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
July 23, 1997 (July 23, 1997)
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Date of Report (Date of earliest event reported)
FORTUNE 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 July 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 July 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.
FORTUNE 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: July 23, 1997
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EXHIBIT INDEX
Sequentially
Exhibit Numbered Page
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20. Press release of Registrant dated
July 23, 1997.
EXHIBIT 20
NEWS RELEASE
Fortune Brands, Inc., 1700 East Putnam Avenue, Old Greenwich, CT 06870
Media Relations: Investor Relations:
Roger W. W. Baker Daniel A. Conforti
(203)698-5148 (203)698-5132
FORTUNE BRANDS SECOND QUARTER PRO FORMA E.P.S. UP 18%;
REAFFIRMS OUTLOOK FOR EXCELLENT EARNINGS GROWTH IN 1997
Old Greenwich, CT, July 23, 1997 -- Fortune Brands, Inc. (NYSE-
FO), the international consumer products company, announced
strong second quarter results and reaffirmed the outlook for
excellent growth in 1997. Following the spin-off of the U.K.-
based Gallaher tobacco business, American Brands changed its name
to Fortune Brands. Fortune Brands began trading on the New York
Stock Exchange on June 2, 1997.
The Company reported a strong 18% increase in pro forma
earnings per Common share to 45 cents for the quarter ended June
30, 1997, versus 38 cents a year earlier. Pro forma fully
diluted earnings per share rose 16% to 43 cents. Cash earnings
(pro forma E.P.S. plus 14 cents per share of goodwill
amortization) were 59 cents per share (57 cents fully diluted),
which was significantly higher than pro forma earnings.
Pro forma E.P.S. excludes restructuring and other
nonrecurring charges and is adjusted to reflect the net cash
payment Gallaher made to the Company and the assumption that
these proceeds were used to repay debt and purchase shares at the
beginning of 1996.
For the six months, pro forma earnings per share were 72
cents, up 16% from 62 cents last year. Pro forma fully diluted
earnings per share rose 15% to 70 cents. Cash earnings,
including 29 cents (28 cents fully diluted) of goodwill
amortization, were $1.01 per share (98 cents fully diluted).
"We made dramatic progress for our stockholders during the
second quarter," noted Chairman and Chief Executive Officer
Thomas C. Hays. "We completed the spin-off of the Gallaher
tobacco business, capping a massive 2 1/2 year restructuring that
included divesting other operations with $4.4 billion in sales.
We launched Fortune Brands as a premier consumer products company
with a strong growth profile. And we generated a strong increase
in pro forma earnings that puts us right on track to achieve our
1997 E.P.S. growth target of 13-15%."
Hays noted that, for the quarter, net sales rose 5% on a
comparable basis (excluding excise taxes and adjusting last
year's results to eliminate an extra month of operations for U.K.-
based distilled spirits brands), and comparable operating company
contribution was up 10%. Operating company contribution is
operating income excluding restructuring, other nonrecurring
charges and amortization of intangibles.
"We are also achieving solid progress in enhancing our cost
structure and return on capital," Hays added. "Three months ago,
we noted our intent to rationalize manufacturing, distribution
and sourcing, to discontinue marginal product lines, and to take
associated pre-tax restructuring and related charges
approximating $200 million over the course of the year. During
the second quarter, $89 million in charges were recorded,
including $41 million for the home and office brands (principally
relating to the discontinuance and rationalization of product
lines) and $48 million for the distilled spirits brands
(principally relating to the realignment and harmonization of
domestic and international operations).
"In other initiatives, significant progress towards
enhancing the global competitiveness of the Master Lock and
Swingline brands is being achieved. For Master Lock, which has
been under intense pressure from cheap imports, agreement was
reached that provides for wage and medical benefit savings, the
reduction of about 400 positions over the next three years and
flexibility to pursue lower cost manufacturing and foreign
sourcing alternatives. At Swingline, a decision to move
production to Mexico was finalized."
With regard to share repurchases, Hays commented that
"following a period of aggressive share repurchases, we have now
refined our plans going forward.
