UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
April 22, 1996 (April 22, 1996)
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Date of Report (Date of earliest event reported)
AMERICAN BRANDS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 1-9076 13-3295276
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
l700 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
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<PAGE>
INFORMATION TO BE INCLUDED IN THE REPORT
Item 5. Other Events.
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Registrant's press release dated April 22, 1996 is filed herewith as
Exhibit 20 and is incorporated herein by reference.
Item 7. Financial Statements and Exhibits.
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(c) Exhibits.
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20. Press release of Registrant dated April 22, 1996.
SIGNATURE
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Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this Current Report to be signed on its
behalf by the undersigned thereunto duly authorized.
AMERICAN BRANDS, INC.
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(Registrant)
By Robert L. Plancher
--------------------------------
Robert L. Plancher
Senior Vice President
and Chief Accounting Officer
Date: April 22, 1996
<PAGE>
EXHIBIT INDEX
Sequentially
Exhibit Numbered Page
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20. Press release of Registrant dated
April 22, 1996.
EXHIBIT 20
Media Relations: Investor Relations:
Roger W. W. Baker Daniel A. Conforti
(203) 698-5148 (203) 698-5132
AMERICAN BRANDS FIRST QUARTER E.P.S. UP 17%
BEFORE EXTRAORDINARY ITEMS;
EXPECTS GOOD SECOND QUARTER AND FULL YEAR E.P.S. GROWTH
Old Greenwich, CT, April 22, 1996 -- American Brands, Inc. (NYSE-
AMB) today announced that earnings per Common share rose 17% to
70 cents for the quarter ended March 31, 1996, compared with 60
cents in the first quarter of 1995. Fully diluted earnings per
share rose 15% to 68 cents. The 1996 figures exclude an
extraordinary charge of 6 cents per share ($10 million) in
connection with the redemption of two debenture issues.
Net sales, excluding businesses sold in 1995, rose 8% to
$2.7 billion. Last year, U.K. retailing and housewares
operations, which generated substantial sales but a small net
loss in the 1995 quarter, were sold. Including the disposed
businesses, sales declined 2%. Income before the $10 million
extraordinary charge increased 6% to $124 million; including the
extraordinary charge, net income declined 2%.
Fluctuations in exchange rates for foreign currencies,
primarily the British pound, adversely affected sales, net income
and E.P.S. by $61 million, $3 million and 2 cents,
respectively, for the quarter. Conversely, a 9% decline in
average primary Common shares outstanding and an 11% decline in
average fully diluted shares benefited E.P.S. by 6 and 8 cents,
respectively.
Chairman and Chief Executive Officer Thomas C. Hays noted
that "we're off to a fine start in 1996, building on 1995's
strong progress with a 17% gain in earnings per share. Operating
company contribution was up in every category in the quarter,
with the exception of a previously anticipated decline in
hardware and home improvement. Leading the charge were the golf
brands, with a 60% surge benefiting from the addition of Cobra,
which was acquired in January.
"Since the acquisition, I have been delighted as I have seen
the depth and quality of the organization, the market's
acceptance of the new King Cobra Ti titanium line and the
exciting new products in the pipeline. We are extremely
encouraged about Cobra and its prospects.
"At American Brands, we're advancing confidently towards our
vision of being recognized as one of the most successful consumer
products companies in the world. This progress is driven by
great brands, great marketing and great earnings.
"Our confidence is backed by an array of leading consumer
brands, 18 of which generate annual sales over $100 million, many
exciting new products, powerful distribution capabilities, and
tremendous financial resources.
"In combination, these give us enormous flexibility to build
value for stockholders, and we are aggressively utilizing our
resources. In the quarter, we acquired Cobra Golf for about $715
million, adding a premier position in golf clubs to complement
Titleist, the number 1 golf ball brand, and Foot-Joy, the number
1 golf shoe and golf glove.
"We redeemed $300 million in debentures during the quarter,
including a $150 million 7-5/8% convertible issue that reduced
fully diluted shares by 2.8 million. We expect these redemptions
to reduce future interest costs. We also repurchased 2 million
shares of Common stock. Together, these actions reduced fully
diluted shares by 4.8 million, or 3%, in the quarter, following a
14% reduction during 1995.
