UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period Commission file number 1-9076
ended March 31, 1995
AMERICAN BRANDS, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3295276
- ------------------------------- --------------------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1700 East Putnam Avenue, Old Greenwich, Connecticut 06870-0811
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 698-5000
------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes (X) No ( )
The number of shares outstanding of the registrant's Common stock, par value
$3.125 per share, at April 28, 1995 was 188,836,021 shares.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
- ------ --------------------
AMERICAN BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
--------------------------------------
(In millions)
March 31, December 31,
1995 1994
------------ ------------
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 903.5 $ 110.1
Accounts receivable, net 1,554.2 1,067.9
Inventories
Leaf tobacco 151.7 132.2
Bulk whiskey 355.2 351.4
Other raw materials, supplies
and work in process 289.0 266.8
Finished products 654.9 1,265.3
------- --------
1,450.8 2,015.7
Net assets of discontinued
operations - 1,170.0
Other current assets 205.3 307.2
-------- --------
Total current assets 4,113.8 4,670.9
Property, plant and equipment, net 1,220.2 1,212.7
Intangibles resulting from
business acquisitions, net 3,548.8 3,549.1
Other assets 398.1 361.7
-------- --------
Total assets $9,280.9 $9,794.4
======== ========
See Notes to Condensed Consolidated Financial Statements.
-1-
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
---------------------------------------
(In millions, except per share amounts)
March 31, December 31,
1995 1994
------------- -------------
(Unaudited)
Liabilities and stockholders' equity
Current liabilities
Notes payable to banks $ 131.6 $ 77.3
Commercial paper - 103.3
Accounts payable 326.1 471.4
Accrued expenses and other liabilities 846.9 856.2
Accrued excise and other taxes 1,189.4 1,082.1
Current portion of long-term debt 513.8 525.2
--------- --------
Total current liabilities 3,007.8 3,115.5
Long-term debt 1,458.8 1,512.1
Deferred income taxes 143.4 133.0
Postretirement and other liabilities 399.4 396.3
--------- --------
Total liabilities 5,009.4 5,156.9
--------- --------
$2.67 Convertible Preferred stock -
redeemable at Company's option 15.3 15.7
--------- --------
Common stockholders' equity
Common stock, par value $3.125 per
share, 229.6 shares issued 717.4 717.4
Paid-in capital 176.1 174.6
Foreign currency adjustments (209.5) (249.0)
Retained earnings 4,742.3 4,724.4
Treasury stock, at cost (1,170.1) (745.6)
--------- --------
Total Common stockholders' equity 4,256.2 4,621.8
--------- --------
Total liabilities and
stockholders' equity $ 9,280.9 $9,794.4
========= ========
See Notes to Condensed Consolidated Financial Statements.
-2-
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
for the Three Months Ended March 31, 1995 and 1994
----------------------------------------------------
(In millions, except per share amounts)
(Unaudited)
1995 1994
(Restated)
---------- ----------
Net sales $2,792.5 $3,000.9
-------- --------
Cost of products sold 826.5 911.2
Excise taxes on products sold 1,277.7 1,215.3
-------- --------
2,104.2 2,126.5
-------- --------
Gross profit 688.3 874.4
-------- --------
Advertising, selling and
administrative expenses 402.0 559.6
Amortization of intangibles 24.1 23.9
-------- --------
426.1 583.5
-------- --------
Operating income 262.2 290.9
-------- --------
Interest and related expenses 46.0 57.3
Corporate administrative expenses 22.2 7.7
Other (income) expenses, net (7.1) 2.7
-------- --------
61.1 67.7
-------- --------
Income from continuing operations
before income taxes 201.1 223.2
Income taxes 84.5 93.7
-------- --------
Income from continuing operations 116.6 129.5
Income from discontinued operations - 19.7
-------- --------
Net income $ 116.6 $ 149.2
======== ========
See Notes to Condensed Consolidated Financial Statements.
-3-
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
for the Three Months Ended March 31, 1995 and 1994 (Concluded)
----------------------------------------------------------------
(In millions, except per share amounts)
(Unaudited)
1995 1994
(Restated)
------ ----------
Earnings per Common share
Primary
Income from continuing operations $.60 $.64
Income from discontinued operations - .10
---- ----
Net income $.60 $.74
==== ====
Fully diluted
Income from continuing operations $.59 $.63
Income from discontinued operations - .09
---- ----
Net income $.59 $.72
==== ====
Dividends paid per Common share $.50 $.4925
==== ======
Average number of Common shares outstanding
Primary 194.5 201.8
===== =====
Fully diluted 206.6 213.5
===== =====
See Notes to Condensed Consolidated Financial Statements.
