Beam Therapeutics Inc. (BEAM) Q3 2010 Earnings Report, Transcript and Summary

Good morning, my name is Kayla, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fortune Brands Third Quarter's Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Bruce Carbonari, Chairman and CEO of Fortune Brands. Sir, you may begin the conference.

Thanks, Kayla. Good morning. I'd like to welcome everyone to the Fortune Brands Third Quarter Call. Please note that our presentation includes forward-looking statements. These statements are subject to risks and uncertainties including those listed in cautionary language at the end of our news release. Our actual results could differ materially from those targeted. And this presentation also includes certain non-GAAP measures that are reconciled to the most closely comparable GAAP measure in our news release or on our website in the Supplemental Information linked to the webcast page. Fortune Brands' third quarter results were in line with our expectations, and the company remains on track to deliver strong results for the full year. Our results reflect the headwinds we publicly projected three months ago, including the acceleration of demand into the second quarter due to the expiration of the U.S. homebuyer tax credit and the timing of spirit orders. Higher cost of raw materials and increased strategic investments, we're making for long-term profitable growth. These investments which include support for new businesses we've recently won, new product innovations, long-term brand building and international growth initiatives are already delivering results. Importantly, our brands continue to perform very well in the marketplace and are well positioned for the future. In Spirits, new products and successful strategic investments are fueling of momentum in the United States, as we see the positive impact of recent initiatives. We're also making progress in challenging global markets and growing strongly in priority emerging markets, such as India and Brazil. Even as the Home Products market has softened, we're outperforming the market and also winning profitable new business in the cabinetry, faucet and garage organization categories that will enhance our prospects in 2011 and beyond. Our initiatives have positioned us very well to accelerate growth when the housing market recovers. And in Golf, we've driven year-to-date growth in all product categories. We're continuing to expand strongly in key Asian markets, and the fourth quarter launch of the advanced-technology new Titleist 910 driver will build on a very successful year of new product introductions. Now let's take a closer look at the numbers for the quarter. Net sales were slightly higher at $1.7 billion and reflect the adverse impact of the pull-forward we've discussed. Sales were up 1% on a comparable basis. That measure excludes excise tax, foreign exchange and acquisitions/divestitures. By brand group, comparable net sales were up 2% in Spirits, up 1% in Home and Security, and up 3% in Golf. On a year-to-date basis, comparable sales for Fortune Brands are up 6%, driven by 5% growth in Spirits, 8% growth in Home and Security and 3% growth in Golf. Net income was $102.6 million or $0.60 per diluted share. Results included modest charges and gains, and Craig will touch on those a bit later. Excluding charges and gains, diluted earnings per share was $0.72. That's off 6% from $0.77 in the year-ago quarter. Note that we do not see the estimate pull forward of the -- we did see the estimated pull forward of a $0.10 to $0.15 bps from of the third quarter into the second quarter. Thus, if sales balance out, earnings per share before charges and gains would have been up solidly. Year-to-date, EPS before charges and gains is up 24%. Reported operating income came in at $176.8 million. On a before charges and gains basis, operating income was $206.4 million for the quarter. That's down 3%, reflecting our increased strategic investments, higher raw material costs and the pull-forward of demand in the second quarter that we've previously discussed. Year-to-date, OI before charges and gains is up 17%. Reviewing our assets and investment return measures, after-tax returns and net tangible assets before charges and gains was 17%. Working capital efficiency came in at 36%. Absent maturing inventories in Spirits, WC improved to 18%. Return on equity before charges and gains was 8%, and return on invested capital before charges and gains was 6%. Looking ahead, we continue to build on our long and successful track record for actively managing our brands in both good and challenging times. As we discussed before, during the downturn, we focused sharply on consumers, cost and cash. We continue to see the results of our focus here in 2010, including strong performance in the marketplace and the benefits of lean and flexible supply chains as demonstrated by our share gains and cash conversion rate in excess of 100%. We believe our proactive approach has enabled Fortune Brands to emerge from the recession in a strong position to outperform the current environment and to enhance the company's future prospects to help maximize long-term shareholder value. Let me take a few moments to dive a little deeper and focus today of the few of the things we're doing to win in the marketplace, including how we build on our strong foundation of trusted brands with increased investments to seize competitive advantage in our consumer markets. First, in our Spirits business. We've invested in building and gaining control over our global routes to market. We've also invested in our new product development pipeline and in our marketing capabilities. These investments have enabled us to bring new products and new brand-building marketing programs to market much faster. Our Innovations have brought exciting new energy to the bourbon category. Red Stag by Jim Beam is attracting new consumers to bourbon. We're continuing to expand the Red Stag distribution in the United States and preparing to launch it in key international markets. At the same time, Maker's 46 is off to a tremendous start. And the relaunch Jim Beam Black is adding to our gains in the category. Let me add that Cruzan 9, an excellent new spiced rum is tracking at double our initial expectations. In our international business, the new Teacher's Origin scotch whiskey is adding some strong growth in India. DYC 8 and Larios scrub [ph] are doing well in the challenging Spanish market. Importantly, our innovations are also driving favorable mix. These are all value-added line extensions that sell at a premium to the core product. And we are even more in the pipeline. Courvoisier is the first of the four major houses of cognac to introduce their product with a declared age statement. Courvoisier 12-year-old and Courvoisier 21-year-old are hitting store shelves this month. Look for the new and upgraded single-barrel reserve in the months ahead. And we have even more innovative plans for introduction throughout 2011. Our investments to both elevate our marketing organization and impactful brand-building programs are creating a new energy around our brands. As we've discussed previously, we're significantly increasing the dollars devoted to digital media, including, for Jim Beam, multi-platform partnership with ESPN for iPhone