Exhibit 99.3
MOLSON INC.
MANAGEMENT'S DISCUSSION & ANALYSIS
This Management's Discussion and Analysis contains forward-looking statements
reflecting management's current expectations regarding future operating results,
economic performance, financial condition and achievements of the Corporation.
Forward-looking statements are subject to certain risks and uncertainties and
actual results may differ materially. These risks and uncertainties are detailed
in Molson filings with the appropriate securities commissions and include risks
related to foreign exchange, commodity prices, tax matters, foreign investment
and operations as well as contingent liabilities. The Corporation undertakes no
obligation to update or revise any forward-looking statements publicly.
The following comments are intended to provide a review and analysis of the
Corporation's results of operations and financial position for the three and
nine months ended December 31, 2004 in comparison with the three and nine months
ended December 31, 2003, and should be read in conjunction with the consolidated
financial statements and accompanying notes. Unless otherwise indicated, all
amounts are expressed in Canadian dollars.
Overview
Three months ended Nine months ended
December 31 December 31
------------------- ---------------------
(Dollars in millions, except per share amounts) 2004 2003 2004 2003
- -------------------------------------------------------- -------- -------- --------- ---------
Sales and other revenues $ 870.2 $ 877.0 $ 2,702.1 $ 2,743.2
Brewing excise and sales taxes 247.0 253.7 729.5 742.5
-------- -------- --------- ---------
Net sales revenue $ 623.2 $ 623.3 $ 1,972.6 $ 2,000.7
-------- -------- --------- ---------
Earnings before interest, income taxes and
amortization (EBITDA) and the under-noted $ 123.1 $ 129.7 $ 410.5 $ 476.9
Impairment charge -- -- 210.0 --
Merger related costs and provisions for rationalization 44.1 -- 63.5 36.3
-------- -------- --------- ---------
EBITDA 79.0 129.7 137.0 440.6
Amortization of capital assets 16.3 14.4 51.6 48.4
-------- -------- --------- ---------
Earnings before interest and income taxes (EBIT) 62.7 115.3 85.4 392.2
Net interest expense 23.6 22.3 66.5 70.0
Income tax expense 31.2 50.5 116.9 139.1
-------- -------- --------- ---------
Earnings (loss) before minority interest 7.9 42.5 (98.0) 183.1
Minority interest 9.8 1.1 66.1 11.7
-------- -------- --------- ---------
Net earnings (loss) $ 17.7 $ 43.6 $ (31.9) $ 194.8
-------- -------- --------- ---------
Basic net earnings (loss) per share $ 0.14 $ 0.34 $ (0.25) $ 1.53
Diluted net earnings (loss) per share $ 0.14 $ 0.34 $ (0.25) $ 1.52
Dividends per share $ 0.15 $ 0.14 $ 0.45 $ 0.42
Weighted average outstanding shares (millions)
Basic 127.8 127.2 127.7 127.0
Diluted 129.5 128.5 129.3 128.3
-------- -------- --------- ---------
-1-
EBIT is defined as earnings before interest and income taxes. The Corporation
uses EBIT to evaluate the financial and operating performance of its business
units and segments. The Corporation believes that EBIT is a useful indicator of
profitability of its business segments. EBIT is not intended as an alternative
measure of net earnings as determined in accordance with Canadian generally
accepted accounting principles. Because EBIT may not be calculated identically
by all companies, the presentation in the Corporation's financial statements may
not be directly comparable to similarly titled measures of other companies. The
reconciliation of net earnings as determined in accordance with Canadian
generally accepted accounting principles to EBIT is provided in the table on
page one.
In a special shareholder meeting held on January 28, 2005, Molson Class A
non-voting and Class B common shareholders approved the proposed merger with
Adolph Coors Company ("Coors"). The proposed merger also received the approval
of Coors stockholders at a special meeting on February 1, 2005 and the
transaction was also approved by the Quebec Superior Court on February 2, 2005.
The closing of the transaction is planned for February 9, 2005. The Molson Coors
stock is expected to start trading on the NYSE and the exchangeable shares of
Molson Coors Canada Inc. on the TSX on February 9, 2005. Registered Molson
shareholders at the close of business on the day preceding the closing will be
entitled to receive a $5.44 special dividend as part of the approved
transaction.
For the quarter ended December 31, 2004, net sales revenue was virtually flat at
$623.2 million compared to $623.3 million for the same period last year,
reflecting lower net sales in Brazil mainly due to lower volumes offset by
higher net sales in Canada. Consolidated brewing volume decreased by 7.5% to
5.37 million hectolitres versus 5.82 million hectolitres for the same period
last year with volume down by 2.9% and 11.1% in Canada and Brazil, respectively.
In the quarter, the Corporation recorded a rationalization provision for the
Brazilian operation of $36.1 million relating primarily to the previously
announced closure of the Queimados brewery and organizational right-sizing
including sales centres. In addition, the Corporation recorded $8.0 million of
costs related to the proposed merger between Molson and Coors. In aggregate,
these charges totaled $44.1 million ($34.2 million net of tax and minority
interest).
The net earnings for the three months ended December 31, 2004 were $17.7 million
and net earnings per share were $0.14 compared to $43.6 million of net earnings
and $0.34 earnings per share for the same period last year.
Excluding the current quarter's merger related costs and provisions for
rationalization as well as the $16.0 million non-cash increase in future income
tax liabilities in the same quarter last year, net earnings for the period were
$51.9 million or a 12.9% decrease from $59.6 million when compared to last year.
Net earnings per share decreased 12.8% to $0.41 per share compared to $0.47 per
share last year on the same basis.
The net loss for the nine months ended December 31, 2004 was $31.9 million
compared to net earnings of $194.8 million for the nine months ended December
31, 2003. Excluding the impairment charge and the merger related costs in the
current year, the non-cash increase in future income tax liabilities last year
and the provisions for rationalization costs in both years, net earnings for the
nine-month period were $183.5 million or a 23.8% decrease from $240.7 million
for the same period last year. Net earnings per share decreased 24.2% to $1.44
per share compared to $1.90 per share last year on the same basis.
For the three-month period ended December 31, 2004, EBIT in Canada decreased
5.2% to $110.0 million, excluding the merger related costs of $8.0 million, and
reflects increased selling and pension costs and the continued strengthening of
the value segment in certain regional markets. Canada's EBIT for the nine months
ended December 31, 2004 declined 2.7%, excluding the merger related costs in the
current quarter and provisions for rationalization in both years. Brazil's EBIT
year-to-date was negatively impacted by lower volumes as well as higher
marketing and sales centre expenditures while in the quarter, the increased
sales centre expenses were offset by lower marketing and other costs when
compared to last year.
-2-
Net interest expense for the quarter was $23.6 million which was $1.3 million
higher than the prior year reflecting higher debt and obligations in Brazil
partially offset by an overall decrease in average debt and related interest
expense in Canada. For the nine months ended December 31, 2004, net interest
expense was $66.5 million or $3.5 million lower than the same period last year.
The effective tax rate for the three months ended December 31, 2004 was 40.7%
compared to 37.1% last year reflecting the mix of earnings and no tax recovery
being recorded on the Brazil losses. The effective tax rate for the nine months
ended December 31, 2004 on net earnings was 42.9% compared to 33.7% last year.