-4-
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
for the Three Months Ended March 31, 1995 and 1994
----------------------------------------------------
(In millions)
(Unaudited)
1995 1994
(Restated)
------ ----------
Operating activities
Net income $ 116.6 $ 149.2
Income from discontinued operations - (19.7)
Depreciation and amortization 66.7 74.9
Increase in accounts receivable (460.8) (315.2)
Decrease in inventories 595.7 181.1
Decrease in accounts payable, accrued
expenses and other liabilities (250.7) (219.2)
Increase in accrued excise and other taxes 74.8 579.8
Other operating activities, net 151.9 116.5
-------- -------
Net cash provided from continuing operating
activities 294.2 547.4
-------- -------
Investing activities
Additions to property, plant and equipment (38.3) (33.4)
Proceeds from the disposition of operations,
net of cash 1,166.4 -
Other investing activities, net (3.0) 3.6
-------- -------
Net cash provided (used) by investing activities 1,125.1 (29.8)
-------- -------
Financing activities
Decrease in short-term debt (51.5) (207.3)
Repayment of long-term debt (73.6) (198.2)
Dividends to stockholders (98.7) (99.7)
Cash purchases of Common stock for treasury (421.0) -
Other financing activities, net 9.6 0.4
-------- -------
Net cash used by financing activities (635.2) (504.8)
-------- -------
Effect of foreign exchange rate changes on cash 9.3 1.9
-------- -------
Cash provided by discontinued operations - 10.3
-------- -------
Net increase in cash and cash equivalents 793.4 25.0
Cash and cash equivalents at beginning of period 110.1 62.5
-------- -------
Cash and cash equivalents at end of period $ 903.5 $ 87.5
======== =======
See Notes to Condensed Consolidated Financial Statements.
-5-
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Principles of Consolidation
The condensed consolidated balance sheet as of March 31, 1995 and
the related condensed consolidated statements of income and cash flows
for the three-month periods ended March 31, 1995 and 1994 are
unaudited. In the opinion of management, all adjustments necessary for
a fair presentation of such financial statements have been included.
Such adjustments consisted only of normal recurring items. Interim
results may not be indicative of results for a full year.
The 1994 condensed consolidated financial statements were restated
to reflect the Franklin life insurance business as a discontinued
operation.
The condensed consolidated financial statements and notes are
presented as permitted by Form 10-Q and do not contain certain
information included in the Company's annual consolidated financial
statements and notes. The year-end condensed consolidated balance sheet
was derived from the Company's audited financial statements, but does
not include all disclosures required by generally accepted accounting
principles. This Form 10-Q should be read in conjunction with the
Company's consolidated financial statements and notes incorporated by
reference in its 1994 Annual Report on Form 10-K.
2. Dispositions
On July 12, 1994, Dollond & Aitchison Group PLC, a subsidiary of
Gallaher Limited, was sold for total consideration of $146 million,
which approximated the carrying value of the company.
On December 22, 1994, the Company sold The American Tobacco
Company, its domestic tobacco business, for $1 billion in cash, before
related expenses. An after-tax gain of $508.3 million, or $2.52 per
Common share, was recognized on the transaction in the fourth quarter
of 1994.
The Company announced plans to dispose of a number of nonstrategic
businesses and product lines, including U.K.-based Forbuoys and
Prestige, both subsidiaries of Gallaher Limited, and in the fourth
quarter of 1994 recorded an after-tax loss of $241.3 million, or $1.20
per Common share, substantially non-cash, based on the anticipated sale
of these businesses for proceeds in the range of $150-$175 million. The
sale of Prestige was completed on May 2, 1995.
-6-
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Discontinued Operations
On November 30, 1994, the Company entered into an agreement to
sell its Franklin life insurance business for $1.17 billion in cash,
before related expenses. A net loss of $206.8 million was recognized on
the transaction in the fourth quarter of 1994 in discontinued
operations. The sale was completed on January 31, 1995.
