Good morning. My name is Constance and I will be your conference operator today. At this time I would like to welcome everyone to the fourth quarter and year-end earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks there will be a question and answer session. (Operator Instructions). Mr. Bruce Carbonari, President and Chief Executive Officer, you may begin your conference.

Thank you. Good morning. Thanks for joining us to review Fortune Brands’ results for the fourth quarter and full year 2007. Before we begin, let me note that our presentation includes forward-looking statements that are subject to risks and uncertainties, including those that are listed in the cautionary language at the end of our news release, and that our actual results could differ materially from those targeted. This presentation also includes certain non-GAAP measures that are reconciled to the most closely comparable GAAP measures in our news release or on the supplemental information page linked to the webcast page on our website. Despite the challenging environment of our home products business, Fortune Brands delivered on our key goals for 2007. The effectiveness of our proactive growth and return strategy, underpinned by the strength of our company’s unique breadth and balance, helped Fortune Brands deliver results that achieved our earnings target for fourth quarter, as well as for the full-year target we established at the beginning of 2007. That’s especially notable given the fact that the housing correction in the US has proven more challenging and persistent than anyone anticipated a year ago – or even three months ago. We’re pleased that our brands are performing well in their respective markets. 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 Bean, Sauza and Maker’s Mark all drove double-digit revenue increases for 2007 in constant currency. World-wide sales of Jim Bean 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…

Thanks, Bruce. We’ll start with spirits and wine. I’d highlight that these results are on a continuing operations basis and that’s excluding the divested wine business. In the industry’s seasonal largest quarter spirits sales reached $859 million. That’s up 10%. Revenues in the quarter benefited from strong shipments of premium brands in the US, Australia, and the Global Duty Free Channel. They also benefited from favourable foreign exchange. Ono a comparable basis, excluding transition related sales in the year-ago quarter, fourth quarter sales in constant currency were up in the low- to mid-single-digit range. Fourth quarter operating income before one-time items came in at $246 million and that’s up 1%. Operating income trailed sales in the quarter largely due to the planned strong double-digit increase in brand spending that we outlined to you last quarter. For the full year, spirit sales were $2.61 billion. That’s up 4% to a record. Full-year operating income before charges/gains reached $725 million, up 8%. Operating margins for the year expanded more than 1 point to 28%, benefiting from favourable mix, higher pricing, and cost containment. Our total spirits portfolio grew revenues in the mid-single-digit range in constant currency for the year on slightly higher volumes. Our results reflected favourable mix shift as our global premium brands collectively grew at a much faster rate than our regional and national brands. Geographically, net sales for our spirits portfolio increased at a low-single-digit rate in the US and at a mid-single-digit rate in international markets on a constant currency basis. Strong growth in Australia, the Duty Free Channel, and emerging markets such as India, China, and Russia helped fuel our international performance. Looking closer at full-year performance for our major global brands, we’re pleased that several key brands posted double-digit growth in revenue, including our two largest…

As we look ahead we remain focused on growth and returns as we pursue a simple four-point strategy to drive value. It starts with driving growth by positioning our brands and businesses to outperform their respective markets. Second, we pursue business improvements by operating lean and flexible global supply chains and business processes. Third, we promote organizational excellence to develop winning cultures and associates. And finally, fourth, we seek to enhance shareholder returns by leveraging our breadth and balance and financial strength to drive value. In executing this strategy in 2008 we’re determined to continuing growing our premier spirits and golf brands and to continue to outperform in the home products industry. Also continuing to invest for the future in all of our businesses. That said, in an environment in which the US home products market is expected by many economists to decline double digits again in 2008, we’re budgeting accordingly. Based on our initial estimates, we’re targeting EPS before charges and 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 and gains for continuing operations number of $5.06 for 2007. In the first quarter 2008 we’re targeting diluted earnings per share before charges and gains to be in the range of flat to down at a high single-digit rate. That’s compared to an EPS before charges and gains for continuing operations number of $0.81 for the year-ago quarter. While the US housing correction will continue to present challenges in 2008, we look to the future with confidence. We enter the year with enhanced flexibility on our balance sheet and higher returns following the sales of our wine business in the fourth quarter. We also remain sharply focused on growth returns and we continue 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 housing market recovers. Thanks again for joining us. Now Craig and I would be happy to respond to your questions.

(Operator Instructions). Your first question comes from Peter Lisnic of Robert Baird.

Good morning. It’s actually John Hilsonteron (sic) for Pete. First off, thank you guys for kind of providing all the discontinued ops, or the kind of schedule for the previous quarters. That’s helpful.

