MOLSON COORS BEVERAGE CO - Quarter Report: 2014 June (Form 10-Q)

Large accelerated filer ý

Accelerated filer o

Non-accelerated filer o

Smaller reporting company o

(Do not check if a smaller reporting company)

Use these links to rapidly review the document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________________________________________________

FORM 10-Q



(Mark One)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended June 30, 2014
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______ .

Commission File Number: 1-14829

Molson Coors Brewing Company

(Exact name of registrant as specified in its charter)



DELAWARE (State or other jurisdiction of incorporation or organization)		84-0178360 (I.R.S. Employer Identification No.)
1225 17th Street, Denver, Colorado, USA 1555 Notre Dame Street East, Montréal, Québec, Canada (Address of principal executive offices)		80202 H2L 2R5 (Zip Code)

303-927-2337 (Colorado)

514-521-1786 (Québec)

(Registrant's telephone number, including area code)

_______________________________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of August 1, 2014:

Class A Common Stock— 2,556,894 shares

Class B Common Stock—160,798,376 shares

Exchangeable shares:

As of August 1, 2014, the following number of exchangeable shares were outstanding for Molson Coors Canada, Inc.:

Class A Exchangeable shares—2,896,939 shares

Class B Exchangeable shares—18,846,136 shares

These Class A and Class B exchangeable shares offer substantially the same economic and voting rights as the respective classes of common shares of the registrant. This is achieved via the following structure: The registrant has outstanding one share each of special Class A and Class B voting stock, through which the holders of Class A exchangeable shares and Class B exchangeable shares of Molson Coors Canada Inc. (a subsidiary of the registrant), respectively, may exercise their voting rights with respect to the registrant. The special Class A and Class B voting stock are entitled to one vote for each of the exchangeable shares, respectively, excluding shares held by the registrant or its subsidiaries, and generally vote together with the Class A common stock and Class B common stock, respectively, on all matters on which the Class A common stock and Class B common stock are entitled to vote. The trustee holder of the special Class A voting stock and the special Class B voting stock has the right to cast a number of votes equal to the number of then outstanding Class A exchangeable shares and Class B exchangeable shares, respectively.

Table of Contents

MOLSON COORS BREWING COMPANY AND SUBSIDIARIES

INDEX



		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	4
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2014, and June 29, 2013	4
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2014, and June 29, 2013	5
	Condensed Consolidated Balance Sheets at June 30, 2014, and December 31, 2013	6
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2014, and June 29, 2013	7
	Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	45
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	68
Item 4.	Controls and Procedures	69
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	69
Item 1A.	Risk Factors	70
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	70
Item 3.	Defaults Upon Senior Securities	70
Item 4.	Mine Safety Disclosures	70
Item 5.	Other Information	70
Item 6.	Exhibits	71

Cautionary Statement Pursuant to Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). From time to time, we may also provide oral or written forward-looking statements in other materials we release to the public. Such forward-looking statements are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995.

Statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements, and include, but are not limited to, statements under the headings "Management's Discussion and Analysis of Financial Condition and Results of Operations," and under the heading "Outlook for 2014" therein, relating to overall volume trends, consumer preferences, pricing trends, industry forces, cost reduction strategies, anticipated results, anticipated synergies, expectations for funding future capital expenditures and operations, debt service capabilities, shipment levels and profitability, market share and the sufficiency of capital resources. In addition, statements that we make in this report that are not statements of historical fact may also be forward-looking statements. Words such as "expects," "goals," "plans," "believes," "continues," "may," "anticipate," "seek," "estimate," "outlook," "trends," "future benefits," "potential," "projects," "strategies," and variations of such words and similar expressions are intended to identify forward-looking statements.

Forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those indicated (both favorably and unfavorably). These risks and uncertainties include, but are not limited to those described under the heading "Risk Factors," elsewhere throughout this report, and those described from time to time in our past and future reports filed with the Securities and Exchange Commission, including in our Annual Report on Form 10-K for the year ended December 31, 2013. Caution should be taken not to place undue reliance on any such forward-looking statements. Forward-looking statements speak only as of the date when made and we undertake no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise.

Market and Industry Data

The market and industry data used in this Quarterly Report on Form 10-Q are based on independent industry publications, customers, trade or business organizations, reports by market research firms and other published statistical information from third parties, as well as information based on management’s good faith estimates, which we derive from our review of internal information and independent sources. Although we believe these sources to be reliable, we have not independently verified the accuracy or completeness of the information.

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MOLSON COORS BREWING COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN MILLIONS, EXCEPT PER SHARE DATA)

(UNAUDITED)



	Three Months Ended						Six Months Ended
	June 30, 2014			June 29, 2013			June 30, 2014			June 29, 2013
Sales	$	1,685.9		$	1,659.7		$	2,864.2		$	2,844.5
Excise taxes	(497.4		)	(481.7		)	(859.7		)	(838.0		)
Net sales	1,188.5			1,178.0			2,004.5			2,006.5
Cost of goods sold	(683.3		)	(684.1		)	(1,206.5		)	(1,231.2		)
Gross profit	505.2			493.9			798.0			775.3
Marketing, general and administrative expenses	(327.8		)	(319.5		)	(591.7		)	(613.4		)
Special items, net	(2.7		)	(1.3		)	49.8			(2.8		)
Equity income in MillerCoors	190.1			172.6			312.9			290.0
Operating income (loss)	364.8			345.7			569.0			449.1
Interest income (expense), net	(36.2		)	(41.2		)	(71.6		)	(116.1		)
Other income (expense), net	0.7			(7.3		)	1.5			(3.0		)
Income (loss) from continuing operations before income taxes	329.3			297.2			498.9			330.0
Income tax benefit (expense)	(36.4		)	(30.0		)	(41.2		)	(32.0		)
Net income (loss) from continuing operations	292.9			267.2			457.7			298.0
Income (loss) from discontinued operations, net of tax	0.2			1.7			(1.7		)	0.8
Net income (loss) including noncontrolling interests	293.1			268.9			456.0			298.8
Net (income) loss attributable to noncontrolling interests	(2.2		)	(1.6		)	(1.7		)	(3.0		)
Net income (loss) attributable to Molson Coors Brewing Company	$	290.9		$	267.3		$	454.3		$	295.8
Basic net income (loss) attributable to Molson Coors Brewing Company per share:
From continuing operations	$	1.57		$	1.45		$	2.47		$	1.62
From discontinued operations	—			0.01			(0.01		)	—
Basic net income (loss) attributable to Molson Coors Brewing Company per share	$	1.57		$	1.46		$	2.46		$	1.62
Diluted net income (loss) attributable to Molson Coors Brewing Company per share:
From continuing operations	$	1.56		$	1.44		$	2.46		$	1.61
From discontinued operations	—			0.01			(0.01		)	—
Diluted net income (loss) attributable to Molson Coors Brewing Company per share	$	1.56		$	1.45		$	2.45		$	1.61
Weighted-average shares—basic	184.8			182.9			184.5			182.3
Weighted-average shares—diluted	185.9			184.1			185.7			183.5
Amounts attributable to Molson Coors Brewing Company
Net income (loss) from continuing operations	$	290.7		$	265.6		$	456.0		$	295.0
Income (loss) from discontinued operations, net of tax	0.2			1.7			(1.7		)	0.8
Net income (loss) attributable to Molson Coors Brewing Company	$	290.9		$	267.3		$	454.3		$	295.8

See notes to unaudited condensed consolidated financial statements.

Table of Contents

MOLSON COORS BREWING COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(IN MILLIONS)

(UNAUDITED)



	Three Months Ended						Six Months Ended
	June 30, 2014			June 29, 2013			June 30, 2014			June 29, 2013
Net income (loss) including noncontrolling interests	$	293.1		$	268.9		$	456.0		$	298.8
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	160.1			(113.6		)	(21.9		)	(394.3		)
Unrealized gain (loss) on derivative instruments	(10.6		)	19.6			3.9			32.7
Reclassification of derivative (gain) loss to income	(2.4		)	(0.8		)	(5.6		)	(0.7		)
Pension and other postretirement benefit adjustments	—			(2.4		)	—			—
Amortization of net prior service (benefit) cost and net actuarial (gain) loss to income	7.8			13.3			15.4			23.9
Ownership share of unconsolidated subsidiaries' other comprehensive income (loss)	7.6			(2.8		)	9.2			(9.5		)
Total other comprehensive income (loss), net of tax	162.5			(86.7		)	1.0			(347.9		)
Comprehensive income (loss)	455.6			182.2			457.0			(49.1		)
Comprehensive (income) loss attributable to noncontrolling interests	(2.2		)	(1.6		)	(1.7		)	(3.0		)
Comprehensive income (loss) attributable to Molson Coors Brewing Company	$	453.4		$	180.6		$	455.3		$	(52.1	)

See notes to unaudited condensed consolidated financial statements.

Table of Contents

MOLSON COORS BREWING COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN MILLIONS, EXCEPT PAR VALUE) (UNAUDITED)

	As of
	June 30, 2014			December 31, 2013
Assets
Current assets:
Cash and cash equivalents	$	506.0		$	442.3
Accounts receivable, net	730.9			603.6
Other receivables, net	141.5			124.4
Inventories:
Finished	189.0			133.2
In process	28.2			23.3
Raw materials	42.4			36.9
Packaging materials	17.7			11.9
Total inventories	277.3			205.3
Other current assets, net	119.3			111.7
Deferred tax assets	25.3			50.4
Total current assets	1,800.3			1,537.7
Properties, net	1,974.0			1,970.1
Goodwill	2,440.7			2,418.7
Other intangibles, net	6,777.2			6,825.1
Investment in MillerCoors	2,598.6			2,506.5
Deferred tax assets	16.5			38.3
Notes receivable, net	23.9			23.6
Other assets	241.8			260.1
Total assets	$	15,873.0		$	15,580.1
Liabilities and equity
Current liabilities:
Accounts payable and other current liabilities	$	1,514.7		$	1,429.6
Deferred tax liabilities	138.1			138.1
Current portion of long-term debt and short-term borrowings	451.6			586.9
Discontinued operations	7.3			6.8
Total current liabilities	2,111.7			2,161.4
Long-term debt	3,208.6			3,213.0
Pension and postretirement benefits	443.3			462.6
Deferred tax liabilities	977.4			911.4
Unrecognized tax benefits	61.7			107.1
Other liabilities	66.7			77.2
Discontinued operations	18.5			17.3
Total liabilities	6,887.9			6,950.0
Commitments and contingencies (Note 15)
Molson Coors Brewing Company stockholders' equity
Capital stock:
Preferred stock, no par value (authorized: 25.0 shares; none issued)	—			—
Class A common stock, $0.01 par value per share (authorized: 500.0 shares; issued and outstanding: 2.6 shares and 2.6 shares, respectively)	—			—
Class B common stock, $0.01 par value per share (authorized: 500.0 shares; issued: 168.2 shares and 167.2 shares, respectively)	1.7			1.7
Class A exchangeable shares, no par value (issued and outstanding: 2.9 shares and 2.9 shares, respectively)	108.5			108.5
Class B exchangeable shares, no par value (issued and outstanding: 18.8 shares and 19.0 shares, respectively)	709.6			714.1
Paid-in capital	3,790.3			3,747.6
Retained earnings	4,517.1			4,199.5
Accumulated other comprehensive income (loss)	155.9			154.9
Class B common stock held in treasury at cost (7.5 shares and 7.5 shares, respectively)	(321.1		)	(321.1		)
Total Molson Coors Brewing Company stockholders' equity	8,962.0			8,605.2
Noncontrolling interests	23.1			24.9
Total equity	8,985.1			8,630.1
Total liabilities and equity	$	15,873.0		$	15,580.1

See notes to unaudited condensed consolidated financial statements.

