Good morning, at this time I would like to welcome everyone to the Fortune Brands fourth quarter and full year results conference call. (Operator Instructions) Mr. Bruce Carbonari, you may begin your conference.

Welcome to our discussion of Fortune Brands fourth quarter and full year 2009 results. Please note that our presentation includes forward-looking statements. These statements are subject to risks and uncertainties including those listed in the cautionary language at the end of our news release. Our actual results could 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. Fortune Brands is emerging from the recession in a strong position, and we closed 2009 with our best quarter of the year. Total sales turned positive in the quarter. Each of our businesses performed above our fourth quarter profit expectations and we delivered results above the top end of our full year target ranges for EPS and free cash flow. While consumers remained cautious particularly when it comes to big-ticket discretionary purchases, we have continued to see stabilization in the home products market. That combined with the success of our strategic initiatives helped drive these results. In the quarter we continued to benefit from our foundation of enduring and trusted brands, combined with our brand building and new product initiatives. We’re on offense in all of our businesses. We’re sharply focusing on outperforming our categories, investing to grow profitable market share, and leveraging our lower cost structures. Let me give you a few highlights across the businesses, total spirit sales were higher in the quarter. Despite challenges in select international markets, sales benefit from gains for Jim Beam and Maker’s Mark in the United States and the weaker US dollar. Our home and security business delivered its best performance in eight quarters, led by high single-digit sales increase for Moen, and strong double-digit…

Thanks Bruce, starting with spirits, the spirits market demonstrated its recession resistance in 2009 and performed in line with our expectations. We estimate industry volumes and value in the US were each in the range of flat to up 1% for the year, reflecting some degree of trading down and price promotion activity. Markets outside the US were mixed, economic weakness continued to create soft industry conditions in Western Europe, Mexico and global travel retail. Australia, our largest international market, demonstrated low single-digit growth and collectively the BRIC markets grew as well. Now let’s look at the fourth quarter itself, spirit sales came in at $746 million, and that’s up 3%. Sales were down 4% on a comparable basis and again as always that excludes the impact of foreign exchange, excise taxes, acquisition divestitures, and the impact of required accounting for our route to market initiative. Geographically, comparable net sales were up 4% in the US, and down 9% internationally. Our US results benefited from higher sales of Jim Beam, Maker’s Mark, and Canadian Club. Outside the US sales declined sharply in Mexico and were lower in Germany and the duty free channel. Revenues were flat in Spain, the UK, and Canada and sales were up in constant currency in markets including Australia, India, and select Asian markets. At the operating income line OI before charges increased 2% to $186 million for the quarter. Turning to the full year, spirit sales were $2.5 billion, off 1% and OI before charges was $607 million, down 4%. On a comparable basis full year sales and OI were off 3% and 4% respectively. FX adversely impacted OI by $8 million, somewhat less than we anticipated while OI benefited from lower year over year brand spend. I would highlight here that brand spend was…

Thank you Craig, Fortune Brands ended 2009 with strong brands, efficient cost structures, and teams built to win. Our goal in the year ahead are to return to growth in earnings per share before charges and gains, outperform our market and growth from returns, and generate strong free cash flow. We’ve been proactive in the marketplace and also on the cost side throughout the downturn and we see the front end of a recovery as an excellent time to invest to fuel further momentum and gain long-term competitive advantage across our businesses. We intend to boost brand building investment in 2010 with a level dependent on the extent of the consumer recovery and our earnings growth as the year unfolds. While we are encouraged by the macroeconomic improvement in the fourth quarter we believe consumers will remain cautious while employment, credit markets, home values, and consumer confidence continue to mend. Accordingly we’re currently targeting to deliver EPS before charges and gains for 2010 in the range of $2.30 to $2.80. We begin 2010 with the assumption that the markets for each of our three brand groups will be flat to up at a low single-digit rate. We also expect that higher costs for energy, and raw materials will likely offset the expected benefit of foreign exchange. Looking at the first quarter earnings could be lower year over year reflecting the impact of substantially higher brand investment in spirits versus the low level in the first quarter of 2009, as well as the final quarter of incremental costs associated with our international route to market transition. Over the longer term we’re strongly positioned to accelerate growth as we benefit from our attractive consumer categories, powerful brand positions, flexible supply chain, and the leverage of our lower cost basis as consumer demand builds. Thank you again for joining us, now Craig and I will be happy to take your questions.

