UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
April 23, 1997 (April 23, 1997)
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Date of Report (Date of earliest event reported)
AMERICAN BRANDS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 1-9076 13-3295276
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
l700 East Putnam Avenue, Old Greenwich, Connecticut 06870-0811
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 698-5000
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<PAGE>
INFORMATION TO BE INCLUDED IN THE REPORT
Item 5. Other Events.
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Registrant's press release dated April 23, 1997 is filed herewith as
Exhibit 20 and is incorporated herein by reference.
Item 7. Financial Statements and Exhibits.
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(c) Exhibits.
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20. Press release of Registrant dated April 23, 1997.
SIGNATURE
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Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this Current Report to be signed on its
behalf by the undersigned thereunto duly authorized.
AMERICAN BRANDS, INC.
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(Registrant)
By C. P. Omtvedt
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C. P. Omtvedt
Vice President and
Chief Accounting Officer
Date: April 23, 1997
<PAGE>
EXHIBIT INDEX
Sequentially
Exhibit Numbered Page
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20. Press release of Registrant dated
April 23, 1997.
EXHIBIT 20
Media Relations: Investor Relations:
Roger W. W. Baker Daniel A. Conforti
(203) 698-5148 (203) 698-5132
AMERICAN BRANDS FIRST QUARTER E.P.S. FROM OPERATIONS UP 14%;
STRONG EARNINGS OUTLOOK REAFFIRMED
Steps to Spin-Off Gallaher Tobacco Progressing
Old Greenwich, CT, April 23, 1997 -- American Brands, Inc. (NYSE-
AMB) today announced that earnings per Common share from
operations rose 14% to 80 cents for the quarter ended March 31,
1997, compared with 70 cents in the first quarter of 1996. Fully
diluted earnings per share rose 15% to 78 cents. The 1996
figures exclude an extraordinary charge of 6 cents per share ($10
million) in connection with the redemption of two debenture
issues. Net sales rose 4% to $2.8 billion.
Net income was up 20% (10% excluding last year's
extraordinary charge). A 4% decline in average primary Common
shares outstanding (5% fully diluted) benefited E.P.S. by 1 cent
(2 cents fully diluted).
Chairman and Chief Executive Officer Thomas C. Hays said:
"We're off to a strong start in 1997, with a solid double-digit
first quarter E.P.S. increase. Steps to implement the spin-off
of our U.K.-based Gallaher tobacco business continue to
progress. We are hopeful that the transaction will be completed
around June 1, pending receipt of favorable tax rulings and
relevant stockholder approvals.
"When the spin-off is consummated, we plan to change the
name American Brands to Fortune Brands. The spin-off will create
two strong companies -- Fortune Brands and Gallaher -- with
excellent prospects."
"Last week," Hays noted, "we announced a management
reorganization, bringing our home and office products operations
under the coordinated leadership of a single executive. These
brands represented nearly half of Fortune Brands' pro forma 1996
operating company contribution. Across these brands, there are
increasingly strong similarities in customer service expectations
and in manufacturing, sourcing and distribution requirements. We
see significant long-term advantages in this realignment."
Favorable Outlook
"The outlook for American Brands and, assuming the spin-off
is completed as planned, for Fortune Brands, continues to be
excellent," Hays stated.
"As previously announced, we have been reviewing
productivity-enhancing restructuring opportunities at the Fortune
Brands operations. On a preliminary basis, we currently
anticipate that the resulting pre-tax restructuring and related
charges will approximate $200 million and will provide
principally for rationalization of manufacturing, distribution
and sourcing and for discontinuance of marginal product lines.
"Consistent with current accounting guidelines for
restructuring activities, we expect that charges will be recorded
during each of the remaining quarters of 1997 as formal
restructuring plans are approved and communicated. No charge was
taken in the first quarter.
"We anticipate substantial savings from the restructuring.
With intense competitive and pricing pressures, these initiatives
are important steps toward achieving our long-term growth goals
and enhancing our brand building, new product development and
international market development activities.