Summarized data for Franklin, net of interest allocation, is as
follows (in millions):
Three Months Ended
March 31, 1994
------------------
Revenues $247.3
======
Income before taxes $33.3
=====
Net income $19.7
=====
4. Supplementary Profit and Loss Information
Federal and foreign excise taxes included in net sales are as
follows (in millions):
Three Months
Ended March 31,
---------------------
1995 1994
-------- --------
International tobacco $1,175.9 $1,028.3
Domestic tobacco - 96.3
Distilled spirits l01.8 90.7
-------- --------
$1,277.7 $1,215.3
======== ========
5. Earnings Per Share
Earnings per Common share are based on the weighted average number
of Common shares outstanding in each period and after preferred stock
dividend requirements.
Fully diluted earnings per Common share assume that any
convertible debentures and convertible preferred shares outstanding at
the beginning of each period, or at their date of issuance, if later,
were converted at those dates, with related interest, preferred stock
dividend requirements and outstanding Common shares adjusted
accordingly. It also assumes that outstanding Common shares were
increased by shares issuable upon exercise of those stock options for
which market price exceeds exercise price, less shares which could have
been purchased by the Company with related proceeds.
-7-
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Concluded)
6. Pending Litigation
The Company and its subsidiaries are defendants in various
lawsuits associated with their business and operations, including
actions based upon allegations that human ailments have resulted from
tobacco use. It is not possible to predict the outcome of the pending
litigation, but management believes that there are meritorious defenses
to the pending actions and that the pending actions will not have a
material adverse effect upon the results of operations, cash flow or
financial condition of the Company. These actions are being vigorously
contested.
On December 22, 1994, the Company sold The American Tobacco
Company subsidiary to Brown & Williamson Tobacco Corporation, a
wholly-owned subsidiary of B.A.T Industries p.l.c. In connection with
the sale, Brown & Williamson Tobacco Corporation and The American
Tobacco Company agreed to indemnify the Company against claims arising
from smoking and health and fire safe cigarette matters relating to the
tobacco business of The American Tobacco Company.
7. Environmental
The Company is subject to laws and regulations relating to the
protection of the environment. While it is not possible to quantify
with certainty the potential impact of actions regarding environmental
matters, particularly remediation and other compliance efforts that the
Company's subsidiaries may undertake in the future, in the opinion of
management, compliance with the present environmental protection laws,
before taking into account estimated recoveries from third parties,
will not have a material adverse effect upon the results of operations,
cash flow or financial condition of the Company.
8. Subsequent Event
On April 11, 1995, holders of $199.5 million of the $200 million
5 3/4% Eurodollar Convertible Debentures, Due 2005, exercised their
right to "put" their debentures at a price of 114.74%, plus accrued
interest. This resulted in a total payment by the Company of
$240.4 million, including premium and accrued interest, and will have
the effect of reducing fully diluted shares by 5.1 million.
-8-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors of American Brands, Inc.:
We have reviewed the condensed consolidated balance sheet of
American Brands, Inc. and Subsidiaries as of March 31, 1995, and the
related condensed consolidated statements of income and cash flows for
the three-month periods ended March 31, 1995 and 1994. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data, and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit in accordance with generally
accepted auditing standards, the objective of which is the expression
of an opinion regarding the consolidated financial statements taken as
a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the condensed consolidated
financial statements referred to above for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet as of December 31,
1994, and the related consolidated statements of income, cash flows and
Common stockholders' equity for the year then ended (not presented
herein) and in our report dated February 1, 1995, we expressed an
unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 1994 is fairly stated, in
all material respects, in relation to the consolidated balance sheet
from which it has been derived.
COOPERS & LYBRAND L.L.P.
1301 Avenue of the Americas
New York, New York
May 11, 1995
-9-
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------- AND RESULTS OF OPERATIONS.
