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TheStreet Open House

Beam Reports Second Quarter Results

Stocks in this article: BEAM

Use of Non-GAAP Financial Information

This press release includes measures not derived in accordance with generally accepted accounting principles (“GAAP”), including comparable net sales, diluted EPS before charges/gains, operating income before charges/gains, adjusted return on invested capital, and earnings-to-free-cash-conversion rate. These measures should not be considered in isolation or as a substitute for any measure derived in accordance with GAAP, and may also be inconsistent with similar measures presented by other companies. Reconciliation of these measures to the most closely comparable GAAP measures, and reasons for the company’s use of these measures, are presented in the attached pages.

 

 

Beam Inc.
Consolidated Income Statement
(Unaudited)
 
  Three Months Ended June 30,   Six Months Ended June 30,
(In millions, except per share amounts) 2012   2011   % Change 2012   2011   % Change
 
Sales $ 752.4 $ 702.7 $ 1,415.3 $ 1,375.8
Less: Excise taxes   (156.9 )   (132.3 )   (286.0 )   (281.4 )
Net sales 595.5 570.4 4.4 % 1,129.3 1,094.4 3.2 %
 
Cost of goods sold   248.6     241.7   2.9 %   467.7     471.3   -0.8 %
 
Gross profit 346.9 328.7 5.5 % 661.6 623.1 6.2 %
 
Advertising and marketing expense 98.0 99.3 -1.3 % 174.7 165.8 5.4 %
Selling, general and administrative expense 104.7 97.8 7.1 % 205.1 198.5 3.3 %
Amortization of intangible assets 4.3 4.1 4.9 % 8.5 8.0 6.3 %
Restructuring charges 0.4 (0.2 ) 2.7 1.9
Business separation costs   13.8     8.0     13.8     17.2  
 
Operating income 125.7 119.7 5.0 % 256.8 231.7 10.8 %
 
Interest expense 26.9 29.1 -7.6 % 51.4 60.0 -14.3 %
Other (income) expense   (22.5 )   3.0     (28.4 )   3.1  
 
Income from continuing operations
before income taxes 121.3 87.6 38.5 % 233.8 168.6 38.7 %
 
Income tax expense   20.0     25.2     54.1     44.5  
 
Income from continuing operations 101.3 62.4 62.3 % 179.7 124.1 44.8 %
 
Income (loss) from discontinued operations, net of tax   (0.8 )   267.6     (0.1 )   289.1  
 
Net income 100.5 330.0 -69.5 % 179.6 413.2 -56.5 %
Less: Noncontrolling interests - discontinued operations   -     1.4     -     3.4  
 
Net income attributable to Beam Inc. $ 100.5   $ 328.6   -69.4 % $ 179.6   $ 409.8   -56.2 %
 
Basic earnings (loss) per common share:
Continuing operations $ 0.64 $ 0.40 60.0 % $ 1.14 $ 0.80 42.5 %
Discontinued operations   (0.01 )   1.73     -     1.86  
Net income $ 0.63   $ 2.13   -70.4 % $ 1.14   $ 2.66   -57.1 %
 
Diluted earnings (loss) per common share:
Continuing operations $ 0.63 $ 0.40 57.5 % $ 1.12 $ 0.79 41.8 %
Discontinued operations   (0.01 )   1.69     -     1.82  
Net income $ 0.62   $ 2.09   -70.3 % $ 1.12   $ 2.61   -57.1 %
 
Weighted-average common shares outstanding
Basic 158.0 154.3 2.4 % 157.5 154.0 2.3 %
Diluted 160.8 157.3 2.2 % 160.2 156.9 2.1 %
 

 

Beam Inc.
Condensed Consolidated Balance Sheet
(Unaudited)
   
 
(In millions) June 30, December 31,
2012 2011
Assets
Cash and cash equivalents $ 109.3 $ 218.3
Accounts receivable 422.8 385.8
Inventories
Maturing spirits 1,353.9 1,283.2
Finished products 201.8 167.3
Raw materials, supplies and work in process   132.6   101.0
 
Total inventories 1,688.3 1,551.5
Other current assets   264.3   278.8
 
Total current assets 2,484.7 2,434.4
Property, plant and equipment 758.1 729.7
Goodwill and other intangible assets 4,823.9 4,202.9
Other assets   133.7   124.8
 
