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, 1996
AMERICAN BRANDS, INC.
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(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
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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 July 31, 1996 was 170,527,392 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,
1996 1995
------------ ------------
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 114.4 $ 139.9
Accounts receivable, net 1,470.0 984.4
Inventories
Leaf tobacco 177.8 148.1
Bulk whiskey 359.1 343.7
Other raw materials, supplies and
work in process 303.4 271.6
Finished products 498.2 1,076.8
-------- --------
1,338.5 1,840.2
Other current assets 235.9 199.5
-------- --------
Total current assets 3,158.8 3,164.0
Property, plant and equipment, net 1,138.3 1,137.3
Intangibles resulting from
business acquisitions, net 3,910.6 3,305.2
Other assets 434.4 414.7
-------- --------
Total assets $8,642.1 $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)
June 30, December 31,
1996 1995
------------ ------------
(Unaudited)
Liabilities and stockholders' equity
Current liabilities
Notes payable to banks $ 75.4 $ 297.4
Commercial paper 758.6 -
Accounts payable 282.2 301.9
Accrued expenses and other liabilities 570.5 571.8
Accrued excise and other taxes 1,208.6 826.8
Current portion of long-term debt 62.4 413.4
--------- ---------
Total current liabilities 2,957.7 2,411.3
Long-term debt 1,465.4 1,154.6
Deferred income taxes 138.2 127.6
Postretirement and other liabilities 441.6 450.5
--------- ---------
Total liabilities 5,002.9 4,144.0
--------- ---------
Stockholders' equity
$2.67 Convertible Preferred stock -
redeemable at Company's option 13.5 14.1
Common stock, par value $3.125 per
share, 229.6 shares issued 717.4 717.4
Paid-in capital 171.0 171.6
Foreign currency adjustments (247.2) (234.6)
Retained earnings 4,945.8 4,887.3
Treasury stock, at cost (1,961.3) (1,678.6)
--------- ---------
Total stockholders' equity 3,639.2 3,877.2
--------- ---------
Total liabilities and
stockholders' equity $ 8,642.1 $ 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 Six Months Ended June 30, 1996 and 1995
-----------------------------------------------------
(In millions, except per share amounts)
(Unaudited)
1996 1995
---------- ----------
Net sales $5,223.9 $5,387.2
Cost of products sold 1,375.2 1,605.0
Excise taxes on products sold 2,502.3 2,417.0
Advertising, selling, general and
administrative expenses 807.6 858.7
Amortization of intangibles 53.4 48.2
Interest and related expenses 90.0 86.1
Other (income) expenses, net (3.3) (16.0)
-------- --------
Income before income taxes 398.7 388.2
Income taxes 152.6 152.5
-------- --------
Income before extraordinary items 246.1 235.7
Extraordinary items (10.3) (2.7)
-------- --------
Net income $ 235.8 $ 233.0
======== ========
Earnings per Common share
Primary
Income before extraordinary items $1.39 $1.23
Extraordinary items (.06) (.01)
----- -----
Net income $1.33 $1.22
===== =====
Fully diluted
Income before extraordinary items $1.36 $1.21
Extraordinary items (.06) (.01)
----- -----
Net income $1.30 $1.20
===== =====
Dividends paid per Common share $1.00 $1.00
===== =====
Average number of Common shares outstanding
Primary 176.3 191.3
===== =====
Fully diluted 182.4 201.1
===== =====
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 June 30, 1996 and 1995
-----------------------------------------------------
(In millions, except per share amounts)
(Unaudited)
1996 1995
---------- ----------
Net sales $2,486.0 $2,594.7
Cost of products sold 714.9 778.5
Excise taxes on products sold 1,103.4 1,139.3
Advertising, selling, general and
administrative expenses 409.1 434.5
Amortization of intangibles 28.1 24.1
Interest and related expenses 44.6 40.1
Other (income) expenses, net (5.3) (8.9)
-------- --------
Income before income taxes 191.2 187.1
Income taxes 69.2 68.0
-------- --------
Income before extraordinary items 122.0 119.1
Extraordinary items - (2.7)
-------- --------
Net income $ 122.0 $ 116.4
======== ========
Earnings per Common share
Primary
Income before extraordinary items $.69 $.63
Extraordinary items - (.01)
---- ----
Net income $.69 $.62
==== ====
Fully diluted
Income before extraordinary items $.68 $.62
Extraordinary items - (.01)
---- ----
Net income $.68 $.61
==== ====
Dividends paid per Common share $.50 $.50
==== ====
Average number of Common shares outstanding
Primary 174.9 188.0
===== =====
Fully diluted 178.9 195.6
===== =====
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 Six Months Ended June 30, 1996 and 1995
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(In millions)
(Unaudited)
1996 1995
--------- ---------
Operating activities
Net income $ 235.8 $ 233.0
Extraordinary items 10.3 2.7
Depreciation and amortization 136.3 131.3
Increase in accounts receivable (457.0) (295.3)
Decrease in inventories 523.8 621.1
Decrease in accounts payable, accrued
expenses and other liabilities (101.0) (213.0)
Increase in accrued excise and other taxes 379.6 13.2
Other operating activities, net (24.2) 98.1
------- --------
Net cash provided from operating activities 703.6 591.1
------- --------
Investing activities
Additions to property, plant and equipment (84.4) (86.5)
Proceeds from the disposition of operations,
net of cash - 1,173.2
Acquisition, net of cash acquired (695.2) -
Other investing activities, net 5.3 (8.6)
------- --------
Net cash (used) provided by investing activities (774.3) 1,078.1
------- --------
Financing activities
Increase (decrease) in short-term debt 540.4 (81.3)
Issuance of long-term debt 311.4 3.1
Repayment of long-term debt (353.5) (291.7)
Dividends to stockholders (177.3) (193.4)
Cash purchases of Common stock for treasury (282.3) (598.0)
Other financing activities, net 1.1 13.0
------- --------
Net cash provided (used) by financing activities 39.8 (1,148.3)
------- --------
Effect of foreign exchange rate changes on cash 5.4 3.9
------- --------
Net (decrease) increase in cash and cash equivalents (25.5) 524.8
Cash and cash equivalents at beginning of period 139.9 110.1
------- --------
Cash and cash equivalents at end of period $ 114.4 $ 634.9
======= ========
See Notes to Condensed Consolidated Financial Statements.
