Good morning. My name is Andrea, and I will be your conference operator today. At this time, I would like to welcome everyone to Beam's Fourth Quarter and Full Year Earnings Conference Call. [Operator Instructions] Thank you. Now I would like to turn the call over to Matt Shattock, President and CEO of Beam. Sir, you may begin your conference.

Thank you, Andrea. Good morning. Bob Probst and I would like to welcome you to our discussion of Beam's 2012 fourth quarter and full year results. Before we begin, 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 and in our SEC filings, and our actual results could differ materially from those currently anticipated. This presentation also includes certain non-GAAP measures that are reconciled to the most closely comparable GAAP measures in our news release or in the supplemental information linked to the Webcast and Presentations page on our website. Now in a few minutes, Bob will cover our results for the quarter and the year in some detail. But first, I'd like to discuss 3 themes to set the context for today's discussion: first, our strong performance in our first full year as Beam; second, the actions we have taken during that period to further strengthen Beam's competitive position in our industry; and third, why we feel good about our prospects in 2013 and beyond. So I'll begin with a few words about 2012. We're pleased that Beam continued to deliver excellent results in its first full year as a pure-play spirits company. Beam is growing on growth by delivering against our long-term algorithm that we outlined a year ago, growing sales faster than our market, ROI faster than sales and EPS faster still. In 2012, we grew comparable sales 6%, which is roughly twice the rate of our global market. We grew operating income before charges and gains faster than sales at 10%. And we grew EPS before charges and gains even faster, up 13%, exceeding both our earnings target for 2012 and our long-term goal. We…

Thanks, Matt. Before discussing our performance, a few words on the global market in which we compete, which grew consistent with our expectations for the year. We estimate that our global market footprint grew value a little better than 3% in 2012. Among our core markets, we saw market value growth in the 3% to 4% range in the U.S.; very modest growth in Australia, where economic challenges have negatively impacted consumer confidence; and low single-digit market growth in Germany. At the same time, trading conditions were challenging in Western European markets like Spain, where value declined to mid- to high-single digits; and the U.K., where value is relatively flat. In emerging markets, we're continuing to see double-digit market growth. Also, against our assumptions heading into the year, the U.S. trended a little stronger than anticipated, with international a little softer. As the year came to a close, we were encouraged by the holiday season positive demand trends, including trade-up by consumers and slow but steady improvements in pricing, particularly in the U.S. where we were out front with pricing actions, and more producers have since taken price. Looking to 2013, we're assuming that the fundamental growth trends across our market footprint will broadly continue at a rate similar to 2012. Now turning to our results, and starting with sales for the full year. Reported net sales, which exclude excise taxes, came in at $2.5 billion, up 7%. Reported sales reflected a headwind from FX of approximately 1 point, more than offset by the addition of Pinnacle sales. On a comparable basis, which adjust for foreign exchange and the impact of M&A, our full year net sales grew 6%. That's approximately twice the growth rate of our global market. Full year sales were driven by double-digit growth for our Power…

Thank you, Bob. Well, as I outlined at the beginning of the call, we are delighted with our strong performance in our first full year as Beam. We're pleased that we presented this performance whilst making significant investments to further strengthen Beam's competitive position in the industry. And as a result, we do feel good about our prospects for outperformance in 2013. Our confidence in our ability to grow on growth is rooted in our proven strategy. We'll continue to create famous brands to leverage our broad portfolio of premium brands, led by our core strength in Bourbon, our best-in-class capabilities and innovation and our expertise in last-stop beverages. We'll continue to build winning markets as we leverage our strong #2 position in the U.S., our highly competitive positions in core developed markets like Australia and Germany and the upside opportunity in building on our growth platforms in rapidly expanding emerging markets. And we'll continue to fuel our growth through our aggressive efficiency and effectiveness agenda that provides the rocket fuel to accelerate sales and improve margins. And better still, we have a team of 3,400 passionate people aligned behind our strategy and a lengthening track record of strong stewards of capital. Together, we share a single focus to deliver sustainable, profitable long-term growth and maximize value for shareholders. Bob and I would now be pleased to respond to your questions.