Total assets $ 8,200.4 $ 7,491.8
 
Liabilities and Equity
Short-term debt, including current
portion of long-term debt $ 299.8 $ 28.4
Accounts payable 137.2 170.1
Long-term debt 2,213.4 1,902.1
Other liabilities   1,221.7   1,291.5
 
Total liabilities 3,872.1 3,392.1
 
Total equity   4,328.3   4,099.7
 
Total liabilities and equity $ 8,200.4 $ 7,491.8
 

 

Beam Inc.
Use of Non-GAAP Financial Information
 

Management believes that the non-GAAP measures used in this release provide investors with important perspectives into the Company’s ongoing business performance by excluding certain items, referred to as “charges / gains,” that management believes are not indicative of the Company's underlying results for purposes of analyzing the Company's performance on a year-over-year basis. The Company’s definition of charges / gains includes restructuring charges, other charges related to restructuring initiatives that cannot be reported as restructuring under GAAP, acquisition and integration related costs, dividend distribution gains from the wind down of our former Maxxium investment, costs associated with the sale of the Company's golf business and spin-off of the Company's home and security business (the "Separation"), the one-time sales and margin impact of transitioning to our long-term distribution agreement in Australia, tax indemnification payments received from the seller of a business and other unusual income tax matters. In addition, the 2011 period includes adjustments to reflect Beam as a standalone company at January 1, 2011, including adjustments to interest expense (reflecting the debt reduction related to the Separation at January 1, 2011), an estimated standalone company effective tax rate and an estimated standalone company corporate cost structure, as described in more detail in the Company's fourth quarter 2011 earnings release.

 

Non-GAAP measures included in this release are identified as “before charges / gains,” “comparable,” “adjusted” and “constant currency.” The Company does not intend for this information to be considered in isolation or as a substitute for the related GAAP measures. Other companies may define the measures differently. Reconciliations of GAAP to Non-GAAP measures are included on the following pages.

 

 

Beam Inc.
Reconciliations of GAAP to Non-GAAP Measures (Unaudited)
($ in millions, except per share)
 
  Three Months Ended June 30, 2012   Three Months Ended June 30, 2011   % Increase    
   

Before

   

Before

 

Before

Adjustments

Charges/

Adjustments

Charges/

Charges/

(See Detail

Gains

(See Detail

Gains

Gains

GAAP Below) (Non-GAAP) GAAP

Below)

(Non-GAAP) GAAP (Non-GAAP)
Net sales $ 595.5 - $ 595.5 $ 570.4 - $ 570.4 4.4 % 4.4 %
Cost of goods sold   248.6     (0.2 )   241.7     (1.4 )
 
Gross profit 346.9 0.2 347.1 328.7 1.4 330.1 5.5 % 5.1 %
 
Advertising and marketing expense 98.0 - 99.3 -
Selling, general and administrative expense 104.7 (11.5 ) 97.8 (10.2 )
Amortization of intangible assets 4.3 - 4.1 -
Restructuring charges 0.4 (0.4 ) (0.2 ) 0.2
Business separation costs   13.8     (13.8 )   8.0     (8.0 )
 
Operating income 125.7 25.9 151.6 119.7 19.4 139.1 5.0 % 9.0 %
Interest expense 26.9 - 29.1 1.9
Other (income) expense   (22.5 )   18.0     3.0     (0.1 )
 
Income from continuing operations
before income taxes 121.3 7.9 87.6 17.6
Income tax expense   20.0     15.6     25.2     1.9  
Effective tax rate 16.5 % 27.6 % 28.8 % 25.8 %
 
 
Income from continuing operations $ 101.3     (7.7 ) $ 93.6 $ 62.4     15.7   $ 78.1 62.3 % 19.8 %
 
Diluted EPS - continuing operations $ 0.63     (0.05 ) $ 0.58 $ 0.40     0.10   $ 0.50 57.5 % 16.0 %
 

Adjustments Detail by Applicable Financial Statement Line Items

Cost ofgoods sold

SG&Aexpense

Restructuringcharges

Separationcosts

Operatingincome

Other(income)expense

Pre-taxincome -cont.operations

Income taxexpense

Income fromcont.operations

Diluted EPS -cont.operations

Three months ended June 30, 2012

   
 