apps and for new TV and online advertising for Hornitos Tequila. Canadian Club has a prominent placement in two of this season's hottest TV series: AMC's Mad Men and HBO's Boardwalk Empire, and it's also returned to TV advertising in its native Canada. EFFEN Vodka boosted its profile in the New York market and to top-tier media as the official vodka of fashion week. And Maker's Mark launch is first ever international media campaign in Europe. In Home and security, our track record of innovation and the proactive approach we've taken to manufacturing excellence, customer service and supply chain flexibility is leading to important new customer business. And our investments in new products and international expansion are further helping us outperform the market. Our Cabinetry business is on a roll, putting together an impressive winning streak of profitable new business across channels of distribution. While some of these programs are just beginning to roll out, they're already helping us gain market share, and when complete, they will add even more meaningful to our results in 2011, 2012 and beyond. Just this month, we'll be enrolling out a major cabinetry program at Lowe's that will result in our business producing the vast majority of both finished and unfinished in-stock cabinetry offerings for Lowe's stores. And we're installing new selling centers in the top 650 stores by year end to support our Diamond Prelude cabinetry line. That's on top of a Vendi [ph] program we recently launched in nearly 200 northeastern Lowe's stores. In September, we began taking orders for new market Martha Stewart Living cabinetry at the Home Depot. This program rolled out to all the nearly 2,000 Home Depot stores simultaneously, and it's already exceeding our expectations. In the current quarter, we've extended the launch of Martha Stewart Living cabinetry to Canada. We've also completed the rollout of Thomasville cabinetry at all Home Depot's Canadian stores and at the core high-end semi-custom brand at Home Depot's top 440 U.S. stores. We also have exciting new products launch forthcoming in early 2011 in the dealer channel where we have a very strong leadership position. And Waterloo has won significant new business that will roll out in 2011, featuring its innovative garage organization platform in 16-foot sets at all Home Depot stores. The momentum of our home products and brands is reflected in a number of best-in-class awards we've recently earned. This include the EPA WaterSense Manufacturing Partner of the Year for Moen, the highest satisfaction for windows and doors and patio doors among consumers, builders and remodelers for Simonton in the latest J.D. Power and Associates study, and a major industry award for value, quality and energy efficiency for Therma-Tru, and multiple vendor of the year awards in cabinetry. On the innovation front, we're supporting these new cabinetry lines with innovative features and organizational solutions. Additionally, Moen's new spot-resistant finish launched in the quarter is rolling out. And the number one faucet brand in North America continues to rollout new eco performance offerings for the kitchen, the shower and bath. Simonton is fueling growth and adding value with an exterior frame colors and energy-efficient glass packages. And Master Lock strategy of growing in adjacent security categories including door hardware and commercial safety continues to pay off. These also include innovations like the speed dial padlock, which are driving new demand and favorable mix. Internationally in Home and Security, Moen is on track to add 135 new showrooms and open up more than 40 new markets in China this year, while also continuing to build its emerging Indian business and its Latin America presence. In addition to our cabinetry gains in Canada, Moen is also growing in the Canadian market. Master Lock's focus on new growth opportunities is fueling gains in Europe, Latin America and China. In Golf, our focus on both innovation and international expansion is strengthening our industry leadership. The Titleist Pro V1 golf ball continues to lead the field in the marketplace and on the worldwide professional tours. Two weeks ago, the Pro V1 celebrated its 10th anniversary, and one week later, we began testing the sixth generation of the Pro V1 on the worldwide professional tour. The next-generation Pro V1 has already been on tour and will be launched in early 2011. FootJoy's innovation such as the new flagship ICON golf shoe line and the sports line has given new momentum in 2010. We're also excited about FootJoy's successful expansion to perform its outerwear, the new FootJoy layering system, with a tagline, "make everyday playable," launched in the quarter and we're seeing very strong initial demand. We've also introduced golf clubs and ball models designed specifically for the Japanese market. The Titleist DT #3 driver and golf balls are tailored to the swing characteristics of Japanese players, and they help drive share gains for us in that market. As I mentioned earlier, we're excited about the launch next month of the sore proven Titleist 910 driver. The 910 driver features the fastest, most stable head design Titleist has ever created. And the new patented technology allows a loft and lie to be independently adjusted, taking precision fitting to a new level. We will also launch 910 fairways and hybrids early in 2011. Internationally, our ongoing investments to build our sales and marketing infrastructure in key growth markets such as Korea, China, Japan and Australia are delivering results and positioning us for business for long-term growth. We also completed a Titleist Ball Plant IV in Thailand, which supplements our ball plants in Massachusetts, enables us to serve key Asian markets very effectively. Underpinning each of our three businesses is a winning organizational structure with lean cost and flexible supply chains that enable us to deliver operating margins at or near the top of our industry and provide fuel for growth. Our businesses continue to further enhance our competitive position, with initiatives that enhance the productivity including lean manufacturing, product platform simplification, global sourcing and automated ordering of materials. Just look at our Home and Security business, for example. Thanks to supply chain enhancements and productivity initiatives we accelerated and reductions in facilities during the downturn, we're in a position to take on new business with a lower cost structure. And as the home products market recovers, we'll be able to ramp up further and leverage extreme well. Lastly, we've made some incremental moves to sharpen the focus of our Spirits portfolio. In the quarter, we divested three local nonstrategic Spirit brands in Germany. That transaction will enable us to focus all of our resources in Germany on the growth of our global premium brands in that market. Earlier this month, we announced agreement to sell the nonstrategic Coburn core brand to the family company that already owns the brand's production assets. We also announced that we are entering into a distribution arrangement with pasture organic liquors brands in the United States. Now here is Craig with a closer look at our markets and the third quarter performance in each of our segments.

