UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period Commission file number 1-9076
ended March 31, 1996
AMERICAN BRANDS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3295276
- ------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1700 East Putnam Avenue, Old Greenwich, Connecticut 06870-0811
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 698-5000
------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes (X) No ( )
The number of shares outstanding of the registrant's Common stock, par value
$3.125 per share, at April 30, 1996 was 175,816,710 shares.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
- ------ --------------------
AMERICAN BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
--------------------------------------
(In millions)
March 31, December 31,
1996 1995
------------ ------------
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 153.8 $ 139.9
Accounts receivable, net 1,784.4 984.4
Inventories
Leaf tobacco 152.6 148.1
Bulk whiskey 353.4 343.7
Other raw materials, supplies and
work in process 296.6 271.6
Finished products 518.4 1,076.8
-------- --------
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, net 3,930.3 3,305.2
Other assets 418.2 414.7
-------- --------
Total assets $8,949.9 $8,021.2
======== ========
See Notes to Condensed Consolidated Financial Statements.
-1-
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
--------------------------------------
(In millions, except per share amounts)
March 31, December 31,
1996 1995
------------ ------------
(Unaudited)
Liabilities and stockholders' equity
Current liabilities
Notes payable to banks $ 208.6 $ 297.4
Commercial paper 688.3 -
Accounts payable 311.6 301.9
Accrued expenses and other liabilities 548.3 571.8
Accrued excise and other taxes 1,298.0 826.8
Current portion of long-term debt 62.6 413.4
--------- ---------
Total current liabilities 3,117.4 2,411.3
Long-term debt 1,464.6 1,154.6
Deferred income taxes 136.0 127.6
Postretirement and other liabilities 440.2 450.5
--------- ---------
Total liabilities 5,158.2 4,144.0
--------- ---------
Stockholders' equity
$2.67 Convertible Preferred stock -
redeemable at Company's option 13.7 14.1
Common stock, par value $3.125 per
share, 229.6 shares issued 717.4 717.4
Paid-in capital 72.2 171.6
Foreign currency adjustments (267.1) (234.6)
Retained earnings 4,911.8 4,887.3
Treasury stock, at cost (1,756.3) (1,678.6)
--------- ---------
Total stockholders' equity 3,791.7 3,877.2
--------- ---------
Total liabilities and
stockholders' equity $ 8,949.9 $ 8,021.2
========= =========
See Notes to Condensed Consolidated Financial Statements.
-2-
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
for the Three Months Ended March 31, 1996 and 1995
-----------------------------------------------------
(In millions, except per share amounts)
(Unaudited)
1996 1995
---------- ----------
Net sales $2,737.9 $2,792.5
Cost of products sold 660.3 826.5
Excise taxes on products sold 1,398.9 1,277.7
Advertising, selling, general and
administrative expenses 398.5 424.2
Amortization of intangibles 25.3 24.1
Interest and related expenses 45.4 46.0
Other (income) expenses, net 2.0 (7.1)
-------- --------
Income before income taxes 207.5 201.1
Income taxes 83.4 84.5
-------- --------
Income before extraordinary items 124.1 116.6
Extraordinary items (10.3) -
-------- --------
Net income $ 113.8 $ 116.6
======== ========
Earnings per Common share
Primary
Income before extraordinary items $.70 $.60
Extraordinary items (.06) -
---- ----
Net income $.64 $.60
==== ====
Fully diluted
Income before extraordinary items $.68 $.59
Extraordinary items (.06) -
---- ----
Net income $.62 $.59
==== ====
Dividends paid per Common share $.50 $.50
==== ====
Average number of Common shares outstanding
Primary 177.7 194.5
===== =====
Fully diluted 183.9 206.6
===== =====
See Notes to Condensed Consolidated Financial Statements.
