ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 Annual Report on Form 10-K is provided to assist in understanding our Company, operations and current business environment and should be considered a supplement to, and read in conjunction with, the accompanying audited consolidated financial statements and notes included within Part II—Item 8 Financial Statements and Supplementary Data, as well as the discussion of our business and related risk factors in Part I—Item 1 Business and Part I—Item 1A Risk Factors, respectively. See also "Cautionary Statement Pursuant to Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995."
A discussion related to the results of operations and changes in financial condition for 2021 compared to 2020 has been omitted from this report, but may be found in Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our fiscal 2021 Form 10-K, filed with the SEC on February 23, 2022, which is available free of charge on the SEC's website at www.sec.gov and our corporate website at www.molsoncoors.com.
Changes to our Consolidated Results of Operations
As of December 31, 2022, we modified our presentation of the consolidated statements of operations to replace the former "Special items, net" line item with "Other operating income (expense), net." In addition, goodwill impairment, which had previously been included in "Special items, net" has been reclassified to a separate line titled "Goodwill impairment." The consolidated statements of operations for the years ended December 31, 2021 and December 31, 2020 were reclassified to reflect this change in presentation only.
Our Fiscal Year
Unless otherwise indicated, (a) all $ amounts are in USD, (b) comparisons are to comparable prior periods and (c) 2022, 2021 and 2020 refers to the 12 months ended December 31, 2022, December 31, 2021 and December 31, 2020, respectively.
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Items Affecting Reported Results
Items Affecting Consolidated Results of Operations
Cost Inflation
We continued to experience significant cost inflation, including higher material, transportation and energy costs, which negatively impacted our results of operations during the year ended December 31, 2022. While cost inflation was high in all of our markets during the year ended December 31, 2022, 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 were impacted by local inflation leading to a reduction in their discretionary purchases. We expect cost inflation to continue to have a negative impact on our results of operations in 2023.
In addition to the cost increases that commenced in the second half of 2021, the Russian invasion of Ukraine in February 2022 caused and continues to cause a negative impact on the global economy, driving further increases to, among other things, the cost of transportation, energy and materials. Higher transportation costs are a result of increased fuel prices, a short supply of truck drivers worldwide and increased freight costs. In the Americas, we are taking steps to reduce the impact by shipping more beverages via rail to decrease the impacts of higher freight costs. In EMEA&APAC, we are taking steps to find alternative fuel and energy sources to reduce the potential impact of the loss or disruption of the energy sources or suppliers in Europe due to supply shortages as a result of the Russia-Ukraine conflict. We have established a governance regime to continually monitor this situation. Alternative sources of fuel have been implemented or are in the process of being implemented throughout our operations in the U.K. We have increased fuel stock levels where feasible and we have been drawing on new gas pipelines and fuel sources in the Baltics, Bulgaria-Greece, North Sea and Norway. We are also experiencing increased materials costs due to overall cost inflation. Specifically, the volatility of aluminum prices, inclusive of Midwest Premium and tariffs, continued to significantly impact our results for the year ended December 31, 2022.
To the extent materials, transportation and energy prices continue to fluctuate, and if we are unable to mitigate the impact of supply chain constraints and inflationary pressures through price increases or other measures, our results of operations and financial condition could be materially adversely impacted. 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 brand, reputation and sales. If our competitors maintain or substantially lower their prices, we may lose customers or mark down prices to match them. Our profitability may be impacted by prices that do not offset the inflationary pressures, which may 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.
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.
Coronavirus Global Pandemic
We have been actively monitoring the impact of the coronavirus pandemic since it started at the end of the first quarter of 2020. We observed improvements in the marketplace related to the coronavirus global pandemic as on-premise locations began to re-open, with varying degrees of restrictions, across the world beginning in the second quarter of 2021. A new variant of coronavirus, Omicron, created additional uncertainty and negatively impacted our on-premise business at the end of 2021 and into the first quarter of 2022 when we started to see progressive improvements in our on-premise channel. Thus, while an improvement from 2021, the coronavirus global pandemic continued to have a negative impact to our financial results for the year ended December 31, 2022. However, the margin impact of the coronavirus pandemic improved during the year ended December 31, 2022 when compared to the year ended December 31, 2021 primarily as a result of the progressive improvements in the on-premise channel.
The extent to which our operations will continue to be impacted by the coronavirus pandemic will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including, but not limited to, the level of governmental or societal orders or restrictions on public gatherings and on-premise venues including any vaccine mandates or testing requirements, the severity and duration of the coronavirus pandemic by market including continued or prolonged future outbreaks of variants, changes in consumer behavior, the rate of vaccination and the efficacy of vaccines against coronavirus and related variants. We continue to actively monitor the ongoing evolution of the coronavirus pandemic and resulting impacts to our business.
Cybersecurity Incident
During March 2021, we experienced a systems outage that was caused by a cybersecurity incident. We engaged leading
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forensic information technology firms and legal counsel to assist our investigation into the incident and we restored our systems as quickly as possible. Despite these actions, we experienced delays and disruptions to our business, including brewery operations, production and shipments. This incident caused a shift in production and shipments from the first quarter of 2021 to the balance of fiscal year 2021.
Revitalization Plan
On October 28, 2019, we initiated a revitalization plan designed to allow us to invest across our portfolio to drive long-term, sustainable growth. The revitalization plan established Chicago, Illinois as our Americas segment operational headquarters. We closed our office in Denver, Colorado and consolidated certain administrative functions into our other existing office locations. As of January 1, 2020, we changed our name to Molson Coors Beverage Company and changed our management structure to two segments - Americas and EMEA&APAC. We began to incur charges during the fourth quarter of 2019 and we recognized severance and retention charges related to these restructuring activities of $4.0 million and $35.6 million during the years ended December 31, 2021 and December 31, 2020, respectively. As of the year ended December 31, 2021, the revitalization plan restructuring charges were substantially complete. There were no material changes to our restructuring activities since December 31, 2021.
See Part II—Item 8 Financial Statements and Supplementary Data Note 17, "Other Operating Income (Expense), net" and Note 6, "Goodwill and Intangibles" for further discussion of the impacts of this plan.
Premiumization of our Portfolio
In 2021, in order to support the overall premiumization of our portfolio, we strategically de-prioritized and rationalized certain non-core SKUs predominantly in the economy segment. While we rationalized certain non-core economy SKUs, we retained key economy brands allowing us to maintain a portfolio for all socio-economic demographics. We believe the premiumization of our portfolio will drive sustainable net sales and earnings growth but result in potential volume declines due to the rationalization of certain SKUs and as the portfolio mix shifts towards a higher composition of above premium products.
Items Affecting Americas Segment Results of Operations
Goodwill Impairment
During the fourth quarter of 2022, we recorded a partial goodwill impairment charge of $845.0 million related to the Americas reporting unit as a result of the annual goodwill impairment analysis. See Part II—Item 8 Financial Statements and Supplementary Data, Note 6, "Goodwill and Intangible Assets" for further information.
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. Over the course of the third quarter of 2022, we recovered from the strike by rebuilding inventory and replenishing our retailers' shelves. As the brewery had not yet fully recovered until the end of the third quarter, results for the second and third quarters of 2022 were adversely impacted by this strike.
Keystone Litigation
During the year ended December 31, 2022, we recorded an accrued liability of $56.6 million within MG&A related to probable losses as a result of the ongoing Keystone litigation case including associated interest. See Part II—Item 8 Financial Statements and Supplementary Data, Note 13, "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 II—Item 8 Financial Statements and Supplementary Data, Note 17, "Other Operating Income (Expense), net" for further information.
Texas Storm
In February 2021, a winter ice storm severely impacted the southern U.S. In particular, local government authorities in Texas were forced to impose energy restrictions, causing the Fort Worth brewery to be offline which resulted in our inability to produce or ship product during the downtime.
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Irwindale, California Brewery Sale
Following management approval in December 2019, in January 2020, we announced plans to cease production at our Irwindale, California brewery and entered into an option agreement with Pabst, granting Pabst an option to purchase our Irwindale, California brewery, including plant equipment and machinery and the underlying land for $150 million, subject to adjustment as further specified in the option agreement. Pursuant to the option agreement, on May 4, 2020, Pabst exercised its option to purchase the Irwindale brewery and the purchase was completed in the fourth quarter of 2020. Production at the Irwindale brewery ceased during the third quarter of 2020. We recorded charges related to the Irwindale brewery closure as further discussed in Part II—Item 8 Financial Statements and Supplementary Data Note 17, "Other Operating Income (Expense), net"
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. Out of an abundance of caution, at the commencement of the conflict, production and sales of our brands in Ukraine under license arrangements were halted as a result of the dangerous environment in the country due to the conflict. We anticipate entering into a new license contract within Ukraine in early 2023. Until then, we plan to export to Ukraine from the Czech Republic. We had less than 0.2% of our 2021 consolidated net sales, less than 1% of our 2021 EMEA&APAC net sales and no physical assets in Russia and Ukraine before the conflict began. While not material to our Company, the Russia-Ukraine conflict negatively impacted our net sales for the year ended December 31, 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 the cost of materials, transportation and energy. See the risk factor related to this conflict at Part I.—Item 1A. "Risk Factors".
Fiscal Year 2020 Goodwill Impairment
In fiscal year 2020, we recorded a goodwill impairment charge related to our EMEA&APAC reporting unit of $1,484.3 million as a result of the annual goodwill impairment analysis. Consequently, the EMEA&APAC reporting unit was fully impaired as of December 31, 2020.
India Impairment & Sale
During the third quarter of 2020, we recognized an impairment loss of $30.0 million within other operating income (expense), net related to the held for sale classification of a disposal group within our India business, representing an insignificant part of our EMEA&APAC segment. The sale of the India business disposal group was subsequently completed during the first quarter of 2021.
During the fourth quarter of 2021, we recognized an impairment loss of $13.5 million within other operating income (expense), net related to the held for sale classification of the remaining portion of our India business. The sale of the remaining portion of our India business was subsequently completed during the first quarter of 2022 and resulted in an insignificant loss on disposal recorded in other operating income (expense), net.
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Consolidated Results of Operations
The following table highlights summarized components of our consolidated statements of operations for the years ended December 31, 2022, December 31, 2021 and December 31, 2020. See Part II—Item 8 Financial Statements and Supplementary Data, “Consolidated Statements of Operations” for additional details of our U.S. GAAP results comparing December 31, 2022 and December 31, 2021.