"Over the past 2 1/2 years, we have invested nearly $2
billion to reduce fully diluted shares by 46 million shares, or
21%. Last October, when we announced plans to spin off Gallaher,
we indicated that, following completion of the transaction, we
would consider repurchasing up to 10 million shares, depending on
market conditions and other investment opportunities. Last
month, we repurchased 2 million shares, even though our priority
continues to be enhancing our long-term prospects by investing in
internal growth and high return add-on acquisitions.
"Although we retain authority to purchase additional shares
and have not ruled out such purchases, we now anticipate that we
may not make further substantial purchases this year. The fast-
changing market landscape highlights the strong long-term benefit
of maintaining substantial financial flexibility to pursue
opportunities in the face of major new customer and competitor
consolidation announcements, and the authorized share repurchases
would have very little impact on our E.P.S. projections. Our 13-
15% long-term E.P.S. growth goal is not dependent on large share
repurchases. However, at our July 29 Board meeting, we will
recommend instituting a systematic share purchase program to
cover stock option exercises. This program is anticipated to be
in the range of 2 million shares per year.
"Consistent with these expectations, we have made a minor
adjustment in our pro forma earnings calculations. These pro
forma calculations, which previously assumed the repurchase of 10
million shares, have been revised to assume repurchase of 2 1/2
million shares. The impact on pro forma E.P.S. for the second
quarter and first half of 1996 is negligible, and the impact on
pro forma primary and fully diluted E.P.S. for the full year 1996
is a reduction of two cents to $1.30 and $1.28, respectively.
"Even so, we continue to expect 13-15% E.P.S. growth
(excluding restructuring) in 1997 compared with the original
$1.32 ($1.30 fully diluted) "base" for 1996. Thus, our E.P.S.
outlook for the year 1997 remains unchanged and continues to be
very positive. For the third quarter, we expect another solid
gain.
"Our long-term E.P.S. growth goal is also 13-15%, assuming a
satisfactory economic and pricing environment. With our array of
market-leading consumer brands, powerful balance sheet and strong
cash flow, we believe this optimism about the future is well
founded."
Brand Highlights
:::Home and Office Products:::
We announced in April that the home and office operations
would be placed under the coordinated leadership of a single
executive. We have now announced changes in other leadership
positions to further coordinate these operations, and we
anticipate further opportunities to capitalize on the overall
strengths of these operations. Home and office products
represent nearly half of consolidated contribution and have solid
growth characteristics.
- ---Office Products ---
Contribution from the office products brands was up 10% on a
5% increase in sales. ACCO is the global leader in office
supplies.
In North America, we continued to gain share, backed by the
largest-ever launch of new products and record sales of back-to-
school seasonal products. Notably strong sales gains were posted
geographically in Canada (+15%) and Mexico (+64%), and by the Day-
Timer brand (+16%) and the Kensington brand, which was up 43%,
even excluding the benefit of recently acquired Advanced Gravis.
Kensington, a world leader in computer accessories, is benefiting
from innovative new product introductions, including Smart
Sockets and the Orbit trackball. The Day-Timer brand achieved
strong gains in retail shelf space, and retail sell-through was
up over 50% for the six months.
In Europe, sales growth was achieved in the U.K., but
results on the Continent continued to be soft.
Overall, ACCO is benefiting, with lower costs and very
strong customer service, from ongoing investments in systems and
process improvements.
Last month, ACCO's U.K. operation made an offer in the U.K.
for Nobo Group plc. Nobo is a manufacturer and supplier of
presentation products and equipment, with a major presence in the
U.K. and a growing position in continental Europe.
Two nonstrategic units were divested at the end of the
quarter.
Looking ahead, third quarter office products results will be
adversely affected by the divestitures, which had seasonally
strong results in last year's third quarter. For the ongoing
office products operations, we expect third quarter results to be
on track with the full-year outlook for double-digit contribution
growth.
- ---Home Products ---
Contribution from the home brands increased 2%, with higher
contribution at Moen and Aristokraft mostly offset by the
expected decline at Master Lock.
