Welcome to the Molson Coors Brewing Company Second Quarter 2013 Earnings Conference Call. Before we begin, I will paraphrase the company's Safe Harbor language. Some of the discussion today may include forward-looking statements. Actual results could differ materially from what the company projects today, so please refer to its most recent 10-K and 10-Q filings for a more complete description of factors that could affect these projections. The company does not undertake to publicly update forward-looking statements whether as a result of new information, future events or otherwise. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made. Regarding any non-U.S. GAAP measures that may be discussed during the call and from time-to-time by the company's executives in discussing the company's performance, please visit the company's website, www.molsoncoors.com, and click on the Financial Reporting tab of the Investor Relations page for a reconciliation of these measures to the nearest U.S. GAAP results. Also, unless otherwise indicated, all financial results the company discusses are versus the comparable prior year period and in U.S. dollars. Now I would like to turn the call over to Peter Swinburn, President and CEO of Molson Coors.

Thank you, Tracy. Hello, and welcome, everybody, to the Molson Coors Earnings Call, and thank you for joining us today. With me on the call this morning are Gavin Hattersley, Molson Coors' CFO; Tom Long, CEO of MillerCoors; Stewart Glendinning, CEO of Molson Coors Canada; Mark Hunter, CEO of Molson Coors Europe; Kandy Anand, CEO of Molson Coors International; Sam Walker, Molson Coors' Chief Legal and People Officer; and Dave Dunnewald, Molson Coors' VP of Investor Relations. On the earnings call today, Gavin and I will take you through highlights of our second quarter 2013 results for Molson Coors Brewing Company, along with some perspective on the remainder of 2013. In the second quarter, Molson Coors delivered double-digit underlying earnings growth and more than 165% growth on a U.S. GAAP basis. This underlying income growth was driven by earnings accretion from the Central European acquisition that we completed during June last year, along with improved financial performance in our Europe and International businesses and lower quarterly tax rate. We generated strong free cash flow and reduced our net debt by $373 million in the quarter. We delivered these results despite weaker consumer demand and poor weather across all of our markets. Most of our key brands in core markets gained or held share versus a year ago. Coors Light achieved mixed results by gaining share of premium lights in the U.S. per ACNielsen and growing strongly in the U.K. and Mexico, but underperforming the market in Canada. Molson Canadian held share in Canada and got off to a strong start with its national rollout in the Republic of Ireland. Carling grew share in the U.K. and performed well globally, including in its newest market, Croatia. Staropramen core brand maintained share in the Czech Republic and grew share strongly across the…

Thank you, Peter, and hello, everybody. Molson Coors' second quarter underlying after-tax earnings increased 11.4% to $278.6 million or $1.51 per share. This growth was driven by earnings accretion from our Central Europe acquisition and improved financial performance in Europe and International, along with a lower effective tax rate. This lower tax rate was driven by changes in tax legislation in Canada, which decreased our second quarter effective tax rate by approximately 5 percentage points. Underlying operating income increased 10%, while pretax income grew 5.6% in the quarter. Worldwide beer volume for Molson Coors increased more than 20% due to the addition of Central Europe results. As we have in previous quarters, I'll provide an overview of our results, with MillerCoors presented as if it were proportionately consolidated. This is a non-GAAP approach, but we believe it provides a useful view of some key performance metrics for our business. On this basis, total company net sales increased 7.8% in the second quarter, driven by the inclusion of the Central Europe business. Despite pricing growth across all regions, net sales on a per hectoliter basis decreased 7.4% in the quarter due to the addition of Central Europe sales and a lower net sales per hectoliter rate. Underlying cost of goods sold per hectoliter decreased 7% due to the addition of Central Europe, which has a lower cost structure than our other businesses, partially offset by higher cost of goods sold per hectoliter in Canada and the United States. Total company gross margin was 41.6%, 30 basis points lower than a year ago, primarily due to higher cost of goods sold in Canada and the U.S. Despite the addition of Central Europe in MG&A this year, underlying marketing, general and administrative expenses increased only 5%. Underlying operating margin was 17.5%, up 30…