Table of Contents

MOLSON COORS BREWING COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN MILLIONS)

(UNAUDITED)



	Six Months Ended
	June 30, 2014			June 29, 2013
Cash flows from operating activities:
Net income (loss) including noncontrolling interests	$	456.0		$	298.8
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	158.4			160.9
Amortization of debt issuance costs and discounts	4.2			14.2
Share-based compensation	12.1			15.4
Loss (gain) on sale or impairment of properties and other assets, net	3.0			6.3
Deferred income taxes	9.8			13.1
Equity income in MillerCoors	(312.9		)	(290.0		)
Distributions from MillerCoors	312.9			290.0
Equity in net income of other unconsolidated affiliates	(2.7		)	(7.8		)
Distributions from other unconsolidated affiliates	11.1			13.0
Excess tax benefits from share-based compensation	(3.2		)	(5.4		)
Unrealized (gain) loss on foreign currency fluctuations and derivative instruments, net	(3.2		)	28.9
Change in current assets and liabilities and other	(71.2		)	54.4
(Gain) loss from discontinued operations	1.7			(0.8		)
Net cash provided by operating activities	576.0			591.0
Cash flows from investing activities:
Additions to properties	(126.4		)	(149.7		)
Proceeds from sales of properties and other assets	4.1			4.9
Proceeds from sale of business	—			2.0
Investment in MillerCoors	(764.4		)	(615.3		)
Return of capital from MillerCoors	691.9			515.2
Investment in and advances to an unconsolidated affiliate	—			(2.8		)
Loan repayments	4.0			4.5
Loan advances	(3.3		)	(3.7		)
Net cash used in investing activities	(194.1		)	(244.9		)
Cash flows from financing activities:
Exercise of stock options under equity compensation plans	27.7			63.1
Excess tax benefits from share-based compensation	3.2			5.4
Dividends paid	(136.7		)	(116.8		)
Dividends paid to noncontrolling interests holders	(2.4		)	(1.2		)
Payments for purchase of noncontrolling interest	(0.4		)	(0.2		)
Debt issuance costs	(1.8		)	(0.2		)
Payments on long-term debt and capital lease obligations	(62.2		)	(52.4		)
Proceeds from short-term borrowings	20.9			9.3
Payments on short-term borrowings	(23.3		)	(15.1		)
Payments on settlement of derivative instruments	(65.2		)	(35.1		)
Net proceeds from (payments on) revolving credit facilities and commercial paper	(214.3		)	(2.9		)
Change in overdraft balances and other	131.4			2.0
Net cash used in financing activities	(323.1		)	(144.1		)
Cash and cash equivalents:
Net increase (decrease) in cash and cash equivalents	58.8			202.0
Effect of foreign exchange rate changes on cash and cash equivalents	4.9			(24.4		)
Balance at beginning of year	442.3			624.0
Balance at end of period	$	506.0		$	801.6

See notes to unaudited condensed consolidated financial statements.

Table of Contents

MOLSON COORS BREWING 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 Brewing Company ("MCBC" or the "Company"), principally a holding company, and its operating and non-operating subsidiaries included within our reporting segments and Corporate. Our reporting segments include: Molson Coors Canada ("MCC" or Canada segment), operating in Canada; MillerCoors LLC ("MillerCoors" or U.S. segment), which is accounted for by us under the equity method of accounting, operating in the United States ("U.S."); Molson Coors Europe (Europe segment), operating in Bosnia-Herzegovina, Bulgaria, Croatia, Czech Republic, Hungary, Montenegro, Republic of Ireland, Romania, Serbia, Slovakia and the United Kingdom ("U.K."); and Molson Coors International ("MCI"), operating in various other countries.

References to Central Europe reflect our operations in Bosnia-Herzegovina, Bulgaria, Croatia, Czech Republic, Hungary, Montenegro, Romania, Serbia and Slovakia, as a result of our acquisition (the "Acquisition") of StarBev Holdings S.à r.l. ("StarBev") from StarBev L.P. (the "Seller") on June 15, 2012, and the results of these operations are included within our Europe segment.

Unless otherwise indicated, information in this report is presented in U.S. dollars ("USD" or "$") and comparisons are to comparable prior periods as noted below.

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 accounting principles generally accepted in the United States of America ("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, 2013 ("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 ("Notes") included in our Annual Report. Our accounting policies did not change in the first half of 2014, with the exception of a change to our policy for recognizing advertising expenses in interim periods as discussed below. Additionally, in order to provide further clarity around our policy regarding the classification of special items in the unaudited condensed consolidated statements of operations, we have expanded our related disclosure as reflected below.

Special Items

Our special items represent charges incurred or benefits realized that either we do not believe to be indicative of our core operations, or we believe are significant to our current operating results warranting separate classification; specifically, such items are considered to be one of the following:

•infrequent or unusual items,

•impairment or asset abandonment-related losses,

•restructuring charges and other atypical employee-related costs, or

•fees on termination of significant operating agreements and gains (losses) on disposal of investments.

The items classified as special items are not necessarily non-recurring, however, they are deemed to be incremental to income earned or costs incurred by the Company in conducting normal operations, and therefore are presented separately from other components of operating income.

Our Fiscal Year

On November 14, 2013, our Board of Directors approved a resolution to change MCBC's fiscal year from a 52/53 week fiscal year to a calendar year. As such, our 2013 fiscal year was extended from December 28, 2013, to December 31, 2013, with subsequent fiscal years beginning on January 1 and ending on December 31 of each year. Beginning January 1, 2014, quarterly results reflect the three month periods ending March 31, June 30, September 30, and December 31. This change aligned our fiscal year and interim reporting periods with our Central Europe business and MillerCoors, which were already following a monthly fiscal reporting calendar. Unless otherwise indicated, and with the exception of the Central Europe business and MillerCoors, the second quarter of 2013 and the three months ended June 29, 2013, refer to the thirteen weeks ended June 29, 2013. The first half of 2013 and the six months ended June 29, 2013, refer to the twenty-six weeks ended June 29, 2013. The

Table of Contents

second quarter and first half of 2014 refer to the three and six months ended June 30, 2014, respectively. Fiscal year 2014 refers to the 12 months ending December 31, 2014, and fiscal year 2013 refers to the period from December 30, 2012, to December 31, 2013. The impact of the additional days in fiscal year 2013 is immaterial to the unaudited condensed consolidated financial statements.

The results of operations for the three and six months ended June 30, 2014, are not necessarily indicative of the results that may be achieved for the full fiscal year.

Change in Interim Period Accounting for Advertising Expenses

In previous years' interim periods, including the quarterly periods within fiscal year 2013, we recognized advertising costs in expense during the fiscal year based on the proportion of sales volumes for the interim period in relation to the estimated annual sales volumes. U.S. GAAP permits the allocation of advertising costs across interim periods within a fiscal year when future periods benefit from the expenditure. Advertising expenses were not deferred from one fiscal year to the next. Effective beginning the first quarter of fiscal year 2014, we changed our method of accounting for advertising expenses for interim periods such that advertising expense is now recognized as incurred. We adopted this change as a result of management’s belief that the new method is preferable and results in a more objective measure of quarterly expense that will better support planning and resource allocation decisions by management, results in improved financial statements for investor analysis, and further aligns our treatment with that of our U.S. operations within MillerCoors. The new policy of expensing advertising costs as incurred additionally eliminates the uncertainty in estimating overall expected sales volumes, advertising expenses, and the benefit period of the advertising on an interim basis, and conforms our interim accounting policy with that used to prepare the annual financial statements. The change has been applied retrospectively to all prior interim periods presented. The quarterly impact of the change in accounting policy on marketing, general and administrative expenses and the associated impact on income tax expense, as well as the impact to certain subtotals and diluted earnings per share within our unaudited condensed consolidated statement of operations, is as follows:



	Three Months Ended March 30, 2013						Three Months Ended June 29, 2013						Three Months Ended September 28, 2013						Three Months Ended December 31, 2013
	As Reported			As Adjusted			As Reported			As Adjusted			As Reported			As Adjusted			As Reported			As Adjusted
	(In millions)
Marketing, general and administrative expenses	$	(285.3	)	$	(293.9	)	$	(304.3	)	$	(319.5	)	$	(307.8	)	$	(290.8	)	$	(296.4	)	$	(289.6	)
Income (loss) from continuing operations before income taxes	$	41.4		$	32.8		$	312.4		$	297.2		$	155.4		$	172.4		$	145.3		$	152.1
Income tax benefit (expense)	$	(3.5	)	$	(2.0	)	$	(34.1	)	$	(30.0	)	$	(32.7	)	$	(37.2	)	$	(13.7	)	$	(14.8	)
Net income (loss) attributable to Molson Coors Brewing Company	$	35.6		$	28.5		$	278.4		$	267.3		$	121.8		$	134.3		$	131.5		$	137.2
Diluted net income (loss) attributable to Molson Coors Brewing Company per share	$	0.20		$	0.16		$	1.51		$	1.45		$	0.66		$	0.73		$	0.71		$	0.74

As noted above, under our historical treatment, advertising expenses were not deferred from one fiscal year to the next. Therefore, the change in interim accounting had no impact on full year consolidated results.

The following table shows the impact to income (loss) from continuing operations before income taxes by segment as a result of the change in accounting policy for advertising expense. The full impact of this change in presentation is reflected within marketing, general and administrative expenses.