In response to intense competitive conditions, Master Lock
cut prices at the beginning of 1997 on core padlock products in
response to a shift by mass merchants to value-price imported
products, and we previously indicated that we anticipate lower
contribution from Master Lock throughout 1997. Response to the
promotion has been encouraging, with point-of-sale data at Wal-
Mart and Home Depot documenting very strong volume gains. As
noted above, a labor agreement has been reached that enhances
long-term prospects for this brand. Master Lock also has
significant new products in development.
Moen, the number 1 faucet in North America, achieved a
modest contribution gain as expected in the quarter, and
initiated a series of major new single-handle faucet product
introductions late in June that should favorably affect future
results. These introductions, the most extensive in Moen's
history, will continue with additional models scheduled for
launch in September and early in 1998. Initial response has been
very positive from retailers, wholesalers and builders. New
products with the ultra-durable LifeShine polished brass finish,
introduced in the first quarter, are already performing very well
in the marketplace.
Aristokraft, which is number 2 in kitchen and bath cabinets,
achieved a double-digit contribution increase and another solid
increase in working capital efficiency.
Overall, for the home brands, major steps are underway to
further reduce costs and enhance returns.
We expect modest contribution growth for the year from home
products, even including the projected decline at Master Lock.
Excluding Master Lock, we expect double-digit growth.
:::Golf Brands:::
The golf brands had an excellent quarter, with sales up 16%
and contribution up 17%, both to records, reflecting solid gains
in golf balls, golf shoes, golf gloves and golf clubs by the
Titleist, Foot-Joy, Cobra and Pinnacle brands.
Worldwide, golf ball sales were up 10% for the quarter and
six months. Titleist brand gains were led by a 26% volume
increase year-to-date for the premium-positioned Titleist
Professional, which is played by Tiger Woods and Ernie Els.
Justin Leonard also played Titleist in winning the British Open
last weekend. Pinnacle golf ball units were up 18% in the
quarter and 22% year-to-date. Unit sales of custom imprinted
golf balls were up 12% for the six months. Titleist retains a
firm hold as the number 1 ball in golf and has won 5 times more
events in 1997 than its nearest competitor on the worldwide
professional tours. Sales of Titleist golf clubs are very
strong, up 14% for the quarter and 18% for the six months, driven
by strong demand in all major markets for the Titleist DCI and
DCI Oversize+ irons and for the Scotty Cameron by Titleist
putter. Tiger Woods used a Scotty Cameron by Titleist putter,
the Newport Teryllium, to negotiate the difficult greens of the
Masters without a three-putt, and Scotty Cameron by Titleist was
the putter of choice at 21 of 25 1997 PGA Tour events.
Foot-Joy, the number 1 golf shoe, posted a 6% unit sales
increase for the six months, with strong increases in the U.S.
and Europe. DryJoys, which was relaunched in 1997, and the
contemporary Soft-Joy Sierra line led footwear sales with double-
digit increases. Foot-Joy continues to experience strong growth
in spikeless and alternative spike equipped golf shoes in the
U.S. Sales of these products more than doubled in the first
half. In golf gloves, Foot-Joy achieved strong growth in North
America, Europe and Japan. The three major sub-brands -- Sta-
Sof, Sof-Joy and Weather-Sof -- contributed double-digit unit
increases worldwide.
The Cobra brand also achieved solid performance, with sales
up 33% for the quarter, led by a 25% increase in iron units.
Cobra drivers are the number 1 winner on the PGA Tour this year,
with eight victories. Tiger Woods, who is number 1 on the PGA
Tour's money list and number 1 in driving distance (294.1 yard
average), trusts a King Cobra driver to give him consistency and
distance. Greg Norman, using a King Cobra driver and Cobra
irons, recently won the 1997 FedEx St. Jude Classic tournament,
and Hale Irwin, who is number 1 on the 1997 Senior PGA Tour's
money list, uses a King Cobra Ti driver and the new King Cobra II
Tour irons. In manufacturing, quality initiatives in shaft and
club assembly resulted in record production volume and excellent
quality.
