OVERVIEW

Fortune Brands, Inc. (Fortune Brands) is a holding company with subsidiaries that make and sell leading consumer branded products worldwide in the following markets: distilled spirits, home and hardware, and golf products. We strive to enhance shareholder value in a variety of ways, including:

• profitably building leading consumer brands to drive sales and earnings growth and enhance returns on a long-term basis,

• positioning our brands and businesses to outperform their respective markets. We do this by:

- developing innovative new products and effective marketing programs,

- expanding customer relationships,

- extending brands into adjacent categories, and

- developing international growth opportunities,

• pursuing business improvements by operating lean and flexible supply chains and business processes,

• promoting organizational excellence by developing winning cultures and associates, and

• leveraging our breadth and balance and financial resources to drive shareholder value.

While our first priority is internal growth, we also strive to create shareholder value through add-on acquisitions, dispositions and joint ventures. In addition, over time, we enhance shareholder value through other initiatives, such as using our financial resources to pay down debt, repurchase shares and pay dividends.

For a description of certain factors that may have had, or may in the future have, a significant impact on our business, financial condition or results of operations, see "-Forward-Looking Statements."

RESULTS OF OPERATIONS

Three Months Ended March 31, 2009 Compared To Three Months Ended March 31, 2008



                                                 Net Sales
                                                                % Change
            (in millions)          2009          2008        vs. Prior Year
            Spirits              $   486.3     $   515.3               (5.6 )%
            Home and Hardware        605.6         894.4              (32.3 )
            Golf                     347.0         396.4              (12.5 )

            Net Sales            $ 1,438.9     $ 1,806.1              (20.3 )%

                                              Operating Income
                                                                % Change
                                   2009          2008        vs. Prior Year
            Spirits              $   128.6     $   128.6                0.0 %
            Home and Hardware        (54.9 )        60.9                n/a
            Golf                       9.0          51.5              (82.5 )
            Corporate expenses       (22.2 )       (13.8 )            (60.9 )

            Operating Income     $    60.5     $   227.2              (73.4 )%

Net Sales

Net sales decreased $367.2 million, or 20%, to $1.4 billion primarily due to:

• the downturn in the U.S. home products markets and its impact on our Home and Hardware business,

• unfavorable foreign exchange ($80 million),

• the impact of the U.S. economy and reduced consumer discretionary spending, and

• lower sales in international markets in the Spirits business, including transitional issues such as the impact of a 2008 Australian excise tax on ready-to-drink products and a change in distribution in Mexico.

Sales benefited from:

• stronger spirits sales in the U.S. in 2009 due to the favorable year-over-year U.S. distributor inventory movements,

• growth in international sales in constant currency in the Golf business, and

• newly introduced products and line extensions in the Home and Hardware business and Golf business.

RESULTS OF OPERATIONS (Continued)

Cost of products sold

Cost of products sold decreased $190.8 million, or 20%, primarily on lower sales across all segments and cost reduction programs in the Home and Hardware business, partly offset by accelerated depreciation on facilities being closed.

Excise taxes on spirits

Excise taxes on spirits were up approximately 175 basis points as a percentage of sales compared to the prior year due to higher Spirits segment sales as a percent of total Company sales, as well as due to a higher percent of U.S. spirits sales compared to international spirits sales with lower excise taxes. Excise taxes are generally levied based on the alcohol content of spirits products and vary significantly by country. Consistent with industry practice, excise taxes collected from customers are reflected in net sales and the corresponding payments to governments in expenses.

Advertising, selling, general and administrative expenses

Advertising, selling, general and administrative expenses decreased $45.8 million, or 9%, primarily as a result of lower variable sales-related expenses.

Amortization of intangibles

Amortization of intangibles decreased $4.1 million to $8.3 million due to impairment charges for definite-lived intangible assets in 2008.

