Molson Coors Beverage Co: Form 10-Q for the period ended Jun 30, 2023

Overview

For more than two centuries, we have been brewing beverages that unite people to celebrate all life’s moments. From Coors Light, Miller Lite, Molson Canadian, Carling and Staropramen to Coors Banquet, Blue Moon Belgian White, Vizzy Hard Seltzer, Leinenkugel’s Summer Shandy, Miller High Life and more, we produce many beloved and iconic beer brands. While our Company's history is rooted in beer, we offer a modern portfolio that expands beyond the beer aisle as well. As a business, our ambition is to be the first choice for our people, our consumers and our customers, and our success depends on our ability to make our products available to meet a wide range of consumer segments and occasions.

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") in this Quarterly Report on Form 10-Q is provided as a supplement to, and should be read in conjunction with, our audited consolidated financial statements, the accompanying notes and the MD&A included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 ("Annual Report"), as well as our unaudited condensed consolidated financial statements and the accompanying notes included in this report. Due to the seasonality of our operating results, quarterly financial results are not necessarily indicative of the results that may be achieved for the full year or any other future period.

Unless otherwise noted in this report, any description of "we," "us" or "our" includes Molson Coors Beverage Company ("MCBC" or the "Company"), principally a holding company, and its operating and non-operating subsidiaries included within our reporting segments. Our reporting segments include Americas and EMEA&APAC. Our Americas segment operates in the U.S., Canada and various countries in the Caribbean, Latin and South America and our EMEA&APAC segment operates in Bulgaria, Croatia, Czech Republic, Hungary, Montenegro, the Republic of Ireland, Romania, Serbia, the U.K., various other European countries, and certain countries within the Middle East, Africa and Asia Pacific.

Unless otherwise indicated, information in this report is presented in USD and comparisons are to comparable prior periods. Our primary operating currencies, other than the USD, include the CAD, the GBP, and our Central European operating currencies such as the EUR, CZK, RON and RSD.

Items Affecting Reported Results

Items Affecting Consolidated Results of Operations

Cost Inflation

We have been experiencing significant cost inflation, including materials and manufacturing expenses, which negatively impacted our results of operations for the three and six months ended June 30, 2023. These impacts were partially driven by the Russian invasion of Ukraine, which commenced in February 2022 and remains ongoing. While cost inflation has been high in all of our markets, the impact to COGS on a percentage basis was higher for our EMEA&APAC segment than our Americas segment. In addition, consumers in certain markets in our EMEA&APAC segment continued to be impacted by local inflation leading to a reduction in their discretionary purchases. We continue to monitor the inflationary environment and currently expect cost inflation to moderate in the second half of 2023 with continued easing into 2024.

To the extent materials, manufacturing and logistics prices continue to fluctuate, our business and financial results could continue to be materially adversely impacted. We continue to monitor these risks and rely on our risk management hedging program, increased pricing to our customers, our premiumization strategy and cost savings programs to help mitigate some of the inflationary pressures. Even if we are able to raise the prices of our products, consumers might react negatively to such price increases, which could have a material adverse effect on, among other things, our brands, reputation and sales. If our competitors maintain or substantially lower their prices, we may lose customers or be forced to lower prices to remain competitive. Our profitability may be impacted by prices that do not offset the inflationary pressures, which would negatively impact gross margins. In addition, even if we increase the prices of our products in response to increases in the cost of commodities or other cost increases, we may not be able to sustain our price increases or customers may trade down to cheaper alternatives.

Items Affecting Americas Segment Results of Operations

Montreal/Longueuil, Québec Brewery and Distribution Centers Labor Strike

From late March 2022 until June 2022, approximately 400 unionized employees in our Montreal/Longueuil, Québec brewery and distribution centers went on strike which adversely affected our business and operations during the second quarter of 2022.

Keystone Litigation

During the first quarter of 2022, we accrued a liability of $56.0 million within MG&A expenses related to probable losses as a result of the ongoing Keystone litigation case. During the three and six months ended June 30, 2023, we accrued $0.5 million and $1.0 million in associated interest related to this accrued liability, respectively. See Part I. - Item 1. Financial Statements, Note 10, "Commitments and Contingencies" for further information.

Impairment of an Asset Group

During the first quarter of 2022, we recognized an impairment loss of $28.6 million related to the Truss joint venture asset group within other operating income (expense), net, of which $12.1 million was attributable to the noncontrolling interest. See Part I.—Item 1. Financial Statements, Note 12, "Other Operating Income (Expense), net" for further information.

