Fortune Brands Reports Fourth Quarter and Full-Year 2007 Results

25 January 2008 - Fortune Brands, Inc., a leading consumer brands company, today reported results for the fourth quarter and full-year 2007.

The company delivered a fourth-quarter revenue record, benefiting from double-digit sales increases for the company’s distilled spirits and golf brands. The company also continued to outperform the challenging U.S. home products market and gain share in key categories. While reported earnings comparisons for the fourth quarter and full year were adversely impacted by the downturn in the U.S. housing market, charges for supply-chain initiatives, and the absence of one-time gains recorded in the prior-year periods, the company achieved results within its earnings target ranges for both periods.

“The effectiveness of our proactive growth and returns strategies, underpinned by the strength of our company’s unique breadth and balance, helped Fortune Brands deliver results that achieved our earnings target for the fourth quarter, as well as the full-year target we established at the beginning of 2007,” said Bruce Carbonari, president and chief executive officer of Fortune Brands. “That’s especially notable given the fact that the housing correction in the U.S. has proven more challenging and persistent than anyone anticipated a year ago – or even three months ago.”

Winning in the Marketplace

“We’re pleased that our brands are performing very well in their respective markets,” Carbonari continued.

“In Spirits, we’re driving strong profit growth that reflects our focus on premium brands and building brand equity, which supports higher pricing in a growing market. Net of excise taxes, Jim Beam, Sauza and Maker’s Mark all drove double-digit revenue increases for 2007 in constant currency, and worldwide sales of Jim Beam surpassed 6 million cases. It’s also notable that our second-half acceleration of brand-building spending continued into the fourth quarter, that we expanded underlying full-year operating margins in spirits by more than one point, and that our spirits brands now generate about half of Fortune Brands’ total annual operating income.

“In Home and Hardware, we’re aggressively positioning ourselves to outperform the challenging market, and our sales outpaced the estimated market performance by approximately four points for the year. In the quarter, Moen, Therma-Tru, Master Lock, Simonton and our cabinetry brands continued to gain market share. At the same time, our proactive pursuit of high-return cost and productivity initiatives, many of which we began in advance of the downturn’s impact, limited the fourth-quarter operating margin decline in Home & Hardware to just 50 basis points, adjusted for one-time items.”

“And in Golf, our brands set an industry sales record in 2007, finishing the year with a double-digit sales increase in the fourth quarter. Successful innovations helped Titleist, FootJoy and Cobra achieve individual brand records, as we also attained sales records in every product category and in all major markets for the year,” Carbonari added.

For the fourth quarter:

For the full year:

Establishing Targets for 2008

“While the U.S. housing correction will continue to present challenges in 2008, we look to the future with confidence,” Carbonari continued. “We enter the year with enhanced flexibility on our balance sheet and higher returns following the sale of our wine business in the fourth quarter. We remain sharply focused on growth and returns, and we’re continuing to invest for the future – to build our brands, create innovative new products, expand into new markets, and optimize our supply chains. Combined with our unique breadth and balance, we believe these initiatives will continue to benefit us in 2008 and beyond, and position us extremely well for when the U.S. housing market recovers.

“Looking to 2008, we’re determined to continue growing our premium spirits and golf brands, and to continue outperforming the home products industry. That said, in an environment in which the home products market is expected by most economists to decline double digits again in 2008, we’re budgeting accordingly.

“Based on our initial estimates, we’re targeting EPS before charges/gains to be in the range of up at a low-single-digit rate to down at a high-single-digit rate. That’s versus an EPS before charges/gains for continuing operations number of $5.06 for 2007. Our 2008 target is based on these goals for our business units:

“For the first quarter of 2008, we’re targeting diluted EPS before charges/gains to be in the range of flat to down at a high-single digit rate. That’s compared to an EPS before charges/gains for continuing operations number of $0.81 for the year-ago quarter,” Carbonari added.

The company also announced that it is targeting free cash flow for 2008 in the range of $500-600 million after dividends and net capital expenditures.

(a) Operating Income Before Charges/Gains is Operating Income derived in accordance with GAAP excluding restructuring and restructuring-related items and excluding the gain from the sale of The Dalmore Scotch assets. Operating Income Before Charges/Gains is a measure not derived in accordance with GAAP. Management uses this measure to determine the returns generated by our operating segments and to evaluate and identify cost reduction initiatives. Management believes this measure provides investors with helpful supplemental information regarding the underlying performance of the company from year-to-year. This measure may be inconsistent with similar measures presented by other companies.

(b) The gain from the sale of The Dalmore Scotch assets is included in the Spirits segment.

(c) Operating Margin Before Charges/Gains is Operating Income before the gain on the sale of The Dalmore Scotch assets and excluding restructuring and restructuring-related items, and excluding a commodity hedge gain divided by net sales.

Operating Margin Before Charges/Gains and One-Time Hedge Gains and Operating Margin Before Charges/Gains and the gain on the sale of The Dalmore Scotch assets is a measure not derived in accordance with GAAP. Management uses this measure to determine the returns generated by operating segments and to evaluate and identify cost-reduction initiatives. Management believes this measure provides investors with helpful supplemental information regarding the underlying performance of the company from year-to-year. This measure may be inconsistent with similar measures presented by other companies.

(d) Free Cash Flow is Cash Flow from Operations less capital expenditures net of proceeds from asset sales and dividends paid to stockholders. Free Cash Flow is a measure not derived in accordance with GAAP. Management believes that Free Cash Flow provides investors with helpful supplemental information about the company's ability to fund internal growth, make acquisitions, repay debt and repurchase common stock. This measure may be inconsistent with similar measures presented by other companies.