-5-
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Principles of Consolidation
The condensed consolidated balance sheet as of June 30, 1996, the
related condensed consolidated statements of income for the three-month
and six-month periods ended June 30, 1996 and 1995 and the related
condensed consolidated statement of cash flows for the six-month
periods ended June 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 the previously announced disposition of
nonstrategic businesses and product lines with the sale of U.K.-based
Forbuoys (retail distribution) on July 24, 1995 and Prestige
(housewares) on May 2, 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):
Six Months Three Months
Ended June 30, Ended June 30,
-------------------- ---------------------
1996 1995 1996 1995
-------- -------- -------- --------
International tobacco $2,300.0 $2,197.6 $ 987.3 $1,021.7
Distilled spirits 202.3 219.4 116.1 117.6
-------- -------- -------- --------
$2,502.3 $2,417.0 $1,103.4 $1,139.3
======== ======== ======== ========
The effective income tax rate of 38.3% in the first half of 1996,
as compared with 39.3% for the same period last year, decreased
principally due to lower taxes on foreign income.
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.
-7-
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Concluded)
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.
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>
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, 1996, the related
condensed consolidated statements of income for the three-month and
six-month periods ended June 30, 1996 and 1995 and the related
condensed consolidated statement of cash flows for the six-month
periods ended June 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
August 8, 1996
-9-
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------ AND RESULTS OF OPERATIONS
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AMERICAN BRANDS, INC. AND SUBSIDIARIES
--------------------------------------
Results of Operations for the Six Months Ended June 30, 1996 as Compared
to the Six Months Ended June 30, 1995
------------------------------------------------------------------------
Net Sales Operating Income*
---------------------- -------------------
1996 1995 1996 1995
-------- --------- ------- ---------
(In millions)
International tobacco $2,961.1 $2,857.1 $250.6 $248.1
Distilled spirits 583.5 570.5 74.8 75.0
Hardware and home
improvement products 656.7 634.5 86.2 88.0
Office products 549.0 544.5 30.2 25.9
Golf and leisure products 473.6 342.3 87.1 60.2
-------- -------- ------ ------
5,223.9 4,948.9 528.9 497.2
Businesses disposed - 438.3 - 3.3
-------- -------- ------ ------
$5,223.9 $5,387.2 $528.9 $500.5
======== ======== ====== ======
* 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 6% to $5.2 billion on
price increases (primarily international tobacco excise tax increases), new
products, the inclusion of Cobra and line extensions, partly offset by
unfavorable effects of lower average foreign exchange rates and volume declines.
Operating income was up 6%, mainly due to the Cobra acquisition as well as the
higher sales. Excluding the unfavorable effects of lower average foreign
exchange rates ($126.9 million and $9.7 million on sales and operating income,
respectively) and businesses disposed, both sales and operating income would
have been up 8%.
The unfavorable change in other (income) expenses, net, reflected interest
income in the first half of 1995 from investment of proceeds from the
disposition of The American Tobacco Company and the Franklin life insurance
business.
The effective income tax rate of 38.3% in the first half of 1996, as compared
with 39.3% for the same period last year, decreased principally due to lower
taxes on foreign income.
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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)
- ------------
Income before extraordinary items of $246.1 million, or $1.39 per Common share,
for the six months ended June 30, 1996 compared with $235.7 million, or $1.23
per share for the same period last year. Lower average Common shares outstanding
in 1996 benefited primary and fully diluted E.P.S. by 11 cents and 13 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 $235.8 million, or $1.33 per Common share, for the six months
ended June 30, 1996, compared with $233 million, or $1.22 per share, for the
same period last year.