Items Affecting EMEA&APAC Segment Results of Operations

Russia-Ukraine Conflict

In February 2022, Russia invaded Ukraine and the conflict remains ongoing. As a result, we suspended exports of all our brands to Russia and subsequently terminated the license to produce any of our brands in Russia. While not material to our consolidated net sales, the Russia-Ukraine conflict negatively impacted our EMEA&APAC segment net sales for the three and six months ended June 30, 2023 and June 30, 2022. In addition, the Russia-Ukraine conflict has caused a negative impact to the global economy which has impacted our Company, driving further increases to materials and manufacturing expenses as discussed in more detail above.

India Entity Sale

During the first quarter of 2022, we completed the sale of our non-operating India entity in our EMEA&APAC segment resulting in an insignificant loss on disposal recorded within other operating income (expense), net in the unaudited condensed consolidated statements of operations. The disposal group had previously been classified as held for sale during the fourth quarter of 2021.

Consolidated Results of Operations

The following table highlights summarized components of our unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2023 and June 30, 2022. See Part I.—Item 1. Financial Statements for additional details of our U.S. GAAP results.

(In millions, except percentages and per share data)

N/M = Not meaningful

Foreign currency impacts on results

During the three months ended June 30, 2023, foreign currency movements had the following impacts on our USD consolidated results:

• Net sales - Unfavorable impact of $9.7 million (unfavorable impact for Americas of $18.4 million, partially offset by favorable impact for EMEA&APAC of $8.7 million).
• Cost of goods sold - Favorable impact of $7.9 million (favorable impact for Americas and Unallocated of $13.1 million and $0.3 million, respectively, partially offset by unfavorable impact for EMEA&APAC of $5.5 million).
• MG&A - Favorable impact of $2.4 million (favorable impact for Americas of $4.7 million, partially offset by unfavorable impact for EMEA&APAC of $2.3 million).
• Income (loss) before income taxes - Favorable impact of $3.7 million (favorable impact for Unallocated, EMEA&APAC and Americas of $2.6 million, $0.8 million and $0.3 million, respectively).

The impacts of foreign currency movements on our consolidated USD results described above for the three months ended June 30, 2023 were primarily due to the strength of the USD as compared to the CAD partially offset by the slight weakening of the USD as compared to certain currencies throughout Europe.

During the six months ended June 30, 2023, foreign currency movements had the following impacts on our USD consolidated results:

• Net sales - Unfavorable impact of $59.4 million (unfavorable impact for Americas and EMEA&APAC of $35.8 million and $23.6 million, respectively).
• Cost of goods sold - Favorable impact of $47.1 million (favorable impact for Americas, EMEA&APAC and Unallocated of $27.8 million, $17.7 million and $1.6 million, respectively).
• MG&A - Favorable impact of $19.1 million (favorable impact for Americas and EMEA&APAC of $11.7 million and $7.4 million, respectively).
• Income (loss) before income taxes - Favorable impact of $10.6 million (favorable impact for Americas, Unallocated and EMEA&APAC of $4.6 million, $4.0 million and $2.0 million, respectively).

The impacts of foreign currency movements on our consolidated USD results described above for the six months ended June 30, 2023 were primarily due to the strength of the USD as compared to the CAD and GBP.

Included in these amounts are both translational and transactional impacts of changes in foreign exchange rates. We calculate the impact of foreign exchange by translating our current period local currency results at the average exchange rates used to translate the financial statements in the comparable prior year period during the respective period throughout the year and comparing that amount with the reported amount for the period. The impact of transactional foreign currency gains and losses is recorded within other non-operating income (expense), net in our unaudited condensed consolidated statements of operations.

Volume

Financial volume represents owned or actively managed brands sold to unrelated external customers within our geographic markets (net of returns and allowances), as well as contract brewing, wholesale/factored non-owned volume and company-owned distribution volume. This metric is presented on an STW basis to reflect the sales from our operations to our direct customers, generally distributors. We believe this metric is important and useful for investors and management because it gives an indication of the amount of beer and adjacent products that we have produced and shipped to customers. This metric excludes royalty volume, which consists of our brands produced and sold under various license and contract brewing agreements. Factored volume in our EMEA&APAC segment is the distribution of beer, wine, spirits and other products owned and produced by other companies to the on-premise channel, which is a common arrangement in the U.K.

We also utilize net sales per hectoliter and cost of goods sold per hectoliter, as well as the year over year changes in such metrics, as key metrics for analyzing our results. These metrics are calculated as net sales and cost of goods sold, respectively, per our consolidated statements of operations divided by financial volume for the respective period. We believe these metrics are important and useful for investors and management because they provide an indication of the trends in pricing and sales mix on our net sales and the trends of sales mix and other cost impacts such as inflation on our cost of goods sold.

