Good morning. My name is Don and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter Earnings Call. All lines are placed on mute prevent any background noise. After the speaker's remarks there will be a question-and-answer session. (Operator Instructions). Thank you. Mr. Carbonari you may begin your call.

Thanks, Don. Welcome to our discussion of Fortune Brands first quarter 2008 results. Please note that our presentation includes forward-looking statements. These are subjects to risks and uncertainties, including those listed in the cautionary language at the end of our news release. Our actual results can differ materially from those targeted. This presentation also includes certain non-GAAP measures that are reconciled to the most closely comparable GAAP measures in our news release or on our website in the supplemental information linked to the webcast page. In our seasonally smallest quarter of the year, Fortune Brands delivered results and achieved our previously announced earnings target range. We did so even with the US housing correction and challenges in the US economy. We are continuing to move aggressively to best position our business to compete in this environment and over the long-term. That includes reducing cost structures in our Home Products business, sharply focusing on company wide productivity initiatives and continuing strategic investments to fuel long-term growth across our brands. Specifically we are determined to maintain strategic spending to support brand building, new products and international expansion. Our new investments in these targeted growth initiatives reduced first quarter operating income in our Spirits and Golf segments. We believe that these are the right investments to help drive sustainable long-term growth. Furthermore, our underlined performance was better than our reported numbers indicated, and we expect improved performance in the second half the year. Notably our international growth initiatives are paying off. Strong growth in international markets across all three business segments help temper the impact of the correction in the US housing market. Our sales in the international markets grew by double-digits. Worldwide sales increased for key brands including Jim Beam, Courvoisier, Teacher’s, Titleist, Cobra, FootJoy and Master Lock. While reported spirit sales…

Thanks, Bruce. We will start with spirits. Sales for the seasonally smallest quarter were 550 or $515 million, and that's off 1% from a year ago. These revenue figures are on a continuing operations basis, adjusted for the sale of the wine business. On a comparable basis, excluding excise taxes, FX, divestitures and our third party bottling contract, spirit sales would have been down 3%. However, as Bruce indicated earlier, had distributor inventory movements in the US been consistent with the prior year, our worldwide spirits sales would have been solidly higher. Operating income before charges and spirits came in at $130 million. That's down 3% and it reflects our planned double-digit increase in brand spending in the quarter, as well as the distributor inventory work down impact. At the top line, net sales were off at a high single digit rate in the US due to the larger than usual distributor inventory movements. At the same time, sales were up double-digits in international markets. On a depletion basis, our net sales from distributors to retailers were higher in the US for our key premium brands. Internationally, our net sales were up double-digits in constant currency in the UK and up solidly in Australia and the global duty-free channel. Sales in Spain were lower due to the timing of shipments, as we had customers who bought in inventory at the end of the year in advance for the January price increase. We drove strong double-digit increases in four key emerging markets, Brazil, Russia, India and China. Looking closer at the performance of our global premium brands; net sale for Jim Beam increased at a low single digit rate in constant currency and were up strong mid-single digits on a reported basis, as growth in Australia, Germany, the UK and duty-free…

Thanks Craig. As we look ahead, we remain focused on our near-term goals, out performing our markets, investing in our brands, and leveraging our aggressive balance to deliver growth in returns. We continue implementing high return cost initiatives, as well as funding our long-term strategic investments. That includes our brand building investments in spirits and our international growth initiatives across all of our businesses, all of which support sustainable long-term growth. Additionally, our combined cash flows, the strength of our balance sheet, and a substantial share repurchase authorization give us excellent flexibility to create value. As we indicated earlier at our current stock price, we continue to see share repurchase as an attractive way to allocate capital. Looking to the balance of the year, our Home Products brands continue to face a very difficult economic environment. In our Golf business, we are seeing a delayed start to the playing season in many northern US markets due to bad weather. On the upside, our new golf carts are being well received in the marketplace, and we expect US spirit shipments to bounce back in the months ahead. Taking these factors into account, we are targeting EPS before charges and gains for the second quarter to be down at a high single-digit to mid teens rate. That's versus EPS before charges and gains for continuing operations number of a $1.51 for the second quarter of 2007. We expect second half results to be better than the first half, as we drive growth in spirits, outperform the Home Products market, progressively benefit from our company-wide productivity initiatives, and as our strategic brands investments annualize. For the full year, we are continuing to target results within the range we established at the beginning of the year. However, given the uncertain US economic environment, we are narrowing our full year target range. We are now targeting EPS before charges and gains to be in the range of flat to down at a high single-digit rate. That's versus $5.06 for 2007. Thanks again for joining us. Now Craig and I will be happy to respond to your questions.

