filings.toolsItem 1. FINANCIAL STATEMENTS (UNAUDITED)
92K characters. Original on sec.gov · Markdown
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 | |||||||||||||||||||||||
| March 31, 2022 | March 31, 2021 | ||||||||||||||||||||||
| Sales | $ | 2,643.3 | $ | 2,256.1 | |||||||||||||||||||
| Excise taxes | (428.7) | (357.7) | |||||||||||||||||||||
| Net sales | 2,214.6 | 1,898.4 | |||||||||||||||||||||
| Cost of goods sold | (1,286.8) | (1,167.4) | |||||||||||||||||||||
| Gross profit | 927.8 | 731.0 | |||||||||||||||||||||
| Marketing, general and administrative expenses | (675.7) | (542.9) | |||||||||||||||||||||
| Special items, net | (27.6) | (10.9) | |||||||||||||||||||||
| Equity income (loss) | (0.1) | — | |||||||||||||||||||||
| Operating income (loss) | 224.4 | 177.2 | |||||||||||||||||||||
| Interest income (expense), net | (63.3) | (65.3) | |||||||||||||||||||||
| Other pension and postretirement benefits (costs), net | 10.6 | 13.0 | |||||||||||||||||||||
| Other income (expense), net | 2.0 | 1.4 | |||||||||||||||||||||
| Income (loss) before income taxes | 173.7 | 126.3 | |||||||||||||||||||||
| Income tax benefit (expense) | (36.4) | (44.3) | |||||||||||||||||||||
| Net income (loss) | 137.3 | 82.0 | |||||||||||||||||||||
| Net (income) loss attributable to noncontrolling interests | 14.2 | 2.1 | |||||||||||||||||||||
| Net income (loss) attributable to Molson Coors Beverage Company | $ | 151.5 | $ | 84.1 | |||||||||||||||||||
| Net income (loss) attributable to Molson Coors Beverage Company per share | |||||||||||||||||||||||
| Basic | $ | 0.70 | $ | 0.39 | |||||||||||||||||||
| Diluted | $ | 0.70 | $ | 0.39 | |||||||||||||||||||
| Weighted-average shares outstanding | |||||||||||||||||||||||
| Basic | 217.2 | 217.0 | |||||||||||||||||||||
| Dilutive effect of share-based awards | 0.6 | 0.4 | |||||||||||||||||||||
| Diluted | 217.8 | 217.4 | |||||||||||||||||||||
| Anti-dilutive securities excluded from the computation of diluted EPS | 2.2 | 1.8 |
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 | |||||||||||||||||||||||
| March 31, 2022 | March 31, 2021 | ||||||||||||||||||||||
| Net income (loss) including noncontrolling interests | $ | 137.3 | $ | 82.0 | |||||||||||||||||||
| Other comprehensive income (loss), net of tax | |||||||||||||||||||||||
| Foreign currency translation adjustments | (10.2) | 10.3 | |||||||||||||||||||||
| Reclassification of cumulative translation adjustment to income (loss) | 12.1 | 7.5 | |||||||||||||||||||||
| Unrealized gain (loss) on derivative instruments | 54.1 | 102.7 | |||||||||||||||||||||
| Reclassification of derivative (gain) loss to income (loss) | 0.7 | 1.2 | |||||||||||||||||||||
| Amortization of net prior service (benefit) cost and net actuarial (gain) loss to income (loss) | (0.9) | 0.4 | |||||||||||||||||||||
| Ownership share of unconsolidated subsidiaries' other comprehensive income (loss) | 0.2 | 0.4 | |||||||||||||||||||||
| Total other comprehensive income (loss), net of tax | 56.0 | 122.5 | |||||||||||||||||||||
| Comprehensive income (loss) | 193.3 | 204.5 | |||||||||||||||||||||
| Comprehensive (income) loss attributable to noncontrolling interests | 14.6 | 2.0 | |||||||||||||||||||||
| Comprehensive income (loss) attributable to Molson Coors Beverage Company | $ | 207.9 | $ | 206.5 |
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 | |||||||||||
| March 31, 2022 | December 31, 2021 | ||||||||||
| Assets | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | 358.7 | $ | 637.4 | |||||||
| Accounts receivable, net | 761.2 | 678.9 | |||||||||
| Other receivables, net | 207.3 | 200.5 | |||||||||
| Inventories, net | 935.8 | 804.7 | |||||||||
| Other current assets, net | 607.6 | 457.2 | |||||||||
| Total current assets | 2,870.6 | 2,778.7 | |||||||||
| Properties, net | 4,210.5 | 4,192.4 | |||||||||
| Goodwill | 6,155.0 | 6,152.6 | |||||||||
| Other intangibles, net | 13,221.8 | 13,286.8 | |||||||||
| Other assets | 1,263.6 | 1,208.5 | |||||||||
| Total assets | $ | 27,721.5 | $ | 27,619.0 | |||||||
| Liabilities and equity | |||||||||||
| Current liabilities | |||||||||||
| Accounts payable and other current liabilities | $ | 2,873.4 | $ | 3,107.3 | |||||||
| Current portion of long-term debt and short-term borrowings | 681.9 | 514.9 | |||||||||
| Total current liabilities | 3,555.3 | 3,622.2 | |||||||||
| Long-term debt | 6,631.5 | 6,647.2 | |||||||||
| Pension and postretirement benefits | 649.9 | 654.4 | |||||||||
| Deferred tax liabilities | 2,776.6 | 2,704.6 | |||||||||
| Other liabilities | 337.7 | 326.5 | |||||||||
| Total liabilities | 13,951.0 | 13,954.9 | |||||||||
| 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: 210.3 shares and 210.1 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 | 102.2 | |||||||||
| Class B exchangeable shares, no par value (issued and outstanding: 11.1 shares and 11.1 shares, respectively) | 417.2 | 417.8 | |||||||||
| Paid-in capital | 6,975.6 | 6,970.9 | |||||||||
| Retained earnings | 7,469.8 | 7,401.5 | |||||||||
| Accumulated other comprehensive income (loss) | (949.6) | (1,006.0) | |||||||||
| Class B common stock held in treasury at cost (9.7 shares and 9.5 shares, respectively) | (485.5) | (471.4) | |||||||||
| Total Molson Coors Beverage Company stockholders' equity | 13,531.8 | 13,417.1 | |||||||||
| Noncontrolling interests | 238.7 | 247.0 | |||||||||
| Total equity | 13,770.5 | 13,664.1 | |||||||||
| Total liabilities and equity | $ | 27,721.5 | $ | 27,619.0 |
See notes to unaudited condensed consolidated financial statements.