Thanks, Gavin. In the U.S., our net revenue per hectoliter growth remained solid, but volume has been challenged. We will continue to put emphasis on growing the above-premium part of our portfolio while addressing the Premium Light volume declines. In respect of above-premium, we are pleased with the contribution from Redd's Apple Ale on top of that achieved by Leinenkugel Summer Shandy and Blue Moon. We plan to introduce Redd's Strawberry Ale in the fall. In Canada, the second quarter results benefited from lower marketing sales spending, which we expect to reverse in the second half. Molson Canadian has performed well on the back of a very well-received Canadian passport creator. And we have some work to do on Coors Light. Meanwhile, in above-premium, we are expanding the reach of Six Pints and continue to see good growth from the Rickard's brand family. In Europe, despite expected industry softness, we will be increasing our MG&A spending against a strong brand and innovation program. Carling Cider in the U.K. is now benefiting from heavyweight marketing support. Carling Zest is growing strongly, and Carling Coolers are being tested by an exclusive launch in Asda-Walmart, building on the success of beer mixes in Central Europe. In Hungary, we have extended our Borsodi brand with the introduction of Borsodi Super Dry. In the Czech Republic, we are establishing a new non-alcohol category via the launch of Brewers Lemonade. Alongside the innovation agenda, we have also expanded the existing portfolio with the introduction of Carling into Croatia and Molson Canadian into Ireland, both of which are performing well. Our International business continues to focus on growth behind a solid portfolio of Coors Light, Carling and Staropramen. In the second half of 2013, our International business will include the negative impact of transferring our Carling travel…

[Operator Instructions] Your first question comes from Dara Mohsenian with Morgan Stanley.

Some more clarity on what drove Canadian volume softness from an industry standpoint in the quarter. I'm assuming weather had an impact, but were there other factors there? Because I'm surprised the volumes are still so weak in July, with the easy comp there and improved weather. And then also, can you just discuss if there's been any change that you've seen in terms of the level of competitive pressure coming from the value segment?

Yes. So let me just headline it, and Stewart can give you more detail. I mean, the second quarter last year was a strong quarter in Canada. Volumes were up. So from that point of view, it was a difficult comp, plus the fact that we did benefit from the launch of Coors Light Iced T, as we highlighted in the second quarter of last year. So we were tracking that as well. And that certainly had an impact on our second quarter figures. But Stewart, do you want to go into more detail?

Yes, happy to do that, Peter. I mean, look, I think if you looked at the beer industry, June was an appalling month in beer volumes, and broader alcohol was -- other wines and spirits were more or less flat, but beer itself was down across the country, and that was primarily driven by a weakness in weather. If you just looked at our volumes, we were off for the year, if you look at industry number we use, we're off by about 100,000 hectoliters for the year, about 1/2 of that was Coors Light Iced T. So hopefully, that gives you a little perspective.

Value segment, Stewart?

Sorry?

Value segment.

Yes. So value segment, how did value segment operate for us, value is a place where actually historically we've underperformed. I'd say, as I looked at the second quarter, I'm pleased to say we grew share of value. Value itself was flat, but our share of the segment grew.

Okay. And also, can you talk about the value segment as a percent of industry volume and if you're seeing any changes there? And then just on the pricing environment, in general, it was the weakest result we've seen from you guys in a few years. So can you separate out kind of price and mix in terms of the impact on the quarter and how pronounced some of the discounting you're seeing is, and what you're seeing from a promotional standpoint by region?

Sure. So first, on value, because value was close to flat, value did gain share of beer in total, and we gained a share of value. With respect to NSR, so break it into 2 pieces. On a net price basis, we were positive by almost 1%. Across the country, we saw a pricing pressure in Atlantic and Québec, primarily very competitive markets, continue to be that -- to see pricing pressure about through the end of the quarter. I can comment on that piece. What -- I think if you then looked at the remaining impacts, you'll find there were really several impacts. First of all, we saw a loss of premium overall, so there was a segment impact on the market. The second one was, as mentioned already, we saw stronger value performance at value having lower NSR, so that mix resulted in lower NSR. We saw a shift to some of our larger packs. And then, of course, we saw lower volumes in Ontario, and the combination of those drove the balance of the NSR negative.

Your next question is from Bryan Spillane with Bank of America.