(Operator Instructions). Your first question comes from the line of Ann Gurkin with Davenport and Company.

Hi, Ann.

Just wanted to start with the Spirits business. Has Pernod contacted you to start talks about exiting the distribution with Fortune?

No there has been no discussions on that.

No discussion. Okay, are you seeing any difference in geographic perform in your Spirits business?

Geographic performance?

In the U.S., any weaknesses or stronger areas?

Generally in the U.S. we have seen - the markets haven't seen any significant changes in the market. We have seen some change in on-premise versus off-premise. On-premise slowing down, off-premise accelerating. There are geographic slowdown areas that I would say correlates with the housing; Florida, California, particularly. Especially on-premise. But otherwise, no.

All right. Switching to Home business which you alluded to the higher cost pressures. Are you able to raise prices across your portfolio to pass through some of these costs? Are you absorbing some of these costs?

We are doing a lot of different things Ann. First off, we are doing some material substitution. I would say pricing is getting more and more difficult. Unless we had a sudden rise and a significant rise, but slow increases are hard to pass on. And the environment being what it is, it's very tough to get price increase. So we are doing different things; material substitution, [accelerating] productivity initiatives, trying to offset some of the material cost inflation.

The other thing Ann is, I will add to that a little bit. As we've said before, our expectation at least for now is that material cost increases are going to be in line with what we normally would expect. We are seeing some pressure in copper; we are seeing some pressure in steel and even some pressure in particle board. But I think the things that Bruce outlined are addressing those. The one potential we have over the balance of the year is that we got some contracts, some of our China sourcing contracts that are coming up for renewal. And with what's been happening with the strengthening of the Renminbi, that's likely to put a little bit of pressure on there, but as usual. I mean we'll be doing everything we can to manage our way through that. But we got those things factored into the guidance that we've given for the full year.

Okay. And then your guidance for the full year, what does that include for share repurchase?

At this point, I'm not quantifying that. It's going to be an open market purchase as Bruce indicated in his comments. The authorization came right on top of the blackout period, so we only made a very limited start and not meaningful. We are going to be in there with open market purchase. But as we've done, as we did in prior years, and I'm not going to speculate on just how much we are going to buy, over what period of time, but what we will do at the end of each quarter is share with you just exactly what we've accomplished.

That revised guidance does include some level of share repurchase in it?

At this point the guidance that we are giving for overall Fortune Brands includes some level, but more than anything else the share repurchase program is giving us more confidence in achieving the guidance we've given.

Great. Thank you.

Your next question comes from the line of Jonathan Feeney.

Good morning, thank you.

Good morning.

I want to follow up on the parent -- any macro effect at all on the spirits performance. When you look at the inventory draw-downs specifically you highlighted certain on-premise trends I think you said California and someplace else.

Florida.

Florida. Was this inventory drawdown consistent with your seasonal expectations, and could it be reflecting some bearishness on the part of your distributors in this environment?

We don't think so. Obviously we talked to them during the course of the last several months, as we saw this thing being drawn down. Seasonally it comes down at end of the year. The fourth quarter is the big holiday season. There is a big build up before the quarter and see what the sell through is. And after that then there is some managing and rebalancing of the inventory. It was further down than we normally would have expected, and I think that's all it is. Because the depletion still looks strong.

Turning just to home building -- I mean building products for a second. I guess one of the silver linings of a little bit slower growth is the ability to pull more cash out of that business. Are there opportunities to reduce capital expenditure and reduce the non-income statement, commitments to this business more aggressively now that it seems like you are talking about a little bit weaker environment for a longer period than say we were six months ago.

