MOLSON COORS BREWING CO | 2013 | FY | 3


Special Items
We have incurred charges or recognized gains that we do not believe to be indicative of our core operations. As such, we have separately classified these charges (benefits) as special items. The table below summarizes special items recorded by segment:
 
For the years ended
 
December 31, 2013
 
December 29, 2012
 
December 31, 2011
 
(In millions)
Employee-related charges
 
 
 
 
 
Restructuring(1)
 
 
 
 
 
Canada
$
10.6

 
$
10.1

 
$
0.6

Europe
14.5

 
19.8

 
2.1

MCI
0.4

 
3.0

 

Corporate
1.3

 
2.0

 

Special termination benefits
 
 
 
 
 
Canada(2)
2.2

 
5.0

 
5.2

Impairments or asset abandonment charges
 
 
 
 
 
Canada - Intangible asset impairment(3)
17.9

 

 

Europe - Asset abandonment(4)

 
7.2

 

Europe - Intangible asset impairment(5)
150.9

 

 

MCI - China impairment and related costs(6)

 
39.2

 

Unusual or infrequent items
 
 
 
 
 
Canada - Flood loss (insurance reimbursement)(7)

 
(1.4
)
 
0.2

Canada - BRI loan guarantee adjustment(8)

 

 
(2.0
)
Canada - Fixed asset adjustment(9)

 

 
7.6

Europe - Release of non-income-related tax reserve(10)
(4.2
)
 
(3.5
)
 
(2.3
)
Europe - Flood loss (insurance reimbursement)(11)
(2.0
)
 

 

Europe - Costs associated with strategic initiatives

 

 
(0.1
)
MCI - Costs associated with outsourcing and other strategic initiatives

 

 
1.0

Termination fees and other (gains)/losses
 
 
 
 
 
Europe - Tradeteam transactions(12)
13.2

 

 

MCI - Sale of China joint venture(6)
(4.8
)
 

 

