MOLSON COORS BREWING COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN MILLIONS) December 31, 2013 December 29, 2012 624.0 572.8 608.3 52.2 30,8 124.4 92.9 139.93 20.3 43.5 10.2 Assets Current assets: Cash and cash equivalents Accounts and notes receivable: Tride, loss allowance for doubtful accounts of $13.6 and $13.4, respectively Affiliates Current notes teceivable and other receivables, less allowance for doubtful accounts of $1.1 and $1.6, respectively Inventories: Finished In process Raw materials Packaging materials Total inventories Maintenance and operating supplies, less allowance for obsolete supplies of $6.8 and $7.2, respectively Other current assets Deferred tax assets Total current assets Properties, less accumulated depreciation of $1,458.7 and $1,224.6, respectively Goodwill Other intangibles, less accumulated amortization of $513.7 and $497.2, respectively Investment in MillerCoors Deferred tax assets Notes receivable, less allowance for doubtful accounts of $2.8 and 94.0, respectively Other assets Total assets 213,9 28.3 23.3 36.9 11.9 205.3 29,6 82.1 50.4 1,537.7 1,970.1 2,418.7 6,825.1 89.2 39.2 1,748.0 1,995.9 2,453.1 7,234.8 2,431.8 125.4 2,506,5 38.3 23.6 26.3 $ 260.1 15,5801 $ 196.9 16,212.2 2. Examine Molson Coors balance sheets 2013 and 2012. Footnotes to the financial statements (not included with the case) reveal that the notes receivable (and the current portion thereof) relate to loans made to customers. a. Identify assets that you consider “nonoperating” and then compute nonoperating assets in total. Nonoerating assets (in millions) 2013 2012 Cash and cash equivalents $442.30 $624.00 Nonopeating assets in total MOLSON COORS BREWING COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Continued) (IN MILLIONS, EXCEPT PAR VALUE) December 31, 2013 December 29, 2012 $ 1,336.4 $ 739 138.13 586.9 2,142.1 3,213.0 462.6 1,186.9 6.0 152.3 1,245.6 7.9 2,598.7 3,422,5 833.0 222.2 948.5 81.8 93.9 20.0 8,220.6 -3.0 911.4 92.7 74.2 173 6,916.3 Liabilities and equity Current liabilities: Accounts payablo and other current liabilities (includes affiliate payable amounts of $22.8 and $34.1 W !. respectively) . Derivative hedging instruments Deferred tax liabilities: Current portion of long-term debt and short-term borrowings 5 Discontinued operations Total current liabilities Long-term debt Pension and postretirement benefits Derivative hedging instruments Deferred tax liabilities Unrecognized tax benefits Other liabilities Discontinued operations Total liabilities Cornmittents and contingencies (Note 19) Molson Coors Brewing Company stockholders' equity Capital stock: 0 : Preferred stock, no par value (authorized: 25.0 shares; none issued) Class A common stock; $0.01 par value (authorized: 500.0 shaires; issued and outstanding: 2,6 shares and 2.6 shares, respectively) Class B common stock, $0.01 par value (authorized: 500.0 shares; issued: 167.2 shares and 164.2 shares, respectively) Class A exchangeable shares, no pár value (issued and outstanding: 2.9 shares and 2.9 shares, respectively) Class B exchangeable shares, no par value (issued and outstanding: 19.0 shares and 19.3 shares, respectively) Paid-in capital Retained earnings Accumulated other comprehensive income (loss) Class B common stock held in treasury at cost (7.5 shares and 7.5 shares, respectively) Total Molson Coors Brewing Company stockholders' equity Noncontrolling interests Total equity Total liabilities and equity 108.5 110.2 724.4 3,623.6 3,900.5 (72.3) 714.1 3,747.6 4,233.2 154.9 (321.1) 8,638,9 24.9 8,663.8 15,580.1 (321.1) 7,966.9″ 24.7 7,991.6 16,212,2 See notes to consolidated financial statements. We were unable to transcribe this imageand $398.8 million for fiscal years 2013, 2012 and 2011, respectively. Prepaid advertising costs of $13.8 million and $23.9 million, were included in other current assets in the consolidated balance sheets at December 31, 2013, and December 29, 2012, respectively. This classification includes general and administrative costs for functions such as finance, legal, human resources and information technology, which consist primarily of labor and outside services, as well as bad debt expense related to our allowance for doubtful accounts. Unless capitalization is allowed or required by U.S. GAAP, legal costs are expensed when incurred. These costs also include our marketing and sales organizations, including labor and other overheads. This line item additionally includes amortization costs associated with intangible assets, as well as certain depreciation costs related to non- production equipment and share-based compensation. Share-based compensation is recognized using a straight-line method over the vesting period of the awards. Certain share-based compensation plans contain provisions that accelerate vesting of awards upon change in control, retirement, disability or death of eligible employees and directors. Our share-based awards are considered vested when the employee's retention of the award is no longer contingent on providing