Molson Coors Beverage Co: Form 10-Q for the period ended Mar 27, 2010

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") 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 26, 2009 ("Annual Report"), as well as our unaudited condensed consolidated financial statements and the accompanying notes included in this Form 10-Q. Due to the seasonality of our operating results, quarterly financial results are not an appropriate basis from which to project annual results.

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 subsidiaries: MillerCoors LLC ("MillerCoors") which is accounted for by us under the equity method of accounting, Molson Coors Brewing Company (UK) Limited ("MCBC-UK"), Molson Coors Canada ("MCC") and our other operating entities as further described in Note 1 of the Notes to the Audited Consolidated Financial Statements included in our Annual Report.

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 "Outlook for 2010" 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," "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 in Part II, "Item 1A. Risk Factors", elsewhere throughout this report, in our Annual Report, and those described from time to time in our future reports filed with the Securities and Exchange Commission ("SEC"). 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.

BUSINESS OVERVIEW

Financial Highlights

Pretax and after-tax underlying income and free cash flow and underlying free cash flow should be viewed as supplements to—not substitutes for—our results of operations presented on the basis of accounting principles generally accepted in the United States. Our management uses underlying income and free cash flow and underlying free cash flow as measures of operating performance to assist in comparing performance from period to period on a consistent basis; as a measure for planning and forecasting overall expectations and for evaluating actual results against such expectations; and in communications with the board of directors, stockholders, analysts and investors concerning our financial performance. We believe that underlying income, free cash flow and underlying free cash flow performance are used by and are useful to investors and other users of our financial statements in evaluating our operating performance because they provide an additional tool to evaluate our performance without regard to items such as special and non-core items, which can vary substantially from company to company depending upon accounting methods and book value of assets and capital structure.

First quarter 2010 highlights

Worldwide beer volume for MCBC declined 3.8% from a year ago, driven by industry weakness in the United States ("U.S.") and United Kingdom ("U.K."), as well as our pricing strategy in the U.K. On the bottom line, income from continuing operations attributable to MCBC net of tax of $62.0 million, or $0.33 per diluted share, decreased 22.1% from a year ago, while underlying after-tax income of $69.7 million, or $0.37 per diluted share, decreased 29.5% from a year ago, due to lower volume, higher marketing, general and administrative expense, and a higher effective tax rate this year.

It is important to note that our first quarter underlying income excludes some non-core gains, losses and expenses, primarily related to a sale of non-core real estate, changes in the value of our cash-settled total-return swap with respect to Fosters, Inc. ("Fosters"), MillerCoors integration costs, as well as net special charges of $2.6 million.

Regional highlights:

In our Canada segment, earnings before income taxes in local currency and underlying pretax income in local currency declined 10 and 14 percent, respectively, from a year ago. In U.S. dollars, Canada earnings before income taxes and underlying pretax income increased by 8.6 percent to $54.3 million and decreased by 3.3% to $56.2 million from a year ago, respectively, which reflects the $8 million and $9 million benefit of a 21% year-over-year increase in the Canadian dollar versus the U.S. dollar, respectively. The local currency results exclude the year-over-year impact of foreign currency hedges of CAD $4.9 million in Other Income, as it is meaningful to consider those hedges only when viewing the Canada segment in U.S. dollars. Strong volume and operations cost reductions in the quarter were more than offset by cycling lower levels of price discounting a year ago, along with higher sales and overhead costs this year. Our prior-year results included overhead cost reductions, favorable impacts from consolidating the beer stores in Ontario and equity income from our interest in the Montreal Canadiens hockey club. These prior-year impacts, which did not reoccur this year, accounted for more than 70% of the decline in first quarter Canada local currency income.

In our U.K. segment, earnings before income taxes and underlying pretax income of $1.5 million and $2.1 million, respectively, represent decreases of $1.1 million and $1.4 million, respectively, from a year ago, due to a $7.1 million non-cash increase in defined-benefit pension expense. If we exclude the first quarter increase in pension expense, our U.K. earnings before income taxes and underlying pretax income would have been $8.6 million and $9.2 million, respectively, more than double compared to first quarter last year, driven by positive benefits of continuing to leverage our contract brewing arrangement, brand-building efforts, and strong pricing. Our first quarter U.K. results include only minimal impact from foreign exchange movements.

In our U.S. segment, equity income in MillerCoors decreased 6.3% to $91.0 million, while underlying equity income in MillerCoors increased 0.4% to $94.6 million in the first quarter, driven by favorable U.S. pricing and delivery of cost savings, which were offset by soft volumes, cost deleverage and commodity price pressures.