-3-
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
for the Three Months Ended March 31, 1996 and 1995
-----------------------------------------------------
(In millions)
(Unaudited)
1996 1995
--------- ---------
Operating activities
Net income $ 113.8 $ 116.6
Extraordinary items 10.3 -
Depreciation and amortization 67.8 66.7
Increase in accounts receivable (784.6) (460.8)
Decrease in inventories 532.2 595.7
Decrease in accounts payable, accrued
expenses and other liabilities (66.0) (250.7)
Increase in accrued excise and other taxes 499.9 74.8
Other operating activities, net (16.7) 151.9
------- --------
Net cash provided from operating activities 356.7 294.2
------- --------
Investing activities
Additions to property, plant and equipment (38.7) (38.3)
Proceeds from the disposition of operations,
net of cash - 1,166.4
Acquisition, net of cash acquired (695.2) -
Other investing activities, net 9.6 (3.0)
------- --------
Net cash (used) provided by investing activities (724.3) 1,125.1
------- --------
Financing activities
Increase (decrease) in short-term debt 602.9 (51.5)
Issuance of long-term debt 309.5 -
Repayment of long-term debt (351.4) (73.6)
Dividends to stockholders (89.3) (98.7)
Cash purchases of Common stock for treasury (86.5) (421.0)
Other financing activities, net (3.3) 9.6
------- --------
Net cash provided (used) by financing activities 381.9 (635.2)
------- --------
Effect of foreign exchange rate changes on cash (0.4) 9.3
------- --------
Net increase in cash and cash equivalents 13.9 793.4
Cash and cash equivalents at beginning of period 139.9 110.1
------- --------
Cash and cash equivalents at end of period $ 153.8 $ 903.5
======= ========
See Notes to Condensed Consolidated Financial Statements.
-4-
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Principles of Consolidation
The condensed consolidated balance sheet as of March 31, 1996 and
the related condensed consolidated statements of income and cash flows
for the three-month periods ended March 31, 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.
-5-
<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):
Three Months
Ended March 31,
-----------------------
1996 1995
-------- --------
International tobacco $1,312.7 $1,175.9
Distilled spirits 86.2 101.8
-------- --------
$1,398.9 $1,277.7
======== ========
The lower effective income tax rate for the three-month period
ended March 31, 1996, as compared with the same period last year,
principally resulted from 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 these 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.
-6-
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Concluded)
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.
-7-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors of American Brands, Inc.:
We have reviewed the condensed consolidated balance sheet of
American Brands, Inc. and Subsidiaries as of March 31, 1996, and the
related condensed consolidated statements of income and cash flows for
the three-month periods ended March 31, 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
May 13, 1996
-8-
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------- AND RESULTS OF OPERATIONS.
-----------------------------------------------------------
AMERICAN BRANDS, INC. AND SUBSIDIARIES
--------------------------------------
Results of Operations for the Three Months Ended March 31, 1996 as Compared
to the Three Months Ended March 31, 1995
-----------------------------------------------------------------------
Net Sales Operating Income
---------------------- -------------------
1996 1995 1996 1995
-------- --------- -------- --------
(In millions)
International tobacco $1,682.8 $1,523.1 $149.0 $147.7
Distilled spirits 246.4 255.2 27.8 27.2
Hardware and home
improvement products 321.3 322.3 42.8 46.0
Office products 277.6 285.5 19.7 17.3
Golf and leisure products 209.8 149.9 35.0 23.4
-------- -------- ------ ------
2,737.9 2,536.0 274.3 261.6
Businesses disposed - 256.5 - 0.6
-------- -------- ------ ------
$2,737.9 $2,792.5 $274.3 $262.2
======== ======== ====== ======
CONSOLIDATED
- ------------
Net sales, excluding businesses disposed in 1995, rose 8% to $2.7 billion on
price increases (including 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. Last year, the
businesses disposed generated substantial sales but virtually no operating
income. (See note 3 in the Notes to Condensed Consolidated Financial
Statements.) Including the businesses disposed, net sales declined 2%. Operating
income was up 5%, mainly due to the Cobra acquisition as well as the higher
sales. Excluding the unfavorable effects of lower average foreign exchange rates
of $60.9 million and $5.7 million and businesses disposed, net sales and
operating income would have been up 10% and 7%, respectively.
