Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is provided to assist in understanding our company, operations and current business environment and should be considered a supplement to, and read in conjunction with, the accompanying consolidated financial statements and notes included within Part II—Item 8 Financial Statements and Supplementary Data, as well as the discussion of our business and related risk factors in Part I—Item 1 Business and Part I—Item 1A Risk Factors, respectively. See also "Cautionary Statement Pursuant to Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995". We have restated our financial statements for 2017 and 2016 due to the correction of errors in the accounting for income taxes related to the deferred tax liabilities for our partnership in MillerCoors. Accordingly, the Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth below reflect the effects of the restatements. See details at Part II—Item 8 Financial Statements and Supplementary Data, Note 1, "Basis of Presentation and Summary of Significant Accounting Policies."

Our Fiscal Year

Unless otherwise indicated, (a) all $ amounts are in USD and (b) comparisons are to comparable prior periods. For 2016, the consolidated statement of operations includes MillerCoors' results of operations for the period from January 1, 2016, to October 10, 2016, on an equity method basis of accounting and from October 11, 2016, to December 31, 2016, on a consolidated basis of accounting. Where indicated, we have reflected unaudited pro forma financial information for 2016 which gives effect to the Acquisition and the related financing as if they were completed on January 1, 2016, the first day of the Company’s 2016 fiscal year.

Operational Measures

We have certain operational measures, such as STWs and STRs, which we believe are important metrics. STW is a metric that we use in our business to reflect the sales from our operations to our direct customers, generally wholesalers. We believe the STW metric is important because it gives an indication of the amount of beer and adjacent products that we have produced and shipped to customers. STR is a metric that we use in our business to refer to sales closer to the end consumer than STWs, which generally means sales from our wholesalers or our company to retailers, who in turn sell to consumers. We believe the STR metric is important because, unlike STWs, it provides the closest indication of the performance of our brands in relation to market and competitor sales trends.

Acquisition

On October 11, 2016, we completed the acquisition of SABMiller plc's ("SABMiller") 58% economic interest and 50% voting interest in MillerCoors and all trademarks, contracts and other assets primarily related to the "Miller International Business," as defined in the purchase agreement, outside of the U.S. and Puerto Rico (the "Acquisition") from Anheuser-Busch InBev SA/NV ("ABI"). The Acquisition was completed for $12.0 billion in cash, subject to a downward purchase price adjustment as described in the purchase agreement. This purchase price "Adjustment Amount," as defined in the purchase agreement, required payment to MCBC if the unaudited EBITDA for the Miller International Business for the twelve months prior to closing was below $70 million.

On January 21, 2018, MCBC and ABI entered into a settlement agreement related to the purchase price adjustment under the purchase agreement, and on January 26, 2018, pursuant to the settlement agreement, ABI paid to MCBC $330.0 million, of which $328.0 million constitutes the Adjustment Amount. As this settlement occurred following the finalization of purchase accounting, we recorded the settlement proceeds related to the Adjustment Amount as a gain within special items, net in our consolidated statement of operations in our Corporate segment and within cash provided by operating activities within our consolidated statement of cash flows for the year ended December 31, 2018. MCBC and ABI also agreed to certain mutual releases as further described in the settlement agreement.

Executive Summary

We are one of the world's largest brewers and have a diverse portfolio of owned and partner brands, including global priority brands Blue Moon, Coors Banquet, Coors Light, Miller Genuine Draft, Miller Lite, and Staropramen, regional champion brands Carling, Molson Canadian and other leading country-specific brands, as well as craft and specialty beers such as Creemore Springs, Cobra, Doom Bar, Henry's Hard and Leinenkugel's. With centuries of brewing heritage, we have been crafting high-quality, innovative products with the purpose of delighting the world's beer drinkers and with the ambition to be the first choice for our consumers and customers. Our success depends on our ability to make our products available to meet a wide range of consumer segments and occasions.

In 2018, we continued to focus on building our brand strength and transforming our portfolio toward the above premium, flavored malt beverage, craft and cider segments. Further, we continued to focus on generating higher returns on our invested capital, managing our working capital and delivering a greater return on investment for our shareholders.

Adoption of Revenue Recognition Guidance

On January 1, 2018, we adopted the FASB's new accounting pronouncement related to revenue recognition. This guidance was adopted using the modified retrospective approach, and therefore, prior period results have not been restated. The following table highlights the impact of this new guidance on summarized components of our consolidated statement of operations for the year ended December 31, 2018, when comparing our current period results of operations under the new guidance, versus our results of operations if historical guidance had continued to be applied.

	Year Ended December 31, 2018
	U.S.				Canada				Europe				International				Consolidated
	(In millions)
Impact to Consolidated Statement of Operations - Favorable/(Unfavorable):
Net sales	$	(6.6	)		$	(47.3	)		$	(1.7	)		$	0.1			$	(55.5	)
Cost of goods sold	$	—			$	—			$	—			$	—			$	—
Gross profit	$	(6.6	)		$	(47.3	)		$	(1.7	)		$	0.1			$	(55.5	)
Marketing, general and administrative expenses	$	7.7			$	47.3			$	4.7			$	—			$	59.7
Operating income (loss)	$	1.1			$	—			$	3.0			$	0.1			$	4.2
Interest income (expense), net	$	—			$	—			$	(3.4	)		$	—			$	(3.4	)
Income (loss) before income taxes	$	1.1			$	—			$	(0.4	)		$	0.1			$	0.8

These impacts are primarily driven by the reclassification of certain cash payments to customers from marketing, general and administrative expenses to a reduction of revenue, as well as a change in the timing of recognition of certain promotional discounts and cash payments to customers. See Part I—Item 1. Financial Statements, Note 1, "Basis of Presentation and Summary of Significant Accounting Policies" and Note 2, "New Accounting Pronouncements" for further discussion on the adoption of this guidance.

Adoption of Pension and Other Postretirement Benefit Guidance

On January 1, 2018, we adopted the FASB's new accounting pronouncement related to the classification of pension and other postretirement benefit costs. Specifically, the new guidance requires us to report only the service cost component in the same line item as other compensation costs arising from services rendered by the pertinent employees during the period; while the other components of net benefit cost are now presented in the consolidated statements of operations separately from the service cost component and outside of operating income. The amendments in this update also allow only the service cost component to be eligible for capitalization when applicable. We have also determined that only service cost will be reported within each operating segment and all other components will be reported within the Corporate segment. The guidance related to the income statement presentation of service costs and other pension and postretirement benefit costs is applied retrospectively, while the capitalization of service costs component is applied prospectively. This adjustment is classification only and had no impact to our consolidated net income. See Note 2, "New Accounting Pronouncements" for further details including updated historical financial information.

Summary of Consolidated Results of Operations

The following table highlights summarized components of our consolidated statements of operations for the years ended December 31, 2018, December 31, 2017, and December 31, 2016, and unaudited pro forma financial information for the year ended December 31, 2016. See Part II-Item 8 Financial Statements and Supplementary Data, “Consolidated Statements of Operations” for additional details of our U.S. GAAP results.

We have presented unaudited pro forma financial information to enhance comparability of financial information between periods. The unaudited pro forma financial information is based on the historical consolidated financial statements of MCBC and MillerCoors, both prepared in accordance with U.S. GAAP, and gives effect to the Acquisition and the completed financing as if they were completed on January 1, 2016. Pro forma adjustments are based on items that are factually supportable, are directly attributable to the Acquisition or the related financing, and are expected to have a continuing impact on MCBC's results of operations. Any non-recurring items directly attributable to the Acquisition or the related financing are excluded in the unaudited pro forma statements of operations. The unaudited pro forma financial information does not include adjustments for costs related to integration activities following the completion of the Acquisition, cost savings or synergies that have been or

may be achieved by the combined businesses. The unaudited pro forma financial information is presented for illustrative purposes only and does not necessarily reflect the results of operations of MCBC that actually would have resulted had the Acquisition and related financing occurred at the date indicated, or project the results of operations of MCBC for any future dates or periods. See "Unaudited Pro Forma Financial Information" below for details of pro forma adjustments.

Net income attributable to MCBC and the related diluted per share amounts for 2017 and 2016 have been restated due to the correction of errors related to income tax accounting. See details at Part II—Item 8 Financial Statements and Supplementary Data, Note 1, "Basis of Presentation and Accounting Policies."

	For the years ended
	December 31, 2018							December 31, 2017				December 31, 2016
	As Reported				Change			As Restated				As Restated				Pro Forma				Pro Forma Change
	(In millions, except percentages and per share data)
Financial volume in hectoliters(1)	96.627				(2.9	)%		99.563				46.912				101.934				(2.3	)%
Net sales	$	10,769.6			(2.1	)%		$	11,002.8			$	4,885.0			$	10,983.2			0.2	%
Net income (loss) attributable to MCBC	$	1,116.5			(28.7	)%		$	1,565.6			$	1,593.9			$	291.8			N/M
Net income (loss) attributable to MCBC per diluted share	$	5.15			(28.8	)%		$	7.23			$	7.47			$	1.35			N/M

N/M = Not meaningful

(1)	Financial volumes for the year ended December 31, 2016, were recast to reflect the impacts of aligning policies on reporting financial volumes as a result of the Acquisition.

2018 Financial Highlights

•

In 2018, net income attributable to MCBC decreased 28.7% compared to the prior year primarily driven by the one-time income tax benefit recognized in the prior year due to the reduction to the U.S. federal corporate income tax rate as a result of the 2017 Tax Act. This decline was also driven by unrealized mark-to-market changes on commodity positions and lower volume and cost inflation in the U.S. and Canada, partially offset by the gain of $328.0 million related to the Adjustment Amount as previously discussed, positive global net pricing, global marketing optimization, general and administrative spend reductions and cost savings, as well as lower interest expense.

•	During 2018, we repaid our CAD 400 million 2.25% notes with cash on hand as part of our deleveraging commitment. We also repaid $379 million of commercial paper which was outstanding at December, 31, 2017.

•

We generated cash flow from operating activities of approximately $2.3 billion, representing a 24.9% increase from approximately $1.9 billion in 2017. The increase in operating cash flow in 2018 compared to 2017 is primarily related to the proceeds received during the first quarter of 2018 of $328.0 million related to the Adjustment Amount as previously discussed, as well as lower pension contributions and lower interest paid, partially offset by unfavorable changes in working capital and lower cash tax receipts.

•	Regional financial highlights:

•

In the U.S. segment, we reported income before income taxes of $1,320.7 million in 2018, versus income of $1,394.2 million in 2017, primarily driven by lower volume, cost of goods sold inflation, higher special charges and negative sales mix, partially offset by lower marketing, general and administrative expenses and higher net pricing. During the year we grew our share of the premium light segment with Miller Lite, which completed its seventeenth consecutive quarter of increased segment share, according to Nielsen. Coors Light remained the number two beer in industry share. In above premium, we established a foundation for growth by successfully introducing Arnold Palmer Spiked, establishing Peroni as the fastest growing European import, and relaunching the Sol brand. Additionally, Peroni grew volume for the seventeenth consecutive quarter. Blue Moon remained the number one national craft brand in the U.S.

•

In our Canada segment, we drove positive pricing primarily in Ontario and West. However, volume declined in the West and Ontario, partially offset by growth in Quebec. We reported income before income taxes of $157.0 million in 2018, versus income of $210.2 million in 2017, primarily due to higher other expense related to unrealized mark-to-market losses on warrants issued in connection with the formation of the Truss LP ("Truss") joint venture, negative sales mix and lower volumes, partially offset by higher net pricing.

•

In our Europe segment, our continued portfolio premiumization while defending share of national champion brands positively impacted our performance as we grew volumes in our above premium and core brands. In 2018, we reported income before income taxes of $186.4 million, versus income of $234.9 million in 2017, primarily due to cycling the impact of the indirect tax provision release of approximately $50 million during the first quarter of 2017, adopting recently revised excise-tax guidelines in one of our European markets, investments in our First Choice Agenda, as well as unfavorable foreign currency movements. This was partially offset by favorable sales mix shift from our premiumization efforts, more efficient marketing investments, the addition of Aspall Cider business, as well as a positive impact from cycling a bad debt provision recognized in 2017.

•

Our International segment reported a loss before income taxes of $2.7 million in 2018, compared to a loss of $19.7 million in the prior year, primarily driven by lower marketing and integration expenses, shifting to a more profitable business model in Mexico, higher net pricing, along with volume growth in our focus markets, partially offset by negative foreign currency movements and increased special charges as a result of formally exiting our China business.

•	Brand highlights:

•	Global priority brand volume decreased 3.1% in 2018 versus 2017, due to declines across Canada, the U.S. and International, partially offset by growth in Europe.

•	Blue Moon Belgian White global brand volume decreased 0.2% in 2018 versus 2017, due to decline in the U.S., offset by growth in Canada, Europe and International.

•	Carling brand volume in Europe decreased by 2.5% versus 2017, due to lower volumes in the U.K., the brand's primary market.

•

Coors global brand volume - Coors Light global brand volume declined 5.0% in 2018 versus 2017. The overall volume decrease was due to lower brand volume in the U.S., Canada and International, partially offset by growth in Europe. Volumes in the U.S. were lower than prior year reflective of the U.S. industry premium and premium light segment performance. The declines in Canada are the result of ongoing competitive pressures in Quebec and Ontario and a continued shift in consumer preference to value brands in the West. Coors Banquet global brand volume decreased 4.9% in 2018 versus 2017, driven by the U.S. and Canada.

•

Miller global brand volume - Miller Lite global brand volumes decreased 1.3% in 2018 versus 2017, primarily driven by declines in the U.S., partially offset by growth in International. However, Miller Lite gained share of the U.S. premium light segment for the seventeenth consecutive quarter. Miller Genuine Draft global brand volume decreased 3.9% in 2018 versus 2017, due to decreases in the U.S., International and Canada, partially offset by growth in Europe.

•	Molson Canadian brand volume in Canada decreased 8.1% during 2018 versus the prior year, primarily driven by competitive pressures in the West.

•	Staropramen global brand volume increased 3.7% during 2018 versus 2017, driven by growth outside of the brand's primary market.