The effective tax rate for both the three and nine month periods ending December
31, 2004 and 2003 exclude the impairment charge, merger related costs,
provisions for rationalization and the non-cash income tax expense for the third
quarter of fiscal 2004 relating to the repeal of previously enacted future
income tax rate reductions in Ontario.
REVIEW OF OPERATIONS
Molson's business operations consist of the ownership of 100% of Molson Canada;
80% of Cervejarias Kaiser Brasil, S.A. ("Kaiser"); 49.9% of Coors Canada
(results proportionately consolidated) and a 50.1% interest in Molson USA, which
markets and distributes the Molson brands in the United States (results also
proportionately consolidated).
NET SALES REVENUE
Net sales revenue in the quarter was virtually flat at $623.2 million reflecting
lower volumes in Brazil partially offset by favourable consumer prices in
Canada. In addition, the impact of declining foreign exchange rates (Brazilian
real and the US dollar) relative to the Canadian dollar had a negative impact on
the consolidated net sales revenue figure when measured in Canadian dollars. The
following table details certain financial information by business unit:
SALES FROM EXTERNAL CUSTOMERS NET SALES REVENUE
--------------------------------------------- ---------------------------------------------
Three months ended Nine months ended Three months ended Nine months ended
December 31 December 31 December 31 December 31
--------------------- --------------------- --------------------- ---------------------
(Dollars in millions) 2004 2003 2004 2003 2004 2003 2004 2003
- ------------------------------ --------- --------- --------- --------- --------- --------- --------- ---------
Canada 634.4 620.4 2,112.3 2,116.1 493.1 482.0 1,652.3 1,643.9
Brazil 220.9 240.8 532.7 568.0 117.5 128.1 271.7 307.1
United States 14.9 15.8 57.1 59.1 12.6 13.2 48.6 49.7
--------- --------- --------- --------- --------- --------- --------- ---------
Consolidated 870.2 877.0 2,702.1 2,743.2 623.2 623.3 1,972.6 2,000.7
========= ========= ========= ========= ========= ========= ========= =========
EBITDA EBIT
--------------------------------------------- ---------------------------------------------
Three months ended Nine months ended Three months ended Nine months ended
December 31 December 31 December 31 December 31
--------------------- --------------------- --------------------- ---------------------
(Dollars in millions) 2004 2003 2004 2003 2004 2003 2004 2003
- ------------------------------ --------- --------- --------- --------- --------- --------- --------- ---------
Canada 120.9 126.2 452.3 463.0 110.0 116.0 417.6 429.1
Brazil 3.3 4.5 (38.4) 16.6 (2.0) 0.3 (55.2) 2.2
United States (1.1) (1.0) (3.4) (2.7) (1.2) (1.0) (3.5) (2.8)
--------- --------- --------- --------- --------- --------- --------- ---------
Totals before the following: 123.1 129.7 410.5 476.9 106.8 115.3 358.9 428.5
Impairment charge - - (210.0) - - - (210.0) -
Merger related costs and
provisions for rationalization (44.1) - (63.5) (36.3) (44.1) - (63.5) (36.3)
--------- --------- --------- --------- --------- --------- --------- ---------
Consolidated 79.0 129.7 137.0 440.6 62.7 115.3 85.4 392.2
========= ========= ========= ========= ========= ========= ========= =========
-3-
INDUSTRY VOLUME AND MOLSON MARKET SHARE
The following table sets out industry volume and Molson volume in Canada, Molson
volume shipped to the United States as well as Molson's volume in Brazil during
the three and nine months ended December 31, 2004 and 2003:
VOLUME
Three months ended Nine months ended
December 31 December 31
--------------------- ---------------------
2004 2003 2004 2003
(Hectolitres in millions) ESTIMATED Actual ESTIMATED Actual
- ------------------------------ --------- --------- --------- ---------
Industry volume in Canada(i) 5.31 5.33 17.30 17.34
--------- --------- --------- ---------
Molson (Canada) 2.22 2.29 7.32 7.64
Molson production for shipment
to the United States 0.36 0.39 1.28 1.38
Brazil 2.79 3.14 6.89 7.55
--------- --------- --------- ---------
Total Molson volume 5.37 5.82 15.49 16.57
========= ========= ========= =========
(i) Sources: Brewers of Canada, provincial liquor authorities and industry
distribution companies.
Total estimated industry sales volume in Canada decreased 0.3% from 5.33 million
hectolitres to 5.31 million hectolitres for the three months ended December 31,
2004, compared to the same period last year reflecting poor weather conditions
across certain regions in Canada, the impact of the National Hockey League
strike and newly introduced non-smoking legislation in bars and restaurants in
Ontario. Molson's volume in Canada decreased 2.9% to 2.22 million hectolitres
during the same period with volume declines in Ontario/West, partially offset by
gains in the Quebec/Atlantic region. Molson's overall production for sale in the
United States declined 3.4% and Brazil volume declined 11.1% in the quarter.
For the nine months ended December 31, 2004, total estimated industry sales
volume in Canada declined 0.3% to 17.30 million hectolitres compared to the same
period in fiscal 2004. Molson's volume in Canada decreased 4.2% to 7.32 million
hectolitres during the same period. Molson's production for sale in the United
States declined 4.7% while volume in Brazil declined 8.7% to 6.89 million
hectolitres.
CANADA
Net sales revenue increased by 2.3% to $493.1 million in the quarter reflecting
higher consumer prices offset by adverse mix due to growth of the discount
sector when compared to last year. EBIT decreased 12.1% to $102.0 million for
the three months ended December 31, 2004. EBIT, excluding the merger related
costs in the amount of $8.0 million, decreased 5.2% to $110.0 million. The EBIT
decline was due to increased selling and pension costs as well as market share
erosion due to the strengthening value segment in certain regional markets.
For the nine months ended December 31, 2004, net sales revenue was virtually
flat, increasing by 0.5% to $1,652.3 million reflecting lower volumes partially
offset by increased consumer prices. EBIT, excluding the merger related costs in
the current year and the provisions for rationalization in both years, decreased
2.7% to $417.6 million. Canada's current cost savings program P125 continues to
progress well and remains on track to deliver savings of approximately $43
million in this fiscal year. To date, savings of approximately $30 million have
been achieved in the nine months ended December 31, 2004.
-4-
MARKET SHARE (%)
Three months ended Nine months ended
December 31 December 31
--------------------- ---------------------
2004 2003 2004 2003
ESTIMATED Actual ESTIMATED Actual
--------- --------- --------- ---------
Including sales of imports:
Canada 41.8 42.9 42.3 44.1
Quebec/Atlantic 42.8 42.2 42.8 43.7
Ontario/West 41.2 43.3 42.0 44.3
Sources: Brewers of Canada, provincial liquor authorities and industry
distribution companies.