MOLSON COORS BEVERAGE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)
| Three Months Ended | |||||||||||
| March 31, 2022 | March 31, 2021 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income (loss) including noncontrolling interests | $ | 137.3 | $ | 82.0 | |||||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities | |||||||||||
| Depreciation and amortization | 173.7 | 202.3 | |||||||||
| Amortization of debt issuance costs and discounts | 1.6 | 1.8 | |||||||||
| Share-based compensation | 8.5 | 8.3 | |||||||||
| (Gain) loss on sale or impairment of properties and other assets, net | 22.4 | 2.8 | |||||||||
| Unrealized (gain) loss on foreign currency fluctuations and derivative instruments, net | (169.6) | (122.6) | |||||||||
| Equity (income) loss | 0.1 | — | |||||||||
| Income tax (benefit) expense | 36.4 | 44.3 | |||||||||
| Income tax (paid) received | (3.1) | (9.1) | |||||||||
| Interest expense, excluding amortization of debt issuance costs and discounts | 62.2 | 64.1 | |||||||||
| Interest paid | (81.2) | (86.6) | |||||||||
| Change in current assets and liabilities and other | (307.6) | (378.2) | |||||||||
| Net cash provided by (used in) operating activities | (119.3) | (190.9) | |||||||||
| Cash flows from investing activities: | |||||||||||
| Additions to properties | (243.8) | (102.5) | |||||||||
| Proceeds from sales of properties and other assets | 13.2 | 1.1 | |||||||||
| Other | 4.4 | 16.8 | |||||||||
| Net cash provided by (used in) investing activities | (226.2) | (84.6) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Exercise of stock options under equity compensation plans | 0.9 | 4.5 | |||||||||
| Dividends paid | (82.4) | — | |||||||||
| Payments on debt and borrowings | (1.1) | (0.9) | |||||||||
| Proceeds on debt and borrowings | 5.0 | — | |||||||||
| Purchases of treasury stock | (14.1) | — | |||||||||
| Net proceeds from (payments on) revolving credit facilities and commercial paper | 156.3 | 0.5 | |||||||||
| Change in overdraft balances and other | 7.9 | 40.9 | |||||||||
| Net cash provided by (used in) financing activities | 72.5 | 45.0 | |||||||||
| Cash and cash equivalents | |||||||||||
| Net increase (decrease) in cash and cash equivalents | (273.0) | (230.5) | |||||||||
| Effect of foreign exchange rate changes on cash and cash equivalents | (5.7) | (6.9) | |||||||||
| Balance at beginning of year | 637.4 | 770.1 | |||||||||
| Balance at end of period | $ | 358.7 | $ | 532.7 |
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 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 | |||||||||||||||||||||||||||||||||||||||
| Shares issued under equity compensation plan | 1.0 | — | — | — | — | 1.0 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of share-based compensation | 8.3 | — | — | — | — | 8.3 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Purchase of noncontrolling interest | (0.2) | — | — | — | — | — | — | — | — | (0.2) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) including noncontrolling interests | 82.0 | — | — | — | — | — | 84.1 | — | — | (2.1) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | 122.5 | — | — | — | — | — | — | 122.4 | — | 0.1 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions and dividends to noncontrolling interests | (0.9) | — | — | — | — | — | — | — | — | (0.9) | |||||||||||||||||||||||||||||||||||||||||||||||||
| As of March 31, 2021 | $ | 12,834.0 | $ | — | $ | 2.1 | $ | 102.3 | $ | 417.8 | $ | 6,947.1 | $ | 6,628.3 | $ | (1,045.4) | $ | (471.4) | $ | 253.2 |
| 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, 2021 | $ | 13,664.1 | $ | — | $ | 2.1 | $ | 102.2 | $ | 417.8 | $ | 6,970.9 | $ | 7,401.5 | $ | (1,006.0) | $ | (471.4) | $ | 247.0 | |||||||||||||||||||||||||||||||||||||||
| Exchange of shares | — | — | — | — | (0.6) | 0.6 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued under equity compensation plan | (4.4) | — | — | — | — | (4.4) | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of share-based compensation | 8.5 | — | — | — | — | 8.5 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) including noncontrolling interests | 137.3 | — | — | — | — | — | 151.5 | — | — | (14.2) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | 56.0 | — | — | — | — | — | — | 56.4 | — | (0.4) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Share repurchase program | (14.1) | — | — | — | — | — | — | — | (14.1) | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Contributions from noncontrolling interests | 7.3 | — | — | — | — | — | — | — | — | 7.3 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions and dividends to noncontrolling interests | (1.0) | — | — | — | — | — | — | — | — | (1.0) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared | (83.2) | — | — | — | — | — | (83.2) | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| As of March 31, 2022 | $ | 13,770.5 | $ | — | $ | 2.1 | $ | 102.2 | $ | 417.2 | $ | 6,975.6 | $ | 7,469.8 | $ | (949.6) | $ | (485.5) | $ | 238.7 |
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 Americas and EMEA&APAC. Our Americas segment operates in the U.S., Canada and various countries in the Caribbean, Latin and South America, and our EMEA&APAC 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.