Just a -- I guess a follow-up on Canada, just where do we stand now on trade inventories in the quarter? And because it looked like your sales-to-wholesalers ran a little bit ahead of sales-to-retailers, so is there any residual effect in the second half as we look at shipments?

Well, I think if you looked at -- yes, certainly, I think if you looked at the difference between the volumes that were our fiscal volumes versus our industry volumes, you'll see a bigger spread there. That is primarily related to Ontario, and it relates to the way in which the LCBO accounts for shipments coming from Europe. So there is a small amount there. I won't speak to the exact volumes.

But as we're modeling out the second half, would we see some lag between what you'll shift versus what the sales-to-retailer will be in Canada?

Again, we won't give any forward guidance on that. But again, I have explained the difference between the fiscal volumes and that adjustment for industry. And now I just would say, just sorry, just if you go back, just more commentary on that. If you look back over time, you will see historically in our numbers a difference between those. I just think if you looked at this particular quarter, you will see that the gap is a little bit higher.

Okay. Great. And Gavin, just on the tax rate, is the cash tax rate for the quarter or for the year going to resemble your P&L tax rate? And I guess, does your free cash flow at all for the year get flattered by the lower tax rate?

Now Bryan, our underlying free cash flow goal that we've got out there of $700 million, plus or minus 10%, is inclusive of any cash tax payments. And we've left that unchanged from our earlier guidance. This one-off change in the Canadian tax law is essentially a noncash item.

Your next question comes from the line of Ian Shackleton with Nomura.

I was very interested in the change guidance on the COGS for Europe and International. I just wonder if you could just give a little bit more description. Is this low barley cost coming through, or is this something you expect to see in the other divisions as hedging runs out, perhaps going into next year?

I'll pass that on to Gavin here.

Yes, hi, Ian. As you know, there are a number of factors that drive the cost of goods sold. In these 2 instances, there had been some geographic mix changes by country, as well as brand and pack mix changes. The commodities which we use vary by country as well, and they're not the same in Canada as they are, for example, in Europe. And you will have seen and know that certain commodity prices have reduced worldwide. This has had a favorable impact on some of our unhedged positions. Our cost savings program is also on track, and remember that we did say in New York that for the first 2 to 3 years, we would be at the higher end of our $40 million to $60 million guidance. And finally, we have had some positive leverage in some parts of the world, specifically in this case, the U.K.

And just as a follow-up. When we think about that cost going to improve when coming at the high end of the $40 million to $60 million, certainly for this year, does that build as the year goes on, because I'm mindful of this that this is only announced back in June really to us?

I think the way I'd answer that is by guiding you towards our cost of goods sold guidance, which we've got out there, Ian. And to your earlier question, we will be giving guidance on 2014. We would only be doing that, I think, after the fourth quarter earnings results.

Your next question comes from line of John Faucher with JPMorgan. John A. Faucher - JP Morgan Chase & Co, Research Division: I just want to talk a little bit about the shift in marketing spending timing. And I guess I was wondering how much of this is sort of you guys responding to what's obviously a difficult category and choosing to put money to work at different times of the year? How much of this -- is there a sales curve accounting impact here in terms of the weaker volumes, particularly given the difficult comp? Just so is -- so we can get an idea in terms of how to model this out, how much is -- you guys being choiceful, for lack of a better word, versus maybe just how some of the volume shipments worked out and the allocations behind that?

Okay. I think simplistically, I mean, we just have a difference in year-over-year timing of spend in the first half, and we expect that to rectify itself. A lot of this is driven by introduction of brands and what we want to do with our core brands as well. I think the best thing I can do, to be honest with you, is to steer you towards Gavin's guidance on MG&A expense, which he's given. And so I think that's going to be as good as anything, to be honest with you. John A. Faucher - JP Morgan Chase & Co, Research Division: Okay. But that means there's no real response here in terms of the weakness in the category. It simply is related to programs moving in and out quarter-to-quarter, year-over-year?

Yes, that would be right.

Your next question is from Judy Hong with Goldman Sachs.

A couple of questions. First, just on Canada pricing. I just wanted to clarify just how you're thinking about your outlook for pricing. Clearly, the trend that we're seeing in terms of value growing, the premium under pressure is not necessarily a new phenomenon, so just in terms of thinking up rate pricing and the mix impact, does it get better from here? Or do we really see this as kind of an ongoing revenue per hectoliter trend for the next few quarters?

