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 June 30, 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 July 31, 1995 was 185,818,004 shares.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
- ------ --------------------
AMERICAN BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
---------------------------------------
(In millions)
June 30, December 31,
1995 1994
------------ ------------
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 634.9 $ 110.1
Accounts receivable, net 1,358.5 1,067.9
Inventories
Leaf tobacco 164.1 132.2
Bulk whiskey 362.1 351.4
Other raw materials, supplies and
work in process 293.4 266.8
Finished products 577.4 1,265.3
------- --------
1,397.0 2,015.7
Net assets of discontinued
operations - 1,170.0
Other current assets 212.3 307.2
-------- --------
Total current assets 3,602.7 4,670.9
Property, plant and equipment, net 1,192.1 1,212.7
Intangibles resulting from
business acquisitions, net 3,493.2 3,549.1
Other assets 404.8 361.7
-------- --------
Total assets $8,692.8 $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)
June 30, December 31,
1995 1994
------------ ------------
(Unaudited)
Liabilities and stockholders' equity
Current liabilities
Notes payable to banks $ 64.6 $ 77.3
Commercial paper - 103.3
Accounts payable 324.4 471.4
Accrued expenses and other liabilities 724.2 856.2
Accrued excise and other taxes 1,115.9 1,082.1
Current portion of long-term debt 341.1 525.2
--------- --------
Total current liabilities 2,570.2 3,115.5
Long-term debt 1,436.3 1,512.1
Deferred income taxes 147.0 133.0
Postretirement and other liabilities 396.3 396.3
--------- --------
Total liabilities 4,549.8 5,156.9
--------- --------
$2.67 Convertible Preferred stock -
redeemable at Company's option 14.9 15.7
--------- --------
Common stockholders' equity
Common stock, par value $3.125 per
share, 229.6 shares issued 717.4 717.4
Paid-in capital 174.1 174.6
Foreign currency adjustments (219.0) (249.0)
Retained earnings 4,764.0 4,724.4
Treasury stock, at cost (1,308.4) (745.6)
--------- --------
Total Common stockholders' equity 4,128.1 4,621.8
--------- --------
Total liabilities and
stockholders' equity $ 8,692.8 $9,794.4
========= ========
See Notes to Condensed Consolidated Financial Statements.
- 2 -
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
for the Six Months Ended June 30, 1995 and 1994
-----------------------------------------------
(In millions, except per share amounts)
(Unaudited)
1995 1994
(Restated)
-------- ----------
Net sales $5,387.2 $6,041.8
-------- --------
Cost of products sold 1,605.0 1,888.7
Excise taxes on products sold 2,417.0 2,368.6
-------- --------
4,022.0 4,257.3
-------- --------
Gross profit 1,365.2 1,784.5
-------- --------
Advertising, selling and
administrative expenses 816.5 1,149.2
Amortization of intangibles 48.2 47.8
-------- --------
864.7 1,197.0
-------- --------
Operating income 500.5 587.5
-------- --------
Interest and related expenses 86.1 112.8
Corporate administrative expenses 42.2 28.7
Other (income) expenses, net (16.0) 4.9
-------- --------
112.3 146.4
-------- --------
Income from continuing operations before
income taxes 388.2 441.1
Income taxes 152.5 159.7
-------- --------
Income from continuing operations before
extraordinary item 235.7 281.4
Income from discontinued operations - 31.7
Extraordinary item (2.7) -
-------- --------
Net income $ 233.0 $ 313.1
======== ========
See Notes to Condensed Consolidated Financial Statements.
- 3 -
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
for the Six Months Ended June 30, 1995 and 1994 (Concluded)
-----------------------------------------------------------
(In millions, except per share amounts)
(Unaudited)
1995 1994
(Restated)
------ ---------
Earnings per Common share
Primary
Income from continuing operations $1.23 $1.39
Income from discontinued operations - .16
Extraordinary item (.01) -
----- -----
Net income $1.22 $1.55
===== =====
Fully diluted
Income from continuing operations $1.21 $1.37
Income from discontinued operations - .15
Extraordinary item (.01) -
----- -----
Net income $1.20 $1.52
===== =====
Dividends paid per Common share $1.00 $.9925
===== ======
Average number of Common shares outstanding
Primary 191.3 201.8
===== =====
Fully diluted 201.1 213.5
===== =====
See Notes to Condensed Consolidated Financial Statements.
- 4 -
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
for the Three Months Ended June 30, 1995 and 1994
-------------------------------------------------
(In millions, except per share amounts)
(Unaudited)
1995 1994
(Restated)
-------- ----------
Net sales $2,594.7 $3,040.9
-------- --------
Cost of products sold 778.5 977.5
Excise taxes on products sold 1,139.3 1,153.3
-------- --------
1,917.8 2,130.8
-------- --------
Gross profit 676.9 910.1
-------- --------
Advertising, selling and
administrative expenses 414.5 589.6
Amortization of intangibles 24.1 23.9
-------- --------
438.6 613.5
-------- --------
Operating income 238.3 296.6
-------- --------
Interest and related expenses 40.1 55.5
Corporate administrative expenses 20.0 21.0
Other (income) expenses, net (8.9) 2.2
-------- --------
51.2 78.7
-------- --------
Income from continuing operations before
income taxes 187.1 217.9
Income taxes 68.0 66.0
-------- --------
Income from continuing operations before
extraordinary item 119.1 151.9
Income from discontinued operations - 12.0
Extraordinary item (2.7) -
-------- --------
Net income $ 116.4 $ 163.9
======== ========
See Notes to Condensed Consolidated Financial Statements.