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

So your 2013 guidance doesn't assume material pricing. And I was a bit surprised to hear that, given the industry pricing environment, looks like it's improving here as you referenced. So a, can you just give us a review of what you're seeing from a competitive standpoint in the marketplace? And b, do you think there might be room to take additional pricing in 2013, particularly given your commentary that you're going to monitor the environment?

Thanks, Dara. Well, as you know, we looked at taking -- and we did take a lead in price increases last year in the U.S. And also, we're pleased about the fact that we did achieve sort of industry-leading price and mix amongst the major suppliers, if you look at this kind of data. As we said in our last conference call, as you know, we wanted to really read the holiday season before we evaluated additional opportunities. And certainly, the holidays did show good gradual improvement in the overall price environment. It ticked up a little bit from the last quarter we reported. It was up about 0.5% to 1% in the market. It's gone up to about 1% to 1.5%, and we've seen a sustaining of positive mix as well. So it's overall a good picture. I would say, however, that pricing does vary very much by category, by price point and by geography. And where pricing has gone up on average, not all the players have moved yet. So we take a very granular view of this. We regularly review our pricing at the local level, and we'll certainly evaluate targeted increases. But we don't want to prejudge that conclusion to your question. And I think the one thing I would say overall is if you look at 2012 and now with broader movement in the market, the first time we've seen the consumer being faced with broader price increases since the downturn in 2008. So let's step back and take a good look at that. But we'll certainly review opportunities and we'll certainly take them further. In the meantime, the key leader of our revenue realization last year will continue to be the same, our focus on premium brands, our focus on accretive innovation. So we should look to mix to be a good driver of revenue increase for us in the coming year.

Okay. And could you give us a little bit of postmortem in terms of the consumer demand elasticity you saw from the higher pricing in 2012, where that came in versus your expectations and how that might inform your pricing focus going forward?

Yes. Overall, we do not see our brands as being particularly elastic. If you look at markets like North America or Europe, where we saw the majority of our pricing, we feel very good about the continued momentum of our portfolio. We've sustained our outperformance of our markets in those geographies. And if you look at really the core focus of our investments and where we took price, take Bourbon, for example, where Maker's Mark and Jim Beam led the pricing, we've seen good continued performance. I think one area that you might be referring to and see is in some of the track channels, that's about 15% of the market, what the analysts looked at in the Nielsen database. And certainly there, we gave up a bit of volume share in some of our Value Creator vodka brands and the like, and that's because we managed those brands with value, but certainly, we did that very deliberately. But the core of our portfolio, the strategic assets where we're building brands, we're investing in equity and innovation, we feel good about sustained momentum and the prices we took.

Dara, I'd add that for our financial results in '12, we had about 1 point of price, which was in line with what we expected. And then, as I said, we're not assuming new pricing in '13, and we'll certainly see the carryover benefit of the pricing we took in '12. And as Matt said, if there is opportunity for pricing in '13, that would be an upside to the guidance that we gave.

Your next question comes from the line of Bill Chappell with SunTrust.

Just wanted to dig a little bit more into Pinnacle. I think the $0.10 is in line -- accretion is in line with what you originally said. I thought you would see some incremental benefits from better financing and just kind of give me an update on what you're expecting on top line growth and on that 20% synergies, if we're still on target for that.

Yes Bill, Bob here. We're tracking well across every dimension, I would say. If I started with the top line, we posted 19% under our ownership. And as we look forward in '13, we're reinforcing that we're confident in double-digits, and that was always the view of the acquisition case. So we're feeling good and on track from a top line perspective. In terms of the synergies, the 20% plus hard synergies that we quoted on the deal, we're quite pleased with our progress there. And indeed, the $0.05 that we delivered in 2012 against Pinnacle was in part going forward some of those synergies, which we're very pleased with. And as you pointed out, part of that upside was the financing as well. So all in, $0.05 versus neutral, initially laid out there. We feel good about an additional $0.05, because at $0.10, therefore, in '13, says double-digit growth on the top line, continued investments and brand investment behind the brand as we're driving distribution brand-building and the equity behind the brand, I think good accretion. So we feel good across the P&L with the results we delivered and what we'll deliver in '13.