Of the ten million share purchase authorization adopted by the Board of
Directors, 6.8 million shares of the Company's Common stock were repurchased in
the first half of 1996. Subject to market conditions, the Company intends to
complete the share repurchases under the authorization this year. Earnings per
Common share in 1996 will continue to benefit from the Company's repurchase of
its Common stock.
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)
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International Tobacco
- ---------------------
Net sales in sterling were up 8% on price increases (primarily higher U.K.
tobacco taxes) and a 1.9% increase in U.K. cigarette unit sales. Export unit
sales were about flat for the six months, with a 12% gain in continental Europe
offset by a decline in shipments to the former Soviet Union. Gallaher's
worldwide cigarette unit sales were up 1.7%. 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 4% and 1%, respectively, reflecting translation at lower
average foreign exchange rates.
Gallaher's estimated share of cigarette sales to consumers was 39%, as compared
with 39.5% for last year's comparable six month period. Consumer demand is
estimated to have declined in the range of 2% as compared with a decline of 2.5%
in last year's first half. The U.K. cigarette industry unit sales to the trade
are estimated to have increased 7.7%. 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 half of 1995 and 1996, which
benefited the first half 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 decreased slightly as the
higher sales were more than offset by higher operating expenses (principally
marketing expenditures).
Hardware and Home Improvement Products
- --------------------------------------
Net sales increased 3% on price increases, new products and line extensions,
partly offset by volume declines. Operating income was down 2% on increased
operating expenses (including an unfavorable comparison to the prior year's
reversal of reserves related to a joint venture), increased raw material costs
and unfavorable product mix, mostly offset by increased sales.
-12-
<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 a slight increase in
operating expenses.
Golf and Leisure Products
- -------------------------
Record net sales were up 38% on inclusion of Cobra, acquired January 24, 1996,
and increased volume in all product lines, reflecting benefits from line
extensions and new products. Record operating income increased 45% 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 $703.6 million for the six months
ended June 30, 1996, exceeded the funds required for capital expenditures and
dividends by $441.9 million. Compared to the six month period last year, net
cash provided from operating activities increased $112.5 million. The increase
was largely attributable to changes in accrued taxes 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 accounts receivable and
inventories.
Net cash used by investing activities for the six months ended June 30, 1996 was
$774.3 million, as compared with net cash provided of $1,078.1 million in the
first half of 1995, reflecting this year's acquisition of Cobra and last year's
proceeds from the sale of the Franklin life insurance business.
Net cash provided by financing activities for the six months ended June 30, 1996
was $39.8 million, as compared with net cash used of $1,148.3 million in 1995,
reflecting this year's borrowings and lower repurchases of Common stock for
treasury. The Company's repurchases amounted to $282.3 million during the first
six months of 1996 as compared with $598 million in the first half of 1995.
-13-
<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
June 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.
Total debt at June 30, 1996 aggregated $2.4 billion, an increase of $496.4
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 39.4%
at June 30, 1996.
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.
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.
-14-
<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, 1996 as Compared
to the Three Months Ended June 30, 1995
--------------------------------------------------------------------------
Net Sales Operating Income
---------------------- ---------------------
1996 1995 1996 1995
-------- --------- -------- ---------
(In millions)
International tobacco $1,278.3 $1,334.0 $101.6 $100.4
Distilled spirits 337.1 315.3 47.0 47.8
Hardware and home
improvement products 335.4 312.2 43.4 42.0
Office products 271.4 259.0 10.5 8.6
Golf and leisure products 263.8 192.4 52.1 36.8
-------- -------- ------ ------
2,486.0 2,412.9 254.6 235.6
Businesses disposed - 181.8 - 2.7
-------- -------- ------ ------
$2,486.0 $2,594.7 $254.6 $238.3
======== ======== ====== ======
CONSOLIDATED
- ------------
Net sales, excluding businesses disposed in 1995, rose 3% to $2.5 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 was up 7%, mainly due to the Cobra acquisition as well as the
higher sales. Excluding the unfavorable effects of lower average foreign
exchange rates ($66 million and $4 million on sales and operating income,
respectively) and businesses disposed, sales and operating income would have
been up 6% and 10%, respectively.
The unfavorable change in other (income) expenses, net, reflected interest
income in the second quarter of 1995 from investment of proceeds from the
disposition of The American Tobacco Company and the Franklin life insurance
business.
Income before extraordinary items of $122 million, or 69 cents per Common share,
for the three months ended June 30, 1996 compared with $119.1 million, or 63
cents per share for the same period last year. Lower average Common shares
outstanding in 1996 benefited primary and fully diluted E.P.S. by five cents
each.
-15-
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
CONSOLIDATED (Concluded)
- ------------
Last year's extraordinary item reflected 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 $122 million, or 69 cents per Common share, for the three months
ended June 30, 1996, compared with $116.4 million, or 62 cents per share, for
the same period last year.