See "RESULTS OF OPERATIONS" below for further analysis of our reportable segment results.

The following table provides a reconciliation of "underlying income" to its nearest U.S. GAAP measure.

(In millions, except percentages and per share data)

N/M

= Not meaningful

Consolidated Global Volumes including Proportionate Share of Equity Investments' Volume

(In millions, except percentages)

(1)

Reflects the MCBC proportionate share of equity method subsidiaries sales-to-retail for the periods presented adjusted for comparable trading days.

Worldwide beer volume is composed of our financial volume, royalty volume and proportionate share of equity investment sales-to-retail. Financial volume represents owned beer brands sold to unrelated external customers within our geographical markets. Royalty beer volume consists of product produced and sold by third parties under various license and contract-brewing agreements. Equity investment sales-to-retail volume represents the company's ownership percentage share of volume in its subsidiaries accounted for under the equity method, including MillerCoors and Modelo Molson Imports, L.P.

MCBC cost savings initiatives

We kicked off our second Resources for Growth, or RFG2, program in the first quarter, with $15 million of cost savings toward the program's three-year goal of $150 million.

MillerCoors integration and cost synergy initiatives

In addition to our RFG2 savings, MillerCoors delivered $53 million of incremental cost synergies in the first quarter toward the original $500 million three-year synergy commitment. MillerCoors also delivered $7 million of cost reductions against its new $200 million cost savings program to be delivered by the end of 2012. We benefit from 42% of the MillerCoors cost savings.

Income taxes

Our effective tax rate and underlying effective tax rate for the first quarter of 2010 were approximately 16% and 19%, respectively. We anticipate that our 2010 full year effective tax rate will be in the range of 18% to 22%. Our first quarter effective tax rate is lower than our anticipated full year rate primarily due to various discrete items in the first quarter of 2010.

Discontinued operations

Discontinued operations are associated with the formerly-owned Cervejarias Kaiser Brasil S.A. ("Kaiser") business in Brazil. See Part I—Financial Statements, Item 1 Note 8 "DISCONTINUED OPERATIONS" and Note 15 "COMMITMENTS AND CONTINGENCIES" to the unaudited condensed consolidated financial statements for discussions of the nature of amounts recognized in the Discontinued Operations section of the condensed consolidated statements of operations, which consists primarily of amounts associated with indemnity obligations to the owners of Kaiser related to purchased tax credits and other tax, civil and labor issues.

During the first quarter we reached an agreement with FEMSA Cerveza S.A. de C.V. ("FEMSA") to settle some indemnity liabilities related to purchased tax credits in Brazil. Resolution of these liabilities stemmed from a Brazilian tax amnesty program announced last year. For a cash payment of $96 million, this favorable settlement eliminated $284.5 million of maximum potential tax claims, of which $131.2 million of indemnity liabilities were accrued on our balance sheet. The result was a $42.6 million gain, including related currency and tax effects, related to discontinued operations in the first quarter. With this settlement, a reserve of $22.0 million for Brazil indemnities remains on our balance sheet. The remaining indemnities have a lower expected loss than the recently settled claims.

RESULTS OF OPERATIONS

Canada Segment Results of Operations

Our Canada segment consists primarily of the Molson Coors Canada ("MCC") beer business, including the production and sale of the Molson brands, Coors Light, and other licensing agreements in Canada including Modelo Molson Imports, L.P. ("MMI"), a joint venture between MCC and Grupo Modelo, established to import, distribute, and market the Modelo beer brand portfolio across all Canadian provinces and territories. MMI is accounted for using the equity method. The Canada segment also includes our arrangements related to the distribution of beer in Ontario and in Western

Canada by Brewers' Retail, Inc. ("BRI") and Brewers' Distributor Ltd. ("BDL"), respectively. Both BRI and BDL are accounted for under the equity method.

(In millions, except percentages)

N/M

= Not meaningful

Foreign currency impact on results

The Canadian dollar ("CAD") appreciated versus the U.S. dollar ("USD") resulting in an approximate $3 million increase to USD earnings before income taxes on a quarter over quarter basis during the first quarter.

Volume and net sales

Our Canada sales to retail, or STRs, for the calendar quarter ended March 31st increased 5% versus a year ago. We estimate that about half of this increase was driven by our successful sponsorship of the Winter Olympic Games in February, along with the earlier timing of the Easter holiday this year. Strong brand performance also drove our Canada STRs, with mid-single-digit growth from Coors Light and the Molson Canadian brands, along with positive growth from Molson Dry and Rickard's, partially offset by a decline in Molson Export and our non-strategic brands.