"First quarter contribution growth for the Fortune Brands
operations was below our full-year expectation, but assuming
satisfactory market conditions, we expect faster growth for the
second quarter and the balance of the year. Leveraging high
single-digit contribution growth with the benefit of strong cash
flow and lower corporate expense, we expect full year E.P.S.
growth on a pro forma as adjusted basis in the range of 13-15%
(excluding restructuring charges). We anticipate a good second
quarter.
"Our long-term E.P.S. growth goal for Fortune Brands is also
13-15%, assuming a satisfactory economic and pricing environment.
Fortune Brands will commence operations with a very strong
balance sheet. For 1996, pro forma as adjusted E.P.S. was $1.32.
"For American Brands, our goal has been to achieve E.P.S.
growth in the range of 10%. We continue to expect, if there were
no spin-off, that American Brands would again achieve that goal,
excluding restructuring charges, in 1997."
Fortune Brands Highlights
Fortune Brands will consist of American Brands' non-tobacco
operations. Sales for the quarter were $1.11 billion, up 5%,
contribution was $152 million, up 2%, and, on a pro forma as
adjusted basis, E.P.S. was 27 cents, up 13%. Half of Fortune
Brands' first quarter contribution came from the home and office
products brands, and about a quarter each from the golf and
distilled spirits brands.
:::Home and Office Products:::
---Hardware and Home Improvement Brands---
Contribution from the home improvement brands increased a
modest 3% in the quarter on record sales. Solid double-digit
increases for Moen, the number 1 faucet brand in North America,
and Aristokraft, the number 2 cabinet manufacturer, more than
offset a substantial decline at Master Lock.
As previously noted, we anticipate lower contribution from
Master Lock throughout 1997. Master Lock has cut prices an
average of 15% on core padlock products in response to a shift by
mass merchants to value-price, imported products. First quarter
point-of-sale data from those mass merchants show an encouraging
sales turnaround, with substantial volume gains for the repriced
products. Master Lock has announced that it is reviewing cost-
cutting alternatives, including the possible elimination of 200-
400 jobs.
Moen continues to perform very well in the marketplace.
Moen has strengthened its number 1 market position, and effective
TV advertising has significantly strengthened its number 1
positions in brand awareness and intent to purchase. During the
quarter, Moen introduced the first of a series of major 1997 new
product introductions with the revolutionary new LifeShine
polished brass finish, which provides exceptional durability, on
the Monticello faucet line. Sales at Moen's joint venture in
China were up significantly off a small base, and, in the first
quarter, Moen launched its first new product line specially
designed for the Chinese market. Initial response has been very
positive.
Aristokraft's strong contribution increase was backed by
double-digit sales gains for both the Aristokraft line,
benefiting from excellent acceptance of new products, and the
semi-custom Decora line. The Continuous Flow Manufacturing
process continues to provide substantial benefits, including a
41% reduction in inventory over the past two years.
For the year, we expect solid contribution growth for Moen,
Aristokraft and Waterloo, the world leader in tool storage, to
more than offset the impact of the lower prices at Master Lock.
We anticipate that, as in the first quarter, this will result in
a modest contribution gain, overall, for the hardware brands.
With the benefit of very strong cash generation, these brands
should continue to produce a higher gain in pre-tax income. Even
though achieving contribution growth from these brands in the
second quarter will be challenging, we expect to achieve the full
year target with the benefit of major new product introductions
from Moen in the second half of the year.
:::Home and Office Products:::
---Office Products Brands---
Contribution from the office products brands was up 7% on a
5% increase in sales, both records. ACCO is the global leader in
office supplies.
Results were led by a 7% sales gain in North America, backed
by a 28% increase by the Kensington computer accessories brand.
Day-Timer time management products had higher sales, benefiting
from growing sales through superstores and commercial customers.
Sales in Australia, where ACCO is the market leader, were up
17%, reflecting continued share gains. But in Europe, sales were
generally lower, reflecting weak market conditions.
Gross margin improved in the quarter, reflecting continued
success in negotiating lower raw material costs and improved
plant utilization in North America.
We expect second quarter results to be on track with the
full-year outlook for double-digit growth in contribution from
the office products brands.