Total Special items, net
$
200.0

 
$
81.4

 
$
12.3

(1)
During 2013, 2012 and 2011, we recognized expenses associated with restructuring programs related to severance and other employee related charges. See further discussion of restructuring activities below.
(2)
During 2013, 2012 and 2011, we recognized charges for pension curtailment and special termination benefits related to certain defined benefit pension plans in Canada. See Note 16, "Employee Retirement Plans and Postretirement Benefits" for impact to our defined benefit pension plans.
(3)
During the fourth quarter of 2013, we recognized an impairment charge related to our definite-lived intangible asset associated with our licensing agreement with Miller in Canada. See Note 19, "Commitments and Contingencies" for further discussion.
(4)
During the second quarter of 2012, we recognized an asset abandonment charge related to the discontinuation of primary packaging in the U.K. We determined that our Home Draft package was not meeting expectations driven by a lack of demand in the U.K. market and as a result, we recognized a loss related to the write-off of the Home Draft packaging line, tooling equipment and packaging materials inventory.
(5)
During the third quarter of 2013, we recognized impairment charges related to indefinite-lived intangible assets in Europe. See Note 12, "Goodwill and Intangible Assets" for further discussion.
(6)
In December of 2013, we sold our interest in the MC Si'hai joint venture in China and recognized a gain of $6.0 million. The gain consists of the non-cash release of the $5.4 million liability representing the fair value of our remaining investment upon deconsolidation of the joint venture in 2012, as well as $0.6 million of proceeds received for our interest in the joint venture. We also recognized legal and related fees in relation to the sale of $1.2 million during 2013.
In the second quarter of 2012, we recognized impairment charges of $10.4 million related to goodwill and definite-lived intangible assets in our MC Si'hai joint venture in China, and in the third quarter of 2012, we deconsolidated the joint venture and recognized an impairment loss of $27.6 million upon deconsolidation. See Note 5, "Investments" for further discussion of the deconsolidation and subsequent sale of the joint venture.
(7)
During 2012, we received insurance proceeds in excess of expenses incurred related to flood damages at our Toronto offices. During 2011, we incurred expenses in excess of insurance proceeds related to these damages.
(8)
During the second quarter of 2011, we recognized a $2.0 million gain resulting from a reduction of our guarantee of BRI debt obligations.
(9)
During the second quarter of 2011, we recognized a $7.6 million loss related to the correction of an immaterial error in prior periods in the Canada segment, resulting from the performance of a fixed asset count that reduced properties by $13.9 million in 2011. The adjustment also resulted in an increase to goodwill of $6.3 million for the assets identified as not present as of the Merger date. The impact of the error and the related correction in 2011 was not material to any prior annual or interim financial statements and was not material to the fiscal year results for 2011.
(10)
During 2009, we established a non-income-related tax reserve of $10.4 million that was recorded as a special item. Our estimates indicated a range of possible loss relative to this reserve of zero to $22.3 million, inclusive of potential penalties and interest. The amounts recorded in 2013, 2012 and 2011 represent the release of this reserve as a result of a change in estimate. As a result, the remaining amount of this non-income-related tax reserve was fully released in 2013.
(11)
During 2013, we recorded losses and related net costs of $5.4 million in our Europe business related to significant flooding in Czech Republic in the second quarter of 2013. These losses were offset by $7.4 million insurance proceeds received in 2013.
(12)
Upon termination of our Tradeteam distribution agreements and subsequent termination of the joint venture and sale of our 49.9% interest in Tradeteam to DHL, we recognized a loss of $13.2 million in December 2013. See Note 5, "Investments" for further discussion.
In addition to the previously mentioned termination-related items recorded in special items, in the fourth quarter of 2013 we received termination notifications from Modelo and Heineken related to our MMI joint venture agreement and contract-brewing agreement, respectively. Upon termination of the MMI joint venture, which is expected to occur at the end of the day on February 28, 2014, we expect to recognize termination fee income of CAD 70.0 million, net of the remaining carrying value of the definite-lived intangible asset, within special items. See Note 5, "Investments" for further discussion. Additionally, we have a contract brewing and kegging agreement with Heineken whereby we produce and package the Foster's and Kronenbourg brands in the U.K. In December 2013, we entered into an agreement with Heineken to early terminate this arrangement. As a result of the termination, Heineken has agreed to pay us an aggregate early termination payment of GBP 13.0 million during and through the end of the transition period, concluding on April 30, 2015, which will be recognized within special items.
Restructuring Activities
In 2012, we introduced several initiatives focused on increasing our efficiencies and reducing costs across all functions of the business in order to develop a more competitive supply chain and global cost structure. Included in these initiatives is a long-term focus on reducing labor and general overhead costs through restructuring activities. We view these restructuring activities as actions to allow us to meet our long-term growth targets by generating future cost savings within cost of goods sold and general and administrative expenses and include organizational changes that strengthen our business and accelerate efficiencies within our operational structure. As a result of these restructuring activities, we have reduced headcount by approximately 910 employees, of which 310 and 600 relate to 2013 and 2012 activities, respectively. Consequently, we recognized severance and other employee related charges during 2013 and 2012, which we have recorded as special items within our consolidated statements of operations. As we continually evaluate our cost structure and seek opportunities for further efficiencies and cost savings, we may incur additional restructuring related charges in the future, however, are unable to estimate the amount of charges at this time.
During 2011, we recognized expenses associated with the employee terminations at the Montréal and Edmonton breweries and employee termination costs related to U.K. supply chain restructuring activity.
The accrued restructuring balances represent expected future cash payments required to satisfy the remaining severance obligations to terminated employees, the majority of which we expect to be paid in the next 12-24 months. The table below summarizes the activity in the restructuring accruals by segment:
 
Canada
 
Europe
 
MCI
 
Corporate
 
Total
 
(In millions)
Balance at December 25, 2010
$
0.2

 
$
2.2

 
$

 
$

 
$
2.4

Charges incurred
0.1

 
2.6

 

 

 
2.7

Payments made
(0.5
)
 
(2.6
)
 

 

 
(3.1
)
Foreign currency and other adjustments
0.3

 
(0.4
)
 

 

 
(0.1
)
Balance at December 31, 2011
$
0.1

 
$
1.8

 
$

 
$

 
$
1.9

Charges incurred
10.1

 
19.8

 
3.0

 
2.0

 
34.9

Payments made
(2.9
)
 
(8.0
)
 
(0.2
)
 
(0.5
)
 
(11.6
)
Foreign currency and other adjustments
(0.2
)
 
(0.2
)
 

 

 
(0.4
)
Balance at December 29, 2012
$
7.1

 
$
13.4

 
$
2.8

 
$
1.5

 
$
24.8

Charges incurred
10.6

 
14.5

 
0.4

 
1.3

 
26.8

Payments made
(7.7
)
 
(14.6
)
 
(2.7
)
 
(1.9
)
 
(26.9
)
Foreign currency and other adjustments
(0.3
)
 
0.3

 

 

 

Balance at December 31, 2013
$
9.7

 
$
13.6

 
$
0.5

 
$
0.9

 
$
24.7


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