Total Canadian beer industry sales to retail increased an estimated 3.8% in the calendar first quarter driven in part by the Winter Olympics and Easter holiday timing. As a result, our estimated Canada market share increased about one half share point in the fiscal first quarter versus a year ago.

Our Canada sales volume was 1.8 million hectoliters in the fiscal first quarter, up 3.3% compared to the first quarter in 2009.

Net sales per hectoliter declined 2.7% in local currency. About two-thirds of this decline was driven by cycling our less competitive price position in the first half of 2009. During the second quarter last year, we began implementing strategies to make our brands more price competitive in Canada. The balance of the decrease in sales per hectoliter was due to lower export sales to the U.S.

Cost of goods sold

Cost of goods sold per hectoliter decreased 4.6% in local currency in the first quarter, driven by the net effect of savings from our RFG2 program which reduced cost of goods sold per hectoliter by more than three percentage points, and lower export volume which reduced the cost of goods sold rate by about 1.4%.

Marketing, general and administrative expenses

Marketing general & administrative expense in the quarter increased 12.7% in local currency, with a little over a third of the change driven by higher commercial and innovation spending to build brands. The balance of the increase was due to prior-year benefits that included the last two months of consolidating the Ontario beer stores, along with adding Granville Island overhead costs this year.

Special items, net

During the first quarter of 2010, the Canada segment recognized special termination benefits related to the Ontario-Atlantic Hourly Defined Benefit pension plan and restructuring costs associated with employee terminations at the Edmonton and Montreal breweries. In the first quarter of 2009, the segment recognized a pension curtailment loss and restructuring costs associated with employee terminations at the Montreal brewery driven by MillerCoors' decision to produce Blue Moon products at its breweries in the U.S. See Part I—Financial Statements, Item 1 Note 6 "UNUSUAL OR INFREQUENT ITEMS" to the unaudited condensed consolidated financial statements for further discussion.

Other income, net

Other income decreased $5.5 million in the first quarter from a year ago due to foreign currency movements and the lack of Montreal Canadiens equity income this year.

United States Segment Results of Operations

As of July 1, 2008, MillerCoors began operations. The results and financial position of our U.S. segment operations were prospectively deconsolidated upon contribution to the joint venture, and our interest in MillerCoors is being accounted for and reported by us under the equity method of accounting.

The results of operations for MillerCoors for the three months ended March 31, 2010, and March 31, 2009, are as follows:

(In millions, except percentages)

N/M

= Not meaningful

For a reconciliation from MillerCoors Net income to MCBC's proportional share of net income attributable to MillerCoors reported under the equity method see Part I—Financial Statements, Item 1 Note 4 "INVESTMENTS" to the unaudited condensed consolidated financial statements. MCBC's equity income in MillerCoors was $91.0 million during the first quarter of 2010 versus $97.1 million during the same period in 2009. Our underlying equity income in MillerCoors was $94.6 million during the first quarter of 2010 versus $94.2 million during the same period in 2009.

Volume and net sales

MillerCoors domestic STRs declined 4.0%, driven by continued weak economic conditions affecting the entire industry. Domestic sales-to-wholesalers declined 3.6% driven primarily by lower retail sales.

Total net revenue decreased 0.9% to $1.7 billion. Nonetheless, pricing remained strong in the quarter, as domestic net revenue per hectoliter, which excludes contract brewing and company-owned distributor sales increased 2.1%.

Cost of goods sold

Cost of goods sold per hectoliter increased 5.9%, driven by increases in commodity costs, with significant increases in brewing materials (malt and corn), packaging materials (glass and aluminum), and higher fuel costs. Cost of goods sold per hectoliter continue to be negatively impacted by the absorption of fixed and semi-variable costs across lower production volumes.

Marketing, general and administrative expenses

Marketing, general and administrative expense decreased by 9.2%, primarily due to synergy savings.

Special Items

During the first quarter of 2010, MillerCoors incurred special items totaling $8.6 million driven largely by voluntary severance and relocation expenses related to the integration of MillerCoors.