Restructuring charges

For the three months ended March 31, 2009, we recorded restructuring charges of $36.5 million. These charges related to workforce reductions in the Golf and Home & Hardware businesses, including closure of a shoe manufacturing facility, the announced closure of three additional Home and Hardware manufacturing facilities in the U.S., and reductions in general and administrative costs, as well as charges associated with strategic route-to-market initiatives in our international spirits markets.

For the three months ended March 31, 2008, we recorded restructuring charges of $2.3 million related to supply chain realignment and cost reduction initiatives in the Home and Hardware business.

Operating income

Operating income decreased $166.7 million, or 73%, primarily on lower sales and related adverse operating leverage, as well as higher restructuring and restructuring-related charges ($52.1 million), mainly in the Home and Hardware business and Golf businesses. Operating income benefited from reduced cost structures across all businesses.

RESULTS OF OPERATIONS (Continued)

Interest expense

Interest expense decreased $8.1 million, or 13%, to $52.5 million, primarily due to lower average interest rates, partly offset by higher average debt.

Other expense, net

Other expense, net increased $4.1 million to $4.5 million, primarily due to the absence of amortization of deferred income related to the Future Brands LLC (Future Brands) U.S. distribution joint venture since the remaining balance was recognized upon our repurchase of the Future Brands minority interest in September 2008. Other expense, net, also includes non-operating income and expense, such as interest income and transaction gains/losses related to foreign currency-denominated transactions.

Income taxes

The effective income tax rate for the three months ended March 31, 2009 and 2008 was (154.3)% and 31.5%, respectively. The negative effective tax rate in 2009 was primarily due to higher tax benefits from restructuring and restructuring-related charges relative to lower taxed income before these charges. In addition, the effective tax rate was favorably impacted by a lower proportion of domestic income in 2009, which is taxed at a higher rate relative to foreign income. The effective tax rate for the three months ended March 31, 2009 was also impacted by tax expense of $7.8 million to adjust taxes payable for a prior period item.

Income from continuing operations

Income from continuing operations was $7.4 million, or $0.05 per basic and diluted share, for the three months ended March 31, 2009. These results compared to $107.6 million, or $0.70 per basic share and $0.69 per diluted share, for the three months ended March 31, 2008. The decrease in income from continuing operations of $100.2 million was primarily due to lower operating income in our Home and Hardware and Golf businesses, partly offset by lower interest expense.

Income from discontinued operations

There was no income from discontinued operations for the three months ended March 31, 2009. Income from discontinued operations for the three months ended March 31, 2008 of $12.9 million, or $0.08 per basic and diluted share, was due to a revision to the calculation of the state tax benefit on the gain on the sale of the U.S. Wine business.

Noncontrolling interests

Noncontrolling interest expense was $1.5 million compared to $6.2 million last year as a result of the absence of expense related to the minority interest in the Spirits business repurchased in July 2008.

Results of Operations By Segment

Spirits

Net sales decreased $29.0 million, or 5.6%, to $486.3 million, primarily due to lower sales in international markets on a constant currency basis, including transitional issues such as the impact of a 2008 Australian excise tax on ready-to-drink products and a change in distribution in Mexico, as well as unfavorable foreign exchange ($32 million). Sales benefited from favorable year-over-year U.S. distributor inventory movements, higher pricing, and the acquisition of Cruzan rum (approximately $11 million).

Operating income was flat compared to 2008. Lower sales volume and increased operating costs associated with our route-to-market initiatives were offset by price increases and lower brand spending.

We expect to incur additional restructuring and restructuring-related charges of approximately $15 million over the next six to nine months related to our U.S. and international route-to-market strategic initiatives. In 2009, we expect operating income to be adversely affected by a net impact of approximately $30 million due to costs associated with our U.S. and international route-to-market initiatives.