Worldwide Brand Volume

Worldwide brand volume (or "brand volume" when discussed by segment) reflects owned brands sold to unrelated external customers within our geographic markets, net of returns and allowances, royalty volume, an adjustment from STWs to STRs and our proportionate share of equity investment brand volume calculated consistently with MCBC owned volume. Contract brewing and wholesaler volume is removed from worldwide brand volume as this is non-owned volume for which we do not directly control performance. We believe this definition of worldwide brand volume more closely aligns with how we measure the performance of our owned brands within the markets in which they are sold. Financial volume represents owned brands sold to unrelated external customers within our geographical markets, net of returns and allowances as well as contract brewing, wholesale non-owned brand volume and company-owned distribution volume. Royalty volume consists of our brands produced and sold by third parties under various license and contract-brewing agreements and because this is owned volume, it is included in worldwide brand volume. The adjustment from STWs to STRs provides the closest indication of the performance of our owned brands in relation to market and competitor sales trends, as it reflects sales volume one step closer to the end consumer and generally means sales from our wholesalers or our company to retailers. Equity investment worldwide brand volume represents our ownership percentage share of volume in our subsidiaries accounted for under the equity method, consisting of MillerCoors prior to the completion of the Acquisition on October 11, 2016. See Part II—Item 8 Financial Statements and Supplementary Data, Note 4, "Acquisition and Investments" of the Notes for further discussion.

Effective in the first quarter of 2018, we have revised our net sales per hectoliter performance discussions to include a brand volume basis as defined above (with the exception of the STW to STR adjustment) with the net sales revenue component reflecting owned and actively managed brands as well as royalty revenue consistent with how management views the business. We continue to also discuss net sales per hectoliter performance on a reported basis.

	For the years ended
	December 31, 2018			Change			December 31, 2017			Change			December 31, 2016
	(In millions, except percentages)
Volume in hectoliters:
Financial volume	96.627			(2.9	)%		99.563			112.2	%		46.912
Less: Contract brewing and wholesaler volume	(8.182	)		(4.9	)%		(8.602	)		108.6	%		(4.124	)
Add: Royalty volume	4.054			10.0	%		3.685			75.3	%		2.102
Add: STW to STR adjustment	(0.358	)		(47.9	)%		(0.687	)		N/M			0.707
Owned volume	92.141			(1.9	)%		93.959			106.1	%		45.597
Add: Proportionate share of equity investment worldwide brand volume	—			—	%		—			(100.0	)%		19.940
Total worldwide brand volume	92.141			(1.9	)%		93.959			43.4	%		65.537

N/M = Not meaningful

Our worldwide brand volume decreased in 2018 compared to 2017, due to declines in the U.S. and Canada, partially offset by growth in Europe and International. Worldwide brand volume increased in 2017 compared to 2016, due to the Acquisition as well as strong growth in Europe and International partially as a result of adding the Miller global brands business as well as growth within our existing brand portfolio.

Net Sales Drivers

The following table highlights the drivers of change in net sales for the year ended December 31, 2018, versus December 31, 2017, by segment (in percentages) and excludes Corporate net sales revenue for our water resources and energy operations in the state of Colorado.

	Volume			Price, Product and Geography Mix(1)			Currency			Other(2)			Total
Consolidated	(2.9	)%		0.7	%		0.5	%		(0.4	)%		(2.1	)%
U.S.	(5.1	)%		1.9	%		—	%		(0.1	)%		(3.3	)%
Canada	(2.9	)%		(1.6	)%		—	%		—	%		(4.5	)%
Europe	2.1	%		0.4	%		3.3	%		(2.6	)%		3.2	%
International	(7.5	)%		3.5	%		(1.3	)%		—	%		(5.3	)%

(1)	Includes the impacts of the adoption of the new accounting pronouncement related to revenue recognition as discussed above. See Part II—Item 8 Financial Statements and Supplementary Data, Note 1, "Basis of Presentation and Summary of Significant Accounting Policies" and Note 2, "New Accounting Pronouncements" for further discussion on the adoption of this revenue recognition guidance.

(2)	Europe "Other" column includes the impacts of the release of an indirect tax provision in 2017 as further described in the Results of Operations.

The following table highlights the drivers of change in net sales on a reported basis for the year ended December 31, 2017, versus December 31, 2016, by segment (in percentages) and excludes Corporate net sales revenue for our water resources and energy operations in the state of Colorado. Consolidated includes the U.S. segment for 2017 as well as the post-Acquisition period of October 11, 2016, through December 31, 2016. Prior to the Acquisition, MillerCoors was accounted for as an equity method investment:

	Volume			Price, Product and Geography Mix			Currency			Other(1)			Total
Consolidated	112.2	%		13.3	%		(0.3	)%		—	%		125.2	%
Canada	(1.6	)%		2.2	%		1.7	%		—	%		2.3	%
Europe	3.1	%		2.9	%		(2.1	)%		6.4	%		10.3	%
International	60.1	%		1.3	%		—	%		—	%		61.4	%

(1)	Europe "Other" column includes the release of an indirect tax provision further described in the Results of Operations.

Cost Savings Initiatives

Total cost savings in 2018 exceeded our targets and totaled more than $240 million, driven by our U.S., Canada and Europe segments. We have delivered more than $495 million of cost savings collectively for the 2017 - 2019 program.

Depreciation and Amortization

Depreciation and amortization expense was $857.5 million in 2018, an increase of $44.7 million compared to 2017, primarily due to brewery system implementations in the U.S. On a reported basis, depreciation and amortization expense was $812.8 million in 2017, an increase of $424.4 million compared to 2016, primarily due to the incremental depreciation and amortization recorded for the U.S. segment as a result of the Acquisition. On a pro forma basis, depreciation and amortization expense decreased $38.6 million in 2017 compared to 2016, primarily due to lower accelerated depreciation due to brewery closures in 2017 and the impact of foreign exchange rates.

Income Taxes

Effective tax rates have been restated for 2017 and 2016 due to the correction of errors related to income tax accounting. See details at Part II—Item 8 Financial Statements and Supplementary Data, Note 1, "Basis of Presentation and Summary of Significant Accounting Policies."

	For the years ended
	December 31, 2018			December 31, 2017			December 31, 2016
		As Restated			As Restated
Effective tax rate	17	%		(15	)%		48	%

The increase in the effective income tax rate for 2018 versus 2017 was primarily driven by the one-time impacts of the enactment of the 2017 Tax Act recognized in 2017, most notably the remeasurement of our deferred taxes for the reduction in the U.S. statutory federal corporate income tax rate. This one-time benefit to our deferred tax positions recognized in 2017 was partially offset by the reduction of the statutory U.S. federal corporate income tax rate from 35% to 21% beginning in 2018.

The decrease in the effective income tax rate for 2017 versus 2016 was primarily driven by the above mentioned impacts of the 2017 Tax Act, as well as the income tax impacts recognized in 2016 associated with our previously held equity interest in MillerCoors which increased our effective tax rate in 2016. Additionally, our 2016 effective tax rate was negatively impacted by the remeasurement of the deferred tax liability on our Molson core brand intangible asset to the Canadian ordinary income tax rate upon reclassification from indefinite-lived to definite-lived subject to amortization.

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 in which we do business that, if enacted, may have an impact on our effective tax rate. Additionally, we continue to monitor the 2017 Tax Act, including proposed regulations which may change upon finalization, as well as yet to be issued regulations and interpretations. If the forthcoming regulations and interpretations change relative to our current understanding and initial assessment of the impacts of the 2017 Tax Act, the resulting impacts could have a material adverse impact on our effective tax rate.

See Part II—Item 8 Financial Statements and Supplementary Data, Note 6, "Income Tax", for additional details regarding our effective tax rate.

Results of Operations

United States Segment

	For the years ended
	December 31, 2018				Change			December 31, 2017
	(In millions, except percentages)
Financial volume in hectoliters(1)	64.272				(5.1	)%		67.731
Sales(1)	$	8,234.4			(3.6	)%		$	8,541.7
Excise taxes	(974.5		)		(5.9	)%		(1,036.0		)
Net sales(1)	7,259.9				(3.3	)%		7,505.7
Cost of goods sold(1)	(4,277.5		)		(1.1	)%		(4,324.2		)
Gross profit	2,982.4				(6.3	)%		3,181.5
Marketing, general and administrative expenses	(1,631.3		)		(8.5	)%		(1,782.7		)
Special items, net(2)	(37.8		)		147.1	%		(15.3		)
Operating income	1,313.3				(5.1	)%		1,383.5
Interest income (expense), net	8.8				(32.8	)%		13.1
Other income (expense), net	(1.4		)		(41.7	)%		(2.4		)
Income (loss) before income taxes	$	1,320.7			(5.3	)%		$	1,394.2

(1)	Includes gross inter-segment sales, purchases, and volumes, which are eliminated in the consolidated totals.

(2)	See Part II—Item 8 Financial Statements and Supplementary Data, Note 7, "Special Items" of the Notes for detail of special items.

We have presented unaudited pro forma financial information of the U.S. segment for 2016 to enhance comparability of financial information between periods. Results for the period from January 1, 2016, through October 10, 2016, are actual results of MillerCoors utilized in preparing MCBC's share of MillerCoors earnings when we historically accounted for MillerCoors under the equity method of accounting, and, therefore, its results of operations were reported as equity income within MCBC's consolidated statements of operations. Results for the period from October 11, 2016, through December 31, 2016, are actual results recorded when MillerCoors was fully consolidated within our results of operations. We have aggregated these reported 2016 results and applied pro forma adjustments to arrive at combined U.S. segment pro forma financial information for the full year 2016.

	For the year ended December 31, 2017				For the period January 1 through October 10, 2016				For the period October 11 through December 31, 2016				For the year ended December 31, 2016
	As Reported by MCBC				As Reported by MillerCoors				As Reported by MCBC				Pro Forma Adjustments(1)				Pro Forma(1)				Pro Forma Change
	(In millions, except percentages)
Financial volume in hectoliters(2)(3)	67.731				55.750				14.436				—				70.186				(3.5	)%
Sales(3)	$	8,541.7			$	6,987.2			$	1,780.0			$	(23.2	)		$	8,744.0			(2.3	)%
Excise taxes	(1,036.0		)		(861.8		)		(213.4		)		12.3				(1,062.9		)		(2.5	)%
Net sales(3)	7,505.7				6,125.4				1,566.6				(10.9		)		7,681.1				(2.3	)%
Cost of goods sold(3)	(4,324.2		)		(3,426.6		)		(1,027.0		)		37.8				(4,415.8		)		(2.1	)%
Gross profit	3,181.5				2,698.8				539.6				26.9				3,265.3				(2.6	)%
Marketing, general and administrative expenses	(1,782.7		)		(1,403.9		)		(432.2		)		(27.3		)		(1,863.4		)		(4.3	)%
Special items, net(4)	(15.3		)		(111.3		)		2,959.1				(2,965.0		)		(117.2		)		(86.9	)%
Operating income	1,383.5				1,183.6				3,066.5				(2,965.4		)		1,284.7				7.7	%
Interest income (expense), net	13.1				(1.4		)		—				—				(1.4		)		N/M
Other pension and postretirement benefits (costs), net	—				(14.4		)		—				14.4				—				—	%
Other income (expense), net	(2.4		)		3.7				0.7				—				4.4				N/M
Income (loss) before income taxes	$	1,394.2			$	1,171.5			$	3,067.2			$	(2,951.0	)		$	1,287.7			8.3	%

N/M = Not meaningful

(1)

Pro forma amounts give effect to the Acquisition as if it had occurred at the beginning of fiscal year 2016 and have been updated to reflect that effective January 1, 2017, the results of the MillerCoors Puerto Rico business, which were previously included as part of the U.S. segment, are now reported within the International segment. See Part II - Item 7 Management's Discussion and Analysis, "Unaudited Pro Forma Financial Information," for details of pro forma adjustments.

(2)	Financial volumes for the year ended December 31, 2016, were recast to reflect the impacts of aligning policies on reporting financial volumes as a result of the Acquisition.

(3)	On a reported basis, includes gross inter-segment sales, purchases, and volumes, which are eliminated in the consolidated totals.

(4)	See Part II—Item 8 Financial Statements and Supplementary Data, Note 7, "Special Items" of the Notes for detail of special items.

The following represents our proportionate share of MillerCoors' net income reported under the equity method prior to the Acquisition:

	For the period January 1 through October 10, 2016
	(In millions, except percentages)
Income (loss) before income taxes	$	1,171.5
Income tax expense	(3.3		)
Net (income) loss attributable to noncontrolling interest	(11.0		)
Net income attributable to MillerCoors	$	1,157.2
MCBC's economic interest	42		%
MCBC's proportionate share of MillerCoors' net income	486.0
Amortization of the difference between MCBC's contributed cost basis and proportionate share of the underlying equity in net assets of MillerCoors(1)	3.3
Share-based compensation adjustment(1)	(0.7		)
U.S. import tax benefit(1)	12.3
Equity income in MillerCoors	$	500.9

(1)	See Part II—Item 8 Financial Statements and Supplementary Data, Note 4, "Acquisition and Investments" of the Notes, for a detailed discussion of these equity method adjustments prior to the Acquisition.

The discussion below highlights the U.S. segment results of operations for the year ended December 31, 2018, versus the year ended December 31, 2017, and for the year ended December 31, 2017, versus the year ended December 31, 2016, on a reported and pro forma basis, where applicable.

Significant events

Throughout 2018, U.S. financial volume, including shipment timing and distributor inventory levels, as well as financial results were impacted by brewery system implementations at our Golden, Colorado, Trenton, Ohio and Fort Worth, Texas breweries. We continue to prepare for future implementations at our remaining breweries expected to occur in 2019, including the implementation at our Milwaukee, Wisconsin brewery, which is currently underway.

In order to align our cost base with our scale of business, during the third quarter of 2018, we initiated restructuring activities in the U.S. and reduced U.S. employment levels by approximately 300 employees in the fourth quarter of 2018. As a result, severance costs related to these restructuring activities were recorded as special charges.

The volatility of aluminum, inclusive of Midwest Premium, and freight and fuel costs continued to significantly impact our results during 2018. To the extent these prices continue to fluctuate, our business and financial results could be materially adversely impacted. We continue to monitor these risks and rely on our risk management hedging program to help mitigate price risk exposure for commodities including aluminum and fuel.

In order to increase overall operating efficiency, during the first quarter of 2018, the U.S. segment announced plans to close the Colfax, California cidery. The cidery closed in January 2019 and cider production has moved to the 10th Street Brewery in Milwaukee, Wisconsin. We recognized special charges in 2018 associated with the cidery closure consisting primarily of accelerated depreciation in excess of normal depreciation.

