PART I
ITEM 1. Business
Unless otherwise noted in this report, any description of "we", "us" or "our" includes Molson Coors Brewing Company ("MCBC" or the "Company"), principally a holding company, and its operating subsidiaries: Coors Brewing Company ("CBC"), operating in the United States ("U.S.") until June 30, 2008 when MCBC and SABMiller plc ("SABMiller") combined the U.S. and Puerto Rico operations of their respective subsidiaries, CBC and Miller Brewing Company ("Miller"), and the results and financial position of U.S. operations, which had historically comprised substantially all of our U.S. reporting segment were, in all material respects, deconsolidated from MCBC prospectively upon formation of MillerCoors LLC ("MillerCoors"); Molson Coors Brewing Company (UK) Limited ("MCBC-UK"), formerly referred to as Coors Brewers Limited ("CBL"), operating in the United Kingdom ("U.K."); Molson Coors Canada ("MCC"), formerly referred to as Molson Canada ("Molson"), operating in Canada; and our other corporate entities. Any reference to "Coors" means the Adolph Coors Company prior to the 2005 merger with Molson Inc. (the "Merger"). Any reference to Molson Inc. means MCC prior to the Merger. Any reference to "Molson Coors" means MCBC after the Merger.
Unless otherwise indicated, information in this report is presented in U.S. dollars ("USD" or "$").
(a) General Development of Business
Molson was founded in 1786, and Coors was founded in 1873. Since each company was founded, we have been committed to producing the highest quality beers. Our brands are designed to appeal to a wide range of consumer tastes, styles and price preferences. Our largest markets are Canada, the United States and the United Kingdom.
Coors was incorporated in June 1913 under the laws of the State of Colorado. In August 2003, Coors changed its state of incorporation to the State of Delaware. During February 2005 upon completion of the Merger, Coors changed its name to Molson Coors Brewing Company.
2009 Developments
Brewers' Retail Inc. ("BRI") is a joint venture beer distribution and retail network for the Ontario region of Canada, owned by MCC, and two other brewers. Due to a change in ownership level of BRI, we deconsolidated this entity from our financial statements as of March 1, 2009 and began to account for it prospectively under the equity method of accounting. See Part II—Item 8 Financial Statements and Supplementary Data, Note 6 "VARIABLE INTEREST ENTITIES" to the Consolidated Financial Statements for further discussion.
During the second quarter of 2009, MCBC-UK purchased 50.1% of Cobra Beer Partnership, Ltd ("CBPL"), which owns the United Kingdom and world-wide rights to the Cobra beer brand (with the exception of the Indian sub-continent area). The addition of the Cobra beer brands broadens our specialty beer portfolio and provides access to additional on-premise outlets (primarily ethnic restaurants) in the U.K. We consolidate the results and financial position of CBPL and it is reported within our U.K. operating segment. See Part II—Item 8 Financial Statements and Supplementary Data, Note 6 "VARIABLE INTEREST ENTITIES" to the Consolidated Financial Statements for further discussion.
During the fourth quarter of 2009, MCC's subsidiary Creemore Springs entered into an agreement to acquire Granville Island Brewing Company Ltd. and Mainland Beverage Distribution Ltd. (collectively, "Granville Island"). Granville Island is an established craft brewer located in Vancouver, Canada, with distribution throughout the Canadian province of British Columbia. This acquisition expands on our super premium portfolio in Canada. We expect to close on this acquisition in the
second quarter of 2010. Due to certain voting and economic rights, we consolidate the results and financial position of Granville Island and it is reported within our Canada operating segment. See Part II—Item 8 Financial Statements and Supplementary Data, Note 6 "VARIABLE INTEREST ENTITIES" to the Consolidated Financial Statements for further discussion.
During the fourth quarter of 2009, MCC sold its 19.9% indirect common ownership interest in the Montréal Canadiens professional hockey team, the Gillett Entertainment Group and certain related assets (collectively, the "Club") to CH Group Limited Partnership / Societe en commandite Group CH (formerly Racine Limited Partnership / Societe en commandite Racine) ("CH Group"), in connection with CH Group's purchase of the 80.1% controlling interest in the Club from an independent third party. The general partner of CH Group and one of its limited partners are entities affiliated with Andrew and Geoff Molson who are both members of the Board of Directors of the Company. MCC received CAD $56.3 million (USD $53.3 million) for its interest in the Club and recorded a gain of CAD $48.7 million (USD $46.0 million) in 2009, which includes amounts held in escrow that we anticipate receiving during 2010. See Part II—Item 8 Financial Statements and Supplementary Data, Note 4 "EQUITY INVESTMENTS" to the Consolidated Financial Statements for further discussion.
(b) Financial Information About Segments
MCBC operates the following business segments: Canada, the United States, the United Kingdom, and Molson Coors International ("MCI"), formerly referred to as Global Brand and Market Development (Global Markets). Our MCI results are reported with our Corporate group's results. A separate operating team manages each segment, and each segment manufactures, markets and sells beer and other beverage products.
