Goodwill and Intangible Assets

The following summarizes the change in goodwill for the nine months ended September 30, 2016:



	Canada		Europe			MCI			Consolidated
	(In millions)
Balance at December 31, 2015	$	551.4	$	1,408.7		$	23.2		$	1,983.3
Business acquisition and disposition⁽¹⁾	—		—			(0.6		)	(0.6		)
Impairment related to India reporting unit⁽²⁾	—		—			(15.7		)	(15.7		)
Foreign currency translation	29.8		(71.3		)	(0.3		)	(41.8		)
Balance at September 30, 2016	$	581.2	$	1,337.4		$	6.6		$	1,925.2


(1)	The goodwill adjustment for the nine months ended September 30, 2016, reflects the final purchase price accounting adjustment associated with the April 1, 2015, acquisition of Mount Shivalik Breweries Ltd. ("Mount Shivalik"), a regional brewer in India.


(2)	The MCI goodwill impairment loss for the nine months ended September 30, 2016, resulted from an interim goodwill impairment assessment for the India reporting unit performed during the second quarter of 2016, triggered by the enactment of total alcohol prohibition in the state of Bihar, India on April 5, 2016.

On October 11, 2016, we completed the Acquisition and have estimated preliminary goodwill attributable to the acquisition of the remaining 58% interest in MillerCoors at approximately $5.9 billion. We expect to allocate the majority of the goodwill generated to our U.S. reporting unit, and will complete our preliminary allocation to our other reporting units during the fourth quarter of 2016. Additionally, we have also preliminarily allocated the estimated consideration related to the Miller global brand portfolio of $700.0 million entirely within goodwill as we are not yet able to estimate the allocation of fair value to the net assets acquired. The allocation related to the Miller global brand portfolio is expected to result in value allocated to identifiable intangible assets subject to amortization. See Note 16, "Acquisition" for further details.

The following table presents details of our intangible assets, other than goodwill, as of September 30, 2016:



	Useful life	Gross		Accumulated amortization			Net
	(Years)	(In millions)
Intangible assets subject to amortization:
Brands	3 - 50	$	1,145.2	$	(249.8	)	$	895.4
License agreements and distribution rights	3 - 28	130.5		(90.3		)	40.2
Other	2 - 8	25.7		(25.1		)	0.6
Intangible assets not subject to amortization:
Brands	Indefinite	3,156.1		—			3,156.1
Distribution networks	Indefinite	770.6		—			770.6
Other	Indefinite	17.5		—			17.5
Total		$	5,245.6	$	(365.2	)	$	4,880.4

The following table presents details of our intangible assets, other than goodwill, as of December 31, 2015:



	Useful life	Gross		Accumulated amortization			Net
	(Years)	(In millions)
Intangible assets subject to amortization:
Brands	3 - 50	$	1,121.8	$	(226.1	)	$	895.7
License agreements and distribution rights	3 - 28	135.1		(87.1		)	48.0
Other	2 - 8	29.9		(28.6		)	1.3
Intangible assets not subject to amortization:
Brands	Indefinite	3,052.2		—			3,052.2
Distribution networks	Indefinite	731.0		—			731.0
Other	Indefinite	17.5		—			17.5
Total		$	5,087.5	$	(341.8	)	$	4,745.7

The changes in the gross carrying amounts of intangibles from December 31, 2015, to September 30, 2016, are primarily driven by the impact of foreign exchange rates, as a significant amount of intangibles are denominated in foreign currencies, as well as the definite-lived brand intangible asset impairments and the associated write-off of the gross value and accumulated amortization recorded related to certain India brands in the second quarter of 2016 as discussed below. On October 11, 2016, we completed the Acquisition and the preliminary fair value allocated to aggregate indefinite and definite-lived intangible assets related to the Acquisition was approximately $9.9 billion, which the related definite-lived intangible asset amortization expense is excluded from the table below. See Note 16, "Acquisition" for further details.

Based on foreign exchange rates as of September 30, 2016, the estimated future amortization expense of intangible assets is as follows:



Fiscal year	Amount
	(In millions)
2016 - remaining	$	9.8
2017	$	28.5
2018	$	27.1
2019	$	27.1
2020	$	26.9

Amortization expense of intangible assets was $9.8 million and $6.4 million for the three months ended September 30, 2016, and September 30, 2015, respectively, and $29.5 million and $20.1 million for the nine months ended September 30, 2016, and September 30, 2015, respectively. This expense is presented within marketing, general and administrative expenses on the unaudited condensed consolidated statements of operations.

We completed our required annual goodwill and indefinite-lived intangible impairment testing as of October 1, 2015, the first day of our fourth quarter, and concluded there were no impairments of goodwill within our Europe, Canada or India reporting units or impairments of our indefinite-lived intangible assets. As further discussed below, we identified a triggering event in our India reporting unit in April 2016, and as a result, completed an interim impairment assessment which resulted in an impairment loss recognized in the second quarter of 2016.

Reporting Units and Goodwill

The operations in each of the specific regions within our Canada, Europe and MCI segments are considered components based on the availability of discrete financial information and the regular review by segment management. We have concluded that the components within the Canada and Europe segments each meet the criteria as having similar economic characteristics and therefore have aggregated these components into the Canada and Europe reporting units, respectively. Additionally, we determined that the components within our MCI segment do not meet the criteria for aggregation, and therefore, the operations of our India business constitute a separate reporting unit at the component level.

