filings.toolsItem 1. FINANCIAL STATEMENTS (UNAUDITED)
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Item 1. FINANCIAL STATEMENTS (UNAUDITED)
MOLSON COORS BEVERAGE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | ||||||||||||||||||||
| Sales | $ | 3,435.4 | $ | 3,378.4 | $ | 9,255.5 | $ | 8,946.0 | |||||||||||||||
| Excise taxes | (612.7) | (624.9) | (1,595.0) | (1,586.3) | |||||||||||||||||||
| Net sales | 2,822.7 | 2,753.5 | 7,660.5 | 7,359.7 | |||||||||||||||||||
| Cost of goods sold | (1,629.1) | (1,551.0) | (4,464.4) | (4,486.6) | |||||||||||||||||||
| Gross profit | 1,193.6 | 1,202.5 | 3,196.1 | 2,873.1 | |||||||||||||||||||
| Marketing, general and administrative expenses | (664.8) | (634.5) | (1,889.4) | (1,788.7) | |||||||||||||||||||
| Special items, net | 2.6 | (59.7) | (17.3) | (210.6) | |||||||||||||||||||
| Operating income (loss) | 531.4 | 508.3 | 1,289.4 | 873.8 | |||||||||||||||||||
| Interest income (expense), net | (63.3) | (67.9) | (196.5) | (206.5) | |||||||||||||||||||
| Other pension and postretirement benefits (costs), net | 12.9 | 7.6 | 38.9 | 22.7 | |||||||||||||||||||
| Other income (expense), net | (0.4) | 2.4 | (2.3) | 3.4 | |||||||||||||||||||
| Income (loss) before income taxes | 480.6 | 450.4 | 1,129.5 | 693.4 | |||||||||||||||||||
| Income tax benefit (expense) | (26.8) | (104.0) | (203.4) | (265.2) | |||||||||||||||||||
| Net income (loss) | 453.8 | 346.4 | 926.1 | 428.2 | |||||||||||||||||||
| Net (income) loss attributable to noncontrolling interests | (0.8) | (3.6) | (0.4) | (7.4) | |||||||||||||||||||
| Net income (loss) attributable to Molson Coors Beverage Company | $ | 453.0 | $ | 342.8 | $ | 925.7 | $ | 420.8 | |||||||||||||||
| Net income (loss) attributable to Molson Coors Beverage Company per share | |||||||||||||||||||||||
| Basic | $ | 2.09 | $ | 1.58 | $ | 4.26 | $ | 1.94 | |||||||||||||||
| Diluted | $ | 2.08 | $ | 1.58 | $ | 4.26 | $ | 1.94 | |||||||||||||||
| Weighted-average shares outstanding | |||||||||||||||||||||||
| Basic | 217.2 | 216.9 | 217.1 | 216.8 | |||||||||||||||||||
| Dilutive effect of share-based awards | 0.4 | 0.1 | 0.4 | 0.2 | |||||||||||||||||||
| Diluted | 217.6 | 217.0 | 217.5 | 217.0 | |||||||||||||||||||
| Anti-dilutive securities excluded from the computation of diluted EPS | 1.8 | 2.3 | 1.8 | 2.3 |
See notes to unaudited condensed consolidated financial statements.
MOLSON COORS BEVERAGE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN MILLIONS)
(UNAUDITED)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | ||||||||||||||||||||
| Net income (loss) including noncontrolling interests | $ | 453.8 | $ | 346.4 | $ | 926.1 | $ | 428.2 | |||||||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||
| Foreign currency translation adjustments | (104.6) | 149.8 | (30.4) | (104.0) | |||||||||||||||||||
| Reclassification of cumulative translation adjustment to income (loss) | — | — | 7.5 | — | |||||||||||||||||||
| Unrealized gain (loss) on derivative instruments | 5.5 | 14.5 | 48.7 | (114.1) | |||||||||||||||||||
| Reclassification of derivative (gain) loss to income (loss) | 1.0 | 0.2 | 4.9 | (0.9) | |||||||||||||||||||
| Amortization of net prior service (benefit) cost and net actuarial (gain) loss to income (loss) | 0.3 | (1.5) | 0.9 | (4.7) | |||||||||||||||||||
| Ownership share of unconsolidated subsidiaries' other comprehensive income (loss) | 0.4 | 0.7 | 1.2 | 2.2 | |||||||||||||||||||
| Total other comprehensive income (loss), net of tax | (97.4) | 163.7 | 32.8 | (221.5) | |||||||||||||||||||
| Comprehensive income (loss) | 356.4 | 510.1 | 958.9 | 206.7 | |||||||||||||||||||
| Comprehensive (income) loss attributable to noncontrolling interests | 0.2 | (5.1) | 0.1 | (7.1) | |||||||||||||||||||
| Comprehensive income (loss) attributable to Molson Coors Beverage Company | $ | 356.6 | $ | 505.0 | $ | 959.0 | $ | 199.6 |
See notes to unaudited condensed consolidated financial statements.
MOLSON COORS BEVERAGE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT PAR VALUE)
(UNAUDITED)
| As of | |||||||||||
| September 30, 2021 | December 31, 2020 | ||||||||||
| Assets | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | 616.3 | $ | 770.1 | |||||||
| Accounts receivable, net | 808.3 | 558.0 | |||||||||
| Other receivables, net | 183.3 | 129.1 | |||||||||
| Inventories, net | 806.5 | 664.3 | |||||||||
| Other current assets, net | 505.5 | 297.3 | |||||||||
| Total current assets | 2,919.9 | 2,418.8 | |||||||||
| Properties, net | 4,112.7 | 4,250.3 | |||||||||
| Goodwill | 6,151.8 | 6,151.0 | |||||||||
| Other intangibles, net | 13,345.6 | 13,556.1 | |||||||||
| Other assets | 1,113.5 | 954.9 | |||||||||
| Total assets | $ | 27,643.5 | $ | 27,331.1 | |||||||
| Liabilities and equity | |||||||||||
| Current liabilities | |||||||||||
| Accounts payable and other current liabilities | $ | 3,220.0 | $ | 2,889.5 | |||||||
| Current portion of long-term debt and short-term borrowings | 559.8 | 1,020.1 | |||||||||
| Total current liabilities | 3,779.8 | 3,909.6 | |||||||||
| Long-term debt | 6,661.0 | 7,208.2 | |||||||||
| Pension and postretirement benefits | 737.9 | 763.2 | |||||||||
| Deferred tax liabilities | 2,607.7 | 2,381.6 | |||||||||
| Other liabilities | 334.6 | 447.2 | |||||||||
| Total liabilities | 14,121.0 | 14,709.8 | |||||||||
| Commitments and contingencies (Note 12) | |||||||||||
| Molson Coors Beverage Company stockholders' equity | |||||||||||
| Capital stock | |||||||||||
| Preferred stock, $0.01 par value (authorized: 25.0 shares; none issued) | — | — | |||||||||
| Class A common stock, $0.01 par value (authorized: 500.0 shares; issued and outstanding: 2.6 shares and 2.6 shares, respectively) | — | — | |||||||||
| Class B common stock, $0.01 par value (authorized: 500.0 shares; issued: 210.0 shares and 209.8 shares, respectively) | 2.1 | 2.1 | |||||||||
| Class A exchangeable shares, no par value (issued and outstanding: 2.7 shares and 2.7 shares, respectively) | 102.2 | 102.3 | |||||||||
| Class B exchangeable shares, no par value (issued and outstanding: 11.1 shares and 11.1 shares, respectively) | 417.8 | 417.8 | |||||||||
| Paid-in capital | 6,963.5 | 6,937.8 | |||||||||
| Retained earnings | 7,395.8 | 6,544.2 | |||||||||
| Accumulated other comprehensive income (loss) | (1,134.5) | (1,167.8) | |||||||||
| Class B common stock held in treasury at cost (9.5 shares and 9.5 shares, respectively) | (471.4) | (471.4) | |||||||||
| Total Molson Coors Beverage Company stockholders' equity | 13,275.5 | 12,365.0 | |||||||||
| Noncontrolling interests | 247.0 | 256.3 | |||||||||
| Total equity | 13,522.5 | 12,621.3 | |||||||||
| Total liabilities and equity | $ | 27,643.5 | $ | 27,331.1 |
See notes to unaudited condensed consolidated financial statements.
MOLSON COORS BEVERAGE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)
| Nine Months Ended | |||||||||||
| September 30, 2021 | September 30, 2020 | ||||||||||
| Cash flows from operating activities | |||||||||||
| Net income (loss) including noncontrolling interests | $ | 926.1 | $ | 428.2 | |||||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities | |||||||||||
| Depreciation and amortization | 604.2 | 714.9 | |||||||||
| Amortization of debt issuance costs and discounts | 4.8 | 6.3 | |||||||||
| Share-based compensation | 24.7 | 18.0 | |||||||||
| (Gain) loss on sale or impairment of properties and other assets, net | (10.2) | 39.8 | |||||||||
| Unrealized (gain) loss on foreign currency fluctuations and derivative instruments, net | (312.1) | (25.9) | |||||||||
| Income tax (benefit) expense | 203.4 | 265.2 | |||||||||
| Income tax (paid) received | (92.3) | (75.7) | |||||||||
| Interest expense, excluding amortization of debt issuance costs and discounts | 193.3 | 202.5 | |||||||||
| Interest paid | (220.6) | (236.1) | |||||||||
| Change in current assets and liabilities and other | (53.6) | 156.0 | |||||||||
| Net cash provided by (used in) operating activities | 1,267.7 | 1,493.2 | |||||||||
| Cash flows from investing activities | |||||||||||
| Additions to properties | (363.4) | (456.4) | |||||||||
| Proceeds from sales of properties and other assets | 24.1 | 4.6 | |||||||||
| Other | (13.8) | 0.5 | |||||||||
| Net cash provided by (used in) investing activities | (353.1) | (451.3) | |||||||||
| Cash flows from financing activities | |||||||||||
| Exercise of stock options under equity compensation plans | 4.6 | 4.0 | |||||||||
| Dividends paid | (73.9) | (125.3) | |||||||||
| Payments on debt and borrowings | (1,005.0) | (913.5) | |||||||||
| Proceeds on debt and borrowings | — | 1.5 | |||||||||
| Net proceeds from (payments on) revolving credit facilities and commercial paper | 46.4 | 224.6 | |||||||||
| Change in overdraft balances and other | (21.7) | (32.6) | |||||||||
| Net cash provided by (used in) financing activities | (1,049.6) | (841.3) | |||||||||
| Cash and cash equivalents | |||||||||||
| Net increase (decrease) in cash and cash equivalents | (135.0) | 200.6 | |||||||||
| Effect of foreign exchange rate changes on cash and cash equivalents | (18.8) | 7.3 | |||||||||
| Balance at beginning of year | 770.1 | 523.4 | |||||||||
| Balance at end of period | $ | 616.3 | $ | 731.3 |
See notes to unaudited condensed consolidated financial statements.