Yes. So, I mean, Judy, of course, we don't give any guidance on our forward-looking revenue. But I can just tell you that -- a couple of things. First of all, the growth of value, in our case, again I said value is approximately flat in the market. In our case, we actually grew share values. That was actually a positive. We saw a good deal of pressure on premium, and I think premium, just in general in the market, was under pressure. Our premium was also under pressure because of pressure that we saw from Coors Light Iced T. But beyond that, I can't really give you any prediction for the future other than to say that we're focused pretty acutely on Coors Light, and we'd like to see that brand performing better. I will also say that it is a competitive market. And if you looked across the country, what hasn't changed is the level of pricing competition across all of the regions.

Okay. So the level of competition is pretty intense that sort of limits the pricing side. And then within your portfolio, your value is outperforming your premium so that the negative mix impact right now is greater than it's been?

Yes, I won't give you, again, any guidance on going forward what the pricing will look like, but you are right that the mix is an impact and the market is competitive. You can certainly see those by looking at the front line pricing that you've seen in supermarkets. One of the things we called out in our release was the higher costs related to promotional packaging. And you're seeing a lot more promotions where people are including T-shirts or hats or those kinds of things alongside of the beer that a consumer is buying.

Okay. And then, Gavin, just as we think about the rollout of the pack model, can you help us just understand the phasing of that model within the organization? And sort of in the near term, what kind of an impact we should be focused on, and to the extent that volume really does come in pretty weak and pricing is pretty competitive, does this allow you to have more flex in your P&L to offset some of the headwinds and your profit growth is protected?

Judy, look, I'm not going to give you any forward guidance on profit. But to answer some of your questions, individually, from a pack rollout point of view, we're obviously starting at the top of the organization and cascading it down. And this year and then early into next year, I would expect us to be through most of the senior management of the organization, and then we'll take a decision on how we roll that out further throughout the organization. We're nicely on track from that perspective. Obviously, much of what we said in New York in June are the areas we're focusing on. So I think we've talked a lot about working capital, and obviously, that the focus we have on working capital allows us to get to our debt leverage targets, which we have out there to get back to where we were pre-acquisition within 1 to 3 years. And we have -- and to tell you about those working capital targets, it focuses on our capital efficiency and how we prioritize our spending from a capital point of view, which projects to go after and which not, and it also impacts on the cost side of our business. So without getting into any forward-looking profit statements, I think that's the best way I can answer your question.

And Judy, I don't know whether it helps or not, but the prime metric that we measure ourselves against as a management team is the PACC metric.

Okay. And that's the Molson Coors consolidated level, including MillerCoors JV?

Correct.

Your next question comes from Mark Swartzberg with Stifel, Nicolaus. Mark D. Swartzberg - Stifel, Nicolaus & Co., Inc., Research Division: Gavin, on the free cash flow view, I'm wondering if there's any particular items that aren't P&L, or at least not directly on the P&L but are more surely on the cash flow here that are going to be kind of incremental headwinds in the second half? And the reason I ask is you've got a pretty healthy amount of free cash flow in the first half, you tend to be a second half-weighted free cash flow company, and yet you're still saying this plus or minus 10% number on the $700 million. So it seems like we should be looking on the plus side of the $700 million, but there may be things going on that I'm missing.

Mark, look, I will let you decide which side of the $700 million you get, plus or minus. I would just point to some of the factors which impact our working capital -- not working capital, our free cash flow and which we talked about earlier when we set this guidance, and that was that we do have increased pension contributions, our cash taxes are increasing. And we, on the positive side, we're making steady improvements in our working capital. We are going to have higher capital expenditure and cash interest this year, primarily as a result of the Central Europe acquisition. So I'll steer you to the $700 million plus or minus 10%, Mark, and leave you to make the calculation. Mark D. Swartzberg - Stifel, Nicolaus & Co., Inc., Research Division: All right, fair enough. And then Stewart, a few questions on Canada. You called out this asset write-down as a component of the COGS increase. Could you give us a little bit more color on what sort of write-down that is and how enduring it might be, or whether we should expect anything like that on a go-forward basis?

