TAP 2014.9.30 10Q
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________________
FORM 10-Q
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended September 30, 2014
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______ .
Commission File Number: 1-14829
Molson Coors Brewing Company
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
 
84-0178360
(I.R.S. Employer Identification No.)
1225 17th Street, Denver, Colorado, USA
1555 Notre Dame Street East, Montréal, Québec, Canada
(Address of principal executive offices)
 
80202
H2L 2R5
(Zip Code)
303-927-2337 (Colorado)
514-521-1786 (Québec)
(Registrant's telephone number, including area code)
_______________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company o
 
 
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý
Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of October 31, 2014:
Class A Common Stock— 2,556,894 shares
Class B Common Stock—161,683,888 shares
Exchangeable shares:
As of October 31, 2014, the following number of exchangeable shares were outstanding for Molson Coors Canada, Inc.:
Class A Exchangeable shares—2,896,940 shares
Class B Exchangeable shares—18,151,932 shares
These Class A and Class B exchangeable shares offer substantially the same economic and voting rights as the respective classes of common shares of the registrant. This is achieved via the following structure: The registrant has outstanding one share each of special Class A and Class B voting stock, through which the holders of Class A exchangeable shares and Class B exchangeable shares of Molson Coors Canada Inc. (a subsidiary of the registrant), respectively, may exercise their voting rights with respect to the registrant. The special Class A and Class B voting stock are entitled to one vote for each of the exchangeable shares, respectively, excluding shares held by the registrant or its subsidiaries, and generally vote together with the Class A common stock and Class B common stock, respectively, on all matters on which the Class A common stock and Class B common stock are entitled to vote. The trustee holder of the special Class A voting stock and the special Class B voting stock has the right to cast a number of votes equal to the number of then outstanding Class A exchangeable shares and Class B exchangeable shares, respectively.
 


Table of Contents

MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
INDEX
 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2


Cautionary Statement Pursuant to Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). From time to time, we may also provide oral or written forward-looking statements in other materials we release to the public. Such forward-looking statements are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995.
Statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements, and include, but are not limited to, statements under the headings "Management's Discussion and Analysis of Financial Condition and Results of Operations," and under the heading "Outlook for 2014" therein, relating to overall volume trends, consumer preferences, pricing trends, industry forces, cost reduction strategies, anticipated results, anticipated synergies, expectations for funding future capital expenditures and operations, debt service capabilities, shipment levels and profitability, market share and the sufficiency of capital resources. In addition, statements that we make in this report that are not statements of historical fact may also be forward-looking statements. Words such as "expects," "goals," "plans," "believes," "continues," "may," "anticipate," "seek," "estimate," "outlook," "trends," "future benefits," "potential," "projects," "strategies," and variations of such words and similar expressions are intended to identify forward-looking statements.
Forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those indicated (both favorably and unfavorably). These risks and uncertainties include, but are not limited to those described under the heading "Risk Factors," elsewhere throughout this report, and those described from time to time in our past and future reports filed with the Securities and Exchange Commission, including in our Annual Report on Form 10-K for the year ended December 31, 2013. Caution should be taken not to place undue reliance on any such forward-looking statements. Forward-looking statements speak only as of the date when made and we undertake no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise.
Market and Industry Data
The market and industry data used in this Quarterly Report on Form 10-Q are based on independent industry publications, customers, trade or business organizations, reports by market research firms and other published statistical information from third parties, as well as information based on management’s good faith estimates, which we derive from our review of internal information and independent sources. Although we believe these sources to be reliable, we have not independently verified the accuracy or completeness of the information.


3

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2014
 
September 28, 2013
 
September 30, 2014
 
September 28, 2013
Sales
$
1,650.0

 
$
1,665.4

 
$
4,514.2

 
$
4,509.9

Excise taxes
(482.0
)
 
(494.2
)
 
(1,341.7
)
 
(1,332.2
)
Net sales
1,168.0

 
1,171.2

 
3,172.5

 
3,177.7

Cost of goods sold
(666.6
)
 
(670.0
)
 
(1,873.1
)
 
(1,901.2
)
Gross profit
501.4

 
501.2

 
1,299.4

 
1,276.5

Marketing, general and administrative expenses
(289.6
)
 
(290.8
)
 
(881.3
)
 
(904.2
)
Special items, net
(367.6
)
 
(163.0
)
 
(317.8
)
 
(165.8
)
Equity income in MillerCoors
158.9

 
148.3

 
471.8

 
438.3

Operating income (loss)
3.1

 
195.7

 
572.1

 
644.8

Interest income (expense), net
(31.3
)
 
(17.8
)
 
(102.9
)
 
(133.9
)
Other income (expense), net
(5.0
)
 
(5.5
)
 
(3.5
)
 
(8.5
)
Income (loss) from continuing operations before income taxes
(33.2
)
 
172.4

 
465.7

 
502.4

Income tax benefit (expense)
(0.7
)
 
(37.2
)
 
(41.9
)
 
(69.2
)
Net income (loss) from continuing operations
(33.9
)
 
135.2

 
423.8

 
433.2

Income (loss) from discontinued operations, net of tax
1.3

 
0.9

 
(0.4
)
 
1.7

Net income (loss) including noncontrolling interests
(32.6
)
 
136.1

 
423.4

 
434.9

Net (income) loss attributable to noncontrolling interests
(1.8
)
 
(1.8
)
 
(3.5
)
 
(4.8
)
Net income (loss) attributable to Molson Coors Brewing Company
$
(34.4
)
 
$
134.3

 
$
419.9

 
$
430.1

Basic net income (loss) attributable to Molson Coors Brewing Company per share:
 
 
 
 
 
 
 
From continuing operations
$
(0.20
)
 
$
0.73

 
$
2.27

 
$
2.34

From discontinued operations
0.01

 
0.01

 

 
0.01

Basic net income (loss) attributable to Molson Coors Brewing Company per share
$
(0.19
)
 
$
0.74

 
$
2.27

 
$
2.35

Diluted net income (loss) attributable to Molson Coors Brewing Company per share:
 
 
 
 
 
 
 
From continuing operations
$
(0.20
)
 
$
0.72

 
$
2.26

 
$
2.33

From discontinued operations
0.01

 
0.01

 

 
0.01

Diluted net income (loss) attributable to Molson Coors Brewing Company per share
$
(0.19
)
 
$
0.73

 
$
2.26

 
$
2.34

Weighted-average shares—basic
185.1

 
183.5

 
184.7

 
182.7

Weighted-average shares—diluted
185.1

 
184.6

 
185.9

 
183.9

Amounts attributable to Molson Coors Brewing Company
 
 
 
 
 
 
 
Net income (loss) from continuing operations
$
(35.7
)
 
$
133.4

 
$
420.3

 
$
428.4

Income (loss) from discontinued operations, net of tax
1.3

 
0.9

 
(0.4
)
 
1.7

Net income (loss) attributable to Molson Coors Brewing Company
$
(34.4
)
 
$
134.3

 
$
419.9

 
$
430.1

See notes to unaudited condensed consolidated financial statements.

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Table of Contents

MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN MILLIONS)
(UNAUDITED)
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2014
 
September 28, 2013
 
September 30, 2014
 
September 28, 2013
Net income (loss) including noncontrolling interests
$
(32.6
)
 
$
136.1

 
$
423.4

 
$
434.9

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments
(499.0
)
 
270.1

 
(520.9
)
 
(124.2
)
Unrealized gain (loss) on derivative instruments
(0.8
)
 
(14.1
)
 
3.1

 
18.6

Reclassification of derivative (gain) loss to income
9.9

 
(0.9
)
 
4.3

 
(1.6
)
Amortization of net prior service (benefit) cost and net actuarial (gain) loss to income
4.3

 
10.6

 
19.7

 
34.5

Ownership share of unconsolidated subsidiaries' other comprehensive income (loss)
4.1

 
15.6

 
13.3

 
6.1

Total other comprehensive income (loss), net of tax
(481.5
)
 
281.3

 
(480.5
)
 
(66.6
)
Comprehensive income (loss)
(514.1
)
 
417.4

 
(57.1
)
 
368.3

Comprehensive (income) loss attributable to noncontrolling interests
(1.8
)
 
(1.8
)
 
(3.5
)
 
(4.8
)
Comprehensive income (loss) attributable to Molson Coors Brewing Company
$
(515.9
)
 
$
415.6

 
$
(60.6
)
 
$
363.5

See notes to unaudited condensed consolidated financial statements.