On October 11, 2016, we completed the Acquisition and as a result, MCBC owns 100% of the outstanding equity and voting interests of MillerCoors. Therefore, beginning October 11, 2016, MillerCoors' results of operations have been prospectively consolidated into MCBC’s consolidated financial statements and included in the U.S. segment. See Part II—Item 8 Financial Statements and Supplementary Data, Note 4, "Acquisition and Investments" for further details. Additionally, effective January 1, 2017, the results of the MillerCoors Puerto Rico business, which were previously included as part of the U.S. segment, are now reported within the International segment. Note, we only present unaudited pro forma financial information for the consolidated entity and the U.S. segment.

During the third quarter of 2015, the U.S. business announced plans to close its brewery in Eden, North Carolina in an effort to optimize the brewery footprint and streamline operations for greater efficiencies. Products produced in Eden were transitioned to other breweries in the U.S. supply chain network and the Eden brewery is now closed. Total special charges

associated with the Eden closure of approximately $182 million have been incurred from the decision to close through December 31, 2018, consisting primarily of accelerated depreciation. During the fourth quarter of 2018, the real property associated with the closed Eden brewery was sold.

Additionally, in 2016 MillerCoors acquired craft breweries Revolver Brewing, Terrapin Beer Company and Hop Valley Brewing Company.

Volume and net sales

Brand volume declined 3.9% in 2018 compared to 2017, driven by lower volume in the premium light segment. STWs, excluding contract brewing volume, decreased 4.4% in 2018 compared to 2017, reflective of brand volume performance.

Net sales per hectoliter on a brand volume basis increased 1.5% in 2018 compared to 2017, due to favorable net pricing, partially offset by negative sales mix. Net sales per hectoliter on a reported basis for 2018, increased 1.9% in 2018 compared to 2017.

Brand volume declined 2.9% in 2017 compared to 2016, driven by lower volume in the premium light and below premium segments. STWs, excluding contract brewing volume, decreased 3.3% in 2017 compared to 2016.

Net sales per hectoliter on a brand volume basis for 2017 increased 1.2% compared to 2016 reported net sales and 1.0% compared to 2016 pro forma net sales, due to favorable net pricing. Net sales per hectoliter on a reported basis, increased 1.1% compared to 2016 reported figures and increased 1.3% compared to 2016 pro forma figures.

Cost of goods sold

Cost of goods sold per hectoliter increased 4.2% in 2018 compared to prior year driven by higher transportation costs, aluminum inflation and volume deleverage, partially offset by cost savings. Additionally, in 2018 we recorded $2.8 million of integration costs related to the Acquisition within cost of goods sold.

Cost of goods sold per hectoliter decreased 0.1% in 2017 compared to 2016 reported figures due to the cycling of $82.0 million related to the inventory step up as a result of the Acquisition. Cost of goods sold per hectoliter increased 1.5% in 2017 compared to 2016 pro forma figures driven by higher input costs and volume deleverage, partially offset by cost savings. Additionally, in 2017 we recorded $2.4 million of integration costs related to the Acquisition within cost of goods sold.

Marketing, general and administrative expenses

Marketing, general and administrative expenses decreased 8.5% in 2018 compared to 2017 driven by the amicable resolution of a dispute with a vendor in the third quarter of 2018, spending optimization and efficiencies during the year as well as lower employee-related expenses including incremental cost reductions initiated in the third quarter of 2018 and lower employee incentive expense.

Marketing, general and administrative expenses decreased in 2017 compared to 2016 on a reported basis and decreased in 2017 compared to 2016 on a pro forma basis, due to spending optimization and efficiencies. Marketing, general and administrative expenses also includes integration costs of $5.1 million in 2017.

Interest income (expense), net

Net interest income decreased for 2018 compared to 2017 as a result of lower reductions in mandatorily redeemable noncontrolling interest liabilities in 2018 compared to 2017. Adjustments in the carrying value of the mandatorily redeemable noncontrolling interests are recorded to interest income (expense), net until settled.

Net interest income increased for 2017 compared to 2016, primarily due to a reduction in mandatorily redeemable noncontrolling interest liabilities.

Canada Segment

	For the years ended
	December 31, 2018				Change			December 31, 2017				Change			December 31, 2016
	(In millions, except percentages)
Financial volume in hectoliters(1)(2)	8.554				(2.9	)%		8.805				(1.6	)%		8.950
Sales(2)	$	1,850.6			(2.9	)%		$	1,906.2			1.4	%		$	1,879.4
Excise taxes	(458.5		)		2.3	%		(448.2		)		(1.2	)%		(453.7		)
Net sales(2)	1,392.1				(4.5	)%		1,458.0				2.3	%		1,425.7
Cost of goods sold(2)	(847.0		)		—	%		(847.0		)		6.4	%		(796.4		)
Gross profit	545.1				(10.8	)%		611.0				(2.9	)%		629.3
Marketing, general and administrative expenses	(341.9		)		(14.0	)%		(397.5		)		9.5	%		(363.0		)
Special items, net(3)	(23.8		)		65.3	%		(14.4		)		(96.3	)%		(393.8		)
Operating income (loss)	179.4				(9.9	)%		199.1				N/M			(127.5		)
Other income (expense), net(4)	(22.4		)		N/M			11.1				42.3	%		7.8
Income (loss) before income taxes	$	157.0			(25.3	)%		$	210.2			N/M			$	(119.7	)

N/M = Not meaningful

(1)	Financial volumes for the year ended December 31, 2016, were recast to reflect the impacts of aligning policies on reporting financial volumes as a result of the Acquisition.

(2)	Includes gross inter-segment sales, purchases, and volumes, which are eliminated in the consolidated totals.

(3)	See Part II—Item 8 Financial Statements and Supplementary Data, Note 7, "Special Items" of the Notes for detail of special items.

(4)	See Part II—Item 8 Financial Statements and Supplementary Data, Note 5, "Other Income and Expense" of the Notes for detail of other income (expense).

Significant events

As a result of the Acquisition, the Miller brands were added to our Canada segment's portfolio beginning October 11, 2016. Additionally, as part of our ongoing assessment of our Canadian supply chain network, we completed the sale of our Vancouver brewery on March 31, 2016. In conjunction with the sale of the brewery, we agreed to leaseback the existing property to continue operations on an uninterrupted basis while the new brewery is being constructed. We have and continue to incur significant capital expenditures associated with the construction of the new brewery in Chilliwack, British Columbia, most of which we expect to be funded with the proceeds from the sale of the Vancouver brewery. We will also incur additional charges, including estimated accelerated depreciation charges of approximately CAD 7 million, through final closure of the brewery which is currently expected to occur in the third quarter of 2019. The remaining costs of leasing the existing facility through the estimated closure date will be approximately CAD 4 million which are not included within special items.

In further efforts to help optimize the Canada brewery network, in the third quarter of 2017 we announced a plan to build a more efficient and flexible brewery in the greater Montreal area. As a result of this decision, we have begun to develop plans to transition out of our existing Montreal brewery, including the acquisition of land in Longueuil, Quebec. We are also actively negotiating the sale of the existing brewery location and are targeting completion of the sale in the second quarter of 2019. The brewery continues to be operational, and as part of the sale, we anticipate leasing back the property for continued use until the new brewery is operational, which is currently expected to occur in 2021. Accordingly, we incurred accelerated depreciation charges associated with the existing brewery closure starting in the second half of 2017, of which the amount in excess of normal depreciation is recorded within special items. We expect to incur additional charges, including estimated accelerated depreciation charges in excess of normal depreciation of approximately CAD 65 million, through final closure of the 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.

During 2016, we recorded an aggregate impairment charge to the Molson core brand intangible asset within special items and subsequently reclassified the brands from indefinite to definite-lived, resulting in increased amortization expense of intangible assets for 2017 compared to 2016.

Foreign currency impact on results

During 2018, the CAD depreciated versus the USD on an average basis, resulting in a decrease of $4.3 million to our 2018 USD earnings before income taxes. During 2017, the CAD appreciated versus the USD on an average basis, resulting in an increase of $5.1 million to our 2017 USD earnings before income taxes. Included in these amounts are both translational and transactional impacts of changes in foreign exchange rates. The impact of transactional foreign currency gains and losses is recorded within other income (expense) in our consolidated statements of operations.

Volume and net sales

Our Canada brand volume decreased 2.2% in 2018 compared to 2017, as a result of volume decline in the West and Ontario, partially offset by growth in Quebec. Net sales per hectoliter on a brand volume basis decreased 2.6% in local currency in 2018 compared to 2017, driven by the impacts resulting from the adoption of the new accounting pronouncement related to revenue recognition, which requires certain cash payments to customers to now be recognized as a reduction of revenue versus marketing, general and administrative expense, and unfavorable brand mix. Net sales per hectoliter on a reported basis in local currency decreased 1.6% in 2018 compared to 2017.

Brand volume decreased 0.5% in 2017 compared to 2016, primarily as a result of lower domestic volumes, partially offset by the addition of the Miller brands as a result of the Acquisition. Net sales per hectoliter on a brand volume basis increased 1.6% in local currency in 2017 compared to 2016, driven by positive pricing and sales mix. Net sales per hectoliter on a reported basis in local currency increased 2.2% in 2017 compared to 2016.

Cost of goods sold

Cost of goods sold per hectoliter in local currency increased 2.9% in 2018 compared to 2017, driven by input cost inflation, volume deleverage, and supply chain transformation investments, partially offset by distribution gains and cost savings. Additionally, for 2018 we recorded $0.5 million of integration costs related to the Acquisition within cost of goods sold.

Cost of goods sold per hectoliter in local currency increased 6.2% in 2017 compared to 2016, due to sales mix shift to higher cost products, impacts of volume deleverage, higher inflation and unfavorable transactional foreign currency impacts, partially offset by ongoing cost saving initiatives. Additionally, for 2017 we recorded $4.1 million of integration costs related to the Acquisition within cost of goods sold.

Marketing, general and administrative expenses

Marketing, general and administrative expenses decreased 14.1% in local currency in 2018 compared to 2017, primarily driven by impacts resulting from the adoption of the new accounting pronouncement related to revenue recognition as further discussed above and lower brand investments.

Marketing, general and administrative expenses increased 7.6% in local currency in 2017 compared to 2016, primarily driven by higher brand amortization in 2017, partially offset by lower bad debt expense, and spending reductions.

Other income (expense), net

Other expense of $22.4 million in 2018 was primarily driven by charges related to unrealized mark-to-market losses on warrants issued in connection with the formation of the Truss joint venture, as further detailed in Note 16, "Derivative Instruments and Hedging Activities."

Europe Segment

	For the years ended
	December 31, 2018				Change			December 31, 2017				Change			December 31, 2016
	(In millions, except percentages)
Financial volume in hectoliters(1)(2)(3)	23.772				2.1	%		23.290				3.1	%		22.590
Sales(3)	$	3,088.6			6.9	%		$	2,888.3			4.0	%		$	2,778.1
Excise taxes	(1,086.0		)		14.6	%		(947.6		)		(6.9	)%		(1,017.9		)
Net sales(3)	2,002.6				3.2	%		1,940.7				10.3	%		1,760.2
Cost of goods sold	(1,269.4		)		8.1	%		(1,174.4		)		4.5	%		(1,123.5		)
Gross profit	733.2				(4.3	)%		766.3				20.4	%		636.7
Marketing, general and administrative expenses	(534.6		)		0.8	%		(530.3		)		3.7	%		(511.4		)
Special items, net(4)	(6.0		)		20.0	%		(5.0		)		N/M			(0.6		)
Operating income (loss)	192.6				(16.6	)%		231.0				85.2	%		124.7
Interest income (expense), net	(5.1		)		N/M			3.6				—	%		3.6
Other income (expense), net	(1.1		)		N/M			0.3				(96.8	)%		9.3
Income (loss) before income taxes	$	186.4			(20.6	)%		$	234.9			70.7	%		$	137.6

N/M = Not meaningful

(1)	Financial volumes for the year ended December 31, 2016, were recast to reflect the impacts of aligning policies on reporting financial volumes as a result of the Acquisition.

(2)	Excludes royalty volume of 1.787 million hectoliters, 1.694 million hectoliters and 0.194 million hectoliters for 2018, 2017 and 2016, respectively.

(3)	Includes gross inter-segment sales and volumes, which are eliminated in the consolidated totals.

(4)	See Part II—Item 8 Financial Statements and Supplementary Data, Note 7, "Special Items" of the Notes for detail of special items.

Significant events

The U.K. is expected to leave the European Union on March 29, 2019. However, the proposed withdrawal agreement was rejected by the U.K. Parliament on November 14, 2018, and January 15, 2019. As a result, the terms of the withdrawal remain unknown, which subjects our Europe segment to regulatory and market uncertainty in the U.K. and in the rest of Europe. See Part I—Item 1A Risk Factors under "Risks Specific to the Europe Segment" for further discussion of the risks specific to the U.K.'s proposed exit from the EU.

In January 2018, the Europe segment completed the acquisition of Aspall Cyder Limited, an established premium cider business in the U.K.

As a result of the Acquisition, the Miller brands were added to our Europe segment's portfolio beginning October 11, 2016, and effective January 1, 2017, European markets including Sweden, Spain, Germany, Ukraine and Russia, which were previously reported under our International segment, are reported within our Europe segment.

As part of our continued strategic review of our European supply chain network, during the fourth quarter of 2015, we announced the planned closure of the Burton South brewery in the U.K. Since 2015, we incurred charges consisting primarily of accelerated depreciation in excess of normal depreciation related to the Burton South brewery which closed during the first quarter of 2018. Production has been consolidated within our recently modernized Burton North brewery. We may recognize other charges or benefits related to brewery closures, which cannot currently be estimated and will be recorded within special items.

In the first quarter of 2017, the largest food and retail company in Croatia, Agrokor, announced that it was facing significant financial difficulties that raised doubt about the collectibility of certain of our outstanding receivables with its direct subsidiaries. These subsidiaries are customers of ours within the Europe segment and, therefore, we have closely monitored the situation. As a result, we recorded a provision for an estimate of uncollectible receivables during 2017. We have subsequently reduced this exposure and as of December 31, 2018, our estimated provision of uncollectible receivables from Agrokor totals

approximately $3 million. The settlement plan related to this matter was approved in October 2018, and did not have a significant impact on our financial statements.