United Kingdom Segment Results of Operations

The U.K. segment consists of production and sale of the owned brands principally in the U.K., results of our royalty arrangements in the Republic of Ireland, our consolidated joint venture arrangement to produce, import and distribute the Grolsch brands in the U.K. and the Republic of Ireland, our consolidated joint venture agreement to produce and distribute the Cobra beer brands in the U.K., factored brand sales (beverage brands owned by other companies, but sold and delivered to retail by us), in the U.K. and our joint venture arrangement with DHL ("Tradeteam") for the distribution of products throughout Great Britain accounted for under the equity method.

(In millions, except percentages)

N/M = Not meaningful

(1)

Interest income is earned on trade loans to U.K. on-premise customers and is typically driven by note receivable balances outstanding from period-to-period.

Foreign currency impact on results

During the first quarter of 2010, the British pound ("GBP") appreciated versus the USD and unfavorably impacted the quarter-over-quarter earnings before income taxes by approximately $0.1 million.

Volume and net sales

Our U.K. owned-brand volume decreased 10.9% in the quarter due in part to declining industry volume partly as a result of poor weather. Volume was also impacted in the first quarter as we worked on concluding contract negotiations with some of our major customers. U.K. beer industry volume declined approximately 5% in the first quarter.

Net sales per hectoliter of our own products increased 21% in local currency, with about 13 percentage points driven by higher pricing in all channels as we continued to benefit from our strategy to forgo low-margin volume, and 8 percentage points a result of positive sales mix, predominantly due to growth in Magners cider and Cobra.

Cost of goods sold

Cost of goods sold per hectoliter of our owned products increased 22% in the quarter versus the same period in 2009 in local currency, driven by five factors: First, incremental pension expense represented 4 percentage points of this increase. Second, 1% was due to input cost inflation. Third, 7 percentage points were due to mix, driven by growth in draught Magners cider and Cobra, and higher employee-related costs. Fourth, 7 percentage points of the increase was due to fixed-cost deleverage related to lower owned-brand volumes. Fifth, 3 percentage points were related to other factors predominantly relating to 2009 performance that we do not expect to impact the balance of this year.

Marketing, general and administrative expenses

Marketing, general & administrative expenses in the U.K. increased 10% in local currency, with 6 percentage points due to higher pension expense this year. The balance was due to information systems investments, the cost of adding the Cobra sales force, and higher employee-related costs.

Special items, net

The U.K. segment recognized employee termination costs in the 2010 and 2009 first quarters. These related to supply chain restructuring activity and company-wide efforts to increase efficiency in certain finance, information technology and human resource activities by outsourcing portions of those functions. Additionally, during the first quarter of 2010, the U.K. segment recognized the release of an accrual of $0.3 million related to a potential repayment of a government grant. See Part I—Financial Statements, Item 1 Note 6 "UNUSUAL OR INFREQUENT ITEMS" to the unaudited condensed consolidated financial statements for further discussion.

Molson Coors International and Corporate

The Molson Coors International ("MCI") group is focused on growing and expanding our business and brand portfolios in global development markets. Our current businesses in Asia, continental Europe, Mexico and Latin America (excluding Puerto Rico) are included in MCI and combined with our corporate business activities for reporting purposes. Corporate also includes corporate interest and certain other general and administrative costs that are not allocated to any of the operating segments. The majority of these corporate costs relate to worldwide administrative functions, such as corporate affairs, legal, human resources, accounting, treasury, insurance and risk management.

(In millions, except percentages)

N/M = Not meaningful

Volume, net sales and cost of goods sold

Volume, net sales and cost of goods sold primarily reflect our operations in Asia, continental Europe, Mexico and Latin America and represent our initiatives to grow and expand our business and brand portfolios in global development markets. The volume growth in the first quarter of 2010 was primarily driven by our efforts in China and Europe.

Marketing, general and administrative expenses

Marketing, general and administrative expense for MCI was $11.6 million in the quarter, an increase of $0.6 million versus a year ago due to brand investments in our priority International markets. Corporate general & administrative expense increased $12.3 million to $33.4 million, primarily due to project expense related to cost initiatives and a year-over-year shift in the timing of incentive compensation expense due to the earlier grants of equity under our incentive compensation program.

Special items, net

Special items for the first quarter of 2009 include costs associated with adjusting to the floor provided on the exercise price of stock options held by former Coors officers who left the Company under change in control agreements following the merger between Coors and Molson in 2005 along with costs associated with other strategic initiatives. Special charges in the first quarters of 2010 and 2009 were $0.1 million and $1.2 million, respectively. See Part I—Financial Statements, Item 1 Note 6 "UNUSUAL OR INFREQUENT ITEMS" to the unaudited condensed consolidated financial statements for further discussion.

