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 tax-free spin-off of the Home & Security business (the "Spin-Off") are together referred to in this Form 10-Q as the "Separation Transactions."

Operational and Financial Highlights for the Second Quarter of 2012

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

• Our diluted earnings per share from continuing operations increased 58% compared to the second quarter of 2011 driven by a 4% net sales increase, higher non-operating income and lower income tax expense;

• We completed the acquisition of the Pinnacle Vodka brands and related assets (the "Pinnacle assets"), which enhanced our presence in the vodka category and is expected to generate revenue and cost synergies; and

• We issued long-term debt with an aggregate principal amount of $600 million at favorable interest rates to fund our acquisition of the Pinnacle assets. Refer to Note 11, Debt, and Note 3, Acquisitions, for more information.

Certain items had a significant impact on our financial results in the second quarters of 2012 and 2011. These include the impact of the Separation Transactions completed 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 second quarter of 2012, our financial results included the following:

• Business separation costs of $13.8 million ($8.5 million, or $0.05 per share, net of tax) primarily related to a $15.1 million pension settlement charge associated with a required $29 million lump sum distribution of benefits paid to former Fortune Brands executives in July 2012 in connection with the Separation Transactions completed in 2011;

• Acquisition and integration-related charges of $12.1 million ($7.6 million, or $0.05 per share, net of tax) incurred in connection with the May 2012 acquisition of the Pinnacle assets. The pre-tax charges primarily consist of transaction expenses (professional advisory, consulting and other transaction and integration-related fees) ($4.7 million) as well as charges associated with the termination of certain acquired distribution agreements ($6.6 million);

• Other income benefited from a nontaxable indemnification payment of approximately €14 million ($18 million, or $0.11 per share) received from Pernod Ricard S.A. ("Pernod") related to a tax matter in Spain; and

• The net impact of foreign exchange hedge results and the impact of translating 2012 amounts at 2011 exchange rates was an unfavorable $17.6 million on net sales and a favorable $0.6 million on operating income.

In the second quarter of 2011, our financial results included the following:

• Business separation costs of $8.0 million ($0.05 per share) incurred in connection with the Separation Transactions completed in 2011, principally including financial, legal and other advisory fees related to the Separation Transactions; and

• Corporate and other general and administrative overhead costs related to the former Fortune Brands, Inc. management structure of $19 million ($12 million, or $0.08 per share, net of tax).

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 in our brand portfolio and geographic markets, 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 slightly above 3% during 2012, supported by growth in the U.S. and partially offset by uncertainty in certain international markets, including the Eurozone.

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 and six month periods ended June 30, 2012 compared to the three and six month periods ended June 30, 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 can have a significant impact on our reported results of operations when translated and presented in U.S. dollars.

Our discussion of results of operations includes the use of 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 the underlying sales performance of our business. Comparable net sales growth rates are adjusted for the impact of foreign exchange, acquisitions/divestures and, for the six month periods, 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.

Consolidated Results for the Three Months Ended June 30, 2012 Compared to the Three Months Ended June 30, 2011

Net sales

The following table presents a reconciliation of GAAP net sales growth to comparable net sales growth for the second quarter of 2012 as compared to the second quarter of 2011:

                                                   Consolidated
                                                 Net Sales Growth
              Net sales growth (GAAP)                            4 %
              Foreign exchange rates (a)                         3 %
              Acquisitions/divestitures (b)                     (2 )%

              Comparable net sales (Non-GAAP)                    5 %

(a) Impacts of translating current year sales at prior year exchange rates and hedging activity.

(b) Impact is primarily due to the acquisition of the Pinnacle assets in the second quarter of 2012 and the acquisition of the Cooley business in the first quarter of 2012.

Net sales increased $25.1 million, or 4%, from $570.4 million in the second quarter of 2011 to $595.5 million in the second quarter of 2012. Comparable net sales increased 5% compared to a strong year-ago quarter that benefited from the year-over-year timing of new product launches. Comparable net sales growth in 2012 was driven by net sales growth in our North America segment, while EMEA and APSA comparable net sales were adversely impacted by the timing of shipments as described in our discussion of segment results below. Volume and price/mix both contributed to the 5% increase in comparable net sales growth. The product mix benefit in 2012 was partially due to the impact of innovations on our product mix and the price benefit was due to targeted price increases for certain brands and markets such as Jim Beam and Maker's Mark in the U.S. Power Brands and Rising Stars were the primary contributors to our sales growth. Our Power Brands net sales growth on a GAAP basis was 5%. Power Brands grew 6% on a comparable basis adjusting for foreign exchange (+4%) and acquisitions/divestitures (-3%). Net sales of Rising Stars brands increased 20% on a GAAP basis (21% after adjusting for the unfavorable foreign exchange impact).

