Good morning, and welcome to the Molson Coors Brewing Company fourth-quarter 2015 earnings follow-up session conference call. Now, I will turn the call over to Dave Dunnewald. Global Vice President of Investor Relations for Molson Coors.

Thank you, Lori, and good morning, everyone. On behalf of Molson Coors Brewing Company, thank you for joining us today for our 2015 earnings follow-up earnings conference call. Our goal on this call is to address as many additional earnings-related questions as possible, following our earnings regular conference call with Mark Hunter, David Heede, and our business unit CEOs earlier today. We will use a standard question-and-answer format, and we anticipate that the call will last less than an hour. Before we begin, I will paraphrase the Company's Safe Harbor language. Some of the discussions 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 day 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 our 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. We also encourage investors and analysts to read SABMiller PLC news releases and trading statements that include financial and other information relating to the MillerCoors joint venture. So let's get started with an introduction of the team with me on the call today. We have Kevin Kim, Investor Relations Senior Manager;…

[Operator Instructions] Your first question is from Ian Shackleton of Nomura. Your line is open.

The question really around modeling for this year, and I know it's a tricky thing, because we don't quite know when the MillerCoors deal will complete sometime in H2. Clearly, you've got a lot of shares that you've issued and I'm just thinking when you report Q1 and probably Q2, which will before the deal completes, you're going to have a lot more shares issued, you're going to have more cash on the balance sheet. I guess we should be modeling that through, because clearly, it's got a dilutive on that in the short term, or is there something I am missing on that?

Right. You have nearly 30 million additional shares now in the marketplace, so that does have implications for any calculation that includes shares. In the meantime, right, we have significant cash on our balance sheet, and we'll obviously handle that cash in the best interest of our shareholders. But I think you're thinking about the right pieces.

Okay. My understanding, and certainly this is possibly only for IFRS accounting, which I know is not applicable to you, but if there is additional debt funding being taken like ABI has, you might be able to capitalize if you want the carry costs until the deal completes. But it's different for you, isn't it, because you've issued the shares, and you can't really calculate a carry cost, I guess?

I don't know a way to calculate the carry costs, except for the dividends associated with the additional shares, which you would want to take those into account.

Your next question is from Bryan Spillane of Bank of America. Your line is open.

Just a couple of modeling questions. First, just to follow up on Ian's question now about the shares and the dividend, your free cash flow guidance is before or after dividends?

The free cash flow does not include dividends.

Okay. And the dividend, I know it's a stub, but the dividend is going to be just a lot higher, right, because of the extra shares that are out there? The cash dividend.

We'll pay about nearly 30% more dividend specifically related to issuing the additional shares.

Right.

And we -- that's not on top of, but it's also important to note that we have said that we will maintain the same dividend at, what do you call it, same dividend as cash per share quarterly amount.

Okay. It will make the cash flow between now and the time the deal closes, it's just going to eat up a little more cash flow. It will definitely have a dampening effect on the cash flow?

Well, it will be essentially, to call it simple math, would be additional dividends minus whatever interest income we earn on those cash balances, in anticipation of closing the transaction.

Okay, and then the next question, just on the interest expense expectation that you gave, ex MillerCoors, is that also net of whatever income you're expecting from the proceeds that are hung up on the balance sheet now?

The interest expense and the other guidance metrics that we gave you on the earlier call are all excluding any impacts from the pending MillerCoors transaction.

Okay. So the interest that you're going to earn, that you should earn on the cash that you're holding onto now is not netted against that $110 million guidance?

That's correct.

Okay. So what we will see, I guess, just thinking, you should earn interest in the first quarter that would help negatively offset some of that expense, right?

Yes, some of it. As you know, short-term interest rates are still very, very low, but we'll definitely do our best for our shareholders on that.

Okay. No, based on the Bank of America stock price, it seems like interest rates are going to stay low forever. Okay. And then just in terms of the, there's some items -- I just want to get some clarification on some of the items that were puts and takes to 2015 and how they wraparound to 2016. So for instance, in terms of the lost licenses in Canada, the Miller brand, that goes -- when does that completely anniversary?

March of 2016. End of March. We'll have a bit of a comparison issue there in the first quarter, although it's a relatively small quarter, but nonetheless, a bit of a comparison challenge there, specifically related to that contract, and then that's it.

Okay, and then the other ones, just in terms -- I'm just trying to make sure that I capture the stuff that wraps around. That's the most meaningful one that will affect 2016?

Right. We've cycled all the other contracts already.