Interest expense, net and Debt Extinguishment Costs

Corporate net interest expense increased $4.3 million from a year ago, with nearly all of this increase attributable to the stronger Canadian Dollar this year.

Other expense, net

Corporate other expense was $7.4 million, driven by a $6.9 million non-cash mark-to-market loss related to the total return swap we arranged with respect to Foster's common stock. As usual, mark-to-market gains and losses on the Foster's swap are excluded from our underlying income.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity are cash provided by operating activities, access to external borrowings and asset monetizations. As of March 27, 2010, and March 29, 2009, we had net working capital of $148.2 million and $87.2 million, respectively, excluding short-term borrowings and current portion of long-term debt. We commonly operate at minimal positive working capital levels or working capital deficits given the relatively quick turnover of our receivables and inventory, the levels of which fluctuate with the seasonality in our business. We had total cash of $656.6 million at March 27, 2010, compared to $94.4 million at March 29, 2009, and $734.2 million at December 26, 2009. Current maturities of long-term debt were $300 million at March 27, 2010, representing our senior notes due in September 2010. Long-term debt was $1,436.6 million, $1,412.7 million and $1,568.2 million at March 27, 2010, December 26, 2009, and March 29, 2009, respectively. We believe that cash flows from operations, including distributions from MillerCoors, and cash provided by short-term and long-term borrowings, when necessary, will be more than adequate to meet our ongoing operating requirements, scheduled principal and interest payments on debt, dividend payments and anticipated capital expenditures.

The first quarter is generally a cash-use quarter because of the seasonality of the beer business. Free cash flow for the first quarter reflected a net cash use of $34 million, which was made up of $86 million of operating cash flow, plus $2 million of proceeds from asset sales, minus capital spending of $23 million and $99 million of net cash contributed to MillerCoors. This free cash flow result was an improvement of $46 million primarily due to improved working capital this year, partially offset by an increase in net cash provided to MillerCoors. If we exclude cash uses by MillerCoors to capture synergies and to buy the distribution rights for Miller and other brands in Denver, along with the return of collateral cash related to MillerCoors commodity hedges, our underlying free cash flow for the first quarter totaled a negative $5 million cash use, a substantial improvement from underlying free cash flow of negative $60.7 million a year ago. Note that the Brazil settlement was not paid until the first day of our fiscal second quarter, so this cash use will be included in second quarter results. With regard to our use of free cash flow, in addition to the payment of the favorable Brazil settlement, we announced our third consecutive annual dividend increase—this time a 16.7% increase to an annual equivalent dividend rate of $1.12 per share.

The following table provides a reconciliation of Underlying Free Cash Flow and Free Cash Flow to nearest U.S. GAAP measure (Cash Provided by Operating Activities).

(1)

Included in net cash used in investing activities.

(2)

Amounts represent MCBC's proportionate 42% share of the cash flow impacts, as determined by management. These items adjust free cash flow to arrive at a more useful comparison to our stated underlying free cash flow goals for full year 2010 and full year 2009 of $760 million and $575 million, plus or minus 10%, respectively.

Our business usually generates positive operating cash flow each year, and our debt maturities, with the exception of the $300 million in current maturities mentioned above, are of a longer-term nature. However, our liquidity could be impacted significantly by a decrease in demand for our products, which could arise from competitive circumstances, a decline in the acceptability of alcohol beverages, or any of the other factors we described in Part II, "ITEM 1A. RISK FACTORS" presented herein.

Operating activities

Net cash provided by operating activities of $86.0 million for the thirteen weeks ended March 27, 2010, increased by $81.2 million versus the comparable period in 2009. This does not include the impact of the Kaiser indemnity settlement that was paid in the second quarter of 2010.

Distributions from MillerCoors were higher by $7.0 million during the first quarter of 2010 as compared to the first quarter of 2009. See below under the heading of "MillerCoors" for further discussion.

Decreases in working capital and other assets generated additional operating cash flow of $36.3 million during the first quarter of 2010 as compared to the first quarter of 2009. These decreases were primarily attributable to higher accounts receivable collections driven by higher pricing in the UK.

First quarter 2010 net income exceeded net income during the same period in 2009 by $29.2 million.

Investing activities

Net cash used in investing activities of $118.4 million for the thirteen weeks ended March 27, 2010, was higher by $8.0 million compared to the same period in 2009.

First quarter 2010 investing cash flows reflect net contributions to MillerCoors of $98.7 million compared to net contributions in the first quarter of 2009 of $67.2 million. See the heading "MillerCoors" below for further discussion.