- 5 -
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
for the Three Months Ended June 30, 1995 and 1994 (Concluded)
-------------------------------------------------------------
(In millions, except per share amounts)
(Unaudited)
1995 1994
(Restated)
------ ---------
Earnings per Common share
Primary
Income from continuing operations $.63 $.75
Income from discontinued operations - .06
Extraordinary item (.01) -
---- ----
Net income $.62 $.81
==== ====
Fully diluted
Income from continuing operations $.62 $.74
Income from discontinued operations - .06
Extraordinary item (.01) -
---- ----
Net income $.61 $.80
==== ====
Dividends paid per Common share $.50 $.50
==== ====
Average number of Common shares outstanding
Primary 188.0 201.8
===== =====
Fully diluted 195.6 213.4
===== =====
See Notes to Condensed Consolidated Financial Statements.
- 6 -
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
for the Six Months Ended June 30, 1995 and 1994
-----------------------------------------------
(In millions)
(Unaudited)
1995 1994
(Restated)
------ ----------
Operating activities
Net income $ 233.0 $ 313.1
Income from discontinued operations - (31.7)
Extraordinary item 2.7 -
Depreciation and amortization 131.3 150.7
Increase in accounts receivable (295.3) (62.4)
Decrease in inventories 621.1 308.4
Decrease in accounts payable, accrued
expenses and other liabilities (213.0) (185.0)
Increase in accrued excise and other taxes 13.2 229.3
Other operating activities, net 98.1 92.9
-------- -------
Net cash provided from continuing operating
activities 591.1 815.3
-------- -------
Investing activities
Additions to property, plant and equipment (86.5) (74.5)
Proceeds from the disposition of operations,
net of cash 1,173.2 -
Other investing activities, net (8.6) (3.1)
-------- -------
Net cash provided (used) by investing activities 1,078.1 (77.6)
-------- -------
Financing activities
Decrease in short-term debt (81.3) (243.2)
Repayment of long-term debt (288.6) (263.8)
Dividends to stockholders (193.4) (201.1)
Cash purchases of Common stock for treasury (598.0) (20.1)
Other financing activities, net 13.0 0.9
-------- -------
Net cash used by financing activities (1,148.3) (727.3)
-------- -------
Effect of foreign exchange rate changes on cash 3.9 5.1
-------- -------
Cash provided by discontinued operations - 24.0
-------- -------
Net increase in cash and cash equivalents 524.8 39.5
Cash and cash equivalents at beginning of period 110.1 62.5
-------- -------
Cash and cash equivalents at end of period $ 634.9 $ 102.0
======== =======
See Notes to Condensed Consolidated Financial Statements.
- 7 -
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Principles of Consolidation
The condensed consolidated balance sheet as of June 30, 1995, the
related condensed consolidated statements of income for the three-
month and six-month periods ended June 30, 1995 and 1994 and the
related condensed consolidated statement of cash flows for the six-
month periods ended June 30, 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. The sale of Prestige was completed on May 2, 1995.
The sale of the retail distribution group, including Forbuoys Limited,
TM Group Limited and Marshell Group Limited, was completed on July 24,
1995. Proceeds from the sales completed to date were in the $150-$175
million range.
- 8 -
<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):
Six Months Ended Three Months Ended
June 30, 1994 June 30, 1994
--------------- ------------------
Revenues $484.4 $237.1
====== ======
Income before taxes $53.9 $20.6
====== =====
Net income $31.7 $12.0
====== =====
4. Supplementary Profit and Loss Information
Federal and foreign excise taxes included in net sales are as
follows (in millions):
Six Months Three Months
Ended June 30, Ended June 30,
------------------ -------------------
1995 1994 1995 1994
-------- ------ -------- --------
International tobacco $2,197.6 $1,949.8 $1,021.7 $ 921.5
Domestic tobacco - 212.7 - 116.4
Distilled spirits 219.4 206.1 117.6 115.4
-------- -------- -------- --------
$2,417.0 $2,368.6 $1,139.3 $1,153.3
======== ======== ======== ========
The higher effective income tax rates for the three-month and six-
month periods ended June 30, 1995 principally reflected lower
reversals of tax provisions no longer required.
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
- 9 -
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Concluded)
5. Earnings Per Share - (Concluded)
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.
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. Extraordinary Item
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 reduce fully
diluted shares by 5.1 million. The extinguishment of debt resulted in
a charge of $4.1 million ($2.7 million net of taxes).
- 10 -
<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 June 30, 1995, the
related condensed consolidated statements of income for the
three-month and six-month periods ended June 30, 1995 and 1994 and the
related condensed consolidated statement of cash flows for the six-
month periods ended June 30, 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
August 10, 1995
- 11 -
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------- AND RESULTS OF OPERATIONS.