For the years ended
(In millions, except percentages and per share data)
Goodwill impairment (845.0) N/M — N/M (1,484.3)
Equity income (loss) 4.7 N/M — N/M —
Income (loss) before income taxes (62.5) N/M 1,239.0 N/M (643.9)
Net income (loss) attributable to MCBC $ (175.3) N/M $ 1,005.7 N/M $ (949.0)
N/M = Not meaningful
Foreign currency impacts on results
For the year ended December 31, 2022, foreign currency movements had the following impacts on our USD consolidated results:
•Net sales - Unfavorable impact of $298.0 million (unfavorable impact for EMEA&APAC and Americas of $249.0 million and $49.0 million, respectively).
•Cost of goods sold - Favorable impact of $211.7 million (favorable impact for EMEA&APAC, Americas and Unallocated of $169.4 million, $36.3 million and $6.0 million, respectively).
•MG&A - Favorable impact of $83.4 million (favorable impact for EMEA&APAC and Americas of $66.8 million and $16.6 million, respectively).
•Income (loss) before income taxes - Unfavorable impact of $15.1 million (unfavorable impact for EMEA&APAC and Americas of $14.0 million and $2.6 million, respectively, partially offset by the favorable impact for Unallocated of $1.5 million).
The impacts of foreign currency movements on our consolidated USD results described above for the year ended December 31, 2022 were primarily due to the strength of the USD as compared to the GBP and CAD.
Included in these amounts are both translational and transactional impacts of changes in foreign exchange rates. The impact of transactional foreign currency gains and losses is recorded within other non-operating income (expense), net in our consolidated statements of operations.
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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 a 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.
As part of the revitalization plan strategy to grow our above premium portfolio and expand beyond the beer aisle, in late 2021 we de-prioritized and rationalized certain non-core SKUs, predominantly in the economy segment. This strategy was intended to drive sustainable net sales growth and earnings growth, despite potential volume declines due to the rationalization or certain SKUs and as the portfolio mix shifted toward a higher composition of above premium products.
Net sales
The following table highlights the drivers of change in net sales for the year ended December 31, 2022 versus December 31, 2021, by segment (in percentages).
Financial Volume Price and Sales Mix Currency Total
The following table highlights the drivers of change in net sales for the year ended December 31, 2021 versus December 31, 2020, by segment (in percentages).
Financial Volume Price and Sales Mix Currency Total
Net sales per hectoliter on a financial volume basis in local currency increased 9.3% for the year ended December 31, 2022, compared to prior year, primarily due to positive net pricing and favorable sales mix driven by portfolio premiumization and favorable channel mix.
Financial volumes declined 2.1% for the year ended December 31, 2022, compared to prior year, primarily due to industry softness in the Americas, cycling the rebuild of U.S. distributor inventory levels in the prior year, and the impacts of the Québec labor strike, partially offset by growth in Western Europe due to less onerous coronavirus pandemic restrictions.
Cost of goods sold
Cost of goods sold per hectoliter in local currency increased 19.0% for the year ended December 31, 2022, compared to prior year, primarily due to changes in our unrealized mark-to-market commodity positions which accounted for approximately 40% of the increase and is recorded as Unallocated. In addition, the increase was also impacted by cost inflation, mainly on materials, transportation and energy costs, mix impacts from portfolio premiumization, higher factored volumes and volume deleverage, partially offset by lower depreciation expense and cost savings programs.
Marketing, general and administrative expenses
MG&A increased 2.5% for the year ended December 31, 2022, compared to prior year, primarily due to the cycling of lower people-related costs in the prior year and the recording of a $56.6 million accrued liability related to potential losses as a result of the ongoing Keystone litigation case including associated interest, partially offset by favorable impacts from foreign currency movements and reductions in marketing spend on non-core and discontinued brands.
Goodwill Impairment
See Part II—Item 8 Financial Statements and Supplementary Data, Note 6, "Goodwill and Intangible Assets" for detail of
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our goodwill impairments.
Other operating income (expense), net
See Part II—Item 8 Financial Statements and Supplementary Data, Note 17, "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 increased 2.1% for the year ended December 31, 2022, compared to prior year primarily due to higher pension and OPEB non-service costs and unfavorable transactional impacts of changes in foreign exchange rates, partially offset by lower interest expense driven by the repayment of debt as a result of our continued deleveraging actions.
Income taxes benefit (expense)
For the years ended
Effective tax rate (198) % 19 % (47) %
The decrease in our effective tax rate for the year ended December 31, 2022 compared to the prior year was primarily due to the impact of (i) the $845 million partial goodwill impairment, recorded within our Americas segment in the fourth quarter of 2022, which related to goodwill not deductible for tax purposes, and (ii) $18 million of tax expense recognized in 2021, which related to the remeasurement of our deferred tax liabilities following an announced corporate income tax rate increase in the U.K. from 19% to 25%. These decreases to the effective tax rate were partially offset by the release of $73 million of reserves for unrecognized tax positions as a result of an effective settlement reached on a tax audit during 2021.
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. The alternative minimum tax is effective for the Company beginning in fiscal year 2023, and any impact to our consolidated financial statements, including cash flow, tax expense and effective tax rate, will depend on several factors, most specifically our AFSI and any future administrative guidance. Additionally, the IRA imposes an excise tax of 1% on stock repurchases, effective January 1, 2023. The impact of this excise tax will be dependent on the extent of our share repurchases in future periods. While we continue to evaluate the new tax law, we do not believe it will have a material impact to the Company in the near future.
Refer to Part II—Item 8 Financial Statements and Supplementary Data, Note 12, "Income Tax" for additional details regarding our effective tax rate.
Cost Savings Initiatives
Our next generation cost savings program, which began in 2020, delivered $605 million of cost savings over the three year program, which ended December 31 2022. The program was focused on building our capabilities and reorganizing to support our commercial revitalization strategy. Total cost savings delivered in 2022, 2021 and 2020 totaled approximately $115 million, $220 million and $270 million, respectively.
Depreciation and Amortization
Depreciation and amortization expense decreased 12.9% for the year ended December 31, 2022, primarily due to assets becoming fully depreciated during the year, favorable impacts from foreign currency movements and a decrease in accelerated depreciation expense recorded as a result of certain facility closures.
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Segment Results of Operations
Americas Segment
For the years ended
(In millions, except percentages)
(1)Includes gross inter-segment sales and volumes which are eliminated in the consolidated totals.
(2)Excludes royalty volume of 2.719 million hectoliters, 2.507 million hectoliters and 2.052 million hectoliters for 2022, 2021 and 2020, respectively.
Net sales and volume
Net sales per hectoliter on a financial volume basis in local currency increased 9.1% for the year ended December 31, 2022, compared to the prior year, primarily due to positive net pricing and favorable sales mix driven by portfolio premiumization.
Financial volumes decreased 5.4% for the year ended December 31, 2022, compared to prior year, primarily due to industry softness, cycling the rebuild of U.S. distributor inventory levels in the prior year and the impacts of the Québec labor strike.
Income (loss) before income taxes
Income (loss) before income taxes decreased 73.4% for the year ended December 31, 2022, compared to prior year, primarily due to a partial goodwill impairment charge of $845 million, cost inflation, mainly on materials, transportation and energy costs, lower financial volumes and higher MG&A spend, partially offset by positive net pricing, favorable sales mix and lower depreciation expense.
EMEA&APAC Segment
For the years ended
(In millions, except percentages)
N/M = Not meaningful
(1)Includes gross inter-segment sales and volumes which are eliminated in the consolidated totals.
(2)Excludes royalty volume of 1.012 million hectoliters, 1.968 million hectoliters and 1.731 million hectoliters for 2022, 2021 and 2020, respectively.
Net sales and volume
Net sales per hectoliter on a financial volume basis in local currency increased 15.7% for the year ended December 31, 2022, compared to prior year, primarily due to favorable sales mix, in part due to the cycling of significant on-premise restrictions that occurred during the first and last quarters of 2021, particularly in the U.K, and positive net pricing.
Financial volumes increased 8.1% for the year ended December 31, 2022, compared to prior year, primarily due to growth in our above premium portfolio and our core brands, including the cycling of significant on-premise restrictions that occurred during the first and last quarters of 2021, particularly in the U.K. and higher factored volumes.
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Income (loss) before income taxes
Income (loss) before income taxes increased 85.4% for the year ended December 31, 2022, compared to prior year, primarily due to higher financial volumes, favorable sales mix and positive net pricing, partially offset by cost inflation, mainly on materials, transportation and energy costs, as well as higher MG&A spend. Higher MG&A spend was primarily due to cost inflation, higher incentive compensation, higher marketing spend to support our brands and the cycling of lower spend in the prior year due to cost mitigation efforts as a result of the pandemic.
Unallocated Segment
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.
For the years ended
(In millions, except percentages)
Income (loss) before income taxes $ (436.4) N/M $ 29.6 N/M $ (120.7)
N/M = Not meaningful
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 2022, 2021 and 2020. 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 II—Item 8 Financial Statements and Supplementary Data, Note 10, "Derivative Instruments and Hedging Activities" for further information.
Total non-operating income (expense), net
Total non-operating expense, net decreased 0.2% for the year ended December 31, 2022 compared to the prior year primarily due to lower net interest expense partially offset by higher pension and OPEB non-service costs. See Part II - Item 8. Financial Statements and Supplementary Data, Note 9, "Debt" for further details on our debt instruments. See Part II - Item 8 Financial Statements and Supplementary Data, Note 11, "Employee Retirement Plans and Postretirement Benefits" for further discussion of pension and OPEB.
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 annual 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 December 31, 2022, approximately 76% of our cash and cash equivalents were located outside the U.S., largely denominated in foreign currencies. The recent fluctuations in
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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.
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 3.5% senior notes due 2022 and 5.0% senior notes due 2042. The 3.5% senior notes were subsequently repaid in May 2022 upon maturity using a combination of commercial paper borrowings and cash on hand. 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 on Exhibit 22 of this 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 II—Item 8 Financial Statements and Supplementary Data, Note 9, "Debt" for details of all debt issued and outstanding as of December 31, 2022.
The following summarized financial information relates to the Obligor Group as of December 31, 2022 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.
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The balances and transactions with non-guarantor subsidiaries have been separately presented.