Deconsolidation of BRI in the first quarter of 2009 decreased investing cash flows in that quarter by $26.1 million with no comparable impact to first quarter 2010 investing cash flows.

First quarter 2010 investing cash flows were also favorably impacted by a $1.1 million increase in trade loan repayments and a $0.3 million decrease in trade loan advances as compared to the first quarter of 2009.

Financing activities

Net cash used in financing activities of $39.3 million for the thirteen weeks ended March 27, 2010, was higher by $25.8 million compared to the same period in 2009.

The tax effect of share based compensation was lower by $14.7 million in the first quarter of 2010 as compared to the same period in 2009. Offsetting this movement is a $3.3 million increase in cash received from stock option exercises in the first quarter of 2010 as compared to the first quarter of 2009.

Overdraft balances in the first quarter of 2010 decreased by $7.8 million as compared to the same period in 2009, unfavorably impacting financing cash flows.

Dividends paid in the first quarter of 2010 were $7.9 million higher than in 2009 due to a 20% dividend increase to shareholders of common and exchangeable shares, effective in the second quarter of 2009.

MillerCoors

MillerCoors routinely makes distributions to its owners based on earnings. For purposes of MCBC's statement of cash flows, we compare cumulative cash distributions received to our cumulative equity method income recorded in accordance with U.S. GAAP. To the extent that distributions received are less than or equal to our cumulative U.S. GAAP equity method income, they are considered returns on capital and are reported as cash inflows from operating activities. To the extent that distributions received exceed our cumulative U.S. GAAP equity method income, they are considered to be returns of capital, and are reported as cash inflows from investing activities. Distributions received during the three months ended March 27, 2010, were $290.5 million, of which $91.0 million were reported in operating activities and $199.5 million were reported in investing activities.

We make regular contributions to MillerCoors to fund capital expenditures and working capital needs. Such contributions to MillerCoors will be reported by us as cash outflows from investing activities. Contributions to MillerCoors during the three months ended March 27, 2010, were $298.2 million, all of which were reported in investing activities.

Net cash flow received by MillerCoors from MCBC during the three months ended March 27, 2010, was $7.7 million, $91.0 million of which was reflected as distributions in cash flows from operating activities, offset by $98.7 million of net investments into MillerCoors reflected in cash flows used in investing activities, as discussed above.

We expect that 2010 operating cash flows and investing cash flows will be unfavorably impacted by MillerCoors' internal cash flow requirements. We anticipate that MillerCoors will spend approximately $50 million in 2010 related to restructuring and integration costs, and capital spending, to capture synergies. Also, MillerCoors' contributions to its defined benefit pension plans are expected to be between $100 million and $120 million in 2010. MillerCoors contributions to its defined benefit pension plans during the first quarter of 2010 were $43.7 million.

Capital Resources

The majority of our remaining debt outstanding as of March 27, 2010, consists of publicly traded notes, with maturities ranging from 2010 to 2015. Our intention is to refinance our USD $300 million senior notes due in September 2010 (which have been swapped to a CAD $355 million obligation through a derivative cross currency swap), and have entered into a forward starting interest rate swap agreement for a portion of the outstanding amount. As start-up cash needs at MillerCoors will reduce in 2010 compared to 2009, we will consider different alternatives for the use of cash generated from operations. We expect to take a balanced approach to our use of cash in 2010 and beyond, which could include pension plan funding, preserving cash flexibility for potential strategic investments, and other general corporate uses and maintaining liquidity. Any purchases of MCBC stock on the open market would require a board-approved plan, which does not currently exist.

Credit markets in the United States and across the globe have improved significantly since the financial crisis of late 2008 and the market is strong for corporate borrowing. Based on communications with the lenders that are party to our $750 million committed credit facility, we have no indication of any issues with our ability to draw on such credit facility if the need arose. We currently have no borrowings outstanding on this facility. In addition, we have uncommitted lines of credit with several banks should certain business units need additional liquidity.

Our long-term credit issuer ratings are Baa2 (positive outlook) from Moody's, BBBHigh (stable outlook) from DBRS (Canadian rating agency), and BBB- (stable outlook) from Standard and Poor's. Our BBB- rating from Standard & Poors is one notch above "below investment grade." Any future downgrade to "below investment grade" would increase borrowing costs under our revolving line of credit (under which there were no borrowings as of March 27, 2010, or December 26, 2009).