Estimated average market share for all beer sold in Canada declined 1.1 share
points to 41.8% from 42.9% for the three months ended December 31, 2004 compared
to the same period last year. This decline was due to the continued share
softness in Ontario and the West, partially offset by growth in Quebec. The
Quebec region's total market share increased reflecting the strong performance
of Coors Light(R), Heineken(R) and Corona(R). The Atlantic region performance
was also strong reflecting gains in Canadian(R) and Canadian Light(R). In
Ontario and the West, the overall region's market share continued to decline as
a result of softness in unsupported brands and Canadian(R). The Corporation has
responded aggressively to the ongoing price discounting in the Ontario and
Alberta market, introducing new SKUs and discount prices where appropriate.
Competitor discount activity continues to be supported by preferential tax rates
regional brewers receive in those markets.
BRAZIL
The following table summarizes the operating results of Molson's Brazilian
business in Brazilian reais and the equivalent Canadian dollar amounts:
Three months ended December 31 Nine months ended December 31
--------------------------------------------- ---------------------------------------------
BRL CAD BRL CAD
--------------------- --------------------- --------------------- ---------------------
(Currency in millions) 2004 2003 2004 2003 2004 2003 2004 2003
- ------------------------------ --------- --------- --------- --------- --------- --------- --------- ---------
Sales from external customers 502.8 531.1 220.9 240.8 1,206.8 1,227.8 532.7 568.0
Net sales revenue 267.3 282.6 117.5 128.1 615.6 663.9 271.7 307.1
EBITDA (i) 7.6 9.7 3.3 4.5 (86.6) 35.7 (38.4) 16.6
EBIT (i) (4.7) 0.6 (2.0) 0.3 (124.8) 4.8 (55.2) 2.2
(i) Results for the quarter ended December 31, 2004 exclude the rationalization
provision of $36.1 million, before minority interest. Results for the nine-month
period ended December 31, 2004 exclude the impairment charge of $210.0 million
and the rationalization provision of $37.3 million, before minority interest.
Results for the nine-month period ended December 31, 2003 exclude the
rationalization provision of 43.3 million.
In December 2004, Kaiser launched a new marketing campaign for the Brazilian
summer, named "Vem Kaiser Vem". This campaign is part of a new marketing
strategy which commenced with a change of advertising agency during the quarter.
Total sales volume for the quarter was 2.79 million hectolitres representing a
decline of 11.1%, compared to last year volume of 3.14 million hectolitres.
Year-to-date volume was 6.89 million hectolitres compared to 7.55 million
hectolitres for the same period last year, a decline of 8.7%.
Total estimated Molson market share in Brazil was 9.7% for the three-month
period ended December 31, 2004 compared to 12.1% for the same period last year
and 10.5% for the nine months ended December 31, 2004 compared to 12.5% last
year, according to ACNielsen data. The trend of declining market share slowed in
the quarter with the realization of a slight market share increase in December.
Despite the volume decrease of 11.1%, the net sales revenue decreased only 5.4%
from R$282.6 million to R$267.3 million in the quarter. Although Kaiser
experienced an overall
-5-
increase in gross revenue per hectolitre in reais of 6.5% for the quarter versus
last year, tax increases implemented in certain regions in the latter part of
the Corporation's fourth quarter of fiscal 2004 were not fully passed on to the
consumer and continue to negatively affect net sales revenue and margin.
Returnable containers, the most profitable segment for the company, comprised
54.2% of the total sales in the quarter compared to 50.2% in the same period of
last year.
Net sales revenue per hectolitre improved in December due in part to a 4.5%
retail price increase taken late in the month along with reduced discounting
activities. For the nine-month period ended December 31, 2004, net sales revenue
decreased 7.3% from R$663.9 million to R$615.6 million. Net sales revenue, as
measured in Canadian dollars, decreased 8.3% in the current quarter and 11.5%
year-to-date reflecting the variance in the Brazilian real exchange rate in
addition to the above-noted factors.
EBIT in the current quarter was adversely affected by the operating costs of the
sales centres established in the latter part of fiscal 2004 and resulted in
higher sales costs of approximately R$15 million compared to the same period
last year. Marketing and other costs though were R$15 million less than the same
period last year (offsetting this impact) as a result of the timing of certain
marketing and other programs and the impact of rationalization activities and
other cost saving initiatives.
The previously announced closure of the Queimados brewery occurred in the
quarter. The rationalization provision of $36.1 million includes $24.1 million
to write-down fixed assets and $12.0 million for severance and other closure
costs related to the brewery closure and the sales centre right-sizing program.
During the first quarter of fiscal 2004, the Corporation recorded a charge of
$43.3 million relating to the closure of the Ribeirao Preto plant in Brazil
represented by a $37.5 million write-down of fixed assets to the net recoverable
amount and employee severance and other closure costs of $5.8 million. There is
no remaining accrual.
In the second quarter of fiscal 2005, the Corporation revised its long-term
forecast of net cash flows from operations in Brazil due to declining sales
volumes and the loss of market share. The resulting decline in the value of the
investment was reflected by a $210.0 million ($168.0 million after minority
interest) impairment charge which reduced the goodwill by $130.0 million ($104.0
million after minority interest) and other intangible assets by $80.0 million
($64.0 million after minority interest).
The Corporation has reviewed its overall corporate debt structure as it relates
to the Brazilian operations to reduce net interest expense and minimize overall
risk. Given recent operating losses, a capital contribution of $45.0 million was
injected into Brazil with each shareholder making its proportionate
contribution.
Kaiser's competitive environment remains intense and sales and market share
growth as well as profitability are the biggest challenges facing the brewer.
Kaiser looks to make gains in expanded distribution, continue the revitalization
of the key brands, review the overall commercial structure, eliminate
duplication with bottlers and aggressively pursue cost saving projects.
-6-
UNITED STATES
Molson USA, which is owned 50.1% by Molson and 49.9% by the Coors Brewing
Company ("CBC"), is a dedicated business unit in the United States focused on
clear operating objectives and a well-defined brand portfolio - Canadian(R),
Canadian Light(R), Golden(R), Molson Ice(R) as well as Molson XXX(R). Molson USA
is responsible for the marketing and selling of these brands in the United
States with CBC providing the sales, distribution and administrative support.
The following table summarizes the operating results of Molson's business in the
United States in US dollars and the equivalent Canadian dollar amounts:
Three months ended December 31
---------------------------------------------------------
MOLSON 50.1%
SHARE
USD CAD CAD
---------------- ---------------- ----------------
(Dollars in millions) 2004 2003 2004 2003 2004 2003
- ---------------------------------------- ------ ------ ------ ------ ------ ------
Sales from external customers 24.2 24.0 29.6 31.5 14.9 15.8
Net sales revenue 20.7 20.1 25.3 26.4 12.6 13.2
EBITDA (1.8) (1.5) (2.2) (2.0) (1.1) (1.0)
EBIT (1.9) (1.6) (2.2) (2.1) (1.2) (1.0)
Nine months ended December 31
---------------------------------------------------------
MOLSON 50.1%
SHARE
USD CAD CAD
---------------- ---------------- ----------------
(Dollars in millions) 2004 2003 2004 2003 2004 2003
- ---------------------------------------- ------ ------ ------ ------ ------ ------
Sales from external customers 87.3 86.3 113.9 118.0 57.1 59.1
Net sales revenue 74.4 72.6 97.1 99.2 48.6 49.7
EBITDA (5.2) (4.0) (6.7) (5.5) (3.4) (2.7)
EBIT (5.4) (4.2) (6.9) (5.8) (3.5) (2.8)
Overall, Molson's total and Canadian(R) trademark volume in the United States
for the three months ended December 31, 2004 were down 5.6% and 11.8%,
respectively, compared to the same period last year. The reasons for the decline
in the quarter have been traced to increased competitive activity along with the
diminishing impact of specialty packs primarily in Michigan and Massachusetts.