1 Restructuring charges (a) $ - $ - $ 0.2 $ - $ (0.2 ) $ - $ (0.2 ) $ - $ (0.2 ) $ -
2 Other charges (a) - (0.2 ) - - 0.2 - 0.2 - 0.2 -
3 Acquisition and integration related (b) (0.2 ) (11.3 ) (0.6 ) - 12.1 - 12.1 4.5 7.6 0.05
4 Separation costs (c) - - - (13.8 ) 13.8 - 13.8 5.3 8.5 0.05
5 Tax indemnification (d) - - - - -

18.0

 

(18.0 ) - (18.0 ) (0.11 )
6 Income tax adjustment (e)   -     -     -     -     -     -     -     5.8     (5.8 )   (0.04 )
$ (0.2 ) $ (11.5 ) $ (0.4 ) $ (13.8 ) $ 25.9   $

18.0

 

$ 7.9   $ 15.6   $ (7.7 ) $ (0.05 )
 

Cost ofgoods sold

SG&Aexpense

Restructuringcharges

Separationcosts

Operatingincome

Interest andotherexpense

Pre-tax

income -

cont.operations

Income taxexpense

Income fromcont.operations

Diluted EPS -cont.operations

Three months ended June 30, 2011

 
 
1 Restructuring charges (a) $ - $ - $ 0.2 $ - $ (0.2 ) $ - $ (0.2 ) $ - $ (0.2 ) $ -
2 Other charges (a) (1.4 ) - - - 1.4 - 1.4 - 1.4 0.01
3 Separation costs (c) - - - (8.0 ) 8.0 - 8.0 - 8.0 0.05
4 Standalone company adjustment (f) - (10.2 ) - - 10.2 1.9 8.3 - 8.3 0.05
5 Income tax adjustments (e)   -     -     -     -     -     (0.1 )   0.1     1.9     (1.8 )   (0.01 )
$ (1.4 ) $ (10.2 ) $ 0.2   $ (8.0 ) $ 19.4   $ 1.8   $ 17.6   $ 1.9   $ 15.7   $ 0.10  
 
(a) Adjustment to eliminate restructuring and other charges (and credits) primarily related to facility consolidations, supply chain and distribution and other organizational streamlining initiatives.
 
(b) Adjustment related to the acquisition and integration of the Pinnacle and Calico Jack assets ("Pinnacle"), primarily consisting of transaction-related fees (investment bank, professional advisory, consulting and other transaction and integration-related fees) of $4.7 million and contract termination fees of $6.6 million, which the Company incurred to align the distribution of the acquired brands with the Company's existing distribution structure. Contract termination fees are primarily based on actual settlement agreements, but where a settlement agreement has not been reached the Company recorded an estimated liability.
 
(c) Adjustment to eliminate external costs directly related to implementing the Separation in 2011. The separation costs in the second quarter of 2012 include a $15.1 million pension settlement charge associated with a required $29 million lump sum distribution paid to former Fortune Brands executives in July 2012. The settlement charge primarily consists of the recognition of pension losses previously deferred in accumulated other comprehensive income and the $29 million distribution was the amount of the executives' unfunded pension benefit. The pension settlement charge was partially offset by reversal of Separation-related reserves that were determined to be no longer necessary.
 
(d) Nontaxable reimbursement received from seller of a business for resolution of certain tax matters for years prior to our ownership.
 
(e) The adjustment in the 2012 period is to eliminate income tax matters related to the resolution of foreign tax audit examinations. The adjustment in the 2011 period is the amount required to adjust income tax expense to Beam's estimated effective tax rate as a standalone Spirits business.
 
(f)

Adjustments to reflect estimated expenses as a standalone Spirits business, including: (1) $10.2 million operating expense adjustment to reflect a lower corporate cost structure, and (2) $1.9 million interest expense adjustment to assume the Separation-related debt reduction had been completed as of January 1, 2011. The Company estimated its lower corporate cost structure based on analysis and projections of costs expected to be incurred by the Company had the Separation occurred January 1, 2011.