Net Sales

The following table highlights the drivers of the change in net sales and net sales per hectoliter for the three months ended June 30, 2023 compared to June 30, 2022 (in percentages):

Net sales increased 11.8% for the three months ended June 30, 2023, compared to prior year, driven by favorable price and sales mix as well as higher financial volumes, partially offset by unfavorable foreign currency impacts.

Financial volumes increased 2.8% for the three months ended June 30, 2023, compared to prior year, primarily due to higher financial volumes in the Americas segment, partially offset by a decrease in EMEA&APAC financial volumes.

Price and sales mix favorably impacted net sales and net sales per hectoliter for the three months ended June 30, 2023 by 9.3% and 9.0%, respectively, primarily due to increased net pricing to customers including the rollover benefit of taking several price increases in the previous year, as well as favorable sales mix driven by geographic mix and premiumization.

The following table highlights the drivers of the change in net sales and net sales per hectoliter for the six months ended June 30, 2023 compared to June 30, 2022 (in percentages):

Net sales increased 9.3% for the six months ended June 30, 2023, compared to prior year, driven by favorable price and sales mix and an increase in financial volumes, partially offset by unfavorable foreign currency impacts.

Financial volumes increased 1.5% for the six months ended June 30, 2023, compared to prior year, primarily due to higher financial volumes in the Americas segment, partially offset by a decrease in EMEA&APAC financial volumes.

Price and sales mix favorably impacted net sales and net sales per hectoliter for the six months ended June 30, 2023 by 8.9% and 8.8%, respectively, primarily due to increased net pricing to customers including the rollover benefit of taking several price increases in the previous year, as well as favorable sales mix driven by premiumization and geographic mix.

A discussion of currency impacts on net sales is included in the "Foreign currency impact on results" section above.

Cost of goods sold

Cost of goods sold decreased 2.6% for the three months ended June 30, 2023, compared to prior year, primarily due to lower cost of goods sold per hectoliter and favorable foreign currency impacts, partially offset by higher financial volumes. Cost of goods sold per hectoliter decreased 5.3% for the three months ended June 30, 2023 compared to prior year, including the favorable impact of currency of 0.4%, primarily due to changes to our unrealized mark-to-market derivative positions of $210.1 million, volume leverage and cost savings initiatives, partially offset by cost inflation related to materials and manufacturing expenses and unfavorable sales mix.

Cost of goods sold increased 6.9% for the six months ended June 30, 2023, compared to prior year, primarily due to higher cost of goods sold per hectoliter and higher financial volumes, partially offset by favorable foreign currency impacts. Cost of goods sold per hectoliter increased 5.3% for the six months ended June 30, 2023 compared to prior year, including the favorable impact of currency of 1.4%, primarily due to cost inflation related to materials and manufacturing expenses and unfavorable mix, partially offset by our cost savings initiatives.

Marketing, general and administrative expenses

MG&A expenses increased 3.9% for the three months ended June 30, 2023 compared to prior year, primarily due to higher incentive compensation expense and increased marketing investment on innovation brands.

MG&A expenses decreased 2.4% for the six months ended June 30, 2023 compared to prior year, primarily due to cycling the recording of a $56.0 million accrued liability related to potential losses as a result of the ongoing Keystone litigation case and favorable foreign currency impacts, partially offset by higher incentive compensation expense.

Other operating income (expense), net

See Part I.—Item 1. Financial Statements, Note 12, "Other Operating Income (Expense), net" for detail of our other operating income (expense), net.

Total non-operating income (expense), net

Total non-operating expense, net decreased 20.5% and 6.0% for the three and six months ended June 30, 2023, compared to prior year, respectively primarily due to lower net interest expense driven by the repayment of debt as a result of our continued deleveraging actions, partially offset by lower pension and OPEB non-service net benefit.

Income taxes benefit (expense)

31

The higher effective tax rate for the three and six months ended June 30, 2023 compared to the same periods in the prior year was primarily due to an increase in net discrete tax expense in combination with higher income before income taxes. We recognized $7.9 million discrete tax expense in the six months ended June 30, 2023 compared to $3.2 million discrete tax benefit in the six months ended June 30, 2022. For the second quarter of 2022, there was a disproportionate impact from the discrete tax benefit on our effective tax rate due to lower income before income taxes.

Our tax rate can be volatile and may change with, among other things, the amount and source of pre-tax income or loss, our ability to utilize foreign tax credits, excess tax benefits or deficiencies from share-based compensation, changes in tax laws and the movement of liabilities established pursuant to accounting guidance for uncertain tax positions as statutes of limitations expire, positions are effectively settled, or when additional information becomes available. There are proposed or pending tax law changes in various jurisdictions and other changes to regulatory environments in countries in which we do business that, if enacted, could have an impact on our effective tax rate.