For the nine months ended December 31, 2004 Molson's total and Canadian(R)
trademark volume were down 5.2% and 8.5%, respectively.
While total net sales revenue increased 3.0% in the current quarter, net sales
revenue per hectolitre also increased by 9.1%, versus the same period last year
as measured in US dollars. This increase in revenue realization is driven by
strong front line price increases and improved brand and package mix, driven
primarily by the super premium pricing of Molson XXX(R). During the quarter,
these gains in pricing were offset by increased operational costs arising
primarily from unfavourable foreign exchange.
Over the coming quarters, restoring growth on the Canadian(R) trademark, as well
as continued focus on slowing the Molson Ice(R) and Golden(R) declining volume
will remain a priority.
-7-
SELECTED CONSOLIDATED QUARTERLY FINANCIAL INFORMATION
For the three months ended
-----------------------------------------
December 31, September 30,
------------------- -------------------
(Dollars in millions, except per share amounts) 2004 2003 2004 2003
- ------------------------------------------------------------ -------- -------- -------- --------
Net sales revenue $ 623.2 $ 623.3 $ 674.4 $ 715.6
Net earnings before the following items, net of tax : $ 51.9 $ 59.6 $ 63.3 $ 96.5
Merger related costs and provisions for rationalization (41.4) - (13.4) -
Impairment charge - - (210.0) -
Minority interest on Brazil's impairment charge
and provisions for rationalization 7.2 - 42.2 -
Tax adjustment related to changes in enacted
future income tax rates - (16.0) - -
-------- -------- -------- --------
Net earnings (loss) $ 17.7 $ 43.6 $ (117.9) $ 96.5
Net earnings (loss) per share - basic $ 0.14 $ 0.34 $ (0.92) $ 0.76
Net earnings (loss) per share - diluted $ 0.14 $ 0.34 $ (0.92) $ 0.75
-------- -------- -------- --------
For the three months ended
-----------------------------------------
June 30, March 31,
------------------- -------------------
(Dollars in millions, except per share amounts) 2004 2003 2003 2002
- ------------------------------------------------------------ -------- -------- -------- --------
Net sales revenue $ 675.0 $ 661.8 $ 524.8 $ 501.5
Net earnings before the following items, net of tax (i): $ 68.3 $ 84.6 $ 42.2 $ 59.6
Merger related costs and provisions for rationalization - (38.5) - -
Impairment charge - - - -
Minority interest on Brazil's provisions for
rationalization - 8.6 - -
Tax adjustment related to changes in enacted
future income tax rates - - - -
-------- -------- -------- --------
Net earnings $ 68.3 $ 54.7 $ 42.2 $ 59.6
Net earnings per share - basic $ 0.54 $ 0.43 $ 0.33 $ 0.47
Net earnings per share - diluted $ 0.53 $ 0.42 $ 0.33 $ 0.46
-------- -------- -------- --------
(i) Restated by $1.0 million in the quarter ended March 31, 2003, reflecting the
previously disclosed stock option expense accounting policy change.
-8-
FINANCIAL CONDITION AND LIQUIDITY
Molson's consolidated balance sheet, together with comparative figures, is
summarized as follows:
As at December 31, December 31, March 31,
(Dollars in millions) 2004 2003 2004
- -------------------------------- ------------ ------------ ------------
Current assets $ 476.1 $ 497.0 $ 430.2
Less current liabilities (1,205.7) (814.0) (1,025.4)
------------ ------------ ------------
Working capital (729.6) (317.0) (595.2)
Investments and other assets 130.6 130.8 129.7
Property, plant and equipment 974.2 991.6 1,022.4
Intangible assets 2,132.9 2,341.6 2,348.3
------------ ------------ ------------
$ 2,508.1 $ 3,147.0 $ 2,905.2
============ ============ ============
Represented by:
Long-term debt $ 584.6 $ 1,030.3 $ 788.4
Deferred liabilities 297.4 384.7 359.1
Future income taxes 417.9 402.5 400.2
Minority interest 70.8 144.3 138.1
------------ ------------ ------------
1,370.7 1,961.8 1,685.8
Shareholders' equity 1,137.4 1,185.2 1,219.4
------------ ------------ ------------
$ 2,508.1 $ 3,147.0 $ 2,905.2
============ ============ ============
In fiscal 2005, working capital requirements, excluding the current portion of
long-term debt, continued to be funded through cash generated from operations
and available credit facilities. The Corporation will be required to refinance
long-term debt of $344.7 million (March 31, 2004 -$259.9 million) which has been
included in current liabilities with either a new term loan or floating rate
notes. The working capital deficit as at December 31, 2004, excluding the $344.7
million (March 31, 2004 - $259.9 million) of current portion of long-term debt,
was $384.9 million (March 31, 2004 - $335.3 million) which was $67.9 million
below December 31, 2003 due mainly to lower inventory and prepaids in addition
to the increase in Brazil current debt due to continued operating losses.
SHAREHOLDERS' EQUITY
For the three month periods ended December 31, 2004 and December 31, 2003, and
the nine-month period ended December 31, 2004, the Corporation did not
repurchase any Class A non-voting or Class B common shares. In the nine-month
period ended December 31, 2003, the Corporation repurchased 751,000 Class A
non-voting shares at prices ranging between $32.15 and $34.99 and no Class B
common shares.
The total number of Class A non-voting and Class B common shares outstanding at
December 31, 2004 were 127,834,299 (127,282,671 at December 31, 2003) consisting
of 107,977,477 (104,839,395 at December 31, 2003) Class A non-voting shares and
19,856,822 (22,443,276 at December 31, 2003) Class B common shares.
-9-
DIVIDENDS
Dividends declared to shareholders totalled $19.2 million in the three-month
period ended December 31, 2004, compared with $17.8 million for the same period
last year. In fiscal 2005, Molson's quarterly dividend rate was increased by
$0.01 or 7% to $0.15 per share effective in the first quarter.
SPECIAL DIVIDEND
In response to the market reaction to the proposed merger between Molson and
Coors, both companies have agreed that Molson will pay a special dividend in
connection with the plan of arrangement, to Molson Class A non-voting and Class
B common shareholders of record at the close of business on the last trading day
immediately prior to the date of closing of the merger transaction, excluding
Pentland Securities (1981), Inc. The special dividend will be $5.44 per share or
approximately $650 million.
In January 2005, the Corporation entered into a bridge facility in the amount of
$250.0 million for the purpose of paying the special dividend together with
existing facilities. The bridge facility will be available for a period of 90
days from the closing of the merger and is expected to be refinanced within that
period by a credit facility of the merged company.
FINANCIAL INSTRUMENTS AND LONG-TERM LIABILITIES
Molson's consolidated long-term debt was as follows:
As at December 31, December 31, March 31,
(Dollars in millions) 2004 2003 2004
- ------------------------- ------------ ------------ ------------
Molson Inc.