International Tobacco
- ---------------------
Net sales in sterling were up slightly, principally on price increases resulting
from higher U.K. tobacco taxes and a manufacturers' price increase in April
1996. The effect of the price increases was offset by a 6.9% decrease in U.K.
cigarette unit sales (reflecting a change in trade buying patterns in response
to the manufacturers' price increase) and a 6.3% decrease in export unit sales
(reflecting lower shipments to the former Soviet Union). Worldwide cigarette
unit sales were down 5.6%. Operating income in sterling increased 5% on lower
operating expenses (principally legal). In dollars, net sales decreased 4% and
operating income increased 1%, reflecting translation at lower average foreign
exchange rates.
Distilled Spirits
- -----------------
Net sales increased 7% on the inclusion of one additional month's results for
Whyte & Mackay, price increases and new products, partly offset by lower volumes
(principally lower U.S. shipments) and lower average foreign exchange rates.
Operating income declined 2% as increased operating expenses (principally
marketing) and lower gross margin more than offset the sales increase.
Hardware and Home Improvement Products
- --------------------------------------
Record net sales increased 7% on price increases, line extensions, new products
and volume gains. Operating income was up 3% on the sales increase, partly
offset by increased operating expenses which included an unfavorable comparison
to the prior year's reversal of reserves related to a joint venture.
-16-
<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 9%
on new products and price increases, partly offset by lower average foreign
exchange rates. Operating income increased 22% reflecting the sales increase and
improved gross margin, partly offset by increased operating expenses.
Golf and Leisure Products
- -------------------------
Record net sales were up 37% on inclusion of Cobra and increased volume in all
product lines except golf balls, reflecting benefits from line extensions and
new products. Record operating income increased 42% 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).
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.
-17-
<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,
------------------------
1996 1995
-------- --------
Income before extraordinary items $246.1 $235.7
Preferred stock dividend requirements (0.6) (0.7)
------ ------
Income available for computing earnings
per Common share - primary 245.5 235.0
Extraordinary items (10.3) (2.7)
------ ------
Net income for computing earnings
per Common share - primary $235.2 $232.3
====== ======
Income available for computing earnings
per Common share - primary $245.5 $235.0
Convertible preferred stock dividend requirements 0.6 0.7
Interest and related expenses on convertible
debentures 2.0 8.1
------ ------
Income available for computing earnings
per Common share - fully diluted 248.1 243.8
Extraordinary items (10.3) (2.7)
------ ------
Net income for computing earnings per Common
share - fully diluted $237.8 $241.1
====== ======
-18-
<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,
-----------------------
1996 1995
------- -------
Weighted average number of Common shares
outstanding during each period - primary 176.3 191.3
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 2.0
Addition from assumed conversion of
convertible debentures 0.8 3.9
Other additions 3.5 3.9
----- -----
Weighted average number of Common shares
outstanding during each period on a
fully diluted basis 182.4 201.1
===== =====
Earnings per Common share
Primary
Income before extraordinary items $1.39 $1.23
Extraordinary items (.06) (.01)
----- -----
Net income $1.33 $1.22
===== =====
Fully diluted
Income before extraordinary items $1.36 $1.21
Extraordinary items (.06) (.01)
----- -----
Net income $1.30 $1.20
===== =====
-19-
<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,
------------------------
1996 1995
-------- --------
Income before extraordinary items $122.0 $119.1
Preferred stock dividend requirements (0.3) (0.4)
------ ------
Income available for computing earnings
per Common share - primary 121.7 118.7
Extraordinary items - (2.7)
------ ------
Net income for computing earnings
per Common share - primary $121.7 $116.0
====== ======
Income available for computing earnings
per Common share - primary $121.7 $118.7
Convertible preferred stock dividend requirements 0.3 0.4
Interest and related expenses on convertible
debentures 0.3 2.7
------ ------
Income available for computing earnings
per Common share - fully diluted 122.3 121.8
Extraordinary items - (2.7)
------ ------
Net income for computing earnings per Common
share - fully diluted $122.3 $119.1
====== ======
-20-
<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,
-----------------------
1996 1995
-------- --------
Weighted average number of Common shares
outstanding during each period - primary 174.9 188.0
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 2.0
Addition from assumed conversion of
convertible debentures 0.8 3.9
Other additions 1.4 1.7
----- -----
Weighted average number of Common shares
outstanding during each period on a
fully diluted basis 178.9 195.6
===== =====
Earnings per Common share
Primary
Income before extraordinary items $.69 $.63
Extraordinary items - (.01)
---- ----
Net income $.69 $.62
==== ====
Fully diluted
Income before extraordinary items $.68 $.62
Extraordinary items - (.01)
---- ----
Net income $.68 $.61
==== ====
-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 and to 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. In addition, Registrant has been named as a defendant, together
with leading tobacco manufacturers, in Reed v. Philip Morris Inc., et al.,
Superior Court for the District of Columbia, June 21, 1996; Richardson v. Philip
Morris Inc., et al., County Court of Baltimore, Maryland, May 24, 1996; Scott v.