"All these steps continued our strategy of balancing the
immediate benefit to stockholders of share reduction with the
growth benefit of brand building. Even with these decisive steps
and reflecting the benefit of our tremendous cash flow, our total-
debt-to-capital ratio at the end of the quarter was a very
favorable 39%, giving us considerable flexibility for the future.
"We are continuing to consider complementary acquisitions
that, like Cobra, would build on our strong brand positions and
accelerate our long-term earnings outlook. Depending on
investment needs and opportunities as well as market conditions,
we will also consider further share repurchases.
"Near-term, the most significant challenge remains economic
conditions in our principal markets. Reflecting consumer and
trade caution, conditions have been uneven, particularly for the
hardware and office products brands. Foreign exchange is also a
consideration, with the British pound trading around $1.51,
compared with an average of $1.58 last year. Conversely, price
increases have been implemented in most categories and raw
material costs are generally declining from their 1995 highs.
"For 1996, we anticipate a good second quarter and another
good year. Our expectation for this year as well as our long-
term goal -- assuming exchange rate stability and a satisfactory
economic and pricing environment -- is to generate E.P.S. growth
in the range of 10%. In line with that goal, we are focusing on
returns, and we are expecting higher return on net operating
assets over the next several years in every category."
Brand Highlights
:::International Tobacco:::
Gallaher, the U.K. market leader, again achieved solid
growth. In sterling, sales were up 14%, and contribution was up
5%. In dollars, sales and contribution were up 10% and 1%,
respectively. The contribution increase was achieved in spite of
substantial new product introduction investment.
Gallaher's worldwide cigarette volume was up 8.7%, led by a
9% increase in the United Kingdom home market. Gallaher achieved
growth in all other major markets, as well. Volume was up 5% in
continental Europe, led by a 23% increase in France, benefiting
from the successful introduction of Benson and Hedges American
Blend. In the former Soviet Union, volume surged 73% off a soft
quarter last year. And, in Ireland, where Gallaher is the market
leader, volume was up 11%, backed by another gain in market
share.
In the U.K., volume benefited from shifts in trade buying
patterns relating to the government budget announcements at the
end of 1994 and 1995 and to an April 1, 1996 price increase as
well as from a new product launch. Contribution also benefited
from an April 1995 price increase and improved productivity.
Gallaher's brands' overall share of estimated consumer sales
remained steady at about 39%. Gallaher's share of the premium
sector, which is modestly declining but represents nearly half
the total market, reached an estimated 54%, led by an increase to
an estimated 30% share of the sector for Benson and Hedges, the
number 1 cigarette brand in the U.K. Benson and Hedges is
benefiting from the highly successful Gratis promotional program,
and, in the quarter, it again held its share of the overall
market.
In the growing low-price sector, which now accounts for
about 26% of the market, Mayfair's share increased from 5.2% to
an estimated 6.5%. To add further weight to Gallaher's presence
in this sector, Sovereign King Size from Benson and Hedges was
launched at the beginning of March. The introduction is being
supported by substantial advertising and promotional programs.
Excellent distribution has been achieved, and initial indications
of consumer acceptance are encouraging.
Although the lower exchange rate for the British pound is
adversely affecting translation of results into dollars, we
expect continued solid contribution growth in sterling and very
strong cash flow from Gallaher's brands for the full year.
:::Distilled Spirits:::
Contribution for the distilled spirits brands was up
slightly. These brands are now under a single worldwide
management structure, JBB Worldwide. The initial priority is to
fully capitalize on the global strengths of the combined brand
portfolio. Further opportunities include exploiting distribution
and bottling capabilities around the world and utilizing combined
expertise to enhance product development, marketing and
operations.
JBB's worldwide case volume was virtually flat, with growth
in international markets offsetting a decline in North America.
Gains in volume and market share were achieved in Australia, the
largest export market. In neighboring New Zealand, Jim Beam
bourbon has just become the largest selling distilled spirit of
any kind. Worldwide Scotch sales were up, with export growth
more than offsetting a decline in the U.K.
In North America, profitability has been enhanced through
the introduction of high margin new products. After Shock, a
highly successful cinnamon liqueur introduced last April,
continued to achieve strong growth in shipments and depletions,
contributing to a worldwide margin increase in the quarter.