Term loan $ 144.7 $ 39.9 $ 59.9
Debentures - 150.0 150.0
Floating rate notes 200.0 250.0 250.0
Molson Canada
Debentures 575.3 578.2 577.6
Brazil 123.1 110.7 97.9
------------ ------------ ------------
1,043.1 1,128.8 1,135.4
Less current portion 458.5 98.5 347.0
------------ ------------ ------------
$ 584.6 $ 1,030.3 $ 788.4
============ ============ ============
The medium-term note program is an agreement under which the Corporation may
issue debt under terms and conditions that are only determined at the time of
placement of the debt. As such, the Corporation's term loan and the $200.0
million floating rate notes are classified as current liabilities. It is the
Corporation's intention to refinance with either a new term loan or through the
medium-term note program or other facility. On October 19, 2004, a one year
$50.0 million floating rate note matured and was refinanced using the term loan
credit facility.
On February 8, 2005, the Corporation announced its intent to request approval
for the redemption of the $200.0 million floating rate medium term notes from
the note holders. Note holder consent of at least 66 2/3% of the aggregate
principal amount is required and the Corporation expects to have such consent by
February 22, 2005. To compensate note holders, the redemption price will include
a premium of 0.23% of principal amount, together with accrued and unpaid
interest to, but not including, the date of redemption.
The Corporation also announced its intent to redeem the Molson debentures. The
debentures will be redeemed on March 18, 2005 for an aggregate amount of
approximately $690 million including the accrued but unpaid interest to, but not
including, the redemption date.
-10-
Both the floating rate notes and the debenture redemptions will be financed
through a credit facility of Molson Coors Brewing Company.
Dominion Bond Rating Service, or DBRS, current credit rating for Molson Inc. and
Molson Canada's ratings is A (low) and A respectively. On July 20, 2004, DBRS
announced that its long-term ratings of Molson Inc. and Molson Canada were
placed under review with negative implications, pending clarification of the
proposed merger transaction. DBRS stated that once the structure of the combined
company is final, DBRS would be in a position to assess how the proposed merger
would impact Molson's credit ratings.
On July 26, 2004 Standard and Poor's revised its outlook on Molson Inc. and
Molson Canada to negative from stable. At the same time, the BBB+ long-term
credit rating on Molson Inc. and Molson Canada was affirmed.
On September 16, 2004, a third party bank exercised its right to cancel the
interest rate swap which converted $100.0 million of the Corporation's floating
rate note maturing September 16, 2005 to a fixed rate. The Corporation also has
an interest rate swap for $100.0 million which converts the Molson Canada
debenture due June 2, 2008 with a fixed rate of 6.0% to a variable rate.
CHANGES IN CASH FLOWS
The increase in cash of $6.0 million in the current quarter and $3.5 million
year-to-date, together with a comparison for fiscal 2004, is summarized below:
Three months ended Nine months ended
December 31 December 31
-------------------- --------------------
(Dollars in millions) 2004 2003 2004 2003
- ----------------------------------------------------------------- -------- -------- -------- --------
Provided from operating activities $ 15.0 $ 12.7 $ 152.5 $ 152.0
Used for investing activities (17.3) (26.3) (32.8) (32.8)
Provided from (used for) financing activities 8.4 (10.9) (113.7) (106.2)
-------- -------- -------- --------
Increase (decrease) in cash from continuing operations 6.1 (24.5) 6.0 13.0
Increase (decrease) in cash from discontinued operations 0.6 (7.2) (1.8) (6.4)
Effect of exchange rate changes on cash (0.7) - (0.7) 0.1
-------- -------- -------- --------
Increase (decrease) in cash $ 6.0 $ (31.7) $ 3.5 $ 6.7
-------- -------- -------- --------
For the three months ended December 31, 2004, cash provided from operating
activities increased 18.1% to $15.0 million from $12.7 million in the same
period last year. The increase reflected improved working capital partially
offset by lower net earnings and increased pension funding in comparison to the
prior year.
Included in operating activities in the current quarter was cash used for
working capital of $6.6 million compared to cash used of $67.8 million in the
same quarter last year. The improvement related primarily to lower inventory and
prepaids as well as higher accounts payable.
During the three-month periods ended December 31, 2004 and 2003, cash used for
investing activities consisted primarily of additions to property, plant and
equipment.
Cash used for financing activities in the third quarter of fiscal 2005 included
a net increase in long-term debt of $48.3 million offset by a $23.0 million
decrease from securitization of accounts receivable and dividends paid of $18.6
million. In the third quarter of fiscal 2004, cash used for financing activities
included a net increase in long-term debt of $34.6 million, offset by a $31.0
million decrease from securitization of accounts receivable and by dividends
paid of $16.6 million.
-11-
Cash provided from discontinued operations consisted of $0.6 million in the
third quarter of fiscal 2005 and $7.2 million used for in the third quarter of
fiscal 2004 for operating activities to fund obligations previously provided for
in the accounts.
IMPAIRMENT CHARGE
In the second quarter of fiscal 2005, Molson recorded an impairment charge of
$210.0 million ($168.0 million after minority interest). As at March 31, 2004,
Molson estimated that the fair value of the Brazil intangible assets exceeded
their book value and that strategic initiatives underway to grow volume would be
successful. A review of the performance achieved during the first half of fiscal
2005 made it clear that volume growth would be more difficult to achieve and
take more time than anticipated. Accordingly, in determining the value of the
Brazil goodwill and intangible assets, assumptions were revised to reflect this
more conservative estimate.
OUTLOOK
In a special shareholder meeting held on January 28, 2005, holders of Molson
Class A non-voting and Class B common shares approved the proposed merger with
Coors. The proposed merger received the approval of Coors stockholders at a
special meeting on February 1, 2005, and the transaction was also approved by
the Quebec Superior Court on February 2, 2005.
Molson Coors Brewing Company is the fifth-largest brewer in the world, with
pro-forma combined annual volume of 60 million hectoliters and net sales of more
than US$6 billion. Molson Coors has a leading market share in Canada and in the
U.K., a growth profile in the U.S. and an emerging market opportunity in Brazil,
as well as a portfolio of well-established brands including Molson Canadian,
Coors Light and Carling.
The combination is expected to unlock significant value for shareholders. From
the outset, value creation will come from the ability to focus marketing
investments on core brands to grow revenues and the ability to capture an
expected US$175 million in annualized synergies, expected to be realized within
the first three years following completion of the merger. Secondly, a stronger
overall financial platform will lead to deeper support of core brands and key
markets to drive revenue, share and volume growth. Finally the merger will
create the scale and balance sheet strength to allow Molson Coors Brewing
Company to compete more effectively in the increasingly global and highly
dynamic brewing industry long-term.
COMPARATIVE FIGURES
Certain comparative figures have been restated to conform to the current year's
basis of presentation.
-12-
MOLSON INC.