Table of Contents

Income (loss) from continuing operations before income taxes by segment:



	Three Months Ended March 30, 2013						Three Months Ended June 29, 2013						Three Months Ended September 28, 2013						Three Months Ended December 31, 2013
	As Reported			As Adjusted			As Reported			As Adjusted			As Reported			As Adjusted			As Reported			As Adjusted
	(In millions)
Canada	$	36.4		$	28.4		$	137.3		$	128.6		$	128.7		$	143.6		$	60.9		$	62.7
U.S.	$	117.4		$	117.4		$	172.6		$	172.6		$	148.3		$	148.3		$	100.7		$	100.7
Europe	$	(3.7	)	$	(5.2	)	$	81.6		$	75.8		$	(69.5	)	$	(67.4	)	$	25.9		$	31.1
MCI	$	(6.1	)	$	(5.2	)	$	(3.3	)	$	(4.0	)	$	(2.4	)	$	(2.4	)	$	—		$	(0.2	)
Corporate	$	(102.6	)	$	(102.6	)	$	(75.8	)	$	(75.8	)	$	(49.7	)	$	(49.7	)	$	(42.2	)	$	(42.2	)

Foreign Currency Translation Tax Adjustment

During the third quarter of 2013, we identified that we had incorrectly recorded tax adjustments related to certain foreign currency movements in the financial statements for both the first and second quarters of 2013 that misstated non-current deferred tax assets, accumulated other comprehensive income (loss), and comprehensive income by immaterial amounts. We have revised the foreign currency translation adjustments, net of tax, included in other comprehensive income (loss) and comprehensive income (loss) in the unaudited condensed consolidated statements of comprehensive income (loss) for the three and six months ended June 29, 2013. These errors were corrected in the third quarter of 2013 and therefore had no impact on the unaudited condensed consolidated balance sheet as of December 31, 2013. Note that the as adjusted amounts below also reflect the adjustments related to the change in interim accounting for advertising expense as discussed above.



	Three Months Ended June 29, 2013						Six Months Ended June 29, 2013
	As Reported			As Adjusted			As Reported			As Adjusted
	(In millions)
Foreign currency translation adjustments, net of tax	$	(79.4	)	$	(113.6	)	$	(340.7	)	$	(394.3	)
Total other comprehensive income (loss), net of tax	$	(52.5	)	$	(86.7	)	$	(294.3	)	$	(347.9	)
Comprehensive income (loss) attributable to Molson Coors Brewing Company	$	225.9		$	180.6		$	19.7		$	(52.1	)

Unrecognized Tax Benefit Adjustments

During the second quarter of 2014, we identified that we had incorrectly omitted the recognition of a liability for specific uncertain tax positions related to fiscal year 2010 that resulted in an immaterial misstatement of unrecognized tax benefits and retained earnings within the consolidated balance sheets at December 31, 2013, and December 29, 2012, included in our Annual Report. We determined the impact of the correction of this error to be too significant to record within our second quarter 2014 results and, therefore, have revised our historical balance sheets accordingly. To correct for this error, we have revised the unrecognized tax benefits and retained earnings in the unaudited condensed consolidated balance sheet as of December 31, 2013, included herein. This correction resulted in an increase in the current portion of unrecognized tax benefits included within accounts payable and other current liabilities of $19.3 million, an increase in noncurrent unrecognized tax benefits of $14.4 million and a corresponding decrease to retained earnings of $33.7 million. These unrecognized tax benefits remain in our unaudited condensed consolidated balance sheet as of June 30, 2014. These items relate to tax years that are currently open, and amounts may differ from those to be determined upon closing of the positions.

2. New Accounting Pronouncements

Adoption of New Accounting Pronouncements

Joint and Several Liability Arrangements

In February 2013, the FASB issued authoritative guidance for the recognition, measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date. The guidance was effective for our quarter ended March 31, 2014. The adoption of this guidance did not have an impact on our financial position or results from operations.

Table of Contents

Cumulative Translation Adjustment

In March 2013, the FASB issued authoritative guidance on a parent's accounting for the cumulative translation adjustment upon derecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity. This update also resolves the diversity in practice for the treatment of business combinations achieved in stages (sometimes also referred to as step acquisitions) involving a foreign entity. The guidance was effective for our quarter ended March 31, 2014. The adoption of this guidance did not have an impact on our financial position or results from operations.

Liquidation Basis of Accounting

In April 2013, the FASB issued authoritative guidance to clarify when it is appropriate to apply the liquidation basis of accounting. Additionally, the update provides guidance for recognition and measurement of assets and liabilities and requirements for financial statements prepared using the liquidation basis of accounting. Under the amendment, entities are required to prepare their financial statements under the liquidation basis of accounting when a liquidation becomes imminent. The guidance was effective for our quarter ended March 31, 2014. The adoption of this guidance did not have an impact on our financial position or results from operations.

Presentation of Unrecognized Tax Benefits

In July 2013, the FASB issued authoritative guidance related to the presentation of unrecognized tax benefits. The update requires that the entity present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, as a reduction to a deferred tax asset for a net operating loss carryforward or a tax credit carryforward in the statement of financial position. The guidance does not apply to the extent that a net operating loss carryforward or tax credit carryforward at the reporting date is not available under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position. The guidance was effective for our quarter ended March 31, 2014. As a result of adopting this guidance, we have presented deferred tax assets net of unrecognized tax benefits, as appropriate, in the unaudited condensed consolidated balance sheets. The adoption of this guidance impacted the classification of our outstanding unrecognized tax benefits and resulted in a reclassification of $37.8 million from the unrecognized tax benefits line item within the unaudited condensed consolidated balance sheet upon adoption in the first quarter of 2014.

New Accounting Pronouncements Not Yet Adopted

Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity

In April 2014, the FASB issued authoritative guidance related to reporting discontinued operations and disclosures of disposals of components of an entity. The update limits discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have (or will have) a major effect on an entity's operations and financial results. This update requires expanded disclosures related to assets, liabilities, revenues and expenses of discontinued operations. This update also requires the disclosure of pretax profit or loss and the financial effects of significant disposals that do not qualify for discontinued operations reporting. The guidance is effective for annual reporting periods beginning on or after December 15, 2014, and interim reporting periods thereafter. We do not anticipate that this guidance will have an impact on our financial position or results of operations.

Revenue Recognition

In May 2014, the FASB issued authoritative guidance related to new accounting requirements for the recognition of revenue from contracts with customers. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for the goods or services. The requirements of the new standard are effective for the annual reporting periods beginning after December 15, 2016, and interim periods within those annual periods. We are currently evaluating the potential impact on our financial position and results of operations upon adoption of this guidance.

Share-Based Payments

In June 2014, the FASB issued authoritative guidance related to share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The requirements of the new standard are effective for the annual reporting periods beginning after December 15, 2015, and interim periods within those annual periods. We do not anticipate that this guidance will have a material impact on our financial position or results of operations.

Table of Contents

3. Segment Reporting

Our reporting segments are based on the key geographic regions in which we operate, which are the basis on which our chief operating decision maker evaluates the performance of the business. Our reporting segments consist of Canada, the U.S., Europe and MCI. Corporate is not a segment and primarily includes interest and certain other general and administrative costs that are not allocated to any of the operating segments. No single customer accounted for more than 10% of our consolidated or segmented sales for the three and six months ended June 30, 2014, and June 29, 2013, respectively. Net sales represent sales to third-party external customers. Inter-segment sales revenues and income (loss) from continuing operations before income taxes, other than those to MillerCoors (see Note 4, "Investments" for additional detail), are insignificant and eliminated in consolidation.

The following table presents net sales by segment:



	Three Months Ended						Six Months Ended
	June 30, 2014			June 29, 2013			June 30, 2014			June 29, 2013
	(In millions)
Canada	$	516.5		$	558.2		$	863.6		$	953.8
Europe	629.4			586.2			1,067.0			992.6
MCI	43.7			34.7			75.9			61.7
Corporate	0.4			0.3			0.7			0.6
Eliminations(1)	(1.5		)	(1.4		)	(2.7		)	(2.2		)
Consolidated	$	1,188.5		$	1,178.0		$	2,004.5		$	2,006.5


(1)	Represents inter-segment sales from the Europe segment to the MCI segment.

The following table presents income (loss) from continuing operations before income taxes by segment:



	Three Months Ended						Six Months Ended
	June 30, 2014			June 29, 2013(1)			June 30, 2014			June 29, 2013(1)
	(In millions)
Canada	$	120.8		$	128.6		$	209.1		$	157.0
U.S.	190.1			172.6			312.9			290.0
Europe	84.5			75.8			111.5			70.6
MCI	(3.7		)	(4.0		)	(6.7		)	(9.2		)
Corporate	(62.4		)	(75.8		)	(127.9		)	(178.4		)
Consolidated	$	329.3		$	297.2		$	498.9		$	330.0


(1)	Amounts have been adjusted to reflect the change in interim accounting for advertising expenses. See Note 1, "Basis of Presentation and Summary of Significant Accounting Policies" for further discussion.

The following table presents total assets by segment:



	As of
	June 30, 2014		December 31, 2013
	(In millions)
Canada	$	6,068.3	$	6,103.2
U.S.	2,598.6		2,506.5
Europe	6,863.9		6,547.7
MCI	86.0		83.3
Corporate	256.2		339.4
Consolidated	$	15,873.0	$	15,580.1

Table of Contents

4. Investments

Our investments include both equity method and consolidated investments. Those entities identified as variable interest entities ("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, consolidate these entities. None of our consolidated VIEs held debt as of June 30, 2014, or December 31, 2013. We have not provided any financial support to any of our VIEs during the quarter 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. As of June 30, 2014, and December 31, 2013, our consolidated VIEs are Cobra Beer Partnership, Ltd. ("Cobra U.K.") and Grolsch. Our unconsolidated VIEs are Brewers' Retail Inc. ("BRI"), Brewers' Distributor Ltd. ("BDL") and Molson Modelo Imports L.P. ("MMI"). See further discussion below.

Equity Investments

Investment in MillerCoors

Summarized financial information for MillerCoors is as follows:

Condensed Balance Sheets



	As of
	June 30, 2014		December 31, 2013
	(In millions)
Current assets	$	1,007.5	$	798.4
Non-current assets	8,945.9		8,989.3
Total assets	$	9,953.4	$	9,787.7
Current liabilities	$	998.3	$	950.1
Non-current liabilities	1,247.2		1,346.2
Total liabilities	2,245.5		2,296.3
Noncontrolling interests	23.4		20.7
Owners' equity	7,684.5		7,470.7
Total liabilities and equity	$	9,953.4	$	9,787.7

The following represents our proportionate share in MillerCoors' equity and reconciliation to our investment in MillerCoors:



	As of
	June 30, 2014			December 31, 2013
	(In millions, except percentages)
MillerCoors owners' equity	$	7,684.5		$	7,470.7
MCBC economic interest	42		%	42		%
MCBC proportionate share in MillerCoors' equity	3,227.5			3,137.7
Difference between MCBC contributed cost basis and proportionate share of the underlying equity in net assets of MillerCoors(1)	(663.9		)	(666.2		)
Accounting policy elections	35.0			35.0
Investment in MillerCoors	$	2,598.6		$	2,506.5

(1)

Our net investment in MillerCoors is based on the carrying values of the net assets contributed to the joint venture which is less than our proportionate share of underlying equity (42%) of MillerCoors (contributed by both Coors Brewing Company ("CBC") and Miller Brewing Company ("Miller")). This basis difference, with the exception of certain non-amortizing items (goodwill, land, etc.), is being amortized as additional equity income over the remaining useful lives of the contributed long-lived amortizing assets.

