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TheStreet Open House

Beam Reports 2012 Fourth Quarter And Full Year Results

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, return on invested capital, free cash flow, earnings-to-free-cash conversion rate, and net-debt-to-EBITDA ratio. 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. Reconciliations 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 December 31, Year Ended December 31,
(In millions, except per share amounts) 2012 2011 % Change 2012 2011 % Change

 

 
Sales $ 876.5 $ 788.6 $ 3,070.1 $ 2,871.7

 

Less: Excise taxes   (167.4 )   (151.1 )   (604.2 )   (560.6 )

 

Net sales 709.1 637.5 11.2 % 2,465.9 2,311.1 6.7 %

 

 
Cost of goods sold   303.8     273.1   11.2 %   1,027.5     987.8   4.0 %

 

 
Gross profit 405.3 364.4 11.2 % 1,438.4 1,323.3 8.7 %

 

 
Advertising and marketing expense 116.5 97.0 20.1 % 398.7 358.7 11.2 %

 

Selling, general and administrative expense 111.5 95.8 16.4 % 412.9 430.0 -4.0 %

 

Amortization of intangible assets 4.4 4.1 7.3 % 17.2 16.3 5.5 %

 

Restructuring charges 0.6 2.0 4.3 7.7

 

Business separation costs - (2.0 ) 13.8 83.8

 

Asset impairment charges   15.6     31.3     15.6     31.3  

 

 
Operating income 156.7 136.2 15.1 % 575.9 395.5 45.6 %

 

 
Interest expense 29.1 30.9 -5.8 % 109.0 117.4 -7.2 %

 

Loss on early extinguishment of debt - 15.2 - 149.2
Other income   (4.8 )   (5.8 )   (35.1 )   (40.4 )

 

 
Income from continuing operations
before income taxes 132.4 95.9 38.1 % 502.0 169.3 196.5 %

 

 
Income taxes   5.6     4.7     103.8     36.0  

 

 
Income from continuing operations 126.8 91.2 39.0 % 398.2 133.3 198.7 %

 

 
Income (loss) from discontinued operations, net of tax   (0.5 )   (2.7 )   (15.8 )   782.2  

 

 
Net income 126.3 88.5 42.7 % 382.4 915.5 -58.2 %

 

Less: Noncontrolling interests - discontinued operations   -     -     -     4.1  
 
Net income attributable to Beam Inc. $ 126.3   $ 88.5   42.7 % $ 382.4   $ 911.4   -58.0 %

 

 
Basic earnings (loss) per common share:
Continuing operations $ 0.79 $ 0.59 33.9 % $ 2.51 $ 0.86 191.9 %
Discontinued operations   -     (0.02 )   (0.10 )   5.03  
Net income $ 0.79   $ 0.57   38.6 % $ 2.41   $ 5.89   -59.1 %
 
Diluted earnings (loss) per common share:
Continuing operations $ 0.79 $ 0.58 36.2 % $ 2.48 $ 0.85 191.8 %
Discontinued operations   -     (0.02 )   (0.10 )   4.93  
Net income $ 0.79   $ 0.56   41.1 % $ 2.38   $ 5.78   -58.8 %
 
Weighted-average common shares outstanding
Basic 159.4 155.8 2.3 % 158.3 154.6 2.4 %
Diluted 161.2 158.7 1.6 % 160.8 157.8 1.9 %

 
Beam Inc.
Condensed Consolidated Balance Sheet
  (Unaudited)
   
 
(In millions) December 31,
2012 2011
Assets
Cash and cash equivalents $ 365.7 $ 218.3
Accounts receivable 455.7 385.8
Inventories
Maturing spirits 1,425.2 1,283.2
Finished products 179.6 167.3
Raw materials, supplies and work in process   132.1   101.0
 
