MOLSON COORS BEVERAGE CO (TAP) FY 2023 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
For over two centuries, we have been brewing beverages that unite people to celebrate all life’s moments. From our core power brands Coors Light, Miller Lite, Coors Banquet, Molson Canadian, Carling and Ožujsko to our above premium brands including Madri, Staropramen, Blue Moon Belgian White and Leinenkugel’s Summer Shandy, to our economy and value brands like Miller High Life and Keystone, 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, including flavored beverages like Vizzy Hard Seltzer, spirits like Five Trail whiskey as well as non-alcoholic beverages. 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 2022 compared to 2021 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 2022 Form 10-K, filed with the SEC on February 21, 2023, which is available free of charge on the SEC's website at www.sec.gov and our corporate website at www.molsoncoors.com.
Our Fiscal Year
Unless otherwise indicated, (a) all $ amounts are in USD, (b) comparisons are to comparable prior periods and (c) 2023, 2022 and 2021 refers to the 12 months ended December 31, 2023, December 31, 2022 and December 31, 2021, respectively.
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Items Affecting Reported Results
Items Affecting Consolidated Results of Operations
Cost Inflation
We have continued to incur significant cost inflation, including materials and manufacturing expenses, which negatively impacted our results of operations for the year ended December 31, 2023, although we experienced moderation in the second half of the year. While cost inflation has been high in all of our markets, 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 continued to be impacted by local inflation leading to a reduction in their discretionary purchases. In 2024, we expect inflationary pressures to moderate and improve from those experienced over the last year.
To the extent materials and manufacturing 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. 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 brands, reputation and sales. If our competitors maintain or substantially lower their prices, we may lose customers or be forced to lower prices to remain competitive. Our profitability may be impacted by prices that do not offset the inflationary pressures, which would negatively 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.
Premiumization of our Portfolio
In 2021, in order to support continued 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 continued 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
Truss Impairment and Sale
During the first quarter of 2022, we recognized an impairment loss of $28.6 million related to the Truss joint venture asset group of which $12.1 million was attributable to the noncontrolling interest. Additionally, during the third quarter of 2023, we sold our controlling interest in Truss and recognized a loss of $11.1 million. These losses were recorded within other operating income (expense), net. See Part II—Item 8 Financial Statements and Supplementary Data, Note 17, "Other Operating Income (Expense), net" and Part II—Item 8 Financial Statements and Supplementary Data, Note 3, "Investments" for further information.
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.
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Keystone Litigation
During the first quarter of 2022, we accrued a liability of $56.0 million within MG&A related to probable losses as a result of the ongoing Keystone litigation case. During the years ended December 31, 2023 and December 31, 2022 we accrued $1.9 million and $0.6 million, respectively, in associated interest related to this accrued liability. See Part II—Item 8 Financial Statements and Supplementary Data, Note 13, "Commitments and Contingencies" for further information.
Items Affecting EMEA&APAC Segment Results of Operations
Staropramen Brands Impairment
During the fourth quarter of 2023, we recorded a partial impairment charge of $160.7 million to our indefinite-lived intangible asset related to the Staropramen family of brands within the EMEA&APAC segment as a result of our annual impairment analysis. See Part II—Item 8 Financial Statements and Supplementary Data, Note 6, "Goodwill and Intangible Assets" for further information.
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. While not material to our consolidated net sales, the Russia-Ukraine conflict negatively impacted our EMEA&APAC segment net sales for the years ended December 31, 2023 and 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 materials and manufacturing expenses as discussed in more detail above. See risk factors related to this conflict at Part I.—Item 1A. "Risk Factors".