The golf brands are very well positioned in a growing
worldwide market, and we expect solid double-digit contribution
growth from these brands in the third quarter and for the full
year.
:::Distilled Spirits Brands:::
Contribution from the distilled spirits brands was up 5% in
the quarter, reflecting a strong performance for the
international operations. Comparisons were distorted by the
inclusion in the 1996 second quarter of an additional month of
sales to shift the U.K.-based Whyte & Mackay operations to a
calendar year basis (previously reported on a one-month delay).
Adjusting 1996 to a comparable basis, contribution was up 10%,
and sales excluding excise taxes were up slightly.
Worldwide, total distilled spirits case volume declined 2.5%
in the quarter and 1.3% for the six months. Jim Beam, the number
1 Bourbon in the world, achieved a 1% worldwide shipment increase
year-to-date, and Jim Beam premixed cocktails were up 11% to over
a million cases.
International contribution was up 24% in the quarter,
benefiting from improved gross margins and lower operating
expenses. International margin and contribution growth came
largely from export sales of Scotch whisky, and from Australia
and Germany, the two largest export markets for Jim Beam Bourbon.
North American contribution declined 1% in the quarter but
was up 3% for the six months, and margins showed good improvement
in the quarter, reflecting price increases, an improved product
mix and lower operating expenses. Depletions (sales by
distributors to retailers) of the high-margin Small Batch
Bourbons were up 50% off a small base for both the quarter and
six months. With innovative new product introductions, DeKuyper
cordials continue to perform well. For example, the new DeKuyper
Sour Apple Pucker line extension has exceeded expectations,
already shipping over 50,000 cases. Overall, aggressive price
increases have negatively affected volume but favorably affected
contribution.
We expect continued solid contribution growth from the
distilled spirits brands in the third quarter and for the full
year. With strong cash flow, the distilled spirits brands
generate significantly faster increases in pre-tax income.
* * * *
Fortune Brands, Inc. is an international consumer products
company with headquarters in Old Greenwich, Connecticut. Its
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 -- including ACCO World Corporation's
Day-Timer and Swingline. Acushnet Company's golf brands include
Titleist, Cobra and Foot-Joy. Major distilled spirits brands
sold by units of JBB Worldwide, Inc. include Jim Beam and the
Small Batch Bourbons, DeKuyper cordials and Whyte & Mackay
Scotch.
* * *
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
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.
# # #
FORTUNE BRANDS, INC.
CONSOLIDATED STATEMENT OF INCOME
(In millions, except per share amounts)
(Unaudited)
Three Months Ended June 30,
1997 1996 % Change
Net Sales $1,235.5 $1,207.7 2.3
Cost of sales 733.0 733.1 -
Advertising, selling, general
and administrative expenses 328.4 318.6 3.1
Amortization of intangibles 25.9 27.0 (4.1)
Restructuring and other
nonrecurring charges 89.3 - -
Interest and related expenses 30.8 42.7 (27.9)
Other (income) expenses, net 0.7 (2.6) -
Income From Continuing Operations
Before Income Taxes 27.4 88.9 (69.2)
Income taxes 23.1 32.9 (29.8)
Income From Continuing Operations 4.3 56.0 (92.3)
Income from discontinued operations (36.5) 66.0 -
Extraordinary items - - -
Net Income ($32.2) $122.0 (126.4)
Earnings Per Common Share
Primary
Income from operations $0.41 $0.31 32.3
Restructuring and other
nonrecurring charges (0.38) - -
Income from continuing operations 0.03 0.31 (90.3)
Income from discontinued (0.22) 0.38 -
operations
Extraordinary items - - -
Net income ($0.19) $0.69 (127.5)
Fully Diluted
Income from operations $0.40 $0.31 29.0
Restructuring and other
nonrecurring charges (0.37) - -
Income from continuing operations 0.03 0.31 (90.3)
Income from discontinued (0.22) 0.37 -
operations
Extraordinary items - - -
Net income ($0.19) $0.68 (127.9)
Avg. Common Shares Outstanding
Primary 172.0 174.9 (1.7)
Fully diluted 176.1 178.9 (1.6)
FORTUNE BRANDS, INC.