Table of Contents

Results of Operations



	Three Months Ended						Six Months Ended
	June 30, 2014			June 30, 2013			June 30, 2014			June 30, 2013
	(In millions)
Net sales	$	2,206.7		$	2,159.0		$	3,997.1		$	3,947.3
Cost of goods sold	(1,282.4		)	(1,270.1		)	(2,376.5		)	(2,358.8		)
Gross profit	$	924.3		$	888.9		$	1,620.6		$	1,588.5
Operating income	$	449.8		$	417.9		$	747.3		$	692.4
Net income attributable to MillerCoors	$	445.2		$	412.7		$	736.4		$	684.6

The following represents our proportionate share in net income attributable to MillerCoors reported under the equity method:



	Three Months Ended						Six Months Ended
	June 30, 2014			June 29, 2013			June 30, 2014			June 29, 2013
	(In millions, except percentages)
Net income attributable to MillerCoors	$	445.2		$	412.7		$	736.4		$	684.6
MCBC economic interest	42		%	42		%	42		%	42		%
MCBC proportionate share of MillerCoors net income	187.0			173.3			309.3			287.5
Amortization of the difference between MCBC contributed cost basis and proportionate share of the underlying equity in net assets of MillerCoors	1.2			1.0			2.3			2.2
Share-based compensation adjustment(1)	1.9			(1.7		)	1.3			0.3
Equity income in MillerCoors	$	190.1		$	172.6		$	312.9		$	290.0


(1)	The net adjustment is to eliminate all share-based compensation impacts related to pre-existing SABMiller plc equity awards held by former Miller employees employed by MillerCoors.

The following table summarizes our transactions with MillerCoors:



	Three Months Ended				Six Months Ended
	June 30, 2014		June 29, 2013		June 30, 2014		June 29, 2013
	(In millions)
Beer sales to MillerCoors	$	3.7	$	4.5	$	6.3	$	8.9
Beer purchases from MillerCoors	$	9.1	$	3.9	$	16.2	$	7.0
Service agreement costs and other charges to MillerCoors	$	0.7	$	0.7	$	1.1	$	1.3
Service agreement costs and other charges from MillerCoors	$	0.3	$	—	$	0.5	$	0.2

As of June 30, 2014, and December 31, 2013, we had $8.1 million and $4.4 million of net payables due to MillerCoors, respectively.

Consolidated VIEs

The following summarizes the assets and liabilities of our consolidated VIEs (including noncontrolling interests):



	As of
	June 30, 2014				December 31, 2013
	Total Assets		Total Liabilities		Total Assets		Total Liabilities
	(In millions)
Grolsch	$	8.5	$	3.1	$	5.6	$	1.7
Cobra U.K.	$	29.4	$	0.6	$	36.5	$	1.9

Table of Contents

Termination of MMI Operations

On November 5, 2013, Anheuser-Busch Inbev ("ABI") and MCBC entered into an agreement providing for the accelerated termination of MMI, a 50% - 50% joint venture with Grupo Modelo S.A.B. de C.V. ("Modelo"), which provided for the import, distribution, and marketing of the Modelo beer brand portfolio across all Canadian provinces and territories. The joint venture, accounted for under the equity method of accounting, was originally a 10 year agreement ending January 1, 2018. In June 2013, ABI completed its combination with Modelo, including Modelo’s interest in MMI. Following negotiations with ABI, MCC consented to change the effective termination date of the agreement from January 1, 2018, to February 28, 2014, upon successful close and completion of the transition period, at which time MCC would receive payment from Modelo for the early termination of the original agreement. In conjunction with these negotiations, ABI also agreed that we will continue to represent the Modelo brands in the U.K. and Japan through the end of 2014.

The transition period was successfully completed on February 28, 2014, at which time we recognized income of $63.2 million (CAD 70.0 million) within special items, reflective of the agreed upon payment received from Modelo. Additionally we recorded a charge of $4.9 million representing the accelerated amortization of the remaining carrying value of our definite-lived intangible asset associated with the agreement. In accordance with the termination agreement, MMI continued to operate in its historical capacity through the end of the transition period. Effective end of day on February 28, 2014, MMI ceased all operations and will be dissolved during the second half of 2014 upon final agreement with ABI on the distribution amount of the joint venture's remaining net assets. As a result, our first half of 2014 results reflect our proportionate ownership interest of the MMI activity during the first quarter of 2014 through end of day February 28, 2014. Under the MMI arrangement, we recognized equity earnings within cost of goods sold of $0.7 million during the six months ended June 30, 2014, and $4.5 million and $5.1 million during the three and six months ended June 29, 2013, respectively. In addition, during the six months ended June 30, 2014, and three and six months ended June 29, 2013, MCC recognized marketing and administrative cost recoveries related to the promotion, sale and distribution of Modelo products under our agency and services agreement with MMI of $1.1 million, $3.3 million and $5.7 million, respectively. These cost recoveries are recorded within marketing, general and administrative expenses. As of June 30, 2014, and December 31, 2013, our unaudited condensed consolidated balance sheet includes our investment in MMI of $10.6 million and $21.2 million, respectively, and an affiliate net payable to MMI of $4.7 million and $13.8 million, respectively.

In accordance with the early termination agreement, the book value of the joint venture's net assets is required to be distributed to the respective joint venture partners for the owners' proportionate ownership interest at the end of the transition period, which we expect to occur in the second half of 2014. Concurrently, we will derecognize our equity investment within other non-current assets and recognize a gain (loss), if any, within special items resulting from the excess (deficit) of the total proceeds, consisting of our proportionate ownership interest in the book value of the joint venture’s assets, over our equity investment and joint venture related net asset balances upon final distribution.

5. Share-Based Payments

During the six months ended June 30, 2014, and June 29, 2013, we recognized share-based compensation expense related to the following Class B common stock awards to certain directors, officers and other eligible employees, pursuant to the Molson Coors Brewing Company Incentive Compensation Plan ("Incentive Compensation Plan"): restricted stock units ("RSU"), deferred stock units ("DSU"), performance share units ("PSU"), performance units ("PU") and stock options. The settlement amount of the PSUs is determined based on market and performance metrics, which include our total shareholder return performance relative to the S&P 500 and specified internal performance metrics designed to drive greater shareholder return. PSU compensation expense is based on a fair value assigned to the market metric using a Monte Carlo model, which will remain constant throughout the vesting period of three years, and a performance multiplier, which will vary due to changing estimates of the performance metric condition.

The following table summarizes share-based compensation expense:



	Three Months Ended						Six Months Ended
	June 30, 2014			June 29, 2013			June 30, 2014			June 29, 2013
	(In millions)
Pretax compensation expense	$	3.8		$	4.3		$	12.1		$	15.4
Tax benefit	(1.2		)	(1.1		)	(3.9		)	(4.5		)
After-tax compensation expense	$	2.6		$	3.2		$	8.2		$	10.9

Table of Contents

As of June 30, 2014, there was $24.7 million of total unrecognized compensation cost from all share-based compensation arrangements granted under the Incentive Compensation Plan, related to unvested shares. This compensation expense is expected to be recognized over a weighted-average period of 1.4 years.

The following table represents the summary of stock options and stock-only stock appreciation rights ("SOSAR") outstanding as of June 30, 2014, and the activity during the six months ended June 30, 2014:



	Shares outstanding	Weighted-average exercise price per share	Weighted-average remaining contractual life (years)	Aggregate intrinsic value
	(In millions, except per share amounts and years)
Outstanding as of December 31, 2013	3.5	$43.41	4.57	$	45.1
Granted	0.2	$58.24
Exercised	(0.9)	$43.50
Forfeited	(0.1)	$44.24
Outstanding as of June 30, 2014	2.7	$44.28	4.75	$	79.9
Exercisable at June 30, 2014	2.3	$43.34	4.00	$	69.5

The total intrinsic values of stock options exercised during the six months ended June 30, 2014, and June 29, 2013, were $15.0 million and $23.5 million, respectively. During the six months ended June 30, 2014, and June 29, 2013, cash received from stock option exercises was $27.7 million and $63.1 million, respectively, and the total excess tax benefit from these stock option exercises and other awards was $3.2 million and $5.4 million, respectively.

The following table represents non-vested RSUs, DSUs, PSUs and PUs as of June 30, 2014, and the activity during the six months ended June 30, 2014:



	RSUs and DSUs			PUs			PSUs
	Units		Weighted-average grant date fair value per unit	Units		Weighted-average fair value per unit	Units	Weighted-average grant date fair value per unit
	(In millions, except per unit amounts)
Non-vested as of December 31, 2013	0.7		$42.08	1.0		$2.87	0.2	$43.10
Granted	0.2		$59.02	—		$—	0.2	$58.69
Vested	(0.2	)	$41.01	(0.5	)	$6.12	—	$—
Forfeited	—		$—	—		$—	—	$—
Non-vested as of June 30, 2014	0.7		$47.42	0.5		$0.45	0.4	$50.49

The weighted-average fair value per unit for the non-vested PSUs is $46.10 as of June 30, 2014.

The fair value of each option granted in the first half of 2014 and 2013 was determined on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:



	Six Months Ended
	June 30, 2014	June 29, 2013
Risk-free interest rate	2.29%	1.43%
Dividend yield	2.57%	2.88%
Volatility range	22.66%-26.57%	22.39%-25.90%
Weighted-average volatility	25.59%	25.02%
Expected term (years)	7.5	7.7
Weighted-average fair market value	$12.78	$8.39

The risk-free interest rates utilized for periods throughout the contractual life of the stock options are based on a zero-coupon U.S. Treasury security yield at the time of grant. Expected volatility is based on a combination of historical and implied volatility of our stock. The expected term of stock options is estimated based upon observations of historical employee option exercise patterns and trends of those employees granted options in the respective year.