American Tobacco Company, et al., District Court of Orleans Parish, Louisiana,
May 24, 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 Zito v. The American Tobacco Company, et al., Supreme Court of the
County of New York, New York, June 17, 1996. Reed, Richardson, Scott and Zito
are proposed class actions on behalf of alleged nicotine-dependent citizens or
residents of certain states. Plaintiffs in these cases allege that the
defendants caused members of the purported classes to become "addicted" to
cigarettes through the manipulation of nicotine levels.
Registrant is also aware that it has been named as a defendant,
together with leading tobacco manufacturers, although Registrant has not been
served, in Banks v. Philip Morris Companies Inc., et al., Circuit Court of
Okaloosa County, Florida, April 3, 1996. This case, a pro se prisoner case, also
alleges that defendants controlled and manipulated the amount of nicotine in
cigarettes in order to addict customers.
In addition, Registrant has been named as a defendant, together with
leading tobacco manufacturers, in State of Maryland v. Philip Morris Inc., et
al., Circuit Court of Baltimore, Maryland, May 1, 1996, and, although Registrant
has not been served, in Ieyoub v. The American Tobacco Company et al., District
Court of Calcasieu Parish, Louisiana, March 13, 1996. These cases have been
brought by the attorneys general of Maryland and Louisiana, 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 Castano v. the American
Tobacco Company, Inc., et al., United States District Court for the Eastern
District of Louisiana, 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. In this purported class action, Castano, a proposed nationwide class,
was ordered decertified by the Fifth Circuit Court of Appeals on May 23, 1996,
and is proceeding as an action on behalf of the named plaintiffs only.
-22-
<PAGE>
Item 1. LEGAL PROCEEDINGS. (Concluded)
- ------ -----------------
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 May 29, 1996, Registrant was dismissed, without prejudice, as a
defendant in such case.
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 the English Legal Aid Board's
January 31, 1995 grant of limited legal aid certificates to approximately 200
claimants seeking to bring proceedings against tobacco manufacturers for the
harm they have allegedly suffered through smoking cigarettes, in paragraph
(a)(ii)(B) of Part I, Item 3, "Legal Proceedings", of Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995. Following several
presentations by solicitors for the applicants, the Legal Aid Board announced on
July 17, 1996 that all legal aid would be withdrawn.
Reference is made to the description of Burnett v. Gallaher Limited,
pending in the Civil Court of Session in Scotland, in paragraph (a)(ii)(E) 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 June 14, 1996, Mr. Burnett's
application to the Scottish Legal Aid Board for civil legal aid to pursue this
action was denied.
(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 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 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.
-23-
<PAGE>
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------ ---------------------------------------------------
(a) The Annual Meeting of Stockholders was held on May 1, 1996.
(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 four nominees for Class I directors, Mr. Thomas
C. Hays, Mr. Sidney Kirschner, Mr. Gordon R. Lohman and Mr. Charles H. Pistor,
Jr., 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:
(A) Mr. Hays: 155,457,676 votes for and 2,016,814 votes withheld;
(B) Mr. Kirschner: 155,474,626 votes for and 1,999,863 votes withheld;
(C) Mr. Lohman: 155,487,127 votes for and 1,987,363 votes withheld;
(D) Mr. Pistor: 155,371,235 votes for and 2,103,254 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 1996 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: 155,861,863 affirmative
votes; 981,152 negative votes; and 631,475 votes abstained.
(c)(iii) A proposal (designated Item 3 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:
82,493,279 negative votes; 54,359,487 affirmative votes; 3,374,727 votes
abstained; and 17,246,996 broker non-votes.
(c)(iv) A proposal (designated Item 4 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: 91,389,352 negative votes; 45,131,639 affirmative votes; 3,747,264
votes abstained; and 17,206,234 broker non-votes.
-24-
<PAGE>
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. (Concluded)
- ------ ---------------------------------------------------
(c)(v) A proposal (designated Item 5 and set forth in Registrant's
Proxy Statement) requesting that non-employee director compensation be paid
partly in restricted stock 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: 120,133,287 negative votes; 16,991,203 affirmative votes;
3,102,884 votes abstained; and 17,247,115 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: 87,226,385 negative votes;
48,424,722 affirmative votes; 4,574,304 votes abstained; and 17,249,079 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 thereon: 112,123,188 negative
votes; 13,323,242 affirmative votes; 14,821,828 votes abstained; and 17,206,231
broker non-votes.
(c)(viii) A proposal (designated Item 8 and set forth in Registrant's
Proxy Statement) requesting the implementation of the MacBride Principles 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: 111,078,609
negative votes; 13,183,121 affirmative votes; 15,955,901 votes abstained; and
17,256,858 broker non-votes.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
- ------ --------------------------------
(a) Exhibits.