All right. Thanks, Bruce. Starting with Spirits and the overall market. Our assumption continues to be that the global Spirits markets will grow in the range of 1% to 2% for the year. Geographically, we expect the U.S. market will grow in the range of 2%, benefiting from more favorable industry conditions. In Europe, the U.K. and German markets should be up in the range of 1% to 2%. Spain will be lower, but continuing to improve. While the markets will likely be relatively flat in Australia, we continue to expect strong market growth in the BRIC countries, as well as across Southeast Asia and global duty-free. Looking at our numbers for the quarter, Spirits sales reached a third quarter record at $643 million, that's up 1%. Importantly, on a comparable basis, sales were up 2% and case volumes were also up 2% in the quarter. On a year-to-date basis, our comparable sales and case volumes are both up 5% and benefiting modestly from timing and the year-over-year impact of our Maxxium reorganization of international markets. As we indicated three months ago, the timing of sales in various markets and higher bulk sales hold some revenues and case volume forward from the third quarter into the second. Turning to operating income. OI before charges was $146 million, down 2%, reflecting the increased strategic investments we've discussed throughout the year. On a comparable basis, OI was off 3%. Looking at the performance of our key brands on a year-to-date basis, each of our three Spirits consumer categories in constant currency and excluding excise taxes is up in net sales. In bourbon, where we're the global leader, our brands are up at a low single-digit rate worldwide. Red Stag and Jim Beam Black continue to support solid performance for Jim Beam in the U.S. Internationally, strong momentum for Jim Beam in Germany and other European markets is partly offsetting challenging market conditions in Australia. Maker’s Mark is growing at a double-digit rate in the U.S., as well as in its expanding international markets. Our Knob Creek continues to grow at a double-digit range and we're seeing strong growth for our Rye whiskeys as well. In mixables, our sales are up low single-digits. This category includes tequila, rum, vodka, gin and cordials. Gains for Sauza and Hornitos Tequila in the U.S. are offsetting lower results in Mexico. Nielsen sell-through date indicates that Sauza is continuing to outperform in the U.S. tequila market, importantly in both dollars and volume, with share gains across multiple Sauza variants. We continue to drive strong growth and share gains for Cruzan rum as we raise the profile of the brand in the U.S. EFFEN Vodka is building momentum as we expand distribution and our economy vodkas are also continuing to perform well. And in cordials, higher sales for sours in Europe are partly offsetting lower sales for the DeKuyper in the U.S. In the classics category, which includes our cognac and Canadian and Scotch whiskeys, we're up at a mid single-digit rate year-to-date. Courvoisier is up double digits on strong growth in the U.K., Canada and duty-free, while Canadian Club sales are up single-digits. The brand is gaining share in the U.S. in the Canadian whiskey segment, and Canadian Club ready-to-drink products are the fastest-growing RTD in Australia. Sales of Teacher’s scotch are up at a double-digit rate on very strong growth in India and Brazil. Strong demand in the U.S. and the U.K. are helping drive double-digit sales growth for Laphroaig. As we approach the fourth quarter holiday season in Spirits, we have solid momentum in the U.S. market and we're making progress in our key international markets. I would add here that given the success of our strategic investments, we're continuing with our increased year-over-year investments in our best growth and return opportunities, including our innovation pipeline and strategic brand-building programs. We believe this proactive approach, which includes a double-digit increase in brand investment this year is positioning us well for sustainable long-term growth that outperforms the category. On the OI margin front, we're continuing to target something in the range of 22.5%. While FX now appears largely neutral for the year, we'll be down from last year, largely due to both increased brand spend and the first quarter annualization of our international route to market investments. Now turning to Home and Security. As we've discussed throughout the year, our expectation for the home products market in 2010 has been low single-digit growth. While spending in the home products market on replace remodel, new construction and cabinetry was a little stronger than we expected in the first half, we clearly see things moderate here in the second half. Due to the pull-forward in demand we saw in the second quarter, combined with soft and uneven market conditions, we estimate spending on home products was off at a low single-digit rate here in the third quarter. And I would say to you, we don't see that changing here in Q4. And as a result, we now expect our home products market will be relatively flat for the full year. That includes an assumption that new construction spending will be up in the range of 5% to 10% for the year, with overall replace-remodel spending relatively flat. And spending for cabinetry, which is a big ticket discretionary purchase, off low to mid single-digits. Looking at our numbers for the third quarter. Home and Security sales were $814 million, up 1%, reflecting the pull-forward into the second quarter due to expiration of the home buyer tax credit in the U.S., offset by continued share gains and favorable product mix. I would highlight that year-to-date, sales are up 9%. Operating income before charges in Home and Security came in at $75 million, flat with the quarter a year ago. As we indicated last quarter, Q3 operating income in Home and Security reflected the impact of higher cost for materials and ocean freight, as well as our investments to support the start-up of significant new business we've recently won. These higher costs were offset by favorable resolution of patent litigation involving security products. Drilling down, we drove low to mid single-digit sales growth in all product categories except entry doors, which faced customer inventory reductions in the quarter. Quarterly sales for Moen grew as gains at retail, strong growth in Canada and Asia and higher accessories demand, more than offset lower sales in the wholesale channel that serve new construction. For our cabinet brands, strong gains at major home centers more than offset modestly lower sales in other channels of distribution. Overall, our Cabinet business is well positioned in the home center channel across customers and across price points, and we're benefiting from business we've won. We'll see even greater benefits in 2011 and beyond. In windows and doors, Simonton Windows benefited from continued share gains and favorable product mix, driven by energy-efficient glass packages and new colored and painted frame products. While Therma-Tru also drove improved product mix in the quarter, channel inventory reductions pulled results lower following double-digit sales gains in Q2. In Security and Storage products, Master Lock grew on back-to-school shipments and expansion in adjacent security categories and in international markets. Waterloo was higher on gains in adjacent categories, including its successful new garage organization products. As we look ahead in Home and Security, we feel we're in an excellent competitive position that will enable us to accelerate our performance as the housing market recovers. Recovery will obviously depend on several factors, including employment and consumer confidence, home prices and credit availability and the rate of foreclosures. That said, we're bullish on the housing market over the long run. The fact is population and immigration trends will drive demand for new housing units over the next 10 years, and the existing housing stock will obviously need to be remodeled, and more importantly, repaired. In the near term, the recovery remains uneven and consumers remain cautious. Here in the fourth quarter, we're facing the headwinds we've previously discussed. These headwinds include our higher strategic investments to support the rollout of major new business as well as higher year-over-year cost for certain commodities and transportation. Looking at our expectations for the year, we previously told you to expect Home and Security to leverage in the range of 30%. We now expect that will be in the high 30s to low 40s, and we continue to expect that full year OI before charges margins will be in the range of two points better than the prior year. Now turning to Golf. Looking first at the market, we began the year with an expectation that worldwide spending in golf equipment would grow at a low single-digit rate for the year. That remains our view. Industry conditions are relatively flat in the U.S., with rounds of play down about 3.5% year-to-date as poor weather has impacted play in regions of the country including Florida and California. At the same time, we're continuing to see growth internationally, particularly in the packed basin that's helping lift overall industry spending. On a reported basis, Golf sales for the third quarter were $265 million, down 5%. On a comparable basis, in constant currency and excluding COBRA, sales were actually up 3%. Geographically, comparable sales were up at a single-digit rate in both the U.S. and international markets. In constant currency, sales were lower in Europe, but up in Canada, Japan, Korea and China. Operating income before charges came in at $6 million, and that's down $4 million from the year-ago quarter. OI reflected the impact of seasonality, higher year-over-year investments that we told everyone to expect, and obviously, the divestiture of COBRA. Sales of golf balls were up slightly in the quarter and are flat year-to-date in constant currency. We're continuing to support our industry-leading golf ball franchise through a variety of platforms, including leadership on the worldwide professional tours, targeted advertising, our growing ball-fitting program and word-of-mouth through the Titleist team community of brand fans. Sales of Titleist clubs were up at a double-digit rate in the quarter and are up double-digits year-to-date. Continued strong shipments of the new Titleist AP1, AP2, CB and MB irons, as well as demand for Vokey wedges and Scotty Cameron puttershelped drive the third quarter results. While sales of FootJoy shoes were off at a mid single-digit rate in the quarter, sales are up double-digits for the nine months. We continue to see very strong acceptance with a new flagship ICON golf shoe, as well as the FootJoy sport line. Sales of gloves and accessories continued their solid growth in the quarter. Here in Q4, as we've said many times before, the seasonality of Golf historically results in a fourth quarter loss in this business. This year will be no different. That said, we continue to expect that our full year margins in Golf will be a point or so better than last year. Overall, we feel very good about our competitive position. We've got great new products launching this quarter and early in 2011 and our investments are continuing to build our growth profile in key Asian markets. Now before I turn things back to Bruce, just a few additional items. Reviewing gains and charges for the quarter. We recorded a gain of $9.9 million or $0.06 per share related to the completion of U.S. tax audits as well as select international tax matters. We recorded an after-tax charge of $12.4 million or $0.08 per share related to the divestiture of the nonstrategic local Spirits brands in Germany. And we recorded after-tax restructuring charges of $5.6 million or $0.04 per share. The majority of these restructuring charges for initiatives in our Spirits business that are focused on organizational streamlining. We also recorded modest charges primarily associated with completion of various supply chain initiatives in Home and Security. With regard to our tax rate, our third quarter rate on a before charges/gains basis came in at 27%. Our target for our full year rate remains in the 26% to 27% range. Now turning to cash flow. We've raised our target for free cash flow for 2010 to the range of $625 million to $700 million. That's up from the $525 million to $600 million, due principally to our better working capital position and what will be the timing of capital expenditures. A few points on this. First, our 2010 free cash flow is benefiting from a 200 to 300 basis point year-over-year improvement in working capital efficiency, driven by progress across all three of our businesses. Second, this target represents an earning to free cash flow conversion rate well in excess of 100%. Third, our full year target includes $130 million to $140 million of proceeds from asset sales, and that's principally related to our COBRA and German Spirits brands dispositions. And lastly, I'd highlight to everybody and remind everyone that debt reduction remains a priority for the use of our free cash flow. So with that, let me now turn it back over to Bruce.