Table of Contents

The fair value of the market metric for each PSU granted in the first half of 2014 and 2013 was determined on the date of grant using a Monte Carlo model to simulate total shareholder return for MCBC and peer companies with the following weighted-average assumptions:



	Six Months Ended
	June 30, 2014	June 29, 2013
Risk-free interest rate	0.72%	0.33%
Dividend yield	2.57%	2.88%
Volatility range	12.45%-72.41%	12.18%-69.37%
Weighted-average volatility	21.72%	21.13%
Expected term (years)	2.82	2.83
Weighted-average fair market value	$58.69	$43.10

The risk-free interest rates utilized for periods throughout the expected term of the PSUs are based on a zero-coupon U.S. Treasury security yield at the time of grant. Expected volatility is based on historical volatility of our stock as well as the stock of our peer firms, as shown within the volatility range above, for a period from the grant date consistent with the expected term. The expected term of PSUs is calculated based on the grant date to the end of the performance period.

As of June 30, 2014, there were 7.4 million shares of the Company's Class B common stock available for issuance as awards under the Incentive Compensation Plan.

On July 24, 2014, subsequent to the end of the second quarter of 2014, Peter Swinburn, the Chief Executive Officer and President of the Company, informed the Corporate Secretary and the Board of Directors of the Company his intention to retire as Chief Executive Officer and President of the Company and as a member of the Board effective December 31, 2014. In addition, on July 24, 2014, the Board appointed Mark Hunter as the Company’s Chief Executive Officer and President to replace Mr. Swinburn effective on January 1, 2015. Mr. Hunter currently serves as Chief Executive Officer and President of Molson Coors Europe. Mr. Hunter will also serve as a member of Board effective January 1, 2015. We do not anticipate a significant impact to our results, specifically related to share-based compensation expense, as a result of this change.

6. Special Items

We have incurred charges or realized benefits that either we do not believe to be indicative of our core operations, or we believe are significant to our current operating results warranting separate classification. As such, we have separately classified these charges (benefits) as special items. The table below summarizes special items recorded by segment:



	Three Months Ended					Six Months Ended
	June 30, 2014		June 29, 2013			June 30, 2014			June 29, 2013
	(In millions)
Employee-related charges
Restructuring
Canada	$	0.1	$	0.1		$	5.4		$	1.4
Europe	0.5		(0.3		)	1.0			3.0
MCI	—		0.1			—			0.1
Corporate	0.3		—			0.3			0.3
Special termination benefits
Canada	—		0.6			—			1.4
Impairments or asset abandonment charges
Canada - Intangible asset write-off(1)	—		—			4.9			—
Unusual or infrequent items
Europe - Release of non-income-related tax reserve(2)	—		—			—			(4.2		)
Europe - Flood loss(3)	1.8		—			1.8			—
Termination fees and other (gains)/losses
Canada - Termination fee income(1)	—		—			(63.2		)	—
MCI - Sale of China Joint Venture	—		0.8			—			0.8
Special items, net	$	2.7	$	1.3		$	(49.8	)	$	2.8

Table of Contents


(1)	See Note 4, "Investments" for further discussion related to the termination of MMI operations and related intangible asset charge.


(2)	During 2009, we established a non-income-related tax reserve of $10.4 million that was recorded as a special item. In the first quarter of 2013, the remaining outstanding amount of this non-income-related tax reserve was fully released.


(3)	During the second quarter of 2014, we incurred costs and recorded losses in our Europe business associated with significant flooding in Serbia, Bosnia, and Croatia. We are currently in the process of evaluating the full impact of these floods which may result in additional special items in future periods.

Restructuring Activities

In 2012, we introduced several initiatives focused on increasing our efficiencies and reducing costs across all functions of the business in order to develop a more competitive supply chain and global cost structure. Included in these initiatives is a long-term focus on reducing labor and general overhead costs through restructuring activities. We view these restructuring activities as actions to allow us to meet our long-term growth targets by generating future cost savings within cost of goods sold and general and administrative expenses and include organizational changes that strengthen our business and accelerate efficiencies within our operational structure. As a result of these restructuring activities, we have reduced headcount and consequently recognized severance and other employee-related charges, which we have recorded as special items. As we continually evaluate our cost structure and seek opportunities for further efficiencies and cost savings, we may incur additional restructuring related charges in the future; however, we are unable to estimate the amount of charges at this time.

The accrued restructuring balances represent expected future cash payments required to satisfy the remaining severance obligations to terminated employees, the majority of which we expect to be paid in the next 12-24 months. The table below summarizes the activity in the restructuring accruals by segment:



	Canada			Europe			MCI			Corporate			Total
	(In millions)
Total at December 31, 2013	$	9.7		$	13.6		$	0.5		$	0.9		$	24.7
Charges incurred	5.4			1.0			—			0.3			6.7
Payments made	(8.1		)	(2.7		)	(0.3		)	(0.5		)	(11.6		)
Foreign currency and other adjustments	(0.1		)	0.4			—			—			0.3
Total at June 30, 2014	$	6.9		$	12.3		$	0.2		$	0.7		$	20.1



	Canada			Europe			MCI			Corporate			Total
	(In millions)
Total at December 29, 2012	$	7.1		$	13.4		$	2.8		$	1.5		$	24.8
Charges incurred	1.4			3.0			0.1			0.3			4.8
Payments made	(4.8		)	(7.4		)	(2.1		)	(1.4		)	(15.7		)
Foreign currency and other adjustments	5.1			(0.6		)	—			—			4.5
Total at June 29, 2013	$	8.8		$	8.4		$	0.8		$	0.4		$	18.4

7. Other Income and Expense

The table below summarizes other income and expense:



	Three Months Ended					Six Months Ended
	June 30, 2014		June 29, 2013			June 30, 2014		June 29, 2013
	(In millions)
Gain on sale of non-operating asset(1)	$	—	$	—		$	—	$	1.2
Gain (loss) from other foreign exchange and derivative activity(2)	0.5		(8.8		)	1.3		(6.1		)
Other, net	0.2		1.5			0.2		1.9
Other income (expense), net	$	0.7	$	(7.3	)	$	1.5	$	(3.0	)


(1)	During the first quarter of 2013, we realized a gain for proceeds received related to a non-income-related tax settlement resulting from historical activity within our former investment in the Montréal Canadiens.

Table of Contents

(2)

Included in this amount are gains of $0.5 million for the six months ended June 30, 2014, and unrealized losses of $10.1 million and gains of $10.0 million for the three and six months ended June 29, 2013, respectively, related to foreign currency movements on foreign-denominated financing instruments entered into in conjunction with the closing of the Acquisition. These amounts were partially offset by unrealized gains of $3.9 million and losses of $6.7 million for the three and six months ended June 29, 2013, respectively, related to foreign cash positions and foreign exchange contracts entered into to hedge our risk associated with payments of this foreign-denominated debt. Additionally, we recorded net gains of $0.5 million and $0.8 million related to other foreign exchange and derivative activity during the three and six months ended June 30, 2014, respectively. We recorded net losses related to other foreign exchange and derivative activity of $2.6 million and $9.4 million for the three and six months ended June 29, 2013, respectively.

8. Income Tax

Our effective tax rates for the second quarter of 2014 and 2013 were approximately 11% and 10%, respectively. For the first half of 2014 and 2013, our effective tax rates were approximately 8% and 10%, respectively. The effective tax rates for the second quarter and first half of 2013 have been adjusted to reflect the impact of the change in interim accounting for advertising expenses. See Note 1, "Basis of Presentation and Summary of Significant Accounting Policies" for further discussion. Our effective tax rates were significantly lower than the federal statutory rate of 35% primarily due to lower statutory income tax rates applicable to our Canada and Europe businesses, tax planning strategies, as well as the discrete items further discussed below. The effective tax rate for the three months ended June 30, 2014, increased versus the three months ended June 29, 2013, primarily due to decreased discrete tax benefits recognized in the current year as compared to 2013. Our total net discrete tax benefit was $12.2 million in the second quarter of 2014, which reduced our quarterly effective tax rate by 4 percentage points. In April 2014, we finalized our advanced pricing agreement between the U.S. and Canada tax authorities. The implementation of our new agreement and reversal of the related unrecognized tax benefits resulted in a net discrete income tax benefit of approximately $21 million. Additionally, tax years 2007 and 2008 are now closed in the U.S. following the execution of this agreement and subsequent Internal Revenue Service resolution. This was partially reduced by an immaterial out of period adjustment recorded in the second quarter of 2014 of $8.7 million related to our deferred tax liabilities. This out of period adjustment primarily relates to immaterial errors for the fiscal years 2011, 2012 and 2013 and is unrelated to the unrecognized tax benefit adjustment associated with the 2010 fiscal year further discussed below.

Our tax rate is volatile and may move up or down with changes in, among other things, the amount and source of income or loss, our ability to utilize foreign tax credits, changes in tax laws, and the movement of liabilities established for uncertain tax positions as statutes of limitations expire or positions are otherwise effectively settled. There are proposed or pending tax law changes in various jurisdictions that, if enacted, may have an impact on our effective tax rate.

During the second quarter of 2014, we identified that we had incorrectly omitted uncertain tax positions related to fiscal year 2010 that resulted in an immaterial misstatement of unrecognized tax benefits and retained earnings within the consolidated balance sheets included in our Annual Report. We have revised our current presentation of these amounts to correct for this error, which resulted in an increase in current unrecognized tax benefits of $19.3 million and noncurrent unrecognized tax benefits of $14.4 million as of December 31, 2013. These items relate to tax years that are currently open and amounts may differ from those to be determined upon closing of the positions. See Note 1, "Basis of Presentation and Summary of Significant Accounting Policies" for further information.

As of June 30, 2014, and December 31, 2013, we had unrecognized tax benefits including interest, penalties and offsetting positions of $81.1 million and $149.6 million, respectively. The allocation of these balances between current and noncurrent has not changed materially since December 31, 2013. The decrease to our unrecognized tax benefits on our unaudited condensed consolidated balance sheets from December 31, 2013, to June 30, 2014, was primarily due to the previously discussed favorable resolution of unrecognized tax positions and the reclassification of certain unrecognized tax benefits as a result of the adoption of the recently issued guidance related to the presentation of these items. See Note 2, "New Accounting Pronouncements" for further discussion.

