Market Overview

Molson Coors Reports 2018 Second Quarter Results

Share:

EPS (U.S. GAAP) of $1.96 Increased 28.9%, and Underlying EPS
(Non-GAAP) of $1.88 Increased 10.6%, versus prior year

Sequential Improvement to Top and Bottom Line Reflects Benefits
from Positive Global Net Pricing, Cost Savings Delivery, Lower Marketing
Spend and U.S. Tax Reform, Despite Worldwide Brand Volumes down 2.4%

Management Remains Committed to Full-Year Free Cash Flow and Cost
Savings Targets

Molson Coors Brewing Company (NYSE:TAP, TSX:TPX) today reported
results for the 2018 second quarter. Molson Coors president and chief
executive officer Mark Hunter said:

"We were pleased with the sequential improvements in the second quarter
for top and bottom line results. Our full year underlying cost savings
and free cash flow guidance has not changed, despite ongoing industry
demand challenges in the U.S. and Canada and inflationary pressures.
While we are aggressively addressing our volume performance in North
America, performance in our Europe and International businesses was
strong in the quarter.

Mark continued, "More specifically for the quarter, our underlying EPS
growth of 10.6 percent reflected positive global net pricing, cost
savings delivery, lower marketing spend, and a lower tax rate, while we
continued to strengthen our balance sheet with lower net debt. Our
results also include the unfavorable timing effect of the revenue
recognition accounting standard, which reduced underlying EPS by 5 cents
for the quarter. This timing difference is largely expected to flip back
as a benefit in the fourth quarter. Across the organization, our teams
exercised flexibility in the P&L with lower MG&A spend across all
business units.

"Our teams are leaning in to deliver on our commitments for the full
year by finding opportunities to earn more, use less and invest wisely.
Guidance for free cash flow of $1.5 billion plus or minus 10 percent
this year is based on continuing to drive our First Choice commercial
excellence initiatives, as well as our disciplined approach to cost
savings, flexibility with discretionary spending and our continued focus
on driving working capital efficiencies."

Consolidated Performance - Second Quarter 2018
       
    Three Months Ended
($ in millions, except per share data) (Unaudited) June 30, 2018     June 30, 2017    

Reported %
Increase
(Decrease)

   

Foreign
Exchange
Impact ($)

   

Constant
Currency
% Increase
(Decrease)

Net Sales $ 3,085.2 $ 3,091.3 (0.2 )% $ 53.5 (1.9 )%
U.S. GAAP Net income (loss)(1) $ 424.1 $ 329.9 28.6

 %

Per diluted share $ 1.96 $ 1.52 28.9

 %

Underlying (Non-GAAP) Net income (loss)(2) $ 406.1 $ 367.1 10.6

 %

Per diluted share $ 1.88 $ 1.70 10.6

 %

 

Underlying EBITDA (Non-GAAP)(2)     $ 783.3       $ 804.2       (2.6 )%     $ 9.7       (3.8 )%
       
    Six Months Ended
($ in millions, except per share data) (Unaudited) June 30, 2018     June 30, 2017    

Reported
% Increase
(Decrease)

   

Foreign
Exchange
Impact ($)

   

Constant
Currency %
Increase
(Decrease)

Net Sales $ 5,416.7 $ 5,540.0 (2.2 )% $ 111.6 (4.2 )%
U.S. GAAP Net income (loss)(1) $ 702.2 $ 538.4 30.4

 %

Per diluted share $ 3.24 $ 2.49 30.1

 %

Underlying (Non-GAAP) Net income (loss)(2) $ 510.4 $ 539.3 (5.4 )%
Per diluted share $ 2.36 $ 2.49 (5.2 )%
Underlying EBITDA (Non-GAAP)(2)     $ 1,209.3       $ 1,327.0       (8.9 )%     $ 15.8       (10.1 )%
(1)   Net income (loss) attributable to MCBC.
(2) See Appendix for definitions and reconciliations of non-GAAP
financial measures.
 

Quarterly Highlights (versus Second Quarter 2017 Results)
  • Net sales: $3.1 billion, decreased by 0.2 percent, due to lower
    financial volume and the adoption of the new revenue recognition
    accounting standard (discussed in the Appendix below). These factors
    were largely offset by positive global pricing and favorable foreign
    currency movements. Net sales in constant currency declined 1.9
    percent.
  • Net sales per HL: $111.20 on a reported financial-volume basis,
    increased 1.9 percent. Net sales per HL on a brand volume basis(1)
    in constant currency decreased by 0.3 percent, driven by the adoption
    of the new revenue recognition accounting standard, partially offset
    by positive global net pricing as well as favorable mix in Europe and
    International.
  • Volume: Worldwide brand volume of 25.7 million hectoliters
    decreased 2.4 percent driven by declines in the U.S. and Canada
    partially offset by growth in Europe and International. Financial
    volume of 27.7 million hectoliters decreased 2.1 percent, and was
    adversely impacted by reductions in brand volumes and contract
    brewing. Global priority brand volume decreased 4.0 percent.
  • U.S. GAAP net income attributable to MCBC increased 28.6
    percent, driven by unrealized mark-to-market gains on our commodity
    positions (versus losses a year ago), cost savings, lower income tax
    expense, lower interest expense and positive net pricing, partially
    offset by lower financial volume, higher input cost inflation and the
    adoption of the new revenue recognition accounting standard.
  • Underlying net income increased 10.6 percent, driven by cost
    savings, lower income tax expense, lower interest expense and positive
    net pricing, partially offset by lower financial volume, higher cost
    inflation and the adoption of the new revenue recognition accounting
    standard.
  • Underlying EBITDA: Decreased 2.6 percent on a reported basis
    and decreased 3.8 percent on a constant-currency basis, driven by
    lower financial volume, higher input cost inflation and the impacts of
    the adoption of the new revenue recognition accounting standard,
    partially offset by positive global net pricing, cost savings and
    lower marketing spend.
  • U.S. GAAP cash from operations: Net cash provided by operating
    activities for the first half of 2018 was approximately $1.3
    billion, which represents an improvement of $479.3 million, driven by
    the $328 million cash payment received in January 2018 related to the
    receipt of a purchase price adjustment for our acquisition of the
    Miller International business, as well as working capital improvements
    and lower cash paid for pension contributions and interest.
  • Underlying free cash flow: cash received of $659.8 million,
    which represents an increase of $73.1 million from the prior year,
    driven by working capital improvements and lower cash paid for pension
    contributions and interest.
  • Debt: Total debt at the end of the second quarter of 2018 was
    $10.9 billion, and cash and cash equivalents totaled $792.9 million,
    resulting in net debt of $10.1 billion.

(1) Brand Volume Basis NSR/HL:
Effective in the first quarter of 2018, we have revised our net sales
revenue (NSR) per HL performance discussions to be on a brand volume
basis, with all per-hectoliter calculations including owned and actively
managed brands, along with royalty volume, in the denominator, as well
as the financial impact of these sales in the numerator, unless
otherwise indicated. See Appendix for definitions.

Business Review - Second Quarter 2018

Net Sales

       
($ in millions) (Unaudited)     Three Months Ended
June 30, 2018     June 30, 2017    

Reported
% Increase
(Decrease)

   

Foreign
Exchange
Impact ($)

   

Constant
Currency %
Increase
(Decrease)

United States $ 2,072.5 $ 2,138.9 (3.1 )% $ (3.1 )%
Canada 397.4 407.6 (2.5

)%

15.3 (6.3

)%

Europe 586.1 524.7 11.7

 %

38.8 4.3

 %

International 67.9 65.1 4.3

 %

(0.5 ) 5.1

 %

Corporate 0.3 0.3

 %

%
Eliminations(1) (39.0 ) (45.3 ) 13.9

 %

(0.1 ) 14.1

 %

Consolidated $ 3,085.2   $ 3,091.3   (0.2 )% $ 53.5   (1.9 )%
                                               
(1)   Reflects intercompany sales that are eliminated in consolidated
totals.
 