Thanks, Craig. As we look ahead, we continue to expect that the economic recovery will be gradual and uneven, with the Spirits and Golf markets likely to grow in the low single-digit range of the full year and the likelihood that our Home Products market will be relatively flat. The proactive steps we took during the downturn and the investments we're making at the front-end of the recovery have put Fortune Brands in a very strong competitive position. Trusted brands, combined with strong innovation, customer wins, strategic brand investments and global expansion initiatives are helping drive broad-based share gains. The leverage of our lower cost structures is helping the bottom line and our focus on cash is helping fortify our balance sheet. Fortune Brands remain on track to deliver strong earnings growth in 2010. And results within our full year target range of $2.60 to $2.90 in diluted earnings per share before charges and gains, that's versus $2.43 in 2009. Factoring previously discussed headwinds, including higher raw material costs, our increased strategic investments in comparison to last year's improving results are results attracting towards the middle of our target range. We believe we are well positioned to continue our momentum in the marketplace, leverage our lower cost structures and deliver continued earnings growth and improve returns as the economy continues to recover. Thank you, again, for joining us. Now Craig and I would be happy to take your questions.

[Operator Instructions] Your first question is from Peter Lisnic with Robert W. Baird.

I guess, first question, if I could. On the quarter at Home and Security, can you give us a little feel for how the quarter trended? I realize it's pretty much in line with expectations. But if you can give a sense as to how it trended, especially small ticket versus big ticket. I think that would be helpful.

Sure. Again, we came off the tax credit in the April time frame. And we saw a continuation -- because our products are more in the back-end of new home construction or the remodeling project, we saw a continuation of those orders through May, and then it started to drift down in June and that continued through July, August and September. A little bit of pickup here in September, but I don't think it's anything that's notable. So if you look at basically the home construction market, we started the first quarter, we're up roughly, we think, and I'm talking about the market now. About 40% new construction, about 11% in the second quarter. For the third quarter, we're down about 15%. So obviously, that was where the significant volatility really happened. R&R was pretty much flat across the board. We're down a little bit in the first quarter, up both in the second and third quarter is how we view the market. Higher discretion items like cabinetries, big ticket remodeling items are tracking, maybe 3%, 4%, and that continued pretty much throughout the year.

I guess if I could follow-up, some of the share gains or the lifting gains that you talked about in Home and Security, just do you have a -- what I'd call the early cost of realizing those. How do we think about the benefit that, that can bring to the top line in 2011?

Well, size-wise, we're talking hundreds of millions of dollars of new business. So obviously, there's a fairly size of big investments here in the third quarter just to get all these sets up and everything else. But it's good margin business. It fits very well with our infrastructure. So I think you're going to see us continue especially in the cabinetry and the garage storage area to exceed the marketplace. Now it'll take time to mature. I think, as you know, new business going to the store doesn't mean that all of a sudden the consumers are going to rally behind you. But we have initiatives to drive the consumers there as well. And the early signs of some of these has been excellent, especially Martha Stewart program at Home Depot. We've seen fabulous results early on.

I'd like to add, Pete, that I mean, right now, we'd really highlight the kind of the numbers throughout, that Bruce drew out, we really would expect to be more kind of mature numbers that we would see building too by, say, 2012.

Is there a way that you could ballpark some of the incremental investments that you incurred in the third quarter to get some of these programs up and running?

Yes, I would say that right now, the investment that we have here in the third quarter is kind of in the $5 million, $10 million-ish kind of range.

And presumably, some of that trails into the fourth quarter as well?

Yes, they'll definitely be. Yes, definitely, it's going to be -- yes, I mean, this is really a year where we've got the investment being made to set the stage. We'll get some benefit this quarter, but it's really going to start to show up in '11. And then our expectation is really fully in '12.

Yes, and we'll see some investments too as we rollout stores in the first quarter of next year too.

Your next question is from Eric Bosshard with Cleveland Research Company.

In the Home business, I heard you just say that it's going to grow slower and the margins are going to be better. Can you give a little bit of color how you're accomplishing that?

No, what I was saying, Eric, to be clear, is that what we're focusing on is full-year results. I mean, as what you can well appreciate, we've always variability between quarters. And obviously, with what happened with the first-time homebuyer tax credit, that's really exacerbated all of that movement this year with what was the pull-forward. So while here in kind of the third and the fourth quarter, we're obviously seeing less benefit in terms of how we're converting on marginal sales. The real discussion here has always been, for us, what's going on, on a year-over-year basis.

So the upside to the incremental margin is more of a function of what happened in the first half and the second half, is that the point?

Yes.

Related to that, I mean, on a go-forward basis, I think you've preached to us a little in the past that 30% is the right incremental margin to think about?

Yes, I really think it's obviously early days in terms of our budgeting and planning process for next year. So I think we'll have a better, more definitive view once we get to January as is always the case. But as we look at it and think about kind of the more normalized environment and how we're positioned today, and how we look out into 2011, I would say that we're still thinking for '11 or so that the conversion rate should be likely be in that kind of 30-ish percent range. It's just this year has been a banner year for us. And one of the things, we came into the year saying that our expectation was that commodities were going to be a more significant issue. And while we're still saying that commodities will likely impact us somewhat, and I'm talking about Home now, but somewhat to the tune of, I guess, I'd give you a number right now that says kind of 25% to 30%. I mean, we were expecting that was going to be a bigger number at the start of the year. So we've gotten a little bit of a benefit there.