5

Table of Contents

MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT PAR VALUE)
(UNAUDITED)
 
As of
 
September 30, 2014
 
December 31, 2013
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
722.1

 
$
442.3

Accounts receivable, net
578.3

 
603.6

Other receivables, net
115.7

 
124.4

Inventories:
 
 
 
Finished
188.7

 
133.2

In process
22.1

 
23.3

Raw materials
38.3

 
36.9

Packaging materials
12.1

 
11.9

Total inventories
261.2

 
205.3

Other current assets, net
109.2

 
111.7

Deferred tax assets
25.4

 
50.4

Total current assets
1,811.9

 
1,537.7

Properties, net
1,850.2

 
1,970.1

Goodwill
2,294.1

 
2,418.7

Other intangibles, net
6,025.9

 
6,825.1

Investment in MillerCoors
2,580.1

 
2,506.5

Deferred tax assets
17.7

 
38.3

Notes receivable, net
23.2

 
23.6

Other assets
230.3

 
260.1

Total assets
$
14,833.4

 
$
15,580.1

Liabilities and equity
 
 
 
Current liabilities:
 
 
 
Accounts payable and other current liabilities
$
1,366.4

 
$
1,429.6

Deferred tax liabilities
138.1

 
138.1

Current portion of long-term debt and short-term borrowings
1,108.7

 
586.9

Discontinued operations
6.6

 
6.8

Total current liabilities
2,619.8

 
2,161.4

Long-term debt
2,345.8

 
3,213.0

Pension and postretirement benefits
417.0

 
462.6

Deferred tax liabilities
902.5

 
911.4

Unrecognized tax benefits
52.1

 
107.1

Other liabilities
57.1

 
77.2

Discontinued operations
16.7

 
17.3

Total liabilities
6,411.0

 
6,950.0

Commitments and contingencies (Note 15)


 


Molson Coors Brewing Company stockholders' equity
 
 
 
Capital stock:
 
 
 
Preferred stock, no par value (authorized: 25.0 shares; none issued)

 

Class A common stock, $0.01 par value per share (authorized: 500.0 shares; issued and outstanding: 2.6 shares and 2.6 shares, respectively)

 

Class B common stock, $0.01 par value per share (authorized: 500.0 shares; issued: 169.2 shares and 167.2 shares, respectively)
1.7

 
1.7

Class A exchangeable shares, no par value (issued and outstanding: 2.9 shares and 2.9 shares, respectively)
108.5

 
108.5

Class B exchangeable shares, no par value (issued and outstanding: 18.2 shares and 19.0 shares, respectively)
683.5

 
714.1

Paid-in capital
3,836.7

 
3,747.6

Retained earnings
4,414.3

 
4,199.5

Accumulated other comprehensive income (loss)
(325.6
)
 
154.9

Class B common stock held in treasury at cost (7.5 shares and 7.5 shares, respectively)
(321.1
)
 
(321.1
)
Total Molson Coors Brewing Company stockholders' equity
8,398.0

 
8,605.2

Noncontrolling interests
24.4

 
24.9

Total equity
8,422.4

 
8,630.1

Total liabilities and equity
$
14,833.4

 
$
15,580.1

See notes to unaudited condensed consolidated financial statements.

6

Table of Contents

MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)
 
Nine Months Ended
 
September 30, 2014
 
September 28, 2013
Cash flows from operating activities:
 
 
 
Net income (loss) including noncontrolling interests
$
423.4

 
$
434.9

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 

Depreciation and amortization
233.0

 
238.1

Amortization of debt issuance costs and discounts
5.6

 
18.6

Share-based compensation
18.0

 
18.6

Loss (gain) on sale or impairment of properties and other assets, net
372.0

 
157.8

Deferred income taxes
(19.0
)
 
21.9

Equity income in MillerCoors
(471.8
)
 
(438.3
)
Distributions from MillerCoors
471.8

 
438.3

Equity in net income of other unconsolidated affiliates
(3.0
)
 
(13.3
)
Distributions from other unconsolidated affiliates
15.4

 
13.0

Excess tax benefits from share-based compensation
(6.6
)
 
(6.0
)
Unrealized (gain) loss on foreign currency fluctuations and derivative instruments, net
(10.2
)
 
16.4

Change in current assets and liabilities and other
29.4

 
131.7

(Gain) loss from discontinued operations
0.4

 
(1.7
)
Net cash provided by operating activities
1,058.4

 
1,030.0

Cash flows from investing activities:
 

 
 

Additions to properties
(195.8
)
 
(218.2
)
Proceeds from sales of properties and other assets
6.0

 
7.5

Proceeds from sale of business

 
2.0

Investment in MillerCoors
(1,100.4
)
 
(924.0
)
Return of capital from MillerCoors
1,053.9

 
822.4

Investment in and advances to an unconsolidated affiliate

 
(2.4
)
Return of capital from an unconsolidated affiliate
5.9

 

Loan repayments
7.1

 
7.5

Loan advances
(14.6
)
 
(5.4
)
Net cash used in investing activities
(237.9
)
 
(310.6
)
Cash flows from financing activities:
 

 
 

Exercise of stock options under equity compensation plans
38.5

 
74.9

Excess tax benefits from share-based compensation
6.6

 
6.0

Dividends paid
(205.1
)
 
(175.7
)
Dividends paid to noncontrolling interests holders
(2.4
)
 
(1.2
)
Payments for purchase of noncontrolling interest
(0.7
)
 
(0.2
)
Debt issuance costs
(1.8
)
 
(0.3
)
Payments on long-term debt and capital lease obligations
(62.9
)
 
(1,316.5
)
Proceeds from short-term borrowings
35.5

 
19.3

Payments on short-term borrowings
(23.3
)
 
(15.1
)
Proceeds from settlement of derivative instruments

 
2.6

Payments on settlement of derivative instruments
(65.2
)
 
(66.2
)
Net proceeds from (payments on) revolving credit facilities and commercial paper
(350.5
)
 
548.4

Change in overdraft balances and other
118.1

 
(0.8
)
Net cash used in financing activities
(513.2
)
 
(924.8
)
Cash and cash equivalents:
 

 
 

Net increase (decrease) in cash and cash equivalents
307.3

 
(205.4
)
Effect of foreign exchange rate changes on cash and cash equivalents
(27.5
)
 
(11.7
)
Balance at beginning of year
442.3

 
624.0

Balance at end of period
$
722.1

 
$
406.9

See notes to unaudited condensed consolidated financial statements.

7

Table of Contents

MOLSON COORS BREWING COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation and Summary of Significant Accounting Policies
Unless otherwise noted in this report, any description of "we", "us" or "our" includes Molson Coors Brewing Company ("MCBC" or the "Company"), principally a holding company, and its operating and non-operating subsidiaries included within our reporting segments and Corporate. Our reporting segments include: Molson Coors Canada ("MCC" or Canada segment), operating in Canada; MillerCoors LLC ("MillerCoors" or U.S. segment), which is accounted for by us under the equity method of accounting, operating in the United States ("U.S."); Molson Coors Europe (Europe segment), operating in Bosnia-Herzegovina, Bulgaria, Croatia, Czech Republic, Hungary, Montenegro, Republic of Ireland, Romania, Serbia, Slovakia and the United Kingdom ("U.K."); and Molson Coors International ("MCI"), operating in various other countries.
References to Central Europe reflect our operations in Bosnia-Herzegovina, Bulgaria, Croatia, Czech Republic, Hungary, Montenegro, Romania, Serbia and Slovakia, as a result of our acquisition (the "Acquisition") of StarBev Holdings S.à r.l. ("StarBev") from StarBev L.P. (the "Seller") on June 15, 2012, and the results of these operations are included within our Europe segment.
Unless otherwise indicated, information in this report is presented in U.S. dollars ("USD" or "$") and comparisons are to comparable prior periods as noted below.
The accompanying unaudited condensed consolidated interim financial statements reflect all adjustments which are necessary for a fair statement of the financial position, results of operations and cash flows for the periods presented in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). Such unaudited interim condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations.
These unaudited condensed consolidated interim financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2013 ("Annual Report") and have been prepared on a consistent basis with the accounting policies described in Note 1 of the Notes to the Audited Consolidated Financial Statements ("Notes") included in our Annual Report. Our accounting policies did not change in the first three quarters of 2014, with the exception of a change to our policy for recognizing advertising expenses in interim periods as discussed below. Additionally, in order to provide further clarity around our policy regarding the classification of special items in the unaudited condensed consolidated statements of operations, we have expanded our related disclosure as reflected below.
Special Items
Our special items represent charges incurred or benefits realized that either we do not believe to be indicative of our core operations, or we believe are significant to our current operating results warranting separate classification; specifically, such items are considered to be one of the following:
infrequent or unusual items,
impairment or asset abandonment-related losses,
restructuring charges and other atypical employee-related costs, or
fees on termination of significant operating agreements and gains (losses) on disposal of investments.