Cost of goods sold

Cost of goods sold increased $6.9 million, or 3%, from $241.7 million in the second quarter of 2011 to $248.6 million in the second quarter of 2012. Cost of goods sold increased in the 2012 period due to a combination of higher raw material costs and increased sales volume and product mix. In addition, a year-over-year benefit from foreign currency was substantially offset by increased cost of goods sold related to acquisitions.

Advertising and marketing expense

Advertising and marketing expense decreased $1.3 million, or 1%, from $99.3 million in the second quarter of 2011 to $98.0 million in the second quarter of 2012, primarily due to a favorable foreign currency impact. Advertising and marketing expense decreased despite sales growth due to our front loaded new product launches in the first quarter of 2012. Advertising and marketing expense as a percentage of net sales was 16.5% in the second quarter of 2012 and 17.4% in the second quarter of 2011.

Selling, general and administrative expense

Selling, general and administrative expense increased $6.9 million, or 7%, from $97.8 million in the second quarter of 2011 to $104.7 million in the second quarter of 2012, primarily due to inflationary increases, incremental costs to support growth in emerging markets and approximately $11 million of acquisition and integration-related charges incurred in connection with the acquisition of the Pinnacle assets, including transaction expenses (professional advisory, consulting and other transaction and integration-related fees) ($4.7 million) and charges related to the termination of certain distribution contracts that were acquired in the acquisition ($6.6 million). These unfavorable impacts were partially offset by lower Beam standalone company costs as compared to the former Fortune Brands corporate cost structure ($10 million) and a favorable foreign currency impact ($2 million). Refer to Note 16, Segment Information, for more information on estimating standalone corporate cost structure.

Business separation costs

Business separation costs of $13.8 million in the second quarter of 2012 include a $15.1 million pension settlement charge associated with a required $29 million lump sum distribution of benefits paid to former Fortune Brands executives in July 2012, partially offset by the reversal of Separation-related reserves that were determined to be no longer necessary. Business separation costs of $8.0 million incurred in the second quarter of 2011 reflect financial, legal and other advisory fees related to the Separation Transactions that were completed in 2011.

Operating income

Operating income increased $6.0 million, or 5%, from $119.7 million in the second quarter of 2011 to $125.7 million in the second quarter of 2012. On a constant currency basis, North America, EMEA, and APSA operating income increased $9 million, $2 million and $1 million, respectively. The increase in operating income was primarily due to increased gross profit ($18.2 million) from higher sales, which were driven by both volume and price/mix as well as the timing of advertising and marketing programs as described above. The increased gross profit was partially offset by an increase in selling, general and administrative expense ($6.9 million) as described above.

Restructuring and other charges/gains had a negative impact on operating income for the second quarter of 2012, as the increases in acquisition and integration-related charges of $12 million and business separation costs of $6 million more than offset the benefit of lower corporate costs (compared to the former Fortune Brands corporate cost structure) ($10 million).

Interest expense

Interest expense decreased $2.2 million, or 8%, due to lower average borrowings, principally due to 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. New borrowings of $600 million in May 2012, which were used to fund the acquisition of the Pinnacle assets, partially offset this benefit.

Other (income) expense

Other (income) expense was income of $22.5 million in the second quarter of 2012 compared to expense of $3.0 million in the second quarter of 2011. The favorable change from 2011 to 2012 was primarily due to a nontaxable indemnification payment of approximately €14 million ($18 million) received from Pernod related to a tax matter in Spain in 2012 as well as an increase in equity income. Refer to Note 8, Income Taxes, for more information on the indemnification payment received from Pernod.

