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Executives

Bruce Carbonari - Chairman, Chief Executive Officer and Chairman of Executive Committee

Craig Omtvedt - Chief Financial Officer and Senior Vice President

Analysts

Gregory Melich - ISI Group Inc.

Judy Hong - Goldman Sachs Group Inc.

Christine Farkas - BofA Merrill Lynch

Ann Gurkin - Davenport & Company, LLC

Peter Lisnic - Robert W. Baird & Co. Incorporated

David S. MacGregor

Vivien Azer - Citigroup Inc

Todd Duvick - Bank of America Corporation

Dennis McGill - Zelman & Associates

Jason Marcus

Fortune Brands (FO) Q4 2010 Earnings Call February 4, 2011 10:00 AM ET

Operator

Good morning, my name is Felicia, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fortune Brands Fourth Quarter and Full Year 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 your conference.

Bruce Carbonari

Thanks, Felicia. Good morning. Welcome to our discussion of Fortune Brands' fourth quarter and full year 2010 results.

Please note that our presentation includes forward-looking statements. These statements are subject to risks and uncertainties, including those listed in the cautionary language at the end of our news release. Our actual results could differ materially from those targeted.

And this presentation also includes certain non-GAAP measures that are reconciled to the most closely comparable GAAP measures in our news release or on our website in the supplemental information linked to the Webcast page.

2010 was an excellent year for Fortune Brands. We outperformed our markets. We delivered on our operational goals, and our business reemerged from the recession in very strong positions.

In addition to this strong performance, we announced our intention to separate our three businesses in 2011 to maximize long-term value for our shareholders. Our determination to go on offense during the economic downturn and boost strategic investment across our businesses made a big impact in 2010. Each of our businesses continued to strengthen its competitive position throughout the year, and Fortune Brands delivered strong double-digit earnings growth.

Now let's take a closer look at the numbers for the quarter and the year.

Net sales for the quarter approached $1.9 billion, up 5%. Sales were up 4% on a comparable basis. That measure excludes excise taxes, foreign exchange and acquisition and divestitures. By brand group, comparable net sales were up 6% in Spirits, up 2% in Home and Security and up 10% in Golf.

For the full year, sales came in at $7.1 billion, an increase of 7%. Full year comparable sales were up 5%, reflecting 5% growth in Spirits, 6% growth in Home and Security and 4% growth in Golf. Net income for the quarter was $85.4 million or $0.55 per diluted share. Results included some charges and gains that Craig will touch on a little later.

Excluding charges and gains, diluted earnings per share were $0.63, that's versus $0.66 in the year-ago quarter. For the full year, net income reached $487.6 million or $3.16 per share. On a before charges and gains basis, full year EPS was $2.81, up 16% from $2.43 in 2009.

Reported fourth quarter operating income came in at $157.2 million. And on a before charges and gain basis, operating income was $181 million for the quarter, flat with the year-ago quarter. For the full year, we reported operating income of $763.9 million, and the full year operating income before charges and gains was up 13%.

Reviewing our asset and investment return measures. After-tax return on net tangible assets before charges and gains was 16%. Working capital efficiency came in at 35%. Asset-maturing inventories for spirits, WC improved to 18%. Return on equity before charges and gains is 8% and return on invested capital before charges and gains was 6%.

As you know, in December, we announced the next logical steps in the evolution of Fortune Brands, our initiatives to separate our three businesses. While the breadth and balance of Fortune Brands' current structure have created substantial shareholder value, we see the potential for even greater value by separating our businesses into focused companies. Our 2010 results reinforce our confidence that this is the right time.

Our proactive strategic initiatives and targeted investments have strengthened each business. Each business has emerged from the downturn stronger than even we had anticipated. We expect each business will be equipped to compete and grow on its own with the management, the infrastructure, the capital structure and growth and return prospects necessary for success.

The initiatives to separate our businesses is on track for completion in the second half of 2011. And actually, this is subject to completion of detailed separation plans, customary regulatory approvals and final board approval. We are moving forward with our intention to become a focused high-return Spirits business and to enact a tax-free spinoff to shareholders of our strong Home and Security business. And we are exploring the sale or spinoff of our industry-leading Golf business.

Our preparations today have included a great deal of work to establish the organizational structures for the public company headquarter's functions that are currently provided to our businesses at Fortune Brands' corporate headquarters. We're pleased that we have such a strong team in place to lead each of these businesses post-separation. Matt Shattock will continue to be CEO of our Spirits business; Chris Klein will continue to be CEO of Home and Security; and Wally Uihlein will remain Chairman and CEO of our Golf business. We're also progressing the necessary legal and regulatory steps in the next coming months, including preparing for filing of the Form 10 required for a spin-off.

Let me take a few moments to review the strong position of each of these businesses to compete and create value on their own.

First, our Beam Global Spirits business. Beam Global is the fourth largest premium spirits company in the world and the largest U.S.-based spirits company. This is a business that we have grown over time to both organic growth and acquisitions that have significant opportunities for future growth. Beam Global starts with an excellent foundation a premium brands in attractive categories. These include what we call our power brands, led by Jim Beam, Maker’s Mark, Sauza Tequila, Canadian Club, Courvoisier and Teacher's Scotch. That is followed by what we call our rising stars, which include Hornito's Tequila, Cruzan Rum, Laphroaig Scotch, Knob Creek bourbon, EFFEN Vodka and Sourz liqueur. And finally brands we consider local jewels, such as DeKuyper cordials in the U.S. and Whisky DYC and Larios Gin in Spain. We are the world's leader in the growing bourbon category and number two in the attractive global tequila category. And we hold the overall number two position in the United States, the world's largest and most profitable spirits market.

The strong abroad portfolio positions us well in the three global regions by which we manage this business: North America, which represents more than half of our global volume; Europe, Middle East and Africa; and the third region is Asia Pacific and South America.

By investing on this foundation, our team at Beam Global has been able to drive success with a simple and effective strategy: create famous brands, build winning markets and fuel our growth. When it comes to creating famous brands, we've invested to energize priority brands that attract new consumers. In Bourbon, for example, our highly successful Red Stag by Jim Beam is bringing new consumers to the category. The relaunch of double-aged Jim Beam Black is adding to our gains in bourbon. As well as we've introduced Maker's 46, which quickly added to Maker's Mark's phenomenal growth. And we've recently launched Knob Creek Single Barrel Reserve. Our successful innovations extend to the new Cruzan 9 spiced rum, the Connoisseur's Collection from Courvoisier, the Teacher's Origin scotch whiskey in India, DYC 8, Larios 12 in Spain and the new RTD products in Australia.

Let me underscore that these are all value-added innovations that sell at a premium to the core products and enhance our brand equity. And we have much more to come in 2011, including exciting innovations in the Bourbon and Vodka categories and the international launch of Red Stag.

In 2011, we're planning to again boost investments behind our brands at a double-digit rate. Our investments include the new bold choice brand-building campaign for Jim Beam, Jim Beam Black and Red Stag. This campaign will roll out across multiple media platforms starting next week.