See Part II—Item 8 Financial Statements and Supplementary Data, Note 3 "SEGMENT REPORTING" to the Consolidated Financial Statements for financial information relating to our segments and operations, including geographic information.
(c) Narrative Description of Business
Our financial sales volume from continuing operations totaled 18.8 million hectoliters in 2009, 34.8 million hectoliters in 2008, and 49.0 million hectoliters in 2007. The decrease in sales volume between 2007 and 2008 and between 2008 and 2009 is a result of the formation of MillerCoors on July 1, 2008. The fiscal years ended December 26, 2009, December 28, 2008, and December 30, 2007, were 52 week periods.
See the Executive Summary in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations for a discussion of our volume reporting policy.
No single customer accounted for more than 10% of our consolidated or segmented sales in 2009, 2008, or 2007.
Our Products
MCBC has a diverse portfolio of more than 65 strategic and partner brands, including signature brands Coors Light, Molson Canadian and Carling, which are positioned to meet a wide range of consumer segments and occasions.
Brands sold in Canada include Coors Light, Canadian, Export, Molson Canadian 67, Molson Dry, Molson M, Creemore, Rickard's Red and other Rickard's brands, Carling, Pilsner and a number of other regional brands. We also brew or distribute under license the following brands: Amstel Light under license from Amstel Brouwerij B.V., Heineken and Murphy's under license from Heineken Brouwerijen B.V., Asahi and Asahi Select under license from Asahi Beer U.S.A. Inc. and Asahi Breweries, Ltd., Miller Lite, Miller Genuine Draft, Miller Chill, Milwaukee's Best and Milwaukee's Best Dry
under license from Miller, a subsidiary of SABMiller, and Foster's under license from Foster's Group Limited. Through a joint venture agreement with Grupo Modelo, we also import, distribute and market the Modelo beer brand portfolio, including the Corona, Coronita, Negra Modelo and Pacifico brands, across all Canadian provinces and territories.
MillerCoors sells a wide variety of brands in the U.S. Its flagship premium light brands are Coors Light and Miller Lite. Brands in the domestic premium segment include Coors Banquet, Miller Genuine Draft and MGD 64. Brands in the domestic super premium segment include Miller Chill and Sparks. Brands in the below premium segment include Miller High Life, Miller High Life Light, Keystone Light, Icehouse, Mickey's, Milwaukee's Best, Milwaukee's Best Light and Old English 800. Craft and import brands include the Blue Moon brands, Henry Weinhard's, George Killian's Irish Red, the Leinenkugel's brands, the Molson brands, Foster's, Peroni Nastro Azzurro, Pilsner Urquell and Grolsch. Brands in the non-alcoholic segment include Coors Non-Alcoholic and Sharp's. MCBC assigned the United States and Puerto Rican ownership rights to the legacy Coors brands, including Coors Light, Coors Banquet, Keystone Light, and the Blue Moon brands, to MillerCoors. We retained all ownership of these brands outside the United States and Puerto Rico. MillerCoors licenses the right to brew and sell George Killian's Irish Red. MCBC sells the Molson brands to MillerCoors through related party transactions.
Brands sold in the U.K. include: Carling, C2, Coors Light, Worthington's, White Shield, Caffrey's, Kasteel Cru, and Blue Moon, as well as a number of smaller regional ale brands. We also sell the Grolsch brands in the United Kingdom through a joint venture with Royal Grolsch N.V. and the Cobra brands in the United Kingdom through a joint venture called Cobra Beer Partnership Ltd., and are the exclusive distributor for several brands which are sold under license, including Sol, Dos Equis, Zatec, Singha and Magners Draught Cider. Additionally, in order to be able to provide a full line of beer and other beverages to our on-premise customers, we sell factored brands in our U.K. segment, which are third party brands for which we provide distribution to retail, typically on a non-exclusive basis. We also have a contract brewing and kegging agreement with Scottish & Newcastle U.K. Ltd. for the Fosters and Kronenbourg brands.
MCBC also markets and sells several of its brands in various international markets. Brands unique to various international markets include Zima, Coors Gold, and Coors Extra.
Canada Segment
MCC is Canada's second largest brewer by volume and North America's oldest beer company. MCC has an approximate 40% market share in Canada. MCC brews, markets, sells and nationally distributes a wide variety of beer brands. MCC's portfolio has leading brands in all major product and price segments. MCC's focus and investment is on key owned brands (Coors Light, Canadian, Molson Dry, Molson Export and Rickard's) and key strategic distribution partnerships (including Heineken, Corona and Miller). Coors Light currently has a 14% market share and is among the top selling beer brands in Canada and Canadian currently has an 8% market share and is the third-largest selling beer in Canada.
The Canada segment also includes our partnership arrangements related to the distribution of beer in Ontario, BRI, and the Western provinces, Brewers' Distributor Ltd. ("BDL"). BRI was consolidated in our financial statements until deconsolidation as of March 1, 2009. See Part II—Item 8 Financial Statements and Supplementary Data, Note 6 "VARIABLE INTEREST ENTITIES" to the Consolidated Financial Statements for further discussion.