-----------------------------------------------------------
AMERICAN BRANDS, INC. AND SUBSIDIARIES
--------------------------------------
Results of Operations for the Six Months Ended June 30, 1995 as Compared
to the Six Months Ended June 30, 1994
-----------------------------------------------------------------------
Net Sales Operating Income
---------------------- -------------------
1995 1994 1995 1994
(Restated) (Restated)
-------- --------- ----- ---------
(In millions)
International tobacco $2,857.1 $2,545.7 $248.1 $218.0
Distilled spirits 570.5 533.5 75.0 74.9
Hardware and home
improvement products 634.5 598.3 88.0 86.2
Office products 544.5 465.6 25.9 21.6
Golf and leisure products 342.3 301.4 60.2 54.1
Other businesses 438.3 815.2 3.3 7.1
-------- -------- ------ ------
Ongoing operations 5,387.2 5,259.7 500.5 461.9
Domestic tobacco - 782.1 - 125.6
-------- -------- ------ ------
Continuing operations $5,387.2 $6,041.8 $500.5 $587.5
======== ======== ====== ======
CONSOLIDATED
- ------------
Net sales and operating income from ongoing operations (which excludes
domestic tobacco and life insurance) increased 2% and 8%, respectively.
Net sales and operating income from ongoing operations, excluding the
favorable effects of higher average foreign exchange rates of $220.9
million and $16.8 million, respectively, as well as the results of the
nonstrategic businesses disposed (see note 2 in the Notes to Condensed
Consolidated Financial Statements), were up 6% and 5%, respectively. This
net sales increase was due to price increases (including international
tobacco excise tax increases), new products and line extensions, partly
offset by volume declines and the operating income increase was due to the
higher sales, partly offset by increased operating expenses.
Consolidated net sales and operating income from continuing operations
(which includes domestic tobacco for 1994) decreased 11% and 15%,
respectively.
Corporate administrative expenses increased $13.5 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.
- 12 -
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
CONSOLIDATED (Continued)
- ------------
The decrease in interest and related expenses and the favorable change in
other (income) expenses, net, reflect 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.
The increase in the effective income tax rate to 39.3% from 36.2% in 1994
principally reflected lower reversals of tax provisions no longer required.
Income from continuing operations before extraordinary item of $235.7
million, or $1.23 per Common share, for the six months ended June 30, 1995,
compared with $281.4 million, or $1.39 per share, last year. The decrease
reflects the absence of The American Tobacco Company's results of
operations.
The extraordinary item reflects a charge ($4.1 million, $2.7 million net of
taxes) for the extinguishment of debt resulting from holders of the
Company's 5 3/4% Eurodollar Convertible Debentures exercising their right
to "put" the debentures.
Net income of $233 million, or $1.22 per Common share, for the six months
ended June 30, 1995, compared with $313.1 million, or $1.55 per share, last
year, which included $31.7 million, or 16 cents per share from discontinued
operations. Lower average Common shares outstanding in 1995 benefited
E.P.S. by six 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.
Of the 20 million share purchase authorization adopted by the Board of
Directors in connection with the sale of American Tobacco and Franklin,
17.2 million shares had been purchased as of August 8, 1995. Subject to
market conditions, the Company intends to complete share purchases under
this authorization. In addition, the Company has authority to purchase an
additional five million shares which, subject to market conditions, may be
purchased this year. The Company will also consider whether further share
purchases beyond the current authorizations would be in the best interest
of its shareholders. Earnings per Common share in 1995 will continue to
benefit from the Company's purchase of shares of its Common stock.
- 13 -
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
CONSOLIDATED (Concluded)
- ------------
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. With the sale
of its retail distribution operations on July 24, 1995, the Company has
substantially completed the disposition of nonstrategic businesses and
product lines announced earlier this year.
The proportion of the Company's income from foreign sources in 1995 has
increased significantly due to the absence of the domestic 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.
International Tobacco
- ---------------------
International tobacco net sales in sterling were up 6% principally on price
increases resulting from higher U.K. tobacco taxes and manufacturers' price
increases in April 1995 and 1994. The effect of these price increases was
partly offset by a 1.6% U.K. cigarette unit sales decline as well as a
10.6% export decline, which reflected lower periodic shipments to the
C.I.S. Worldwide cigarette unit sales were down 3.3%. Gallaher maintained
its position as the number one tobacco company in the U.K. Gallaher's
estimated share of cigarette sales to consumers was 39.5%, as compared with
39.7% for last year's comparable six-month period. Consumer demand is
estimated to have declined in the range of 2.5% as compared with a decline
of about 4.1% last year. The U.K. cigarette industry volume is estimated
to have declined 8.1%. 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 half of 1994 and 1995. Operating income in
sterling increased 7% on higher sales, partly offset by higher operating
expenses, including increased advertising costs on U.K. support for Benson
and Hedges Special Filter. In dollars, net sales and operating income
increased 12% and 14%, respectively, reflecting translation at higher
average foreign exchange rates.
- 14 -
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
Distilled Spirits
- -----------------
Worldwide net sales increased 7% and operating income was up slightly.
Beam's net sales increased 5% principally on the introduction of After
Shock cordial and domestic volume increases, reflecting Beam's planned
reduction in domestic trade inventory levels in the first quarter of 1994.
Domestic case sales were up 2.3%, principally reflecting an increase in Jim
Beam bourbon. Operating income increased 2% as the sales increase was
partly offset by higher marketing expenses, including expenses to promote
Jim Beam bourbon's 200th anniversary, promotional costs related to the
introduction of After Shock and higher international expenditures.
International sales and operating income increased on a 9.3% volume gain
(principally Australia and Germany)and higher average foreign exchange
rates.
