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.

In June 2009, we issued long-term debt securities of $500 million under our shelf registration statement filed with the Securities and Exchange Commission. The 6 3/8% Notes will mature in June 2014. Proceeds were used to pay down balances on our revolving credit facility. In addition, we entered into fixed to floating interest rate swaps with an aggregate notional principal amount of $500 million.

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

Six Months Ended June 30, 2009 Compared To Six Months Ended June 30, 2008



                                                 Net Sales
                                                                 % Change
           (in millions)          2009           2008         vs. Prior Year
           Spirits              $ 1,086.3      $ 1,123.2                (3.3 )%
           Home and Hardware      1,380.6        1,929.5               (28.4 )
           Golf                     712.8          848.8               (16.0 )

           Net Sales            $ 3,179.7      $ 3,901.5               (18.5 )%

                                              Operating Income
                                                                 % Change
                                  2009           2008         vs. Prior Year
           Spirits              $   268.9      $   267.2                 0.6 %
           Home and Hardware        (18.9 )       (141.8 )              86.7
           Golf                      52.6          119.6               (56.0 )
           Corporate expenses       (49.2 )        (33.8 )             (45.6 )

           Operating Income     $   253.4      $   211.2               (20.0 )%

Net Sales

Net sales decreased $721.8 million, or 19%, to $3.2 billion primarily due to:

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

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

• unfavorable foreign exchange (approximately $159 million).

Sales benefited from:

• newly introduced products and line extensions in all segments,

• selected price increases in the Home and Hardware and Spirits businesses, and

• the impact of acquisitions (approximately $47 million, including Cruzan rum and sales of third party brands within distribution businesses acquired from Maxxium).

RESULTS OF OPERATIONS (Continued)

Cost of products sold

Cost of products sold decreased $375.7 million, or 18%, primarily on lower sales across all segments and cost reduction programs in the Home and Hardware and Golf businesses.

Excise taxes on spirits

Excise taxes on spirits were up approximately 133 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 $92.3 million, or 9%, primarily as a result of lower variable sales-related expenses and a decrease in advertising and promotion spending.

Amortization of intangible assets

Amortization of intangible assets decreased $8.2 million to $16.7 million due to the impact of intangible asset impairment charges for definite-lived intangible assets in 2008.

Intangible asset impairment charges

In the first half of 2009, we have not recorded any intangible asset impairment charges. In the second quarter of 2008, we recorded pre-tax intangible asset impairment charges in the Home and Hardware business of $324.3 million, primarily for Therma-Tru door and Simonton window brands, as a result of the impact of a worse than anticipated decline in the U.S. home products market.

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; a material negative change in relationships with significant customers; or strategic decisions made in response to economic and competitive conditions.

Restructuring charges

For the six months ended June 30, 2009, we recorded restructuring charges of $45.7 million. These charges related to workforce reductions in the Golf and Home and Hardware businesses, including closure of a shoe manufacturing facility and three additional Home and Hardware manufacturing facilities in the U.S., as well as reductions in general and administrative costs, and charges associated with strategic route-to-market initiatives in our international spirits markets.

For the six months ended June 30, 2008, we recorded restructuring charges of $10.1 million related to supply chain realignment and cost reduction initiatives in the Home and Hardware business, as well as costs for supply chain activities in the Spirits business.

RESULTS OF OPERATIONS (Continued)

Operating income

Operating income increased $42.2 million, or 20%, primarily due to the absence of intangible asset impairment charges in 2008 ($324.3 million), partly offset by the impact of lower sales and related adverse operating leverage, as well as higher restructuring and restructuring-related charges ($46.7 million), mainly in the Home and Hardware business and Golf businesses. Operating income benefited from reduced cost structures and lower advertising and promotion spending.

Interest expense

Interest expense decreased $12.9 million, or 11%, to $105.9 million, primarily due to lower average interest rates, partly offset by higher average debt.

Other expense, net

Other expense, net was even with prior year. Other expense, net, also includes non-operating income and expense, such as interest income and transaction gains/losses related to foreign currency-denominated transactions. Other expense, net benefited from the absence of the 2008 write-down of our investment in Maxxium Worldwide B.V. (Maxxium) ($25.1 million). It was unfavorably impacted by our share of seasonal losses and transition expenses from the international spirits joint ventures ($11.6 million) and the absence of amortization of deferred income related to our 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 ($13.5 million).