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 within the excise taxes line item on the consolidated statement of operations. See Part II—Item 8 Financial Statements and Supplementary Data, Note 18, "Commitments and Contingencies" of the Notes for further discussion.

Foreign currency impact on results

Our Europe segment operates in numerous countries within Europe, and each country's operations utilize distinct currencies. During 2018, foreign currency movements unfavorably impacted our Europe USD income before income taxes by $2.8 million. During 2017, foreign currency movements unfavorably impacted our Europe USD income before income taxes by $7.5 million. Included in these amounts are both translational and transactional impacts of changes in foreign exchange rates. The impact of transactional foreign currency gains and losses is recorded within other income (expense) in our consolidated statements of operations.

Volume and net sales

Our Europe brand volume increased 2.2% in 2018 compared to 2017, primarily driven by growth from our above premium and core brand performance.

Net sales per hectoliter on a brand volume basis decreased 3.4% in local currency in 2018 compared to 2017, primarily driven by the negative impact of cycling the release of the approximate $50 million indirect tax provision in the first quarter of 2017, negative pricing due to the impact of adopting recently revised excise-tax guidelines in one of our European markets, and increasing our investment behind our First Choice Agenda this year. Net sales per hectoliter on a reported basis in local currency decreased 2.1% in 2018 compared to 2017.

Brand volume increased 10.3% in 2017 compared to 2016, primarily driven by the transfer of royalty and export brand volume across Europe from our International business and the addition of the Miller brands, along with growth from our above premium brands.

Net sales per hectoliter on a brand volume basis increased 4.9% in local currency in 2017 compared to 2016, primarily driven by the indirect tax provision of approximately $50 million recorded in the fourth quarter of 2016 and subsequently released in the first quarter of 2017 and the addition of royalty and export brand volumes, including the impact of Miller brands. Net sales per hectoliter on a reported basis in local currency increased 9.0% in 2017 compared to 2016.

Cost of goods sold

Cost of goods sold per hectoliter increased 2.3% in local currency in 2018 compared to 2017, primarily due to input inflation and mix shift to higher-cost brands and geographies. Additionally, we recorded $0.6 million of integration costs related to the Acquisition within cost of goods sold in 2018.

Cost of goods sold per hectoliter increased 3.4% in local currency in 2017 compared to 2016, primarily driven by mix shift to higher cost brands and geographies. Additionally, we have recorded $0.6 million of integration costs related to the Acquisition within cost of goods sold in 2017.

Marketing, general and administrative expenses

Marketing, general and administrative expenses decreased 3.3% in local currency in 2018 compared to 2017, driven by more efficient marketing investments and the impacts resulting from the adoption of the new accounting pronouncement related to revenue recognition and a positive impact from cycling a bad debt provision booked in 2017, partially offset by the addition of Aspall brand investments.

Marketing, general and administrative expenses increased 4.9% in local currency in 2017 compared to 2016, driven by higher brand investments and general and administrative costs, including increased amortization related to the Miller brand portfolio, and recognition of the previously mentioned provision for uncollectible receivables.

International Segment

	For the years ended
	December 31, 2018				Change			December 31, 2017				Change			December 31, 2016
	(In millions, except percentages)
Financial volume in hectoliters(1)(2)	2.214				(7.5	)%		2.394				60.1	%		1.495
Sales	$	299.5			(0.5	)%		$	300.9			57.5	%		$	191.0
Excise taxes	(49.4		)		33.9	%		(36.9		)		34.7	%		(27.4		)
Net sales	250.1				(5.3	)%		264.0				61.4	%		163.6
Cost of goods sold(3)	(160.4		)		(11.1	)%		(180.5		)		68.5	%		(107.1		)
Gross profit	89.7				7.4	%		83.5				47.8	%		56.5
Marketing, general and administrative expenses	(81.6		)		(19.8	)%		(101.7		)		56.0	%		(65.2		)
Special items, net(4)	(9.3		)		N/M			(1.6		)		(94.9	)%		(31.1		)
Operating income (loss)	(1.2		)		(93.9	)%		(19.8		)		(50.3	)%		(39.8		)
Other income (expense), net	(1.5		)		N/M			0.1				(50.0	)%		0.2
Income (loss) before income taxes	$	(2.7	)		(86.3	)%		$	(19.7	)		(50.3	)%		$	(39.6	)

N/M = Not meaningful

(1)	Financial volumes for the year ended December 31, 2016, were recast to reflect the impacts of aligning policies on reporting financial volumes as a result of the Acquisition.

(2)	Excludes royalty volume of 2.267 million hectoliters, 1.991 million hectoliters and 1.908 million hectoliters in 2018, 2017 and 2016, respectively.

(3)	Includes gross inter-segment purchases, which are eliminated in the consolidated totals.

(4)	See Part II—Item 8 Financial Statements and Supplementary Data, Note 7, "Special Items" of the Notes for detail of special items.

Significant events

During the first half of 2018, we decided to formally exit our business in China and, as such, have incurred special charges. See Part II—Item 8 Financial Statements and Supplementary Data, Note 7, "Special Items" of the Notes for further detail.

As a result of the Acquisition, the Miller brands were added to our International segment's portfolio beginning October 11, 2016. Additionally, as a result of the Acquisition, effective January 1, 2017, European markets including Sweden, Spain, Germany, Ukraine and Russia, which were previously reported as part of our International segment, are reported within our Europe segment while the results of the MillerCoors Puerto Rico business, which were previously included as part of the U.S. segment, are reported within the International segment.

On April 5, 2016, the government of the state of Bihar implemented a complete prohibition of the sale and consumption of all forms of alcohol. As a result of this ban, our Molson Coors Cobra India business is currently not operating. This ban does not impact the rest of our business in India outside of the state of Bihar. As a result, we recorded an aggregate impairment charge of $30.8 million within special items during the second quarter of 2016. We continue to monitor legal proceedings impacting the regulatory environment as it relates to our ability to resume operations in the state.

Foreign currency impact on results

Our International segment operates in numerous countries around the world and each country's operations utilize distinct currencies. Foreign currency movements unfavorably impacted our International USD loss before income taxes by $3.2 million for 2018 and favorably impacted our International USD loss before income taxes by $0.2 million for 2017. Included in these amounts are both translational and transactional impacts of changes in foreign exchange rates. The impact of transactional foreign currency gains and losses is recorded within other income (expense) in our consolidated statements of operations.

Volume and net sales

Our International brand volume increased 2.2% in 2018 compared to 2017, driven by organic volume growth in many of our focus markets, partially offset by lower volumes in Mexico due to higher net pricing and the loss of the Modelo contract in

Japan at the end of the second quarter of 2017. Our International financial volume decreased 7.5% in 2018 compared to 2017, driven by shifting to local third party production in Mexico, which increased our royalty volume.

Net sales per hectoliter on a brand volume basis decreased 7.3% in 2018 compared to 2017, primarily driven by sales mix changes and shifting to local production in Mexico, partially offset by positive net pricing. Net sales per hectoliter on a reported basis increased 2.4% in 2018 compared to 2017 due to changes in sales mix.

Brand volume increased 28.9% in 2017 compared to 2016, driven by the change in segment reporting of the Puerto Rico business from the U.S. segment, Coors Light growth primarily in Latin America and the addition of the Miller brands partially offset by the transfer of royalty and export brand volume to Europe.

Net sales per hectoliter on a brand volume basis increased 25.2% in 2017 compared to 2016, primarily due to sales mix changes and positive pricing. Net sales per hectoliter on a reported basis increased 0.8% in 2017 compared to 2016, driven by positive net pricing and favorable sales mix.

Cost of goods sold

Cost of goods sold per hectoliter decreased 3.9% in 2018 compared to 2017, primarily driven by sales mix changes. Additionally, during 2018 we recorded $1.0 million of integration costs related to the Acquisition within cost of goods sold.

Cost of goods sold per hectoliter increased 5.2% in 2017 compared to 2016, primarily driven by sales mix changes. Additionally, during 2017 we recorded $3.6 million of integration costs related to the Acquisition within cost of goods sold.

Marketing, general and administrative expenses

Marketing, general and administrative expenses decreased 19.8% in 2018 compared to 2017, primarily due to lower marketing investments, overhead, and integration costs as well as $2.0 million of settlement proceeds related to our Colombia business in the first quarter of 2018. During 2018, we recorded $1.8 million of integration costs related to the Acquisition within marketing, general and administrative expenses.

Marketing, general and administrative expenses increased 56.0% in 2017 compared to 2016, primarily due to higher organization and integration costs related to the acquisition of the Miller global brands, along with increased brand investments, including higher brand amortization costs. During 2017, we recorded $8.4 million of integration costs related to the Acquisition within marketing, general and administrative expenses.

Corporate Segment

	For the years ended
	December 31, 2018				Change			December 31, 2017				Change			December 31, 2016
	(In millions, except percentages)
Financial volume in hectoliters	—				—	%		—				—	%		—
Sales	$	0.8			(11.1	)%		$	0.9			(10.0	)%		$	1.0
Excise taxes	—				—	%		—				—	%		—
Net sales	0.8				(11.1	)%		0.9				(10.0	)%		1.0
Cost of goods sold	(166.4		)		N/M			122.9				N/M			22.9
Gross profit	(165.6		)		N/M			123.8				N/M			23.9
Marketing, general and administrative expenses	(213.3		)		(11.1	)%		(239.8		)		6.4	%		(225.3		)
Special items, net(1)	326.6				N/M			(0.1		)		(85.7	)%		(0.7		)
Operating income (loss)	(52.3		)		(55.0	)%		(116.1		)		(42.6	)%		(202.1		)
Interest expense, net	(301.9		)		(16.1	)%		(360.0		)		45.2	%		(248.0		)
Other pension and postretirement benefits (costs), net	38.2				(19.4	)%		47.4				N/M			8.4
Other income (expense), net	14.4				N/M			(7.7		)		(84.8	)%		(50.5		)
Income (loss) before income taxes	$	(301.6	)		(30.9	)%		$	(436.4	)		(11.3	)%		$	(492.2	)

N/M = Not meaningful

(1)	See Part II—Item 8 Financial Statements and Supplementary Data, Note 7, "Special Items" of the Notes for detail of special items.

Significant events

In connection with the Acquisition, we have incurred, and will continue to incur, various transaction and integration costs as further discussed below. See Part II—Item 8 Financial Statements and Supplementary Data, Note 4, "Acquisition and Investments" of the Notes for further details.

Cost of goods sold

The unrealized changes in fair value on our commodity swaps, which are economic hedges, are recorded as cost of goods sold within our Corporate business activities. As the exposure we are managing is realized, we reclassify the gain or loss to the segment in which the underlying exposure resides, allowing our segments to realize the economic effects of the derivative without the resulting unrealized mark-to-market volatility. Cost of goods sold for the year ended December 31, 2018, include unrealized mark-to-market losses of $166.2 million, and cost of goods sold for the years ended December 31, 2017, and December 31, 2016, include unrealized mark-to-market gains of $123.3 million and $23.1 million, respectively, on these commodity swaps. Lower commodity market prices relative to our hedged positions on our commodity swaps drove the total unrealized mark-to-market loss in 2018. The total gain recognized in 2017 was primarily driven by higher commodity prices during the year versus 2016.

Marketing, general and administrative expenses

Marketing, general and administrative expenses decreased in 2018 compared to 2017, primarily due to the timing of corporate general and administrative costs, lower employee-related expenses, and higher integration costs related to the Acquisition recognized in the prior year, partially offset by incremental investment behind global business capabilities including information technology investments. During 2018 we recorded $36.9 million of integration costs related to the Acquisition within marketing, general and administrative expenses.

Marketing, general and administrative expenses increased in 2017 compared to 2016, primarily due to incremental investment behind global business capabilities including higher compensation expense, partially offset by higher acquisition-related costs recognized in 2016. Specifically, during 2017 we recorded $57.1 million within marketing, general and administrative expenses related the Acquisition, compared to $108.4 million in 2016.

Interest expense, net

Net interest expense decreased in 2018 compared to 2017, primarily driven by debt repayments. Net interest expense increased in 2017 compared to 2016, primarily driven by incremental interest incurred on debt issued to partially fund the Acquisition. See Part II—Item 8 Financial Statements and Supplementary Data, Note 16, "Derivative Instruments and Hedging Activities" and Note 11, "Debt" for further details.

Other income (expense), net

Net other income in 2018 compared to net other expense in 2017 was primarily driven by an $11.7 million gain recorded on the sale of a non-operating asset in 2018. Net other expense decreased from 2017 compared to 2016, primarily driven by financing costs incurred in 2016 on our bridge loan of approximately $63 million partially offset by the $20.5 million gain on the sale of non-operating assets as well as unrealized gains on foreign currency forwards which are economic hedges entered into during the second quarter of 2016 in connection with the issuance of debt on July 7, 2016.

See Part II—Item 8 Financial Statements and Supplementary Data, Note 5, "Other Income and Expense" of the Notes for further discussion of other income (expense) amounts and Note 15, "Employee Retirement Plans and Postretirement Benefits" for discussion of changes in pension and postretirement benefits (costs) as all non-service cost components of pension and postretirement benefits (costs) are now reported within Corporate.

Liquidity and Capital Resources

Our primary sources of liquidity include cash provided by operating activities and access to external capital. We believe that cash flows from operations and cash provided by short-term and long-term borrowings, when necessary, will be more than adequate to meet our ongoing operating requirements, scheduled principal and interest payments on debt, anticipated dividend payments and capital expenditures for the next twelve months, and our long-term liquidity requirements.

A significant portion of our trade receivables are concentrated in Europe. While these receivables are not concentrated in any specific customer and our allowance on these receivables factors in collectibility, we may encounter difficulties in our ability to collect due to the impact to our customers of any further economic downturn within Europe.

A significant portion of our cash flows from operating activities is generated outside the U.S., in currencies other than USD. As of December 31, 2018, approximately 47% of our cash and cash equivalents were located outside the U.S., largely denominated in foreign currencies. We accrue for tax consequences on the earnings of our foreign subsidiaries upon repatriation. When the earnings are considered indefinitely reinvested outside of the U.S., we do not accrue taxes. However, we continue to assess the impact of the 2017 Tax Act on the tax consequences of future repatriations. We utilize a variety of tax planning and financing strategies in an effort to ensure that our worldwide cash is available in the locations in which it is needed. We periodically review and evaluate these strategies, including external committed and non-committed credit agreements accessible by MCBC and each of our operating subsidiaries. We believe these financing arrangements, along with the cash generated from the operations of our U.S. segment, are sufficient to fund our current cash needs in the U.S.

