MOLSON COORS BEVERAGE CO, 10-K filed on 2/12/2020
Annual Report
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Cover Page - USD ($)
$ in Billions
12 Months Ended
Dec. 31, 2019
Feb. 05, 2020
Jun. 28, 2019
Document Information [Line Items]      
Document Type 10-K    
Document Period End Date Dec. 31, 2019    
Document Annual Report true    
Document Transition Report false    
Entity File Number 1-14829    
Entity Registrant Name Molson Coors Beverage Company    
Entity Incorporation, State or Country Code DE    
Entity Tax Identification Number 84-0178360    
Entity Address, Address Line One 1801 California Street, Suite 4600    
Entity Address, City or Town Denver    
Entity Address, State or Province CO    
Entity Address, Country US    
Entity Address, Postal Zip Code 80202    
City Area Code 303    
Local Phone Number 927-2337    
Amendment Flag false    
Entity Filer Category Large Accelerated Filer    
Entity Small Business false    
Entity Emerging Growth Company false    
Entity Shell Company false    
Entity Public Float     $ 10.2
Entity Well-known Seasoned Issuer Yes    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Central Index Key 0000024545    
Document Fiscal Year Focus 2019    
Document Fiscal Period Focus FY    
Current Fiscal Year End Date --12-31    
Entity Interactive Data Current Yes    
Class A common stock, voting      
Document Information [Line Items]      
Entity Common Stock, shares outstanding   2,560,668  
Common stock issued, Class B      
Document Information [Line Items]      
Entity Common Stock, shares outstanding   196,269,611  
Class A exchangeable shares      
Document Information [Line Items]      
Entity Common Stock, shares outstanding   2,725,130  
Class B Exchangeable Shares      
Document Information [Line Items]      
Entity Common Stock, shares outstanding   14,826,035  
Canada      
Document Information [Line Items]      
Entity Address, Address Line One 1555 Notre Dame Street East    
Entity Address, City or Town Montréal    
Entity Address, State or Province QC    
Entity Address, Country CA    
Entity Address, Postal Zip Code H2L 2R5    
City Area Code 514    
Local Phone Number 521-1786    
NEW YORK STOCK EXCHANGE, INC. | Class A common stock, voting      
Document Information [Line Items]      
Title of 12(b) Security Class A Common Stock, $0.01 par value    
Trading Symbol TAP.A    
Security Exchange Name NYSE    
NEW YORK STOCK EXCHANGE, INC. | Common stock issued, Class B      
Document Information [Line Items]      
Title of 12(b) Security Class B Common Stock, $0.01 par value    
Trading Symbol TAP    
Security Exchange Name NYSE    
NEW YORK STOCK EXCHANGE, INC. | Senior Notes Due 2024      
Document Information [Line Items]      
Title of 12(b) Security 1.25% Senior Notes due 2024    
Trading Symbol TAP    
Security Exchange Name NYSE    
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CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
shares in Millions, $ in Millions
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Sales $ 13,009.1 $ 13,338.0 $ 13,471.5
Excise taxes (2,429.7) (2,568.4) (2,468.7)
Net Sales 10,579.4 10,769.6 11,002.8
Cost of Goods Sold (6,378.2) (6,584.8) (6,236.7)
Gross profit 4,201.2 4,184.8 4,766.1
Marketing, general and administrative expenses (2,728.0) (2,802.7) (3,052.0)
Special items, net (708.8) 249.7 (36.4)
Operating income (loss) 764.4 1,631.8 1,677.7
Other income (expense), net      
Interest expense (280.9) (306.2) (349.3)
Interest income 8.2 8.0 6.0
Total other non-service pension and postretirement benefits (costs), net 2.9 38.2 47.4
Other income (expense), net (14.7) (12.0) 1.4
Total other income (expense), net (284.5) (272.0) (294.5)
Income (loss) before income taxes 479.9 1,359.8 1,383.2
Income tax benefit (expense) (233.7) (225.2) 204.6
Net Income (Loss) 246.2 1,134.6 1,587.8
Net (income) loss attributable to noncontrolling interests (4.5) (18.1) (22.2)
Net income (loss) attributable to Molson Coors Beverage Company $ 241.7 $ 1,116.5 $ 1,565.6
Basic net income (loss) attributable to Molson Coors Beverage Company per share:      
Basic net income (loss) attributable to Molson Coors Beverage Company per share (in dollars per share) $ 1.12 $ 5.17 $ 7.27
Diluted net income (loss) attributable to Molson Coors Beverage Company per share:      
Diluted net income (loss) attributable to Molson Coors Beverage Company per share (in dollars per share) $ 1.11 $ 5.15 $ 7.23
Weighted-average shares—basic 216.6 216.0 215.4
Incremental Common Shares Attributable to Dilutive Effect of Share-based Payment Arrangements 0.3 0.6 1.1
Weighted-average shares for diluted EPS 216.9 216.6 216.5
Amounts attributable to Molson Coors Beverage Company      
Net income (loss) attributable to Molson Coors Beverage Company $ 241.7 $ 1,116.5 $ 1,565.6
Share-based Payment Arrangement [Member]      
Diluted net income (loss) attributable to Molson Coors Beverage Company per share:      
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount 1.3 0.8 0.3
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Net income (loss) including noncontrolling interests $ 246.2 $ 1,134.6 $ 1,587.8
Other comprehensive income (loss), net of tax:      
Foreign currency translation adjustments 177.6 (359.0) 570.7
Other Comprehensive Income (Loss), Foreign Currency Transaction and Translation Reclassification Adjustment from AOCI, Realized upon Sale or Liquidation, Net of Tax 0.0 6.0 0.0
Unrealized gain (loss) on derivative instruments (84.2) 10.9 (17.4)
Reclassification of derivative (gain) loss to income 0.5 2.5 1.3
Pension and other postretirement benefit adjustments (39.8) 43.5 145.7
Amortization of net prior service (benefit) cost and net actuarial (gain) loss to income and settlement 19.7 4.9 3.6
Ownership share of unconsolidated subsidiaries' other comprehensive income (loss) (10.6) (0.8) 10.4
Total other comprehensive income (loss), net of tax 63.2 (292.0) 714.3
Comprehensive income (loss) 309.4 842.6 2,302.1
Comprehensive Income (Loss), Net of Tax, Attributable to Noncontrolling Interest (5.1) (16.1) (24.7)
Comprehensive income (loss) attributable to Molson Coors Beverage Company 304.3 826.5 2,277.4
As Restated      
Other comprehensive income (loss), net of tax:      
Total other comprehensive income (loss), net of tax $ 63.2 $ (292.0) $ 714.3
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CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Millions
Dec. 31, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 523.4 $ 1,057.9
Accounts and other receivables:    
Trade, less allowance for doubtful accounts of $12.1 and $14.5, respectively 705.9 736.0
Affiliate receivables 8.9 8.4
Other receivables, less allowance for doubtful accounts of $0.1 and $0.2, respectively 105.5 126.6
Inventories:    
Inventories, less allowance for obsolete inventories of $10.8 and $16.2, respectively 615.9 591.8
Other current assets, net 224.8 245.6
Total current assets 2,184.4 2,766.3
Properties, less accumulated depreciation of $3,004.6 and $2,558.8, respectively 4,546.5 4,608.3
Goodwill 7,631.4 8,260.8
Other intangibles, less accumulated amortization of $995.1 and $810.3, respectively 13,656.0 13,776.4
Other assets 841.5 698.0
Total assets 28,859.8 30,109.8
Current liabilities:    
Accounts payable and other current liabilities (includes affiliate payables of $0.0 and $0.1, respectively) 2,767.3 2,706.4
Current portion of long-term debt and short-term borrowings 928.2 1,594.5
Total current liabilities 3,695.5 4,300.9
Long-term debt 8,109.5 8,893.8
Pension and postretirement benefits 716.6 726.6
Deferred Tax Liabilities 2,258.6 2,128.9
Other liabilities 406.5 323.8
Total liabilities 15,186.7 16,374.0
Commitments and contingencies(Note 18)
Molson Coors Beverage Company stockholders' equity    
Preferred stock, $0.01 par value (authorized: 25.0 shares; none issued) 0.0 0.0
Paid-in capital 6,773.6 6,773.1
Retained earnings 7,617.0 7,692.9
Accumulated other comprehensive income (loss) (1,162.2) (1,150.0)
Class B common stock held in treasury at cost (9.5 shares and 9.5 shares, respectively) (471.4) (471.4)
Total Molson Coors Beverage Company stockholders' equity 13,419.4 13,507.4
Noncontrolling interests 253.7 228.4
Total equity 13,673.1 13,735.8
Total liabilities and equity 28,859.8 30,109.8
Class A common stock, voting    
Molson Coors Beverage Company stockholders' equity    
Common stock - Class A, $0.01 par value (authorized: 500.0 shares; issued and outstanding: 2.6 shares and 2.6 shares, respectively); Class B, $0.01 par value (authorized: 500.0 shares; issued and outstanding: 205.7 shares and 205.4 shares, respectively) 0.0 0.0
Total equity 0.0 0.0
Common stock issued, Class B    
Molson Coors Beverage Company stockholders' equity    
Common stock - Class A, $0.01 par value (authorized: 500.0 shares; issued and outstanding: 2.6 shares and 2.6 shares, respectively); Class B, $0.01 par value (authorized: 500.0 shares; issued and outstanding: 205.7 shares and 205.4 shares, respectively) 2.1 2.0
Total equity 2.1 2.0
Class A exchangeable shares    
Molson Coors Beverage Company stockholders' equity    
Exchangeable shares - Class A, no par value (issued and outstanding: 2.7 shares and 2.8 shares, respectively); Class B, no par value (issued and outstanding: 14.8 shares and 14.8 shares, respectively) 102.5 103.2
Total equity 102.5 103.2
Class B Exchangeable Shares    
Molson Coors Beverage Company stockholders' equity    
Exchangeable shares - Class A, no par value (issued and outstanding: 2.7 shares and 2.8 shares, respectively); Class B, no par value (issued and outstanding: 14.8 shares and 14.8 shares, respectively) 557.8 557.6
Total equity $ 557.8 $ 557.6
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CONSOLIDATED BALANCE SHEETS (PARENTHETICAL) - USD ($)
shares in Millions, $ in Millions
Dec. 31, 2019
Dec. 31, 2018
Assets    
Trade receivables, allowance for doubtful accounts $ 12.1 $ 14.5
Current notes receivable and other receivables, allowance for doubtful accounts 0.1 0.2
Allowance for Obsolete Inventory, Finished Goods 10.8 16.2
Properties, accumulated depreciation 3,004.6 2,558.8
Other intangibles, accumulated amortization 995.1 810.3
Due to Affiliate, Current $ 0.0 $ 0.1
Equity [Abstract]    
Preferred stock, non-voting, par value $ 0.01 $ 0.01
Preferred stock, non-voting, authorized shares 25.0 25.0
Preferred stock, non-voting, issued shares 0.0 0.0
Treasury shares 9.5 9.5
Class A common stock, voting    
Equity [Abstract]    
Common stock, par value $ 0.01 $ 0.01
Common stock, authorized shares 500.0 500.0
Common stock, issued shares 2.6 2.6
Common stock, outstanding shares 2.6 2.6
Common stock issued, Class B    
Equity [Abstract]    
Common stock, par value $ 0.01 $ 0.01
Common stock, authorized shares 500.0 500.0
Common stock, issued shares 205.7 205.4
Class A exchangeable shares    
Equity [Abstract]    
Exchangeable shares, par value $ 0 $ 0
Exchangeable shares, issued shares 2.7 2.8
Exchangeable shares, outstanding shares 2.7 2.8
Class B Exchangeable Shares    
Equity [Abstract]    
Exchangeable shares, par value $ 0 $ 0
Exchangeable shares, issued shares 14.8 14.8
Exchangeable shares, outstanding shares 14.8 14.8
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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Statement of Cash Flows [Abstract]      
Net Income (Loss) $ 246.2 $ 1,134.6 $ 1,587.8
Cash flows from operating activities:      
Net income (loss) including noncontrolling interests 246.2 1,134.6 1,587.8
Adjustments to reconcile net income (loss) to net cash provided by operating activities:      
Depreciation and amortization 859.0 857.5 812.8
Amortization of debt issuance costs and discounts 13.6 12.7 23.2
Share-based compensation 8.5 42.6 58.3
(Gain) loss on sale or impairment of properties and other assets, net 614.7 (8.1) (0.4)
Unrealized (Gain) Loss on Foreign Currency Fluctuations and Derivative Instruments, net 18.9 193.1 (124.3)
Income tax (benefit) expense 233.7 225.2 (204.6)
Income tax (paid) received (57.0) 32.3 86.0
Interest expense, excluding interest amortization 272.4 304.2 338.8
Interest paid (285.0) (308.7) (350.3)
Pension (benefit) expense (10.1) (57.2) (67.8)
Pension contributions paid (5.1) (8.9) (310.0)
Change in current assets and liabilities (net of impact of business combinations) and other:      
Receivables 38.5 (38.4) (7.2)
Inventories (17.7) (10.6) 21.3
Payables and other current liabilities (53.0) 27.6 31.0
Other assets and other liabilities 19.7 (66.6) (28.3)
Net cash provided by operating activities 1,897.3 2,331.3 1,866.3
Cash flows from investing activities:      
Additions to properties (593.8) (651.7) (599.6)
Proceeds from sales of properties and other assets 115.9 32.5 60.5
Other 44.6 (49.9) 0.9
Net cash used in investing activities (433.3) (669.1) (538.2)
Cash flows from financing activities:      
Exercise of stock options under equity compensation plans 1.6 16.0 4.0
Dividends paid (424.4) (354.2) (353.4)
Payments on debt and borrowings (1,586.2) (319.8) (3,000.1)
Proceeds on debt and borrowings 3.0 0.0 1,536.0
Net proceeds from (payments on) revolving credit facilities and commercial paper (4.7) (374.3) 374.3
Other 3.7 23.4 (57.2)
Net Cash Provided by (Used in) Financing Activities (2,007.0) (1,008.9) (1,496.4)
Cash and cash equivalents:      
Net increase (decrease) in cash and cash equivalents (543.0) 653.3 (168.3)
Effect of foreign exchange rate changes on cash and cash equivalents 8.5 (14.0) 26.0
Balance at beginning of year 1,057.9 418.6 560.9
Balance at end of year $ 523.4 $ 1,057.9 $ 418.6
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND NONCONTROLLING INTERESTS - USD ($)
$ in Millions
Total
Common stock issued, Class A
Common stock issued, Class B
Exchangeable shares issued, Class A
Exchangeable shares issued, Class B
Paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Common stock held in treasury, Class B
Noncontrolling interest
Balance at Dec. 31, 2016 $ 11,222.6 $ 0.0 $ 2.0 $ 108.1 $ 571.2 $ 6,635.3 $ 5,746.2 $ (1,571.8) $ (471.4) $ 203.0
Increase (Decrease) in Stockholders' Equity [Roll Forward]                    
Exchange of shares 0.0     (0.4) (18.0) 18.4        
Shares issued under equity compensation plan (22.9)         (22.9)        
Amortization of share-based compensation 57.3         57.3        
Purchase of noncontrolling Interest 1.8         0.4       1.4
Net income (loss) including noncontrolling interests 1,587.8           1,565.6     22.2
Other comprehensive income (loss), net of tax 714.3             711.8   2.5
Distributions and dividends to noncontrolling interests (20.2)                 (20.2)
Dividends declared and paid (353.4)           (353.4)      
Balance at Dec. 31, 2017 13,187.3 0.0 2.0 107.7 553.2 6,688.5 6,958.4 (860.0) (471.4) 208.9
Increase (Decrease) in Stockholders' Equity [Roll Forward]                    
Exchange of shares 0.0     (4.5) 4.4 0.1        
Shares issued under equity compensation plan 2.8         2.8        
Amortization of share-based compensation 42.2         42.2        
Payments to Acquire Interest in Joint Venture 44.3         39.4       4.9
Purchase of noncontrolling Interest (0.2)         0.1       (0.3)