service, which for certain awards can result in immediate recognition for awards granted to retirement eligible individuals or accelerated recognition for awards granted to individuals that will become retirement eligible within the stated vesting period. Also, if less than the stated vesting period, we recognize these costs over the period from the grant date to the date retirement eligibility is achieved. We report the benefits of tax deductions in excess of recognized compensation cost as a financing cash flow, thereby reducing net operating cash flows and increasing net financing cash flows. Special Items Our special items represent charges incurred or benefits realized that we do not believe to be indicative of our core operations, 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 typical employee-related costs, or foes on termination of significant operating agreements and gains (losses) on disposal of investments, Although we believe these items are not indicative of our core operations, the items classified as special items are not necessarily non-recurring Equity Income in MillerCoors Our equity income in MillerCoors represents our proportionate share for the period of the net income of our investment in Miller Coors accounted for under the equity method. Such amount typically reflects adjustments to eliminate intercompany gains and losses, and to amortize, if appropriate, any difference between cost and underlying equity in net assets upon the formation of MillerCoors. Interest Expense, net Our interest costs are associated with borrowings to finance our operations. In addition to interest eamed on our cash and cash equivalents across our business, interest income in the Europe segment is associated with trade loans receivable from customers, primarily in the U.K. As noted above, this includes a portion of beer revenue which is reclassified to interest income to reflect a market rate of interest on these loans. We capitalize interest cost as a part of the original cost of acquiring certain fixed assets if the cost of the capital expenditure and the expected time to complete the project are considered significant Other Income (Expense) Our other income (expense) classification primarily includes gains and losses associated with activities not directly related to brewing and selling beer. For instance, certain gains or losses on foreign exchange and on sales of non-operating assets are classified in this line item. Income Taxes Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of our assets, liabilities, and certain unrecognized gains and losses recorded in accumulated other comprehensive income (loss). We provide for taxes that may be payable if undistributed carnings of overseas subsidiaries were to be remitted to the U.S., except for those earnings that we consider to be permanently reinvested. Interest, penalties and offsetting positions related to unrecognized tax benefits are recognized as a component of income tax expense. Our deferred tax valuation allowances are primarily the result of uncertainties regarding the future realization of recorded tax benefits on tax loss carry forwards from our consolidated balance sheet includes our investment in Tradeteam of $17.7 million. During the fiscal years ended 2013, 2012 and 2011, we recognized equity earnings from our Tradetean investment of $4.6 million, $6.0 million and $6.4 million, respectively, which are recorded within cost of goods sold MC Sithai Since its inception, the performance of the MC Si'hai joint venture did not meet our expectations due to delays in executing its business plans as well as significant difficulties in working with our business partner. Through the on-going arbitration process, which began in 2012 as discussed below, we began discussions with the joint venture partner and concluded upon a price that we would accept to exit the relationship through the sale of our interest in the joint 1 the joint venture and, upon finalizing the sale, we recognized a gain of $6.0 million, recorded as a special item. The gain consists of the non-cash release of the $5.4 million liability remaining upon deconsolidation in 2012, as further discussed below, as well as $0.6 million of proceeds received upon closing of the sale. We also recognized legal and related fees in relation to the sale of $1.2 million during 2013. In 2012, we recorded impairment charges related to the goodwill and definite-lived intangible assets in the joint venture, as well as concluded that we had lost our ability to exercise control of the joint venture which led to the deconsolidation of the joint venture. Specifically, due to the ongoing operational challenges of the joint venture, coupled with the impact of increased competitive pressures in China, we evaluated and subsequently impaired the full amount of the goodwill and definite-lived brand and distribution rights intangible assets recorded in relation to the joint venture. As a result, we recognized charges recorded as special items of $9.5 million and $0.9 million