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 September 30, 1996
AMERICAN BRANDS, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 13-3295276
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1700 East Putnam Avenue, Old Greenwich, Connecticut 06870-0811
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(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 October 31, 1996 was 170,181,658 shares.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
- ------ --------------------
AMERICAN BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
---------------------------------------
(In millions)
September 30, December 31,
1996 1995
------------ ------------
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 159.2 $ 139.9
Accounts receivable, net 1,454.8 984.4
Inventories
Leaf tobacco 187.0 148.1
Bulk whiskey 361.4 343.7
Other raw materials, supplies and
work in process 302.6 271.6
Finished products 502.5 1,076.8
-------- --------
1,353.5 1,840.2
Other current assets 241.3 199.5
-------- --------
Total current assets 3,208.8 3,164.0
Property, plant and equipment, net 1,141.1 1,137.3
Intangibles resulting from
business acquisitions, net 3,890.8 3,305.2
Other assets 447.3 414.7
-------- --------
Total assets $8,688.0 $8,021.2
======== ========
See Notes to Condensed Consolidated Financial Statements.
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<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
---------------------------------------
(In millions, except per share amounts)
September 30, December 31,
1996 1995
------------ ------------
(Unaudited)
Liabilities and stockholders' equity
Current liabilities
Notes payable to banks $ 50.0 $ 297.4
Commercial paper 708.9 -
Accounts payable 276.2 301.9
Accrued expenses and other liabilities 586.2 571.8
Accrued excise and other taxes 1,236.2 826.8
Current portion of long-term debt 78.1 413.4
--------- ---------
Total current liabilities 2,935.6 2,411.3
Long-term debt 1,590.9 1,154.6
Deferred income taxes 147.5 127.6
Postretirement and other liabilities 419.0 450.5
--------- ---------
Total liabilities 5,093.0 4,144.0
--------- ---------
Stockholders' equity
$2.67 Convertible Preferred stock -
redeemable at Company's option 13.3 14.1
Common stock, par value $3.125 per
share, 229.6 shares issued 717.4 717.4
Paid-in capital 168.4 171.6
Foreign currency adjustments (240.4) (234.6)
Retained earnings 4,996.9 4,887.3
Treasury stock, at cost (2,060.6) (1,678.6)
--------- ---------
Total stockholders' equity 3,595.0 3,877.2
--------- ---------
Total liabilities and
stockholders' equity $ 8,688.0 $ 8,021.2
========= =========
See Notes to Condensed Consolidated Financial Statements.
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<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
for the Nine Months Ended September 30, 1996 and 1995
-----------------------------------------------------
(In millions, except per share amounts)
(Unaudited)
1996 1995
---------- ----------
Net sales $8,144.0 $8,282.5
Cost of products sold 2,102.5 2,367.7
Excise taxes on products sold 3,985.1 3,859.5
Advertising, selling, general and
administrative expenses 1,216.4 1,269.5
Amortization of intangibles 80.3 71.8
Interest and related expenses 133.4 122.2
Other (income) expenses, net (3.5) (21.4)
Gain on disposal of businesses, net - 20.0
-------- --------
Income before income taxes 629.8 633.2
Income taxes 247.0 244.2
-------- --------
Income before extraordinary items 382.8 389.0
Extraordinary items (10.3) (2.7)
-------- --------
Net income $ 372.5 $ 386.3
======== ========
Earnings per Common share
Primary
Income before extraordinary items $2.19 $2.05
Extraordinary items (.06) (.01)
----- -----
Net income $2.13 $2.04
===== =====
Fully diluted
Income before extraordinary items $2.15 $2.01
Extraordinary items (.06) (.01)
----- -----
Net income $2.09 $2.00
===== =====
Dividends paid per Common share $1.50 $1.50
===== =====
Average number of Common shares outstanding
Primary 174.3 189.1
===== =====
Fully diluted 178.8 198.3
===== =====
See Notes to Condensed Consolidated Financial Statements.
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<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
for the Three Months Ended September 30, 1996 and 1995
-----------------------------------------------------
(In millions, except per share amounts)
(Unaudited)
1996 1995
---------- ----------
Net sales $2,920.1 $2,895.3
Cost of products sold 727.3 762.7
Excise taxes on products sold 1,482.8 1,442.5
Advertising, selling, general and
administrative expenses 408.8 410.8
Amortization of intangibles 26.9 23.6
Interest and related expenses 43.4 36.1
Other (income) expenses, net (0.2) (5.4)
Gain on disposal of businesses, net - 20.0
-------- --------
Income before income taxes 231.1 245.0
Income taxes 94.4 91.7
-------- --------
Net income $ 136.7 $ 153.3
======== ========
Earnings per Common share
Primary $.80 $.82
==== ====
Fully diluted $.79 $.80
==== ====
Dividends paid per Common share $.50 $.50
==== ====
Average number of Common shares outstanding
Primary 170.4 184.7
===== =====
Fully diluted 173.9 191.7
===== =====
See Notes to Condensed Consolidated Financial Statements.