 

 

 

Beam Inc.
Reconciliations of GAAP to Non-GAAP Measures (Unaudited)
($ in millions, except per share)
 
  Six Months Ended June 30, 2012   Six Months Ended June 30, 2011   % Increase      
GAAP  

Adjustments(See DetailBelow)

 

BeforeCharges/Gains

(Non-GAAP)

GAAP  

Adjustments(See DetailBelow)

  Before Charges/ Gains

(Non-GAAP)

GAAP  

BeforeCharges/Gains

(Non-GAAP)

Net sales $ 1,129.3 - $ 1,129.3 $ 1,094.4 (46.3 ) $ 1,048.1 3.2 % 7.7 %
Cost of goods sold   467.7    

(0.4

)   471.3     (28.7 )
 
Gross profit 661.6

0.4

662.0

623.1 (17.6 ) 605.5 6.2 % 9.3 %
 
Advertising and marketing expense 174.7 - 165.8 -
Selling, general and administrative expense 205.1

(15.9

) 198.5 (24.0 )
Amortization of intangible assets 8.5 - 8.0 -
Restructuring charges 2.7 (2.7 ) 1.9 (1.9 )
Business separation costs   13.8     (13.8 )   17.2     (17.2 )
 
Operating income 256.8 32.8 289.6 231.7 25.5 257.2 10.8 % 12.6 %
Interest expense 51.4 - 60.0 2.0
Other (income) expense   (28.4 )   19.9     3.1     1.1  
 
Income from continuing operations
before income taxes 233.8 12.9 168.6 22.4
Income tax expense   54.1     14.6     44.5     4.7  
Effective tax rate 23.1 % 27.8 % 26.4 % 25.8 %
 
 
Income from continuing operations $ 179.7     (1.7 ) $ 178.0 $ 124.1     17.7   $ 141.8 44.8 % 25.5 %
 
Diluted EPS - continuing operations $ 1.12     (0.01 ) $ 1.11 $ 0.79     0.11   $ 0.90 41.8 % 23.3 %
 

Adjustments Detail by Applicable Financial Statement Line Items

Six Months Ended June 30, 2012

Cost of goods sold

SG&A expense

Restructuring charges

Separation costs

Operating income

Other(income) expense

Pre-tax income - cont. operations

Income tax expense

Income from cont. operations

Diluted EPS - cont. operations

 
1 Restructuring charges (a) $ - $ - $ (2.1 ) $ - $ 2.1 $ - $ 2.1 $ 0.8 $ 1.3

$

0.01
2 Other charges (a) (0.2 ) (0.8 ) - - 1.0 - 1.0 0.3 0.7 -
3 Acquisition and integration related (b) (0.2 ) (15.1 ) (0.6 ) - 15.9 - 15.9 2.4 13.5 0.08
4 Separation costs (c) - - - (13.8 ) 13.8 - 13.8 5.3 8.5 0.05
5 Maxxium distribution (d) - - - - -

1.9

 

(1.9 ) - (1.9 ) (0.01 )
6 Tax indemnification (e) - - - - -

18.0

 

(18.0 ) - (18.0 ) (0.11 )
7 Income tax adjustment (f)   -     -     -     -     -     -     -     5.8     (5.8 )   (0.03 )
$ (0.4 ) $ (15.9 ) $ (2.7 ) $ (13.8 ) $ 32.8   $

19.9

 

$ 12.9   $ 14.6   $ (1.7 ) $ (0.01 )
 

Six Months Ended June 30, 2011

Net sales

Cost of goods sold

SG&A expense

Restructuring charges

Separation costs

Operating income

Interest and other expense

Pre-tax income -cont. operations

Income tax expense

Income from cont. operations

Diluted EPS - cont. operations

 
1 Restructuring charges (a) $ - $ - $ - $ (1.9 ) $ - $ 1.9 $ - $ 1.9 $ - $ 1.9

 