Moving to our second strategic initiative in Spirits, build winning markets. This includes our investment to take greater control over our global distribution, our established industry-leading performance-based contracts with out largest distributor partners and the alignment of our sales organization be closer to customers and consumers. Around the world, we've developed our most promising opportunities, successfully creating momentum in key markets and seizing opportunities in emerging markets.

To further improve our results, we also aggressively pursue efficiencies and manufacturing cost advantage that we can reinvest in our business to fuel our growth, our third strategic platform. This includes the steps we've taken to increase our organizational efficiency and effectiveness, including building the organization with speed, agility and consumer and packaged goods and spirit industry talent that we believe will be a strategic imperative in this industry going forward. This also includes the previous announced consolidation of our U.S. bottling operations that we complete later this year.

We see a bright, prosperous future for Beam Global as an independent spirits company. It's a business that already delivers operating margins at the forefront of the industry. We like the momentum we're seeing, the progress we're making and the team and strategy we have in place.

As a stand-alone company, we expect Beam Global will generate excellent cash flow and have a strong capital structure that will enable it to evaluate compelling opportunities to enhance its strong portfolio. In recent weeks and months, we've made some incremental high-return moves to enhance the portfolio, including fully acquiring the El Tesoro tequila brand and securing the distribution rights to the Thatcher (sic) [Thatcher's] organic liqueurs. At the same time, consistent with our focus on returns across our portfolio, we divested nonstrategic global brands in Germany in the third quarter and the Cockburn's Port brand in the fourth quarter at attractive prices. We'll continue to evaluate opportunities to drive value and return across the portfolio moving ahead.

The spirits industry is a great business to be in. It performs well in most economic conditions, it's recession-resistant and continues to gain share from beer. In the U.S. beverage alcohol market in 2010, spirits gained another 40 basis points of share and has gained 4.6% of incremental share in the past 10 years versus beer. We have immense confidence in the future of our Spirits business and its prospects to outperform.

Let's move to our Home and Security business. With annual sales exceeding $3 billion in industry-leading returns, Fortune Brands' Home & Security is an industry leader with the brands, the supply chains and the management to continue outperforming and drive significant upside as the housing market improves. This business has leading brands in what we consider the most attractive segments of the home products market, kitchen and bath, advanced materials and security and organization. It has an impressive balance across channels of distribution serving the repair and remodel and new construction segments of the marketplace.

In Kitchen and Bath, Moen is the number one faucet in North America and number three in China. MasterBrand Cabinets, which includes brands such as Aristokraft, Decora, Connoisseur Diamond, Omega and Kitchen Craft, and we believe MasterBrand ended the year as the leading cabinet manufacturer in North America.

In our Advanced Materials group, Simonton is a leader in energy-efficient, vinyl-frame windows. And Therma-Tru, which pioneered the fiberglass entry door, is the number one entry door brand in the United States. In Security and Organization, Master Lock is the number one brand of padlocks and related security products in North America. And Waterloo is the leader in storage and organizational products. As we discussed before, Home and Security has enhanced its position by playing offense during the downturn and front end of the recovery by focusing on what we call the three Cs: the consumer, cost and cash.

The company has created lean and flexible supply chains by both reducing cost and accelerating productivity initiatives. We've also preserved adequate capacity to ramp up while conditions improve and to accommodate new business. The fact that we substantially completed our major restructuring initiatives in 2009 has enabled us to sharply focus on growing sales in 2010 and beyond. Our track record of manufacturing excellence, strong customer service and sustaining innovation has enabled us to win significant new customer business, particularly in cabinetry. This new business will total hundreds of millions of dollars in sales once the programs are fully in place by 2012. We're very pleased with how these programs, such as Martha Stewart Living Cabinetry at the Home Depot and our in-stock Cabinetry program at Lowe's are performing. And we'll be rolling out new programs for dealers in 2011 as well.

We're also gaining market share by adjusting to the new consumer and providing innovations that excite consumers. These innovations include eco-performance faucets and new spot-resistant finishes at Moen, energy-efficient glass packages and decorative options at Simonton, the new Therma-Tru door styles, commercial safety products at Master Lock and garage organization products from Waterloo.

We're supplementing our growth in North America with strong growth for Moen and Master Lock in international markets and in adjacent markets, such as bath safety and commercial electronic security. Each of these brands now generate more than a quarter of its sales outside of the United States.

Moving forward, Home and Security will continue focusing on exciting consumers, servicing customers, and investing to grow sales and gain market share while leveraging lean and flexible supply chains to drive profitable growth and generate cash and have the balance sheet flexibility to capitalize on potential attractive high-return opportunities.

We've seen the Home Products market stabilize and the long-term prospects for the housing market are bolstered by several long-term fundamentals. These include favorable population trends that will drive demand for new housing over the next 10 years and the need to remodel or replace an existing housing stock that continues to age. This business is well-positioned to outperform, and we see substantial upside growth and returns potential for shareholders for Home and Security as U.S. housing market recovers as these demographic trends play out.

As you know, our Acushnet Company Golf business is the number one golf company in the world. This business is powered by the game's most iconic brand, Titleist, which is the number ball in golf and pose a strong position in premium advanced technology clubs, including the 910 driver, AP1 and AP2 irons, the DT #3 clubs in Japan, Vokey design wedges and Scotty Cameron putters. It's accompanied by also FootJoy who is the longtime number one share leader in the world on shoes and gloves and now holds the leadership position in outerwear in the United States.

We've built on the heritage and excellence of these brands by investing in two key areas to drive internal growth: innovation and international expansion. New product innovations including successive generations of the Pro V1 golf ball as, well as advanced technology clubs and shoes, have been instrumental in helping us consistently outperform the market. In fact, the Titleist Pro V1 has been the number one ball for 10 years running and we have just introduced the tour-proven sixth generation of the market leading Pro V1 here in this quarter.

We're continuing to drive innovation across all categories in 2011. We will launch the Titleist 910 fairways and hybrids in the first quarter, following the very successful fourth quarter launch of the 910 drivers. And we're extending FootJoy's leadership with the launch of the new DryJoy (sic) [DryJoys] Tour line, along with new styles in flagship FootJoy Icon (sic) [FJ ICON] line. FootJoy has also emerged as a leader in the U.S. performance outerwear category, and we'll be expanding our offerings in the months ahead.

We're also investing in priority international markets such as Korea, Japan and China. As you know, our brands hold a winning position on the worldwide professional tour. The truss of the world finest players forms the top of the pyramid of influence that cascades to the club professionals, competitive amateurs and recreational players.

We're replicating our success in the pyramid of influence in the key regions and countries where we operate. As a result, nearly half of our golf sales now come from outside of the United States, with markets including Europe, Asia and Australia. Our investments include building our sales and marketing infrastructures in key Asian markets, expanding our industry-leading fitting capabilities and developing market-specific products, such as line the VG3 line in Japan and the establishment in 2010 for our first golf ball plant outside of the United States.