Pretax Income (U.S. GAAP)

       
($ in millions) (Unaudited)     Three Months Ended
June 30, 2018     June 30, 2017    

Reported
% Increase
(Decrease)

   

Foreign
Exchange
Impact ($)

   

Constant
Currency %
Increase
(Decrease)

United States $ 445.5 $ 486.5 (8.4 )% $ (0.5 ) (8.3 )%
Canada 61.3 69.7 (12.1 )% 1.3 (13.9 )%
Europe 86.8 69.9 24.2

 %

3.7 18.9

 %

International 1.3 (7.7 ) N/M (0.1 ) N/M
Corporate (71.9 ) (158.2 ) 54.6

 %

1.3   53.7

 %

Consolidated $ 523.0   $ 460.2   13.6

 %

$ 5.7   12.4

 %

                                               

N/M = Not meaningful

Underlying EBITDA (Non-GAAP)(1)

       
($ in millions) (Unaudited)     Three Months Ended
June 30, 2018     June 30, 2017    

Reported
% Increase
(Decrease)

   

Foreign
Exchange
Impact ($)

   

Constant
Currency %
Increase
(Decrease)

United States $ 576.3 $ 621.2 (7.2 )% $ (0.5 ) (7.1 )%
Canada 96.2 101.4 (5.1 )% 2.7 (7.8 )%
Europe 135.8 114.9 18.2

 %

7.4 11.7

 %

International 6.5 (0.9 ) N/M (0.3 ) N/M
Corporate (31.5 ) (32.4 ) 2.8

 %

0.4   1.5

 %

Consolidated $ 783.3   $ 804.2   (2.6 )% $ 9.7   (3.8 )%
                                               

N/M = Not meaningful

(1)   See Appendix for definitions and reconciliations of non-GAAP
financial measures.
 

United States Business

  • Volume: U.S. brand volume decreased 4.8 percent for the
    quarter, primarily driven by lower volume in the Premium Light
    segment. Sales-to-wholesalers (STWs), excluding contract brewing,
    volume decreased 3.6 percent.
  • Revenue: Net sales per hectoliter (brand volume basis), which
    excludes contract brewing and company-owned-distributor sales, grew
    0.9 percent. Excluding the $12.1 million impact of the new revenue
    recognition accounting standard, net sales per hectoliter (brand
    volume basis) grew 1.6 percent primarily as a result of higher net
    pricing, partially offset by negative sales mix.
  • Cost of goods sold (COGS) per hectoliter increased 5.5 percent,
    driven by higher freight and fuel costs, aluminum inflation and volume
    deleverage, partially offset by cost savings.
  • Marketing, general and administrative (MG&A) expense
    decreased 5.2 percent due to spending optimization and efficiencies as
    well as lower employee-related expenses.
  • On a U.S. GAAP basis, U.S. pretax income decreased 8.4 percent
    to $445.5 million, primarily driven by higher COGS, particularly
    aluminum and freight, lower volumes, negative sales mix, the
    unfavorable impact of the new revenue recognition accounting standard
    and higher depreciation expense, partially offset by higher net
    pricing and lower MG&A expenses.
  • U.S. underlying EBITDA decreased 7.2 percent to $576.3 million,
    driven by higher COGS, particularly aluminum and freight, lower
    volumes, negative sales mix and the unfavorable impact of the new
    revenue recognition accounting standard, partially offset by higher
    net pricing and lower MG&A expenses.

Canada Business

  • Volume: Canada brand volume decreased 2.4 percent in the second
    quarter, as a result of volume challenges in Ontario and the West and
    lower volumes in the Premium Light segment, partially offset by growth
    in the Value segment. Financial volume decreased 2.3 percent primarily
    due to brand volume declines.
  • Revenue: Net sales per hectoliter (brand volume basis)
    decreased 4.5 percent in local currency, driven by our adoption of the
    new revenue recognition accounting standard, which reduced net sales
    by approximately $12 million in the quarter. Excluding the effect of
    the new accounting standard, NSR per HL (brand volume basis) would
    have decreased 1.4 percent in local currency due to negative brand
    mix, partially offset by higher net pricing.
  • COGS per hectoliter decreased 0.7 percent in local currency due
    to cost savings and certain one-time distribution savings, partially
    offset by volume deleverage, negative mix and input cost inflation.
  • MG&A expense decreased 13.8 percent in local currency,
    driven by the approximate $10 million favorable impact of the new
    revenue recognition accounting standard, as well as timing benefits
    and an overall reduction in brand investments.
  • On a U.S. GAAP basis, Canada reported pretax income of
    $61.3 million, a 12.1 percent decrease from the prior year, driven by
    negative sales mix and lower volumes as well as unfavorable impacts
    related to the adoption of the new revenue recognition accounting
    standard, partially offset by lower marketing investment.
  • Canada underlying EBITDA decreased 7.8 percent in constant
    currency to $96.2 million in the quarter, due to the same factors as
    U.S. GAAP results.

Europe Business

  • Volume: Europe brand volume increased 2.9 percent in the second
    quarter versus a year ago, as a result of above premium brands and
    national champion brand performance, as well as World Cup consumption.
    Europe financial volume increased 3.0 percent.
  • Revenue: Europe net sales per hectoliter (brand volume basis)
    increased 1.5 percent in local currency, primarily driven by positive
    sales mix and pricing. This was partially offset by the impact of
    adopting recently revised excise-tax guidelines in one of our European
    markets as well as increasing our investment behind our First Choice
    Agenda this year.
  • COGS per hectoliter increased 1.5 percent in local currency,
    primarily due to mix shift to higher-cost brands and geographies,
    input inflation and logistics costs.
  • MG&A expense decreased 3.5 percent in local currency,
    driven by spend efficiency and timing of brand investments, the impact
    of adopting the new revenue recognition accounting standard and a
    benefit from the partial reversal of bad debt provisions, slightly
    offset by the addition of Aspall brand investments.
  • On a U.S. GAAP basis, Europe reported pretax income of
    $86.8 million, an increase of 24.2 percent driven by favorable gross
    profit impacts, lower marketing investments, the partial reversal of
    bad debt provisions and the addition of the Aspall Cider business and
    favorable foreign currency movements. These factors were partially
    offset by adopting recently revised excise tax guidelines in one of
    our European markets and investments in our First Choice Agenda.
  • Europe underlying EBITDA increased 11.7 percent in constant
    currency to $135.8 million, due to the same factors as U.S. GAAP
    results.

International Business

  • Volume: International brand volume increased by 0.6 percent in
    the second quarter, driven by organic growth in many of our focus
    markets, partially offset by the loss of the Modelo contract in Japan.
  • Revenue: Net sales per hectoliter (brand volume basis)
    increased by 3.8 percent, driven by positive net pricing and favorable
    sales mix.
  • COGS per hectoliter decreased 6.9 percent, due to sales mix
    changes.
  • MG&A expense decreased 16.6 percent, driven by lower
    marketing investments and integration costs.
  • On a U.S. GAAP basis, International reported pretax income
    of $1.3 million versus a loss of $7.7 million a year ago, driven
    by positive net pricing, favorable sales mix, and lower marketing and
    integration expenses, partially offset by the loss of the Modelo
    brands in Japan.
  • International underlying EBITDA was $6.5 million in the second
    quarter, compared to $0.9 million loss a year ago, driven by by
    positive net pricing, favorable sales mix, and lower marketing
    expenses, partially offset by the loss of the Modelo brands in Japan.

Corporate

  • On a U.S. GAAP basis, Corporate reported a pretax loss of
    $71.9 million in the second quarter compared to a loss of $158.2
    million in the prior year, due to unrealized mark-to-market gains on
    commodity swaps, primarily our aluminum positions, compared to losses
    a year ago as well as lower interest expense in the current year.
  • Corporate underlying EBITDA was a loss of $31.5 million for the
    second quarter versus a $32.4 million loss in the prior year, driven
    primarily by the timing of general and administrative costs, slightly
    offset by pension benefit and favorable foreign currency.

Worldwide Brand and Financial Volume(1)
       
(In millions of hectoliters) (Unaudited)     Three Months Ended
June 30, 2018     % Change     June 30, 2017
Financial Volume(1) 27.745 (2.1 )% 28.340
Contract brewing, wholesaler and non-beer volume (2.277 ) (4.7 )% (2.390 )
Royalty volume 1.057 2.3

 %

1.033
Sales-To-Wholesaler to Sales-To-Retail adjustment (0.780 ) 26.4

 %

(0.617 )
Total Worldwide Brand Volume(1) 25.745   (2.4 )% 26.366  
                         
(1)   See Appendix for definitions and additional discussion regarding
Financial and Worldwide Brand Volume.
 
Other Results

Effective Income Tax Rates

       
    Three Months Ended
June 30, 2018     June 30, 2017
U.S. GAAP effective tax rate 18 % 27 %
Underlying effective tax rate 17 % 28 %
                 
 
  • The U.S. GAAP effective tax rate and the underlying
    effective tax rate
    decreased 9 percentage points and 11 percentage
    points, respectively, from a year ago, primarily due to the reduction
    of the U.S. federal statutory corporate income tax rate to 21 percent
    as a result of U.S. tax reform.