Capital Expenditures

We expect capital expenditures for 2010 of approximately $150 million, excluding capital spending by our consolidated joint ventures and MillerCoors.

OFF-BALANCE SHEET ARRANGEMENTS

As of March 27, 2010, we did not have any material off-balance sheet arrangements (as defined in Item 303(a) (4) (ii) of Regulation S-K).

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

Contractual Cash Obligations as of March 27, 2010

We have contractual cash obligations as of March 27, 2010, pertaining to debt, interest payments, derivative payments, retirement plans, operating leases, and other obligations totaling $7.1 billion. Not included in these obligations are $65.2 million of unrecognized tax benefits and $18.2 million of indemnities provided to FEMSA for which we are unable to make estimates for timing of the related cash payments.

Other commercial commitments as of March 27, 2010

(In millions)

CONTINGENCIES

We enter into contractual arrangements under which we may agree to indemnify third parties from any losses or guarantees incurred relating to pre-existing conditions arising from certain events as defined within the particular contract, which may include, for example, litigation or claims relating to past performance. See Part I—Financial Statements, Item 1 Note 15, COMMITMENTS AND

CONTINGENCIES to the unaudited condensed consolidated financial statements for a discussion of our indemnity and environmental obligations.

We provide indemnities to FEMSA regarding certain tax, civil and labor claims, including cases related to purchased tax credits. See Part I—Financial Statements, Item 1, Note 15, "COMMITMENTS AND CONTINGENCIES—Kaiser and Other Indemnity Obligations," to the condensed consolidated financial statements, for a detailed discussion.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our accounting policies and accounting estimates critical to our financial condition and results of operations are set forth in our Annual Report on Form 10-K for the year end December 26, 2009. We modified our estimate related to our Kaiser indemnity obligations due to a settlement reached during the first quarter of 2010.

Contingencies, Environmental and Litigation Reserves

Historically, the valuation of a majority of our recorded liabilities for Kaiser indemnity obligations were determined using multiple probability-weighted scenarios. During 2009, FEMSA elected to participate in a Brazilian tax amnesty program. That program substantially reduced penalties, interest, and attorneys' fees owed by FEMSA to the government. We consented to FEMSA's participation in the amnesty. As a result, a larger portion of our estimated liabilities associated with purchased tax credit cases were considered probable losses under the indemnities, and were reclassified as current liabilities in 2009 to reflect our estimates of the timing of potential resolution. At year end, despite our consent, we had not agreed to an amount we owed to FEMSA. However during quarter 1, we reached a settlement agreement related to this portion of our indemnity. Our indemnity continues to cover other purchased tax credits and also covers fees and expenses that Kaiser incurs to manage the cases through the administrative and judicial systems. Any costs associated with these items would be recognized in Discontinued Operations.

For the remaining portion of our indemnity obligations, not deemed probable, we continue to utilize probability-weighted scenarios in determining the value of the indemnity obligations.

See Part I—Financial Statements, Item 1, Note 15 "COMMITMENTS AND CONTINGENCIES" to the unaudited condensed consolidated financial statements.

NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

None. See Part I—Financial Statements, Item 1 Note 2 "NEW ACCOUNTING PRONOUNCEMENTS" to the unaudited condensed consolidated financial statements for a description of new accounting pronouncements that we have adopted.

OUTLOOK FOR 2010

During 2010, we will continue to focus on brand building, innovation, reducing costs across our company, and generating cash.

Canada

In Canada, we have introduced new brands and innovations to strengthen our portfolio. Early results are encouraging, as indicated by our positive Canada share trends in the past two quarters. This brand-led focus will continue with the upcoming expansion of Miller Chill across Canada early this summer. By summer, we also expect to have cycled nearly all of the step-up in price discounting activity last year. At the same time, the Canadian dollar is strong, the economy has started to show encouraging signs of improvement, and, based on the strength of our brands, we are achieving moderate, selective price increases in most regions of Canada.

In Canada, we continue to expect our 2010 cost of goods sold per hectoliter to decrease at a low-single-digit rate in local currency, as we anticipate that cost inflation and negative production mix will be more than offset by delivery of RFG2 cost savings.

U.S.

In the U.S., MillerCoors remains on track to deliver $750 million in total synergies and other cost savings by the end of 2012. Supply chain integration continues to proceed on schedule. The brewery optimization project is nearing completion, as beer production moves are more than 90% complete. The next phase of supply chain integration will include the realignment of teams in quality, engineering, packaging and manufacturing, and supply chain development.