Summarized Financial Information of Obligor Group
(In millions)
Net sales, out of which: $ 8,607.0
Intercompany sales to non-guarantor subsidiaries $ 38.0
Gross profit, out of which: $ 3,020.5
Intercompany net costs from non-guarantor subsidiaries $ (412.4)
Net interest expense third parties $ (241.9)
Intercompany net interest income from non-guarantor subsidiaries $ 94.0
Income before income taxes $ 47.2
(In millions)
Total current assets, out of which: $ 1,774.0
Intercompany receivables from non-guarantor subsidiaries $ 202.6
Total noncurrent assets $ 20,153.6
Total current liabilities, out of which: $ 2,441.3
Current portion of long-term debt and short-term borrowings $ 371.7
Intercompany payables due to non-guarantor subsidiaries $ 96.8
Total noncurrent liabilities, out of which: $ 9,055.9
Noncurrent intercompany notes payable due to non-guarantor subsidiaries $ 310.9
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 described in Part I, Item 1A. "Risk Factors".
Cash Flows from Operating Activities
Net cash provided by operating activities of $1,502.0 million for the year ended December 31, 2022 decreased $71.5 million compared to $1,573.5 million for the year ended December 31, 2021. The decrease in net cash provided by operating activities was primarily due to the unfavorable timing of working capital and lower net income adjusted for non-cash add-backs, partially offset by lower income taxes paid and lower payments for incentive compensation. The unfavorable timing of working capital includes the prior year net repayment against various tax payment deferrals programs associated with the coronavirus pandemic.
Cash Flows from Investing Activities
Net cash used in investing activities of $625.1 million for the year ended December 31, 2022 increased $115.2 million compared to $509.9 million for the year ended December 31, 2021. The increase in net cash used in investing activities was primarily due to higher capital expenditures as a result of significant investment in our Americas breweries, partially offset by higher cash inflows from other investing activities.
Cash Flows from Financing Activities
Net cash used in financing activities of $889.5 million for the year ended December 31, 2022 decreased $282.7 million compared to $1,172.2 million for the year ended December 31, 2021. The decrease in net cash used in financing activities was primarily due to lower net debt repayments, partially offset by higher dividend payments and Class B common stock share
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repurchases.
Capital Resources, including Material Cash Requirements
Cash and Cash Equivalents
We had total cash and cash equivalents of $600.0 million as of December 31, 2022, compared to $637.4 million as of December 31, 2021. The decrease in cash and cash equivalents from December 31, 2021 to December 31, 2022 was primarily due to capital expenditures, net debt repayments, including the repayment of our $500 million 3.5% USD notes which matured in May 2022, dividend payments, Class B common stock share repurchases and unfavorable foreign currency impact, partially offset by net cash provided by operating activities and from the sales of properties and other assets.
See Part II—Item 8 Financial Statements and Supplementary Data, Consolidated Statements of Cash Flows for additional detail. The majority of our cash and cash equivalents are invested in a variety of highly liquid investments with original maturities of 90 days or less. These investments are viewed by management as low-risk investments on which there are little to no restrictions regarding our ability to access the underlying cash to fund our operations as necessary. While we have some investments in prime money market funds at times, these are classified as cash and cash equivalents; however, we continually monitor the need for reclassification under the SEC requirements for money market funds, and the potential that the shares of such funds could have a net asset value of less than one dollar. We also utilize cash pooling arrangements to facilitate the access to cash across our geographies.
Working Capital
We actively manage working capital through inventory management as well as management of accounts payable and accounts receivable to ensure we are able to meet short-term obligations and we are effectively using assets to increase cash inflows.
Borrowings
We repaid our $500 million 3.5% USD notes upon maturity on May 1, 2022 using a combination of commercial paper borrowings and cash on hand. Refer to Part II—Item 8 Financial Statements and Supplementary Data, Note 9, "Debt" for details.
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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. As of December 31, 2022, and December 31, 2021, we had $1.5 billion available to draw under our $1.5 billion revolving credit facility, as there were no outstanding revolving credit facility or 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
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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 revolving credit facility agreement, was 4.00x as of December 31, 2022 and December 31, 2021. As of December 31, 2022 and December 31, 2021, 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 December 31, 2022 rank pari-passu.
In October 2021, we further amended our existing revolving credit facility agreement to replace LIBOR with designated replacement rates for any future borrowings denominated in EUR or GBP to ensure continued, uninterrupted access to these markets should we need it.
See Part II—Item 8 Financial Statements and Supplementary Data, Note 9, "Debt" for further discussion of our borrowings and available sources of borrowings, 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. Guarantees of the outstanding third-party debt of our equity method investments, which are classified as current on the consolidated balance sheets, have been excluded from the material cash requirements table below. See Part II—Item 8 Financial Statements and Supplementary Data, Note 3, "Investments" and Note 13, "Commitments and Contingencies" for further discussion.
Material Cash Requirements from Contractual and Other Obligations
A summary of our material cash requirements from our contractual and other obligations as of December 31, 2022, based on foreign exchange rates as of December 31, 2022, is as follows.
Payments due by period
Total Less than 1 year 1 - 3 years 3 - 5 years More than 5 years
(In millions)
See Part II—Item 8 Financial Statements and Supplementary Data, Note 9, "Debt", Note 11, "Employee Retirement Plans and Postretirement Benefits,"Note 10, "Derivative Instruments and Hedging Activities,"Note 13, "Commitments and Contingencies" and Note 8, "Leases" for additional information.
(1)Represents expected contributions of $4.0 million under our defined benefit pension plans in the next twelve months and our benefit payments under postretirement benefit plans for all periods presented. The net underfunded liability as of December 31, 2022 of our defined benefit pension plans (excluding our overfunded plans) and postretirement benefit plans is $38.4 million and $478.3 million, respectively. Defined benefit pension plan contributions in future years will vary based on a number of factors, including actual plan asset returns and interest rates, and thus, have been excluded from the above table.
(2)See Part II—Item 8 Financial Statements and Supplementary Data, Note 13, "Commitments and Contingencies" for further discussion of the majority of the other long-term obligations which includes supply and distribution and advertising and promotions commitments. The remaining balance relates to derivative payments, information technology services, open purchase orders and other commitments.
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Other Commercial Commitments
Based on foreign exchange rates as of December 31, 2022, future commercial commitments are as follows:
Amount of commitment expiration per period
(In millions)
Standby letters of credit $ 54.0 $ 51.0 $ 2.9 $ — $ 0.1
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.
Capital Expenditures
We incurred $694.7 million, and paid $661.4 million, for capital improvement projects worldwide for the year ended December 31, 2022, excluding capital spending by equity method joint ventures, representing an increase of $136.1 million from the $558.6 million of capital expenditures incurred for the year ended December 31, 2021. This increase was primarily due to significant investment in our Americas breweries including the completion of a new brewery in Québec, Canada and the sustainability investment in our Golden, Colorado brewery. 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 II—Item 8 Financial Statements and Supplementary Data, Note 13, "Commitments and Contingencies" for further discussion.
Off-Balance Sheet Arrangements
Refer to Part II—Item 8 Financial Statements, Note 13, "Commitments and Contingencies" for discussion of off-balance sheet arrangements. As of December 31, 2022, we did not have any other material off-balance sheet arrangements.
Critical Accounting Estimates
Our consolidated financial statements are prepared in accordance with U.S. GAAP. In connection with the preparation of our consolidated financial statements, we are required to make judgments and estimates that significantly affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures. Our estimates are based on historical experience, current trends and various other assumptions we believe to be relevant under the circumstances. We review the underlying factors used in our estimates regularly, including reviewing the significant accounting policies impacting the estimates, to ensure compliance with U.S. GAAP. However, due to the uncertainty inherent in our estimates, actual results may be materially different. We have identified the accounting estimates below as critical to understanding and evaluating the financial results reported in our consolidated financial statements.
For a complete description of our significant accounting policies, see Part II—Item 8 Financial Statements and Supplementary Data, Note 1, "Basis of Presentation and Summary of Significant Accounting Policies".
Pension and Other Postretirement Benefits
Our defined benefit pension plans cover certain current and former employees in the U.S., Canada and the U.K. Benefit accruals for the majority of employees in our U.S. and U.K. plans have been frozen and the plans are closed to new entrants. In the U.S., we also participate in, and make contributions to, multi-employer pension plans. Our OPEB plans provide medical benefits for retirees and their eligible dependents as well as life insurance and, in some cases, dental and vision coverage, for certain retirees in the U.S., Canada, and Europe. The U.S., Canada and U.K. defined benefit pension plans are primarily funded, but all OPEB plans are unfunded. We also offer defined contribution plans in each of our segments.
Accounting for pension and OPEB plans requires that we make assumptions that involve considerable judgment which are significant inputs in the actuarial models that measure our net pension and OPEB obligations and ultimately impact our earnings. These include the discount rate, long-term expected rate of return on assets, and plan asset fair value determination,
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which are important assumptions used in determining the plans' funded status and annual net periodic pension and OPEB costs. Further assumptions include inflation considerations and health care cost trends. We evaluate these critical assumptions at least annually on a plan and country-specific basis. We also, with the help of actuaries, periodically evaluate other assumptions involving demographic factors, such as retirement age, mortality and turnover, and update them to reflect our experience and expectations for the future. While we believe that our assumptions are appropriate, significant differences in our actual experience or significant changes in our assumptions may materially affect our net pension and postretirement benefit obligations and related expense. The following discussion focuses on assumptions that are deemed to have the most material impact on our pension and OPEB liabilities and net periodic benefit cost.
Discount Rates
The assumed discount rates are used to present-value future benefit obligations based on each plan's respective estimated duration. Our pension and OPEB discount rates are based on our annual evaluation of high quality corporate bonds in various markets based on appropriate indices and actuarial guidance. We believe that our discount rate assumptions are appropriate; however, significant changes in our assumptions may materially affect our pension and OPEB obligations and related expense.
As of December 31, 2022, on a weighted-average basis, the discount rates used were 5.01% for our defined benefit pension plans and 4.90% for our OPEB plans. The change from the weighted-average discount rates of 2.27% for our defined benefit pension plans and 2.59% for our OPEB plans as of December 31, 2021 is primarily due to increasing interest rates in 2022.