Eric. I'd add to that. We basically completed our restructuring about 18 months ago in our Home business. And we've been playing offense since. So we pretty much have very stable supply chain environment right now. And as we've added business and saw the market pick up in the first half of the year with the tax incentives that are out there, we leveraged extremely well, and we're very happy with what we saw. As we stabilize and the market came down a little bit, subsequently, we still leveraged well. And I think just the stability of what we know, what we have right now, we feel very comfortable with the 30-plus number.

Secondly, in terms of cabinet performance if we could narrow in on that segment, how you felt your market share performance was this quarter and going forward. I heard your biggest competitor talk about real aggressive efforts to grow their dealer exposure where I think they're number two to you. But can you just talk about how you think you're performing market-share-wise and your outlook for that in perhaps a more competitive environment?

Yes, one of the things that is going through these cycles a number of times, the one thing that we consistently have done is make sure that all channels basically get innovation are kept fresh and were very aggressive in all channels, even though that particular channel during this particular phase of the cycle may not be the most robust channel. And that's our continued philosophy. So what we're seeing is we're seeing gains right across all of our channels in cabinetry. The biggest gains are in the home centers just because of the -- when you get gains there, they're big in quantity and size just because of the nature of the level of the stores. Where at the dealer channel, it's more incremental because it's a smaller customer environment. But we're winning across the board. And we brought out new programs for our dealer channel earlier this year, which have created a number of wins. We have some new innovation coming in, in the first quarter for the dealer network in '11, which we were excited about there, excited about and they've got a preview with that. So our Cabinet business is on a roll right now.

And then the last question on Spirits. Could you talk a little bit about what you're seeing in terms of the markets' acceptance of price or what's going on with mix? If that has changed and where you see that going from here?

Yes. Well, let me talk about different markets. And U.S. obviously being the biggest profit pool is probably the one that you're most focused on. U.S. market, we saw a lot of promotion early or late last year, early part of this year. That definitely settled down. We are coming in to the biggest season right now, the Christmas season. So we'll see how that plays out. The mix has gotten better. Premiumization has picked up again, almost a full point this quarter. We're also seeing on-premise growing again. I wouldn't say back to the level it was, but definitely momentum towards getting back to the level it was. So the signs in the Spirit business in the U.S. are very healthy. If you go to Western Europe, it's a little bit more challenging. Germany is probably the best of the bunch. But Spain continues to be a challenge. That's a heavy on-premise market, almost 80% on-premise. That market continues to be down mid single-digit. Again, there, you don't get much price utilization. It's a very competitive market today. U.K., which is pretty much 80% off-premise and with big retailers that dominate, there's always been pricing pressure there. That's nothing unusual there. In emerging markets, there is price availability. So that's basically a summary of the markets.

Your next question is from Dennis McGill with Zelman & Associates.

I realize you don't have a lot of inventory products at your big retail customers. But can you just talk about where you do have visibility in the point-of-sale, how that's comparing to order trends, if you're seeing any divergence between the two?

Yes, just to, again, remind everybody, our Cabinet business doesn't have any finished goods. We make cabinets to order, and the same thing for our Window business. The three businesses that do have inventory in the system are Moen and Therma-Tru, and the third one is Master Lock. Moen inventory is in pretty good shape on the retail side. On the wholesale side, we saw some destocking at wholesalers in the third quarter. Basically, I believe they did build up in the first couple of quarters anticipating the volume. And when I came with the acceleration of the tax credit activity related to the tax credit, and with that inventory build, I think they were in the mentality that we don't want to miss an order. So we've seen some of that lead off. Same thing is true with the Therma-Tru or the door business, which is, again, majority goes to distribution. We saw a buildup of inventory in the first half, and as a result, showed -- that has been bleeding off here in the third quarter, getting better and balanced. Doors, again, are more of a new construction product, less of a remodel project. Master Lock's inventories have been in-line all year.

So at the retail partners in particular, the big home centers, you haven't seen much of a divergence between the two then?

No, they've been very good over the last couple of years in managing inventories. So I would say, no, no change. I think they did a very nice job a year or two ago, and we haven't seen a lot of variation from that.

Second question, Craig, you had mentioned there was a litigation settlement within the whole number, was that backed out or is that included in the core number? And if so, what kind of...

That's in the number. I mean, we've never, in terms of the reserves we put up for patent litigation or settlement, those are within our before charges/gain numbers.

Is it meaningful this quarter?

Yes, it's in the range of kind of $6 million to $8 million there.

About the range of what is the cost for the new business.

And then lastly, to the extent you guys are willing to talk about it with a lot of the rumors going around, can you share with us at all how we should think about tax implications for any type of change in the business mix?

Well, I think, first of all, when you start to think about taxes, and I'm not sure you're talking about just our normal before charges/gains tax rates, or are you talking about the whole tax implication of kind of portfolio?

The tax implication of the portfolio if you were to decide to change the mix.

Candidly, I mean, that's something I wouldn't speculate on, because as you can appreciate, I mean, the whole area of kind of structuring is complex. The tax aspect would be complex. And so at this point, I mean, It'd be premature to try to comment on that.

Your next question is from David MacGregor with Longbow Research.

You made reference to the $5 million to $10 million of investment in the third quarter in strategic investments, innovation, new product and market development. How should we think about that going forward, fourth quarter? And then, do you maintain that same level of investment through 2011? Or are we really otherwise moving to a period here where it's kind of peaking and then it should pull back a little?

Let me clarify what we said. That really related to new business in Home. So the new business we've talked about that outlined in the script, basically, that's related to that. So that's setting displays in new stores, logistics, pieces, catalogs, training, things like that, that all come with a new business piece. So those are -- although they'll continue in the fourth quarter and partially into the first quarter, those are onetime items.

Yes, we view that. That's more tactical spend versus kind of the longer-term strategic.

Yes, and that upfront cost to get new business.

So how should we think about it for the entire enterprise then? Can you quantify that for us?

Well, for competitive reasons, we haven't broken out that number. But when you run across the businesses, it's obviously significant. I mean, if you look at our Spirits business, what we've got if we had in the first quarter is the annualization of our international routes to market. And that we did quantify for people as being in the range of kind of $5 million to $10 million, $10 million to $15 million. We've talked about the fact that we've got a double-digit increase in brand spend for the year. You look at our Home business in terms of the things that we did, the decisions we made to maintain national footprint while taking 40% of the capacity and 40% of the people out of that business. You've got the additional investments we're making for the longer term positioning of things like Moen and others. And then when you come to the Golf business, we've obviously got all of the initiatives that are underway right now in terms of the things we're doing to enhance and strengthen share position in the U.S., along with the investments that we're making internationally. So we're talking about a very sizable number.