Net income (loss) including noncontrolling interests 1,134.6           1,116.5     18.1
Other comprehensive income (loss), net of tax (292.0)             (290.0)   (2.0)
Initial Application Period Cumulative Effect Transition for Accounting Standards Update 2014-09 (27.8)           (27.8)      
Proceeds from (Payments to) Noncontrolling Interests 21.6                 21.6
Distributions and dividends to noncontrolling interests (22.8)                 (22.8)
Dividends declared and paid (354.2)           (354.2)      
Balance at Dec. 31, 2018 13,735.8 0.0 2.0 103.2 557.6 6,773.1 7,692.9 (1,150.0) (471.4) 228.4
Increase (Decrease) in Stockholders' Equity [Roll Forward]                    
Exchange of shares 0.0     (0.7) 0.2 0.5        
Shares issued under equity compensation plan (8.3)   0.1     (8.4)        
Amortization of share-based compensation 8.3         8.3        
Purchase of noncontrolling Interest 0.6         0.1       0.5
Noncontrolling Interest, Decrease from Deconsolidation (1.7)                 (1.7)
Net income (loss) including noncontrolling interests 246.2           241.7     4.5
Other comprehensive income (loss), net of tax 63.2             62.6   0.6
Initial Application Period Cumulative Effect Transition for Accounting Standards Update 2016-02 32.0           32.0      
Increase in retained earnings due to reclassification of stranded tax effects 0.0           74.8 (74.8)    
Proceeds from (Payments to) Noncontrolling Interests 34.1                 34.1
Distributions and dividends to noncontrolling interests (12.7)                 (12.7)
Dividends declared and paid (424.4)           (424.4)      
Balance at Dec. 31, 2019 $ 13,673.1 $ 0.0 $ 2.1 $ 102.5 $ 557.8 $ 6,773.6 $ 7,617.0 $ (1,162.2) $ (471.4) $ 253.7
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Basis of Presentation and Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of Presentation and Summary of Significant Accounting Policies Basis of Presentation and Summary of Significant Accounting Policies
Unless otherwise noted in this report, any description of "we", "us" or "our" includes Molson Coors Beverage Company ("MCBC" or the "Company")(formerly known as Molson Coors Brewing Company), principally a holding company, and its operating and non-operating subsidiaries included within our reporting segments and Corporate. At December 31, 2019, our reporting segments included: MillerCoors LLC ("MillerCoors" or U.S. segment), operating in the U.S.; Molson Coors Canada ("MCC" or Canada segment), operating in Canada; Molson Coors Europe (Europe segment), operating in Bulgaria, Croatia, Czech Republic, Hungary, Montenegro, the Republic of Ireland, Romania, Serbia, the U.K. and various other European countries; and Molson Coors International ("MCI" or International segment), operating in various other countries. As further discussed below, in January 2020, we changed our management structure to two business units, our North America and Europe businesses. Accordingly, the segment reporting implications will not be reflected until the first quarter of 2020.
Unless otherwise indicated, comparisons are to comparable prior periods, and 2019, 2018 and 2017 refers to the 12 months ended December 31, 2019, December 31, 2018, and December 31, 2017, respectively.
Our consolidated financial statements and related disclosures reflect new accounting pronouncements adopted during the year as discussed in Note 2, "New Accounting Pronouncements."
Unless otherwise indicated, information in this report is presented in USD and comparisons are to comparable prior periods. Our primary operating currencies, other than USD, include the CAD, the GBP, and our Central European operating currencies such as the EUR, CZK, HRK and RSD.
Certain amounts within our consolidated statement of comprehensive income (loss) for the year ended December 31, 2017 have been adjusted to reflect presentational reclassifications. See Note 14, "Accumulated Other Comprehensive Income (Loss)" for further details.
Revitalization Plan
On October 28, 2019, we initiated a revitalization plan designed to allow us to invest across our portfolio to drive long-term, sustainable success. As part of our revitalization plan, we made the determination to establish Chicago, Illinois as our North American operational headquarters, close our existing office in Denver, Colorado and consolidate certain administrative functions into our other existing office locations. In connection with these consolidation activities, effective January 1, 2020, we changed our management structure to two business units, our North America and Europe businesses. We began to incur charges related to these restructuring activities during the fourth quarter of 2019; however, the segment financial reporting implications will not be reflected until the first quarter of 2020.
We also changed our name from Molson Coors Brewing Company to Molson Coors Beverage Company in January 2020 in order to better reflect our strategic intent to expand beyond beer and into other growth adjacencies in the beverage industry. See Note 3, "Segment Reporting," and Note 7, "Special Items" for further discussion of the impacts of this plan.
Principles of Consolidation
Our consolidated financial statements include our accounts and our majority-owned and controlled domestic and foreign subsidiaries, as well as certain VIEs for which we are the primary beneficiary. All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
Our consolidated financial statements are prepared in accordance with U.S. GAAP. These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions used to determine certain amounts that affect the financial statements are reasonable, based on information available at the time they are made. To the extent there are differences between these estimates and actual results, our consolidated financial statements may be materially affected.
Revenue Recognition
We account for revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, which we adopted on January 1, 2018 using the modified retrospective transition approach. The adoption of this guidance in 2018 did not have a significant impact to our core revenue generating activities. However, it did result in the reclassification of certain cash payments to customers from marketing, general and administrative expenses to a
reduction of revenue. This classification change resulted in a reduction of revenue and marketing, general and administrative expenses by approximately $60 million during 2018 versus 2017, which is presented under historical U.S. GAAP, primarily within our Canada segment. The adoption of this guidance also resulted in a change in the timing of recognition of certain promotional discounts and cash payments to customers, which shifted financial statement recognition primarily amongst quarters, however, the full-year impact was not significant to our financial results.
Our net sales represent the sale of beer, malt beverages and other adjacencies, net of excise tax. Sales are stated net of incentives, discounts and returns. Sales of products are for cash or otherwise agreed upon credit terms. Our payment terms vary by location and customer, however, the time period between when revenue is recognized and when payment is due is not significant. Our revenue generating activities have a single performance obligation and are recognized at the point in time when control transfers and our obligation has been fulfilled, which is when the related goods are shipped or delivered to the customer, depending upon the method of distribution and shipping terms. Where our products are sold under consignment arrangements, revenue is not recognized until control has transferred, which is when the product is sold to the end customer. Revenue is measured as the amount of consideration we expect to receive in exchange for the sale of our product. The cost of various programs, such as price promotions, rebates and coupons are treated as a reduction of sales. In certain of our markets, we make cash payments to customers such as slotting or listing fees, or payments for other marketing or promotional activities. These cash payments are recorded as a reduction of revenue unless we receive a distinct good or service as defined under ASC 606. Specifically, a good or service is considered distinct when it is separately identifiable from other promises in the contract, we receive a benefit from the good or service, and the benefit is separable from the sale of our product to the customer.
Certain payments made to customers are conditional on the achievement of volume targets, marketing commitments, or both. If paid in advance, we record such payments as prepayments and amortize them over the relevant period to which the customer commitment is made (generally up to five years). When the payment is not for a distinct good or service, or fair value cannot be reasonably estimated, the amortization of the prepayment or the cost as incurred is recorded as a reduction of revenue. Where a distinct good or service is received and fair value can be reasonably estimated, the cost is included as marketing, general and administrative expenses. The amounts deferred are reassessed regularly for recoverability over the contract period and are impaired where there is objective evidence that the benefits will not be realized or the asset is otherwise not recoverable. Separately, as discussed below, we analyze whether these advance payments contain a significant financing component for potential adjustment to the transaction price.
Our primary revenue generating activity represents the sale of beer and other malt beverages to customers, including both domestic and exported product sales. Our customer could be a distributor, retail or on-premise outlet, depending on the market. The majority of our revenues are generated from brands that we own and brew ourselves, however, we also import or brew and sell certain non-owned partner brands under licensing and related arrangements. In addition, primarily in the U.K., as well as certain other countries in our Europe segment, we sell other beverage companies' products to on-premise customers to provide them with a full range of products for their retail outlets. We refer to this as the "factored brand business." Sales from this business are included in our net sales and cost of goods sold when ultimately sold. In the factored brand business, we normally purchase inventory, which includes excise taxes charged by the vendor, take orders from customers for such brands, negotiate with the customers on pricing and invoice customers for the product and related costs of delivery. In addition, we incur the risk of loss at times we are in possession of the inventory and for the receivables due from the customers. Revenues for owned brands, partner and imported brands, as well as factored brands are recognized at the point in time when control is transferred to the customer as discussed above.
Other Revenue Generating Activities
We contract manufacture for other brewers in some of our markets. These contractual agreements require us to brew, package and ship certain brands to these brewers, who then sell the products to their own customers in their respective markets. Revenues under contract brewing arrangements are recognized when our obligation related to the finished product is fulfilled and control of the product transfers to these other brewers.
We also have licensing agreements with third party partners who brew and distribute our products in various markets across our segments. Under these agreements, we are compensated based on the amount of products sold by our partners in these markets at an agreed upon royalty rate or profit percentage. We apply the sales-based royalty practical expedient to these licensing arrangements and recognize revenue as product is sold by our partners at the agreed upon rate.
We have evaluated these other revenue generating activities under the disaggregation disclosure criteria outlined within the guidance and concluded that these other revenue generating activities are immaterial for separate disclosure. See Note 3, "Segment Reporting," for disclosure of revenues by geographic segment.
Variable Consideration
Our revenue generating activities include variable consideration which is recorded as a reduction of the transaction price based upon expected amounts at the time revenue for the corresponding product sale is recognized. For example, customer promotional discount programs are entered into with certain distributors for certain periods of time. The amount ultimately reimbursed to distributors is determined based upon agreed-upon promotional discounts which are applied to distributors' sales to retailers. Other common forms of variable consideration include volume rebates for meeting established sales targets, and coupons and mail-in rebates offered to the end consumer. The determination of the reduction of the transaction price for variable consideration requires that we make certain estimates and assumptions that affect the timing and amounts of revenue and liabilities recorded. We estimate this variable consideration, including analyzing for a potential constraint on variable consideration, by taking into account factors such as the nature of the promotional activity, historical information and current trends, availability of actual results, and expectations of customer and consumer behavior.
We do not have standard terms that permit return of product; however, in certain markets where returns occur we estimate the amount of returns as variable consideration based on historical return experience and adjust our revenue accordingly. Products that do not meet our high quality standards are returned by the customer or recalled and destroyed and are recorded as a reduction of revenue. The reversal of revenue is recorded upon determination that the product will be recalled and destroyed. We estimate the costs required to facilitate product returns and record them in cost of goods sold as required.
During the twelve months ended December 31, 2019 and December 31, 2018, adjustments to revenue from performance obligations satisfied in the prior period due to changes in estimates in variable consideration were immaterial.
Significant Financing Component and Costs to Obtain Contracts
In certain of our businesses where such practices are legally permitted, we make loans or advanced payments to retail outlets that sell our brands. For arrangements that do not span greater than one year, we apply the practical expedient available under ASC 606 and do not adjust the transaction price for the effects of a potential significant financing component. We further analyze arrangements that span greater than one year on an ongoing basis to determine whether a significant financing component exists. No such arrangements existed during the twelve months ended December 31, 2019 or December 31, 2018.