-----------------------------------------------------------
AMERICAN BRANDS, INC. AND SUBSIDIARIES
--------------------------------------
Results of Operations for Three Months Ended March 31, 1995 as Compared
to Three Months Ended March 31, 1994
-----------------------------------------------------------------------
Net Sales Operating Income
--------------------- -------------------
1995 1994 1995 1994
(Restated) (Restated)
-------- ---------- ------ ----------
(In millions)
International tobacco $1,523.1 $1,330.3 $147.7 $125.1
Distilled spirits 255.2 240.6 27.2 30.1
Hardware and home
improvement products 322.3 289.3 46.0 41.0
Office products 285.5 232.9 17.3 14.3
Golf and leisure products 149.9 133.5 23.4 21.3
Other businesses 256.5 397.8 0.6 3.7
-------- -------- ------ ------
Ongoing operations 2,792.5 2,624.4 262.2 235.5
Domestic tobacco - 376.5 - 55.4
-------- -------- ------ ------
Continuing operations $2,792.5 $3,000.9 $262.2 $290.9
======== ======== ====== ======
CONSOLIDATED
- ------------
Net sales and operating income from ongoing operations (which excludes domestic
tobacco and life insurance) increased 6% and 11%, respectively. Translation of
foreign currencies at higher average exchange rates favorably affected net sales
and operating income by $120.7 million and $10 million, respectively. Excluding
the effect of the foreign exchange, net sales from ongoing operations were up 2%
on price increases (including international tobacco excise tax increases) and on
new products, partly offset by the absence of optical goods and services as well
as volume declines, principally in other businesses. Operating income from
ongoing operations, excluding the effect of foreign exchange, was up 7% on
increases in most major business segments except distilled spirits.
Consolidated net sales and operating income from continuing operations (which
includes domestic tobacco for 1994) decreased 7% and 10%, respectively.
Corporate administrative expenses increased $14.5 million, reflecting
unfavorable comparisons to last year's reversal of accruals, notably for
nontobacco legal fees and a headquarters workforce reduction accomplished in
1994, and this year's higher stock appreciation rights expense.
-10-
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
CONSOLIDATED (Concluded)
- ------------
Both the decrease in interest and related expenses and the favorable change in
other (income) expenses, net, are related to the use of proceeds from the
disposition of The American Tobacco Company and the Franklin life insurance
business, and resulted in lower average borrowings and higher interest income,
respectively.
Income from continuing operations of $116.6 million, or 60 cents per Common
share, for the three months ended March 31, 1995 compared with $129.5 million,
or 64 cents per share, last year. The decrease reflects the absence of The
American Tobacco Company's results of operations.
Net income of $116.6 million, or 60 cents per Common share, for the three months
ended March 31, 1995, compared with $149.2 million, or 74 cents per share, last
year, which included $19.7 million, or ten cents per share from discontinued
operations. Lower average Common shares outstanding in 1995 benefited E.P.S. by
two cents.
Reported income from continuing operations in 1995 will continue to be
negatively affected, when compared to 1994, by the absence of the results of
domestic tobacco and the fourth quarter's net gain on disposal of businesses,
partly offset by lower interest expense and higher interest income based on
existing levels of borrowings and investments. In addition, last year's second
quarter benefited from the reversal of tax provisions no longer required,
resulting in an unusually low effective tax rate which is likely to adversely
affect comparisons.
Of the 20 million share purchase authorization adopted by the Board of Directors
in connection with the sale of American Tobacco and Franklin, approximately 13.8
million shares had been purchased as of May 9, 1995. Subject to market
conditions, the Company intends to complete share purchases under this
authorization and will consider whether further share purchases would be in the
best interest of shareholders. Earnings per Common share in 1995 will continue
to benefit from the Company's purchase of shares of its Common stock.
The Company is seeking acquisitions with the principal objective of accelerating
the growth of its hardware and home improvement, office products, golf and
leisure and distilled spirits businesses. It also has been proceeding to divest
several nonstrategic businesses and product lines.
The proportion of the Company's income from foreign sources in 1995 has
increased significantly due to the absence of the businesses sold. As a result,
fluctuations in foreign currencies, principally sterling, will increase the
volatility of dollar results in future periods.
See notes 6 and 7 in the Notes to Condensed Consolidated Financial Statements
for discussion of pending litigation and environmental matters.
-11-
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
International Tobacco
- ---------------------
International tobacco net sales in sterling were up 7% on price increases
(principally resulting from higher U.K. tobacco taxes and a manufacturers' price
increase in April 1994) and a 0.3% U.K. cigarette unit sales gain. This increase
in net sales was partly offset by an unfavorable product mix and cigarette and
cigar export volume declines of 10.4% and 16.9%, respectively. Gallaher
maintained its position as the number one tobacco company in the U.K. Gallaher's
estimated share of consumer sales was 39.5%, as compared with 39.7% for last
year's first quarter. Consumer demand is estimated to have declined in the range
of 2.5% as compared with a decline of about 4.6% in last year's first quarter.