Okay, okay. And then in the $50 million to $70 million of cost savings that you talked about for the next two years, does that include the benefit from closing -- like you did a brewery closing in the UK. Does it also at all -- I guess Vancouver hasn't happened yet. I'm just trying to understand is that, like how much of that $50 million to $70 million includes the wrap-around benefit for some of the things that occurred in 2016, or is that all truly incremental to what's already in motion?

Well, one of our cost savings initiatives spread over multiple years, particularly as they pertain to things like supply chain, sometimes procurement. What I would say is the $50 million to $70 million isn't, call it, increased results from, call it, additional or upsized cost savings initiatives, and it would -- essentially the $50 million to $70 million would include all of our cost savings that we expect to achieve in the next couple of years outside of MillerCoors and outside of the MillerCoors transaction.

Okay and then just the last one, just pension expense, I didn't quite catch it on the call. The incremental pension expense in 2016 versus 2015?

So the pension expense number, approximately $17 million, down from $40 million in 2015, and that's a funded status of about 97%, so call it the gap, if you will, is only about $160 million on a $4 billion-plus base. And if we're looking for cash contributions to our defined benefit pension plans, we're anticipating $45 million to $65 million in 2016, down from a much higher number of $250 million, because we are not planning to make a discretionary contribution to our UK plans this year, as we did last year. I would hasten to add that includes -- both of those numbers I gave you, actually all of them, are related to pensions, includes our 42% of MillerCoors pension.

And maybe just one last one related to pensions, and I'll turn it over. Just when you merge, when Miller -- assuming that MillerCoors and Molson Coors merge, is there any pension remeasurement that happens at MillerCoors, that would either cause a step-up in cash or a step-up in expense?

There may be some adjustments that need to be done related to purchase accounting, but I'm not going to speculate on what those would do at this point.

[Operator Instructions] Your next question comes from Vivien Azer of Cowen. Your line is open.

So I just wanted to follow up on Bryan's question in terms of just a phasing of different cash items. So when you offered your preliminary guidance for the fourth quarter a couple weeks ago, you raised the free cash flow target because of benefits from working capital, both for Molson Coors as well as MillerCoors. How do we think about that going forward? Does that need to unwind?

So I guess the main point there is the free cash flow upside versus our original guidance was not -- did not have significant timing, call it, differences or timing effect in it between 2015 and 2016.

Okay. Perfect. Perfect. That's helpful. Is there anything else that you want to call out from a lapping perspective?

Related to working capital? You mean related?

Yes, distribution.

I would say that a couple of things. We did do some small bolt-on transactions in 2015. Not going to try to predict what might be -- what we might be doing in 2016, but you need to be aware of that. You do have the higher dividends, which we talked about earlier, and working capital, you probably recall. We had particularly three main years, 2012, 2013 and 2014, where we had some major working capital projects going on, and really had some nice results. And we continue to work on working capital, reducing our working capital, but it does become somewhat more difficult over time to come up with additional improvements in working capital. But you can tell from 2015 we still achieved some, but let's say the low-hanging fruit were largely picked back in 2012 through 2014, and we'll keep working on it. But I just wanted to highlight that for you.

Got it. That's perfect. Thank you. In terms of Miller Lite in the U.S. and the quarterly result there, can you quantify how much the launch of the steinie bottle, how much of an impact that had?

No, but I would say that it's yet another step in the process of really, how do you say, tapping into the authentic roots of that brand, so it's a very -- anyway, it's going great. And it is a limited time bottle, but it went well enough that you may see it again. The other thing Kevin mentioned is related to free cash flow. It also mentioned we do have some FX headwinds in 2016, which would be incremental to what we saw in 2015, based purely on the FX rates at the end of January.

Okay. Perfect. Got it. In terms of the FX impacts that you are experiencing in Europe, if I contrast the magnitude of the hit that you are getting on the top line versus the bottom line, obviously this moves around for everybody, but order of magnitude, there was a pretty big disconnect in the fourth quarter. Is there anything transactional that would have driven that?

Well, yes. What you're dealing with in Europe is a lot of currencies. In Canada, it's relatively simple math. You can go look at your Bloomberg terminal and get a sense of the translational impact, and then, okay, you know about the kinds of hedging activity that we do to mitigate that to some extent. But in Europe you have lots of currencies. You have inputs in not only USD-denominated currencies and some in Euros. It's a much more complex equation in Europe. If you're not seeing a one-on-one trade across, for example, how the Euro is performing versus the U.S. dollar, one reason is a big chunk of our business is in the UK, so actually the pound is very important there, as well as other currencies on lots of those Central European countries. I think that's why you're not seeing a one-for-one relationship, the way you might see it in Canada.

Okay. But this quarter, the impact to your pre-tax income was far less significant than it was to sales. Is that a relationship that can persist, or those two numbers should normalize, come in line together over time?