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

Our Fiscal Year

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

8

Table of Contents

weeks ended September 28, 2013. The third quarter and first three quarters of 2014 refer to the three and nine months ended September 30, 2014, respectively. Fiscal year 2014 refers to the 12 months ending December 31, 2014, and fiscal year 2013 refers to the period from December 30, 2012, to December 31, 2013. The impact of the additional days in fiscal year 2013 is immaterial to the unaudited condensed consolidated financial statements.
The results of operations for the three and nine months ended September 30, 2014, are not necessarily indicative of the results that may be achieved for the full fiscal year.
Change in Interim Period Accounting for Advertising Expenses

In previous years' interim periods, including the quarterly periods within fiscal year 2013, we recognized advertising costs in expense during the fiscal year based on the proportion of sales volumes for the interim period in relation to the estimated annual sales volumes. U.S. GAAP permits the allocation of advertising costs across interim periods within a fiscal year when future periods benefit from the expenditure. Advertising expenses were not deferred from one fiscal year to the next. Effective beginning the first quarter of fiscal year 2014, we changed our method of accounting for advertising expenses for interim periods such that advertising expense is now recognized as incurred. We adopted this change as a result of management’s belief that the new method is preferable and results in a more objective measure of quarterly expense that will better support planning and resource allocation decisions by management, results in improved financial statements for investor analysis, and further aligns our treatment with that of our U.S. operations within MillerCoors. The new policy of expensing advertising costs as incurred additionally eliminates the uncertainty in estimating overall expected sales volumes, advertising expenses, and the benefit period of the advertising on an interim basis, and conforms our interim accounting policy with that used to prepare the annual financial statements. The change has been applied retrospectively to all prior interim periods presented. The quarterly impact of the change in accounting policy on marketing, general and administrative expenses and the associated impact on income tax expense, as well as the impact to certain subtotals and diluted earnings per share within our unaudited condensed consolidated statement of operations, is as follows:
 
Three Months Ended
March 30, 2013
 
Three Months Ended
June 29, 2013
 
Three Months Ended
September 28, 2013
 
Three Months Ended
December 31, 2013
 
As Reported
 
As Adjusted
 
As Reported
 
As Adjusted
 
As Reported
 
As Adjusted
 
As Reported
 
As Adjusted
 
(In millions, except per share data)
Marketing, general and administrative expenses
$
(285.3
)
 
$
(293.9
)
 
$
(304.3
)
 
$
(319.5
)
 
$
(307.8
)
 
$
(290.8
)
 
$
(296.4
)
 
$
(289.6
)
Income (loss) from continuing operations before income taxes
$
41.4

 
$
32.8

 
$
312.4

 
$
297.2

 
$
155.4

 
$
172.4

 
$
145.3

 
$
152.1

Income tax benefit (expense)
$
(3.5
)
 
$
(2.0
)
 
$
(34.1
)
 
$
(30.0
)
 
$
(32.7
)
 
$
(37.2
)
 
$
(13.7
)
 
$
(14.8
)
Net income (loss) attributable to Molson Coors Brewing Company
$
35.6

 
$
28.5

 
$
278.4

 
$
267.3

 
$
121.8

 
$
134.3

 
$
131.5

 
$
137.2

Diluted net income (loss) attributable to Molson Coors Brewing Company per share
$
0.20

 
$
0.16

 
$
1.51

 
$
1.45

 
$
0.66

 
$
0.73

 
$
0.71

 
$
0.74

As noted above, under our historical treatment, advertising expenses were not deferred from one fiscal year to the next. Therefore, the change in interim accounting had no impact on full year consolidated results. Additionally, the quarterly impact to other comprehensive income (loss) related to currency translation on the adjustments has been reflected within the unaudited condensed consolidated statements of comprehensive income included herein.

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

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Income (loss) from continuing operations before income taxes by segment:
 
Three Months Ended
March 30, 2013
 
Three Months Ended
June 29, 2013
 
Three Months Ended
September 28, 2013
 
Three Months Ended
December 31, 2013
 
As Reported
 
As Adjusted
 
As Reported
 
As Adjusted
 
As Reported
 
As Adjusted
 
As Reported
 
As Adjusted
 
(In millions)
Canada
$
36.4

 
$
28.4

 
$
137.3

 
$
128.6

 
$
128.7

 
$
143.6

 
$
60.9

 
$
62.7

U.S.
$
117.4

 
$
117.4

 
$
172.6

 
$
172.6

 
$
148.3

 
$
148.3

 
$
100.7

 
$
100.7

Europe
$
(3.7
)
 
$
(5.2
)
 
$
81.6

 
$
75.8

 
$
(69.5
)
 
$
(67.4
)
 
$
25.9

 
$
31.1

MCI
$
(6.1
)
 
$
(5.2
)
 
$
(3.3
)
 
$
(4.0
)
 
$
(2.4
)
 
$
(2.4
)
 
$

 
$
(0.2
)
Corporate
$
(102.6
)
 
$
(102.6
)
 
$
(75.8
)
 
$
(75.8
)
 
$
(49.7
)
 
$
(49.7
)
 
$
(42.2
)
 
$
(42.2
)
As noted above, under our historical treatment, advertising expenses were not deferred from one fiscal year to the next. Therefore, the change in interim accounting had no impact on full year segment results.
Unrecognized Tax Benefit Adjustments
During the second quarter of 2014, we identified that we had incorrectly omitted the recognition of a liability for specific uncertain tax positions related to fiscal year 2010 that resulted in an immaterial misstatement of unrecognized tax benefits and retained earnings within the consolidated balance sheets at December 31, 2013, and December 29, 2012, included in our Annual Report. We determined the impact of the correction of this error to be too significant to record within our second quarter 2014 results and, therefore, revised our historical balance sheets accordingly. To correct for this error, in the second quarter of 2014, we revised the unrecognized tax benefits and retained earnings in the unaudited condensed consolidated balance sheet as of December 31, 2013, included herein. This correction resulted in an increase in the current portion of unrecognized tax benefits included within accounts payable and other current liabilities of $19.3 million, an increase in noncurrent unrecognized tax benefits of $14.4 million and a corresponding decrease to retained earnings of $33.7 million as of December 31, 2013. See Note 8, "Income Tax" for further discussion.

2. New Accounting Pronouncements
Adoption of New Accounting Pronouncements
Joint and Several Liability Arrangements
In February 2013, the FASB issued authoritative guidance for the recognition, measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date. The guidance was effective for our quarter ended March 31, 2014. The adoption of this guidance did not have an impact on our financial position or results from operations.
Cumulative Translation Adjustment
In March 2013, the FASB issued authoritative guidance on a parent's accounting for the cumulative translation adjustment upon derecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity. This update also resolves the diversity in practice for the treatment of business combinations achieved in stages (sometimes also referred to as step acquisitions) involving a foreign entity. The guidance was effective for our quarter ended March 31, 2014. The adoption of this guidance did not have an impact on our financial position or results from operations.
Liquidation Basis of Accounting
In April 2013, the FASB issued authoritative guidance to clarify when it is appropriate to apply the liquidation basis of accounting. Additionally, the update provides guidance for recognition and measurement of assets and liabilities and requirements for financial statements prepared using the liquidation basis of accounting. Under the amendment, entities are required to prepare their financial statements under the liquidation basis of accounting when a liquidation becomes imminent. The guidance was effective for our quarter ended March 31, 2014. The adoption of this guidance did not have an impact on our financial position or results from operations.
Presentation of Unrecognized Tax Benefits
In July 2013, the FASB issued authoritative guidance related to the presentation of unrecognized tax benefits. The update requires that the entity present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, as a reduction to a

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deferred tax asset for a net operating loss carryforward or a tax credit carryforward in the statement of financial position. The guidance does not apply to the extent that a net operating loss carryforward or tax credit carryforward at the reporting date is not available under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position. The guidance was effective for our quarter ended March 31, 2014. As a result of adopting this guidance, we have presented deferred tax assets net of unrecognized tax benefits, as appropriate, in the unaudited condensed consolidated balance sheets. The adoption of this guidance impacted the classification of our outstanding unrecognized tax benefits and resulted in a reclassification of $37.8 million from the unrecognized tax benefits line item within the unaudited condensed consolidated balance sheet upon adoption in the first quarter of 2014.
New Accounting Pronouncements Not Yet Adopted
Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity
In April 2014, the FASB issued authoritative guidance related to reporting discontinued operations and disclosures of disposals of components of an entity. The update limits discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have (or will have) a major effect on an entity's operations and financial results. This update requires expanded disclosures related to assets, liabilities, revenues and expenses of discontinued operations. This update also requires the disclosure of pretax profit or loss and the financial effects of significant disposals that do not qualify for discontinued operations reporting. The guidance is effective for annual reporting periods beginning on or after December 15, 2014, and interim reporting periods thereafter. We do not anticipate that this guidance will have an impact on our financial position or results of operations.
Revenue Recognition
In May 2014, the FASB issued authoritative guidance related to new accounting requirements for the recognition of revenue from contracts with customers. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for the goods or services. The requirements of the new standard are effective for the annual reporting periods beginning after December 15, 2016, and interim periods within those annual periods. We are currently evaluating the potential impact on our financial position and results of operations upon adoption of this guidance.
Share-Based Payments
In June 2014, the FASB issued authoritative guidance related to share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The requirements of the new standard are effective for the annual reporting periods beginning after December 15, 2015, and interim periods within those annual periods. We do not anticipate that this guidance will have a material impact on our financial position or results of operations.
3. Segment Reporting
Our reporting segments are based on the key geographic regions in which we operate, which are the basis on which our chief operating decision maker evaluates the performance of the business. Our reporting segments consist of Canada, the U.S., Europe and MCI. Corporate is not a segment and primarily includes interest and certain other general and administrative costs that are not allocated to any of the operating segments. No single customer accounted for more than 10% of our consolidated or segmented sales for the three and nine months ended September 30, 2014, and September 28, 2013, respectively. Net sales represent sales to third-party external customers. Inter-segment sales revenues and income (loss) from continuing operations before income taxes, other than those to MillerCoors (see Note 4, "Investments" for additional detail), are insignificant and eliminated in consolidation.