:::Golf Brands:::
The golf brands generated record sales in the quarter, but,
in line with expectations announced at year-end, contribution
declined compared with a very strong 1996 quarter. Contribution
was also adversely affected by manufacturing costs associated
with gearing up for increased customer demand for recently
introduced Cobra golf clubs and the timing of advertising and
marketing expenses that are enhancing the strong performance of
the Titleist brand.
Sales were up 12%, benefiting from a full quarter's results
for Cobra, which was acquired in January 1996, while Titleist and
Foot-Joy achieved solid gains.
The Titleist brand continued to achieve strong gains, with a
13% sales increase. Titleist is the number 1 ball in golf.
Tiger Woods' awesome performance at the Masters tournament was
achieved using the Titleist Professional golf ball, King Cobra
driver, and Scotty Cameron by Titleist putter. In all, 65% of
this year's Master's contestants played Titleist golf balls.
Overall, top-grade golf balls unit sales were up 13%, led by the
Titleist Professional and Titleist HP Series golf balls.
Scotty Cameron by Titleist putters are now the #1 putter on
the U.S. PGA Tour, ranking as the most played putter in all 12
full-field events in the first quarter.
The Foot-Joy brand achieved a strong sales gain, and its
worldwide market leadership in golf footwear and golf gloves was
further reinforced in the quarter with new DryJoys and Soft-Joys
golf shoe introductions and strong sell-through for recently
introduced versions of the Sta-Sof and Weather-Sof golf gloves.
Sales for the Cobra brand were led by the recently
introduced King Cobra II Oversize Iron as well as the King Cobra
titanium woods. New products introduced in the last 12 months
generated 80% of Cobra brand sales in the quarter, and, on a
rolling 12-month basis, King Cobra is the number 1 oversize iron
in golf. Tiger Woods, Greg Norman and Hale Irwin are among the
top pros using King Cobra clubs.
We are superbly positioned to capitalize on the dynamic,
worldwide growth in this category, and progress continues in
realizing synergies with our great array of golf brands. In
international markets, steps have been taken to consolidate
sales, marketing and distribution in the U.K., Sweden, France and
Germany. Titleist is also benefiting from Cobra's in-house shaft-
making capabilities.
We expect second quarter results on target for a full year
double-digit increase in contribution from the golf brands.
:::Distilled Spirits Brands:::
Contribution from the distilled spirits brands was up 10% on
a 5% increase in sales (excluding excise taxes). The
contribution gain reflects a solid margin increase in North
American markets, benefiting from price increases, and the
favorable impact of shifting the former Whyte & Mackay operations
to a calendar year basis (previously reported on a one-month
delay). Progress continues in globally integrating the former
Jim Beam and Whyte & Mackay operations and in leveraging the
combined brand portfolios.
Worldwide shipments equalled those in last year's quarter,
with a 4% increase in international markets offsetting a 2.6%
decline in North America. Shipments of Jim Beam, the number one
Bourbon in the world, were up 8% worldwide, with U.S. volume up
5% and international up 12%. Jim Beam Bourbon has been achieving
sustained international growth. International growth was led by
particularly strong volume gains for Jim Beam in Australia and
Germany, both up 15%. The increase in Australia further enhanced
Beam's number 1 distilled spirit position in that market. In the
U.K., total case sales declined 3%, with an increase in private
label volume partially offsetting a decline in branded products.
In North America, shipments were particularly strong in
Canada, up 24%, and margins in Canada improved following several
years of intensely competitive market conditions. The emphasis
in North America is on high margin brands with strong on-premise
appeal, such as the Small Batch Bourbons. These ultra-premium
Bourbons -- Booker's, Knob Creek, Baker's and Basil Hayden's --
achieved a 50% increase in depletions (sales from distributors to
the retail trade) in the quarter. Early results on two newer
high margin products, Jacob's Well, the world's first micro-
Bourbon, and Tangle Ridge Canadian, are encouraging.