We significantly outperformed the golf market on growth in returns again in 2010. And with a lean operational footprint already in place, this business is well-positioned for substantial upside in a category of favorable long-term demographics.

Now here is Craig with a closer look at our markets and the performance for each of our segments.

Craig Omtvedt

Thanks, Bruce. We'll start with Spirits, talk about the overall market. First, we estimate the global Spirits market grew in the range of 1% to 2% on a revenue basis in 2010. The world's largest market, the U.S., was up in the range of 2%. We saw a modest return to premiumization and the beginning of a recovery in the on-premise channel. Markets in Europe improved as the year progressed, with growth in the U.K. and Germany up in the 1% to 2% range. Spain was negative but trended favorably throughout the year.

Global duty-free, as well as our key emerging markets, including India, Brazil and Russia, continue to grow at healthy rates. On the downside, Australia was lower for the year, as interest rates, the Australian dollar and bad weather impacted consumer spending.

Looking at our numbers for the quarter and the full year, spirits sales for the quarter came in at $818 million, up 10%. Sales in the quarter benefited from favorable FX and a change in the trading terms with a major customer in Australia related to the way we record excise taxes. On a comparable basis, sales were up 6% for the quarter.

We outperformed key markets in the quarter, including the U.S., the U.K., Germany and Spain. For the year, sales for Beam Global approached $2.7 billion, a new record level. Our full year Spirit sales benefited from solid growth in the U.S. and Europe, double-digit growth in Brazil and India, and strong growth against easy comparisons in Mexico and global travel retail.

As a result of the proactive repositioning of select brands and a challenging year for the market in Australia, price mix was somewhat lower for the year. I'd underscore here that in total, over the course of the economic downturn, our pricing has run even to ahead of our markets. In our largest market here in the U.S., with market conditions improving, we've begun taking targeted state-by-state price increases. In addition, we believe our successful innovation will increasingly benefit mix moving forward.

Turning to operating income. OI before charges for the quarter was $175 million, down 6%. And that reflected timing of expenses, our higher strategic investments and the divestiture of non-strategic brands. Full year OI before charges came in at $586 million, off 3%, and again principally due to our double-digit increase in strategic investments.

Looking at the full year performance of our key brands, we'll now, and going forward, speak to our brands within the categories of Power Brands, Rising Stars and Local Jewels. We're doing that to better reflect our strategic approach.

We'll start with our Power Brands, which as Bruce mentioned, consist of Jim Beam, Maker’s Mark, Sauza, Courvoisier, Canadian Club and Teacher's. I'd highlight, these are all million-case-or-more brands. Net sales for our Power Brands were up mid-single digits for the year, and that's in constant currency and excluding excise taxes. We drove modest growth for full year Jim Beam. Beam benefited from solid performance in the U.S., including very strong growth for the relaunched Jim Beam Black and the runaway success of Red Stag. Red Stag is an innovation grand slam, and we believe it's momentum is only just beginning.

Internationally, sell-through data shows Jim Beam outperforming in Australia and Germany, the number two and number three bourbon markets. That said, the Spirits market is down in Australia as a series of interest-rate increases have significantly boosted the cost of living for our consumers, and that impacted sales of our ready-to-drink products. And now, Australia has been confronted by serious flooding in certain parts of the country that is likely to continue impacting the market in the first half of 2011.

Maker’s Mark once again grew at a double-digit rate in the U.S. and in international markets. Maker’s Mark is another brand that energized the marketplace with innovations in 2010, as Maker's 46 surpassed all expectations. We expect it to continue growing in 2011. Sauza tequila regained momentum in 2010, with solid growth in both the U.S. and Mexico.

Courvoisier grew strong double digits on double-digit gains in the U.K., where it's the market leader, and in duty-free as well as solid growth in the U.S. Canadian Club sales were off at a low single-digit rate for the year. Teacher's Scotch is another power brand that grew its global sales at a double-digit rate. This brand sells nearly two million cases outside the U.S. and saw a robust growth in Brazil, India, the U.K. and global duty-free.

Moving on to our Rising Star brands, which consist of Hornitos Tequila, Cruzan Rum, Laphroaig Scotch, Knob Creek bourbon, EFFEN Vodka and Sourz liqueurs. These are brands that we intend to build into power brands. As such, we're investing in them to capitalize on theire excellent growth profiles and strong upside potential. Collectively, our Rising Stars grew sales at a double-digit rate.

Our Local Jewels, DeKuyper, Larios, and Whisky DYC, are brands with particular strength in the single market. Collectively, these brands were off at a low single-digit rate. Sales for all other brands were flat for the year.

Turning to margins, our reported 2010 margins before charges were adversely impacted by the Australia customer excise tax change I mentioned a moment ago. On an apples-to-apples basis, our full year margins came in at 22.3%, and that's in line with our target. Excluding excise taxes, full year margins were 28%.

As we look to 2011, we're expecting the global market to be up at a low single-digit rate. We're targeting Beam Global to outperform the market and deliver growth in operating income before charges at a low to mid-single digit rate. And let me reinforce here that, that factors in our planned double-digit increase in brand investment to continue building sales momentum, innovating and capitalizing on our highest return market opportunities.

Now turning to Home and Security, as expected, the market for our products was essentially flat for the year as low single-digit decline in the cabinetry market offset new construction spending that rose at a high single-digit rate. Spending on replace/remodel was essentially flat.

In Q4, our overall market was basically flat, as gains in replace/remodel offset lower spending on cabinetry and new construction.

Looking at our numbers, Home and Security sales for the quarter were $844 million, and that's up 2%. Our sales reflected continued share gains, as well as the pull forward of demand for Simonton Windows in advance of the year-end expiration of a consumer tax credit for purchases of energy-efficient windows and doors.

For the full year, reported Home and Security grew sales 8% and were up 6% on a comparable basis, well ahead of the market.

Operating income before charges in Home and Security came in at $53 million for the quarter, up 22%, reflecting very favorable operating leverage aided by our lower cost structures and lean supply chains.

For the full year, operating income before charges was $234 million, up $95 million or 69%. We're

very pleased that we levered at the high end of the range we projected three months ago as our proactive share gain and supply chain initiatives were a powerful combination that drove strong profit growth.

Drilling down, sales of our kitchen and bath products were flat in the quarter as gains for Moen offset slightly lower sales for cabinetry, which faced a tough comparison due to an extra selling week in the prior year period. Sales for our cabinetry brands would've been slightly higher on a comparable basis, excluding the extra week of sales in December 2009.

The rollout of new programs at home centers, including Martha Stewart Living cabinetry at the Home Depot and the new in-stock cabinetry program at Lowe's fueled strong double-digit gains in the home center channel that offset lower sales in other channels of distribution.

For the full year in cabinetry, we estimate our brands outperformed the North American cabinet market by approximately eight points, with a mid-single-digit increase in sales. Our new business wins, innovative designs and excellent customer service helped drive double-digit increases in the home center channel.

We also were up double digits with large builders and significantly outperformed with dealers, where we hold the market-leading position. Our market share of the fragmented North America cabinetry market has now expanded to approximately 20%.