A 50 basis point change in our discount rate assumptions would have had the following effects on the projected benefit obligation balances as of December 31, 2022 for our pension and OPEB plans:
Impact to projected benefit obligation as of December 31, 2022 - 50 basis points
Decrease Increase
(In millions)
Projected benefit obligation - unfavorable (favorable)
Total impact to the projected benefit obligation $ 177.2 $ (162.3)
Our U.K. pension plan includes benefits linked to inflation. The above sensitivity analysis does not consider the implications to inflation resulting from the above contemplated discount rate changes. This sensitivity holds all other assumptions constant.
Long-Term Expected Rate of Return on Assets
The assumed long-term expected return on assets is used to estimate the actual return that will occur on each individual funded plan's respective plan assets in the upcoming year. We determine each plan's EROA with substantial input from independent investment specialists, including our actuaries and other consultants. In developing each plan's EROA, we consider current and expected asset allocations, historical market rates as well as historical and expected returns on each plan's individual asset classes. In developing future return expectations for each of our plan's assets, we evaluate general market trends as well as key elements of asset class returns such as expected earnings growth, yields and spreads. The calculation includes inputs for interest, inflation, credit and risk premium (active investment management) rates and fees paid to service providers. Based on the above factors and expected asset allocations, we have assumed, on a weighted-average basis, an EROA of 4.91% for our defined benefit pension plan assets for cost recognition in 2023. This is an increase from the weighted-average rate of 3.11% we assumed for 2022, primarily due to the significant increase in interest rates throughout 2022 as 65.2% of our portfolio was invested in fixed income securities as of year end. We believe that our EROA assumptions are appropriate; however, significant changes in our assumptions or actual returns that differ significantly from estimated returns may materially affect our net periodic pension costs.
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A 50 basis point change in our expected return on assets assumptions made at the beginning of 2022 would have had the following effects on 2022 net periodic pension and postretirement benefit costs.
Decrease Increase
(In millions)
Description of pension and postretirement plan sensitivity item
Expected return on pension plan assets $ (22.7) $ 23.9
Fair Value of Plan Assets
The fair value of plan assets is determined by us using available market information and appropriate valuation methodologies. However, considerable judgment is required in selecting an appropriate methodology and interpreting market data to develop the estimates of fair value, especially in the absence of quoted market values in an active market. Changes in these assumptions or the use of different market inputs may have a material impact on the estimated fair values or the ultimate amount at which the plan assets are available to satisfy our plan obligations.
Equity assets are diversified between domestic and other international investments. Relative allocations reflect the demographics of the respective plan participants. See Part II—Item 8 Financial Statements and Supplementary Data, Note 11, "Employee Retirement Plans and Postretirement Benefits" for a comparison of target asset allocation percentages to actual asset allocations as of December 31, 2022.
Health Care Cost Trend Rates
The assumed health care cost trend rates represent the rates at which health care costs are assumed to increase and are based on actuarial input and consideration of historical and expected experience. We use these trends as a significant assumption in determining our postretirement benefit obligation and related costs. Changes in our projections of future health care costs due to general economic conditions and those specific to health care will impact this trend rate. An increase in the trend rate would increase our obligation and expense of our postretirement health care plan. We believe that our health care cost trend rate assumptions are appropriate; however, significant changes in our assumptions may materially affect our postretirement benefit obligations and related costs. As of December 31, 2022, the health care trend rates used were ranging ratably from 6.50% in 2023 to 3.57% in 2040, as compared to health care trend rates ranging ratably from 6.00% in 2022 to 3.57% in 2040 as of December 31, 2021. See Part II—Item 8 Financial Statements and Supplementary Data, Note 11, "Employee Retirement Plans and Postretirement Benefits" for further information.
Contingencies, Environmental and Litigation Reserves
Contingencies, environmental and litigation reserves are recorded when probable, using our best estimate of loss. This estimate, involving significant judgment, is based on an evaluation of the range of loss related to such matters and where the amount and range can be reasonably estimated. These matters are generally resolved over a number of years and only when one or more future events occur or fail to occur. Following our initial determination, we regularly reassess and revise the potential liability related to any pending matters as new information becomes available. Unless capitalization is allowed or required by U.S. GAAP, environmental and legal costs are expensed when incurred. We disclose pending loss contingencies when the loss is deemed reasonably possible, which requires significant judgment. As a result of the inherent uncertainty of these matters, the ultimate conclusion and actual cost of settlement may materially differ from our estimates. We recognize contingent gains upon the determination that realization is assured beyond a reasonable doubt, regardless of the perceived probability of a favorable outcome prior to achieving that assurance. In the instance of gain contingencies resulting from favorable litigation, due to the numerous uncertainties inherent in a legal proceeding, gain contingencies resulting from legal settlements are not recognized in income until cash or other forms of payment are received. If significant and probable, we disclose as appropriate.
See Part II—Item 8 Financial Statements and Supplementary Data, Note 13, "Commitments and Contingencies" for a discussion of our contingencies, environmental and litigation reserves as of December 31, 2022.
Goodwill and Intangible Asset Valuation
We evaluate the carrying value of our goodwill and indefinite-lived intangible assets for impairment at least annually or when an interim triggering event occurs that may indicate potential impairment. Our annual impairment test of goodwill and indefinite-lived intangible assets was performed as of October 1, the first day of the last fiscal quarter. We evaluate our other definite-lived intangible assets for impairment when evidence exists that certain events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Significant judgments and assumptions are required in such
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impairment evaluations. As of December 31, 2022, the carrying values of goodwill and intangible assets were approximately $5.3 billion and $12.8 billion, respectively, with the goodwill balance entirely attributed to the Americas reporting unit.
We use a combination of discounted cash flow analyses and market approaches to determine the fair value of each of our reporting units and an excess earnings approach to determine the fair values of our indefinite-lived brand intangible assets. Our discounted cash flow projections include assumptions for growth rates for sales, costs and profits, which are based on various long-range financial and operational plans of each reporting unit or each indefinite-lived intangible asset. Additionally, discount rates used in our goodwill analysis are based on weighted-average cost of capital, driven by the prevailing interest rates in geographies where these businesses operate, as well as the credit ratings, financing abilities and opportunities of each reporting unit, among other factors. Discount rates for the indefinite-lived intangible analysis by brand largely reflect the rates supporting the overall reporting unit valuation but may differ slightly to adjust for country or market specific risk associated with a particular brand, among other factors. Our market-based valuations utilize earnings multiples of comparable public companies, which are reflective of the market in which each respective reporting unit operates. The key assumptions used to derive the estimated fair values of our reporting units and indefinite-lived intangible assets represent Level 3 measurements.
Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. As a result, there can be no assurance that the estimates and assumptions made for purposes of the annual goodwill and indefinite-lived intangible asset impairment tests will prove to be an accurate prediction of the future. Examples of events or circumstances that could reasonably be expected to negatively affect the underlying key assumptions and ultimately impact the estimated fair value of our reporting units and indefinite-lived intangible assets may include such items as: (i) a decrease in expected future cash flows, specifically, an inability to execute on our strategic initiatives or an increase in costs driven by inflation or other factors that could significantly impact our immediate and long-range results and an inability to successfully achieve our cost savings targets, (ii) adverse changes in macroeconomic conditions or an economic recovery that significantly differs from our assumptions in timing and/or degree (such as a global pandemic or recession), (iii) significant unfavorable changes in tax rates, (iv) volatility in the equity and debt markets or other country specific factors which could result in a higher weighted-average cost of capital, (v) sensitivity to market multiples; and (vi) regulation limiting or banning the manufacturing, distribution or sale of alcoholic beverages.
If actual performance results differ significantly from our projections or we experience significant fluctuations in our other assumptions, a material impairment loss may occur in the future. See Part II—Item 8 Financial Statements and Supplementary Data, Note 6, "Goodwill and Intangible Assets" for further discussion and presentation of these amounts.
Annual Goodwill Impairment Test
As of the October 1, 2022 testing date, the carrying value of the Americas reporting unit was determined to be in excess of its fair value such that an impairment loss of $845.0 million was recorded. As this is a partial impairment of the reporting unit, the reporting unit is still considered to be at risk of future impairment. Assets are considered to be at heightened risk of future impairment if the fair value does not exceed its respective carrying value by 15.0% or more. The decline in the fair value of the Americas reporting unit in the current year was largely impacted by macroeconomic factors including an increase to the discount rate as a result of the recent rising interest rate environment as well as reductions in management forecasts and expectations due primarily to cost inflation pressures in the near to medium term and a softening beer industry in certain markets in which we operate. Specifically, the discount rate used in developing our annual fair value estimates for the Americas reporting unit in the current year was 8.75% based on market-specific factors, primarily the recent interest rate environment, as compared to 8.25% used as of the October 1, 2021 annual testing date.
Current projections used for the Americas reporting unit testing reflect growth assumptions associated with our continued plan to build on the strength of our iconic core brands, aggressively grow our above premium portfolio, expand beyond the beer aisle, invest in our capabilities and support our people and our communities, all of which are intended to benefit the projected cash flows of the business. While progress has been made on this strategy, including the increasing proportion of our above premium portfolio in the current year and the strengthening of our core brands, there is not enough historical data yet to comfortably predict future impacts and forecasted future cash flows are inherently at risk given that the strategies are still in progress. In addition, while we have included in our forecasted future cash flows estimates for expected cost inflation and adjusted our volumes to be reflective of the current beer industry trends, there is still inherent risk in achieving our goals. If our assumptions are not realized, it is possible that further impairment charges may be recorded in the future. For example, a 50 basis point increase in our discount rate assumptions, which is within a reasonable range of our historical discount rate fluctuations, could have a significant or material impact on the fair value of the Americas reporting unit holding all other assumptions and inputs constant.
As of the October 1, 2020 testing date, the carrying value of the EMEA&APAC reporting unit was determined to be in excess of its fair value such that an impairment loss of $1,484.3 million, the full value of goodwill as of October 1, 2020, was recorded.
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Indefinite-Lived Intangible Assets
The fair values of the Coors brands in the Americas, the Miller brands in the U.S, the Carling brands in the U.K., and the Staropramen brands in EMEA&APAC continue to be sufficiently in excess of their respective carrying values as of the annual testing date, with each having over 15% cushion of fair value over book value.