On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was signed into U.S. law. The IRA includes a new corporate alternative minimum tax of 15% on the adjusted financial statement income (“AFSI”) of corporations with average AFSI exceeding $1.0 billion over a three-year period, effective for tax years beginning after December 31, 2022. The alternative minimum tax is not expected to impact our financial or cash tax position in 2023. Additionally, the IRA imposes an excise tax of 1% on stock repurchases, effective January 1, 2023. The excise tax is recorded as an incremental cost in treasury stock on our unaudited condensed consolidated balance sheets and was immaterial for the three and six months ended June 30, 2023. Based on our current analysis, we do not expect these provisions to have a material impact on our financial statements in the near future. We will continue to evaluate their impact as additional information becomes available.

Refer to Part I.—Item 1. Financial Statements, Note 9, "Income Tax" for discussion regarding our effective tax rate.

Segment Results of Operations

Americas Segment

(In millions, except percentages)

(1) Includes gross inter-segment sales and volumes which are eliminated in the consolidated totals.

(2) Excludes royalty volume of 0.645 million hectoliters and 1.263 million for the three and six months ended June 30, 2023, respectively, and excludes royalty volume of 0.645 million hectoliters and 1.246 million hectoliters for the three and six months ended June 30, 2022, respectively.

Net sales

The following table highlights the drivers of the change in net sales and net sales per hectoliter for the three months ended June 30, 2023 compared to June 30, 2022 (in percentages):

Net sales increased 10.7% for the three months ended June 30, 2023, compared to prior year, driven by favorable price and sales mix and an increase in financial volumes, partially offset by unfavorable foreign currency impacts.

Financial volumes increased 5.0% for the three months ended June 30, 2023, compared to prior year, primarily due to an increase in U.S. domestic shipments driven by volume growth in our core brands, as well as higher shipments in Canada mainly attributed to cycling the prior year impacts of the Québec labor strike. The increase in U.S. volume is impacted by a shift in consumer purchasing behavior largely within the premium segment.

Price and sales mix favorably impacted net sales and net sales per hectoliter for the three months ended June 30, 2023 by 6.5% and 6.2%, respectively, primarily due to increased net pricing to customers including the rollover benefit of several price increases taken in the previous year and favorable sales mix.

The following table highlights the drivers of the change in net sales and net sales per hectoliter for the six months ended June 30, 2023 compared to June 30, 2022 (in percentages):

Net sales increased 8.5% for the six months ended June 30, 2023, compared to prior year, driven by favorable price and sales mix and an increase in financial volumes, partially offset by unfavorable foreign currency impacts.

Financial volumes increased 2.6% for the six months ended June 30, 2023, compared to prior year, primarily due to an increase in U.S. domestic shipments driven by volume growth in our core brands and higher shipments in Canada mainly attributed to cycling the prior year impacts of the Québec labor strike, partially offset by lower Latin America volumes. The increase in U.S. volume is impacted by a shift in consumer purchasing behavior largely within the premium segment.

Price and sales mix favorably impacted net sales and net sales per hectoliter for the six months ended June 30, 2023 by 6.7% and 6.6%, respectively, primarily due to increased net pricing to customers including the rollover benefit of several price increases taken in the previous year and favorable sales mix.

A discussion of currency impacts on net sales is included in the "Foreign currency impact on results" section above.

Income (loss) before income taxes

Income before income taxes improved 40.0% for the three months ended June 30, 2023 compared to prior year, primarily due to increased net pricing, higher financial volumes, including volume leverage, lower logistics expenses and favorable sales mix, partially offset by cost inflation related to materials and manufacturing expenses, as well as higher MG&A expense. Higher MG&A spend was primarily due to higher incentive compensation expense and increased marketing investment on innovation brands.

Income before income taxes improved 65.6% for the six months ended June 30, 2023 compared to prior year, primarily due to increased net pricing, higher financial volumes, including volume leverage, lower MG&A expense, the cycling of the $28.6 million non-cash impairment charge taken on our Truss LP joint venture asset group in the prior year, lower logistics expenses and favorable sales mix, partially offset by cost inflation related to materials and manufacturing expenses. Lower MG&A spend was driven by cycling the recording of a $56.0 million accrued liability related to potential losses as a result of the ongoing Keystone litigation case, partially offset by higher incentive compensation expense.

EMEA&APAC Segment

(In millions, except percentages)

(1) Includes gross inter-segment sales and volumes which are eliminated in the consolidated totals.

(2) Excludes royalty volume of 0.250 million hectoliters and 0.406 million hectoliters for the three and six months ended June 30, 2023, respectively, and excludes royalty volume of 0.218 million hectoliters and 0.537 million hectoliters for the three and six months ended June 30, 2022, respectively.