Moen benefited in the quarter from pre-year-end buy-in the wholesale channel and continued growth in Asia and Latin America. For the full year, Moen gained market share with a double-digit sales increase. Moen's growth was broad-based, including strong gains at retail driven by new products and increased shelf space. The number one faucet brand in North America also grew strongly in channels serving builders and in international markets.

Looking at our advanced material brands. Simonton Windows and Therma-Tru doors, sales for the quarter were up at a high single-digit rate. Simonton sales grew double digits on strong year-end demand, fueled by expiration of the consumer tax credit for the purchase of energy-efficient home products. Simonton benefited from its industry-leading service levels that enabled the brand to produce late into December and still meet the tax credit deadline for consumers.

While sales for Therma-Tru were off modestly in the quarter, the brand saw a favorable mix shift to its advanced fiberglass entry door offerings. For the full year, both Simonton and Therma-Tru gained market share, with sales that grew double digits and mid-single digits, respectively.

We've also integrated our Fypon advanced materials millwork brand into our Therma-Tru operations, which we believe will create positive synergies.

Finishing with our security and storage brands. Sales for the quarter were up high-single digits on gains for both Master Lock and Waterloo. Master Lock continues to grow, with particularly strong gains in the commercial safety segment and in international markets. Waterloo benefited in the quarter from the success of its new garage organization products and growth in the home center channel. For the full year, sales of our security and storage brands were up at a mid-single digit rate.

Looking to our home products market for 2011, we're currently targeting the market to grow at a low single-digit rate after a flat year here in 2010. Our current assumption is that the replace/remodel market will be flat to up modestly, and that spending related to new construction will be up in the mid-teens. And also included in our estimate is an expectation that the window market, following expiration of the energy efficiency tax credit, will be down at a mid-single digit rate.

We're targeting for Home and Security to significantly outperform the market again in 2011 and to deliver operating income before charges growth in the high single-digit to high-teens rate. That target includes our higher year-over-year strategic investments to support new business, new products and brand growth.

On the margin front, we're targeting operating margins before charges to be up modestly in 2011, and we continue to believe that this business will approach 15% operating margins once the market fully recovers.

Lastly, and again, just a reminder, that our Home and Security results will cycle against challenging comparisons in the first half which benefited from the pull forward in advance of the expiration of the homebuyer tax credit last year. We're also facing higher year-over-year raw material cost and upfront spending on new business here in 2011.

Now let's look at Golf. We estimate, as expected, that worldwide spending on golf equipment grew at a low-single digit rate for the year with growth in Asian markets and relatively flat market performance in the U.S. Our reported fourth quarter sales in Golf came in at $233 million, up 3%. On a comparable basis, in constant currency and excluding Cobra, sales were up 10%. And I'd reemphasize that, up 10%. Geographically, comparable sales for Titleist and FootJoy were up at a mid-single digit rate in the U.S. and up double digits internationally, with gains in all major markets.

For the full year, we reported golf sales of $1.2 billion, up 2%. On a comparable basis, sales were up 4% on strong worldwide demand for our brands and new product innovations. Geographically, our full year comparable sales for Titleist and FootJoy were up low-single digits in the U.S., outpacing the market and up high-single digits internationally. We grew double digits in Asia. And our biggest sales gains outside the U.S. came in Korea, Japan and China. Australia was our only down market due principally to adverse weather.

Turning to operating income. As we discussed many times before, the seasonally small nature of the fourth quarter in Golf customarily generates a quarterly loss. In Q4, we had a loss in Golf of $24 million in OI before charges, an improvement of $2.4 million versus the prior year and better than we expected.

For the full year, operating income before charges came in at $80 million, up 33%. OI reflected favorable operating leverage, favorable product mix and favorable foreign exchange. Let me also underscore that OI margins increased approximately two points, a point above our target for the year. Looking at our brand performance. Both the Titleist and FootJoy brands grew full year sales at a mid-single digit rate, with gains across all product categories. Sales of golf balls grew solidly in the quarter, and were up low-single digits for the year in constant currency. The fourth quarter benefited from our holiday personalization program and the Titleist Pro V1 closed the year as the runaway best-selling golf ball for the 10th year in a row.

We also saw strong gains for the year in the Corporate Custom category. We're looking forward to the launch of the next-generation Pro V1 and Pro V1x golf ball models later this quarter. Sales of Titleist clubs grew at a double-digit rate in the quarter and for the full year. The quarter benefited from the launch of the new Titleist 910 drivers, the VG3 driver in Japan and strong year-end demand for Vokey wedges prior to the new groove restrictions. For the year, we had very strong sales of the new Titleist iron models, as well as drivers, Vokey wedges and Scotty Cameron putters. The initial response for the 910 driver has been excellent, and we're looking forward to the upcoming launch of the 910 Fairways and hybrids.

FootJoy had an excellent year. The brand reinforced its industry-leading position in shoes, outerwear and gloves, driving strong sales growth in each category in the fourth quarter and for the full year. Innovations such as the new flagship ICON shoe line and the FootJoy (sic) [FJ] Sport line, helped drive a high single-digit growth increase in comparable full year sales of golf footwear. We're seeing very strong consumer response to the new FootJoy outerwear layering system. And we've just launched new DryJoy (sic) [DryJoys] Tour golf shoe here in 2011. It's already a winner on the PGA Tour, and we're seeing strong initial acceptance in the marketplace.

As we look to 2011, we expect the global golf market to be up at a low single-digit rate, and we expect to outperform the market once again. At the OI line, excluding the impact of the Cobra transition, we're targeting OI before charges would be up at a double-digit rate.

On a reported basis, factoring in our further investments in Asia as well as other strategic initiatives, we're targeting OI before charges to be flat.

Now before turning things back to Bruce, a few additional items. Reviewing gains and charges for the quarter, we recorded a gain of $6 million or $0.04 per share related to resolution of select international tax matters. We recorded an after-tax charge of $6.8 million or $0.05 per share related to the divestiture of the nonstrategic Cockburn's Port brand. We recorded after-tax restructuring charges of $9.8 million or $0.06 per share, principally related to supply chain initiatives across our three businesses.

And we also incurred $1.5 million of after-tax charges related to costs associated with the planned separation of our three businesses. With regard to our tax rate, we came in at 26.1% on a before charges gains basis, and that's within the range we told you to expect. For 2011, as a result of higher expected U.S. income, we're targeting something in the range of 27% to 28%.

Turning to cash flow, as you'll recall, last quarter, we increased our target for free cash flow from a range of $525 million to $600 million to a range of $625 million to $700 million. I'm pleased to report that we generated cash flow of $690 million, which approached the top of that enhanced target range.

Let me underscore that, that rate represents a cash conversion rate of more than 140%. And excluding asset sales, we converted at more than 110%. Our free cash flow reflects continued improvement in working capital management. During 2010, our working capital efficiency, excluding maturing spirits, declined 260 basis points to 17.8%. All three of our businesses contributed significantly to this improvement.