We utilize Level 3 fair value measurements in our impairment analysis of our indefinite-lived intangible assets. The future cash flows used in the analyses are based on internal cash flow projections based on our long range plans and include significant assumptions by management. The same macroeconomic factors impacting the discount rates of the Americas reporting unit are relevant to the indefinite-lived intangible assets with the Carling and Staropramen brands in EMEA&APAC being further impacted by the effects of cost inflation driven by the Russia-Ukraine conflict and the associated impacts on consumer demand and discretionary spending primarily in Central and Eastern Europe. A 50 basis point increase in our discount rate assumptions would not have resulted in an impairment of any of our indefinite-lived intangible assets.
Definite-Lived Intangible Assets and Other Long-Lived Assets
Regarding definite-lived intangible assets, we continuously monitor the performance of the underlying assets for potential triggering events suggesting an impairment review should be performed or useful lives should be re-assessed.
During the first quarter of 2022, we identified a triggering event related to the Truss joint venture asset group within our Americas segment and recognized an impairment loss of $28.6 million, of which $12.1 million was attributable to the noncontrolling interest. The asset group was measured at fair value primarily using a market approach with Level 3 inputs. See Part II—Item 8 Financial Statements and Supplementary Data, Note 6, "Goodwill and Intangible Assets" and Note 17, "Other Operating Income (Expense), net" for further details on these impairment losses.
No other material triggering events were identified in either 2022 or 2021 related to the definite-lived intangible assets or other definite-lived assets.
Income Taxes
Income taxes are accounted for in accordance with U.S. GAAP. Judgment is required in determining our consolidated provision for income taxes. In the ordinary course of our global business, there are many transactions for which the ultimate tax outcome is uncertain. Additionally, our income tax provision is based on calculations and assumptions that are subject to examination by many different tax authorities.
We are periodically subject to income tax audits in various foreign and domestic jurisdictions, which can involve questions regarding our tax positions and result in additional income tax liabilities assessed against us. Settlement of any challenge resulting from these tax controversies can result in a variety of resolutions including no change, a complete disallowance, or some partial adjustment reached through negotiations or litigation. We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained based on its technical merits. We measure and record the tax benefits from such a position based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Our estimated liabilities related to these matters are adjusted in the period in which the uncertain tax position is effectively settled, the statute of limitations for examination expires or when additional information becomes available. Our liability for unrecognized tax benefits requires the use of assumptions and significant judgment to estimate the exposures associated with our various filing positions. Although we believe that the judgments and estimates made are reasonable, actual results could differ and resulting adjustments could materially affect our effective tax rate and tax provision.
When cash is available after satisfying working capital needs and all other business obligations, we may distribute current earnings and the associated cash from a foreign subsidiary to its U.S. parent, and record the tax impact associated with the distribution. However, to the extent current earnings of our foreign operations exist and are not otherwise distributed or planned to be distributed, such earnings accumulate. These accumulated earnings are not considered permanently reinvested in our foreign operations. The taxes associated with any future repatriation of undistributed earnings are anticipated to be insignificant.
We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. We evaluate our ability to realize the tax benefits associated with deferred tax assets by assessing the adequacy of future expected taxable income, including the reversal of existing temporary differences, historical and projected operating results, and the availability of prudent and feasible tax planning strategies. The realization of tax benefits is evaluated by jurisdiction and the realizability of these assets can vary based on the character of the tax attribute and the carryforward periods specific to each jurisdiction. In the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax asset would decrease income tax expense in the period a determination was made. Likewise, should we determine that we would not be able to realize all or part of our net
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deferred tax asset in the future, an adjustment to the deferred tax asset would increase income tax expense in the period such determination was made.
There are proposed or pending tax law changes in various jurisdictions in which we do business. As discussed in Part II—Item 8 Financial Statements and Supplementary Data, Note 12, "Income Tax", we recognize the impacts of changes in tax law upon enactment, and therefore, proposed changes in tax law, regulations and rules are not reflected within our tax provision. As a result, such changes may, upon ultimate enactment, result in material impacts to our financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of our global operations, we are exposed to market risks associated with foreign currency exchange fluctuations, volatile interest rates and commodity price risks. To manage our exposure to these market risks, we enter into certain supplier-based and market-based hedging transactions. Such transactions are allowed under our risk management policy and are monitored closely with clear controls around the activities. Our market-based transactions include a variety of derivative financial instruments, none of which are used for trading or speculative purposes. The counterparties to these market-based transactions are generally highly rated institutions. Our objective is to manage our exposures and to decrease the volatility of our earnings and cash flows as a result of changes in underlying rates and costs.
Interest Rate Risk
We are exposed to volatility in interest rates with regard to our current and future debt offerings. Specifically, we are exposed to U.S. Department of Treasury rates, Canadian government rates and LIBOR, or any such LIBOR alternative like SONIA, SOFR or EURIBOR, for example. We may from time to time enter into interest rate swaps on our current debt obligations as our hedging strategy is to achieve our desired fixed-to-floating rate debt profile such that we manage the volatility in earnings as well as the cost of funding our operations. Further, we may enter into forward starting interest rate swaps to manage our exposure to the volatility of interest rates associated with future interest payments on a forecasted debt issuance.
See Part II - Item 8. Financial Statements and Supplementary Data, Note 9. "Debt" for the maturity dates of our outstanding debt instruments.
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. Notional amounts and fair values are presented in USD based on the applicable exchange rate as of December 31, 2022 and December 31, 2021, respectively.
Notional amounts Fair Value Asset/(Liability) Effect of 1% Adverse Change
Foreign Exchange Risk
Foreign currency exchange risk is inherent in our operations primarily due to operating results that are denominated in currencies other than the USD. We closely monitor our operations in each country and seek to adopt appropriate strategies that are responsive to foreign currency fluctuations. Our financial risk management policy is intended to offset a portion of the potentially unfavorable impact of exchange rates on our earnings and cash flows.
Changes in foreign currency exchange rates affect the translation of local currency balances of foreign subsidiaries, transaction gains and losses associated with intercompany loans with foreign subsidiaries, royalty agreements and transactions denominated in currencies other than the USD, and their related cash flows, specifically related to the purchase of production inputs and imports, as well as our foreign currency-denominated debt. See Part II - Item, 8. Financial Statements and Supplementary Data, Note 1. "Basis of Presentation and Summary of Significant Accounting Policies" for our accounting policy over the accounting for translation adjustments and foreign currency transactions.
Approximately $3.2 billion, or 30%, of our net sales were denominated in functional currencies other than the USD for the year ended December 31, 2022. As a result, fluctuations in foreign currency exchange rates other than the USD, particularly
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the CAD and the GBP, may have a material impact on our reported results. For the year ended December 31, 2022, net sales denominated in CAD and GBP both approximated $1.2 billion for each respective currency.
We manage our foreign currency exposures through foreign currency forward contracts and net investment hedges. Our EUR foreign-denominated debt is a net investment hedge against our investment in our Europe business in order to hedge a portion of the foreign currency translational impacts. The changes in fair value of the net investment hedge due to the fluctuations in the spot rate is recorded to AOCI. Our foreign currency forward contracts manage our exposure related to certain royalty agreements, the purchase of production inputs and imports that are denominated in currencies other than the functional entity's local currency and other foreign currency exchange exposure.
From time to time, we may enter into cross currency swaps. We had no cross currency swaps outstanding as of December 31, 2022 and December 31, 2021.
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 rate as of December 31, 2022 and December 31, 2021. Approximately 69% of our outstanding foreign currency forwards mature in 2023, 29% mature in 2024 and 2% mature thereafter.
Notional amounts Fair ValueAsset/(Liability) Effect of 10% Adverse Change
Commodity Price Risk
We are exposed to volatility in commodity prices as we use commodities in the production and distribution of our products. We specifically hedge our exposure to fluctuations in the price of natural gas, aluminum, including surcharges relating to our aluminum exposures, corn, barley and diesel. We utilize market-based derivatives and long-term supplier-based contracts, specifically a combination of purchase orders, long-term supply contracts and over-the-counter financial instruments to mitigate our commodity price risk by establishing price certainty for select commodities that are used in our supply chain.
The following table includes details of our commodity swaps and options 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. Notional amounts and fair values are presented in USD based on the applicable exchange rate as of December 31, 2022 and December 31, 2021. Approximately 63% of commodity swaps mature in 2023, 34% of commodity swaps mature in 2024 and 3% of commodity swaps mature thereafter.
Notional amounts Fair Value Asset/(Liability) Effect of 10% Adverse Change
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements Page
Management's Report 58
Report of Independent Registered Public Accounting Firm (PCAOB ID 238) 59
Consolidated Statements of Operations 61
Consolidated Statements of Comprehensive Income (Loss) 62
Consolidated Balance Sheets 63
Consolidated Statements of Cash Flows 64
Consolidated Statements of Stockholders' Equity and Noncontrolling Interests 65
Notes to Consolidated Financial Statements 67
Note 2, "New Accounting Pronouncements" 77
Note 3, "Investments" 77
Note 4, "Inventories" 80
Note 5, "Properties" 80
Note 6, "Goodwill and Intangible Assets" 81
Note 7, "Accounts Payable and Other Current Liabilities" 84
Note 8, "Leases" 84
Note 9, "Debt" 86
Note 10, "Derivative Instruments and Hedging Activities" 88
Note 11, "Employee Retirement Plans and Postretirement Benefits" 94
Note 13, "Commitments and Contingencies" 106
Note 14, "Stockholders' Equity" 110
Note 15, "Accumulated Other Comprehensive Income (Loss)" 111
Note 16, "Share-Based Payments" 112
Note 17, "Other Operating Income (Expense), net" 115
Note 18, "Segment Reporting" 117
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MANAGEMENT'S REPORT
The preparation, integrity and objectivity of the financial statements and all other financial information included in this annual report are the responsibility of the management of Molson Coors Beverage Company. The financial statements have been prepared in accordance with generally accepted accounting principles in the United States, applying estimates based on management's best judgment where necessary. Management believes that all material uncertainties have been appropriately accounted for and disclosed.
Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2022, based on the framework and criteria established in Internal Control—Integrated Framework (2013 Framework), issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon its assessment, management concluded that, as of December 31, 2022, the Company's internal control over financial reporting was effective.
PricewaterhouseCoopers LLP, the Company's independent registered public accounting firm, provides an objective, independent audit of the consolidated financial statements and internal control over financial reporting. Their accompanying report is based upon an examination conducted in accordance with standards of the Public Company Accounting Oversight Board (United States), including tests of accounting procedures, records and internal control.