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<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
for the Nine Months Ended September 30, 1996 and 1995
-----------------------------------------------------
(In millions)
(Unaudited)
1996 1995
--------- ---------
Operating activities
Net income $ 372.5 $ 386.3
Extraordinary items 10.3 2.7
Depreciation and amortization 204.5 194.4
Gain on disposal of businesses, net - (20.0)
Increase in accounts receivable (440.5) (350.0)
Decrease in inventories 509.8 640.6
Decrease in accounts payable, accrued
expenses and other liabilities (65.3) (214.0)
Increase in accrued excise and other taxes 399.9 124.7
Other operating activities, net (35.2) 24.6
------- --------
Net cash provided from operating activities 956.0 789.3
------- --------
Investing activities
Additions to property, plant and equipment (137.5) (129.7)
Proceeds from the disposition of operations,
net of cash 4.3 1,305.8
Acquisition, net of cash acquired (702.1) -
Other investing activities, net 6.8 (11.4)
------- --------
Net cash (used) provided by investing activities (828.5) 1,164.7
------- --------
Financing activities
Increase (decrease) in short-term debt 865.2 (135.1)
Issuance of long-term debt 109.1 3.2
Repayment of long-term debt (404.6) (493.3)
Dividends to stockholders (262.9) (286.6)
Cash purchases of Common stock for treasury (418.5) (780.7)
Other financing activities, net 4.7 15.9
------- --------
Net cash used by financing activities (107.0) (1,676.6)
------- --------
Effect of foreign exchange rate changes on cash (1.2) 5.2
------- --------
Net increase in cash and cash equivalents 19.3 282.6
Cash and cash equivalents at beginning of period 139.9 110.1
------- --------
Cash and cash equivalents at end of period $ 159.2 $ 392.7
======= ========
See Notes to Condensed Consolidated Financial Statements.
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<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Principles of Consolidation
The condensed consolidated balance sheet as of September 30, 1996,
the related condensed consolidated statements of income for the
three-month and nine-month periods ended September 30, 1996 and 1995
and the related condensed consolidated statement of cash flows for the
nine-month periods ended September 30, 1996 and 1995 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 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 1995 Annual Report on Form 10-K.
The Company is presenting its condensed consolidated statement of
income in a "single-step" format and, accordingly, certain
reclassifications of prior year amounts have been made to conform to
this presentation.
2. Acquisition
On January 24, 1996, Cobra Golf Incorporated ("Cobra") was
acquired for an aggregate cost of approximately $715 million in cash,
including fees and expenses. The cost exceeded the fair value of net
assets acquired by approximately $650 million. Cobra's operations have
been included in consolidated results from the date of acquisition. Had
operations been consolidated from January 1, 1995, they would not have
materially affected 1995 results.
3. Dispositions
The Company completed its previously announced disposition of
nonstrategic businesses and product lines in 1995 with the sale of
U.K.-based Forbuoys (retail distribution) on July 24, 1995 and Prestige
(housewares) on May 2, 1995. As a result, $20 million of the provision
that was recorded in 1994 in connection with the disposition was
reversed in the third quarter of 1995.
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<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Supplementary Profit and Loss Information
Federal and foreign excise taxes included in net sales are as
follows (in millions):
Nine Months Three Months
Ended September 30, Ended September 30,
-------------------- -------------------
1996 1995 1996 1995
-------- -------- -------- --------
International tobacco $3,675.4 $3,528.0 $1,375.4 $1,330.4
Distilled spirits 309.7 331.5 107.4 112.1
-------- -------- -------- --------
$3,985.1 $3,859.5 $1,482.8 $1,442.5
======== ======== ======== ========
The effective income tax rates of 39.2% and 40.8% for the
nine-month and three-month periods ended September 30, 1996,
respectively, increased from 38.6% and 37.4% for the same periods last
year, respectively. The lower rates in 1995 principally reflected the
reversal of $20 million provided in 1994 in connection with the
disposition of nonstrategic businesses for which no taxes were
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
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. Extraordinary Items
On March 5, 1996, the Company redeemed its $150 million 7-5/8%
Eurodollar Convertible Debentures, Due 2001, at a redemption price of
103.8125% of the principal amount plus accrued interest. On March 1,
1996, the Company redeemed its $150 million 9-1/8% Debentures, Due
2016, at a redemption price of 104.4375% of the principal amount plus
accrued interest. In connection with the redemptions, the Company
recorded a charge of $10.3 million ($15.8 million pretax), or six
cents per Common share, and reduced the number of fully diluted shares
outstanding by 2.8 million.
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<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Extraordinary Items (Concluded)
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. In connection with
this exercise, the Company recorded a charge of $2.7 million ($4.1
million pretax), or one cent per Common share, and reduced the number
of fully diluted shares outstanding by 5.1 million.