CONSOLIDATED STATEMENTS OF EARNINGS - UNAUDITED
Three months ended Nine months ended
December 31 Decembers 31
----------------------- -----------------------
(Dollars in millions, except share and per share amounts) 2004 2003 2004 2003
- ---------------------------------------------------------------------- ---------- ---------- ---------- ----------
Sales and other revenues $ 870.2 $ 877.0 $ 2,702.1 $ 2,743.2
Brewing excise and sales taxes 247.0 253.7 729.5 742.5
---------- ---------- ---------- ----------
Net sales revenue 623.2 623.3 1,972.6 2,000.7
---------- ---------- ---------- ----------
Costs and expenses
Cost of sales, selling and administrative costs 500.1 493.6 1,562.1 1,523.8
Impairment charge (note 3) - - 210.0 -
Merger related costs and provisions for rationalization (note 4) 44.1 - 63.5 36.3
---------- ---------- ---------- ----------
544.2 493.6 1,835.6 1,560.1
---------- ---------- ---------- ----------
Earnings before interest, income taxes and amortization 79.0 129.7 137.0 440.6
Amortization of capital assets 16.3 14.4 51.6 48.4
---------- ---------- ---------- ----------
Earnings before interest and income taxes 62.7 115.3 85.4 392.2
Net interest expense 23.6 22.3 66.5 70.0
---------- ---------- ---------- ----------
Earnings before income taxes 39.1 93.0 18.9 322.2
Income tax expense 31.2 50.5 116.9 139.1
---------- ---------- ---------- ----------
Earnings (loss) before minority interest 7.9 42.5 (98.0) 183.1
Minority interest 9.8 1.1 66.1 11.7
---------- ---------- ---------- ----------
Net earnings (loss) $ 17.7 $ 43.6 $ (31.9) $ 194.8
========== ========== ========== ==========
Net earnings (loss) per share
Basic $ 0.14 $ 0.34 $ (0.25) $ 1.53
Diluted $ 0.14 $ 0.34 $ (0.25) $ 1.52
---------- ---------- ---------- ----------
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS - UNAUDITED
Nine months ended December 31, 2004 and 2003
(Dollars in millions) 2004 2003
- ---------------------------------------------------------------------- ---------- ----------
Retained earnings - beginning of year $ 818.5 $ 676.8
Change in accounting policy (note 2) - (3.7)
---------- ----------
Retained earnings - beginning of year, as restated 818.5 673.1
Net earnings (loss) (31.9) 194.8
Cash dividends declared (56.4) (50.5)
Stock dividends declared (1.1) (2.9)
Excess of share repurchase price over weighted-average stated
capital (note 7) - (20.4)
---------- ----------
Retained earnings - end of period $ 729.1 $ 794.1
---------- ----------
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
-13-
MOLSON INC.
CONSOLIDATED BALANCE SHEETS
December 31 December 31 March 31
(Dollars in millions) 2004 2003 2004
- ---------------------------------------------------------------------- ----------- ------------ -----------
Assets (Unaudited) (Unaudited)
Current Assets
Cash $ 24.7 $ 18.9 $ 21.2
Accounts receivable 277.8 258.5 167.3
Inventories 162.4 175.8 177.4
Prepaid expenses 11.2 43.8 64.3
----------- ----------- -----------
476.1 497.0 430.2
Investments and other assets 130.6 130.8 129.7
Property, plant and equipment 974.2 991.6 1,022.4
Intangible assets, excluding goodwill (note 3) 1,476.3 1,556.7 1,558.7
Goodwill (note 3) 656.6 784.9 789.6
----------- ----------- -----------
$ 3,713.8 $ 3,961.0 $ 3,930.6
=========== =========== ===========
Liabilities
Current liabilities
Accounts payable and accruals $ 504.9 $ 497.7 $ 459.8
Provision for rationalization costs (note 4) 1.3 10.3 -
Income taxes payable 24.9 36.1 29.0
Dividends payable 19.2 17.8 17.8
Future income taxes 196.9 153.6 171.8
Current portion of long-term debt (note 6) 458.5 98.5 347.0
----------- ----------- -----------
1,205.7 814.0 1,025.4
Long-term debt (note 6) 584.6 1,030.3 788.4
Deferred liabilities 297.4 384.7 359.1
Future income taxes 417.9 402.5 400.2
Minority interest 70.8 144.3 138.1
----------- ----------- -----------
2,576.4 2,775.8 2,711.2
----------- ----------- -----------
Shareholders' equity
Capital stock (note 7) 739.5 728.7 732.3
Contributed surplus 13.9 7.7 8.9
Retained earnings 729.1 794.1 818.5
Unrealized translation adjustments (345.1) (345.3) (340.3)
----------- ----------- -----------
1,137.4 1,185.2 1,219.4
----------- ----------- -----------
$ 3,713.8 $ 3,961.0 $ 3,930.6
=========== =========== ===========
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
-14-
MOLSON INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
Three months ended Nine months ended
December 31 December 31
----------------------- -----------------------
(Dollars in millions) 2004 2003 2004 2003
- ---------------------------------------------------------------------- ---------- ---------- ---------- ----------
Operating activities
Net earnings (loss) $ 17.7 $ 43.6 $ (31.9) $ 194.8
Impairment charge (note 3) - - 210.0 -
Merger related costs and provisions for rationalization (note 4) 44.1 - 63.5 36.3
Amortization of capital assets 16.3 14.4 51.6 48.4
Future income taxes 9.9 23.5 31.3 54.5
Minority interest (9.8) (1.1) (66.1) (11.7)
Funding of deferred liabilities less than
(in excess of) expense (34.7) 3.0 (71.9) (35.9)
Used for working capital (6.6) (67.8) (10.9) (120.5)
Merger and rationalization costs (21.0) (4.3) (22.4) (11.1)
Other (0.9) 1.4 (0.7) (2.8)
---------- ---------- ---------- ----------
Cash provided from operating activities 15.0 12.7 152.5 152.0
---------- ---------- ---------- ----------
Investing activities
Additions to property, plant and equipment (19.4) (25.4) (33.7) (46.9)
Additions to investments and other assets (1.3) (2.4) (6.6) (6.1)
Proceeds from disposal of property, plant
and equipment 1.0 0.7 4.6 16.1
Proceeds from disposal of investments and
other assets 2.4 0.8 2.9 4.1
---------- ---------- ---------- ----------
Cash used for investing activities (17.3) (26.3) (32.8) (32.8)
---------- ---------- ---------- ----------
Financing activities
Increase in long-term debt 140.3 113.0 398.8 458.3
Reduction in long-term debt (92.0) (78.4) (488.6) (547.8)
Securitization of accounts receivable (23.0) (31.0) 25.0 44.0
Shares repurchased (note 7) - - - (24.6)
Cash dividends paid (18.6) (16.6) (54.8) (47.7)
Proceeds from the exercise of stock options 1.7 2.0 5.7 11.5
Other - 0.1 0.2 0.1
---------- ---------- ---------- ----------
Cash provided from (used for) financing activities 8.4 (10.9) (113.7) (106.2)
---------- ---------- ---------- ----------
Increase (decrease) in cash from continuing
operations 6.1 (24.5) 6.0 13.0
Increase (decrease) in net cash from
discontinued operations (note 9) 0.6 (7.2) (1.8) (6.4)
---------- ---------- ---------- ----------
Increase (decrease) in cash 6.7 (31.7) 4.2 6.6
Effect of exchange rate changes on cash (0.7) - (0.7) 0.1
Cash, beginning of period 18.7 50.6 21.2 12.2
---------- ---------- ---------- ----------
Cash, end of period $ 24.7 $ 18.9 $ 24.7 $ 18.9
========== ========== ========== ==========
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
-15-
MOLSON INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the nine months ended December 31, 2004 and 2003
(Dollars in millions, except share and per share amounts)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
These interim consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting principles, using the
same accounting policies as outlined in note 1 of the consolidated financial
statements for the year ended March 31, 2004, except as noted below. They do not
conform in all respects with disclosures required for annual financial
statements and should be read in conjunction with the audited consolidated
financial statements for the year ended March 31, 2004 of Molson Inc.'s 2004
Annual Report.