related to the goodwill and intangible asset impairments, respectively. Further, following the impairment, a number of events occurred that caused us to re-assess the consolidation of the joint venture. Specifically, due to the actions of our joint venture partner, we entered into arbitration for the termination and proposed liquidation of the joint venture. This resulted in a loss of our ability to exercise legal or operational control over the joint venture in accordance with the terms of the joint venture agreement. As a result, we deconsolidated the joint venture during the third quarter of 2012. Upon deconsolidation, the fair value of the remaining investment was a liability of $5.4 million representing our share of the joint venture's liabilities at termination of the joint venture, resulting in an impairment loss of $27.6 million recorded as a special item in the third quarter of 2012. 6. Other Income and Expense The table below summarizes other income and expense: 10? 0.8 (7.8) (6.9) For the years ended December 31, 2013 December 29, 2012 December 31, 2011 (In millions) Gain on sale of fion-operating assets(1) ..” $ 23,5 $ 5.2 $ Bridge facility fees(2) (13.0) Euro currency purchase loss(3) (57,9) Gain from Foster's swap and related financial instruments(4) Gain (loss) from other foreign exchange and derivative activity(5) (25.2) Loss related to the change in designation of cross currency swaps(6) (6.7) y Other, net- 3 Other income (expense), net 18.9 $ (90.3) $ (11.0) (1) In 1991, we became a limited partner in the Colorado Rockics Baseball Club, Ltd. (“the Partnership”), treated as a cost method investment Effective November 8, 2013, we sold our 14.6% interest in the Partnership and recognized a gain of $22.3 million. We did not make any cash contributions in 2013, 2012 or 2011, and cash distributions, recognized within other income, from the Partnership were immaterial in 2013, 2012 and 2011. Additionally, during the first quarter of 2013, we realized a $1.2 million gain for proceeds received related to a non-income-related tax settlement resulting from historical activity within our former investment in the Montreal Canadiens Included in this amount is a $5.2 million gain related to the sale of water rights in 2012. This also includes a related party gain of $1.0 million in 2011 related to salos of non-coro real estate in Golden, Colorado to MillerCoors for $1.0 million. The selling price was based on a market appraisal by an independent third party. 95 We incurred costs in connection with the issuance and subsequent termination of the bridge loan agreement entered into concurrent with the announcement of the Acquisition during the second quarter of 2012. See Note 13, “Debt” for further discussion. In connection with the Acquisition, we used the proceeds from our issuance of the $1.9 billion senior notes to purchase Euros in the second quarter of 2012. As a result of a negative foreign exchange movement between the Euro and USD prior to using these proceeds to fund the Acquisition, we realized a foreign exchange loss on our Euro cash holdings. During 2010, we settled the majority of our Foster's Group Limited's (“Foster's”) (ASX:FGL) total return swaps, which we used to gain an economic interest exposure to Foster's stock, and related option contracts, which we used to limit our exposure to future changes in Foster's stock price. The remaining total return swaps and related options matured in January of 2011. Included in this amount are losses of $2.4 million and $23.8 million for 2013 and 2012, respectively, related to foreign currency movements on foreign-denominated financing instruments entered into in conjunction with the financing and the closing of the Acquisition. Additionally, we recorded a net loss of $4.9 million during 2013, related to foreign cash positions and foreign exchange contracts entered into to hedge our risk te 13,”Debt” and Note 17, “Derivative Instruments and Hedging Activities for further discussion of financing and hedging activities related to the Acquisition. Additionally, we recorded losses of $0.5 million, $1.4 million and $6.9 million related to other foreign exchange and derivative activity during 2013, 2012 and 2011, respectively. Sve Note 17, “Derivative Instruments and Hedging Activities” under “Cross Currency Swaps” sub-heading for further discussion. 7. Income Tax Our income (loss) from continuing operations before income taxes on which the provision for income taxes was computed is as follows: December 31, 2013 pornestic S For the years ended December 29, 2012 December 31, 2011 (In millions) ..712. 85 767.2 (120.7) 592.1 $ 3 . 