Cash Flows and Use of Cash

Our business generates positive operating cash flow each year, and our debt maturities are of a longer-term nature. However, our liquidity could be impacted significantly by the risk factors described in Part I, Item 1A. Risk Factors.

Cash Flows from Operating activities

Net cash provided by operating activities of approximately $2.3 billion in 2018, increased by $465.0 million compared to 2017. This increase was driven by the proceeds received during the first quarter of $328.0 million related to the Adjustment Amount as defined and further discussed in Part II—Item 8 Financial Statements and Supplementary Data, Note 4, "Acquisition and Investments" of the Notes, lower pension contributions and interest paid, partially offset by unfavorable changes in working capital and lower cash tax receipts.

Net cash provided by operating activities of approximately $1.9 billion in 2017 increased by $739.4 million compared to 2016. This increase is primarily related to the addition of the consolidated U.S. business, lower cash paid for taxes (refund in 2017 as compared to cash tax paid in 2016) and working capital improvements, partially offset by higher pension contributions including the discretionary cash contribution of $200 million to the U.S. pension plan and higher cash paid for interest.

Cash Flows from Investing activities

Net cash used in investing activities of $669.1 million in 2018, increased by $130.9 million compared to 2017 primarily due to higher capital expenditures, increased outflows from other investing activities, including acquisitions, as well as lower proceeds related to asset disposals.

Net cash used in investing activities of $538.2 million in 2017 decreased by approximately $11.7 billion compared to 2016 driven primarily by the completion of the Acquisition in 2016 for $12.0 billion, offset by higher capital expenditures in 2017 resulting from the Acquisition.

Cash Flows from Financing activities

Net cash used in financing activities of approximately $1.0 billion in 2018, decreased by $487.5 million from net cash used in financing activities of approximately $1.5 billion in 2017. This decrease was primarily driven by lower net repayments on debt and borrowings in 2018 compared to 2017, partially offset by the repayment of borrowings under our commercial paper program in 2018 compared to an increase in borrowings under our commercial paper program in the prior year.

Net cash used in financing activities of approximately $1.5 billion in 2017, decreased by approximately $12.8 billion from net cash provided by financing activities of approximately $11.3 billion in 2016. This change was primarily driven by the approximate $2.5 billion of net proceeds received from our February 3, 2016, equity offering of 29.9 million shares of our Class B common stock, the approximate $6.9 billion of net proceeds from the issuance of debt on July 7, 2016, to partially fund the Acquisition in 2016, as well as increased net repayments of debt as we began to deleverage in 2017. See "Borrowings" below for more details on financing activity.

See Part II—Item 8 Financial Statements and Supplementary Data, Note 11, "Debt" of the Notes for a summary of our financing activities and debt position as of December 31, 2018, and December 31, 2017.

Capital Resources

Cash and Cash Equivalents

As of December 31, 2018, we had total cash and cash equivalents of approximately $1.1 billion, compared to $418.6 million as of December 31, 2017. The increase in cash and cash equivalents as of December 31, 2018, from December 31, 2017, was primarily driven by the net proceeds from operating activities including the proceeds received during the first quarter of $328.0 million related to the Adjustment Amount as defined and further discussed in Part II—Item 8 Financial Statements and Supplementary Data, Note 4, "Acquisition and Investments" of the Notes, partially offset by repayments of borrowings,

capital expenditures and dividend payments. The majority of our cash and cash equivalents are invested in a variety of highly liquid investments with original maturities of 90 days or less. These investments are viewed by management as low-risk investments on which there are little to no restrictions regarding our ability to access the underlying cash to fund our operations as necessary. While we have some investments in prime money market funds, these are classified as cash and cash equivalents; however, we continually monitor the need for reclassification under the updated SEC requirements for money market funds, and the potential that the shares of such funds could have a net asset value of less than one dollar. We also utilize cash pooling arrangements to facilitate the access to cash across our geographies.

Working Capital

The Company actively manages working capital through inventory management as well as management of accounts payable and accounts receivable to ensure we are able to meet short-term obligations and we are effectively using assets to increase profitability.

Borrowings

During the third quarter of 2018, we repaid our CAD 400 million 2.25% notes which matured in September 2018. Notional amounts are presented in USD based on the applicable exchange rate as of December 31, 2018. Refer to Part II—Item 8 Financial Statements and Supplementary Data, Note 11, "Debt" for details regarding the cross currency swaps on our $500 million 2.25% senior notes due 2020 which economically converted these notes to EUR denominated.

Based on the credit profile of our lenders that are party to our credit facilities, we are confident in our ability to draw on our revolving credit facility if the need arises. We had no borrowings on our $1.5 billion revolving credit facility as of December 31, 2018. During the third quarter of 2018, we extended the maturity date of our revolving credit facility by one year to July 7, 2023. In addition, we intend to further utilize our cross-border, cross-currency cash pool as well as our commercial paper program for liquidity as needed. We also have JPY overdraft facilities, CAD, GBP and USD lines of credit with several banks should we need additional short-term liquidity.

Under the terms of each of our debt facilities, we must comply with certain restrictions. These include restrictions on priority indebtedness (certain threshold percentages of secured consolidated net tangible assets), leverage thresholds, liens, and restrictions on certain types of sale lease-back transactions and transfers of assets. Additionally, under the $1.5 billion revolving credit facility, the maximum leverage ratio is 4.75x debt to EBITDA, with a decline to 4.00x debt to EBITDA as of the last day of the fiscal quarter ending December 31, 2020. As of December 31, 2018, and December 31, 2017, we were in compliance with all of these restrictions, have met such financial ratios and have met all debt payment obligations. All of our outstanding senior notes as of December 31, 2018, rank pari-passu.

See Part II—Item 8 Financial Statements and Supplementary Data, Note 11, "Debt" of the Notes for a complete discussion and presentation of all borrowings and available sources of borrowing, including lines of credit.

Credit Rating

Our current long-term credit ratings are BBB-/Stable Outlook, Baa3/Stable Outlook and BBB(Low)/Stable Outlook with Standard and Poor's, Moody's and DBRS, respectively. Our short-term credit ratings are A-3, Prime-3 and R-2(low), respectively. A securities rating is not a recommendation to buy, sell or hold securities, and it may be revised or withdrawn at any time by the rating agency.

Foreign Exchange

Foreign exchange risk is inherent in our operations primarily due to the significant operating results that are denominated in currencies other than USD. Our approach is to reduce the volatility of cash flows and reported earnings which result from

currency fluctuations rather than business related factors. Therefore, we closely monitor our operations in each country and seek to adopt appropriate strategies that are responsive to foreign currency fluctuations. Our financial risk management policy is intended to offset a portion of the potentially unfavorable impact of exchange rate changes on net income and earnings per share. See Part II—Item 8 Financial Statements and Supplementary Data, Note 16, "Derivative Instruments and Hedging Activities" of the Notes for additional information on our financial risk management strategies.

Our consolidated financial statements are presented in USD, which is our reporting 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 other comprehensive income. Revenue and expenses are translated at the average exchange rates during the period. Gains and losses from foreign currency transactions are included in earnings for the period. The significant exchange rates to the USD used in the preparation of our consolidated financial results for the primary foreign currencies used in our foreign operations (functional currency) are as follows:

	For the years ended
	December 31, 2018			December 31, 2017			December 31, 2016
Weighted-Average Exchange Rate (1 USD equals)
Canadian dollar (CAD)	1.30			1.27			1.32
Euro (EUR)	0.84			0.88			0.90
British pound (GBP)	0.77			0.77			0.75
Czech Koruna (CZK)	21.93			23.43			24.61
Croatian Kuna (HRK)	6.32			6.59			6.78
Serbian Dinar (RSD)	99.74			112.49			110.81
Romanian Leu (RON)	4.00			4.01			4.05
Bulgarian Lev (BGN)	1.67			1.72			1.77
Hungarian Forint (HUF)	267.65			276.49			258.13

	As of
	December 31, 2018			December 31, 2017
Closing Exchange Rate (1 USD equals)
Canadian dollar (CAD)	1.36			1.26
Euro (EUR)	0.87			0.83
British pound (GBP)	0.78			0.74
Czech Koruna (CZK)	22.43			21.29
Croatian Kuna (HRK)	6.46			6.19
Serbian Dinar (RSD)	103.20			98.52
Romanian Leu (RON)	4.06			3.89
Bulgarian Lev (BGN)	1.71			1.63
Hungarian Forint (HUF)	279.94			258.91

The weighted-average exchange rates in the above table have been calculated based on the average of the foreign exchange rates during the relevant period and have been weighted according to the foreign denominated earnings from operations of the USD equivalent. If foreign currencies in the countries in which we operate devalue significantly in future periods, most significantly the CAD and European operating currencies included in the above table, then the impact on USD reported earnings may be material.

Capital Expenditures

In 2018, we incurred $643.2 million, and have paid $651.7 million, for capital improvement projects worldwide, excluding capital spending by equity method joint ventures, representing an approximate 2% increase versus 2017 capital expenditures incurred of $628.4 million. This increase is primarily due to capital expenditures associated with the construction of our new Chilliwack, British Columbia brewery, expected to be finalized in the third quarter of 2019, and Longueuil, Quebec brewery.

We continue to focus on where and how we employ our planned capital expenditures, specifically strengthening our focus on required returns on invested capital as we determine how to best allocate cash within the business.

Contractual Obligations and Commercial Commitments

Contractual Obligations

A summary of our consolidated contractual obligations as of December 31, 2018, based on foreign exchange rates as of December 31, 2018, is as follows:

	Payments due by period
	Total				Less than 1 year				1 - 3 years				3 - 5 years				More than 5 years
	(In millions)
Debt obligations	$	10,540.0			$	1,595.2			$	1,866.6			$	866.6			$	6,211.6
Interest payments on debt obligations	4,284.5				297.1				542.9				458.9				2,985.6
Retirement plan expenditures(1)	447.8				51.4				90.6				89.5				216.3
Operating leases	184.8				49.4				72.8				41.6				21.0
Capital leases	124.1				6.1				42.1				11.7				64.2
Other long-term obligations(2)	2,592.6				694.4				1,081.8				657.0				159.4
Total obligations	$	18,173.8			$	2,693.6			$	3,696.8			$	2,125.3			$	9,658.1

See Part II - Item 8 Financial Statements and Supplementary Data, Note 11, "Debt", Note 15, "Employee Retirement Plans and Postretirement Benefits," Note 16, "Derivative Instruments and Hedging Activities" and Note 18, "Commitments and Contingencies" of the Notes for additional information.

(1)

Represents expected contributions under our defined benefit pension plans in the next twelve months and our benefit payments under postretirement benefit plans for all periods presented. The net underfunded liability as of December 31, 2018, of our defined benefit pension plans (excluding our overfunded plans) and postretirement benefit plans is $104.1 million and $672.1 million, respectively. Defined benefit pension plan contributions in future years will vary based on a number of factors, including actual plan asset returns and interest rates, and as such, have been excluded from the above table. We fund pension plans to meet the requirements set forth in applicable employee benefits laws. We may also voluntarily increase funding levels to meet financial goals. Excluding BRI and BDL, in 2019, we expect to make contributions to our defined benefit pension plans of approximately $6 million and benefit payments under our OPEB plans of approximately $45 million, based on foreign exchange rates as of December 31, 2018.

Our U.K. pension plan is subject to a statutory valuation for funding purposes every three years. The most recent valuation as of June 30, 2016, resulted in a long-term funding commitment plan consisting of MCBC contributions to the plan of a GBP 60 million lump-sum contribution in early 2020 and incremental GBP 25.7 million annual contributions from 2020 through 2026, which are excluded from the above table.

We have taken numerous steps to reduce our exposure to these long-term pension obligations, including the closure of the U.K. pension plan in early 2009 to future earning of service credit, benefit modifications in several of our Canada plans and entering into partial buy-out contracts for some of our plans. However, given the net liability of our underfunded plans and their dependence upon the global financial markets for their financial health, the plans may continue to periodically require potentially significant amounts of cash funding.

(2)

Primarily includes non-cancelable purchase commitments as of December 31, 2018, that are enforceable and legally binding. Approximately $1.7 billion of the total other long-term obligations relate to long-term supply contracts with third parties to purchase raw material, packaging material and energy used in production. Our aggregate commitments for advertising and promotions, including sports sponsorship, total approximately $486 million. The remaining amounts relate to derivative payments, sales and marketing, distribution, information technology services, open purchase orders and other commitments. Included in other long-term obligations are $6.1 million of unrecognized tax benefits, excluding positions we would expect to settle using deferred tax assets, and $10.5 million of indemnities provided to FEMSA for which we cannot reasonably estimate the timing of future cash flows, and we have therefore included these amounts in the more than 5 years column.

Guarantees

We guarantee indebtedness and other obligations to banks and other third parties for some of our equity method investments and consolidated subsidiaries. See Part II—Item 8 Financial Statements and Supplementary Data, Note 18, "Commitments and Contingencies" of the Notes for further discussion.

Other Commercial Commitments

Based on foreign exchange rates as of December 31, 2018, future commercial commitments are as follows:

	Amount of commitment expiration per period
	Total amounts committed				Less than 1 year				1 - 3 years				3 - 5 years				More than 5 years
	(In millions)
Standby letters of credit	$	64.5			$	48.8			$	15.7			$	—			$	—

Contingencies

We are party to various legal proceedings arising in the ordinary course of business, environmental litigation and indemnities associated with our sale of Kaiser to FEMSA. See Part II—Item 8 Financial Statements and Supplementary Data, Note 18, "Commitments and Contingencies" of the Notes for further discussion.

Off-Balance Sheet Arrangements

In accordance with U.S. GAAP, our operating leases are not reflected in our consolidated balance sheets. See Part II—Item 8 Financial Statements, Note 18, "Commitments and Contingencies" of the Notes for further discussion of these off-balance sheet arrangements. As of December 31, 2018, we did not have any other material off-balance sheet arrangements (as defined in Item 303(a)(4)(ii) of Regulation S-K).