Yeah, we thought that would help you a lot.

Looking at spirits, your operating income forecast for ’08. Just within that are we correct in kind of assuming brand spending is going to be up kind of double digits within that forecast or is brand spending pulling down a little bit?

Yes, you can. I think everyone’s well aware, we’ve outlined this before, we had lower spend in the first half of ’07 because of the fact that we were taking the time to make sure that all of our programs were what we wanted them to be. That ramped up in the second half of the year and was more in line with our second half sales growth. So with the continuation of those programs we’re currently targeting that we’re going to be up high single digits to double digits with brand spend in ’08.

Okay. And then just in terms of (inaudible) I understand you’re really priming the pump there for future growth, but at what point do the sales trends kind of reflect that? I mean, it seems like you’re definitely investing in the brands and revenue is growing faster than (inaudible) suggesting half a million, but is that something in the second half that the sales increases should become more proportionately brand spent?

Yeah, I think in generally you can’t look at it as a broad-brush approach. We’ve spent a lot of time selectively looking at each of our brands and the portfolio brands that we have in the categories. So we are trying to, in many of the cases of the brands that we bought within the Allied acquisition, are positioned then in the right appropriate place. So we are in some cases taking pricing action as well as trying to create more pull with selective brands. It would be hard, John, to put a paintbrush across it. I’d say it’s very targeted and very selective based on which country we’re in and which market we’re in and which particular spirit we’re dealing with.

And John, the other thing I would highlight here just to add to that is the fact that we would always expect that we’re going to leverage the sales so that you’ll see OI growth faster than sales. That’s a function of the fact that people continue to trade up to the more premium price product that gives us better margin. Then on top of that, when you layer in the price increases, we should always see operating income growing faster than sales.

Okay. Thank you. I’ll get back in cue.

Okay. Good.

Your next question comes from Bryan Spillane, Banc of America Securities.

Hi, Bryan.

Hey, Bryan.

You know, just a follow up on the spirits segment. There’s been a lot of debate or speculation about just how strong the spirits industry has held up in light of the consumer weakness. I appreciate your comments about how spirits have performed well in all economic environments, but even this morning Discus (sic) is out saying that they’re expecting the industry to be weaker in ’08 versus ’07 in the US. So can you just pop it all to maybe more specifically if you’ve seen anything different in the industry today, has there been any change in maybe the premium spirits versus low end spirits? And then also, probably internationally, more specifically in Asia, whether or not you’ve seen any change at all in the environment over the last couple of months.

Bryan, this is Bruce. What we see, and let’s talk about the US first, is we’ve been in this band of case growth and volume growth of between 2% and 4%. This year is a little slower than what we saw in ’06. We’ve got 2.5 to maybe a little higher than that rate. If you look back over the last 10 years you see it balancing in that range. When you peel back the onion there we see a continuation of people trading up to the higher premium spirits, whether it be premium or ultra premium. We have not seen any trading down here at all in the last several months. When you go to the international markets, again it’s market by market, but we see a continued trend towards western spirits. A strong trend towards western spirits. In many cases it starts with brown spirits. When you look at cognacs and scotches and so forth. Very strong in India and China. And then the continuation will follow, we believe, with the white spirits. So we have not seen any fundamental changes there either.

Okay. That’s great. And then your expectations in terms of profit growth for ’08 do or do not expect any change in trends. You expect the market to continue to hold up.

Yes, we do expect the market to hold up again in that 2% to 4% bandwidth range on volume and the pricing to be in the continuation of the move into premium.

Okay. Great. Thanks a lot, guys.

Your next question comes from Ivy Zelman of Zelman.

Good morning, guys. I wanted to congratulate you, Bruce, on your new role. Nice to hear you on the conference call. The focus today obviously with home under pressure you’ve done a great job in outperforming the market. I think if you can help us on two questions on home one would be, how did home improvement do relative to the separation of new construction, and what are your assumptions for the home improvement market in ’08 within the broader home outlook. And then separately, just on recent press releases out on the Callaway winning the patent on the Pro-V One, if you can tell us if that’s a big deal or not or what we should expect that could mean for you, if anything at all. Thank you.

Sure, Ivy. Thanks. Let’s start with the home market. Going back, and this is the overall market I’m going to be talking about here in the US, we saw the new construction market in ’07 being worse than what we had anticipated. Down mid- to high-20% range.

Yeah, high 20’s.