(Operator Instructions) Your first question comes from the line of Doug Lane – Jeffries & Co.

You mentioned just staying on the cash flow for a minute, you mentioned debt reduction but can you talk about what your attitude is today on raising the dividend again, buying back stock, and what the landscape is on the acquisition front.

Let me start with the acquisition front, again we are being very selective about what we’re looking at. There are certain areas that we are very attracted to and I think we’ll continue to be as disciplined as we have in the past around acquisitions. So yes, we are looking. Its got to fit right and its got to fit both from a financial standpoint but obviously from a strategic standpoint. Dividends of course is a Board of Directors decision. You know what we had done in 2009 and we look forward to building our dividend over time. We’ll see how 2010 plays out and we’ll look at that as the year unfolds.

The only other thing I would add to that is just as it relates to the dividend as we’ve said throughout the year and when we took it down we’re not looking at it per say as just okay that’s a new base and now we’ll continue the long slow build back over time. Obviously as Bruce said it’s a decision for the Board but its also something that as we look at where we are with earnings, we’ll definitely be looking at where we stand with pay out ratio and dividend yield. So, its something that we’re clearly looking at with a wide range of thoughts.

And is stock buyback even in the cards, at least near-term.

I would say for the near-term no, its something we always look at but near-term, no, I think that for the moment getting our balance sheet more strongly positioned, maintaining strong investment grade is clearly from all the work we’ve done something that we view as the absolute best interest of our shareholders.

And finally on acquisitions, can you give us some characterization of deal flow, quantity, quality, anything along those lines.

I would tell you that deal flow is about normal. Actually I would say it’s a little slower than I would anticipate. I think I said probably a couple of quarters ago that at this time we thought we’d see, be seeing more deals. We’re seeing about the average. The problem is the quality of the deals. Again we’re seeing businesses that have not faired that well through the downturn so, again, I mentioned this last time, its hard enough to do an acquisition but to do a turnaround and an acquisition at the same time increases the risk profile. So, we’re just being patient and disciplined and we’ll look as they come.

Your next question comes from the line of Michael Rehaut – JPMorgan

First on the home and hardware margins you talked about getting margins back up to like a 15% level over the longer term based on your current cost structure a lot leaner now than it was a year ago, what level of revenue do you need to get to, in order to get back up to that 15% operating margin level and maybe if you can share what your assumptions for like housing starts would be to get up to that level.

That’s something that we’ve shared repeatedly here and as we said before it will be margins approaching 15% but first and we’ll kind of do this in a step fashion, our view is that if we were to get let’s say our revenues back up to kind of the high $3 billion-ish kind of range, approaching $4 with housing starts in the kind of million range and repair and remodel that’s maybe flat to down a bit, we’d be around the 10%. Then get back to kind of the high $4 billion range with housing starts in the range of say $1.3 million to $1.5 million or so with repair and remodel back at its more normal rate of kind of mid single-digits that we would be back approaching the 15%.

And then I just had a question on the supply chain in the home and hardware segment, wondering if you were seeing any signs of restocking of inventory, and whether or not that’s in your current assumptions or if that could be incremental to your sales guidance for 2010.

We’ve seen very little, a couple of the businesses, first of all a lot of our business like cabinets and windows, we build to order so there of course specific jobs so there isn’t much finished goods in the system. We did see a little pickup in Moen in the fourth quarter but we’re comping against fourth quarter 2008 which if you remember people were in a heavy destocking mode then. But we haven’t seen a significant pickup.

And then if you could share what we should be expecting for interest expense, corporate expense and those other expenses in 2010.

I let you kind of build your own number, but we are, our average blended rate here in 2009 is in the range of about 4.5% and I would say that with where things are right now and where we’re going to be with the renewal of the revolver etc., I would say that we’re probably looking at something in the range of kind to 5% to maybe 5.25% as an overall blended rate for 2010.

What about the other and the corporate expense.