774.2 809.7 (155.2) 654.5 Foreign Total $ Income tax expense (benefit) includes the following current and deferred provisions: $ For the year ended December 29, 2012 December 31, 2013 December 31, 2011 (la milos) Carrent $ 45.5 39.1 11.8 50.7 101.6 5 28.2 9 82.0 Federal State : Foreign Total current tax expense (benefit) Deferred: Federul State Foreign Total deferred tax expense (bencfit) Total income tax experise (benefit) from continuing operations 47.9 59.6 $ 5.1 (823) (17.6) $ 840 SC 72.5 $ 154.5 $ 96 The decrease in income tax expense in 2013 was primarily driven by the net foreign deferred tax benefits. These foreign deferred tax benefits largely resulted from the release of valuation allowances in Canada, as further discussed below, as well as decreases in deferred tax liabilities related to certain intangible assets that were impaired in 2013. Our income tax expense varies from the amount expected by applying the statutory federal corporate tax rate to income as follows: Statutory Federal income tax rate December 31, 2013 35.0% 1.3% December 31, 2011 35.0% 1.6% (27.4% For the years ended December 29, 2012 35.0% 1.4% (24.5)% 6.8 % (0.7)% 6.0 % 2.1 % 26.1% State income taxes, net of federal benefits Bffect of foreign tax ratos Effect of foreign tax law and rate changes Effect of urirecognized tax benefits Change in valuation allowance Other, net Effective tax rate (21.49% (0.49% (1.1% 0.5% 3.3 % (1.59% 1.6% 12.8 % % 10.9% 12.8 % Our fiscal year effective tax rate was approximately 13% in 2013, 26% in 2012 and 13% in 2011. Our effective tax rates were significantly lower than the federal statutory rate of 35% primarily due to the impact of lower effective income tax rates applicable to our foreign businesses and tax planning. In addition, as part of the Acquisition, the statutory tax rates in the countries of Central Europe, ranging from 9% to 20%, in which we began doing business drove the 2013 and 2012 change in the effect of foreign tax rates versus 2011. The 2012 foreign tax law and rate change impact, primarily relates to the increased statutory corporate income tax rate in Serbia from 10% to 15%, effective January 1, 2013 enacted in 2012). As a result of the impact of the rate change on differences between the book basis and tax basis of intangible and other assets purchased in the Acquisition, we increased our deferred tax liability by $38.3 million in the fourth quarter of 2012. We recorded additional tax expense in 2012 due to increases in our valuation allowance related to capital loss carry forwards and operating losses in several of our jurisdictions. Sco further discussion below. The table below summarizes our deferred tax assets and liabilities: As of December 31, 2013 December 29, 2012 : SERVICE 1.2 $ 49.4 . 6.1 (3.0) (20.2) 0.6 Current deferred tax assets: Compensation related obligations Foreign exchange Accrued liabilities and other Tax loss curryforwards Valuation allowance Balance sheet reserves and accruals Other Total current deferred tax assets Current deferred tax liabilities: Partnership investments Balance sheet reserves and accruals Other Total current deferred tax liabilities Net current deferred tax assets Net current deferred tax liabilities 79. 3s 42.9 160.9 (0.1) 167.0 $ 156.0 87.7 113.1 8. Special Items We have incurred charges or recognized gains that we do not believe to be indicative of our core operations. As such, we have separately classified these charges (benefits) as special items. The table below summarizes special items recorded by segment: For the yeres ended December 31, 2013 December 29, 2012 December 31.2011 la ) 10.6 3.0 . 5.0 39.2 : (2.0) Employee-related charges Restructuring (1) Canada 10.1 0,6 Europe 19.8 MCI 0.4 Corporate Special termination benefits Canada(2) 5.2 Impairments or asset abandonment charges Canada – Intangible asset impairment(3) 17.9 :: Europe – Asset abiridonment(4) – . . Europe – Intangible asset impairment(5) 150.9 MCI-China impairient arid related costs(6). Unusual or infrequent items Canada – Flood loss (insurarice reimbursement)(7) 0.2 Canada – BRI loan guarantee adjustment(8) Canada – Fixed asset adjustment(9) 17.6 Europe – Release of non-income-related tax reservo(10) (3.5) (2.3) Europe – Flood loss insurance reimbursement)(11) Europe – Costs associated with strategic initiatives MCI – Costs associated with outsourcing and other strategie initiatives – 1,0 Termination fees and other (gains losses Europe – Tradetean transactions(12) -.- .-. MCI – Sale of China joint venture(6) Total Special iteras, net 200.0 During 2013, 2012 and 2011, we recognized expenses associated with restructuring programs related to severance and other employee related charges. See further discussion of restructuring activities below. During 2013, 2012 and 2011, we recognized charges for pension curtailment and special termination benefits related to certain defined benefit pension plans in Canada. See Note 16, “Employee Retirement Plans and Postretirement Benefits” for impact to our defined benefit pension plans. During the fourth quarter of 2013, we recognized an impairment charge related to our definite-lived intangible asset associated with our licensing agreement with Miller in Canada. See Note 19, “Commitments and Contingencies” for further discussion During the second quarter of 2012, we recognized an asset abandonment charge related to the discontinuation of primary packaging in the U.K. We expectations driven by a lack of demand in the U.K. market and as a result, we recognized a loss related to the write-off of the Home Draft packaging line, tooling equipment and packaging materials inventory. (5) During the third quarter of 2013, we recognized impairment charges related to indefinite-lived intangible assets in Europe. See Note 12, “Goodwill and Intangible Assets for further discussion. 