Looking at 2011 free cash, we're targeting something in the range of $450 million to $525 million. We're again aiming for an earnings-to-free cash flow conversion rate of 100% or better.

Lastly, with regard to further strengthening our balance sheet, here in January, we used available cash to pay off the remaining $590 million of our maturing 5 1/8% note. Including that payment, we've lowered our outstanding debt by more than $700 million over the course of 2010. That leaves us with a debt-to-EBITDA ratio of 3.5x, down from 4.8x a year ago.

All in all, a very good year. Now back to Bruce.

Bruce Carbonari

Thanks, Craig, for that detail.

As we look to our performance expectations in 2011, we begin with the assumption that the global economic recovery will continue to be gradual and uneven and that the markets for each of our businesses will grow at a low single-digit rate. We're determined to stay on offense in the marketplace and we're targeting that each of our businesses will continue to outperform its respective market.

While we're on track to complete the proposed separation of our businesses in the second half of the year, we estimate that diluted earnings per share before charges and gains of Fortune Brands will grow at a high single-digit to a high-teens rate for the full year after the cost of the separation of the businesses.

With respect to quarterly phasing, results for Fortune Brands will face the most challenging comparisons in the first half 2011. Specifically, our first half comparisons will be impacted by our very strong home and security gains in the first half of 2010, including a substantial pull forward in sales related to the expiration of the home buyers tax credit. Second, higher cost for commodities and increased investments across our businesses support new business wins and new product launches. And third, the seasonal impact of the divestiture of the Cobra business last year. Even with these factors, we believe our brands are very well positioned to outperform and set the stage for another year of strong growth.

Thank you again for joining us. Now Craig and I will be happy to take any of your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Greg Melich with ISI.

Gregory Melich - ISI Group Inc.

On the CapEx side, if I remember correctly, you're expecting sort of $200 million to $220 million. It came in a little bit above that. And then the guidance for this year as well, you're $250 million. Can you just explain what the difference was there and why it's growing this year?

Craig Omtvedt

Yes. Let me take that. We searched a little bit at the end of the year. We had some opportunities to buy ahead on barrels for our Spirits business. We've got favorable pricing that more than offset what would be the marginal cost of incremental debt at this point and so we move forward on that. So all in all, I mean, there's nothing out of the ordinary here. As we look to this year, as you've seen, I mean were targeting to be back up around kind of the $250 million, $275 million range. And that will be taking care some level of deferred CapEx, as well as supporting our new product initiatives and other such things. But all in all, I think we're running in line with where we would expect to be overall.

Gregory Melich - ISI Group Inc.

So the normal's still around $250 million, maybe a little higher this year plus some deferments?

Bruce Carbonari

Yes, I think that's right.

Gregory Melich - ISI Group Inc.

And then a second one, on the Home. Specifically, you call up several times how Windows had a pull forward. Could you help us quantify that? Was that maybe a couple of hundred bps of demand that you thought pulled forward and put some context around it?

Craig Omtvedt

Yes. Just a second. Let me just grab something here real quick.

Bruce Carbonari

Yes, that's related to the expiration of the energy tax credit.

Gregory Melich - ISI Group Inc.

So I'm thinking we saw -- because a lot of moving pieces obviously in Home given last year which you're up against like what happened in the fourth quarter. So anything to help us understand? I mean, maybe there was, whatever, a dollar amount or a...

Craig Omtvedt

You know what? I put it against looking at what were our Home sales last year. I put us in the range of, let's just say, maybe 1.5% or 2%, just kind of ballpark-ing it. I'm saying in terms of benefit to fourth quarter, which will then be a negative in the first quarter.

Bruce Carbonari

That's a quarter-to-quarter swing.

Operator

Your next question comes from the line of Todd Duvick with Bank of America Merrill Lynch.

Todd Duvick - Bank of America Corporation

Craig, I think this is a quick question for you. With respect to the break-up plan, can you talk about what you expect to -- in terms of the bonds, do you expect all of the bonds to stay with the Beverage business? Or do you and see any of the bonds traveling?

Craig Omtvedt

At present time, we don't see the bonds traveling, but we're still in the process of sorting that out. And we'll tighten in on that as we get a little further through the first quarter here. I think the important thing as we've mentioned before is an expectation that both Reminco and Spinco will have strong capital structures when we finish the separation.

Todd Duvick - Bank of America Corporation

And you do expect to pay down some debt with divestiture proceeds, whether it's spin and dividend back?

Craig Omtvedt

Yes. Obviously, I mean, what we'll be doing is, assuming that we declare a dividend out of Spinco, then we will take those proceeds. And the expectation is we will buy back some level of the outstanding bonds. But I'd emphasize again at the moment that, that's our default position.

Operator

Your next question comes from the line of Dennis McGill with Zelman & Associates.

Dennis McGill - Zelman & Associates

Just a first question on the Home business. I just want to clarify, you guys didn't really see any pull forward from the Therma-Tru side of the business?

Bruce Carbonari

No, not that much. The Therma-Tru was less driven by the energy tax credit, no. It was more of the Window business.

Craig Omtvedt

Yes, principally Window.

Bruce Carbonari

Yes, we saw a big pull forward. [indiscernible] (57:16) It is usually a fairly quiet quarter for us.

Dennis McGill - Zelman & Associates

And so for the year, when you're looking for the window of demand to be down to mid-single, how much of a hangover are we seeing here in January? How much were the sales in that business down year-over-year?

Craig Omtvedt

Well, we don't break out individual months. I mean, as I just outlined, our expectation is that overall, Home sales in the fourth quarter benefited maybe in the range of 1.5% to 2%. And so that obviously then becomes a negative for the first quarter.

Dennis McGill - Zelman & Associates

I guess, put another way, you'd expect that revenues would be up in the back half of the year as you kick away from that hangover?

Bruce Carbonari

Well, then you can't be against it in the fourth quarter though.

Craig Omtvedt

They will be -- when you look at -- I mean, it is so often the case. I mean you see these aberrations between quarters. So one of the reasons why we always focus more on the full year because you've got less beta going on in terms of specific issues. But clearly, yes, I mean, our expectation would be in absolute dollars, we're going to see better sales performance in the back half. But as Bruce mentioned, when we get to the fourth quarter or under the separation plan when Spinco gets to kind of that period of time, they will be up against stronger numbers.

Dennis McGill - Zelman & Associates

More big picture on the Home. You mentioned low-single digits for the market. You guys have taken a lot of market share and talked to future markets or opportunities too. I was a little surprised with the margin guidance being just up a bit. Can you just talk to, I guess, raw materials being a big headwind there, maybe quantify the offsets to what should be pretty strong leverage?

Bruce Carbonari

There's a couple of things. It's not just commodities. I'll let Craig get to the commodities in a second. But we have quite a bit of investments going on in '11, especially the front half of '11 for this new business that we've gotten. And again, we quantified it as hundreds of millions of dollars. But as you can imagine, we have to put displays out there and inventory out there and what-not. And we had to ramp up the factories, as we've already done quite a bit. So there's cost just to get those out there, which is really significant as well as the commodity cost and some others. But Craig, why don't you go ahead?