Consolidated Results of Operations
The following table highlights summarized components of our consolidated statements of operations for the years ended December 31, 2023, December 31, 2022 and December 31, 2021. 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, 2023 and December 31, 2022.
| For the years ended | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31, 2023 | Change | December 31, 2022 | Change | December 31, 2021 | ||||||||||||
| (In millions, except percentages and per share data) | ||||||||||||||||
| Net sales | $ | 11,702.1 | 9.4 | % | $ | 10,701.0 | 4.1 | % | $ | 10,279.7 | ||||||
| Cost of goods sold | (7,333.3) | 4.1 | % | (7,045.8) | 13.2 | % | (6,226.3) | |||||||||
| Gross profit | 4,368.8 | 19.5 | % | 3,655.2 | (9.8) | % | 4,053.4 | |||||||||
| Marketing, general and administrative expenses | (2,779.9) | 6.2 | % | (2,618.8) | 2.5 | % | (2,554.5) | |||||||||
| Goodwill impairment | — | N/M | (845.0) | N/M | — | |||||||||||
| Other operating income (expense), net | (162.7) | 321.5 | % | (38.6) | (13.3) | % | (44.5) | |||||||||
| Equity income (loss) | 12.0 | 155.3 | % | 4.7 | N/M | — | ||||||||||
| Operating income (loss) | 1,438.2 | 813.1 | % | 157.5 | (89.2) | % | 1,454.4 | |||||||||
| Total non-operating income (expense), net | (185.7) | (15.6) | % | (220.0) | 2.1 | % | (215.4) | |||||||||
| Income (loss) before income taxes | 1,252.5 | N/M | (62.5) | N/M | 1,239.0 | |||||||||||
| Income tax benefit (expense) | (296.1) | 138.8 | % | (124.0) | (46.2) | % | (230.5) | |||||||||
| Net income (loss) | 956.4 | N/M | (186.5) | N/M | 1,008.5 | |||||||||||
| Net (income) loss attributable to noncontrolling interests | (7.5) | N/M | 11.2 | N/M | (2.8) | |||||||||||
| Net income (loss) attributable to MCBC | $ | 948.9 | N/M | $ | (175.3) | N/M | $ | 1,005.7 | ||||||||
| Net income (loss) attributable to MCBC per diluted share | $ | 4.37 | N/M | $ | (0.81) | N/M | $ | 4.62 | ||||||||
| Financial volume in hectoliters | 83.772 | 1.8 | % | 82.272 | (2.1) | % | 84.028 |
N/M = Not meaningful
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Foreign currency impacts on results
For the year ended December 31, 2023, foreign currency movements had the following impacts on our USD consolidated results:
•Net sales - Favorable impact of $9.5 million (favorable impact for EMEA&APAC of $56.0 million, partially offset by the unfavorable impact for Americas of $46.5 million).
•Cost of goods sold - Favorable impact of $1.0 million (favorable impact for Americas and Unallocated of $34.9 million and $1.8 million, respectively, partially offset by the unfavorable impact for EMEA&APAC of $35.7 million).
•MG&A - Favorable impact of $1.3 million (favorable impact for Americas of $14.2 million, partially offset by the unfavorable impact for EMEA&APAC of $12.9 million).
•Income (loss) before income taxes - Favorable impact of $9.1 million (favorable impact for Unallocated of $15.9 million, partially offset by the unfavorable impact for EMEA&APAC and Americas of $5.3 million and $1.5 million, respectively).
The impacts of foreign currency movements on our consolidated USD results described above for the year ended December 31, 2023 were primarily due to the strength of the USD as compared to the CAD partially offset by the weakening of the USD as compared to all currencies throughout Europe in which we operate.
Included in these amounts are both translational and transactional impacts of changes in foreign exchange rates. We calculate the impact of foreign exchange by translating our current period local currency results at the average exchange rates used to translate the financial statements in the comparable prior year period during the respective period throughout the year and comparing that amount with the reported amount for the period. The impact of transactional foreign currency gains and losses, including the impact of undesignated foreign currency forwards, is recorded within other non-operating income (expense), net in our consolidated statements of operations.
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 an 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.
We also utilize net sales per hectoliter and cost of goods sold per hectoliter, as well as the year over year changes in such metrics, as key metrics for analyzing our results. These metrics are calculated as net sales and cost of goods sold, respectively, per our consolidated statements of operations divided by financial volume for the respective period. We believe these metrics are important and useful for investors and management because they provide an indication of the trends in pricing and sales mix on our net sales and the trends of sales mix and other cost impacts such as inflation on our cost of goods sold.
