The following information should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions, which could cause actual results to differ materially from management's expectations. Please see "Forward-Looking Statements."

We use the terms "Beam," "the Company," "we," "us," and "our" to refer to Beam Inc. and its consolidated subsidiaries.

EXECUTIVE SUMMARY

We are a leading premium spirits company that makes and sells branded distilled spirits products in major markets worldwide. Our principal products include bourbon whiskey, Scotch whisky, Canadian whisky, vodka, tequila, cognac, rum, cordials, and ready-to-drink pre-mixed cocktails. Our portfolio includes several of the world's top premium spirits brands and some of the industry's fastest growing innovations. As further described in the condensed consolidated financial statements included in this Form 10-Q, discontinued operations includes the former Fortune Brands Golf and Home & Security segments, both of which were disposed of in 2011. The sale of the Golf business and the Spin-Off of the Home & Security business are together referred to in this Form 10-Q as the "Separation Transactions."

Operational and Financial Highlights for the First Quarter of 2012

Operational and financial highlights for the first quarter of 2012 include the following:

• Diluted earnings per share from continuing operations increased 26% compared to the first quarter of 2011 driven by 2% net sales increase and lower interest expense;

• Entered Irish whiskey market with synergy-driven acquisition of Cooley Distillery;

• Introduced several new products (e.g., Red Stag Honey Tea, Red Stag Spiced, Jim Beam Devil's Cut in Australia and Germany, Jim Beam Honey in Germany, and Skinnygirl Wine, Vodka, and Piña Colada Ready-to-Serve);

• Continued to streamline operations and support activities with the planned relocation of U.S. shared service operations to Kentucky; and

• Increased quarterly dividend to $0.205 per share of common stock, which was paid on March 1, 2012.

Certain items had a significant impact on our financial results in the first quarters of 2012 and 2011. These include the impact of the Separation Transactions completed in 2011, the impact of the one-time sale related to our new Australia manufacturing and distribution agreement in 2011, changes in foreign currency exchange rates, acquisition and disposition-related items, restructuring and other related charges and income tax related matters.

In the first quarter of 2012, our financial results included the following:

• Restructuring and other charges of $3.1 million ($2.0 million, or $0.01 per share, net of tax) primarily related to organizational streamlining initiatives, including the Company's plans to relocate certain of its U.S. finance and human resource shared services from its Deerfield headquarters to Kentucky;

• Acquisition and integration related charges of $3.8 million ($5.9 million, or $0.04 per share, inclusive of tax impact) incurred in connection with the January 2012 acquisition of the Cooley business. The pre-tax charges consist of transaction expenses as well as a distributor termination fee. The tax impact includes the tax effect of the charges as well as a $2.5 million 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 acquisition;

• Other income benefited from a nontaxable distribution from our Maxxium investment of $1.9 million ($0.01 per share); and

• The net impact of foreign exchange hedge results and the impact of translating 2012 amounts at 2011 exchange rates was a favorable $0.4 million on net sales and a favorable $5.9 million on operating income ($4 million, or $0.03 per share, net of tax).

• Business separation costs of $9.2 million ($6.9 million, or $0.04 per share, net of tax) incurred in connection with the Separation Transactions completed in 2011, principally financial, legal and other separation-related advisory fees;

• Corporate and other general and administrative overhead costs related to the former Fortune Brands, Inc. management structure of $23 million ($15 million, or $0.10 per share, net of tax);

• Restructuring and other related charges of $6.1 million ($3.7 million, or $0.02 per share, net of tax) primarily related to a facility consolidation and other supply chain and distribution cost reduction initiatives in North America as well as other organizational streamlining initiatives;

• Higher net sales of $46.3 million and operating income of $23.6 million ($16.5 million, or $0.11 per share, net of tax) related to the one-time sale of inventory recorded in connection with our transition to a new long-term manufacturing and distribution agreement in Australia; and

• Income tax expense was impacted by the tax effects of the significant items described above.