Craig Omtvedt

And just to stay with Bruce's point for a moment, in the third quarter call, we had talked about the up-front costs related to the new business. And I think what we highlighted to people is that we had maybe $10 million to $15 million of incremental cost last year, with an expectation that we've got $15 million to $20 million of incremental cost related to the new business. On top of that, we've also got some additional strategic investment we're making for the longer-term positioning of the business. But staying with the new business cost, the year-over-year impact of that in the first half is going to be more dramatic because last year or here in '10, it came largely in the back half of the year. I'm answering more than you're asking here.

Dennis McGill - Zelman & Associates

I guess just closing the loop there then, what was the kind of headwind we're looking for on the Commodity side?

Bruce Carbonari

The other thing is that core businesses for the third quarter as well, so add that into the investment.

Craig Omtvedt

Now on commodities, what I would say to you is that -- and I do just Home for a moment. Our view is that with what we're seeing for lumber and what we're seeing for copper, et cetera, et cetera, that we're looking at something that's going to be up in the kind of $35 million to $45 million range this year. And again, another important point to make, is that we ended 2010 with incremental costs that were more in the $20 million, $25 million range, more in line with what we would normally assume. But the lion's share of that came in the back half of the year. So here in the first half of the year, we're going to see a fair amount of impact to our first half results. And then coming back to your point about margins for the full year, the contributing factors for the guidance we gave are the three things: higher commodity costs, the higher costs associated with new business, and the incremental strategic spend we're putting behind the business.

Dennis McGill - Zelman & Associates

And just on the pricing side, the pull forward on the wholesale inventories, you mentioned on, I think it was on the Moen business. Does that imply that you either raise prices or there's a very good expectation for higher prices here in the first quarter?

Bruce Carbonari

No, the inventory basically was not driven by price increase or promotional agenda. It was more driven by customers who wanted more inventory for the market.

Dennis McGill - Zelman & Associates

So you haven't announced any price increases in those? This is it?

Bruce Carbonari

Yes, it's better for them to buy forward.

Dennis McGill - Zelman & Associates

And then just lastly, what's the next milestone that we should be looking for with the spend? Is that the board vote?

Bruce Carbonari

Well, the board will be approving things sequentially along the way. It's not going to be one major vote. So I think the thing that you'll be seeing is basically the filing of the Form 10, which will be a significant sign. That's for the spin. I think you've already probably heard that we have hired Morgan Stanley to work with us on the spin and the potential sale of the Golf business. So you will see the things related to that happening in the marketplace probably sooner than later. And then we have the letter filing to the IRS and all those things that will be happening in the months ahead. So those are the things that are relatively public documents, and you should be able to see how we're progressing there. But as we said before, this is going to be a second half event, just because of just the amount of filings and whatnot we have to do, plus all the separation agendas that we have to get through.

Craig Omtvedt

The other thing I'd mention is this thing is, as we've said in the press release, it's moving along at an orderly pace. We're not intending any grand announcements here related to the separation itself, other than obviously if something really significant surfaces. But our next update will likely be at the end of the first quarter when we do our first quarter results.

Operator

Your next question comes from the line of Peter Lisnic with Robert W. Baird.

Peter Lisnic - Robert W. Baird & Co. Incorporated

I guess first question on the free cash flow guidance. $690 million you did in 2010, $450 million to $525 million this year. And obviously, can't see the component of last year in this. But can you give me a sense as to what is driving sort of that decline, if you will, in free cash flow generation for 2011? Is it just working capital? Or is there something there that's non-recurring in 2010? Just give me a feel...

Craig Omtvedt

Yes, the biggest item is just the proceeds from the divestiture of non-core assets, which is about $140 million, $150 million.

Bruce Carbonari

So you had Cobra, you had the German brands, and you had the Cockburn.

Craig Omtvedt

Yes.

Peter Lisnic - Robert W. Baird & Co. Incorporated

And you'd still be down, I guess, year-over-year and probably do the growth here...

Bruce Carbonari

Yes, we also had 200-plus basis point drop in working capital efficiency this year, so we don't think that's repeatable.

Craig Omtvedt

And I think the important thing is that we're still targeting cash conversion that's 100%-plus.

Peter Lisnic - Robert W. Baird & Co. Incorporated

No, it all looks good. I just want to make sure I understand the numbers. And then in terms of the generation that you are planning on for this year, can you give us a sense now with the divestiture or spin-outs? Can you give us a sense as to what the free cash flow priorities are? It looks like you paid down some debt here in January. Is that sort of how we should think about the cash flow being applied for the rest of 2011?

Craig Omtvedt

Yes, I think for the foreseeable future. Yes, that's the right assumption.

Bruce Carbonari

No, we continue to invest in the organic growth of these business. We have momentum in the marketplace in all three of these businesses. We're going to keep on fueling that. The separation is not going to change our philosophy there. We want these businesses to be fit to compete when they are out there on their own. So I think that's an important philosophy. And then beyond that, obviously, it's going to be to make sure we have a very strong capital structure for these businesses going forward.

Peter Lisnic - Robert W. Baird & Co. Incorporated

And then last question, just qualitatively if you could run through by business, sort of what the puts and takes would be to achieving the low end of the forecast versus the high end, would be very useful.

Bruce Carbonari

Want to do that?

Craig Omtvedt

Yes, I think that -- let's just start with Spirits. Again, the guidance that we've provided is kind of the low to mid-single digits. And so I would say that the largest contributor there to the high side would be where we are with mix, as well as just sheer volume performance over the course of the year. And on the downside, it's exactly the same. I mean, as we've said, our expectation here is that we're increasing our brand investment, our strategic spend, double digits again this year, to really support where we are with our Power Brands and our Rising Stars. So to me, that's a fairly kind of tight band at the moment.

Bruce Carbonari

Yes, I would say one other thing on the Spirits side, is that we had a record level of innovations in 2010 and we're going to blow that away in 2011. So we have some very interesting innovations coming out, and some of them can be a greater success than we think. We're usually pretty conservative on these, but we're going to fund them and they look pretty exciting.

Craig Omtvedt

And then turning to Home where we said high single to high teens, I think that's a function of where are we actually going to be over the course of the year with what's happening with commodity prices. So we've given ourselves some bandwidth there and a bit of contingency for what may be some of the challenges associated with that. And then obviously, I mean, if we do better in the marketplace, with these new business wins, that can give us some upside as well. And then obviously, on Golf, I mean we've just basically highlighted where we're going to be. And we'll just see how the that plays out over the course of the year.

Peter Lisnic - Robert W. Baird & Co. Incorporated

And then I want to go back to commodities. The $35 million to $45 million that you mentioned, that's a net number? Presumably, you've got some price increases in there in an attempt to offset some of the inflation?

Craig Omtvedt

We've got some. But at this point, given what the market conditions are, we really don't have much. We'll see how the year progresses on that front as well.

Operator

Your next question comes from the line of Vivien Azer with Citigroup.