Net sales

The following table highlights the drivers of the change in net sales and net sales per hectoliter for the three months ended June 30, 2023 compared to June 30, 2022 (in percentages):

Net sales increased 16.3% for the three months ended June 30, 2023, compared to prior year, mainly driven by favorable price and sales mix as well as by favorable foreign currency impacts, partially offset by a decline in financial volumes.

Financial volumes decreased 3.0% for the three months ended June 30, 2023, compared to prior year, primarily due to declines in Central and Eastern Europe due to industry softness including the inflationary pressures on the consumer, partially offset by resilient demand and growth in above premium volumes in the U.K.

Price and sales mix favorably impacted net sales and net sales per hectoliter for the three months ended June 30, 2023 by 17.7% and 18.3%, respectively, primarily due to increased net pricing to customers including the rollover benefits from price increases taken in the previous year and favorable sales mix driven by premiumization and geographic mix.

The following table highlights the drivers of the change in net sales and net sales per hectoliter for the six months ended June 30, 2023 compared to June 30, 2022 (in percentages):

Net sales increased 12.7% for the six months ended June 30, 2023, compared to prior year, mainly driven by favorable price and sales mix, partially offset by unfavorable foreign currency impacts and a decline in financial volumes.

Financial volumes decreased 1.5% for the six months ended June 30, 2023, compared to prior year, primarily due to declines in Central and Eastern Europe due to industry softness including the inflationary pressures on the consumer, partially offset by resilient demand and growth in above premium volumes in the U.K.

Price and sales mix favorably impacted net sales and net sales per hectoliter for the six months ended June 30, 2023 by 16.8% and 17.0%, respectively, primarily due to increased net pricing to customers including the rollover benefits from price increases taken in the previous year and favorable sales mix driven by premiumization and geographic mix.

A discussion of currency impacts on net sales is included in the "Foreign currency impact on results" section above.

Income (loss) before income taxes

Income before income taxes improved $29.8 million or 86.6% for the three months ended June 30, 2023, compared to the prior year, primarily due to increased net pricing to customers and favorable sales mix, partially offset by lower financial volumes and cost inflation on materials, logistics and manufacturing expenses.

Income before income taxes increased $36.6 million or 1,663.6% for the six months ended June 30, 2023, compared to the prior year, primarily due to net pricing to customers and favorable sales mix, partially offset by lower financial volumes and cost inflation on materials, logistics and manufacturing expenses, as well as higher MG&A spend. Higher MG&A spend was primarily due to cost inflation as well as higher incentive compensation expense.

Unallocated

We have certain activity that is not allocated to our segments and primarily includes financing-related costs such as interest expense and income, foreign exchange gains and losses on intercompany balances related to financing and other treasury-related activities and the unrealized changes in fair value on our commodity swaps not designated in hedging relationships. Additionally, only the service cost component of net periodic pension and OPEB cost is reported within each operating segment, and all other components remain unallocated.

(In millions, except percentages)

Cost of goods sold

The unrealized changes in fair value on our commodity derivatives, which are economic hedges, make up substantially all of the activity presented within cost of goods sold in the table above for the three and six months ended June 30, 2023 and June 30, 2022, respectively. As the exposure we are managing is realized, we reclassify the gain or loss on our commodity derivatives to the segment in which the underlying exposure resides, allowing our segments to realize the economic effects of the derivative without the resulting unrealized mark-to-market volatility. See Part I.—Item 1. Financial Statements, Note 8, "Derivative Instruments and Hedging Activities" for further information.

Total non-operating income (expense), net

Total non-operating expense, net decreased 11.0% for the three months ended June 30, 2023 compared to prior year, primarily due to lower net interest expense, partially offset by lower pension and OPEB non-service net benefit.

Total non-operating expense, net decreased 2.4% for the six months ended June 30, 2023 compared to prior year, primarily due to lower net interest expense, partially offset by lower pension and OPEB non-service net benefit.

See Part I.—Item 1. Financial Statements, Note 7, "Debt" for further details on our debt instruments.

Liquidity and Capital Resources

Liquidity

Overview

Our primary sources of liquidity include cash provided by operating activities and access to external capital. We continue to monitor world events which may create credit or economic challenges that could adversely impact our profit or operating cash flows and our ability to obtain additional liquidity. We currently believe that our cash and cash equivalents, cash flows from operations and cash provided by short-term and long-term borrowings, when necessary, will be adequate to meet our ongoing operating requirements, scheduled principal and interest payments on debt, anticipated dividend payments, capital expenditures and other obligations for the twelve months subsequent to the date of the issuance of this quarterly report and our long-term liquidity requirements. We do not have any restrictions that prevent or limit our ability to declare or pay dividends.