The Board of Directors, operating through its Audit Committee composed of independent, outside directors, monitors the Company's accounting control systems and reviews the results of the Company's auditing activities. The Audit Committee meets at least quarterly, either separately or jointly, with representatives of management, PricewaterhouseCoopers LLP, and internal auditors. To ensure complete independence, PricewaterhouseCoopers LLP and the Company's internal auditors have full and free access to the Audit Committee and may meet with or without the presence of management.
/s/ GAVIN D.K. HATTERSLEY /s/ TRACEY I. JOUBERT
Gavin D.K. Hattersley Tracey I. Joubert
President & Chief Executive Officer Chief Financial Officer
Molson Coors Beverage Company Molson Coors Beverage Company
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Molson Coors Beverage Company
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Molson Coors Beverage Company and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations, of comprehensive income (loss), of stockholders’ equity and noncontrolling interests and of cash flows for each of the three years in the period ended December 31, 2022, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2022 appearing under Item 15(c) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill Impairment Assessment - Americas Reporting Unit
As described in Notes 1 and 6 to the consolidated financial statements, the Company’s goodwill balance related to the Americas reporting unit as of December 31, 2022 is $5,292 million. The carrying value of goodwill is evaluated for impairment at the reporting unit level at least annually or when an interim triggering event occurs that may indicate potential impairment. The Company’s annual impairment test is performed as of the first day of the fiscal fourth quarter. The evaluation involves comparing the reporting unit’s fair value to its carrying value. If the fair value exceeds its respective carrying value, then management would conclude that no impairment has occurred. If the carrying value exceeds its fair value, the Company would recognize an impairment loss in an amount equal to the excess up to the total amount of goodwill allocated to the reporting unit. As a result of the annual impairment test, management concluded that the carrying value of the Americas reporting unit exceeded its fair value resulting in an impairment loss of $845 million. A combination of a discounted cash flow analysis and market approach is used by management to determine the fair value of the reporting unit. Fair value determinations require considerable judgment by management and are sensitive to changes in underlying assumptions and factors. Examples of events or circumstances that could reasonably be expected to negatively affect the underlying key assumptions and ultimately impact the estimated fair value of the reporting unit may include the following, as disclosed by management, (i) growth rates for sales, costs and profits, which are based on various long-range financial and operational plans; (ii) prolonged weakening of economic conditions; or (iii) significant unfavorable changes in income tax rates, environmental or other regulations, including interpretations thereof, terminal growth rate, market multiples and / or weighted average cost of capital.
The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment for the Americas reporting unit is a critical audit matter are (i) the significant judgment by management when developing the fair value estimate of the Americas reporting unit; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to the growth rates for sales, terminal growth rate, market multiples, and weighted average cost of capital; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including controls over the valuation of the Americas reporting unit. These procedures also included, among others (i) testing management’s process for developing the fair value estimate of the Americas reporting unit; (ii) evaluating the appropriateness of the discounted cash flow analysis and market approach; (iii) testing the completeness and accuracy of underlying data used in the discounted cash flow analysis and market approach; and (iv) evaluating the reasonableness of significant assumptions used by management related to the growth rates for sales, terminal growth rate, market multiples, and weighted average cost of capital. Evaluating the significant assumptions related to growth rates for sales involved evaluating whether the significant assumptions used were reasonable considering (i) the current and past performance of the Americas reporting unit; (ii) the consistency with external market and industry data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of (i) the appropriateness of the Company’s discounted cash flow analysis and market approach and (ii) the reasonableness of the terminal growth rate, market multiples, and weighted average cost of capital significant assumptions.
/s/ PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
February 21, 2023
We have served as the Company’s auditor since 1974.
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MOLSON COORS BEVERAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE DATA)
For the Years Ended
Marketing, general and administrative expenses (2,618.8) (2,554.5) (2,437.0)
Other operating income (expense), net (38.6) (44.5) (255.9)
Equity income (loss) 4.7 — —
Other pension and postretirement benefits (costs), net 36.6 46.4 30.3
Other non-operating income (expense), net (10.3) (3.5) 6.0
Total non-operating income (expense), net (220.0) (215.4) (235.0)
Net (income) loss attributable to noncontrolling interests 11.2 (2.8) (3.3)
Net income (loss) attributable to Molson Coors Beverage Company per share
Weighted-average shares outstanding
Dilutive effect of share-based awards — 0.5 —
See notes to consolidated financial statements.
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MOLSON COORS BEVERAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN MILLIONS)
For the Years Ended
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments (329.8) (28.4) 113.6
Reclassification of cumulative translation adjustment 12.1 7.5 —
Unrealized gain (loss) on derivative instruments 153.8 37.4 (85.7)
Reclassification of derivative (gain) loss to income (loss) 9.4 5.5 (0.4)
Total other comprehensive income (loss), net of tax (201.9) 161.3 (3.4)
See notes to consolidated financial statements.
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MOLSON COORS BEVERAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT PAR VALUE)
As of
Assets
Current assets
Cash and cash equivalents $ 600.0 $ 637.4
Accounts and other receivables
Liabilities and equity
Current liabilities
Accounts payable and other current liabilities $ 2,978.3 $ 3,107.3
Current portion of long-term debt and short-term borrowings 397.1 514.9
Pension and postretirement benefits 473.3 654.4
Commitments and contingencies (Note 13)
Molson Coors Beverage Company stockholders' equity
Capital stock
Preferred stock, $0.01 par value (authorized: 25.0 shares; none issued) — —
Accumulated other comprehensive income (loss) (1,205.5) (1,006.0)
Total Molson Coors Beverage Company stockholders' equity 12,689.7 13,417.1
See notes to consolidated financial statements.
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MOLSON COORS BEVERAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
For the Years Ended
Cash flows from operating activities
Amortization of debt issuance costs and discounts 7.7 6.7 8.1
Equity (income) loss (4.7) — —
Payables and other current liabilities (16.1) 285.5 (50.1)
Other assets and other liabilities 6.0 (40.1) 11.6
Cash flows from investing activities
Proceeds from sales of properties and other assets 32.2 26.0 158.8
Net cash provided by (used in) investing activities (625.1) (509.9) (413.6)
Cash flows from financing activities
Exercise of stock options under equity compensation plans 3.1 4.6 4.1
Payments for purchases of treasury stock (51.5) — —
Proceeds on debt and borrowings 7.0 — 1.5
Net cash provided by (used in) financing activities (889.5) (1,172.2) (1,070.4)
Net increase (decrease) in cash and cash equivalents (37.4) (132.7) 246.7
See notes to consolidated financial statements. See Note 1, "Basis of Presentation and Summary of Significant Accounting Policies" for supplementary cash flow data.
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MOLSON COORS BEVERAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND NONCONTROLLING INTERESTS
(IN MILLIONS)
Molson Coors Beverage Company Stockholders' Equity
Common stock Exchangeable Accumulatedother Common Stockheld in Non
issued shares issued Paid-in- Retained comprehensive treasury controlling
Exchange of shares — — — (0.2) (140.0) 140.2 — — — —
Shares issued under equity compensation plan (0.5) — — — — (0.5) — — — —
Amortization of share-based compensation 24.2 — — — — 24.2 — — — —
Other comprehensive income (loss), net of tax (3.4) — — — — — — (5.6) — 2.2
Contributions from noncontrolling interests 16.3 — — — — — — — — 16.3
Dividends declared (123.8) — — — — — (123.8) — — —
Exchange of shares — — — (0.1) — 0.1 — — — —
Shares issued under equity compensation plan 0.6 — — — — 0.6 — — — —
Amortization of share-based compensation 32.1 — — — — 32.1 — — — —
Purchase of noncontrolling interest (0.2) — — — — 0.3 — — — (0.5)
Other comprehensive income (loss), net of tax 161.3 — — — — — — 161.8 — (0.5)
Contributions from noncontrolling interests 3.2 — — — — — — — — 3.2
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Molson Coors Beverage Company Stockholders' Equity
Common stock Exchangeable Accumulatedother Common Stockheld in Non
issued shares issued Paid-in- Retained comprehensive treasury controlling
Dividends declared (148.4) — — — — — (148.4) — — —
Exchange of shares — — — — (4.5) 4.5 — — — —
Shares issued under equity compensation plan (2.9) — — — — (2.9) — — — —
Amortization of share-based compensation 33.6 — — — — 33.6 — — — —
Purchase of noncontrolling interest (1.4) — — — — 0.3 — — — (1.7)
Share repurchase program (51.5) — — — — — — — (51.5) —
Contributions from noncontrolling interests 8.1 — — — — — — — — 8.1
Dividends declared (332.1) — — — — — (332.1) — — —
See notes to consolidated financial statements.
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MOLSON COORS BEVERAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and Summary of Significant Accounting Policies
Unless otherwise noted in this report, any description of "we," "us" or "our" includes Molson Coors 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, and 2022, 2021 and 2020 refers to the twelve months ended December 31, 2022, December 31, 2021 and December 31, 2020, respectively. Our primary operating currencies, other than USD, include the CAD, the GBP and our Central European operating currencies such as the EUR, CZK, HRK and RSD.
Our consolidated financial statements and related disclosures reflect new accounting pronouncements adopted during the year as discussed in Note 2, "New Accounting Pronouncements."
Changes to our Consolidated Statement of Operations
As of December 31, 2022, we modified our presentation of the consolidated statements of operations to replace the former "Special items, net" line item with "Other operating income (expense), net." In addition, goodwill impairment, which had previously been included in "Special items, net," has been reclassified to a separate line titled "Goodwill impairment." The consolidated statement of operations for the years ended December 31, 2021 and December 31, 2020 were reclassified to reflect this change in presentation only.
Cost Inflation
We have been experiencing significant cost inflation, including higher material, transportation and energy costs, which negatively impacted our results of operations during the year ended December 31, 2022. We expect cost inflation to continue to have a negative impact on our results of operations in 2023 and possibly beyond. To the extent materials, transportation and energy 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. See Part II. Item 7. Management's Discussion and Analysis, "Items Affecting Reported Results" for further discussion.
For considerations of the effects of cost inflation to our goodwill and indefinite-lived intangible assets, see Note 6, "Goodwill and Intangible Assets."