Income taxes

The effective income tax rates for the three months ended June 30, 2012 and 2011 were 16.5% and 28.8%, respectively. The effective tax rates in 2012 and 2011 were less than the U.S. federal statutory rate primarily due to foreign income that is taxed at lower rates than the U.S. federal statutory rate, the recognition of previously unrecognized tax benefits in foreign jurisdictions, and, in 2012, the receipt of non-taxable indemnification income from Pernod.

Segment Results for the Three Months Ended June 30, 2012 Compared to the Three Months Ended June 30, 2011

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 June 30, 2012 and 2011 as reported and adjusted to exclude the impact of foreign exchange translation (in millions):

                                                                                             Non-GAAP
Net Sales                                                                               Constant Currency
                                                                       %               2012             %
                                                                     Change          Adjusted         Change
                                           2012        2011         Reported          Amount         Adjusted
North America                             $ 370.1     $ 334.1            10.8 %     $    373.4            11.8 %
EMEA                                        111.7       119.1            (6.2 )%         123.8             3.9 %
APSA                                        113.7       117.2            (3.0 )%         115.9            (1.1 )%

Segment net sales                           595.5       570.4             4.4 %          613.1             7.5 %
Foreign exchange                               -           -                             (17.6 )           n/m

Net sales                                 $ 595.5     $ 570.4             4.4 %     $    595.5             4.4 %


                                                                                             Non-GAAP
Operating Income                                                                        Constant Currency
                                                                       %               2012             %
                                                                     Change          Adjusted         Change
                                           2012        2011         Reported          Amount         Adjusted
North America                             $ 105.4     $  95.1            10.8 %     $    104.2             9.6 %
EMEA                                         23.4        24.6            (4.9 )%          26.3             6.9 %
APSA                                         22.8        19.4            17.5 %           20.5             5.7 %

Segment operating income                    151.6       139.1             9.0 %          151.0             8.6 %
Deduct:
Foreign exchange                               -           -                              (0.6 )
Business separation costs (Note 6)           13.8         8.0                             13.8
Restructuring charges (gains) (Note 7)        0.4        (0.2 )                            0.4
Other charges (Note 7)                       11.7         1.4                             11.7
Unallocated corporate costs (Note 16)          -         10.2                               -

Operating income                          $ 125.7     $ 119.7             5.0 %     $    125.7             5.0 %

We also evaluate our segment net sales on a "comparable basis" (a non-GAAP measure). In addition to excluding the impact of foreign currency rate changes, comparable sales are adjusted for the impact of acquisitions/divestitures. In the following discussion, we refer to sales presented on this basis as "comparable net sales." The Company believes that comparable net sales growth is useful in evaluating the Company's sales growth year-over-year excluding items that are not indicative of underlying sales performance. Below is a reconciliation of GAAP segment net sales growth to comparable segment net sales growth for the second quarter of 2012 as compared to the second quarter of 2011.

                                              North
                                             America        EMEA        APSA
          Net sales growth (GAAP)                  11 %        (6 )%       (3 )%
          Foreign exchange rates (a)                1 %        10 %         2 %
          Acquisitions/divestitures (b)            (4 )%       (3 )%       -

          Comparable net sales (Non-GAAP)           8 %         1 %        (1 )%

(a) Impacts of translating current year sales at prior year exchange rates and hedging activity.

(b) Impact is primarily due to the acquisition of the Pinnacle assets in the second quarter of 2012 and the acquisition of the Cooley business in the first quarter of 2012.

North America

North America comparable net sales growth was 8% in the second quarter of 2012, benefiting from higher volume, innovation and product mix. Net sales volume and product mix benefited from strong growth for our Power Brands and Rising Stars brands, led by Jim Beam, Maker's Mark, and Skinnygirl. Our bourbon portfolio delivered strong growth, including Maker's Mark, which partly benefited from buy-in ahead of price increases, as well as growth for Jim Beam. Growth in Skinnygirl products in the U.S. and Canada, including initial distributor inventory purchases for the new vodka, wine and ready-to-serve products, also benefited results.

On a constant currency basis, North America operating income increased by $9.1 million, or 10%, from $95.1 million in the second quarter of 2011 to $104.2 million in the second quarter of 2012. Operating income increased principally due to increased sales and favorable product mix, relatively consistent with the sales increase described above, partially offset by increased advertising and marketing expense.