(i) Assumes current dividend rate and basic shares outstanding on December 31, 2007.

DILUTED EPS BEFORE CHARGES/GAINS

Diluted EPS from Continuing Operations Before Charges/Gains is Income from Continuing Operations calculated on a per-share basis excluding restructuring, restructuring-related and one-time items.

For the fourth quarter of 2007, Diluted EPS from Continuing Operations Before Charges/Gains is Income from Continuing Operations calculated on a per-share basis excluding $77.9 million ($56.5 million after tax or $0.35 per diluted share) of restructuring and restructuring-related items and $45.6 million ($28.5 million after tax or $0.18 per diluted share) gain associated with the sale of The Dalmore Scotch assets. For the twelve-month period ended December 31, 2007, Diluted EPS from Continuing Operations Before Charges/Gains excludes $101.2 million ($71.1 million after tax or $0.45 per diluted share) of restructuring and restructuring-related items and a $45.6 million ($28.5 million after tax or $0.18 per diluted share) gain associated with the sale of The Dalmore Scotch assets.

For the fourth quarter of 2006, Diluted EPS from Continuing Operations Before Charges/Gains is Income from Continuing Operations calculated on a per-share basis excluding $19.8 million ($12.3 million after tax or $0.08 per diluted share) of restructuring and restructuring-related items and $48.3 million, or $0.31 per diluted share, of deferred tax credits associated with recently enacted lower international statutory tax rates. For the twelve-month period ended December 31, 2006, Diluted EPS from Continuing Operations Before Charges/Gains excludes $35.3 million ($22.0 million after tax or $0.15 per diluted share) of restructuring and restructuring-related items, a $47.8 million, or $0.31 per diluted share, non-cash charge associated with the required accounting for an increase in the value of V&S Group's minority interest in our Beam Global Spirits & Wines business, currency mark-to-market expense of $2.9 million, or $0.02 per diluted share, and $86.5 million, or $0.57 per diluted share, of tax-related credits principally associated with the deferred tax credits and the favorable conclusion of routine state tax audits and the routine IRS review of our 2002-2003 tax returns.

Diluted EPS Before Charges/Gains is Net Income (inclusive of the wine business) calculated on a per-share basis excluding restructuring and restructuring-related items and the gain on the sale of the Wine business.

Diluted EPS Before Charges/Gains and Diluted EPS from Continuing Operations Before Charges/Gains are measures not derived in accordance with GAAP. Management uses this measure to evaluate the overall performance of the company and believes this measure provides investors with helpful supplemental information regarding the underlying performance of the company from year-to-year. This measure may be inconsistent with similar measures presented by other companies.

RESTRUCTURING AND RESTRUCTURING-RELATED ITEMS

The company recorded pre-tax restructuring and restructuring-related items of $77.9 million ($56.5 million after tax or $0.36 per diluted share) in the three-month period ended December 31, 2007. The charges principally relate to a) the Home and Hardware segment supply chain initiative, the exiting of certain product lines in the U.S. and the UK door market, b) supply chain initiatives in the Golf segment and c) repositioning initiatives in the Spirits U.S. business.

The company recorded pre-tax restructuring and restructuring-related items of $101.2 million ($71.1 million after tax or $0.45 per diluted share) in the twelve-month period ended December 31, 2007. The charges principally relate to a) the Home and Hardware segment supply chain initiatives, the exiting of certain product lines in the U.S. and the UK door market, b) supply chain initiatives in the Golf segments and c) targeted repositioning actions in Australia and the U.S. for the Spirits segment.

RECONCILIATION OF 2007 EARNINGS BEFORE CHARGES TARGETS TO GAAP EARNINGS TARGETS

For the fourth quarter, the company targeted diluted EPS before charges/gains to be in the range of up low-single digits to down mid-single digits. On a GAAP basis, the company's diluted EPS from continuing operations was down 23%.

RECONCILIATION OF 2008 EARNINGS BEFORE CHARGES TARGETS TO GAAP EARNINGS TARGETS

For the first quarter, the company is targeting diluted EPS before charges/gains from continuing operations to be in the range of flat to down high-single digits versus an EPS before charges/gains from continuing operations of $0.81 in the year ago quarter. On a GAAP basis, the company is targeting diluted EPS to in the range of flat to down high-single digits.

For the full year, the company is targeting diluted EPS before charges/gains from continuing operations to be in the range of up low-single digits to down high-single digits. On a GAAP basis, the company is targeting diluted EPS from continuing operations to be in the range of up low-single digits to up double-digits.

RECONCILIATION OF 2008 OPERATING INCOME BEFORE CHARGES GUIDANCE TO GAAP OPERATING INCOME

For the full year, we are targeting Spirits operating income before charges to grow at a mid-to-high single-digit rate. On a GAAP basis, Spirits is targeting operating income to grow at mid-to-high single digit rate.

For the full year, we are targeting Home & Hardware operating income before charges to be down in the range of mid-single-digits to mid-teens. On a GAAP basis, Home & Hardware is targeting operating income to be down mid-single digits to up high-single digits.

For the full year, we are targeting Golf operating income before charges to be up modestly. On a GAAP basis, Golf is targeting operating income to up modestly.

Return on Equity - or ROE - Before Charges/Gains is net income less preferred dividends derived in accordance with GAAP excluding any restructuring and non-recurring items divided by the twelve month average of GAAP common equity (total equity less preferred equity) excluding any restructuring and non-recurring items.