Okay. And then just looking at kind of the new product launches, I mean I know you don't give specific quarterly guidance. But can you give us an idea on just kind of the cadence? Is there any one quarter where we're going to see a bigger ship-in than others?

Yes, Bill. It's Matt. A couple of thoughts there. I think the point that I'd reinforce from our prepared remarks is that one of our first priorities this year in innovation will be to reinforce and keep driving some of the great launches we've seen in the past couple of years, I mean, with the likes of that, the success there. We've now rolled out brands like Red Stag at 30 markets, Devil's Cut is in 20. So I think sustaining that growth and putting focus on that will be very important to us. Whereas last year, obviously, you saw surge of innovations, particularly in the first quarter, as Bob's comments on phasing. We will be augmenting that with some exciting new innovations. And certainly, one category where we'll put a bit more focus this year would be tequila. We've been asked a couple of exciting innovations really there for the first time in a number of years under the Sauza brand, which is -- build it's positioning very much around the margarita [indiscernible], perhaps we're going to launch a ready-to-serve sparkling margarita. Hornitos, as part of its big relaunch, we'll introduce a lamb chop [ph] product. So I'd say a combination of really doubling down on the great success we had so far and then bringing new news to the categories, but probably not the same high watermark that you saw in terms of initial launches that we saw a year ago in the first quarter.

Your next question comes from the line of Bryan Spillane with Bank of America.

Just a question about India -- or 2 questions about India. I guess the first is just could you give us a little bit more color in terms of what the actual changes you've made to your business there or to the business model there and why it would've caused the business to decline and then kind of what would cause it to come back? Just not very clear in terms of what actual changes you've made.

Sure, Bryan. Let me step back and give you a bit of color on that. As we said, as part of our ongoing sort of very robust compliance and all those function processes, we identified some conduct in India we want to take a closer look at. So we conducted a follow-up investigation. And as a result -- and really, out of an abundance of caution, we moved pretty immediately to stop a number of activities that gave us concern. As a result, we've implemented some corrective actions, new procedures, processes and protocols. And we're now at that point where we're really ramping up our repositioning program to restore our place in the market. So because our review isn't yet complete, I don't want to go into more detail in that at this stage. But what I will say is obviously we've got very high standards. And where we find that we've got concerns about them, we will move very aggressively to ensure that the business is being done the right way. As Bob said, our long-term belief in this market is undiminished, and we certainly see that it'll be a bit of a challenge in terms of comparables going through the first 3 quarters. But as we get to Q4, we will see things improving in terms of comparisons in India.

And then my impression is that the guidance you've provided imply or incorporates some cost associated with that. So just how do you feel about your confidence level in that the size of that cost you feel like you're on top of and won't be surprised that it ends up being a bigger number than what we've got in our forecast already?

Well, obviously, that's in 2 dimensions. I mean both sides, the impact of the business in the fourth quarter, mix that overall, and it's about 2% of our global sales and that's none of our profit. In terms of the cost of the activities we're undertaking, clearly, it's difficult to put a precise number on that because that's still ongoing. And we've taken some charges through in advance, and we'll keep you updated on that as the year progresses.

I just wanted to add that we did take charges in the fourth quarter in the Beam P&L and obviously the early stage here, it's very premature to speculate on final costs for the matter, so I wouldn't attempt to do so.

Your next question comes from the line of Judy Hong with Goldman Sachs.

So on the phasing of the year and you pulled out the first quarter, the challenging circumstances [ph]. Is there a way to kind of just give us some more quantification of that because if I look at -- obviously, you've got a tough comp in the 13% last year. And then you've also talked about the Pinnacle having some inventory that you'd be lapping. So is it unrealistic to think that the comps sales could actually be down in Q1?

Judy, well, obviously, it's a tough comp as you highlighted. And we had a very strong quarter last year across all 3 segments on the top line, including some pipeline for innovation, some route-to-market challenges -- benefits we saw last year that we have to lap. And so I would say we should expect growth in the top line, but it's going to be a tough comp. And as we also highlighted just in terms of the choppiness of costs, there's going to be more of a focus of our $35 million of cost increases that we expect next year and really in quarters 2 through 4. So as we always say in this business, never look at 1 quarter. It is always very choppy. But we expect to see a reasonable quarter in the first quarter.

