Gross   Accumulated
amortization
  Net  
 
  (Years)
  (In millions)
 

Intangible assets subject to amortization:

                       
 

Brands

  3 - 40   $ 293.5   $ (140.1 ) $ 153.4  
 

Distribution rights

  2 - 23     334.4     (194.3 )   140.1  
 

Patents and technology and distribution

                       
   

channels

  3 - 10     35.8     (22.4 )   13.4  

Intangible assets not subject to amortization:

                       
 

Brands

  Indefinite     3,248.8         3,248.8  
 

Distribution networks

  Indefinite     963.5         963.5  
 

Other

  Indefinite     15.5         15.5  
                   

Total

      $ 4,891.5   $ (356.8 ) $ 4,534.7  
                   

        The changes in the gross carrying amounts of intangibles from December 26, 2009, to September 25, 2010, are due primarily to the impact of foreign exchange rates, as a significant amount of intangibles are denominated in foreign currencies. Gross carrying amounts were also impacted by business acquisition activities. See Note 4, "INVESTMENTS" for further disclosure.

        Based on foreign exchange rates as of September 25, 2010, the following is our estimated amortization expense related to intangible assets for the next five years:

 
  Amount  
 
  (In millions)
 

2010 - remaining

  $ 11.3  

2011

  $ 43.8  

2012

  $ 31.8  

2013

  $ 30.7  

2014

  $ 30.7  

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MOLSON COORS BREWING COMPANY AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE THIRTEEN AND THIRTY-NINE WEEKS ENDED SEPTEMBER 25, 2010

11. GOODWILL AND INTANGIBLE ASSETS (Continued)

        Amortization expense of intangible assets was $10.9 million and $32.9 million for the thirteen and thirty-nine weeks ended September 25, 2010, respectively and $10.6 and $29.6 million for the thirteen and thirty-nine weeks ended September 26, 2009, respectively.

        We are required to perform goodwill and indefinite-lived intangible asset impairment tests on at least an annual basis and more frequently in certain circumstances. We completed the required annual impairment testing during the third quarter of 2010 and determined that there were no impairments of goodwill or other indefinite-live intangible assets. No impairment losses were included in the goodwill balances as of September 25, 2010 or December 26, 2009.

12. DEBT

        The table below summarizes total debt:

 
  As of  
 
  September 25,
2010
  December 26,
2009
 
 
  (In millions)
 

Senior notes:

             
 

U.S. $300 million 4.85% notes due 2010(1)

  $   $ 300.0  
 

U.S. $850 million 6.375% notes due 2012

    44.6     44.6  
 

Canadian dollar ("CAD") $900 million 5.0% notes due 2015

    878.8     857.2  
 

U.S. $575 million 2.5% convertible notes due 2013(2)

    575.0     575.0  

Less: unamortized debt discounts and other(3)

    (51.2 )   (63.8 )
           

Total long-term debt (including current portion)

    1,447.2     1,713.0  

Less: current portion of long-term debt

        (300.3 )
           

Total long-term debt

  $ 1,447.2   $ 1,412.7  
           

Total fair value

  $ 1,623.7   $ 1,913.6  
           

(1)
During the quarter, we repaid our $300 million 4.85% notes that were due in September 2010. Subsequent to quarter end, our wholly owned subsidiary, Molson Coors International LP, completed a 7-year CAD $500 million 3.95% fixed rate Series A Notes private placement in Canada. These notes resulted in net proceeds of CAD $496.6 million after underwriting fees and being issued at a discount of CAD $1.6 million. The Series A Notes will mature on October 6, 2017. The notes are guaranteed by MCBC and certain United States and Canadian subsidiaries of the Company and rank equally with the Company's other outstanding notes and credit facility.

(2)
The original conversion price for each $1,000 aggregate principal amount of notes was $54.76 per share of our Class B common stock, which represented a 25% premium above the stock price on the day of issuance of the notes and corresponded to the initial conversion ratio of 18.263 shares per $1,000 aggregate principal amount of notes. The conversion ratio and conversion price are subject to adjustments for certain events and provisions, as defined in the indenture. As of August 26, 2010 our conversion price and ratio are $54.01 and 18.515 shares, respectively. Currently, the convertible debt's if-converted value does not exceed the principal.