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 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 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 financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021, 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 months ended March 31, 2022 are not necessarily indicative of the results that may be achieved for the full year or any other future period.
Coronavirus Global Pandemic
We have been actively monitoring the impact of the coronavirus pandemic since it started at the end of the first quarter of 2020. 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, but not limited to, 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, changes in consumer behavior, 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. See Part I.—Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations in this report, under the heading "Items Affecting Reported Results" for further discussion.
Dividends
On February 22, 2022, our Company's Board of Directors declared a cash dividend of $0.38 per share, paid on March 18, 2022, to shareholders 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 0.48 per share.
Share Repurchase Program
On February 17, 2022, our Company's Board of Directors approved a share repurchase program up to an aggregate of $200 million of our Company's Class B common stock through March 31, 2026, with repurchases primarily intended to offset annual employee equity award grants. For the three months ended March 31, 2022, we repurchased 280,000 shares under the share repurchase program at a weighted average price of $50.40 per share for an aggregate value of $14.1 million.
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 $139.9 million and $116.2 million during the three months ended March 31, 2022 and March 31, 2021, 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 that was settled in late April 2022. See Note 11, "Derivative Instruments and Hedging Activities" for further details.
As of March 31, 2022, we recorded a non-cash transaction related to the establishment of an accrued liability of $56.0 million as the best estimate of probable loss in the Keystone litigation case based on the jury verdict.
Other than the activity mentioned above and the supplemental non-cash activity related to the recognition of leases further discussed in Note 13, "Leases," there was no other significant non-cash activity during the three months ended March 31, 2022 and March 31, 2021, respectively.
Share-Based Compensation
During the first quarter of 2022 and 2021, we granted stock options, RSUs and PSUs to certain officers and other eligible employees, and recognized share-based compensation expense of $8.5 million and $8.3 million during the three months ended March 31, 2022 and March 31, 2021, respectively.
2. New Accounting Pronouncements
New Accounting Pronouncements Not Yet Adopted
In November 2021, the FASB issued authoritative guidance intended to provide consistent and transparent disclosures around government assistance by requiring disclosures of the type of government assistance, our accounting for the government assistance and the effect on our financial statements. This guidance is effective for us in our annual report for the year ended December 31, 2022. We can either adopt the amendments in this guidance prospectively or retrospectively. We are currently evaluating the impact of this guidance and do not expect it will have a material impact on our consolidated financial statements as the guidance impacts disclosures only.
New Accounting Pronouncements Recently Adopted
In March 2020, the FASB issued authoritative guidance which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships and other transactions that reference the London Interbank Offered Rate ("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 partial adoption of, and future elections under Accounting Standards 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 our accounting policies or unaudited condensed 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 financial statements.
3. Segment Reporting
Our reporting segments are based on the key geographic regions in which we operate and include the Americas and EMEA&APAC segments. Our Americas segment operates in the U.S., Canada and various countries in the Caribbean, Latin and South America and our EMEA&APAC 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 net sales for the three months ended March 31, 2022 or March 31, 2021.
Consolidated net sales represent sales to third-party external customers less excise taxes. Inter-segment transactions impacting net sales and income (loss) before income taxes eliminate upon consolidation and are primarily related to the Americas segment sales to, and royalties received from, the EMEA&APAC segment.
The following tables present net sales and income (loss) before income taxes by segment:
| Three Months Ended | |||||||||||||||||||||||
| March 31, 2022 | March 31, 2021 | ||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Americas | $ | 1,836.2 | $ | 1,692.0 | |||||||||||||||||||
| EMEA&APAC | 381.2 | 206.9 | |||||||||||||||||||||
| Inter-segment net sales eliminations | (2.8) | (0.5) | |||||||||||||||||||||
| Consolidated net sales | $ | 2,214.6 | $ | 1,898.4 |
| Three Months Ended | |||||||||||||||||||||||
| March 31, 2022 | March 31, 2021 | ||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Americas | $ | 87.1 | $ | 144.2 | |||||||||||||||||||
| EMEA&APAC | (32.2) | (89.4) | |||||||||||||||||||||
| Unallocated | 118.8 | 71.5 | |||||||||||||||||||||
| Consolidated income (loss) before income taxes | $ | 173.7 | $ | 126.3 |
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 | |||||||||||
| March 31, 2022 | December 31, 2021 | ||||||||||
| (In millions) | |||||||||||
| Americas | $ | 23,880.5 | $ | 23,653.5 | |||||||
| EMEA&APAC | 3,841.0 | 3,965.5 | |||||||||
| Consolidated total assets | $ | 27,721.5 | $ | 27,619.0 |
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. Our consolidated VIEs held $5.0 million of debt as of March 31, 2022 and none as of December 31, 2021. 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"), Brewers Distributor Ltd. ("BDL"), The Yuengling Company LLC ("TYC"), as well as other immaterial investments.