In late 2021 we de-prioritized and rationalized certain non-core SKUs, predominantly in the economy segment, in order to focus our strategy on growing our above premium portfolio and expanding beyond the beer aisle. This strategy was intended to drive sustainable net sales growth and earnings growth, despite potential volume declines due to the rationalization of certain SKUs and as the portfolio mix shifted toward a higher composition of above premium products. The strategy of premiumization, growing our above premium portfolio and expanding beyond the beer aisle continues to be a focus under the Acceleration Plan that was announced in the fourth quarter of 2023.
Net sales
The following table highlights the drivers of the change in net sales and net sales per hectoliter for the year ended December 31, 2023 compared to December 31, 2022 (in percentages):
| Financial Volume | Price and Sales Mix | Currency | Total | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Consolidated net sales | 1.8 | % | 7.5 | % | 0.1 | % | 9.4 | % | |||
| Consolidated net sales per hectoliter | N/A | 7.3 | % | 0.1 | % | 7.4 | % |
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Net sales increased 9.4% for the year ended December 31, 2023, compared to prior year driven by favorable price and sales mix, higher financial volumes and favorable foreign currency impacts.
Financial volumes increased 1.8% for the year ended December 31, 2023, compared to prior year, primarily due to higher financial volumes in the Americas segment, partially offset by lower EMEA&APAC financial volumes.
Price and sales mix favorably impacted net sales and net sales per hectoliter for the year ended December 31, 2023, by 7.5% and 7.3%, respectively, primarily due to increased net pricing including the rollover benefit in the first three quarters due to taking several price increases in the prior year, as well as favorable sales mix. Favorable sales mix was driven by geographic mix due to higher volumes in the Americas segment and lower contract brewing volume related to the wind down of a contract brewing arrangement leading up to the termination by the end of 2024.
A discussion of currency impacts on net sales is included in the "Foreign currency impact on results" section above.
Cost of goods sold
Cost of goods sold increased 4.1% for the year ended December 31, 2023, compared to prior year, primarily due to higher cost of goods sold per hectoliter and higher financial volumes. Cost of goods sold per hectoliter increased 2.2% for the year ended December 31, 2023, compared to prior year, primarily due to cost inflation related to materials and manufacturing expenses and unfavorable mix, partially offset by changes in our unrealized mark-to-market commodity derivative positions of $126.9 million, cost savings and volume leverage.
Marketing, general and administrative expenses
MG&A expenses increased 6.2% for the year ended December 31, 2023, compared to prior year, primarily due to higher incentive compensation expense and increased marketing investment on core and innovation brands, partially offset by cycling the recording of a $56.0 million accrued liability in the prior year related to potential losses as a result of the ongoing Keystone litigation case.
Goodwill Impairment
See Part II—Item 8 Financial Statements and Supplementary Data, Note 6, "Goodwill and Intangible Assets" for detail of 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 decreased 15.6% for the year ended December 31, 2023, compared to prior year primarily due to lower net interest expense driven by higher interest income as well as the repayment of debt as a result of our continued deleveraging actions and the favorable impact of transactional foreign currency impacts, partially offset by lower pension and OPEB non-service net benefit.
Income taxes benefit (expense)
| For the years ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| December 31, 2023 | December 31, 2022 | December 31, 2021 | ||||||
| Effective tax rate | 24 | % | (198) | % | 19 | % |
The increase in our effective tax rate for the year ended December 31, 2023 compared to the prior year was primarily due to the impact of 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.
Our tax rate can be volatile and may change with, among other things, the amount and source of pretax 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.
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The OECD and EU have proposed changes to the existing tax laws of member countries. For instance, the OECD has introduced model rules for a new 15% global minimum tax framework, as well as a proposal on the allocation of profit among tax jurisdictions in which companies operate. In December 2022, the EU member states agreed to incorporate the 15% global minimum tax into their respective domestic laws effective for fiscal years beginning on or after December 31, 2023. Additionally, several non-EU countries, including the U.K., have recently proposed and/or adopted legislation consistent with the OECD global minimum tax framework. We are continuing to evaluate the potential impact on future periods which could affect our effective tax rate.