Corporate expense should be down a bit. We had a lot of call it year over year true up impacting numbers this year. But I would say that this is a starting point and we’re still finalizing budgets but for corporate use something in the let’s say in the range of perhaps $80 million and then for kind of other income and expense, I think at least a starting point since its kind of miscellaneous items just use maybe 5 to 10.

Your next question comes from the line of Ivy Zelman - Zelman & Associates

With respect to your home segment you really beat the market hands down and just kind of curious if you can point to some of the I guess reasons behind that. Obviously windows was a benefit with tax credits and then secondly when we look at maintenance spend versus really repair and remodel when you talk about the market overall for the fourth quarter could you break it down for us because I know that we agree with you about the discretionary items are going to be more challenging so I’m wondering if you can delve a little bit deeper into your thoughts on the break out.

Where we saw improvement more than we expected really it came out of the home center and the entry level homes in the fourth quarter. So we believe both Moen, cabinets and Simonton we gained share and in some cases fairly significant share. So a lot of it was the market being better but also that we performed better in the market. We didn’t see so much that trend in the door business, again that’s more new construction. A little bit more trading down there from high end fiberglass to smooth fiberglass as well as steel and our security business was off a bit because of the commercial market. Your second question was—

Maintenance versus repair and remodel because you talk about the overall market being down 20 and just looking at if you could differentiate the two segments.

Its hard to give you specifics there, our business and the Moen business is the most repair orientated business but just by the price point and the type of faucets we saw that the repair business was fairly strong. That was stronger than the remodel side. The remodel side again we’re seeing smaller projects, more home center centric type of projects that are going through in the kitchen area and in the bathroom. Not so much is going at the walls or replumbing the area and so forth, so we expect, or we think its more small remodeling projects, cabinets in cabinets out type of thing as well as the repair business that’s carrying the day.

And just to clarify when you talk about the repair business and the entry level you’re referring to existing homes as opposed to new construction, correct.

Yes, as the repair business would be all existing homes but the entry level, we did see a pickup in the entry level homes, they’re a smaller type home but the production builders did pick up a bit in the fourth quarter for us.

So it was new construction that contributed to the surprise in the entry level.

A bit, I would say it was more home center than new construction.

Your next question comes from the line of Eric Bosshard – Cleveland Research

Two things, on the spirits business can you talk about what you see going on from a market share perspective and I’m interested in the additional brand spending that you’re talking about in 2010, the expectation does that allow you to hold market share, gain market share, give us a sense of kind of in total in the portfolio what we should be thinking about.

I think I explained this before but we had prioritized certain brand market combinations, this would be Jim Beam United States or Jim Beam Germany, or Maker’s Mark UK, those type of brand market combinations and what I expressed to everyone was that we had a prioritization of the top 20 that had the best return on investment for us. Both with our core brands and some emerging brands. What we see in our business right now is that we are starting to move the needle on those. We put an investment behind those and are focusing the organization and we are tracking more to the market and in some cases above the market. So that’s the first sign that our investments are working, that our new organization structure is working. So we’re very excited about that and we want to fuel that going forward. So for us in particular we’ve seen the fourth quarter, again bourbon which is a category that’s doing better than some other categories that we are gaining share there and then in tequila which includes the family of Sauza, we in the first half of the year weren’t performing very well and we’ve closed that gap here towards the back half of the year and we see some momentum going into next year. So that’s basically how we’re framing it.

I guess I would add to that is you look at what our strategy has been over the last few years, our real orientation has been one of kind of revenue growth as well as good returns. And I think that’s evidenced by the fact that as you look at Jim Beam even here in the US our depletion revenue growth was up 7% for the year. As we look at the market going forward we think its going, price is going to be more challenging and we think that volume is going to become a more important part of the overall program to provide returns. And that’s part of the reason for kind of coming back and having the organization taking control of the sales organizations to the degree we have globally as well as the additional brand investment we’re talking about which as we outlined in the script, we intend to help fund with cost savings.

Let me frame this a little too for you, it might be helpful, we’re talking about a $20 million range type of investment here and it really is dependent on how the consumer behaves and what our earnings look like for the year. So keep that in mind. I just wanted to put a relative size to it.