Table of Contents

9. Earnings Per Share

Basic earnings per share ("EPS") was computed using the weighted-average number of shares of common stock outstanding during the period. Diluted EPS includes the additional dilutive effect of our potentially dilutive securities, which includes stock options, stock-only stock appreciation rights ("SOSARs"), restricted stock units ("RSUs"), performance units ("PUs"), performance share units ("PSUs") and deferred stock units ("DSUs"). The dilutive effects of our potentially dilutive securities are calculated using the treasury stock method. The following summarizes the effect of dilutive securities on diluted EPS:



	Three Months Ended				Six Months Ended
	June 30, 2014		June 29, 2013(1)		June 30, 2014			June 29, 2013(1)
	(In millions, except per share amounts)
Amounts attributable to MCBC
Net income (loss) from continuing operations	$	290.7	$	265.6	$	456.0		$	295.0
Income (loss) from discontinued operations, net of tax	0.2		1.7		(1.7		)	0.8
Net income (loss) attributable to Molson Coors Brewing Company	$	290.9	$	267.3	$	454.3		$	295.8
Weighted-average shares for basic EPS	184.8		182.9		184.5			182.3
Effect of dilutive securities:
Stock options and SOSARs	0.7		0.7		0.6			0.7
RSUs, PSUs, PUs and DSUs	0.4		0.5		0.6			0.5
Weighted-average shares for diluted EPS	185.9		184.1		185.7			183.5
Basic net income (loss) attributable to Molson Coors Brewing Company per share(2):
From continuing operations	$	1.57	$	1.45	$	2.47		$	1.62
From discontinued operations	—		0.01		(0.01		)	—
Basic net income (loss) attributable to Molson Coors Brewing Company per share	$	1.57	$	1.46	$	2.46		$	1.62
Diluted net income (loss) attributable to Molson Coors Brewing Company per share(2):
From continuing operations	$	1.56	$	1.44	$	2.46		$	1.61
From discontinued operations	—		0.01		(0.01		)	—
Diluted net income (loss) attributable to Molson Coors Brewing Company per share	$	1.56	$	1.45	$	2.45		$	1.61
Dividends declared and paid per share	$	0.37	$	0.32	$	0.74		$	0.64


(1)	Amounts have been adjusted to reflect the change in interim accounting for advertising expenses. See Note 1, "Basis of Presentation and Summary of Significant Accounting Policies" for further discussion.

(2)

The sum of the quarterly net income per share amounts may not agree to the full year net income per share amounts. We calculate net income per share based on the weighted average number of outstanding shares during the reporting period. The average number of shares fluctuates throughout the year and can therefore produce a full year result that does not agree to the sum of the individual quarters.

The following anti-dilutive securities were excluded from the computation of the effect of dilutive securities on diluted earnings per share:



	Three Months Ended		Six Months Ended
	June 30, 2014	June 29, 2013	June 30, 2014	June 29, 2013
	(In millions)
Stock options, SOSARs and RSUs	0.1	0.2	—	0.2
Total weighted-average anti-dilutive securities	0.1	0.2	—	0.2

Table of Contents

Convertible Notes

In June 2007, we issued $575 million Convertible Senior Notes ("$575 million convertible bonds") due July 2013. On July 30, 2013, these notes matured and were repaid for their face value of $575 million. The required premium payment was settled in cash and entirely offset by the cash proceeds received from the settlement of the call options we purchased in 2007 related to these notes. As a result, these notes and related call options did not impact our shares outstanding. Additionally, the potential impacts of these notes and related call options had no impact on diluted income per share for any period in which they were outstanding. Simultaneously with the issuance of these notes, we issued warrants which began expiring in December 2013 and the final warrants expired February 6, 2014, all of which were out-of-the-money upon settlement. The potential impacts of these warrants had no impact on diluted income per share and were excluded from the computation of the effect of dilutive securities on diluted earnings per share for all periods during which they were outstanding.

In June 2012, we issued a €500 million Zero Coupon Senior Unsecured Convertible Note ("€500 million convertible note"). On August 13, 2013, the embedded put option was exercised and we subsequently settled the note using cash. See Note 11, "Debt" for further discussion. As a result, the €500 million convertible note did not impact our shares outstanding and was excluded from the computation of the effect of diluted securities on diluted earnings per share for all periods presented.

10. Goodwill and Intangible Assets

The following summarizes the change in goodwill for the six months ended June 30, 2014:



	Canada			Europe		MCI		Consolidated
	(In millions)
Balance at December 31, 2013	$	718.2		$	1,693.2	$	7.3	$	2,418.7
Foreign currency translation	(3.2		)	25.1		0.1		22.0
Balance at June 30, 2014	$	715.0		$	1,718.3	$	7.4	$	2,440.7

The following table presents details of our intangible assets, other than goodwill, as of June 30, 2014:



	Useful life	Gross		Accumulated amortization			Net
	(Years)	(In millions)
Intangible assets subject to amortization:
Brands	3 - 40	$	540.3	$	(239.7	)	$	300.6
Distribution rights	2 - 23	271.8		(225.9		)	45.9
Patents and technology and distribution channels	3 - 10	37.4		(34.4		)	3.0
Other	2	1.2		(1.2		)	—
Intangible assets not subject to amortization:
Brands	Indefinite	5,462.2		—			5,462.2
Distribution networks	Indefinite	948.0		—			948.0
Other	Indefinite	17.5		—			17.5
Total		$	7,278.4	$	(501.2	)	$	6,777.2

Table of Contents

The following table presents details of our intangible assets, other than goodwill, as of December 31, 2013:



	Useful life	Gross		Accumulated amortization			Net
	(Years)	(In millions)
Intangible assets subject to amortization:
Brands	3 - 40	$	537.5	$	(224.7	)	$	312.8
Distribution rights	2 - 23	314.1		(255.0		)	59.1
Patents and technology and distribution channels	3 - 10	36.2		(32.8		)	3.4
Other	2	1.2		(1.2		)	—
Intangible assets not subject to amortization:
Brands	Indefinite	5,482.3		—			5,482.3
Distribution networks	Indefinite	952.3		—			952.3
Other	Indefinite	15.2		—			15.2
Total		$	7,338.8	$	(513.7	)	$	6,825.1

The changes in the gross carrying amounts of intangibles from December 31, 2013, to June 30, 2014, are primarily driven by the impact of foreign exchange rates, as a significant amount of intangibles are denominated in foreign currencies. Additionally, upon termination of MMI operations in the first quarter of 2014, we accelerated the amortization of the remaining $4.9 million net carrying value of the related definite-lived intangible asset and wrote-off its gross value of $40.5 million. See Note 4, "Investments" for further discussion.

Based on foreign exchange rates as of June 30, 2014, the estimated future amortization expense of intangible assets is as follows:



Fiscal year	Amount
	(In millions)
2014 - remaining	$	21.3
2015	$	40.2
2016	$	40.2
2017	$	14.1
2018	$	12.3

Amortization expense of intangible assets was $10.4 million and $11.7 million for the three months ended June 30, 2014, and June 29, 2013, respectively, and $21.0 million and $23.6 million for the six months ended June 30, 2014 and June 29, 2013, respectively. This expense is presented within marketing, general and administrative expenses and excludes the accelerated amortization recognized for the write-off of the intangible asset associated with the termination of MMI operations in the first quarter of 2014. See Note 4, "Investments" for further discussion.

We completed our required 2013 annual goodwill and indefinite-lived intangible impairment testing as of June 30, 2013, the first day of our fiscal year 2013 third quarter, and concluded there were no impairments of goodwill within our Europe, Canada or India reporting units or impairments of our indefinite-lived intangible assets, with the exception of the Jelen and Ostravar brand intangibles as discussed below. We expect to finalize our 2014 annual impairment test in the third quarter of 2014.

Reporting Units and Goodwill

The operations in each of the specific regions within our Canada, Europe and MCI segments are considered components based on the availability of discrete financial information and the regular review by segment management. We have concluded that the components within the Canada and Europe segments each meet the criteria as having similar economic characteristics and therefore have aggregated these components into the Canada and Europe reporting units, respectively. Additionally, we determined that the components within our MCI segment do not meet the criteria for aggregation, and therefore, the operations of our India business constitute a separate reporting unit at the component level.

Our 2013 annual goodwill impairment testing determined that our Europe and Canada reporting units were at risk of failing step one of the goodwill impairment test. Specifically, the fair value of the Europe and Canada reporting units were estimated at approximately 11% and 16% in excess of carrying value, respectively, as of the testing date. The risk in the Europe

Table of Contents

reporting unit is due to continued adverse impacts of a weak economy in Europe, partially offset by the realized benefits of combining our U.K. and Central Europe businesses. The Canada reporting unit had a marginal improvement over the prior year primarily as a result of incremental anticipated cost savings and improvements to market multiples more than offsetting the continued competitive pressures and challenging macroeconomic conditions in the Canada market.

Indefinite-Lived Intangibles

In 2013, our annual indefinite-lived intangible impairment testing determined that the fair values of the Jelen and Ostravar indefinite-lived brand intangibles within our Europe segment were below their respective carrying values. As a result, we recorded an aggregate impairment charge of $150.9 million within special items in the third quarter of 2013. Additionally, two brands, Ozujsko in Croatia and Branik in Czech Republic, were determined to be at risk of future impairment as a result of discount rate pressures due to country specific macroeconomic risk factors that were more than offset by improved cash flow projections driven by post-acquisition performance and innovations. The Jelen, Ozujsko and Branik brands are, therefore, at risk of future impairment with an aggregate fair value estimated at approximately 1% in excess of their aggregate carrying value as of the June 30, 2013 impairment testing date. As of June 30, 2014, these at-risk intangible assets had a carrying value of $1,302.5 million. Additionally, in conjunction with the brand impairment test completed in 2013, we reclassified Ostravar as a definite-lived intangible asset.

During the second quarter of 2014, severe weather in the Balkans region resulted in significant flooding throughout the area, adversely impacting our Serbian and Bosnian markets, for which Jelen is our primary brand. This natural disaster has exacerbated the ongoing macroeconomic challenges in the area, and we are evaluating the immediate and long-term implications of these floods, and specifically the impact to the future cash flows associated with the Jelen brand. We are unable at this time to fully evaluate the extent of the damage, its impact on the Jelen brand's performance, or the effect that the potential risk of a prolonged recovery in one or both of these markets could have on the long-term value of the brand. This increases the previously disclosed risk of future impairment for Jelen, and if, upon conclusion of our evaluation, we determine that an impairment is necessary, it may be material to our financial results. We expect that we will be able to complete our thorough assessment of the impact of the floods in conjunction with our annual impairment test, which we expect to finalize in the third quarter of 2014.

Separately, our Molson core brand intangible continues to be at risk of future impairment with a fair value estimated at approximately 10% in excess of its carrying value as of the impairment testing date, as the Molson core brands have continued to face significant competitive pressures and challenging macroeconomic conditions in the Canada market. These challenges were partially offset by anticipated cost savings initiatives. As of June 30, 2014, the Molson core brand intangible had a carrying value of $2,845.0 million.