Europe/Middle East/Africa

EMEA comparable net sales growth was 1% in the second quarter of 2012, benefiting primarily from increased sales volume, including the benefit of new product innovations, such as Sourz Fusionz Ready-to-Drink (U.K.), Jim Beam Honey (Germany and U.K.), and Jim Beam Devil's Cut and Jim Beam Ready-to-Drink (both in Germany), 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, and the adverse impact of a decrease in non-branded sales.

On a constant currency basis, EMEA operating income increased by $1.7 million, or 7%, from $24.6 million in the second quarter of 2011 to $26.3 million in the second quarter of 2012. The increase in operating income was principally due to increased net sales, which increased 4% on a constant currency basis, and lower advertising and marketing expense in the second quarter of 2012 as compared to the year-ago period due to significant expense in the second quarter of 2011 for the launch of Red Stag in Germany, and lower second quarter 2012 expense following higher expense in the first quarter of 2012.

Asia-Pacific/South America

APSA comparable net sales decreased 1% in the second quarter of 2012, as compared to the 2011 period, primarily due to the timing of shipments. The 2011 period benefited from our new distribution contract in Australia, which we entered into at the end of the first quarter of 2011 and resulted in higher volumes in the second quarter of 2011 due to the timing of shipments to our distributor. Additionally, the second quarter of 2011 was favorably impacted by a route to market transition in Brazil that resulted in greater shipments in the period.

On a constant currency basis, APSA operating income increased $1.1 million, or 6%, from $19.4 million in the second quarter of 2011 to $20.5 million in the second quarter of 2012. Operating income increased principally due to a decrease in advertising and marketing expense, which was primarily due to the timing of advertising and marketing programs.

Consolidated Results for the Six Months Ended June 30, 2012 Compared to the Six
Months Ended June 30, 2011

Net sales

The following table presents a reconciliation of GAAP net sales growth to
comparable net sales growth for the six months ended June 30, 2012 as compared
to the six months ended June 30, 2011:



                                                         Consolidated
                                                       Net Sales Growth
        Net sales growth (GAAP)                                        3 %
        Foreign exchange rates (a)                                     1 %
        Acquisitions/divestitures (b)                                 (2 )%
        Australia distribution one-time sale (c)                       5 %
        Australia distribution margin structure (d)                    1 %

        Comparable net sales (Non-GAAP)                                8 %

(a) Impacts of translating current year sales at prior year exchange rates and hedging activity.

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

(c) In the first quarter of 2011, we transitioned from an agency agreement to a manufacturing and distribution agreement in Australia. The transition to the new agreement included a one-time sale of inventory.

(d) Under the new agreement in Australia, 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 $34.9 million, or 3%, from $1,094.4 million in the six months ended June 30, 2011 to $1,129.3 million in the six months ended June 30, 2012. Comparable net sales growth for North America, EMEA and APSA was 10%, 5% and 7%, respectively. This growth was primarily due to innovation and strong demand for our bourbon brands as well as other regional factors described below.

Approximately one-third of our comparable net sales growth for the six months ended June 30, 2012 was due to new product innovations. 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. Increased volume contributed three-quarters of comparable net sales growth with product mix and price contributing the rest of the growth. Volume in North America benefited from increased customer orders and shipments ahead of planned price increases.

Consistent with the second quarter results, our net sales growth in the current year-to-date period was driven by Power Brands and Rising Stars. Our Power Brands net sales growth on a GAAP basis was 4%. Power Brands grew 12% on a comparable basis adjusting for the year-over-year impact of the Australia distributor change (+6%) described above, foreign exchange (+2%) and acquisitions/divestitures (-2%). Net sales of Rising Stars brands grew 19% on both a GAAP and comparable basis.

Cost of goods sold

Cost of goods sold decreased $3.6 million, or 1%, from $471.3 million in the six months ended June 30, 2011 to $467.7 million in the six months ended June 30, 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 5%), a favorable foreign currency impact (4%), and the favorable impact of our productivity initiatives achieved under our "Fuel Our Growth" strategy. These benefits were partially offset by an increase in raw materials costs, increased volumes and product mix consistent with sales volume and mix increases described above under "Net sales", as well as the impact of acquisitions.

For the full year 2012, we expect that raw material costs will be approximately $25 to $30 million higher than in 2011. We seek to offset this increase with the continued implementation of productivity and efficiency initiatives.