Okay. And then just in terms of innovations, particularly in the flavor side, so obviously you've been a leader in expanding into flavors. It sounds like maybe 2013, you want to reinforce the existing innovation as opposed to really taking some of that flavors into other -- into more flavors. So maybe you can just give us your perspective on kind of where we are in that sort of flavor evolution. Is there still, in your view, significant headway or growth in sort of these flavor line extensions? Do you think that incremental flavors may be not necessarily giving you the lift that you've seen in the prior [indiscernible]?

Well, Judy, we're certainly very encouraged by the performance of flavors we're seeing. And I think you've got to look at that on a segment-by-segment basis. In Bourbon, we continue to see very robust growth. And we've expanded, for example, the Red Stag platform in North America, and we've seen continued good growth there. We're seeing the rollout of flavors around the world in big Bourbon markets like Australia and Germany. So we do see continued growth there. Our idea though is that we can continue to -- think about continued growth by using those brands to attract more consumers and that we've done a good job with that. We've talked before about the fact that we brought, for example, more females into the Bourbon category. If you look at a big segment like vodka, obviously, an important segment for us, 1 in 3 spirits sold in North America; and now, it's Pinnacle. Flavor is driving all of the growth in that market and it continues to do so. I think the challenge there is to continue to be on the front end of those trends, to bring interesting, relevant and frankly, very good tasting products to consumers. We did that, for example, in Q4 with the Pumpkin Pie launch. That's gone very well for us. And you can expect to see us continue being at the leadership there because consumers are now looking to Pinnacle as the go-to brand of flavors in the marketplace. So I would say that the trend towards our flavor has been a pretty steady secular trend in total market for a number of years. And I think it's a trend which will continue to drive a lot of growth, and we'll tap into it going forward.

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

I had a few questions, particularly around Spain. I'm not sure you really quantified what your performance in Spain was in Q4. Could you tell us what happened there? And I was interested particularly at how much of that was destocking versus consumer offtake declining. How do you see that progressing in 2013? And follow-up question was really around the $60 million write, of which brand was that in Spain that was written down?

Ian, it's Bob here. The story of Spain in the quarter is really is similar to that in the year for 2012, which is a very tough market, obviously. We've seen it trending down sort of mid- to high-single-digits, bouncing around in that zone. And indeed, that's where we saw it in the fourth quarter. Our business against that has been gaining share, and so we don't quote particular growth rates. But against that sort of market, we have been winning, and particularly against Larios and DYC, our 2 Local Jewels there. As we look forward to 2013, we expect actually more of the same. We don't see any quick turnaround in that market nor do we expect it to trend any worse. Obviously, it's one market we continue to keep a close eye on, as I think about recent opportunities. But it's really same as we saw in '12 and '13 is the expectation. And in terms of the impairment question, I don't think we break out which particular brand, but there are only 2 so...

Ian, the other comment I'd give you just as a reference plaintiff [ph] that if you look at our exposure in terms of [indiscernible] and Greece and Spain, it makes less than 5% of our business. It's not a bigger part of the world.

Your next question comes from the line of Vivian Azer with Citi.

Just a follow-up on Spain and then Europe more broadly. One of your key competitors earlier this week noted some significant inventory destocking in Spain. Was that in part reflected in the weakness? Or could you give us an update on your inventory levels in that market?

We feel good about our position in Spain. There's no particular movement in inventory. We managed that very tightly, and we're pretty confident that our sales performance reflected the consumption in the market. It's a challenging market. But I will say that one of our advantages in Spain is the fact that we've got these Local Jewel brands, which are increasing relevance. They've got great value propositions, and I'm immensely proud of our team in Spain. They have gained share, and they've really done a great creative job of maintaining the relevance of those brands in what is obviously a tough overall market environment.

Understood. And then as we look out to 2013, to me, your outlook for Western Europe definitely sounds a bit cautious. And I'm curious whether that reflects the very kind of mixed bag that you see from a macro perspective across the various markets in the region? Or are you experiencing any heightened competitive activity?