And that the remodelling market was actually a little bit better than we had thought, down low single digits. Going into ’08 we think that the new construction market will still be down in the 20% range, but we’re going to see a little bit softer remodelling markets and that’s built into our assumptions. Maybe mid- to high-teens, down that particular range. We see a little bit of softening now in the fourth quarter and that was with what in fact we didn’t anticipate that it would drop off in the fourth quarter like it did. That was why we did some of the restructuring that we did, just to get ready for a more challenging market in the restructured, on the remodelled side of the business. As far as the litigation, that’s far from over. We have a kind of dispute going on with Callaway. As you may know, a jury in Delaware last month delivered an inconsistent verdict in the patent case. This patent case is between, obviously, Callaway and our Acushnet company, which holds the Titleist brand. It’s focused around the multi-layered solid construction, solid construction of the gold ball. There’s a couple things that I think we tried to do in our press release, but unfortunately Callaway’s press release got out there before ours. This is a jury verdict that came out. We are going to appeal it. It didn’t have all the evidence in the case. A couple of key things that weren’t there is that the patent office, the initial office action, determined these patents to be invalid. That was not submitted or able to be used during the case. The other is that the golf ball actually was out being sold before these patents were issued. So we think we have a very strong case and obviously we’re going to fight this and continue to fight it. It does not have at this point a material impact on our business.

Ivy, just to come back home for a second on the assumptions for ’08, when Bruce said down kind of the mid-teens he was really talking about overall. So when you break it out right now we’re saying that for new constructions down kind of in the mid-20’s, repair and remodel down in the range of mid-single digits, and then overall coming back to his number of the overall market being down low double digits.

Okay. And Craig, just on that front, on the home improvement, looking at it a little bit more detail, if you could. Realizing you’re selling to the wholesale channel as well as the DIY channel, I would imagine if you could help us understand where the pressures might be greater. Are you seeing more pressure at DIY than you would be at home improvement and what your outlook is there.

Well, let me turn that to Bruce.

Yeah, let me do that. Ivy, what we’re seeing is a little inconsistency there. We’ve seen a drop off more in the home centre businesses where our DIY business, which is greater than 50% of our business, still remains fairly strong. So we have kind of mixed messages out there, if you will, and we’re trying to withstand that better as well.

Bruce, realizing the consumer bigger ticket items it’s perceived as more risk and the windows business and doors business where people are saving for hopefully dollars of energy savings, they might still be looking for upgrading and doing improvements to the home. Can you give us a little difference within home where there might be some good performers? I think you mentioned Simonton did well and a little bit more detail on that breakdown? Then I’ll go back in the cue. Thank you.

Okay. Actually we’ve seen share gains in all of our businesses. And of course our business is, in our mix there is a mix of the new construction and the repair and model. We’re a little stronger on the repair and model side. Our businesses predominantly are businesses that are focused on the female consumer in the home, which is much more active and continues to have an aspiration to improve their kitchens and bathrooms and also, obviously, the exterior of their homes. There’s a lot of people still in the market. We’re continuing to bring new products out and keep them excited. And we’re seeing that continue to work well for us as we gain share in the challenging market. As far as channels go, we’ve seen obviously the ones that are more directly to do with construction have a lot more challenges during the course of ’07. We expect that to continue into ’08. The remodelling channels, as I said, the dealers, the small kitchen-bath boutique shops, and the larger home centres have performed better during the course of ’07.

Your next question comes from Eric Bosshard of Cleveland Resource Company.

A couple things. First of all, I know it’s your tendency to give a broad range in terms of full-year guidance, but I don’t know. Craig or Bruce, can you just talk about what you’d look at or what we should think about in the market that determines if you end up at the high end of that range or the low end of the range?

Are you specifically talking overall?

Or the earnings per share?

I’m talking about the earnings per share guidance.

The range obviously is, we have a market, specifically our home market, that is a market we’re trying to get as good a handle as we can on it. It’s a moving market. So we thought appropriately that we would take a more conservative approach to our forecasting and give you a wider range so that in fact we’re up front with you that there’s some volatility in this particular market. That’s really the heart behind it.

Yeah. I kind of don’t want this to sound cute, but at the end of the day higher or low is going to be a function of our success in executing all the various initiatives that we’ve outlined. So at this point, let’s face it, we both know that the stars don’t always align to have everything be a home run. So at this point if everything works out then we could be at the high end and to the degree we’ve got things that go against us or the timelines aren’t quite what we expect, so on and so forth, then we’d be at the lower end.

Then let me ask the question better, perhaps. Is home where the greater uncertainty and volatility exist in ’08? Is that accurate? Is that the right way to think about it?

Yeah, I would definitely say that the market conditions are a lot more volatile than the spirits and golf business. Yeah, definitely.