Regarding definite-lived intangibles, we continuously monitor the performance of the underlying asset for potential triggering events suggesting an impairment review should be performed. No such triggering events were identified in the second quarter of 2014. However, recent litigation related to the licensing agreement with Miller in Canada resulted in a $17.9 million impairment charge of our definite-lived intangible asset related to our licensing agreement in December 2013. As of June 30, 2014, the intangible has a remaining carrying value of $32.0 million with an estimated remaining life of approximately three years. The outcome of the litigation or any future settlement discussions with Miller could result in additional impairments. See Note 15, "Commitments and Contingencies" for further discussion.

Table of Contents

11. Debt

Debt obligations

Our total borrowings as of June 30, 2014, and December 31, 2013, were composed of the following:



	As of
	June 30, 2014			December 31, 2013
	(In millions)
Senior notes:
€500 million 0.0% convertible note due 2013(1)	$	—		$	61.8
Canadian Dollar ("CAD") 900 million 5.0% notes due 2015	843.4			847.2
CAD 500 million 3.95% Series A notes due 2017	468.6			470.7
$300 million 2.0% notes due 2017	300.0			300.0
$500 million 3.5% notes due 2022 (2)	501.2			500.0
$1.1 billion 5.0% notes due 2042	1,100.0			1,100.0
Other long-term debt	0.1			0.2
Long-term credit facilities(3)	—			—
Less: unamortized debt discounts and other	(4.7		)	(5.1		)
Total long-term debt (including current portion)	3,208.6			3,274.8
Less: current portion of long-term debt	—			(61.8		)
Total long-term debt	$	3,208.6		$	3,213.0

Short-term borrowings(3)	$	451.6		$	525.1
Current portion of long-term debt	—			61.8
Current portion of long-term debt and short-term borrowings	$	451.6		$	586.9


(1)	On June 15, 2012, we issued a €500 million convertible note due December 31, 2013, which included a put conversion feature to the Seller. On August 13, 2013, the conversion feature was exercised for an agreed-upon value upon exercise of €510.9 million, consisting of €500 million in principal and €10.9 million for the conversion feature.

On September 3, 2013, we paid the Seller in cash a total of €466.0 million ($614.7 million) consisting of €455.1 million ($600.3 million) in principal and €10.9 million ($14.4 million) for the conversion feature. Separate from the Seller's notice to put, we had made claims with regard to the representations and warranties provided to us upon close of the Acquisition related to local country regulatory matters associated with pre-acquisition periods. As of December 31, 2013, we had withheld €44.9 million ($61.8 million) from the €500 million in principal related to these outstanding claims. During the first half of 2014, we released the €44.9 million ($61.4 million at settlement) withheld to the Seller as a result of the settlement of these claims. We did not incur any interest on amounts withheld.

The €500 million convertible note's embedded conversion feature was determined to meet the definition of a derivative required to be bifurcated and separately accounted for at fair value with changes in fair value recorded in earnings. During the three and six months ended June 29, 2013, we recognized an unrealized gain of $2.7 million and an unrealized loss of $26.8 million, respectively, related to changes in the fair value of the conversion feature. The cash and non-cash interest, excluding the change in fair value of the convertible feature, resulted in an immaterial impact to our effective interest rate for the three and six months ended June 29, 2013.

(2)

In the second quarter of 2014, we entered into interest rate swaps to economically convert a portion of our fixed rate $500 million 3.5% notes due 2022 ("$500 million notes") to floating rate debt. This resulted in an effective interest rate of 3.31% and 3.40%, for the three and six months ended June 30, 2014, respectively. As a result of this hedge program, the carrying value of the $500 million note includes a $1.2 million adjustment for fair value movements attributable to the benchmark interest rate. See Note 13, "Derivative Instruments and Hedging Activities" for further details.

Table of Contents

(3)

As of June 30, 2014, and December 31, 2013, the outstanding borrowings under the commercial paper program were $301.1 million and $379.8 million, respectively, with a weighted average effective interest rate and tenor for these outstanding borrowings of 0.38%; 29.6 days and 0.49%; 47.2 days, respectively. We have a revolving credit facility in Europe to provide €150 million on an uncommitted basis through September 2014. As of June 30, 2014, there were no outstanding borrowings under this revolving credit facility and as of December 31, 2013, the outstanding borrowings under this revolving credit facility were $137.4 million (€100.0 million).

During the second quarter of 2014, we entered into a five-year, $750 million revolving multi-currency credit facility, which provides a $100 million sub-facility available for the issuance of letters of credit. This $750 million revolving facility replaced our existing $400 million and $550 million revolving credit facilities, which had maturities in the second quarters of 2015 and 2016, respectively. As a result, we made a reduction to the size of our existing commercial paper program to a maximum aggregate amount outstanding at any time of $750 million. Concurrent with the transaction, we incurred $1.8 million of issuance costs related to the $750 million revolving credit facility which are being amortized over the term of the agreement and recognized $1.3 million of accelerated amortization related to the termination of the pre-existing facilities. There were no outstanding borrowings under our $750 million revolving credit facility as of June 30, 2014, or under our pre-existing credit facilities upon termination or as of December 31, 2013. As of June 30, 2014, we have $448.9 million available to draw on under our $750 million revolving credit facility, as the borrowing capacity is reduced by borrowings under our commercial paper program discussed above.

As of June 30, 2014, and December 31, 2013, we had outstanding borrowings of $4.4 million and $3.1 million, respectively, under the Japanese Yen line of credit and no borrowings under the GBP and CAD facilities.

Our Europe segment has a notional cross-border, cross-currency cash pool for the majority of its subsidiaries. As of June 30, 2014, we had $134.2 million in bank overdrafts and $166.9 million in bank cash related to the pool for a net positive position of $32.7 million. As of December 31, 2013, we did not have bank overdrafts related to the cash pool. Also included in short-term borrowings is $11.9 million and $4.8 million related to factoring arrangements and other short-term borrowings within our Europe business as of June 30, 2014, and December 31, 2013, respectively.

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 June 30, 2014, and December 31, 2013, the fair value of our outstanding long-term debt (including current portion) was $3,368.9 million and $3,359.1 million, respectively. All senior notes are valued based on significant observable inputs and would be 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.

Other

Under the terms of each of our debt facilities, we must comply with certain restrictions. These include restrictions on priority indebtedness (certain threshold percentages of secured consolidated net tangible assets), leverage thresholds, liens, and restrictions on certain types of sale lease-back transactions and transfers of assets. As of June 30, 2014, and December 31, 2013, we were in compliance with all of these restrictions and have met all debt payment obligations.

Table of Contents

12. Accumulated Other Comprehensive Income (Loss)

Changes in accumulated other comprehensive income (loss) ("AOCI") for the first half of 2014 were as follows:



	MCBC shareholders
	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, 2013	$	979.1		$	14.6		$	(556.3	)	$	(282.5	)	$	154.9
Foreign currency translation adjustments	28.5			(8.9		)	0.1			—			19.7
Unrealized gain (loss) on derivative instruments	—			6.3			—			—			6.3
Reclassification of derivative (gain) loss to income	—			(8.2		)	—			—			(8.2		)
Amortization of net prior service (benefit) cost and net actuarial (gain) loss to income	—			—			16.8			—			16.8
Ownership share of unconsolidated subsidiaries' other comprehensive income (loss)	—			—			—			16.9			16.9
Tax benefit (expense)	(41.6		)	0.2			(1.4		)	(7.7		)	(50.5		)
As of June 30, 2014	$	966.0		$	4.0		$	(540.8	)	$	(273.3	)	$	155.9

Reclassifications from AOCI to income for the three and six months ended June 30, 2014, and June 29, 2013, were as follows:



	Three Months Ended						Six Months Ended
	June 30, 2014			June 29, 2013			June 30, 2014			June 29, 2013
	Reclassifications from AOCI												Location of gain (loss) recognized in income
	(In millions)
Gain/(loss) on cash flow hedges:
Forward starting interest rate swaps	$	(0.4	)	$	(0.4	)	$	(0.8	)	$	(0.8	)	Interest expense, net
Foreign currency forwards	0.7			0.5			2.3			0.4			Other income (expense), net
Foreign currency forwards	3.0			1.2			6.3			1.7			Cost of goods sold
Commodity swaps	0.2			0.2			0.4			—			Cost of goods sold
Total income (loss) reclassified, before tax	3.5			1.5			8.2			1.3
Income tax benefit (expense)	(1.1		)	(0.7		)	(2.6		)	(0.6		)
Net income (loss) reclassified, net of tax	$	2.4		$	0.8		$	5.6		$	0.7

Amortization of defined benefit pension and other postretirement benefit plan items:
Prior service benefit (cost)	$	0.5		$	0.7		$	1.1		$	1.4		(1)
Net actuarial gain (loss)	(9.0		)	(14.0		)	(17.9		)	(28.2		)	(1)
Total income (loss) reclassified, before tax	(8.5		)	(13.3		)	(16.8		)	(26.8		)
Income tax benefit (expense)	0.7			—			1.4			2.9
Net income (loss) reclassified, net of tax	$	(7.8	)	$	(13.3	)	$	(15.4	)	$	(23.9	)

Total income (loss) reclassified, net of tax	$	(5.4	)	$	(12.5	)	$	(9.8	)	$	(23.2	)


(1)	These components of AOCI are included in the computation of net periodic pension and other postretirement benefit cost. See Note 14, "Pension and Other Postretirement Benefits" for additional details.

Table of Contents

13. Derivative Instruments and Hedging Activities

Our risk management and derivative accounting policies are presented in Notes 1 and 17 of the Notes included in our Annual Report and did not significantly change during the first half of 2014. As noted in Note 17 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 gross in our unaudited condensed consolidated balance sheets. Our significant derivative/hedge positions have not changed significantly since year-end, except as noted below.

Interest Rate Swaps

In the second quarter of 2014, we entered into interest rate swaps with an aggregate notional of $300 million to economically convert that portion of our fixed rate $500 million 3.5% notes due 2022 ("$500 million notes") to floating rate debt. We will receive fixed interest payments semi-annually at a rate of 3.5% per annum and pay a rate to our counterparties based on a credit spread plus the three month LIBOR rate, thereby effectively exchanging a fixed interest obligation for a floating interest obligation. Subsequent to June 30, 2014, we entered into incremental interest rate swaps with an aggregate notional of $200 million thus economically converting all of the $500 million notes to floating rate debt.

We entered into these interest rate swap agreements to minimize exposure to changes in the fair value of our $500 million notes that results from fluctuations in the benchmark interest rate, specifically LIBOR, and have designated these swaps as fair value hedges and determined that there is zero ineffectiveness. The changes in fair value of derivatives designated as fair value hedges and the offsetting changes in fair value of the hedged item are recognized in earnings. For each of the three and six months ended June 30, 2014, the changes in fair value of the interest rate swaps and the offsetting changes in fair value of the $500 million notes attributable to the benchmark interest rate was a gain of $1.2 million and a loss of $1.2 million respectively, both recorded in interest expense in our unaudited condensed consolidated statement of operations. Accordingly, as of June 30, 2014, such adjustments had increased the carrying value of our $500 million notes by $1.2 million. See Note 11, "Debt" for additional details.