Outlook for 2019

In the U.S., Miller Lite continues its strong segment trend while Coors Light’s relative performance improved with the brand holding share of segment in the fourth quarter of 2018. In 2019, we have plans to accelerate our above premium portfolio through higher investment. We plan to double our media spend on Blue Moon, the number one national craft brand, air national advertising for Peroni for the first time, build on a very successful year-one for both Arnold Palmer Spiked Half and Half and Sol, increase the presence of Henry's Hard in the fast growing hard seltzer category, focusing on the brand's clear product differentiators of zero sugar and only 88 calories and introduce a number of innovations, including Cape Line, Saint Archer Gold, Crispin extensions and Sol Chelada - all before this summer. Our U.S. business enters 2019 having further strengthened its position as the trusted category captain across chain accounts in both the off- and on-premise channels and more broadly our customer excellence performance is market leading and improving further, as evidenced by the Advantage Survey results. Additionally, allied to this we have ramped up our e-commerce approach within joint business plans and continue to build competitive advantage through our technology enabled field sales teams with tools such as BeerMate, which we are rolling out globally. Our new Coors Light advertising is now on air, and we believe we are moving in the right direction with the brand, allowing us to take even more share in premium lights. We anticipate Coors Light will continue to emphasize its cold, Rocky Mountain positioning as the World's Most Refreshing Beer. We expect it will also invest more than ever on digital and social channels to engage and recruit 21-34 year olds. Miller Lite, the original light beer with less carbs and calories, plans to further enhance its competitive messaging to drive greater consumer affinity and brand switching from its major competitor.

In Canada, our First Choice Commercial excellence approach and capability is building. In terms of commercial performance, there are multiple highlights. Our total share trend has improved three quarters in a row and Coors Light’s segment share also improved three quarters in a row, improving to flat in the fourth quarter. Craft volume grew driven by Belgian Moon and Creemore and our non-alcoholic portfolio of Coors Edge and Heineken 0.0 is delivering strong volume and segment share growth. In the value segment, we delivered strong share growth in 2018 driven by our simplified portfolio strategy and the launch of Miller High Life. As we look at 2019 and beyond, we believe there is growth potential from our innovation pipeline. Coors Slice, for example, is an innovation that strengthens the Coors trademark, and we are encouraged by the tests behind our pending introduction of Aqua-Relle, our hard sparkling water. Our commitment to customer excellence includes the adoption of BeerMate to strengthen field sales management and promising joint business plan pilots with key customers. For example, a pilot with Ontario’s LCBO is producing beer category growth well in excess of the total industry performance. Our two largest brands will benefit from new advertising, brand redesign, and innovation in 2019. For Coors Light, we launch our new “The Mountains Are Calling” campaign and introduce new packages, including a new chill pack in

time for summer and the Molson trademark enters 2019 with a new brand redesign and communication platform which we expect will unlock latent passion for the brand. The Miller brand trademark returned to our portfolio in 2016, and we plan to build on a very successful 2018: building awareness and distribution of Miller High Life since its launch early last year, rolling out Miller Lite nationally after a successful trial in Newfoundland, and adding to the success of Miller Genuine Draft in other non-U.S. markets by expanding the brand’s availability and above premium positioning.

In Europe, our brand volumes are growing and premiumizing. Our national champion portfolio inflected to positive volume growth last year, our global brands continued to grow well in excess of the industry, and our above premium and craft portfolio also contributed to growth and mix. Our First Choice for Customer focus is also strengthening our customer relationships. For example, according to the Advantage survey of U.K. retailers, we rate number one in the Multiple On-Trade across all beverage suppliers. Our national champion brands in Europe had a solid year, and we still aim for more. Our largest brand, Carling, has just begun a major new 360 campaign, “Made Local,” which started this month, and we anticipate it will continue throughout 2019 and we believe it will strengthen the brand's market leading position. Finally, in Europe, we are exporting and licensing our brands to multiple new markets. We are generating increasing profit from this business and are excited about its future because it is low capital intensity and we believe it offers considerable room for growth.

In International, last year was year-one of our new International strategy, targeting focus markets and implementing the many actions that have improved profitability. These include our shift to local production in Mexico, favorable changes in the pricing of Coors Light, Miller Genuine Draft, and Miller Lite, accelerated growth of Blue Moon and Miller High Life, and improved performance at retail. International’s recent wins include Miller Genuine Draft capturing leadership of Paraguay’s premium segment, our new Blue Moon Tap House in Panama which we expect to be the first of many, and strong growth across our portfolio in Latin America and India. Looking forward, our International business will remain committed to top- and bottom-line growth driven by continued focus on portfolio mix improvements, building capabilities to expand within our priority markets and potential strategic entry into new markets.

Cost Savings

We intend to deliver cost savings on our three-year cost savings program for 2017 to 2019 of approximately $700 million, including approximately $205 million in 2019. Delivering on these savings commitments will be particularly important given recent increases in input costs such as aluminum and fuel as well as impacts of inflation. Our next generation cost savings program, for 2020 through 2022, is currently expected to deliver approximately $450 million over the three-year program term and is focused around many of the same functions of the business as the current program.

Capital Expenditures

We currently expect to incur total capital expenditures of approximately $700 million in 2019, based on foreign exchange rates as of December 31, 2018, including capital expenditures associated with the construction of our new British Columbia and Montreal breweries and excluding capital spending by equity method joint ventures.

Interest

We anticipate 2019 consolidated net interest expense of approximately $300 million, based on foreign exchange and interest rates as of December 31, 2018.

Tax

We expect our effective tax rate to be in the range of 18 to 22 percent for 2019, which remains subject to additional definitive guidance from the U.S. government regarding the implementation of the 2017 Tax Act. Our preliminary view of our long-term effective tax rate (after 2019) is in the range of 20 to 24 percent.

Dividends and Stock Repurchases

We currently plan to maintain our current quarterly dividend of $0.41 per share until we achieve a leverage ratio of approximately 3.75x debt to EBITDA on a rating agency basis, which we expect to achieve around the middle of 2019. Upon achieving approximately 3.75x leverage, our board's intention is to reinstitute a dividend payout-ratio target in the range of 20-25% of annual trailing EBITDA for the second half of 2019 and ongoing thereafter. We have suspended our share repurchase program as we continue to pay down debt which we plan to revisit as we deleverage.

Critical Accounting Estimates

Our consolidated financial statements are prepared in accordance with U.S. GAAP. In connection with the preparation of our consolidated financial statements, we are required to make judgments and estimates that significantly affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures. Our estimates are based on historical experience,

current trends and various other assumptions we believe to be relevant under the circumstances. We review the underlying factors used in our estimates regularly, including reviewing the significant accounting policies impacting the estimates, to ensure compliance with U.S. GAAP. However, due to the uncertainty inherent in our estimates, actual results may be materially different. We have identified the accounting estimates below as critical to understanding and evaluating the financial results reported in our consolidated financial statements.

For a complete description of our significant accounting policies, see Part II—Item 8 Financial Statements and Supplementary Data, Note 1, "Basis of Presentation and Summary of Significant Accounting Policies" of the Notes.

Pension and Other Postretirement Benefits

Our defined benefit pension plans cover certain current and former employees in the U.S., Canada, the U.K. (within our Europe segment) and Japan (within our International segment). Benefit accruals for the majority of employees in our U.S. plan have been frozen and the plans are closed to new entrants. In the U.S., we also participate in, and make contributions to, multi-employer pension plans. Our OPEB plans provide medical benefits for retirees and their eligible dependents as well as life insurance and, in some cases, dental and vision coverage, for certain retirees in Canada, the U.S., Corporate, and Europe. The U.S., Canada and U.K. defined benefit pension plans are primarily funded, but the Japan plan and all OPEB plans are unfunded. We also offer defined contribution plans in each of our segments.

Accounting for pension and OPEB plans requires that we make assumptions that involve considerable judgment which are significant inputs in the actuarial models that measure our net pension and OPEB obligations and ultimately impact our earnings. These include the discount rate, long-term expected rate of return on assets, compensation trends, inflation considerations, health care cost trends and other assumptions, as well as determining the fair value of assets in our funded plans. Specifically, the discount rates, as well as the expected rates of return on assets and plan asset fair value determination, are important assumptions used in determining the plans' funded status and annual net periodic pension and OPEB benefit costs. We evaluate these critical assumptions at least annually on a plan and country-specific basis. We also, with the help of actuaries, periodically evaluate other assumptions involving demographic factors, such as retirement age, mortality and turnover, and update them to reflect our experience and expectations for the future. While we believe that our assumptions are appropriate, significant differences in our actual experience or significant changes in our assumptions may materially affect our net pension and postretirement benefit obligations and related expense.

Discount Rates

The assumed discount rates are used to present-value future benefit obligations based on each plan's respective estimated duration. Our pension and postretirement discount rates are based on our annual evaluation of high quality corporate bonds in the various markets based on appropriate indices and actuarial guidance. We believe that our discount rate assumptions are appropriate; however, significant changes in our assumptions may materially affect our pension and OPEB obligations and related expense.

As of December 31, 2018, on a weighted-average basis, the discount rates used were 3.44% for our defined benefit pension plans and 3.92% for our OPEB plans. The change from the weighted-average discount rates of 3.01% for our defined benefit pension plans and 3.34% for our postretirement plans as of December 31, 2017, is primarily the result of overall market changes during 2018.

A 50 basis point change in our discount rate assumptions would have had the following effects on the projected benefit obligation balances as of December 31, 2018, for our pension and OPEB plans:

	Impact to projected benefit obligation as of December 31, 2018 - 50 basis points
	Decrease				Increase
	(In millions)
Projected benefit obligation - unfavorable (favorable)
Pension obligation	$	350.0			$	(313.1	)
OPEB obligation	35.4				(33.2		)
Total impact to the projected benefit obligation	$	385.4			$	(346.3	)

Our U.K. pension plan includes benefits linked to inflation. The above sensitivity analysis does not consider the implications to inflation resulting from the above contemplated discount rate changes. This sensitivity holds all other assumptions constant.

Long-Term Expected Rates of Return on Assets

The assumed long-term expected return on assets is used to estimate the actual return that will occur on each individual funded plan's respective plan assets in the upcoming year. We determine each plan's EROA with substantial input from independent investment specialists, including our actuaries and other consultants. In developing each plan's EROA, we consider current and expected asset allocations, historical market rates as well as historical and expected returns on each plan's individual asset classes. In developing future return expectations for each of our plan's assets, we evaluate general market trends as well as key elements of asset class returns such as expected earnings growth, yields and spreads. The calculation includes inputs for interest, inflation, credit, and risk premium (active investment management) rates and fees paid to service providers. Based on the above factors and expected asset allocations, we have assumed, on a weighted-average basis, an EROA of 4.38% for our defined benefit pension plan assets for cost recognition in 2019. This is an increase from the weighted-average rate of 4.10% we had assumed in 2018. We believe that our EROA assumptions are appropriate; however, significant changes in our assumptions or actual returns that differ significantly from estimated returns may materially affect our net periodic pension costs.

To compute the expected return on plan assets, we apply the EROA to the market-related value of the pension plan assets adjusted for projected benefit payments to be made from the plan assets and projected contributions to the plan assets. 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.

A 50 basis point change in our discount rate and expected return on assets assumptions made at the beginning of 2018 would have had the following effects on 2018 net periodic pension and postretirement benefit costs:

	Impact to 2018 pension and postretirement benefit costs - 50 basis points (unfavorable) favorable
	Decrease				Increase
	(In millions)
Description of pension and postretirement plan sensitivity item
Expected return on pension plan assets	$	(28.4	)		$	28.4
Discount rate on pension plans	$	2.7			$	(7.5	)
Discount rate on postretirement plans	$	1.8			$	(1.6	)

Fair Value of Plan Assets

We recognize our defined benefit pension plans as assets or liabilities in the consolidated balance sheets based on their underfunded or overfunded status as of our year end and recognize changes in the funded status due to changes in actuarial assumptions in the year in which the changes occur within other comprehensive income. Our funded status of our defined benefit pension plans is measured as the difference between each plan's projected benefit obligation and its assets' fair values. The fair value of plan assets is determined by us using available market information and appropriate valuation methodologies. However, considerable judgment is required in selecting an appropriate methodology and interpreting market data to develop the estimates of fair value, especially in the absence of quoted market values in an active market. Changes in these assumptions or the use of different market inputs may have a material impact on the estimated fair values or the ultimate amount at which the plan assets are available to satisfy our plan obligations.

Equity assets are diversified between domestic and other international investments. Relative allocations reflect the demographics of the respective plan participants. See Part II—Item 8 Financial Statements and Supplementary Data, Note 15, "Employee Retirement Plans and Postretirement Benefits" of the Notes for a comparison of target asset allocation percentages to actual asset allocations as of December 31, 2018.

Other Considerations

Our net periodic pension and postretirement benefit costs are also influenced by the potential amortization (or non-amortization) from accumulated other comprehensive income (loss) of deferred gains and losses, which occur when actual experience differs from estimates. We employ the corridor approach for determining each plan's amortization. This approach defines the “corridor” as the greater of 10% of the PBO or 10% of the market-related value of plan assets (as discussed above)

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 our closed plans or plans that are primarily inactive, the average remaining life expectancy of all plan participants (including retirees) is used. If our actuarial losses significantly exceed this corridor in the future, significant incremental pension and postretirement costs could result. As of year-end 2018, the deferred losses of several of our Canadian plans, as well as those in our U.K. plan, and the deferred gains of our U.S. plan, exceeded the 10% corridor.

The assumed health care cost trend rates represent the rates at which health care costs are assumed to increase and are based on actuarial input and consideration of historical and expected experience. We use these trends as a significant assumption in determining our postretirement benefit obligation and related costs. Changes in our projections of future health care costs due to general economic conditions and those specific to health care will impact this trend rate. An increase in the trend rate would increase our obligation and expense of our postretirement health care plan. We believe that our health care cost trend rate assumptions are appropriate; however, significant changes in our assumptions may materially affect our postretirement benefit obligations and related costs. As of December 31, 2018, the health care trend rates used were ranging ratably from 6.5% in 2019 to 4.5% in 2037, consistent with our health care trend rates ranging ratably from 6.8% in 2018 to 4.5% in 2037 used as of December 31, 2017. See Part II—Item 8 Financial Statements and Supplementary Data, Note 15, "Employee Retirement Plans and Postretirement Benefits" of the Notes for further information.