And just to be clear when we talk about 20 we’re basically for now saying that’s full and aggregate.

And I guess historically it seemed like you raised price in Beam and used that to fund investments to strengthen the brand or grow volume or improve share and it seems like pricing I think you commented is a little bit more challenging and that leads to my second question, is the margin outlook in terms of how it works in this business, is the assumption I think you commented you expected flat margins, I’m just wondering how you fund the additional investment if you can’t fund it through it price as you did in the past.

We’re looking at 2010 and some of the initiatives that we did in 2009 really play to that. We leaned out our organization, we combined our European offices, two of them into one, we leaned out our corporate office here, all those savings along with the consolidation of our bottling facilities this year will all contribute to cost take out that will be reinvested into the brands and then we expect to stay in the range of 24% return on sales.

And to the point here obviously as we generate more volume and obviously that’s the key part here because we’ve looked at all of this with an orientation of return on investment and so to the degree that we generate the incremental volumes that we’re talking about then the bottom line obviously is our expectation is to leverage the cost structure we have and then just kind of doubling back here for a second, the things that we’ve done here in 2009 as Bruce outlined will carry forward to give us the cost saving benefits in 2010 and then the consolidation of our bottling operations is something that’s happening in 2010 and as such the cost savings benefit of that will show up in 2011.

And one last thing I guess we do expect to see a pricing back in the marketplace as the economy starts to recover and a shift more towards again the premium and the premiumization in this market. We just don’t see it in 2010 though.

And then secondly in the home business I think you talked about market growth of the sort of flat to 3% type range and you talked about long-term margins returning back towards 15%, can you give us any help on what you think the profit growth or the magnitude of the margin recovery or the incremental margin should look like in that business in 2010.

Well as we said we’re coming in with an expectation overall that for Fortune Brands that we’re looking at having our diluted earnings per share performance in the range that we talked about and so at this point I wouldn’t go beyond that.

[inaudible] expectation that margins expand in the home business in 2010.

I would say right now with what we’re looking at for raw material costs that any margin, and then also the fact that as we look at consumers trading down and being more cautious in their spend that we haven’t yet fully annualized on that. You look at the production builders which we think is going to be the bigger piece of the increase in kind of new home construction. So I would say to you that any margin expansion at this point in 2010 is going to likely be modest. But at the same time if we’re seeing a stronger market we would expect to see the contribution on those incremental sales kind of running in the range of say 30% or so.

Your next question comes from the line of Derek Leckow - Barrington Research

Let me just say congratulations on beating all of your targets last year, certainly as I look at the guidance for this year and I think about what you just talked about regarding that $20 million investment that’s $0.10 to $0.12 per share of EPS right there, what kind of hurdle rates or what sort of payoff are you expecting from that investment as we move out to 2011. I’m just trying to take a look at what you talked about relative to your brand building investments that are scheduled to I guess increase by about $20 million.

Let me clarify that, we call them really strategic investments so they aren’t all brand, some of it is investments from the golf business into our Asia markets, again Moen into China and India also are included in those as well as brand. So it’s a combination, basically calling it strategic investments.

Right but across the entire business right, this is across each segment, you kind of quantified it as that level of spending.

Yes but we wouldn’t put specific guidance on that at this point in time. What we’re trying to do is just give you a feel of the things that are going on.

But as you look at the returns on investment that you’re targeting for that, are these sort of items that pay off almost immediately in the following year or are they designed to be longer term in nature, what sort of—

Its kind of a mixed bag because some of the Asian investment, international investments are more longer term. The brand investments a lot of the investments we are going to make are behind things we already have momentum on and we’re going to try to maximize those so those would be a shorter return.

Within the home and hardware or home and security segment I think you talked about targeting roughly a 4% or so operating margin and that rate of margin would also kind of correspond with relatively flattish leading indicators for the housing industry, is that how you’re thinking about that now.

Yes, as we’ve said the US housing market we see basically flat to up low single-digits. That’s a combination of an R&R market which is about 75% of the market which is we believe will be off low to mid single-digits and the new construction market in absolute numbers will be up in the maybe mid 20’s but what’s being built is important here because what we’re seeing is entry level which means for our building products company, less products going in. So less windows, less cabinets, less faucets because of the size and shape of the house that’s being built. So the mix of new construction is important.