Business Outlook

We believe that the long-term demographic trends are favorable for the continued profitable growth of western premium spirits. We believe that the continued management and investment focus on the best growth and return opportunities, including innovation, advertising, and more effective routes to market, position us well for long-term growth. We expect our global spirits market to grow value in the range of 3% during 2012 supported by solid growth in mature markets such as the U.S. and double-digit growth in key emerging markets, partially offset by the negative impact of continuing economic challenges in certain European markets, particularly Spain.

Factors that could adversely affect future results in our business include macro-economic challenges and changes in market trends, competitive pricing and other activities, changes in foreign exchange rates, reductions in customer inventory levels, changes to government financial incentives, increases in commodity and energy prices, future increases in excise taxes and customs duties, continued consolidation in the distributor and retail tiers, increased regulatory enforcement, and potential impairment charges. Please see "Forward-Looking Statements."

RESULTS OF OPERATIONS

The following discussion and analysis of our results from continuing operations for the three months ended March 31, 2012 compared to the three months ended March 31, 2011 addresses changes in net sales, operating expenses and income from continuing operations. Approximately 50 percent of our business is outside the U.S. As a result, changes in foreign exchange rates (particularly the Australian dollar and the Euro) can have a significant impact on our reported results of operations when translated and presented in U.S. dollars.

Net sales

The Company uses comparable net sales growth rates, a non-GAAP measure, in evaluating the Company's sales growth on a year-over-year basis exclusive of items that are not indicative of our performance. Comparable net sales growth rates are adjusted for the impact of foreign exchange, acquisitions/divestures and the impact of the Australia manufacturing and distribution agreement. This measure 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. The following table presents a reconciliation of GAAP net sales growth to comparable net sales growth for the first quarter of 2012 as compared to the first quarter of 2011:

                                                         Consolidated
                                                       Net Sales Growth
        Net sales growth (GAAP)                                        2 %
        Foreign exchange rates (a)                                    -
        Acquisitions/divestitures (b)                                 (1 )%
        Australia distribution one-time sale (c)                      10 %
        Australia distribution margin structure (d)                    2 %

        Comparable net sales (Non-GAAP)                               13 %

(a) Impact of translating current year sales at prior year exchange rates and hedge impacts.

(b) Impact is primarily due to the acquisition of the Skinnygirl business in the latter part of the first quarter of 2011 and the Cooley business in the first quarter of 2012.

(c) Relates to a one-time sale of inventory related to transitioning to our new long-term manufacturing and distribution agreement in Australia in the first quarter of 2011.

(d) In 2011, we transitioned from an agency agreement to a manufacturing and distribution agreement in Australia. Under the new agreement, our net sales are lower as our distributor is now responsible for and incurs distribution and selling costs that were previously incurred by Beam.

Net sales increased $9.8 million, or 2%, from $524.0 million in 2011 to $533.8 million in 2012. Comparable net sales increased 13% driven by double-digit growth across all three of our segments, substantially due to strong demand for our bourbon brands and the timing benefit of new product launches in the first quarter of 2012 that were front-loaded as compared to new product launches in 2011 that occurred later in the year as well as other regional factors described below. Some of our new product launches in 2012 and 2011, which are further discussed in the segment results below, include Pucker Vodka and Skinnygirl ready-to-drink innovations in the U.S. and Jim Beam Devil's Cut and Red Stag Black Cherry in Germany. The increase in comparable net sales was driven by a volume increase of 10% as well as favorable price/product mix of 3%. Our Power Brands net sales growth on a GAAP basis was 2%. Power Brands grew 19% on a comparable basis adjusting for the 17 percentage point year-over-year impact of the Australia distributor change described above. Our Rising Stars brands grew 19% on a GAAP basis. Rising Stars brands grew 16% on a comparable basis, adjusting for the year over year impacts of the Australia distributor change (-3%), foreign exchange (-1%) and acquisition/divestitures (+7%). The growth of Power Brands and Rising Stars was partially offset by a high-single digit net sales decrease from our Local Jewels brands (on both a GAAP and comparable basis) and essentially flat comparable net sales from our Value Creator brands (Value Creators decreased 9% on a GAAP basis due to the Australia distribution change adverse impact of 13%, partly offset by acquisitions/divestiture impact of 3%).