Special and Other Non-Core Items

The following special and other non-core items have been excluded
from underlying results. See the Appendix for reconciliations of
non-GAAP financial measures.

  • During the second quarter of 2018, MCBC recognized a net special
    charge
    of $10.5 million, primarily driven by asset abandonment
    charges, including accelerated depreciation, related to brewery
    closures.
  • Additionally, other non-core net benefits of $35.4 million
    include unrealized mark-to-market gains on commodity hedges as well as
    integration-related expenses.

2018 Outlook

The following guidance for full year 2018 is unchanged from previous
disclosures, unless otherwise indicated:

  • Underlying free cash flow: $1.5 billion, plus or minus
    10 percent, which excludes the $328 million cash payment received in
    January 2018 related to resolving a purchase price adjustment to our
    October 2016 acquisition of the Miller International business.
  • Transaction-related metrics: approximately $200 million
    (included in free cash flow guidance) of cash tax benefits and
    approximately $55 million of after-tax book amortization.
  • Cash pension contributions: approximately $10 million.
  • Capital spending: approximately $670 million, plus or minus 10
    percent.
  • Cost savings: approximately $210 million in 2018, and $600
    million for 2017 to 2019.
  • Cost of goods sold per hectoliter:
  • U.S.: mid-single-digit increase. - Updated (formerly
    low-single-digit increase)
  • Canada: low-single-digit increase (local currency).
  • Europe: low-single-digit increase (local currency).
  • International business: low-single-digit decrease.
  • Underlying Corporate MG&A expense: approximately $180
    million, plus or minus 10 percent.
  • Underlying depreciation and amortization: approximately
    $850 million, versus $792 million in 2017, primarily due to planned
    information systems implementations in the U.S.
  • Pension benefit: approximately $60 million.
  • Corporate net interest expense: approximately $330 million,
    plus or minus 10 percent.
  • Underlying effective tax rate in the range of 18 to 22 percent
    for 2018, following the enactment of U.S. tax reform. Subject to
    additional definitive guidance from the U.S. government regarding the
    implementation of the recently passed tax reform legislation, the
    company's preliminary view of its long-term effective tax rate (after
    2018) is in the range of 20 to 24 percent.
  • Deleverage & Dividend: We are committed to maintaining our
    investment grade rating and currently plan to achieve approximately 4x
    leverage on a rating agency basis by the end of 2018. We plan to
    achieve about 3.75x rating agency leverage around the middle of 2019.
    Upon achieving about 3.75x leverage, our board currently intends to
    reinstitute a dividend payout-ratio target in the range of 20-25% of
    annual trailing underlying EBITDA for the second half of 2019 and
    ongoing thereafter. - New
  • In addition, our 2018 results are also being impacted by the adoption
    of the new revenue recognition accounting standard, as well as
    guidance changing the presentation of pension and other postretirement
    benefit (OPEB) costs.
  • The new revenue recognition accounting standard became
    effective for us at the beginning of 2018, and we have elected the
    modified retrospective adoption method. Therefore, prior period
    results have not been restated, but results under the old standard
    will continue to be disclosed throughout 2018 for comparability, as
    required by the standard. Along with some timing changes between
    quarters, this adoption changes the presentation of our results. We
    currently anticipate that the impact of this change will result in a
    reduction of both revenue and marketing, general and administrative
    expenses by approximately $60 million to $70 million during 2018,
    primarily within our Canada segment, with no impact to full year net
    income. See Appendix for detailed impacts on 2018 results from our
    adoption of the new revenue recognition accounting standard.
  • Under the new pension guidance, we are continuing to report the
    service cost component of net periodic pension and OPEB costs or
    income in our business segment operating results. Beginning in 2018,
    however, all other components of net periodic pension and OPEB cost or
    income are being reported in Corporate outside of operating income.
    Prior period results for each of our segments and Consolidated have
    been restated retrospectively for this change, as required by the
    guidance, with no impact to consolidated net income. This accounting
    change primarily impacts the reported results of our Europe segment.
    See Appendix section below.
  • The impacts of these accounting changes are discussed in further
    detail within footnote 2 of our 2017 Form 10-K and our 2018 quarterly
    reports on Form 10-Q.

Notes

Unless otherwise indicated in this release, all $ amounts are in U.S.
Dollars, and all quarterly comparative results are for the Company's
second quarter ended June 30, 2018, compared to the second quarter ended
June 30, 2017. Prior year results have been adjusted to reflect the
retrospective adoption of new pension accounting, as described above.
Effective in the first quarter of 2018, we have revised our net sales
revenue (NSR) per HL performance discussions to be on a brand volume
basis, such that all per-hectoliter calculations now include owned and
actively managed brand volume, along with royalty volume, in the
denominator, as well as the financial impact of these sales in the
numerator, unless otherwise indicated. Some numbers may not sum due to
rounding.

As used in this release, the term "Acquisition" refers to the Company's
acquisition from Anheuser-Busch InBev SA/NV on October 11, 2016, of
SABMiller plc's 58 percent economic interest and 50 percent voting
interest in MillerCoors LLC and all trademarks, contracts and other
assets primarily related to the Miller International business outside of
the U.S. and Puerto Rico.

2018 Second Quarter Conference Call

Molson Coors Brewing Company will conduct an earnings conference call
with financial analysts and investors at 11:00 a.m. Eastern Time today
to discuss the Company's 2018 second quarter results. The live webcast
will be accessible via the Company's website, www.molsoncoors.com.
An online replay of the webcast will be available until 11:59 p.m.
Eastern Time on October 31, 2019. The Company will post this release and
related financial statements on its website today.

Upcoming Investor Webcast

The company will host an online, real-time webcast at the Barclays
Global Consumer Staples Conference in Boston on Wednesday, September 5,
2018 at 9:45 a.m. Eastern Time. A live webcast of this investor event
will be accessible via the Molson Coors Brewing Company Investor
Relations website, ir.molsoncoors.com. An online replay of the
presentation webcast will be available on the website within two hours
after the presentation.

Overview of Molson Coors

Molson Coors has defined brewing greatness for more than two centuries.
As one of the largest global brewers, Molson Coors works to deliver
extraordinary brands that delight the world's beer drinkers. From Coors
Light, Coors Banquet, Miller Lite, Molson Canadian, Carling, Staropramen
and Sharp's Doom Bar to Leinenkugel's Summer Shandy, Blue Moon Belgian
White, Hop Valley, Creemore Springs and Crispin Cider, Molson Coors
offers a beer for every beer lover.

Molson Coors operates through Molson Coors Canada, MillerCoors in the
U.S., Molson Coors Europe and Molson Coors International. The company is
not only committed to brewing extraordinary beers, but also running a
business focused on respect for its employees, communities and drinkers,
which means corporate responsibility and accountability right from the
start. It has been listed on the Dow Jones Sustainability Index for the
past seven years. To learn more about Molson Coors Brewing Company,
visit molsoncoors.com, ourbeerprint.com
or on Twitter through @MolsonCoors.

About Molson Coors Canada Inc.

Molson Coors Canada Inc. (MCCI) is a subsidiary of Molson Coors Brewing
Company. MCCI Class A and Class B exchangeable shares offer
substantially the same economic and voting rights as the respective
classes of common shares of MCBC, as described in MCBC's annual proxy
statement and Form 10-K filings with the U.S. Securities and Exchange
Commission. 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.

Forward-Looking Statements

This press release includes "forward-looking statements" within the
meaning of the U.S. federal securities laws.
Generally, the words
"believe," "expect," "intend," "anticipate," "project," "will,"
"outlook," and similar expressions identify forward-looking statements,
which generally are not historic in nature.
Although the Company
believes that the assumptions upon which its forward-looking statements
are based are reasonable, it can give no assurance that these
assumptions will prove to be correct. Important factors that could cause
actual results to differ materially from the Company's historical
experience, and present projections and expectations are disclosed in
the Company's filings with the Securities and Exchange Commission
("SEC").
These factors include, among others, our ability to
successfully integrate and achieve expected tax benefits, accretion and
cost savings and synergies relating to the Acquisition; impact of
increased competition resulting from further consolidation of brewers,
competitive pricing and product pressures; health of the beer industry
and our brands in our markets; economic conditions in our markets;
additional impairment charges; our ability to maintain
manufacturer/distribution agreements; changes in our supply chain
system; availability or increase in the cost of packaging materials;
success of our joint ventures; risks relating to operations in
developing and emerging markets; changes in legal and regulatory
requirements, including the regulation of distribution systems;
fluctuations in foreign currency exchange rates; increase in the cost of
commodities used in the business; the impact of climate change and the
availability and quality of water; loss or closure of a major brewery or
other key facility; our ability to implement our strategic initiatives,
including executing and realizing cost savings; our ability to
successfully integrate newly acquired businesses; pension plan and other
post-retirement benefit costs; failure to comply with debt covenants or
deterioration in our credit rating; our ability to maintain good labor
relations; our ability to maintain brand image, reputation and product
quality; and other risks discussed in our filings with the SEC,
including our most recent Annual Report on Form 10-K and our Quarterly
Reports on Form 10-Q.
All forward-looking statements in this
press release are expressly qualified by such cautionary statements and
by reference to the underlying assumptions. You should not place undue
reliance on forward-looking statements, which speak only as of the date
they are made.
We do not undertake to update forward-looking
statements, whether as a result of new information, future events or
otherwise.