Avalanche Blue, a new peppermint liqueur, will be introduced to
consumers in the second quarter, and initial trade response has
been excellent. Other forthcoming new product introductions
include Cheri-Beri Pucker and Grape Pucker, two new sweet and
sour fruit flavored schnapps products within the highly
successful and profitable DeKuyper cordial line. Jacob's Well,
which is being introduced as the world's first Micro-Bourbon, is
produced by a unique aging process called Twice-Barreled.
During the quarter, North American sales and marketing were
realigned to increase focus on high margin products and "on-
premise" distribution.
Price competition remains intense in many major markets
including the U.S. and U.K., and agricultural commodity costs
have been rising, countering the trend for most raw materials.
In this situation, aggressive price increases were taken on
selected distilled spirits brands in the U.S., U.K. and other
markets during the quarter.
With continuing efforts to improve margins, we anticipate a
small increase in distilled spirits contribution in 1996, even
after adding back a one-time $17.8 million charge in 1995.
:::Hardware and Home Improvement Products:::
As anticipated, contribution from the hardware and home
improvement brands declined 6% compared with a particularly
strong year-ago quarter and also reflecting the severe weather in
the northeastern U.S. Sales were flat in comparison with last
year's strong quarter, as the bad weather this year significantly
impacted both retail sales and new construction and remodeling.
Sales comparisons improved substantially as the quarter
progressed.
Moen, the leading faucet brand in North America, achieved
solid increases in consumer awareness and intent to purchase,
reflecting sharply enhanced and highly effective advertising.
The Super Bowl commercial for Master Lock, the number 1 padlock
brand in the world, again generated enormous exposure,
contributing to record sales for Master Lock door locks as well
as padlocks. Waterloo, the world leader in tool storage,
received its 15th consecutive Partners in Progress Award from
Sears, its largest customer. Waterloo is one of only two of the
10,000 suppliers to Sears to receive this award every year since
its inception.
Even though raw material prices remain higher than a year
ago, adversely affecting margins in the quarter, these costs have
generally declined from the peaks reached late last year.
Margins should also benefit from increases in North American
faucet prices implemented during the quarter. Investment in
continuous flow manufacturing helped reduce inventories over the
past 12 months by 12% at Moen and by 25% at Aristokraft, which is
number two in kitchen and bath cabinets.
A joint venture to produce Moen faucets for the huge Chinese
market started production in January. Following successful
launches in Guangzhou, where the joint venture is located, and in
Shanghai, the Moen brand was introduced in Beijing in late March.
Overall, we were encouraged by last week's strong U.S.
housing report, with March housing starts up nearly 17%, though
we note that mortgage interest rates have increased by around 1
percentage point since January. Assuming a favorable economic
and housing market environment, we expect resumed growth in
contribution from the hardware and home improvement brands in the
second quarter and solid growth for the full year.
:::Office Products:::
For ACCO, the world leader in office supplies, contribution
was up 11% to a record. Results for the quarter were affected by
the 1995 divestiture of an office furniture operation, adverse
currency translation and other factors. On an underlying basis,
sales were slightly ahead, and even though contribution would
have been up somewhat less than reported, the operating margin
expanded.
The soft sales performance reflected widespread trade
inventory reductions in North America in January along with the
severe weather. Sales comparisons strengthened in February and
improved further in March, though some customers are continuing
to reduce their inventories.
In spite of the soft sales, ACCO successfully reduced its
own inventories for the third quarter in a row, reflecting
continued emphasis on improving return on assets. Gross margin,
which had been under pressure throughout 1995, turned up in the
first quarter, reflecting the benefits of continued restructuring
and price increases implemented throughout 1995.
For the quarter, strong sales gains were achieved in
Australia, Canada, continental Europe and Mexico. The
distribution of Day-Timer time management products into the
retail and commercial channels continued to generate fast sales
growth for that brand. The software-based Day-Timer Organizer
was ranked in a recent major survey as the best selling personal
information manager (PIM); a CD-ROM version with substantial
enhancements will begin shipping this week.
Computer-related supplies is one of the fastest growing
office products categories. In Europe, these product offerings
are being aggressively expanded with strong emphasis on
attractive consumer packaging, and we're consolidating most of
these products in North America under the Kensington brand name.
Kensington achieved double-digit sales and contribution growth in
the quarter.