In September 2008, Beam Global Spirits & Wine, Inc. (BGSW) and The Edrington Group Ltd. (TEG) entered into an agreement establishing an international distribution alliance that is a combination of jointly-owned and Company-owned sales forces in 24 markets. Operations under the new alliance began on April 1, 2009. This alliance simplifies our international routes to market and gives us greater control over our distribution. The alliance provides that BGSW and TEG have joint 50-50 ownership of sales and distribution companies in certain markets and that BGSW wholly-controlled or TEG wholly-controlled distribution companies distribute both companies' products and third party products in certain other markets. Prior to March 30, 2009, BGSW was a 25% partner in the Maxxium Worldwide B.V. (Maxxium) international sales and distribution joint venture. The other equal partners in Maxxium were Rémy Cointreau S.A. (Rémy), V&S Group (V&S) and TEG. In accordance with a Settlement Agreement executed in September 2008, on March 30, 2009, Rémy and V&S exited the Maxxium joint venture and BGSW became a 50% owner of Maxxium with TEG. BGSW and TEG are working together to facilitate an orderly transition or winding down of Maxxium operations.

Results of Operations By Segment (Continued)

Spirits (Continued)

Factors that could adversely affect results include consumers trading down to lower price points, competitive pricing activities, potential changes to commercial and operational risk in the transition from the Maxxium joint venture to the alliance with TEG, potential changes to third party distribution, changes in customer inventory levels in international markets, and the possibility of excise and other tax increases, including internationally. In April 2008, the Australian government increased excise taxes on ready-to-drink products by 70%, equating to a 25% price increase to consumers, which adversely impacted demand for Beam's pre-mixed products including Jim Beam and Cola. Operating income will continue to be negatively affected by the excise tax increase until its impact is annualized at the end of April 2009.

The U.S. dollar strengthened in the fourth quarter of 2008 against major foreign currencies associated with our Spirits business's international operations. We expect the continued impact of adverse foreign exchange to be an incremental $35 to 40 million in 2009.

Home and Hardware

Net sales decreased $288.8 million, or 32%, to $605.6 million. The decrease was primarily attributable to the downturn in the U.S. home products market, the U.S. economic recession, and the credit crisis. The combination of these factors resulted in a substantial decrease in new home construction compared to the first quarter of 2008, a mix shift to lower-priced products, and lower repair and remodeling spending particularly on big-ticket items such as cabinets and entry doors. Sales benefited modestly from new products and line extensions, as well as the impact of select price increases.

Operating income decreased $115.8 million to a loss of $54.9 million, continuing to be negatively impacted by substantially lower sales and the resulting unfavorable coverage of manufacturing and overhead costs. In addition, restructuring and restructuring-related charges were $24.7 million higher due to continuing efforts to reduce manufacturing capacity, as well as general and administrative costs. In the first quarter of 2009, we announced the closure of three additional plants. Operating income benefited from reduction in costs in all areas of the business.

We anticipate that the restructuring initiatives will generate savings that pay back the cash costs in three years or less. Restructuring and restructuring-related charges in 2009 for currently approved projects are expected to be approximately $50 million.

Results of Operations By Segment (Continued)

Home and Hardware (Continued)

We anticipate that the U.S. home products market will decline in 2009 in the range of 20%. As a result, we believe our sales in 2009 will be significantly lower than 2008. Our business will continue to face pressures resulting from significant adverse operating leverage, potential increased price competition, and a shift to lower-priced product. In addition, we may see increases in bad debt expenses as our customers continue to face financial pressures. We may also incur additional restructuring charges to further rationalize our supply chains. We will continue to strive to mitigate the impact of the downturn through ongoing cost reductions as well as through market share gain initiatives, successful extension of brands into new markets, expanding existing customer relationships, and building on our substantial presence in the repair-and-remodel segment of the U.S. home products market. As we continue to respond to the downturn in the U.S. home products market, our restructuring initiatives to reduce manufacturing capacity and administrative costs, and exit lower return product lines, may result in further impairments of assets.