Total inventories 1,736.9 1,551.5
Other current assets   297.9   278.8
 
Total current assets 2,856.2 2,434.4
Property, plant and equipment 787.9 729.7
Goodwill and other intangible assets 4,879.1 4,202.9
Other assets   106.5   124.8
 
Total assets $ 8,629.7 $ 7,491.8
 
Liabilities and Equity
Short-term debt, including current
portion of long-term debt $ 480.1 $ 28.4
Accounts payable 264.0 206.1
Long-term debt 2,024.9 1,902.1
Other liabilities   1,248.6   1,255.5
 
Total liabilities 4,017.6 3,392.1
 
Total equity   4,612.1   4,099.7
 
Total liabilities and equity $ 8,629.7 $ 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 asset impairment charges, 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 (together, 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 an acquired business and unusual tax matters that management does not consider indicative of ongoing operations. Charges/gains excluded from GAAP results also include other items which management believes are not indicative of the Company's underlying operating performance for purposes of evaluating past and future performance; such items are excluded from GAAP results to improve comparability between periods. 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.

 

Additional non-GAAP measures included in this release are identified as “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 non-GAAP measures to the most closely comparable GAAP measures, together with a further explanation as to why management believes the non-GAAP measures provide useful information, are included on the following pages.

 

Beam Inc.
Reconciliations of GAAP to Non-GAAP Measures (Unaudited)
($ in millions, except per share)
                     
Three Months Ended December 31, 2012 Three Months Ended December 31, 2011 % Increase
GAAP

Adjustments(See DetailBelow)

BeforeCharges/ Gains(Non-GAAP)

GAAP

Adjustments(See DetailBelow)

BeforeCharges/ Gains(Non-GAAP)

GAAP

BeforeCharges/Gains(Non-GAAP)

Net sales $ 709.1 - $ 709.1 $ 637.5 - $ 637.5 11.2 % 11.2 %
Cost of goods sold   303.8     0.3     273.1     (7.1 )
 
Gross profit 405.3 (0.3 ) 405.0 364.4 7.1 371.5 11.2 % 9.0 %

Gross profit margin

57.2

%

57.1

%

 

57.2

%

 

 

58.3

%

-

(120) bps

 

Advertising and marketing expense 116.5 - 97.0 -
Selling, general and administrative expense 111.5 (4.7 ) 95.8 1.9
Amortization of intangible assets 4.4 - 4.1 -
Restructuring charges 0.6 (0.6 ) 2.0 (2.0 )
Business separation costs - - (2.0 ) 2.0
Asset impairment charges   15.6     (15.6 )   31.3     (31.3 )
 
Operating income 156.7 20.6 177.3 136.2 36.5 172.7 15.1 % 2.7 %

Operating income margin

22.1

%

25.0

%

21.4

%

27.1

%

(30) bps

 

(210) bps

 

Interest expense 29.1 - 30.9 (4.0 )
Loss on early extinguishment of debt - - 15.2 (15.2 )
Other income   (4.8 )   -     (5.8 )   2.7  
 

Income from continuing operations before income taxes

132.4 20.6 95.9 53.0
Income taxes   5.6     39.2     4.7     35.0  
Effective tax rate

4.2

%

29.3

%

4.9

%

26.7

%

 
 
Income from continuing operations $ 126.8     (18.6 ) $ 108.2 $ 91.2     18.0   $ 109.2 39.0 % -0.9 %
 
Diluted EPS - continuing operations $ 0.79     (0.12 ) $ 0.67 $ 0.58     0.11   $ 0.69 36.2 % -2.9 %
 
 

Adjustments Detail by Applicable Financial Statement Line Items

Three months ended December 31, 2012

Cost of goods sold

SG&A expense

Restructuring charges

Asset Impairment

Operating income

Pre-tax income -cont. operations

Income taxes

Income from cont. operations

Diluted EPS - cont. operations

 
1

Restructuring charges (a)