While a significant portion of our cash flows from operating activities are generated within the U.S., our cash balances include cash held outside the U.S. and in currencies other than the USD. As of June 30, 2023, approximately 42% of our cash and cash equivalents were located outside the U.S., largely denominated in foreign currencies. The recent fluctuations in foreign currency exchange rates have had and may continue to have a material impact on these foreign cash balances. Cash balances in foreign countries are often subject to additional restrictions and covenants. We may, therefore, have difficulties timely repatriating cash held outside the U.S., and such repatriation may be subject to tax. These limitations may affect our ability to fully utilize our cash resources for needs in the U.S. and other countries and may adversely affect our liquidity. To the extent necessary, we accrue for tax consequences on the earnings of our foreign subsidiaries as they are earned. We may utilize tax planning and financing strategies in an effort to ensure that our worldwide cash is available in the locations in which it is needed. We periodically review and evaluate these plans and strategies, including externally committed and non-committed credit agreements accessible by our Company and each of our operating subsidiaries. We believe these financing arrangements, along with the cash generated from the operations of our U.S. business, are sufficient to fund our current cash needs in the U.S.

Cash Flows and Use of Cash

Our business historically generates positive operating cash flows each year and our debt maturities are generally of a longer-term nature. However, our liquidity could be impacted significantly by the risk factors we described in Part I—Item 1A. "Risk Factors" in our Annual Report, Part II.—Item 1A. "Risk Factors" in this report and the items listed above.

Cash Flows from Operating Activities

Net cash provided by operating activities of $894.4 million for the six months ended June 30, 2023 increased $227.6 million compared to $666.8 million for the six months ended June 30, 2022. The increase in net cash provided by operating activities was primarily due to higher net income, lower interest paid, as well as the favorable timing of working capital in the Americas, partially offset by higher income taxes paid.

Cash Flows from Investing Activities

Net cash used in investing activities of $340.6 million for the six months ended June 30, 2023 decreased $28.9 million compared to $369.5 million for the six months ended June 30, 2022. The decrease in net cash used in investing activities was primarily due to lower capital expenditures as a result of the timing of capital projects, partially offset by lower proceeds from the sales of properties and other assets and higher cash outflows from other investing activities.

Cash Flows from Financing Activities

Net cash used in financing activities of $201.9 million for the six months ended June 30, 2023 decreased $267.9 million compared to $469.8 million for the six months ended June 30, 2022. The decrease in net cash used in financing activities was primarily due to the repayment of our $500 million 3.5% USD notes which matured in May 2022, partially offset by higher borrowings under our commercial paper program in the prior year, as well as higher dividend payments in the current year.

Capital Resources, including Material Cash Requirements

Cash and Cash Equivalents

As of June 30, 2023, we had total cash and cash equivalents of $960.9 million, compared to $600.0 million as of December 31, 2022 and $442.1 million as of June 30, 2022. The increase in cash and cash equivalents from December 31, 2022 was primarily due to the net cash provided by operating activities, partially offset by capital expenditures, dividend payments, and class B common stock share repurchases. The increase in cash and cash equivalents from June 30, 2022 was primarily due to the net cash provided by operating activities and proceeds from the sales of properties and other assets, partially offset by capital expenditures, dividend payments, repayment of our commercial paper program, and class B common stock share repurchases.

Borrowings

We repaid our CAD 500 million 2.84% notes upon their maturity on July 15, 2023 using cash on hand. Refer to Part I.—Item 1. Financial Statements, Note 7, "Debt" for details.

Based on the credit profile of our lenders that are party to our credit facilities, we are confident in our ability to continue to draw on our revolving credit facility if the need arises. On June 26, 2023, we amended and restated our multi-currency revolving credit facility. Among other things, the term was extended through June 26, 2028, and the borrowing capacity was increased to $2.0 billion. This $2.0 billion revolving credit facility amended our pre-existing $1.5 billion revolving credit facility, which would have matured on July 7, 2024. Our commercial paper program, which reduces borrowing capacity under the revolving credit facility, remains at a maximum aggregate amount outstanding of $1.5 billion to borrow at any time at variable interest rates. Similarly, the $150.0 million sub-facility available for the issuance of letters of credit remains unchanged. As of June 30, 2023, we had $2.0 billion available to draw on our $2.0 billion revolving credit facility. As of June 30, 2023, we had no borrowings drawn on this revolving credit facility and no commercial paper borrowings.