--------
10a1. Amendment made as of 1st day of January, 1996
to Trust Agreement, made as of the 1st day of
November, 1993, constituting Exhibit 10c6 to
the Annual Report on Form 10-K of Registrant
for the Fiscal Year ended December 31, 1995,
among Gilbert L. Klemann, II, Registrant and
The Chase Manhattan Bank (National Association).*
10a2. Schedule identifying substantially identical
agreements to the Amendment to Trust Agreement
constituting Exhibit 10a1 hereto in favor of
Thomas C. Hays, John T. Ludes, Robert L. Plancher,
Robert J. Rukeyser, Steven C. Mendenhall and
Dudley L. Bauerlein, Jr.*
-25-
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K. (Concluded)
- ------ --------------------------------
12. Statement re computation of ratio of earnings to
fixed charges.
15. Letter from Coopers & Lybrand L.L.P. dated
August 8, 1996 re unaudited financial information.
23. Consent of Counsel, Chadbourne & Parke LLP.
27. Financial Data Schedule (Article 5).
* Indicates that exhibit is a management contract or
compensatory plan or arrangement.
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 22,
1996, in respect of Registrant's press release dated April 22,
1996 announcing Registrant's financial results for the
three-month period ended March 31, 1996 (Items 5 and 7(c)).
Registrant filed a Current Report on Form 8-K, dated June 12,
1996, in respect of Registrant's press release dated June 11,
1996 concerning certain statements by Registrant at an
investment community conference (Items 5 and 7(c)).
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)).
-26-
<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: August 8, 1996 By /s/ D. L. Bauerlein, Jr.
-------------- -----------------------------
D. L. Bauerlein, Jr.
Senior Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
-------------
Sequentially
Exhibit Numbered Page
- ------- -------------
10a1. Amendment made as of 1st day of January, 1996
to Trust Agreement, made as of the 1st day of
November, 1993, constituting Exhibit 10c6 to
the Annual Report on Form 10-K of Registrant
for the Fiscal Year ended December 31, 1995,
among Gilbert L. Klemann, II, Registrant and
The Chase Manhattan Bank (National Association).*
10a2. Schedule identifying substantially identical
agreements to the Amendment to Trust Agreement
constituting Exhibit 10a1 hereto in favor of
Thomas C. Hays, John T. Ludes, Robert L. Plancher,
Robert J. Rukeyser, Steven C. Mendenhall and
Dudley L. Bauerlein, Jr.*
12. Statement re computation of ratio of
earnings to fixed charges.
15. Letter from Coopers & Lybrand L.L.P. dated
August 8, 1996 re unaudited financial information.
23. Consent of Counsel, Chadbourne & Parke LLP.
27. Financial Data Schedule (Article 5).
* Indicates that exhibit is a management contract or compensatory
plan or arrangement.
EXHIBIT 10a1
AMENDMENT TO TRUST AGREEMENT
THIS AMENDMENT, made as of the 1st day of January, 1996, among GILBERT L.
KLEMANN, II, AMERICAN BRANDS, INC., a Delaware corporation (the "Company"), and
THE CHASE MANHATTAN BANK (National Association), incorporated under the laws of
the United States of America (the "Trustee").
W I T N E S S E T H :
WHEREAS, the Company and the Trustee have entered into a Trust Agreement
made as of November 1, 1993 (the "Trust Agreement") for the purpose of
establishing a trust in order to provide a source of benefits under the terms of
the Company's Supplemental Retirement Plan (the "Plan") for the benefit of the
Executive; and
WHEREAS, the Plan has been amended effective as of January 1, 1996 to
change the name thereof to the American Brands, Inc. Supplemental Plan and to
eliminate restrictions on withdrawals of amounts held in the trust prior to
termination of employment by the Executive; and
WHEREAS, the Executive ceased to accrue benefits under the Company's tax
qualified retirement plan and shall continue to accrue benefits under the Plan
effective as of January 1, 1996; and
WHEREAS, the parties desire to amend the Trust Agreement in order to
reflect these changes;
NOW, THEREFORE, in consideration of the premises, the parties agree that
the Trust Agreement is hereby amended as follows:
1. All references in the Trust Agreement to the Plan shall be references to
the American Brands, Inc. Supplemental Plan.
2. Section 1.2 of the Trust Agreement is hereby amended in its entirety as
follows:
"1.2 The Trustee shall hold, manage, invest and
otherwise administer the Fund pursuant to the terms of this
Agreement. The Trustee shall be responsible only for
contributions actually received by it hereunder and shall
have no responsibility for the correctness of the amount
thereof. Upon the establishment of this Trust, and from time
to time thereafter, the Company may contribute to the Trust,
unless otherwise directed by the Executive to make such
contributions to a segregated account established with the
Trustee or other bank, trust company or other financial
institution by or for the benefit of the Executive pursuant
to the Plan ("Segregated Account"), such amount in cash as
the Company shall determine to be appropriate to provide a
source of the payments required under the terms of the Plan.