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 and 2021 totaled approximately $115 million and $220 million, respectively. While we have not announced a formal cost savings program after the completion of this program in 2022, we continue to generate cost savings through initiatives in the normal course of business.
Segment Results of Operations
Americas Segment
| For the years ended | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31, 2023 | Change | December 31, 2022 | Change | December 31, 2021 | ||||||||||||
| (In millions, except percentages) | ||||||||||||||||
| Net sales(1) | $ | 9,425.2 | 8.2 | % | $ | 8,711.5 | 2.7 | % | $ | 8,485.0 | ||||||
| Income (loss) before income taxes | $ | 1,566.7 | 400.7 | % | $ | 312.9 | (73.4) | % | $ | 1,176.5 | ||||||
| Financial volume in hectoliters(2) | 62.491 | 3.6 | % | 60.323 | (5.4) | % | 63.737 |
(1)Includes gross inter-segment sales and volumes which are eliminated in the consolidated totals.
(2)Excludes royalty volume of 2.683 million hectoliters, 2.719 million hectoliters and 2.507 million hectoliters for the years ended December 31, 2023, 2022 and 2021, respectively.
Net sales
The following table highlights the drivers of the change in net sales and net sales per hectoliter for the year ended December 31, 2023 compared to December 31, 2022 (in percentages):
| Financial Volume | Price and Sales Mix | Currency | Total | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Americas net sales | 3.6 | % | 5.1 | % | (0.5) | % | 8.2 | % | |||
| Americas net sales per hectoliter | N/A | 5.0 | % | (0.6) | % | 4.4 | % |
Net sales increased 8.2% for the year ended December 31, 2023, compared to prior year, driven by favorable price and sales mix as well as higher financial volumes, partially offset by unfavorable foreign currency impacts.
Financial volumes increased 3.6% for the year ended December 31, 2023, compared to prior year, primarily due to an increase in U.S. domestic shipments driven by volume growth in our core brands and higher shipments in Canada mainly attributed to cycling the prior year impacts of the Québec labor strike, partially offset by lower Latin America volumes. The increase in U.S. volume was driven in part by the continued shifts in consumer purchasing behavior largely within the premium beer segment.
Price and sales mix favorably impacted net sales and net sales per hectoliter for the year ended December 31, 2023, by 5.1% and 5.0%, respectively, primarily due to increased net pricing including the rollover benefit in the first three quarters of the year of several price increases taken in the previous year and favorable sales mix as a result of lower contract brewing volume related to the wind down of a contract brewing arrangement leading up to the termination by the end of 2024.
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A discussion of currency impacts on net sales is included in the "Foreign currency impact on results" section above.
Income (loss) before income taxes
Income before income taxes improved 400.7% for the year ended December 31, 2023, compared to prior year, primarily due to cycling a non-cash partial goodwill impairment charge of $845.0 million, increased net pricing, higher financial volumes, lower logistics expenses, partially offset by cost inflation related to materials and manufacturing expenses and higher MG&A expense. Higher MG&A spend was primarily due to increased marketing investment behind our core and innovation brands and higher incentive compensation expense, partially offset by cycling the recording of a $56.0 million accrued liability related to potential losses as a result of the ongoing Keystone litigation case.
EMEA&APAC Segment
| For the years ended | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31, 2023 | Change | December 31, 2022 | Change | December 31, 2021 | ||||||||||||
| (In millions, except percentages) | ||||||||||||||||
| Net sales(1) | $ | 2,296.1 | 14.5 | % | $ | 2,005.2 | 11.3 | % | $ | 1,802.3 | ||||||
| Income (loss) before income taxes | $ | (41.1) | N/M | $ | 61.0 | 85.4 | % | $ | 32.9 | |||||||
| Financial volume in hectoliters(2) | 21.286 | (3.0) | % | 21.955 | 8.1 | % | 20.315 |
N/M = Not meaningful
(1)Includes gross inter-segment sales and volumes which are eliminated in the consolidated totals.
(2)Excludes royalty volume of 0.935 million hectoliters, 1.012 million hectoliters and 1.968 million hectoliters for the years ended December 31, 2023, 2022 and 2021, respectively.