Obviously that's correct. Our normal run rate for capital expenditure would be in the range and this is aggregate Fortune Brands, would be in the range of $250 million trying at $275 million. And we've taken that down as we outlined in our previous call to say that this year we are targeting that Cap Ex will be in the range of 200 to 225. And as you've outlined, at this point there is no need to be adding capacity expansion in our Home business and we are not. The one other thing that I'll highlight is that, as we've indicated many times, we are maintaining strategic spend in the business for new product initiatives, and so to a degree that requires additional capital to be able to produce those new products. That's what we did back in 2000-2001 and it served us well when things turned around. And given the fact we view this as a correction and not a shift in long-term demographics, we are maintaining the strategic spend. The other thing I would highlight is that what we are not going to do is take out a dollar of cost now to protect diluted earnings per share and find out that a year or two from now we've got to spend $2 to put it back in.

Sure. Just one last question about strategically on the Spirits business. I think you've probably answered this a million times, but I guess -- when you think about -- it seemed like there was a, looking over the past three or four years there is a real momentum to building spirits out as the focus area. Not that you didn’t focus on the other areas, but let's say (inaudible) in that deal. And the lead up to, then in spread trade now. I mean it certainly means -- it shows discipline on your part that you allowed someone else to pay that price for the assets. But now as I look over the next three to five years is getting disproportionately larger in spirits still part of the plan for Fortune Brands, and if so where can you look to build out the spirits portfolio at this point?

Our focus remains on growing our Spirits and Home business. We have, again as I mentioned earlier, tremendous amount of flexibility with our balance sheet. But our first priority here is to grow organically. We get our best returns by doing that. We have great portfolio, we are the fourth largest Spirits business in the world, and we invest behind those brands and continue with the momentum that we were getting out of the brands today. We're going to have great returns. Now if we can add on certain select categories either enhancing the strength in our categories in bourbon or Tequila or the cognacs of the world, we will do that. And also if we have an opportunity to look at various vodkas or rums where we aren't that strong, we will do that as well. And I would think we have the financial flexibility to do that. The other thing is we also will be looking in the home business. So we think there's going to opportunities there in the next near term to do that as well. Probably next 12 or 18 months we see opportunities there. So our focus has not changed, because the absolute deal wasn’t a -- obviously of great brand and so forth, but it wasn't a must-have acquisition. So we are very disciplined to that process and we'll continue evaluating and add on acquisitions. But we are going to continue to invest organically as well. Again that's the best returns we get in this business.

And I'm sorry just to follow-up on that. I realize fair point that it wasn't a must-do, but at the same time it's like the number over the past five or 10 years the number of really attractive properties that were huge came to market and now it seems like I don't know what big properties are out there that could conceivably come to market. So we are more focused on organic opportunities. Could you highlight at all what organic opportunities, what spirits, what flavors, where is the opportunity to say launch some new brands or expand what you have?

Sure. Just look at what we did last year. Again in the second half of the year we added a double digit increase in brand spend behind three major initiatives, all of which we are getting great results from. Canadian Club, the "Damn Right" campaign. There is a product that hasn't really had a lot of support over the past, and since we bought it from Allied and we did a lot of research who is the consumer of that brand. And actually what we realized there that the consumer insights work basically said that this was a brand that if you go to the silent generation drink, your father drank it or your parents drank it.

That’s for sure.

And we took that and we created this "Damn Right" campaign in saying we are enforcing that point that, you know, that's a great generation and the fact that they are drinking it, we should be proud of that and we've re-enforced that, and now what you're seeing the "Damn Right" campaign, but that has had fabulous response. And our numbers in our Canadian Club have been dramatically changed. We are doing that with the Hornitos and we are following up with [Now] in the second quarter the Gold and Blanco investments behind that, so our whole Sauza line. We are going to reshape the packaging, reinforce the messaging, and we are doing that as well with the Jim Beam campaign. So there is a lot of opportunity here. This is a fabulous industry returns-wise, and it's a fabulous industry because it has a lot of head room. In a space as that room, we compete and have strength today, not only domestically in the United States, but also in the BRIC countries and in Europe, and we are starting to see those results that's why we put investment behind the numerous things that we've said. If you recall, I've talked about the brand market combination research that we did, and we have prioritized these and we are going down the list boom, boom, boom and investing it and we are seeing very positive results behind those investments.