MOLSON COORS BEVERAGE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND NONCONTROLLING INTERESTS
(IN MILLIONS)
(UNAUDITED)
| Molson Coors Beverage Company Stockholders' Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accumulated | Common stock | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock | Exchangeable | other | held in | Non | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| issued | shares issued | Paid-in- | Retained | comprehensive | treasury | controlling | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | Class A | Class B | Class A | Class B | capital | earnings | income (loss) | Class B | interests | ||||||||||||||||||||||||||||||||||||||||||||||||||
| As of June 30, 2020 | $ | 13,268.0 | $ | — | $ | 2.1 | $ | 102.5 | $ | 557.8 | $ | 6,786.3 | $ | 7,571.2 | $ | (1,545.6) | $ | (471.4) | $ | 265.1 | |||||||||||||||||||||||||||||||||||||||
| Exchange of shares | — | — | — | (0.2) | (140.0) | 140.2 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued under equity compensation plan | (1.4) | — | — | — | — | (1.4) | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of share-based compensation | 6.2 | — | — | — | — | 6.2 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) including noncontrolling interests | 346.4 | — | — | — | — | — | 342.8 | — | — | 3.6 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | 163.7 | — | — | — | — | — | — | 162.2 | — | 1.5 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions and dividends to noncontrolling interests | (7.3) | — | — | — | — | — | — | — | — | (7.3) | |||||||||||||||||||||||||||||||||||||||||||||||||
| As of September 30, 2020 | $ | 13,775.6 | $ | — | $ | 2.1 | $ | 102.3 | $ | 417.8 | $ | 6,931.3 | $ | 7,914.0 | $ | (1,383.4) | $ | (471.4) | $ | 262.9 |
| Molson Coors Beverage Company Stockholders' Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accumulated | Common stock | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock | Exchangeable | other | held in | Non | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| issued | shares issued | Paid-in- | Retained | comprehensive | treasury | controlling | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | Class A | Class B | Class A | Class B | capital | earnings | income (loss) | Class B | interests | ||||||||||||||||||||||||||||||||||||||||||||||||||
| As of June 30, 2021 | $ | 13,236.4 | $ | — | $ | 2.1 | $ | 102.3 | $ | 417.8 | $ | 6,955.2 | $ | 7,016.9 | $ | (1,038.1) | $ | (471.4) | $ | 251.6 | |||||||||||||||||||||||||||||||||||||||
| Exchange of shares | — | — | — | (0.1) | — | 0.1 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued under equity compensation plan | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of share-based compensation | 8.2 | — | — | — | — | 8.2 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) including noncontrolling interests | 453.8 | — | — | — | — | — | 453.0 | — | — | 0.8 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | (97.4) | — | — | — | — | — | — | (96.4) | — | (1.0) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Contributions from noncontrolling interests | 0.8 | — | — | — | — | — | — | — | — | 0.8 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions and dividends to noncontrolling interests | (5.2) | — | — | — | — | — | — | — | — | (5.2) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared | (74.1) | — | — | — | — | — | (74.1) | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| As of September 30, 2021 | $ | 13,522.5 | $ | — | $ | 2.1 | $ | 102.2 | $ | 417.8 | $ | 6,963.5 | $ | 7,395.8 | $ | (1,134.5) | $ | (471.4) | $ | 247.0 |
| Molson Coors Beverage Company Stockholders' Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accumulated | Common stock | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock | Exchangeable | other | held in | Non | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| issued | shares issued | Paid-in- | Retained | comprehensive | treasury | controlling | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | Class A | Class B | Class A | Class B | capital | earnings | income (loss) | Class B | interests | ||||||||||||||||||||||||||||||||||||||||||||||||||
| As of December 31, 2019 | $ | 13,673.1 | $ | — | $ | 2.1 | $ | 102.5 | $ | 557.8 | $ | 6,773.6 | $ | 7,617.0 | $ | (1,162.2) | $ | (471.4) | $ | 253.7 | |||||||||||||||||||||||||||||||||||||||
| Exchange of shares | — | — | — | (0.2) | (140.0) | 140.2 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued under equity compensation plan | (0.5) | — | — | — | — | (0.5) | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of share-based compensation | 18.0 | — | — | — | — | 18.0 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Purchase of noncontrolling interest | (0.1) | — | — | — | — | — | — | — | — | (0.1) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) including noncontrolling interests | 428.2 | — | — | — | — | — | 420.8 | — | — | 7.4 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | (221.5) | — | — | — | — | — | — | (221.2) | — | (0.3) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Contributions from noncontrolling interests | 14.0 | — | — | — | — | — | — | — | — | 14.0 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions and dividends to noncontrolling interests | (11.8) | — | — | — | — | — | — | — | — | (11.8) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared | (123.8) | — | — | — | — | — | (123.8) | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| As of September 30, 2020 | $ | 13,775.6 | $ | — | $ | 2.1 | $ | 102.3 | $ | 417.8 | $ | 6,931.3 | $ | 7,914.0 | $ | (1,383.4) | $ | (471.4) | $ | 262.9 |
| Molson Coors Beverage Company Stockholders' Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accumulated | Common stock | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock | Exchangeable | other | held in | Non | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| issued | shares issued | Paid-in- | Retained | comprehensive | treasury | controlling | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | Class A | Class B | Class A | Class B | capital | earnings | income (loss) | Class B | interests | ||||||||||||||||||||||||||||||||||||||||||||||||||
| As of December 31, 2020 | $ | 12,621.3 | $ | — | $ | 2.1 | $ | 102.3 | $ | 417.8 | $ | 6,937.8 | $ | 6,544.2 | $ | (1,167.8) | $ | (471.4) | $ | 256.3 | |||||||||||||||||||||||||||||||||||||||
| Exchange of shares | — | — | — | (0.1) | — | 0.1 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued under equity compensation plan | 0.6 | — | — | — | — | 0.6 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of share-based compensation | 24.7 | — | — | — | — | 24.7 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Purchase of noncontrolling interest | (0.1) | — | — | — | — | 0.3 | — | — | — | (0.4) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) including noncontrolling interests | 926.1 | — | — | — | — | — | 925.7 | — | — | 0.4 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | 32.8 | — | — | — | — | — | — | 33.3 | — | (0.5) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Contributions from noncontrolling interests | 2.5 | — | — | — | — | — | — | — | — | 2.5 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions and dividends to noncontrolling interests | (11.3) | — | — | — | — | — | — | — | — | (11.3) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared | (74.1) | — | — | — | — | — | (74.1) | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| As of September 30, 2021 | $ | 13,522.5 | $ | — | $ | 2.1 | $ | 102.2 | $ | 417.8 | $ | 6,963.5 | $ | 7,395.8 | $ | (1,134.5) | $ | (471.4) | $ | 247.0 |
See notes to unaudited condensed consolidated financial statements.
MOLSON COORS BEVERAGE COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and Summary of Significant Accounting Policies
Unless otherwise noted in this report, any description of "we," "us" or "our" includes Molson Coors Beverage Company ("MCBC" or the "Company"), principally a holding company, and its operating and non-operating subsidiaries included within our reporting segments. Our reporting segments include North America and Europe. Our North America segment operates in the U.S., Canada and various countries in Latin and South America, and our Europe segment operates in Bulgaria, Croatia, Czech Republic, Hungary, Montenegro, the Republic of Ireland, Romania, Serbia, the U.K., various other European countries, and certain countries within Africa and Asia Pacific.
Unless otherwise indicated, information in this report is presented in USD and comparisons are to comparable prior periods. Our primary operating currencies, other than the USD, include the CAD, the GBP, and our Central European operating currencies such as the EUR, CZK, HRK and RSD.
The accompanying unaudited condensed consolidated interim financial statements reflect all adjustments which are necessary for a fair statement of the financial position, results of operations and cash flows for the periods presented in accordance with U.S. GAAP. Such unaudited interim condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations.
These unaudited condensed consolidated interim financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2020 ("Annual Report"), and have been prepared on a consistent basis with the accounting policies described in Note 1 of the Notes to the Audited Consolidated Financial Statements included in our Annual Report, except as noted in Note 2, "New Accounting Pronouncements".
The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be achieved for the full year or any other future period.
Dividends
On July 15, 2021, the Company's Board of Directors declared a quarterly cash dividend of $0.34 per share, paid on September 17, 2021, to holders of Class A and Class B common stock. Shareholders of exchangeable shares received the CAD equivalent of dividends declared on Class A and Class B common stock, equal to CAD 0.42 per share.
Cybersecurity Incident
During March 2021, we experienced a systems outage that was caused by a cybersecurity incident. We engaged leading forensic information technology firms and legal counsel to assist our investigation into the incident and we restored our systems after working to get the systems back up as quickly as possible. Despite these actions, we experienced some delays and disruptions to our business, including brewery operations, production and shipments. This incident caused us to not produce or ship as much as we would have in the first quarter of 2021. Subsequent to the first quarter of 2021, we have made progress operationally recovering from the incident with increased shipments. In addition, we incurred certain incremental net one-time costs of $2.4 million in the nine months ended September 30, 2021 related to consultants, experts and data recovery efforts, net of insurance recoveries.
Coronavirus Global Pandemic
Starting at the end of the first quarter of 2020, the coronavirus pandemic has had a material adverse effect on our operations, liquidity, financial condition and results of operations in 2020. In 2021, we have seen initial improvements in the marketplace related to the coronavirus global pandemic as on-premise locations begin to open around the world at varying degrees. The extent to which our operations will continue to be impacted by the coronavirus pandemic will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including the level of governmental or societal orders or restrictions on public gatherings and on-premise venues, including any vaccine mandates or testing requirements, the severity and duration of the coronavirus pandemic by market, including outbreaks of variants, the rate of vaccination and the efficacy of vaccines against the coronavirus and related variants. We continue to actively monitor the ongoing evolution of the coronavirus pandemic and resulting impacts to our business.