Vivien Azer - Citigroup Inc

I was just wondering if you could drill down a little bit into your Spirits market guidance on a geographic basis. How does that break down in terms of your expectation for international versus the U.S. and then within the U.S., specifically, on- versus off-premise please.

Craig Omtvedt

Yes, I think I'd just jump into that for a moment. I mean our expectation is that here in the U.S., that we will see market revenue growth that's probably up in the closer to the kind of three percentage kind of range, so high-twos, kind of three-ish percent. As we look to Europe, our expectation I think right now would be to stay kind of 1% to 2% there. We'll see how that plays out. As we look at Australia, we think we could see some level of recovery there in terms of kind of low single digits. But it's not clear yet because of what's going on with the flood conditions and others. And then as we look at the emerging markets, we continue to expect those are significant growth opportunities.

Vivien Azer - Citigroup Inc

And just a follow-up there, you guys get over 50% of your volume from the U.S. Outside of the U.S., like the emerging markets, kind of what percentages of your volume are coming from emerging markets or other key geographies?

Craig Omtvedt

Maybe about 10%.

Operator

Your next question comes from the line of Michael Rehaut with JPMorgan.

Jason Marcus

This is actually Jason Marcus in for Mike. I was wondering if you can talk a little bit about some of the initiatives regarding the share gains in the Cabinets business and how much of that is contributing to your overall growth outlook in Home and Security for 2011.

Bruce Carbonari

Sure. On the Cabinet side, we basically have -- I think we talked about this before. During the downturn, we restructured ourselves to create a model that was a better quality, better service and better cost model, a distributive assembly model. So we were just settling closer to market. And that allows us to now bring to the respective circle of customers in that area a much more quicker response time and also allows us to bring them a different assortment of products. That allows us, again, now to create things like the Martha Stewart program and some of the programs were doing for Lowe's as well, which are really targeted at what I would call the new consumer -- a consumer who wants all the bells and whistles and fashions but also want to feel good about the price the they are paying for it. And we're fortunate enough to really hit these at the right time and have the flexibility in our capacity to be able to respond to potential opportunities within the home centers. We're doing the same thing with the designer group and I think you know we have a leading share with the dealer community. And they've been really excited about what we're going to bring them in '11. So these are all really targeted at who the consumer is. Now we see this consumer evolving, not only from a standpoint of economically but also demographically. You have a consumer today that -- the echo boomers who are going to more urbanize and moving to smaller rental properties and smaller condominium-type properties in a city environment. So we have products that are associated with that. We have products that are out there for those who really want to be involved in a major renovation of their kitchen, and we also have now products out there as people age. We've taken this opportunity during the downturn to continue to weave, to identify and segment the consumer differently than maybe we have in the past, and it seems like we're hitting right on the targets our customers want to offer them. And in all, very profitable opportunities, which is even more exciting. So I think that fits your question. Do you have a second part to that?

Operator

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

Ann Gurkin - Davenport & Company, LLC

Bruce, I wanted to start -- just trying to better understand a comment you made. If I understood correctly, you talked about each business emerging from the downturn stronger than estimates. Yet at the same time, you all feel it's a good time for Fortune to explore the next level or step in its evolution. But my experience with the company is you all tend to make strategic changes when businesses are executing at their peak numbers or stronger numbers. Can you kind of reconcile that thought process?

Bruce Carbonari

No, I actually think of it differently. As we look at our three businesses there, they are different businesses. We've been able to capture synergy and our whole strategy was based on using the combined cash flow to build these businesses. And I think we've done that. It's a funny situation when I look at some spins. We're obviously going around. Our particular situation is that we have three very attractive businesses. And they're of a size and shape now that we can create in today's market a capital structure around them that will allow them to be not only continue to be a leader and invest in their own business, but capital structure allows them to be a consolidator in the space. I think that's a unique opportunity. And I also think we have potential shareholders that may not be in our stock for one reason or another, maybe more of a distilled spirits shareholder that's not in our stock because of the Home business, or a home shareholder who doesn't really understand the Spirits business. So the combination of all those things, we just think that the businesses are on a roll. The capital markets are right, and this will give our shareholders an opportunity to create more value going forward.

Ann Gurkin - Davenport & Company, LLC

And then can you share with us or can you comment at all on the level of interest you've gotten from parties in any of your segments to date since you made the announcement of the separations of the businesses?

Bruce Carbonari

We actually don't share that type of information.

Ann Gurkin - Davenport & Company, LLC

A question on Cabinets. You talked about comp numbers. The comp numbers you gave for cabinets, did they include Martha Stewart like the Q4 rollout?

Craig Omtvedt

The numbers we gave do include -- we had obviously kind of a limited amount of benefit because of just kind of being just early days of that rollout.

Ann Gurkin - Davenport & Company, LLC

And then Craig, when you talked about the outlook for the Spirits business, did that include some impact from the flood in Australia at this point?

Craig Omtvedt

Yes. But again, we'll see how that plays out. I mean, obviously, it's a pretty traumatic flood. And we've got our own estimates, but we need to see how that plays out.

Operator

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

Judy Hong - Goldman Sachs Group Inc.

I don't know if you've given us this number. But on the tax basis for the Golf business, can you quantify what that would be?

Craig Omtvedt

No, we don't. Like everybody else, I mean, that's information we don't share.

Judy Hong - Goldman Sachs Group Inc.

And then on the Spirits business, Bruce, when we look back a year ago, clearly, you were talking about playing more offense and you've had a lot of innovations, but also the price mix was a little soft. And I'm wondering, as you would think about 2011 and going forward, is the strategy now shifting a little towards getting a little bit more price and mix realization? You've talked about taking some price increases on a state-by-state basis. Can you just talk about that comment?

Bruce Carbonari

Yes, and that's exactly right. We are looking at taking selective price increases. We're trying to build the equity of the brands. I think equity comes first before price. And I think if you go back to the '08, '09 period where we grew a little ahead of ourselves on price on certain products. So we made those adjustments, and obviously you saw the impact on the volume side here. And I think if you look over the three-year horizon, we're kind of back where the market maybe is a little better than the price mix in the market. So I think we're in a very good place. And I also think the innovations have helped us. Not only to the fact that they are more premium to the core, but also just the umbrella, in fact, they have on building equity in a particular brand. So we have to be careful and selective. I think Tequila again is one category that has a lot of -- there's just a lot of agave out there right now. So I think that's one that's going to be a little tougher price-wise. But the Bourbon category, the growth we're seeing in Bourbon globally has, I think, for the fourth quarter it outstripped Vodka. So we like that trend. And obviously if we have a pricing opportunity there, we'll take advantage of it.

Craig Omtvedt

I think the point to emphasize here is that while we said that price was basically a point or two, interestingly, as Bruce outlined, I mean, we were over the course of '08 and '09 ahead of the market by 1% or 2%. So on an apples-to-apples basis over the three-year period, we're largely in line with the market. But for us, it's come on the three fronts that Bruce has somewhat outlined. I mean, it was economy, vodka, it was tequila and then it was positioning out in Australia related to the market. I mean, the bottom line is, everything we've done has been conscious and we think proactive and has us positioned where we want to be.