The Company cannot predict the occurrence of certain events that might adversely affect the carrying value of goodwill and indefinite-lived intangible assets. Such events may include, but are not limited to, the impact of the economic environment, particularly related to our Home and Hardware companies; a material negative change in relationships with significant customers; or strategic decisions made in response to economic and competitive conditions.

Golf

Net sales decreased $49.4 million, or 13%, to $347.0 million primarily due to unfavorable foreign exchange ($30 million) and the impact of soft demand in the U.S., including lower consumer demand for discretionary purchases such as golf clubs. The decrease was across all product lines with the exception of Titleist golf club sales that grew due to the introduction of new models. International sales were higher on a constant currency basis.

Operating income decreased $42.5 million, or 83%, to $9.0 million primarily due to restructuring and restructuring-related charges of $25.7 million mainly related to workplace reductions and the closure of a footwear manufacturing facility, and unfavorable foreign currency ($10 million), as well as lower sales and related unfavorable operating leverage.

In the near term, participation levels and consumer spending on golf products are expected to be adversely impacted by general economic conditions and declines in golf-related travel and corporate spending. We expect the golf industry to benefit from favorable long-term demographic trends, including an aging U.S. population (rounds of play increase with age and retirement), and the increasing popularity of golf internationally.

Results of Operations By Segment (Continued)

Golf (Continued)

The U.S. dollar strengthened in the fourth quarter of 2008 against major foreign currencies associated with our Golf business's international operations. We expect the continued impact of adverse foreign exchange to be an incremental $25 million in 2009.

The United States Golf Association (USGA) and the Royal and Ancient Golf Club (R&A) establish standards for golf equipment used in the United States and outside the United States, respectively. In recent years, each of the USGA and the R&A has enacted new rules further restricting the dimensions or performance of golf clubs and golf balls. In March of 2005, the USGA and R&A requested that manufacturers participate in a golf ball research project by manufacturing and submitting balls that would conform to an overall distance standard that is 15 to 25 yards shorter than the current standard of 317 yards. As a result of their recent research regarding spin, the USGA has adopted a rule change, effective January 1, 2010, reducing the groove volume and limiting the groove edge angle allowable on all irons and wedges. This rules change will not apply to most golfers until January 1, 2024. It will be implemented on professional tours beginning in 2010 and then in other elite amateur competitions beginning 2014. All products shipped into the marketplace after December 31, 2010 must comply with the new groove standard. The USGA and R&A have adopted a rule change to allow greater adjustability in golf clubs, which went into effect on January 1, 2008. Existing rules and any new rules could change the golf products industry's ability to innovate and deploy new technologies and the competitive dynamic among industry participants, potentially impacting our Golf business.

Corporate

Corporate expenses of $22.2 million, which include salaries, benefits and expenses related to corporate office employees, increased $8.4 million primarily due to the timing of share-based compensation expense.

LIQUIDITY AND CAPITAL RESOURCES

The global credit crisis and general economic conditions worsened compared to 2008. In addition, the recent volatility in capital and credit markets may continue and heighten risks in the near term. We believe, however, that we have sufficient liquidity to fund our operations.

Liquidity

Our primary liquidity needs are to support working capital requirements, fund capital expenditures, service indebtedness and pay dividends, as well as finance acquisitions and share repurchases when deemed appropriate. Our principal sources of liquidity are cash flows from operating activities, borrowings under our credit agreements and long-term notes. Our operating income is generated by our subsidiaries. There are no restrictions on the ability of our subsidiaries to pay dividends or make other distributions to Fortune Brands. We periodically review our portfolio of brands and evaluate strategic options to increase shareholder value. We cannot predict whether or when we may enter into an acquisition, disposition, joint venture or other strategic options, or what impact any such transaction could have on our results of operations, cash flows or financial condition, whether as a result of the issuance of debt or equity securities, or otherwise.