Yes, I mean, I would say, look, it's really a couple of items. We wrote down some obsolete equipment, and we also had some write-offs related to aged product. So I would say the aged product is something that you see year-over-year, and that the write-off of the obsolete equipment is going to be more sporadic. Mark D. Swartzberg - Stifel, Nicolaus & Co., Inc., Research Division: Got it. And for clarity on this larger subject of the timing of marketing spend, in Canada, is it right to think that the number is it's the $12 million number you called out in the press release showing up in the second half?

Yes. So we didn't say specifically what would show up in the second half. We did point to the fact that in the first part of the year, $12 million was affected by phasing. Also important to note that in the fourth quarter of last year, we had lower marketing expense as a result of the NHL strike. So you'll have to make a guess as to where we're going to end up. But I think with those pieces of information, you're well on to do that. Mark D. Swartzberg - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And then finally, this July, STR number in Canada, I think you said, what, down low single-digits. Anything we should know either in terms of promotional activity or mix trends or share trends that is different than what we've seen either year-to-date or in the second quarter numbers?

Yes, I mean, Mark, as you know, of course, we don't normally speak to the third quarter. But so I'd just restrict my comments to the second quarter, and I think I've given you those.

[Operator Instructions] Your next question is from Brett Cooper with Consumer Edge Research.

A couple of quick questions. You called out in your press release a significant reduction in G&A costs, specifically in Canada. Is that just part of the cost savings and we should expect that kind of stuff going forward? And then I have a follow-up on the International side.

Okay. So yes, the answer is those are just part of our normal savings programs. And there was a smaller component of our cost reduction, which is related to lower incentive comp expense. So that obviously could come back in the future. But no, those are the 2 pieces.

Okay. And then quickly, on the International side, MG&A was down about $10 million. Is there any way that you guys can give us a little bit more color on sort of the pieces that drove the decline?

Brett, this is Kandy here. Yes, our MG&A was down 39% due to the impairment and deconsolidation of our China JV in 2012. We did incur lower overhead expenses. In addition, we specifically reduced our marketing investment in low margin non-China JV business to institute a more controlled spending approach in that market. And finally, we had lower overhead expenses across all markets during the quarter. That's how it added up.

Okay. But it sounds like those should all continue going forward, is that fair?

No, it's not. The China piece, the deconsolidation, we had the benefit in the first half, we won't get the benefit in the second half. The China reduction in spend of marketing actually started in the fourth quarter of last year, so you would get 1 quarter benefit of that, and the rest you can assume will continue.

Okay. I mean, I don't know if this is asking too much, but is it, I mean, is it roughly 1/3 each of those buckets or...

That's probably asking a bit too much, yes.

Your next question is from Rob Ottenstein with ISI.

I was wondering if you can give us a sense now, roughly looking at the Coors Light brand, what percentage of the volumes are in Canada, U.S. and International now? And what the global consolidated volumes did for the quarter?

We probably can if you give us a couple of seconds, Rob.

We don't normally talk about split of Coors Light by territory there.

Yes, but this is Dave Dunnewald. The U.S. is still by far the largest market for Coors Light. It's the second largest beer and the second largest beer market in the world. It's the largest beer in Canada, but that's a much smaller market in total volume. Population of Canada is only about 1/10 of the U.S. So Coors Light, while a very big brand in Canada is not as -- the total volume there is not as big as in the U.S. And then in the U.K, I would say, or in Europe more broadly, but specifically primarily in the U.K., Coors Light is growing very quickly off of a very small base.

Okay. Well, maybe we can follow-up offline. Can you give us a sense in terms of Europe, to the degree you have it, which countries you gained share? And maybe a little bit more detail country by country in terms of share and volume performance?

I think in the script, we outlined in those countries where we saw the gain share. But Mark, do you want to just go over that again?