Coronavirus Global Pandemic
We have been actively monitoring the impact of the coronavirus pandemic since it started at the end of the first quarter of 2020. The extent to which our operations will continue to be impacted by the coronavirus pandemic will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including, but not limited to, the level of governmental or societal orders or restrictions on public gatherings and on-premise venues including any vaccine mandates or testing requirements, the severity and duration of the coronavirus pandemic by market including future outbreaks of variants, changes in consumer behavior, the rate of vaccination and the efficacy of vaccines against the coronavirus and related variants. We continue to actively monitor the ongoing evolution of the coronavirus pandemic and resulting impacts to our business.
At the onset of the pandemic, during the first quarter of 2020, we initiated temporary keg relief programs in many of our markets which were negatively impacted. As a result, during 2020, we recognized a reduction to net sales of $30.3 million reflecting estimated sales returns and reimbursements through these keg relief programs. Further, during 2020, we recognized charges of $12.1 million within cost of goods sold related to obsolete finished goods keg inventories that were not expected to be sold within our freshness specifications, as well as the costs to facilitate the above mentioned keg returns. Additionally, during 2020, we recorded charges of $15.5 million within cost of goods sold related to temporary "thank you" pay for certain essential Americas segment brewery employees.
In response to the ongoing impacts of the coronavirus pandemic, various governmental authorities globally announced relief programs, which among other items, provided temporary deferrals of non-income based tax payments, which positively impacted our operating cash flows in 2020. These temporary net tax payment deferrals of approximately $25 million and $130 million as of December 31, 2021 and December 31, 2020, respectively, were primarily included within accounts payable and
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other current liabilities on our audited consolidated balance sheets. Of the $130 million of temporary net tax payment deferrals as of December 31, 2020, approximately $105 million was repaid during the year ended December 31, 2021, with approximately $25 million outstanding as of December 31, 2021. The remaining was repaid during the year ended December 31, 2022.
We protected and supported our liquidity position in response to the global economic uncertainty created by the coronavirus pandemic. Beginning with the second quarter of 2020 through the second quarter of 2021, our board of directors suspended our regular quarterly dividends on our Class A and Class B common and exchangeable shares. A quarterly dividend was reinstated in the third quarter of 2021.
Revitalization Plan
On October 28, 2019, we initiated a revitalization plan designed to allow us to invest across our portfolio to drive long-term, sustainable success. The revitalization plan established Chicago, Illinois as our Americas segment operational headquarters. We closed our office in Denver, Colorado and consolidated certain administrative functions into our other existing office locations. As of January 1, 2020, we changed our name to Molson Coors Beverage Company and changed our management structure to two segments - Americas and EMEA&APAC. We began to incur charges related to these restructuring activities during the fourth quarter of 2019 and we recognized severance and retention charges of $4.0 million and $35.6 million during the years ended December 31, 2021 and December 31, 2020, respectively. As of December 31, 2021, the revitalization plan restructuring charges were substantially complete.
See Note 17, "Other Operating Income (Expense), net" for further discussion of the impacts of this plan.
Government Assistance
We receive government assistance in the form of tax credits and grants, including tax credits from government agencies in certain jurisdictions around job creation and retention, as well as capital investment initiatives. This includes, but is not limited to, refundable and non-refundable property and income tax credits in various state and other local jurisdictions. We recognize amounts received from government assistance programs, including tax credits and grants, as a reduction to MG&A expenses in our consolidated financial statements, when it is probable we will receive the funds and have met the conditions, if any, required by the government assistance program. If we receive the government assistance at a point in time for services to be completed over time, the cash received is initially recorded in our consolidated balance sheet as other liabilities, and amortized as an offset to MG&A expenses over the service period of the agreement. No programs are individually material nor are the programs material in the aggregate.
Principles of Consolidation
Our consolidated financial statements include our accounts and our majority-owned and controlled domestic and foreign subsidiaries, as well as certain VIEs for which we are the primary beneficiary. All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
Our consolidated financial statements are prepared in accordance with U.S. GAAP. These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions used to determine certain amounts that affect the financial statements are reasonable, based on information available at the time they are made. To the extent there are differences between these estimates and actual results, our consolidated financial statements may be materially affected.
Revenue Recognition
Our net sales represent the sale of beer, malt beverages and other adjacencies, net of excise tax. Sales are stated net of incentives, discounts and returns. Sales of products are for cash or otherwise agreed upon credit terms. Our payment terms vary by location and customer, however, the time period between when revenue is recognized and when payment is due is not significant. Our revenue generating activities have a single performance obligation and are recognized at the point in time when control transfers and our obligation has been fulfilled, which is when the related goods are shipped or delivered to the customer, depending upon the method of distribution and shipping terms. Where our products are sold under consignment arrangements, revenue is not recognized until control has transferred, which is when the product is sold to the end customer. Revenue is measured as the amount of consideration we expect to receive in exchange for the sale of our product. The cost of various programs, such as price promotions, rebates and coupons, are treated as a reduction of sales. In certain of our markets where legally permitted, we make cash payments to customers such as slotting or listing fees, or payments for other marketing or promotional activities. These cash payments are recorded as a reduction of revenue unless we receive a distinct good or service. Specifically, a good or service is considered distinct when it is separately identifiable from other promises in the contract, we
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receive a benefit from the good or service and the benefit is separable from the sale of our product to the customer.
Certain payments made to customers are conditional on the achievement of volume targets, marketing commitments or both. If paid in advance, we record such payments as prepayments and amortize them over the relevant period to which the customer commitment is made (generally up to five years). When the payment is not for a distinct good or service, or fair value cannot be reasonably estimated, the amortization of the prepayment or the cost as incurred is recorded as a reduction of revenue. Where a distinct good or service is received and fair value can be reasonably estimated, the cost is included as MG&A expenses. The amounts deferred are reassessed regularly for recoverability over the contract period and are impaired where there is objective evidence that the benefits will not be realized or the asset is otherwise not recoverable. Separately, as discussed below, we analyze whether these advance payments contain a significant financing component for potential adjustment to the transaction price.
Our primary revenue generating activity represents the sale of beer and other malt beverages to customers, including both domestic and exported product sales. Our customer could be a distributor, retail or on-premise outlet, depending on the market. The majority of our revenues are generated from brands that we own and brew ourselves; however, we also import or brew and sell certain non-owned partner brands under licensing and related arrangements. In addition, primarily in the U.K., we sell other beverage companies' products to on-premise customers to provide them with a full range of products for their retail outlets. We refer to this as the "factored brand business." Sales from this business are included in our net sales and cost of goods sold when ultimately sold. In the factored brand business, we normally purchase inventory, which includes excise taxes charged by the vendor, take orders from customers for such brands, negotiate with the customers on pricing and invoice customers for the product and related costs of delivery. In addition, we incur the risk of loss when we are in possession of the inventory and for the receivables due from the customers. Revenues for owned brands, partner and imported brands, as well as factored brands are recognized at the point in time when control is transferred to the customer as discussed above.
Other Revenue Generating Activities
We contract manufacture for other brewers in some of our markets. These contractual agreements require us to brew, package and ship certain brands for these brewers, who then sell the products to their own customers in their respective markets. Revenues under contract brewing arrangements are recognized when our obligation related to the finished product is fulfilled and control of the product transfers to these other brewers.
We also have licensing agreements with third party partners who brew and distribute our products in various markets across our segments. Under these agreements, we are compensated based on the amount of products sold by our partners in these markets at an agreed upon royalty rate or profit percentage. We apply the sales-based royalty practical expedient to these licensing arrangements and recognize revenue as product is sold by our partners at the agreed upon rate.
Disaggregation of Revenue
We have evaluated our primary revenue generating activities under the disaggregation disclosure criteria outlined within the guidance and concluded that disclosure at the geographical segment level depicts how the nature, amount, timing and uncertainty of revenues and cash flows are affected by economic factors. We have also evaluated our other revenue generating activities and concluded that these activities are not material for separate disclosure. See Note 18, "Segment Reporting," for disclosure of revenues by geographic segment.
Variable Consideration
Our revenue generating activities include variable consideration which is recorded as a reduction of the transaction price based upon expected amounts at the time revenue for the corresponding product sale is recognized. For example, customer promotional discount programs are entered into with certain distributors for certain periods of time. The amount ultimately reimbursed to distributors is determined based upon agreed-upon promotional discounts which are applied to distributors' sales to retailers. Other common forms of variable consideration include volume rebates for meeting established sales targets, and coupons and mail-in rebates offered to the end consumer. The determination of the reduction of the transaction price for variable consideration requires that we make certain estimates and assumptions that affect the timing and amounts of revenue and liabilities recorded. We estimate this variable consideration, including analyzing for a potential constraint on variable consideration, by taking into account factors such as the nature of the promotional activity, historical information and current trends, availability of actual results and expectations of customer and consumer behavior.
We do not have standard terms that permit return of product; however, in certain markets where returns occur we estimate the amount of returns as variable consideration based on historical return experience and adjust our revenue accordingly. Products that do not meet our high quality standards are returned by the customer or recalled and destroyed and are recorded as a reduction of revenue. The reversal of revenue is recorded upon determination that the product will be recalled and destroyed. We estimate the costs required to facilitate product returns and record them in cost of goods sold as required.
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For the years ended December 31, 2022, 2021 and 2020, adjustments to revenue from performance obligations satisfied in the prior period due to changes in estimates in variable consideration were immaterial.
Significant Financing Component and Costs to Obtain Contracts
In certain of our businesses where such practices are legally permitted, we make loans or advanced payments to retail outlets that sell our brands. For arrangements that do not span greater than one year, we apply the practical expedient available under ASC 606 and do not adjust the transaction price for the effects of a potential significant financing component. We further analyze arrangements that span greater than one year on an ongoing basis to determine whether a significant financing component exists. No such arrangements existed during the years ended December 31, 2022, 2021 and 2020.
Advance payments to customers, where legally permitted, are deferred and amortized as a reduction to revenue over the expected period of benefit and tested for recoverability as appropriate. All other costs to obtain and fulfill contracts are expensed as incurred based on the nature, significance and expected benefit of these costs relative to the contract.
Contract Assets and Liabilities
We continually evaluate whether our revenue generating activities and advanced payment arrangements with customers result in the recognition of contract assets or liabilities. No such assets or liabilities existed as of December 31, 2022 or December 31, 2021. Separately, trade accounts receivable, including affiliate receivables, approximates receivables from contracts with customers.