$ - $ - $ 0.5 $ - $ (0.5 ) $ (0.5 ) $ (0.2 ) $ (0.3 ) $ -
2 Other charges (a) 0.5 (3.6 ) - - 3.1 3.1 1.1 2.0 0.01
3 Acquisition/integration related costs (b) (0.2 ) (1.1 ) (1.1 ) - 2.4 2.4 0.9 1.5 0.01
4 Asset impairment (c) - - - (15.6 ) 15.6 15.6 4.7 10.9 0.07
5 Income tax adjustment (d)   -     -     -     -     -     -     32.7     (32.7 )   (0.21 )
$ 0.3   $ (4.7 ) $ (0.6 ) $ (15.6 ) $ 20.6   $ 20.6   $ 39.2   $ (18.6 ) $ (0.12 )
 

Three months ended December 31, 2011

Cost of goods sold

SG&A expense

Restructuring charges

Separation costs

Asset Impairment

Operating income

Interest, debt extinguish- ment loss & other exp.

Pre-tax income- cont. operations

Income taxes

Income from cont. operations

Diluted EPS - cont. operations

 
1 Restructuring charges (a) $ - $ - $ (2.0 ) $ - $ - $ 2.0 $ - $ 2.0 $ - $ 2.0 $ 0.01
2 Other charges (a) (7.1 ) 1.9 - - - 5.2 - 5.2 - 5.2 0.03
3 Separation costs (e) - - - 2.0 - (2.0 ) - (2.0 ) - (2.0 ) (0.01 )
4 Standalone company adjustment (f) - - - - - - (4.0 ) 4.0 - 4.0 0.03
5 Asset impairment (c) - - - - (31.3 ) 31.3 - 31.3 - 31.3 0.19
6 Loss on early extinguishment of debt (g) - - - - - - (15.2 ) 15.2 - 15.2 0.10
7 Maxxium distribution (h) - - - - - - 2.7 (2.7 ) - (2.7 ) (0.02 )
8 Income tax adjustment (d)   -     -     -     -     -     -     -     -     35.0     (35.0 )   (0.22 )
$ (7.1 ) $ 1.9   $ (2.0 ) $ 2.0   $ (31.3 ) $ 36.5   $ (16.5 ) $ 53.0   $ 35.0   $ 18.0   $ 0.11  
 
(a)

The 2012 restructuring credit of $0.5 million represents the reversal of restructuring accruals that were determined to be no longer required, while the $2 million of restructuring charges in 2011 relates to organizational streamlining projects.  In 2012, other SG&A charges include $3.6 million of legal, forensic accounting and other fees related to our internal investigation with respect to our India operations.  Other cost of goods sold for 2012 includes a $0.5 million gain on the sale of assets in connection with our 2011 project to centralize bottling operations in Kentucky.  In 2011, the cost of goods sold adjustment includes $4.5 million of charges primarily associated with the streamlining of our bottling operations in Kentucky and $2.6 million of charges related to the impact of certain non-income tax matters.  In 2011, the SG&A expense adjustment includes $3.8 million of credits related to certain non-income tax related matters, partially offset by $1.9 million of organizational streamlining charges.

 
(b) The 2012 adjustments relate to the acquisition and integration of the Pinnacle and Calico Jack assets ("Pinnacle") and Cooley business, consisting primarily of expenses incurred in connection with integrating these businesses into the Company's existing operational structure (e.g., distributor termination fees, accelerated depreciation, employee retention, and other organizational streamlining expenses).
 
(c)

The adjustments in 2012 and 2011 relate to the non-cash impairment of tradenames in Spain.

 
(d) The income tax adjustments in the 2012 period primarily related to a $22 million foreign tax credit related to the repatriation of foreign earnings and a $9 million net benefit related to the resolution of U.S. and foreign tax audit examinations for certain years. The adjustment in the 2011 period is to eliminate income tax related matters (related to resolution of routine foreign and US income tax audit examinations) and to adjust income tax expense to Beam's estimated effective tax rate as a standalone Spirits business.
 