During the nine months ended September 30, 2020, we recorded charges of $15.5 million within cost of goods sold related to temporary "thank you" pay for certain essential North America brewery employees. Additionally, in order to support and demonstrate our commitment to the continued viability of the many bars and restaurants which were negatively impacted by the coronavirus pandemic, during the first quarter of 2020, we initiated temporary keg relief programs in many of our
markets. We committed to provide customers with reimbursements for untapped kegs that met certain established return requirements in conjunction with the voluntary programs. As a result, during the nine months ended September 30, 2020, we recognized a reduction to net sales of $31.1 million, substantially all of which was recognized in the first quarter of 2020 other than immaterial adjustments for changes in estimates during the second and third quarters of 2020, reflecting estimated sales returns and reimbursements through these keg relief programs.
Further, during the nine months ended September 30, 2020, we recognized charges of $12.6 million, substantially all of which was recognized in the first quarter of 2020 other than immaterial adjustments for changes in estimates during the second and third quarters of 2020, within cost of goods sold related to obsolete finished goods keg inventories that were not expected to be sold within our freshness specifications, as well as the estimated costs to facilitate the above mentioned keg returns.
The actual duration of the coronavirus pandemic as a result of the evolution of variants, the rate of vaccination and the efficacy of vaccines against the coronavirus and related variants coupled with the severity of government-mandated closures or limitations at bars and restaurants as well as large events, could result in future charges due to incremental finished goods keg inventory becoming obsolete in future periods.
We continue to monitor the impacts on our customers’ liquidity and capital resources and therefore our ability to collect, or the timeliness of collection of our accounts receivable. While these receivables are not concentrated with any specific customer and our allowance on these receivables factors in expected credit loss, continued disruption and declines in the global economy could result in difficulties in our ability to collect and require increases to our allowance for doubtful accounts. As of September 30, 2021 and December 31, 2020, our allowance for trade receivables was approximately $20 million and $18 million, respectively, and allowance activity was immaterial during the three and nine months ended September 30, 2021.
In response to the onset of the coronavirus pandemic in 2020, various governmental authorities globally announced relief programs which among other items, provided temporary deferrals of non-income based tax payments, which positively impacted our operating cash flows in 2020. These temporary deferrals of approximately $55 million and $130 million as of September 30, 2021 and December 31, 2020, respectively, were primarily included within accounts payable and other current liabilities on our unaudited condensed consolidated balance sheets.
We protected and supported our liquidity position in response to the global economic uncertainty created by the coronavirus pandemic. Beginning with the second quarter of 2020 through the second quarter of 2021, our board of directors suspended our regular quarterly dividends on our Class A and Class B common and exchangeable shares. A quarterly dividend was reinstated in the third quarter of 2021.
For considerations of the effects of the coronavirus pandemic and related potential impairment risks to our goodwill and indefinite-lived intangible assets, see Note 7, "Goodwill and Intangible Assets."
Revitalization Plan
On October 28, 2019, we initiated a revitalization plan designed to allow us to invest across our portfolio to drive long-term, sustainable success. The revitalization plan established Chicago, Illinois as our North American operational headquarters. We closed our office in Denver, Colorado and consolidated certain administrative functions into our other existing office locations. As of January 1, 2020, we changed our name to Molson Coors Beverage Company and changed our management structure to two segments - North America and Europe. We began to incur charges related to these restructuring activities during the fourth quarter of 2019 and will continue to incur charges through fiscal year 2021.
See Note 5, "Special Items" for further discussion of the impacts of this plan.
Non-Cash Activity
Non-cash activity includes non-cash issuances of share-based awards, as well as non-cash investing activities related to movements in our guarantee of indebtedness of certain equity method investments. See Note 4, "Investments" for further discussion. We also had non-cash activities related to capital expenditures incurred but not yet paid of $140.4 million and $128.6 million during the nine months ended September 30, 2021 and September 30, 2020, respectively.
In June 2021, we rolled forward our July 2021 $250.0 million forward starting interest rate swap to May 2022 through a cashless settlement. The unrealized loss on the 2021 forward starting interest rate swap at the time of the transaction was factored into the effective interest rate assigned to the new May 2022 forward starting interest rate swap. See Note 11, "Derivative Instruments and Hedging Activities" for further details.
Other than the activity mentioned above and the supplemental non-cash activity related to the recognition of leases further discussed in Note 13, "Leases," there was no other significant non-cash activity during the nine months ended September 30, 2021 and September 30, 2020, respectively.
Share-Based Compensation
During the first nine months of 2021 and 2020, we granted stock options, RSUs and PSUs to certain officers and other eligible employees, and recognized share-based compensation expense of $8.2 million and $6.2 million during the three months ended September 30, 2021 and September 30, 2020, respectively, and $24.7 million and $18.0 million during the nine months ended September 30, 2021 and September 30, 2020, respectively.
2. New Accounting Pronouncements
New Accounting Pronouncements Recently Adopted
In December 2019, the FASB issued authoritative guidance intended to simplify the accounting for income taxes. This guidance eliminated certain exceptions to the general approach to the income tax accounting model and added new guidance to reduce the complexity in accounting for income taxes. We adopted this guidance in the first quarter of 2021, which did not have a material impact on our financial statements.
In March 2020, the FASB issued authoritative guidance which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform and are effective for all entities upon issuance, March 12, 2020 through December 31, 2022. The guidance permits a company to elect certain optional expedients and exceptions when affected by the changes in reference rate reform. We have elected to adopt optional expedients impacting our derivative instruments with maturity dates extending beyond the expected discontinuance date of LIBOR. In addition, in October 2021, we amended our revolving credit facility to replace LIBOR with designated replacement rates for any future borrowings denominated in EUR or GBP. The adoption of, and future elections under Accounting Standard Update ("ASU") 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, and ASU 2021-01, Reference Rate Reform (Topic 848): Scope, did not and are not expected to have a material impact on the Company's accounting policies or consolidated financial statements. We will continue to evaluate the impact of reference rate reform on our other contracts and assess the impacts of adopting incremental portions of this guidance on our financial statements.
Other than the items noted above, there have been no new accounting pronouncements not yet effective or adopted in the current year that we believe have a significant impact, or potential significant impact, to our unaudited condensed consolidated interim financial statements.
3. Segment Reporting
Our reporting segments are based on the key geographic regions in which we operate, and include the North America and Europe segments. Our North America segment operates in the U.S., Canada and various countries in Latin and South America and our Europe segment operates in Bulgaria, Croatia, Czech Republic, Hungary, Montenegro, the Republic of Ireland, Romania, Serbia, the U.K., various other European countries, and certain countries within the Middle East, Africa and Asia Pacific.
We also have certain activity that is not allocated to our segments, which has been reflected as “Unallocated” below. Specifically, "Unallocated" activity primarily includes financing-related costs such as interest expense and income, foreign exchange gains and losses on intercompany balances related to financing and other treasury-related activities, and the unrealized changes in fair value on our commodity swaps not designated in hedging relationships recorded within cost of goods sold, which are later reclassified when realized to the segment in which the underlying exposure resides. Additionally, only the service cost component of net periodic pension and OPEB cost is reported within each operating segment, and all other components remain unallocated.
Summarized Financial Information
No single customer accounted for more than 10% of our consolidated sales for the three or nine months ended September 30, 2021 or September 30, 2020. Consolidated net sales represent sales to third-party external customers less excise
taxes. Inter-segment transactions impacting net sales revenues and income (loss) before income taxes eliminate upon consolidation and are primarily related to North America segment sales to the Europe segment.
The following tables present net sales and income (loss) before income taxes by segment:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| North America | $ | 2,224.7 | $ | 2,252.3 | $ | 6,339.1 | $ | 6,242.2 | |||||||||||||||
| Europe | 601.0 | 504.1 | 1,328.4 | 1,128.8 | |||||||||||||||||||
| Inter-segment net sales eliminations | (3.0) | (2.9) | (7.0) | (11.3) | |||||||||||||||||||
| Consolidated net sales | $ | 2,822.7 | $ | 2,753.5 | $ | 7,660.5 | $ | 7,359.7 |
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| North America | $ | 345.7 | $ | 400.8 | $ | 918.1 | $ | 888.5 | |||||||||||||||
| Europe | 91.7 | 40.9 | 49.7 | (46.9) | |||||||||||||||||||
| Unallocated | 43.2 | 8.7 | 161.7 | (148.2) | |||||||||||||||||||
| Consolidated income (loss) before income taxes | $ | 480.6 | $ | 450.4 | $ | 1,129.5 | $ | 693.4 |
Income (loss) before income taxes includes the impact of special items, net. Refer to Note 5, "Special Items" for further discussion.
The following table presents total assets by segment:
| As of | |||||||||||
| September 30, 2021 | December 31, 2020 | ||||||||||
| (In millions) | |||||||||||
| North America | $ | 23,513.3 | $ | 23,375.6 | |||||||
| Europe | 4,130.2 | 3,955.5 | |||||||||
| Consolidated total assets | $ | 27,643.5 | $ | 27,331.1 |
4. Investments
Our investments include both equity method and consolidated investments. Those entities identified as VIEs have been evaluated to determine whether we are the primary beneficiary. The VIEs included under "Consolidated VIEs" below are those for which we have concluded that we are the primary beneficiary and accordingly, we have consolidated these entities. None of our consolidated VIEs held debt as of September 30, 2021 or December 31, 2020. We have not provided any financial support to any of our VIEs during the year that we were not previously contractually obligated to provide. Amounts due to and due from our equity method investments are recorded as affiliate accounts payable and affiliate accounts receivable.
Authoritative guidance related to the consolidation of VIEs requires that we continually reassess whether we are the primary beneficiary of VIEs in which we have an interest. As such, the conclusion regarding the primary beneficiary status is subject to change and we continually evaluate circumstances that could require consolidation or deconsolidation. Our consolidated VIEs are Cobra Beer Partnership, Ltd. ("Cobra U.K."), Rocky Mountain Metal Container ("RMMC"), Rocky Mountain Bottle Company ("RMBC") and Truss LP ("Truss"), as well as other immaterial entities. Our unconsolidated VIEs are Brewers Retail Inc. ("BRI") and Brewers' Distributor Ltd. ("BDL"), as well as other immaterial investments.