The other thing I would add here is that beyond the brands themselves is the fact that with the Allied acquisition it gave us greater scale in a number of markets, and so that's affording us the opportunity to leverage that scale not just with the acquired brands but with our existing products. So from that standpoint we feel comfortable about what we've got for organic growth opportunities.

And I would add one other thing. I think it's important. There is a great opportunity to create consumer pull. Your skill gives you great strength on distribution side, and that's wonderful and we are the fourth biggest in the world and may be we are happy being that big. But you need consumer pull, and you look at brands that have emerged and really accelerated, it's all come out of the consumer side, not so much the scale side. And I think that formula is one that we are very attracted to and investing behind.

Thank you very much.

Okay, thanks.

Your next question comes from the line of Dennis McGill.

Good morning, guys.

Good morning.

I was wondering if you could start out by just kind of outlining what your macro assumptions are as you look towards the back half of the year?

Yeah, I can. It's first of all within the home industry. And again we are not economists, so what we are doing is we are working off of what other research groups are providing to us, the Harbor joint center for housing studies and others.

Okay.

But the projection right now is that the overall market for Home Products is going to be down low teens this year, and our expectation is that it's going to continue through the balance of the year. We are expecting that we will as we've done continue to outperform the market. But we are clearly anticipating that we've got an overall market that's going to be below double digits. We are looking at repair and remodel that's going to be down kind of low single to mid single-digits, and a new construction market that is going to be down in the range right now of 30, 30-plus percent for the whole year. So when you blend those out for the fact that new constructions a third of the market and repair and remodel is two-thirds; that brings us to be down the below double-digits. In the golf business we are expecting that we will see rounds of play basically flattish to maybe down a little bit, up a little bit. And in Spirits our expectation is that the U.S. market is going to be in line with the overall longer term growth profile of volumes being up kind of 2% to 4%, but our expectation is that for this year they are going to be at the lower end of that range.

Okay. So it sounds like putting all that together, you are certainly not expecting that the back half of the year is starting to see some sequential improvements. It sounds like the trends out there stay pretty tough.

Yeah, I would say from an overall market standpoint, we don't really see things changing. What gives us confidence about the back half of the year is that we will derive progressive benefit from the restructuring and other costs initiatives we've put in place. We stepped up brand investment that Bruce outlined both in golf as well as spirits. The lion share of that increase spend will have occurred by the end of the first half year. So going into the second half we'll have some increases, but they'll be more normalized. We've got new product timing that's going to benefit the golf business, won't get into specifics on that for competitive reasons. And then obviously with the share buy-back program, that will provide a benefit. But as I've outlined before we are looking at that more as a support for delivering our numbers, then layering it in. It also assumes that just coming back to the economy that it's going to be a challenging U.S. economy through at least the tail end of the year. We aren't kidding ourselves, I mean we are looking at the fact that that is going to continue to be a slugfest. But there's another reason why it's important to have the number one or two position in markets, because we feel that that gives us an advantage over others. And I think we've demonstrated a consistent and careful approach to managing our costs. But as we outlined, we are not going to cut a dollar this year and find that it costs us $2 to put it back in. We are going to continue the investments, so that when things turn around as we've done before, we are in a position to take advantage of it.

It's very helpful and seems very realistic. On the Home side you talked about reducing the manufacturing footprint. Did I hear you right that the capacity is down 25% from the peak?

No our facilities are down 25% from the peak.

That’s both manufacturing, distribution facilities and others.

Everything.

And so is that representative of taking capacity down in addition to trimming shifts and all the other levers that you can pull?

Yes.

Okay. And if you are able to talk by segment, are there are certain categories where you've been more aggressive?

The segment within home?

Yes.

No, actually it's been across the board. When you have a market that's decreased the way as fast and as quickly as this one is, it's pretty much across the board. We have different mixes in our businesses between new construction and remodel and repair, and the businesses that are more new construction oriented have obviously been hit harder.

Okay, switching to Spirits. Do you have any sense on the timing of how quickly you will be able to repurchase the 10% stake?