And within home it seems like the new construction is relatively clear and so the remodel seems to be the source of volatility. A follow up on a comment you made earlier, 4Q clearly was a surprise to you and others in terms of the remodel side. Can you just talk a little more about what you’re seeing and based on that what you expect from that to take place in ’08?

Well, let me deal with the numbers first and then Bruce can deal with the overall kind of business environment. The fourth quarter in homes certainly was softer than we expected, but it wasn’t singularly a function of repair and remodel. That certainly was part of it, but so was new construction as well. So that certainly baked into our numbers. But as you look at our other businesses, as you look at spirits and you look at golf, they were largely in line with what our expectation was for the fourth quarter. So coming back to your point, just from the standpoint of our execution, we’ve got the issue of whether or not we’re able to pull off everything that we’re planning to do within home. So you’ve really got two dynamics that work here this year: It’s our ability to execute the things we’re intending to do with varying degrees of success, and then obviously there’s the market overall. We’ve come into the year telling you that our expectation, we’re budgeting for the overall home market to be down low double digits. If at the end of the day it’s worse than that or better than that, then that’s an additional variable that’s going to come into play.

And Eric, let me just expand a little bit on the remodelling side. The fourth quarter and the first quarter are our seasonally slowest quarters, normally. Third quarter is where the consumer isn’t as active in doing their kitchen over actually because they have the holiday season they’re addressing. So it’s off a basis that’s fairly low anyways. I think just the amount of people cutting back on promotions and whatnot during the time that the consumer wasn’t there also I think helped slow down this period of time. We’re really going to get the signals about how the year will play out, I would say, probably as we get towards the spring. Once again, obviously the new construction market starts heating up and the sales market starts heating up then, but also the consumer becomes more active in the remodelling market then as well.

And then just one follow up, if I could. Craig, with the balance sheet improved to where it is now, and I understand what’s going on with Vin & Sprit, but have you thought about, are share repurchases something that are back on the table for ’08?

Well, clearly with the balance sheet the way it is, at the end of the day we don’t do V&S. We’ve got a very strong balance sheet and we’ll be assessing all of our options. As you well know, nothing’s changed in terms of our long-term dynamic in terms of how we look at the call on cash. First there’s internal capex, then we look at acquisitions and share buy-back, and for us everything’s driven in terms of what we think provides the best return to the shareholder and is IRR driven. Then we default to the third category, which is dividends. So clearly if we don’t do V&S that’s something that’s back as part of the dynamic, but I wouldn’t speculate on what we would do or wouldn’t do. That’s a discussion with the board.

Perfect. Thank you.

Your next question comes from Ann Gurkin of Davenport.

Good morning. Regarding Vin & Sprit, will you comment at all whether you think this auction process will be completed by mid-year?

No. We’ve been asked by the Swedish government not to comment at all during this confidential stage. As a practice, when we are involved in any type of auction process we don’t comment during the process. So we are not going to be going back and giving you little bits of information along the way here. What I can tell you again is this is a process that is a little bit different. I’ve said this time and time again where usually it’s a follow-through business. This is a privatization process which involves the Swedish government. So they are really calling all the shots and running the process and we respect what they’re doing and we’re going to follow by the rules.

They’ve commented that they have to be completed by year end, which to me seems like a long time frame. That’s why I was curious. Okay. In terms of innovation, are you pulling back at all on your level of innovation in the home space?

No, what we’re doing is we’re doing more selective. Obviously each business has its own development process. We are cutting back on certain things that I’d say were maybe longer term, longer stretch, higher return items that are maybe four or five year higher risk profile items. But the amount of things that we have in the near term, and you know us well enough that we have quite a pipeline of new products, is that a quarter of that is still, we have surgically gone into each of the businesses and looked for opportunities not only to continue to position ourselves better for when this business recovers, but also position on a growth side, but also on the cost side, as well.

Okay. And then with respect to golf, have you factored in an economic slowdown in that business?

Yeah, we’re looking at the business around the play has slightly increased over the last couple of years. We expect that to be about the same. We’re getting a lot of growth on the international side of the market. We have some very explosive markets right now and we’re investing heavily behind those markets that continue to, you know, we have great positions and great brands here. So we want to position them well on these international markets as well.

So, Ann, we’re basically for US rounds of play budgeting the way we have for the last couple of years.

Okay. That’s great. Thank you.

Your next question comes from Andrew Sawyer of Goldman Sachs.