$ 0.01
2 Other charges (a) - (6.0 ) 0.6 - - 5.4 - 5.4 -

5.4

0.04
3 Separation costs (c) - - - - (17.2 ) 17.2 - 17.2 - 17.2 0.11
4 Australia distribution one-time sale (g) (46.3 ) (22.7 ) - - - (23.6 ) - (23.6 ) - (23.6 ) (0.15 )
5 Standalone company adjustment (h) - - (24.6 ) - - 24.6 2.0 22.6 - 22.6 0.14
6 Tax indemnifications (e) - - - - - - 1.1 (1.1 ) - (1.1 ) (0.01 )
7 Income tax adjustments (f)   -     -     -     -     -     -     -     -     4.7     (4.7 )   (0.03 )
$ (46.3 ) $ (28.7 ) $ (24.0 ) $ (1.9 ) $ (17.2 ) $ 25.5   $ 3.1   $ 22.4   $ 4.7   $ 17.7   $ 0.11  
 
(a) Adjustment to eliminate restructuring and other charges (and credits) primarily related to facility consolidations, supply chain and distribution and other organizational streamlining initiatives.
 
(b)

Adjustment related to the acquisition and integration of Pinnacle and Cooley as well as 2012 tax on earnings distributed within certain of Beam's foreign tax jurisdictions incurred in connection with funding a portion of the capital requirement for the Cooley acquisition. Acquisition related charges primarily include transaction-related expenses of $5.6 million and contract termination expenses of $9.5 million.

 
(c) Adjustment to eliminate external costs directly related to implementing the Separation in 2011. The 2012 period includes a $15.1 million pension settlement charge related to former Fortune Brands executives as further described in the explanation of adjustments for the three months ended June 30, 2012 on the preceding page.
 
(d) Adjustment to eliminate a gain related to a dividend distribution received in connection with the wind down of our former Maxxium investment.
 
(e) Nontaxable reimbursement received from seller of a business for resolution of certain tax matters for years prior to our ownership.
 
(f) The adjustment in the 2012 period is to eliminate income tax matters related to the resolution of foreign tax audit examinations. The adjustment in the 2011 period is the combined amount required to eliminate income tax matters related to the resolution of foreign tax audit examinations and to adjust income tax expense to Beam's estimated effective tax rate as a standalone Spirits business.
 
(g) Adjustment to eliminate the one-time sales and margin impact associated with transition to a new long-term distribution agreement in Australia in 2011.
 
(h) Adjustments to reflect estimated expenses as a standalone Spirits business, including: (1) $24.6 million operating expense adjustment to reflect a lower corporate cost structure, and (2) $2.0 million interest expense adjustment to assume the Separation-related debt reduction had been completed as of January 1, 2011. See the preceding page for additional information related to estimated standalone costs.
 

 

Beam Inc.
Segment Information (a)
(Unaudited)
           
(In millions) Constant Currency (Non-GAAP)

 

% 2012 %

Three Months Ended June 30,

Change Adjusted Change

Net Sales

2012 2011 Reported

Amount (b)

Adjusted
 
North America $ 370.1 $ 334.1 10.8 % $ 373.4 11.8 %
Europe, Middle East, Africa ("EMEA") 111.7 119.1 -6.2 % 123.8 3.9 %
Asia Pacific / South America ("APSA")   113.7     117.2   -3.0 %   115.9   -1.1 %
 
Segment net sales 595.5 570.4 4.4 % 613.1 7.5 %
Foreign exchange   -     -     (17.6 ) n/m
 
Total net sales $ 595.5   $ 570.4   4.4 % $ 595.5   4.4 %
 
Constant Currency (Non-GAAP)

 

% 2012 %

Three Months Ended June 30,

Change Adjusted Change

Operating Income

2012 2011 Reported Amount (b) Adjusted
 
North America $ 105.4 $ 95.1 10.8 % $ 104.2 9.6 %
EMEA 23.4 24.6 -4.9 % 26.3 6.9 %
APSA   22.8     19.4   17.5 %   20.5   5.7 %
 
Segment operating income 151.6 139.1 9.0 % 151.0 8.6 %
Deduct:
Foreign exchange - - (0.6 )

Restructuring and other charges / gains (detail above)

25.9 19.4 25.9
     
Total operating income $ 125.7   $ 119.7   5.0 % $ 125.7   5.0 %
 
(a) The Company evaluates its segment net sales and operating income before charges / gains (as previously defined) that are not considered indicative of the segments’ underlying operating performance. Consequently, segment results presented in accordance with GAAP exclude such items. Segment sales and operating income are also presented on a constant currency basis, which is a non-GAAP measure. The Company uses this measure to understand underlying growth of the segments as fluctuations in exchange rates can impact the underlying growth rate of the segments.
 