Cost of goods sold

Cost of goods sold decreased $10.5 million, or 5%, from $229.6 million in 2011 to $219.1 million in 2012. The decrease in cost of goods sold primarily relates to the transition to our new long-term manufacturing and distribution agreement in Australia, including the prior year impact of a one-time sale of inventory ($22.7 million or 11%) and the change in margin structure, the favorable impact of our productivity initiatives achieved under our "Fuel Our Growth" strategy, and a favorable foreign currency impact (approximately $5 million). These benefits were partially offset by an increase in cost of goods sold due to increased sales volumes and product mix consistent with sales volume and mix increases described above under "Net sales."

Advertising and marketing expense increased $10.2 million or 15% from $66.5 million in 2011 to $76.7 million in 2012 in support of increased sales. Advertising and marketing expense as a percent of net sales (excluding the one-time sale of inventory related to transitioning to our new long-term manufacturing and distribution agreement in Australia, as discussed above) was 14% in both periods.

Selling, general and administrative expense

Selling, general and administrative expense was essentially unchanged in 2012 compared to 2011. The first quarter of 2012 included a net benefit of $14 million due to lower Beam standalone company costs as compared to the former Fortune Brands corporate cost structure. This benefit was offset by inflationary increases and approximately $4 million of acquisition and integration-related charges incurred in connection with the Cooley acquisition, including transition expenses and fees as well as a distributor termination fee.

Restructuring charges

In 2012, restructuring charges of $2.3 million related to organizational streamlining initiatives, which primarily include the Company's plans to relocate certain of its U.S. finance and human resource shared services from its Deerfield headquarters to Kentucky. The Company is employing lean techniques throughout the organization to meet its goal of achieving 1-2% annual improvement before inflation in our cost of goods sold and selling, general and administrative expenses.

In 2011, restructuring charges of $2.1 million related to distribution and supply-chain initiatives, facility consolidations, and organizational streamlining initiatives.

We do not currently expect any material incremental restructuring charges to be incurred in connection with 2012 or 2011 restructuring activities.

Business separation costs

Business separation costs incurred in 2011 reflect financial, legal, and other separation-related advisory fees related to the Separation Transactions that were completed in 2011.

Operating income

Operating income increased $19.1 million, or 17.1%, from $112.0 million in 2011 to $131.1 million in 2012. The increase in operating income was primarily due to increased gross profit from higher sales, which were driven by both price/mix and volume. The increase in operating income in 2012 was also due to a $6 million favorable impact from changes in foreign currency rates and related hedge impacts. The increased gross profit was partially offset by increased advertising and marketing expense to drive sales and increases in selling, general and administrative expenses. North America and APSA operating income increased $16 million and $7 million, respectively, partially offset by a $3 million decrease in EMEA operating income.

Restructuring and other charges/gains had a relatively neutral impact on the year-over-year change in operating income, as gross profit of $24 million from the Australia one-time sale of inventory in 2011 was offset by the benefit of lower corporate costs ($14 million) (compared to Fortune Brands corporate cost structure) and Separation-related costs ($9 million) in 2012.

Interest expense

Interest expense decreased $6.4 million, or 20.7%, due to lower average borrowings, principally due to a debt reduction of approximately $2.3 billion during 2011 related to the Separation Transactions as well as additional debt reductions from scheduled debt payments that were made in 2011.

Other (income) expense

Other (income) expense was income of $5.9 million in 2012 compared to expense of $0.1 million in 2011. The change from 2011 to 2012 was primarily due to a $3 million favorable increase in equity income from joint ventures and a $1.9 million dividend distribution related to the wind down of a joint venture investment.