Both BRI and BDL have outstanding third party debt which is guaranteed by their respective shareholders. As a result, we had a guarantee liability of $38.7 million and $38.1 million recorded as of March 31, 2022 and December 31, 2021, respectively, which is presented within accounts payable and other current liabilities on the unaudited condensed consolidated balance sheets and represents our proportionate share of the outstanding balance of these debt instruments. The carrying value of the guarantee liability equals fair value, which considers an adjustment for our own non-performance risk and is considered a Level 2 measurement. The offset to the guarantee liability was recorded as an adjustment to our respective equity method investment within the unaudited condensed consolidated balance sheets. The resulting change in our equity method investments during the year due to movements in the guarantee represents a non-cash investing activity.
Consolidated VIEs
The following summarizes the assets and liabilities of our consolidated VIEs (including noncontrolling interests):
| As of | |||||||||||||||||||||||
| March 31, 2022 | December 31, 2021 | ||||||||||||||||||||||
| Total Assets | Total Liabilities | Total Assets | Total Liabilities | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| RMMC/RMBC | $ | 237.0 | $ | 23.0 | $ | 204.9 | $ | 19.1 | |||||||||||||||
| Other | $ | 55.8 | $ | 15.7 | $ | 70.8 | $ | 14.8 |
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 | |||||||||||||||||||||||
| March 31, 2022 | March 31, 2021 | ||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Employee-related charges | |||||||||||||||||||||||
| Restructuring | $ | 0.3 | $ | 3.6 | |||||||||||||||||||
| Impairments or asset abandonment charges | |||||||||||||||||||||||
| Americas - Asset abandonment | 0.9 | 2.9 | |||||||||||||||||||||
| Americas - Impairment losses(1) | 28.6 | — | |||||||||||||||||||||
| EMEA&APAC - Asset abandonment | 0.1 | 2.1 | |||||||||||||||||||||
| Termination fees and other (gains) losses | |||||||||||||||||||||||
| Americas | (3.2) | 0.4 | |||||||||||||||||||||
| EMEA&APAC | 0.9 | 1.9 | |||||||||||||||||||||
| Total Special items, net | $ | 27.6 | $ | 10.9 |
(1)During the three months ended March 31, 2022, we identified a triggering event related to the Truss joint venture asset group within our Americas segment and recognized an impairment loss of $28.6 million, of which $12.1 million was attributable to the noncontrolling interest. The asset group was measured at fair value primarily using a market approach with Level 3 inputs.
Restructuring Activities
As part of our revitalization plan, announced in the fourth quarter of 2019, we established Chicago, Illinois as our Americas segment operational headquarters, closed our office in Denver, Colorado and consolidated certain administrative functions into our other existing office locations. As of December 31, 2021, restructuring charges associated with this plan were substantially complete. Refer to Part II - Item 8. Financial Statements and Supplementary Data, Note 7. "Special Items" in our Annual Report for further details of our revitalization plan. In addition, our restructuring activities include other strategic exit activities such as the disposal or wind down of certain brewery locations.
There were no material changes to our restructuring activities since December 31, 2021, as reported in Part II - Item 8. Financial Statements and Supplementary Data, Note 7, "Special Items" in our Annual Report. We continually evaluate our cost structure and seek opportunities for further efficiencies and cost savings as part of ongoing and new initiatives. As such, we may incur additional restructuring related charges or adjustments to previously recorded charges in the future, however, we are unable to estimate the amount of charges at this time.
The accrued restructuring balances as of March 31, 2022 represent expected future cash payments required to satisfy our remaining obligations, the majority of which we expect to be paid in the next 12 months.
| Americas | EMEA&APAC | Total | |||||||||||||||
| (In millions) | |||||||||||||||||
| As of December 31, 2021 | $ | 10.9 | $ | 1.5 | $ | 12.4 | |||||||||||
| Charges incurred and changes in estimates | 0.3 | — | 0.3 | ||||||||||||||
| Payments made | (3.1) | (0.3) | (3.4) | ||||||||||||||
| Foreign currency and other adjustments | 0.1 | (0.1) | — | ||||||||||||||
| As of March 31, 2022 | $ | 8.2 | $ | 1.1 | $ | 9.3 |
| Americas | EMEA&APAC | Total | |||||||||||||||
| (In millions) | |||||||||||||||||
| As of December 31, 2020 | $ | 24.5 | $ | 2.0 | $ | 26.5 | |||||||||||
| Charges incurred and changes in estimates | 3.2 | 0.4 | 3.6 | ||||||||||||||
| Payments made | (10.9) | (0.4) | (11.3) | ||||||||||||||
| Foreign currency and other adjustments | 0.1 | — | 0.1 | ||||||||||||||
| As of March 31, 2021 | $ | 16.9 | $ | 2.0 | $ | 18.9 |
6. Income Tax
| Three Months Ended | |||||||||||||||||||||||
| March 31, 2022 | March 31, 2021 | ||||||||||||||||||||||
| Effective tax rate | 21 | % | 35 | % |
The decrease to the effective tax rate for the three months ended March 31, 2022 is primarily due to a decrease in net discrete tax expense. We recognized $0.9 million discrete tax benefit in the three months ended March 31, 2022 and $18.1 million net discrete tax expense in the prior year.
Our tax rate can be more or less volatile and may change with, among other things, the amount and source of pre-tax 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, could have an impact on our effective tax rate.