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The following table presents net sales by segment:
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2014
 
September 28, 2013
 
September 30, 2014
 
September 28, 2013
 
(In millions)
Canada
$
507.2

 
$
526.7

 
$
1,370.8

 
$
1,480.5

Europe
618.7

 
607.9

 
1,685.7

 
1,600.5

MCI
43.4

 
37.7

 
119.3

 
99.4

Corporate
0.2

 
0.3

 
0.9

 
0.9

Eliminations(1)
(1.5
)
 
(1.4
)
 
(4.2
)
 
(3.6
)
         Consolidated
$
1,168.0

 
$
1,171.2

 
$
3,172.5

 
$
3,177.7

(1)
Represents inter-segment sales from the Europe segment to the MCI segment.
The following table presents income (loss) from continuing operations before income taxes by segment:
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2014
 
September 28, 2013(1)
 
September 30, 2014
 
September 28, 2013(1)
 
(In millions)
Canada
$
121.5

 
$
143.6

 
$
330.6

 
$
300.6

U.S. 
158.9

 
148.3

 
471.8

 
438.3

Europe(2)
(255.1
)
 
(67.4
)
 
(143.6
)
 
3.2

MCI
(2.7
)
 
(2.4
)
 
(9.4
)
 
(11.6
)
Corporate
(55.8
)
 
(49.7
)
 
(183.7
)
 
(228.1
)
         Consolidated
$
(33.2
)
 
$
172.4

 
$
465.7

 
$
502.4

(1)
Amounts have been adjusted to reflect the change in interim accounting for advertising expenses. See Note 1, "Basis of Presentation and Summary of Significant Accounting Policies" for further discussion.
(2)
Results for the three and nine months ended for both 2014 and 2013, include an impairment charge related to indefinite-lived intangible assets recorded in the third quarters of 2014 and 2013 resulting from our annual impairment testing. See Note 10, "Goodwill and Intangible Assets" for further discussion.
The following table presents total assets by segment:
 
As of
 
September 30, 2014
 
December 31, 2013
 
(In millions)
Canada
$
5,875.7


$
6,103.2

U.S. 
2,580.1


2,506.5

Europe
6,095.4


6,547.7

MCI
80.6


83.3

Corporate
201.6


339.4

         Consolidated
$
14,833.4


$
15,580.1


4. Investments
Our investments include both equity method and consolidated investments. Those entities identified as variable interest entities ("VIEs") have been evaluated to determine whether we are the primary beneficiary. The VIEs included under "Consolidated VIEs" below are those for which we have concluded that we are the primary beneficiary and accordingly, consolidate these entities. None of our consolidated VIEs held debt as of September 30, 2014, or December 31, 2013. We have not provided any financial support to any of our VIEs during the quarter that we were not previously contractually obligated to provide. Amounts due to and due from our equity method investments are recorded as affiliate accounts payable and affiliate accounts receivable.
Authoritative guidance related to the consolidation of VIEs requires that we continually reassess whether we are the primary beneficiary of VIEs in which we have an interest. As such, the conclusion regarding the primary beneficiary status is

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subject to change, and we continually evaluate circumstances that could require consolidation or deconsolidation. As of September 30, 2014, and December 31, 2013, our consolidated VIEs are Cobra Beer Partnership, Ltd. ("Cobra U.K.") and Grolsch. Our unconsolidated VIEs are Brewers' Retail Inc. ("BRI") and Brewers' Distributor Ltd. ("BDL"). The Molson Modelo Imports L.P. ("MMI") operations were terminated in the first quarter of 2014 and the joint venture was subsequently dissolved in the third quarter of 2014. See further discussion below.
Equity Investments
Investment in MillerCoors
Summarized financial information for MillerCoors is as follows:
Condensed Balance Sheets
 
As of
 
September 30, 2014
 
December 31, 2013
 
(In millions)
Current assets
$
935.5

 
$
798.4

Non-current assets
8,958.8

 
8,989.3

Total assets
$
9,894.3

 
$
9,787.7

Current liabilities
$
1,024.3

 
$
950.1

Non-current liabilities
1,212.6

 
1,346.2

Total liabilities
2,236.9

 
2,296.3

Noncontrolling interests
19.7

 
20.7

Owners' equity
7,637.7

 
7,470.7

Total liabilities and equity
$
9,894.3

 
$
9,787.7

The following represents our proportionate share in MillerCoors' equity and reconciliation to our investment in MillerCoors:
 
As of
 
September 30, 2014
 
December 31, 2013
 
(In millions, except percentages)
MillerCoors owners' equity
$
7,637.7

 
$
7,470.7

MCBC economic interest
42
%
 
42
%
MCBC proportionate share in MillerCoors' equity
3,207.8

 
3,137.7

Difference between MCBC contributed cost basis and proportionate share of the underlying equity in net assets of MillerCoors(1)
(662.7
)
 
(666.2
)
Accounting policy elections
35.0

 
35.0

Investment in MillerCoors
$
2,580.1

 
$
2,506.5

(1)
Our net investment in MillerCoors is based on the carrying values of the net assets contributed to the joint venture which is less than our proportionate share of underlying equity (42%) of MillerCoors (contributed by both Coors Brewing Company ("CBC") and Miller Brewing Company ("Miller")). This basis difference, with the exception of certain non-amortizing items (goodwill, land, etc.), is being amortized as additional equity income over the remaining useful lives of the contributed long-lived amortizing assets.

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Results of Operations
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2014
 
September 30, 2013
 
September 30, 2014
 
September 30, 2013
 
(In millions)
Net sales
$
2,069.5

 
$
2,051.0

 
$
6,066.6

 
$
5,998.3

Cost of goods sold
(1,237.7
)
 
(1,234.0
)
 
(3,614.2
)
 
(3,592.8
)
Gross profit
$
831.8

 
$
817.0

 
$
2,452.4

 
$
2,405.5

Operating income(1)
$
381.9

 
$
354.5

 
$
1,129.2

 
$
1,046.9

Net income attributable to MillerCoors(1)
$
376.5

 
$
348.8

 
$
1,112.9

 
$
1,033.4

(1)
Results include special charges related to restructuring activities of $0.2 million and $1.4 million for the three and nine months ended September 30, 2014, respectively, and $15.0 million for the three and nine months ended September 30, 2013.
The following represents our proportionate share in net income attributable to MillerCoors reported under the equity method:
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2014
 
September 28, 2013
 
September 30, 2014
 
September 28, 2013
 
(In millions, except percentages)
Net income attributable to MillerCoors
$
376.5

 
$
348.8

 
$
1,112.9

 
$
1,033.4

MCBC economic interest
42
%
 
42
%
 
42
%
 
42
%
MCBC proportionate share of MillerCoors net income
158.1

 
146.5

 
467.4

 
434.0

Amortization of the difference between MCBC contributed cost basis and proportionate share of the underlying equity in net assets of MillerCoors
1.2

 
1.2

 
3.5

 
3.4

Share-based compensation adjustment(1)
(0.4
)
 
0.6

 
0.9

 
0.9

Equity income in MillerCoors
$
158.9

 
$
148.3

 
$
471.8

 
$
438.3

(1)
The net adjustment is to eliminate all share-based compensation impacts related to pre-existing SABMiller plc equity awards held by former Miller employees employed by MillerCoors.
The following table summarizes our transactions with MillerCoors:
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2014
 
September 28, 2013
 
September 30, 2014
 
September 28, 2013
 
(In millions)
Beer sales to MillerCoors
$
3.8

 
$
4.5

 
$
10.1

 
$
13.4

Beer purchases from MillerCoors
$
10.8

 
$
4.2

 
$
27.0

 
$
11.2

Service agreement costs and other charges to MillerCoors
$
0.6

 
$
0.5

 
$
1.7

 
$
1.8

Service agreement costs and other charges from MillerCoors
$
0.3

 
$
0.6

 
$
0.8

 
$
0.8

As of September 30, 2014, and December 31, 2013, we had $5.6 million and $4.4 million of net payables due to MillerCoors, respectively.