Advance payments to customers, where legally permitted, are deferred and amortized as a reduction to revenue over the expected period of benefit and tested for recoverability as appropriate. All other costs to obtain and fulfill contracts are expensed as incurred based on the nature, significance and expected benefit of these costs relative to the contract.
Contract Assets and Liabilities
We continually evaluate whether our revenue generating activities and advanced payment arrangements with customers result in the recognition of contract assets or liabilities. No such assets or liabilities existed as of December 31, 2019 or December 31, 2018. Separately, trade accounts receivable, including affiliate receivables, approximates receivables from contracts with customers.
Shipping and Handling
Freight costs billed to customers for shipping and handling are recorded as revenue. Shipping and handling expense related to costs incurred to deliver product are recognized within cost of goods sold. We account for shipping and handling activities that occur after control has transferred as a fulfillment cost as opposed to a separate performance obligation, and the costs of shipping and handling are recognized concurrently with the related revenue.
Excise Taxes
Excise taxes remitted to tax authorities are government-imposed excise taxes on beer. Excise taxes are shown in a separate line item in the consolidated statements of operations as a reduction of sales. Excise taxes are recognized as a current liability within accounts payable and other current liabilities on the consolidated balance sheets, with the liability subsequently reduced when the taxes are remitted to the tax authority.
Cost of Goods Sold
Our cost of goods sold includes costs we incur to make and ship beer and other malt beverages. These costs include brewing materials, such as barley, hops and various grains. Packaging materials, such as glass bottles, aluminum cans, cardboard and paperboard are also included in our cost of goods sold. Additionally, our cost of goods sold include both direct and indirect labor, shipping and handling including freight costs, utilities, maintenance costs, warehousing costs, purchasing and receiving costs, depreciation, promotional packaging, other manufacturing overheads and costs to purchase factored and other non-owned brands from suppliers, as well as the estimated cost to facilitate product returns.
Marketing, General and Administrative Expenses
Our marketing, general and administrative expenses include media advertising (television, radio, digital, print), tactical advertising (signs, banners, point-of-sale materials) and promotion costs on both local and national levels within our operating segments. The creative portion of our advertising activities is expensed as incurred. Production costs of advertising and promotional materials are expensed when the advertising is first run. Marketing, general and administrative expenses also include integration costs of $25.0 million, $38.8 million and $70.6 million for 2019, 2018 and 2017, respectively.
This classification also includes general and administrative costs for functions such as finance, legal, human resources and information technology, along with integration costs as noted above. These costs primarily consist of labor and outside services, as well as bad debt expense related to our allowance for doubtful accounts. Unless capitalization is allowed or required by U.S. GAAP, legal costs are expensed when incurred. These costs also include our marketing and sales organizations, including labor and other overheads. This line item additionally includes amortization costs associated with intangible assets, as well as certain depreciation costs related to non-production equipment and share-based compensation.
Share-based compensation is recognized using a straight-line method over the vesting period of the awards. We include estimated forfeitures expected to occur when calculating share-based compensation expense. Our share-based compensation plan and the awards within it contain provisions that accelerate vesting of awards upon change in control, retirement, disability or death of eligible employees and directors. Our share-based awards are considered vested when the employee's retention of the award is no longer contingent on providing service, which for certain awards can result in immediate recognition for awards granted to retirement-eligible individuals or accelerated recognition for awards granted to individuals that will become retirement eligible within the stated vesting period. Also, if less than the stated vesting period, we recognize these costs over the period from the grant date to the date retirement eligibility is achieved.
Special Items
Our special items represent charges incurred or benefits realized that either we do not believe to be indicative of our core operations, or we believe are significant to our current operating results warranting separate classification; specifically, such items are considered to be one of the following:
infrequent or unusual items,
impairment or asset abandonment-related losses,
restructuring charges and other atypical employee-related costs, or
fees on termination of significant operating agreements and gains (losses) on disposal of investments.
The items classified as special items are not necessarily non-recurring, however, they are deemed to be incremental to income earned or costs incurred by the company in conducting normal operations, and therefore are presented separately from other components of operating income.
Interest Expense, net
Our interest costs are associated with borrowings to finance our operations and acquisitions. Interest earned on our cash and cash equivalents across our business is recorded as interest income. Changes in estimates (if any) to mandatorily redeemable noncontrolling interest liabilities, which are presented within accounts payable and other current liabilities on the consolidated balance sheet, are also recognized within interest expense.
We capitalize interest cost as a part of the original cost of acquiring certain fixed assets if the cost of the capital expenditure and the expected time to complete the project are considered significant.
Other Income (Expense)
Our other income (expense) classification primarily includes gains and losses associated with activities not directly related to our operations. For instance, aggregate unrealized and realized foreign exchange gains and losses resulting from remeasurement and settlement of foreign-denominated monetary assets and liabilities, as well as certain gains or losses on sales of non-operating assets and the mark-to-market activity associated with warrants are classified in this line item. These gains and losses are reported in the operating segment in which they occur; however, foreign exchange gains and losses on intercompany balances related to financing and other treasury-related activities are reported within the Corporate segment. The initial recording of foreign-denominated transactions are classified based on the nature of the transaction, with the unrealized or realized foreign exchange gains or losses resulting from the subsequent remeasurement of the monetary asset or liability, and its ultimate settlement, classified in other income (expense).
Income Taxes
Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of our assets, liabilities, and certain unrecognized gains and losses recorded in accumulated other comprehensive income (loss). We apply the intraperiod tax allocation rules to allocate our provision for income taxes between continuing operations and other categories of earnings, such as other comprehensive income (loss), when we meet the criteria prescribed by U.S. GAAP.
We annually distribute cash from our foreign subsidiaries’ current year earnings and record the tax impacts associated with these transactions. Any current earnings not otherwise distributed or planned to be distributed in the current year are considered permanently reinvested in our foreign operations. The aggregate of these earnings is currently a deficit for U.S. tax purposes and would not result in any material taxes, if distributed. We have no plans to dispose of foreign subsidiaries and would not expect outside basis differences in foreign subsidiaries to reverse with material tax consequences.
The tax benefit from an uncertain tax position is recognized only if it is more likely than not that the tax position will be sustained based on its technical merits. We measure and record the tax benefits from such a position based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Interest, penalties and offsetting positions related to unrecognized tax benefits are recognized as a component of income tax expense. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized.
We account for the tax effects of global intangible low-taxed income (“GILTI”) as a component of income tax expense in the period the tax arises, to the extent applicable.
Other Comprehensive Income (Loss)
OCI represents income and losses for the reporting period, including the related tax impacts, which are excluded from net income (loss) and recognized directly within AOCI as a component of equity. OCI also includes amounts reclassified to income during the reporting period that were previously recognized within AOCI. Amounts remaining within AOCI are expected to be reclassified out of AOCI in the future, at which point they will be recognized within the consolidated statement of operations as a component of net income (loss). We recognize OCI related to the translation of assets and liabilities of our foreign subsidiaries which are denominated in currencies other than USD, unrealized gains and losses on the effective portion of our derivatives designated in cash flow and net investment hedging relationships, actuarial gains and losses and prior service costs related to our pension and other post-retirement benefit plans, as well as our proportionate share of our equity method investments' OCI. Additionally, when we do not have the expectation or intent to cash settle certain of our intercompany note receivable and note payable positions in the foreseeable future, the remeasurement of these instruments is recorded as a component of foreign currency translation adjustments within OCI. We release stranded tax effects from AOCI using either a specific identification approach or portfolio approach based on the nature of the underlying item.
Earnings Per Share
Basic EPS was computed using the weighted-average number of shares of common stock outstanding during the period. Diluted EPS includes the additional dilutive effect of our potentially dilutive securities, which include RSUs, DSUs, PSUs, and stock options. The dilutive effects of our potentially dilutive securities are calculated using the treasury stock method. Our calculation of weighted-average shares includes Class A common stock and Class B common stock, and Class A exchangeable shares and Class B exchangeable shares. All classes of stock have in effect the same dividend rights and share equitably in undistributed earnings. Holders of Class A common stock receive dividends only to the extent dividends are declared and paid to holders of Class B common stock. See Note 8, "Stockholders' Equity" for further discussion of the Class A common stock and Class B common stock and Class A exchangeable shares and Class B exchangeable shares. We have no unvested outstanding equity share awards that contain non-forfeitable rights to dividends.
Cash and Cash Equivalents
Cash consists of cash on hand and bank deposits. Cash equivalents represent highly liquid investments with original maturities of three months or less. Our cash deposits are maintained with multiple, reputable financial institutions.
Non-cash activity includes non-cash issuances of share-based awards, as well as non-cash investing activities related to movements in our guarantee of indebtedness of certain equity method investments. We also had other non-cash activities primarily related to capital expenditures incurred but not yet paid of $214.9 million, $221.0 million and $231.7 million during 2019, 2018 and 2017, respectively. Additionally, the initial recognition of the warrants discussed in Note 16, “Derivative Instruments and Hedging Activities” represents a non-cash financing activity in 2018, and during 2017, we also had non-cash activities related to the acquisition of a business.
Other than the activity mentioned above and the supplemental non-cash activity related to the recognition of leases discussed in Note 19, "Leases," there was no other significant non-cash activity in 2019, 2018 and 2017. See Note 4, "Investments," Note 13, "Share-Based Payments," Note 16, “Derivative Instruments and Hedging Activities” and Note 19, "Leases" for further discussion.
Accounts Receivable and Notes Receivable
We record accounts and notes receivable at net realizable value. This carrying value includes an appropriate allowance for estimated uncollectible amounts to reflect any loss anticipated on the accounts and notes receivable balances. We calculate this allowance based on our country-specific history of write-offs, level of past-due accounts based on the contractual terms of the receivables and our relationships with and the economic status of our customers, which may be impacted by current macroeconomic and regulatory factors specific to the country of origin.
In the U.K., loans are extended to a portion of the retail outlets that sell our brands. We establish an allowance through a provision for loan losses charged against earnings and recorded in marketing, general and administrative expenses. Loan balances that are written off are recorded against the allowance as a write-off. Activity within the allowance for credit losses was immaterial for fiscal years 2019, 2018 and 2017.
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined by the first-in, first-out ("FIFO") method. We regularly assess the shelf-life of our inventories and reserve for those inventories when it becomes apparent the product will not be sold within our freshness specifications.
Other current assets
Other current assets include prepaid assets, maintenance and operating supplies, promotion materials and derivative assets that are expected to be recognized or realized within the next 12 months. Maintenance and operating supplies include our inventories of spare parts, which are kept on hand for repairs and maintenance of machinery and equipment. The majority of spare parts within our business include motors, fillers and other components that are required to maintain a normal level of production in the event that expected maintenance and/or repairs are required. These parts are inventoried within current assets as they are reasonably expected to be used during the normal operating cycle of the business and are reserved for excess and obsolescence, as appropriate. The allowance for obsolete supplies was $11.4 million and $9.2 million as of December 31, 2019, and December 31, 2018, respectively.
Properties