7. Goodwill and Intangible Assets
Goodwill
The change in the carrying amount of goodwill for the Americas segment is presented in the table below.
| Americas | |||||||||||||||||
| (In millions) | |||||||||||||||||
| Balance as of December 31, 2021 | $ | 6,152.6 | |||||||||||||||
| Foreign currency translation | 2.4 | ||||||||||||||||
| Balance as of March 31, 2022 | $ | 6,155.0 |
The gross amount of goodwill totaled approximately $8.3 billion as of March 31, 2022 and $8.4 billion as of December 31, 2021. Accumulated impairment losses totaled approximately $2.2 billion as of both March 31, 2022 and December 31, 2021. Accumulated impairment losses are comprised of impairments taken on both the EMEA&APAC and the Americas reporting units.
As of the date of our annual impairment test, performed as of October 1, 2021, the Americas reporting unit goodwill balance was considered 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, along with macro-economic risks such as the continued prolonged weakening of economic conditions and cost inflation, 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 flows analyses. For testing purposes of our reporting unit, management's best estimates of the expected future results are the primary driver in determining the fair value. The fair value is largely impacted by the continued perceived risk of realizing management's revitalization efforts and the ongoing impacts from the coronavirus pandemic. We continue to build on the strength of our iconic core brands, grow our above premium portfolio and expand beyond the beer aisle in the Americas segment. While the preliminary results of executing on these strategies are promising, including the increasing proportion of our above premium portfolio, the growth targets included in the forecasted future cash flows are inherently at risk given that the strategies are still in progress. The uncertainty around the ongoing impacts of the coronavirus pandemic including governmental or societal impositions on bars and restaurants and restrictions on public gatherings that limit many on-premise locations to operate at full capacity if at all have negatively impacted the forecasted future cash flows of the reporting unit. Lastly, cost inflation for certain inputs could put pressure on achieving key margin and cash flow projections into the future.
We determined that there was no triggering event that occurred during the first quarter of 2022 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 March 31, 2022:
| Useful life | Gross | Accumulated amortization | Net | ||||||||||||||||||||
| (Years) | (In millions) | ||||||||||||||||||||||
| Intangible assets subject to amortization | |||||||||||||||||||||||
| Brands | 10 - 50 | $ | 5,074.7 | $ | (1,315.3) | $ | 3,759.4 | ||||||||||||||||
| License agreements and distribution rights | 15 - 20 | 205.9 | (108.9) | 97.0 | |||||||||||||||||||
| Other | 3 - 40 | 98.3 | (33.3) | 65.0 | |||||||||||||||||||
| Intangible assets not subject to amortization | |||||||||||||||||||||||
| Brands | Indefinite | 8,183.8 | — | 8,183.8 | |||||||||||||||||||
| Distribution networks | Indefinite | 809.0 | — | 809.0 | |||||||||||||||||||
| Other | Indefinite | 307.6 | — | 307.6 | |||||||||||||||||||
| Total | $ | 14,679.3 | $ | (1,457.5) | $ | 13,221.8 |
The following table presents details of our intangible assets, other than goodwill, as of December 31, 2021:
| Useful life | Gross | Accumulated amortization | Net | ||||||||||||||||||||
| (Years) | (In millions) | ||||||||||||||||||||||
| Intangible assets subject to amortization: | |||||||||||||||||||||||
| Brands | 10 - 50 | $ | 5,081.8 | $ | (1,267.1) | $ | 3,814.7 | ||||||||||||||||
| License agreements and distribution rights | 15 - 20 | 206.8 | (107.2) | 99.6 | |||||||||||||||||||
| Other | 3 - 40 | 98.5 | (32.0) | 66.5 | |||||||||||||||||||
| Intangible assets not subject to amortization: | |||||||||||||||||||||||
| Brands | Indefinite | 8,197.9 | — | 8,197.9 | |||||||||||||||||||
| Distribution networks | Indefinite | 800.5 | — | 800.5 | |||||||||||||||||||
| Other | Indefinite | 307.6 | — | 307.6 | |||||||||||||||||||
| Total | $ | 14,693.1 | $ | (1,406.3) | $ | 13,286.8 |
The changes in the gross carrying amounts of intangible assets from December 31, 2021 to March 31, 2022 are primarily driven by the impact of foreign exchange rates, as a significant amount of intangible assets are denominated in foreign currencies.
Based on foreign exchange rates as of March 31, 2022, the estimated future amortization expense of intangible assets is as follows:
| Fiscal year | Amount | |||||||
| (In millions) | ||||||||
| 2022 - remaining | $ | 157.9 | ||||||
| 2023 | $ | 209.8 | ||||||
| 2024 | $ | 208.5 | ||||||
| 2025 | $ | 208.4 | ||||||
| 2026 | $ | 189.9 |
Amortization expense of intangible assets was $53.3 million and $54.5 million for the three months ended March 31, 2022 and March 31, 2021, respectively. This expense is primarily presented within marketing, general and administrative expenses in our 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, 2021, the fair value of all indefinite-lived brands were all sufficiently in excess of their respective carrying values.
No triggering events occurred during the first quarter of 2022 that would indicate the carrying value of these indefinite-lived assets was greater than their fair value.
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
While historical performance and current expectations have resulted in fair values of our Americas reporting unit 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 charge may need to be recorded in the future.