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Table of Contents

Consolidated VIEs
The following summarizes the assets and liabilities of our consolidated VIEs (including noncontrolling interests):
 
As of
 
September 30, 2014
 
December 31, 2013
 
Total Assets
 
Total Liabilities
 
Total Assets
 
Total Liabilities
 
(In millions)
Grolsch
$
8.9

 
$
3.2

 
$
5.6

 
$
1.7

Cobra U.K.
$
30.1

 
$
1.2

 
$
36.5

 
$
1.9

Termination of MMI Operations
On November 5, 2013, Anheuser-Busch Inbev ("ABI") and MCBC entered into an agreement providing for the accelerated termination of MMI, a 50% - 50% joint venture with Grupo Modelo S.A.B. de C.V. ("Modelo"), which provided for the import, distribution, and marketing of the Modelo beer brand portfolio across all Canadian provinces and territories. The joint venture, accounted for under the equity method of accounting, was originally a 10 year agreement ending January 1, 2018. In June 2013, ABI completed its combination with Modelo, including Modelo’s interest in MMI. Following negotiations with ABI, MCC consented to change the effective termination date of the agreement from January 1, 2018, to February 28, 2014, upon successful close and completion of the transition period, at which time MCC would receive payment from Modelo for the early termination of the original agreement. In conjunction with these negotiations, ABI also agreed that we will continue to represent the Modelo brands in the U.K. and Japan through the end of 2014.
The transition period was successfully completed on February 28, 2014, at which time we recognized income of $63.2 million (CAD 70.0 million) within special items, reflective of the agreed upon payment received from Modelo. Additionally, we recorded a charge of $4.9 million representing the accelerated amortization of the remaining carrying value of our definite-lived intangible asset associated with the agreement. In accordance with the termination agreement, MMI continued to operate in its historical capacity through the end of the transition period. Effective end of day on February 28, 2014, MMI ceased all operations and was dissolved during the third quarter of 2014 upon final agreement with ABI on the distribution amount of the joint venture's remaining net assets. As a result, our results for the nine months ended September 30, 2014, reflect our proportionate ownership interest of the MMI activity during the first quarter of 2014 through end of day February 28, 2014. Under the MMI arrangement, we recognized equity earnings within cost of goods sold of $0.7 million during the nine months ended September 30, 2014, and $3.9 million and $9.0 million during the three and nine months ended September 28, 2013, respectively. In addition, during the nine months ended September 30, 2014, and three and nine months ended September 28, 2013, MCC recognized marketing and administrative cost recoveries related to the promotion, sale and distribution of Modelo products under our agency and services agreement with MMI of $1.1 million, $3.1 million and $8.8 million, respectively. These cost recoveries are recorded within marketing, general and administrative expenses. As of December 31, 2013, our unaudited condensed consolidated balance sheet includes our investment in MMI of $21.2 million and an affiliate net payable to MMI of $13.8 million.
In accordance with the early termination agreement, the book value of the joint venture's net assets was required to be distributed to the respective joint venture partners for the owners' proportionate ownership interest at the end of the transition period. This distribution was finalized in the third quarter of 2014. Concurrently, we derecognized our equity investment within other non-current assets upon full recovery of our investment carrying value.
5. Share-Based Payments
During the nine months ended September 30, 2014, and September 28, 2013, we recognized share-based compensation expense related to the following Class B common stock awards to certain directors, officers and other eligible employees, pursuant to the MCBC Incentive Compensation Plan ("Incentive Compensation Plan"): restricted stock units ("RSU"), deferred stock units ("DSU"), performance share units ("PSU"), performance units ("PU") and stock options. The settlement amount of the PSUs is determined based on market and performance metrics, which include our total shareholder return performance relative to the S&P 500 and specified internal performance metrics designed to drive greater shareholder return. PSU compensation expense is based on a fair value assigned to the market metric using a Monte Carlo model, which will remain constant throughout the vesting period of three years, and a performance multiplier, which will vary due to changing estimates of the performance metric condition.

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The following table summarizes share-based compensation expense:
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2014
 
September 28, 2013
 
September 30, 2014
 
September 28, 2013
 
(In millions)
Pretax compensation expense
$
5.9

 
$
3.2

 
$
18.0

 
$
18.6

Tax benefit
(1.6
)
 
(0.8
)
 
(5.5
)
 
(5.3
)
After-tax compensation expense
$
4.3

 
$
2.4

 
$
12.5

 
$
13.3

As of September 30, 2014, there was $26.4 million of total unrecognized compensation cost from all share-based compensation arrangements granted under the Incentive Compensation Plan, related to unvested shares. This compensation expense is expected to be recognized over a weighted-average period of 1.2 years.
The following table represents the summary of stock options and stock-only stock appreciation rights ("SOSAR") outstanding as of September 30, 2014, and the activity during the nine months ended September 30, 2014:
 
Shares outstanding
 
Weighted-average
exercise price per
share
 
Weighted-average
remaining contractual life
(years)
 
Aggregate
intrinsic value
 
(In millions, except per share amounts and years)
Outstanding as of December 31, 2013
3.5
 
$43.41
 
4.57
 
$
45.1

Granted
0.2
 
$58.24
 
 
 
 
Exercised
(1.2)
 
$42.53
 
 
 
 
Forfeited
(0.1)
 
$44.24
 
 
 
 
Outstanding as of September 30, 2014
2.4
 
$44.88
 
4.95
 
$
70.3

Exercisable at September 30, 2014
2.0
 
$43.90
 
4.21
 
$
60.6

The total intrinsic values of stock options exercised during the nine months ended September 30, 2014, and September 28, 2013, were $24.9 million and $28.1 million, respectively. During the nine months ended September 30, 2014, and September 28, 2013, cash received from stock option exercises was $38.5 million and $74.9 million, respectively, and the total excess tax benefit from these stock option exercises and other awards was $6.6 million and $6.0 million, respectively.
The following table represents non-vested RSUs, DSUs, PSUs and PUs as of September 30, 2014, and the activity during the nine months ended September 30, 2014:
 
RSUs and DSUs
 
PUs
 
PSUs
 
Units
 
Weighted-average
grant date fair value
per unit
 
Units
 
Weighted-average
fair value
per unit
 
Units
 
Weighted-average
grant date fair value
per unit
 
(In millions, except per unit amounts)
Non-vested as of December 31, 2013
0.7

 
$42.08
 
1.0

 
$2.87
 
0.2

 
$43.10
Granted
0.2

 
$61.16
 

 
$—
 
0.2

 
$58.69
Vested
(0.2
)
 
$41.24
 
(0.5
)
 
$6.17
 

 
$—
Forfeited

 
$—
 

 
$—
 

 
$—
Non-vested as of September 30, 2014
0.7

 
$48.84
 
0.5

 
$1.29
 
0.4

 
$50.48
The weighted-average fair value per unit for the non-vested PSUs is $58.83 as of September 30, 2014.

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The fair value of each option granted in the first three quarters of 2014 and 2013 was determined on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:
 
Nine Months Ended
 
September 30, 2014
 
September 28, 2013
Risk-free interest rate
2.29%
 
1.43%
Dividend yield
2.57%
 
2.88%
Volatility range
22.66%-26.57%
 
22.39%-25.90%
Weighted-average volatility
25.59%
 
25.02%
Expected term (years)
7.5
 
7.7
Weighted-average fair market value
$12.78
 
$8.39
The risk-free interest rates utilized for periods throughout the contractual life of the stock options are based on a zero-coupon U.S. Treasury security yield at the time of grant. Expected volatility is based on a combination of historical and implied volatility of our stock. The expected term of stock options is estimated based upon observations of historical employee option exercise patterns and trends of those employees granted options in the respective year.
The fair value of the market metric for each PSU granted in the first three quarters of 2014 and 2013 was determined on the date of grant using a Monte Carlo model to simulate total shareholder return for MCBC and peer companies with the following weighted-average assumptions:
 
Nine Months Ended
 
September 30, 2014
 
September 28, 2013
Risk-free interest rate
0.72%
 
0.33%
Dividend yield
2.57%
 
2.88%
Volatility range
12.45%-72.41%
 
12.18%-69.37%
Weighted-average volatility
21.72%
 
21.13%
Expected term (years)
2.8
 
2.8
Weighted-average fair market value
$58.69
 
$43.10
The risk-free interest rates utilized for periods throughout the expected term of the PSUs are based on a zero-coupon U.S. Treasury security yield at the time of grant. Expected volatility is based on historical volatility of our stock as well as the stock of our peer firms, as shown within the volatility range above, for a period from the grant date consistent with the expected term. The expected term of PSUs is calculated based on the grant date to the end of the performance period.
As of September 30, 2014, there were 7.4 million shares of the Company's Class B common stock available for issuance as awards under the Incentive Compensation Plan.
On July 24, 2014, Peter Swinburn, the Chief Executive Officer and President of the Company, informed the Corporate Secretary and the Board of Directors of the Company of his intention to retire as Chief Executive Officer and President of the Company and as a member of the Board effective December 31, 2014. In addition, on July 24, 2014, the Board appointed Mark Hunter as the Company’s Chief Executive Officer and President to replace Mr. Swinburn effective on January 1, 2015. Mr. Hunter currently serves as Chief Executive Officer and President of Molson Coors Europe. Mr. Hunter will also serve as a member of the Board effective January 1, 2015. We do not anticipate a significant impact to our results, specifically related to share-based compensation expense, as a result of this change.