For the remainder of 1997, we expect more modest but still
solid growth in contribution from the distilled spirits brands,
with the shift in fiscal year for the Whyte & Mackay brands not
significantly affecting the full-year comparison. With strong
cash flow, the distilled spirits brands continue to generate
significantly faster increases in pre-tax income.
Gallaher Highlights
Gallaher, the U.K. tobacco market leader, had another fine
quarter. Contribution was up 4% in pounds sterling to 101
million pounds, and rose 11% in dollars. Sales declined 3% in
sterling to 1.1 billion pounds, but increased 3% in dollars.
Worldwide cigarette unit sales increased 1%.
In the U.K., Gallaher's estimated share of consumer
cigarette sales was 39.3% in the quarter, compared with 38.8% a
year earlier. Gallaher's U.K. cigarette shipments declined 7%,
largely reflecting changes in trade buying patterns relating to
the U.K. government budgets and manufacturer's price increases.
Gallaher maintained its powerful leadership in the premium
sector, while doubling its share of the growing low-price sector
compared with a year ago.
In the quarter, Gallaher had an estimated 53% share of the
premium sector, which provides superior margins. Premium-priced
Benson and Hedges is the number 1 cigarette brand in the U.K.
With ongoing trading down by some consumers, the premium sector
accounted for an estimated 46.9% of the cigarette market in the
first quarter, compared with 49.6% a year ago.
In the U.K.'s growing low-price sector, Gallaher's share
reached an estimated 16%, compared with 8% in the first quarter
of 1996. Mayfair achieved a strong share gain to an estimated 9%
of the sector from 6.9%, and Gallaher's presence was further
strengthened by the introductions last year of Sovereign King
Size and Sovereign Lights. Sovereign King Size and Lights have
grown to hold an estimated 6% share of the sector. Overall, the
U.K. low-price sector grew to an estimated 29.9% of the total
cigarette market in the quarter from 26.4% in the first quarter
of 1996.
Export volume was up 38% in the quarter, with strong double-
digit volume gains in Europe Duty Free and France. Shipments to
the former Soviet Union (F.S.U.) surged 103% in the quarter. In
last year's first quarter, shipments to the F.S.U. were affected
by temporary difficulties in the movement of goods within the
market. Gallaher has acquired land in Kazakhstan for the
construction of a cigarette manufacturing facility.
Gallaher announced plans in December to consolidate U.K.
cigarette production into one factory at Lisnafillan, Northern
Ireland. The three to four year program will result in
substantial savings through the expansion of the Lisnafillan
factory and the closure of the Hyde factory in Manchester,
England.
* * * *
American Brands, Inc. is an international consumer products
holding company with headquarters in Old Greenwich, Connecticut.
As noted, American Brands intends to change its name, following
the consummation of the spin-off of Gallaher, to Fortune Brands.
American Brands' operating companies have powerhouse brands
and leading market positions. Home and office products consist
of hardware and home improvement brands -- including Moen
faucets, Master locks and Aristokraft cabinets sold by units of
MasterBrand Industries -- and office products brands -- include
ACCO World Corporation's Day-Timer and Swingline. Acushnet
Company's golf brands include Titleist, Cobra, Pinnacle and Foot-
Joy. Major distilled spirits brands sold by units of JBB
Worldwide, Inc. include Jim Beam and the Small Batch Bourbons,
DeKuyper cordials, After Shock liqueur and Whyte & Mackay Scotch.
Gallaher Limited sells tobacco products internationally, principally
in Europe, where its major brands include Benson and Hedges and Silk Cut.
* * *
This press release contains statements relating to future
results, which are forward-looking statements as that term is
defined in the Private Securities Litigation Reform Act of 1995.
Actual results may differ materially from those projected as a
result of certain risks and uncertainties, including but not
limited to changes in general economic conditions, foreign
exchange rate fluctuations, competitive product and pricing
pressures, the impact of excise tax increases with respect to
international tobacco and distilled spirits, regulatory
developments, the uncertainties of litigation, as well as other
risks and uncertainties detailed from time to time in the
Company's Securities and Exchange Commission filings.
# # #
AMERICAN BRANDS, INC.
