MOLSON COORS BEVERAGE CO, 10-Q filed on 4/30/2020
Quarterly Report
v3.20.1
Document and Entity Information Document - shares
3 Months Ended
Mar. 31, 2020
Apr. 23, 2020
Entity Information [Line Items]    
Document Type 10-Q  
Entity Central Index Key 0000024545  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q1  
Current Fiscal Year End Date --12-31  
Amendment Flag false  
Document Quarterly Report true  
Document Period End Date Mar. 31, 2020  
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 P.O. BOX 4030, NH353  
Entity Address, City or Town Golden  
Entity Address, State or Province CO  
Entity Address, Country US  
Entity Address, Postal Zip Code 80401  
City Area Code 303  
Local Phone Number 927-2337  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Common Class A [Member]    
Entity Information [Line Items]    
Entity Common Stock, Shares Outstanding   2,560,668
Common Class B [Member]    
Entity Information [Line Items]    
Entity Common Stock, Shares Outstanding   196,472,022
Class A Exchangeable Shares [Member]    
Entity Information [Line Items]    
Entity Common Stock, Shares Outstanding   2,725,047
Class B Exchangeable Shares [Member]    
Entity Information [Line Items]    
Entity Common Stock, Shares Outstanding   14,826,118
NEW YORK STOCK EXCHANGE, INC. [Member] | Common Class A [Member]    
Entity 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. [Member] | Common Class B [Member]    
Entity Information [Line Items]    
Title of 12(b) Security Class B Common Stock, $0.01 par value  
Trading Symbol TAP  
Security Exchange Name NYSE  
Senior Notes Due 2024 [Member] | NEW YORK STOCK EXCHANGE, INC. [Member]    
Entity Information [Line Items]    
Title of 12(b) Security 1.25% Senior Notes due 2024  
Trading Symbol TAP  
Security Exchange Name NYSE  
CANADA    
Entity Information [Line Items]    
Entity Address, Address Line Two 1555 Notre Dame Street East  
Entity Address, City or Town Montréal  
Entity Address, State or Province QC  
Entity Address, Country CA  
Entity Address, Postal Zip Code H2L 2R5  
City Area Code 514  
Local Phone Number 521-1786  
v3.20.1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
shares in Millions, $ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Sales $ 2,537.8 $ 2,800.1
Excise taxes (435.0) (496.8)
Net Sales 2,102.8 2,303.3
Cost of Goods Sold (1,479.0) (1,413.0)
Gross profit 623.8 890.3
Marketing, general and administrative expenses (629.7) (655.2)
Special items, net (86.6) (13.0)
Operating income (loss) (92.5) 222.1
Interest income (expense), net (68.9) (73.3)
Other pension and postretirement benefits (costs), net 7.5 8.6
Other income (expense), net (4.8) 23.9
Income (loss) before income taxes (158.7) 181.3
Income tax benefit (expense) 43.3 (32.2)
Net Income (loss) (115.4) 149.1
Net (income) loss attributable to noncontrolling interests (1.6) 2.3
Net income (loss) attributable to Molson Coors Beverage Company $ (117.0) $ 151.4
Basic net income (loss) attributable to Molson Coors Beverage Company per share:    
Income (Loss) from Continuing Operations, Per Basic Share $ (0.54) $ 0.70
Diluted net income (loss) attributable to Molson Coors Beverage Company per share:    
Income (Loss) from Continuing Operations, Per Diluted Share $ (0.54) $ 0.70
Weighted average shares - basic (in shares) 216.7 216.5
Dilutive effect of share-based awards 0.0 0.4
Weighted average shares - diluted (in shares) 216.7 216.9
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 2.9 1.1
v3.20.1
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Millions
Mar. 31, 2020
Dec. 31, 2019
Current assets:    
Cash and cash equivalents $ 666.1 $ 523.4
Accounts receivable, net 637.8 714.8
Other receivables, net 107.1 105.5
Total inventories, net 681.5 615.9
Other current assets, net 280.0 224.8
Total current assets 2,372.5 2,184.4
Properties, net 4,393.6 4,546.5
Goodwill 7,539.0 7,631.4
Other intangibles, net 13,305.1 13,656.0
Other assets 850.9 841.5
Total assets 28,461.1 28,859.8
Current liabilities:    
Accounts payable and other current liabilities 2,558.4 2,767.3
Current portion of long-term debt and short-term borrowings 1,445.0 928.2
Total current liabilities 4,003.4 3,695.5
Long-term debt 8,032.1 8,109.5
Pension and postretirement benefits 693.9 716.6
Deferred tax liabilities 2,184.2 2,258.6
Other liabilities 601.5 406.5
Total liabilities 15,515.1 15,186.7
Capital stock:    
Preferred stock, $0.01 par value (authorized: 25.0 shares; none issued) 0.0 0.0
Paid-in capital 6,780.7 6,773.6
Retained earnings 7,376.2 7,617.0
Accumulated other comprehensive income (loss) (1,661.3) (1,162.2)
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 12,686.6 13,419.4
Noncontrolling interests 259.4 253.7
Total equity 12,946.0 13,673.1
Total liabilities and equity 28,461.1 28,859.8
Class A common stock, voting [Member]    
Capital stock:    
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: 205.9 shares and 205.7 shares, respectively) 0.0 0.0
Total equity 0.0 0.0
Class B common stock, non-voting [Member]    
Capital stock:    
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: 205.9 shares and 205.7 shares, respectively) 2.1 2.1
Total equity 2.1 2.1
Class A Exchangeable Shares [Member]    
Capital stock:    
Exchangeable shares - Class A, no par value (issued and outstanding: 2.7 shares and 2.7 shares, respectively); Class B, no par value (issued and outstanding: 14.8 shares and 14.8 shares, respectively) 102.5 102.5
Total equity 102.5 102.5
Class B Exchangeable Shares [Member]    
Capital stock:    
Exchangeable shares - Class A, no par value (issued and outstanding: 2.7 shares and 2.7 shares, respectively); Class B, no par value (issued and outstanding: 14.8 shares and 14.8 shares, respectively) 557.8 557.8
Total equity $ 557.8 $ 557.8
v3.20.1
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Net income (loss) including noncontrolling interests $ (115.4) $ 149.1
Other comprehensive income (loss), net of tax:    
Foreign currency translation adjustments (373.5) 71.5
Unrealized gain (loss) on derivative instruments (127.9) (29.7)
Reclassification of derivative (gain) loss to income 0.0 0.1
Amortization of net prior service (benefit) cost and net actuarial (gain) loss to income (1.3) (0.6)
Ownership share of unconsolidated subsidiaries' other comprehensive income (loss) 0.7 1.0
Total other comprehensive income (loss), net of tax (502.0) 42.3
Comprehensive income (loss) (617.4) 191.4
Comprehensive (income) loss attributable to noncontrolling interests 1.3 2.1
Comprehensive income (loss) attributable to Molson Coors Beverage Company (616.1) 193.5
Consolidated [Member]    
Other comprehensive income (loss), net of tax:    
Comprehensive income (loss) attributable to Molson Coors Beverage Company $ (616.1) $ 193.5
v3.20.1
CONSOLIDATED BALANCE SHEETS (PARENTHETICALS) - $ / shares
shares in Millions
Mar. 31, 2020
Dec. 31, 2019
Preferred Stock, Non-voting, No Par Value $ 0.01 $ 0.01
Preferred Stock, Shares Authorized 25.0 25.0
Preferred Stock, Shares Issued 0.0 0.0
Treasury Stock, Shares 9.5 9.5
Common Class A [Member]    
Common Stock, Par or Stated Value Per Share $ 0.01 $ 0.01
Common Stock, Shares Authorized 500.0 500.0
Common Stock, Shares, Issued 2.6 2.6
Common Stock, Shares, Outstanding 2.6 2.6
Common Class B [Member]    
Common Stock, Par or Stated Value Per Share $ 0.01 $ 0.01
Common Stock, Shares Authorized 500.0 500.0
Common Stock, Shares, Issued 205.9 205.7
Class A Exchangeable Shares [Member]    
Exchangeable Stock, No Par Value $ 0 $ 0
Exchangeable Stock, Shares Issued 2.7 2.7
Exchangeable Stock, Shares Outstanding 2.7 2.7
Class B Exchangeable Shares [Member]    
Exchangeable Stock, No Par Value $ 0 $ 0
Exchangeable Stock, Shares Issued 14.8 14.8
Exchangeable Stock, Shares Outstanding 14.8 14.8
v3.20.1
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Income (Loss) from Continuing Operations, Net of Tax, Including Portion Attributable to Noncontrolling Interest $ (115.4) $ 149.1
Adjustments to reconcile net income (loss) to net cash provided by operating activities:    
Depreciation and amortization 256.5 212.9
Amortization of debt issuance costs and discounts 2.1 3.7
Share-based compensation 5.9 11.4
(Gain) loss on sale or impairment of properties and other assets, net (0.2) 0.5
Unrealized (gain) loss on foreign currency fluctuations and derivative instruments, net 103.3 (57.2)
Income tax (benefit) expense (43.3) 32.2
Income tax (paid) received (9.2) (8.5)
Interest expense, excluding interest amortization 67.6 72.1
Interest paid (90.3) (103.1)
Change in current assets and liabilities and other (195.1) (411.6)
Net Cash Provided by (Used in) Operating Activities (18.1) (98.5)
Cash flows from investing activities:    
Additions to properties (225.1) (198.0)
Proceeds from sales of properties and other assets 1.6 2.4
Other 3.5 1.0
Net cash provided by (used in) investing activities (220.0) (194.6)
Cash flows from financing activities:    
Exercise of stock options under equity compensation plans 4.0 0.6
Dividends paid (123.4) (88.7)
Payments on debt and borrowings (502.9) (1,067.2)
Proceeds on debt and borrowings 1.0 0.0
Net proceeds from (payments on) revolving credit facilities and commercial paper 1,025.5 604.3
Change in overdraft balances and other (5.5) 16.2
Net cash provided by (used in) financing activities 398.7 (534.8)
Cash and cash equivalents:    
Net increase (decrease) in cash and cash equivalents 160.6 (827.9)
Effect of foreign exchange rate changes on cash and cash equivalents (17.9) 4.4
Balance at beginning of year 523.4 1,057.9
Balance at end of period $ 666.1 $ 234.4
v3.20.1
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND NONCONTROLLING INTERESTS - USD ($)
$ in Millions
Total
Class A common stock, voting [Member]
Common Class B [Member]
Exchangeable shares issued, Class A
Exchangeable shares issued, Class B
Paid-in capital
Retained earnings
AOCI Attributable to Parent [Member]
Common stock held in treasury, Class B
Noncontrolling interest
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]                    
Shares issued under equity compensation plan (8.2)         (8.2)        
Amortization of share-based compensation 11.3         11.3        
Net income (loss) including noncontrolling interests 149.1           151.4     (2.3)
Other comprehensive income (loss), net of tax 42.3             42.1   0.2
Initial Application Period Cumulative Effect Transition for Accounting Standards Update 2016-02 32.0           32.0      
Tax Cuts and Jobs Act, Reclassification from AOCI to Retained Earnings, Tax Effect 0.0           74.8 (74.8)    
Contributions from noncontrolling interests 14.5                 14.5
Dividends declared and paid (88.7)           (88.7)     0.0
Balance at Mar. 31, 2019 13,888.1 0.0 2.0 103.2 557.6 6,776.2 7,862.4 (1,182.7) (471.4) 240.8
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
Increase (Decrease) in Stockholders' Equity [Roll Forward]                    
Shares issued under equity compensation plan 1.2         1.2        
Amortization of share-based compensation 5.9         5.9        
Acquisition of business and purchase of noncontrolling interest (0.1)                 (0.1)
Net income (loss) including noncontrolling interests (115.4)           (117.0)     1.6
Other comprehensive income (loss), net of tax (502.0)             (499.1)   (2.9)
Contributions from noncontrolling interests 8.6                 8.6
Distributions and dividends to noncontrolling interests (1.5)                 (1.5)
Dividends declared and paid (123.8)           (123.8)     0.0
Balance at Mar. 31, 2020 $ 12,946.0 $ 0.0 $ 2.1 $ 102.5 $ 557.8 $ 6,780.7 $ 7,376.2 $ (1,661.3) $ (471.4) $ 259.4
v3.20.1
Basis of Presentation and Summary of Significant Accounting Policies
3 Months Ended
Mar. 31, 2020
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. As further discussed below, on January 1, 2020, we changed our management structure from a corporate center and four segments to two segments - North America and Europe. Our International segment was reconstituted with the Africa and Asia Pacific businesses reporting into the Europe segment and the remaining International business reporting into the North America segment. Accordingly, effective January 1, 2020, our reporting segments include: North America (North America segment), operating in the U.S., Canada and various countries in Latin and South America; and Europe (Europe segment), operating in Bulgaria, Croatia, Czech Republic, Hungary, Montenegro, the Republic of Ireland, Romania, Serbia, the U.K., various other European countries, and certain countries within Africa and Asia Pacific. We have recast the historical presentation of segment information as a result of these reporting segment changes accordingly.
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.
The accompanying unaudited condensed consolidated interim financial statements reflect all adjustments which are necessary for a fair statement of the financial position, results of operations and cash flows for the periods presented in accordance with U.S. GAAP. Such unaudited interim condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations.
These unaudited condensed consolidated interim financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2019 ("Annual Report"), and have been prepared on a consistent basis with the accounting policies described in Note 1 of the Notes to the Audited Consolidated Financial Statements included in our Annual Report, except as noted in Note 2, "New Accounting Pronouncements" as well as the changes to our reportable segments and reporting units as discussed above and in Note 3, "Segment Reporting" and Note 7, "Goodwill and Intangible Assets," respectively.
The results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results that may be achieved for the full year.
Due to the anti-dilutive effect resulting from the reported net loss attributable to MCBC for the three months ended March 31, 2020, the impact of potentially dilutive securities has been excluded from the quarterly calculation of weighted-average shares for diluted EPS for the first quarter of 2020.
Coronavirus Global Pandemic
On March 11, 2020, the World Health Organization characterized the outbreak of the novel coronavirus disease, known as COVID-19, as a global pandemic and recommended containment and mitigation measures. We are actively monitoring the impact of the coronavirus pandemic, which has had, and we currently expect will continue to have, a material adverse effect on our operations, liquidity, financial condition and financial results for our full year 2020 and, possibly, beyond. The extent to which our operations will be impacted by the pandemic will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including new information which may emerge concerning the severity and duration of the outbreak and actions by government authorities to contain the pandemic or treat its impact, among other things.
In order to support and demonstrate our commitment to the continued viability of the many bars and restaurants which have been negatively impacted by the coronavirus pandemic, we have initiated temporary keg relief programs in many of our markets. As part of these voluntary programs, we have committed to provide customers with reimbursements for untapped kegs that meet certain established return requirements. As a result, during the first quarter of 2020, we recognized a reduction to net sales and corresponding liability of $31.5 million reflecting estimated sales returns and reimbursements through these keg relief programs. This estimate was derived considering various factors, including but not limited to, the actual amount of previously sold keg product eligible for reimbursement, along with the assumed length of time the product has been at a customer location to estimate the number of kegs which remain untapped. Additionally, during the first quarter of 2020, we recognized charges of $18.5 million within cost of goods sold related to obsolete finished goods keg inventories that are not expected to be sold
within our freshness specifications, as well as the estimated costs to facilitate the above mentioned keg returns. As of March 31, 2020 and December 31, 2019, our aggregate allowance for obsolete inventories was approximately $22 million and $11 million, respectively. These estimates are subject to change, and actual results could deviate from our current estimates due to many factors, including, but not limited to, the number of customers ultimately participating in the voluntary keg relief programs and the number of untapped kegs in the market relative to our expectations. Further, the actual duration of the coronavirus pandemic, including the length of government-mandated closures or ceased sit-down service limitations at bars and restaurants coupled with the subsequent economic recovery period relative to the assumptions utilized to derive these estimates, could result in further charges due to incremental finished goods keg inventory in certain of our Central and Eastern European markets becoming obsolete in future periods.
Additionally, we continue to monitor the impacts of the coronavirus pandemic on our customers’ liquidity and capital resources and therefore our ability to collect, or the timeliness of collection of our accounts receivable. While these receivables are not concentrated in any specific customer and our allowance on these receivables factors in expected credit loss, continued disruption and declines in the global economy could result in difficulties in our ability to collect and require increases to our allowance for doubtful accounts. As of both March 31, 2020 and December 31, 2019, our allowance for trade receivables was approximately $12 million, and allowance activity was immaterial during the three months ended March 31, 2020.
For considerations of the effects of the coronavirus pandemic and related potential impairment risks to our goodwill and indefinite-lived intangible assets, see Note 7, "Goodwill and Intangible Assets."
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. As discussed above, in connection with these consolidation activities, effective January 1, 2020, we changed our management structure to two segments - North America and Europe. We began to incur charges related to these restructuring activities during the fourth quarter of 2019 and have continued to incur charges in 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," Note 5, "Special Items" and Note 7, "Goodwill and Intangible Assets" for further discussion of the impacts of this plan.
Non-Cash Activity
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. See Note 4, "Investments" for further discussion. We also had non-cash activities primarily related to capital expenditures incurred but not yet paid of $153.5 million and $112.7 million during the three months ended March 31, 2020 and March 31, 2019, respectively.
Other than the activity mentioned above and the supplemental non-cash activity related to the recognition of leases further discussed in Note 13, "Leases," there was no other significant non-cash activity during the three months ended March 31, 2020 and March 31, 2019.
Share-Based Compensation
During the first quarter of 2020, we granted stock options, RSUs and PSUs to certain officers and other eligible employees, and recognized share-based compensation expense of $5.9 million and $11.4 million during the three months ended March 31, 2020 and March 31, 2019, respectively. The reduction in share-based compensation expense in the first quarter of 2020 was driven primarily by a decline in 2020 in immediate expense recognition for awards granted to certain retirement eligible employees, as well as a reduction in expense relative to performance based awards as a result of the achievement of certain performance conditions no longer being deemed probable.
v3.20.1
New Accounting Pronouncements
3 Months Ended
Mar. 31, 2020
New Accounting Pronouncements and Changes in Accounting Principles [Abstract]  
New Accounting Pronouncements, Policy [Policy Text Block] New Accounting Pronouncements
New Accounting Pronouncements Recently Adopted
In June 2016, the FASB issued 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. We adopted this guidance in the first quarter of 2020, which did not 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. We adopted this guidance prospectively in the first quarter of 2020, which did not have a material impact on our financial statements. However, the adoption of this guidance resulted 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 beginning in the first quarter of 2020.
New Accounting Pronouncements Not Yet Adopted
In March 2020, the FASB issued authoritative guidance which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform and are effective for all entities as of March 12, 2020 through December 31, 2022. We are currently evaluating the potential impact of this guidance on our financial statements.
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 unaudited condensed consolidated interim financial statements.
v3.20.1
Segment Reporting
3 Months Ended
Mar. 31, 2020
Segment Reporting [Abstract]  
Segment Reporting Segment Reporting
Our reporting segments are based on the key geographic regions in which we operate, and previously included the U.S. segment, Canada segment, Europe segment and International segment. As part of our revitalization plan announced in the fourth quarter of 2019, 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 from a corporate center and four segments to two segments - North America and Europe. The North America segment consolidates the United States, Canada and corporate center, with a centralized North American leadership team, integrated North American supply chain network and centralized marketing and support functions, enabling us to move more quickly with an integrated portfolio strategy. The Europe segment allows for standalone operations, developed and supported by a European-based team, including local leadership, commercial, supply chain and support functions. The previous International segment was reconstituted to more effectively grow our global brands with the Africa and Asia Pacific businesses reporting into the Europe segment and the remaining International business reporting into the North America segment. As a result of these structural changes, the review of discrete financial information by our chief operating decision maker, our President and Chief Executive Officer, is now performed only at the consolidated North America and Europe geographic segment level, which is the basis on which our chief operating decision maker evaluates the performance of the business and allocates resources accordingly.
We also have certain activity that is not allocated to our segments, which has been reflected as “Unallocated” below. Specifically, "Unallocated" activity primarily includes financing related costs such as interest expense and income, foreign exchange gains and losses on intercompany balances related to financing and other treasury-related activities, 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. Additionally, only the service cost component of net periodic pension and OPEB cost is reported within each operating segment, and all other components remain unallocated.
Historical results have been recast to retrospectively reflect these changes in segment reporting.
Summarized Financial Information
No single customer accounted for more than 10% of our consolidated sales for the three months ended March 31, 2020 or March 31, 2019. 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 upon consolidation and are primarily related to North America segment sales to the Europe segment.
The following tables present net sales and income (loss) before income taxes by segment:
 
Three Months Ended
 
March 31, 2020
 
March 31, 2019
 
(In millions)
North America
$
1,789.7

 
$
1,932.6

Europe
317.6

 
375.7

Inter-segment net sales eliminations
(4.5
)
 
(5.0
)
Consolidated net sales
$
2,102.8

 
$
2,303.3


 
Three Months Ended
 
March 31, 2020
 
March 31, 2019
 
(In millions)
North America(1)(2)
$
76.2

 
$
245.9

Europe
(76.8
)
 
(38.4
)
Unallocated(3)
(158.1
)
 
(26.2
)
Consolidated income (loss) before income taxes
$
(158.7
)
 
$
181.3


(1)
The decrease during the three months ended March 31, 2020 was driven primarily by gross profit declines due to unfavorable timing of shipments, including brewery downtime associated with the Milwaukee tragedy, increased special charges, the recognition of estimated keg sales returns and finished good obsolescence reserves, as well as the unrealized mark-to-market changes on our HEXO Corp. ("HEXO") warrants.
(2)
During the first quarter of 2019, we received payment and recorded a gain of $1.5 million resulting from a purchase price adjustment related to the historical sale of Molson Inc.’s ownership interest in the Montreal Canadiens, which is considered an affiliate of MCBC.
(3)
Related to the unrealized mark-to-market valuation on our commodity hedge positions, we recorded an unrealized loss of $99.1 million during the three months ended March 31, 2020, compared to an unrealized gain of $34.1 million during the three months ended March 31, 2019.
Income (loss) before income taxes includes the impact of special items. Refer to Note 5, "Special Items" for further discussion.
The following table presents total assets by segment:
 
As of
 
March 31, 2020
 
December 31, 2019
 
(In millions)
North America
$
23,355.1

 
$
23,360.2

Europe
5,106.0

 
5,499.6

Consolidated total assets
$
28,461.1


$
28,859.8


v3.20.1
Investments
3 Months Ended
Mar. 31, 2020
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 March 31, 2020 or December 31, 2019. We have not provided any financial support to
any of our VIEs during the year 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.
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 LP ("Truss"). Our unconsolidated VIEs are Brewers Retail Inc. ("BRI") and Brewers' Distributor Ltd. ("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 $51.5 million and $37.7 million recorded as of March 31, 2020 and December 31, 2019, respectively, which is presented within accounts payable and other current liabilities on the unaudited condensed 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 unaudited condensed 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.
Consolidated VIEs
The following summarizes the assets and liabilities of our consolidated VIEs (including noncontrolling interests):
 
As of
 
March 31, 2020
 
December 31, 2019
 
Total Assets
 
Total Liabilities
 
Total Assets
 
Total Liabilities
 
(In millions)
RMMC/RMBC
$
201.8

 
$
22.4

 
$
207.4

 
$
17.9

Other
$
71.9

 
$
12.2

 
$
65.3

 
$
20.8


v3.20.1
Special Items
3 Months Ended
Mar. 31, 2020
Unusual or Infrequent Items, or Both [Abstract]  
Special Items Special Items
We have incurred charges or realized benefits 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. As such, we have separately classified these charges (benefits) as special items.
 
Three Months Ended
 
March 31, 2020
 
March 31, 2019
 
(In millions)
Employee-related charges
 
 
 
Restructuring
$
32.1

 
$
3.7

Impairments or asset abandonment charges
 
 
 
North America - Asset abandonment(1)
54.2

 
8.4

Europe - Asset abandonment
0.3

 
0.6

Termination fees and other (gains) losses
 
 
 
North America

 
0.2

Europe

 
0.1

Total Special items, net
$
86.6

 
$
13.0


(1)
Following management approval in December 2019, in January 2020, we announced plans to cease production at our Irwindale, California brewery and entered into an option agreement with Pabst Brewing Company, LLC ("Pabst"), granting Pabst an option to purchase our Irwindale, California brewery, including plant equipment and machinery and the underlying land.
Pursuant to the agreement, Pabst has 120 days from receipt of the previously provided notice of the Irwindale brewery closure from Molson Coors Beverage Company USA LLC ("MCBC USA" formerly known as MillerCoors LLC) to exercise the option to purchase the Irwindale brewery. If Pabst exercises its option to purchase the Irwindale brewery, the
agreement provides (i) the purchase price will be $150 million, subject to adjustment as further specified in the agreement, (ii) the closing will be within six months from Pabst’s exercise of the option, but no earlier than September 1, 2020 and no later than December 31, 2020, subject to the satisfaction of certain customary closing conditions, (iii) for the treatment and allocation of certain liabilities related to the operation of the Irwindale brewery prior to closing, and (iv) for customary representations and warranties and certain post-closing restrictions on Pabst regarding the operations and disposal of the Irwindale brewery. In conjunction with the agreement, MCBC USA and Pabst also executed mutual releases of claims related to their ongoing litigation and agreed to dismiss the litigation with prejudice.
Charges associated with the planned brewery closure for three months ended March 31, 2020 totaled $58 million and consist primarily of accelerated depreciation in excess of normal depreciation, as well as other closure costs including employee related costs. We will continue to incur special charges during each reporting period through the planned closure of the brewery in September 2020. Remaining special charges associated with the planned closure are expected to be approximately $75 million to $100 million, consisting primarily of accelerated depreciation charges. However, this estimated range contains significant uncertainty, and actual results could differ materially from these estimates due to uncertainty regarding the ultimate net cost associated with the disposition of assets, restructuring charges, as well as the overall outcome of the Pabst purchase option, which if exercised, could significantly impact these estimates.
Separately, during the three months ended March 31, 2020 and March 31, 2019 we incurred asset abandonment charges, consisting primarily of accelerated depreciation in excess of normal depreciation related to the closure of the Vancouver brewery, which occurred in the third quarter of 2019, and the planned closure of the Montreal brewery, which is currently expected to occur in 2021. We currently expect to incur additional charges, including estimated accelerated depreciation charges in excess of normal depreciation of approximately CAD 26 million, through final closure of the Montreal brewery. However, due to the uncertainty inherent in our estimates, these estimated future accelerated depreciation charges as well as the timing of the brewery closure are subject to change.
Restructuring Activities
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, certain impacted employees have been extended an opportunity to continue their employment with MCBC in the new organization and locations and, for those not continuing with MCBC, certain of such employees have been asked to provide transition assistance and offered severance and retention packages in connection with their termination of service. We expect the costs associated with the restructuring to be substantially recognized by the end of fiscal year 2021. After taking into account all changes in each of the business units, including Europe, the plan is expected to reduce employment levels, in aggregate, by approximately 500 to 600 employees globally.
In connection with these consolidation activities and related organizational and personnel changes, we currently expect to incur certain cash and non-cash restructuring charges related to employee relocation, severance, retention and transition costs, non-cash asset related costs, lease exit costs in connection with our office lease in Denver, Colorado, and other transition activities currently estimated in the range of approximately $90 million to $120 million in the aggregate, the majority of which will be cash charges that we began recognizing in the fourth quarter of 2019, and will be further spread through the balance of fiscal years 2020 and 2021. In the first quarter of 2020, we recognized severance and retention charges of $22.7 million, and our remaining accrued restructuring balance related to the revitalization plan as of March 31, 2020 was approximately $43 million. Actual severance and retention costs related to this restructuring, which are primarily being recognized ratably over the employees' required future service period, may differ from original estimates based on actual employee turnover levels prior to achieving severance and retention eligibility requirements. Employee relocation charges are recognized in the period incurred and were immaterial in the first quarter of 2020.
Other than those noted above, there were no material changes to our restructuring activities since December 31, 2019, as reported in Part II - Item 8. Financial Statements and Supplementary Data, Note 7, "Special Items" in our Annual Report. We continually evaluate our cost structure and seek opportunities for further efficiencies and cost savings as part of ongoing and new initiatives. As such, we may incur additional restructuring related charges or adjustments to previously recorded charges in the future, however, we are unable to estimate the amount of charges at this time.
The accrued restructuring balances as of March 31, 2020 represent expected future cash payments required to satisfy our remaining obligations to terminated employees, the majority of which we expect to be paid in the next 12 months.
 
North America
 
Europe
 
Total
 
(In millions)
As of December 31, 2019
$
42.6

 
$
4.5

 
$
47.1

Charges incurred
26.2

 
7.2

 
33.4

Payments made
(19.4
)
 
(3.5
)
 
(22.9
)
Changes in estimates
(1.3
)
 

 
(1.3
)
Foreign currency and other adjustments
(0.9
)
 
(0.2
)
 
(1.1
)
As of March 31, 2020
$
47.2

 
$
8.0

 
$
55.2

 
North America
 
Europe
 
Total
 
(In millions)
As of December 31, 2018
$
24.5

 
$
1.1

 
$
25.6

Charges incurred and changes in estimates
1.0

 
2.7

 
3.7

Payments made
(12.0
)
 
(0.9
)
 
(12.9
)
As of March 31, 2019
$
13.5

 
$
2.9

 
$
16.4



v3.20.1
Income Tax
3 Months Ended
Mar. 31, 2020
Income Tax Disclosure [Abstract]  
Income Tax Income Tax
 
Three Months Ended
 
March 31, 2020
 
March 31, 2019
Effective tax rate
27
%
 
18
%
The increase in the effective tax rate during the first quarter of 2020 was primarily driven by an increase in net discrete tax benefits recognized in the first quarter of 2020, along with a pretax loss in the first quarter of 2020, versus pretax income in the first quarter of 2019. Specifically, we recognized a net discrete tax benefit of $13.9 million in the first quarter of 2020, versus a $1.2 million net discrete tax benefit in the first quarter of 2019.
Our tax rate is volatile and may increase or decrease with changes in, among other things, the amount and source of income or loss, our ability to utilize foreign tax credits, excess tax benefits or deficiencies from share-based compensation, changes in tax laws, and the movement of liabilities established pursuant to accounting guidance for uncertain tax positions as statutes of limitations expire, positions are effectively settled, or when additional information becomes available. There are proposed or pending tax law changes in various jurisdictions and other changes to regulatory environments in countries in which we do business that, if enacted, may have an impact on our effective tax rate.
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, most recently, on April 7, 2020, the U.S. Department of Treasury enacted final hybrid regulations with full retroactive application to January 1, 2018, with a few exceptions. We are currently in the process of reviewing and interpreting the finalized regulations related to their impact on our tax positions, as well as evaluating the impact on our financial statements. Based on our preliminary review of these finalized regulations, we currently expect to recognize estimated income tax expense of approximately $100 million to $200 million upon enactment in the second quarter of 2020, related to the retroactive period of January 1, 2018 through March 31, 2020, for fiscal years 2018, 2019, and the first quarter of 2020. This estimated range considers the potential impacts associated with the possible technical interpretations of the regulations that could result following a full legal analysis.
v3.20.1
Goodwill and Intangible Assets
3 Months Ended
Mar. 31, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Intangible Assets Goodwill and Intangible Assets
 
North America(1)
 
Europe
 
Consolidated
Changes in Goodwill:
(In millions)
Balance as of December 31, 2019
$
6,146.6

 
$
1,484.8

 
$
7,631.4

Foreign currency translation
(16.7
)
 
(75.7
)
 
(92.4
)
Balance as of March 31, 2020
$
6,129.9

 
$
1,409.1

 
$
7,539.0


(1)
As a result of the structural changes resulting from the revitalization plan, we re-evaluated our reporting units and have combined our historical U.S. and Canada reporting units into a single North America reporting unit. There were no related changes to our Europe reporting unit. See further discussion below.
The gross amount of goodwill totaled approximately $8.2 billion and $8.3 billion as of March 31, 2020 and December 31, 2019, respectively. Accumulated impairment losses as of March 31, 2020 and December 31, 2019 totaled $629.4 million and $681.3 million, respectively, all of which was related to our North America segment.
The following table presents details of our intangible assets, other than goodwill, as of March 31, 2020:
 
Useful life
 
Gross
 
Accumulated
amortization
 
Net
 
(Years)
 
(In millions)
Intangible assets subject to amortization:
 
 
 
 
 
 
 
Brands
 10 - 50
 
$
4,830.7

 
$
(883.2
)
 
$
3,947.5

License agreements and distribution rights
 15 - 20
 
196.7

 
(86.8
)
 
109.9

Other
 3 - 40
 
124.0

 
(42.9
)
 
81.1

Intangible assets not subject to amortization:
 
 
 
 
 
 
 
Brands
 Indefinite
 
8,109.6

 

 
8,109.6

Distribution networks
 Indefinite
 
719.4

 

 
719.4

Other
 Indefinite
 
337.6

 

 
337.6

Total
 
 
$
14,318.0

 
$
(1,012.9
)
 
$
13,305.1


The following table presents details of our intangible assets, other than goodwill, as of December 31, 2019:
 
Useful life
 
Gross
 
Accumulated
amortization
 
Net
 
(Years)
 
(In millions)
Intangible assets subject to amortization:
 
 
 
 
 
 
 
Brands
10 - 50
 
$
5,036.3

 
$
(865.1
)
 
$
4,171.2

License agreements and distribution rights
15 - 20
 
202.0

 
(90.6
)
 
111.4

Other
3 - 40
 
124.0

 
(39.4
)
 
84.6

Intangible assets not subject to amortization:
 
 
 
 
 
 
 
Brands
Indefinite
 
8,172.4

 

 
8,172.4

Distribution networks
Indefinite
 
778.8

 

 
778.8

Other
Indefinite
 
337.6

 

 
337.6

Total
 
 
$
14,651.1

 
$
(995.1
)
 
$
13,656.0


The changes in the gross carrying amounts of intangible assets from December 31, 2019 to March 31, 2020 are primarily driven by the impact of foreign exchange rates, as a significant amount of intangible assets are denominated in foreign currencies.
Based on foreign exchange rates as of March 31, 2020, the estimated future amortization expense of intangible assets is as follows:
Fiscal year
 
Amount
 
 
(In millions)
2020 - remaining
 
$
161.0

2021
 
$
210.2

2022
 
$
204.8

2023
 
$
203.8

2024
 
$
203.8


Amortization expense of intangible assets was $54.9 million and $55.4 million for the three months ended March 31, 2020 and March 31, 2019, respectively. This expense is primarily presented within marketing, general and administrative expenses on the unaudited condensed consolidated statements of operations.
Reporting Unit Changes and Interim Impairment Testing
As of the date of completion of our 2019 impairment testing discussed above, the operations in each of the specific regions within our historical U.S., Canada, Europe and International segments were considered components based on the availability of discrete financial information and the regular review by segment management. We had further concluded that the components within the U.S., Canada and Europe segments each met the criteria of having similar economic characteristics and therefore we previously aggregated these components into the U.S., Canada and Europe reporting units, respectively. Additionally, we previously determined that the components within our International segment did not meet the criteria for aggregation, and therefore, the operations of our India business constituted a separate reporting unit at the component level, however, the associated goodwill balance was fully impaired in the third quarter of 2019.
As discussed in Note 3, "Segment Reporting," 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 from a corporate center and four segments to two segments - North America and Europe. These structural changes included leadership re-alignment with a centralized North America leadership team, an integrated North American supply chain network, and centralized marketing and innovations functions including movement to a single brand manager and North America marketing strategy for our major brands. Additionally, as part of our leadership re-alignment, we moved from two separate U.S. and Canada segment managers, to a single North America segment manager, our President and Chief Executive Officer, who reviews discrete financial information only at the consolidated North America segment level. As a result of these changes, we re-evaluated our historical reporting unit conclusions and have consolidated our previously separate U.S. and Canada reporting units into a single North America reporting unit effective January 1, 2020. There were no changes to our existing Europe reporting unit, which was considered to be at risk of future impairment following the completion of our October 1, 2019 annual impairment testing.
We completed an interim impairment assessment for our U.S. and Canada reporting units as of January 1, 2020 immediately prior to the reporting unit change, as well as an impairment assessment of the combined North America reporting unit immediately after the change, and determined that no impairments existed. Additionally, as the changes resulted in the combination of our historical U.S. and Canada reporting units into a single North America reporting unit, no further reallocation of goodwill was required.
Additionally, as a result of the structural changes discussed above, including the centralization of the brand management and strategy for our Coors brands across North America, we have aggregated our Coors brand indefinite-lived intangible asset in the U.S. and Coors Light distribution agreement indefinite-lived intangible asset in Canada into a single unit of accounting for the purpose of testing for impairment, effective January 1, 2020. We completed an interim impairment assessment for each individual indefinite-lived intangible asset immediately prior to aggregation, and determined that no impairments existed.
We have further evaluated whether the effects of the coronavirus pandemic, and related impacts to the interest rate environment, required an additional interim impairment assessment as of March 31, 2020. While factors are present that indicate that triggering events may exist, such as a decline in our market capitalization combined with weakened financial performance, current circumstances do not indicate that it is more likely than not that the fair values of our reporting units or indefinite-lived intangible assets have fallen below their carrying values. However, we believe that the effects of the coronavirus pandemic may, depending on severity and duration, place our North America and Europe reporting units and certain of our indefinite-lived intangible assets at risk of future impairment. We will continue to monitor the length and severity of the impacts of the pandemic to our business, and if the duration is prolonged and the severity of its impacts continues, this may indicate the need to perform future interim impairment analyses that could result in material impairments.
Key Assumptions
Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. The key assumptions used to derive the estimated fair values of our reporting units and indefinite-lived intangible assets are discussed in Part II—Item 8 Financial Statements, Note 10, "Goodwill and Intangible Assets" in our Annual Report, and represent Level 3 measurements.
Based on known facts and circumstances, we evaluate and consider recent events and uncertain items, as well as related potential implications, as part of our annual and interim assessments and incorporate into the analyses as appropriate. These facts and circumstances are subject to change and may impact future analyses. For example, we continue to monitor the challenges within the beer industry for further weakening or additional systemic structural declines, as well as for adverse changes in macroeconomic conditions such as the coronavirus pandemic that could significantly impact our immediate and
long-range results. Specifically, subsequent to the January 1, 2020 interim impairment assessments, the World Health Organization characterized the outbreak of the coronavirus disease as a global pandemic as further discussed in Note 1, “Basis of Presentation and Summary of Significant Accounting Policies.” Our business could be materially and adversely impacted by the coronavirus pandemic, and the related weakening of economic conditions could lead to a material impairment as the duration and severity of the pandemic and resulting impacts to our financial projections become further understood. Further, we are monitoring the impacts the coronavirus pandemic has on the market inputs used in calculating our discount rates, including risk-free rates, equity premiums and our cost of debt, which could result in a meaningful change to our weighted-average cost of capital calculation.
Separately, the Ontario government adopted a bill that, if enacted, could adversely impact the existing terms of the beer distribution and retail systems in the province, as further described in Note 12, "Commitments and Contingencies."
While historical performance and current expectations have resulted in fair values of our reporting units and indefinite-lived intangible assets equal to or in excess of carrying values, if our assumptions are not realized, it is possible that an impairment loss may need to be recorded in the future.
Definite-Lived Intangible Assets
Regarding definite-lived intangible assets, we continuously monitor the performance of the underlying assets for potential triggering events suggesting an impairment review should be performed. No such triggering events were identified in the first quarter of 2020 that resulted in an impairment.
v3.20.1
Debt
3 Months Ended
Mar. 31, 2020
Debt Disclosure [Abstract]  
Debt Debt
Debt obligations
 