(e)

Adjustment relates to the reversal of Separation-related accruals that were determined to be no longer required.

 
(f) Adjustment to the Company's interest expense to assume that the Separation-related debt extinguishments had occurred on January 1, 2011.
 
(g)

Adjustment to eliminate loss on early extinguishment of debt related to the Separation.

 
(h) Adjustment to eliminate a gain related to a dividend distribution received in connection with the wind down of our former Maxxium investment.
 

bps - basis points

 
Beam Inc.
Reconciliations of GAAP to Non-GAAP Measures (Unaudited)
($ in millions, except per share)
                       
Year Ended December 31, 2012 Year Ended December 31, 2011 % Increase
GAAP

Adjustments(See DetailBelow)

Before Charges/Gains(Non-GAAP)

GAAP

Adjustments(See DetailBelow)

BeforeCharges/Gains(Non-GAAP)

GAAP

BeforeCharges/ Gains(Non-GAAP)

Net sales $ 2,465.9 - $ 2,465.9 $ 2,311.1 (46.3 ) $ 2,264.8 6.7 % 8.9 %
Cost of goods sold   1,027.5     (0.8 )   987.8     (38.3 )
 
Gross profit 1,438.4 0.8 1,439.2 1,323.3 (8.0 ) 1,315.3 8.7 % 9.4 %

Gross profit margin

58.3

%

58.4

%

57.3

%

58.1

%

100 bps

 

30 bps

 

Advertising and marketing expense 398.7 - 358.7 -
Selling, general and administrative expense 412.9 (21.5 ) 430.0 (61.9 )
Amortization of intangible assets 17.2 - 16.3 -
Restructuring charges 4.3 (4.3 ) 7.7 (7.7 )
Business separation costs 13.8 (13.8 ) 83.8 (83.8 )
Asset impairment charges   15.6     (15.6 )   31.3     (31.3 )
 
Operating income 575.9 56.0 631.9 395.5 176.7 572.2 45.6 % 10.4 %
Operating income margin 23.4 % 25.6 % 17.1 %

25.2

% N/M

40 bps

Interest expense 109.0 - 117.4 2.5
Loss on early extinguishment of debt - - 149.2 (149.2 )
Other income   (35.1 )   19.9     (40.4 )   37.3  
 

Income from continuing operations before income taxes

502.0 36.1 169.3 286.1
Income tax expense   103.8     48.7     36.0     84.9  
Effective tax rate 20.7 % 28.3 % 21.3 % 26.5 %
 
 
Income from continuing operations $ 398.2     (12.6 ) $ 385.6 $ 133.3     201.2   $ 334.5 198.7 % 15.3 %
 
Diluted EPS - continuing operations $ 2.48     (0.08 ) $ 2.40 $ 0.85     1.27   $ 2.12 191.8 % 13.2 %
 

Adjustments Detail by Applicable Financial Statement Line Items

Year Ended December 31, 2012

Cost of goods sold

SG&A expense

Restructuring charges

Separation costs

Asset Impair-m ent

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)

$ - $ - $ (1.0 ) $ - $ - $ 1.0 $ - $ 1.0 $ 0.2 $ 0.8 $ -
2 Other charges (a) 0.3 (4.2 ) - - - 3.9 - 3.9 1.4 2.5 0.01
3 Acquisition/integration related costs (b) (1.1 ) (17.3 ) (3.3 ) - - 21.7 - 21.7 4.6 17.1 0.11
4 Separation costs (c) - - - (13.8 ) - 13.8 - 13.8 5.3 8.5 0.05
5 Asset impairment (d) - - - (15.6 ) 15.6 - 15.6 4.7 10.9 0.07
6 Maxxium distribution (e) - - - - - - 1.9 (1.9 ) - (1.9 ) (0.01 )
7 Tax indemnification (f) - - - - - - 18.0 (18.0 ) - (18.0 ) (0.11 )
8 Income tax adjustment (g)   -     -     -     -     -     -     -     -     32.5     (32.5 )   (0.20 )
$ (0.8 ) $ (21.5 ) $ (4.3 ) $ (13.8 ) $ (15.6 ) $ 56.0   $ 19.9   $ 36.1   $ 48.7   $ (12.6 ) $ (0.08 )
 