CONSOLIDATED STATEMENT OF INCOME
(In millions, except per share
amounts)
(Unaudited)
Three Months Ended March 31,
1997 1996 % Change
Net Sales $2,844.9 $2,737.9 3.9
Cost of sales 2,130.1 2,059.2 3.4
Advertising, selling, general
and administrative expenses 413.2 398.5 3.7
Amortization of intangibles 27.2 25.3 7.5
Interest and related expenses 50.0 45.4 10.1
Other (income) expenses, net 2.1 2.0 5.0
Income Before Income Taxes 222.3 207.5 7.1
Income taxes 85.7 83.4 2.8
Income Before Extraordinary Items 136.6 124.1 10.1
Extraordinary items - (10.3) -
Net Income 136.6 113.8 20.0
Earnings Per Common Share
Primary
Income before extraordinary items $0.80 $0.70 14.3
Extraordinary items - (0.06) -
Net income $0.80 $0.64 25.0
Fully diluted
Income before extraordinary items $0.78 $0.68 14.7
Extraordinary items - (0.06) -
Net income $0.78 $0.62 25.8
Average Common Shares Outstanding
Primary 171.3 177.7 (3.6)
Fully diluted 174.8 183.9 (4.9)
(NOTES FOLLOW)
AMERICAN BRANDS, INC.
(in millions)
NOTES:
(1) INFORMATION ON BUSINESS SEGMENTS
Net sales by business segment:
Three Months Ended March 31,
1997 1996 %Change
Hardware & Home Improve. $ 328.7 $ 321.3 2.3
Prods.
Office Products 290.1 277.6 4.5
Golf & Leisure Products 235.9 209.8 12.4
Distilled Spirits (a) 250.4 246.4 1.6
Sub Total 1,105.1 1,055.1 4.7
International Tobacco (a) 1,739.8 1,682.8 3.4
$2,844.9 $2,737.9 3.9
Operating company contribution by business segment:
Three Months Ended March 31,
1997 1996 %Change
Hardware & Home Improve. $ 51.9 $ 50.3 3.2
Prods.
Office Products 26.6 24.9 6.8
Golf & Leisure Products 33.5 38.0 (11.8)
Distilled Spirits 39.9 36.2 10.2
Sub Total 151.9 149.4 1.7
International Tobacco 166.0 150.2 10.5
$317.9 $299.6 6.1
(a) Federal and foreign excise taxes included in net sales
and cost of sales:
Three Months Ended March 31,
1997 1996
International Tobacco $1,357.0 $1,312.7
Distilled Spirits 82.0 86.2
$1,439.0 $1,398.9
AMERICAN BRANDS, INC.
(in millions)
NOTES (CONTINUED):
(2) PROPOSED SPIN-OFF OF GALLAHER TOBACCO
On October 8, 1996, the Company announced plans to spin off its U.K.-based
Gallaher tobacco business. Completion of the transaction, which is expected
around June 1, is pending receipt of favorable tax rulings and relevant
stockholder approvals. When the spin-off is completed, the name of the
Company will be changed to Fortune Brands and the financial statements will
be restated to show tobacco operations as discontinued operations.
Following the transaction, the Company's stockholders will own shares in
two publicly-traded companies - Fortune Brands and New Gallaher.
To allocate the overall debt burden of the Company at the time of the
spin-off, New Gallaher will borrow and pay to Fortune Brands approximately
$1.25 billion after taxes. Fortune will use the proceeds initially to pay
down short-term debt. The New Gallaher debt will be in addition to its
seasonal working capital requirements.