(3)
During the thirteen weeks ended September 25, 2010, and September 26, 2009, we incurred additional non-cash interest expense of $4.2 million and $4.1 million, respectively. For the thirty-nine weeks ended September 25, 2010, and September 26,

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MOLSON COORS BREWING COMPANY AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE THIRTEEN AND THIRTY-NINE WEEKS ENDED SEPTEMBER 25, 2010

12. DEBT (Continued)

    2009, the amounts were $12.6 million and $12.2 million, respectively. We also incurred interest expense related to the 2.5% coupon rate on the convertible debt of $3.6 million for both thirteen week periods ended September 25, 2010, and September 26, 2009. For the thirty-nine weeks ended September 25, 2010, and September 26, 2009 the amount was $10.8 million for both periods. The combination of non-cash and cash interest resulted in an effective interest rate of 5.95% and 6.01% for the thirteen weeks ended September 25, 2010, and September 26, 2009, respectively. The effective interest rates for the thirty-nine weeks ended September 25, 2010, and September 26, 2009 were 5.95% and 6.03%, respectively. As of September 25, 2010, and December 26, 2009, paid in capital in the equity section of our balance sheet includes $103.9 million, ($64.2 million net of tax), representing the equity component of the convertible debt. Further, as of September 25, 2010, and December 26, 2009, $50.6 million and $63.3 million respectively of the unamortized debt discount and other balance relates to our $575 million convertible debt. The unamortized discount will continue to amortize through 2013 resulting in non-cash interest expense of approximately $16 million to $18 million annually, thereby increasing the carrying value of the convertible debt to its $575 million face value at maturity in July 2013. The remaining $0.6 million as of quarter-end and $0.5 million as of year-end relates to unamortized debt premiums, discounts, and other on the additional debt balances.

13. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

        During the quarter, both our USD $300million/CAD $355.5 million cross currency swap and our forward starting interest rate swaps matured and were cash settled in accordance with the terms of each contract. Early in the fourth quarter of 2010, we also entered into, and subsequently settled, a foreign currency forward contract to hedge a portion of our foreign currency risk associated with cash inflows from our CAD $500 million debt issuance that occurred early in the fourth quarter of 2010.

        During the third quarter, we accelerated the maturity dates of our total return swaps related to Foster's stock, a portion of these swaps were settled prior to quarter end. Simultaneously, we entered into a series of option contracts to limit our exposure to future changes in Foster's stock price, effectively fixing a range of settlement values for our remaining open swap positions. The remaining total return swaps and related options will mature throughout the fourth quarter of 2010 and January of 2011.

        All of these new strategies were accounted for using mark to market accounting treatment at quarter end.

Derivative Fair Value Measurements

        We utilize market approaches to estimate the fair value of our derivative instruments by discounting anticipated future cash flows derived from the derivative's contractual terms and observable market interest, foreign exchange and commodity rates. The fair values of our derivatives also include credit risk adjustments to account for our counterparties' credit risk, as well as MCBC's own non-performance risk. As of September 25, 2010 and December 26, 2009 these adjustments resulted in deferred net gains in accumulated other comprehensive income ("AOCI") of $2.9 million and $3.3 million, respectively, as the fair value of our derivatives were in net liability positions at both period ends.

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MOLSON COORS BREWING COMPANY AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE THIRTEEN AND THIRTY-NINE WEEKS ENDED SEPTEMBER 25, 2010

13. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Continued)

        The table below summarizes our derivative assets and liabilities that were measured at fair value as of September 25, 2010 and December 26, 2009.

 
   
  Fair Value Measurements at September 25, 2010 Using  
 
  Total carrying
value at
September 25,
2010
 
 
  Quoted prices in
active markets
(Level 1)
  Significant other
observable inputs
(Level 2)
  Significant
unobservable
inputs (Level 3)
 
 
  (In millions)
 

Cross currency swaps

  $ (392.3 ) $   $ (392.3 ) $  

Foreign currency forwards

    (11.9 )       (11.9 )    

Commodity swaps

    (0.4 )       (0.4 )    

Total return swaps

    50.2         50.2      

Option contracts

    (0.9 )           (0.9 )
                   
 

Total

  $ (355.3 ) $   $ (354.4 ) $ (0.9 )
                   

 

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

Cross currency swaps

  $ (413.0 ) $   $ (413.0 ) $  

Forward starting interest rate swaps

    6.3         6.3      

Foreign currency forwards

    (8.5 )       (8.5 )    

Commodity swaps

    (0.9 )       (0.9 )    

Total return swaps

    (1.8 )       (1.8 )    
                   
 

Total

  $ (417.9 ) $   $ (417.9 ) $  
                   

        As discussed, during the quarter we had entered into new option contracts that were classified as Level 3 as the valuations were based upon significant unobservable inputs. The table below summarizes our Level 3 activity for the period:

 
  Rollforward of
Level 3 Inputs
 
 
  (In millions)
 

Balance at December 26, 2009

  $  

Total gains or losses (realized/unrealized)

       
 

Included in earnings (or change in net assets)

     
 

Included in AOCI

     

Purchases, issuances and settlements

    (0.9 )

Transfers in/out of Level 3

     
       

Balance at September 25, 2010

  $ (0.9 )
       

Results of Derivative Activity

        The tables below include the year to date results of our derivative activity in the Condensed Consolidated Balance Sheet as of September 25, 2010, and December 26, 2009, and the Condensed Consolidated Statement of Operations for the thirteen and thirty-nine weeks ended September 25, 2010, and September 26, 2009.

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MOLSON COORS BREWING COMPANY AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE THIRTEEN AND THIRTY-NINE WEEKS ENDED SEPTEMBER 25, 2010

13. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Continued)

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

 
  As of September 25, 2010  
 
   
  Asset derivatives    
   
 
 
   
  Liability derivatives  
 
  Notional amount   Balance sheet location   Fair value  
 
  Balance sheet location   Fair value  

Derivatives designated as hedging instruments:

                         

Cross currency swaps

  USD 1,677.6   Other current assets   $   Accrued expenses   $ (7.4 )

      Other assets       Long term derivative liability     (384.9 )

Foreign currency forwards

  USD 364.6   Other current assets     1.4   Accrued expenses     (9.6 )

      Other assets     0.6   Long term derivative liability     (3.0 )

Commodity swaps

  Gigajoules 2.1   Other current assets     0.8   Accrued expenses     (1.2 )

      Other assets     0.2   Long term derivative liability     (0.1 )
                       

Total derivatives designated as hedging instruments

          $ 3.0       $ (406.2 )
                       

Derivatives not designated as hedging instruments:

                         

Foreign currency forwards

  USD 215.3   Other current assets   $   Accrued expenses   $ (1.3 )

Total return swaps

  Australian dollar ("AUD") 408.6   Other current assets     51.2   Accrued expenses     (0.9 )

Option contracts

  FGL.ASX Shares 74.1   Other current assets     14.5   Accrued expenses     (15.4 )
                       

Total derivatives not designated as hedging instruments

          $ 65.7       $ (17.6 )
                       

 

 
  As of December 26, 2009  
 
   
  Asset derivatives    
   
 
 
   
  Liability derivatives  
 
   
  Balance sheet location   Fair value  
 
  Notional amount   Balance sheet location   Fair value  

Derivatives designated as hedging instruments:

                           

Cross currency swaps

    USD 1,992.4  

Other current assets

  $  

Accrued expenses

  $ (46.9 )

       

Other assets

     

Long term derivative liability

    (366.1 )

Forward starting interest rate swaps

    USD 190.5  

Other current assets

    6.3  

Accrued expenses

     

Foreign currency forwards

    USD 339.3  

Other current assets

    4.6  

Accrued expenses

    (6.1 )

       

Other assets

    1.1  

Long term derivative liability

    (8.1 )

Commodity swaps

    Gigajoules 1.2  

Other current assets

     

Accrued expenses

    (0.9 )
                         

Total derivatives designated as hedging instruments

            $ 12.0       $ (428.1 )
                         

Derivatives not designated as hedging instruments:

                           

Total return swaps

    AUD 496.5  

Other current assets

  $  

Accrued expenses

  $ (1.8 )
                         

Total derivatives not designated as hedging instruments

            $       $ (1.8 )
                         

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

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MOLSON COORS BREWING COMPANY AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE THIRTEEN AND THIRTY-NINE WEEKS ENDED SEPTEMBER 25, 2010

13. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Continued)

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

    Cash Flow Hedges

For the Thirteen Weeks Ended September 25, 2010  
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 swaps(1)

  $ 1.3  

Other income, net

  $ (10.5 )

Other income, net

  $  

       

Interest expense, net

    (3.0 )

Interest expense, net

     

Forward starting interest rate swaps

    (7.4 )

Interest expense, net

     

Interest expense, net

     

Foreign currency forwards

    (2.2 )

Other income, net

    (1.1 )

Other income, net

     

       

Cost of goods sold

    0.2  

Cost of goods sold

     

       

Marketing, general and administrative expenses

     

Marketing, general and administrative expenses

     

Commodity swaps

    (1.0 )

Cost of goods sold

    (0.2 )

Cost of goods sold

     
                       

Total

  $ (9.3 )     $ (14.6 )     $  
                       

 

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 swaps(1)

  $ 1.9  

Other income, net

  $ 14.9  

Other income, 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, net

    (0.6 )

Other income, net

     

       

Cost of goods sold

    2.8  

Cost of goods sold

     

       

Marketing, general and administrative expenses

    (0.2 )

Marketing, general and administrative expenses

     

Commodity swaps

    0.6  

Cost of goods sold

    (1.0 )

Cost of goods sold

     
                       

Total

  $ (17.1 )     $ 13.9       $  
                       

 

For the Thirty-Nine Weeks Ended September 25, 2010  
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 swaps(1)

  $ 11.5  

Other income, net

  $ (25.8 )

Other income, net

  $  

       

Interest expense, net

    (8.9 )

Interest expense, net

     

Forward starting interest rate swaps

    (14.1 )

Interest expense, net

     

Interest expense, net

     

Foreign currency forwards

    (1.9 )

Other income, net

    (3.5 )

Other income, net

     

       

Cost of goods sold

    (0.8 )

Cost of goods sold

     

       

Marketing, general and administrative expenses

    0.1  

Marketing, general and administrative expenses

     

Commodity swaps

    0.3  

Cost of goods sold

    (1.4 )

Cost of goods sold

     
                       

Total

  $ (4.2 )     $ (40.3 )     $  
                       

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MOLSON COORS BREWING COMPANY AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE THIRTEEN AND THIRTY-NINE WEEKS ENDED SEPTEMBER 25, 2010

13. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Continued)

 

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 swaps(1)

  $ (1.3 )

Other income, net

  $ (106.6 )

Other income, 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, net

    4.6  

Other income, net

     

       

Cost of goods sold

    13.3  

Cost of goods sold

     

       

Marketing, general and administrative expenses

    (0.3 )

Marketing, 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 periods presented we recorded no significant ineffectiveness related to these cash flow hedges.

Other Derivatives

For the Thirteen Weeks Ended September 25, 2010  
Derivatives Not In Hedging
Relationship
  Location of Gain (Loss) Recognized
in Income on Derivative
  Amount of Gain (Loss) Recognized in
Income on Derivative
 

Total return swaps

  Other income, net   $ 43.2  

Option contracts

  Other income, net   $ (0.9 )

Foreign currency forwards

  Other income, net   $ (1.3 )
           

      $ 41.0  
           

 

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
 

Total return swaps

  Other income, net   $ 59.3  

Physical commodity contracts

  Cost of goods sold     (7.0 )
           

      $ 52.3  
           

 

For the Thirty-Nine Weeks Ended September 25, 2010  
Derivatives Not In Hedging
Relationship
  Location of Gain (Loss) Recognized
in Income on Derivative
  Amount of Gain (Loss) Recognized in
Income on Derivative
 

Total return swaps

  Other income, net   $ 58.2  

Option contracts

  Other income, net   $ (0.9 )

Foreign currency forwards

  Other income, net   $ (1.3 )
           

      $ 56.0  
           

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MOLSON COORS BREWING COMPANY AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE THIRTEEN AND THIRTY-NINE WEEKS ENDED SEPTEMBER 25, 2010

13. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Continued)

 

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
 

Total return swaps

  Other income, net   $ 24.8  

Physical commodity contracts

  Cost of goods sold     (8.0 )
           

      $ 16.8  
           

14. PENSION AND OTHER POSTRETIREMENT BENEFITS

        We sponsor defined benefit retirement plans in Canada, the U.K. and the U.S. Additionally, we offer other postretirement benefits to the majority of our Canadian and U.S. employees. The net periodic pension costs under retirement plans and other postretirement benefits were as follows:

 
  Thirteen Weeks Ended September 25, 2010  
 
  Canada plans   U.S. plans   U.K. plan   Consolidated  
 
  (In millions)
 

Defined Benefit Plans

                         
 

Service cost

  $ 4.3   $   $   $ 4.3  
 

Interest cost

    17.8     0.1     29.0     46.9  
 

Expected return on plan assets

    (17.4 )       (27.4 )   (44.8 )
 

Amortization of prior service cost

    0.2             0.2  
 

Amortization of net actuarial loss

    0.3         3.1     3.4  
 

Less expected participant contributions

    (0.5 )           (0.5 )
                   
 

Net periodic pension cost

  $ 4.7   $ 0.1   $ 4.7   $ 9.5  
                   

Other Postretirement Benefits

                         
 

Service cost—benefits earned during the period

  $ 0.6   $   $   $ 0.6  
 

Interest cost on projected benefit obligation

    2.3             2.3  
 

Amortization of prior service benefit

    (0.9 )           (0.9 )
                   
 

Net periodic postretirement benefit cost

  $ 2.0   $   $   $ 2.0  
                   

 

 
  Thirteen Weeks Ended September 26, 2009  
 
  Canada plans   U.S. plans   U.K. plan   Consolidated  
 
  (In millions)
 

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  
                   

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MOLSON COORS BREWING COMPANY AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE THIRTEEN AND THIRTY-NINE WEEKS ENDED SEPTEMBER 25, 2010

14. PENSION AND OTHER POSTRETIREMENT BENEFITS (Continued)

 
  Thirty-Nine Weeks Ended September 25, 2010  
 
  Canada plans   U.S. plans   U.K. plan   Consolidated  
 
  (In millions)
 

Defined Benefit Plans

                         
 

Service cost

  $ 13.0   $   $   $ 13.0  
 

Interest cost

    53.6     0.3     86.4     140.3  
 

Expected return on plan assets

    (52.4 )       (81.7 )   (134.1 )
 

Amortization of prior service cost

    0.6             0.6  
 

Amortization of net actuarial loss

    0.9         9.2     10.1  
 

Less expected participant contributions

    (1.5 )           (1.5 )
 

Special termination benefits

    1.8             1.8  
                   
 

Net periodic pension cost

  $ 16.0   $ 0.3   $ 13.9   $ 30.2  
                   

Other Postretirement Benefits

                         
 

Service cost—benefits earned during the period

  $ 1.8   $   $   $ 1.8  
 

Interest cost on projected benefit obligation

    7.0             7.0  
 

Amortization of prior service benefit

    (2.7 )           (2.7 )
                   
 

Net periodic postretirement benefit cost

  $ 6.1   $   $   $ 6.1  
                   

 

 
  Thirty-Nine Weeks Ended September 26, 2009  
 
  Canada plans   U.S. plans   U.K. plan   Consolidated  
 
  (In millions)
 

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  
                   

        See Note 4, "INVESTMENTS" 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 2010, employer contributions paid to the defined benefit plans for Canada and the U.K. were $7.5 million and $0.8 million, respectively. For the first three quarters of 2010, the amounts were $26.9 million for Canada and $2.4 million for the U.K. There were no contributions to the U.S. plan in the first three quarters. Expected total fiscal year 2010 employer contributions to Canada, U.S. and U.K. defined benefits plans are approximately $48.3 million. We are currently considering various alternatives to pension funding in both the U.K. and Canada which could

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MOLSON COORS BREWING COMPANY AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE THIRTEEN AND THIRTY-NINE WEEKS ENDED SEPTEMBER 25, 2010

14. PENSION AND OTHER POSTRETIREMENT BENEFITS (Continued)


reduce these long-term liabilities in the near term. These considerations could result in additional discretionary pension contributions in the fourth quarter of 2010.

15. COMMITMENTS AND CONTINGENCIES

Kaiser and Other Indemnity Obligations

    Kaiser

        As discussed in Note 8, "DISCONTINUED OPERATIONS," in 2006, we sold our entire equity interest in Kaiser 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.

        Additionally, we provided an indemnity to FEMSA for losses Kaiser may incur with respect to tax claims associated with certain previously utilized purchased tax credits. We generally classify such purchased tax credits into two categories.

        During 2009, FEMSA entered into a Brazilian tax amnesty program which substantially reduced penalties, interest, and attorney's fees owed by Kaiser to the government for the first category of purchased tax credits. In 2009, we provided consent to FEMSA to enter into the amnesty program but had not agreed to an indemnity amount owed to FEMSA related to the indemnity for these tax credits.

        During the first quarter of 2010, we reached a settlement agreement with FEMSA for the entirety of our indemnity obligations corresponding to the principal, penalties, interest and attorney's fees owed by Kaiser for this first category of purchased credits. This favorable settlement involved a cash payment of $96.0 million, and eliminated $284.5 million of maximum potential tax claims of which $131.2 million of indemnity liabilities were accrued on our balance sheet at December 26, 2009. The payment of the settlement agreement was made in the first week of the second quarter of 2010.

        The maximum potential claims amount remaining for the second category of purchased tax credits (which we believe present less risk than the first category), was $258.8 million as of September 25, 2010.

        As of the end of the third quarter, a portion of our indemnity obligations are considered probable losses, recorded as current liabilities in an amount of $9.4 million at September 25, 2010. Including the portion of the liabilities not deemed to be probable ($14.1 million) our total estimate of the indemnity liability associated with the purchased tax credits as of September 25, 2010, was $23.5 million, $13.2 million of which was classified as a current liability and $10.3 million of which was classified as non-current. Our indemnity obligations decreased by $131.1 million during the first three quarters of 2010, primarily as a result of the aforementioned settlement, slightly offset by the impact of foreign exchange.

        Our 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. The liabilities are impacted by changes in estimates regarding amounts that could be paid, the timing of such payments, adjustments to the probabilities assigned to various scenarios and foreign exchange.

        Additionally, we provided indemnity related to all other tax, civil, and labor contingencies existing as of the date of sale. In this regard, however, FEMSA assumed their full share of all of these contingent liabilities that had been previously recorded and disclosed by us prior to the sale on January 13, 2006. However, we may have to provide indemnity to FEMSA if those contingencies settle at amounts greater than those amounts previously recorded or disclosed by us. We will be able to offset

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE THIRTEEN AND THIRTY-NINE WEEKS ENDED SEPTEMBER 25, 2010

15. COMMITMENTS AND CONTINGENCIES (Continued)


any indemnity exposures in these circumstances with amounts that settle favorably to amounts previously recorded. Our exposure related to these indemnity claims is capped at the amount of the sales price of the 68% equity interest of Kaiser, which was $68.0 million. As a result of these contract provisions, our estimates include not only probability-weighted potential cash outflows associated with indemnity provisions, but also probability-weighted cash inflows that could result from favorable settlements, which could occur through negotiation or settlement programs that could arise from the federal or any of the various state governments in Brazil. The recorded value of the tax, civil, and labor indemnity liability was $9.9 million as of September 25, 2010, of which $9.1 million is classified as non-current and $0.8 million is classified as current.

        Future settlement procedures and related negotiation activities associated with these contingencies are largely outside of our control. The sale agreement requires annual cash settlements relating to the tax, civil, and labor indemnities. Indemnity obligations related to purchased tax credits must be settled upon notification of FEMSA's settlement. Due to the uncertainty involved with the ultimate outcome and timing of these contingencies, significant adjustments to the carrying values of the indemnity obligations have been recorded to date, and additional future adjustments may be required. These liabilities are denominated in Brazilian Reals and have been stated at present value and will, therefore, be subject in the future to foreign exchange gains or losses and to accretion cost, both of which will be recognized in the discontinued operations section of the statement of operations.

        The table below provides a summary of reserves associated with the Kaiser indemnity obligations from December 26, 2009, through September 25, 2010:

 
  Indemnity Obligations  
 
  Purchased tax
credits
indemnity
reserve
  Tax, civil and
labor
indemnity
reserve
  Total
indemnity
reserves
 
 
  (In millions)
 

Balance at December 26, 2009

  $ 154.6   $ 9.5   $ 164.1  
 

Changes in estimates

    (32.3 )       (32.3 )
 

Cash Settlement

    (96.0 )       (96.0 )
 

Foreign exchange transaction impact

    (2.8 )   0.4     (2.4 )
               

Balance at September 25, 2010

  $ 23.5   $ 9.9   $ 33.4  
               

Guarantees

        MCBC guarantees indebtedness and other obligations to banks and other third parties for some of its equity investments and consolidated subsidiaries, primarily BRI. Other liabilities in the accompanying Condensed Consolidated Balance Sheets include $98.8 million, of which $92.7 million is current and $6.1 million is non-current, and $99.2 million, all of which is non-current, as of September 25, 2010, and December 26, 2009, respectively, related to such guarantees.

Litigation and Other Disputes

        In 1999, Molson entered into an agreement for the distribution of Molson products in Brazil. In 2000, before commencing the distribution business, Molson terminated the distribution agreement and paid the distributor $150,000 in settlement. The distributor then sued Molson to set aside the settlement and to seek additional compensation. The Appellate Court of the State of Rio de Janeiro ("Appellate Court") set aside the settlement agreement and determined that Molson was liable to the distributor, with the amount of damages to be determined through subsequent proceedings. An appeal of the liability decision is currently pending before the Brazilian Superior Court of Justice, which

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MOLSON COORS BREWING COMPANY AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE THIRTEEN AND THIRTY-NINE WEEKS ENDED SEPTEMBER 25, 2010

15. COMMITMENTS AND CONTINGENCIES (Continued)


granted certiorari during the fourth quarter of fiscal year 2009 and agreed to hear the merits of Molson's appeal. With respect to damages, the case was remanded to a Rio de Janeiro 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 recommended damages based on a business plan devised at the outset of the arrangement that was never implemented. Molson challenged the irregularity of the expert process, the impartiality of the expert, as well as the report's specific recommendation. The trial court denied Molson's challenges. Molson filed an appeal before the Appellate Court regarding these procedural irregularities, which was denied during the fourth quarter of fiscal year 2009. Following the trial court's procedural ruling during the third quarter of 2009, that court handed down a decision in the distributor's favor granting the full amount of the lost anticipated profits alleged by the distributor, approximately $42 million, plus attorney's fees and interest. Molson appealed the judgment to the Appellate Court. During the fourth quarter of 2009, the Appellate Court directed the court-retained expert to explain the basis for his damages calculation. During the first quarter of 2010, the Appellate Court granted Molson's appeal and vacated the $42 million judgment. The Appellate Court remanded the proceeding to the trial court and ordered that court to select a different expert. The Appellate Court furthermore directed the trial court to use specific criteria in setting damages, the effect of which should be to substantially reduce the award. Molson sought clarification as to the precise criteria to be used. In late April 2010, the Appellate Court denied Molson's motion for clarification, but limited the accrual of interest in this matter. In mid October 2010, the Appellate Court denied the distributor's motion to set aside the vacation of the $42 million judgment. We will continue to defend this case vigorously, and believe that a material adverse result is not probable.

        In March 2009, BRI, which operates The Beer Store retail outlets in the province of Ontario, Canada, received notice that a legal action would be commenced in the Ontario Superior Court of Justice against it, the Ontario government and the Liquor Control Board of Ontario. BRI is owned by MCBC and two other brewers, and is accounted for by MCBC under the equity method. This action alleges the defendants, including BRI, failed to warn the plaintiffs of the dangers of consuming alcohol during pregnancy. The notice alleges damages in excess of CAD $750 million. To our knowledge, no lawsuit has been formally commenced. The same plaintiffs commenced a lawsuit asserting similar claims against the Canadian federal government in the Federal Court of Canada in March 2009. They voluntarily withdrew the lawsuit after the federal government filed a motion to dismiss it for failure to state a claim. If a legal action is commenced against BRI as notified, we are advised that BRI will defend the claims vigorously.

        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

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MOLSON COORS BREWING COMPANY AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE THIRTEEN AND THIRTY-NINE WEEKS ENDED SEPTEMBER 25, 2010

15. COMMITMENTS AND CONTINGENCIES (Continued)


similar state laws for the cleanup of 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 currently extending 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 4.60% risk-free rate of return.

        Based on these assumptions, the present value and gross amount of the costs at September 25, 2010, are approximately $3.2 million and $5.3 million, respectively. Accordingly, we believe that the existing liability is adequate as of September 25, 2010. 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 State and the top responsible parties have reached a settlement regarding this matter, and the settlement has been approved by the court. We believe that our reserve for this matter is appropriate.

34