But I think the other thing, let’s not lose sight of here is the fact that we’ve got a more cautious approach. You’ve got other people out there with much stronger views of what will be the recovery in home and as we outlined a moment ago our expectation is to the degree that we get that leverage and we see a stronger market that we should be at a brand contribution level leveraging about 30% on incremental sales.

That’s right, you are pretty good at keeping the targets fairly low given the size of the outperformance this year in 2009 so you said negative margins though in Q1, so as the replenishment cycle begins within home and security I think what you’re saying is there are some front loaded costs involved in that.

No, its seasonal. The first quarter is a small season, first and fourth quarter in housing are the smallest, the spring and the fall are the biggest, so its really a matter of the size of the market is the biggest piece of it.

Your next question comes from the line of Lindsay Drucker Mann - Goldman Sachs

Just first on Moen, that high single-digit sales increase is pretty striking, well ahead of what we would have expected so can you talk about how much of that is true end demand improving and how much may have been pipe fill for new products or shipment timing. I believe you were actually lapping a price increase that made a tough comp for you actually from last year. So just some clarification on that.

I would say that the majority of it is performance in the market but there is some inventory build. If you recall fourth quarter last year a lot of our wholesalers and retailers were destocking as the uncertainty of the economy was happening. So, that gave us an easier comp just from their inventory standpoint and I think that when they saw some improvement in the market, they started to build a little bit of inventory. But I don’t want to over exaggerate that. We think its maybe a point or maybe two points of that high single-digit increase. As far as new products loading and [launch] no, nothing unusual there as far as preloading of any type of new products. Our product development cycle really starts, we’re bringing stuff out more so now through the next two, three months as getting ready for the spring season so there’s not a load in associated with that.

Would you be surprised to see a similar rate of growth across the year for Moen next year.

I hope so but one of the things that we did see if you break down the market, that the repair business did accelerate and has been accelerating in the second half of the year. So what’s interesting about the faucet business is obviously you have the new construction or you have remodel but you also have the big repair element. So people’s faucets that are broken or need to fix whatever will still be engaged in the market because its something that you have to repair. So we think the mix of business is a little bit more favorable to repair which is fine, it really doesn’t matter to us. But as far as the condition of the market and the recovery of new and remodeling I think that’s, we haven’t seen those be the driver of their business right now.

And then just on spirits looking over the past two years its been two years of kind of tough sales trends for you down 3% or 4% on a comparable basis and underperforming your biggest peers, I was hoping if you could help me get a better understanding of what’s really driven that lagging versus your peer set and is it just that brand investment that’s going to help you close the gap.

I think it’s a combination of a lot of things. If you go back a couple of years and a lot of the things that we’ve really, are initiatives to correct that, you have a number of things that have happened. First of all if you, we didn’t control our sales organization which was a big deal. Secondly I don’t think we were from a marketing standpoint as efficient as we needed to be and as focused as we should be on a higher return item and on the penetration of our bigger brands. And then one of the big factors that was, that you have to add into that was the RTD impact for the excise tax in Australia. That was a very, very profitable business that took a very hard hit with the excise tax going up for consumer purchases almost 70%. So the differentiation between beer and the RTD product in Australia now is fairly significant and we’ve seen, not only us, but the whole RTD industry there in Australia saw a significant impact on the volume and that was a very high margin product for us.

And then just quickly back to the potential deals, you said there was some stuff that you were attracted to, can you just give a bit of detail on what buckets those might fall into and what the criteria is for the financial and strategic set for you.