That's in process right now. We wouldn't try to speculate as to just how long that will take?

But you have already begun the negotiations?

We have.

Yes.

Okay. And then just one last one. You brought up the BRIC economies as they are doing well, it sounds like across all your product categories. Of total revenues, how much would you say is from emerging markets?

At this point, that's not a number that I have at hand, but it's less than 5%.

Okay, thanks for all of the color, guys.

Thanks.

Your next question comes from the line of Alexander Paris with Barrington Research.

A couple of questions. In the Spirits business, the distribution or the inventory reduction, I could see with a pretty bad Christmas the spirits could be bad, too and so the inventories were maybe built up a little bit too much. But did you see any sign of just trading down from your premium and super premium among consumers? Settling for cheaper brands?

Yeah, let me just clarify one thing. Actually, we had a good Christmas season. The opening comment there, just to clarify that. And we have not seen trading down. Actually, the premium side of the business continues to grow stronger than the value side, and we've seen this trend for quite awhile now. Our basic research says that the cocktail is still an affordable luxury. People aren't willing to give that up, and we have seen very little trade down at this point.

Looking at International, somebody started asking about emerging markets. But just give a rough estimate, what is International in the quarter as a percentage of your total revenues?

I'm not sure we have that at hand Alex, but hang on a second. Let me just take a quick look here.

Let me get back to you. I can tell you that spirits is about 40%.

Alex I do have it here. It's turned out that for the quarter, total International across the company represents about 30% of our sales.

And Spirits you said was 40 and Golf you said earlier was 40, and then Home and hardware is something much less.

Yes.

As it works out, I will give you the numbers because I've got them here. Home was in the range of about 15% in the quarter, Golf was about 40, and Spirits was actually up closer to 50.

And all this investment in overseas growth, would that be less in Home and Hardware just because of the nature of the market and more focused in Spirit and Golf.

Yes.

Yes. It's focused on Spirits and Golf. Some are very selective investments for faucet business and barring Master Lock business overseas.

And of your Spirits business International, how much goes through the joint venture?

It's about 15% of our total sales.

Only 15?

A third of the International.

A third of the International.

Okay. Is Canada generally -- you do yourself?

Canada, yes, we do.

Okay, I think that’s it. Just one other question, talking about Home and Hardware, I imagine the worst the environment gets the cheaper the prices and the better the opportunities. Have you seen pricing starting to come down significantly on potential Home and Hardware acquisitions?

We are hoping. I think it's going to start soon. It's got to. I think people were hoping that this was going be a "V" and now it's going to be more extended. And the results and the realignment of their businesses are happening or have been happening. I think we'll start seeing that in the next 12 to 18 months.

Having peaked back in 2005, do you think somebody is getting the word by now.

We think so.

They go down hard, Alex.

Okay, thanks a lot.

Okay, thanks Alex.

Your next question comes from the line of Peter Lisnic with Robert W. Baird.

Craig, I guess the comment on China sourcing, can you help us get an understanding of what that means in terms of either revenue or cost structure, in terms of what you are sourcing from China?

I mean, I won't break out the dollars for competitive reasons. But as we look at it right now, I don't view it as an extreme exposure. Right now though just to quantify it, to put a number on it but this is early days. We could be talking about something in the range of kind of $20 million, $25 million of risk. So in the grand scheme of things it's not a major needle mover, but if indeed we took that hit, $25 million it would be $0.10 dilute the earnings per share. But that's something that's been in the crosshairs for a while, we are looking at it. We will be sorting out how we deal with those long-term contracts, and obviously we got other cost initiatives that we continue to look at. But it's built into our numbers right now in terms of the guidance we gave you.

Okay. And that 20- 25, is that more labor or is that raw materials?

But the contracts are for manufactured components. So it's the all end costs.

Okay. And then if you looked at the incremental raw materials that you might be incurring in the back half of the year. Is it the same kind of number, $20 million to $25 million kind of hit or can you give us a ballpark on that one.