Properties are stated at original cost less accumulated depreciation. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets, which are reviewed periodically and have the following ranges: buildings and improvements: 20-40 years; machinery and equipment: 3-25 years; furniture and fixtures: 3-10 years; returnable containers: 2-15 years; and software: 3-5 years. Land is not depreciated, and construction in progress is not depreciated until ready for service. Costs of enhancements or modifications that substantially extend the capacity or useful life of an asset are capitalized and depreciated accordingly. Ordinary repairs and maintenance are expensed as incurred. When property is sold or otherwise disposed of, the cost and accumulated depreciation are removed from our consolidated balance sheets and the resulting gain or loss, if any, is reflected in our consolidated statements of operations. Long-lived assets are evaluated for impairment whenever events or changes in circumstances indicate the carrying value of an asset (or asset group) may not be recoverable.
Returnable containers are recorded at acquisition cost and consist of returnable bottles, kegs, pallets and crates that are both in our direct control within our breweries, warehouses and distribution facilities and those that we indirectly control in the market through our agreements with our customers and other brewers and for which a deposit is received. The deposits received on our returnable containers in the market are recorded as deposit liabilities, included as current liabilities within accounts payable and other current liabilities in the consolidated balance sheets. We estimate that the loss, breakage and deterioration of our returnable containers is comparable to the depreciation calculated on an estimated useful life of up to 4 years for bottles, 5 years for pallets, 7 years for crates, and 15 years for returnable kegs. We also own and maintain other equipment in the market related to delivery of our products to end consumers, for example on-premise dispense equipment and refrigeration units. This equipment is recorded at acquisition cost and depreciated over lives of up to 7 years, depending on the market, reflecting the use of the equipment, as well as the loss and deterioration of the asset.
The costs of acquiring or developing internal-use computer software, including directly-related payroll costs for internal resources, are capitalized and classified within properties. Software maintenance and training costs are expensed in the period incurred. Implementation costs incurred in hosting arrangements that are service contracts are currently capitalized within
properties. See Note 2, "New Accounting Pronouncements" for further discussion of the changes to the accounting for implementation costs incurred in a hosting arrangement that became effective January 1, 2020.
Properties held under finance lease (previously known as capital) are depreciated using the straight-line method over the estimated useful life or the lease term, whichever is shorter, and the related depreciation is included in depreciation expense. Finance lease assets for which ownership is transferred at the end of the lease, or there is a purchase option that we are reasonably certain to exercise, are amortized over the useful life that would be assigned if the asset were owned.
Goodwill and Other Intangible Assets
Goodwill is allocated to the reporting unit in which the business that created the goodwill resides. A reporting unit is an operating segment, or a business unit one level below that operating segment, for which discrete financial information is prepared and regularly reviewed by segment management. As of the date of completion of our 2019 impairment testing, the operations in each of the specific regions within our U.S., Canada, Europe and International segments are considered components based on the availability of discrete financial information and the regular review by segment management. We have concluded that the components within the U.S., Canada and Europe segments each meet the criteria as having similar economic characteristics and therefore have aggregated these components into the U.S., Canada and Europe reporting units, respectively. Additionally, we determined that the components within our International segment do not meet the criteria for aggregation with the exception of the operations of our India businesses, which constitute a separate reporting unit. As the changes in management structure resulting from the revitalization plan discussed above were not effective until January 1, 2020, potential changes to our reporting unit conclusions, if any, have not yet been evaluated and concluded.
As required, we evaluate the carrying value of our goodwill and indefinite-lived intangible assets for impairment at the reporting unit level at least annually or when an interim triggering event occurs that would indicate that impairment may have taken place. Our annual test is performed as of the first day of our fiscal fourth quarter. We continuously monitor the performance of our other definite-lived intangible assets and evaluate for impairment when evidence exists that certain events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Significant judgments and assumptions are required in such impairment evaluations. Definite-lived intangible assets are stated at cost less accumulated amortization. Amortization is recorded using the straight-line method over the estimated lives of the assets as this approximates the pattern in which the assets economic benefits are consumed.
Equity Method Investments
We apply the equity method of accounting to 20% to 50% owned investments where we exercise significant influence or VIEs for which we are not the primary beneficiary. We use the cumulative earnings approach for determining cash flow presentation of cash distributions received from equity method investees. Distributions received are included in our consolidated statements of cash flows as operating activities, unless the cumulative distributions exceed our portion of the cumulative equity in the net earnings of the equity method investment, in which case the excess distributions are deemed to be returns of the investment and are classified as investing activities in our consolidated statements of cash flows. See Note 4, "Investments" for further information regarding our equity method investments.
There are no related parties that own interests in our equity method investments as of December 31, 2019.
Derivative Hedging Instruments
We use derivatives as part of our normal business operations to manage our exposure to fluctuations in interest rates, foreign currency exchange, commodity prices, production and packaging material costs and for other strategic purposes related to our core business. We enter into derivatives for risk management purposes only, including derivatives designated in hedge accounting relationships as well as those derivatives utilized as economic hedges. We do not enter into derivatives for trading or speculative purposes. We recognize our derivatives on the consolidated balance sheets as assets or liabilities at fair value and are classified in either current or non-current assets or liabilities based on each contract's respective unrealized gain or loss position and each contract's respective maturity. Our policy is to present all derivative balances on a gross basis, without regard to counterparty master netting agreements or similar arrangements. Further, our current derivative agreements do not allow us to net positions with the same counterparty and therefore, we present our derivative positions gross in our consolidated balance sheets.
Changes in fair values of outstanding cash flow and net investment hedges are recorded in OCI, until earnings are affected by the variability of cash flows of the underlying hedged item or the sale of the underlying net investment, respectively. Effective cash flow hedges offset the gains or losses recognized on the underlying exposure in the consolidated statements of operations, or for net investment hedges, the foreign exchange translation gain or loss recognized in AOCI. Changes in fair value of outstanding fair value hedges and the offsetting changes in fair value of the hedged item are recognized in earnings.
Changes in fair value of the derivative attributable to components allowed to be excluded from the assessment of hedge effectiveness are deferred in AOCI and recognized in earnings over the life of the hedge.
We record realized gains and losses from derivative instruments in the same financial statement line item as the hedged item/forecasted transaction. Changes in unrealized gains and losses for derivatives not designated in a hedge accounting relationship are recorded directly in earnings each period and are also recorded in the same financial statement line item as the hedged item/forecasted transaction. Cash flows from the settlement of derivatives, including both economic hedges and those designated in hedge accounting relationships, appear in the consolidated statements of cash flows in the same categories as the cash flows of the hedged item.
In accordance with authoritative accounting guidance, we do not record the fair value of derivatives for which we have elected the Normal Purchase Normal Sale ("NPNS") exemption. We account for these contracts on an accrual basis, recording realized settlements related to these contracts in the same financial statement line items as the corresponding transaction.
Leases
We account for leases in accordance with Accounting Standards Codification (“ASC”) Topic 842, Leases, which we adopted on January 1, 2019, electing not to adjust comparative periods presented and applying a modified retrospective transition approach as of the effective date of adoption (see Note 2, "New Accounting Pronouncements" for impacts of adoption).
We enter into contractual arrangements for the utilization of certain non-owned assets, primarily real estate and equipment, which are evaluated as finance or operating leases upon commencement, and are accounted for accordingly. Specifically, under ASC 842, a contract is or contains a lease when, (1) the contract contains an explicitly or implicitly identified asset and (2) the customer obtains substantially all of the economic benefits from the use of that underlying asset and directs how and for what purpose the asset is used during the term of the contract in exchange for consideration. We assess whether an arrangement is or contains a lease at inception of the contract. For all contractual arrangements deemed to be leases (other than short-term leases), as of the lease commencement date, we recognize on the consolidated balance sheet a liability for our obligation related to the lease and a corresponding asset representing our right to use the underlying asset over the period of use.
For leases that qualify as short-term leases, we have elected, for all classes of underlying assets, to not apply the balance sheet recognition requirements of ASC 842, and instead, we recognize the lease payments in the consolidated statements of operations on a straight-line basis over the lease term. We have also made the election, for our existing real estate and equipment classes of underlying assets, to account for lease and non-lease components as a single lease component.
Our leases have remaining lease terms of up to approximately 19 years. Certain of our lease agreements contain options to extend or early terminate the agreement. The lease term used to calculate the right-of-use asset and lease liability at commencement includes the impacts of options to extend or terminate the lease when it is reasonably certain that we will exercise that option. When determining whether it is reasonably certain that we will exercise an option at commencement, we consider various existing economic factors, including real estate strategies, the nature, length, and terms of the agreement, as well as the uncertainty of the condition of leased equipment at the end of the lease term. Based on these determinations, we generally conclude that the exercise of renewal options would not be reasonably certain in determining the lease term at commencement. Assumptions made at the commencement date are re-evaluated upon occurrence of certain events requiring a lease modification. Additionally, for certain equipment leases involving groups of similar leased assets with similar lease terms, we apply a portfolio approach to effectively account for the operating lease right-of-use assets and liabilities.
The discount rate used to calculate the present value of the future minimum lease payments is the rate implicit in the lease, when readily determinable. As the rate implicit in the lease is rarely readily determinable, we use our incremental borrowing rate relative to the leased asset.
Certain of our leases include variable lease payments, primarily for items such as property taxes, insurance, maintenance, and other operating expenses associated with leased assets. These variable payments are excluded from the measurement of our lease assets and liabilities, and are recognized in the period in which the obligation for those payments is incurred. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Lease-related expense is recorded within either cost of goods sold or marketing, general and administrative expenses on the consolidated statements of operations, depending on the function of the underlying leased asset, with the exception of interest on finance lease liabilities, which is recorded within interest expense on the consolidated statements of operations.
Pension and Postretirement Benefits
We maintain retirement plans for the majority of our employees. We offer different types of plans within each segment, including defined benefit plans, defined contribution plans and OPEB plans. Each plan is managed locally and in accordance with respective local laws and regulations. Our equity investments, Brewers' Retail Inc. ("BRI") and Brewers' Distributor Ltd. ("BDL"), maintain defined benefit, defined contribution and postretirement benefit plans as well.
We recognize the underfunded or overfunded status of a defined benefit postretirement plan as an asset or liability in the consolidated balance sheets. The funded status of a plan, measured as the difference between the fair value of plan assets and the projected benefit obligation, and the related net periodic pension cost are calculated using a number of significant actuarial assumptions. Changes in net periodic pension cost and funding status may occur in the future due to changes in these assumptions.
We use the fair value approach to calculate the market-related value of pension plan assets used to determine net periodic pension cost, which includes measuring the market-related value of plan assets at fair value for purposes of determining the expected return on plan assets and amount of gain or loss subject to amortization.
Projected benefit obligation is the actuarial present value as of the measurement date of all benefits attributed by the plan benefit formula to employee service rendered before the measurement date using assumptions as to future compensation levels and years of service if the plan benefit formula is based on those future compensation levels and years of service. Accumulated benefit obligation is the actuarial present value of benefits (whether vested or unvested) attributed by the plan benefit formula to employee service rendered before the measurement date and based on employee service and compensation, if applicable, prior to that date. Accumulated benefit obligation differs from projected benefit obligation in that it includes no assumption about future compensation levels and years of service.
We employ the corridor approach for determining each plan's potential amortization from AOCI of deferred gains and losses, which occur when actual experience differs from estimates, into our net periodic pension and postretirement benefit cost. This approach defines the "corridor" as the greater of 10% of the projected benefit obligation or 10% of the market-related value of plan assets and requires amortization of the excess net gain or loss that exceeds the corridor over the average remaining service periods of active plan participants. For plans closed to new entrants and the future accrual of benefits, the average remaining life expectancy of all plan participants (including retirees) is used.
Fair Value Measurements
The carrying amounts of our cash and cash equivalents, accounts receivable, accounts payable and other current liabilities approximate fair value as recorded due to the short-term nature of these instruments. In addition, the carrying amounts of our trade loan receivables, net of allowances, approximate fair value. The fair value of derivatives is estimated by discounting the estimated future cash flows utilizing observable market interest, foreign exchange and commodity rates adjusted for non-performance credit risk associated with our counterparties (assets) or with MCBC (liabilities), as appropriate. Additionally, the fair value of warrants is estimated using the Black-Scholes valuation model. See Note 16, "Derivative Instruments and Hedging Activities" for additional information. Based on current market rates for similar instruments, the fair value of long-term debt is presented in Note 11, "Debt."
U.S. GAAP guidance for fair value includes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques (market approach, income approach and cost approach). Our financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy.
The three levels of the hierarchy are as follows:
Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date.
Level 2—Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are less active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from, or corroborated by, observable market data by correlation or other means (market corroborated inputs).
Level 3—Unobservable inputs that reflect the assumptions that we believe market participants would use in pricing the asset or liability. We develop these inputs based on the best information available, including our own data.
Foreign Currency
Assets and liabilities recorded in foreign currencies that are the functional currencies for the respective operations are translated at the prevailing exchange rate at the balance sheet date. Translation adjustments resulting from this process are reported as a separate component of OCI. Gains and losses from foreign currency transactions are included in earnings for the period. Revenue and expenses are translated at the average exchange rates during the respective period throughout the year.
v3.19.3.a.u2
New Accounting Pronouncements
12 Months Ended
Dec. 31, 2019
New Accounting Pronouncements and Changes in Accounting Principles [Abstract]  
New Accounting Pronouncements New Accounting Pronouncements
Adoption of New Accounting Pronouncements
Leases
In February 2016, the FASB issued authoritative guidance intended to increase transparency and comparability among organizations by requiring the recognition of lease assets and liabilities on the balance sheet and disclosure of key information about leasing arrangements. We adopted this guidance and all related amendments applying the modified retrospective transition approach to all lease arrangements as of the effective date of adoption, January 1, 2019. As permitted under the guidance, financial statements for reporting periods beginning after January 1, 2019 are presented under the new guidance, while prior period amounts have not been adjusted and continue to be reported and disclosed in accordance with historical accounting guidance. Additionally, for existing leases as of the effective date, we have elected the package of practical expedients available at transition to not reassess the historical lease determination, lease classification and initial direct costs.
For operating leases, the adoption of the new guidance resulted in the recognition of right-of-use assets of approximately $154 million and aggregate current and non-current lease liabilities of approximately $164 million as of January 1, 2019, including immaterial reclassifications of prepaid and deferred rent balances into right-of-use assets. Separately, as a result of the cumulative impact of adopting the new guidance, we recorded a net increase to opening retained earnings of approximately $32 million as of January 1, 2019 with the offsetting impact within other assets, related to our share of the accelerated recognition of deferred gains on non-qualifying and other sale-leaseback transactions by an equity method investment within our Canada segment. Additionally, while our accounting for finance leases remains unchanged at adoption, we have prospectively changed the presentation of finance lease liabilities within the consolidated balance sheets to be presented within current portion of long-term debt and short-term borrowings, and long-term debt, as appropriate. As of January 1, 2019, we reclassified approximately $3 million and $82 million of short-term and long-term finance lease liabilities from accounts payable and other current liabilities and other non-current liabilities to current portion of long-term debt and short-term borrowings and long-term debt, respectively. The adoption of this guidance had no impact to our cash flows from operating, investing, or financing activities. See Note 1, “Basis of Presentation and Summary of Significant Accounting Policies” and Note 19, "Leases" for additional discussion on our leasing arrangements.
Accumulated Other Comprehensive Income (Loss)
In February 2018, the FASB issued authoritative guidance intended to improve the usefulness of financial information related to the enactment of the 2017 Tax Act. This guidance provides an option to reclassify from AOCI to retained earnings the stranded tax effects resulting from the change in the U.S. federal corporate income tax rate as a result of the 2017 Tax Act. We adopted this guidance as of January 1, 2019 and elected to reclassify stranded tax effects related to the 2017 Tax Act, resulting in an approximate $75 million increase to retained earnings in the period of adoption.
New Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued authoritative guidance that changes the impairment model used to measure credit losses for most financial instruments. The new guidance replaces the existing incurred credit loss model, and requires the application of a forward-looking expected credit loss model, which will generally result in earlier recognition of allowances for credit losses for financial instruments that are in scope of the new guidance, including trade receivables. This guidance is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods. We are currently evaluating the potential impact of this guidance and do not expect it will have a material impact on our financial statements.
In August 2018, the FASB issued authoritative guidance intended to address a customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. This guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The guidance also requires presentation of the capitalized implementation costs in the statement of financial position and in the statement of cash flows in the same line item that a prepayment for the fees of the associated hosting arrangement would be presented, and the expense related to the capitalized implementation costs to be presented in the same line item in the statement of operations as the fees associated with
the hosting element (service) of the arrangement. This guidance is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods. We will adopt this guidance prospectively in the first quarter of 2020 and are currently evaluating the impact on our financial position, results of operations and statement of cash flows. The adoption of this guidance will result in the change in presentation of capitalized implementation costs related to hosting arrangements from properties to other assets on the consolidated balance sheet, as well as the expense related to such costs no longer being classified as depreciation expense and cash flows related to those costs no longer being presented as investing activities.
In December 2019, the FASB issued authoritative guidance intended to simplify the accounting for income taxes. This guidance eliminates certain exceptions to the general approach to the income tax accounting model, and adds new guidance to reduce the complexity in accounting for income taxes. This guidance is effective for annual periods beginning after December 15, 2020, including interim periods within those annual periods. We are currently evaluating the potential impact of this guidance and do not expect it will have a material impact on our financial statements.
Other than the items noted above, there have been no new accounting pronouncements not yet effective or adopted in the current year that we believe have a significant impact, or potential significant impact, to our consolidated financial statements.
v3.19.3.a.u2
Segment Reporting
12 Months Ended
Dec. 31, 2019
Segment Reporting [Abstract]  
Segment Reporting Segment Reporting
Our reporting segments are based on the key geographic regions in which we operate, which are the basis on which our chief operating decision maker evaluates the performance of the business.
On October 28, 2019, as part of our revitalization plan, we made the determination to establish Chicago, Illinois as our North American operational headquarters, close our existing office in Denver, Colorado and consolidate certain administrative functions into our other existing office locations. In connection with these consolidation activities, effective January 1, 2020, we changed our management structure to two business units, our North America and Europe businesses. Accordingly, the segment financial reporting implications will not be reflected until the first quarter of 2020.
Reporting Segments as of December 31, 2019
United States
The U.S. segment consists of our production, marketing and sales of our brands and other owned and licensed brands in the U.S. We also have an agreement to brew, package and ship products for Pabst Brewing Company, LLC. Additionally, the U.S. segment produces beer for export to our Canada and International segments.
Canada
The Canada segment consists of our production, marketing and sales of our brands and other owned and licensed brands in Canada. The Canada segment also includes BRI, our joint venture arrangement related to the distribution and retail sale of beer in Ontario, and BDL, our joint venture arrangement related to the distribution of beer in the western provinces. Both BRI and BDL are accounted for as equity method investments.
We have an agreement with Heineken N.V. ("Heineken") that grants us the right to import, market, distribute and sell certain Heineken products in Canada. We also contract brew and package certain Labatt brands for the U.S. market.
Europe
The Europe segment consists of our production, marketing and sales of our brands as well as a number of smaller regional brands in the U.K., the Republic of Ireland and Central Europe. Additionally, European markets including Sweden, Spain, Germany, Ukraine and Russia are reported within our Europe segment. Our European business also has licensing agreements and distribution agreements with various other brewers. A portion of the operating results of the international Miller brand portfolio are reported in the Europe segment.
International
The objective of the International segment is to grow and expand our business and brand portfolio in new and existing markets, including emerging markets, outside the U.S., Canada, and Europe segments. The International segment includes operations in Latin America, Asia Pacific and Africa. International operates through a combination of export and license arrangements, in addition to our India business that produces, markets and sells our products and our Japan business that imports, markets and sells our and certain other third-party products.
Corporate
Corporate is not a reportable segment and primarily includes interest and certain other general and administrative costs that are not allocated to any of the operating segments as well as the results of our water resources and energy operations in Colorado and the unrealized changes in fair value on our commodity swaps not designated in hedging relationships recorded within cost of goods sold, which are later reclassified when realized to the segment in which the underlying exposure resides. The majority of these corporate costs relate to worldwide administrative functions, such as corporate affairs, legal, human resources, information technology, finance, internal audit, insurance, ethics and compliance, risk management, global growth, supply chain and commercial initiatives. Additionally, only the service cost component of net periodic pension and OPEB cost is reported within each operating segment, and all other components are reported within the Corporate segment.
Summarized Financial Information
No single customer accounted for more than 10% of our consolidated sales in 2019, 2018 or 2017. Consolidated net sales represent sales to third-party external customers less excise taxes. Inter-segment transactions impacting net sales revenues and income (loss) before income taxes eliminate in consolidation and, for fiscal year 2019 are U.S. segment sales of $94.2 million to our International segment and $17.5 million to our Canada segment, as well as approximately $12 million of Canada inter-segment sales to the U.S.
The following tables represent consolidated net sales, interest expense, interest income and reconciliations of amounts shown as income (loss) before income taxes to income (loss) attributable to MCBC. Income (loss) before income taxes includes the impact of special items; refer to Note 7, "Special Items" for further discussion. Additionally, integration costs of $25.0 million, $38.8 million and $70.6 million for 2019, 2018 and 2017, respectively, were recorded within marketing, general and administrative expenses, primarily within the Corporate segment.
 