             

APPENDIX

Consolidated Financial Performance

   
   
Molson Coors Brewing Company Three Months Ended June 30, 2018 % Change  
(In millions, except per share data)(Unaudited) U.S. GAAP    

Non-GAAP
Adjustments(1)

   

Non-GAAP
Underlying(1)

U.S. GAAP    

Non-GAAP
Underlying

Net sales $ 3,085.2 $ $ 3,085.2 (0.2 )% (0.2 )%
Net Sales per HL change 1.9

 %

1.9 %
Cost of goods sold $ (1,739.1 ) $ (43.9 ) $ (1,783.0 ) (0.9 )% 3.2 %
Cost of goods sold per HL change 1.2

 %

5.4 %
Gross profit $ 1,346.1 $ (43.9 ) $ 1,302.2 0.8

 %

(4.5 )%
Marketing, general and administrative expenses $ (744.7 ) $ 8.5 $ (736.2 ) (4.8 )% (4.2 )%
Special items, net $ (10.5 ) $ 10.5 $ (36.4 )% %
Operating income (loss) $ 590.9 $ (24.9 ) $ 566.0 10.1

 %

(5.0 )%
Interest income (expense), net $ (76.7 ) $ $ (76.7 ) (14.0 )% (14.0 )%
Other pension and postretirement benefits (costs), net $ 9.9 $ $ 9.9 5.3

 %

5.3 %
Other income (expense), net $ (1.1 ) $ $ (1.1 ) N/M N/M
Income (loss) before income taxes $ 523.0 $ (24.9 ) $ 498.1 13.6 % (4.0 )%
Income tax benefit (expense) $ (92.2 ) $ 6.9 $ (85.3 ) (26.4 )% (41.9 )%
Net income (loss)(2) $ 424.1 $ (18.0 ) $ 406.1 28.6 % 10.6 %
Per diluted share $ 1.96 $ (0.08 ) $ 1.88 28.9 % 10.6 %
Underlying EBITDA(3) $ 783.3 (2.6 )%
                                     
             
Molson Coors Brewing Company     Six Months Ended June 30, 2018     % Change  
(In millions, except per share data)(Unaudited) U.S. GAAP    

Non-GAAP
Adjustments(1)

   

Non-GAAP
Underlying(1)

U.S. GAAP    

Non-GAAP
Underlying

Net sales $ 5,416.7 $ $ 5,416.7 (2.2 )% (2.2 )%
Net Sales per HL change 1.1

 %

1.1

 %

Cost of goods sold $ (3,274.8 ) $ 42.2 $ (3,232.6 ) 4.7

 %

2.2

 %

Cost of goods sold per HL change 8.3

 %

5.7

 %

Gross profit $ 2,141.9 $ 42.2 $ 2,184.1 (11.2 )% (8.2 )%
Marketing, general and administrative expenses $ (1,425.8 ) $ 17.3 $ (1,408.5 ) (4.2 )% (3.2 )%
Special items, net $ 304.3 $ (304.3 ) $ N/M

 %

Operating income (loss) $ 1,020.4 $ (244.8 ) $ 775.6 13.2

 %

(15.9 )%
Interest income (expense), net $ (159.9 ) $ $ (159.9 ) (13.9 )% (13.9 )%
Other pension and postretirement benefits (costs), net $ 19.9 $ 0.1 $ 20.0 (12.3 )% 1.0

 %

Other income (expense), net $ $ $ (100.0 )% (100.0 )%
Income (loss) before income taxes $ 880.4 $ (244.7 ) $ 635.7 18.8

 %

(15.4 )%
Income tax benefit (expense) $ (167.1 ) $ 52.9 $ (114.2 ) (12.6 )% (43.1 )%
Net income (loss)(2) $ 702.2 $ (191.8 ) $ 510.4 30.4

 %

(5.4 )%
Per diluted share $ 3.24 $ (0.88 ) $ 2.36 30.1

 %

(5.2 )%
Underlying EBITDA(3) $ 1,209.3 (8.9 )%
                                   

N/M = Not meaningful

(1)   Refer to the table "Reconciliation to Nearest U.S. GAAP Measures"
for detailed descriptions and reconciliation of non-GAAP adjustments
and results.
(2) Net income (loss) attributable to MCBC.
(3) EBITDA is earnings before interest, taxes, depreciation and
amortization, a non-GAAP financial measure.
 

Adoption of Revenue Recognition Guidance

The new revenue recognition accounting standard became effective for us
at the beginning of 2018. We have adopted the new standard using the
modified retrospective approach, and, therefore, prior period results
have not been restated. However, results under the old standard will
continue to be disclosed throughout 2018 for comparability, as required
by the standard. The following table highlights the impact of this new
guidance on summarized components of our unaudited condensed
consolidated statement of operations for the three months ended June 30,
2018, when comparing our current period results of operations under the
new guidance, versus our results of operations if historical guidance
had continued to be applied.

 
Three Months Ended June 30, 2018
U.S.     Canada     Europe     International     Consolidated
(In millions)
Impact to Unaudited Condensed Consolidated Statements of
Operations - Favorable/(Unfavorable):
Net sales $ (12.1 ) $ (12.1 ) $ (0.5 ) $ $ (24.7 )
Cost of goods sold $ $ $ $ $
Gross profit $ (12.1 ) $ (12.1 ) $ (0.5 ) $ $ (24.7 )
Marketing, general and administrative expenses $ 2.2 $ 9.9 $ 0.9 $ $ 13.0
Operating income (loss) $ (9.9 ) $ (2.2 ) $ 0.4 $ $ (11.7 )
Interest income (expense), net $ $ $ (0.9 ) $ $ (0.9 )
Income (loss) before income taxes   $ (9.9 )     $ (2.2 )     $ (0.5 )     $       $ (12.6 )
 

These impacts are driven primarily by the reclassification of certain
cash payments to customers from marketing, general and administrative
expenses to a reduction of revenue, as well as a change in the timing of
recognition of certain promotional discounts and cash payments to
customers. For further discussion regarding the impacts of the adoption
of this new guidance, refer to footnote 2 within our second quarter 2018
Form 10-Q.

Adoption of Pension and Other Postretirement Benefit Accounting
Pronouncement

During the first quarter of 2018, we adopted the FASB's new guidance
related to classification of pension and other postretirement benefit
costs. Specifically, the new guidance requires us only to report the
service cost component in the same line item as other compensation costs
arising from services rendered by the pertinent employees during the
period; while the other components of net benefit cost are now presented
in the statements of operations separately from the service cost
component and outside of operating income. We have also determined that
only service cost will be reported within each operating segment, and
all other components will be reported within the Corporate segment.
These changes to the results of each quarter and full year 2017 were
included in the first quarter Earnings Release. See the Company's second
quarter 2018 10-Q filing for additional detail.

Worldwide Brand and Financial Volumes

Worldwide brand volume reflects only owned brands sold to unrelated
external customers within our geographic markets (net of returns and
allowances), royalty volume and our proportionate share of equity
investment worldwide brand volume calculated consistently with MCBC
owned volume. Contract brewing and wholesaler volume is included within
financial volume, but is removed from worldwide brand volume, as this is
non-owned volume for which we do not directly control performance. Our
worldwide brand volume definition also includes an adjustment from
Sales-to-Wholesaler (STW) volume to Sales-to-Retailer (STR) volume. We
believe the brand volume metric is important because, unlike financial
volume and STWs, it provides the closest indication of the performance
of our brands in relation to market and competitor sales trends.

Effective in the first quarter of 2018, we revised our net sales revenue
(NSR) per HL performance discussions to be on a brand volume basis, such
that all per-hectoliter calculations now include owned and actively
managed brand volume, along with royalty volume, in the denominator, as
well as the financial impact of these sales in the numerator, unless
otherwise indicated.