I'm not going to forecast it for you, but I would say that the performance of the UK pound was very critical in that. I would say we also had a lot of factors between net sales. I'm not sure whether you're looking at a constant currency, the constant currency pretax numbers versus the net sales constant currency numbers we gave you. But actually, let's see. In fact, why don't I just look at those? You've got pretax impact on the, call it for the full year, or were you just looking at the quarter? Okay. I think you were looking at the quarter.

I was.

On a constant currency basis, there was a bit of a disconnect. I can't really give you a forecast on that, but there are a lot of moving parts within the business units, and different things denominated in different currencies and that sort of thing.

Got it. And sticking with Europe, your guidance for single-digit inflation in terms of COGS per hectoliter, you're coming off a pretty deflationary 2015. So what's going to drive that inflection? Is it just the comp itself, or is there something else going on?

Let me take the headline on that and David can add some additional color if we need to. The Europe guidance being up low single digits versus, I think it was down low single digits last year, one of the big drivers of that was last year, we had two major contracts going away, both of which, how do you say, reduced the dollars on the COGS line. By the way, they also reduce the dollars on net sales revenue line, as well. But without having any impact on the volume. So if you're looking at COGS per hectoliter, then the dollars last year went down, partially due to those contracts. David, is there anything else you would add in Europe, specifically related to last year versus this year on the COGS?

Yes. So in terms of commodity pricing, commodity pricing has fallen, but we do have hedging programs in place, which has dampened that effect. Commodity pricing is a relatively small part of COGS in Europe, and Central Europe in particular. So those other costs are increasing. What I would just draw your attention to, in addition to what Dave mentioned around the contract sales, we are trying to premiumize the portfolio, so an example of that would be quarterly going into the UK, and at the same time, we are trying to fund higher premiumization of our portfolio, along with innovation. So that's all within that low single-digit increase.

That's very helpful. Thanks a bunch.

Thanks, Vivien. One other thing I was going to add is when I look at the constant currency percent change on sales versus pretax, I really don't see much difference at all. So I think -- anyway, but there are a lot of moving parts, as I mentioned earlier, when you're working your way from net sales down to pretax in Europe.

Definitely. We'll do our best on the currencies. Cross our fingers

And we'll do our best to help. Thanks, Vivien.

Your next question is from Robert Ottenstein of Evercore. Your line is open.

Great. Thank you very much. I was just wondering if you could revisit with us your long-term plans, in terms of giving cash back to shareholders. Once this transaction is consummated, you're going to be generating enormous amounts of cash. Obviously, you're going to have some deleveraging. You ought to be able to delever pretty quickly. Number one, roughly, how long do you think you'll keep the dividend flat? And going forward, do you -- would you go back to your old policy of growing the dividend with EBITDA, I believe? How should we think about long-term return of cash to shareholders between dividends and share buybacks?

Thanks, Robert. Let's see, so our approach to capital allocation has not changed. We still have the same three buckets we've been talking about for years. We have the first one being returning cash to shareholders. Second, balance sheet strength. Third, growth opportunities. MillerCoors is clearly in the last bucket growth opportunity. Second bucket, balance sheet, with the financing associated with the MillerCoors transaction, assuming completion in the second half of this year. That's going to be a primary area of focus for us for a while. First bucket of returning cash to shareholders, as you know, we suspended our buyback program for now, and we also have said that we're going to hold our cash quarterly dividend at the rate that it currently is, for the time being. So to your specific question, we said until our debt repayment is well under way, and I guess, beyond that -- I'm sorry. You have mentioned what about the old target of annual trailing EBITDA payout ratio. We have had that in place for, what, a couple of years now, and we are suspending that for the time being, again, while we focus primarily on paying down debt. And we'll revisit both things like the dividend and the payout ratio and buybacks at the appropriate time. But right now, we need to focus primarily on paying down debt. That is not to the exclusion of the other bucket obviously, because we're maintaining the dividend, and we have said that we will continue to look at bolt-on acquisitions, for example, in the last bucket as needed, as well, and we need to make sure that our pensions are properly funded, although you can tell by the numbers we mentioned earlier that they are at approximately 97% funded status at this point. Does that help?

Not really, but I guess that's probably all you can say at this point.

Yes, I think -- sorry, Robert. You're right. In other words, I can't tell you exactly when we'll get back.

I understand. I don't mean to give you a hard time. I appreciate where you're coming from.

Great.

Robert, its David speaking. Our focus will be deleveraging, and the reason that is our focus is, it's very important to us that we retain that investment-grade status. So in the near term, that will be our priority.