In the third quarter of 2020, we formed The Yuengling Company LLC ("TYC"), a joint venture equally owned by MCBC and DGY West that, pursuant to an operating agreement, formed to expand commercialization of Yuengling's brands for any new market expansion outside of Yuengling's 22-state footprint and New England. During the third quarter of 2021, TYC commenced retail operations with its first product sales in the state of Texas. We have concluded that TYC is a VIE for which we are not the primary beneficiary, and therefore is accounted for as an equity method investment.
Both BRI and BDL have outstanding third party debt which is guaranteed by their respective shareholders. As a result, we had a guarantee liability of $38.0 million and $38.2 million recorded as of September 30, 2021 and December 31, 2020, respectively, which is presented within accounts payable and other current liabilities on the unaudited condensed consolidated balance sheets and represents our proportionate share of the outstanding balance of these debt instruments. The carrying value of the guarantee liability equals fair value, which considers an adjustment for our own non-performance risk and is considered a Level 2 measurement. The offset to the guarantee liability was recorded as an adjustment to our respective equity method investment within the unaudited condensed consolidated balance sheets. The resulting change in our equity method investments during the year due to movements in the guarantee represents a non-cash investing activity.
Consolidated VIEs
The following summarizes the assets and liabilities of our consolidated VIEs (including noncontrolling interests):
| As of | |||||||||||||||||||||||
| September 30, 2021 | December 31, 2020 | ||||||||||||||||||||||
| Total Assets | Total Liabilities | Total Assets | Total Liabilities | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| RMMC/RMBC | $ | 212.1 | $ | 19.9 | $ | 239.3 | $ | 17.9 | |||||||||||||||
| Other | $ | 81.2 | $ | 18.4 | $ | 93.4 | $ | 18.0 |
5. Special Items
We incurred charges or realized benefits that either we do not believe to be indicative of our core operations, or we believe are significant to our current operating results warranting separate classification. As such, we separately classified these charges (benefits) as special items.
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Employee-related charges | |||||||||||||||||||||||
| Restructuring | $ | 2.0 | $ | 8.9 | $ | 9.3 | $ | 61.8 | |||||||||||||||
| Impairments or asset abandonment charges | |||||||||||||||||||||||
| North America - Asset abandonment(1) | 5.2 | 20.6 | 10.8 | 110.5 | |||||||||||||||||||
| North America - Impairment losses(2) | — | — | — | 7.6 | |||||||||||||||||||
| Europe - Asset abandonment | 1.6 | 0.1 | 6.3 | 0.6 | |||||||||||||||||||
| Europe - Impairment losses(3) | — | 30.0 | — | 30.0 | |||||||||||||||||||
| Termination fees and other (gains) losses | |||||||||||||||||||||||
| North America | — | 0.1 | 0.4 | 0.1 | |||||||||||||||||||
| Europe(4) | (11.4) | — | (9.5) | — | |||||||||||||||||||
| Total Special items, net | $ | (2.6) | $ | 59.7 | $ | 17.3 | $ | 210.6 |
(1)In January 2020, we announced plans to cease production at our Irwindale, California brewery and entered into an option agreement with Pabst Brewing Company, LLC ("Pabst"), granting Pabst an option to purchase our Irwindale, California brewery, including plant equipment and machinery and the underlying land for $150 million, subject to adjustment as further specified in the option agreement. Pursuant to the option agreement, on May 4, 2020, Pabst exercised its option to purchase the Irwindale brewery and the purchase was completed in the fourth quarter of 2020. Production at the Irwindale brewery ceased during the third quarter of 2020. Charges incurred in the three and nine months ended September 30, 2021 were immaterial. Charges associated with the brewery closure for the three and nine months ended September 30, 2020 totaled $17.6 million and $115.9 million, respectively, and primarily consisted of accelerated depreciation in excess of normal depreciation, as well as other closure costs including employee related costs.
In addition, during the three and nine months ended September 30, 2021 and September 30, 2020 we incurred asset abandonment charges, primarily related to the accelerated depreciation in excess of normal depreciation as a result of the Montreal brewery closure, which is expected to occur in the fourth quarter of 2021.
(2)During the nine months ended September 30, 2020 we recognized an aggregate impairment loss of $7.6 million related to the closure of the office facility in Denver, Colorado, including our lease right-of-use asset, in light of the sublease
market outlook during that same period as a result of the coronavirus pandemic. No further impairment was recorded in 2021 due to the signing of sublease agreements during the second quarter of 2021.
(3)During the three and nine months ended September 30, 2020 we recognized as a special items charge an impairment loss of $30.0 million related to the held for sale classification of a disposal group within our India business, representing an insignificant part of our Europe segment. The held for sale disposal group was measured at fair value on a nonrecurring basis using Level 3 inputs. The estimated fair value less cost to sell was determined using a market approach, based upon the expected net sales proceeds of the disposal group. The disposal group was subsequently sold during the first quarter of 2021.
(4)During the three and nine months ended September 30, 2021, we recognized a gain of $11.4 million related to the sale of land of the former Alton brewery site in the U.K. In addition, during the nine months ended September 30, 2021, we recognized a loss of $1.9 million on the sale of a disposal group within our India business. The loss included the reclassification of the associated cumulative foreign currency translation adjustment losses from AOCI into special items, net at the time of sale. See Note 10, "Accumulated Other Comprehensive Income (Loss)" for further details.
Restructuring Activities
On October 28, 2019, as part of our revitalization plan, we established Chicago, Illinois as our North American operational headquarters, closed our office in Denver, Colorado and consolidated certain administrative functions into our other existing office locations. In connection with these consolidation activities, certain impacted employees were extended an opportunity to continue their employment with MCBC in the new organization and locations and, for those not continuing with MCBC, certain of such employees were asked to provide transition assistance and offered severance and retention packages in connection with their termination of service. We expect the costs associated with the restructuring to be substantially recognized by the end of fiscal year 2021. After taking into account all changes in each of the business units, including Europe, the revitalization plan reduced employment levels, in aggregate, by approximately 600 employees globally.
In connection with the revitalization plan, we incurred and expect we may continue to incur cash and non-cash restructuring charges related to severance, retention and transition costs, employee relocation, non-cash asset related costs, lease impairment and exit costs in connection with our office lease in Denver, Colorado, and other transition activities related to the consolidation activities and related organizational and personnel changes of the revitalization plan through 2021 which is expected to aggregate in the range of approximately $100 million to $120 million. During the three and nine months ended September 30, 2021, we recognized severance and retention charges of $0.2 million and $2.9 million, respectively, and our remaining accrued restructuring balance related to the revitalization plan as of September 30, 2021 was approximately $7 million. During the three and nine months ended September 30, 2020, we recognized severance and retention charges of $2.8 million and $33.9 million, respectively. Actual severance and retention costs related to this restructuring, which are primarily being recognized ratably over the employees' required future service period, may differ from original estimates based on actual employee turnover levels prior to achieving severance and retention eligibility requirements.
Other than those noted above, there were no material changes to our restructuring activities since December 31, 2020, as reported in Part II - Item 8. Financial Statements and Supplementary Data, Note 7, "Special Items" in our Annual Report. We continually evaluate our cost structure and seek opportunities for further efficiencies and cost savings as part of ongoing and new initiatives. As such, we may incur additional restructuring related charges or adjustments to previously recorded charges in the future, however, we are unable to estimate the amount of charges at this time.
The accrued restructuring balances as of September 30, 2021 represent expected future cash payments required to satisfy our remaining obligations to terminated employees, the majority of which we expect to be paid in the next 12 months.
| North America | Europe | Total | |||||||||||||||
| (In millions) | |||||||||||||||||
| As of December 31, 2020 | $ | 24.5 | $ | 2.0 | $ | 26.5 | |||||||||||
| Charges incurred | 8.3 | 1.3 | 9.6 | ||||||||||||||
| Payments made | (20.4) | (1.9) | (22.3) | ||||||||||||||
| Changes in estimates | (0.1) | (0.2) | (0.3) | ||||||||||||||
| As of September 30, 2021 | $ | 12.3 | $ | 1.2 | $ | 13.5 |
| North America | Europe | Total | |||||||||||||||
| (In millions) | |||||||||||||||||
| As of December 31, 2019 | $ | 42.6 | $ | 4.5 | $ | 47.1 | |||||||||||
| Charges incurred | 58.3 | 8.3 | 66.6 | ||||||||||||||
| Payments made | (60.6) | (10.2) | (70.8) | ||||||||||||||
| Changes in estimates | (4.0) | (0.8) | (4.8) | ||||||||||||||
| Foreign currency and other adjustments | (0.3) | — | (0.3) | ||||||||||||||
| As of September 30, 2020 | $ | 36.0 | $ | 1.8 | $ | 37.8 |
6. Income Tax
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | ||||||||||||||||||||
| Effective tax rate | 6 | % | 23 | % | 18 | % | 38 | % |
The decrease in the effective tax rate during the three and nine months ended September 30, 2021 compared to the prior year was primarily driven by a tax benefit of $68 million, including $49 million of a discrete tax benefit. This benefit was recorded due to the effective settlement reached on a tax audit resulting in the release of certain unrecognized tax positions during the third quarter of 2021. For the nine months ended September 30, 2021, the decrease in the effective tax rate from prior year was further impacted by the recognition of approximately $135 million of discrete tax expense related to the hybrid regulations enacted in the second quarter of 2020, as further discussed below.
During the second quarter of 2021, the U.K. government enacted, and royal assent was received for, legislation to increase the corporate income tax rate from 19% to 25%. Remeasurement of our deferred tax liabilities under the higher income tax rate resulted in the recognition of additional discrete tax expense of approximately $18 million in the second quarter of 2021. During the third quarter of 2020, the U.K. government enacted, and royal assent was received for, legislation to repeal the previously enacted reduction to the corporate income tax rate that had been due to take effect April 1, 2020, that changed the previously anticipated corporate income tax rate from 17% to 19%. Remeasurement of our deferred tax liabilities under the higher income tax rate resulted in the recognition of additional discrete tax expense of approximately $6 million in the third quarter of 2020.
Our tax rate is volatile and may increase or decrease with changes in, among other things, the amount and source of income or loss, our ability to utilize foreign tax credits, excess tax benefits or deficiencies from share-based compensation, changes in tax laws, and the movement of liabilities established pursuant to accounting guidance for uncertain tax positions as statutes of limitations expire, positions are effectively settled, or when additional information becomes available. There are proposed or pending tax law changes in various jurisdictions and other changes to regulatory environments in countries in which we do business that, if enacted, may have an impact on our effective tax rate.