Use of Non-GAAP Measures

In addition to financial measures presented on the basis of accounting
principles generally accepted in the U.S. ("U.S. GAAP"), we also present
"underlying pretax and net income," "underlying income per diluted
share," "underlying effective tax rate," and "underlying free cash
flow," which are non-GAAP measures and should be viewed as supplements
to (not substitutes for) our results of operations presented under
U.S. GAAP. We also present underlying earnings before interest, taxes,
depreciation, and amortization ("underlying EBITDA") as a non-GAAP
measure, as well as underlying EBITDA margin, which is calculated by
dividing underlying EBITDA by U.S. GAAP net sales. Our management uses
underlying income, underlying income per diluted share, underlying
EBITDA (and margin), and underlying effective tax rate as measures of
operating performance, as well as underlying free cash flow in the
measure of cash generated from core operations, to assist in comparing
performance from period to period on a consistent basis; as a measure
for planning and forecasting overall expectations and for evaluating
actual results against such expectations; in communications with the
board of directors, stockholders, analysts and investors concerning our
financial performance; as useful comparisons to the performance of our
competitors; and as metrics of certain management incentive compensation
calculations. We believe that underlying income, underlying income per
diluted share, underlying EBITDA (and margin), and underlying effective
tax rate performance are used by, and are useful to, investors and other
users of our financial statements in evaluating our operating
performance, as well as underlying free cash flow in evaluating our
generation of cash from core operations, because they provide an
additional tool to evaluate our performance without regard to special
and non-core items, which can vary substantially from company to company
depending upon accounting methods and book value of assets and capital
structure. In addition to the reasons discussed above, we consider
underlying free cash flow an important measure of our ability to
generate cash, grow our business and enhance shareholder value, driven
by core operations and after adjusting for non-core items. For
discussion and analysis of our liquidity, see the consolidated
statements of cash flows and the Liquidity and Capital Resources section
of our Management's Discussion and Analysis of Financial Condition and
Results of Operations in our latest Form 10-K and 10-Q filings with the
SEC.

We have provided reconciliations of all historical non-GAAP measures to
their nearest U.S. GAAP measure and have consistently applied the
adjustments within our reconciliations in arriving at each non-GAAP
measure. These adjustments consist of special items from our U.S. GAAP
financial statements as well as other non-core items, such as
acquisition and integration related costs, unrealized mark-to-market
gains and losses, and gains and losses on sales of non-operating assets,
included in our U.S. GAAP results that warrant adjustment to arrive at
non-GAAP results. We consider these items to be necessary adjustments
for purposes of evaluating our ongoing business performance and are
often considered non-recurring. Such adjustments are subjective and
involve significant management judgment.

Our guidance for underlying Corporate MG&A, underlying depreciation and
amortization, underlying free cash flow and underlying effective tax
rate are also non-GAAP financial measures that exclude or otherwise have
been adjusted for special items from our U.S. GAAP financial statements
as well as other non-core items, such as acquisition and integration
related costs, unrealized mark-to-market gains and losses, and gains and
losses on sales of non-operating assets, included in our U.S. GAAP
results that warrant adjustment to arrive at non-GAAP results. We
consider these items to be necessary adjustments for purposes of
evaluating our ongoing business performance and are often considered
non-recurring. Such adjustments are subjective and involve significant
management judgment. We are unable to reconcile the above described
guidance measures to their nearest U.S. GAAP measures without
unreasonable efforts because we are unable to predict with a reasonable
degree of certainty the actual impact of the special and other non-core
items. By their very nature, special and other non-core items are
difficult to anticipate with precision because they are generally
associated with unexpected and unplanned events that impact our company
and its financial results. Therefore, we are unable to provide a
reconciliation of these measures.

Reconciliations to Nearest U.S. GAAP Measures

Underlying EBITDA

       
($ in millions) (Unaudited)     Three Months Ended
June 30, 2018     % change     June 30, 2017
U.S. GAAP: Net income (loss) attributable to MCBC $ 424.1 28.6

 %

$ 329.9
Add: Net income (loss) attributable to noncontrolling
interests
6.7   31.4

 %

5.1  
U.S. GAAP: Net income (loss) 430.8 28.6

 %

335.0
Add: Interest expense (income), net 76.7 (14.0 )% 89.2
Add: Income tax expense (benefit) 92.2 (26.4 )% 125.2
Add: Depreciation and amortization 215.9 8.5

 %

198.9
Adjustments included in underlying income(1) (24.9 ) N/M 58.8
Adjustments to arrive at underlying EBITDA(2) (7.4 ) 155.2

 %

(2.9 )
Non-GAAP: Underlying EBITDA $ 783.3   (2.6 )% $ 804.2  
                             
       
($ in millions) (Unaudited)     Six Months Ended
June 30, 2018     % change     June 30, 2017
U.S. GAAP: Net income (loss) attributable to MCBC $ 702.2 30.4

 %

$ 538.4
Add: Net income (loss) attributable to noncontrolling
interests
11.1   (4.3 )% 11.6  
U.S. GAAP: Net income (loss) 713.3 29.7

 %

550.0
Add: Interest expense (income), net 159.9 (13.9 )% 185.8
Add: Income tax expense (benefit) 167.1 (12.6 )% 191.1
Add: Depreciation and amortization 429.6 8.5

 %

396.0
Adjustments included in underlying income(1) (244.7 ) N/M 10.4
Adjustments to arrive at underlying EBITDA(2) (15.9 ) 152.4

 %

(6.3 )
Non-GAAP: Underlying EBITDA $ 1,209.3   (8.9 )% $ 1,327.0  
                             

N/M = Not meaningful

(1)   Includes adjustments to non-GAAP underlying income within the table
above related to special and non-core items.
(2) Represents adjustments to remove amounts related to interest,
depreciation and amortization included in the adjustments to
non-GAAP underlying income above, as these items are added back as
adjustments to net income attributable to MCBC.
 

Underlying Free Cash Flow

       
(In millions) (Unaudited)     Six Months Ended
June 30, 2018     June 30, 2017
U.S. GAAP: Net Cash Provided by (Used In) Operating Activities $ 1,297.8 $ 818.5
Less: Additions to properties(1) (351.1 ) (354.0 )
Add/Less: Cash impact of special items(2) (321.6 ) 59.0
Add: Non-core costs related to acquisition of businesses(3) 34.7   63.2  
Non-GAAP: Underlying Free Cash Flow $ 659.8   $ 586.7  
                       
(1)   Included in net cash used in investing activities.
(2) Included in net cash provided by (used in) operating activities. For
the six months ended June 30, 2018, primarily reflects the
settlement payment received relating to a purchase price adjustment
and for the six months ended June 30, 2017, primarily reflects costs
paid for brewery closures and restructuring activities.
(3) Included in net cash provided by operating activities and reflects
costs paid associated with the Acquisition of 58% of MillerCoors,
LLC, and the Miller global brand portfolio.
 

Statements of Operations -- 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, 2018     June 30, 2017 June 30, 2018     June 30, 2017
Financial volume in hectoliters 27.745   28.340   48.558   50.218  
Sales $ 3,820.5 $ 3,793.1 $ 6,688.5 $ 6,706.9
Excise taxes (735.3 ) (701.8 ) (1,271.8 ) (1,166.9 )
Net sales 3,085.2 3,091.3 5,416.7 5,540.0
Cost of goods sold (1,739.1 ) (1,755.5 ) (3,274.8 ) (3,127.8 )
Gross profit 1,346.1 1,335.8 2,141.9 2,412.2
Marketing, general and administrative expenses (744.7 ) (782.4 ) (1,425.8 ) (1,487.7 )
Special items, net (10.5 ) (16.5 ) 304.3   (23.2 )
Operating income (loss) 590.9 536.9 1,020.4 901.3
Interest income (expense), net (76.7 ) (89.2 ) (159.9 ) (185.8 )
Other pension and postretirement benefits (costs), net 9.9 9.4 19.9 22.7
Other income (expense), net (1.1 ) 3.1     2.9  
Income (loss) before income taxes 523.0 460.2 880.4 741.1
Income tax benefit (expense) (92.2 ) (125.2 ) (167.1 ) (191.1 )
Net income (loss) 430.8 335.0 713.3 550.0
Net (income) loss attributable to noncontrolling interests (6.7 ) (5.1 ) (11.1 ) (11.6 )
Net income (loss) attributable to MCBC $ 424.1   $ 329.9   $ 702.2   $ 538.4  
 