The U.K. cigarette industry volume is estimated to have declined 7.7%. Changes
in trade buying patterns related to U.K. budget announcements at the end of 1993
and 1994 caused distortions in the comparison between the first quarter of 1994
and 1995, which benefited the first quarter of 1995. Operating income in
sterling increased 11% on higher sales and improved gross margins, partly offset
by increased advertising costs on U.K. support for Benson and Hedges Special
Filter. In dollars, net sales and operating income increased 14% and 18%,
respectively, reflecting translation at higher average exchange rates.
Distilled Spirits
- -----------------
Worldwide net sales increased 6% and operating income decreased 10%.
Beam's net sales increased 6% principally as a result of domestic volume
increases, reflecting Beam's planned reduction in domestic trade inventory
levels in the first quarter of 1994. Domestic branded case sales increased 4.7%
principally reflecting an increase in Jim Beam bourbon. Operating income
increased 4% as the sales increase was partly offset by increased marketing
expenses, reflecting expenditures to promote Jim Beam bourbon's 200th
anniversary and higher international expenditures. International sales and
operating income increased on higher case sales and higher average foreign
exchange rates.
Whyte & Mackay's net sales in sterling increased slightly as a result of a 26
pence tax increase on a typical bottle effective January 1, 1995, largely offset
by price decreases, and U.K. and export volume declines of 5.7% and 24.2%,
respectively. The price and volume declines reflect widespread and intense
competitive pricing activity especially in an unsettled U.K. market. This year's
operating loss, which represented a 2.6 million pound decline from last year's
operating income, resulted from
-12-
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
Distilled Spirits (Concluded)
- -----------------
reduced gross margin reflecting the impact of significant price decreases in
last year's second quarter on buyers-own-brands in the U.K., volume declines and
an unfavorable product mix, partly offset by lower operating expenses. Due to
non-recurring items in 1994, principally one-time bulk sales late in the year,
reported comparisons for Whyte & Mackay will be negatively affected.
Hardware and Home Improvement Products
- --------------------------------------
Record net sales increased 11% on new products and line extensions, price
increases and volume gains. All four companies in the group achieved record net
sales. Record operating income was up 12% as all companies achieved growth.
Waterloo had particularly strong results due to volume gains with Sears. The
overall improved operating income reflected the sales increases, partly offset
by increased raw material costs and volume-related marketing expenses.
Office Products
- ---------------
Record net sales increased 23% on volume increases reflecting continued market
share gains, new products, higher average foreign exchange rates and limited
price increases. Operating income increased 21% reflecting the sales increase,
partly offset by increased lower-margin sales, higher volume-related expenses
and unfavorable impact of gains on the disposal of assets last year. The net
sales and operating income increases reflected improvements in both domestic and
international businesses. Excluding the effect of higher foreign exchange rates,
net sales and operating income increased 20% and 17%, respectively.
Golf and Leisure Products
- -------------------------
Record net sales increased 12% as all lines increased on new products and line
extensions. Record operating income increased 10% on the record sales, partly
offset by higher advertising, golf club demo programs for new products and
higher costs related to European expansion.
-13-
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
Other Businesses
- ----------------
Net sales declined $141.3 million (36%) and operating income decreased $3.1
million (84%). Excluding optical goods and services, sold in July 1994 and
Acushnet's rubber division, sold in December 1994, net sales declined $43.5
million (15%) and operating income decreased $2 million (77%). The unfavorable
change in net sales reflected volume declines in retail distribution, partly
offset by price increases and translation of sterling results at higher average
exchange rates. Other businesses principally includes a number of nonstrategic
businesses which the Company announced plans to dispose of during 1995,
including U.K.-based Forbuoys and Prestige. The sale of Prestige was completed
on May 2, 1995.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net cash provided from continuing operating activities of $294.2 million for the
quarter ended March 31, 1995, decreased $253.2 million yet exceeded the funds
required for capital expenditures and dividends by $157.2 million. The decrease
was largely attributable to international tobacco and the absence of American
Tobacco's cash flow of $59.5 million. The fluctuations in international
tobacco's accrued taxes, accounts receivable, and inventories reflect the
significant impact of last year's changes in trade buying patterns related to
U.K. budget announcements resulting in an unusually high cash flow from
operations in the first quarter last year.
Net cash provided from investing activities for the quarter ended March 31, 1995
was $1,125.1 million as compared with net cash used of $29.8 million in 1994,
principally reflecting proceeds received from the disposition of the Franklin
life insurance business.