I was just wondering if you guys could talk a little bit about multi-year planning basis for home and hardware. At what point are you guys thinking there might be an upturn? I know you mentioned pulling back a bit on some of your longer term investments. Could you frame up to us how you’re thinking about adapting to this industry as it potentially rebounds? Also on a side note to that, are you seeing any sort of industry consolidation or smaller players exit as we’ve gone through this difficult period?

Let me address the first one. To be honest with you, we spent about 90% of our time focusing on the near term. Obviously our heart and soul is focused on outperforming the market as it exists today. To be able to call when it’s going to come back is hard to do and we wouldn’t be doing that at this point. So we really spent our time focusing on ’08. We also obviously looked to see longer term if some fundamentals have changed in the market. We don’t see that. We still see that this market, once it flushes out the inventory and gets back to a more normal rate and the consumer gets back into the party, that this is a market that should be in the 1.8 to 1.9 housing starts and that’s a very healthy level for this market. When and where we get there and calling it specifically, we didn’t spend a lot of time doing that. We really spent most of our time looking at ’08 and focusing on ’08. Your second question was?

Just in regard to any industry consolidation, marginal players, exiting, that sort of thing.

No, we haven’t. I think everybody is trying to figure out how to compete in this market. I don’t know what’ll happen here in the near term, but obviously there’s some people who can’t respond as well as some of the people like ourselves and the position that we’re in. But we haven’t seen that. I also would tell you that it’s probably a little early yet on seeing any of the type of M&A activity that you would expect to see. I think people, at least people we talk to, are still smirking off of old numbers and old multiples. That will change over time and then bring an opportunity there.

And then just quickly on spirits, it seems from my (inaudible) you’re seeing a narrowing in the performance gap between Jack Daniels and Jim Bean, especially in the US. Can you just comment on what you guys are seeing there? They seem to be attributing it to some economic softness and people trading down out of Jack, but you guys have also put some money to work there. Could you just talk about how that dynamic is playing right now?

Sure. I assume you’re talking about the US market here?

Yes.

Yeah, we have a great portfolio of bourbon brands, not only from just Jim, but you go right up the stream to small batches and Maker’s Mark and Knob Creek and so forth, and we are putting that portfolio to work differently than maybe we’ve done in the past. And we aren’t relying on the traditional push methodologies that have really been part of this industry for a long time where we should just introduce some new concepts and some of them are catching on. Some of them are working for us. We are testing those continuously and challenging ourselves to think differently about the business. I think we’ve been rewarded for that.

Thanks a lot guys.

At this time we have time for one final question. From Todd Duvick of Banc of America.

Good morning. Most of my questions have been answered, but I thought I’d take another run at one, Craig, and ask you to comment on an old standard. With respect to V&S, I understand that there’s very little that you can say, but there are press reports out that indicative bids were due this week. Can you confirm whether that was the case?

Candidly, I can’t. Given, as Bruce outlined before, the confidentiality that’s been requested by the Swedish government, we are at this point not commenting out of respect for that request.

Okay. Fair enough. And then, Craig, with respect to the balance sheet, obviously you’ve done a lot of work in terms of reducing debt over the last year or so and are certainly in a very strong position. With respect to a potential V&S acquisition, can you just reiterate your view on the importance of a credit rating and your preference, even though I know that credit rating is really out of your hands?

Sure. This is going to be absolutely consistent with what we’ve said previously. Our default position is one of wanting to be investment grade rated. We think that long-term that is exactly the right place for us to be. As I’ve outlined before, that’s both from liquidity as well as from a cost-of-capital standpoint. But we have always consistently said never say never so that we evaluate the situation and make the decision that we think is the right longer term decision. So that’s where we continue today. I think the fact that as you look at where we are with our 1231 balance sheet, obviously with the sale of wine we’ve paid down $1.5 billion of debt this year. So you’re right, we’re in a very good position. Those have all been conscious decisions and I think it reflects the fact that we’re prudent in the way we approach the balance sheet and our overall debt to cap structure.

Okay. Very good. Thank you, Craig.

Thanks, Todd. Thanks again for joining us. We look forward to delivering in 2008 against our near-term goals, investing in our brands, outperforming our markets, and leveraging our present balance to deliver superior growth in returns. We look forward to speaking with you again in April. Thank you.

Thank you for participating in today’s fourth quarter year-end earnings conference call. This call will be available for replay beginning at 1:00 p.m. Eastern Standard Time today through 11:59 p.m. Easter Standard Time on Wednesday, January 30th, 2008. The conference ID number for the replay is 30395303. Again, the conference ID number for the replay is 30395303. The number to dial for the replay is 1-800-642-1687 or 706-645-9291. You may now disconnect.