Basic net income (loss) attributable to MCBC per share: $ 1.96 $ 1.53 $ 3.25 $ 2.50
Diluted net income (loss) attributable to MCBC per share: $ 1.96 $ 1.52 $ 3.24 $ 2.49
 
Weighted average shares - basic 216.0 215.4 215.9 215.3
Weighted average shares - diluted 216.5 216.4 216.6 216.4
 
Dividends per share $ 0.41   $ 0.41   $ 0.82   $ 0.82  
                                         

       

Molson Coors Brewing Company and Subsidiaries
U.S.
Results of Operations

             
(In millions) (Unaudited) Three Months Ended Six Months Ended
June 30, 2018     June 30, 2017 June 30, 2018     June 30, 2017
Financial volume in hectoliters(1) 18.338   19.190   33.056   34.962  
Sales(1) $ 2,354.6 $ 2,433.0 $ 4,216.3 $ 4,424.4
Excise taxes (282.1 ) (294.1 ) (496.0 ) (535.6 )
Net sales(1) 2,072.5 2,138.9 3,720.3 3,888.8
Cost of goods sold(1) (1,189.7 ) (1,180.3 ) (2,179.8 ) (2,205.4 )
Gross profit 882.8 958.6 1,540.5 1,683.4
Marketing, general and administrative expenses (435.1 ) (458.8 ) (828.2 ) (864.5 )
Special items, net(2) (3.3 ) (12.6 ) (4.8 ) (15.1 )
Operating income 444.4 487.2 707.5 803.8
Interest income (expense), net 1.6 0.4
Other income (expense), net (0.5 ) (0.7 ) (0.7 ) (0.7 )
Income (loss) before income taxes $ 445.5 $ 486.5 $ 707.2 $ 803.1
Add/(less):
Special items, net(2) 3.3 12.6 4.8 15.1
Acquisition and integration related costs(3) 0.9   0.8   2.0   5.3  
Non-GAAP: Underlying pretax income (loss) $ 449.7 $ 499.9 $ 714.0 $ 823.5
Add: Interest expense (income), net (1.6 ) (0.4 )
Add: Depreciation and amortization 129.6 121.3 254.4 240.6
Adjustments to arrive at underlying EBITDA(4) (1.4 )   (2.8 )  
Non-GAAP: Underlying EBITDA $ 576.3   $ 621.2   $ 965.2   $ 1,064.1  
                                         
(1)   Includes gross inter-segment sales, purchases, and volumes, which
are eliminated in the consolidated totals.
(2) See Part I—Item 1. Financial Statements, Note 6, "Special Items" of
the Form 10-Q for detailed discussion of special items. Special
items for the three and six months ended June 30, 2018, includes
accelerated depreciation in excess of normal depreciation of $1.4
million and $2.8 million, respectively. These accelerated
depreciation charges are included in our adjustments to arrive at
underlying EBITDA.
(3) For the three and six months ended June 30, 2018, $0.9 million and
$2.0 million, respectively, of integration costs were incurred in
cost of goods sold, and for the three and six months ended June 30,
2017, $0.7 million and $1.2 million, respectively, of integration
costs were incurred in cost of goods sold. For the three and six
months ended June 30, 2017, integration costs of $0.1 million and
$4.1 million, respectively, were incurred in marketing, general &
administrative expenses.
(4) Represents adjustments to remove amounts related to interest,
depreciation and amortization included in the adjustments to
non-GAAP underlying income above, as these items are added back as
adjustments to net income attributable to MCBC.
 

 

Molson Coors Brewing Company and Subsidiaries

Canada Results of Operations

             
(In millions) (Unaudited) Three Months Ended   Six Months Ended
June 30, 2018     June 30, 2017 June 30, 2018     June 30, 2017
Financial volume in hectoliters(1) 2.473   2.530   4.180   4.323  
Sales(1) $ 524.6 $ 527.6 $ 899.5 $ 905.0
Excise taxes (127.2 ) (120.0 ) (218.3 ) (206.3 )
Net sales(1) 397.4 407.6 681.2 698.7
Cost of goods sold(1) (235.7 ) (233.4 ) (423.1 ) (414.5 )
Gross profit 161.7 174.2 258.1 284.2
Marketing, general and administrative expenses (94.3 ) (104.7 ) (175.3 ) (200.8 )
Special items, net(2) (5.7 ) (1.0 ) (11.3 ) (2.2 )
Operating income (loss) 61.7 68.5 71.5 81.2
Other income (expense), net (0.4 ) 1.2   (1.1 ) 9.4  
Income (loss) before income taxes $ 61.3 $ 69.7 $ 70.4 $ 90.6
Add/(less):
Special items, net(2) 5.7 1.0 11.3 2.2
Acquisition and integration related costs(3) 0.2 2.8 0.3 2.8
Other non-core items(4)         (8.1 )
Non-GAAP: Underlying pretax income (loss) $ 67.2 $ 73.5 $ 82.0 $ 87.5
Add: Depreciation and amortization 35.0 29.0 71.0 59.8
Adjustments to arrive at underlying EBITDA(5) (6.0 ) (1.1 ) (12.1 ) (2.3 )
Non-GAAP: Underlying EBITDA $ 96.2   $ 101.4   $ 140.9   $ 145.0  
                                         
(1)   Includes gross inter-segment sales, purchases, and volumes, which
are eliminated in the consolidated totals.
(2) See Part I—Item 1. Financial Statements, Note 6, "Special Items" of
the Form 10-Q for detailed discussion of special items. Special
items for the three and six months ended June 30, 2018, includes
accelerated depreciation in excess of normal depreciation of $1.0
million and $2.0 million, respectively, and for the three and six
months ended June 30, 2017, includes accelerated depreciation in
excess of normal depreciation of $1.1 million and $2.3 million,
respectively, related to the planned closure of the Vancouver
brewery. Also incurred in the three and six months ended June 30,
2018, are accelerated depreciation charges in excess of normal
depreciation of $5.0 million and $10.1 million, respectively,
related to the planned closure of our existing Montreal brewery.
These accelerated depreciation charges in excess of normal
depreciation are included in our adjustments to arrive at underlying
EBITDA.
(3) For the three and six months ended June 30, 2018, $0.2 million and
$0.3 million, respectively, of integration related costs were
incurred in cost of goods sold. For the three and six months ended
June 30, 2017, $2.8 million of integration related costs were
incurred in cost of goods sold.
(4) For the six months ended June 30, 2017, a gain of $8.1 million was
recorded in other income (expense), net resulting from a purchase
price adjustment related to the historical sale of Molson Inc.'s
ownership interest in the Montreal Canadiens.
(5) Represents adjustments to remove amounts related to interest,
depreciation and amortization included in the adjustments to
non-GAAP underlying income above, as these items are added back as
adjustments to net income attributable to MCBC.
 

 

Molson Coors Brewing Company and Subsidiaries

Europe Results of Operations

             
(In millions) (Unaudited)     Three Months Ended     Six Months Ended
June 30, 2018     June 30, 2017 June 30, 2018     June 30, 2017
Financial volume in hectoliters(1)(2) 6.916   6.715   11.320   11.074  
Sales(2) $ 893.9 $ 796.2 $ 1,492.4 $ 1,310.6
Excise taxes (307.8 ) (271.5 ) (532.0 ) (404.3 )
Net sales(2) 586.1 524.7 960.4 906.3
Cost of goods sold (353.6 ) (315.8 ) (621.3 ) (541.9 )
Gross profit 232.5 208.9 339.1 364.4
Marketing, general and administrative expenses (143.7 ) (138.0 ) (274.1 ) (264.8 )
Special items, net(3) 0.3   (2.6 ) (4.8 ) (5.2 )
Operating income (loss) 89.1 68.3 60.2 94.4
Interest income (expense), net (1.4 ) 1.0 (2.1 ) 2.0
Other income (expense), net (0.9 ) 0.6   (1.2 ) 0.5  
Income (loss) before income taxes $ 86.8 $ 69.9 $ 56.9 $ 96.9
Add/(less):
Special items, net(3) (0.3 ) 2.6 4.8 5.2
Acquisition and integration related costs(4) 0.1   0.1   0.3   0.3  
Non-GAAP: Underlying pretax income (loss) $ 86.6 $ 72.6 $ 62.0 $ 102.4
Add: Interest expense (income), net 1.4 (1.0 ) 2.1 (2.0 )
Add: Depreciation and amortization 47.8 45.1 97.2 88.9
Adjustments to arrive at underlying EBITDA(5)   (1.8 ) (1.0 ) (4.0 )
Non-GAAP: Underlying EBITDA $ 135.8   $ 114.9   $ 160.3   $ 185.3  
                                         