The unfavorable change in other (income) expenses, net, reflected interest
income in the first quarter 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 decreased to 40.2% in the first quarter of 1996,
as compared with 42% for the same period last year, principally due to lower
taxes on foreign income.
-9-
<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 $124.1 million, or 70 cents per Common
share, for the three months ended March 31, 1996 compared with $116.6 million,
or 60 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 six cents and
eight cents, respectively.
The extraordinary items resulted from a charge of $10.3 million ($15.8 million
pretax) in connection with the redemption in March 1996 of the Company's $150
million 7-5/8% Eurodollar Convertible Debentures, Due 2001 and its $150 million
9-1/8% Debentures, Due 2016. (See note 6 in the Notes to Condensed Consolidated
Financial Statements.)
Net income of $113.8 million, or 64 cents per Common share, for the three months
ended March 31, 1996, compared with $116.6 million, or 60 cents per share, for
the same period last year.
In the first quarter of 1996, two million shares of the Company's Common stock
were repurchased. Depending on investment needs and opportunities as well as
market conditions, the Company will also consider further share repurchases.
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.
-10-
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
International Tobacco
- ---------------------
Net sales in sterling were up 14%, principally on U.K. volume gains (9%
cigarette and 2.5% cigar increases) and price increases (principally higher U.K.
tobacco taxes). Gallaher's worldwide cigarette unit sales were up 8.7%.
Operating income in sterling increased 5% on higher sales, partly offset by
increased advertising costs, principally introductory costs of Sovereign in the
low-price sector and higher Benson and Hedges media support. In dollars, net
sales and operating income increased 10% and 1%, respectively, reflecting
translation at lower average foreign exchange rates.
Gallaher maintained its position as the number one tobacco company in the U.K.
Its estimated share of cigarette sales to consumers was 38.8%, as compared with
39.5% for last year's first quarter. 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 quarter. The U.K. cigarette industry volume is estimated to have increased
11.4%. 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 quarter of 1995 and 1996, which benefited the first quarter of
1996.
Distilled Spirits
- -----------------
Net sales decreased 3% on lower domestic shipments, lower average foreign
exchange rates and lower overall prices in international markets, partly offset
by the benefits of After Shock (introduced in April 1995) and domestic price
increases. Operating income increased 2% on improved gross margin (principally
due to After Shock and domestic price increases), partly offset by lower net
sales and increased marketing expenses.
Hardware and Home Improvement Products
- --------------------------------------
Net sales decreased slightly on volume declines, partly offset by price
increases and new products. The volume declines partly reflect the severe
weather conditions in the northeastern U.S. which impacted both retail sales and
new construction and remodeling. All companies in the group, except Master Lock,
reported lower sales. Operating income was down 7%, principally on Moen's lower
U.S. operations due to decreased sales and increased raw material costs, partly
offset by lower marketing costs.
-11-
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
Office Products
- ---------------
Net sales decreased 3% on volume declines, the absence of the office furniture
operations sold in 1995 and lower average foreign exchange rates, partly offset
by new products and price increases. Operating income increased 14%, with
lower operating expenses and improved gross margin contributing to the
increase, partly offset by a decline in sales.
Golf and Leisure Products
- -------------------------
Record net sales were up 40% on inclusion of Cobra, acquired January 24, 1996
and increased volume in all product lines, reflecting benefits from line
extensions and new products. Record operating income increased 49% 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 $356.7 million for the quarter
ended March 31, 1996, increased $62.5 million, exceeding the funds required for
capital expenditures and dividends by $228.7 million. The increase was largely
attributable to changes in accrued taxes, partly offset by fluctuations in
accounts receivable and inventories.
Net cash used by investing activities for the quarter ended March 31, 1996 was
$724.3 million as compared with net cash provided of $1,125.1 million in the
first quarter 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 quarter ended March 31, 1996
was $381.9 million compared with net cash used of $635.2 million in 1995,
reflecting this year's short-term borrowings and lower repurchases of Common
stock for treasury. The Company repurchased 2 million shares during the first
quarter of 1996 as compared with over 11.5 million shares in the first quarter
of 1995.