No, to [pick it] kind of by giving just some kind of numbers in total across the business, I think that if I'm talking 20 to 25 for China, then maybe I'm talking something like kind of at the end of the day it could be kind of in the range of maybe 35 or so. But again you got to remember, we are going to be pushing for limited price increases in select areas, we've already outlined that. We are looking at other things we can do in terms of material substitutions and others. So at the end of the day, I think what we are looking at is a manageable situation, and I kind of net down that gross number I gave you to say that just for materials alone maybe we are in the range of kind of the 15 to 20.

Okay, that's helpful.

We've build that into our number.

Okay. All right, that's helpful. And then if you look at the buyback and how we should think about that, your net debt-to-cap is around 43% or so, and assuming it you still want to stay in the investment grade, how far can you stretch leverage or how comfortable are you with stretching leverage I guess, in terms of executing on the buy back fronts.

Candidly, at this point, we are more focused on balancing the share buy-back opportunity with what may be some of the acquisition opportunities that may come down the pike here. And so that's more of the balancing at this point. So we are clearly taking a phased approach to the share repurchase, and obviously we were monitoring where we are in terms of credit ratios. But at this point we believe that we've got lots of flexibility, but our default position continues to be one of maintaining investment grade.

Okay. And it sounds like there are some acquisition opportunities that are in the pipeline and potentially close.

I don't want to speculate on that, and that's not what I was saying. I was giving you kind of the more broad view. What may or may not be there in the pipeline is just not something we would comment on. But I think we've demonstrated over the years that we take prudent approach to how we manage the balance sheet in our financial flexibility, so that we are in a position to be able to do the things we want to do.

Okay, fair enough. And then last question on Home and Hardware, you've talked about the brand spend initiatives and Spirits and Golf. I'm wondering how brand spend looks in Home and Hardware relative to a year ago. I would assume --

Yeah, it is Peter. We have fine tuned it. Obviously things are associated with certain markets and certain channels we've kept. When you look at our cabinet business, our dealer channel still continues to be doing very well, and we continue to support that. The new construction side and the co-ops there, you know, I actually dial those down. Our overall brand messaging has come down modestly. But we’ve been selective about where are we doing it. We want to be very careful. We have great brands and we don't want them to be diminish in the consumer's eyes during this period. Unknown Speaker* 104 Okay. All right, that's all have I. Thank you very much.

Thanks.

Your next question comes from the line of Omar Aleem with Cleveland Research.

Hi Omar.

Good morning, guys.

Good morning.

A couple of things. You obviously mentioned the channel inventory in spirits and growth expecting to improve in the next couple quarters. The improvement in the coming quarters, should we expect that to match the growth rates we've seen in Q2, Q3, Q4, '07 as the growth improves?

I missed the Q, what was your reference there?

Omar, we need you to repeat that. We lost part of what you gave us. Ask another question.

Okay. Sure. The channel inventory you explained in Spirits business and that growth would be expected to improve in the next couple quarters. As we start to see that, should we expect that the gross rates to kind of match the rates we saw in the back half of last year?

Yes, I would say so. Again, we are really looking at focusing on depletions. And inventory will balance itself over time. But our depletion rate is accelerating in support of some of the brand investments that we've made and also some of the strength that we are seeing in our bourbon category. So we expect that to continue. Again, it's not all about volume. We are looking at this business maybe through a different lens than has been looked in the past or at least some of the Allied brands as they were managed before. So it's a combination of both the brand and the dollar value that we are getting. So it's a balance again between that price equation and the volume equation.

But at the end of the day, I mean we are expecting that full year revenue growth is going to be in line with what we've had in prior periods.

Okay, great. Second question, just in terms of inventories, inventories grew I think 8%, [78%] in the quarter, first of sales contraction. When can we kind of expect the growth rate in inventories to more closely match sales?

First of all, as you look at the first quarter we had a couple of things going on. One about half of the increase that you saw was just simply a function of foreign currency translation, and then secondarily, we had an increase in the kind of the bulk inventories in our Spirits business as we were laying down more inventory to support our longer term sales projections. So as you think about where we are at with things, I would broaden the comment and just talk about our overall working capital efficiency. And as you look at the first quarter, we blipped up a bit from last year from 31 to about 33. And as I look to the full year, we'd expect to improve somewhat on the 33%. But only somewhat at this point.

Okay. Great. Thank you, guys.

Yup.