Yes, and David, let me just step back from that a second. What we're doing and what we continue to do here is focus on the highest return opportunities for our businesses. So we're investing behind them. And we've talked in the past about our Spirits business with the brand market combinations where we look at brand in markets and the type of returns that they could provide us, if in fact we give them fuel[ph]. Same thing is happening at Home and same thing in Golf. Golf is focused on Asia. Home is more focused on where we think the consumer will be over the next three to five years as they shop and buy in that environment. And we're pretty sure behind that early stages of recovery in order to get competitive advantage. And with out leaner supply chains and with our innovation engine, that's all that we believe are going to play well to enhance our returns.

I guess, I realize it's important that's why I was trying to get some sense of quantification around it. If we can't discuss in quantifiable terms, can you at least talk about how it might change year-over-year in 2011 versus '10?

Well, it's a little early for '11. I think what we're seeing today is really good momentum in all three of our businesses. We're gaining share at all three. We have a great innovation pipeline. We do have some headwinds, obviously, with commodities we talked about, and questions on some of the economies around the world. But we're encouraged going into the year. There's other things you got to understand about next year, I think, that will be a bit of a challenge early on. We're going to comp against the tax credit, the first of next year in the Home business. We have an energy tax credit that's going to fall off in January next year. So we expect, obviously, to continue to our growth and continue to create value through the course of '11. But it's going to be more gradual and uneven as the economy is. But we expect, as we always do, to outperform the market, both on growth and returns, and to build on that.

I think the bottom line at this point, though, is we'll be in a better position as we always are to discuss that in January. Because as Bruce outlined, it's a case of not just revenue growth but its returns as well. And people are still working their way through that to get sorted out, so we know exactly what is it we're going to go after, and perhaps, not go after.

Your next question is from Vivien Azer with Citigroup.

Just a follow-up on that, and I recognize that it is early days in terms of thinking about 2011. But it sounds like even though you guys definitely have a lot of momentum in your business, given some of the comp issues you just talked about, do you care to comment at all on the external expectations for a 22% earnings growth for 2011? I mean, that sounds a little aggressive, given what you guys have said.

No, I mean, candidly, we never comment on kind of Street estimates. Obviously, I mean, we're really pleased with the momentum. We obviously think we're in great businesses. We clearly, as you can see from the numbers year-to-date, I mean, we've got great position and momentum building in our businesses. But that's something that I think we've got to wait until we get to January to speak more to.

Yes, I think it's a sign that we're again managing here for long-term value. So with investments on the early side of a recovery to position the business for when the market do improve, is a great, we think a great time to position it. So we've seen this in past recoveries. Although it's maybe more gradual than past, it's a great time to win. And we're winning. We're winning earlier, very early and we invested earlier and we got our restructuring done early. So I think we're in a great position. The market is going to give us what it's going to give us, and we're going to outperform it.

Turning to the Spirits business for a second. You guys said there was some pull-forward. Can you give any more granularity on that in terms of kind of the impact on the top line or the bottom line? I'm kind of surprised you're still a range in terms of the EPS impact. Just help us think about kind of how we think the fourth quarter, in particular, the Spirits, given how important it is.

Yes, I think as we look at where we are with the third quarter results, we outlined that our reported numbers or our comparable numbers there in the third quarter were up 2%. I think the best number that we could perhaps put on that would be to say that maybe we're talking about a point of sale of revenue growth. I mean, we obviously had pull-forward in Spain because of what was going to be the VAT increase there. We had some acceleration of customer orders down in Mexico. We've had a few things going on here in the U.S. related to what was going on with distributor incentive programs that they were driving and other kinds of things. So it's hard to put a very tight number on it as you can appreciate, but I think that's the best estimate we could give you.

And just my last question, just because you guys called it out last quarter in terms of your operating margin guidance. For the Spirits business, you had indicated that FX was going to be an issue, and I haven't heard you guys talk about FX at all, presumably it's getting better.

Yes, as I said in the prepared remarks that we had, the reality is that FX is going to be better. And so for our Spirits business, the reality is it's more likely neutral. So that's really not going to be much of a factor. The 22.5% that we're saying or targeting are to be in that range versus the number we had last year. The differential there is primarily a function of the increase, the double-digit increase in brand spend, as well as the annualization of route-to-market. We obviously, I mean, do have as we outlined earlier in the year, we made some strategic decisions on pricing. Last year, we had a very strong year in terms of price benefit. And as we got toward the end of the year, we decided that because of what was going on with competition that there was a level of price repositioning that we wanted to do. So that's a little bit of a factor in there as well.

Your next question is from Michael Rehaut with JPMorgan.

The first question, I was wondering if we could just -- a lot have been already asked and answered. But on the Spirits, talking about the reinvestment in the brands, and obviously, there's a lot of initiatives that you have going on right now. But with the different brands that you're pushing and focusing on the different verticals, new products, how are we to think about -- you're saying for 2010, you're at 22.5% and you just kind of walked through the different reasons for the difference between 2010 and maybe '08 and '09. With the higher level of investments, is that something that we should see on an ongoing basis over the next year or two? Or with regards to that brand investment, is that something that you think can tail off in 2011 as we see the fruits of that coming into fold?

Yes, quick answer is no. We don't see it dropping in '11. Actually, we think we will continue to build maybe closer to the rate of sale. So seeing a margin in the 22.5% range is what you should roughly expect for next year. But I'll tell you, the way we're doing is, again, is -- I talked about the BMC, the priority of investment behind both core and what we call, rising stars, the things that we think will give us the best returns over the long run. And with that, we have toll gates. We established toll gates with the businesses. I will lease x amount of money to them as they show performance along the way. And they've been winning. And so we continue to release the money across this year, and we'll have the same process next year. We have some momentum, especially with the Red Stags, and the 46s, the Cruzan 9. We want to fuel these. I mean, Red Stag, 200,000 cases in the first year. Can this be a million case brand? Well, we're going to find out. Why not? And we're going to extend the distribution here in the U.S. and we're going to bring it internationally. It's a hot product. So why wouldn't you want to fuel that for the long-term value creation.

And Michael, the only thing I'd add to you there is, obviously, when you look at what we've got for margins in the Spirits business, to the degree we can reinvest some of the brand contribution, the OI that we have and benefit the top line, obviously, the return on that investment is significant. So I mean, we're focused on not just the growth, but the profitable return on that as well.

Also, on the Home and Security, you're good enough to give us an idea of the investment in the third quarter for the new business initiative. Am I right in understanding that, that would kind of tail off in 4Q? Or maybe I just didn't fully grasp the answer in terms of that $5 million to $10 million spend on a quarterly rate. When do we expect that to fully tail off?