Net sales
The following table highlights the drivers of the change in net sales and net sales per hectoliter for the year ended December 31, 2023 compared to December 31, 2022 (in percentages):
| Financial Volume | Price and Sales Mix | Currency | Total | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| EMEA&APAC net sales | (3.0) | % | 14.7 | % | 2.8 | % | 14.5 | % | |||
| EMEA&APAC net sales per hectoliter | N/A | 15.2 | % | 2.9 | % | 18.1 | % |
Net sales increased 14.5% for the year ended December 31, 2023, compared to prior year driven by favorable price and sales mix as well as favorable foreign currency impacts, partially offset by a decline in financial volumes.
Financial volumes decreased 3.0% for the year ended December 31, 2023, compared to prior year, primarily due to declines in Central and Eastern Europe due to industry softness given the inflationary pressures on the consumer, partially offset by resilient demand and growth in above premium volumes in the U.K.
Price and sales mix favorably impacted net sales and net sales per hectoliter for the year ended December 31, 2023, by 14.7% and 15.2%, respectively, primarily due to increased net pricing including the rollover benefits from price increases taken in the previous year and favorable sales mix driven by geographic mix and premiumization.
A discussion of currency impacts on net sales is included in the "Foreign currency impact on results" section above.
Income (loss) before income taxes
Loss before income taxes was $41.1 million for the year ended December 31, 2023, compared to income before income taxes of $61.0 million in the prior year. The decline was primarily due to the impairment charge of $160.7 million to our indefinite-lived intangible asset related to the Staropramen family of brands, as well as cost inflation on materials, logistics and manufacturing expenses, higher MG&A spend, lower financial volumes as well as the unfavorable impact of foreign currency partially offset by increased net pricing to customers and favorable sales mix.
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Unallocated Segment
We have certain activity that is not allocated to our segments, which has been reflected as "Unallocated" below. Specifically, "Unallocated" activity primarily includes financing-related costs such as interest expense and income, foreign exchange gains and losses on intercompany balances and realized and unrealized changes in fair value on instruments not designated in hedging relationships related to financing and other treasury-related activities and the unrealized changes in fair value on our commodity swaps not designated in hedging relationships recorded within cost of goods sold, which are later reclassified when realized to the segment in which the underlying exposure resides. 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 | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31, 2023 | Change | December 31, 2022 | Change | December 31, 2021 | |||||||||||
| (In millions, except percentages) | |||||||||||||||
| Cost of goods sold | $ | (93.5) | (59.3) | % | $ | (229.9) | N/M | $ | 236.6 | ||||||
| Gross profit | (93.5) | (59.3) | % | (229.9) | N/M | 236.6 | |||||||||
| Operating income (loss) | (93.5) | (59.3) | % | (229.9) | N/M | 236.6 | |||||||||
| Total non-operating income (expense), net | (179.6) | (13.0) | % | (206.5) | (0.2) | % | (207.0) | ||||||||
| Income (loss) before income taxes | $ | (273.1) | (37.4) | % | $ | (436.4) | N/M | $ | 29.6 |
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 the years ended December 31, 2023, 2022 and 2021. 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 13.0% for the year ended December 31, 2023 compared to prior year primarily due to lower net interest expense and the favorable impact of transactional foreign currency, partially offset by lower pension and OPEB non-service net benefit.
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 report and our long-term liquidity requirements. We do not have any restrictions that prevent or limit our ability to declare or pay dividends.
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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, 2023, approximately 61% of our cash and cash equivalents were located outside the U.S., largely denominated in foreign currencies. Fluctuations in 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. 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 in its capacity as the issuer of the senior notes under the May 2012 Indenture and the July 2016 Indenture. "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 5.0% senior notes due 2042. 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 in Exhibit 22 of this Annual Report on Form 10-K (the Subsidiary Guarantors, and together with the Parent Issuer, the "Obligor Group"). 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, 2023.
The following summarized financial information relates to the Obligor Group as of December 31, 2023 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. The balances and transactions with non-guarantor subsidiaries have been separately presented.