(Operator Instructions) Your next question comes from the line of Bryan Spillane from Banc of America.

Good morning.

Hey Bryan.

Just two quick questions; clarifications. First, in terms of Spirits wholesaler inventory reductions, that is done at the end of the first quarter? So your 2Q guidance assumes that you ship the consumption?

Yes.

Yes.

Or potentially a little better.

Okay. So whatever happened in terms of inventory reductions happened in the first quarter and is behind you.

Yes, correct.

Okay. Great. And then second question, just in terms of your expectation for beverages going forward, does that include any expectation that raw material cost or input costs have moved up.

Yeah, it does. I mean we obviously have included some increased cost for glass. Obviously the impact of corn is something that we won't see in our cost of goods sold for at least four years, because obviously that's going into aging product. But the impact of things that will hit us currently is in our numbers.

Okay. And then finally, Craig, if you could just give whatever additional color you can give in terms of the dynamics around negotiating to buy back the 10% stake in V&S from Sweden. From what we can see on the outside, there is the fair value that's listed in your 10-K at this point, $542.9 million. If you could talk a little bit more about; one, what fair value actually -- is it a fair market value? Is it a fair private market value? Is it an enterprise value? So is there debt associated with arriving at that calculation? Just something to give us some guidance in terms of whether it's a absolute multiple on top of your beverage segment EBITDA or is it something different than that?

I will let Bruce answer that.

It's Bruce. Yes, yes, yes, yes. I guess if I could. It's a negotiation and we are in the middle of it so I really can't speculate on how and what each party is determining their valuation on. So like all acquisitions or different types of deals we do, we really don't talk about them when they are going on.

But obviously Brian, there are factors that come into play there I think looking at kind of liquidity, lack of liquidity on it. The fact it's a minority interest and it's not something that has an open market aspect to it. Those are all things that come into play and they did when we first valued it at the time they came in.

And it does include a debt component. So when we are thinking about enterprise value, there is a debt component attached to it as well?

Yes, that’s right.

All right, that's helpful. And Bruce, I think you did a good job of selling Feeney Canadian Club just before.

If that didn't do it, the ads should.

Thanks guys.

Okay.

Your next question comes from the line of Scott Scher with Clovis Capital.

Can you talk about the last time that you had an adjustment in inventory at the distributor level.

Every year we do at this time of year. It's a seasonal adjustment, it just have to be deeper than we expected this year.

What's the normal adjustment?

Well, it ebb and flows. It's not something that has a set target every year, but ordinarily what we see just to give you kind of broad brush, is, that distributor inventories come down in the first quarter. They blip up a bit in the second quarter, kind of carry a bit maybe up or maybe flat or down a little bit in the third, and then we see them pick up in the fourth is the normal ebb and flow that we see. And as Bruce outlined this year just was a little higher than normal.

If it has any significant impact we try to point it out and in this quarter it did.

And then just one follow-up question people asked a couple of times about the buy-back, how much of the buyback is in the numbers, how much is not, how high can you go on debt ratios. It seems in terms of the buyback that you announced a large buy-back, but then you kind of caveat it and said, well, we will do the buy-back but we would prefer to buy brands. Can't you do both? And you are suggesting you think your stock price is very cheap, are you going to get to the end of 12 month and you've really not bought back much of the buyback. So is it sort of -- it's there but you are not going to be aggressive or is it there and you actually going to do it and you believe it and you are going to do as much as you can when the stock is cheap. Unknown Speaker* 149

I think first off we always have the shareholder in front of us first. And if we see an opportunity to buy back shares more aggressively, we'll do that. If we see an acquisition that balances the share buyback, we'll do that and has a better return for the business. So the flexibility we have right now is to do the best thing we can to create value for the shareholder. And with that, right now, we think the shares are very attractive and we will be active in the market.

Let me jump in on this, too because for some people share buyback is an accretion discussion. And that's not the way we approach this. We've always looked at share buy-back from the standpoint of what's the IRR proposition and how does that match up against other opportunities, and so just as we have done in the past, you look back in 2004, 2001 through 2004 when we are more aggressively buying back shares before we postured ourselves for the allied acquisition. We had authorizations that were out for say $10 million or so and then we worked against that. We had some years when we bought back 100% against the authorization and other years where we didn't. But at this point going back to what I said earlier, it's a case of balancing what is the best IRR proposition for us, and right now the default position is buying back the shares. But if we see something that we think is dramatically better for us, then obviously we are going to consider that just as we always have.