CONSOLIDATED STATEMENT OF INCOME
(In millions, except per share amounts)
(Unaudited)
Six Months Ended June 30,
1997 1996 % Change
Net Sales $2,340.6 $2,262.8 3.4
Cost of sales 1,389.5 1,367.1 1.6
Advertising, selling, general
and administrative expenses 641.4 609.7 5.2
Amortization of intangibles 51.9 51.2 1.4
Restructuring and other
nonrecurring charges 89.3 - -
Interest and related expenses 68.7 79.5 (13.6)
Other (income) expenses, net 2.8 0.3 -
Income From Continuing Operations
Before Income Taxes 97.0 155.0 (37.4)
Income taxes 57.7 67.2 (14.1)
Income From Continuing Operations 39.3 87.8 (55.2)
Income from discontinued operations 65.1 158.3 (58.9)
Extraordinary items - (10.3) -
Net Income $104.4 $235.8 (55.7)
Earnings Per Common Share
Primary
Income from operations $0.61 $0.49 24.5
Restructuring and other
nonrecurring charges (0.38) - -
Income from continuing operations 0.23 0.49 (53.1)
Income from discontinued 0.38 0.90 (57.8)
operations
Extraordinary items - (0.06) -
Net income $0.61 $1.33 (54.1)
Fully Diluted
Income from operations $0.60 $0.49 22.4
Restructuring and other
nonrecurring charges (0.37) - -
Income from continuing operations 0.23 0.49 (53.1)
Income from discontinued 0.36 0.87 (58.6)
operations
Extraordinary items - (0.06) -
Net income $0.59 $1.30 (54.6)
Avg. Common Shares Outstanding
Primary 171.7 176.3 (2.6)
Fully diluted 175.5 182.4 (3.8)
(NOTES FOLLOW)
FORTUNE BRANDS, INC.
(In millions, except per share amounts)
NOTES:
(1) PRO FORMA FINANCIAL INFORMATION
On May 30, 1997, the international tobacco operations were spun off and to
allocate the overall debt burden of the Company at the time of the
spin-off, Gallaher borrowed and paid to the Company an amount that will
ultimately result in approximately $1.25 billion, after taxes. The Company
used the proceeds initially to pay down short-term debt.
The following sets forth income from continuing operations excluding
restructuring and other nonrecurring charges and adjusted to reflect the
net cash payment Gallaher made to the Company and the assumption that such
proceeds were used to purchase 2.5 million Common shares and repay debt as
of January 1, 1996. The ultimate use of the proceeds may differ from that
described herein.
PRO FORMA FINANCIAL INFORMATION
Three Months Ended June 30,
1997 1996 %Change
Income from Operations $76.5 $66.3 15.4
Earnings Per Common Share-
Primary $0.45 $0.38 18.4
Fully Diluted 0.43 0.37 16.2
Six Months Ended June 30,
1997 1996 %Change
Income from Operations $121.8 $108.4 12.4
Earnings Per Common Share-
Primary $0.72 $0.62 16.1
Fully Diluted 0.70 0.61 14.8
Previously published pro forma amounts, which reflected an assumed purchase
of 10 million Common shares, have been adjusted to reflect an amended
purchase of 2.5 million Common shares. The impact to E.P.S. for the three
months and six months ended June 30, 1996 is negligible. The impact on
primary and fully diluted E.P.S. for the year 1996 is a reduction of two
cents to $1.30 and $1.28, respectively.
FORTUNE BRANDS, INC.
(In millions)
NOTES (CONTINUED):
(1) PRO FORMA FINANCIAL INFORMATION (Concluded)
Amortization of intangibles included in both reported and pro forma primary
and fully diluted earnings per share for the three months ended June 30,
1997 amounted to 14 cents and for the 1996 period amounted to 15 cents and
14 cents, respectively. For the six months ended June 30, 1997 amortization
of intangibles included in primary and fully diluted earnings per share
amounted to 29 cents and 28 cents, and for the 1996 period, amounted to 28
cents and 27 cents, respectively.