Yes, I would say that the number we gave you -- I mean, you got the third quarter number. We you gave you the fourth quarter number. Right now, I would say that, that's kind of the ramp up. The lion's share of that will be completed as we get in to the first quarter. We'll have to see exactly how the rollouts go. But I would say to you, by the time we get through the first quarter, that should largely be behind us.

And I'm sorry. What did say was the fourth quarter number?

Fourth quarter rate is about the same level as the third quarter rate.

Yes, something in the $5 million to $10 million range is right now is the best estimate we can give you.

The cabinetry programs that you outlined, obviously, a big opportunity. You said that in September you started taking orders at Home Depot for Martha Stewart. But when do you expect the Martha Stewart to, let's say, fully be rolled out? And also, overall, the new selling centers at the 650 stores, when would that be fully in place as well? I think you've sort of kind of walked through a timeline of the different initiatives over the next six to nine months based on what I'm asking.

Well, the Martha Stewart program, we actually launched 2,000 stores on the same day. So they're already out there, all the selling centers, and had incredible execution to be able to do that. Because usually, it takes, for cabinetries, it could take nine months to rollout a program. But we executed that all in one day with the grand opening. And so that's out there selling. The trainings all happened. So we're getting orders now. It will take time to mature itself. And also, we're going to the fourth quarter, which for usually, cabinetry is a very low quarter just because of the holiday season, people don't want to be touching their kitchens during the holiday season. But the early momentum and early returns on that are very good. On the Lowe's program, that will be more gradual, but it'll done by the end of the year, the 650 selling centers.

And then anything incremental for 2011?

Well, we have other -- I talked about the Vendi [ph] program, the Lowe's, the finished and unfinished program at Lowe's, which is probably one of the biggest pieces of new business we've had, are all rolling out now. And probably, it will drift into the first quarter a little bit. But the nature of cabinetry is that you get into position in the store, you've got to get the designer strings. They got to get comfortable with the brand, and then you build from there. So we won't realize the total benefit of this until 2012.

And Michael, just to back track for a moment. The discussion of kind of the spend for kind of launch and other kinds of things, the numbers I was highlighting going into next year, what I was really focused on were some of the most recent things that we're doing, but just kind of looking at the aggregate new product initiatives that we have across the board. We're probably talking about a spend over all of next year that will be comparable to what we're talking about here for the third and the fourth quarter. So we're saying that we're basically kind of in the, kind of maybe the 15 to 20 range for the full year this year. And I think we're going to be looking at something like that again next year, all in.

Yes. And then again, we'll support -- we've done a hundreds of million dollars of new business. And we're focusing a lot here on the home centers, these other initiatives in the dealer channel as well as the builder side.

Your next question is from Judy Hong with Goldman Sachs.

I'm sorry if I missed this earlier. But just given the recent development with Pershing stake in the company, could you just update us on your thinking as to the value proposition of remaining assets and owning the three business is under the same roof?

Yes, sure. Let me just underscore a few things first. First of all, we feel very good about the dividends right now. We feel really good about what we've done through the recession to position businesses for growth. I think those of you who have been in our stock for a long time can appreciate that and how we're performing in the marketplace. And at the same time, as we have with all of you, we're open to constructive discussion with all of our shareholders, that includes Pershing Square. But as a matter of policy, we aren't going to discuss certain things. One is interactions with our shareholders or M&A activity or even board activities for that matter. But you can assure that our board is very engaged and very involved and have been involved, along with management, in looking at our business and the way it's structured. Our business is structured the way it is because there's headroom in each of our three attractive categories. We believe there is value to be created there. And what we've done over time is use the breadth and balance of our portfolio, the combined cash flow of our portfolio to invest in the business at the right time, and to create value. So I mean, you can look at what we've done recently with the investments we've made in the Spirits business, with the route-to-market taking -- where 8% of our sales were [indiscernible] sales organization to now 75, the change in marketing and leadership there to investing 2.5 years ago in innovation engine that's bringing out tremendous new products now. So you see those investments. At the same time, you see the investments in our home business that is allowing us to position this business to win early in the stages of the recovery. And for Golf, those to be able to be early in Asia, which is the new future of growth opportunities in the market. So the combined cash flow allows us to do that. Would you get some synergies on the cost side? But that's not the driving force behind it. The driving force is being able to, in these attractive markets with headroom for us to create value, to use the combined cash flow to smartly invest and to grow the businesses.

I think, I'd add here, Judy. I mean, obviously, I think we've demonstrated our shareholder value orientation. And quite honestly, I mean, we're pretty relaxed. So we look forward to having a dialogue with Ackman and his team as much as we do anybody else.

The only other thing I would say is that, we look at this constantly, the portfolio. And we look at all types of alternatives, whether they'd be big moves or small moves. And you've seen us do a number of things over the years, whether it's selling the line business or acquiring the allied business. The smallest situations in buying and cushion and that been [ph] or divesting the German Spirits businesses. So we're always looking and trying to create value with better focus and smart investments.

If I could just follow-up. Bruce, if you think about the businesses today versus maybe a few years ago, just given that maybe you do have more scale now on the Spirits business, the fact that we've gone through the severe downturn on the Home side of the business, does that sort of give you a thinking that maybe the reliance on the combined cash flow and the rest [ph] of the business to really grow each of the businesses may not be as compelling today than maybe it was few years ago?

I think it's almost the opposite. I'm going to say they're ahead of us. We positioned us now to be able to win during an economic recovery. So the value is yet to be created, I believe. So that's the way we look at it.

I meant more to see each entity if you look at the Spirits, it's got more scale that they can actually -- not necessarily have to rely on the breadth of the portfolio?

Yes, I'm not going to speculate on that. I think you've seen what we've been able to do with our Spirits business and the momentum we've created. And we think there's more to be created there.

Craig, with the free cash flow guidance going up, what's the new CapEx guidance out for the year?

As you saw, I think, in the press release and the notes, current guidance would be something in the range of, say, $200 million to maybe $220 million. I mean, my own personal view is we'll probably be closer to the $200 million.

And is it more timing, or are you just not embarking on some of the new projects?

I would say, a fair amount of it is just fundamentally timing. We obviously took a very hard look at where we were with CapEx a year and a half or so ago to say, "look, our priority rate at that point in time was debt pay-down." But as we've outlined to people, I think we've got the balance sheet in a much stronger position today. And so as a result, as I think even as we look into next year, and I won't try to quantify it at this point, because as I said we're still working through, but no, we're kind of back and some of the what was deferred CapEx work is now coming into play. But we obviously want to do it on a basis where people are going to be intelligent about the way they're doing it.