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Summarized Financial Information of Obligor Group
| Year ended December 31, 2023 | ||
|---|---|---|
| (In millions) | ||
| Net sales, out of which: | $ | 9,234.4 |
| Intercompany sales to non-guarantor subsidiaries | $ | 117.1 |
| Gross profit, out of which: | $ | 3,563.0 |
| Intercompany net costs from non-guarantor subsidiaries | $ | (360.4) |
| Net interest expense, out of which: | $ | (208.7) |
| Intercompany net interest expense from non-guarantor subsidiaries | $ | (2.6) |
| Income before income taxes | $ | 1,311.1 |
| Net income | $ | 988.1 |
| As of December 31, 2023 | ||
|---|---|---|
| (In millions) | ||
| Total current assets, out of which: | $ | 1,814.3 |
| Intercompany receivables from non-guarantor subsidiaries | $ | 255.7 |
| Total noncurrent assets, out of which: | $ | 24,641.0 |
| Noncurrent intercompany notes receivable from non-guarantor subsidiaries | $ | 4,178.6 |
| Total current liabilities, out of which: | $ | 3,048.4 |
| Current portion of long-term debt and short-term borrowings | $ | 885.6 |
| Intercompany payables due to non-guarantor subsidiaries | $ | 117.7 |
| Total noncurrent liabilities, out of which: | $ | 8,094.7 |
| Long-term debt | $ | 5,257.6 |
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 $2,079.0 million for the year ended December 31, 2023 increased $577.0 million compared to $1,502.0 million for the year ended December 31, 2022. The increase in net cash provided by operating activities was primarily due to higher net income and the favorable timing of working capital in the Americas across all categories, partially offset by higher income taxes paid.
Cash Flows from Investing Activities
Net cash used in investing activities of $841.7 million for the year ended December 31, 2023 increased $216.6 million compared to $625.1 million for the year ended December 31, 2022. The increase in net cash used in investing activities was primarily due to higher acquisitions, lower proceeds from the sales of properties and other assets, as well as higher capital expenditures.
Cash Flows from Financing Activities
Net cash used in financing activities of $981.4 million for the year ended December 31, 2023 increased $91.9 million compared to $889.5 million for the year ended December 31, 2022. The increase in net cash used in financing activities was primarily due to higher Class B common stock share repurchases, higher dividend payments, partially offset by lower net debt repayments.
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Capital Resources, including Material Cash Requirements
Cash and Cash Equivalents
We had total cash and cash equivalents of $868.9 million as of December 31, 2023, compared to $600.0 million as of December 31, 2022. The increase in cash and cash equivalents from December 31, 2022 to December 31, 2023 was primarily due to the net cash provided by operating activities, partially offset by capital expenditures, net debt repayments, including the repayment of our CAD 500 million 2.84% note which matured in July 2023, dividend payments, Class B common stock share repurchases, as well as cash paid for the acquisition of businesses. 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 our working capital to ensure we are able to meet our short-term obligations and to provide more favorable timing of cash inflows. These efforts include optimizing our inventory levels and managing our payment terms on accounts payable and accounts receivable.
Borrowings
We repaid our CAD 500 million 2.84% notes upon their maturity on July 15, 2023 using 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 draw on our revolving credit facility if the need arises. On June 26, 2023, we amended and restated our multi-currency revolving credit facility. Among other things, the term was extended through June 26, 2028, and the borrowing capacity was increased to $2.0 billion. This $2.0 billion revolving credit facility amended our pre-existing $1.5 billion revolving credit facility, which would have matured on July 7, 2024. On September 28, 2023, we amended our commercial paper program, which reduces borrowing capacity under the revolving credit facility, to a maximum borrowing capacity of $2.0 billion to borrow at any time at variable interest rates. The $150.0 million sub-facility available for the issuance of letters of credit remains unchanged. As of December 31, 2023, we had $2.0 billion available to draw on our $2.0 billion revolving credit facility. As of December 31, 2023, we had no borrowings drawn on this revolving credit facility and no 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 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 and restated revolving credit facility agreement, was 4.00x as of December 31, 2023 which remained unchanged from the requirement as of December 31, 2022. As of December 31, 2023 and December 31, 2022, 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, 2023 rank pari-passu.