Whyte & Mackay's net sales in sterling increased 8% on the effects of a 26
pence tax increase in the U.K. on a typical bottle effective January 1,
1995 and a 3% U.K. volume gain principally reflecting higher commodity bulk
shipments, partly offset by a 3.5% export volume decline on lower commodity
bulk shipments. Operating income in sterling decreased 51% on higher
operating expenses, principally due to an unfavorable comparison to last
year's non-recurring items. Reported comparisons for the year for Whyte &
Mackay will be negatively affected by non-recurring items in 1994,
principally one-time bulk sales late in the year.
Hardware and Home Improvement Products
- --------------------------------------
Record net sales increased 6% on price increases, line extensions, volume
gains and new products. Operating income was up 2% reflecting the sales
increase and reversal of reserves related to a joint venture, partly offset
by increased raw material costs and volume-related marketing expenses.
Waterloo had particularly strong results due to volume gains with Sears.
Office Products
- ---------------
Record net sales increased 17% on new products, volume increases reflecting
continued market share gains, and higher average foreign exchange rates.
Operating income was up 20% reflecting the sales increase, partly offset by
higher raw material costs which were not fully recovered by price increases
in the first half, higher volume-related expenses and unfavorable
comparison to gains on the disposal of assets last year. The net sales
- 15 -
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
Office Products (Concluded)
- ---------------
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 15% and 16%, respectively.
Golf and Leisure Products
- -------------------------
Record net sales were up 14% on increases in all product lines, reflecting
benefits from line extensions and new products. Record operating income
increased 11% on record sales, partly offset by higher operating expenses,
including costs related to European expansion and volume-related marketing
expenses.
Other Businesses
- ----------------
Net sales and operating income declined 46% and 54%, respectively. With
the sales of Gallaher's U.K.-based retail distribution operations on July
24, 1995, housewares on May 2, 1995 and optical goods and services in July
1994, as well as Acushnet's rubber division in December 1994, the disposal
of all operations within the other businesses segment has been completed.
- 16 -
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net cash provided from continuing operating activities of $591.1 million
for the six months ended June 30, 1995, decreased $224.2 million yet
exceeded the funds required for capital expenditures and dividends by
$311.2 million. The decrease was largely attributable to the absence of
American Tobacco's cash flow of $118.3 million and the payment of $29.4
million related to the "put" exercise premium on the 5 3/4% Eurodollar
Convertible Debentures (see note 8 in the Notes to Condensed Consolidated
Financial Statements).
Net cash provided from investing activities for the six months ended June
30, 1995 was $1,078.1 million as compared with net cash used of $77.6
million in 1994, principally reflecting proceeds received from the
disposition of the Franklin life insurance business.
Net cash used by financing activities for the six months ended June 30,
1995 was $1,148.3 million as compared with $727.3 million in 1994,
reflecting the purchase of Common stock for treasury, partly offset by
lower repayment of short-term debt.
Subject to market conditions, the Company intends to complete share
purchases under the 20 million share purchase authorization before year
end. In addition, the Company has authority to purchase an additional five
million shares which, subject to market conditions, may be purchased this
year. The Company will also consider whether further share purchases
beyond the current authorizations would be in the best interest of its
shareholders.
Total debt at June 30, 1995 aggregated $1.8 billion, a decrease of $375.9
million from December 31, 1994 largely reflecting the exercise of the
5 3/4% Eurodollar Convertible Debentures' "put" and the retirement of
commercial paper borrowings. The ratio of total debt to total capital
decreased from 32.4% at December 31, 1994 to 30.8% at June 30, 1995
reflecting the lower debt levels, partly offset by the purchase of Common
stock for treasury.
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.
- 17 -
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
-------------------------------------------------------------
Results of Operations for the Three Months Ended June 30, 1995 as Compared
to the Three Months Ended June 30, 1994
- ---------------------------------------------------------------------------
Net Sales Operating Income
---------------------- -----------------
1995 1994 1995 1994
(Restated) (Restated)
-------- --------- ----- ---------
(In millions)
International tobacco $1,334.0 $1,215.4 $100.4 $ 92.9
Distilled spirits 315.3 292.9 47.8 44.8
Hardware and home
improvement products 312.2 309.0 42.0 45.2
Office products 259.0 232.7 8.6 7.3
Golf and leisure products 192.4 167.9 36.8 32.8
Other businesses 181.8 417.4 2.7 3.4
-------- -------- ------ ------
Ongoing operations 2,594.7 2,635.3 238.3 226.4
Domestic tobacco - 405.6 - 70.2
-------- -------- ------ ------
Continuing operations $2,594.7 $3,040.9 $238.3 $296.6
======== ======== ====== ======
CONSOLIDATED
- ------------
Net sales from ongoing operations (which excludes domestic tobacco and life
insurance) decreased 2% while operating income from ongoing operations
increased 5%. Net sales and operating income from ongoing operations,
excluding the favorable effects of higher average foreign exchange rates of
$100.2 million and $6.8 million, respectively, as well as the results of
the nonstrategic businesses disposed (see note 2 in the Notes to Condensed
Consolidated Financial Statements), were up 4% and 3%, respectively. This
net sales increase was due to price increases (including international
tobacco excise tax increases), new products and line extensions, partly
offset by volume declines and the operating income increase was due to the
higher sales, partly offset by increased operating expenses.
Consolidated net sales and operating income from continuing operations
(which includes domestic tobacco for 1994) decreased 15% and 20%,
respectively.
- 18 -
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
CONSOLIDATED (Concluded)
- ------------
The decrease in interest and related expenses and the favorable change in
other (income) expenses, net, reflect 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.