(1)   Excludes royalty volume of 0.490 million hectoliters and 0.796
million hectoliters for the three and six months ended June 30,
2018, respectively, and excludes royalty volume of 0.479 million
hectoliters and 0.804 million hectoliters for the three and six
months ended June 30, 2017, respectively.
(2) Includes gross inter-segment sales and volumes, which are eliminated
in the consolidated totals.
(3) See Part I—Item 1. Financial Statements, Note 6, "Special Items" of
the Form 10-Q for detailed discussion of special items. Special
items for the six months ended June 30, 2018, includes accelerated
depreciation in excess of normal depreciation of $1.0 million, and
for the three and six months ended June 30, 2017, includes
accelerated depreciation in excess of normal depreciation of $1.8
million and $4.0 million, respectively, related to the closure of
our Burton South brewery in the U.K., which was completed in the
first quarter of 2018. These accelerated depreciation charges in
excess of normal depreciation are included in our adjustments to
arrive at underlying EBITDA.
(4) For the three and six months ended June 30, 2018, $0.1 million and
$0.3 million, respectively, of integration related costs were
incurred in cost of goods sold, and for the three and six months
ended June 30, 2017, $0.1 million and $0.3 million, respectively, of
acquisition and integration related costs were incurred in cost of
goods sold.
(5) Represents adjustments to remove amounts related to interest,
depreciation and amortization included in the adjustments to
non-GAAP underlying income above, as these items are added back as
adjustments to net income attributable to MCBC.
 

       

Molson Coors Brewing Company and Subsidiaries

International Results of Operations

             
(In millions) (Unaudited) Three Months Ended Six Months Ended
June 30, 2018     June 30, 2017 June 30, 2018     June 30, 2017
Financial volume in hectoliters(1) 0.637   0.643   1.157   1.171  
Sales $ 86.1 $ 81.3 $ 150.9 $ 147.6
Excise taxes (18.2 ) (16.2 ) (25.5 ) (20.7 )
Net sales 67.9 65.1 125.4 126.9
Cost of goods sold(2) (44.1 ) (47.8 ) (81.9 ) (86.8 )
Gross profit 23.8 17.3 43.5 40.1
Marketing, general and administrative expenses (20.6 ) (24.7 ) (35.7 ) (45.7 )
Special items, net(3) (1.8 ) (0.3 ) (2.8 ) (0.6 )
Operating income (loss) 1.4 (7.7 ) 5.0 (6.2 )
Other income (expense), net (0.1 )      
Income (loss) before income taxes $ 1.3 $ (7.7 ) $ 5.0 $ (6.2 )
Add/(less):
Special items, net(3) 1.8 0.3 2.8 0.6
Acquisition and integration related costs(4) 0.8   4.0   0.8   4.9  
Non-GAAP: Underlying pretax income (loss) $ 3.9 $ (3.4 ) $ 8.6 $ (0.7 )
Add: Depreciation and amortization 2.6   2.5   5.0   4.8  
Non-GAAP: Underlying EBITDA $ 6.5   $ (0.9 ) $ 13.6   $ 4.1  
                                         
(1)   Excludes royalty volume of 0.567 million hectoliters and 0.977
million hectoliters for the three and six months ended June 30,
2018, respectively, and excludes royalty volume of 0.554 million
hectoliters and 1.027 million hectoliters for the three and six
months ended June 30, 2017, respectively.
(2) Includes gross inter-segment purchases, which are eliminated in the
consolidated totals.
(3) See Part I—Item 1. Financial Statements, Note 6, "Special Items" of
the Form 10-Q for detailed discussion of special items.
(4) For the three and six months ended June 30, 2017, $1.4 million of
integration costs were incurred in cost of goods sold. For the three
and six months ended June 30, 2018, integration costs of $0.8
million were incurred in marketing, general & administrative
expenses, and for the three and six months ended June 30, 2017,
integration costs of $2.6 million and $3.5 million, respectively, of
integration costs were incurred in marketing, general &
administrative expenses.
 

       

Molson Coors Brewing Company and Subsidiaries
Corporate
Results of Operations

             
(In millions) (Unaudited) Three Months Ended Six Months Ended
June 30, 2018     June 30, 2017 June 30, 2018     June 30, 2017
Financial volume in hectoliters        
Sales $ 0.3 $ 0.3 $ 0.5 $ 0.6
Excise taxes        
Net sales 0.3 0.3 0.5 0.6
Cost of goods sold 45.0   (23.5 ) (39.8 ) 39.5  
Gross profit 45.3 (23.2 ) (39.3 ) 40.1
Marketing, general and administrative expenses (51.0 ) (56.2 ) (112.5 ) (111.9 )
Special items, net(1)     328.0   (0.1 )
Operating income (loss) (5.7 ) (79.4 ) 176.2 (71.9 )
Interest expense, net (76.9 ) (90.2 ) (158.2 ) (187.8 )
Other pension and postretirement benefits (costs), net 9.9 9.4 19.9 22.7
Other income (expense), net 0.8   2.0   3.0   (6.3 )
Income (loss) before income taxes $ (71.9 ) $ (158.2 ) $ 40.9 $ (243.3 )
Add/(less):
Special items, net(1) (328.0 ) 0.1
Acquisition and integration related costs(2) 7.7 11.2 16.5 24.6
Unrealized mark-to-market (gains) and losses(3) (45.1 ) 23.4 39.6 (39.7 )
Non-core other pension and postretirement benefits (costs), net(4)     0.1   (2.9 )
Non-GAAP: Underlying pretax income (loss) $ (109.3 ) $ (123.6 ) $ (230.9 ) $ (261.2 )
Add: Interest expense (income), net 76.9 90.2 158.2 187.8
Add: Depreciation and amortization 0.9   1.0   2.0   1.9  
Non-GAAP: Underlying EBITDA $ (31.5 ) $ (32.4 ) $ (70.7 ) $ (71.5 )
                                         
(1)   See Part I—Item 1. Financial Statements, Note 6, "Special Items" of
the Form 10-Q for detailed discussion of special items.
(2) In connection with the acquisition, for the three and six months
ended June 30, 2018, we have recorded $7.7 million and $16.5
million, respectively, of integration costs within marketing,
general & administrative expenses, and for the three and six months
ended June 30, 2017, we have recorded $11.2 million and $24.6
million, respectively, of integration costs within marketing,
general & administrative expenses.
(3) The unrealized changes in fair value on our commodity swaps, which
are economic hedges, are recorded as cost of goods sold within our
Corporate business activities. As the exposure we are managing is
realized, we reclassify the gain or loss to the segment in which the
underlying exposure resides, allowing our segments to realize the
economic effects of the derivative without the resulting unrealized
mark-to-market volatility.
(4) For the six months ended June 30, 2017, includes the retrospective
impact of the FASB's new pension and OPEB accounting standard and
moving the non-service cost component of net periodic pension and
other postretirement benefits to the Corporate segment. See Part
I—Item 1. Financial Statements, Note 2, "New Accounting
Pronouncements" of the Form 10-Q for detailed discussion.
 

Balance Sheet

Condensed Consolidated Balance Sheets

       
(In millions, except par value) (Unaudited)     As of
June 30, 2018     December 31, 2017
Assets
Current assets:
Cash and cash equivalents $ 792.9 $ 418.6
Accounts receivable, net 984.9 733.8
Other receivables, net 131.1 168.2
Inventories, net 637.5 591.5
Other current assets, net 341.1   277.6  
Total current assets 2,887.5 2,189.7
Properties, net 4,599.4 4,673.7
Goodwill 8,332.6 8,405.5
Other intangibles, net 14,018.4 14,296.5
Other assets 723.0   681.5  
Total assets $ 30,560.9   $ 30,246.9  
Liabilities and equity
Current liabilities:
Accounts payable and other current liabilities $ 2,971.0 $ 2,684.5
Current portion of long-term debt and short-term borrowings 1,411.0   714.8  
Total current liabilities 4,382.0 3,399.3
Long-term debt 9,455.1 10,598.7
Pension and postretirement benefits 828.1 848.5
Deferred tax liabilities 1,771.0 1,648.6
Other liabilities 328.1   316.8  
Total liabilities 16,764.3 16,811.9
Molson Coors Brewing Company stockholders' equity
Capital stock:
Preferred stock, $0.01 par value (authorized: 25.0 shares; none
issued)
Class A common stock, $0.01 par value 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: 205.1 shares and 204.7 shares, respectively)
2.0 2.0
Class A exchangeable shares, no par value (issued and outstanding:
2.9 shares and 2.9 shares, respectively)
107.7 107.7
Class B exchangeable shares, no par value (issued and outstanding:
14.7 shares and 14.7 shares, respectively)
553.2 553.2
Paid-in capital 6,707.0 6,688.5
Retained earnings 7,703.5 7,206.1
Accumulated other comprehensive income (loss) (1,025.4 ) (860.0 )
Class B common stock held in treasury at cost (9.5 shares and 9.5
shares, respectively)
(471.4 ) (471.4 )
Total Molson Coors Brewing Company stockholders' equity 13,576.6 13,226.1
Noncontrolling interests 220.0   208.9  
Total equity 13,796.6   13,435.0  
Total liabilities and equity $ 30,560.9   $ 30,246.9  
                     