8. Debt
Debt Obligations
| As of | |||||||||||
| March 31, 2022 | December 31, 2021 | ||||||||||
| (In millions) | |||||||||||
| Long-term debt | |||||||||||
| CAD 500 million 2.84% notes due July 2023 | $ | 399.8 | $ | 395.7 | |||||||
| CAD 500 million 3.44% notes due July 2026 | 399.8 | 395.7 | |||||||||
| $500 million 3.5% notes due May 2022(1) | 500.2 | 500.9 | |||||||||
| $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 | 885.4 | 909.6 | |||||||||
| Finance leases | 67.2 | 67.2 | |||||||||
| Other | 29.5 | 30.7 | |||||||||
| Less: unamortized debt discounts and debt issuance costs | (43.1) | (44.6) | |||||||||
| Total long-term debt (including current portion) | 7,138.8 | 7,155.2 | |||||||||
| Less: current portion of long-term debt | (507.3) | (508.0) | |||||||||
| Total long-term debt | $ | 6,631.5 | $ | 6,647.2 | |||||||
| Short-term borrowings | |||||||||||
| Commercial paper programs(2) | $ | 160.0 | $ | — | |||||||
| Short-term borrowings(3) | 14.6 | 6.9 | |||||||||
| Current portion of long-term debt | 507.3 | 508.0 | |||||||||
| Current portion of long-term debt and short-term borrowings | $ | 681.9 | $ | 514.9 |
(1)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 notes were $0.2 million and $0.9 million as of March 31, 2022 and December 31, 2021, respectively. The balance as of March 31, 2022 and December 31, 2021 was included within the current portion of long-term debt and short-term borrowings of the unaudited condensed consolidated balance sheet. We repaid our $500 million 3.5% USD notes upon maturity on May 1, 2022 using a combination of commercial paper borrowings and cash on hand.
(2)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 March 31, 2022, the outstanding borrowings under the commercial paper program had a weighted-average effective interest rate and tenor of 0.98% and 10 days, respectively. We had no borrowings drawn on this revolving credit facility and no commercial paper borrowings as of December 31, 2021.
Subsequent to March 31, 2022, we had additional commercial paper borrowings that resulted in commercial paper outstanding of approximately $500 million as of May 3, 2022. As such, we have approximately $1.0 billion available to draw on our total $1.5 billion revolving credit facility.
(3)Our short-term borrowings include bank overdrafts, borrowings on our overdraft facilities and other items.
As of March 31, 2022, we had $9.6 million in bank overdrafts and $66.9 million in bank cash related to our cross-border, cross-currency cash pool for a net positive position of $57.3 million. As of December 31, 2021, we had $3.0 million in bank overdrafts and $123.1 million in bank cash related to our cross-border, cross-currency cash pool for a net positive position of $120.1 million.
The JPY facilities were early terminated as of March 31, 2022 and we had no outstanding borrowings as of March 31, 2022. As of December 31, 2021 we had $3.9 million of outstanding borrowings under our JPY facilities. In addition, we have CAD, GBP and USD overdraft facilities under which we had no outstanding borrowings as of March 31, 2022 or December 31, 2021. A summary of our short-term facility availability is presented below. See further detail within Part II
—Item 8 Financial Statements, Note 18, "Commitments and Contingencies" in our Annual Report for further discussion related to letters of credit.
Debt Fair Value Measurements
We utilize market approaches to estimate the fair value of certain outstanding borrowings by discounting anticipated future cash flows derived from the contractual terms of the obligations and observable market interest and foreign exchange rates. As of March 31, 2022 and December 31, 2021, the fair value of our outstanding long-term debt (including current portion of long-term debt) was approximately $7.1 billion and $7.7 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 of March 31, 2022 is 4.00x net debt to EBITDA (as defined in the revolving credit facility agreement), through maturity of the credit facility. As of March 31, 2022, we were in compliance with all of these restrictions and have met all debt payment obligations. All of our outstanding senior notes as of March 31, 2022 rank pari-passu.
9. Inventories
| As of | |||||||||||
| March 31, 2022 | December 31, 2021 | ||||||||||
| (In millions) | |||||||||||
| Finished goods | $ | 423.3 | $ | 351.5 | |||||||
| Work in process | 72.9 | 71.8 | |||||||||
| Raw materials | 259.4 | 271.2 | |||||||||
| Packaging materials | 180.2 | 110.2 | |||||||||
| Inventories, net | $ | 935.8 | $ | 804.7 |
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, 2021 | $ | (558.7) | $ | (131.0) | $ | (275.1) | $ | (41.2) | $ | (1,006.0) | |||||||||||||||||||
| Foreign currency translation adjustments | (30.3) | — | — | — | (30.3) | ||||||||||||||||||||||||
| Reclassification of cumulative translation adjustment to income (loss)(1) | 12.1 | — | — | — | 12.1 | ||||||||||||||||||||||||
| Gain (loss) on net investment hedges | 24.2 | — | — | — | 24.2 | ||||||||||||||||||||||||
| Unrealized gain (loss) on derivative instruments | — | 78.8 | — | — | 78.8 | ||||||||||||||||||||||||
| Reclassification of derivative (gain) loss to income (loss) | — | 1.0 | — | — | 1.0 | ||||||||||||||||||||||||
| Amortization of net prior service (benefit) cost and net actuarial (gain) loss to income (loss) | — | — | (1.2) | — | (1.2) | ||||||||||||||||||||||||
| Ownership share of unconsolidated subsidiaries' other comprehensive income (loss) | — | — | — | 0.3 | 0.3 | ||||||||||||||||||||||||
| Tax benefit (expense) | (3.7) | (25.0) | 0.3 | (0.1) | (28.5) | ||||||||||||||||||||||||
| As of March 31, 2022 | $ | (556.4) | $ | (76.2) | $ | (276.0) | $ | (41.0) | $ | (949.6) |
(1)As a result of the sale of our non-operating India entity, the associated cumulative foreign currency translation adjustment was reclassified from AOCI. The impact of the cumulative foreign currency translation adjustment was recorded in special items, net, as a component of the loss on sale when the entity was classified as held for sale during the fourth quarter of 2021.