Net cash used by financing activities for the quarter ended March 31, 1995 was
$635.2 million as compared with $504.8 million in 1994, reflecting the purchase
of over 11.5 million Common shares, partly offset by lower repayments of both
short and long-term debt.
Subject to market conditions, the Company intends to complete share purchases
under the 20 million share purchase authorization and will consider whether
further share purchases would be in the best interest of shareholders.
Total debt at March 31, 1995 aggregated $2.1 billion, a decrease of $113.7
million from December 31, 1994 largely reflecting the retirement of commercial
paper borrowings. The ratio of total debt to total capital increased slightly
from 32.4% at December 31, 1994 to 33% at March 31, 1995 reflecting the purchase
of Common shares.
-14-
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Concluded)
---------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES (Concluded)
- -------------------------------
Management believes that the Company's internally generated funds, together with
its access to global credit markets, are more than adequate to meet the
Company's capital needs.
The remaining proceeds from the disposition of businesses will be used for
further debt reduction, share purchases, and, as opportunities arise, strategic
acquisitions.
On April 11, 1995, holders of $199.5 million of the $200 million 5 3/4%
Eurodollar Convertible Debentures, Due 2005, exercised their right to "put"
their debentures at a price of 114.74%, plus accrued interest. This resulted in
a total payment by the Company of $240.4 million, including premium and accrued
interest, and will have the effect of reducing fully diluted shares by 5.1
million.
-15-
<PAGE>
PART I - EXHIBIT A
------------------
AMERICAN BRANDS, INC. AND SUBSIDIARIES
Computation of Net Income Per Common Share -
Primary and Fully Diluted (Unaudited)
--------------------------------------------
(In millions)
Three Months Ended
March 31,
----------------------
1995 1994
(Restated)
------ ----------
Income from continuing operations $116.6 $129.5
Preferred stock dividend requirements (0.3) (0.4)
------ ------
Income from continuing operations available for
computing earnings per Common share - primary 116.3 129.1
Income from discontinued operations - 19.7
------ ------
Net income for computing earnings
per Common share - primary $116.3 $148.8
====== ======
Income from continuing operations available for
computing earnings per Common share - primary $116.3 $129.1
Convertible preferred stock dividend requirements 0.3 0.4
Interest and related expenses on convertible
debentures 5.4 5.4
------ ------
Income from continuing operations available for
computing earnings per Common share -
fully diluted 122.0 134.9
Income from discontinued operations - 19.7
------ ------
Net income for computing earnings per Common
share - fully diluted $122.0 $154.6
====== ======
-16-
<PAGE>
PART I - EXHIBIT A (Concluded)
------------------
Computation of Weighted Average Number of
Common Shares Outstanding on a Fully Diluted Basis (Unaudited)
--------------------------------------------------------------
(In millions, except per share amounts)
Three Months Ended
March 31,
--------------------
1995 1994
(Restated)
----- ----------
Weighted average number of Common shares
outstanding during each period - primary 194.5 201.8
Addition from assumed conversion as of the
beginning of each period of the convertible
preferred stock outstanding at the end of
each period 2.1 2.2
Addition from assumed conversion of
convertible debentures 9.3 9.3
Other additions 0.7 0.2
----- -----
Weighted average number of Common shares
outstanding during each period on a
fully diluted basis 206.6 213.5
===== =====
Earnings per Common share
Primary
Income from continuing operations $.60 $.64
Income from discontinued operations - .10
---- ----
Net income $.60 $.74
==== ====
Fully diluted
Income from continuing operations $.59 $.63
Income from discontinued operations - .09
---- ----
Net income $.59 $.72
==== ====
-17-
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
- ------ -----------------
(a) Reference is made to paragraph (a) of Part I, Item 3, "Legal
Proceedings", of Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994.
(b) Reference is made to the discussion of People of the State of
California ex rel. Daniel E. Lungren, Attorney General of the State of
California v. American Standard, et al., and the related action, Natural
Resources Defense Council, et al., v. Price Pfister, Inc., et al., in paragraph
(b) of Item 3, "Legal Proceedings", of Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994. In Lungren, on March 22, 1995,
defendants filed a writ with the Court of Appeals challenging plaintiffs'
standing to bring this action. In the Natural Resources Defense Council matter,
on April 16, 1993, defendants filed a demurrer in respect of plaintiffs' claims
based on defendants' alleged intentional discharge of lead from faucets to
sources of drinking water. On May 5, 1994, the court issued an order granting
defendants' demurrer, and on May 25, 1994, the Attorney General appealed the
order. A hearing on the demurrer was held March 30, 1995, but an opinion has
not yet been issued.