Forward Starting Interest Rate Swaps

In the second quarter of 2014, we began to enter into forward starting interest rate swaps to manage our exposure to the volatility of the interest rates associated with future interest payments on a forecasted debt issuance. As of June 30, 2014, we had entered into one swap agreement having a total notional of CAD 40 million with a fixed interest rate of 3.11%. Subsequent to June 30, 2014, we entered into additional forward starting interest rate swaps totaling CAD 120 million and we intend to enter into multiple additional forward starting interest rate swaps up to the date of the forecasted issuance. The forward starting interest rate swaps have an effective date of September 2015 and a termination date of September 2025 mirroring the terms of the forecasted debt issuance. Under the agreements we are required to early terminate these swaps in 2015 at the time we expect to issue the forecasted debt. We have designated these contracts as cash flow hedges.

Cross Currency Swaps

In the first quarter of 2014, we early settled the final remaining CAD 241 million notional of our outstanding currency swaps designated as a net investment hedge of our Canadian operations for $65.2 million. As of June 30, 2014, we do not have any cross currency swap positions outstanding.

Table of Contents

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. The table below summarizes our derivative assets and liabilities that were measured at fair value as of June 30, 2014, and December 31, 2013.



				Fair value measurements as of June 30, 2014
	Total at June 30, 2014			Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)
	(In millions)
Interest rate swaps	$	0.9		$	—	$	0.9		$	—
Foreign currency forwards	10.6			—		10.6			—
Commodity swaps	(4.1		)	—		(4.1		)	—
Total	$	7.4		$	—	$	7.4		$	—



				Fair value measurements as of December 31, 2013
	Total at December 31, 2013			Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)
	(In millions)
Cross currency swaps	$	(71.7	)	$	—	$	(71.7	)	$	—
Foreign currency forwards	19.7			—		19.7			—
Commodity swaps	(4.9		)	—		(4.9		)	—
Total	$	(56.9	)	$	—	$	(56.9	)	$	—

As of June 30, 2014, we had no significant transfers between Level 1 and Level 2. New derivative contracts transacted during the three and six months ended June 30, 2014, were all included in Level 2.

Results of Period Derivative Activity

The tables below include the year to date results of our derivative activity in the unaudited condensed consolidated balance sheets as of June 30, 2014, and December 31, 2013, and the unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2014, and June 29, 2013.

Table of Contents

Fair Value of Derivative Instruments in the Condensed Consolidated Balance Sheet (in millions, except for certain commodity swaps with notional amounts measured in Metric Tonnes, as noted)



	June 30, 2014
			Asset derivatives			Liability derivatives
	Notional amount		Balance sheet location	Fair value		Balance sheet location	Fair value
Derivatives designated as hedging instruments:
Interest rate swaps	USD	337.5	Other non-current assets	$	1.2	Other liabilities	$	(0.3	)
Foreign currency forwards	USD	413.6	Other current assets	8.3		Accounts payable and other current liabilities	(0.1		)
			Other non-current assets	3.9		Other liabilities	(1.5		)
Total derivatives designated as hedging instruments				$	13.4		$	(1.9	)
Derivatives not designated as hedging instruments:
Commodity swaps - Natural Gas	kWh	744.3	Other current assets	$	0.5	Accounts payable and other current liabilities	$	(0.9	)
			Other non-current assets	0.1		Other liabilities	(0.4		)
Commodity swaps - Other	Metric tonnes (actual)	48,657	Other current assets	0.3		Accounts payable and other current liabilities	(1.7		)
			Other non-current assets	0.4		Other liabilities	(2.4		)
Total derivatives not designated as hedging instruments				$	1.3		$	(5.4	)



	December 31, 2013
			Asset derivatives			Liability derivatives
	Notional amount		Balance sheet location	Fair value		Balance sheet location	Fair value
Derivatives designated as hedging instruments:
Cross currency swaps	CAD	240.7	Other current assets	$	—	Accounts payable and other current liabilities	$	(71.7	)
Foreign currency forwards	USD	476.1	Other current assets	11.5		Accounts payable and other current liabilities	—
			Other non-current assets	8.2		Other liabilities	—
Commodity swaps	kWh	848.8	Other current assets	0.2		Accounts payable and other current liabilities	(0.2		)
			Other non-current assets	0.1		Other liabilities	(0.3		)
Total derivatives designated as hedging instruments				$	20.0		$	(72.2	)
Derivatives not designated as hedging instruments:
Commodity swaps	Metric tonnes (actual)	55,653	Other current assets	$	—	Accounts payable and other current liabilities	$	(2.0	)
			Other non-current assets	—		Other liabilities	(2.7		)
Total derivatives not designated as hedging instruments				$	—		$	(4.7	)

Table of Contents

The Pretax Effect of Derivative Instruments on the Condensed Consolidated Statement of Operations (in millions)



For the Three Months Ended June 30, 2014
Derivatives in cash flow hedge relationships	Amount of gain (loss) recognized in OCI on derivative (effective portion)			Location of gain (loss) reclassified from AOCI into income (effective portion)	Amount of gain (loss) recognized from AOCI on derivative (effective portion)			Location of gain (loss) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing)	Amount of gain (loss) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing)
Forward starting interest rate swaps	$	(0.3	)	Interest expense, net	$	(0.4	)	Interest expense, net	$	—
Foreign currency forwards	(15.1		)	Other income (expense), net	0.7			Other income (expense), net	—
				Cost of goods sold	3.0			Cost of goods sold	—
Commodity swaps	0.2			Cost of goods sold	0.2			Cost of goods sold	—
Total	$	(15.2	)		$	3.5			$	—



For the Three Months Ended June 29, 2013
Derivatives in cash flow hedge relationships	Amount of gain (loss) recognized in OCI on derivative (effective portion)			Location of gain (loss) reclassified from AOCI into income (effective portion)	Amount of gain (loss) recognized from AOCI on derivative (effective portion)			Location of gain (loss) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing)	Amount of gain (loss) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing)
Forward starting interest rate swaps	$	—		Interest expense, net	$	(0.4	)	Interest expense, net	$	—
Foreign currency forwards	14.8			Other income (expense), net	0.5			Other income (expense), net	—
				Cost of goods sold	1.2			Cost of goods sold	—
Commodity swaps	(0.6		)	Cost of goods sold	0.2			Cost of goods sold	—
Total	$	14.2			$	1.5			$	—



For the Three Months Ended June 29, 2013
Derivatives and non-derivative financial instruments in net investment hedge relationships	Amount of gain (loss) recognized in OCI (effective portion)			Location of gain (loss) reclassified from AOCI into income (effective portion)	Amount of gain (loss) recognized from AOCI (effective portion)		Location of gain (loss) recognized in income (ineffective portion and amount excluded from effectiveness testing)	Amount of gain (loss) recognized in income (ineffective portion and amount excluded from effectiveness testing)
Cross currency swaps	$	15.3		Other income (expense), net	$	—	Other income (expense), net	$	—
€120 million term loan due 2016	(1.7		)	Other income (expense), net	—		Other income (expense), net	—
Total	$	13.6			$	—		$	—



For the Six Months Ended June 30, 2014
Derivatives in cash flow hedge relationships	Amount of gain (loss) recognized in OCI on derivative (effective portion)			Location of gain (loss) reclassified from AOCI into income (effective portion)	Amount of gain (loss) recognized from AOCI on derivative (effective portion)			Location of gain (loss) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing)	Amount of gain (loss) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing)
Forward starting interest rate swaps	$	(0.3	)	Interest expense, net	$	(0.8	)	Interest expense, net	$	—
Foreign currency forwards	(0.4		)	Other income (expense), net	2.3			Other income (expense), net	—
				Cost of goods sold	6.3			Cost of goods sold	—
Commodity swaps	0.5			Cost of goods sold	0.4			Cost of goods sold	—
Total	$	(0.2	)		$	8.2			$	—

Table of Contents



For the Six Months Ended June 30, 2014
Derivatives and non-derivative financial instruments in net investment hedge relationships	Amount of gain (loss) recognized in OCI (effective portion)		Location of gain (loss) reclassified from AOCI into income (effective portion)	Amount of gain (loss) recognized from AOCI (effective portion)		Location of gain (loss) recognized in income (ineffective portion and amount excluded from effectiveness testing)	Amount of gain (loss) recognized in income (ineffective portion and amount excluded from effectiveness testing)
Cross currency swaps	$	6.5	Other income (expense), net	$	—	Other income (expense), net	$	—
Total	$	6.5		$	—		$	—



For the Six Months Ended June 29, 2013
Derivatives in cash flow hedge relationships	Amount of gain (loss) recognized in OCI on derivative (effective portion)		Location of gain (loss) reclassified from AOCI into income (effective portion)	Amount of gain (loss) recognized from AOCI on derivative (effective portion)			Location of gain (loss) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing)	Amount of gain (loss) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing)
Forward starting interest rate swaps	$	—	Interest expense, net	$	(0.8	)	Interest expense, net	$	—
Foreign currency forwards	23.7		Other income (expense), net	0.4			Other income (expense), net	—
			Cost of goods sold	1.7			Cost of goods sold	—
Commodity swaps	—		Cost of goods sold	—			Cost of goods sold	—
Total	$	23.7		$	1.3			$	—



For the Six Months Ended June 29, 2013
Derivatives and non-derivative financial instruments in net investment hedge relationships	Amount of gain (loss) recognized in OCI (effective portion)		Location of gain (loss) reclassified from AOCI into income (effective portion)	Amount of gain (loss) recognized from AOCI (effective portion)		Location of gain (loss) recognized in income (ineffective portion and amount excluded from effectiveness testing)	Amount of gain (loss) recognized in income (ineffective portion and amount excluded from effectiveness testing)
Cross currency swaps	$	29.5	Other income (expense), net	$	—	Other income (expense), net	$	—
€120 million term loan due 2016	2.0		Other income (expense), net	—		Other income (expense), net	—
Total	$	31.5		$	—		$	—

During the periods presented we recorded no significant ineffectiveness related to these cash flow, net investment and fair value hedges.

We expect net gains of approximately $8 million (pre-tax) recorded in AOCI at June 30, 2014, will be reclassified into earnings within the next 12 months. For derivatives designated in cash flow hedge relationships, the maximum length of time over which forecasted transactions are hedged at June 30, 2014, is 3.8 years.

Table of Contents

Other Derivatives (in millions)