Year ended December 31, 2019
 
U.S.
 
Canada(1)
 
Europe
 
International(2)
 
Corporate(3)
 
Inter-segment net sales eliminations
 
Consolidated
 
(In millions)
Net sales
$
7,241.3

 
$
1,307.4

 
$
1,928.7

 
$
225.3

 
$
0.8

 
$
(124.1
)
 
$
10,579.4

Interest expense
3.0

 
(0.2
)
 
(6.2
)
 

 
(277.5
)
 

 
(280.9
)
Interest income

 

 
0.5

 

 
7.7

 

 
8.2

Income (loss) before income taxes
$
1,301.8

 
$
(508.7
)
 
$
160.1

 
$
(7.7
)
 
$
(465.6
)
 
$

 
$
479.9

Income tax benefit (expense)
 

 
 

 
 

 
 

 
 
 
 
 
(233.7
)
Net income (loss)
 

 
 

 
 

 
 

 
 
 
 
 
246.2

Net (income) loss attributable to noncontrolling interests
 

 
 

 
 

 
 

 
 
 
 
 
(4.5
)
Net income (loss) attributable to MCBC
 

 
 

 
 

 
 

 
 
 
 
 
$
241.7


(1)
During the third quarter of 2019, we recorded a goodwill impairment loss to our Canada reporting unit of $668.3 million, which was recorded as a special item. See Note 10, "Goodwill and Intangible Assets" for further discussion. During the second quarter of 2019, we completed the sale of our existing Montreal brewery for $96.2 million (CAD 126 million), resulting in a $61.3 million gain, which was recorded as a special item. Also, during 2019 and 2018, we recorded unrealized mark-to-market losses of approximately $18 million and $24 million, respectively, on the HEXO Corp. ("HEXO") warrants received in connection with the formation of the Truss LP ("Truss") joint venture.
(2)
During the third quarter of 2019, we recorded an aggregate goodwill and definite-lived intangible asset impairment loss related to our India reporting unit of $12.2 million, which was recorded as a special item. See Note 10, "Goodwill and Intangible Assets" for further discussion.
(3)
Related to the unrealized mark-to-market valuation on our commodity hedge positions, we recorded unrealized losses of $0.8 million for the year ended December 31, 2019 compared to unrealized losses of $166.2 million for the year ended December 31, 2018.
 
Year ended December 31, 2018
 
U.S.
 
Canada
 
Europe
 
International
 
Corporate(1)
 
Inter-segment net sales eliminations
 
Consolidated
 
(In millions)
Net sales
$
7,259.9

 
$
1,392.1

 
$
2,002.6

 
$
250.1

 
$
0.8

 
$
(135.9
)
 
$
10,769.6

Interest expense
8.8

 

 
(5.6
)
 

 
(309.4
)
 

 
(306.2
)
Interest income

 

 
0.5

 

 
7.5

 

 
8.0

Income (loss) before income taxes
$
1,320.7

 
$
157.0

 
$
186.4

 
$
(2.7
)
 
$
(301.6
)
 
$

 
$
1,359.8

Income tax benefit (expense)
 

 
 

 
 

 
 

 
 
 
 
 
(225.2
)
Net income (loss)
 

 
 

 
 

 
 

 
 
 
 
 
1,134.6

Net (income) loss attributable to noncontrolling interests
 

 
 

 
 

 
 

 
 
 
 
 
(18.1
)
Net income (loss) attributable to MCBC
 

 
 

 
 

 
 

 
 
 
 
 
$
1,116.5


(1)
During the first quarter of 2018, we recorded a gain of $328.0 million related to the Adjustment Amount as defined and further discussed in Note 7, "Special Items." Additionally, related to the unrealized mark-to-market valuation on our commodity hedge positions, we recorded unrealized losses of $166.2 million for the year ended December 31, 2018 compared to unrealized gains of $123.3 million for the year ended December 31, 2017.
 
Year ended December 31, 2017
 
U.S.
 
Canada
 
Europe(1)
 
International
 
Corporate(2)
 
Inter-segment net sales eliminations
 
Consolidated
 
(In millions)
Net sales
$
7,505.7

 
$
1,458.0

 
$
1,940.7

 
$
264.0

 
$
0.9

 
$
(166.5
)
 
$
11,002.8

Interest expense
13.1

 

 

 

 
(362.4
)
 

 
(349.3
)
Interest income

 

 
3.6

 

 
2.4

 

 
6.0

Income (loss) before income taxes
$
1,394.2

 
$
210.2

 
$
234.9

 
$
(19.7
)
 
$
(436.4
)
 
$

 
$
1,383.2

Income tax benefit (expense)
 

 
 
 
 

 
 

 
 
 
 
 
204.6

Net income (loss)
 

 
 
 
 

 
 

 
 
 
 
 
1,587.8

Net (income) loss attributable to noncontrolling interests
 

 
 
 
 

 
 

 
 
 
 
 
(22.2
)
Net income (loss) attributable to MCBC
 

 
 
 
 

 
 

 
 
 
 
 
$
1,565.6


(1)
During the first quarter of 2017, we released an indirect tax loss contingency, which was initially recorded in the fourth quarter of 2016, for a benefit of approximately $50 million. See Note 18, "Commitments and Contingencies" for details.
(2)
Related to the unrealized mark-to-market valuation on our commodity hedge positions, we recorded unrealized gains of $123.3 million for the twelve months ended December 31, 2017.
The following table presents total assets and select cash flow information by segment:
 
Assets
 
Depreciation and amortization
 
Capital expenditures
 
As of December 31,
 
For the years ended December 31,
 
For the years ended December 31,
 
2019
 
2018
 
2019
 
2018
 
2017
 
2019
 
2018
 
2017
 
(In millions)
U.S.
$
18,814.1

 
$
19,057.1

 
$
527.4

 
$
514.0

 
$
485.7

 
$
239.5

 
$
322.0

 
$
351.5

Canada
4,195.3

 
4,640.5

 
137.1

 
141.9

 
131.2

 
194.8

 
165.3

 
99.9

Europe
5,413.8

 
5,430.0

 
180.1

 
188.0

 
182.3

 
138.3

 
150.0

 
131.6

International
265.9

 
274.1

 
11.0

 
9.9

 
9.6

 
11.5

 
3.1

 
2.3

Corporate
170.7

 
708.1

 
3.4

 
3.7

 
4.0

 
9.7

 
11.3

 
14.3

Consolidated
$
28,859.8

 
$
30,109.8

 
$
859.0

 
$
857.5

 
$
812.8

 
$
593.8

 
$
651.7

 
$
599.6


The following table presents net sales by geography, based on the location of the customer:
 