(c) It is not possible to predict the outcome of the pending litigation
referenced in paragraphs (a) and (b) above, but management believes that there
are meritorious defenses to the pending actions and that the pending actions
will not have a material adverse effect upon the results of operations, cash
flow or financial condition of the Registrant. Reference is made to Note 6,
"Pending Litigation", in the Notes to Condensed Consolidated Financial
Statements set forth in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
- ------ --------------------------------
(a) Exhibits.
--------
12. Statement re computation of ratio of earnings to fixed
charges.
15. Letter from Coopers & Lybrand L.L.P. dated
May 11, 1995 re unaudited financial information.
23. Consent of Counsel, Chadbourne & Parke.
27. Financial Data Schedule (Article 5).
In lieu of filing certain instruments with respect to long-term debt of
the kind described in Item 601(b)(4) of Regulation S-K, Registrant agrees to
furnish a copy of such instruments to the Securities and Exchange Commission
upon request.
-18-
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K. (Concluded)
- ------ --------------------------------
(b) Reports on Form 8-K.
-------------------
Registrant filed a Current Report on Form 8-K, dated January 5, 1995,
in respect of Registrant's pro forma financial information in
connection with the sale of Registrant's subsidiary, The American
Tobacco Company, on December 22, 1994 (Items 2 and 7(b) and (c)).
Registrant filed a Current Report on Form 8-K, dated January 24, 1995,
in respect of Registrant's press release dated January 24, 1995
announcing Registrant's financial results for the three-month and
twelve-month periods ended December 31, 1994 (Items 5 and 7(c)).
Registrant filed a Current Report on Form 8-K, dated January 31, 1995,
announcing that the sale of Registrant's Franklin life insurance
business to American General Corporation for $1.17 billion in cash was
completed on January 31, 1995 (Items 5 and 7(c)).
Registrant filed a Current Report on Form 8-K, dated February 8, 1995,
in respect of (i) Registrant's pro forma financial information in
connection with the sale of Registrant's Franklin life insurance
business on January 31, 1995 and (ii) amendments to Registrant's
By-laws adopted on January 31, 1995 (Items 2 and 7(b) and (c)).
Registrant filed a Current Report on Form 8-K, dated February 16, 1995,
in respect of certain statements by Registrant to a consumer analyst
group (Items 5 and 7(c)).
Registrant filed a Current Report on Form 8-K, dated March 28, 1995, in
respect of Registrant's pro forma financial information in connection
with the previously reported sales of Registrant's American Tobacco
Company subsidiary and its Franklin life insurance business (Items 5
and 7(b)).
Registrant filed a Current Report on Form 8-K, dated April 24, 1995, in
respect of Registrant's press release dated April 24, 1995 announcing
Registrant's financial results for the three-month period ended March
31, 1995 (Items 5 and 7(c)).
-19-
<PAGE>
This Quarterly Report shall not be construed as a waiver of the right to contest
the validity or scope of any or all of the provisions of the Securities Exchange
Act of 1934 under the Constitution of the United States, or the validity of any
rule or regulation made or to be made under such Act.
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
AMERICAN BRANDS, INC.
---------------------
(Registrant)
Date: May 11, 1995 By R. L. Plancher
------------ -----------------------
R. L. Plancher
Senior Vice President and
Chief Accounting Officer
<PAGE>
EXHIBIT INDEX
-------------
Sequentially
Exhibit Numbered Page
- ------- -------------
12. Statement re computation of ratio of
earnings to fixed charges.
15. Letter from Coopers & Lybrand L.L.P. dated
May 11, 1995 re unaudited financial information.