Year Ended December 31, 2011

Net sales

Cost of goods sold

SG&A expense

Restructuring charges

Separation costs

Asset Impair- ment

Operating income

Interest, debt extinguish- ment loss & other exp.

Pre-tax income -cont. operations

Income tax expense

Income from cont. operations

Diluted EPS - cont. operations

 
1 Restructuring charges (a) $ - $ - $ - $ (7.7 ) $ - $ - $ 7.7 $ - $ 7.7 $ - $ 7.7 $ 0.05
2 Other charges (a) - (15.6 ) (0.9 ) - - - 16.5 - 16.5 - 16.5 0.10
3 Acquisition/integration related costs (b) - - (25.0 ) - - - 25.0 - 25.0 - 25.0 0.16
4 Separation costs (c) - - - - (83.8 ) - 83.8 - 83.8 - 83.8 0.53
5 Asset impairment (d) - - - - - (31.3 ) 31.3 - 31.3 - 31.3 0.20
6 Australia distribution one-time sale (h) (46.3 ) (22.7 ) - - - - (23.6 ) - (23.6 ) - (23.6 ) (0.15 )
7 Standalone company adjustment (i) - - (36.0 ) - - - 36.0 2.5 33.5 - 33.5 0.21
8 Loss on early extinguishment of debt (j) - - - - - - - (149.2 ) 149.2 - 149.2 0.94
9 Maxxium distribution (e) - - - - - - - 10.2 (10.2 ) - (10.2 ) (0.06 )
10 Tax indemnifications (f) - - - - - - - 27.1 (27.1 ) - (27.1 ) (0.17 )
11 Income tax adjustments (g)   -     -     -     -     -     -     -     -     -     84.9     (84.9 )   (0.54 )
$ (46.3 ) $ (38.3 ) $ (61.9 ) $ (7.7 ) $ (83.8 ) $ (31.3 ) $ 176.7   $ (109.4 ) $ 286.1   $ 84.9   $ 201.2   $ 1.27  
 
(a)

Restructuring charges of $1 million and $7.7 million in 2012 and 2011, respectively, primarily relate to facility consolidations, supply chain and distribution and other organizational streamlining activities.  In 2012, other SG&A charges primarily include $3.6 million of charges associated with our internal investigation with respect to our India operations.  In 2011, the other charges include adjustments primarily related to facility consolidations, supply chain and distribution and other organizational streamlining initiatives.

 
(b) The 2012 adjustments relate 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. The 2012 acquisition related adjustments impacting SG&A expense consist of: transaction-related expenses of $5 million, contract termination expenses of $10 million and integration related expenses of $2 million. In addition, acquisition related adjustments include amounts charged to costs of goods sold and restructuring charges that primarily relate to accelerated depreciation and employee retention. The 2011 adjustment relates to acquisition related contingent consideration accrued in September 2011.
 
(c) The adjustment in 2012 primarily relates to 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, partially offset by a decrease in accrued liabilities for estimated costs to complete the Separation. The adjustment in the 2011 period is to eliminate nonrecurring business separation costs incurred to implement the Separation, principally transaction and professional advisory fees, severance and other employee related costs and certain other costs incurred in connection with the Separation.
 
(d)

The adjustments in 2012 and 2011 relate to the non-cash impairment of tradenames in Spain.

 
(e) Adjustment to eliminate a gain related to a dividend distribution received in connection with the wind down of our former Maxxium investment.
 