The increase in the effective income tax rate to 36.3% from 30.3% in 1994
principally reflected lower reversals of tax provisions no longer required.
Income from continuing operations before extraordinary item of $119.1
million, or 63 cents per Common share, for the three months ended June 30,
1995 compared with $151.9 million, or 75 cents per share, last year. The
decrease reflects the absence of The American Tobacco Company's results of
operations.
The extraordinary item reflects a charge ($4.1 million, $2.7 million net of
taxes) for the extinguishment of debt resulting from holders of the
Company's 5 3/4% Eurodollar Convertible Debentures exercising their right
to "put" the debentures.
Net income of $116.4 million, or 62 cents per Common share, for the three
months ended June 30, 1995, compared with $163.9 million, or 81 cents per
share, last year, which included $12 million, or six cents per share from
discontinued operations. Lower average Common shares outstanding in 1995
benefited E.P.S. by four cents.
International Tobacco
- ---------------------
International tobacco net sales in sterling were up 4% principally on price
increases resulting from higher U.K. tobacco taxes and a manufacturers'
price increase in April 1995. The effect of these price increases was
partly offset by a 4% U.K. cigarette unit sales decline as well as a 10.1%
export decline, which reflected lower periodic shipments to the C.I.S.
Worldwide cigarette unit sales were down 5.1%. Operating income in
sterling increased 2% on the higher sales, partly offset by higher
operating expenses. In dollars, net sales and operating income increased
10% and 8%, respectively, reflecting translation at higher average foreign
exchange rates.
- 19 -
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
Distilled Spirits
- -----------------
Worldwide net sales and operating income increased 8% and 7%, respectively.
Beam's net sales increased 3% principally on the introduction of After
Shock cordial and 13.4% higher international case shipments (principally
Australia and Germany). Operating income was up 1% as the sales increase
was partly offset by higher marketing expenses, including expenses to
promote Jim Beam bourbon's 200th anniversary and promotional costs related
to the introduction of After Shock. International operating income
increased principally on the higher shipments.
Whyte & Mackay's net sales in sterling increased 15% on an 11.2% U.K.
volume increase reflecting the timing of trade purchases last year, a 19.6%
export volume gain and price increases on the effects of a 26 pence tax
increase in the U.K. on a typical bottle effective January 1, 1995.
Operating income in sterling increased 183% to 2.5 million pounds resulting
from the higher sales and a favorable product mix, partly offset by higher
operating expenses, principally due to an unfavorable comparison to last
year's non-recurring items.
Hardware and Home Improvement Products
- --------------------------------------
Record net sales increased 1% on price increases, new products and line
extensions, partly offset by volume declines. Operating income was down
7%, principally at Moen, on volume declines reflecting the slowdown at home
centers and in new construction, partly offset by reversal of reserves
related to a joint venture.
Office Products
- ---------------
Record net sales increased 11% on new products and higher average foreign
exchange rates. Operating income increased 18% on increased sales and
lower administrative expenses, partly offset by higher raw material costs
which were not fully recovered by price increases in the second quarter and
higher volume-related expenses. International operations was the principal
contributor to the operating income increase. Excluding the effect of
higher foreign exchange rates, net sales and operating income increased 9%
and 12%, respectively.
- 20 -
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Concluded)
---------------------------------------------------------
Golf and Leisure Products
- -------------------------
Record net sales were up 15% on increases in all product lines reflecting
benefits from line extensions and new products, as well as price increases.
Record operating income increased 12% and reflected the higher sales,
partly offset by higher operating expenses, including costs related to
European expansion and volume-related marketing expenses.
Other Businesses
- ----------------
Net sales and operating income declined 56% and 21%, respectively. With
the sales of Gallaher's U.K.-based retail distribution operations on July
24, 1995, housewares on May 2, 1995 and optical goods and services in July
1994, as well as Acushnet's rubber division in December 1994, the disposal
of all operations within the other businesses segment has been completed.