NOTE 2. CHANGE IN ACCOUNTING POLICIES
Effective April 1, 2004, the Corporation adopted the Canadian Institute of
Chartered Accountants ("CICA") Accounting Guideline 13 "Hedging Relationships",
which establishes certain conditions regarding when hedge accounting may be
applied. The relevant hedging relationships will be subject to an effectiveness
test on a regular basis for reasonable assurance that it is and will continue to
be effective. Under these rules, any derivative instrument that does not qualify
for hedge accounting will be reported on a mark-to-market basis in earnings.
Effective April 1, 2002, the Corporation adopted, on a prospective basis, the
CICA Handbook section 3870 "Stock-Based Compensation and Other Stock-Based
Payments". Effective April 1, 2003, the Corporation began to expense the cost of
stock option grants, with a restatement of the prior period. The Corporation
determines the cost of all stock options granted since April 1, 2002 using a
fair value method. This method of accounting uses an option pricing model to
determine the fair value of stock options granted and the amount is amortized
over the period in which the related employee services are rendered. Opening
retained earnings for fiscal 2004 was reduced by $3.7 reflecting the full year
effect of fiscal 2003 stock option expense.
NOTE 3. IMPAIRMENT CHARGE
In the second quarter of fiscal 2005 the Corporation determined that the fair
value of the Brazil intangible assets had decreased below book value.
Accordingly, the Corporation recorded an impairment charge of $210.0 ($168.0
after minority interest) which reduced the goodwill by $130.0 ($104.0 after
minority interest) and brand names by $80.0 ($64.0 after minority interest).
NOTE 4. MERGER RELATED COSTS AND PROVISIONS FOR RATIONALIZATION
On July 21, 2004, the Corporation entered into an agreement with Adolph Coors
Company ("Coors") to combine the two companies. As a result of the proposed
merger, $8.0 in costs were incurred in the current quarter, $24.0 for the nine
months ended December 31, 2004 and consist mainly of investment banking, legal
and accounting fees. In addition, the Corporation recorded a charge for
provisions for rationalization of $36.1, relating to the closure of the
Queimados brewery and organization right-sizing including sales centres. The
rationalization provision includes $24.1 to write-down fixed assets and $12.0
for severance, other closure costs related to the brewery closure and the sales
centre right-sizing program as well as an accrual for additional labour
contingencies relating to previously closed breweries in Brazil.
During the first quarter of fiscal 2004, the Corporation recorded a charge of
$43.3 relating to the closure of the Ribeirao Preto plant in Brazil represented
by a $37.5 write-down of fixed assets to net recoverable amount and employee
severance and other closure costs of $5.8. There is no remaining accrual.
-16-
MOLSON INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the nine months ended December 31, 2004 and 2003
(Dollars in millions, except share and per share amounts)
NOTE 4. MERGER RELATED COSTS AND PROVISIONS FOR RATIONALIZATION (CONT'D)
Also in the first quarter of fiscal 2004, the Corporation completed a sale of a
residual property adjacent to the Barrie brewery. A pre-tax gain of $7.0 was
recorded in the provision for rationalization line in the statement of earnings
which is consistent with the original Barrie plant closure provision.
NOTE 5. EARNINGS PER SHARE
The following is a reconciliation of the weighted-average shares outstanding for
basic and diluted earnings per share computations for net earnings (loss):
Three months ended Nine months ended
December 31 December 31
--------------------------- ---------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
Net earnings (loss) $ 17.7 $ 43.6 $ (31.9) $ 194.8
------------ ------------ ------------ ------------
Weighted average number of shares outstanding - (millions)
Weighted average number of shares outstanding - basic 127.8 127.2 127.7 127.0
Effect of dilutive securities 1.7 1.3 1.6 1.3
------------ ------------ ------------ ------------
Weighted average number of shares outstanding - diluted 129.5 128.5 129.3 128.3
============ ============ ============ ============
The dilutive effect of outstanding stock options on earnings per share is based
on the application of the treasury stock method. Under this method, the proceeds
from the potential exercise of such stock options are assumed to be used to
purchase Class A non-voting shares. During the current quarter of fiscal 2005,
options to purchase 636,349 (fiscal 2004 - 620,575) Class A non-voting shares
were not included in the calculation of diluted earnings per share as the
exercise price exceeded the average market price of the shares in the
three-month period. For the nine months ended December 31, 2004, no dilution
impact was calculated due to the net loss incurred. In the nine-month period
ended December 31, 2003, 620,575 Class A non-voting shares were not included in
the diluted earnings per share calculation.
NOTE 6. LONG-TERM DEBT
The floating rate note program is an agreement under which the Corporation and
the placement agent may agree to issue debt under terms and conditions that are
only determined at the time of placement of the debt. As such, the Corporation's
term loan and the $200.0 floating rate notes are classified as current
liabilities. It is the Corporation's intention to refinance this debt with
either a new term loan or through the medium-term note program or other
facility. On October 19, 2004, the one year $50.0 floating rate note matured and
was refinanced using the term loan credit facility.
The Corporation had a $50.0 364-day revolving credit facility that expired on
September 14, 2004 which the Corporation did not renew. There were no amounts
drawn on this facility.
On September 16, 2004, a third party bank exercised its right to cancel the
interest rate swap which converted $100.0 of the Corporation's floating rate
note maturing September 16, 2005 to a fixed rate. The Corporation also has an
interest rate swap for $100.0 which converted the Molson Canada debenture due
June 2, 2008 with a fixed rate of 6.0% to a variable rate.
-17-
MOLSON INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the nine months ended December 31, 2004 and 2003
(Dollars in millions, except share and per share amounts)
NOTE 7. CAPITAL STOCK
The total number of Class A non-voting and Class B common shares outstanding at
December 31, 2004 were 127,834,299 (127,282,671 at December 31, 2003) consisting
of 107,977,477 (104,839,395 at December 31, 2003) Class A non-voting shares and
19,856,822 (22,443,276 at December 31, 2003) Class B common shares.
For the three-month and nine-month periods ended December 31, 2004, and the
three-month period ended December 31, 2003, the Corporation did not repurchase
any Class A non-voting or Class B common shares. In the nine-month period ended
December 31, 2003, the Corporation repurchased 751,000 Class A non-voting shares
at prices ranging between $32.15 and $34.99 and no Class B common shares. In
fiscal 2004, of the total amount of $24.6 repurchased, $4.2 was charged to
capital stock based on the weighted-average stated capital with the excess of
$20.4 being charged to retained earnings.