(b) Foreign exchange translation effects calculated by translating current year results at prior year exchange rates and excluding hedge impacts.
 

Reconciliation of Percentage Change in GAAP Net Sales to Percentage Change in Comparable Net Sales (Unaudited)

 
Three Months Ended June 30, 2012

North America

EMEA APSA

Segment Total

% % % %
Net Sales (GAAP) 11 (6 ) (3 ) 4
Foreign currency impact 1 10 2 3
Acquisitions/divestitures (4 )   (3 )   -   (2 )
Comparable Net Sales (Non-GAAP) 8     1     (1 ) 5  
 
 
Comparable net sales growth rate represents the percentage increase or decrease in reported net sales in accordance with GAAP, adjusted for certain items. The Company believes that comparable net sales growth is useful in evaluating the Company's sales growth year-over-year because it excludes items that are not indicative of underlying sales performance such as foreign exchange impacts and acquisitions/divestitures.
 

 

Beam Inc.
Segment Information (a)
(Unaudited)
 
(In millions)         Constant Currency (Non-GAAP)
% 2012   %
Six Months Ended June 30, Change Adjusted Change

Net Sales

2012 2011 Reported Amount (b) Adjusted
 
North America $ 679.4 $ 608.8 11.6 % $ 683.9 12.3 %
Europe, Middle East, Africa ("EMEA") 219.0 214.9 1.9 % 234.1 8.9 %
Asia Pacific / South America ("APSA")   230.9     224.4   2.9 %   228.5   1.8 %
 
Segment net sales 1,129.3 1,048.1 7.7 % 1,146.5 9.4 %
Foreign exchange - - (17.2 ) n/m
Australia distribution one-time sale   -     46.3     -   n/m
 
Total net sales $ 1,129.3   $ 1,094.4   3.2 % $ 1,129.3   3.2 %
 
Constant Currency (Non-GAAP)
% 2012 %
Six Months Ended June 30, Change Adjusted Change

Operating Income

2012 2011 Reported Amount (b) Adjusted
 
North America $ 204.0 $ 178.0 14.6 % $ 202.4 13.7 %
EMEA 40.8 45.0 -9.3 % 43.5 -3.3 %
APSA   44.8     34.2   31.0 %   37.2   8.8 %
 
Segment operating income 289.6 257.2 12.6 % 283.1 10.1 %
Deduct:
Foreign exchange - - (6.5 )

Adjustment for charges / gains (detail above)

32.8 25.5 32.8
     
Total operating income $ 256.8   $ 231.7   10.8 % $ 256.8   10.8 %
 
(a) The Company evaluates its segment net sales and operating income before charges / gains (as previously defined) that are not considered indicative of the segments’ underlying operating performance. Consequently, segment results presented in accordance with GAAP exclude such items. Segment sales and operating income are also presented on a constant currency basis, which is a non-GAAP measure. The Company uses this measure to understand underlying growth of the segments as fluctuations in exchange rates can impact the underlying growth rate of the segments.
 
(b) Foreign exchange translation effects calculated by translating current year results at prior year exchange rates and excluding hedge impacts.
 

Reconciliation of Percentage Change in GAAP Net Sales to Percentage Change in Comparable Net Sales (Unaudited)

 
    Six Months Ended June 30, 2012

North America

EMEA APSA Segment Total
% % % %
Net Sales (GAAP) 12 2 3 8
Foreign currency impact 1 7 (1 ) 1
Acquisitions/divestitures (3 ) (4 ) - (2 )
Ongoing impact - Australia distribution margin   -     -   5     1  
Comparable Net Sales (Non-GAAP)   10     5   7     8  
 
Comparable net sales growth rate represents the percentage increase or decrease in reported net sales in accordance with GAAP, adjusted for certain items. The Company believes that comparable net sales growth is useful in evaluating the Company's sales growth year-over-year because it excludes items that are not indicative of underlying sales performance such as foreign exchange impacts, acquisitions/divestitures, the one-time impact on net sales of transitioning to the new Australia distribution agreement as well as the related impact on margin structure.
 