- 21 -
<PAGE>
PART I - EXHIBIT A
------------------
AMERICAN BRANDS, INC. AND SUBSIDIARIES
Computation of Net Income Per Common Share -
Primary and Fully Diluted (Unaudited)
--------------------------------------------
(In millions)
Six Months Ended
June 30,
----------------------
1995 1994
(Restated)
------ ---------
Income from continuing operations before
extraordinary item $235.7 $281.4
Preferred stock dividend requirements (0.7) (0.7)
------ ------
Income from continuing operations available for
computing earnings per Common share - primary 235.0 280.7
Income from discontinued operations - 31.7
Extraordinary item (2.7) -
------ ------
Net income for computing earnings
per Common share - primary $232.3 $312.4
====== ======
Income from continuing operations available for
computing earnings per Common share - primary $235.0 $280.7
Convertible preferred stock dividend requirements 0.7 0.7
Interest and related expenses on convertible
debentures 8.1 10.7
------ ------
Income from continuing operations available for
computing earnings per Common share -
fully diluted 243.8 292.1
Income from discontinued operations - 31.7
Extraordinary item (2.7) -
------ ------
Net income for computing earnings per Common
share - fully diluted $241.1 $323.8
====== ======
- 22 -
<PAGE>
PART I - EXHIBIT A (Continued)
------------------
Computation of Weighted Average Number of
Common Shares Outstanding on a Fully Diluted Basis (Unaudited)
--------------------------------------------------------------
(In millions, except per share amounts)
Six Months Ended
June 30,
----------------------
1995 1994
(Restated)
----- ---------
Weighted average number of Common shares
outstanding during each period - primary 191.3 201.8
Addition from assumed conversion as of the
beginning of each period of the convertible
preferred stock outstanding at the end of
each period 2.0 2.2
Addition from assumed conversion of
convertible debentures 3.9 9.3
Other additions 3.9 0.2
------ ------
Weighted average number of Common shares
outstanding during each period on a
fully diluted basis 201.1 213.5
====== ======
Earnings per Common share
Primary
Income from continuing operations $1.23 $1.39
Income from discontinued operations - .16
Extraordinary item (.01) -
----- -----
Net income $1.22 $1.55
===== =====
Fully diluted
Income from continuing operations $1.21 $1.37
Income from discontinued operations - .15
Extraordinary item (.01) -
----- -----
Net income $1.20 $1.52
===== =====
- 23 -
<PAGE>
PART I - EXHIBIT A (Continued)
------------------
AMERICAN BRANDS, INC. AND SUBSIDIARIES
Computation of Net Income Per Common Share -
Primary and Fully Diluted (Unaudited)
--------------------------------------------
(In millions)
Three Months Ended
June 30,
----------------------
1995 1994
(Restated)
------ ---------
Income from continuing operations before
extraordinary item $119.1 $151.9
Preferred stock dividend requirements (0.4) (0.3)
------ ------
Income from continuing operations available for
computing earnings per Common share - primary 118.7 151.6
Income from discontinued operations - 12.0
Extraordinary item (2.7) -
------ ------
Net income for computing earnings
per Common share - primary $116.0 $163.6
====== ======
Income from continuing operations available for
computing earnings per Common share - primary $118.7 $151.6
Convertible preferred stock dividend requirements 0.4 0.3
Interest and related expenses on convertible
debentures 2.7 5.3
------ ------
Income from continuing operations available for
computing earnings per Common share -
fully diluted 121.8 157.2
Income from discontinued operations - 12.0
Extraordinary item (2.7) -
------ ------
Net income for computing earnings per Common
share - fully diluted $119.1 $169.2
====== ======
- 24 -
<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
June 30,
----------------------
1995 1994
(Restated)
----- ---------
Weighted average number of Common shares
outstanding during each period - primary 188.0 201.8
Addition from assumed conversion as of the
beginning of each period of the convertible
preferred stock outstanding at the end of
each period 2.0 2.2
Addition from assumed conversion of
convertible debentures 3.9 9.3
Other additions 1.7 0.1
----- -----
Weighted average number of Common shares
outstanding during each period on a
fully diluted basis 195.6 213.4
===== =====
Earnings per Common share
Primary
Income from continuing operations $.63 $.75
Income from discontinued operations - .06
Extraordinary item (.01) -
---- ----
Net income $.62 $.81
==== ====
Fully diluted
Income from continuing operations $.62 $.74
Income from discontinued operations - .06
Extraordinary item (.01) -
---- ----
Net income $.61 $.80
==== ====
- 25 -
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
- ------ -----------------
(a) Reference is made to paragraph (a)(i) of Part I, Item 3,
"Legal Proceedings", of Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994. On May 26, 1995, Registrant was
voluntarily dismissed as a defendant in Moore v. The American Tobacco
Company, et al., Chancery Court of Jackson County, State of Mississippi.
In addition, Registrant has been named as a defendant, together with
leading tobacco manufacturers, in Arnold v. American Brands, Inc., et al.,
United States District Court for the District of Rhode Island, August 1,
1995. The plaintiffs in Arnold seek damages relating to use of tobacco
products distributed in the United States. In connection with the sale of
Registrant's former subsidiary, The American Tobacco Company ("ATCO"), to
Brown & Williamson Tobacco Corporation ("Brown & Williamson") on December
22, 1994, Brown & Williamson and ATCO agreed to indemnify Registrant
against claims arising from smoking and health and fire safe cigarette
matters relating to the tobacco business of ATCO. Registrant's counsel
have advised that, in their opinion, on the basis of their investigations
generally with respect to suits and claims of this character, Registrant
has meritorious defenses to these actions and threatened actions. The
actions will be vigorously contested.
(b)(i) Reference is made to the discussion of Dean v. Gallaher
Limited, in paragraph (a)(ii)(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. On May 18, 1995, the petition for leave to appeal filed by
Gallaher and Hergall with the House of Lords on March 17, 1995 was
unanimously refused by Order of the Appeal Committee.
(ii) Reference is made to the discussion of a potential claim by
Edward Havelin against Gallaher, in paragraph (a)(ii)(D) of Part I, Item 3,
"Legal Proceedings", of Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994. Havelin v. Imperial Tobacco Limited,
et al., is an action commenced in the Court of Session in Scotland in which
plaintiff seeks the expenses of the action and 100,000 pounds sterling (and
8% per annum interest) for claimed personal injuries related to cigarette
smoking. The pursuer lodged his Summons and Condescendence on May 26,
1995. Prior to filing this action, the pursuer applied to the Scottish
Legal Aid Board for legal aid to fund his claims. Gallaher submitted
representations in opposition, and the pursuer's application was denied on
or about June 14, 1995. The pursuer's counsel has indicated he will seek
to have this decision reviewed. Pending final resolution of this review,
the action has been stayed.