As of
 
March 31, 2020
 
December 31, 2019
 
(In millions)
Long-term debt:
 
 
 
CAD 500 million 2.75% notes due September 2020
$
355.6

 
$
384.9

CAD 500 million 2.84% notes due July 2023
355.6

 
384.9

CAD 500 million 3.44% notes due July 2026
355.6

 
384.9

$500 million 2.25% notes due March 2020(1)(2)

 
499.8

$1.0 billion 2.1% notes due July 2021(2)
1,000.0

 
1,000.0

$500 million 3.5% notes due May 2022(1)
505.8

 
506.5

$2.0 billion 3.0% notes due July 2026
2,000.0

 
2,000.0

$1.1 billion 5.0% notes due May 2042
1,100.0

 
1,100.0

$1.8 billion 4.2% notes due July 2046
1,800.0

 
1,800.0

EUR 800 million 1.25% notes due July 2024
882.5

 
897.0

Finance leases and other
121.9

 
129.5

Less: unamortized debt discounts and debt issuance costs
(54.6
)
 
(56.7
)
Total long-term debt (including current portion)
8,422.4

 
9,030.8

Less: current portion of long-term debt
(390.3
)
 
(921.3
)
Total long-term debt
$
8,032.1

 
$
8,109.5

 
 
 
 
Short-term borrowings:
 
 
 
Revolving credit facility(3)
$
1,000.0

 
$

Commercial paper program(3)
25.5

 

Other short-term borrowings(4)
29.2

 
6.9

Current portion of long-term debt
390.3

 
921.3

Current portion of long-term debt and short-term borrowings
$
1,445.0

 
$
928.2


(1)
The fair value hedges related to these notes have been settled and are being amortized over the life of the respective note.
(2)
We repaid our $500 million 2.25% notes upon maturity in March 2020, at which time we also settled the associated cross currency swaps resulting in cash receipts of $3.2 million, which were classified as financing and investing activities in our unaudited condensed consolidated statement of cash flows. As of March 31, 2020, we have cross currency swaps associated with our $1.0 billion 2.1% senior notes due 2021 in order to hedge a portion of the foreign currency translational impacts of our European investment. As a result of the swaps, we have economically converted a portion of these notes and associated interest to EUR denominated, which results in a EUR interest rate to be received of 0.71%.
(3)
We maintain a $1.5 billion revolving credit facility with a maturity date of July 7, 2024, that allows us to issue a maximum aggregate amount of $1.5 billion in commercial paper or other borrowings at any time at variable interest rates. We use this financing from time to time to leverage cash needs including debt repayments. During the first quarter of 2020, we borrowed approximately $1.0 billion due April 2020 under our revolving credit facility at a weighted-average interest rate of 2.7%, and issued $25.5 million of commercial paper, in order to fund the repayment of our $500 million 2.25% notes upon maturity in March 2020, for working capital and general purposes, as well as a precautionary measure in order to provide enhanced financial flexibility due to uncertain market conditions arising from the impact of the coronavirus pandemic, as further discussed in Note 1, "Basis of Presentation and Summary of Significant Accounting Policies."
As of March 31, 2020, we had $474.5 million available to draw on our $1.5 billion revolving credit facility, as the borrowing capacity is also reduced by borrowings under our commercial paper program. The outstanding borrowings under our commercial paper program had a weighted-average effective interest rate and tenor of 1.65% and 23 days, respectively, as of March 31, 2020. We had no borrowings drawn on this revolving credit facility and no commercial paper borrowings as of December 31, 2019.
Subsequent to March 31, 2020, we made total net repayments of $425.5 million on our outstanding commercial paper and revolving credit facility borrowings resulting in no outstanding commercial paper and $600.0 million outstanding under our revolving credit facility. As such, as of April 30, 2020, we have $900.0 million available to draw on our total $1.5 billion revolving credit facility.
(4)
As of March 31, 2020, we had $22.4 million in bank overdrafts and $35.0 million in bank cash related to our cross-border, cross-currency cash pool, for a net positive position of $12.6 million. As of December 31, 2019, we had $1.1 million in bank overdrafts and $55.0 million in bank cash related to our cross-border, cross-currency cash pool for a net positive position of $53.9 million. We had total outstanding borrowings of $2.8 million under our two JPY overdraft facilities as of both March 31, 2020 and December 31, 2019. In addition, we have USD, CAD and GBP lines of credit under which we had no borrowings as of March 31, 2020 or December 31, 2019.
Debt Fair Value Measurements
We utilize market approaches to estimate the fair value of certain outstanding borrowings by discounting anticipated future cash flows derived from the contractual terms of the obligations and observable market interest and foreign exchange rates. As of March 31, 2020 and December 31, 2019, the fair value of our outstanding long-term debt (including the current portion of long-term debt) was approximately $8.1 billion and $9.2 billion, respectively. All senior notes are valued based on significant observable inputs and classified as Level 2 in the fair value hierarchy. The carrying values of all other outstanding long-term borrowings and our short-term borrowings approximate their fair values and are also classified as Level 2 in the fair value hierarchy.
Debt Covenants
The maximum leverage ratio, as defined by the revolving credit facility agreement, is 4.25x net debt to EBITDA, with a decline to 4.00x net debt to EBITDA as of the last day of the fiscal quarter ending December 31, 2020.
Under the terms of each of our debt facilities, we must comply with certain restrictions. These include customary events of default and specified representations, warranties and covenants, as well as covenants that restrict our ability to incur certain additional priority indebtedness (certain thresholds of secured consolidated net tangible assets), certain leverage threshold percentages, create or permit liens on assets, and restrictions on mergers, acquisitions, and certain types of sale lease-back transactions. As of March 31, 2020, we were in compliance with all of these restrictions and have met all debt payment obligations. All of our outstanding senior notes as of March 31, 2020 rank pari-passu.
v3.20.1
Inventories Inventories
3 Months Ended
Mar. 31, 2020
Inventory Disclosure [Abstract]  
Inventories Inventories
 