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6. Special Items
We have incurred charges or realized benefits that either we do not believe to be indicative of our core operations, or we believe are significant to our current operating results warranting separate classification. As such, we have separately classified these charges (benefits) as special items. The table below summarizes special items recorded by segment:
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2014
 
September 28, 2013
 
September 30, 2014
 
September 28, 2013
 
(In millions)
Employee-related charges
 
 
 
 
 
 
 
Restructuring
 
 
 
 
 
 
 
Canada
$
2.2

 
$
1.6

 
$
7.6

 
$
3.0

Europe

 
7.3

 
1.0

 
10.3

MCI

 

 

 
0.1

Corporate

 

 
0.3

 
0.3

Special termination benefits
 
 
 
 
 
 
 
Canada

 
0.3

 

 
1.7

Impairments or asset abandonment charges
 
 
 
 
 
 
 
Canada - Intangible asset write-off and impairment(1)
8.9

 

 
13.8

 

Europe - Intangible asset impairment(2)
360.0

 
150.9

 
360.0

 
150.9

Unusual or infrequent items
 
 
 
 
 
 
 
Europe - Release of non-income-related tax reserve(3)

 

 

 
(4.2
)
Europe - Flood loss (insurance reimbursement), net(4)
(3.5
)
 
2.6

 
(1.7
)
 
2.6

Termination fees and other (gains)/losses
 
 
 
 
 
 
 
Canada - Termination fee income(1)

 

 
(63.2
)
 

MCI - Sale of China Joint Venture

 
0.3

 

 
1.1

Special items, net
$
367.6

 
$
163.0

 
$
317.8

 
$
165.8

(1)
During the third quarter of 2014, we recognized an impairment charge related to our definite-lived intangible asset associated with our license agreement with Miller in Canada. See Note 15, "Commitments and Contingencies" for further discussion. Additionally, upon termination of our MMI operations in the first quarter of 2014, we recognized charges associated with the write-off of the definite-lived intangible asset associated with the joint venture. See Note 4, "Investments" for further discussion.
(2)
During the third quarters of 2014 and 2013, we recognized impairment charges related to indefinite-lived intangible assets in Europe. See Note 10, "Goodwill and Intangible Assets" for further discussion.
(3)
During 2009, we established a non-income-related tax reserve of $10.4 million that was recorded as a special item. In the first quarter of 2013, the remaining outstanding amount of this non-income-related tax reserve was fully released.
(4)
During the three and nine months ended September 30, 2014, we recorded losses and related costs of $0.4 million and $2.2 million, respectively, in our Europe business associated with significant flooding in Serbia, Bosnia, and Croatia that occurred in the second quarter of 2014. These losses were offset by insurance proceeds of $3.9 million recorded in the third quarter of 2014 related to flooding in the second quarter of 2014. During the three and nine months ended September 28, 2013, we recorded losses and related costs of $2.6 million and $5.9 million, respectively, in our Europe business related to significant flooding in Czech Republic in the second quarter of 2013. These losses were partially offset for the nine months ended September 28, 2013, by $3.3 million insurance proceeds received in the second quarter of 2013.
Restructuring Activities
In 2012, we introduced several initiatives focused on increasing our efficiencies and reducing costs across all functions of the business in order to develop a more competitive supply chain and global cost structure. Included in these initiatives is a long-term focus on reducing labor and general overhead costs through restructuring activities. We view these restructuring

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activities as actions to allow us to meet our long-term growth targets by generating future cost savings within cost of goods sold and general and administrative expenses and include organizational changes that strengthen our business and accelerate efficiencies within our operational structure. As a result of these restructuring activities, we have reduced headcount and consequently recognized severance and other employee-related charges, which we have recorded as special items. As we continually evaluate our cost structure and seek opportunities for further efficiencies and cost savings, we may incur additional restructuring related charges in the future; however, we are unable to estimate the amount of charges at this time.
The accrued restructuring balances represent expected future cash payments required to satisfy the remaining severance obligations to terminated employees, the majority of which we expect to be paid in the next 12-24 months. The table below summarizes the activity in the restructuring accruals by segment:
 
Canada
 
Europe
 
MCI
 
Corporate
 
Total
 
(In millions)
Total at December 31, 2013
$
9.7

 
$
13.6

 
$
0.5

 
$
0.9

 
$
24.7

Charges incurred
7.6

 
1.0

 

 
0.3

 
8.9

Payments made
(10.7
)
 
(4.0
)
 
(0.4
)
 
(0.8
)
 
(15.9
)
Foreign currency and other adjustments
(0.3
)
 
(0.2
)
 

 

 
(0.5
)
Total at September 30, 2014
$
6.3

 
$
10.4

 
$
0.1

 
$
0.4

 
$
17.2

 
Canada
 
Europe
 
MCI
 
Corporate
 
Total
 
(In millions)
Total at December 29, 2012
$
7.1

 
$
13.4

 
$
2.8

 
$
1.5

 
$
24.8

Charges incurred
3.0

 
10.3

 
0.1

 
0.3

 
13.7

Payments made
(6.2
)
 
(12.1
)
 
(2.5
)
 
(1.8
)
 
(22.6
)
Foreign currency and other adjustments
(0.2
)
 

 

 

 
(0.2
)
Total at September 28, 2013
$
3.7

 
$
11.6

 
$
0.4

 
$

 
$
15.7


7. Other Income and Expense
The table below summarizes other income and expense:
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2014
 
September 28, 2013
 
September 30, 2014
 
September 28, 2013
 
(In millions)
Gain on sale of non-operating asset
$

 
$

 
$

 
$
1.2

Gain (loss) from foreign exchange and derivative activity(1)
(4.0
)
 
(5.3
)
 
(2.7
)
 
(11.4
)
Other, net
(1.0
)
 
(0.2
)
 
(0.8
)
 
1.7

Other income (expense), net
$
(5.0
)
 
$
(5.5
)
 
$
(3.5
)
 
$
(8.5
)
(1)
Included in this amount are gains of $0.5 million for the nine months ended September 30, 2014, and unrealized losses of $11.4 million and $1.4 million for the three and nine months ended September 28, 2013, respectively, related to foreign currency movements on foreign-denominated financing instruments entered into in conjunction with the closing of the Acquisition. We also recorded unrealized gains of $1.8 million and losses of $4.9 million for the three and nine months ended September 28, 2013, respectively, related to foreign cash positions and foreign exchange contracts entered into to hedge our risk associated with payments of this foreign-denominated debt.
8. Income Tax
Our effective tax rates for the third quarter of 2014 and 2013 were approximately negative 2% and positive 22%, respectively. For the first three quarters of 2014 and 2013, our effective tax rates were approximately 9% and 14%, respectively. The effective tax rates for the third quarter and first three quarters of 2013 have been adjusted to reflect the impact of the change in interim accounting for advertising expenses. See Note 1, "Basis of Presentation and Summary of Significant Accounting Policies" for further discussion. Our effective tax rates were significantly lower than the federal statutory rate of 35% primarily due to lower statutory income tax rates applicable to our Canada and Europe businesses, tax planning strategies, as well as the impact of discrete items further discussed below. The effective tax rate for the three months ended September 30, 2014, decreased versus the three months ended September 28, 2013, primarily due to lower pretax income in 2014 driven by

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the brand impairment charges in Europe, and increased net discrete tax benefits recognized in the current year as compared to 2013. Our total net discrete tax benefit was $8.2 million in the third quarter of 2014, which primarily resulted from the release of a noncurrent unrecognized tax position as further discussed below. In April 2014, we finalized our advanced pricing agreement between the U.S. and Canada tax authorities. The implementation of our new agreement and reversal of the related unrecognized tax benefits resulted in an income tax benefit of approximately $21 million, which was recognized discretely in the second quarter of 2014.
During the second quarter of 2014, we identified that we had incorrectly omitted uncertain tax positions related to fiscal year 2010 that resulted in an immaterial misstatement of unrecognized tax benefits and retained earnings within the consolidated balance sheets included in our Annual Report. We have revised our current presentation of these amounts to correct for this error, which resulted in an increase in current unrecognized tax benefits of $19.3 million and noncurrent unrecognized tax benefits of $14.4 million as of December 31, 2013. During the third quarter of 2014, we filed an amendment to certain historical tax returns and concurrently fully settled the current unrecognized tax benefit resulting from this adjustment. Additionally, upon expiration of certain statutes of limitations during the quarter, we released a portion of the noncurrent unrecognized tax benefit adjustment, which resulted in a $6.3 million discrete benefit to our current income tax expense. The remainder of the noncurrent unrecognized tax benefits is reflected in our unaudited condensed consolidated balance sheet as of September 30, 2014. These noncurrent items relate to tax years that are currently open, and amounts may differ from those to be determined upon closing of the positions. See Note 1, "Basis of Presentation and Summary of Significant Accounting Policies" for further information.
Our tax rate is volatile and may move up or down with changes in, among other things, the amount and source of income or loss, our ability to utilize foreign tax credits, changes in tax laws, and the movement of liabilities established for uncertain tax positions as statutes of limitations expire or positions are otherwise effectively settled. There are proposed or pending tax law changes in various jurisdictions that, if enacted, may have an impact on our effective tax rate.
As of September 30, 2014, and December 31, 2013, we had unrecognized tax benefits including interest, penalties and offsetting positions of $52.1 million and $149.6 million, respectively. The September 30, 2014, balance excludes unrecognized tax benefits that are presented as a reduction of deferred tax assets as a result of the first quarter 2014 adoption of the recently issued guidance related to the presentation of these items. See Note 2, "New Accounting Pronouncements" for further discussion. The decrease to our unrecognized tax benefits on our unaudited condensed consolidated balance sheets from December 31, 2013, to September 30, 2014, was due to the favorable resolution of unrecognized tax positions, the settlement of unrecognized tax benefits resulting from the amended tax returns, the release of unrecognized tax benefits due to expiration of the statute of limitations, and the reclassification of certain unrecognized tax benefits as a result of the adoption of the recently issued guidance mentioned above. We do not have any unrecognized tax benefits classified as current as of September 30, 2014.