Shipping and Handling
Freight costs billed to customers for shipping and handling are recorded as revenue. Shipping and handling expense related to costs incurred to deliver product are recognized within cost of goods sold. We account for shipping and handling activities that occur after control has transferred as a fulfillment cost as opposed to a separate performance obligation, and the costs of shipping and handling are recognized concurrently with the related revenue.
Excise Taxes
Excise taxes remitted to tax authorities are government-imposed excise taxes on beer. Excise taxes are shown in a separate line item in the consolidated statements of operations as a reduction of sales. In the consolidated balance sheets, excise taxes are generally recognized as a current liability within accounts payable and other current liabilities, with the liability subsequently reduced when the taxes are remitted to the tax authority. In cases where excise taxes are prepaid, they are recorded within other current assets.
Cost of Goods Sold
Our cost of goods sold includes costs we incur to make and ship beer and other beverages. These costs include brewing materials, such as barley, hops and various grains. Packaging materials, such as glass bottles, aluminum cans, cardboard and paperboard are also included in our cost of goods sold. Additionally, our cost of goods sold include both direct and indirect labor, shipping and handling including freight costs, utilities, maintenance costs, warehousing costs, purchasing and receiving costs, depreciation, promotional packaging, other manufacturing overheads and costs to purchase factored and other non-owned brands from suppliers, as well as the estimated cost to facilitate product returns.
Marketing, General and Administrative Expenses
Our MG&A expenses include marketing expenses, including the direct costs related to the selling of a product or brand, media advertising (television, radio, digital, print), tactical advertising (signs, banners, point-of-sale materials) and promotion costs on both local and national levels within our operating segments. The creative portion of our advertising activities is expensed as incurred. Production costs of advertising and promotional materials are expensed when the advertising is first run. Included in MG&A is total marketing and advertising expenses which were approximately $1.0 billion, $1.1 billion and $0.9 billion in 2022, 2021 and 2020, respectively.
This classification also includes general and administrative costs for functions such as finance, legal, human resources and information technology. These costs primarily consist of labor and outside services, as well as bad debt expense related to our allowance for doubtful accounts. Unless capitalization is allowed or required by U.S. GAAP, legal costs are expensed when incurred. These costs also include our marketing and sales organizations, including labor and other overheads. This line item additionally includes amortization costs associated with intangible assets, as well as certain depreciation costs related to non-production equipment and share-based compensation.
Share-based compensation is recognized using a straight-line method over the vesting period of the awards. We include estimated forfeitures expected to occur when calculating share-based compensation expense. Our share-based compensation
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plan and the awards within it contain provisions that accelerate vesting of awards upon change in control, retirement, disability or death of eligible employees and directors. Our share-based awards are considered vested when the employee's retention of the award is no longer contingent on providing service, which for certain awards can result in immediate recognition for awards granted to retirement-eligible individuals or accelerated recognition for awards granted to individuals that will become retirement eligible within the stated vesting period. Also, if less than the stated vesting period, we recognize these costs over the period from the grant date to the date retirement eligibility is achieved.
Other Operating Income (Expense), net
Our other operating income (expense) items represent charges incurred or benefits realized that we believe are significant to our current operating results warranting separate classification; specifically, such items are considered to be one of the following:
•restructuring charges, including atypical employee-related charges, asset abandonment-related losses, fees on termination of significant operating agreements and other related exit or disposal charges;
•intangible and tangible asset impairments, excluding goodwill;
•gains and (losses) on disposal of investments; and
•other significant items deemed to warrant separate classification within operating income
These items classified as other operating income (expense) are not necessarily non-recurring, however, they are generally deemed to be incremental to income earned or costs incurred by us in conducting normal operations.
Interest Expense, net
Our interest costs are associated with borrowings to finance our operations and acquisitions. Interest earned on our cash and cash equivalents across our business is recorded as interest income.
We capitalize interest cost as a part of the original cost of acquiring certain fixed assets if the cost of the capital expenditure and the expected time to complete the project are considered significant.
Other Non-Operating Income (Expense), net
Our other non-operating income (expense), net classification primarily includes gains and losses associated with activities not directly related to our operations. For instance, aggregate unrealized and realized foreign exchange gains and losses resulting from the remeasurement and settlement of foreign-denominated monetary assets and liabilities, as well as certain gains or losses on sales of non-operating assets and the mark-to-market activity associated with warrants and other equity securities are classified in this line item. These gains and losses are reported in the operating segment in which they occur; however, foreign exchange gains and losses on intercompany balances related to financing and other treasury-related activities remain unallocated. The initial recording of foreign-denominated transactions are classified based on the nature of the transaction, with the unrealized or realized foreign exchange gains or losses resulting from the subsequent remeasurement of the monetary asset or liability, and its ultimate settlement, classified in other non-operating income (expense), net.
Income Taxes
Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of our assets, liabilities and certain unrecognized gains and losses recorded in AOCI. We apply the intraperiod tax allocation rules to allocate our provision for income taxes between continuing operations and other categories of earnings, such as other comprehensive income (loss), when we meet the criteria prescribed by U.S. GAAP.
The tax benefit from an uncertain tax position is recognized only if it is determined that the tax position will more likely than not be sustained based on its technical merits. We measure and record the tax benefits from such a position based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Interest, penalties and offsetting positions related to unrecognized tax benefits are recognized as a component of income tax expense with interest and penalties being recorded to the provision (benefit) for income taxes in our Consolidated Statement of Operations. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized.
Other Comprehensive Income (Loss)
OCI represents income and losses for the reporting period, including the related tax impacts, which are excluded from net income (loss) and recognized directly within AOCI as a component of equity. OCI also includes amounts reclassified to income during the reporting period that were previously recognized within AOCI. Amounts remaining within AOCI are expected to be
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reclassified out of AOCI in the future, at which point they will be recognized within the consolidated statement of operations as a component of net income (loss). We recognize OCI related to the translation of assets and liabilities of our foreign subsidiaries which are denominated in currencies other than the USD, unrealized gains and losses on the effective portion of our derivatives designated in cash flow hedging relationships and derivative and non-derivative instruments designated in net investment hedging relationships, actuarial gains and losses and prior service costs related to our pension and other post-retirement benefit plans, as well as our proportionate share of our equity method investments' OCI. Additionally, when we do not have the expectation or intent to cash settle certain of our intercompany note receivable and note payable positions in the foreseeable future, the remeasurement of these instruments is recorded as a component of foreign currency translation adjustments within OCI. We release stranded tax effects from AOCI using either a specific identification approach or portfolio approach based on the nature of the underlying item.
Earnings Per Share
Basic EPS is computed using the weighted-average number of shares of common stock outstanding during the period. Diluted EPS includes the additional dilutive effect of our potentially dilutive securities, which include RSUs, DSUs, PSUs and stock options. The dilutive effects of our potentially dilutive securities are calculated using the treasury stock method. Our calculation of weighted-average shares includes Class A common stock and Class B common stock and Class A exchangeable shares and Class B exchangeable shares. All classes of stock have in effect the same dividend rights and share equitably in undistributed earnings. Holders of Class A common stock receive dividends only to the extent dividends are declared and paid to holders of Class B common stock. See Note 14, "Stockholders' Equity" for further discussion of the Class A common stock and Class B common stock and Class A exchangeable shares and Class B exchangeable shares. We have no unvested outstanding equity share awards that contain non-forfeitable rights to dividends.
Anti-dilutive securities excluded from the computation of diluted EPS for the years ended December 31, 2022, December 31, 2021 and December 31, 2020 were 3.1 million, 1.8 million and 2.7 million shares, respectively.
Dividends
On November 10, 2022, our Company's Board of Directors declared a cash dividend of $0.38 per share, paid on December 15, 2022, to shareholders of Class A and Class B common stock of record on December 2, 2022. Shareholders of exchangeable shares received the CAD equivalent of dividends declared on Class A and Class B common stock, equal to CAD 0.50 per share. During the year ended December 31, 2022, dividends declared to eligible shareholders totaled $1.52 per share, with the CAD equivalent totaling CAD 1.95 per share.
In response to the global economic uncertainty created by the coronavirus pandemic, our Board of Directors suspended our regular quarterly dividend on our Class A and Class B common and exchangeable shares in May 2020. A quarterly dividend was reinstated during the third quarter of 2021. During the year ended December 31, 2021, dividends declared to eligible shareholders totaled $0.68 per share, with the CAD equivalent totaling CAD 0.84 per share. During the year ended December 31, 2020, dividends declared to eligible shareholders totaled $0.57 per share, with the CAD equivalent totaling CAD 0.75 per share.
Share Repurchase Program
On February 17, 2022, our Company's Board of Directors approved a share repurchase program up to an aggregate of $200 million of our Company's Class B common stock through March 31, 2026, with the program primarily intended to offset annual employee equity award grants. During the year ended December 31, 2022, we repurchased 995,000 shares under the share repurchase program at a weighted average price of $51.70 per share, including brokerage commissions, for an aggregate value of $51.5 million.
Cash and Cash Equivalents
Cash consists of cash on hand and bank deposits. Cash equivalents represent highly liquid investments with original maturities of three months or less. Our cash deposits are maintained with multiple, reputable financial institutions.
Non-Cash Activity
Non-cash investing activities includes movements in our guarantee of indebtedness of certain equity method investments of $2.3 million, $0.4 million and $0.3 million for the years ended December 31, 2022, 2021 and 2020, respectively. See Note 3, "Investments" for further discussion. We also had other non-cash activities related to capital expenditures incurred but not yet paid of $234.3 million, $206.6 million and $171.9 million during the years ended December 31, 2022, 2021 and 2020, respectively. In addition, we had non-cash activities related to our non-cash issuances of share-based awards. See Note 16, "Share-Based Payments" for further details.
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In June 2021, we rolled forward our July 2021 $250.0 million forward starting interest rate swap to May 2022 through a cashless settlement. The unrealized loss on the 2021 forward starting interest rate swap at the time of the transaction was factored into the effective interest rate assigned to the new May 2022 forward starting interest rate swap. See Note 10, "Derivative Instruments and Hedging Activities" for further details.
As of December 31, 2022, we had a recorded non-cash transaction related to the establishment of an accrued liability of $56.6 million as the best estimate of the probable loss in the Keystone litigation case based on the jury verdict including associated interest. See Note 13, "Commitments and Contingencies" for further details.