Our committed unused credit facilities provide sufficient liquidity to fund our current operating and financing needs. We believe all of our credit facilities are arranged with a strong and diversified group of financial institutions.

On April 27, 2009 the Company reduced its annual dividend rate from $1.76 per share to $0.76 per share. This change in dividend rate is expected to decrease cash for dividend payments by approximately $110 million in 2009 and $150 million on an annual basis.

We currently have an investment grade credit rating from three credit rating agencies. A downgrade of our credit ratings to non-investment grade or a prolonged global economic decline and credit crisis may impact our access to long-term capital markets, increase interest rates on our corporate debt, and weaken operating cash flow and liquidity, potentially impacting our ability to pay dividends, fund acquisitions and repurchase shares in the future.

Cash Flows

Net cash used by operating activities was $102.5 million for the three months ended March 31, 2009 compared to $144.5 million for the same three-month period last year. The decrease in cash used of $42.0 million was principally due to the impact of lower sales on working capital.

Net cash used by investing activities for the three months ended March 31, 2009 increased by $23.4 million to $55.3 million, compared with a $31.9 million increase in the same three-month period last year, primarily due to $29.0 million in loans to Spirits international distribution affiliates, partly offset by a reduction in capital spending of $6.4 million.

LIQUIDITY AND CAPITAL RESOURCES (Continued)

Cash Flows (Continued)

Net cash provided by financing activities for the three months ended March 31, 2009 was $227.6 million, compared with $145.7 million in the same three-month period last year. The increase of $81.9 million was primarily due to a higher cash balance to fund the April 1, 2009 payment for sales and distribution companies in 24 markets (€53.2 million or approximately $71.1 million), and loans to affiliates ($29.0 million). We estimate this payment combined with proceeds we expect to receive from our residual interest in Maxxium will result in a net cash outflow of $15 to 20 million.

Capitalization

Total debt increased $236.9 million during the three-month period ended March 31, 2009 to $5.0 billion. The ratio of total debt to total capital increased to 52.2% at March 31, 2009 from 50.1% at December 31, 2008 primarily due to higher seasonal debt and a decrease in equity due to foreign currency translation effects and dividends paid in the first quarter of 2009.

We have a $2.0 billion, 5-year committed revolving credit agreement, which matures in October 2010. A total of $1,078.0 million was outstanding under this credit agreement as of March 31, 2009. In October 2008, we executed a $400 million, 3-year term loan agreement with various banks, which matures in October 2011, and was used to repay a €300 million note due January 30, 2009. The interest rates under the term loan agreement are variable based on U.S. LIBOR at the time of the borrowing and the Company's long-term credit rating. Our credit facilities are for general corporate purposes. The revolving credit agreement includes a minimum Consolidated Interest Coverage Ratio requirement of 3.5 to 1.0 as the only financial covenant. The Consolidated Interest Coverage Ratio is defined in the credit facilities as the ratio of adjusted EBITDA to Consolidated Interest Expense. Adjusted EBITDA is defined as consolidated net income before interest expense, income taxes, and depreciation and amortization of intangible assets, as well as noncash restructuring and nonrecurring charges, losses from asset impairments, and gains or losses resulting from the sale of assets not in the ordinary course of business. Consolidated Interest Expense is as disclosed in the financial statements. At March 31, 2009 and December 31, 2008, we exceeded this ratio by a wide margin. We continue to believe the possibility of violating this covenant is remote. No other debt instruments require financial ratio covenants.

Our committed unused credit facilities provide sufficient liquidity to fund our current operating and financing needs. We believe all of our credit facilities are arranged with a strong and diversified group of financial institutions.

LIQUIDITY AND CAPITAL RESOURCES (Continued)

Customer Credit Risk

We routinely grant unsecured credit to customers in the normal course of business. Trade receivables were $843.5 million as of March 31, 2009 and are recorded at their stated amount less allowances for discounts, doubtful accounts . . .