For the years ended
 
December 31, 2019
 
December 31, 2018
 
December 31, 2017
 
(In millions)
Net sales to unaffiliated customers:
 
 
 
 
 
United States and its territories
$
7,244.9

 
$
7,272.1

 
$
7,493.6

Canada
1,231.3

 
1,298.2

 
1,358.4

United Kingdom
1,119.1

 
1,184.6

 
1,172.8

Other foreign countries(1)
984.1

 
1,014.7

 
978.0

Consolidated net sales
$
10,579.4

 
$
10,769.6

 
$
11,002.8


(1)
Reflects net sales from the individual countries within our Central European operations (included in our Europe segment), as well as our International segment, for which no individual country has total net sales exceeding 10% of the total consolidated net sales.
The following table presents net properties by geographic location:
 
As of
 
December 31, 2019
 
December 31, 2018
 
(In millions)
Net properties:
 
 
 
United States and its territories
$
2,760.2

 
$
2,943.0

Canada
831.9

 
719.7

United Kingdom
406.5

 
396.5

Other foreign countries(1)
547.9

 
549.1

Consolidated net properties
$
4,546.5

 
$
4,608.3


(1)
Reflects net properties within the individual countries included in our Central European operations (included in our Europe segment), as well as our International segment, for which no individual country has total net properties exceeding 10% of the total consolidated net properties.
v3.19.3.a.u2
Investments
12 Months Ended
Dec. 31, 2019
Equity Method Investments and Joint Ventures [Abstract]  
Investments Investments
Our investments include both equity method and consolidated investments. Those entities identified as VIEs have been evaluated to determine whether we are the primary beneficiary. The VIEs included under "Consolidated VIEs" below are those for which we have concluded that we are the primary beneficiary and accordingly, we have consolidated these entities. None of our consolidated VIEs held debt as of December 31, 2019 or December 31, 2018. We have not provided any financial support to any of our VIEs during 2019 that we were not previously contractually obligated to provide. Amounts due to and due from
our equity method investments are recorded as affiliate accounts payable and affiliate accounts receivable. See below under "Affiliate Transactions" for further details.
Authoritative guidance related to the consolidation of VIEs requires that we continually reassess whether we are the primary beneficiary of VIEs in which we have an interest. As such, the conclusion regarding the primary beneficiary status is subject to change and we continually evaluate circumstances that could require consolidation or deconsolidation. Our consolidated VIEs are Cobra Beer Partnership, Ltd. ("Cobra U.K."), Rocky Mountain Metal Container (“RMMC”), Rocky Mountain Bottle Company (“RMBC”) and Truss. Our unconsolidated VIEs are BRI and BDL, as well as other immaterial investments.
Both BRI and BDL have outstanding third-party debt which is guaranteed by their respective shareholders. As a result, we have a guarantee liability of $37.7 million and $35.9 million recorded as of December 31, 2019 and December 31, 2018, respectively, which is presented within accounts payable and other current liabilities on the consolidated balance sheets and represents our proportionate share of the outstanding balance of these debt instruments. The carrying value of the guarantee liability equals fair value, which considers an adjustment for our own non-performance risk and is considered a Level 2 measurement. The offset to the guarantee liability was recorded as an adjustment to our respective equity method investment within the consolidated balance sheets. The resulting change in our equity method investments during the year due to movements in the guarantee represents a non-cash investing activity.
Equity Method Investments
Brewers' Retail Inc.
BRI is a beer distribution and retail network for the Ontario region of Canada, with majority of the ownership residing with MCC, Labatt Breweries of Canada LP (a subsidiary of ABI) and Sleeman Breweries Ltd. (a subsidiary of Sapporo International). BRI charges its owners administrative fees that are designed so the entity operates on a cash neutral basis. This administrative fee is based on costs incurred, net of other revenues earned, and is allocated in accordance with the operating agreement to its owners based on volume of products. Contractual provisions cause participation in governance and other interests to fluctuate based on this calculated market share requiring frequent primary beneficiary evaluations. However, based on the existing structure, control is shared, and remains shared through such changes, and therefore we do not anticipate becoming the primary beneficiary in the foreseeable future. We consider BRI an affiliate. See "Affiliate Transactions" section below summarizing our transactions and balances with affiliates, including BRI.
We have an obligation to proportionately fund BRI's operations. As a result of this obligation, we continue to record our proportional share of BRI's net income or loss and OCI activity, including when we have a negative equity method balance. As of December 31, 2019 and December 31, 2018, we had a positive equity method investment balance of $27.2 million and $13.8 million, respectively. The increase to our net investment balance from prior year was primarily related to our share of the accelerated recognition of deferred gains on BRI's non-qualifying and other sale-leaseback transactions upon the adoption of the new lease accounting standard as of January 1, 2019, as discussed in Note 2, "New Accounting Pronouncements." This increase was partially offset by our share of BRI's net loss during the year as well as an increase to BRI's employee retirement plan obligations (resulting from the annual actuarial valuation) unfavorably impacting the net assets of BRI. See "Affiliate Transactions" below for BRI affiliate transactions including administrative fees charged to MCBC under the agreement with BRI which are recorded in cost of goods sold, as well as for BRI affiliate due to and due from balances as of December 31, 2019 and December 31, 2018, respectively, related to trade receivables and payables for sales to external customers and costs incurred by BRI offset by administrative fees charged and paid by MCBC (which may be in a payable or receivable position depending on the amount under or over charged).
Brewers' Distributor Ltd.
BDL is a distribution operation owned by MCC and Labatt Breweries of Canada LP (a subsidiary of ABI) that, pursuant to an operating agreement, acts as an agent for the distribution of their products in the western provinces of Canada. The two owners share 50% - 50% voting control of this business. We consider BDL an affiliate. See "Affiliate Transactions" section below summarizing our transactions and balances with affiliates, including BDL.
BDL charges the owners administrative fees that are designed so the entity operates at break-even profit levels. This administrative fee is based on costs incurred, net of other revenues earned, and is allocated in accordance with the operating agreement to the owners based on volume of products. No other parties are allowed to sell beer through BDL, which does not take legal title to the beer distributed for the owners. Our investment in BDL was $30.0 million as of both December 31, 2019 and December 31, 2018. See "Affiliate Transactions" section below for BDL affiliate transactions including administrative fees charged to MCBC under the agreement with BDL which are recorded in cost of goods sold, as well as for BDL affiliate due to and due from balances as of December 31, 2019 and December 31, 2018, respectively, related to trade receivables and payables
for sales to external customers and costs incurred by BDL offset by administrative fees charged and paid by MCBC (which may be in a payable or receivable position depending on the amount under or over charged).
Other
We have certain other immaterial equity investments we enter into from time to time that align with our organizational strategies and growth initiatives.
Our equity method investments are not considered significant for disclosure of financial information on either an individual or aggregated basis and there were no significant undistributed earnings as of December 31, 2019 or December 31, 2018, for any of these companies.
Affiliate Transactions
All transactions with our equity method investments are considered related party transactions and recorded within our affiliate accounts. The following table summarizes transactions with affiliates:
 
For the years ended
 
December 31, 2019
 
December 31, 2018
 
December 31, 2017
 
(In millions)
Administrative fees, net charged from BRI
$
96.8

 
$
94.0

 
$
93.5

Administrative fees, net charged from BDL
$
35.7

 
$
40.2

 
$
37.3


Amounts due to and due from affiliates as of December 31, 2019 and December 31, 2018, respectively, are as follows:
 
Amounts due from affiliates
 
Amounts due to affiliates
 
December 31, 2019
 
December 31, 2018
 
December 31, 2019
 
December 31, 2018
 
(In millions)
BRI
$
4.6

 
$
7.7

 
$

 
$

BDL
4.0

 
0.7

 

 

Other
0.3

 

 

 
0.1

Total
$
8.9

 
$
8.4

 
$

 
$
0.1


Consolidated VIEs
Rocky Mountain Metal Container
RMMC, a Colorado limited liability company, is a joint venture with Ball Corporation in which we hold a 50% interest. Our U.S. business has a can and end supply agreement with RMMC. Under this agreement, we purchase substantially all of the output of RMMC. RMMC manufactures cans and ends at our facilities, which RMMC is operating under a use and license agreement. As RMMC is a limited liability company (“LLC”), the tax consequences flow to the joint venture partners.
Rocky Mountain Bottle Company
RMBC, a Colorado limited liability company, is a joint venture with Owens-Brockway Glass Container, Inc. in which we hold a 50% interest. Our U.S. business has a supply agreement with RMBC under which we agree to purchase output approximating the agreed upon annual plant capacity of RMBC. RMBC manufactures bottles at our facilities, which RMBC is operating under a lease agreement. As RMBC is an LLC, the tax consequences flow to the joint venture partners.
Cobra U.K.
We hold a 50.1% interest in Cobra U.K., which owns the worldwide rights to the Cobra beer brand (with the exception of the Indian sub-continent, owned by Cobra India). The noncontrolling interest is held by the founder of the Cobra beer brand. We consolidate the results and financial position of Cobra U.K., and it is reported within our Europe operating segment.
Truss
On October 4, 2018, a wholly-owned subsidiary within our Canadian business completed the formation of Truss LP, an independent Canadian joint venture with HEXO to pursue opportunities to develop, produce and market non-alcoholic,
cannabis-infused beverages in Canada. Truss is structured as a standalone start-up company with its own board of directors and an independent management team. We maintain a 57.5% controlling interest in Truss, which is a VIE that is consolidated. In connection with the formation of Truss, HEXO also issued warrants to our Canadian subsidiary, which are further discussed in Note 16, "Derivative Instruments and Hedging Activities." Truss also subleases the location of its production facility in Belleville, Ontario from HEXO.
The following summarizes the assets and liabilities of our consolidated VIEs (including noncontrolling interests):
 