It is currently contemplated that the cash dividend on the Fortune Brands
Common Stock after the distribution will be at an initial annualized rate
of $0.80 per share. New Gallaher intends to pay interim and, subject to
shareholder approval, final dividends in November and May, respectively. It
is anticipated that interim dividends will be approximately one-third of
the total annual dividend paid. However, it is currently contemplated that,
as a transitional measure in respect of 1997 in recognition of the historic
pattern of dividends paid by the Company, New Gallaher will pay an interim
and final dividend of equal amounts. For illustrative purposes, the New
Gallaher Board estimates that the total dividend in respect of the fiscal
year ended December 31, 1996 would have amounted to 77 pence per American
Depositary Share ("ADS"), or approximately $1.20 based on a $1.56 sterling
exchange rate (the exchange rate on the date of the announcement of the
distribution) exclusive of a related tax credit equal to 25% of the net
dividend for eligible U.S. and U.K. taxpayers. This illustrative 1996
dividend has been estimated on the basis that New Gallaher had been a
publicly-held company since January 1, 1996 with the capital structure and
borrowings of New Gallaher which are expected to be in place on the
distribution date. The Fortune Brands and New Gallaher Boards intend to
evaluate their respective dividend policies in the future, from time to
time, in the light of results of operations and other considerations.
However, there can be no assurance that any dividends will be paid in the
future.
AMERICAN BRANDS, INC.
(in millions, except per share amounts)
NOTES (CONTINUED):
(3) FORTUNE BRANDS PRO FORMA FINANCIAL INFORMATION
Pro Forma Historical:
Three Months Ended March 31,
1997 1996 %Change
Net Sales $1,105.1 $1,055.1 4.7
Income From Continuing Opers. $35.0 $31.8 10.1
Earnings Per Common Share -
Primary $.20 $.18 11.1
Fully Diluted $.20 $.18 11.1
The pro forma historical information represents the amounts for American
Brands restated to show the tobacco operations of Gallaher as
discontinued operations, including an allocation of interest expense.
Pro Forma As Adjusted:
Three Months Ended March 31,
1997 1996 %Change
Net Sales $1,105.1 $1,055.1 4.7
Income From Continuing Opers. $43.7 $40.5 7.9
Earnings Per Common Share -
Primary $.27 $.24 12.5
Fully Diluted $.27 $.24 12.5
The pro forma as adjusted information gives effect to the benefit of
approximately $1.25 billion net proceeds resulting from the payment (in
the range of 925 million pounds sterling) that Gallaher will make to
Fortune Brands when the transaction is consummated, as if the proceeds
were received and used for the possible purchase of 10 million shares of
Fortune Brands Common stock and the repayment of debt at January 1,
1996.
AMERICAN BRANDS, INC.
(in millions)
NOTES (CONCLUDED):
(4) EXTRAORDINARY ITEMS
In March 1996, the Company redeemed $149.6 of the $150 7-5/8% Eurodollar
Convertible Debentures, Due 2001 at a redemption price of 103.8125% of the
principal amount plus accrued interest and redeemed its $150 9-1/8%
Debentures, Due 2016, at a redemption price of 104.4375% of the principal
amount plus interest. In connection with the redemptions, the Company
recorded a charge of $10.3 ($15.8 pre-tax), or six cents per Common share.
(5) 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.
AMERICAN BRANDS, INC.
CONDENSED CONSOLIDATED
BALANCE SHEET
(In millions)
March 31, December 31,
1997 1996
(Unaudited)
Assets
Current assets
Cash and cash equivalents $129.3 $119.7
Accounts receivable, net 1,828.4 1,125.0
Inventories 1,498.8 2,256.2
Other current assets 344.3 372.5
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Total current assets 3,800.8 3,873.4
Property, plant and equipment, net 1,200.7 1,230.9
Intangibles resulting from
business acquisitions, net 3,883.9 3,936.4
Other assets 495.6 463.5
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Total assets $9,381.0 $9,504.2
========= =========
Liabilities and Stockholders' Equity
Current liabilities
Short-term debt $1,362.9 $1,405.8
Current portion of long-term debt 93.7 53.9
Other current liabilities 2,156.0 2,235.6
--------- ---------
Total current liabilities 3,612.6 3,695.3
Long-term debt 1,452.4 1,598.3
Other long-term liabilities 565.3 526.4
--------- ---------
Total liabilities 5,630.3 5,820.0
Stockholders' equity 3,750.7 3,684.2
--------- ---------
Total liabilities and
stockholders' equity $9,381.0 $9,504.2
========= =========