(2) INFORMATION ON BUSINESS SEGMENTS
Net sales by business segment:
Three Months Ended June 30,
1997 1996 %Change
Home Products $ 335.5 $ 335.4 -
Office Products 285.4 271.4 5.2
Home and Office Products 620.9 606.8 2.3
Golf Products 305.4 263.8 15.8
Distilled Spirits (a) 309.2 337.1 (8.3)
$1,235.5 $1,207.7 2.3
Six Months Ended June 30,
1997 1996 %Change
Home Products $ 664.2 $ 656.7 1.1
Office Products 575.5 549.0 4.8
Home and Office Products 1,239.7 1,205.7 2.8
Golf Products 541.3 473.6 14.3
Distilled Spirits (a) 559.6 583.5 (4.1)
$2,340.6 $2,262.8 3.4
(a) Federal and foreign excise taxes included in net sales and cost of
sales for the three months ended June 30, 1997 and 1996 amounted to
$103.8 and $116.1, and for the six months ended June 30, 1997 and 1996
amounted to $185.8 and $202.3, respectively.
Consolidated net sales, excluding excise taxes and an extra month last
year at Whyte & Mackay U.K. operations (change to calendar year-end),
were up 5% for the three months and 6% for the six months ended June
30, 1997.
FORTUNE BRANDS, INC.
(In millions)
NOTES (CONTINUED):
(2) INFORMATION ON BUSINESS SEGMENTS (Concluded)
Distilled Spirits net sales, excluding excise taxes and an extra month last
year at Whyte & Mackay U.K. operations (change to calendar year-end), were
up slightly for the three months and 3% for the six months ended June 30,
1997.
Operating company contribution by business segment:
Three Months Ended June 30,
1997 1996 %Change
Home Products $ 51.7 $ 50.9 1.6
Office Products 17.2 15.6 10.3
Home and Office Products 68.9 66.5 3.6
Golf Products 66.1 56.6 16.8
Distilled Spirits 60.1 57.0 5.4
$195.1 $180.1 8.3
Six Months Ended June 30,
1997 1996 %Change
Home Products $103.6 $101.2 2.4
Office Products 43.8 40.5 8.1
Home and Office Products 147.4 141.7 4.0
Golf Products 99.6 94.6 5.3
Distilled Spirits 100.0 93.2 7.3
$347.0 $329.5 5.3
Operating company contribution is operating income excluding restructuring,
other nonrecurring charges and amortization of intangibles.
Consolidated and Distilled Spirits operating company contribution excluding
the extra month at Whyte & Mackay last year were each up 10% for the three
months ended June 30, 1997.
FORTUNE BRANDS, INC.
(In millions)
NOTES (CONTINUED):
(3) DISCONTINUED OPERATIONS
On May 30, 1997 the international tobacco operations were spun off and the
name of the Company was changed to Fortune Brands, Inc. As a result, the
Company's stockholders owned shares in two publicly-traded companies -
Fortune Brands, Inc. and Gallaher Group Plc.
The financial statements have been reclassified to identify tobacco
operations as discontinued operations for all periods. Summarized results
of operations for the international tobacco operations, net of allocation
of interest expense based on a ratio of Gallaher's net assets to
consolidated net assets of the Company, is as follows:
Three Months Ended Six Months Ended
Results Of Operations June 30, June 30,
1997* 1996 1997* 1996
Net Sales $835.2 $1,278.3 $2,575.0 $2,961.1
Income Before Taxes $ 40.7 $102.2 $193.4 $243.7
Spin-off Expenses (67.2) - (67.2) -
Income Taxes (10.0) (36.2) (61.1) (85.4)
Income From
Discontinued Opers. $(36.5) $ 66.0 $ 65.1 $158.3
* Includes results through May 30, 1997; two months in the three months
ended June 30, 1997 and five months in the six months ended June 30,
1997.