Prior to the making of any contribution to the Trust, the
Company shall have approved the establishment of a
Segregated Account of the Executive, the terms and
provisions thereof, and the bank, trust company or other
financial institution with which such Segregated Account may
be established. The initial contribution by the Company
shall be in an amount approximately equal to the present
value of the after tax equivalent of the aggregate maximum
benefits that would be due to the Executive as of such date
under the retirement and profit-sharing provisions of the
Plan, or such lesser amount as the Company shall determine.
The Company will make additional annual contributions to the
Trust or Segregated Account in amounts such that the amount
of the Fund, together with the amount in the Executive's
Segregated Account, at such time will be approximately equal
to the present value of the after tax equivalent of the
Executive's accrued benefits under the Plan at that time, or
in such lesser amounts as the Company shall determine. The
Company also may make a final contribution to the Trust as
promptly as practicable after the Executive's termination of
employment in an amount such that the amount of the Fund,
together with the amount, if any, in the Executive's
Segregated Account will be equal to (i) the sum of the
present value of the after tax equivalent of (x) the
Executive's benefit under the supplemental retirement
provisions of the Plan or, if the termination of employment
is by reason of the death of the Executive, the Executive's
benefit under the supplemental retirement provisions of the
Plan immediately prior to his death and (y) the Executive's
supplemental profit-sharing benefit under the Plan, reduced
by (ii) the amounts of any actual withdrawals from the Fund
or from the Executive's Segregated Account by the Executive
as provided in Section 2.4 plus the income which would have
been earned on such withdrawn amounts from the time of
withdrawal to the time of the Executive's termination of
employment, at a rate equal to the after tax equivalent of
120% of the applicable monthly immediate annuity interest
purchase rate which would be used by the Pension Benefit
Guaranty Corporation from time to time during such period
for the purpose of determining the present value of a single
sum distribution on plan termination."
3. Section 2.1 of the Trust Agreement is hereby amended in its entirety as
follows:
"2.1 The Company shall act as Administrator of the
Trust. Except for the records dealing solely with the Fund
and its investment, which shall be maintained by the
Trustee, the Company as Administrator shall maintain all the
Executive's records contemplated by this Agreement,
including records of the Executive's compensation and
benefits from the Company, the amount of his benefits
accrued under the Plan, the Company's contributions to the
Fund, withdrawals from the Fund as provided in Section 2.4
or from the Executive's Segregated Account, the Executive's
beneficiary designation and such other records as may be
necessary for determining the amount payable to the
Executive or his Surviving Spouse or other beneficiary under
the Plan. All such records shall be made available promptly
upon the request of the Executive. In the event that the
Executive's Segregated Account is not maintained with the
Trustee, the Company shall give written notice to the
Trustee as to the identity of the bank, trust company or
other financial institution with which the Segregated
Account is maintained. In such case, the Company also shall
give notice to the Trustee in the event of a withdrawal by
the Executive of any or all of the funds in his Segregated
Account. The Company shall give written notice to the
Trustee of the Executive's termination of employment, and as
to whether such termination is by reason of the death of the
Executive. The Company as Administrator shall also prepare
and distribute the Executive's annual estimated benefit
statements specified in Section 2.2 and shall perform such
other duties and responsibilities in connection with the
administration of the Trust as the Company or the Trustee
determines is necessary or advisable to achieve the
objectives of this Agreement."
4. Section 2.4 of the Trust Agreement is hereby amended in its entirety as
follows:
"2.4 Subject to the next to the last sentence of
Section 5.2, the Executive may withdraw all or any portion
of the Fund, in cash or, to the extent practicable, in kind
at any time upon written notice of not less than sixty (60)
days to the Company and the Trustee. Prior to any such
withdrawal, the Trustee shall notify the Company in writing
of such withdrawal and the amount thereof. In the event of
any withdrawal by the Executive from his Segregated Account,
the Company shall promptly notify the Trustee in writing of
such withdrawal and the amount thereof."
5. Section 2.5 of the Trust Agreement is hereby amended in its entirety as
follows:
"2.5 The Executive may elect to transfer all or any
portion of the Fund to his Segregated Account, in cash or,
to the extent practicable, in kind, at any time upon written
notice of not less than sixty (60) days to the Company and
the Trustee and the financial institution with which the
Segregated Account is established. The Executive also may
elect to transfer funds, in cash, from his Segregated
Account to the Trust upon written notice of not less than
sixty (60) days to the Company and the Trustee, and funds so
transferred shall be held by the Trustee as part of the
Fund."
6. Section 8.1 of the Trust Agreement is hereby amended in its entirety as
follows:
"8.1 The Trust shall terminate upon the expiration of
sixty (60) days following the Executive's termination of
employment (by retirement or otherwise), unless the Trustee
and the Executive agree to continue the Trust thereafter
upon such terms as they may agree, but in the event of such
continuation the Company shall have no further obligations
under this Agreement with respect to matters relating to
such continuation, including expenses and compensation of
the Trustee, as provided in Section 5.2, and indemnification
of the Trustee as provided in Section 3.2."