Contingencies, Environmental and Litigation Reserves

Contingencies, environmental and litigation reserves are recorded, when probable, using our best estimate of loss. This estimate, involving significant judgment, is based on an evaluation of the range of loss related to such matters and where the amount and range can be reasonably estimated. These matters are generally resolved over a number of years and only when one or more future events occur or fail to occur. Following our initial determination, we regularly reassess and revise the potential liability related to any pending matters as new information becomes available. Unless capitalization is allowed or required by U.S. GAAP, environmental and legal costs are expensed when incurred. We disclose pending loss contingencies when the loss is deemed reasonably possible, which requires significant judgment. As a result of the inherent uncertainty of these matters, the ultimate conclusion and actual cost of settlement may materially differ from our estimates. We recognize contingent gains upon the determination that realization is assured beyond a reasonable doubt, regardless of the perceived probability of a favorable outcome prior to achieving that assurance. In the instance of gain contingencies resulting from favorable litigation, due to the numerous uncertainties inherent in a legal proceeding, gain contingencies resulting from legal settlements are not recognized in income until cash or other forms of payment are received. If significant and probable, we disclose as appropriate.

See Part I—Item 3 Legal Proceedings and Part II—Item 8 Financial Statements and Supplementary Data, Note 18, "Commitments and Contingencies" of the Notes for a discussion of our contingencies, environmental and litigation reserves as of December 31, 2018.

Goodwill and Intangible Asset Valuation

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 our annual impairment test, performed as of October 1, the operations in each of the specific regions within our U.S., Canada, Europe and International segments are components based on the availability of discrete financial information and the regular review by segment management. Therefore, the components within each respective segment must be evaluated for aggregation to determine if the components have similar economic characteristics. As a result, in certain cases, we have aggregated business units, within an operating segment, into one reporting unit if the specific aggregation criteria under U.S. GAAP is met. Specifically, we have concluded that the components within the U.S., Canada and Europe segment 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. Therefore, the U.S., Canada and Europe reporting units are consistent with our operating segments. However, for our India business, the reporting unit is one level below the International operating segment. Any change to the conclusion of our reporting units or the aggregation of components within our reporting units could result in a different outcome to our annual impairment test. As of the date of our annual impairment test, our significant indefinite-lived intangible assets included the Coors and Miller brand families in the U.S., the Coors Light distribution rights in Canada, and the Carling and Staropramen brands in Europe.

We evaluate the carrying value of our goodwill and indefinite-lived intangible assets for impairment at least annually or when an interim triggering event occurs that would indicate that impairment may have taken place. Our annual impairment test was performed as of October 1, the first day of the last fiscal quarter. We evaluate our other definite-lived intangible assets 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.

Our annual evaluation involves comparing each reporting unit's fair value to its respective carrying value, including goodwill. If the fair value exceeds carrying value, then we conclude that no goodwill impairment has occurred. If a reporting unit's carrying value exceeds its fair value, we would recognize an impairment loss in an amount equal to the excess up to the total amount of goodwill allocated to that reporting unit.

We use a combination of discounted cash flow analyses and market approaches to determine the fair value of each of our reporting units, and an excess earnings approach to determine the fair values of our Coors and Miller brand families in the U.S. and Staropramen brand in Europe. We utilized a qualitative assessment of the Coors Light distribution rights in Canada and the Carling brand in Europe, in order to determine whether the fair value of these indefinite-lived intangible assets is in excess of its carrying value. The decision to utilize a qualitative assessment in the current year for these brands was the result of taking several factors into consideration, including the excess of the respective brands' fair value over its carrying value in the prior year quantitative impairment analysis. Our discounted cash flow projections include assumptions for growth rates for sales, costs and profits, which are based on various long-range financial and operational plans of each reporting unit or each indefinite-lived intangible asset. Additionally, discount rates used in our goodwill analysis are based on weighted-average cost of capital, driven by the prevailing interest rates in geographies where these businesses operate, as well as the credit ratings, financing abilities and opportunities of each reporting unit, among other factors. Discount rates for the indefinite-lived intangible analysis by brand largely reflect the rates supporting the overall reporting unit valuation but may differ slightly to adjust for country or market specific risk associated with a particular brand. Our market-based valuations utilize earnings multiples of comparable public companies, which are reflective of the market in which each respective reporting unit operates, and recent comparable market transactions.

Changes in the factors used in our fair value estimates, including declines in industry or company-specific beer volume sales, margin erosion, termination of brewing and/or distribution agreements with other brewers, and discount rates used, could have a significant impact on the fair values of the reporting units and indefinite-lived intangible assets.

Reporting Units and Goodwill

The fair value of the U.S., Europe and Canada reporting units were estimated at approximately 19%, 11% and 6% in excess of carrying value, respectively, as of the October 1, 2018, testing date. In the current year testing, it was determined that the fair value of each of the reporting units declined from the prior year, resulting in our Europe and Canada reporting units now being considered at risk of impairment. The decline in fair value across all reporting units in the current year is largely due to the recent interest rate environment which has resulted in an increase to the risk-free rate included in our current year discount rate calculations. This fact, coupled with the recent changes in market conditions resulting in lower earnings multiples of comparable public companies within our market-based valuations, adversely impacted the results of our impairment testing. In the U.S. reporting unit, market driven declines from the prior year were partially offset by a decrease in the tax rate driven by the enactment of the 2017 Tax Act within the U.S., as well as inclusion of incremental cost saving initiatives included in the current year forecast. In the Europe reporting unit, declines from the prior year were partially offset by continued volume and revenue growth throughout 2018 benefiting management's forecasts and positively impacting the forecasted future cash flows of the reporting unit. The market-driven decline in the excess of the fair value over the carrying value of the Canada reporting unit was coupled with continued challenging industry dynamics during the year, including continued performance declines within the Molson and Coors Light core brands, resulting in a reduction of forecasted results in comparison to the prior year. These declines were slightly offset by incremental cost saving initiatives included in the current year forecast. The fair value of the India reporting unit declined slightly from the prior year, as a result of shifts in business strategy; however, fair value of the India reporting unit continues to remain in excess of its carrying value as of our annual testing date.

Intangible Assets

The Coors and Miller indefinite-lived brands in the U.S. continue to be sufficiently in excess of their respective carrying values as of the annual testing date.

The fair value of the Coors Light brand distribution rights in Canada continues to be sufficiently in excess of its carrying value as of the testing date. During 2016, we recorded an aggregate impairment charge to the Molson core indefinite-lived brand asset of $495.2 million. The impairment charge was the result of a continued decline in performance of the Molson core brand asset throughout 2016, which drove a downward shift in management's forecast, along with a challenging market dynamic and competitive conditions that were not expected to subside in the near-term. At that time, we also reassessed the brand's indefinite-life classification and determined that the Molson core brands had characteristics that indicated a definite-life assignment was more appropriate, including prolonged weakness in consumer demand driven by increased economic and competitive pressures. Given these factors resulted in sustained declines in brand performance, and it was unclear when these ongoing pressures on the brands would subside, these brands were reclassified as definite-lived intangible assets as of October 1, 2016, and are being amortized over their remaining useful lives ranging from 30 to 50 years.

Our Europe indefinite-lived intangibles' fair values, including the Staropramen and Carling brands, continue to be sufficiently in excess of their respective carrying values as of the annual testing date.

We utilized Level 3 fair value measurements in our impairment analysis of certain indefinite-lived intangible brand assets, including the Coors and Miller brands in the U.S., and the Staropramen brand in Europe, which utilizes an excess earnings approach to determine the fair values of these assets as of the testing date. The future cash flows used in the analysis are based on internal cash flow projections based on our long range plans and include significant assumptions by management as noted below. Separately, we performed qualitative assessments of certain indefinite-lived intangible assets, including the Coors Light brand distribution rights in Canada, Carling brand in Europe and water rights in the U.S., to determine whether it was more likely than not that the fair values of these assets were greater than their respective carrying amounts. Based on the qualitative assessments, we determined that a full quantitative analysis was not necessary.

Key Assumptions

As of the date of our annual impairment test, performed as of October 1, the Europe and Canada reporting unit goodwill balances are at risk of future impairment in the event of significant unfavorable changes in the forecasted cash flows (including prolonged weakening of economic conditions, or significant unfavorable changes in tax, environmental or other regulations, including interpretations thereof), terminal growth rates, market multiples and/or weighted-average cost of capital utilized in the discounted cash flow analyses. For testing purposes of our reporting units, management's best estimates of the expected future results are the primary driver in determining the fair value. Current projections used for our Canada reporting unit testing reflect continued challenges within the beer industry in Canada adversely impacting the projected cash flows of the business, offset by growth resulting from the benefit of anticipated cost savings and specific brand-building and innovation activities. Current projections used for our Europe reporting unit incorporate ongoing anticipated cost savings, coupled with continued volume and revenue growth. Positive assumptions included in management's forecast for both the Europe and Canada reporting units are being offset by adverse market conditions negatively impacting discount rate and market multiple assumptions applied to our fair valuation models in the current year.

Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. As a result, there can be no assurance that the estimates and assumptions made for purposes of the annual goodwill and indefinite-lived intangible impairment tests will prove to be an accurate prediction of the future. Examples of events or circumstances that could reasonably be expected to negatively affect the underlying key assumptions and ultimately impact the estimated fair value of our reporting units and indefinite-lived intangibles may include such items as: (i) a decrease in expected future cash flows, specifically, a decrease in sales volume and increase in costs that could significantly impact our immediate and long-range results, a decrease in sales volume driven by a prolonged weakness in consumer demand or other competitive pressures adversely affecting our long-term volume trends, a continuation of the trend away from core brands in certain of our markets, especially in markets where our core brands represent a significant portion of the market, unfavorable working capital changes and an inability to successfully achieve our cost savings targets, (ii) adverse changes in macroeconomic conditions or an economic recovery that significantly differs from our assumptions in timing and/or degree (such as a recession), (iii) volatility in the equity and debt markets or other country specific factors which could result in a higher weighted-average cost of capital, (iv) sensitivity to market multiples; and (v) regulation limiting or banning the manufacturing, distribution or sale of alcoholic beverages.

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 assessment and incorporate into the analyses as appropriate. These facts and circumstances are subject to change and may impact future analyses.

In 2018, the discount rates used in developing our fair value estimates for each of our reporting units were 9.00%, 9.25% and 9.50% for our U.S, Canada and Europe reporting units, respectively. The rates used for our reporting unit testing increased for each of the reporting units in the current year. In 2018, discount rates used for testing of indefinite-lived intangibles ranged from 9.25% to 10.50% considering the market or country specific risk premium for each geography in which our brands are based. The discount rates for the Coors and Miller brands in the U.S., and the Staropramen brand in Europe, increased compared to the discount rates used in the prior year analysis, primarily due to an increase in the risk-free rates included in our current year discount rate calculations.

While historical performance and current expectations have resulted in fair values of our reporting units in excess of carrying values, if our assumptions are not realized, it is possible that an impairment charge may need to be recorded in the future. For example, a 50 basis point increase in our discount rate assumptions, which is within a reasonable range of historical discount rate fluctuations between test dates, would have had the following effects on the fair value cushion in excess of carrying value for the U.S., Europe and Canada reporting units as of the October 1, 2018, test date:

	Impact to the fair value cushion as of October 1, 2018 - 50 basis points increase
	Cushion (as reported)		Cushion (post-sensitivity)
	% of fair value in excess of carrying value
Reporting units:
United States	19%		16%
Europe	11%		8%
Canada	6%		3%

Post sensitivity, the fair values of the U.S., Europe and Canada reporting units remain in excess of the their carrying values. The discount rate sensitivity holds all other assumptions and inputs constant.

Regarding definite-lived intangibles, we continuously monitor the performance of the underlying asset for potential triggering events suggesting an impairment review should be performed. Excluding the definite-lived intangible asset impairment charge associated with the triggering event that occurred in Bihar, India, which resulted in an impairment of tangible assets of $11.0 million and impairment of goodwill and definite-lived intangibles of $19.8 million in 2016, no such triggering events resulting in an impairment charge were identified in 2018, 2017 or 2016. See Part II—Item 8 Financial Statements and Supplementary Data, Note 10, "Goodwill and Intangible Assets" of the Notes for further discussion.

As of December 31, 2018, the carrying values of goodwill and intangible assets were approximately $8.3 billion and $13.8 billion, respectively. If actual performance results differ significantly from our projections or we experience significant fluctuations in our other assumptions, a material impairment charge may occur in the future. See Part II—Item 8 Financial Statements and Supplementary Data, Note 10, "Goodwill and Intangible Assets" of the Notes for further discussion and presentation of these amounts.

Income Taxes

Income taxes are accounted for in accordance with U.S. GAAP. Judgment is required in determining our consolidated provision for income taxes. In the ordinary course of our global business, there are many transactions for which the ultimate tax outcome is uncertain. Additionally, our income tax provision is based on calculations and assumptions that are subject to examination by many different tax authorities. See Part II—Item 8 Financial Statements and Supplementary Data, Note 6, "Income Tax" of the Notes for further discussion on the implications of the 2017 Tax Act in the U.S. on our financial statements.

We are periodically subject to tax return audits by both foreign and domestic tax authorities, which can involve questions regarding our tax positions. Settlement of any challenge resulting from these audits can result in no change, a complete disallowance, or some partial adjustment reached through negotiations or litigation. We recognize the tax benefit from an uncertain tax position 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. Our estimated liabilities related to these matters are adjusted in the period in which the uncertain tax position is effectively settled, the statute of limitations for examination expires or when additional information becomes available. Our liability for unrecognized tax benefits requires the use of assumptions and significant judgment to estimate the exposures associated with our various filing positions. Although we believe that the judgments and estimates made are reasonable, actual results could differ and resulting adjustments could materially affect our effective income tax rate and income tax provision.

We provide for taxes that may be payable if undistributed earnings of overseas subsidiaries were to be remitted to the U.S., except for those earnings that we consider to be permanently reinvested. However, we continue to monitor the impacts of the 2017 Tax Act, as defined in Part II—Item 8 Financial Statements and Supplementary Data, Note 6, "Income Tax," including yet to be issued regulations and interpretations, on the tax consequences of future repatriations. Future sales of foreign subsidiaries are not exempt from capital gains tax in the U.S. under the 2017 Tax Act. We have no plans to dispose of any of our foreign subsidiaries and are not recording deferred taxes on outside basis differences in foreign subsidiaries for the sale of a foreign subsidiary.