We intend to further utilize our cross-border, cross currency cash pool as well as our commercial paper programs for liquidity as needed. We also have CAD, GBP and USD overdraft facilities across several banks should we need additional short-term liquidity.

Under the terms of each of our debt facilities, we must comply with certain restrictions. These include customary events of default and specified representations, warranties and covenants, as well as covenants that restrict our ability to incur certain additional priority indebtedness (certain thresholds of secured consolidated net tangible assets), certain leverage threshold percentages, create or permit liens on assets and restrictions on mergers, acquisitions and certain types of sale lease-back transactions.

The maximum net debt to EBITDA leverage ratio, as defined by the amended and restated revolving credit facility agreement, was 4.00x as of June 30, 2023 which remained unchanged from the requirement as of December 31, 2022. As of June 30, 2023 and December 31, 2022, we were in compliance with all of these restrictions and covenants, have met such financial ratios and have met all debt payment obligations. All of our outstanding senior notes as of June 30, 2023 rank pari-passu.

See Part I.—Item 1. Financial Statements, Note 7, "Debt" for further discussion of our borrowings and available sources of borrowing, including lines of credit.

Guarantees

We guarantee indebtedness and other obligations to banks and other third parties for some of our equity method investments and consolidated subsidiaries. See Part I.—Item 1. Financial Statements, Note 10, "Commitments and Contingencies" for further discussion.

Material Cash Requirements from Contractual and Other Obligations

There were no material changes to our material cash requirements from contractual and other obligations outside the ordinary course of business or due to factors similar in nature to inflation, changing prices on operations or changes in the remaining terms of the contracts since December 31, 2022, as reported in Part II.— Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, "Material Cash Requirements from Contractual and Other Obligations" in our Annual Report.

Credit Rating

Our current long-term credit ratings are BBB-/Stable Outlook, Baa3/Stable Outlook and BBB(Low)/Stable Outlook with Standard & Poor's, Moody's and DBRS, respectively. Our short-term credit ratings are A-3, Prime-3 and R-2(low), respectively. A securities rating is not a recommendation to buy, sell or hold securities, and it may be revised or withdrawn at any time by the applicable rating agency.

Guarantor Information

SEC Registered Securities

For purposes of this disclosure, including the tables, "Parent Issuer" shall mean MCBC. "Subsidiary Guarantors" shall mean certain Canadian and U.S. subsidiaries reflecting the substantial operations of our Americas segment.

Pursuant to the indenture dated May 3, 2012 (as amended, the "May 2012 Indenture"), MCBC issued its outstanding 5.0% senior notes due 2042. Additionally, pursuant to the indenture dated July 7, 2016 ("July 2016 Indenture"), MCBC issued its outstanding 3.0% senior notes due 2026, 4.2% senior notes due 2046 and 1.25% senior notes due 2024. The issuances of the senior notes issued under the May 2012 Indenture and the July 2016 Indenture were registered under the Securities Act of 1933, as amended. These senior notes are guaranteed on a senior unsecured basis by certain subsidiaries of MCBC, which are listed in Exhibit 22 of our Annual Report on Form 10-K (the "Subsidiary Guarantors", and together with the Parent Issuer, the "Obligor Group"). "Parent Issuer" in this section is specifically referring to MCBC in its capacity as the issuer of the senior notes under the May 2012 Indenture and the July 2016 Indenture. Each of the Subsidiary Guarantors is 100% owned by the Parent Issuer. The guarantees are full and unconditional and joint and several.

None of our other outstanding debt was issued in a transaction that was registered with the SEC, and such other outstanding debt is issued or otherwise generally guaranteed on a senior unsecured basis by the Obligor Group or other consolidated subsidiaries of MCBC. These other guarantees are also full and unconditional and joint and several.

The senior notes and related guarantees rank pari-passu with all other unsubordinated debt of the Obligor Group and senior to all future subordinated debt of the Obligor Group. The guarantees can be released upon the sale or transfer of a Subsidiary Guarantors' capital stock or substantially all of its assets, or if such Subsidiary Guarantor ceases to be a guarantor under our other outstanding debt.

See Part I.—Item 1. Financial Statements, Note 7, "Debt" for details of all debt issued and outstanding as of June 30, 2023.

The following summarized financial information relates to the Obligor Group as of June 30, 2023 on a combined basis, after elimination of intercompany transactions and balances between the Obligor Group, and excluding the investments in and equity in the earnings of any non-guarantor subsidiaries. The balances and transactions with non-guarantor subsidiaries have been separately presented.