Well, I think the great thing about our EMEA business -- again, as I said, we were very pleased with our performance. We outperformed last year, and we intend to continue to do so. And I think it's based upon 2 factors. One, just a very competent team who are doing a great job and seizing upon the assets, as Bob commented on, like Bourbon and Jim Beam across the region. The other is the portfolio of countries as well as brands. Obviously, the further West you go, they're challenged. But as you come forward, at least towards markets like Germany, that overall market is growing low- to mid-single digit. But our performance there is way ahead of that, and that's because of the drive behind Beam and the focus on our Bourbon portfolio. And clearly, Central and Eastern Europe look very positive, as is Russia. So when you put that into one melting pot, we continue to see it's good performance and outperformance from our team in EMEA.

Perfect. And one last question on your overall kind of portfolio mix, if you will. You see a lot of evolution, I think, not only because of M&A, but outside its growth in Bourbon. So as you look at your portfolio today, are there any glaring wide-space opportunities, either from a category or geography perspective that you'd like to address in 2013?

No, Vivien, I think we feel good about where we are. And as I said in my comments, if you think about our portfolio sort of globally, obviously, we've got a big focus in our Power Brands and Rising Stars. Our foundation is still in Bourbon, which is the bedrock of our business, continues to show good growth momentum, and we're very excited about that. We're delighted about the fact that we have a strong competitive position in having brands that are relevant to local and emerging markets' taste. So we've got tequila for Mexico, we've got cognac for China, and we've got Scotch for a lot of the Southern Hemisphere markets, the likes of Brazil. And obviously, this new segment, as we're calling it emerging in terms of lifestyle beverages and the trends there towards flavor, convenience, premiumisation and brands like Pinnacle and Skinny give us a real opportunity to create new factors of growth in some of our established and core markets. So we like our portfolio, and we think the focus that we're going to provide to it going forward is the right one.

Your next question comes from the line of Timothy Ramey with D.A. Davidson.

You mentioned some of the changes in routes-to-market to China, and I wondered if you might elaborate just a little bit more on that.

Yes, Tim. We were previously in a joint venture in China. And we and our partners took a look at it and realized there are lots of good reasons in terms of geographic and then to make sure the capabilities and channels we wanted to address that we would separate and go our own ways. We've gone to an important model. We have a new distributor in China who is very competent and doing a really good job. And so that route-to-market shift has been very helpful. We've done I think -- also done a really good job driving the brand. Obviously, Cognac is a key driver in China, as we said earlier. And the Courvoisier brand is in good [ph] health in that market. And in fact, we followed that up at the end of last year with big a launch of a new concept called Courvoisier Emperor. So it was really a combination of really making sure we have the right route-to-market, the right operating expense model there, and then we will put into that model a good brand-building activity. And our team there has done a very good job for us.

Your next question comes from the line of Ann Gurkin with Davenport.

Just want to follow up your outlook for the Bourbon category. Given the strong performance we've seen in '12, is there any concern that we'll see deceleration at all in that category, either in the U.S. or outside of the U.S.?

I think as we said before, it will be difficult to maintain the sort of double-digit growth that we've seen in the last couple of years. But we do believe Bourbon can continue to outperform the overall category, both in North America and around the world. And the signs and momentum we see in this business have indicated that. And I think if we keep doing what we're doing, which is focusing on building brands, premiumisation is a very important trend, which is creating a lot of value and innovation. There's good prospects both in North America and around the world. So our confidence remains good.

Your next question comes from the line of John Faucher with JPMorgan.

Just a follow-up to better understand the dynamics of flavors. If you look at flavored vodka, you talked about Pumpkin Pie having a good quarter, it seems as though there's a little more churn on the vodka side. And can you talk about sort of the sustainability of the individual vodka flavors over time versus what you see is the ability to sustain the individual Bourbon flavors, the Red Stag, et cetera? How should we be thinking about those categories differently in terms of long-term flavor development?