Cash Flow Statement

Condensed Consolidated Statements of Cash Flows

       
($ in millions) (Unaudited)     Six Months Ended
June 30, 2018     June 30, 2017
Cash flows from operating activities:
Net income (loss) including noncontrolling interests $ 713.3 $ 550.0
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 429.6 396.0
Amortization of debt issuance costs and discounts 7.2 11.2
Share-based compensation 25.1 31.6
(Gain) loss on sale or impairment of properties and other assets, net (4.3 )
Unrealized (gain) loss on foreign currency fluctuations and
derivative instruments, net
38.4 (41.5 )
Income tax (benefit) expense 167.1 191.1
Income tax (paid) received 20.0 23.5
Interest expense, excluding interest amortization 155.8 177.6
Interest paid (152.5 ) (175.4 )
Pension expense (benefit) (29.5 ) (31.4 )
Pension contributions paid (5.0 ) (72.1 )
Change in current assets and liabilities and other (71.7 ) (237.8 )
Net cash provided by (used in) operating activities 1,297.8   818.5  
Cash flows from investing activities:
Additions to properties (351.1 ) (354.0 )
Proceeds from sales of properties and other assets 4.4 46.1
Other (50.5 ) 6.0  
Net cash provided by (used in) investing activities (397.2 ) (301.9 )
Cash flows from financing activities:
Exercise of stock options under equity compensation plans 6.3 1.1
Dividends paid (177.0 ) (176.6 )
Payments on debt and borrowings (2.4 ) (2,201.5 )
Proceeds on debt and borrowings 1,536.0
Net proceeds from (payments on) revolving credit facilities and
commercial paper
(376.1 ) 282.0
Change in overdraft balances and other 24.5   (34.2 )
Net cash provided by (used in) financing activities (524.7 ) (593.2 )
Cash and cash equivalents:
Net increase (decrease) in cash and cash equivalents 375.9 (76.6 )
Effect of foreign exchange rate changes on cash and cash equivalents (1.6 ) 18.6
Balance at beginning of year 418.6   560.9  
Balance at end of period $ 792.9   $ 502.9  
                     

Reconciliations to Nearest U.S. GAAP Measures by Line Item
       
Second Quarter 2018     Three Months Ended June 30, 2018
(In millions) (Unaudited) Net sales    

Cost of goods
sold(1)

    Gross profit    

Marketing,
general and
administrative
expenses(2)

   

Special items,
net(3)

   

Operating
income (loss)

Reported (U.S. GAAP) $ 3,085.2 $ (1,739.1 ) $ 1,346.1 $ (744.7 ) $ (10.5 ) $ 590.9
Adjustments to arrive at underlying:
Special items, net
Employee-related charges 1.0 1.0
Impairments or asset abandonment charges 8.3 8.3
Termination fees and other (gains) losses 1.2 1.2
Non-Core items
Integration related costs 1.2 1.2 8.5 9.7
Unrealized mark-to-market (gains) losses (45.1 ) (45.1 ) (45.1 )
Tax effects on special and non-GAAP items            
Underlying (Non-GAAP) $ 3,085.2   $ (1,783.0 ) $ 1,302.2   $ (736.2 ) $   $ 566.0  
                                                             
       
Second Quarter 2018     Three Months Ended June 30, 2018
(In millions, except per share data) (Unaudited)

Interest
income
(expense),
net

   

Other pension
and
postretirement
benefits
(costs),
net

   

Other
income
(expense),
net

   

Income
(loss)
before
income
taxes

   

Income
tax
benefit
(expense)

   

Net income
(loss)
attributable
to
MCBC

   

Net income
(loss)
attributable to
MCBC
per

diluted share

Reported (U.S. GAAP) $ (76.7 ) $ 9.9 $ (1.1 ) $ 523.0 $ (92.2 ) $ 424.1 $ 1.96
Adjustments to arrive at underlying:
Special items, net
Employee-related charges 1.0 1.0 0.01
Impairments or asset abandonment charges 8.3 8.3 0.04
Termination fees and other (gains) losses 1.2 1.2 0.01
Non-Core items
Integration related costs 9.7 9.7 0.04
Unrealized mark-to-market (gains) losses (45.1 ) (45.1 ) (0.21 )
Tax effects on special and non-GAAP items         6.9   6.9   0.03  
Underlying (Non-GAAP) $ (76.7 ) $ 9.9   $ (1.1 ) $ 498.1   $ (85.3 ) $ 406.1   $ 1.88  
                                                                       
(1)   Adjustments relate to the following segments: U.S. segment $0.9
million, Canada segment $0.2 million, Europe segment $0.1 million,
Corporate segment $(45.1) million.
(2) Adjustments relate to the following segment: International segment
$0.8 million, Corporate segment $7.7 million.
(3) Adjustments relate to the following segments: U.S. segment $3.3
million, Canada segment $5.7 million, Europe segment $(0.3) million,
International segment $1.8 million.
 

       
YTD Second Quarter 2018     Six Months Ended June 30, 2018
(In millions) (Unaudited) Net sales    

Cost of goods
sold(1)

    Gross profit    

Marketing,
general and
administrative
expenses(2)

   

Special items,
net(3)

   

Operating
income (loss)

Reported (U.S. GAAP) $ 5,416.7 $ (3,274.8 ) $ 2,141.9 $ (1,425.8 ) $ 304.3 $ 1,020.4
Adjustments to arrive at underlying:
Special items, net
Employee-related charges 4.9 4.9
Impairments or asset abandonment charges 17.6 17.6
Termination fees and other (gains) losses (326.8 ) (326.8 )
Non-Core items
Integration related costs 2.6 2.6 17.3 19.9
Unrealized mark-to-market (gains) losses 39.6 39.6 39.6
Other non-core items
Tax effects on special and non-GAAP items            
Underlying (Non-GAAP) $ 5,416.7   $ (3,232.6 ) $ 2,184.1   $ (1,408.5 ) $   $ 775.6  
                                                             
   
       
YTD Second Quarter 2018 Six Months Ended June 30, 2018
(In millions, except per share data) (Unaudited)

Interest
income
(expense),
net

   

Other pension
and
postretirement
benefits
(costs),
net
(4)

   

Other
income
(expense),
net

   

Income
(loss)
before
income
taxes

   

Income
tax
benefit
(expense)

   

Net income
(loss)
attributable
to
MCBC

   

Net income
(loss)
attributable to
MCBC
per

diluted share

Reported (U.S. GAAP) $ (159.9 ) $ 19.9 $ $ 880.4 $ (167.1 ) $ 702.2 $ 3.24
Adjustments to arrive at underlying:
Special items, net
Employee-related charges 4.9 4.9 0.03
Impairments or asset abandonment charges 17.6 17.6 0.08
Termination fees and other (gains) losses (326.8 ) (326.8 ) (1.51 )
Non-Core items
Integration related costs 19.9 19.9 0.09
Unrealized mark-to-market (gains) losses 39.6 39.6 0.18
Non-core other pension and postretirement benefits (costs), net 0.1 0.1 0.1
Tax effects on special and non-GAAP items         52.9   52.9   0.25  
Underlying (Non-GAAP) $ (159.9 ) $ 20.0   $   $ 635.7   $ (114.2 ) $ 510.4   $ 2.36  
                                                                       
(1)   Adjustments relate to the following segments: U.S. segment $2.0
million, Canada segment $0.3 million, Europe segment $0.3 million,
Corporate segment $39.6 million.
(2) Adjustments relate to the following segment: International segment
$0.8 million, Corporate segment $16.5 million.
(3) Adjustments relate to the following segments: U.S. segment $4.8
million, Canada segment $11.3 million, Europe segment $4.8 million,
International segment $2.8 million, Corporate segment $(328.0)
million.
(4) Adjustments relate to the following segment: Corporate segment $0.1
million.
 

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