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9. Earnings Per Share
Basic earnings per share ("EPS") was computed using the weighted-average number of shares of common stock outstanding during the period. Diluted EPS includes the additional dilutive effect of our potentially dilutive securities, which includes stock options, SOSARs, RSUs, PUs, PSUs and DSUs. The dilutive effects of our potentially dilutive securities are calculated using the treasury stock method. The following summarizes the effect of dilutive securities on diluted EPS:
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2014
 
September 28, 2013(1)
 
September 30, 2014
 
September 28, 2013(1)
 
(In millions, except per share amounts)
Amounts attributable to MCBC
 
 
 
 
 
 
 
Net income (loss) from continuing operations
$
(35.7
)
 
$
133.4

 
$
420.3

 
$
428.4

Income (loss) from discontinued operations, net of tax
1.3

 
0.9

 
(0.4
)
 
1.7

Net income (loss) attributable to Molson Coors Brewing Company
$
(34.4
)
 
$
134.3

 
$
419.9

 
$
430.1

Weighted-average shares for basic EPS
185.1

 
183.5

 
184.7

 
182.7

Effect of dilutive securities:
 
 
 
 
 
 
 
Stock options and SOSARs

 
0.6

 
0.7

 
0.7

RSUs, PSUs, PUs and DSUs

 
0.5

 
0.5

 
0.5

Weighted-average shares for diluted EPS
185.1

 
184.6

 
185.9

 
183.9

Basic net income (loss) attributable to Molson Coors Brewing Company per share(2):
 
 
 
 

 

From continuing operations
$
(0.20
)
 
$
0.73

 
$
2.27

 
$
2.34

From discontinued operations
0.01

 
0.01

 

 
0.01

Basic net income (loss) attributable to Molson Coors Brewing Company per share
$
(0.19
)
 
$
0.74

 
$
2.27

 
$
2.35

Diluted net income (loss) attributable to Molson Coors Brewing Company per share(2):
 
 
 
 


 
 
From continuing operations
$
(0.20
)
 
$
0.72

 
$
2.26

 
$
2.33

From discontinued operations
0.01

 
0.01

 

 
0.01

Diluted net income (loss) attributable to Molson Coors Brewing Company per share
$
(0.19
)
 
$
0.73

 
$
2.26

 
$
2.34

Dividends declared and paid per share
$
0.37

 
$
0.32

 
$
1.11

 
$
0.96

(1)
Amounts have been adjusted to reflect the change in interim accounting for advertising expenses. See Note 1, "Basis of Presentation and Summary of Significant Accounting Policies" for further discussion.
(2)
Due to the anti-dilutive effect resulting from the reported net loss from continuing operations, the impact of potentially dilutive securities has been omitted from the quarterly calculation of weighted-average shares for diluted EPS for the third quarter of 2014. The impact of these potentially dilutive securities has been included in the calculation of weighted-average shares for diluted EPS for the nine months ended September 30, 2014.
Additionally, the sum of the quarterly net income per share amounts may not agree to the full year net income per share amounts. We calculate net income per share based on the weighted average number of outstanding shares during the period for each reporting period presented. The average number of shares fluctuates throughout the year and can therefore produce a full year result that does not agree to the sum of the individual quarters.
The following anti-dilutive securities were excluded from the computation of the effect of dilutive securities on diluted earnings per share:
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2014
 
September 28, 2013
 
September 30, 2014
 
September 28, 2013
 
(In millions)
Stock options, SOSARs and RSUs
1.2

 
0.1

 
0.1

 
0.2

Total weighted-average anti-dilutive securities
1.2

 
0.1

 
0.1

 
0.2


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Convertible Notes
In June 2007, we issued $575 million Convertible Senior Notes ("$575 million convertible bonds") due July 2013. On July 30, 2013, these notes matured and were repaid for their face value of $575 million. The required premium payment was settled in cash and entirely offset by the cash proceeds received from the settlement of the call options we purchased in 2007 related to these notes. As a result, these notes and related call options did not impact our shares outstanding. Additionally, the potential impacts of these notes and related call options had no impact on diluted income per share for any period in which they were outstanding. Simultaneously with the issuance of these notes, we issued warrants which began expiring in December 2013 and the final warrants expired February 6, 2014, all of which were out-of-the-money upon settlement. The potential impacts of these warrants had no impact on diluted income per share and were excluded from the computation of the effect of dilutive securities on diluted earnings per share for all periods during which they were outstanding.
In June 2012, we issued a €500 million Zero Coupon Senior Unsecured Convertible Note ("€500 million convertible note"). On August 13, 2013, the embedded put option was exercised and we subsequently settled the note using cash. See Note 11, "Debt" for further discussion. As a result, the €500 million convertible note did not impact our shares outstanding and was excluded from the computation of the effect of diluted securities on diluted earnings per share for all periods presented.
10. Goodwill and Intangible Assets
The following summarizes the change in goodwill for the nine months ended September 30, 2014:
 
Canada
 
Europe
 
MCI
 
Consolidated
 
(In millions)
Balance at December 31, 2013
$
718.2

 
$
1,693.2

 
$
7.3

 
$
2,418.7

Foreign currency translation
(36.9
)
 
(87.6
)
 
(0.1
)
 
(124.6
)
Balance at September 30, 2014
$
681.3

 
$
1,605.6

 
$
7.2

 
$
2,294.1

The following table presents details of our intangible assets, other than goodwill, as of September 30, 2014:
 
Useful life
 
Gross
 
Accumulated
amortization
 
Net
 
(Years)
 
(In millions)
Intangible assets subject to amortization:
 
 
 
 
 
 
 
Brands
 3 - 40
 
$
507.0

 
$
(233.5
)
 
$
273.5

Distribution rights
 2 - 23
 
141.9

 
(110.5
)
 
31.4

Patents and technology and distribution channels
 3 - 10
 
35.4

 
(32.9
)
 
2.5

Other
2
 
1.1

 
(1.1
)
 

Intangible assets not subject to amortization:
 
 
 
 
 
 
 
Brands
 Indefinite
 
4,797.6

 

 
4,797.6

Distribution networks
 Indefinite
 
903.4

 

 
903.4

Other
 Indefinite
 
17.5

 

 
17.5

Total
 
 
$
6,403.9

 
$
(378.0
)
 
$
6,025.9


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The following table presents details of our intangible assets, other than goodwill, as of December 31, 2013:
 
Useful life
 
Gross
 
Accumulated
amortization
 
Net
 
(Years)
 
(In millions)
Intangible assets subject to amortization:
 
 
 
 
 
 
 
Brands
3 - 40
 
$
537.5

 
$
(224.7
)
 
$
312.8

Distribution rights
2 - 23
 
314.1

 
(255.0
)
 
59.1

Patents and technology and distribution channels
3 - 10
 
36.2

 
(32.8
)
 
3.4

Other
2
 
1.2

 
(1.2
)
 

Intangible assets not subject to amortization:
 
 
 
 
 
 
 
Brands
Indefinite
 
5,482.3

 

 
5,482.3

Distribution networks
Indefinite
 
952.3

 

 
952.3

Other
Indefinite
 
15.2

 

 
15.2

Total
 
 
$
7,338.8

 
$
(513.7
)
 
$
6,825.1

The changes in the gross carrying amounts of intangibles from December 31, 2013, to September 30, 2014, are primarily driven by the impact of foreign exchange rates, as a significant amount of intangibles are denominated in foreign currencies, and the intangible impairments recorded in the third quarter of 2014, as discussed below. Additionally, upon termination of MMI operations in the first quarter of 2014, we accelerated the amortization of the remaining $4.9 million net carrying value of the related definite-lived intangible asset and wrote-off its gross value of $40.5 million. See Note 4, "Investments" for further discussion.
Based on foreign exchange rates as of September 30, 2014, the estimated future amortization expense of intangible assets is as follows:
Fiscal year
Amount
 