Sure. I think that you compare and contrast those 2 categories in a number of ways. Firstly, vodka is a very big category. And as I said, it's 1 in 3 spirits sold. So there is a lot of room for variety and innovation there. And certainly, I do think the continuous flow of innovations in terms of new flavors and new concepts are what the consumer is looking for. Now that doesn't mean to say that we won't have bedrock flavors. I mean, whipped cream has probably come off its peak a little bit for Pinnacle, but it still remains the #1 flavored vodka in North America, and we're very proud of that fact. But we'll keep bringing new ideas. And I think the consumer expects us to do that, and it's a very efficient model. It's quite easy for us to develop and introduce flavors and keep the rotations and the cash flow management aspects going. I think in Bourbon, we'll continue to focus on the core assets we have there. Red Stag was launched in 2009. We're very pleased with its sustained performance, and we'll keep driving that, as I said earlier. We've launched Honey in Europe and down in Australia. The early signs there are very strong. So I think you'll see more of a rifle shot there. There's plenty of scope for new ideas in that market. But on the whole, we do believe that it's a great opportunity. I think the more fundamental point that Bourbon does sort of sit much more fundamentally as a whiskey category. It's probably about 5% of the overall Bourbon market in flavors; whereas in vodka, it's about 20%; in rum, it's even higher, as much as 50%. So I do think that you're affected with different dynamics in those data.

Your next question comes from the line of Ken Perkins with Morningstar.

I'm just curious if you can speak a little bit about the increased advertising spend. I know it went up this year in North America behind some of your product launches. So can you just help us to frame your outlook for the brand investment in 2013 in terms of what categories and regions you're looking to invest in? And how should we think about the phasing throughout the year?

Sure. Well, I want to say first is that the incremental spend we had in the third consecutive year of double-digit brand investment has really been focused behind Power Brands and Rising Stars. And within that, very much against the Bourbon portfolio, as you would expect, in driving the growth of that category. We expect certainly for that to continue. Now within that, you see Maker's Mark, Beam and some of our small batch collection, the higher-end bourbons where we see great opportunity. At the same time, Pinnacle, of course, is going to be an important part of that investment, as we noted earlier, driving that growth, fueling that growth with the appropriate BI. And then finally, rounding that out, the Rising Stars, we'll continue to invest to make them the Power Brands of the future. So from a brand perspective, we'll continue driving the Power Brands and Rising Stars. And I think from a type of spend and focus against that, we're very much been focused against the consumer TV, digital media, social media really as the means to drive the effectiveness of that spend. And you'll see more of that coming. In aggregate, in '13, I noted that we expect BI to grow more in line with sales throughout the year. Obviously, there will be ups and downs during the year. But I think a more consistent growth rate, given that sort of mid-teens reinvestment rate that we now reached, I think, makes sense.

Okay, great. And then is a majority of that going towards North America again?

You'll certainly see that. But as Matt noted, it's investing, for example, behind our great brands in Europe. In Bourbon in Germany, for example, continues to be another great area, as well as the emerging markets. So it's not solely focused in North America, but we could either be very much focused behind those Power Brands and Rising Stars in our key geographies.

Your next question comes from the line of Greg Hessler with Bank of America.

This is Anthony Garcia calling in for Greg Hessler. It looks like you had a $218 million note that matured in late January. How did you address that? And are there any plans to tap the debt capital markets this year? And then also, can you talk a little bit about how you're thinking about your ideal capital structure, given the focus of investing internal and external growth of your M&A?

Sure. You're right, we did have a maturing bond that came due early this week. We paid that out largely with cash on our balance sheet, so effectively, it reduced our debt level, which really speaks to the strong cash generation that we have. And in terms of what is our ideal capital structure, I'd come back to what we talked about in terms of our use of cash. And we've always said that we think it's solid investment grade long-term target makes a lot of sense. Why? Because it gives us that financial flexibility to be proactive in the marketplace as well as the most efficient cost of capital. So that certainly remains our target. I think the de-leveraging we saw through the reduction of this bond really puts us in that position, in my mind, of being a strong balance sheet.

And we have no further questions in queue. I turn the call back over to Mr. Shattock for any closing comments.

Thank you again for joining us. We look forward to speaking to you again in 3 months' time to review our first quarter results. Thank you, everybody.

Thank you for your participation in today's conference call. This call will be available for replay beginning today at 1:00 p.m. Eastern Daylight Time through February 5 at 11:59 p.m. Eastern Daylight Time. The conference ID number for replay is 86977608. The number for the replay is (855) 859-2056 or (404) 537-3404. Thanks again for your participation. You may now disconnect.