The office products brands have been achieving sustained
growth in contribution. With their superior customer service,
strong international presence, excellent position with a
consolidating customer base and streamlined operating structure,
we expect another excellent year.
:::Golf:::
As noted, contribution surged 60%, reflecting the addition
of the Cobra brand, with continued strong volume performance by
the Titleist, Pinnacle and Foot-Joy brands. Golf products
generated 13% of consolidated contribution in the quarter,
compared with 8% a year ago.
All brands achieved excellent growth. Worldwide, golf ball
unit sales were up over 5%. Titleist continues to be the ball of
choice in professional golf. 70 out of the top 100 players in
the most recent Sony world ranking play Titleist. At the
recently completed Masters, Titleist was the most played golf
ball with 62 players, nearly five times as many as any other
ball. Year to date, Titleist has 27 tournament wins on the men's
professional tours, nearly four times its nearest competitor.
The Titleist HP2 Tour and HP2 Distance were introduced in January
as Titleist's latest entries into the high-performance, two-piece
construction sector and have achieved tremendous acceptance,
representing 11% of total first quarter golf ball unit sales.
Titleist golf clubs continued to build their strong position with
their unique custom fitting program, posting a volume increase of
more than 5% in the quarter.
The Pinnacle brand also achieved a solid gain, with golf
ball volume up 11%.
Cobra, which was acquired on January 24, is performing well.
The King Cobra iron ranks as the number 1 iron, overall, as well
as the number 1 oversize iron in the very competitive U.S.
market. In the first calendar quarter, 600,000 King Cobra irons
were shipped. The King Cobra Ti metal wood, "The Game's Most
Powerful Element," began shipping in the quarter, and a robust
backlog is expected to contribute to a very strong second
quarter.
In metal woods, golfers are now indicating an overwhelming
preference for titanium, and the King Cobra Ti is a great
product, positioned perfectly to capitalize on this demand. It
is the right product at the right price and at the right time.
Around 80% of metal wood sales are loose, or single, clubs, but
Cobra's strength has been in full sets. The new Ti metal woods
greatly strengthen Cobra's ability to compete on a highly
proactive basis in the loose clubs segment with the major wood
manufacturers, and the early sell-through results are very
encouraging.
Foot-Joy brand sales were up 10% in the quarter. Foot-Joy
golf shoe unit shipments also rose 10%, led by the new Soft-Joys
Sierra and the recently introduced Aqua-Lites. On the
professional tours, Foot-Joy is entering its 50th year as the
number 1 golf shoe.
Overall, we expect substantial growth in contribution
throughout 1996 from the golf brands, principally reflecting the
addition of Cobra but also reflecting continued strong growth
from the Titleist, Pinnacle and Foot-Joy brands.
* * * *
Headquartered in Old Greenwich, Connecticut, American Brands
is an international consumer products holding company. Its
operating companies have powerhouse brands and leading market
positions. Major distilled spirits brands sold by units of JBB
Worldwide, Inc. include Jim Beam and Old Grand-Dad bourbons,
DeKuyper cordials and Whyte & Mackay Scotch. MasterBrand
Industries has leading hardware and home improvement brands
including Moen faucets, Master locks and Aristokraft cabinets.
ACCO World Corporation's major office product brands include
Day-Timer and Swingline. Acushnet Company's golf brands include
Titleist, Cobra, Pinnacle and Foot-Joy. Gallaher Limited sells
tobacco products, principally in Europe, where its major brands
include Benson and Hedges and Silk Cut.
# # #
AMERICAN BRANDS, INC.
CONSOLIDATED STATEMENT OF INCOME
(In millions, except per share amounts)
(Unaudited)
Three Months Ended March 31,
1996 1995 % Change
-------- -------- --------
Net Sales $2,737.9 $2,792.5 (2.0)
-------- -------- --------
Cost of sales 2,059.2 2,104.2 (2.1)
Advertising, selling, general
and administrative expenses 398.5 424.2 (6.1)
Amortization of intangibles 25.3 24.1 5.0
Interest and related expenses 45.4 46.0 (1.3)
Other (income) expenses, net 2.0 (7.1) -
-------- -------- --------
Income Before Income Taxes 207.5 201.1 3.2
Income taxes 83.4 84.5 (1.3)
-------- -------- --------
Income Before Extraordinary Items 124.1 116.6 6.4
Extraordinary items (10.3) - -
-------- -------- --------
Net Income 113.8 116.6 (2.4)
======== ======== ========
Earnings Per Common Share
Primary
Income before extraordinary items $0.70 $0.60 16.7
Extraordinary items (0.06) - -
-------- -------- --------
Net income $0.64 $0.60 6.7
======== ======== ========
Fully diluted
Income before extraordinary items $0.68 $0.59 15.3
Extraordinary items (0.06) - -
-------- -------- --------
Net income $0.62 $0.59 5.1
======== ======== ========
Average Common Shares Outstanding
Primary 177.7 194.5 (8.6)
Fully diluted 183.9 206.6 (11.0)
(NOTES FOLLOW)
AMERICAN BRANDS, INC.