(f) Nontaxable reimbursement received from seller of an acquired business for resolution of certain tax matters for years prior to our ownership.
 
(g)

In 2012, the income tax adjustments primarily include a $22 million foreign tax credit related to the repatriation of foreign earnings, a $17 million net benefit arising from the resolution of certain foreign and US federal and state tax return matters, and $6 million of expense related to our annual reconciliation of the 2011 income tax filing to the 2011 provision for income taxes. The adjustment in the 2011 period is the combined amount required to eliminate income tax matters related to the resolution of foreign and US income tax audit examinations and to adjust income tax expense to Beam's estimated effective tax rate as a standalone Spirits business.

 
(h)

Adjustment to eliminate the one-time net sales and related cost of goods sold impact associated with transition to a new long-term distribution agreement in Australia in 2011.

 
(i) Adjustments to reflect estimated expenses as a standalone Spirits business, including: (1) $36.0 million operating expense adjustment to reflect a lower corporate cost structure, and (2) $2.5 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 at January 1, 2011.
 
(j)

Adjustment to eliminate loss on early extinguishment of debt related to the Separation.

 
N/M - not meaningful

bps - basis points

 
Beam Inc.
Segment Information (a)
(Unaudited)
             
(In millions) Constant Currency (Non-GAAP)
Three Months Ended % 2012 %
December 31, Change Adjusted Change

Net Sales

2012 2011 Reported Amount (b) Adjusted
 
North America $ 391.1 $ 325.4 20.2 % $ 389.7 19.8 %
Europe, Middle East, Africa ("EMEA") 177.2 171.0 3.6 % 179.7 5.1 %
Asia Pacific / South America ("APSA")   140.8     141.1   -0.2 %   137.8   -2.3 %
 
Segment net sales 709.1 637.5 11.2 % 707.2 10.9 %
Foreign exchange   -     -     1.9   n/m
 
Total net sales $ 709.1   $ 637.5   11.2 % $ 709.1   11.2 %
 
Constant Currency (Non-GAAP)
Three Months Ended % 2012 %
December 31, Change Adjusted Change

Operating Income

2012 2011 Reported Amount (b) Adjusted
 
North America $ 83.7 $ 91.9 -8.9 % $ 83.6 -9.0 %
EMEA 54.9 50.5 8.7 % 54.6 8.1 %
APSA   38.7     30.3   27.7 %   36.9   21.8 %
 
Segment operating income 177.3 172.7 2.7 % 175.1 1.4 %
Deduct:
Foreign exchange - - (2.2 )
Restructuring and other charges / gains (see detail above) 20.6 36.5 20.6
     
Total operating income $ 156.7   $ 136.2   15.1 % $ 156.7   15.1 %
 
(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 December 31, 2012

North America

EMEA APSA

Segment Total

% % % %
Net Sales (GAAP) 20 4 - 11
Foreign currency impact - 1 (2) -
Acquisitions/divestitures (12) (1) - (6)
Comparable Net Sales (Non-GAAP) 8 4 (2) 5
 
 
Comparable net sales growth rate represents the percentage increase or decrease in reported net sales in accordance with GAAP, adjusted to eliminate the impacts of foreign exchange and acquisitions/divestitures. 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.

 
Beam Inc.
Segment Information (a)
(Unaudited)
             
(In millions) Constant Currency (Non-GAAP)
% 2012 %
Year Ended December 31, Change Adjusted Change

Net Sales

2012 2011 Reported Amount (b) Adjusted
 
North America $ 1,450.6 $ 1,271.5 14.1 % $ 1,455.9 14.5 %
Europe, Middle East, Africa ("EMEA") 512.7 505.9 1.3 % 541.1 7.0 %
Asia Pacific / South America ("APSA")   502.6     487.4   3.1 %   501.1   2.8 %
 
Segment net sales 2,465.9 2,264.8 8.9 % 2,498.1 10.3 %
Foreign exchange - - (32.2 ) n/m
Australia distribution one-time sale   -     46.3     -   n/m
 