-12-
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Concluded)
---------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES (Concluded)
- -------------------------------
Total debt at March 31, 1996 aggregated $2.4 billion, an increase of $558.7
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% at
March 31, 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.
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.
-13-
<PAGE>
PART I - EXHIBIT A
------------------
AMERICAN BRANDS, INC. AND SUBSIDIARIES
Computation of Net Income Per Common Share -
Primary and Fully Diluted (Unaudited)
--------------------------------------------
(In millions)
Three Months Ended
March 31,
-----------------------------
1996 1995
------ ------
Income before extraordinary items $124.1 $116.6
Preferred stock dividend requirements (0.3) (0.3)
------ ------
Income available for computing earnings
per Common share - primary 123.8 116.3
Extraordinary items (10.3) -
------ ------
Net income for computing earnings
per Common share - primary $113.5 $116.3
====== ======
Income available for computing earnings
per Common share - primary $123.8 $116.3
Convertible preferred stock dividend requirements 0.3 0.3
Interest and related expenses on convertible
debentures 1.7 5.4
------ ------
Income available for computing earnings
per Common share - fully diluted 125.8 122.0
Extraordinary items (10.3) -
------ ------
Net income for computing earnings per Common
share - fully diluted $115.5 $122.0
====== ======
-14-
<PAGE>
PART I - EXHIBIT A (Concluded)
------------------
Computation of Weighted Average Number of
Common Shares Outstanding on a Fully Diluted Basis (Unaudited)
--------------------------------------------------------------
(In millions, except per share amounts)
Three Months Ended
March 31,
---------------------------
1996 1995
----- -----
Weighted average number of Common shares
outstanding during each period - primary 177.7 194.5
Addition from assumed conversion as of the
beginning of each period of the convertible
preferred stock outstanding at the end of
each period 1.9 2.1
Addition from assumed conversion of
convertible debentures 0.9 9.3
Other additions 3.4 0.7
----- -----
Weighted average number of Common shares
outstanding during each period on a
fully diluted basis 183.9 206.6
===== =====
Earnings per Common share
Primary
Income before extraordinary items $.70 $.60
Extraordinary items (.06) -
---- ----
Net income .64 $.60
==== ====
Fully diluted
Income before extraordinary items $.68 $.59
Extraordinary items (.06) -
---- ----
Net income $.62 $.59
==== ====
-15-
<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. In addition, Registrant has been named as a defendant,
together with leading tobacco manufacturers, in Norton v. RJR Nabisco Holdings
Corporations, et al., Superior Court of Madison County, State of Indiana, May 3,
1996. Norton is an alleged class action on behalf of all members of the class
allegedly addicted to cigarettes through the manipulation of nicotine levels. In
connection with the sale of Registrant's former subsidiary, The American Tobacco
Company ("ATCO"), to Brown & Williamson Tobacco Corporation ("Brown &
Williamson") on December 22, 1994, Brown & Williamson and ATCO agreed to
indemnify Registrant against claims arising from smoking and health and fire
safe cigarette matters relating to the tobacco business of ATCO. Registrant's
counsel have advised that, in their opinion, on the basis of their
investigations generally with respect to suits and claims of this character,
Registrant has meritorious defenses to these actions and threatened actions. The
actions will be vigorously contested.
(b) 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.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
- ------ --------------------------------
(a) Exhibits.
--------
12. Statement re computation of ratio of earnings to
fixed charges.
15. Letter from Coopers & Lybrand L.L.P. dated
May 13, 1996 re unaudited financial information.
23. Consent of Counsel, Chadbourne & Parke LLP.
27. Financial Data Schedule (Article 5).
In lieu of filing certain instruments with respect to long-term debt of the
kind described in Item 601(b)(4) of Regulation S-K, Registrant agrees to furnish
a copy of such instruments to the Securities and Exchange Commission upon
request.
-16-
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K. (Concluded)
- ------ --------------------------------
(b) Reports on Form 8-K.