Income taxes

The effective income tax rates for the three months ended March 31, 2012 and 2011 were 30.3% and 23.8%, respectively. The effective tax rates in 2012 and 2011 were less than the U.S. federal statutory rate primarily due to foreign income taxed at lower rates. The effective tax rate for the first three months of 2012 was unfavorably impacted, compared to the 2011 period, by less income taxed at lower foreign corporate tax rates and additional tax recorded on the distribution of earnings between certain foreign jurisdictions.

The Company evaluates its segment net sales and operating income excluding items considered by management to be unusual or infrequent in nature and not indicative of the segments' underlying operating performance. Consequently, segment results presented in accordance with GAAP exclude these items. Net sales and operating income by operating segment are also presented below excluding the impact of foreign exchange translation. We calculate foreign exchange translation effects by translating current year results at prior year exchange rates and excluding hedge impacts. In the following discussion, we refer to net sales and operating income calculated on this basis as "constant currency." Constant currency net sales and operating income are non-GAAP measures that management believes are useful for evaluating performance, as fluctuations in exchange rates can impact the underlying year-over-year growth rates of the segments. These measures may not be comparable to similar measures used by other companies.

The following table sets forth net sales and operating income by operating segment for the three months ended March 31, 2012 and 2011 as reported and adjusted to exclude the impact of foreign exchange translation (in millions):

Net Sales                                                                              Constant Currency
                                                                      %               2012             %
                                                                    Change          Adjusted         Change
                                          2012        2011         Reported          Amount         Adjusted
North America                            $ 309.3     $ 274.7            12.6 %     $    310.5            13.0 %
EMEA                                       107.3        95.8            12.0 %          110.3            15.1 %
APSA                                       117.2       107.2             9.3 %          112.6             5.0 %

Segment net sales                          533.8       477.7            11.7 %          533.4            11.7 %
Foreign exchange                              -           -                               0.4             n/m
Australia distribution one-time sale          -         46.3                               -              n/m

Net sales                                $ 533.8     $ 524.0             1.9 %     $    533.8             1.9 %


Operating Income                                                                       Constant Currency
                                                                      %               2012             %
                                                                    Change          Adjusted         Change
                                          2012        2011         Reported          Amount         Adjusted
North America                            $  98.6     $  82.9            18.9 %     $     98.2            18.5 %
EMEA                                        17.4        20.4           (14.7 )%          17.2           (15.7 )%
APSA                                        22.0        14.8            48.6 %           16.7            12.8 %

Segment operating income                   138.0       118.1            16.9 %          132.1            11.9 %
Foreign exchange                              -           -                              (5.9 )
Business separation costs                     -          9.2                               -
Restructuring charges                        2.3         2.1                              2.3
Other charges (gains) (Note 7)               4.6       (19.6 )                            4.6
Unallocated corporate costs (Note 14)         -         14.4                               -

Operating income                         $ 131.1     $ 112.0            17.1 %     $    131.1            17.1 %

                                                    North
                                                   America        EMEA        APSA
    Net sales growth (GAAP)                              13 %        12 %         9 %
    Foreign exchange rates (a)                           -            3 %        (4 )%
    Acquisitions/divestitures (b)                        (1 )%       (3 )%       -
    Australia distribution margin structure (c)          -           -           11 %

    Comparable net sales (Non-GAAP)                      12 %        12 %        16 %

(a) Impact of translating current year sales at prior year exchange rates and hedge impacts.

(b) Impact is primarily due to the acquisition of the Skinnygirl business in the latter part of the first quarter of 2011 and the Cooley business in the first quarter of 2012.

(c) In 2011, we transitioned from an agency agreement to a manufacturing and distribution agreement in Australia. Under the new agreement, our net sales are lower as our distributor is now responsible for and incurs distribution and selling costs that were previously incurred by Beam.