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 Part II - Item 8 Financial Statements and Supplementary Data, Note 13, "Commitments and Contingencies" for further discussion.
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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, 2023, based on foreign exchange rates as of December 31, 2023, is as follows.
| Payments due by period | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Total | 2024 | 2025-2026 | 2027-2028 | 2029 and thereafter | ||||||||||||||
| (In millions) | ||||||||||||||||||
| Debt obligations | $ | 6,182.2 | $ | 904.6 | $ | 2,377.6 | $ | — | $ | 2,900.0 | ||||||||
| Interest payments on debt obligations | 2,986.3 | 214.6 | 407.2 | 261.2 | 2,103.3 | |||||||||||||
| Retirement plan expenditures(1) | 384.3 | 42.9 | 77.9 | 77.1 | 186.4 | |||||||||||||
| Operating leases | 270.7 | 53.6 | 83.5 | 43.3 | 90.3 | |||||||||||||
| Finance leases | 74.3 | 8.5 | 19.6 | 9.7 | 36.5 | |||||||||||||
| Other long-term obligations(2) | 2,286.2 | 616.6 | 785.5 | 555.1 | 329.0 | |||||||||||||
| Total obligations | $ | 12,184.0 | $ | 1,840.8 | $ | 3,751.3 | $ | 946.4 | $ | 5,645.5 |
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 $3.6 million under our defined benefit pension plans in the next twelve months and our benefit payments under postretirement benefit plans through 2033. The net underfunded liability as of December 31, 2023 of our defined benefit pension plans (excluding our overfunded plans) and postretirement benefit plans is $38.1 million and $470.6 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, pre-commencement leases, open purchase orders and other commitments.
Other Commercial Commitments
Based on foreign exchange rates as of December 31, 2023, future commercial commitments are as follows:
| Amount of commitment expiration per period | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Total amounts committed | 2024 | 2025-2026 | 2027-2028 | 2029 and thereafter | ||||||||||||||
| (In millions) | ||||||||||||||||||
| Standby letters of credit | $ | 54.3 | $ | 52.6 | $ | 1.6 | $ | 0.1 | $ | — |
Credit Rating
Our current long-term credit ratings are BBB/Stable Outlook, Baa2/Positive Outlook and BBB/Stable Outlook with Standard & Poor's, Moody's and DBRS, respectively. Our short-term credit ratings are A-2, Prime-2 and R-2, 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 $688.6 million, and paid $671.5 million, for capital improvement projects worldwide for the year ended December 31, 2023, excluding capital spending by equity method joint ventures, representing a decrease of $6.1 million from the $694.7 million of capital expenditures incurred for the year ended December 31, 2022. 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.
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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 and Supplementary Data, Note 13, "Commitments and Contingencies" for discussion of off-balance sheet arrangements. As of December 31, 2023, 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, 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, 2023, on a weighted-average basis, the discount rates used were 4.74% for our defined benefit pension plans and 4.64% for our OPEB plans. The change from the weighted-average discount rates of 5.01% for our defined benefit pension plans and 4.90% for our OPEB plans as of December 31, 2022 was primarily due to a decrease in interest rates at the end of 2023 across all plans.
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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, 2023 for our pension and OPEB plans:
| Decrease in discount rate | Increase in discount rate | |||||
|---|---|---|---|---|---|---|
| (In millions) | ||||||
| Unfavorable (favorable) impact to projected benefit obligation as of December 31, 2023 | ||||||
| Pension obligation | $ | 161.2 | $ | (147.7) | ||
| OPEB obligation | 20.1 | (18.6) | ||||
| Total impact to the projected benefit obligation | $ | 181.3 | $ | (166.3) |
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 our outsourced investment consultant. 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 5.47% for our defined benefit pension plan assets for cost recognition in 2024. This is an increase from the weighted-average rate of 4.91% we assumed for 2023, primarily due to the increases seen in interest rates throughout the majority of 2023 causing higher expected future fixed income returns. 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.