(iii) Burnett v. Gallaher Limited, pending in the Court of
Session in Scotland, was commenced by Service of a Summons and
Condescendence on or about July 14, 1995. The pursuer seeks to recover the
expenses of the action and 100,000 pounds sterling (and 8% per annum
interest) for personal injuries allegedly caused by cigarette smoking. The
pursuer applied to the Scottish Legal Aid Board for civil legal aid to
pursue this action on or about July 17, 1995. Gallaher received
notification of this application on July 19, 1995, and submitted
representations in opposition on July 31, 1995. This action has been
- 26 -
<PAGE>
Item 1. LEGAL PROCEEDINGS. (Concluded)
- ------ -----------------
stayed, on the pursuer's motion, pending review of the pursuer's legal aid
application by the Scottish Legal Aid Board.
(iv) Registrant's counsel have advised that, in their opinion,
on the basis of their investigations generally with respect to suits and
claims of this character, Gallaher has meritorious defenses to these
actions and claims. The actions will be vigorously contested.
(c) 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 Part I, Item 3, "Legal Proceedings", of Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 1994. In
Natural Resources Defense Council, by order dated May 10, 1994, the court
denied defendants' demurrer challenging plaintiffs' standing to bring the
action but ruled plaintiffs are not entitled to restitution or compensatory
damages. On March 22, 1995, defendants filed a writ with the Court of
Appeal challenging plaintiffs' standing to bring this action. The Court
denied review on July 28, 1995. In Lungren, 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 sustained defendants' demurrer. The
Attorney General appealed this ruling to the Court of Appeal on May 25,
1994, and on July 12, 1995, the Court of Appeal affirmed the lower court's
ruling.
(d) It is not possible to predict the outcome of the pending
litigation referenced 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------ ---------------------------------------------------
(a) The Annual Meeting of Stockholders was held on May 2, 1995.
(c)(i) The Registrant's Certificate of Incorporation provides
for the classification of the Board of Directors into three classes, as
nearly equal in number as possible, with staggered terms of office and
provides that upon the expiration of the term of office for a class of
directors, nominees for such class shall be elected for a term of three
years or until their successors are duly elected and qualified. The three
nominees for Class III directors, Mr. William J. Alley, Mr. John T. Ludes
and Mr. Peter M. Wilson, were elected by a plurality of the combined votes
cast by the holders of Registrant's Common Stock and $2.67 Convertible
Preferred Stock voting thereon:
- 27 -
<PAGE>
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. (Continued)
- ------ ---------------------------------------------------
(A) Mr. Alley: 162,848,975 votes for and 7,381,644 votes
withheld;
(B) Mr. Ludes: 163,065,507 votes for and 7,165,112 votes
withheld;
(C) Mr. Wilson: 163,129,753 votes for and 7,100,866 votes
withheld.
(c)(ii) A proposal (designated Item 2 and set forth in
Registrant's Proxy Statement), approved by the Board of Directors, to elect
Coopers & Lybrand L.L.P. independent accountants of Registrant for the year
1995 was approved by a majority of the combined votes cast by the holders
of Registrant's Common Stock and $2.67 Convertible Preferred Stock voting
thereon: 164,301,343 affirmative votes; 1,889,090 negative votes; and
4,040,166 votes abstained.
(c)(iii) A proposal (designated Item 3 and set forth in
Registrant's Proxy Statement), approved by the Board of Directors, to
approve the American Brands, Inc. Stock Plan for Non-employee Directors to
be effective for the years 1995 through 1999, inclusive, was approved by a
majority of the combined votes cast by the holders of Registrant's Common
Stock and $2.67 Convertible Preferred Stock voting thereon: 150,695,474
affirmative votes; 13,920,307 negative votes; and 5,610,819 votes
abstained.
(c)(iv) A proposal (designated Item 4 and set forth in
Registrant's Proxy Statement) requesting the elimination of election of
directors by classes was defeated by a majority of the combined votes cast
by the holders of Registrant's Common Stock and $2.67 Convertible Preferred
Stock voting thereon: 88,211,727 negative votes; 58,297,438 affirmative
votes; 6,749,455 votes abstained; and 16,971,998 broker non-votes.
(c)(v) A proposal (designated Item 5 and set forth in
Registrant's Proxy Statement) requesting the cancellation of Company
pensions for outside directors was defeated by a majority of the combined
votes cast by the holders of Registrant's Common Stock and $2.67
Convertible Preferred Stock voting thereon: 104,028,516 negative votes;
40,963,804 affirmative votes; 8,262,902 votes abstained; and 16,975,397
broker non-votes.
(c)(vi) A proposal (designated Item 6 and set forth in
Registrant's Proxy Statement) requesting stockholder approval of change of
control compensation agreements with officers and directors was defeated by
a majority of the combined votes cast by the holders of Registrant's Common
Stock and $2.67 Convertible Preferred Stock voting thereon: 91,093,487
negative votes; 53,144,801 affirmative votes; 9,016,933 votes abstained;
and 16,975,398 broker non-votes.
(c)(vii) A proposal (designated Item 7 and set forth in
Registrant's Proxy Statement) requesting an equal employment report was
defeated by a majority of the combined votes cast by the holders of
Registrant's Common Stock and $2.67 Convertible Preferred Stock voting
- 28 -
<PAGE>
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. (Concluded)
- ------ ---------------------------------------------------
thereon: 126,097,794 negative votes; 12,518,707 affirmative votes;
14,642,222 votes abstained; and 16,971,896 broker non-votes.