North America

North America comparable net sales growth was 12%, benefiting substantially from the front loading of product launches in the first quarter of 2012 as compared to the timing of 2011 product launches that occurred later in 2011. Higher volume, innovation and product mix contributed to year-over-year comparable net sales growth. Net sales volume and product mix benefited from shipment timing ahead of planned price increases and new product innovations, such as Skinnygirl Vodka, Skinnygirl Piña Colada, Red Stag Honey Tea and Red Stag Spiced, as well as strength in our Power Brands and Rising Stars brands. Sales increased in all three geographic markets, with the U.S. providing the largest benefit. First quarter 2012 sales in Mexico, the smallest of the three countries in the North America segment, benefited from pipeline fill related to the transition to our new distributor in the region.

On a constant currency basis, North America operating income increased by $15.3 million, or 19%, from $82.9 million in 2011 to $98.2 million in 2012. Operating income increased principally due to increased sales and favorable product mix.

Europe/Middle East/Africa

EMEA comparable net sales growth was 12%, benefiting substantially from the timing of promotions in the travel retail channel and our front loaded 2012 calendar of innovation shipments. Comparable net sales benefited primarily from favorable product mix and volume, including the benefit of new product innovations, such as Red Stag Black Cherry, Jim Beam Honey, and Jim Beam Devil's Cut in Germany and Sourz Fusionz Ready to Drink in the U.K., as well as strong growth of our Power Brands in Germany, Russia and travel retail and Rising Stars in the U.K. These benefits were partially offset by sales decreases in economically challenged markets, particularly Spain.

Despite increased sales in the first quarter of 2012, EMEA operating income on a constant currency basis decreased $3.2 million, or 16%, from $20.4 million in 2011 to $17.2 million in 2012 primarily as a result of increased brand investment to promote new product introductions and the impact of increased costs related to streamlining our distributors in Spain and the U.K.

Asia-Pacific/South America

APSA comparable net sales growth was 16%, benefiting substantially from enhanced routes to market, particularly in India, China, Southeast Asia and Brazil. Higher comparable net sales was driven by volume increases for Power Brands such as Jim Beam and Canadian Club in mature markets (Australia) and Teacher's and Courvoisier in emerging markets (most notably India, China, Southeast Asia, and Brazil).

LIQUIDITY AND CAPITAL RESOURCES

Liquidity and Capitalization

The ratio of total debt to total capital decreased to 31.1% at March 31, 2012 from 32.0% at December 31, 2011, primarily due to higher equity resulting from changes in foreign exchange rates and 2012 net income.

In December 2011, we executed a $750 million, 5-year committed revolving credit agreement (the "Credit Agreement") to be used for general corporate purposes. As of March 31, 2012, there were no amounts outstanding under the Credit Agreement. The Company may, subject to the satisfaction of certain conditions, request that the aggregate principal amount of the facility be increased by up to $250 million in the aggregate. We believe that our cash from operations will be sufficient to fund current operations, service outstanding indebtedness and pay dividends. The Company intends to finance the $605 million purchase price for the White Rock acquisition through the Credit Agreement, new debt or a combination of both.

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

As of March 31, 2012, we had total cash and cash equivalents of $88.5 million, a majority of which was held in foreign currencies at non-U.S. subsidiaries. We manage our global cash requirements considering (i) available funds among the many subsidiaries through which we conduct business, (ii) the geographic location of our liquidity needs, and (iii) the cost to access international cash balances. The permanent repatriation of non-U.S. cash balances from certain subsidiaries could have adverse tax consequences as we may be required to pay and record income tax expense on those funds to the extent they were previously considered permanently reinvested. We do not believe that any such transfer of cash would have a material impact on our results of operations or financial position.

In the middle part of 2012, we expect to pay approximately $30 million for the required settlement of pension liabilities for certain former Fortune Brands executives due to their termination in connection with the Separation . . .