A 50 basis point change in our expected return on assets assumptions made at the beginning of 2023 would have had the following effects on 2023 net periodic pension and postretirement benefit costs.
| Decrease in expected rate of return | Increase in expected rate of return | |||||
|---|---|---|---|---|---|---|
| (In millions) | ||||||
| (Unfavorable) favorable impact to the 2023 net periodic pension and postretirement benefit cost | ||||||
| Net periodic pension and postretirement benefit cost | $ | (14.1) | $ | 14.1 |
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.
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, 2023, the health care trend rates used were ranging ratably from 6.75% in 2024 to 3.57% in 2040, which are in line with our assumed health care trend rates ranging ratably from
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6.50% in 2023 to 3.57% in 2040 as of December 31, 2022. 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, 2023.
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 is 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 impairment evaluations. As of December 31, 2023, the carrying values of goodwill and intangible assets were approximately $5.3 billion and $12.6 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 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, including our anticipated innovations 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.
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Annual Goodwill Impairment Test
As of the October 1, 2023 testing date, the fair value of the Americas reporting unit was determined to be in excess of its carrying amount and therefore no goodwill impairment charge was recorded. The Americas reporting unit continues to be at a heightened risk of future impairment as the carrying value exceeds its respective fair value by slightly less than 15%. The fair value of the Americas reporting unit increased during the current year, primarily due to higher forecasted cash flow projections, with the increases largely impacted by shifts in consumer preferences in the U.S. market towards our core brands leading to increased volumes, paired with pricing increases put in place starting in late 2022 as well as lower inflation rates than previously expected. This is partially offset by an increase to the discount rate as a result of the recent rising interest rate environment. Specifically, the discount rate used in developing our annual fair value estimates for the Americas reporting unit in the current year was 9.00% based on market-specific factors, as compared to 8.75% used as of the October 1, 2022 annual testing date. A 50 basis point increase in our discount rate assumption, holding all other assumptions and inputs constant, would not have resulted in an impairment of the Americas reporting unit.
Current projections used for the Americas reporting unit testing reflected growth assumptions associated with our continued plan to consistently grow our core power brand revenue, aggressively premiumize our portfolio, scale and expand beyond beer, invest in our capabilities and invest in our people, communities and planet, all of which are intended to benefit the projected cash flows of the business. While progress has been made on this strategy, including the strengthening of our core brands, there is not enough historical data yet to adequately 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.
As of the October 1, 2022 testing date, an impairment loss of $845.0 million was recorded as the carrying value of the Americas reporting unit was determined to be in excess of its fair value. The decline in the fair value of the Americas reporting unit was largely impacted by macroeconomic factors including an increase to the discount rate as a result of the rising interest rate environment as well as reductions in management forecasts and expectations due primarily to cost inflation pressures and a softening beer industry in certain markets in which we operate.
Indefinite-Lived Intangible Assets
As of the October 1, 2023 testing date, the carrying value of the Staropramen family of brands in EMEA&APAC was determined to be in excess of its fair value such that an impairment loss of $160.7 million was recorded. As this is a partial impairment, the intangible asset is considered to be at a heightened risk of future impairment, and the carrying value of the brand was $426.9 million as of December 31, 2023. The decline in the fair value in the current year was impacted by reductions in management forecasts due to delays and changes in strategic priorities for expansion and distribution of the brand in certain export and license markets, increased optionality for consumers in the premium sector in key markets, and reduced demand in Central and Eastern Europe due to cost inflation pressures on consumers as well as macroeconomic factors including an increase to the discount rate as a result of the recent rising interest rate environment. The discount rate used in developing our annual fair value estimates for the Staropramen family of brands in the current year was 13.25% based on company specific and market-specific factors, as compared to 11.25% used as of the October 1, 2022 annual testing date. The current year rate includes elevated risk premiums to account for execution risk of strategic initiatives for the brands, including the launch of brand extensions and geographic expansion of the brands in certain markets, in addition to continued economic uncertainty in Central and Eastern Europe due to the effects of cost inflation and the associated impacts on consumer demand and discretionary spending.
The fair values of the Coors brands in the Americas, the Miller brands in the U.S, and the Carling 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. A 50 basis point increase in our discount rate assumptions would not have resulted in an impairment of the Coors, Miller or Carling brand 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.
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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 2023 or 2022 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 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.