As of
 
March 31, 2020
 
December 31, 2019
 
(In millions)
Finished goods
$
261.6

 
$
236.7

Work in process
95.1

 
84.0

Raw materials
239.9

 
227.1

Packaging materials
84.9

 
68.1

Inventories, net
$
681.5

 
$
615.9


v3.20.1
Accumulated Other Comprehensive Income (Loss) ("AOCI") Accumulated Other Comprehensive Income (Loss) ("AOCI")
3 Months Ended
Mar. 31, 2020
Statement of Comprehensive Income [Abstract]  
Accumulated Other Comprehensive Income (Loss) (AOCI) Accumulated Other Comprehensive Income (Loss)
 
MCBC stockholders' equity
 
Foreign
currency
translation
adjustments
 
Gain (loss) on
derivative instruments
 
Pension and
postretirement
benefit
adjustments
 
Equity method
investments
 
Accumulated
other
comprehensive
income (loss)
 
(In millions)
As of December 31, 2019
$
(652.5
)
 
$
(87.8
)
 
$
(351.0
)
 
$
(70.9
)
 
$
(1,162.2
)
Foreign currency translation adjustments
(370.6
)
 

 

 

 
(370.6
)
Gain (loss) on net investment hedges
27.5

 

 

 

 
27.5

Unrealized gain (loss) on derivative instruments

 
(170.1
)
 

 

 
(170.1
)
Amortization of net prior service (benefit) cost and net actuarial (gain) loss to income

 

 
(1.9
)
 

 
(1.9
)
Ownership share of unconsolidated subsidiaries' other comprehensive income (loss)

 

 

 
1.0

 
1.0

Tax benefit (expense)
(27.5
)
 
42.2

 
0.6

 
(0.3
)
 
15.0

As of March 31, 2020
$
(1,023.1
)
 
$
(215.7
)
 
$
(352.3
)
 
$
(70.2
)
 
$
(1,661.3
)


Reclassifications from AOCI to net income (loss) were immaterial for the three months ended March 31, 2020 and March 31, 2019.
v3.20.1
Derivative Instruments and Hedging Activities
3 Months Ended
Mar. 31, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments and Hedging Activities Derivative Instruments and Hedging Activities
Our risk management and derivative accounting policies are presented within Part II—Item 8 Financial Statements, Note 1, "Basis of Presentation and Summary of Significant Accounting Policies" and Note 16, "Derivative Instruments and Hedging Activities" in our Annual Report and did not significantly change during the first quarter of 2020. As noted in Note 16 of the Notes included in our Annual Report, due to the nature of our counterparty agreements, and the fact that we are not subject to master netting arrangements, we are not able to net positions with the same counterparty and, therefore, present our derivative positions on a gross basis in our unaudited condensed consolidated balance sheets. Our significant derivative positions have not changed considerably since year-end.
Derivative Fair Value Measurements
We utilize market approaches to estimate the fair value of our derivative instruments by discounting anticipated future cash flows derived from the derivative's contractual terms and observable market interest, foreign exchange and commodity rates. The fair values of our derivatives also include credit risk adjustments to account for our counterparties' credit risk, as well as our own non-performance risk, as appropriate. The fair value of our warrants to acquire common shares of HEXO at a strike price of CAD 6.00 per share are estimated using the Black-Scholes option-pricing model. As of March 31, 2020 and December 31, 2019, respectively, the assumptions used to estimate the fair value of the HEXO warrants are as follows:
 
As of March 31, 2020
 
As of December 31, 2019
Expected term (years)
1.50

 
1.75

Estimated volatility
96.05
%
 
81.45
%
Risk-free interest rate
0.54
%
 
1.69
%
Expected dividend yield
%
 
%
The expected term is based on the contractual maturity date of the warrants. Estimated volatility is based on a blend of implied volatility and historical volatility of HEXO's stock. The risk-free rate utilized is based on a zero-coupon Canadian Treasury security yield with a remaining term equal to the expected term of the warrants. The expected dividend yield is determined by historical dividend levels.
The table below summarizes our derivative assets and liabilities that were measured at fair value as of March 31, 2020 and December 31, 2019.
 
 
 
Fair value measurements as of March 31, 2020
 
As of March 31, 2020
 
Quoted prices in
active markets
(Level 1)
 
Significant other
observable inputs
(Level 2)
 
Significant
unobservable
inputs (Level 3)
 
(In millions)
Cross currency swaps
$
19.8

 
$

 
$
19.8

 
$

Interest rate swaps
(297.4
)
 

 
(297.4
)
 

Foreign currency forwards
16.9

 

 
16.9

 

Commodity swaps and options
(140.1
)
 

 
(140.1
)
 

Warrants
0.8

 

 
0.8

 

Total
$
(400.0
)
 
$

 
$
(400.0
)
 
$

 
 
 
Fair value measurements as of December 31, 2019
 
As of December 31, 2019
 
Quoted prices in
active markets
(Level 1)
 
Significant other
observable inputs
(Level 2)
 
Significant
unobservable
inputs (Level 3)
 
(In millions)
Cross currency swaps
$
10.0

 
$

 
$
10.0

 
$

Interest rate swaps
(111.5
)
 

 
(111.5
)
 

Foreign currency forwards
2.1

 

 
2.1

 

Commodity swaps and options
(41.2
)
 

 
(41.2
)
 

Warrants
2.7

 

 
2.7

 

Total
$
(137.9
)
 
$

 
$
(137.9
)
 
$



As of March 31, 2020 and December 31, 2019, we had no significant transfers between Level 1 and Level 2. New derivative contracts transacted during the three months ended March 31, 2020 were all included in Level 2.
Results of Period Derivative Activity
The tables below include the results of our derivative activity in our unaudited condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019, and our unaudited condensed consolidated statements of operations for the three months ended March 31, 2020 and March 31, 2019.
Fair Value of Derivative Instruments in the Unaudited Condensed Consolidated Balance Sheets (in millions):
 
As of March 31, 2020
 
 
 
Derivative Assets
 
Derivative Liabilities
 
Notional amount
 
Balance sheet location
 
Fair value
 
Balance sheet location
 
Fair value
Derivatives designated as hedging instruments:
Cross currency swaps
$
400.0

 
Other current assets
 
$

 
Accounts payable and other current liabilities
 
$

 
 
 
Other non-current assets
 
19.8

 
Other liabilities
 

Interest rate swaps
$
1,500.0

 
Other non-current assets
 

 
Other liabilities
 
(297.4
)
Foreign currency forwards
$
200.9

 
Other current assets
 
10.6

 
Accounts payable and other current liabilities
 

 
 
 
Other non-current assets
 
6.3

 
Other liabilities
 

Total derivatives designated as hedging instruments
 
$
36.7

 
 
 
$
(297.4
)
Derivatives not designated as hedging instruments:
Commodity swaps(1)
$
674.9