NOTES:
(1) Net sales by business segment for the three months ended March 31, 1996 are
as follows (in millions):
1996 1995 %Change
-------- -------- -------
International Tobacco (a) $1,682.8 $1,523.1 10.5
Distilled Spirits (a) 246.4 255.2 (3.4)
Hardware & Home Improve. Prods. 321.3 322.3 (0.3)
Office Products 277.6 285.5 (2.8)
Golf & Leisure Products (b) 209.8 149.9 40.0
-------- -------- -------
2,737.9 2,536.0 8.0
Businesses Disposed (c) - 256.5 -
-------- -------- -------
$2,737.9 $2,792.5 (2.0)
======== ======== =======
Operating company contribution by business segment for the three months
ended March 31, 1996 are as follows (in millions):
1996 1995 %Change
-------- -------- -------
International Tobacco $150.2 $148.8 0.9
Distilled Spirits 36.2 35.8 1.1
Hardware & Home Improve. Prods. 50.3 53.5 (6.0)
Office Products 24.9 22.5 10.7
Golf & Leisure Products (b) 38.0 23.7 60.3
-------- -------- -------
299.6 284.3 5.4
Businesses Disposed (c) - 2.0 -
-------- -------- -------
$299.6 $286.3 4.6
======== ======== =======
(a) Federal and foreign excise taxes included in net sales and cost of
sales for the three months ended March 31 are as follows (in
millions):
1996 1995
-------- --------
International Tobacco $1,312.7 $1,175.9
Distilled Spirits 86.2 101.8
-------- --------
$1,398.9 $1,277.7
======== ========
(b) In January 1996, the Company acquired Cobra Golf Incorporated for an
aggregate cost of approximately $715 million in cash, including fees
and expenses. These costs 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.
(c) Businesses Disposed include the results of operations of nonstrategic
other businesses, principally U.K.- based Retail distribution
(Forbuoys sold July 24, 1995) and Housewares (Prestige sold May 2,
1995).
AMERICAN BRANDS, INC.
NOTES (CONCLUDED):
(2) 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 interest. In connection with the
redemptions, the Company recorded an extraordinary items 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.
(3) 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.
(4) This press release 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.
AMERICAN BRANDS, INC.
CONDENSED CONSOLIDATED
BALANCE SHEET
(In millions)
March 31 December 31,
1996 1995
Assets (Unaudited)
Current Assets
Cash and Cash Equivalents $153.8 $139.9
Accounts Receivable, Net 1,784.4 984.4
Inventories 1,321.0 1,840.2
Other Current Assets 213.4 199.5
-------- --------
Total Current Assets 3,472.6 3,164.0
Property, Plant and Equipment, Net 1,128.8 1,137.3
Intangibles Resulting From
Business Acquisitions 3,930.3 3,305.2
Other Assets 418.2 414.7
-------- --------
Total Assets $8,949.9 $8,021.2
========= =========
Liabilities and Stockholders' Equity
Current Liabilities
Short-Term Debt $896.9 $297.4
Current Portion - Long-term Debt 62.6 413.4
Other Current Liabilities 2,157.9 1,700.5
-------- --------
Total Current Liabilities 3,117.4 2,411.3
Long-Term Debt 1,464.6 1,154.6
Other Long-Term Liabilities 576.2 578.1
-------- --------
Total Liabilities 5,158.2 4,144.0
Stockholders' Equity 3,791.7 3,877.2
-------- --------
Total Liabilities and Stockholders' Equity $8,949.9 $8,021.2
========= =========