In connection with the spin-off, the conversion rate of each share of $2.67
Convertible Preferred stock was adjusted from 4.08 shares of American
Brands, Inc. Common stock to 6.205 shares of Fortune Brands Common stock.
In connection with the spin-off, 63.18% of each shareholder's tax basis in
American Brands common shares should be allocated to Fortune Brands common
shares and 36.82% should be allocated to Gallaher Group Plc shares.
FORTUNE BRANDS, INC.
(In millions, except per share amounts)
NOTES (CONTINUED):
(4) RESTRUCTURING AND OTHER NONRECURRING CHARGES
As previously announced, the Company has been reviewing
productivity-enhancing restructuring opportunities and, during the three
months ended June 30, 1997, recorded a pre-tax charge of $89.3.
Home Products include a $17.4 pre-tax charge related to the discontinuance
of certain product lines and operations, the consolidation of facilities
and the write-down of property, plant and equipment.
Office Products include a $23.5 pre-tax charge, principally resulting from
the discontinuance and rationalization of businesses and product lines,
lease cancellation costs and related assets and the write-down of property,
plant and equipment, partly offset by the pre-tax gain on the sale of Sax
Arts and Crafts, Inc. and Don Gresswell Limited.
Distilled Spirits include a $48.4 pre-tax charge resulting from the
realignment and harmonization of domestic and international operations and
relates to the standardization of bulk inventory valuations, and costs
related to international distribution and lease agreements.
Restructuring and other nonrecurring charges by business segment:
Three and Six Months Ended
June 30, 1997
Nonrecurring
Cost of Sales
Restructuring Charges Total
Home Products $ 9.1 $ 8.3 $17.4
Office Products 23.4 0.1 23.5
Home and Office Products 32.5 8.4 40.9
Distilled Spirits 23.3 25.1 48.4
$55.8 $33.5 $89.3
Income Taxes $23.9
Net Charge $65.4
Charge Per Common Share
Primary $0.38
Fully Diluted $0.37
FORTUNE BRANDS, INC.
(In millions)
NOTES (CONCLUDED):
(4) RESTRUCTURING AND OTHER NONRECURRING CHARGES (Concluded)
Consistent with current accounting guidelines for restructuring activities,
the Company expects to record additional charges during the third and
fourth quarters of 1997 of approximately $100 (pre-tax) as formal
restructuring plans are approved and communicated.
(5) EXTRAORDINARY ITEMS
In March 1996, the Company redeemed $149.6 of its $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.
(6) PENDING LITIGATION
The Company and its subsidiaries are defendants in various lawsuits
associated with their business and operations and the Company is a
defendant in 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.
In connection with the spin-off of Gallaher Group Plc on May 30, 1997,
Gallaher Group Plc and Gallaher Limited agreed to indemnify the Company
against claims arising from smoking and health and fire safe cigarette
matters relating to the tobacco business of Gallaher and its subsidiaries.
FORTUNE BRANDS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions)
June 30, December 31,
1997 1996
(Unaudited) (Restated)
Assets
Current assets
Cash and cash equivalents $157.5 $34.9
Accounts receivable, net 867.2 892.4
Inventories 1,019.5 1,037.9
Net assets of discontinued operations - 683.3
Other current assets 173.3 193.6
--------- ---------
Total current assets 2,217.5 2,842.1
Property, plant and equipment, net 943.8 972.6
Intangibles resulting from
business acquisitions, net 3,659.8 3,730.7
Other assets 199.4 191.9
--------- ---------
Total assets $7,020.5 $7,737.3
========= =========
Liabilities and Stockholders' Equity
Current liabilities
Short-term debt $37.4 $728.3
Current portion of long-term debt 201.5 53.9
Other current liabilities 1,395.0 1,285.9
--------- ---------
Total current liabilities 1,633.9 2,068.1
Long-term debt 846.2 1,598.3
Other long-term liabilities 428.5 386.7
--------- ---------
Total liabilities 2,908.6 4,053.1
Stockholders' equity 4,111.9 3,684.2
--------- ---------
Total liabilities and
stockholders' equity $7,020.5 $7,737.3
========= =========