Income taxes

The effective income tax rate for both the six months ended June 30, 2009 and 2008 was 17.9%. The 2009 effective tax rate was favorably impacted by 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 higher proportion of foreign income in 2009, which is taxed at a lower rate relative to U.S. income. The 2009 income tax rate was also impacted by tax expense of $7.8 million to adjust taxes payable for a prior period item. The 2008 effective income tax rate was favorably impacted by a $98.4 million tax benefit related to final settlement of the federal income tax audit related to our 2001 - 2002 federal tax returns and tax credits associated with the conclusion of our 2004 - 2005 federal tax audit. The 2008 effective income tax rate was unfavorably impacted by the absence of a tax benefit on goodwill impairment charges of $288.9 million.

Noncontrolling interests

Noncontrolling interest expense was $2.3 million compared to income of $69.9 million last year primarily due to the $87.9 million gain recorded in 2008 from a reduction in the fair value of the minority interest in the Spirits business repurchased in July 2008.

RESULTS OF OPERATIONS (Continued)

Income from continuing operations attributable to Fortune Brands common stockholders

Income from continuing operations was $107.2 million, or $0.71 per basic and diluted share, for the six months ended June 30, 2009. These results compared to $134.2 million, or $0.87 per basic share and $0.86 per diluted share, for the six months ended June 30, 2008. The $27.0 million decrease in income from continuing operations was primarily due to the $87.9 million gain recorded in 2008 from a reduction in the fair value of the minority interest in the Spirits business repurchased in July 2008, partially offset by higher operating income ($42.2 million).

Income from discontinued operations

There was no income from discontinued operations for the six months ended June 30, 2009. Income from discontinued operations for the six months ended June 30, 2008 of $122.3 million, or $0.80 per basic and $0.79 per diluted share, was due to one-time tax benefits from a capital loss carry forward position associated with the sale of the U.S. Wine business, as well as, the revision to the calculation of the state tax benefit on the gain on the sale of the U.S. Wine business.

Results of Operations By Segment

Spirits

Net sales decreased $36.9 million, or 3%, to $1,086.3 million, primarily due to unfavorable foreign exchange ($71 million) and 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. Sales benefited from acquisitions (approximately $47 million, including Cruzan rum and sales of third party brands within distribution businesses acquired from Maxxium), higher pricing, and the introduction of new products.

Operating income was essentially the same as in 2008. Lower sales volume and increased operating costs associated with our route-to-market initiatives were offset by price increases, a shift in the timing of brand spending to the second half of the year, and lower restructuring-related charges.

We expect to incur additional restructuring and restructuring-related charges of approximately $10 million over the next three to six months related to our previously approved 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.

Results of Operations By Segment (Continued)

Spirits (Continued)

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-owned or TEG wholly-owned 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 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 facilitating an orderly transition or winding down of Maxxium operations.

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, 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 was negatively affected by the excise tax increase until its impact was annualized at the end of April 2009. In addition, there have been excise tax increases in several U.S. states in 2009.

The U.S. dollar strengthened in the fourth quarter of 2008 against major foreign currencies associated with our Spirits business's international operations and moderated during the first six months of 2009. Based on exchange rates as of June 30, 2009, we expect the continued impact of adverse foreign exchange on operating income in 2009 to be approximately $20 to $25 million.

Results of Operations By Segment (Continued)

Home and Hardware

Net sales decreased $548.9 million, or 28%, to $1,380.6 million. The decrease was primarily attributable to the downturn in the U.S. home products market and the U.S. economic recession. These factors resulted in a substantial decrease in new home construction compared to the first half of 2008, a mix shift to lower-priced products, and lower repair and remodeling spending, particularly on big-ticket items such as cabinetry and entry doors. Sales benefited modestly from new products and line extensions, as well as the impact of select price increases and share gains with key customers.

Operating income increased $122.9 million to a loss of $18.9 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 $27.2 million higher than the same period in 2008 due to continuing efforts to reduce manufacturing capacity, and general and administrative costs. In the first half of 2009, we announced the closure of three additional plants. Operating income benefited from the absence of intangible asset impairment charges in 2008 ($324.3 million) and lower cost structures 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 for currently approved projects are expected to be approximately $50 million for all of 2009.