As of
 
December 31, 2019
 
December 31, 2018
 
Total Assets
 
Total Liabilities
 
Total Assets
 
Total Liabilities
 
(In millions)
RMMC/RMBC
$
207.4

 
$
17.9

 
$
189.8

 
$
35.0

Other
$
65.3

 
$
20.8

 
$
31.0

 
$
5.1

Grolsch Deconsolidation
In September 2019, we received termination notices of our Grolsch U.K. Ltd. ("Grolsch") joint venture arrangement, as well as the related brewing and distribution agreements for the Grolsch brands in the U.K. and Ireland. In November 2019, we mutually agreed with Asahi that the agreements would terminate with immediate effect and that we would receive a payment in November 2019. As a result, the Grolsch joint venture ceased all operations, including the production, marketing and sale of the Grolsch brands in these markets, in the third quarter of 2019. Upon notice of termination in the third quarter of 2019, we reassessed our status as the primary beneficiary of the joint venture and concluded that we were no longer able to exert control over the operations or direction of the joint venture or otherwise influence the activities that most significantly impact the economics of the entity. Therefore, we deconsolidated the joint venture and recorded an immaterial loss on deconsolidation as a special item during the third quarter of 2019. The aggregate loss related to the termination of the Grolsch business, resulting from the loss upon deconsolidation and the impairment losses on the related definite-lived intangible assets in the third quarter of 2019, along with the payment we received and recorded in the fourth quarter of 2019, is $0.5 million for fiscal year 2019.
v3.19.3.a.u2
Other Income and Expense
12 Months Ended
Dec. 31, 2019
Other Income and Expenses [Abstract]  
Other Income and Expense
Our other income (expense) classification primarily includes gains and losses associated with activities not directly related to our operations. For instance, aggregate unrealized and realized foreign exchange gains and losses resulting from remeasurement and settlement of foreign-denominated monetary assets and liabilities, as well as certain gains or losses on sales of non-operating assets and the mark-to-market activity associated with warrants are classified in this line item. These gains and losses are reported in the operating segment in which they occur; however, foreign exchange gains and losses on intercompany balances related to financing and other treasury-related activities are reported within the Corporate segment. The initial recording of foreign-denominated transactions are classified based on the nature of the transaction, with the unrealized or realized foreign exchange gains or losses resulting from the subsequent remeasurement of the monetary asset or liability, and its ultimate settlement, classified in other income (expense).
Other Income and Expense
 
For the years ended
 
December 31, 2019
 
December 31, 2018
 
December 31, 2017
 
(In millions)
Gain on sale of non-operating asset
$

 
$
11.7

 
$

Gain (loss) from other foreign exchange and derivative activity, net
(20.4
)
 
(31.9
)
 
(8.0
)
Other, net(1)
5.7

 
8.2

 
9.4

Other income (expense), net
$
(14.7
)
 
$
(12.0
)
 
$
1.4


(1)
During 2019, we received a payment and recorded a gain of CAD 2.0 million, or $1.5 million, resulting from a purchase price agreement related to the historical sale of Molson Inc.'s ownership interest in the Montreal Canadiens, which is considered an affiliate of MCBC.
During 2018, we recorded a non-cash gain of CAD 5.8 million, or $4.3 million, resulting from the release of our guarantee of the Montreal Canadiens' obligations under a ground lease for the Bell Centre Arena as a result of an independent transaction by the Montreal Canadiens with the lessor.
During 2017, we received payment and recorded a gain of CAD 10.9 million, or $8.3 million, resulting from a purchase price adjustment related to the historical sale of Molson Inc.’s ownership interest in the Montreal Canadiens, an affiliate of MCBC.
v3.19.3.a.u2
Income Tax
12 Months Ended
Dec. 31, 2019
Income Tax Disclosure [Abstract]  
Income Tax Income Tax
Our income (loss) before income taxes on which the provision for income taxes was computed is as follows:
 
For the years ended
 
December 31, 2019
 
December 31, 2018
 
December 31, 2017
 
(In millions)
Domestic
$
1,136.1

 
$
1,320.4

 
$
1,488.3

Foreign
(656.2
)
 
39.4

 
(105.1
)
Total
$
479.9

 
$
1,359.8

 
$
1,383.2


Income tax expense (benefit) includes the following current and deferred provisions:
 
For the years ended
 
December 31, 2019
 
December 31, 2018
 
December 31, 2017
 
(In millions)
Current:
 
 
 
 
 
Federal
$
69.1

 
$
(22.9
)
 
$
(177.1
)
State
9.4

 
(4.7
)
 
4.7

Foreign
46.7

 
38.7

 
36.5

Total current tax expense (benefit)
$
125.2

 
$
11.1

 
$
(135.9
)
Deferred:
 
 
 
 
 
Federal
$
128.3

 
$
232.2

 
$
(79.5
)
State
22.2

 
31.2

 
33.5

Foreign
(42.0
)
 
(49.3
)
 
(22.7
)
Total deferred tax expense (benefit)
$
108.5

 
$
214.1

 
$
(68.7
)
Total income tax expense (benefit)
$
233.7

 
$
225.2

 
$
(204.6
)

The increase in income tax expense for 2018 versus 2017 was primarily driven by net deferred tax benefit of approximately $567 million recognized in 2017 resulting from the impacts of the 2017 Tax Act, partially offset by the impact of the reduction of the U.S. federal corporate income tax rate from 35% to 21% in 2018.
Our effective tax rate varies from the U.S. federal statutory income tax rate as follows:
 
For the years ended
 
December 31, 2019
 
December 31, 2018
 
December 31, 2017
Statutory Federal income tax rate
21.0
 %
 
21.0
 %
 
35.0
 %
State income taxes, net of federal benefits
3.4
 %
 
1.4
 %
 
2.2
 %
Effect of foreign tax rates and tax planning
(21.2
)%
 
(8.1
)%
 
(16.5
)%
Effect of U.S. tax reform
 %
 
0.2
 %
 
(41.0
)%
Effect of unrecognized tax benefits
3.7
 %
 
0.8
 %
 
(0.3
)%
Change in valuation allowance
6.0
 %
 
0.7
 %
 
3.6
 %
Goodwill impairment
36.5
 %
 
 %
 
 %
Other, net
(0.7
)%
 
0.6
 %
 
2.2
 %
Effective tax rate
48.7
 %
 
16.6
 %
 
(14.8
)%

The increase in the effective income tax rate for 2019 versus 2018 is primarily driven by the $668.3 million impairment loss attributable to nondeductible goodwill of our Canada reporting unit, increased valuation allowances, the recognition of other one-time tax expenses in 2019, as well as cycling one-time tax benefits in 2018.
The increase in the effective income tax rate for 2018 versus 2017 was primarily driven by the one-time impacts of the 2017 Tax Act recognized when enacted in 2017, most notably the remeasurement of our deferred taxes from the reduction in the U.S. statutory federal corporate income tax rate.
Additionally, our foreign businesses operate in jurisdictions with statutory income tax rates that differ from the U.S. Federal statutory rate. Specifically, the statutory income tax rates in the countries in Europe in which we operate range from 9% to 25%, and Canada has a statutory income tax rate of approximately 26%.
Separately, since 2018, the U.S. Department of Treasury has continued to issue proposed, temporary and final regulations to implement provisions of the 2017 Tax Act. We have continued to monitor these and while temporary and final regulations have not yet resulted in material adverse impacts to us, there are certain proposed regulations, which are not yet considered law, that if finalized as proposed, could result in a material adverse impact on our consolidated financial statements. Specifically, if certain of the proposed regulations are finalized as proposed with full retroactive application to January 1, 2018, then we would be required to recognize estimated income tax expense of approximately $100 million to $200 million upon enactment related to the proposed retroactive period through December 31, 2019, for fiscal years 2018 and 2019. This estimated range contains significant uncertainty and could be impacted by various factors, including any differences between the proposed and ultimately finalized regulations.
 
As of
 
December 31, 2019
 
December 31, 2018
 
(In millions)
Non-current deferred tax assets:
 
 
 
Compensation-related obligations
$
54.8

 
$
55.8

Pension and postretirement benefits
115.9

 
121.4

Foreign exchange gain/loss
1.8

 

Derivative instruments
41.8

 
8.9

Tax credit carryforwards
41.1

 
54.5

Tax loss carryforwards
267.1

 
1,201.8

Accrued liabilities and other
48.3

 
76.2

Valuation allowance
(73.8
)
 
(1,040.0
)
Total non-current deferred tax assets
$
497.0

 
$
478.6

Non-current deferred tax liabilities:
 
 
 
Fixed assets
353.7

 
345.8

Partnerships and investments
18.8

 
17.0

Foreign exchange gain/loss

 
3.0

Intangible assets
2,279.9

 
2,167.1

Total non-current deferred tax liabilities
$
2,652.4

 
$
2,532.9

Net non-current deferred tax assets

 

Net non-current deferred tax liabilities
$
2,155.4

 
$
2,054.3


The overall increase in net deferred tax liabilities of $101.1 million in 2019 is primarily attributable to the amortization of goodwill and indefinite-lived intangible assets resulting from the Acquisition for U.S. tax purposes. Additionally, our deferred tax balances are also impacted by foreign exchange rates, as a significant amount of our deferred tax assets and liabilities are in foreign jurisdictions.
Our deferred tax valuation allowances are primarily the result of uncertainties regarding the future realization of recorded tax benefits on tax loss carryforwards from operations in various jurisdictions. The measurement of deferred tax assets is reduced by a valuation allowance if, based upon available evidence, it is more likely than not that the deferred tax assets will not be realized. We have evaluated the realizability of our deferred tax assets in each jurisdiction by assessing the adequacy of expected taxable income, including the reversal of existing temporary differences, historical and projected operating results and the availability of prudent and feasible tax planning strategies. Based on this analysis, we have determined that the valuation allowances recorded in each period presented are appropriate.
We have deferred tax assets for U.S. tax carryforwards that expire between 2020 and 2039 of $63.2 million and $76.7 million as of December 31, 2019 and December 31, 2018, respectively. We have foreign tax loss carryforwards that expire between 2020 and 2039 of $233.8 million and $195.0 million as of December 31, 2019 and December 31, 2018, respectively. We have foreign tax loss carryforwards that do not expire of $11.2 million and $984.6 million as of December 31, 2019 and December 31, 2018, respectively.
The significant year over year decrease in our deferred tax valuation allowances as well as our tax loss carryforwards that do not expire is attributable to the liquidation of certain European entities, resulting in the write-off of their loss carryforwards and associated full valuation allowances. As a result, these write-offs did not have an impact to the consolidated statement of operations, balance sheet and statement of cash flows.
 
As of
 
December 31, 2019
 
December 31, 2018
 
(In millions)
Domestic net non-current deferred tax liabilities
$
1,488.5

 
$
1,353.2

Foreign net non-current deferred tax assets
34.8

 
26.8

Foreign net non-current deferred tax liabilities
701.7

 
727.9

Net non-current deferred tax liabilities
$
2,155.4

 
$
2,054.3


The 2019 and 2018 amounts above exclude $68.4 million and $47.8 million, respectively, of unrecognized tax benefits that have been recorded as a reduction of non-current deferred tax assets, which is presented within non-current deferred tax liabilities due to jurisdictional netting on the consolidated balance sheets.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits, excluding interest and penalties, is as follows:
 
For the years ended
 
December 31, 2019
 
December 31, 2018
 
December 31, 2017
 
(In millions)
Balance at beginning of year
$
51.6

 
$
41.9

 
$
39.7

Additions for tax positions related to the current year
18.1

 
22.3

 
13.5

Additions for tax positions of prior years

 
0.7

 
13.6

Reductions for tax positions of prior years

 
(8.4
)
 

Settlements

 

 
(12.8
)
Release due to statute expirations
(0.8
)
 
(1.6
)
 
(14.6
)