Sure. So I won't talk to volume by country, but certainly from a share perspective, we saw share growth through the second quarter in the U.K., Bulgaria, Croatia and very encouragingly, in Romania. And we held our share in the Czech Republic despite what was a pretty material flooding incident that took place in June in Prague itself. So basically, our bigger markets were -- performed strongly from a share perspective. I think the interesting thing that we're seeing from a volume point of view is a particular volatility. So if you look at the first quarter in Europe, industry volumes were down about 0.5%. In the second quarter, they were down almost 6%. That's an industry level based on Nielsen data, and that's despite April and May being pretty strong, so June itself was very soft. And within that, we're seeing some pretty significant volatility. A lot were driven by weather patterns. So we are having to obviously make pretty short-term decisions to invest relative to some of the volume volatility that we're seeing. But I think we're managing that very effectively, and the share numbers speak for themselves.

Great. And then just one last question. I think you hinted at it but just so I'm absolutely clear, what is your expectation for the cash tax rate for this year?

I'm not sure we give out that level of specificity from a cash tax rate point of view. As I said, Robert, it is built into our $700 million plus or minus 10% full year underlying free cash flow guidance.

The only thing that we've said in the past, Robert, is that our cash tax rate, while we're not giving a forecast for a particular year, if you look at it historically, it has been, in recent years, a bit lower than our booked tax rate. And we've said in the past that we expect over time that the cash tax rate will migrate in the direction of or toward the book tax rate.

And your next question is from Bryan Spillane with Bank of America.

Stewart, I have a question about just your merchandising plans around the NHL for this upcoming season. First, if you could just describe, I guess, now as you kind of merchandise into the second half of the year and against the straight period last year, is there anything that you're doing differently this year, or that's different than a normal year, just because you've got this anticipation of the season started -- starting versus the strike last year? And then also, just as you look out merchandising into the NHL for the entire year, is there -- just how does the -- how do the Olympics affect that merchandising? Is there -- are you still sort of marketing against or merchandising against the Olympics while it's going on? Or is there sort of a window of time there during the season where it's relatively dark?

Yes. So first of all, you'll see a big change in the fourth quarter relative to last year because we just picked up the sponsorship of the NHL last year, but really didn't have anything to activate again since the teams are not playing. So fundamentally, all of the things that you would normally expect with a premier sponsorship like the NHL, you will see activated in the fourth quarter of this year. Relative to the Olympics, we're still developing some of the plans around the Olympics but we are sponsoring the Canadian Olympic team. And we expect that the Olympics activities actually will be very complementary to our NHL sponsorship because obviously, they will both be focused on hockey.

Your next question comes from the line of Mark Swartzberg with Stifel, Nicolaus. Mark D. Swartzberg - Stifel, Nicolaus & Co., Inc., Research Division: Kandy or Peter, now that we don't have the year-on-year noise from China, it sounds like International is not performing to plan. So a, is that accurate, b, what's really going on there, and how -- if we take out the structural noise and look at the trends we're seeing presently in the month of July versus first half, can you give us some flavor about what that sequential trend is?

So I guess my first reaction would be no, it's not accurate, Mark. As far as we're concerned, the International business is smack on plan. And as I've reiterated in the script, we're absolutely in line with making this business profitable in 2016. So in -- from that point of view, absolutely, yes. I'll let Kandy speak to some of the trends because some of the volume that we expect, it has been impacted specifically in India because of rain and so on. But Kandy, do you want to take the detail?

Sure. So Mark, as far as the volume is concerned, you saw the large volume growth during this quarter, but that's partly because of the comparison changes we had on the China JV, the inclusion of our Staropramen exports. As we look at the -- our results as far as the first 4 weeks are concerned, they are negatively impacted by the transfer of the Carling travel and export business to the Europe segment, as well as the fact that we are not selling in our China JV. And these 4 weeks were the last period we sold volume in 2012. Without these negative impacts, our volume for the last 4 weeks would be up low single-digits. This is despite the weather effects and the business effects in markets like India, which have had unprecedented rain and floods. Mark D. Swartzberg - Stifel, Nicolaus & Co., Inc., Research Division: Got it. So on an x structural change, the business continues to grow?

That's correct.

That's correct, Mark.

At this time, there are no further questions in queue. I'd turn the call back over to Mr. Swinburn.

Thank you, Tracy, and thank you, everybody, for joining us today. We look forward to speaking to you again at the end of our third quarter. Thank you.

Thank you for joining, ladies and gentlemen. This concludes today's conference call. You may now disconnect.