Summarized Financial Information of Obligor Group

(in millions)

(in millions)

Capital Expenditures

We incurred $302.7 million, and paid $335.1 million, for capital improvement projects worldwide in the six months ended June 30, 2023, excluding capital spending by equity method joint ventures, representing a decrease of $44.6 million from the $347.3 million of capital expenditures incurred in the six months ended June 30, 2022. This decrease was primarily due to the timing of capital projects. We continue to focus on where and how we employ our planned capital expenditures, with an emphasis on strengthening our focus on required returns on invested capital as we determine how to best allocate cash within the business.

Contingencies

We are party to various legal proceedings arising in the ordinary course of business, environmental litigation and indemnities associated with our sale of Kaiser to FEMSA. See Part I.—Item 1. Financial Statements, Note 10, "Commitments and Contingencies" for further discussion.

Off-Balance Sheet Arrangements

Refer to Part II.—Item 8. Financial Statements, Note 13, "Commitments and Contingencies" in our Annual Report for discussion of off-balance sheet arrangements. As of June 30, 2023, we did not have any other material off-balance sheet arrangements.

Critical Accounting Estimates

Our accounting policies and accounting estimates critical to our financial condition and results of operations are set forth in our Annual Report and did not change during the six months ended June 30, 2023. See Part I.—Item 1. Financial Statements, Note 2, "New Accounting Pronouncements" for discussion of recently adopted accounting pronouncements. See also Part I.—Item 1. Financial Statements, Note 5, "Goodwill and Intangible Assets" for discussion of the results of our 2022 annual impairment testing analysis, the related risks to our indefinite-lived intangible brand assets and the goodwill amounts associated with our reporting units.

New Accounting Pronouncements Not Yet Adopted

See Part I.—Item 1. Financial Statements, Note 2, "New Accounting Pronouncements" for a description of any new accounting pronouncements that have or could have a significant impact on our financial statements.

See Part II.—Item 7A. "Quantitative and Qualitative Disclosures About Market Risk" in our Annual Report for further details of our market risks and our market sensitive instruments as of December 31, 2022. During the six months ended June 30, 2023, our market risk sensitive instruments fluctuated as a result of changes in interest rates, currency exchange rates and commodity prices.

Interest Rate Risk

In May 2023, we amended our 2026 forward starting interest rate swaps to replace LIBOR with SOFR. Subsequent to this transition, we are no longer exposed to LIBOR. For the period ended June 30, 2023, the following table presents our fixed rate debt and forward starting interest rate swaps as well as the impact of an absolute 1% adverse change in interest rates on their respective fair values. For the period ended December 31, 2022, the following table presents our fixed rate debt and forward starting interest rate swaps and the impact of an absolute 1% adverse change in interest rates on our forward starting interest rate swaps and a 10% adverse change in the yield on our fixed rate debt. Notional amounts and fair values are presented in USD based on the applicable exchange rates as of June 30, 2023 and December 31, 2022, respectively. See Part I - Item 1. Financial Statements, Note 7. "Debt" for the maturity dates of our outstanding debt instruments.

(in millions)

40

Foreign Exchange Risk

The following table includes details of our foreign currency forwards used to hedge our foreign exchange rate risk as well as the impact of a hypothetical 10% adverse change in the related foreign currency exchange rates on the fair value of the foreign currency forwards. Notional amounts and fair values are presented in USD based on the applicable exchange rates as of June 30, 2023 and December 31, 2022.

(in millions)

The table above excludes approximately CAD 260 million (195 million USD) of undesignated foreign exchange forward contracts entered into in the second quarter of 2023 which were used to manage our exposure to foreign currency fluctuations related to the repayment of our CAD 500 million 2.84% notes that matured on July 15, 2023. These contracts settled on July 12, 2023 in advance of the CAD 500 million 2.84% note repayment for an immaterial amount.

Commodity Price Risk

The following table includes details of our commodity swaps used to hedge commodity price risk as well as the impact of a hypothetical 10% adverse change in the related commodity prices on the fair value of the derivatives. The following table excludes our commodity options because we have offsetting buy and sell positions. Notional amounts and fair values are presented in USD based on the applicable exchange rates as of June 30, 2023 and December 31, 2022.

(in millions)

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures as such term is defined under Rule 13a-15(e) under the Exchange Act. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2023 to provide reasonable assurance that information required to be disclosed in our reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management necessarily applies its judgment in assessing the costs and benefits of such controls and procedures that, by their nature, can only provide reasonable assurance regarding management's control objectives. Also, we have investments in certain unconsolidated entities that we do not control or manage.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the three months ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

In addition to the other information set forth in this report, the factors discussed in Part I.—Item 1A. "Risk Factors" in our Annual Report, which could materially affect our business, financial condition and/or future results, should be carefully considered. There have been no material changes to the risk factors contained in our Annual Report. The risks described in our Annual Report and herein are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition, cash flows and/or future results.