Yes, we want them to spend. I mean, these are things we believe are good returns for our business.

Yes, and as we've outlined before, I mean, our internal CapEx is the highest return proposition we have. So it's clearly deferral at this point, and we will likely see a higher CapEx number in 2011.

And the deferrals because of execution, not because of management's decision.

Your next question is from Christine Farkas with Bank of America Merrill Lynch.

Just a couple of clarifications on guidance. Firstly, with respect to the Spirits margin, this 22.5%, that's an underlying operating margin on gross revenues, correct?

Yes, it is. Yes, reported revenues. Yes.

And that margin guidance, correct me if I'm wrong, is a little bit lower than your prior guidance? Is that based on spending or something else?

It's largely based on spending right now and just where we are in terms of the way global revenues are falling, combination of price mix. What we had said in the second quarter was that we were going to be down kind of 50 to 100 bps primarily because of what was going to be the OpEx impact. But because of the fact that that's more neutral, it comes back to more of what's going on with just within the business in terms of the investment spend and other things that we have. And also, when I talk about that margin, that is our before charges/gains OI margins, so before restructuring charges.

Yes, and it just looks like a year ago that was 24.6%. So that's why I'm coming back to down to 22.5%, seems that there was a bit of a wider gap. And I'm wondering if you've changed spending plans here in the third and the fourth quarter?

We are going to be spending a bit more, because I want to be crystal clear that what we're saying is coming across correctly. I mean, as we talk about the margins that we have here, it's the 22.5% is before charges/gains and is against our reported sales.

Moving to the Home guidance, your prior guidance have talked about the market being up low single-digit, and now you're expecting this to be flat. Does this imply declines in the fourth quarter for the market as well as, perhaps, yourselves?

Market statement is that -- the change is in the third and fourth quarter versus what we saw coming out of the second quarter. Again, part of that has to do with the pull-forward of the business since the first half because of the tax credit. And to be honest with you, just the level of the customer activity because of their confidence right now. We still have some headwinds. We have foreclosures and some inventory we need to get through out there. Price stabilization is critical as well. So we are looking at the fourth quarter to be down the same range, roughly, that the third quarter was. So low single-digits.

And just moving back to Spirits. In looking at the reported data from Nielsen and [indiscernible] some of the sources out there. Beam's trends were pretty remarkable and up double-digits in certain channels in the third quarter. And I guess I'm just trying to reconcile, even including the pull forward, why is it that the U.S. sales or reported sales weren't a little bit stronger? And if we do have a more normalized trend, if you will, of reported data to what you show in your results, would we see this really accelerate in the fourth quarter?

Well, I think there's a lot of factors that come into play here. First of all, when you look at the Nielsen data and it depends on what you're looking at, but if you're looking at Nielsen Food and Drug, that represents only about 15% of the market. If you got Nielsen Food, Drug and Liquor, then you're talking maybe 30%. But you're also looking on what is retailer takeaway. And that's a function also of what going on with their own promotions that they may be running that are independent of us. So the reality is, for us, as we look at our numbers, it's more a case of what are our shipments and the revenues on those shipments.

Is it fair to say that the takeaway is leading your shipments or you're lagging the retail takeaway? Would that suggest some inventory de-load?

I think that as you look across the overall market, as we highlighted, that our revenues are comparable revenues for the quarter. And again, this is kind of looking at how we're positioned globally. But as you look at that data, our reported revenues and our volumes are comparable. So I think we got a lot going on. You got to look at what's going on in the control states where I think we're holding our own. You got to look at what's happening with the other independents that don't show up in this data at all. I would say to you that right now, I mean, we are tracking against the market on both our revenues, as well as our case volumes.

And just round out Spirits, with respect to your underlying operating margin in the quarter. The contraction year-over-year was wider than what we saw in the second quarter, yet it sounds like the premiumization is picking up. So if mix is a little bit better, I'm just curious where the pressure was on the margin. Again, is that spending or something else?

That's just overall spending. I mean, as I've outlined before, there's so much variability that goes on quarter-to-quarter in terms of what's happening with OpEx, spendings and other kinds of things that are going on, what maybe some of our manufacturing variances in terms of the amount of bottling and distilling that's been going on during the quarter. I mean, there's so much static in the communication between quarters that is -- there's nothing meaningful going on there that I would say really starts to indicate a new trend.

And last question, Craig, if I could. Did you tell us what the debt paydown was in the quarter?

No, I didn't. The reality here is we're basically on par with where we were. I mean, we're in a cash build position right now. Obviously, the next real maturity that we have coming due is in January. I mean, we've got $590 million outstanding. I mean, the reality is that we will be dealing with that. We anticipate today that we will covering that with just the cash build that we have. I would say to you though, along those lines that we're looking globally at how we're positioned with cash. We're looking at what the economics are of returning cash from foreign markets. And there is the possibility that we get to the end of the year, and we just use maybe $100 million or so of our revolver to assist us with the paydown of that bond coming due in January.

Your last question is from Ann Gurkin with Davenport.

Just a couple of questions left. One, beginning with Spirits. Can you comment on what are your expectations or what are you seeing in the marketplace as we go into the holiday season in terms of pricing? Are you seeing on the market as promotional as we saw this time last year?

It's early to tell right now. But it's seems that -- first of all, the mix is better going into the holiday season. We were definitely seeing a return to premiumization. And then as far as promotion goes, we aren't seeing anything that unusual. I think the promotions are centering around certain areas. For us, tequila is a big area, mostly because there's a [indiscernible] right now. So there's a lot of supply. I think that's pretty much driving that particular area. But I don't think we're seeing anything that's going to be unusual. It's hard to tell. We aren't there yet as far as the calendar goes. So hen we really start seeing here in the middle of November. But from our promotional calendar, we expected to be pretty normal Christmas holiday season.

And then in the release and in your remarks, Craig and Bruce, when you all talked about strategic investments, are you increasing the level of those investments versus comments made, say, in Q2? I know you just talked a little bit about Spirits, but is there any kind of change there?

No, there really isn't. What we're doing, as I suggest earlier, that we have sort of toll gates with the businesses, that you got to achieve this to release that. And they've hit all their toll gates. So no, that's basically what's been planned all year long.

On behalf of our 25,000 employees here at Fortune Brands here in the U.S. and around the world, I thank you, again, for your time today. We're looking forward to delivering strong earnings growth and returns for 2010. And we're preparing for an aggressive 2011. Thank you.

Thank you for participating in today's Fortune Brands conference call. This call will be available for replay at 11 p.m. Eastern Standard Time today through 11:59 p.m. Eastern Standard Time on November 1, 2010. The conference ID number for the replay is 15665486. The number to dial for the replay is 1(800)642-1687 or 170-664-5991. This concludes today's conference call. You may now disconnect.