Total net sales $ 2,465.9   $ 2,311.1   6.7 % $ 2,465.9   6.7 %
 
Constant Currency (Non-GAAP)
% 2012 %
Year Ended December 31, Change Adjusted Change

Operating Income

2012 2011 Reported Amount (b) Adjusted
 
North America $ 393.5 $ 360.9 9.0 % $ 389.9 8.0 %

 

EMEA 123.6 120.3 2.7 % 128.9 7.1 %

 

APSA   114.8     91.0   26.2 %   104.2   14.5 %

 

 
Segment operating income 631.9 572.2 10.4 % 623.0 8.9 %
Deduct:
Foreign exchange - - (8.9 )
Adjustment for charges / gains (see detail above) 56.0 176.7 56.0
     
Total operating income $ 575.9   $ 395.5   45.6 % $ 575.9   45.6 %
 
(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)

 
      Year Ended December 31, 2012
North America EMEA APSA Segment Total
% % % %
Net Sales (GAAP) 14 1 3 9
Foreign currency impact - 6 - 1
Acquisitions/divestitures (7) (2) - (4)
Ongoing impact - Australia distribution margin - - 2 -
Comparable Net Sales (Non-GAAP) 7 5 5 6
 
Comparable net sales growth rate represents the percentage increase or decrease in reported net sales in accordance with GAAP, adjusted to eliminate the impacts of foreign exchange, acquisitions/divestitures and the transition to the new Australia distribution agreement. 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.

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

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

 
Three Months Ended December 31, Year Ended December 31,
2012 2011 2012 2011
 
GAAP income from continuing operations $ 126.8 $ 91.2 $ 398.2 $ 133.3
 
Add (deduct):
 
Other income (4.8 ) (5.8 ) (35.1 ) (40.4 )
Interest expense 29.1 30.9 109.0 117.4
Loss on early extinguishment of debt - 15.2 - 149.2
Depreciation expense 26.9 22.9 101.9 90.1
Amortization expense 4.4 4.1 17.2 16.3
Income tax expense 5.6 4.7 103.8 36.0
Adjustment for charges / gains (see detail above)   20.6     36.5     56.0     176.7  
 
EBITDA before charges/gains (Non-GAAP) $ 208.6   $ 199.7   $ 751.0   $ 678.6  
 
(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 & Cash Conversion Rate (a)

Three Months Ended December 31, Year Ended December 31,
2012 2011 (b) 2012 2011 (b)
GAAP cash provided by operating activities $ 265.6 $ 137.1 $ 378.2 $ 454.4
Add (deduct):
Spirits capital expenditures, net of disposition proceeds (35.7 ) (56.7 ) (125.0 ) (164.7 )
Cash used for discontinued operations (c) 3.6 28.2 83.6 28.2
Cash provided by discontinued businesses (d) - - - (80.0 )
       
Adjusted free cash flow (Non-GAAP) $ 233.5   $ 108.6   $ 336.8   A $ 237.9  
 
Net income before charges/gains (see above) $ 385.6 B
 
Cash Conversion Rate   87 % A/B
 
 
(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) Free cash flow for the 2011 periods is not intended to be a measure of Beam Inc. "adjusted pro forma free cash flow" that would reflect the free cash flow generated by Beam as if it were a standalone company for the periods presented.
 
(c) Represents cash used primarily for settlement of liabilities of divested businesses and payment of incentive compensation, severance and pension benefits to former Fortune Brands executives.
 
(d) Represents operating cash flows of the Home & Security and Golf businesses prior to their divestiture.
 