 
Other current assets
 
$
0.6

 
Accounts payable and other current liabilities
 
$
(102.3
)

 
 
Other non-current assets
 
0.2

 
Other liabilities
 
(38.6
)
Commodity options(1)
$
18.4

 
Other current assets
 

 
Accounts payable and other current liabilities
 

Warrants
$
49.1

 
Other non-current assets
 
0.8

 
Other liabilities
 

Total derivatives not designated as hedging instruments
 
$
1.6

 
 
 
$
(140.9
)
 
As of December 31, 2019
 
 
 
Derivative Assets
 
Derivative Liabilities
 
Notional amount
 
Balance sheet location
 
Fair value
 
Balance sheet location
 
Fair value
Derivatives designated as hedging instruments:
 
 
 
 
 
 
Cross currency swaps
$
900.0

 
Other current assets
 
$
1.8

 
Accounts payable and other current liabilities
 
$

 
 
 
Other non-current assets
 
8.2

 
Other liabilities
 

Interest rate swaps
$
1,500.0

 
Other non-current assets
 

 
Other liabilities
 
(111.5
)
Foreign currency forwards
$
237.9

 
Other current assets
 
1.9

 
Accounts payable and other current liabilities
 
(0.8
)
 
 
 
Other non-current assets
 
1.4

 
Other liabilities
 
(0.4
)
Total derivatives designated as hedging instruments
 
 
 
$
13.3

 
 
 
$
(112.7
)
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
Commodity swaps(1)
$
598.4

 
Other current assets
 
$
5.7

 
Accounts payable and other current liabilities
 
$
(36.4
)
 
 
 
Other non-current assets
 
1.0

 
Other liabilities
 
(11.5
)
Commodity options(1)
$
18.4

 
Other current assets
 

 
Accounts payable and other current liabilities
 

Warrants
$
53.1

 
Other non-current assets
 
2.7

 
Other liabilities
 

Total derivatives not designated as hedging instruments
 
$
9.4

 
 
 
$
(47.9
)
(1)
Notional includes offsetting buy and sell positions, shown in terms of absolute value. Buy and sell positions are shown gross in the asset and/or liability position, as appropriate.
Items Designated and Qualifying as Hedged Items in Fair Value Hedging Relationships in the Unaudited Condensed Consolidated Balance Sheets (in millions):
Line item in the balance sheet in which the hedged item is included
 
Carrying amount of the hedged assets/liabilities
 
Cumulative amount of fair value hedging adjustment(s) in the hedged assets/liabilities(1) 
Increase/(Decrease)
 
As of March 31, 2020
 
As of December 31, 2019
 
As of March 31, 2020
 
As of December 31, 2019
 
 
(In millions)
 
 
Current portion of long-term debt and short-term borrowings
 
$

 
$

 
$

 
$
(0.2
)
Long-term debt
 
$

 
$

 
$
5.8

 
$
6.5

(1)    Entire balances relate to hedging adjustments on discontinued hedging relationships.
The Pretax Effect of Cash Flow Hedge and Net Investment Hedge Accounting on Accumulated Other Comprehensive Income (Loss) (in millions):
Three Months Ended March 31, 2020
Derivatives in cash flow hedge relationships

Amount of gain (loss) recognized
in OCI on derivative

Location of gain (loss)
reclassified from AOCI into
income

Amount of gain
(loss) recognized
from AOCI on derivative
Forward starting interest rate swaps

$
(185.9
)

Interest income (expense), net
 
$
(0.7
)
Foreign currency forwards

15.8


Cost of goods sold
 
1.0



 


Other income (expense), net
 
(0.3
)
Total

$
(170.1
)

 

$

Three Months Ended March 31, 2020
Derivatives in net investment hedge relationships
 
Amount of gain (loss) recognized in OCI on derivative
 
Location of gain (loss) reclassified from AOCI into income
 
Amount of gain (loss) recognized from AOCI on derivative
 
Location of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)
 
Amount of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)(1)
Cross currency swaps
 
$
13.0

 
Interest income (expense), net
 
$

 
Interest income (expense), net
 
$
5.7

Total
 
$
13.0

 
 
 
$

 
 
 
$
5.7


Three Months Ended March 31, 2020
Non-derivative financial instruments in net investment hedge relationships

Amount of gain (loss) recognized in OCI on derivative

Location of gain (loss) reclassified from AOCI into income

Amount of gain (loss) recognized from AOCI on derivative

Location of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)

Amount of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)
EUR 800 million notes due 2024

$
14.5


Other income (expense), net

$


Other income (expense), net

$

Total

$
14.5


 

$


 

$

Three Months Ended March 31, 2019
Derivatives in cash flow hedge relationships
 
Amount of gain (loss) recognized in OCI on derivative
 
Location of gain (loss) reclassified from AOCI into income
 
Amount of gain (loss) recognized from AOCI on derivative
Forward starting interest rate swaps
 
$
(32.4
)
 
Interest income (expense), net
 
$
(0.7
)
Foreign currency forwards
 
(7.0
)
 
Cost of goods sold
 
0.8

 
 
 

 
Other income (expense), net
 
(0.2
)
Total
 
$
(39.4
)
 
 
 
$
(0.1
)

Three Months Ended March 31, 2019
Derivatives in net investment hedge relationships
 
Amount of gain (loss) recognized in OCI on derivative
 
Location of gain (loss) reclassified from AOCI into income
 
Amount of gain (loss) recognized from AOCI on derivative
 
Location of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)
 
Amount of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)(1)
Cross currency swaps
 
$
16.1

 
Interest income (expense), net
 
$

 
Interest income (expense), net
 
$
4.0

Total
 
$
16.1

 
 
 
$

 
 
 
$
4.0


(1)
Represents amounts excluded from the assessment of effectiveness for which the difference between changes in fair value and period amortization is recorded in other comprehensive income.
Three Months Ended March 31, 2019
Non-derivative financial instruments in net investment hedge relationships

Amount of gain (loss) recognized in OCI on derivative

Location of gain (loss) reclassified from AOCI into income

Amount of gain (loss) recognized from AOCI on derivative

Location of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)

Amount of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)
EUR 800 million notes due 2024

$
20.0


Other income (expense), net

$


Other income (expense), net

$

EUR 500 million notes due 2019
 
10.1

 
Other income (expense), net
 

 
Other income (expense), net
 

Total

$
30.1


 

$


 

$


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

We expect net gains of approximately $8 million (pretax) recorded in AOCI as of March 31, 2020 related to cash flow hedges will be reclassified into earnings within the next 12 months. For derivatives designated in cash flow hedge relationships, the maximum length of time over which forecasted transactions are hedged as of March 31, 2020 is approximately 4 years, as well as those related to our forecasted debt issuances in 2021, 2022, and 2026.
The Effect of Fair Value and Cash Flow Hedge Accounting on the Unaudited Condensed Consolidated Statements of Operations (in millions):
Three Months Ended March 31, 2020
 
 
Location and amount of gain (loss) recognized in income on fair value and cash flow hedging relationships(1)
 
 
Cost of goods sold
 
Other income (expense), net
 
Interest income (expense), net
Total amount of income and expense line items presented in the unaudited condensed consolidated statement of operations in which the effects of fair value or cash flow hedges are recorded
 
$
(1,479.0
)
 
$
(4.8
)
 
$
(68.9
)
Gain (loss) on cash flow hedging relationships:
 
 
 
 
 
 
Forward starting interest rate swaps
 
 
 
 
 
 
Amount of gain (loss) reclassified from AOCI into income
 

 

 
(0.7
)
Foreign currency forwards
 
 
 
 
 
 
Amount of gain (loss) reclassified from AOCI into income