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 quarter of 2022. 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, 2021.
Forward Starting Interest Rate Swaps
In late April 2022, the forward starting interest rate swaps associated with the $500 million 3.5% notes that we repaid upon maturity on May 1, 2022 were terminated and settled. The immaterial loss on settlement of the swaps will be recorded through interest expense during the second quarter of 2022.
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 table below summarizes our derivative assets and liabilities that were measured at fair value as of March 31, 2022 and December 31, 2021.
| Fair value measurements as of March 31, 2022 | |||||||||||||||||||||||
| As of March 31, 2022 | Quoted prices in active markets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Interest rate swaps | (90.5) | — | (90.5) | — | |||||||||||||||||||
| Foreign currency forwards | (2.9) | — | (2.9) | — | |||||||||||||||||||
| Commodity swaps and options | 470.7 | — | 470.7 | — | |||||||||||||||||||
| Total | $ | 377.3 | $ | — | $ | 377.3 | $ | — |
| Fair value measurements as of December 31, 2021 | |||||||||||||||||||||||
| As of December 31, 2021 | Quoted prices in active markets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Interest rate swaps | (170.8) | — | (170.8) | — | |||||||||||||||||||
| Foreign currency forwards | (1.5) | — | (1.5) | — | |||||||||||||||||||
| Commodity swaps and options | 300.9 | — | 300.9 | — | |||||||||||||||||||
| Total | $ | 128.6 | $ | — | $ | 128.6 | $ | — |
As of March 31, 2022 and December 31, 2021, we had no significant transfers between Level 1 and Level 2. New derivative contracts transacted during the three months ended March 31, 2022 were all included in Level 2.
Results of Period Derivative Activity
The tables below include the results of our derivative activity in our unaudited condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021, and our unaudited condensed consolidated statements of operations for the three months ended March 31, 2022 and March 31, 2021.
Fair Value of Derivative Instruments in the Unaudited Condensed Consolidated Balance Sheets (in millions):
| As of March 31, 2022 | |||||||||||||||||||||||||||||
| 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 | $ | (29.6) | |||||||||||||||||||||
| Other non-current assets | — | Other liabilities | (60.9) | ||||||||||||||||||||||||||
| Foreign currency forwards | $ | 201.7 | Other current assets | 0.3 | Accounts payable and other current liabilities | (2.8) | |||||||||||||||||||||||
| Other non-current assets | 0.1 | Other liabilities | (0.5) | ||||||||||||||||||||||||||
| Total derivatives designated as hedging instruments | $ | 0.4 | $ | (93.8) | |||||||||||||||||||||||||
| Derivatives not designated as hedging instruments: | |||||||||||||||||||||||||||||
| Commodity swaps(1) | $ | 736.3 | Other current assets | $ | 370.7 | Accounts payable and other current liabilities | $ | (12.7) | |||||||||||||||||||||
| Other non-current assets | 112.8 | Other liabilities | (0.2) | ||||||||||||||||||||||||||
| Commodity options(1) | $ | 68.2 | Other current assets | 0.5 | Accounts payable and other current liabilities | (0.4) | |||||||||||||||||||||||
| Total derivatives not designated as hedging instruments | $ | 484.0 | $ | (13.3) |
| As of December 31, 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 | $ | (67.7) | |||||||||||||||||||||
| Other non-current assets | — | Other liabilities | (103.1) | ||||||||||||||||||||||||||
| Foreign currency forwards | $ | 170.8 | Other current assets | 0.5 | Accounts payable and other current liabilities | (2.4) | |||||||||||||||||||||||
| Other non-current assets | 0.6 | Other liabilities | (0.2) | ||||||||||||||||||||||||||
| Total derivatives designated as hedging instruments | $ | 1.1 | $ | (173.4) | |||||||||||||||||||||||||
| Derivatives not designated as hedging instruments: | |||||||||||||||||||||||||||||
| Commodity swaps(1) | $ | 722.1 | Other current assets | $ | 225.1 | Accounts payable and other current liabilities | $ | (1.1) | |||||||||||||||||||||
| Other non-current assets | 77.1 | Other liabilities | (0.3) | ||||||||||||||||||||||||||
| Commodity options(1) | $ | 68.2 | Other current assets | 1.0 | Accounts payable and other current liabilities | (0.9) | |||||||||||||||||||||||
| Total derivatives not designated as hedging instruments | $ | 303.2 | $ | (2.3) |
(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 March 31, 2022 | ||||||||||||||||||||
| Forward starting interest rate swaps | $ | 80.3 | Interest income (expense), net | $ | (0.8) | |||||||||||||||
| Foreign currency forwards | (1.5) | Cost of goods sold | (0.3) | |||||||||||||||||
| Other income (expense), net | 0.1 | |||||||||||||||||||
| Total | $ | 78.8 | $ | (1.0) | ||||||||||||||||
| Three Months Ended March 31, 2021 | ||||||||||||||||||||
| Forward starting interest rate swaps | $ | 139.1 | Interest income (expense), net | $ | (0.8) | |||||||||||||||
| Foreign currency forwards | (1.9) | Cost of goods sold | (0.9) | |||||||||||||||||
| Other income (expense), net | 0.1 | |||||||||||||||||||
| Total | $ | 137.2 | $ | (1.6) |
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 March 31, 2022 | ||||||||||||||||||||
| EUR 800 million notes due 2024 | 24.2 | Other income (expense), net | — | |||||||||||||||||
| Total | $ | 24.2 | $ | — | ||||||||||||||||
| Three Months Ended March 31, 2021 | ||||||||||||||||||||
| Cross currency swaps | 15.2 | Interest income (expense), net | 2.9 | |||||||||||||||||
| EUR 800 million notes due 2024 | 38.9 | Other income (expense), net | — | |||||||||||||||||
| Total | $ | 54.1 | $ | 2.9 | ||||||||||||||||
(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 months ended March 31, 2022 and March 31, 2021, respectively, we did not reclassify any amounts related to net investment hedges from AOCI into earnings.