On December 12, 1996, the Company will redeem its 7-3/4%
Eurodollar Convertible Debentures, Due 2002, its 5-3/8% Eurodollar
Convertible Debentures, Due 2003, and its 5-3/4% Eurodollar
Convertible Debentures, Due 2005. The aggregate principal amount
currently outstanding of these debentures is less than $20 million and
total shares issuable upon conversion are less than 600,000. The costs
related to the redemption of these debentures will be immaterial.
7. 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.
8. 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-
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Concluded)
9. Subsequent Event
On October 8, 1996, the Company announced plans to spin off its
U.K.-based Gallaher tobacco business. Completion of the transaction is
contingent upon receipt of favorable tax rulings and relevant
stockholder approvals. The transaction is expected to be completed in
the second or early in the third quarter of 1997. When the spin off is
completed, the name of the Company will be changed to Fortune Brands
and the financial statements will be restated to show tobacco
operations as discontinued operations. Following the transaction, the
Company's shareholders will own shares in two publicly-traded
companies - Gallaher and Fortune Brands.
-9-
<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 September 30, 1996, the
related condensed consolidated statements of income for the three-month
and nine-month periods ended September 30, 1996 and 1995 and the
related condensed consolidated statement of cash flows for the
nine-month periods ended September 30, 1996 and 1995. 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,
1995, 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, 1996, 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, 1995 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
November 7, 1996
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<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 Nine Months Ended September 30, 1996 as
Compared to the Nine Months Ended September 30, 1995
----------------------------------------------------------------------
Net Sales Operating Income*
--------------------- -------------------
1996 1995 1996 1995
-------- -------- ------- --------
(In millions)
International tobacco $4,723.1 $4,568.6 $409.7 $400.1
Distilled spirits 892.7 877.8 127.7 126.4
Hardware and home
improvement products 1,005.8 962.4 130.4 127.7
Office products 853.3 844.6 49.5 42.3
Golf and leisure products 669.1 478.8 104.7 78.2
-------- -------- ------ ------
8,144.0 7,732.2 822.0 774.7
Businesses disposed - 550.3 - 4.2
-------- -------- ------ ------
$8,144.0 $8,282.5 $822.0 $778.9
======== ======== ====== ======
* Operating income represents net sales less all costs and expenses excluding
corporate administrative expenses, interest and related expenses and other
(income) expenses, net.
CONSOLIDATED
- ------------
Net sales, excluding businesses disposed in 1995, rose 5% to $8.1 billion on
price increases (primarily international tobacco excise tax increases), new
products, the inclusion of Cobra and line extensions, partly offset by volume
declines and the unfavorable effects of lower average foreign exchange rates.
Operating income, excluding businesses disposed, was up 6%, mainly due to the
Cobra acquisition as well as the higher sales, partly offset by higher ongoing
operating expenses. Excluding the unfavorable effects of lower average foreign
exchange rates ($152.9 million and $10.8 million on sales and operating income,
respectively) and businesses disposed, both sales and operating income would
have been up 7%.
Interest and related expenses increased due to higher average borrowings to fund
the purchase of Cobra Golf and share repurchases.
The unfavorable change in other (income) expenses, net, reflected interest
income in 1995 from the investment of proceeds from the disposition of The
American Tobacco Company and the Franklin life insurance business.
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<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
CONSOLIDATED (Concluded)
- ------------
The gain on disposal of businesses, net, reflected an unfavorable comparison to
last year's reversal of $20 million of the $245 million loss provision recorded
in 1994 in connection with the disposition of nonstrategic businesses.
The effective income tax rate of 39.2% for the nine months ended September 30,
1996, increased from 38.6% for the same period last year. The lower rate in 1995
principally reflected the reversal of $20 million provided in 1994 in connection
with the disposition of nonstrategic businesses for which no taxes were
required.
Income before extraordinary items of $382.8 million, or $2.19 per Common share,
for the nine months ended September 30, 1996, compared with $389 million, or
$2.05 per share for the same period last year. The $20 million provision
reversal for the disposal of businesses recorded last year impacted primary and
fully diluted E.P.S. by ten cents and nine cents, respectively. Lower average
Common shares outstanding in 1996 benefited primary and fully diluted E.P.S. by
17 cents and 21 cents, respectively.
The extraordinary items resulted from a charge this year of $10.3 million ($15.8
million pretax) in connection with the redemption of the Company's $150 million
7-5/8% Eurodollar Convertible Debentures, Due 2001, and its $150 million 9-1/8%
Debentures, Due 2016. Last year's extraordinary item resulted from a charge of
$2.7 million ($4.1 million pretax) for the extinguishment of debt resulting from
holders of the Company's 5-3/4% Eurodollar Convertible Debentures, Due 2005,
exercising their right to "put" the debentures. (See note 6 in the Notes to
Condensed Consolidated Financial Statements.)
Net income of $372.5 million, or $2.13 per Common share, for the nine months
ended September 30, 1996, compared with $386.3 million, or $2.04 per share, for
the same period last year.
Earnings per Common share in 1996 will continue to benefit from the Company's
repurchase of shares of its Common stock. The ten million share purchase
authorization adopted by the Board of Directors was substantially completed
during the nine-month period.
A significant proportion of the Company's income is derived from foreign
sources, primarily the United Kingdom. As a result, changes in the value of
foreign currencies, principally sterling, can have a significant effect on
dollar results.
See notes 7 and 8 in the Notes to Condensed Consolidated Financial Statements
for discussion of pending litigation and environmental matters.
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<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
International Tobacco
- ---------------------
Net sales in sterling were up 6% on price increases (primarily higher U.K.
tobacco taxes) and the inclusion of one additional month's results for Gallaher
Dublin (change to a calendar year end), partly offset by a slight decline in
U.K. cigarette unit sales. Gallaher's worldwide cigarette unit sales were up
slightly. Operating income in sterling increased 5% on higher sales, partly
offset by higher operating expenses (principally Sovereign introductory costs).
In dollars, net sales and operating income increased 3% and 2%, respectively,
reflecting translation at lower average foreign exchange rates.
Gallaher's share of cigarette sales to consumers was estimated at 39.1%, as
compared with 39.3% for last year's comparable nine month period. Consumer
demand is estimated to have declined in the range of 2% for both nine month
periods. The U.K. cigarette industry unit sales to the trade are estimated to
have increased 3.5%. Changes in the trade buying patterns related to the U.K.
budget announcements at the end of 1994 and 1995 caused distortions in the
comparison between the first nine months of 1995 and 1996, which benefited the
first nine months of 1996.
Distilled Spirits
- -----------------
Net sales increased 2% on the inclusion of one additional month's results for
Whyte & Mackay (change to a calendar year end), price increases and new
products, partly offset by lower volumes (principally lower U.S. shipments) and
lower average foreign exchange rates. Operating income increased 1% on higher
sales and improved gross margin, partly offset by higher operating expenses
(principally marketing expenditures).
Hardware and Home Improvement Products
- --------------------------------------
Net sales increased 5% on price increases, line extensions and new products,
partly offset by volume declines. Operating income was up 2% on the sales
increase and a gain on the sale of Moen's joint venture in Taiwan, partly offset
by increased operating expenses (including an unfavorable comparison to the
prior year's reversal of reserves related to a joint venture and increased
marketing) and higher manufacturing costs (including higher raw material costs).
Master Lock's operating income declined as competitive activities resulted
in increased spending on selling and pricing programs.
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<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
Office Products
- ---------------
Net sales, excluding the office furniture operations sold in 1995, increased 5%
on new products and price increases, partly offset by volume declines and lower
average foreign exchange rates. Operating income increased 17% reflecting the
sales increase and improved gross margin, partly offset by slightly increased
operating expenses.
Golf and Leisure Products
- -------------------------
Net sales were up 40% on inclusion of Cobra, acquired January 24, 1996, and
increased volume in all product lines, reflecting benefits from line extensions
and new products. Operating income increased 34% on the inclusion of Cobra and
sales gains, partly offset by higher operating expenses, principally increased
marketing expenses to support new products and meet competitive activity.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net cash provided from operating activities of $956 million for the nine months
ended September 30, 1996, exceeded the funds required for capital expenditures
and dividends by $555.6 million. Compared to the nine-month period last year,
net cash provided from operating activities increased $166.7 million. The
increase was largely attributable to changes in accrued taxes, accounts payable
and last year's payment of $29.4 million related to the "put" exercise premium
on the 5-3/4% Eurodollar Convertible Debentures, partly offset by fluctuations
in inventories and accounts receivable.
Net cash used by investing activities for the nine months ended September 30,
1996 was $828.5 million, as compared with net cash provided of $1,164.7 million
in the nine-month period last year, reflecting this year's acquisition of Cobra
and last year's proceeds from the sale of the Franklin life insurance business.
Net cash used by financing activities for the nine months ended September 30,
1996 was $107 million, as compared with net cash used of $1,676.6 million in
1995, reflecting this year's borrowings and lower repurchases of Common stock
for treasury. The Company's repurchases amounted to $418.5 million during the
first nine months of 1996 as compared with $780.7 million in the first nine
months of 1995.
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<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES (Concluded)
- -------------------------------
The changes in accounts receivable and inventories from December 31, 1995 to
September 30, 1996, were primarily attributable to international tobacco.
Generally, these balances are significantly affected at December 31 as a result
of buying patterns associated with the annual U.K. budget.
On March 5, 1996, the Company redeemed its $150 million 7-5/8% Eurodollar
Convertible Debentures, Due 2001, at a redemption price of 103.8125% of the
principal amount plus accrued interest. On March 1, 1996, the Company redeemed
its $150 million 9-1/8% Debentures, Due 2016, at a redemption price of 104.4375%
of the principal amount plus accrued interest.
Total debt at September 30, 1996 was $2.4 billion, an increase of $562.5 million
from December 31, 1995, primarily reflecting the increase in commercial paper
borrowings, principally due to the acquisition of Cobra. The ratio of total debt
to total capital increased from 32.5% at December 31, 1995 to 40.3% at September
30, 1996.
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.
On October 8, 1996, the Company announced plans to spin off its U.K.-based
Gallaher tobacco business. Completion of the transaction is contingent upon
receipt of favorable tax rulings and relevant stockholder approvals. The
transaction is expected to be completed in the second or early in the third
quarter of 1997. To allocate the overall debt burden of the Company at the time
of the spin off, Gallaher will borrow and pay to Fortune Brands approximately
$1.4 billion. Fortune Brands will use the proceeds (approximately $1.25 billion
after taxes) initially to pay down short-term debt. The Gallaher debt will be
in addition to its seasonal working capital requirements.
-15-
<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 September 30, 1996 as
Compared to the Three Months Ended September 30, 1995
------------------------------------------------------------------------
Net Sales Operating Income
---------------------- ------------------
1996 1995 1996 1995
-------- -------- ------- -------
(In millions)
International tobacco $1,762.0 $1,711.5 $159.1 $152.0
Distilled spirits 309.2 307.3 52.9 51.4
Hardware and home
improvement products 349.1 327.9 44.2 39.7
Office products 304.3 300.1 19.3 16.4
Golf and leisure products 195.5 136.5 17.6 18.0
-------- -------- ------ ------
2,920.1 2,783.3 293.1 277.5
Businesses disposed - 112.0 - 0.9
-------- -------- ------ ------
$2,920.1 $2,895.3 $293.1 $278.4
======== ======== ====== ======
CONSOLIDATED
- ------------
Net sales, excluding businesses disposed in 1995, rose 5% to $2.9 billion on
price increases (primarily international tobacco excise tax increases), new
products, line extensions and the inclusion of Cobra, partly offset by volume
declines and the unfavorable effects of lower average foreign exchange rates.
Operating income, excluding businesses disposed, was up 6%, principally due to
the higher sales, partly offset by higher ongoing operating expenses.
Interest and related expenses increased due to higher average borrowings to fund
share repurchases and the purchase of Cobra Golf.
The unfavorable change in other (income) expenses, net, reflected interest
income in the third quarter of 1995 from investment of proceeds from the
disposition of The American Tobacco Company and the Franklin life insurance
business.
The gain on disposal of businesses, net, reflected an unfavorable comparison to
last year's reversal of $20 million of the $245 million loss provision recorded
in 1994 in connection with the disposition of nonstrategic businesses.
-16-
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
CONSOLIDATED (Concluded)
- ------------
The effective income tax rate of 40.8% for the three months ended September 30,
1996, increased from 37.4% for the same period last year. The lower rate in 1995
principally reflected the reversal of $20 million provided in 1994 in connection
with the disposition of nonstrategic businesses for which no taxes were
required.
Net income of $136.7 million, or 80 cents per Common share, for the three months
ended September 30, 1996, compared with $153.3 million, or 82 cents per share,
for the same period last year. The $20 million provision reversal for disposal
of businesses recorded last year impacted primary and fully diluted E.P.S. by
ten cents and nine cents, respectively. Lower average Common shares outstanding
in 1996 benefited primary and fully diluted E.P.S. by six cents and eight cents,
respectively.
International Tobacco
- ---------------------
Net sales in sterling were up 4%, principally on price increases resulting from
higher U.K. tobacco taxes and the inclusion of one additional month's results
for Gallaher Dublin (change to a calendar year end). The increase was partly
offset by a 3.7% decrease in U.K. cigarette unit sales. Export cigarette unit
sales were up 2.3%. Gallaher's worldwide cigarette unit sales were down 0.5%;
excluding the additional month for Gallaher Dublin, worldwide cigarette unit
sales were down 2.3%. Operating income in sterling increased 6% principally on
higher sales. In dollars, net sales and operating income increased 3% and 5%,
respectively, reflecting translation at lower average foreign exchange rates.
Distilled Spirits
- -----------------
Net sales increased slightly on price increases and new products, partly offset
by lower volumes (principally lower U.S. shipments). Operating income increased
3% on higher sales and improved gross margin, partly offset by increased
marketing expenses.
Hardware and Home Improvement Products
- --------------------------------------
Net sales increased 6% on line extensions, volume gains, price increases and new
products. Operating income was up 11% on increased sales, favorable product mix
and a gain on the sale of Moen's joint venture in Taiwan, partly offset by
increased operating expenses which included volume-related selling expenses and
spending to meet competitive activities. Master Lock's operating income declined
as intensely competitive activities resulted in increased spending on selling
and pricing programs.
-17-
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Concluded)
---------------------------------------------------------
Office Products
- ---------------
Net sales, excluding the office furniture operations sold in 1995, increased 5%
on new products and price increases, partly offset by volume declines and lower
average foreign exchange rates. Operating income increased 18% reflecting the
sales increase and improved gross margin, partly offset by a slight increase in
operating expenses.
Golf and Leisure Products
- -------------------------
Net sales were up 43% on inclusion of Cobra and increased volume in all product
lines reflecting benefits from line extensions and new products. Operating
income decreased 2% reflecting an operating loss at Cobra caused primarily by
goodwill amortization, increased marketing efforts (principally to promote the
King Cobra Ti metal wood products and the expansion into the Japanese market),
as well as higher manufacturing costs associated with the titanium finishing
process and the development and production of certain newer shaft designs. This
decrease was mostly offset by an increase at Titleist on higher sales, partly
offset by higher operating expenses to support new products and meet competitive
activity.
CAUTIONARY STATEMENT
- --------------------
This Quarterly Report on Form 10-Q contains statements relating to future
results which are forward-looking statements as that term is defined in the
Private Securities Litigation Reform Act of 1995. Actual results may differ
materially from those projected as a result of certain risks and uncertainties,
including but not limited to changes in general economic conditions, foreign
exchange rate fluctuations, competitive product and pricing pressures, the
impact of excise tax increases with respect to international tobacco and
distilled spirits, regulatory developments, the uncertainties of litigation, as
well as other risks and uncertainties detailed from time to time in the
Company's Securities and Exchange Commission filings.
-18-
<PAGE>
PART I - EXHIBIT A
------------------
AMERICAN BRANDS, INC. AND SUBSIDIARIES
Computation of Net Income Per Common Share -
Primary and Fully Diluted (Unaudited)
--------------------------------------------
(In millions)
Nine Months Ended
September 30,
----------------------
1996 1995
------- -------
Income before extraordinary items $382.8 $389.0
Preferred stock dividend requirements (0.9) (1.0)
------ ------
Income available for computing earnings
per Common share - primary 381.9 388.0
Extraordinary items (10.3) (2.7)
------ ------
Net income for computing earnings
per Common share - primary $371.6 $385.3
====== ======
Income available for computing earnings
per Common share - primary $381.9 $388.0
Convertible preferred stock dividend requirements 0.9 1.0
Interest and related expenses on convertible
debentures 2.3 10.5
------ ------
Income available for computing earnings
per Common share - fully diluted 385.1 399.5
Extraordinary items (10.3) (2.7)
------ ------
Net income for computing earnings per Common
share - fully diluted $374.8 $396.8
====== ======
-19-
<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)
Nine Months Ended
September 30,
----------------------
1996 1995
------- -------
Weighted average number of Common shares
outstanding during each period - primary 174.3 189.1
Addition from assumed conversion as of the
beginning of each period of the convertible
preferred stock outstanding at the end of
each period 1.8 1.9
Addition from assumed conversion of
convertible debentures 0.6 3.8
Other additions 2.1 3.5
----- -----
Weighted average number of Common shares
outstanding during each period on a
fully diluted basis 178.8 198.3
===== =====
Earnings per Common share
Primary
Income before extraordinary items $2.19 $2.05
Extraordinary items (.06) (.01)
----- -----
Net income $2.13 $2.04
===== =====
Fully diluted
Income before extraordinary items $2.15 $2.01
Extraordinary items (.06) (.01)
----- -----
Net income $2.09 $2.00
===== =====
-20-
<PAGE>
PART I - EXHIBIT A (Concluded)
------------------------------
AMERICAN BRANDS, INC. AND SUBSIDIARIES
Computation of Net Income Per Common Share -
Primary and Fully Diluted (Unaudited)
--------------------------------------------
(In millions)
Three Months Ended
September 30,
----------------------
1996 1995
------- -------
Net income $136.7 $153.3
Preferred stock dividend requirements (0.3) (0.3)
------ ------
Net income for computing earnings
per Common share - primary 136.4 153.0
Convertible preferred stock dividend requirements 0.3 0.3
Interest and related expenses on convertible
debentures 0.3 2.4
------ ------
Net income for computing earnings per Common
share - fully diluted $137.0 $155.7
====== ======
Computation of Weighted Average Number of
Common Shares Outstanding on a Fully Diluted Basis (Unaudited)
--------------------------------------------------------------
(In millions, except per share amounts)
Weighted average number of Common shares
outstanding during each period - primary 170.4 184.7
Addition from assumed conversion as of the
beginning of each period of the convertible
preferred stock outstanding at the end of
each period 1.7 2.0
Addition from assumed conversion of
convertible debentures 0.6 3.8
Other additions 1.2 1.2
----- -----
Weighted average number of Common shares
outstanding during each period on a
fully diluted basis 173.9 191.7
===== =====
Earnings per Common share
Primary $.80 $.82
==== ====
Fully diluted $.79 $.80
==== ====
-21-
<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, 1995, paragraph (a) of Part II, Item 1, "Legal Proceedings",
of Registrant's Quarterly Report on Form 10-Q for the period ended March 31,
1996 and to paragraph (a) of Part II, Item 1, "Legal Proceedings", of
Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1996.
In addition, Registrant has been named as a defendant, together with leading
tobacco manufacturers, in Arch v. The American Tobacco Company, et al., United
States District Court for the Eastern District of Pennsylvania, August 8, 1996;
Chamberlain v. The American Tobacco Company, United States District Court for
the Northern District of Ohio, August 14, 1996; Harris v. The American Tobacco
Company, Inc., et al., United States District Court for the Eastern District of
New York, October 14, 1996; and Masepohl v. The American Tobacco Company, et
al., United States District Court for the District of Minnesota, September 3,
1996. Arch, Chamberlain and Masepohl are proposed state-wide class actions, and
Harris is a proposed nationwide class action, on behalf of individuals allegedly
addicted to cigarettes through the manipulation of nicotine levels or
individuals who have allegedly suffered personal injury from the use of
cigarettes.
Registrant has been named as a defendant, together with leading tobacco
manufacturers, in Dymits v. American Brands, et al., United States District
Court for the Northern District of California, May 22, 1996; Evans v. The
American Tobacco Company, et al., Supreme Court of the City of New York, Kings
County, August 23, 1996; Hellen v. The American Tobacco Company, et al., Supreme
Court of the City of New York, Kings County, August 23, 1996; Inzerilla v. The
American Tobacco Company, et al., Supreme Court of Queens County, New York, May
29, 1996; Nociforo v. The American Tobacco Company, et al., Supreme Court of the
State of New York, Suffolk County, July 16, 1996; Portnoy v. The American
Tobacco Company, et al., Supreme Court for the State of New York, Suffolk
County, July 15, 1996; Reitano v. The American Tobacco Company, et al., Supreme
Court of the State of New York, Kings County, August 22, 1996; Sola v. The
American Tobacco Company, et al., Supreme Court for the State of New York, Bronx
County, July 12, 1996. Registrant is also aware that it has been named as a
defendant, together with leading tobacco manufacturers, although Registrant has
not been served, in Cresser v. The American Tobacco Company, et al., Supreme
Court of the City of New York, Kings County, October 10, 1996; Daniels v. Brown
& Williamson Tobacco Corp., et al., United States District Court for the Eastern
District of New York, October 24, 1996; Knutsen v. The American Tobacco Company,
et al., Supreme Court of the City of New York, Kings County, October 11, 1996;
Pollan v. Brown & Williamson Tobacco Corp., et al., United States District Court
for the Eastern District of New York, October 24, 1996; Siegel v. The American
Tobacco Company, et al., Supreme Court of the City of New York, Kings County,
October 11, 1996. These are individual cases where the plaintiffs allege
personal injury from the use of cigarettes.
-22-
<PAGE>
Item 1. LEGAL PROCEEDINGS. (Continued)
- ------ -----------------
In addition, Registrant has been named as a defendant, together with
leading tobacco manufacturers, in Coyne v. American Brands, et al., United
States District Court for the Northern District of Ohio, September 17, 1996;
Crozier v. The American Tobacco Company, et al., United States District Court
for the Middle District of Alabama, August 8, 1996; Kelley (State of Michigan)
v. The American Tobacco Company, et al., Circuit Court for the 30th Judicial
Circuit, Michigan, August 21, 1996; Oklahoma (State of Oklahoma) v. The American
Tobacco Company, et al., District Court for Cleveland County, Oklahoma, August
22, 1996. These cases have been brought by the attorneys general (or on behalf
of the attorney general) of Ohio, Alabama, Michigan and Oklahoma, respectively,
seeking unspecified compensatory and punitive damages and various forms of
equitable relief, including restitution of the expenditures by the state for the
cost of medical care provided by the state to its citizens for numerous diseases
allegedly caused by cigarettes and other tobacco products.
Reference is made to the description of State of Florida v. The American
Tobacco Company, et al., Circuit Court of Palm Beach County, State of Florida,
in 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, 1995. On November 1,
1996, the plaintiffs in this case filed an amended complaint that no longer
names the Registrant as a defendant in such case.
Reference also is made to the discussion of the recovery of damages to date
in cases against leading tobacco manufacturers brought by parties seeking
damages for cancer and other ailments claimed to have resulted from tobacco use
in 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, 1995. On
August 9, 1996, the jury in Carter v. The American Tobacco Company, et al.,
District Court of Duval County, State of Florida, a smoking and health case,
awarded plaintiffs $750,000 in actual damages. The Registrant is not a party to
such litigation. The defendant in that action has announced that it intends to
appeal the verdict.
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.
Reference is made to the description of Dean v. Gallaher Limited, pending
in the High Court of Justice in Northern Ireland, 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, 1995. Trial of preliminary issue opened
on October 14, 1996. After three days of testimony on plaintiff's behalf, the
trial was adjourned at plaintiff's request. On October 21, 1996, the case was
dismissed and judgment was entered in defendant's favor.
-23-
<PAGE>
Item 1. LEGAL PROCEEDINGS. (Concluded)
- ------ -----------------
Leigh, Day & Co., a law firm in London, England, has announced the intent
to file suit against Gallaher and another UK tobacco manufacturer on behalf of
40 claimants for alleged injuries claimed to have resulted from the use of
tobacco products.
(b) It is not possible to predict the outcome of the pending litigation
referenced in paragraph (a) above, but management believes that there are
meritorious defenses to the pending actions against Registrant and that the
pending actions against Registrant 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 7, "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
November 7, 1996 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 July 25,
1996, in respect of Registrant's press release dated July 23,
1996 announcing Registrant's financial results for the
three-month and six-month periods ended June 30, 1996 (Items 5
and 7(c)).
Registrant filed a Current Report on Form 8-K, dated October
8, 1996, in respect of Registrant's press release dated
October 8, 1996 announcing Registrant's plan to spin off the
U.K.-based tobacco business of its Gallaher Limited subsidiary
(Items 5 and 7(c)).
-24-
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K. (Concluded)
- ------ --------------------------------
Registrant filed a Current Report on Form 8-K, dated October
16, 1996, in respect of Registrant's press release dated
October 15, 1996 announcing that Registrant will redeem
certain of its outstanding debentures (Items 5 and 7(c)).
Registrant filed a Current Report on Form 8-K, dated October
22, 1996, in respect of Registrant's press release dated
October 22, 1996 announcing Registrant's financial results for
the three-month and nine-month periods ended September 30,
1996 (Items 5 and 7(c)).
-25-
<PAGE>
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: November 7, 1996 By /s/ 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
November 7, 1996 re unaudited financial information.
23. Consent of Counsel, Chadbourne & Parke LLP.
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>
Nine Months
Ended
Years Ended December 31, September 30,
-------------------------------------------------------------- -------------
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Earnings Available:
Income from continuing operations
before income taxes, minority
interest and extraordinary items......... $1,107.0 $1,255.1 $ 878.9 $1,354.0 $ 895.3 $630.3
Less: Excess of earnings over
dividends of less than
fifty percent owned
companies...................... 0.1 0.3 0.8 0.4 0.2 0.1
Capitalized interest............... 1.0 1.0 2.5 1.4 0.2 0.3
-------- -------- -------- -------- -------- ------
1,105.9 1,253.8 875.6 1,352.2 894.9 629.9
======== ======== ======== ======== ======== ======
Fixed Charges:
Interest expense (including
capitalized interest) and
amortization of debt discount
and expenses............................. 276.6 283.4 258.7 224.9 170.4 138.9
Portion of rentals representative
of an interest factor.................... 30.4 32.3 29.8 27.1 20.6 13.4
-------- -------- -------- -------- -------- ------
Total Fixed Charges................ 307.0 315.7 288.5 252.0 191.0 152.3
-------- -------- -------- -------- -------- ------
Total Earnings Available........... $1,412.9 $1,569.5 $1,164.1 $1,604.2 $1,085.9 $782.2
======== ======== ======== ======== ======== ======
Ratio of Earnings to Fixed Charges............ 4.60 4.97 4.04 6.37 5.69 5.14
==== ==== ==== ==== ==== ====
</TABLE>
PART II - EXHIBIT 15
November 7, 1996
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 November 7, 1996, on our review of
interim financial information of American Brands, Inc. and Subsidiaries for the
three-month and nine-month periods ended September 30, 1996 and 1995 included in
this Form 10-Q, has been incorporated by reference into (a) the Registration
Statement on Form S-8 (Registration No. 33-64071) relating to the Defined
Contribution Plan of American Brands, Inc. and Participating Operating
Companies, the Registration Statement on Form S-8 (Registration No. 33-64075)
relating to the MasterBrand Industries, Inc. Hourly Employee Savings Plan, 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) the Registration Statement on Form S-8
(Registration No. 33-64071) relating to the Defined Contribution Plan of
American Brands, Inc. and Participating Operating Companies, the Registration
Statement on Form S-8 (Registration No. 33-64075) relating to the MasterBrand
Industries, Inc. Hourly Employee Savings Plan, 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
November 7, 1996
<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 SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> $ 159
<SECURITIES> 0
<RECEIVABLES> 1,515
<ALLOWANCES> 60
<INVENTORY> 1,353
<CURRENT-ASSETS> 3,209
<PP&E> 2,229
<DEPRECIATION> 1,088
<TOTAL-ASSETS> 8,688
<CURRENT-LIABILITIES> $2,936
<BONDS> 1,591
<COMMON> 717
0
13
<OTHER-SE> 2,864
<TOTAL-LIABILITY-AND-EQUITY> 8,688
<SALES> $8,144
<TOTAL-REVENUES> 8,144
<CGS> 2,103
<TOTAL-COSTS> 2,103
<OTHER-EXPENSES> 3,985
<LOSS-PROVISION> 5
<INTEREST-EXPENSE> 133
<INCOME-PRETAX> 630
<INCOME-TAX> 247
<INCOME-CONTINUING> 383
<DISCONTINUED> 0
<EXTRAORDINARY> (10)
<CHANGES> 0
<NET-INCOME> $ 373
<EPS-PRIMARY> $2.13
<EPS-DILUTED> $2.09
</TABLE>