United Kingdom

In the U.K., the business has continued to make substantial progress in improving profitability. We are succeeding with our strategy of value ahead of volume which continues to strengthen our overall position within the U.K. market. Although our U.K. business lost market share in the first quarter, we are confident that our share trends will improve in the balance of the year. We are taking a number of actions in key areas of the business to drive momentum:

In the off premise, trading deals have been signed with all the major retail chains. In the on premise, nearly all major customer contracts have also been renegotiated, with annual price increases on an average three-year contract life.

We are growing portfolio strength in a number of areas including Cobra performing ahead of acquisition objectives and Coors Light growing at a strong double-digit rate in the off-premise and increasing share in Ireland.

In the U.K., we expect 2010 cost of goods per hectoliter of our owned products to increase at a high-single-digit rate in local currency. Drivers include the step-up in pension expense this year, a low-single digit increase in input cost inflation, which is a substantial improvement over last year, and a shift in our sales mix toward the high-cost off-premise channel, as well as product mix reflecting more Cobra and draught Magners volume. We expect cost of goods comparisons to be more challenging in the first half of the year than in the second half, due to less fixed-cost deleverage and cycling the Cobra acquisition in the second half.

In the first quarter, we also agreed to a multi-year arrangement to contract brew ales for Carlsberg beginning in 2011, which will help us to continue to maximize U.K. asset utilization.

MCI and Corporate

We forecast full-year 2010 MCI and corporate marketing general and administrative expense of approximately $180 million, plus or minus 5%.

We have signed an agreement to form a joint venture with the Hebei Si'hai Beer Company in China. For a total cash investment of approximately $40 million, we will gain a 51% controlling interest in a joint venture, which will be called Molson Coors Si'hai Brewing Company. This joint venture will give us access to a quality regional brewery for the production of Molson Coors brands, along with sales of the regionally strong Si'hai brands. We expect this new venture to be accretive in the short term and to grow long-term shareholder value by reducing costs and increasing the growth potential for Coors Light in the world's largest beer market by volume. We plan to close the transaction this summer.

Interest

Assuming consistent foreign exchange rates with the end of the first quarter in 2010, we anticipate the full year of 2010 corporate net interest expense to be approximately $110 million excluding U.K. trade loan interest income.

Income taxes

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 statute of limitations expire or positions are otherwise effectively settled. During the remainder of 2010, the Company expects to recognize approximately $1 million to $4 million of income tax expense related to uncertain tax positions. As a result, we anticipate that our 2010 effective tax rate on income will be in the range of 18% to 22%. In addition, there are proposed or pending tax law changes in the U.S., U.K. and Canada that, if enacted, may impact our effective tax rate.

We are exposed to fluctuations in interest rates, foreign currencies and the prices of production, commodities and packaging materials. We have established policies and procedures to govern the strategic management of these exposures through the use of a variety of financial instruments including: foreign currency forwards, cross currency swaps, and commodity swaps. We also use physical hedging agreements to manage our exposures to certain commodities. As of period end, we also held a total return swap to gain exposure to Foster's, another major global brewer.

For details of our derivative instruments that are presented on the balance sheet, including their fair values as of period end, see Part I—Financial Statements, Item 1 Note 13 "DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES," to the unaudited condensed consolidated financial statements. On a rolling twelve-month basis, maturities of derivative financial instruments held on March 27, 2010, are as follows:

(In millions)

Sensitivity Analysis

Our market sensitive derivative and other financial instruments, as defined by the Securities and Exchange Commission ("SEC"), are foreign currency forward contracts, commodity swaps, interest rate swaps, cross currency swaps and total return swaps. We monitor foreign exchange risk, interest rate risk, commodity risk, equity price risk and related derivatives using sensitivity analysis.

The following table presents the results of the sensitivity analysis, which reflects the impact of a hypothetical 10% adverse change in the applicable market interest rates, foreign exchange rates, and commodity prices of our derivative and debt portfolio:

(In millions)

The volatility of the applicable rates and prices are dependent on many factors that cannot be forecast with reliable accuracy. Therefore, actual changes in fair values could differ significantly from the results presented in the table above.

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 item is defined under Rule 13a-15(f) under the Securities Exchange Act of

1934, as amended, or 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 March 27, 2010 to provide reasonable assurance that information required to be disclosed in our reports 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 the Company's internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the fiscal quarter ended March 27, 2010, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 26, 2009, which could materially affect our business, financial condition and/or future results. The risks described in our Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or future results.