Since 2018, the U.S. Department of Treasury has continued to issue proposed, temporary and final regulations to implement provisions of the 2017 Tax Act. The final hybrid regulations issued in April 2020 resulted in recognition of approximately $135 million of tax expense in the second quarter of 2020. As a result of the effective settlement reached during the third quarter of 2021, which included resolution of the impact of the hybrid regulations, we expect to pay cash tax and associated interest of approximately $125 million during the fourth quarter of 2021 in finalization of the audit.
Our unrecognized tax benefit position balance was reduced by approximately $250 million during the third quarter of 2021 due to the settlement reached on the tax audit including the hybrid regulations and certain other tax positions, with the amount of the anticipated cash tax payment after application of available net operating losses reclassified to accrued income taxes payable as of September 30, 2021. As of September 30, 2021, we anticipate immaterial changes to our remaining unrecognized tax benefit position within the next 12 months.
7. Goodwill and Intangible Assets
Goodwill
The changes in the carrying amount of goodwill for the North America segment are presented in the table below.
| North America | |||||||||||||||||
| Changes in Goodwill | (In millions) | ||||||||||||||||
| Balance as of December 31, 2020 | $ | 6,151.0 | |||||||||||||||
| Foreign currency translation | 0.8 | ||||||||||||||||
| Balance as of September 30, 2021 | $ | 6,151.8 |
As of December 31, 2020 and September 30, 2021, due to the goodwill impairment recorded in the fourth quarter of 2020, the Europe segment had no goodwill. The North America segment had goodwill as of September 30, 2021 and December 31, 2020 as presented in the table above.
The gross amount of goodwill totaled approximately $8.4 billion as of both September 30, 2021 and December 31, 2020. Accumulated impairment losses as of September 30, 2021 and December 31, 2020 totaled $2,222.4 million and $2,264.5 million, respectively, and are comprised of a full impairment taken on the Europe reporting unit and a partial impairment taken on the North America reporting unit as well as our historic India reporting unit, which was fully impaired in 2019.
As of the date of our annual impairment test, performed as of October 1, 2020, the North America reporting unit goodwill balance was at risk of future impairment in the event of significant unfavorable changes in assumptions including the forecasted cash flows (including company-specific risks like the performance of our above premium transformation efforts and overall market performance of new innovations like hard seltzers, along with macro-economic risks such as the continued prolonged weakening of economic conditions, or significant unfavorable changes in tax rates, 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 North America reporting unit testing reflect growth assumptions associated with our revitalization plan to build on the strength of our iconic core brands, aggressively grow our above premium portfolio, expand beyond the beer aisle, invest in our capabilities and support our people and our communities, all of which are intended to benefit the projected cash flows of the business. The cash flow assumptions were tempered somewhat by the impacts the coronavirus has had on our overall business and specifically our more profitable on-premise business.
We determined that there was no triggering event that occurred during the first three quarters of 2021 that would indicate the carrying value of our goodwill was greater than its fair value.
Intangible Assets, Other than Goodwill
The following table presents details of our intangible assets, other than goodwill, as of September 30, 2021:
| Useful life | Gross | Accumulated amortization | Net | ||||||||||||||||||||
| (Years) | (In millions) | ||||||||||||||||||||||
| Intangible assets subject to amortization: | |||||||||||||||||||||||
| Brands | 10 - 50 | $ | 5,089.6 | $ | (1,216.5) | $ | 3,873.1 | ||||||||||||||||
| License agreements and distribution rights | 15 - 20 | 206.4 | (105.0) | 101.4 | |||||||||||||||||||
| Other | 3 - 40 | 98.6 | (30.8) | 67.8 | |||||||||||||||||||
| Intangible assets not subject to amortization: | |||||||||||||||||||||||
| Brands | Indefinite | 8,197.9 | — | 8,197.9 | |||||||||||||||||||
| Distribution networks | Indefinite | 797.8 | — | 797.8 | |||||||||||||||||||
| Other | Indefinite | 307.6 | — | 307.6 | |||||||||||||||||||
| Total | $ | 14,697.9 | $ | (1,352.3) | $ | 13,345.6 |
The following table presents details of our intangible assets, other than goodwill, as of December 31, 2020:
| Useful life | Gross | Accumulated amortization | Net | ||||||||||||||||||||
| (Years) | (In millions) | ||||||||||||||||||||||
| Intangible assets subject to amortization: | |||||||||||||||||||||||
| Brands | 10 - 50 | $ | 5,128.4 | $ | (1,070.6) | $ | 4,057.8 | ||||||||||||||||
| License agreements and distribution rights | 15 - 20 | 206.8 | (99.5) | 107.3 | |||||||||||||||||||
| Other | 3 - 40 | 109.1 | (36.4) | 72.7 | |||||||||||||||||||
| Intangible assets not subject to amortization: | |||||||||||||||||||||||
| Brands | Indefinite | 8,215.7 | — | 8,215.7 | |||||||||||||||||||
| Distribution networks | Indefinite | 795.0 | — | 795.0 | |||||||||||||||||||
| Other | Indefinite | 307.6 | — | 307.6 | |||||||||||||||||||
| Total | $ | 14,762.6 | $ | (1,206.5) | $ | 13,556.1 |
The changes in the gross carrying amounts of intangible assets from December 31, 2020 to September 30, 2021 are primarily driven by the impact of foreign exchange rates, as a significant amount of intangible assets are denominated in foreign currencies.
Based on foreign exchange rates as of September 30, 2021, the estimated future amortization expense of intangible assets is as follows:
| Fiscal year | Amount | |||||||
| (In millions) | ||||||||
| 2021 - remaining | $ | 54.0 | ||||||
| 2022 | $ | 212.2 | ||||||
| 2023 | $ | 211.2 | ||||||
| 2024 | $ | 209.6 | ||||||
| 2025 | $ | 209.4 |
Amortization expense of intangible assets was $54.0 million and $55.4 million for the three months ended September 30, 2021 and September 30, 2020, respectively, and $163.3 million and $164.9 million for the nine months ended September 30, 2021 and September 30, 2020, respectively. This expense is primarily presented within marketing, general and administrative expenses on the unaudited condensed consolidated statements of operations.
As of the date of our annual impairment test of indefinite-lived intangible assets, performed as of October 1, 2020, the fair value of the indefinite-lived Miller, Coors and Carling brands and distribution networks were sufficiently in excess of their carrying values. We determined at the annual impairment testing date that the Staropramen indefinite-lived brand intangible asset in Europe was considered to be at risk of future impairment as a result of the coronavirus' impact on the on-premise business throughout Europe that commenced in 2020 and is continuing in 2021. No triggering events occurred during the first three quarters of 2021 that would indicate the carrying value of these indefinite-lived assets was greater than their fair value.
We continuously monitor the performance of the underlying definite-lived intangible assets for potential triggering events suggesting an impairment review should be performed. While no triggering events have occurred in the first three quarters of 2021, we continue to monitor the impacts of the coronavirus in our key markets and the potential implications that may have on the values of definite-lived intangible assets.
Fair Value Assumptions
Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. The key assumptions used to derive the estimated fair values of our reporting units and indefinite-lived intangible assets are discussed in Part II—Item 8 Financial Statements, Note 10, "Goodwill and Intangible Assets" in our Annual Report, and represent Level 3 measurements.
Overall Considerations
Based on known facts and circumstances, we evaluate and consider recent events and uncertain items, as well as the related potential implications, as part of our annual and interim assessments and incorporate into the analyses as appropriate. These facts and circumstances are subject to change and may impact future analyses. For example, we continue to monitor the
progress we are making against our revitalization plan, challenges within the beer industry for further weakening or additional systemic structural declines, as well as for adverse changes in macroeconomic conditions such as the coronavirus pandemic that could significantly impact our immediate and long-range results. Additionally, we are monitoring the impacts the coronavirus pandemic has on the market inputs used in calculating our discount rates, including risk-free rates, equity premiums and our cost of debt, which could result in a meaningful change to our weighted-average cost of capital calculation, as well as the market multiples used in our impairment assessment. Furthermore, increased volatility in the equity and debt markets or other country specific factors, including, but not limited to, extended or future government intervention in response to the coronavirus pandemic, could also result in a meaningful change to our weighted-average cost of capital calculation and other inputs used in our impairment assessment. Separately, the Ontario government in Canada adopted a bill that, if enacted, could adversely impact the existing terms of the beer distribution and retail systems in the province, as further described in Note 12, "Commitments and Contingencies."
While historical performance and current expectations have resulted in fair values of our reporting units and indefinite-lived intangible assets equal to or in excess of carrying values, if our assumptions are not realized, it is possible that an impairment loss may need to be recorded in the future.
8. Debt
Debt Obligations
| As of | |||||||||||
| September 30, 2021 | December 31, 2020 | ||||||||||
| (In millions) | |||||||||||
| Long-term debt: | |||||||||||
| CAD 500 million 2.84% notes due July 2023 | $ | 394.3 | $ | 392.9 | |||||||
| CAD 500 million 3.44% notes due July 2026 | 394.3 | 392.9 | |||||||||
| $1.0 billion 2.1% notes due July 2021(1) | — | 1,000.0 | |||||||||
| $500 million 3.5% notes due May 2022(2) | 501.6 | 503.7 | |||||||||
| $2.0 billion 3.0% notes due July 2026 | 2,000.0 | 2,000.0 | |||||||||
| $1.1 billion 5.0% notes due May 2042 | 1,100.0 | 1,100.0 | |||||||||
| $1.8 billion 4.2% notes due July 2046 | 1,800.0 | 1,800.0 | |||||||||
| EUR 800 million 1.25% notes due July 2024 | 926.4 | 977.3 | |||||||||
| Finance leases and other | 98.1 | 97.8 | |||||||||
| Less: unamortized debt discounts and debt issuance costs | (45.7) | (50.3) | |||||||||
| Total long-term debt (including current portion) | 7,169.0 | 8,214.3 | |||||||||
| Less: current portion of long-term debt | (508.0) | (1,006.1) | |||||||||
| Total long-term debt | $ | 6,661.0 | $ | 7,208.2 | |||||||
| Short-term borrowings: | |||||||||||
| Commercial paper programs(3) | $ | 45.0 | $ | — | |||||||
| Short-term borrowings(4) | 6.8 | 14.0 | |||||||||
| Current portion of long-term debt | 508.0 | 1,006.1 | |||||||||
| Current portion of long-term debt and short-term borrowings | $ | 559.8 | $ | 1,020.1 |
(1)We repaid our $1.0 billion 2.1% notes at maturity on July 15, 2021 using a combination of commercial paper borrowings and cash on hand and also settled the associated cross currency swap. Prior to settlement in July 2021, the cross currency swaps economically converted a portion of the repaid $1.0 billion 2.1% notes and associated interest to EUR denominated, which resulted in a EUR interest rate to be received of 0.71%. See Note 11, "Derivative Instruments and Hedging Activities" for further details.