And in one follow-up question you said that the marketing the excess marketing, brand building, things on your Spirits business were weighted to the first half of the year and they'll slow down the back half of the year. Give us a sense to what the impact is from a dollar standpoint there? How much you spend in the first half and how much of that was resolved in the back half. .

We never break out dollars for competitive reasons. But the bottom line here is that, approximately kind of 70% or so of the year-over-year increase is coming in the first half.

To keep in mind that the second half of last year we increased brand spend significantly.

And do you think -- that the last question. Do you think that's going to continue for multiple years? I know you bought the brands and you are trying to do what you can to accelerate the top line, is this something you will have to continue to do into '09-2010 or do you feel you are seeing momentum in these things and brand building stuff we won't be talking about it into next year.

It all has it to do with growth in returns. If we think we can get good growth in the near term and adequate returns from doing it, we will do it. Otherwise we won't. And right now with the early stage of what we are doing, we did it in the second half of last year, we are doing in the first half of this year. We are going to let that annualize, we are going to digest it and then we will evaluate it from there.

The thing I will highlight here too is the fact that, we don't just have a hunch to go out and spend. We got a campaign in place, it's targeted, and we look at what it is we expect to do and we set our own targets for growth both in volumes and revenues. And that's what everyone is held accountable for.

It took us a year, roughly a year to a year and a half to get all that sorted out before we started launching in the second half of last year.

The question I would ask is longer term, as the quality of your brands equal to a better than the industry such that you can grow at the industry rate without excessive brand building or do you have to spend a lot of money to stay even with the industry growth. What's your perception on that as you sit here today?

' Well again, I think we are trying to outperform the market, and in doing that we are going to do it in a lot of different ways, one of them was brand building. And if we see that we can get the returns and again, I think in the Spirits business and the Spirits space, if you can show top line growth the cash spits out on the bottom line. So if we can find a way to accelerate the growth faster than what the market is giving us, we are going to invest behind it.

But to answer your question specifically, we don't believe we are chasing the market or have to chase the market. Hello?

Yes. Thank you.

Okay.

Our final question comes from the line of Alexander Paris with Barrington Research.

I think you probably asked this question and probably didn't answer it. If for example Pernod were to successfully negotiate a buyout tomorrow on the U.S. distribution, could you say roughly how that would affect your sales or operating earnings, on an annual basis?

Yeah I'll cover that in two parts. First of all, within Future Brands it's been a distribution opportunity of sharing of costs and reducing distribution costs. Over the years we've not seen that going to market with Absolut has had a meaningful impact on our revenues. So it really has been a cost story. And obviously if the joint venture went away, we've got to revisit our cost structure. We have not given specific numbers and we are not going to until we really know what it is we are looking at. But when we first did this deal back in 2001, the annualized savings that we derived were something in the range of $15 million to $20 million in terms of lowering our costs. And so that's a number that we'll kind of let you kind of build for yourselves as to how you want to think about it. But at the end of the day, this isn't something that we are losing sleep over.

And I would presume whatever the buyout the return on those funds would offset decent part of those costs.

Well, obviously, if there was such a thing that certainly would help because we use it to lower debt and how we derived interest savings.

Okay. Thanks very much.

Okay.

There are no further questions at this time. Mr. Carbonari do you have any closing remarks?

Yes. Thanks again for joining us. We look forward to speaking with you again in July. In the mean time, we remain sharply focused on the initiatives that are positioned in Fortune Brands to sustain long-term growth. Thank you.

Thank you for participating in today's first quarter earnings conference call. This call will be available for replay beginning at 11:00 AM Eastern Standard Time today. Through 11:59 PM Eastern Standard Time on April 27, 2008. The conference ID number for the replay is 41988377. Again the Conference ID number for the replay is 41988377. The number to dial for the replay is 1-800-642-1687 or 706-645-9291. Thank you. You may now disconnect.