Our 2015 annual goodwill impairment testing determined that while our Canada reporting unit improved from the prior year, our Europe reporting unit declined and was determined to be at risk of failing step one of the goodwill impairment test. Specifically, the fair value of the Europe and Canada reporting units were estimated at approximately 9% and 20% in excess of carrying value, respectively, as of the October 1, 2015, testing date. The fair value of the India reporting unit was deemed to approximate the carrying value of the reporting unit due to purchase price accounting performed as of April 1, 2015, for the Mount Shivalik acquisition, which comprised the majority of the India reporting unit. In April 2016, the enactment of total alcohol prohibition in Bihar, India, triggered an interim impairment assessment for the goodwill of the India reporting unit. Refer to the India Triggering Event and Interim Impairment Assessment section below for the details regarding the interim assessment and the associated impairment charge.

Indefinite-Lived Intangibles

Our Molson core brands intangible asset continues to be at risk of future impairment with a fair value estimated at approximately 3% in excess of its carrying value as of the impairment testing date of October 1, 2015. The fair value of the Molson core brands continues to face significant competitive pressures and challenging macroeconomic conditions in the Canada market. Management continues to focus on the Molson core brands, primarily Molson Canadian, as evidenced by increased marketing spend during 2016 in our Canada segment; however, generating volume and net sales growth remains a significant challenge. These challenges continue to be offset by anticipated cost savings initiatives and supply chain optimization, including the monetization and optimization of our Vancouver brewery location although there is risk with the realization and sustainability of these initiatives that could adversely impact the actual and projected cash flows attributed to these brands. As of September 30, 2016, the Molson core brands intangible had a carrying value of approximately $2.3 billion. The value of our other indefinite-lived intangibles continued to be sufficiently in excess of their carrying values as of the October 1, 2015, testing date.

We utilized Level 3 fair value measurements in our impairment analysis of our indefinite-lived intangible assets, which utilizes an excess earnings approach to determine the fair values of the assets as of the testing date. The future cash flows used in the analysis are based on internal cash flow projections based on our long range plans and include significant assumptions by management as noted below.

Key Assumptions

The Europe reporting unit goodwill and the Molson core brands intangible asset are at risk of future impairment in the event of significant unfavorable changes in the forecasted cash flows (including prolonged, or further weakening of, adverse economic conditions or significant unfavorable changes in tax, environmental or other regulations, including interpretations thereof), terminal growth rates, market multiples and/or weighted-average cost of capital utilized in the discounted cash flow analyses. For testing purposes, management's best estimates of the expected future results are the primary driver in determining the fair value. Current projections used for our Europe reporting unit testing reflect continued challenging environments in the future followed by growth resulting from a longer-term recovery of the macroeconomic environment, as well as the benefit of anticipated cost savings and specific brand-building and innovation activities. Our Molson core brands projections also reflect a continued challenging environment that has been adversely impacted by a weak economy across all industries, as well as weakened consumer demand driven by increased competitive pressures, partially offset by anticipated cost savings and specific brand-building and innovation activities. 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 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 intangibles may include such items as: (i) a decrease in expected future cash flows, specifically, a decrease in sales volume and increase in costs that could significantly impact our immediate and long-range results, a decrease in sales volume driven by a prolonged weakness in consumer demand or other competitive pressures adversely affecting our long-term volume trends, a continuation of the trend away from core brands in certain of our markets, especially in markets where our core brands represent a significant portion of the market, unfavorable working capital changes 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 recession or worsening of the overall European economy), (iii) volatility in the equity and debt markets or other country specific factors which could result in a higher weighted-average cost of capital, (iv) sensitivity to market multiples; and (v) regulation limiting or banning the manufacturing, distribution or sale of alcoholic beverages.

Based on known facts and circumstances, we evaluate and consider other recent events and uncertain items, as well as related potential implications, as part of our annual assessment and incorporate into the analyses as appropriate. These facts and circumstances are subject to change and may impact future analyses.

While historical performance and current expectations have resulted in fair values of our reporting units in excess of carrying values in our annual impairment test, if our assumptions are not realized, it is possible that an impairment charge may need to be recorded in the future.

Definite-Lived Intangibles

Regarding definite-lived intangibles, we continuously monitor the performance of the underlying asset for potential triggering events suggesting an impairment review should be performed. Excluding the definite-lived intangible asset impairment charge associated with the triggering event which occurred in Bihar, India further discussed below, no such triggering events were identified in the first nine months of 2016.

India Triggering Event and Interim Impairment Assessment

In the fourth quarter of 2015, a newly elected government in the state of Bihar, India announced plans to ban the sale of "country" liquor and to limit the sale of other forms of alcohol, such as beer, to certain government owned outlets, effective April 1, 2016. On April 5, 2016, four days after the start of the ban on "country" liquor, the government of the state of Bihar announced immediate changes to the ban, implementing a complete prohibition of the sale and consumption of all forms of alcohol. Due to this triggering event, and as the expected length of the prohibition was unclear and was expected to remain in effect for the foreseeable future, we performed an interim impairment assessment for the impacted tangible assets, intangible assets and the India reporting unit goodwill. Specifically, upon identification of the triggering event we completed step one of the goodwill impairment test comparing the fair value of the India reporting unit to its carrying value using a combination of discounted cash flow analyses and market approaches, which resulted in the need to complete step two. Upon completion of step two, we recorded an impairment of tangible assets of $11.0 million and impairment of goodwill and definite-lived intangibles of $19.8 million within special items during the second quarter of 2016. The remaining goodwill attributable to the India reporting unit of $6.6 million, based on foreign exchange rates at September 30, 2016, is associated with cash flows in other states in India, where alcohol sales are not prohibited. We continue to monitor legal proceedings impacting the regulatory environment as it relates to our ability to resume operations in the state. In addition, if the facts or circumstances associated with the expected collectibility of certain Bihar receivables due from the government of approximately $7 million adversely change or if future cash flows are adversely impacted relative to the projected cash flows used in the impairment analysis, we may incur additional impairment or other losses in future periods.