(2)The fair value hedges related to these notes have been settled and are being amortized over the life of the respective note. The balance of the fair value hedges being amortized over the life of the note were $1.6 million and $3.7 million as of September 30, 2021 and December 31, 2020, respectively. The balance as of September 30, 2021 was included within the current portion of long-term debt and short-term borrowings of the unaudited condensed consolidated balance sheet and the balance as of December 31, 2020 was included within long-term debt of the consolidated balance sheet.
(3)We maintain a $1.5 billion revolving credit facility with a maturity date of July 7, 2024 that allows us to issue a maximum aggregate amount of $1.5 billion in commercial paper or other borrowings at any time at variable interest rates. We use this facility from time to time to leverage cash needs including debt repayments. The current balance outstanding was used to partially fund our working capital and general purpose needs. As of September 30, 2021, the outstanding borrowings under the commercial paper program had a weighted-average effective interest rate and tenor of 0.22% and 8 days, respectively. We had no borrowings drawn on this revolving credit facility and no commercial paper borrowings as of December 31, 2020.
(4)As of September 30, 2021, we had $2.7 million in bank overdrafts and $151.7 million in bank cash related to our cross-border, cross-currency cash pool, for a net positive position of $149.0 million. As of December 31, 2020, we had $11.0 million in bank overdrafts and $103.7 million in bank cash related to our cross-border, cross-currency cash pool for a net positive position of $92.7 million. We had total outstanding borrowings of $4.1 million and $3.0 million under our two JPY facilities as of September 30, 2021 and December 31, 2020, respectively. In addition, we have USD, CAD and GBP overdraft facilities under which we had no outstanding borrowings as of September 30, 2021 or December 31, 2020.
Debt Fair Value Measurements
We utilize market approaches to estimate the fair value of certain outstanding borrowings by discounting anticipated future cash flows derived from the contractual terms of the obligations and observable market interest and foreign exchange rates. As of September 30, 2021 and December 31, 2020, the fair value of our outstanding long-term debt (including the current portion of long-term debt) was approximately $7.9 billion and $9.1 billion, respectively. All senior notes are valued based on significant observable inputs and classified as Level 2 in the fair value hierarchy. The carrying values of all other outstanding long-term borrowings and our short-term borrowings approximate their fair values and are also classified as Level 2 in the fair value hierarchy.
Debt Covenants
Under the terms of each of our debt facilities, we must comply with certain restrictions. These include customary events of default and specified representations, warranties and covenants, as well as covenants that restrict our ability to incur certain additional priority indebtedness (certain thresholds of secured consolidated net tangible assets), certain leverage threshold percentages, create or permit liens on assets, and restrictions on mergers, acquisitions, and certain types of sale lease-back transactions. Additionally, the maximum leverage ratio, as defined by our revolving credit facility agreement as of September 30, 2021 is 4.50x net debt to EBITDA. As of September 30, 2021, we were in compliance with all of these restrictions and have met all debt payment obligations. All of our outstanding senior notes as of September 30, 2021 rank pari-passu.
9. Inventories
| As of | |||||||||||
| September 30, 2021 | December 31, 2020 | ||||||||||
| (In millions) | |||||||||||
| Finished goods | $ | 364.0 | $ | 266.7 | |||||||
| Work in process | 77.7 | 72.7 | |||||||||
| Raw materials | 262.4 | 242.2 | |||||||||
| Packaging materials | 102.4 | 82.7 | |||||||||
| Inventories, net | $ | 806.5 | $ | 664.3 |
10. Accumulated Other Comprehensive Income (Loss)
| MCBC stockholders' equity | |||||||||||||||||||||||||||||
| Foreign currency translation adjustments | Gain (loss) on derivative instruments | Pension and postretirement benefit adjustments | Equity method investments | Accumulated other comprehensive income (loss) | |||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||
| As of December 31, 2020 | $ | (539.5) | $ | (173.9) | $ | (397.7) | $ | (56.7) | $ | (1,167.8) | |||||||||||||||||||
| Foreign currency translation adjustments | (75.8) | — | — | — | (75.8) | ||||||||||||||||||||||||
| Reclassification of cumulative translation adjustment to income (loss)(1) | 7.5 | — | — | — | 7.5 | ||||||||||||||||||||||||
| Gain (loss) on net investment hedges | 59.7 | — | — | — | 59.7 | ||||||||||||||||||||||||
| Unrealized gain (loss) on derivative instruments | — | 65.8 | — | — | 65.8 | ||||||||||||||||||||||||
| Reclassification of derivative (gain) loss to income (loss) | — | 6.6 | — | — | 6.6 | ||||||||||||||||||||||||
| Amortization of net prior service (benefit) cost and net actuarial (gain) loss to income (loss) | — | — | 1.3 | — | 1.3 | ||||||||||||||||||||||||
| Ownership share of unconsolidated subsidiaries' other comprehensive income (loss) | — | — | — | 1.5 | 1.5 | ||||||||||||||||||||||||
| Tax benefit (expense) | (13.8) | (18.8) | (0.4) | (0.3) | (33.3) | ||||||||||||||||||||||||
| As of September 30, 2021 | $ | (561.9) | $ | (120.3) | $ | (396.8) | $ | (55.5) | $ | (1,134.5) |
(1)As a result of the sale of a disposal group within our India business, the associated cumulative foreign currency translation adjustment was reclassified from AOCI and recognized within special items, net.
11. Derivative Instruments and Hedging Activities
Our risk management and derivative accounting policies are presented within Part II—Item 8 Financial Statements, Note 1, "Basis of Presentation and Summary of Significant Accounting Policies" and Note 16, "Derivative Instruments and Hedging Activities" in our Annual Report and did not significantly change during the first three quarters of 2021. As noted in Note 16 of the Notes included in our Annual Report, due to the nature of our counterparty agreements, and the fact that we are not subject to master netting arrangements, we are not able to net positions with the same counterparty and, therefore, present our derivative positions on a gross basis in our unaudited condensed consolidated balance sheets. Except as noted below, our significant derivative positions have not changed considerably since December 31, 2020.
Cross Currency Swaps
Effective March 20, 2019, we entered into cross currency swap agreements having a total notional value of approximately EUR 353 million ($400 million upon execution) in order to hedge a portion of the foreign currency translational impacts of our European investment. As a result of the swaps, we economically converted a portion of our $1.0 billion 2.1% senior notes due 2021 and associated interest to EUR denominated, which results in a EUR interest rate to be received at 0.71%. Upon repayment of the $1.0 billion 2.1% senior notes at maturity in July 2021, we settled the associated cross currency swap resulting in a net cash payment of $12.7 million, consisting of the final loss on the cross currency swap of $17.6 million partially offset by the final interest received. The settlement of these cross currency swaps were classified as other investing activities in our condensed consolidated statements of cash flows.
Forward Starting Interest Rate Swaps
During the third quarter of 2018, we entered into forward starting interest rate swaps with a notional amount totaling $1.5 billion with termination dates of July 2021, May 2022 and July 2026. The swaps had effective dates mirroring the terms of the forecasted debt issuances. Under the agreements, we are required to early terminate these swaps at the time we expect to issue the related forecasted debt. We have designated these contracts as cash flow hedges. As a result, the unrealized mark-to-market gains or losses will be recorded to AOCI until termination at which point the realized gain or loss of these swaps at issuance of the hedged debt will be reclassified from AOCI and amortized to interest expense over the term of the hedged debt.
In June 2021, we early terminated our $250.0 million forward starting interest rate swap that was originally set to terminate in July 2021. This forward starting interest rate swap was rolled forward to May 2022 through a cashless settlement. The new May 2022 forward starting interest rate swap is incremental to our existing May 2022 forward starting interest rate swap that was executed in 2018, both of which are hedging our forecasted debt issuance expected to occur next year. At the time of the transaction, there was approximately $33.4 million of unrealized losses recorded in AOCI. Approximately $1.7 million was recorded to interest expense in the second quarter when it became probable that one of the forecasted interest payments originally hedged would not occur. The remaining $31.7 million will be amortized to interest expense throughout the term of the respective debt unless it becomes probable that the cash flows originally hedged will not occur, in which case the proportionate amount of the loss will be recorded to interest expense at that time. The new forward starting interest rate swap has an effective date of June 2021, a termination date of May 2022 and an effective interest rate of approximately 3.22%.
Cash settlements related to interest rate contracts are generally classified as operating activities on the condensed consolidated statements of cash flows. However, due to an other-than-insignificant financing element in the May 2022 forward starting interest rate swap that was designated in June 2021, the cash flow related to this contract will be classified as financing activities.
Derivative Fair Value Measurements
We utilize market approaches to estimate the fair value of our derivative instruments by discounting anticipated future cash flows derived from the derivative's contractual terms and observable market interest, foreign exchange and commodity rates. The fair values of our derivatives also include credit risk adjustments to account for our counterparties' credit risk, as well as our own non-performance risk, as appropriate. The fair value of our warrants to acquire common shares of HEXO Corp. ("HEXO") at a strike price of CAD 24.00 per share are estimated using the Black-Scholes option-pricing model. The warrants to acquire common shares of HEXO Corp. expired unexercised on October 4, 2021. All changes in the fair value of the warrants subsequent to issuance were recorded in other income (expense), net on the unaudited condensed consolidated statements of operations.