Again we keep on saying this publically but our priorities are really spirits and home and security. We don’t really see acquisitions in the golf industry because of just our leading positions in that market. And if you look at the spirits business its going to be more things that will fill in certain product portfolios. We are very deep in bourbon, in tequila, but adding rum, adding more depth in vodka, would be things that we would be very interested in. And also international positioning would be very important to us especially in the emerging markets. We have some really great momentum in India and Brazil and we’d like to capitalize on the teams that we have there and be able to position those, accelerate those as well. In the home and security business I think again its going to be closer to home type of acquisitions, things that we both have strategic interest in and also leverage because of our existing positions in the cabinets or faucets or windows and doors. In the security side there we just see a lot of different avenues there because of our organic adjacent market strategy we’ve been able to penetrate some of these new markets and maybe an acquisition might help there just to fill out the overall positioning of the products. So there’s a lot of different areas. Again if we go back to our philosophy its basically organic first, we fund organic growth because we have really strong brands and we have to keep them alive and keep on moving into adjacent markets. And then we look at acquisitions and pay down debt and even share payback kind of the same level, we actually look at and comparing those against each other and then dividends in third position.

Your final question comes from the line of Ann Gurkin - Davenport & Co.

I wanted to ask some questions on spirits if I may starting with how did the industry fare during the holiday selling season, how did we end up in the US.

Pretty much what we saw the rest of the, similar to what we saw the rest of the year. I would say in general in the US was up maybe a percent, a little bit of trading down similar to what we saw in the prior two quarters. A continuation of the off premise versus on premise trend as well. Promotion activity was about what we expected for the holiday season. I don’t think it was abnormally high or abnormally low, so pretty typical of a holiday season. So I would say there really wasn’t a lot of difference in the spirit business itself. I think what was more interesting to be honest with you was how the sector performed versus beer. If you saw for the year I think we were up a percent or so in the US, beer down 2% to 3%. So I like that trend obviously and I like to see the spirits industry continue to perform well against beer. So that was a very favorable factor during the course of 2009 and we think it will continue into 2010.

And then inventory levels any major change in the US.

No, we’re basically at the same inventory level we were a year ago, number of days in our suppliers.

And your stepped up brand investment is that any reflection on a need to reset the pricing to drive that volume, is that, in other words the prices are too high in spirits for the consumer right now, is that a reflection of that at all.

No it’s a combination of a couple of things, one is first of all in the first half of last year we really took our spend down a bit because of all the transitions we had going in the international route to market and some of the leadership change too that we had going in the organization. So we were just a little bit cautious about that so we need to get those back up to a comfortable level. And second is we’re seeing some pretty good momentum in some of the things that we’ve been trying to do with the BMCs and we want to keep on fueling those because those are giving us really good returns. So that’s basically what the strategy is.

And to the point of price obviously we had a fair amount of price that benefited us in 2009 as we came to the end of the year we really did look across select markets and in select markets we’ve done some repositioning of our prices. But that’s not part of what we’re discussing when we’re talking about the brand investment.

And your comments you talked about the 2010 outlook for spirits of worldwide growth flat to up 1%, can you work out volume and price behind that number.

I would say to you right now our view overall is that that and it depends on who you talk to or who’s numbers you want to look at but I would say that what we’re going to see is to the degree we’re going to see upside is going to be volume so as we think about that zero to 1% I would skew more toward being up with, or that coming from volume rather than price. I would say to you right now that price and mix I think is a reasonable starting point to say flat to just up a tad is probably more realistic to think about price and mix.

And then in the first quarter you’ll expect to incur more expenses for absorbing route to market costs, can you give us a number on that.

Yes, the annualization here will be about $10 million in Q1. As we outlined previously the aggregate investment globally is in the range of around $50 million. That was in the range of 30 or so, 35 US and then kind of the 15 or 20 or so internationally.

And that will be it. It will be annualized as of April 1.

And that $10 million you include in your earnings outlook for Q1 versus last year.

Yes.

Spain, how did that finish out the year, how did consumer demand and inventory look for spirits in Spain at the end of the year.

I would say the inventories looked good. I think we’re starting to see some level of stabilization but Spain is still obviously a challenging market when you look at the level of unemployment that they have right now along with what we’ve seen in terms of the people moving away from drinking in the bars. So there’s no question its still a challenging market.

There are no additional questions at this time; I would like to turn it back over to management for any additional or closing comments.

On behalf of everyone at Fortune Brands, thanks again for joining us. We’re pleased to move into 2010 in such a strong position and we look forward to discussing our first quarter results with you in late April. Thank you.