 

Beam Inc.
Reconciliations of GAAP to Non-GAAP Measures (Unaudited)
($ in millions)
     
 

Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") (a)

 
Three Months Ended June 30, Six Months Ended June 30,
2012 2011 2012 2011
 
GAAP income from continuing operations $ 101.3 $ 62.4 $ 179.7 $ 124.1
 
Add (deduct):
 
Other (income) / expense (22.5 ) 3.0 (28.4 ) 3.1
Interest expense 26.9 29.1 51.4 60.0
Depreciation expense 24.8 21.9 49.4 43.9
Amortization expense 4.3 4.1 8.5 8.0
Income tax expense 20.0 25.2 54.1 44.5

Adjustment for charges / gains (detail above)

  25.9     19.4     32.8     25.5  
 
EBITDA before charges/gains (Non-GAAP) $ 180.7   $ 165.1   $ 347.5   $ 309.1  
 
(a) The Company defines EBITDA as income from continuing operations before interest expense, income taxes, depreciation and amortization expense and other income/expense. EBITDA before charges/gains is EBITDA less charges/gains (as previously defined).
 
 

Free Cash Flow (a)

Three Months Ended June 30, Six Months Ended June 30,
2012 2011 2012 2011

GAAP cash provided by operating activities

$ 76.8 $ 212.8 $ 25.2 $ 6.5
 
Add (deduct):
Spirits capital expenditures, net of disposition proceeds (34.9 ) (38.7 ) (58.0 ) (61.8 )
Cash used for discontinued operations (b) 3.2 - 22.1 -
Cash (provided by) used by discontinued businesses (c) - (148.5 ) - 21.1
       
Adjusted free cash flow (Non-GAAP) $ 45.1   $ 25.6   $ (10.7 ) $ (34.2 )
 
 
(a) Free cash flow is defined as GAAP cash flow from operations less capital expenditures for property, plant and equipment additions (net of disposition proceeds), adjusted for operating cash flow related to discontinued operations. Management believes free cash flow provides investors with an important perspective on the cash available for dividends, debt repayment, and acquisitions after making the capital investments required to support ongoing business operations and long term value creation. Management uses free cash flow to assess business performance and overall liquidity.
 
(b) Represents cash used primarily for settlement of liabilities of divested businesses and payment of incentive compensation and severance benefits to former Fortune Brands executives.
 
(c) Represents operating cash flows of the Home & Security and Golf businesses prior to their divestiture.
 
 

Return on Invested Capital (ROIC) from Continuing Operations (a)

Twelve Months Ended June 30, 2012 - Income from Continuing Operations plus After- tax Interest less Preferred Dividends

Average Invested Capital

ROIC
 
Unadjusted $ 404 $ 6,453 6 %
 
Add: impact of "charges/gains" (previously defined)   43     (27 )
 
ROIC before charges/gains (Non-GAAP) 447 6,426 7 %
 
Impact of excluding goodwill and intangibles   11     (4,399 )
 
ROIC before charges/gains and excl. goodwill and intangibles (Non-GAAP) $ 458   $ 2,027   23 %
 
 
(a) ROIC is income from continuing operations plus after-tax interest expense and debt extinguishment loss plus preferred dividends divided by the average of invested capital (debt less cash plus stockholders' equity plus after-tax interest expense). Adjusted ROIC is adjusted for the amounts used to calculate adjusted income from continuing operations. Invested capital is a multi-point average of the 12 months ended June 30, 2012; invested capital for periods prior to the Separation was adjusted to assume Beam was a standalone company for those periods. See the page entitled "Use of Non-GAAP Financial Information" for further information relating to the Company's use of non-GAAP measures.
 

 

Beam Inc.
Reconciliation of GAAP Net Sales Growth to Comparable Net Sales Growth
Six Months Ended June 30, 2012
(Unaudited)
 
 
 

 

  Foreign   Australia   Australia    
Currency Distribution Distribution Non-GAAP -

GAAP

Exchange Agreement Margin Acquisitions/ Comparable

Basis

  Rates   Change   Structure   Divestitures   Basis
% %
Power Brands 4 2

6

2

(2 ) 12
Jim Beam (3 ) 1 10 3 - 11
Maker’s Mark 25 - 3 1 - 29
Sauza (a) 1 4 1 - - 6
Courvoisier 14 2 5 - - 21
Canadian Club (13 ) 1 8 2 - (2 )
Teacher’s (7 ) 8 2 - - 3
 