The table below summarizes our derivative assets and liabilities that were measured at fair value as of September 30, 2021 and December 31, 2020.
| Fair value measurements as of September 30, 2021 | |||||||||||||||||||||||
| As of September 30, 2021 | Quoted prices in active markets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Interest rate swaps | (156.6) | — | (156.6) | — | |||||||||||||||||||
| Foreign currency forwards | (1.4) | — | (1.4) | — | |||||||||||||||||||
| Commodity swaps | 379.2 | — | 379.2 | — | |||||||||||||||||||
| Warrants | — | — | — | — | |||||||||||||||||||
| Total | $ | 221.2 | $ | — | $ | 221.2 | $ | — |
| Fair value measurements as of December 31, 2020 | |||||||||||||||||||||||
| As of December 31, 2020 | Quoted prices in active markets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Cross currency swaps | $ | (26.5) | $ | — | $ | (26.5) | $ | — | |||||||||||||||
| Interest rate swaps | (221.5) | — | (221.5) | — | |||||||||||||||||||
| Foreign currency forwards | (4.9) | — | (4.9) | — | |||||||||||||||||||
| Commodity swaps and options | 65.2 | — | 65.2 | — | |||||||||||||||||||
| Warrants | 0.3 | — | 0.3 | — | |||||||||||||||||||
| Total | $ | (187.4) | $ | — | $ | (187.4) | $ | — |
As of September 30, 2021 and December 31, 2020, we had no significant transfers between Level 1 and Level 2. New derivative contracts transacted during the nine months ended September 30, 2021 were all included in Level 2.
Results of Period Derivative Activity
The tables below include the results of our derivative activity in our unaudited condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020, and our unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2021 and September 30, 2020.
Fair Value of Derivative Instruments in the Unaudited Condensed Consolidated Balance Sheets (in millions):
| As of September 30, 2021 | |||||||||||||||||||||||||||||
| Derivative Assets | Derivative Liabilities | ||||||||||||||||||||||||||||
| Notional amount | Balance sheet location | Fair value | Balance sheet location | Fair value | |||||||||||||||||||||||||
| Derivatives designated as hedging instruments: | |||||||||||||||||||||||||||||
| Interest rate swaps | $ | 1,500.0 | Other current assets | — | Accounts payable and other current liabilities | (68.8) | |||||||||||||||||||||||
| Other non-current assets | — | Other liabilities | (87.8) | ||||||||||||||||||||||||||
| Foreign currency forwards | $ | 180.9 | Other current assets | 0.7 | Accounts payable and other current liabilities | (2.4) | |||||||||||||||||||||||
| Other non-current assets | 0.8 | Other liabilities | (0.5) | ||||||||||||||||||||||||||
| Total derivatives designated as hedging instruments | $ | 1.5 | $ | (159.5) | |||||||||||||||||||||||||
| Derivatives not designated as hedging instruments: | |||||||||||||||||||||||||||||
| Commodity swaps(1) | $ | 684.2 | Other current assets | $ | 267.5 | Accounts payable and other current liabilities | $ | — | |||||||||||||||||||||
| Other non-current assets | 111.7 | Other liabilities | — | ||||||||||||||||||||||||||
| Warrants | $ | 54.4 | Other current assets | — | Accounts payable and other current liabilities | — | |||||||||||||||||||||||
| Total derivatives not designated as hedging instruments | $ | 379.2 | $ | — |
| As of December 31, 2020 | |||||||||||||||||||||||||||||
| Derivative Assets | Derivative Liabilities | ||||||||||||||||||||||||||||
| Notional amount | Balance sheet location | Fair value | Balance sheet location | Fair value | |||||||||||||||||||||||||
| Derivatives designated as hedging instruments: | |||||||||||||||||||||||||||||
| Cross currency swaps | $ | 400.0 | Other current assets | $ | — | Accounts payable and other current liabilities | $ | (26.5) | |||||||||||||||||||||
| Interest rate swaps | $ | 1,500.0 | Other non-current assets | — | Accounts payable and other current liabilities | (47.7) | |||||||||||||||||||||||
| Other liabilities | (173.8) | ||||||||||||||||||||||||||||
| Foreign currency forwards | $ | 181.2 | Other current assets | 0.3 | Accounts payable and other current liabilities | (3.0) | |||||||||||||||||||||||
| Other non-current assets | — | Other liabilities | (2.2) | ||||||||||||||||||||||||||
| Total derivatives designated as hedging instruments | $ | 0.3 | $ | (253.2) | |||||||||||||||||||||||||
| Derivatives not designated as hedging instruments: | |||||||||||||||||||||||||||||
| Commodity swaps(1) | $ | 918.9 | Other current assets | $ | 44.5 | Accounts payable and other current liabilities | $ | (20.6) | |||||||||||||||||||||
| Other non-current assets | 45.4 | Other liabilities | (4.1) | ||||||||||||||||||||||||||
| Commodity options(1) | $ | 16.8 | Other current assets | — | Accounts payable and other current liabilities | — | |||||||||||||||||||||||
| Warrants | $ | 54.2 | Other non-current assets | 0.3 | Other liabilities | — | |||||||||||||||||||||||
| Total derivatives not designated as hedging instruments | $ | 90.2 | $ | (24.7) |
(1)Notional includes offsetting buy and sell positions, shown in terms of absolute value. Buy and sell positions are shown gross in the asset and/or liability position, as appropriate.
The Pretax Effect of Cash Flow Hedge Accounting on Other Comprehensive Income, Accumulated Other Comprehensive Income (Loss), and income (in millions):
| Derivatives in cash flow hedge relationships | Amount of gain (loss) recognized in OCI on derivatives | Location of gain (loss) reclassified from AOCI into income | Amount of gain (loss) recognized from AOCI into income on derivative | |||||||||||||||||
| Three Months Ended September 30, 2021 | ||||||||||||||||||||
| Forward starting interest rate swaps | 2.5 | Interest income (expense), net | (0.8) | |||||||||||||||||
| Foreign currency forwards | 4.6 | Cost of goods sold | (0.7) | |||||||||||||||||
| Other income (expense), net | 0.2 | |||||||||||||||||||
| Total | $ | 7.1 | $ | (1.3) | ||||||||||||||||
| Three Months Ended September 30, 2020 | ||||||||||||||||||||
| Forward starting interest rate swaps | 23.9 | Interest income (expense), net | (0.8) | |||||||||||||||||
| Foreign currency forwards | (4.4) | Cost of goods sold | 0.9 | |||||||||||||||||
| Other income (expense), net | (0.3) | |||||||||||||||||||
| Total | $ | 19.5 | $ | (0.2) |
| Derivatives in cash flow hedge relationships | Amount of gain (loss) recognized in OCI on derivatives | Location of gain (loss) reclassified from AOCI into income | Amount of gain (loss) recognized from AOCI into income on derivative | |||||||||||||||||
| Nine Months Ended September 30, 2021 | ||||||||||||||||||||
| Forward starting interest rate swaps | 64.9 | Interest income (expense), net | (4.0) | |||||||||||||||||
| Foreign currency forwards | 0.9 | Cost of goods sold | (3.3) | |||||||||||||||||
| Other income (expense), net | 0.7 | |||||||||||||||||||
| Total | $ | 65.8 | $ | (6.6) | ||||||||||||||||
| Nine Months Ended September 30, 2020 | ||||||||||||||||||||
| Forward starting interest rate swaps | (155.9) | Interest income (expense), net | (2.2) | |||||||||||||||||
| Foreign currency forwards | 4.4 | Cost of goods sold | 4.5 | |||||||||||||||||
| Other income (expense), net | (1.1) | |||||||||||||||||||
| Total | $ | (151.5) | $ | 1.2 |
The Pretax Effect of Net Investment Hedge Accounting on Other Comprehensive Income, Accumulated Other Comprehensive Income (Loss) and income (in millions):
| Net investment hedge relationships | Amount of gain (loss) recognized in OCI | Location of gain (loss) recognized in income (amount excluded from effectiveness testing) | Amount of gain (loss) recognized in income (amount excluded from effectiveness testing) (1) | |||||||||||||||||
| Three Months Ended September 30, 2021 | ||||||||||||||||||||
| Cross currency swaps | 0.1 | Interest income (expense), net | 0.4 | |||||||||||||||||
| EUR 800 million notes due 2024 | 22.2 | Other income (expense), net | — | |||||||||||||||||
| Total | $ | 22.3 | $ | 0.4 | ||||||||||||||||
| Three Months Ended September 30, 2020 | ||||||||||||||||||||
| Cross currency swaps | (19.0) | Interest income (expense), net | 2.8 | |||||||||||||||||
| EUR 800 million notes due 2024 | (39.0) | Other income (expense), net | — | |||||||||||||||||
| Total | $ | (58.0) | $ | 2.8 |
| Net investment hedge relationships | Amount of gain (loss) recognized in OCI | Location of gain (loss) recognized in income (amount excluded from effectiveness testing) | Amount of gain (loss) recognized in income (amount excluded from effectiveness testing)****(1) | |||||||||||||||||
| Nine Months Ended September 30, 2021 | ||||||||||||||||||||
| Cross currency swaps | 8.8 | Interest income (expense), net | 6.1 | |||||||||||||||||
| EUR 800 million notes due 2024 | 50.9 | Other income (expense), net | — | |||||||||||||||||
| Total | $ | 59.7 | $ | 6.1 | ||||||||||||||||
| Nine Months Ended September 30, 2020 | ||||||||||||||||||||
| Cross currency swaps | (13.8) | Interest income (expense), net | 11.3 | |||||||||||||||||
| EUR 800 million notes due 2024 | (40.7) | Other income (expense), net | — | |||||||||||||||||
| Total | $ | (54.5) | $ | 11.3 |
(1)Represents amounts excluded from the assessment of effectiveness for which the difference between changes in fair value and period amortization is recorded in other comprehensive income.
The cumulative translation adjustments related to our net investment hedges remain in AOCI until the respective underlying net investment is sold or liquidated. During the three and nine months ended September 30, 2021 and September 30, 2020, respectively, we did not reclassify any amounts related to net investment hedges from AOCI into earnings.
As of September 30, 2021, we expect our reclassification of AOCI into earnings related to cash flow hedges to be approximately $5 million over the next 12 months. For derivatives designated in cash flow hedge relationships, the maximum length of time over which forecasted transactions are hedged as of September 30, 2021 is approximately 4 years, as well as those related to our forecasted debt issuances in 2022 and 2026.