IN WITNESS WHEREOF, the parties have caused this AMENDMENT to be duly
executed as of the day and year first written above.
Attest: AMERICAN BRANDS, INC.
Louis F. Fernous, Jr. Steven C. Mendenhall
- --------------------- By----------------------
Secretary Senior Vice President
and Chief Administrative
Officer
Attest: THE CHASE MANHATTAN BANK
Carl P. Pierleoni Mark J. Altschuler
- --------------------- By----------------------
Carl P. Pierleoni Mark J. Altschuler
Second Vice President Vice President
I hereby consent to the foregoing AMENDMENT.
Witness:
Dianne J. Ebner Gilbert L. Klemann, II
- --------------------- ------------------------
GILBERT L. KLEMANN, II
<PAGE>
STATE OF CONNECTICUT )
: ss.: Old Greenwich, CT-March 22, 1996
COUNTY OF FAIRFIELD )
Personally appeared Steven C. Mendenhall, Senior Vice President and Chief
Administrative Officer of AMERICAN BRANDS, INC., signer and sealer of the
foregoing instrument, and acknowledged the same to be his free act and deed as
such Senior Vice President and Chief Administrative Officer and the free act and
deed of said Corporation, before me.
Lenora Rowser
-----------------------------------
Notary Public
STATE OF NEW YORK )
: ss.: New York, NY-April 30, 1996
COUNTY OF NEW YORK )
Personally appeared Mark J. Altschuler, Vice President of THE CHASE
MANHATTAN BANK, signer and sealer of the foregoing instrument, and acknowledged
the same to be his free act and deed as such Vice President and the free act and
deed of said Corporation, before me.
Scott P. Callahan
-----------------------------------
Notary Public
<PAGE>
STATE OF CONNECTICUT )
: ss.: Old Greenwich, CT-March 29, 1996
COUNTY OF FAIRFIELD )
Personally appeared GILBERT L. KLEMANN, II, signer of the foregoing
instrument, and acknowledged the same to be his free act and deed, before me.
Mark S. Lyon
-----------------------------------
Notary Public
EXHIBIT 10a2
Schedule identifying substantially identical
agreements, among American Brands, Inc.
("American") and The Chase Manhattan Bank
(National Association), et al., to the Amendment
to Trust Agreement constituting Exhibit 10a1 to
the Quarterly Report on Form 10-Q of American
for the quarterly period ended June 30, 1996
------------------------------------------------
Name
----
Thomas C. Hays
John T. Ludes
Robert L. Plancher
Robert J. Rukeyser
Steven C. Mendenhall
Dudley L. Bauerlein, Jr.
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>
Six Months
Ended
Years Ended December 31, June 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 $398.9
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 1,352.2 894.9 398.5
======== ======== ======== ======== ======== ======
Fixed Charges:
Interest expense (including
capitalized interest) and
amortization of debt discount
and expenses............................. 276.6 283.4 258.7 224.9 170.4 93.8
Portion of rentals representative
of an interest factor.................... 30.4 32.3 29.8 27.1 20.6 8.5
-------- -------- -------- -------- -------- ------
Total Fixed Charges................ 307.0 315.7 288.5 252.0 191.0 102.3
-------- -------- -------- -------- -------- ------
Total Earnings Available........... $1,412.9 $1,569.5 $1,164.1 $1,604.2 $1,085.9 $500.8
======== ======== ======== ======== ======== ======
Ratio of Earnings to Fixed Charges............ 4.60 4.97 4.04 6.37 5.69 4.90
==== ==== ==== ==== ==== ====
</TABLE>
PART II - EXHIBIT 15
August 8, 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 August 8, 1996, on our review of
interim financial information of American Brands, Inc. and Subsidiaries for the
three-month and six-month periods ended June 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
August 8, 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 JUNE 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> $ 114
<SECURITIES> 0
<RECEIVABLES> 1,531
<ALLOWANCES> 61
<INVENTORY> 1,339
<CURRENT-ASSETS> 3,159
<PP&E> 2,197
<DEPRECIATION> 1,059
<TOTAL-ASSETS> 8,642
<CURRENT-LIABILITIES> $2,958
<BONDS> 1,465
<COMMON> 717
0
14
<OTHER-SE> 2,908
<TOTAL-LIABILITY-AND-EQUITY> 8,642
<SALES> $5,224
<TOTAL-REVENUES> 5,224
<CGS> 1,375
<TOTAL-COSTS> 1,375
<OTHER-EXPENSES> 2,502
<LOSS-PROVISION> 3
<INTEREST-EXPENSE> 90
<INCOME-PRETAX> 399
<INCOME-TAX> 153
<INCOME-CONTINUING> 246
<DISCONTINUED> 0
<EXTRAORDINARY> (10)
<CHANGES> 0
<NET-INCOME> $ 236
<EPS-PRIMARY> $1.33
<EPS-DILUTED> $1.30
</TABLE>