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

 

Year Ended December 31, 2012 - Income from Continuing Operations plus After- tax Interest

Average Invested Capital

ROIC
 
Unadjusted $ 469 $ 6,774 7%
 
Add: impact of "charges/gains" (previously defined)   (13 )   18  
 
ROIC before charges/gains (Non-GAAP) 456 6,792 7%
 
Impact of excluding goodwill and intangibles   11     (4,719 )
ROIC before charges/gains and excl. goodwill and intangibles (Non-GAAP) $ 467   $ 2,073   23%
 
(a) ROIC is income from continuing operations plus after-tax interest expense 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 December 31, 2012. 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
Year Ended December 31, 2012
(Unaudited)
 
 
Foreign Australia Australia
Currency Distribution Distribution Non-GAAP -
GAAP Exchange Agreement Margin Acquisitions/ Comparable
Basis   Rates   Change   Structure   Divestitures   Basis
% %
Power Brands 10 2 3 1 (6) 10
Jim Beam 3 1 5 1 - 10
Maker’s Mark 14 - 1 - - 15
Sauza (a) 7 2 1 - - 10
Courvoisier 8 1 2 1 - 12
Canadian Club 1 - 4 1 - 6
Teacher’s (9) 10 1 (1) - 1
Pinnacle - - - - 19 19
 
Rising Stars 11 1 - - (2) 10
Laphroaig 11 3 1 - - 15
Knob Creek 24 - - - - 24
Basil Hayden's 31 - 4 - - 35
Kilbeggan - - - - 1 1
Cruzan 11 - 1 - - 12
Hornitos (3) 1 - - - (2)
EFFEN (22) - - - - (22)
Pucker Vodka (5) - - - - (5)
Skinnygirl 21 - - - (2) 19
Sourz (3) 4 - - - 1
 
 
Local Jewels (5) 4 - - - (1)
 
Value Creators (1) 1 3 1 (5) (1)
 
Net sales (b) 7 1 2 - (4) 6
 
 
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)

December 31, 2012
GAAP debt / operating cash flow 6.6
Impact of using net debt rather than GAAP total debt (a) (1.0 )
Impact of using adjusted EBITDA rather than GAAP operating cash flow (2.8 )
Net debt / EBITDA before charges/gains 2.8  
(a) Net debt equals total debt less cash as of December 31, 2012. GAAP operating cash flow and EBITDA before charges /gains are based on the year ended December 31, 2012. GAAP operating cash flow includes discontinued operations. See the Reconciliation of Income from Continuing Operations to EBITDA (above) for the Company's definition of EBITDA before charges/gains.
 
 

Reconciliation of Full Year 2013 Diluted EPS from Continuing Operations Growth Target to GAAP Target

For the full year 2013, the Company is targeting high-single-digit growth in diluted EPS from continuing operations before charges/gains as compared to its full year 2012 diluted EPS from continuing operations before charges/gains ($2.40). Given the nature of special charges/gains, the Company cannot predict such items and, therefore, the Company's 2013 targeted diluted EPS from continuing operations used to determine the year-over-year growth rate in diluted EPS excludes any such items.

 

Comparing targeted 2013 diluted EPS from continuing operations before charges/gains to the Company's 2012 GAAP diluted EPS from continuing operations ($2.48) results in mid-single-digit growth in diluted earnings per share from continuing operations. The lower growth rate, as compared to year-over-year growth on a before charges/gains basis, is attributable to the 2012 charges/gains described above.

 

Full Year 2013 Free-Cash-Flow Target

For the full year 2013, the Company is targeting free cash flow in the range of $300 million to $350 million. 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 that the measure of free cash flow provides investors with helpful supplemental information about the Company's ability to fund internal growth, make acquisitions, repay debt, pay dividends, and repurchase common stock. This measure may be inconsistent with similar measures presented by other companies.

 
 

Comparable Sales Increase - First Quarter 2012 Compared to First Quarter 2011

%
Net Sales (GAAP) 2
Australia Distribution Agreement Change 10
Australia Distribution Margin Structure 2
Acquisitions/Divestitures -1
Non-GAAP - Comparable Basis 13




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