Judy Hong - Goldman Sachs Group Inc.

What's the magnitude of the price increases that you've announced at this point?

Bruce Carbonari

At this point, they're modest.

Judy Hong - Goldman Sachs Group Inc.

And what about the competitors, are you seeing competitors follow or even leading in some instances?

Bruce Carbonari

Yes, I think it's less about price right now than less promotion. I think we had a Christmas season that, including ourselves and the competition, saw a lot less promotion than we did a year ago. So yes, net price rather than just price increases. I also think you see people getting their innovation engines out there and that's -- they're getting price through that which a lot of consumer products categories do. So I think it's just a combination of less promotion, innovation and then selective price increases, depending on a particular equity in a brand, or a particular category. So it's selective. It's not across-the-board.

Craig Omtvedt

And we think with the premiumization that's coming back, along with what we've got already out there and coming on product innovation, that we are going to be positioned to have further benefit going forward in terms of mix.

Judy Hong - Goldman Sachs Group Inc.

And is the on-premise now back to growth on a more sustainable basis?

Bruce Carbonari

It's coming. It's not there yet. It's not back to where it was. It's slowly, gradually coming. I think people are going out more and obviously feeling a little bit better. But I would say, it's not back to were it was, but it is up [indiscernible] (1:19:35) and the trend is in the right direction.

Operator

Your next question from the line of David MacGregor with Longbow Research.

David S. MacGregor

Can you just update us on the percentage of the Home and Security business that you're doing with the home centers?

Bruce Carbonari

Yes, we're basically running at about 25% right now.

Bruce Carbonari

20% to 25%, in that range.

David S. MacGregor

And I guess if you think about the combination of smaller and less-capitalized dealers going out of business and the new wins that you've had in the past year with the home centers, I guess that number goes up. And I hear you've got new innovation coming to the dealers, so that would maybe offset that a little bit. But it would seem like your home center percentage will be up a little bit year-over-year in '11 over '10. How did that influence the financial performance the segment?

Bruce Carbonari

First off, and just on the dealers side, it was important to understand -- we classify this way, I don't know if the industry does. But there are A, B, C and D dealers. What you're seeing is the season Ds are going away. The A and Bs are actually gaining share. They're the strong players and if you look in our portfolio of customers and dealers, if you will, we were very strong with A and B players geographically. So we're actually seeing them perform better than the market because again, they're having less competition in the market. So I think the portfolio you have of customers is critical there. So this is just to set that right, straight. As far as the mix between the different businesses and margins, obviously, home centers is a more challenging environment. We don't get into specifics there.

Craig Omtvedt

But it requires less support.

Bruce Carbonari

Yes, but it requires a lot less support. You're talking about one customer versus dealers which are basically have one or two show rooms or maybe three show rooms in a particular area. So they have a lot more sales coverage, a lot more customer service support as well. So the cost of doing business is less with home centers, but basically not much differential when you get down -- when you start getting down to the allocated...

Craig Omtvedt

When you get down to the OI line, it's not that much different.

David S. MacGregor

And then just a final question. If you could just kind of walk us through the Home and Security business, just talk about capacity utilization rates in your various businesses, that would be helpful.

Bruce Carbonari

Well, the reality is, I mean, we certainly think that we're sitting with excellent capacity capability. As we highlighted in previous calls, the fact is while we were taking cost out of the business, we were very careful to maintain national footprint. And so at this point, we think that in addition to enhancing the flexibility of the supply chain, we're positioned for what maybe the ups and downs of capacity requirement. But as the capacity comes back, the first thing we'll do is add shifts. Then what we'll be doing is de-mothballing some of our equipment. And then the final phase would be potentially going out to buy some additional equipment, but we don't see the need for brick-and-mortar.

David S. MacGregor

Craig, what do you think is your revenue upside before you have to spend that kind of significant capital on additional machinery and bricks-and-mortar?

Craig Omtvedt

Well, I think our view right now is we can get back up to the new housing start range of $1.3 million to $1.5 million. And the repair/remodel back up around mid-single digits.

Bruce Carbonari

We'd be happy to spend that capital.

David S. MacGregor

And what would that equate to in revenues for the segment?

Craig Omtvedt

I'd say high fours.

Operator

Your last question comes from the line of Christine Farkas with Bank of America.

Christine Farkas - BofA Merrill Lynch

Just a quick follow-up on Spirits, if I could. And I don't think Craig you called this out, but in your press release you talked about changing trading terms that boosted Spirit sales in the quarter. I'm wondering if you can give us an impact. Was that just a top line thing, just so we could gauge the impact on sales and margins there?

Craig Omtvedt

Yes, that's exactly what it is. Basically, what we did is where, in the past, we were selling net of the excise tax and they assumed the responsibility for those payments. We're now including it in the invoicing, and we're covering it. So it is zero impact at the OI line, and the impact in the fourth quarter was around $35 million in revenues or so.

Christine Farkas - BofA Merrill Lynch

So your comparable sales already took that out?

Craig Omtvedt

Yes.

Christine Farkas - BofA Merrill Lynch

And then with respect to OI, your OI guidance for the segment, what were your thoughts there, or estimates, or outlook, I guess, for commodities? Is that much of an impact?

Craig Omtvedt

And are you talking about for Spirits or...

Christine Farkas - BofA Merrill Lynch

For spirits.

Craig Omtvedt

It's a minor increase. I think principally what's happening is, as you're aware, you look back kind of four years, we had somewhat higher grain cost. And so that's now rolling into the dumps that we're going to be doing this year. But it's not a meaningful number. It's not a meaningful number in the Golf business. But the primary group being impacted by commodity cost this year is Home.

Christine Farkas - BofA Merrill Lynch

And then finally on CapEx, we have a consolidated guidance number for next year. Can you give us a sense of the how that breaks down across the segments?

Craig Omtvedt

Yes. I mean, as you think about the numbers, I'd say that we're looking at Beam, that's somewhere in the range of maybe $120 million to $130 million. Home, maybe up around kind of $75 million or so. And actually, I guess, I'd raise that and say that Home could be -- no, actually it's $75 million. And then Golf, running kind of in the $50 million-ish kind of range.

Operator

I would now like to turn the call back over to Mr. Bruce Carbonari for any closing remarks.

Bruce Carbonari

Thank you again for joining us. We had an excellent year in 2010, and we look forward to an exciting year in 2011. And we will have a discussion at the end of the first quarter and we'll talk to you then in early May. Again, thank you for your time.

Operator

Thank you for participating in today's Fortune Brands Fourth Quarter and Full Year Conference Call. This call will be available for replay beginning at 1:00 p.m. Eastern Standard time today through 11:59 p.m. Eastern Standard time on February 8, 2011. The conference ID number for the replay is a 36152941. The number to dial for the replay is 1 (800) 642-1687 or 1 (706) 645-9291. Thank you. You may disconnect at this time.

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