(c)(viii) A proposal (designated Item 8 and set forth in
Registrant's Proxy Statement) requesting the separation of the tobacco
business from the non-tobacco businesses was defeated by a majority of the
combined votes cast by the holders of Registrant's Common Stock and $2.67
Convertible Preferred Stock voting thereon: 135,396,791 negative votes;
9,229,933 affirmative votes; 8,628,498 votes abstained; and 16,975,397
broker non-votes.
(c)(ix) A proposal (designated Item 9 and set forth in
Registrant's Proxy Statement) requesting a special nicotine report was
defeated by a majority of the combined votes cast by the holders of
Registrant's Common Stock and $2.67 Convertible Preferred Stock voting
thereon: 131,147,773 negative votes; 8,249,893 affirmative votes;
13,861,055 votes abstained; and 16,971,897 broker non-votes.
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
August 10, 1995 re unaudited financial information.
23. Consent of Counsel, Chadbourne & Parke LLP.
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.
(b) Reports on Form 8-K.
-------------------
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)).
Registrant filed a Current Report on Form 8-K, dated June 13,
1995, in respect of Registrant's press release dated June 13,
1995 concerning certain statements by Registrant at an investment
conference (Items 5 and 7(c)).
- 29 -
<PAGE>
(b) Reports on Form 8-K. (Concluded)
-------------------
Registrant filed a Current Report on Form 8-K, dated July 25,
1995, in respect of Registrant's press releases dated July 24,
1995 announcing Registrant's financial results for the three-
month and six-month periods ended June 30, 1995 and that
Registrant had completed that day the sale of its U.K.-based
retail distribution group, including Forbuoys Limited, the TM
Group Limited and Marshell Group Limited (Items 5 and 7(c)).
- 30 -
<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: August 10, 1995 By /s/ D. L. Bauerlein, Jr.
--------------- -----------------------------
D. L. Bauerlein, Jr.
Senior Vice President and
Chief Financial Officer
- 31 -
<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
August 10, 1995 re unaudited financial information.
23. Consent of Counsel, Chadbourne & Parke LLP.
27. Financial Data Schedule (Article 5).
- 32 -
<TABLE>
PART II - EXHIBIT 12
--------------------
AMERICAN BRANDS, INC. AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollar amounts in millions)
<CAPTION>
Six Months
Ended
Years Ended December 31, June 30,
-------------------------------------------------------------- ---------
1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Earnings Available:
Income from continuing operations
before income taxes, minority
interest and extraordinary item.. $ 923.5 $1,107.0 $1,255.1 $ 878.9 $1,354.0 $388.8
Less: Excess of earnings over
dividends of less than
fifty percent owned
companies.............. 0.1 0.1 0.3 0.8 0.4 0.1
Capitalized interest....... 1.5 1.0 1.0 2.5 1.4 0.1
-------- -------- -------- -------- -------- ------
921.9 1,105.9 1,253.8 875.6 1,352.2 388.6
======== ======== ======== ======== ======== ======
Fixed Charges:
Interest expense (including
capitalized interest) and
amortization of debt discount
and expenses..................... 290.2 276.6 283.4 258.7 224.9 92.2
Portion of rentals representative
of an interest factor............ 27.4 30.4 32.3 29.8 27.1 11.6
-------- -------- -------- -------- -------- ------
Total Fixed Charges........ 317.6 307.0 315.7 288.5 252.0 103.8
-------- -------- -------- -------- -------- ------
Total Earnings Available... $1,239.5 $1,412.9 $1,569.5 $1,164.1 $1,604.2 $492.4
======== ======== ======== ======== ======== ======
Ratio of Earnings to Fixed Charges.... 3.90 4.60 4.97 4.04 6.37 4.74
==== ==== ==== ==== ==== ====
</TABLE>
<PAGE>
PART II - EXHIBIT 15
--------------------
August 10, 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 August 10, 1995, on our review of
interim financial information of American Brands, Inc. and Subsidiaries for the
three-month and six-month periods ended June 30, 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 LLP
30 Rockefeller Plaza
New York, New York 10112
August 10, 1995
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<LEGEND>
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AND RELATED STATEMENT OF INCOME AS
OF JUNE 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> $ 635
<SECURITIES> 0
<RECEIVABLES> 1,405
<ALLOWANCES> 46
<INVENTORY> 1,397
<CURRENT-ASSETS> 3,603
<PP&E> 2,240
<DEPRECIATION> 1,048
<TOTAL-ASSETS> $8,693
<CURRENT-LIABILITIES> 2,570
<BONDS> 1,436
<COMMON> 717
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15
<OTHER-SE> 3,411
<TOTAL-LIABILITY-AND-EQUITY> 8,693
<SALES> $5,387
<TOTAL-REVENUES> 5,387
<CGS> 1,605
<TOTAL-COSTS> 1,605
<OTHER-EXPENSES> 2,417
<LOSS-PROVISION> 3
<INTEREST-EXPENSE> 86
<INCOME-PRETAX> 388
<INCOME-TAX> 152
<INCOME-CONTINUING> 236
<DISCONTINUED> 0
<EXTRAORDINARY> (3)
<CHANGES> 0
<NET-INCOME> $ 233
<EPS-PRIMARY> $1.22
<EPS-DILUTED> $1.20
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