We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. We evaluate our ability to realize the tax benefits associated with deferred tax assets by assessing the adequacy of future 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. The realization of tax benefits is evaluated by jurisdiction and the realizability of these assets can vary based on the character of the tax attribute and the carryforward periods specific to each jurisdiction. In the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax asset would decrease income tax expense in the period a determination was made. Likewise, should we determine that we would not be able to realize all or part of our net deferred tax asset in the future, an adjustment to the deferred tax asset would be recorded to income tax expense in the period such determination was made.

New Accounting Pronouncements

New Accounting Pronouncements Not Yet Adopted

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 will adopt 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. Additionally, for existing leases as of the effective date, we will elect 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 this new guidance is currently expected to result in the recognition of right-of-use ("ROU") assets of between approximately $150 million and $160 million, and aggregate current and non-current lease liabilities of between approximately $160 million and $170 million, as of the effective date of adoption, including immaterial reclassifications of prepaid and deferred rent balances into ROU assets. Additionally, as a result of the cumulative impact of adopting the new guidance, we expect to record a net increase to opening retained earnings of between $30 million and $35 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. We are in the process of finalizing this transition adjustment calculation, which will be completed during the first quarter of 2019. Additionally, while our accounting for finance leases will remain unchanged at adoption, we will prospectively change 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. The adoption of this guidance is not expected to impact our cash flows from operating, investing, or financing activities.

Other than the items noted above, there have been no new accounting pronouncements not yet effective that we believe have a significant impact, or potential significant impact, to our consolidated financial statements.

See Part II-Item 8 Financial Statements and Supplementary Data, Note 2, "New Accounting Pronouncements" of the Notes for a description of new accounting pronouncements.

Unaudited Pro Forma Financial Information

The following unaudited pro forma financial information gives effect to the Acquisition and the related financing as if they were completed on January 1, 2016, the first day of our 2016 fiscal year, and the pro forma adjustments are based on items that are factually supportable, are directly attributable to the Acquisition, and are expected to have a continuing impact on our results of operations. The unaudited pro forma financial information has been calculated after applying MCBC’s accounting policies and adjusting the results of MillerCoors to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant and equipment, and intangible assets had been applied from January 1, 2016, together with the consequential tax effects. Pro forma adjustments have been made to remove non-recurring transaction-related costs included in historical results as well as to reflect the incremental interest expense to be prospectively incurred on the debt and term loans issued to finance the Acquisition, in addition to other pro forma adjustments. See below table for significant non-recurring costs.

Additionally, the following unaudited pro forma financial information does not reflect the impact of the acquisition of the Miller global brand portfolio and other assets primarily related to the Miller International Business as we are not able to estimate the historical results of operations from this business and have concluded, based on the limited information available to MCBC, that it is insignificant to the overall Acquisition. The purchase price allocation reflects the estimated value allocated to the Miller global brand portfolio reported within identifiable intangible assets subject to amortization.

The unaudited pro forma financial information below does not reflect the realization of any expected ongoing synergies related to integration. Further, the unaudited pro forma financial information should not be considered indicative of the results that would have occurred if the Acquisition and related financing had been completed on January 1, 2016, nor are they indicative of future results.

MOLSON COORS BREWING COMPANY AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2016

(IN MILLIONS, EXCEPT PER SHARE DATA)

	MCBC Historical(1) As Restated				MillerCoors Historical(2)				Pro Forma Adjustments(1) As Restated				Note		Pro Forma Combined
Financial volume in hectoliters	46.912				55.750				(0.728		)		(1)		101.934
Sales	$	6,597.4			$	6,987.2			$	(39.5	)		(1)		$	13,545.1
Excise taxes	(1,712.4		)		(861.8		)		12.3				(1)		(2,561.9		)
Net sales	4,885.0				6,125.4				(27.2		)				10,983.2
Cost of goods sold	(2,999.0		)		(3,426.6		)		77.3				(2)		(6,348.3		)
Gross profit	1,886.0				2,698.8				50.1						4,634.9
Marketing, general and administrative expenses	(1,597.2		)		(1,403.9		)		40.2				(3)		(2,960.9		)
Special items, net	2,532.9				(111.3		)		(2,965.0		)		(4)		(543.4		)
Equity income in MillerCoors	500.9				—				(500.9		)				—
Operating income (loss)	3,322.6				1,183.6				(3,375.6		)				1,130.6
Interest income (expense), net	(244.4		)		(1.4		)		(123.0		)		(5)		(368.8		)
Other pension and postretirement benefits (costs), net	8.4				(14.4		)		—						(6.0		)
Other income (expense), net	(32.5		)		3.7				58.9				(6)		30.1
Income (loss) before income taxes	3,054.1				1,171.5				(3,439.7		)				785.9
Income tax benefit (expense)(2)	(1,454.3		)		(3.3		)		980.4				(7)		(477.2		)
Net income (loss) including noncontrolling interests(2)	1,599.8				1,168.2				(2,459.3		)				308.7
Net income (loss) attributable to noncontrolling interests	(5.9		)		(11.0		)		—						(16.9		)
Net income (loss) attributable to MCBC(2)	$	1,593.9			$	1,157.2			$	(2,459.3	)				$	291.8
Basic net income (loss) attributable to Molson Coors Brewing Company per share(2)	$	7.52													$	1.36
Diluted net income (loss) attributable to Molson Coors Brewing Company per share(2)	$	7.47													$	1.35
Weighted-average shares—basic	212.0								2.7				(8)		214.7
Weighted-average shares—diluted	213.4								2.7				(8)		216.1

(1)

The MCBC historical results and pro forma adjustments columns reflect the impact of the correction of errors in the accounting for income taxes related to the deferred tax liabilities for our partnership in MillerCoors as discussed in Part II—Item 8 Financial Statements and Supplementary Data, Note 1, "Basis of Presentation and Summary of Significant Accounting Policies." The correction of these errors had no impact on our pro forma combined results.

(2)	Represents MillerCoors' activity for the pre-Acquisition periods of January 1, 2016, through October 10, 2016.

(1)	Sales

The following pro forma adjustments eliminate beer sales between MCBC and MillerCoors for the year ended December 31, 2016, that were previously recorded as affiliate sales and became intercompany transactions after the Acquisition was completed and thus eliminate in consolidation.

	For the year ended
	December 31, 2016
	(In millions)
Hectoliters of beer and other beverages sold	(0.728		)
MCBC's beer sales to MillerCoors	$	7.5
MillerCoors' beer sales to MCBC	32.0
Total pro forma adjustment to sales	$	39.5
Excise tax adjustment(1)	$	12.3

(1)	Represents a benefit associated with an anticipated refund to Coors Brewing Company ("CBC"), a wholly-owned subsidiary of MCBC, of U.S. federal excise tax paid on products imported by CBC based on qualifying volumes exported by CBC from the U.S.

(2)	Cost of Goods Sold

The following pro forma adjustments (increase)/decrease cost of goods sold for the year ended December 31, 2016:

	For the year ended
	December 31, 2016
	(In millions)
MillerCoors' beer purchases from MCBC (1)	$	7.5
MCBC's beer purchases from MillerCoors (1)	32.0
Depreciation (2)	(46.1		)
MillerCoors' royalties paid to SABMiller (3)	13.2
Policy reclassification (4)	(18.6		)
Historical charges recorded for pallets (5)	7.3
Historical charges recorded for inventory step-up (6)	82.0
Total pro forma adjustment to cost of goods sold	$	77.3

(1)	Reflects beer purchases between MCBC and MillerCoors that were previously recorded as affiliate purchases and became intercompany transactions after the Acquisition was completed and thus eliminate in consolidation.

(2)	Reflects the pro forma adjustment to depreciation expense associated with the estimated fair value of MillerCoors' property, plant and equipment over the estimated remaining useful life.

(3)	Reflects royalties paid by MillerCoors to SABMiller plc for sales of certain of its licensed brands in the U.S. Upon completion of the Acquisition, royalties are no longer paid related to these licensed brands. See the purchase agreement for additional details.

(4)	Reflects the reclassification of certain MillerCoors overhead costs from marketing, general and administrative expenses to cost of goods sold to align to MCBC policy related to profit and loss classification of such costs.

(5)

Reflects the amortization of MillerCoors' pallet costs which were historically recorded as a non-current asset and amortized into cost of goods sold, separate from depreciation expense. As part of our policy alignment, the pallets are now classified as depreciable fixed assets within Properties, net and the related depreciation is included as part of depreciation expense that is recognized in cost of goods sold. This adjustment reflects the removal of historical pallet amortization expense recorded within cost of goods sold and the depreciation pro forma adjustment above reflects the updated amount to be recorded as cost of goods sold depreciation going forward.

(6)	Reflects the step-up in fair value of inventory related to the Acquisition which was sold in the fourth quarter of 2016 and

therefore increased our historical cost of goods sold. Given this cost does not have a continuing impact, we have accordingly adjusted the pro forma financial information.

(3)	Marketing, General and Administrative

Based on the estimated fair values of identifiable amortizable intangible assets and depreciable property, plant and equipment, and the estimated useful lives assigned, the following pro forma adjustments to amortization and depreciation expenses have been made to marketing, general and administrative expenses for the year ended December 31, 2016. Additionally, a pro forma adjustment has been made to eliminate MillerCoors' service agreement income related to charges to SABMiller for the year ended December 31, 2016, that were previously recorded as a reduction to MillerCoors' marketing, general and administrative expenses as this activity with SABMiller ceased upon completion of the Acquisition. We have also removed transaction related costs included in the historical MCBC statements of operations as they will not have a continuing impact. The pro forma adjustments to increase/(decrease) marketing, general and administrative expense are as follows:

	For the year ended
	December 31, 2016
	(In millions)
Marketing, general and administrative pro forma adjustment for depreciation and amortization	$	56.5
MillerCoors' service agreement charges to SABMiller	1.6
Policy reclassification - See cost of goods sold note 4 above	(18.6		)
Historical transaction costs	(79.7		)
Total pro forma adjustment to marketing, general and administrative expenses	$	(40.2	)

(4)	Special Items, Net

	For the year ended
	December 31, 2016
	(In millions)
Pro forma adjustment to special items, net(1)	$	(2,965.0	)

(1)

Reflects the net gain of approximately $3.0 billion recorded within special items, net, during the fourth quarter of 2016, representing the excess of the approximate $6.1 billion estimated fair value of our pre-existing 42% equity interest in MillerCoors over its estimated transaction date carrying value of approximately $2.7 billion, as well as the reclassification of the loss related to MCBC's historical AOCI on our 42% interest in MillerCoors of $458.3 million. Refer to Part II—Item 8 Financial Statements and Supplementary Data, Note 4, "Acquisition and Investments" of the Notes for further details regarding the inputs used to determine revaluation.

(5)	Interest Income (Expense)

Represents the pro forma adjustments for the incremental interest expense, including the amortization of debt issuance costs, as if the Acquisition and related financing had occurred on January 1, 2016. The Acquisition was funded through cash on hand, including proceeds received from our February 3, 2016, equity issuance, the issuance of debt on July 7, 2016, as well as borrowings on our term loan, which occurred concurrent with the close of the Acquisition. We incurred costs related to the issuance of debt, committed financing we had in place prior to the completion of the Acquisition and earned interest income on the cash proceeds from the equity issuance and debt issuance prior to the completion of the Acquisition. We have therefore removed these amounts for pro forma purposes as they would not have been incurred or earned had the Acquisition and related financing been completed on January 1, 2016. Additionally, we incurred losses on the swaption derivative instruments that we entered into to economically hedge a portion of our long-term debt issuance with which we partially funded the Acquisition. These swaptions were not designated in hedge accounting relationships as the hedges were entered into in association with the Acquisition and, accordingly, all mark-to-market fair value adjustments were reflected within interest expense. As the losses on the swaptions are non-recurring and do not have a continuing impact on the business, we have removed them from our pro forma financial information. The debt issued on July 7, 2016, consists of fixed rate notes. The term loans, which had monthly interest at the rate of 1.50% plus one-month LIBOR, were fully repaid as of July 19, 2017.

	For the year ended
	December 31, 2016
	(In millions)
Term loan interest expense adjustments	$	52.7
Interest expense adjustments from debt issued on July 7, 2016	204.1
Historical net interest on other items discussed above	(133.8		)
Total pro forma adjustment to interest expense	$	123.0

(6)	Other Income (Expense)

Represents the elimination of historical financing costs that do not have a continuing impact related to the bridge loan and other derivative and foreign exchange net gains recorded on cash received from the debt issued on July 7, 2016, which have been included in the historical financial statements within other income (expense).

	For the year ended
	December 31, 2016
	(In millions)
Historical financing costs on the bridge loan	$	63.4
Historical derivative and foreign exchange net gains related to debt issued on July 7, 2016	(4.5		)
Total pro forma adjustment to other income (expense)	$	58.9

(7)	Income Tax Benefit (Expense)

MillerCoors elected to be taxed as a partnership for U.S. federal and state income tax purposes. As a result, the related tax attributes of MillerCoors are passed through to its shareholders and income taxes are payable by its shareholders. Therefore, income tax expense within MCBC's historical results includes the tax effect of our 42% equity income from MillerCoors. The pro forma adjustment to income tax expense is inclusive of both the tax effect of the assumption of the incremental 58% of MillerCoors' pretax income, as well as the tax effect of the other pro forma adjustments impacting pretax income discussed above, based on the estimated blended U.S. federal and state statutory income tax rate and other pro forma tax considerations.

	For the year ended
	December 31, 2016
	(In millions)
Total pro forma adjustment to income tax benefit (expense)(1)	$	980.4

(1)	Includes the impact of the restatement to correct errors related to income tax accounting. See details at Part II—Item 8 Financial Statements and Supplementary Data, Note 1, "Basis of Presentation and Accounting Policies" as previously discussed.

(8)	Weighted-Average Shares Outstanding

Weighted-average shares outstanding have been calculated to include the impact of the shares that were issued in the first quarter of 2016 in conjunction with the February 3, 2016, equity offering, which was completed to fund a portion of the Acquisition. As such, the below adjustment assumes such shares were outstanding on January 1, 2016.

	For the year ended
	December 31, 2016
	(In millions)
Impact of shares issued in February 3, 2016, equity offering
Weighted-average shares—basic	2.7
Weighted-average shares—diluted	2.7