23. Consent of Counsel, Chadbourne & Parke.
27. Financial Data Schedule (Article 5).
PART II - EXHIBIT 12
--------------------
<TABLE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollar amounts in millions)
<CAPTION>
Three Months
Ended
Years Ended December 31, March 31,
-------------------------------------------------------------- ---------
1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Earnings Available:
Income from continuing operations
before income taxes and minority
interest......................... $ 923.5 $1,107.0 $1,255.1 $ 878.9 $1,354.0 $201.1
Less: Excess of earnings over
dividends of less than
fifty percent owned
companies.................. 0.1 0.1 0.3 0.8 0.4 -
Capitalized interest....... 1.5 1.0 1.0 2.5 1.4 0.1
-------- -------- -------- -------- -------- ------
921.9 1,105.9 1,253.8 875.6 1,352.2 201.0
======== ======== ======== ======== ======== ======
Fixed Charges:
Interest expense (including
capitalized interest) and
amortization of debt discount
and expenses..................... 290.2 276.6 283.4 258.7 224.9 49.0
Portion of rentals representative
of an interest factor............ 27.4 30.4 32.3 29.8 27.1 5.5
-------- -------- -------- -------- -------- ------
Total Fixed Charges........ 317.6 307.0 315.7 288.5 252.0 54.5
-------- -------- -------- -------- -------- ------
Total Earnings Available... $1,239.5 $1,412.9 $1,569.5 $1,164.1 $1,604.2 $255.5
======== ======== ======== ======== ======== ======
Ratio of Earnings to Fixed Charges.... 3.90 4.60 4.97 4.04 6.37 4.69
==== ==== ==== ==== ==== ====
</TABLE>
<PAGE>
PART II - EXHIBIT 15
--------------------
May 11, 1995
Securities and Exchange Commission
450 5th Street, N.W.
Attention: Filing Desk, Stop 1-4
Washington, D.C. 20549-1004
Re: American Brands, Inc.
We are aware that our report dated May 11, 1995, on our review of
interim financial information of American Brands, Inc. and Subsidiaries for the
three-month period ended March 31, 1995 and 1994 included in this Form 10-Q, has
been incorporated by reference into (a) Post-Effective Amendment No. 4 to the
Registration Statement on Form S-8 (Registration No. 33-13363) relating to the
Profit-Sharing Plan of American Brands, Inc., the Registration Statement on Form
S-8 (Registration No. 33-58865) relating to the 1990 Long-Term Incentive Plan of
American Brands, Inc. and the prospectuses related thereto, and (b) the
prospectuses related to the Registration Statements on Form S-3 (Registration
Nos. 33-50832, 33-42397, 33-23039 and 33-3985) of American Brands, Inc. Pursuant
to Rule 436(c) under the Securities Act of 1933, this report should not be
considered a part of such registration statements or prospectuses or
certification by us within the meaning of Sections 7 and 11 of that Act.
Very truly yours,
COOPERS & LYBRAND L.L.P.
1301 Avenue of the Americas
New York, New York 10019
PART II - EXHIBIT 23
--------------------
CONSENT OF COUNSEL
We consent to the incorporation by reference of our opinions contained
in Part II, Item 1, "Legal Proceedings", of this Quarterly Report on Form 10-Q
of American Brands, Inc. into (a) Post-Effective Amendment No. 4 to the
Registration Statement on Form S-8 (Registration No. 33-13363) relating to the
Profit-Sharing Plan of American Brands, Inc., the Registration Statement on Form
S-8 (Registration No. 33-58865) relating to the 1990 Long-Term Incentive Plan of
American Brands, Inc., and the prospectuses related thereto, and (b) the
prospectuses related to the Registration Statements on Form S-3 (Registration
Nos. 33-50832, 33-42397, 33-23039 and 33-3985) of American Brands, Inc.
CHADBOURNE & PARKE
30 Rockefeller Plaza
New York, New York 10112
May 11, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AND RELATED
STATEMENT OF INCOME AS OF MARCH 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> $ 904
<SECURITIES> 0
<RECEIVABLES> 1,602
<ALLOWANCES> 48
<INVENTORY> 1,451
<CURRENT-ASSETS> 4,114
<PP&E> 2,281
<DEPRECIATION> 1,061
<TOTAL-ASSETS> $9,281
<CURRENT-LIABILITIES> 3,008
<BONDS> 1,459
<COMMON> 717
0
15
<OTHER-SE> 3,539
<TOTAL-LIABILITY-AND-EQUITY> 9,281
<SALES> $2,792
<TOTAL-REVENUES> 2,792
<CGS> 826
<TOTAL-COSTS> 826
<OTHER-EXPENSES> 1,278
<LOSS-PROVISION> 2
<INTEREST-EXPENSE> 46
<INCOME-PRETAX> 201
<INCOME-TAX> 84
<INCOME-CONTINUING> 117
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $ 117
<EPS-PRIMARY> $.60
<EPS-DILUTED> $.59
</TABLE>