-------------------
Registrant filed a Current Report on Form 8-K, dated January
18, 1996, in respect of Registrant's press release dated
January 17, 1996 announcing that Registrant will redeem its
7-5/8% Eurodollar Convertible Debentures Due 2001 and its
9-1/8% Debentures Due 2016 in March 1996 (Items 5 and 7(c)).
Registrant filed a Current Report on Form 8-K, dated January
22, 1996, in respect of Registrant's press release dated
January 22, 1996 announcing Registrant's financial results for
the three-month and twelve-month periods ended December 31,
1995 (Items 5 and 7(c)).
Registrant filed a Current Report on Form 8-K, dated January
29, 1996, announcing that Registrant's acquisition of Cobra
Golf Incorporated was completed on January 29, 1996 (Items 5
and 7(c)).
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)).
-17-
<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: May 13, 1996 By /s/ R. L. Plancher
------------ -------------------------
R. L. Plancher
Senior Vice President and
Chief Accounting Officer
<PAGE>
EXHIBIT INDEX
-------------
Sequentially
Exhibit Numbered Page
- ------- -------------
12. Statement re computation of ratio of
earnings to fixed charges.
15. Letter from Coopers & Lybrand L.L.P. dated
May 13, 1996 re unaudited financial information.
23. Consent of Counsel, Chadbourne & Parke LLP.
27. Financial Data Schedule (Article 5).
PART II - EXHIBIT 12
<TABLE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollar amounts in millions)
<CAPTION>
Three Months
Ended
Years Ended December 31, March 31,
-------------------------------------------------------------- -------------
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 $207.6
Less: Excess of earnings over
dividends of less than
fifty percent owned
companies............... 0.1 0.3 0.8 0.4 0.2 -
Capitalized interest........ 1.0 1.0 2.5 1.4 0.2 0.2
-------- -------- -------- -------- -------- ------
1,105.9 1,253.8 875.6 1,352.2 894.9 207.4
======== ======== ======== ======== ======== ======
Fixed Charges:
Interest expense (including
capitalized interest) and
amortization of debt discount
and expenses...................... 276.6 283.4 258.7 224.9 170.4 47.3
Portion of rentals representative
of an interest factor............. 30.4 32.3 29.8 27.1 20.6 4.0
-------- -------- -------- -------- -------- ------
Total Fixed Charges......... 307.0 315.7 288.5 252.0 191.0 51.3
-------- -------- -------- -------- -------- ------
Total Earnings Available.... $1,412.9 $1,569.5 $1,164.1 $1,604.2 $1,085.9 $258.7
======== ======== ======== ======== ======== ======
Ratio of Earnings to Fixed Charges..... 4.60 4.97 4.04 6.37 5.69 5.04
==== ==== ==== ==== ==== ====
</TABLE>
PART II - EXHIBIT 15
May 13, 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 May 13, 1996, on our review of interim
financial information of American Brands, Inc. and Subsidiaries for the
three-month periods ended March 31, 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
May 13, 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 MARCH 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> $ 154
<SECURITIES> 0
<RECEIVABLES> 1,849
<ALLOWANCES> 65
<INVENTORY> 1,321
<CURRENT-ASSETS> 3,473
<PP&E> 2,151
<DEPRECIATION> 1,022
<TOTAL-ASSETS> 8,950
<CURRENT-LIABILITIES> $3,117
<BONDS> 1,465
<COMMON> 717
0
14
<OTHER-SE> 3,061
<TOTAL-LIABILITY-AND-EQUITY> 8,950
<SALES> $2,738
<TOTAL-REVENUES> 2,738
<CGS> 660
<TOTAL-COSTS> 660
<OTHER-EXPENSES> 1,399
<LOSS-PROVISION> 1
<INTEREST-EXPENSE> 45
<INCOME-PRETAX> 207
<INCOME-TAX> 83
<INCOME-CONTINUING> 124
<DISCONTINUED> 0
<EXTRAORDINARY> (10)
<CHANGES> 0
<NET-INCOME> $ 114
<EPS-PRIMARY> $.64
<EPS-DILUTED> $.62
</TABLE>