Rising Stars 19 1 1 - (2 ) 19
Laphroaig (4 ) 4 2 1 - 3
Knob Creek 9 - - - - 9
Basil Hayden 24 - 8 1 33
Kilbeggan

new

- - - - 71
Cruzan 6 - 1 - - 7
Hornitos (8 ) 1 - - - (7 )
EFFEN (14 ) - - - - (14 )
Pucker Vodka 16 1 - - - 17
Skinnygirl 88 - - - (7 ) 81
Sourz 10 4 1 - - 15
 
 
Local Jewels (6 ) 4 - - - (2 )
 
Value Creators (2 ) 2 6 1 (5 ) 2
 
Net sales (b) 3 1 5

1

 

 

(2

)

 

8
 
 
Comparable net sales growth rate represents the percentage increase or decrease in reported net sales in accordance with GAAP, adjusted for certain items. The Company believes Comparable Net Sales Growth is useful in evaluating the Company's sales growth on a year-over-year basis exclusive of items that are not indicative of the brands' performance such as foreign exchange impacts, acquisitions/divestitures, the one-time impact on net sales of transitioning to the new Australia distribution agreement as well as the related impact on margin structure. See the page entitled "Use of Non-GAAP Financial Information" for additional information related to the use of Non-GAAP measures.
 
(a) Excludes Hornitos
 
(b) Net sales represents consolidated net sales (excluding excise taxes), including non-branded sales to third parties.
 

 

Beam Inc.
Reconciliations of GAAP to Non-GAAP Measures (Unaudited)
 
 
  Trailing Twelve Months

Reconciliation of Net Debt to Adjusted EBITDA (Unaudited) (a)

June 30, 2012
GAAP debt / operating cash flow 5.3
Impact of using net debt rather than GAAP total debt (a) (0.2 )
Impact of using adjusted EBITDA rather than GAAP operating cash flow (1.5 )
Net debt / EBITDA before charges/gains 3.6  
 

(a) Net debt equals total debt less cash as of June 30, 2012. GAAP operating cash flow and EBITDA are based on twelve-month period ended June 30, 2012. GAAP operating cash flow includes discontinued operations. See above for the Company's definition of EBITDA before charges/gains.

 

Reconciliation of Full Year 2012 Diluted EPS from Continuing Operations Growth Target to GAAP Target

For the full year 2012, the Company is targeting low-double-digit growth in diluted EPS from continuing operations before charges/gains as compared to its full year 2011 adjusted EPS from continuing operations ($2.12). Given the nature of special charges/gains, the Company cannot predict such items and, therefore, the Company's 2012 targeted diluted EPS from continuing operations used to determine the year-over-year growth rate in diluted EPS excludes any such items.

 

Comparing targeted 2012 diluted EPS from continuing operations before charges/gains to the Company's 2011 GAAP diluted EPS from continuing operations ($0.85 per share) results in a year-over-year growth rate in excess of 100% due to the significant number of Separation-related charges included in GAAP 2011 income from continuing operations. For further information related to 2011 adjusted EPS from continuing operations, which includes adjustments for restructuring and other charges / gains as well as adjustments to reflect Beam's cost structure as a standalone spirits company, see the Company's fourth quarter 2011 earnings release.

 

Reconciliation of Full Year 2012 Earnings-to-Free-Cash-Flow Conversion Rate Target

Adjusted Earnings to Free Cash Flow Conversion Rate is calculated as the ratio of Adjusted Free Cash Flow to Adjusted Income from Continuing Operations. Adjusted Free Cash Flow is cash from operations less net capital expenditures plus operating cash outflows related to discontinued operations. Adjusted Income from Continuing Operations is adjusted for "charges/gains" (as previously defined). This is a non-GAAP measure. For the full year 2012, the Company expects an Adjusted Earnings to Free Cash Flow Conversion Rate of approximately 80%. However, given uncertainty with respect to potential nonrecurring items that may impact earnings and/or free cash flow, the Company cannot estimate a full-year GAAP Earnings to Free Cash Flow Conversion Rate; therefore, a GAAP to Non-GAAP reconciliation is not included.
 




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