(In millions)
2014 - remaining
$
8.7

2015
$
28.2

2016
$
26.0

2017
$
13.4

2018
$
11.6

Intangible asset amortization expense was $10.1 million and $12.1 million for the three months ended September 30, 2014, and September 28, 2013, respectively, and $31.1 million and $35.7 million for the nine months ended September 30, 2014, and September 28, 2013, respectively. This expense is presented within marketing, general and administrative expenses and excludes the accelerated amortization recognized for the write-off of the intangible asset associated with the termination of MMI operations in the first quarter of 2014. See Note 4, "Investments" for further discussion.
We completed our required 2014 annual goodwill and indefinite-lived intangible impairment testing as of July 1, 2014, the first day of our fiscal year 2014 third quarter, and concluded there were no impairments of goodwill within our Europe, Canada or India reporting units or impairments of our indefinite-lived intangible assets, with the exception of the Jelen and Ozujsko brand intangibles as discussed below.
Reporting Units and Goodwill
The operations in each of the specific regions within our Canada, Europe and MCI segments are considered components based on the availability of discrete financial information and the regular review by segment management. We have concluded that the components within the Canada and Europe segments each meet the criteria as having similar economic characteristics and therefore have aggregated these components into the Canada and Europe reporting units, respectively. Additionally, we determined that the components within our MCI segment do not meet the criteria for aggregation, and therefore, the operations of our India business constitute a separate reporting unit at the component level.
Our 2014 annual goodwill impairment testing determined that our Europe and Canada reporting units were at risk of failing step one of the goodwill impairment test. Specifically, the fair value of the Europe and Canada reporting units were estimated at approximately 15% and 14% in excess of carrying value, respectively, as of the testing date. Prior to recognizing

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the brand impairments discussed below, the excess of the fair value over the carrying value of the Europe reporting unit declined from the prior year. The decrease was driven by challenging macroeconomic conditions in Europe negatively impacting our business, as well as declines in the forecasts of certain European brands, which have been adversely impacted by the expected prolonged recovery from recent flooding and an accelerated consumer trend to value brands. These impacts were partially offset by improvements to market multiples. The Canada reporting unit had a marginal decrease from the prior year primarily due to continued competitive pressures and economic weakness in the Canadian market, partially offset by improved market multiples.
Indefinite-Lived Intangibles
In 2014, our annual indefinite-lived intangible asset impairment testing determined that the fair values of the Jelen and Ozujsko indefinite-lived brand intangibles within our Europe segment were below their respective carrying values. As a result, we recorded an aggregate impairment charge of $360.0 million within special items in the third quarter of 2014. The impairment of the Jelen brand was driven by ongoing macroeconomic challenges exacerbated by severe flooding in the Balkans region in the second quarter of 2014. This flooding caused significant damage to the infrastructure within the Serbian and Bosnian markets, for which Jelen is our primary brand, which resulted in a decrease in the brand's projected cash flows. We have analyzed the potential impact of the flood to these markets and have incorporated a prolonged recovery in our projected cash flows based on recent assessments of the recovery efforts and resulting macroeconomic effects to the region. Additionally, the aftermath of the flood has further contributed to an already challenging market and has led to an acceleration of the consumer trend toward value brands. The impairment of the Ozujsko brand was driven by the continued significant economic pressures in Croatia, Ozujsko's primary market, which resulted in a decline in the brand's projected cash flows. The macroeconomic environment has driven low realized and expected GDP growth and was worsened by the previously mentioned flooding during Croatia's peak tourism season, along with the flooding in Bosnia, discussed above, where Ozujsko is also sold. These lower projected cash flows have lagged previously made assumptions based on forecasted macroeconomic recoveries, resulting in the impairments. The remaining Europe indefinite-lived intangibles' fair values, including Staropramen and Carling brands, while facing similar macroeconomic challenges, were sufficiently in excess of their respective carrying values, with the exception of Niksicko. Specifically, the performance of Niksicko, our primary brand in Montenegro, is also dependent on the Serbian and Bosnian markets and is facing similar challenges to those discussed above. As each of Jelen and Ozujsko's fair values is equal to its carrying value as of the July 1, 2014, impairment testing date, these brands, along with Niksicko, are therefore at risk of future impairment, as any additional decline in their forecasted future cash flows may result in a decrease to the fair value of the brand over its respective carrying value. As of September 30, 2014, these at-risk intangible assets had an aggregate carrying value of $867.9 million.
Separately, our Molson core brand intangible continues to be at risk of future impairment with a fair value estimated at approximately 11% in excess of its carrying value as of the impairment testing date. Although the fair value of the Molson core brands in excess of carrying value increased slightly from the prior year, they continue to face significant competitive pressures and challenging macroeconomic conditions in the Canada market. These challenges continue to be offset by anticipated cost savings initiatives, which resulted in a slight increase in the brand fair value in excess of carrying value from our prior year valuation. As of September 30, 2014, the Molson core brand intangible had a carrying value of $2,711.1 million.

We utilized Level 3 fair value measurements in our impairment analysis of our indefinite-lived intangible assets, which utilizes an excess earnings approach to determine the fair values of the assets as of the testing date. The future cash flows used in the analysis are based on internal cash flow projections based on our long range plans and include significant assumptions by management as noted below.

Key Assumptions
The Europe and Canada reporting units' goodwill, the Molson core brand intangible, and certain indefinite-lived brand intangibles within Europe are at risk of future impairment in the event of significant unfavorable changes in the forecasted cash flows (including significant delays in projected macroeconomic recovery, greater-than-anticipated flood impacts to certain regions' performance, or prolonged adverse economic conditions), terminal growth rates, market multiples and/or weighted-average cost of capital utilized in the discounted cash flow analyses. For testing purposes, management's best estimates of the expected future results are the primary driver in determining the fair value. Current projections used for our Europe reporting unit and indefinite-lived intangible assets testing reflect continued challenging environments in the future followed by growth resulting from a longer term recovery of the macroeconomic environment, as well as the benefit of anticipated cost savings and specific brand-building and innovation activities. Our Canada reporting unit and Molson core brand projections also reflect a continued challenging environment that has been adversely impacted by a weak economy across all industries, as well as weakened consumer demand driven by increased competitive pressures, partially offset by anticipated cost savings and specific brand-building and innovation activities. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. As a result, there can be no assurance that the estimates and assumptions made for purposes of the 2014 annual goodwill and indefinite-lived intangible impairment test will prove to be an accurate prediction of

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the future. Examples of events or circumstances that could reasonably be expected to negatively affect the underlying key assumptions and ultimately impact the estimated fair value of our Canada and Europe reporting units, Molson core brand, and the at-risk European brands (Jelen, Ozujsko and Niksicko) may include such items as: (i) a decrease in expected future cash flows, specifically, a decrease in sales volume and increase in costs due to another natural disaster or other unknown event that could significantly impact our immediate and long-range results, a decrease in sales volume driven by a prolonged weakness in consumer demand or other competitive pressures adversely affecting our long term volume trends, a continuation of the trend away from core brands towards value brands in certain of our markets, especially in markets where our core brands represent a significant portion of the market, unfavorable working capital changes and an inability to successfully achieve our cost savings targets, (ii) an economic recovery that significantly differs from our assumptions in timing and/or degree (such as a recession or continued worsening of the overall European economy), an inability of the market to successfully recover from the recent severe flooding in several of our Central European markets, (iii) volatility in the equity and debt markets which could result in a higher discount rate; and (iv) sensitivity to market multiples.
While historical performance and current expectations have resulted in fair values of our reporting units in excess of carrying values, if our assumptions are not realized, it is possible that an impairment charge may need to be recorded in the future.
Definite-Lived Intangibles
Regarding definite-lived intangibles, we continuously monitor the performance of the underlying asset for potential triggering events suggesting an impairment review should be performed. No such triggering events were identified in the third quarter of 2014, with the exception of the settlement with Miller in Canada, which resulted in a $8.9 million impairment charge of our definite-lived intangible asset related to our license agreement. As of September 30, 2014, the intangible has a remaining carrying value of $18.8 million, primarily indicative of the settlement amount, as well as the remaining future cash flows expected to be generated under the license agreement through March 31, 2015, which will be amortized over the remaining life of the agreement. We utilized Level 3 fair value measurements in our impairment analysis of this definite-lived intangible asset, which include cash flow assumptions by management related to the transition period. See Note 15, "Commitments and Contingencies" for further discussion.


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11. Debt
Debt obligations
Our total borrowings as of September 30, 2014, and December 31, 2013, were composed of the following:
 
As of
 
September 30, 2014
 
December 31, 2013
 
(In millions)
Senior notes:
 
 
 
€500 million 0.0% convertible note due 2013(1)
$

 
$
61.8

Canadian Dollar ("CAD") 900 million 5.0% notes due 2015
803.7

 
847.2

CAD 500 million 3.95% Series A notes due 2017
446.5

 
470.7

$300 million 2.0% notes due 2017
300.0

 
300.0

$500 million 3.5% notes due 2022(2)
503.4

 
500.0

$1.1 billion 5.0% notes due 2042
1,100.0

 
1,100.0

Other long-term debt
0.1

 
0.2

Long-term credit facilities(3)