0.1) 13.2 (4.8) 81.4 123 (1) 101 (6) In December of 2013, we sold our interest in the MC Sihai joint venture in China and recognized a gain of $6.0 million. The gain consists of the non-cash release of the $5.4 million liability representing the fair value of our remaining investment upon deconsolidation of the joint venture in 2012, as well as $0.6 million of proceeds received for our interest in the joint venture. We also recog of $1.2 million during 2013. In the second quarter of 2012, we recognized impairment charges of $10.4 million related to goodwill and definite-lived intangible assets in our MC Sihai joint venture in China, and in the third quarter of 2012, we deconsolidated the joint venture and recognized an impairment loss of $27.6 million upon deconsolidation. See Note 5, “Investments” for further discussion of the deconsolidation and subsequent sale of the joint venture. During 2012, we received insurance proceeds in excess of expenses incurred related to flood damages at our Toronto offices. During 2011, we incurred expenses in excess of insurance proceeds related to these damages. During the second quarter of 2011, we recognized a $2.0 million gain resulting from a reduction of our guarantee of BRI debt obligations. During the second quarter of 2011, we recognized a $7.6 million loss related to the correction of an immaterial error in prior periods in the Canada segment, resulting from the performance of a fixed asset count that reduced properties by $13.9 million in 2011. The adjustment also resulted in an increase to goodwill of $6.3 million for the assets identified as not present as of the Merger date. The impact of the error and the related correction in 2011 was not material to any prior annual or interim financial statements and was not material to the fiscal year results for 2011. During 2009, we established a non-income-related tax reserve of $10.4 million that was recorded as a special item. Our estimates indicated a range of possible loss relative to this reserve of zero to $22.3 million, inclusive of potential penalties and interest. The amounts recorded in 2013, 2012 and 2011 represent the release of this reserve as a result of a change in estimate. As a result, the remaining amount of this non-income-related tax reserve was fully released in 2013. During 2013, we recorded losses and related net costs of $5.4 million in our Europe business related to significant flooding in Czech Republic in the second quarter of 2013. These losses were offset by $7.4 million insurance proceeds received in 2013. Upon termination of our Tradeteam distribution agreements and subsequent termination of the joint venture and sale of our 49.9% interest in . Tradeteam to DHL, we recognized a loss of $13.2 million in December 2013. See Note 5, “Investments” for further discussion (10) (11) (12) In addition to the previously mentioned termination-related items recorded in special items, in the fourth quarter of 2013 we received termination notifications from Modelo and Heineken related to our MMI joint venture agreement and contract-brewing agreement, respectively. Upon termination of the MMI joint venture, which is expected to occur at the end of the day on February 28, 2014, we expect to recognize termination fee income of CAD 70.0 million, net of the remaining carrying value of the definite-lived intangible asset, within special items. See Note 5, “Investments” for further discussion. Additionally, we have a contract brewing and kegging agreement with Heineken whereby we produce and package the Foster's and Kronenbourg brands in the U.K. In December 2013, we entered into an agreement with Heineken to early terminate this arrangement. As a result of the termination, Heineken has agreed to pay us an aggregate early termination payment of GBP 13.0 million during and through the end of the transition period, concluding on April 30, 2015, which will be recognized within special items. 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. Wo 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 cfficiencies within our operational structure. As a result of these restructuring activities, we have reduced headcount by approximately 910 employees, of which 310 and 600 relate to 2013 and 2012 activities, respectively. Consequently, we recognized severance and other employee related charges during 2013 and 2012, which we have recorded as special items within our consolidated statements of operations. 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, are unable to estimate the amount of charges at this time. 102


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