The Effect of Derivatives Not Designated as Hedging Instruments on the Unaudited Condensed Consolidated Statements of Operations (in millions):
| Derivatives not in hedging relationships | Location of gain (loss) recognized in income on derivative | Amount of gain (loss) recognized in income on derivative | ||||||||||||
| Three Months Ended September 30, 2021 | ||||||||||||||
| Commodity swaps | Cost of goods sold | 148.0 | ||||||||||||
| Warrants | Other income (expense), net | — | ||||||||||||
| Total | $ | 148.0 | ||||||||||||
| Three Months Ended September 30, 2020 | ||||||||||||||
| Commodity swaps | Cost of goods sold | 41.4 | ||||||||||||
| Warrants | Other income (expense), net | (0.7) | ||||||||||||
| Total | $ | 40.7 |
| Derivatives not in hedging relationships | Location of gain (loss) recognized in income on derivative | Amount of gain (loss) recognized in income on derivative | ||||||||||||
| Nine Months Ended September 30, 2021 | ||||||||||||||
| Commodity swaps | Cost of goods sold | 413.1 | ||||||||||||
| Warrants | Other income (expense), net | (0.3) | ||||||||||||
| Total | $ | 412.8 | ||||||||||||
| Nine Months Ended September 30, 2020 | ||||||||||||||
| Commodity swaps | Cost of goods sold | (46.5) | ||||||||||||
| Warrants | Other income (expense), net | (2.1) | ||||||||||||
| Total | $ | (48.6) |
The gains and losses recognized in income related to our commodity swaps are largely driven by changes in the respective commodity market prices.
12. Commitments and Contingencies
Litigation and Other Disputes and Environmental
Related to litigation, other disputes and environmental issues, we have an aggregate accrued contingent liability of $15.7 million and $17.9 million as of September 30, 2021 and December 31, 2020, respectively. While we cannot predict the eventual aggregate cost for litigation, other disputes and environmental matters in which we are currently involved, we believe adequate reserves have been provided for losses that are probable and estimable. Additionally, as noted below, there are certain loss contingencies that we deem reasonably possible for which a range of loss is not estimable at this time; for all other matters, we believe that any reasonably possible losses in excess of the amounts accrued are immaterial to our unaudited condensed consolidated interim financial statements. Our litigation, other disputes and environmental issues are discussed in further detail within Part II—Item 8 Financial Statements, Note 18, "Commitments and Contingencies" in our Annual Report and did not significantly change during the first three quarters of 2021, except as noted below.
Other than those disclosed below, we are also involved in other disputes and legal actions arising in the ordinary course of our business. While it is not feasible to predict or determine the outcome of these proceedings, in our opinion, based on a review with legal counsel, other than as noted, none of these disputes or legal actions are expected to have a material impact on our business, consolidated financial position, results of operations or cash flows. However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business.
On February 12, 2018, Stone Brewing Company filed a trademark infringement lawsuit in federal court in the Southern District of California against Molson Coors Beverage Company USA LLC ("MCBC USA" formerly known as MillerCoors LLC) alleging that the Keystone brand has “rebranded” itself as “Stone” and is marketing itself in a manner confusingly similar to Stone Brewing Company's registered Stone trademark. Stone Brewing Company seeks treble damages in the amount of MCBC USA's profit from Keystone sales. MCBC USA subsequently filed an answer and counterclaims against Stone Brewing Company. On May 31, 2018, Stone Brewing Company filed a motion to dismiss MCBC USA's counterclaims and for a preliminary injunction seeking to bar MCBC USA from continuing to use “STONE” on Keystone Light cans and related marketing materials. In March 2019, the court denied Stone Brewing Company’s motion for preliminary injunction and its motion to dismiss MCBC USA's counterclaims. The jury trial scheduled to begin on October 13, 2020 was continued by the court and has now been reset to begin on November 8, 2021. We intend to vigorously assert and defend our rights in this lawsuit. A range of potential loss is not estimable at this time.
On March 26, 2019, a purported stockholder filed a purported shareholder derivative action in Colorado District Court against the Company’s board of directors and certain officers (the “Individual Defendants”), and the Company as a nominal
defendant. On May 14, 2019, another purported stockholder filed a substantially similar complaint in the Colorado District Court. On August 12, 2019, a third derivative complaint was filed in Colorado District Court by a purported stockholder. All three derivative complaints asserted claims against the Individual Defendants for breaches of fiduciary duty and unjust enrichment arising out of the Company’s dissemination to shareholders of purportedly materially misleading and inaccurate information in connection with the Company’s restatement of consolidated financial statements for the years ended December 31, 2016 and December 31, 2017. The complaints further alleged that the Company lacked adequate internal controls over financial reporting. The third derivative complaint filed in August 2019 also alleged the Individual Defendants violated Sections 14(a) and 20(a) of the Exchange Act by issuing misleading statements in the Company’s proxy statement. All three derivative actions have been dismissed: the Schmier derivative case was dismissed on June 3, 2021; the Murr derivative case was dismissed on June 28, 2021; and the Fong derivative case was dismissed on September 2, 2021. Relatedly, but in a different action, the United States District Court for the District of Colorado dismissed with prejudice on December 2, 2020 a putative class action complaint filed against the Company, Mark Hunter, and Tracey Joubert asserting largely the same allegations as those in the above mentioned purported derivative suits. No appeal was taken and that case is now fully resolved and closed.
Regulatory Contingencies
In December 2018, the U.S. Department of Treasury issued a regulation that impacts our ability to claim a refund of certain federal duties, taxes and fees paid for beer sold between the U.S. and certain other countries effective in February 2019. As a result, based on the terms of the regulation, it is the U.S. Department of Treasury's position that future claims will no longer be accepted, and we may be further unable to collect previously claimed, but not yet received, refunds. In January 2020, the United States Court of International Trade issued an opinion and order ruling the challenged portions of this regulation dealing with refunds of certain federal duties, taxes and fees paid with respect to certain imported beer, to the extent of certain exported beer, to be unlawful. On April 17, 2020, the U.S. Department of Treasury appealed this ruling as well as filed a motion for stay of the enforcement of judgment and suspension of claims pending appeal. The U.S. Department of Treasury's motion to stay was denied pending appeal and they were ordered to pay on all claims under the accelerated payment program. As a result, we have collected approximately $55 million of previously filed claims through the third quarter of 2021, and have previously claimed, but not yet received, refunds of approximately $9 million recorded within other receivables, net on our unaudited condensed consolidated balance sheet as of September 30, 2021. On July 23, 2020, the U.S. Department of Treasury filed its opening appellate brief in the United States Court of Appeals for the Federal Circuit. An opposition/response brief was filed on October 1, 2020 and final reply brief was submitted on December 11, 2020. The Federal Circuit Court of Appeals heard oral arguments on March 1, 2021 and took the matter under advisement. On August 23, 2021, the Federal Circuit Court of Appeals issued its written opinion affirming the judgement of the Court of International Trade and, on October 14, 2021, issued its Mandate on the judgment. We will continue to monitor this matter including our ability to collect the remainder of our previously claimed refunds, our potential liability to repay refunds received, as well our ability to claim ongoing refunds as the appeal process progresses.
In June 2019, the Ontario government adopted a bill that, if enacted, would terminate a 10-year Master Framework Agreement that was originally signed between the previous government administration and Molson Canada 2005, a wholly owned indirect subsidiary of the Company, Labatt Brewing Company Limited, Sleeman Breweries Ltd., and Brewers Retail Inc. in 2015 and dictates the terms of the beer distribution and retail systems in Ontario through 2025. The government has not yet proclaimed the bill as law. The impacts of these potential legislative changes are unknown at this time, but could have a negative impact on the results of operations, cash flows and financial position of the North America segment. Molson Canada 2005 and the other Master Framework Agreement signatories are prepared to vigorously defend our rights and pursue legal recourse, should the Master Framework Agreement be unilaterally terminated by the enactment of the legislation.
Guarantees and Indemnities
We guarantee indebtedness and other obligations to banks and other third parties for some of our equity method investments and consolidated subsidiaries. As of September 30, 2021 and December 31, 2020, the unaudited condensed consolidated balance sheets include liabilities related to these guarantees of $38.0 million and $38.2 million, respectively. See Note 4, "Investments" for further detail.
Separately, related to our Cervejarias Kaiser Brasil S.A. ("Kaiser") indemnities, we accrued $10.5 million and $7.7 million, in aggregate, as of September 30, 2021 and December 31, 2020, respectively. The maximum potential claims amount remaining for the Kaiser-related purchased tax credits was $64.3 million, based on foreign exchange rates as of September 30, 2021. Our Kaiser liabilities are discussed in further detail within Part II—Item 8 Financial Statements, Note 18, "Commitments and Contingencies" in our Annual Report and did not significantly change during the first three quarters of 2021.
13. Leases
Supplemental balance sheet information related to leases as of September 30, 2021 and December 31, 2020 was as follows:
| As of | ||||||||||||||
| September 30, 2021 | December 31, 2020 | |||||||||||||
| Balance Sheet Classification | (In millions) | |||||||||||||
| Operating Leases | ||||||||||||||
| Operating lease right-of-use assets | Other assets | $ | 125.9 | $ | 136.2 | |||||||||
| Current operating lease liabilities | Accounts payable and other current liabilities | $ | 46.8 | $ | 47.1 | |||||||||
| Non-current operating lease liabilities | Other liabilities | 94.1 | 106.4 | |||||||||||
| Total operating lease liabilities | $ | 140.9 | $ | 153.5 | ||||||||||
| Finance Leases | ||||||||||||||
| Finance lease right-of-use assets | Properties, net | $ | 61.9 | $ | 60.5 | |||||||||
| Current finance lease liabilities | Current portion of long-term debt and short-term borrowings | $ | 4.3 | $ | 4.1 | |||||||||
| Non-current finance lease liabilities | Long-term debt | 62.9 | 59.9 | |||||||||||
| Total finance lease liabilities | $ | 67.2 | $ | 64.0 |
Supplemental cash flow information related to leases for the nine months ended September 30, 2021 and September 30, 2020 was as follows
| Nine Months Ended | |||||||||||
| September 30, 2021 | September 30, 2020 | ||||||||||
| (In millions) | |||||||||||
| Cash paid for amounts included in the measurements of lease liabilities | |||||||||||
| Operating cash flows from operating leases | 42.2 | 39.5 | |||||||||
| Operating cash flows from finance leases | 3.4 | 6.7 | |||||||||
| Financing cash flows from finance leases | 2.4 | 29.4 | |||||||||
| Supplemental non-cash information on right-of-use assets obtained in exchange for new lease liabilities | |||||||||||
| Operating leases | 27.4 | 18.2 | |||||||||
| Finance leases | 6.5 | 4.0 |
Separately, we recorded an impairment loss inclusive of our Denver, Colorado office lease right-of use asset during the nine months ended September 30, 2020 as discussed in Note 5, "Special Items."
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