STOCK-BASED COMPENSATION
The Corporation has a stock option plan for eligible employees and non-employee
directors of the Corporation, under which Class A non-voting shares of the
Corporation may be purchased at a price equal to the market price of the common
shares at the date of granting of the option. The options vest over a period of
two, three, four or five years and are exercisable for a period not to exceed
ten years from the date of the grant. At December 31, 2004, there were 5,716,380
(2003 - 5,090,750) stock options outstanding and 929,101 (2003 - 2,028,013)
stock options available for future grants. During the first nine months of
fiscal 2005, the Corporation granted, less forfeitures, 977,900 (2004 - 855,725)
stock options at exercise prices of $31.44 and $33.21 (2004 - ranging between
$32.31 and $36.96).
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for grants during the nine-month period: dividend yield of 1.4%
(2003 - 1.6%); expected volatility of 24.7% (2003 - 25.5%), risk-free interest
rate of 4.2% (2003 - 4.4%); and an expected life of 6 years (2003 -6 years). The
weighted average fair value of options granted in the nine-month period is $8.84
(2003 - $9.29) per share.
The Corporation has recorded $5.0 (2003 - $4.0) related to stock option expense
for the nine months ended December 31, 2004.
The Corporation's contributions to the employee share ownership plan ("MESOP")
of $1.3 (2003 -$1.3) were charged to earnings during the nine-month period ended
December 31, 2004.
As at December 31, 2004, 136,449 (2003 - 161,371) Deferred Share Units ("DSU's")
were outstanding. For the nine-month period ended December 31, 2004, $0.8
(2003 - $0.4) was charged to earnings representing the accrual for services
provided in the period which were paid with the issuance of DSU's.
-18-
MOLSON INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the nine months ended December 31, 2004 and 2003
(Dollars in millions, except share and per share amounts)
NOTE 8. SEGMENT DISCLOSURES
The Corporation's business is producing and marketing beer and other malt-based
beverages. Its business units are located in three main geographic regions:
Canada, Brazil and the United States.
These segments are managed separately since they all require specific market
strategies. The Corporation assesses the performance of each segment based on
operating income or EBIT. Accounting policies relating to each segment are
identical to those used for the purposes of the consolidated financial
statements. Management of interest expense and income tax expense are
centralized and, consequently, these expenses are not allocated among operating
groups. Inter-segment revenues reflect transactions made on an arms-length
basis.
Canada Brazil United States Consolidated
------------------ -------------------- ----------------- -----------------
Three months ended December 31 2004 2003 2004 2003 2004 2003 2004 2003
- ---------------------------------- ------- ------- ------- ------- ------- ------- ------- -------
Revenues from external customers 634.4 620.4 220.9 240.8 14.9 15.8 870.2 877.0
Inter-segment revenues 7.7 9.1 0.4 1.0 - - 8.1 10.1
EBIT 102.0(i) 116.0 (38.1)(ii) 0.3 (1.2) (1.0) 62.7 115.3
Assets 2,537.4 2,544.9 1,019.1 1,257.4 157.3 158.7 3,713.8 3,961.0
Goodwill 198.0 198.0 458.6 586.9 - - 656.6 784.9
Amortization of capital assets:
Amortization of property plant
and equipment 10.9 10.2 5.2 4.1 0.1 - 16.2 14.3
Amortization of intangible
assets - - 0.1 0.1 - - 0.1 0.1
Additions to capital assets 14.5 12.4 4.6 13.0 0.3 - 19.4 25.4
Canada Brazil United States Consolidated
------------------- -------------------- ----------------- -----------------
Nine months ended December 31 2004 2003 2004 2003 2004 2003 2004 2003
- ----------------------------------- ------- ------- ------- -------- ------- ------- ------- -------
Revenues from external customers 2,112.3 2,116.1 532.7 568.0 57.1 59.1 2,702.1 2,743.2
Inter-segment revenues 28.1 30.9 5.0 6.4 - - 33.1 37.3
EBIT 391.4(ii) 436.1(iv) (302.5)(v) (41.1)(vi) (3.5) (2.8) 85.4 392.2
Assets 2,537.4 2,544.9 1,019.1 1 ,257.4 157.3 158.7 3,713.8 3,961.0
Goodwill 198.0 198.0 458.6 586.9 - - 656.6 784.9
Impairment charge - - 210.0 - - - 210.0 -
Amortization of capital assets:
Amortization of property plant
and equipment 34.7 33.9 16.4 14.0 0.1 0.1 51.2 48.0
Amortization of intangible
assets - - 0.4 0.4 - 0.4 0.4
Additions to capital assets 24.6 26.9 8.7 20.0 0.4 - 33.7 46.9
(i) Includes the $8.0 merger related costs.
(ii) Includes the charge for rationalization costs of $36.1.
(iii) Includes $24.0 merger related costs and $2.2 charge for rationalization
costs.
(iv) Includes the $7.0 gain on sale of a property.
(v) Includes an impairment charge of $210.0 and the charge for rationalization
costs of $37.3.
(vi) Includes a provision for rationalization of $43.3.
-19-
MOLSON INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the nine months ended December 31, 2004 and 2003
(Dollars in millions, except share and per share amounts)
NOTE 9. DISCONTINUED OPERATIONS
Cash provided from discontinued operations of $0.6 ($7.2 use of cash in fiscal
2004) in the three-month period and cash used of $1.8 ($6.4 in fiscal 2004) in
the nine-month period were used for operating activities.
NOTE 10. SUBSEQUENT EVENTS
In a special shareholder meeting held on January 28, 2005, Molson Class A
non-voting and Class B common shareholders approved the proposed merger with
Coors. The proposed merger received the approval of Coors stockholders at a
special meeting on February 1, 2005, and the transaction was also approved by
the Quebec Superior Court on February 2, 2005. The Molson Coors stock is
expected to start trading on the NYSE and the exchangeable shares of Molson
Coors Canada Inc. on the TSX on February 9, 2005. Registered Molson shareholders
at the close of business on the day preceding the closing will be entitled to
receive a $5.44 special dividend, approximately $650, as part of the approved
transaction.
In January 2005, the Corporation entered into a bridge facility in the amount of
$250.0 for the purpose of paying the special dividend. The bridge facility will
be available for a period of 90 days from the closing of the merger and is
expected to be refinanced within that period by a credit facility of the merged
company.
On February 8, 2005, the Corporation announced its intent to request approval
for the redemption of the $200.0 floating rate medium term notes from the note
holders. Note holder consent of at least 66 2/3% of the aggregate principal
amount is required and the Corporation expects to have such consent by February
22, 2005. To compensate note holders, the redemption price will include a
premium of 0.23% of principal amount, together with accrued and unpaid interest
to, but not including, the date of redemption.
The Corporation also announced its intent to redeem the Molson debentures. The
debentures will be redeemed on March 18, 2005 for an aggregate amount of
approximately $690 including the accrued but unpaid interest to, but not
including, the redemption date.
Both the floating rate notes and the debenture redemptions will be financed
through a credit facility of Molson Coors Brewing Company.
NOTE 11. COMPARATIVE FIGURES
Certain comparative figures have been restated to conform to the current
period's basis of presentation.
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