We anticipate that the categories of the U.S. home products market in which we compete will decline in 2009 in the range of 25%. 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.

Results of Operations By Segment (Continued)

Golf

Net sales decreased $136.0 million, or 16%, to $712.8 million, primarily due to the impact of soft demand in the U.S. and Western Europe across all product categories, including lower consumer demand for discretionary purchases such as golf clubs, lower sales of corporate custom golf balls, and unfavorable foreign exchange ($54 million). Net sales benefited from higher constant currency sales in Asian markets.

Operating income decreased $67.0 million, or 56%, to $52.6 million primarily due to restructuring and restructuring-related charges of $24.2 million mainly related to workplace reductions and the closure of a footwear manufacturing facility, and unfavorable foreign currency ($8 million), as well as lower sales and related unfavorable operating leverage. Operating income benefited from cost recovery actions and lower operating expenses, including reduced advertising and promotion.

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.

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 on operating income for the full year 2009 to be approximately $25 million.

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. More recently, they adopted a rule change to allow greater adjustability in golf clubs, which went into effect January 1, 2008. In August of 2008, the USGA and R&A adopted a rule change, effective January 1, 2010, further restricting golf club grooves by reducing the groove volume and limiting the groove edge angle allowable on 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 specification. 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.

Results of Operations By Segment (Continued)

Corporate

Corporate expenses of $49.2 million, which include salaries, benefits and expenses related to corporate office employees, increased $15.4 million primarily due to pension settlement costs, timing of share-based compensation, and expenses associated with the disposition of fixed assets.

Three Months Ended June 30, 2009 Compared To Three Months Ended June 30, 2008



                                                 Net Sales
                                                                 % Change
           (in millions)          2009           2008         vs. Prior Year
           Spirits              $   600.0      $   607.9                (1.3 )%
           Home and Hardware        775.0        1,035.1               (25.1 )
           Golf                     365.8          452.4               (19.1 )

           Net Sales            $ 1,740.8      $ 2,095.4               (16.9 )%

                                              Operating Income
                                                                 % Change
                                  2009           2008         vs. Prior Year
           Spirits              $   140.3      $   138.6                 1.2 %
           Home and Hardware         36.0         (202.7 )                -
           Golf                      43.6           68.1               (36.0 )
           Corporate expenses       (27.0 )        (20.0 )             (35.0 )

           Operating Income     $   192.9      $   (16.0 )                -  %

Net Sales

Net sales decreased $354.6 million, or 17%, to $1.7 billion primarily due to:

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

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

• unfavorable foreign exchange (approximately $79 million).

Sales benefited from:

• newly introduced products and line extensions in all segments,

• the impact of acquisitions ($33 million, including Cruzan rum and sales of third party brands within distribution businesses acquired from Maxxium), and

• select price increases in the Home and Hardware and Spirits businesses.

RESULTS OF OPERATIONS (Continued)

Cost of products sold

Cost of products sold decreased $184.9 million, or 17%, primarily on lower sales across all segments and cost reduction programs in the Home and Hardware business.

Excise taxes on spirits

Excise taxes on spirits were up approximately 96 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.

Advertising, selling, general and administrative expenses

Advertising, selling, general and administrative expenses decreased $46.5 million, or 9%, primarily as a result of lower variable sales-related expenses and a reduction in advertising and promotion spending.

Amortization of intangible assets

Amortization of intangible assets decreased $4.1 million to $8.4 million due to the impact of intangible asset impairment charges for definite-lived intangible assets in 2008.

Intangible asset impairment charges

In the second quarter of 2009, we did not record any intangible asset impairment charges. In the second quarter of 2008, we recorded pre-tax intangible asset impairment charges in the Home and Hardware business of $324.3 million, primarily for Therma-Tru door and Simonton window brands, as a result of the impact of a worse than anticipated decline in the U.S. home products market.

Restructuring charges

For the three months ended June 30, 2009, we recorded restructuring charges of $9.2 million. These charges primarily related to previously announced supply-chain realignment, and capacity and cost reduction initiatives in the Home and Hardware business, as well as route-to-market and supply chain initiatives in the Spirits business.

For the three months ended June 30, 2008, we recorded restructuring charges of $7.8 million related to supply chain realignment and cost reduction initiatives in the Home and Hardware business and supply chain activities in the Spirits business.

Operating income

. . .