And the other thing, Robert, I would add, while I can't tell you exactly what our timing will be in the future, I think you have a pretty good sense of what our priorities are, and a pretty good sense of our track record. For example, coming out of the StarBev transaction, the kinds of debt levels we have, the kinds of -- I think we've put some real energy around a disciplined, balanced approach to returning cash to shareholders, while still growing the business and ensuring that our balance sheet is strong. If you look at some of the steps in the last few years coming out of the StarBev transaction, I think you'll at least see how we think about these things.

[Operator Instructions] Your next question is from Brett Cooper of Consumer Edge Research. Your line is open.

A couple of quick ones. I think in the past you've given this to us. Can you give us the break-out generally of pension expansion, COGS, and MG&A?

Yes. It varies by the business unit because pension follows the people, and so we don't give specific numbers. But yes, if you think about where the labor sits, so for example, in the U.S. business, you're going to have greater exposure to -- sorry, a higher percent of the total pension expense flowing through COGS, and in some places in Europe, for example, you would have a higher percentage going through MG&A, because you have a bunch of entreed [ph] sales people that are in the legacy pension plan there, for example. But we can't give you specific percentages. There have been some indications in the 10-K in previous years, when there were pension curtailments and so forth. You could look for those. It will vary quite a bit by segment.

Okay. One thing I just want to check on Canada, when you gave the STR numbers, that's on a comparable basis for selling days, right?

Right. We did not mention any selling day differences when we provided the Canada STR number. All we did was give you a view that excluded the Miller brands because obviously that's a change in business.

But in theory, there's one less day in January, right? I'm wondering, the U.S. number you always give is selling day adjustments. I just wanted to know what you did in Canada.

Well, we generally give selling day adjusted numbers in the US, and that's it. Generally speaking, we don't adjust the other businesses. But you're right. Sometimes there's -- there are some differences in when for example our customers can either -- well, when they could buy the beer, or depending on which province you're in, for example, whether it's Ontario or Quebec, or when we can ship the beer to retailers, if you're talking about -- that would be Quebec and then Ontario would actually be consumer impact. So there can be some variations there. I guess what I would say is, whenever you're looking at a short time period, like January, only for a couple of the business units we tried to give you a little bit more, five weeks, that those short time periods can have a great deal of volatility, and not only because of things like how the days line up in the calendar, which they do matter, actually, to weather, for example. Or the timing of the Super Bowl. That was actually a large impact in the U.S. business, not in the numbers we gave you, because we gave you the numbers through the Super Bowl, both years. If we only look at January, that would have been a significant factor.

[Operator Instructions] Your next question is from Vivien Azer of Cowen. Your line is open.

A little bit of a nitpickier question, but in Mark's prepared remarks in the press release, he said positive net pricing globally, as well as in most of our major markets. Is there a callout where you didn't get positive pricing?

Well, we did get positive net pricing, as you're aware, in MillerCoors. You also know that we got some positive pricing in Europe. We talked about that, and in Canada. Those would all be in local currency. But within some of those markets and within some of our other -- like the MCI business, there are some markets where we've got some mix impacts, and so forth. So there are some countries within those units that, well, specifically in places like Europe and MCI, where we did not have positive pricing.

Okay. That's fair.

We don't identify specific countries by price, for example.

But wherever you didn't get the positive price, you feel like that's transitory in nature? Or is there one market that's structurally challenged from either a pricing or a mix perspective?

I would say that we're not concerned with the pricing in those markets that were negative. As you know, we've had a lot of challenges in Serbia, for example, related to things like floods and the economy and a few competitive brands sorts of challenges and so forth. That's a market where I think we're in a much better place than we were a couple of years ago, and we're working, we feel good about where we are in all the countries, even the ones where we've got some pricing challenges. That's just life in the global beer business.

Sure, sure. And then just last one, on MCI, how do we think about the cadence on the, not necessarily startup costs, but you called out higher investments in newer markets. I assume that's in part Colombia. How do we think about the phasing that over the course of 2016?

In Colombia, we're not going to be able to give you specifics on how we phase intros into markets, but Colombia is an important South American beer market. The weather there has less seasonality to it than places like Canada, so that's a good thing. But we'll manage the investment in, for example, Colombia, within the context of the overall MCI plan, which includes getting to profitability, less FX since 2013, but getting the profitability in 2016.

[Operator Instructions] We have no further audio questions at this time. I will turn the call back over to Mr. Dunnewald.

Great. Thanks, Lori. In closing, I would like to thank all of you for your interest in Molson Coors, and for joining us today. If you have additional questions that we did not cover during our time today, please call Kevin Kim or me on our direct lines, or at the main line at Molson Coors, which is 303-927-BEER or 927-2337. Thank you again, and have a great day.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.