As of March 31, 2022, we expect our reclassification of AOCI into earnings related to cash flow hedges to be approximately $6 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 March 31, 2022 is approximately 4 years, as well as those related to our remaining forecasted debt issuances in 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 March 31, 2022 | ||||||||||||||
| Commodity swaps | Cost of goods sold | 238.6 | ||||||||||||
| Total | $ | 238.6 | ||||||||||||
| Three Months Ended March 31, 2021 | ||||||||||||||
| Commodity swaps | Cost of goods sold | 127.9 | ||||||||||||
| Warrants | Other income (expense), net | 0.3 | ||||||||||||
| Total | $ | 128.2 |
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 $65.8 million and $11.3 million as of March 31, 2022 and December 31, 2021, 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. For all matters other than discussed individually below, we believe that any reasonably possible losses in excess of the amounts accrued are immaterial to our unaudited condensed consolidated 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 quarter of 2022, 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"), a wholly owned subsidiary of our Company, 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 sought treble damages and disgorgement 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 began on March 7, 2022. The jury returned a verdict in which it concluded that trademark infringement had occurred and awarded Stone Brewing Company $56.0 million in damages. The jury also found that no "willful" trademark infringement had occurred. The parties are currently briefing a series of post-trial issues including certain unsubmitted MCBC USA defenses. Resolution of the remaining defenses and other post-trial issues could alter or nullify the jury verdict. Stone Brewing Company also filed a motion for a permanent injunction, which MCBC USA plans to oppose. At the conclusion of these issues, either or both parties could appeal the case to the applicable federal appellate court. As of March 31, 2022, the Company has accrued a liability of $56.0 million within other liabilities on our unaudited condensed consolidated balance sheet as the best estimate of probable loss in this case based on the jury verdict. However, it is reasonably possible that the estimate of the loss could change in the near term based on the progression of the case, including any potential impact of the resolution of remaining defenses and other post-trial issues on the jury verdict as well as any appeals process. We will continue to monitor the status of the case and will adjust the accrual in the period in which any significant change occurs which could impact the estimate of the loss for this matter.
Regulatory Contingencies
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 our 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 Americas 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 March 31, 2022 and December 31, 2021, the unaudited condensed consolidated balance sheets include liabilities related to these guarantees of $38.7 million and $38.1 million, respectively. See Note 4, "Investments" for further detail.
Separately, related to our Cervejarias Kaiser Brasil S.A. ("Kaiser") indemnities, we accrued $12.0 million and $7.2 million, in aggregate, as of March 31, 2022 and December 31, 2021, respectively. The maximum potential claims amount remaining for the Kaiser-related purchased tax credits was $73.8 million, based on foreign exchange rates as of March 31, 2022. 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 quarter of 2022.
13. Leases
Supplemental balance sheet information related to leases as of March 31, 2022 and December 31, 2021 was as follows:
| As of | ||||||||||||||
| March 31, 2022 | December 31, 2021 | |||||||||||||
| Balance Sheet Classification | (In millions) | |||||||||||||
| Operating Leases | ||||||||||||||
| Operating lease right-of-use assets | Other assets | $ | 116.0 | $ | 119.1 | |||||||||
| Current operating lease liabilities | Accounts payable and other current liabilities | $ | 44.6 | $ | 45.4 | |||||||||
| Non-current operating lease liabilities | Other liabilities | 84.7 | 87.8 | |||||||||||
| Total operating lease liabilities | $ | 129.3 | $ | 133.2 | ||||||||||
| Finance Leases | ||||||||||||||
| Finance lease right-of-use assets | Properties, net | $ | 55.6 | $ | 61.5 | |||||||||
| Current finance lease liabilities | Current portion of long-term debt and short-term borrowings | $ | 4.9 | $ | 4.6 | |||||||||
| Non-current finance lease liabilities | Long-term debt | 62.3 | 62.6 | |||||||||||
| Total finance lease liabilities | $ | 67.2 | $ | 67.2 |
Supplemental cash flow information related to leases for the three months ended March 31, 2022 and March 31, 2021 was as follows:
| Three Months Ended | |||||||||||
| March 31, 2022 | March 31, 2021 | ||||||||||
| (In millions) | |||||||||||
| Cash paid for amounts included in the measurements of lease liabilities | |||||||||||
| Operating cash flows from operating leases | $ | 12.8 | $ | 13.4 | |||||||
| Operating cash flows from finance leases | $ | 0.9 | $ | 1.4 | |||||||
| Financing cash flows from finance leases | $ | 0.8 | $ | 0.5 | |||||||
| Supplemental non-cash information on right-of-use assets obtained in exchange for new lease liabilities | |||||||||||
| Operating leases | $ | 8.8 | $ | 7.8 | |||||||
| Finance leases | $ | 1.9 | $ | 1.5 |
Executed leases that have not yet commenced as of March 31, 2022 are immaterial except for railcar leases with total undiscounted payments of $47.1 million expected to commence in 2022.
Previous: Cover and table of contents · Next: Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS