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
January 24, 1997 (January 24, 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 January 24, 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 January 24, 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 Craig P. Omtvedt
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Craig P. Omtvedt
Vice President and
Chief Accounting Officer
Date: January 24, 1997
<PAGE>
EXHIBIT INDEX
Sequentially
Exhibit Numbered Page
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20. Press release of Registrant dated
January 24, 1997.
EXHIBIT 20
Media Relations: Investor Relations:
Roger W. W. Baker Daniel A. Conforti
(203) 698-5148 (203) 698-5132
AMERICAN BRANDS REPORTS 1996 RESULTS
E.P.S. FROM OPERATIONS UP 10% TO $1.01 IN FOURTH QUARTER
AND UP 11% TO $3.20 FOR THE YEAR
Expect to Achieve Growth Goals in 1997;
Spin-Off Plans for Gallaher Tobacco Progressing
Old Greenwich, CT, January 24, 1997 -- American Brands, Inc.
(NYSE-AMB) today announced that earnings per common share from
operations rose 10% to $1.01 for the quarter ended December 31,
1996. This compared with 92 cents in the fourth quarter of 1995.
Fully diluted earnings per share from operations rose 9% to 98
cents.
These fourth quarter figures exclude restructuring charges
of 34 cents per share (33 cents fully diluted) in 1996 related to
a plant consolidation in international tobacco, 6 cents per share
in 1995 in connection with the worldwide reorganization of
distilled spirits operations, and a 1 cent per share net loss in
the 1995 quarter from operations of businesses disposed. The
1996 restructuring charge amounted to $88.8 million ($59.5
million after taxes), and the 1995 charge amounted to $17.8
million ($12.2 million after taxes). The comparisons reflect the
benefit of share repurchases.
For the year, earnings per share from operations reached
$3.20, up 11% from $2.88 in 1995. Fully diluted earnings per
share from operations rose to $3.13, up 11%. These full-year
comparisons exclude the factors affecting the quarter as well as
a 10 cent (9 cent fully diluted) gain on disposal of businesses
in the third quarter of 1995 and extraordinary charges relating
to the retirement of debt of 1 cent and 6 cents per share in 1995
and 1996, respectively.
Net sales rose 11% in the quarter to a record $3.4 billion,
and operating company contribution (excluding restructuring
charges) was $379 million, up 7%. For the year, sales reached a
record $11.6 billion, up 7% (excluding businesses sold in 1995),
and operating company contribution of $1.3 billion was up 7%
(excluding businesses sold and restructuring). Comparisons
benefited from the January 1996 acquisition of Cobra. During
1995, U.K. retailing and housewares operations, which generated
substantial sales but minimal contribution, were sold.
Average primary shares outstanding were reduced 6% in the
quarter and 7% for the year, resulting in a net benefit to
primary E.P.S. of 2 cents and 16 cents, respectively. Reflecting
the redemption of convertible debenture issues, fully diluted
shares declined 7% in the quarter and 9% for the year, favorably
affecting fully diluted E.P.S. by 2 cents and 20 cents,
respectively.
Including businesses disposed, restructuring, extraordinary
charges and the 1995 gain on disposal of businesses, net income
declined 26% and 10% in the quarter and year, respectively.
Chairman and Chief Executive Officer Thomas C. Hays said:
"American Brands had another fine year in 1996, again exceeding
our 10% long-term E.P.S. goal. We also took decisive actions to
enhance operations and shareholder value, most notably announcing
in October plans to spin-off our U.K.-based Gallaher tobacco
business to shareholders.
"Steps to implement the spin-off, which will create two
strong companies with enhanced prospects, are progressing. When
the transaction is consummated, we plan to change the name
American Brands to Fortune Brands." Completion of the
transaction, which is currently expected around mid-year, is
pending receipt of favorable tax rulings and relevant stockholder
approvals.
"We also repurchased 10 million shares of our common stock
during 1996," Hays noted. "Following the spin-off of Gallaher,
Fortune Brands will consider repurchasing up to 10 million
shares, depending on market conditions and other investment
opportunities. Over the past two years, we have invested $1.8
billion to reduce fully diluted shares by 20% and well over $400
million in capital projects to enhance competitiveness and to
grow our powerful consumer brands."
Favorable Outlook
"Looking ahead," Hays noted, "our prospects are exciting and
the outlook for our operations is bright. We expect another
excellent year in 1997, despite continued intense competitive and
pricing pressures.
"When we sold The American Tobacco Company at the end of
1994, we established a long-term goal to achieve E.P.S. growth in
the range of 10%. We exceeded 10% in 1995 and 1996, and we
expect, if there were no spin-off, that American Brands would
again achieve that goal, excluding restructuring charges, in
1997.
"In the first quarter, at current foreign exchange rates, we
expect solid double-digit E.P.S. growth, in spite of challenging
first quarter comparisons for golf and hardware.
"Our brand development is in high gear, backed by
substantial investments in marketing to capitalize on attractive
opportunities. This past year, we increased investment in
advertising and R&D at double-digit rates. We also remain firmly
committed to reducing our cost structure.
"Following completion over the next three to four years of
the factory consolidation they announced last month, Gallaher
anticipates substantial annual savings. That consolidation will
result in the closure of Gallaher's Hyde factory in Manchester,
England. As we have indicated, we are also reviewing
productivity-enhancing opportunities at the Fortune Brands
operations. We anticipate that this review may well result in
restructuring charges during 1997.
Fortune Brands Results and Outlook
For the Fortune Brands operations, sales were $4.7 billion,
up 8% (excluding businesses disposed in 1995), contribution from
operations was $700 million, up 9%, and, on a pro forma basis,
E.P.S. was $1.32 per share, up 8% ($1.30 fully diluted).
The pro forma calculations give effect for both years to the
possible 10 million share repurchase and to the net proceeds
resulting from the payment that Gallaher will make to Fortune
Brands at the time of the spin-off. The 1995 figures exclude the
distilled spirits restructuring charge and items relating to
businesses sold.
"Our long-term E.P.S. growth goal for Fortune Brands is in
the range of 13-15%, assuming a satisfactory economic and pricing
environment," Hays noted. "For the year 1997, on a pro forma
basis, we expect to comfortably achieve that 13-15% E.P.S. growth
goal (excluding restructuring charges), leveraging high single-
digit operating income growth with the benefit of strong cash
flow and lower corporate expense. Fortune Brands will commence
operations with a very strong balance sheet."
Fortune Brands Highlights
Fortune Brands, which will consist of American Brands' non-
tobacco operations, will be a premier international consumer
products company with a strong growth outlook and a formidable
array of category-leading brands. This past year, about a third
of non-tobacco contribution came from distilled spirits brands, a
third from hardware and home improvement brands, and the
remaining third was split between golf and office products
brands. Each of these categories achieved record sales and
increased contribution during 1996.
:::Distilled spirits brands:::
Sales generated during the year by the distilled spirits
brands were a record $1.3 billion. Contribution was up slightly
for the year and flat in the fourth quarter, after adjusting for
the $17.8 million restructuring charge in the 1995 quarter.
Benefiting from tremendous cash flow generation, pretax income
grew at a substantially stronger rate.
The contribution gain for the year was achieved in spite of
a 17% increase in marketing, primarily in support of new products
in the North American market and of Whyte & Mackay branded
products in the U.K.
In North America, contribution benefited from price
increases during 1996 on key products, including Jim Beam, the
number one bourbon in the world, and DeKuyper, America's leading
cordial line. DeKuyper volume was up 3%, benefiting from
successful extensions of this powerful franchise.
Two new high margin liqueur brands - After Shock and
Avalanche - shipped an aggregate 250,000 cases and made a growing
profit contribution. Unit sales of the high margin Small Batch
Bourbons - Booker's, Knob Creek, Baker's and Basil Hayden -
collectively increased by over 40% in 1996. The development of
high margin new products will continue to be a key priority.
In international markets, there were notable achievements,
even though, with the substantial Whyte & Mackay branded product
investment, overall international contribution for the year was
about even with 1995. Export volume of Jim Beam bourbon reached
record levels, up 8% in the quarter and 3% for the full year. In
Australia, volume for Jim Beam, the number 1 spirit brand in that
country, was up almost 5% for the year, and sales of Jim Beam
premixed cocktails were up 15%. Solid gains were also reported
in selected emerging markets, including the Czech Republic, where
Jim Beam bourbon volume nearly doubled, reaching 85,000 cases. A
solid 18% volume increase was achieved in 1996 in the substantial
private label Scotch whisky business.
Significant progress was achieved during the year in
combining the former Jim Beam and Whyte & Mackay operations into
a single, globally integrated distilled spirits business.
For 1997, we expect solid contribution growth from the
distilled spirits brands, and, reflecting powerful cash flow,
even faster growth in pre-tax income.
:::Hardware and home improvement brands:::
The hardware brands achieved record sales and contribution
in the fourth quarter and full year. Excellent performances for
Moen - the number 1 kitchen and bath faucet in North America,
Aristokraft - the number 2 kitchen and bath cabinet manufacturer,
and Waterloo - the leader in tool storage, more than offset the
impact of adverse market conditions that severely affected Master
Lock, the number 1 padlock brand in the world. Although
contribution growth was a modest 5% in the quarter and 3% for the
year, dramatic progress in working capital efficiency drove much
faster growth in pre-tax income for the hardware brands. Pre-tax
income grew at a solid double-digit rate in 1996.
Moen achieved solid double-digit contribution gains in the
quarter and year with excellent performance in the marketplace.
Based on the latest data, Moen's share of the U.S. faucet market
reached 26.6%, and, over the past year, Moen substantially
increased its share lead over the nearest competitive brand.
These results reflect the impact of highly effective advertising.
At year-end, nearly twice as many consumers picked Moen (versus
the number 2) as their first choice when asked which brand they
were next likely to purchase, and Moen now substantially leads
its competitors in "unaided awareness." Moen posted particularly
strong sales gains with wholesalers, reflecting continued share
growth and a strong U.S. housing market, and increases were also
achieved in Canada, Japan and China. The implementation of
Assemble to Demand helped reduce average inventories by 12% and
average working capital by 14%.
Aristokraft posted strong contribution increases in both the
quarter and full year. Sales of the semi-custom Decora line were
up 18% for the year, boosted by excellent acceptance of new
products. Contribution further benefited from lower material
costs and manufacturing efficiencies. The Continuous Flow
Manufacturing process introduced over the last several years
resulted in a nearly 22% reduction in inventory in 1996.
Waterloo achieved record sales and significant contribution
growth, benefiting from the opening of a major new manufacturing
facility in Muskogee, Oklahoma.
Master Lock sales comparisons were about flat in both
periods, but contribution declined sharply. Results were
impacted dramatically as mass merchants shifted to value-price
products in the hardware and home improvement category. Master
has responded with a bold promotion, which, as of January 1,
effectively cut prices an average of 15% on core padlock
products. Master also has introduced new multiple packs offering
one free padlock with the purchase of three. Trade response has
been very positive, and the lower prices have been widely passed
on to consumers. Aggressive restructuring actions are being
taken to reduce costs, but contribution will be adversely
affected throughout 1997 by the aggressive steps taken to support
the Master Lock brand.
For 1997, we expect continued strong performances for Moen,
Aristokraft and Waterloo to more than offset the impact of the
lower prices at Master Lock. We anticipate that this will result
in a modest contribution gain, overall, for the hardware brands.
But we expect the benefit of continued very strong cash
generation to produce a higher gain in pre-tax income.
:::Golf brands:::
Record sales and contribution were achieved by the golf
brands, both for the fourth quarter and full year, reflecting
continued solid gains for Titleist and Foot-Joy as well as the
January 1996 acquisition of Cobra. Contribution was up 71% and
49% in the quarter and full year, respectively.
For the year, a record 231 million golf balls were sold, a
12% increase over 1995.
The Titleist brand led the charge with an outstanding year.
Brand sales were up over 10%, driven by continued strong
acceptance of the full range of Titleist Professional, HP2 and DT
golf balls and a 19% increase in unit sales of Titleist golf
clubs. Titleist was by far the number 1 ball in professional
golf, winning more tournaments and more money than all other golf
balls combined. It is the ball of choice for such professionals
as Tiger Woods, Davis Love, Phil Mickelson, Tom Lehman and more
than 250 other professionals worldwide.
The Titleist DCI iron, the serious players' golf club,
continued to achieve notable success, ranking as the number 1
choice of club professionals for the fourth consecutive year.
The Scotty Cameron by Titleist putter also showed continued
strength, winning ten times and firmly establishing itself as a
strong number 2 on the PGA Tour.
Worldwide, Foot-Joy brand sales increased 8%, with solid
gains to record market shares in golf footwear and gloves. Foot-
Joy is the number 1 brand by a large margin in both categories.
In golf footwear, Foot-Joy successfully relaunched DryJoys, the
world's number 1 weatherproof performance golf shoe, with a new
high performance, waterproof leather system combined with thermal
responsive gels to establish a new comfort benchmark.
Cobra introduced this past September an entirely new line of
irons, the King Cobra II with the Integrated Quad System, four
visibly enhanced features designed to make golfers hit the ball
on the sweet spot more often. These features have also been
incorporated into the Lady Cobra II irons and the Senior King
Cobra II irons. At the PGA Merchandise Show this week, Cobra is
unveiling new King Cobra II Tour irons, designed to help better
players achieve straighter, longer shots with greater control.
New left-handed models of the entire product line are also being
introduced.
Cobra also enhanced its number 3 position in woods during
1996 with the introduction of King Cobra Ti titanium metal woods.
King Cobra Ti offsets are the only titanium woods incorporating
the proven "no slice" performance of offset design.
Good progress was achieved in 1996 in capitalizing on the
synergistic opportunities created by this powerful combination of
golf brands, even though contribution from Cobra was lower than
originally projected. In international markets, distribution of
the Cobra brand is being combined with Titleist's extensive non-
U.S. distribution resources. Titleist is benefiting from Cobra's
in-house graphite shaft manufacturing facility. And a new line
of insert putters, the Cobra T.P.A.-i, represents the first new
product resulting from a combined R&D effort.
With our array of great golf brands, we are superbly
positioned to capitalize on the dynamic, worldwide growth in this
category. We are particularly proud that two of the straightest,
longest drivers in the history of golf - Greg Norman and Tiger
Woods - play Cobra metal woods, and that Tiger Woods has played
the Titleist ball through his career as an amateur and, now, as a
professional.
In 1997, first quarter contribution from the golf brands is
likely to be down, compared with a very strong 1996 quarter for
all the golf brands, with particular benefit from initial
shipments of the King Cobra Ti titanium metal woods.
Nevertheless, for the full year, we are targeting a double-digit
increase in contribution.
:::Office products brands:::
Strong progress was achieved once again in 1996 by the
office products brands. Contribution was up 8% for the quarter
and 10% for the year on record sales. Overall, ACCO is the
global leader in office supplies.
In the quarter, North American sales were up 12%, backed by
broad geographic gains and a 31% increase in the key computer-
related products and accessories category. Comparisons for Day-
Timer, the number 1 time management brand, were negatively
affected by the strong sell-in in 1995, when Day-Timer organizers
were rolled out in the retail channel. At retail, however, sell-
through of the Day-Timer brand was up substantially. For the
year, North American sales were up 7%, but would have been up
13%, adjusting for an acquisition and divestiture.
Internationally, in spite of sluggish economies across much
of Europe, sales were up 6% for the year. Double-digit growth
was posted in Ireland as well as in Australia, where we have the
number 1 position and have been achieving sustained share gains.
Overall, the office products sales comparisons were
adversely affected by the divestiture of nonstrategic furniture
operations, partly offset by the acquisition late in the year of
Advanced Gravis, a leader in joysticks, game pads and high-end
sound cards.
Significant progress was achieved in enhancing systems to
meet the needs of the consolidating customer base. These systems
are enabling the organization to further improve service, reduce
costs and more effectively manage working capital. With the
benefit of tight cost controls, another solid improvement in the
operating margin was accomplished. And with continued strong
focus on asset management, days sales in inventories improved by
15%.
For 1997, we again expect double-digit growth in
contribution from the office products brands.
Gallaher Highlights
Gallaher, the number 1 tobacco company in the U.K.,
completed another strong year. For the year, Gallaher reported
record sales of 4.4 billion pounds, up 7%, and contribution
(excluding a restructuring charge of 53.3 million pounds) of 367
million pounds, up 5%. In dollars, sales were $6.9 billion, up
7%, and contribution was $582 million, up 4%.
Fourth quarter sales were a record 1.3 billion pounds, up
9%, and contribution (excluding restructuring) was 102 million
pounds, up 4%. In dollars, sales were $2.1 billion, up 15%, and
contribution was $169 million, up 9%.
Worldwide cigarette unit sales increased 8% in the quarter
and 3% for the year.
In the U.K., Gallaher's estimated share of consumer sales in
the quarter was 39.1%, compared with 38.9% a year earlier.
Gallaher's U.K. cigarette volume was up 1.5% in the quarter and
0.3% for the year.
Gallaher maintained its powerful 54% share of the premium
sector, which provides superior margins, reflecting continued
strong consumer response to the Gratis gift program, and
increased its share of the growing low-price sector to 11.5% for
the year, up substantially from 6% in 1995. This strong increase
in the low-price sector reflected a 68% volume gain for Mayfair
and the introductions of Sovereign King Size in March and
Sovereign Lights in November. With ongoing trading down by some
consumers, the premium sector accounted for about 48.5% of the
market for the year, compared with 50.6% in 1995.
Export volume was up 35% in the quarter and 8% for the year,
with strong volume gains in Europe Duty Free and France. For the
year, in-market sales (importer sales to the trade) of Benson and
Hedges in France were up 31%, helped by the launch of new Benson
and Hedges American Blend. Overall in-market sales of Benson and
Hedges on the Continent were up 20%. In Greece, where Silk Cut
passed the 1 billion unit sales mark in 1995, another 9% in-
market gain was achieved for the brand in 1996. Shipments to the
former Soviet Union (FSU) increased 12% in the quarter but
declined 17% for the year, due largely to temporary difficulties
with the movement of goods within the markets. Gallaher is
developing plans for construction of a manufacturing facility in
Kazakhstan.
In Ireland, Gallaher strengthened its market leading
position, increasing its share to 44.2% for the year, up from
41.1%.
As noted, Gallaher announced plans in December to
consolidate cigarette production into one factory. The three to
four year program will result in the expansion of Gallaher's
factory at Lisnafillan, Northern Ireland, and the closure of the
Hyde factory in Manchester, England.
Pending the planned spin-off, we expect continued solid
contribution growth in sterling and very strong cash flow from
Gallaher's brands.
* * * *
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. 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. MasterBrand Industries has leading hardware
and home improvement brands including Moen faucets, Master locks and
Aristokraft cabinets. Acushnet Company's golf brands include Titleist,
Cobra, Pinnacle and Foot-Joy. ACCO World Corporation's major office
products brands include Day-Timer and Swingline. 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 September 30,
1996 1995 % Change
---- ---- --------
Net Sales $3,435.3 $3,084.6 11.4
Cost of sales 2,597.6 2,344.9 10.8
Advertising, selling, general
and administrative expenses 482.1 395.8 21.8
Restructuring charges 88.8 17.8 -
Amortization of intangibles 27.1 23.3 16.3
Interest and related expenses 45.3 37.6 20.5
Other (income) expenses, net (0.1) 4.6 (102.2)
Gain on disposal of
businesses, net - - -
Income Before Income Taxes 194.5 260.6 (25.4)
Income taxes 80.5 106.5 (24.4)
Income Before Extraordinary Items 114.0 154.1 (26.0)
Extraordinary items - - -
Net Income $114.0 $154.1 (26.0)
Earnings Per Common Share
Primary
Income from operations $1.01 $0.92 9.8
Businesses disposed - (0.01) -
Restructuring charges (0.34) (0.06) -
Gain on disposal of businesses - - -
Income before extraordinary items 0.67 0.85 (21.2)
Extraordinary items - - -
Net income $0.67 $0.85 (21.2)
Fully Diluted
Income from operations $0.98 $0.90 8.9
Businesses disposed - (0.01) -
Restructuring charges (0.33) (0.06) -
Gain on disposal of businesses - - -
Income before extraordinary items 0.65 0.83 (21.7)
Extraordinary items - - -
Net income $0.65 $0.83 (21.7)
Avg. Common Shares Outstanding
Primary 170.3 180.3 (5.5)
Fully diluted 174.4 187.3 (6.9)
AMERICAN BRANDS, INC.
CONSOLIDATED STATEMENT OF INCOME
(In millions, except per share
amounts)
(Unaudited)
Twelve Months
Ended December 31,
1996 (1) 1995 % Change
-------- ---- --------
Net Sales $11,579.3 $11,367.1 1.9
Cost of sales 8,685.2 8,572.1 1.3
Advertising, selling, general
and administrative expenses 1,698.5 1,665.3 2.0
Restructuring charges 88.8 17.8 -
Amortization of intangibles 107.4 95.1 12.9
Interest and related expenses 178.7 159.8 11.8
Other (income) expenses, net (3.6) (16.8) (78.6)
Gain on disposal of
businesses, net - 20.0 -
Income Before Income Taxes 824.3 893.8 (7.8)
Income taxes 327.5 350.7 (6.6)
Income Before Extraordinary Items 496.8 543.1 (8.5)
Extraordinary items (10.3) (2.7) -
Net Income $486.5 $540.4 (10.0)
Earnings Per Common Share
Primary
Income from operations $3.20 $2.88 11.1
Businesses disposed - (0.02) -
Restructuring charges (0.34) (0.06) -
Gain on disposal of businesses - 0.10 -
Income before extraordinary items 2.86 2.90 (1.4)
Extraordinary items (0.06) (0.01) -
Net income $2.80 $2.89 (3.1)
Fully Diluted
Income from operations $3.13 $2.82 11.0
Businesses disposed - (0.01) -
Restructuring charges (0.33) (0.06) -
Gain on disposal of businesses - 0.09 -
Income before extraordinary items 2.80 2.84 (1.4)
Extraordinary items (0.06) (0.01) -
Net income $2.74 $2.83 (3.2)
Avg. Common Shares Outstanding
Primary 173.3 186.9 (7.3)
Fully diluted 178.4 195.7 (8.8)
(NOTES FOLLOW)
AMERICAN BRANDS, INC.
(in millions)
NOTES:
(1) All figures are subject to completion of audit.
(2) Net sales by business segment:
Three Months
Ended Dec. 31,
1996 1995 %Change
---- ---- -------
International Tobacco (a) $2,138.5 $1,867.5 14.5
Distilled Spirits (a) 410.8 410.8 -
Hardware & Home Improve.
Prods. 368.3 344.4 6.9
Golf & Leisure Products (d) 142.3 100.5 41.6
Office Products 375.4 361.5 3.8
3,435.3 3,084.7 11.4
Businesses Disposed (e) - (0.1) -
$3,435.3 $3,084.6 11.4
Twelve Months
Ended Dec. 31,
1996 1995 %Change
---- ---- -------
International Tobacco (a) $6,861.6 $6,439.0 6.6
Distilled Spirits (a) 1,303.5 1,288.6 1.2
Hardware & Home Improve.
Prods. 1,374.1 1,306.8 5.1
Golf & Leisure Products (d) 811.4 579.3 40.1
Office Products 1,228.7 1,206.1 1.9
11,579.3 10,819.8 7.0
Businesses Disposed (e) - 547.3 -
$11,579.3 $11,367.1 1.9
Operating company contribution by business segment:
Three Months
Ended Dec. 31,
1996 1995 %Change
---- ---- -------
International Tobacco (b) $79.8 $154.8 (48.4)
Distilled Spirits (c) 89.5 71.9 24.5
Hardware & Home Improve.
Prods. 61.1 58.2 5.0
Golf & Leisure Products (d) 8.7 5.1 70.6
Office Products 51.3 47.4 8.2
290.4 337.4 (13.9)
Businesses Disposed (e) - - -
$290.4 $337.4 (13.9)
Twelve Months
Ended Dec. 31,
1996 1995 %Change
---- ---- -------
International Tobacco (b) $492.9 $559.1 (11.8)
Distilled Spirits (c) 244.1 224.1 8.9
Hardware & Home Improve.
Prods. 214.1 208.4 2.7
Golf & Leisure Products (d) 125.3 84.2 48.8
Office Products 116.3 105.5 10.2
1,192.7 1,181.3 1.0
Businesses Disposed (e) - 6.8 -
$1,192.7 $1,188.1 0.4
AMERICAN BRANDS, INC.
(in millions)
NOTES (CONTINUED):
(a) Federal and foreign excise taxes included in net sales
and cost of sales:
Three Months Twelve Months
Ended Dec. 31, Ended Dec. 31,
1996 1995 1996 1995
---- ---- ---- ----
International
Tobacco $1,674.4 $1,448.5 $5,349.8 $4,976.5
Distilled
Spirits 143.5 154.2 453.2 485.7
-------- -------- -------- --------
$1,817.9 $1,602.7 $5,803.0 $5,462.2
======== ======== ======== ========
(b) On December 19, 1996, the Company announced that its U.K.-based
Gallaher tobacco subsidiary will consolidate U.K. cigarette
manufacturing into one factory and in the fourth quarter recorded an
$88.8 million ($59.5 million after taxes) restructuring charge,
related to employee termination benefits.
(c) In the fourth quarter of 1995, Distilled Spirits recorded a $17.8
million one-time charge ($12.2 million after taxes), principally in
connection with a bottling plant closing and related employee
termination costs and the worldwide reorganization of this segment.
(d) In January 1996, the Company acquired Cobra Golf for an aggregate
cost of $712 million in cash, including fees and expenses. The cost
exceeded the fair value of net assets acquired by $657 million.
Cobra's operations have been included in consolidated results from
the date of acquisition.
(e) Businesses disposed includes the results of operations of
nonstrategic businesses, principally U.K.-based Retail
distribution (Forbuoys sold July 24, 1995) and Housewares (Prestige
sold May 2, 1995). $20 million (no taxes required) of the
provision that was recorded in 1994 in connection with the
disposition of nonstrategic business and product lines was reversed
in the third quarter of 1995.
AMERICAN BRANDS, INC.
(in millions)
NOTES (CONTINUED):
(3) Operating company contribution and income from operations excluding
restructuring charges, gain on disposal of businesses and results from
businesses disposed:
Operating company contribution (on a comparable basis):
Three Months
Ended Dec. 31,
1996 1995 %Change
---- ---- -------
International Tobacco $168.6 $154.8 8.9
Distilled Spirits 89.5 89.7 (0.2)
Hardware & Home Improve.
Prods. 61.1 58.2 5.0
Golf & Leisure Products 8.7 5.1 70.6
Office Products 51.3 47.4 8.2
$379.2 $355.2 6.8
Twelve Months
Ended Dec. 31,
1996 1995 %Change
---- ---- -------
International Tobacco $581.7 $559.1 4.0
Distilled Spirits 244.1 241.9 0.9
Hardware & Home Improve.
Prods. 214.1 208.4 2.7
Golf & Leisure Products 125.3 84.2 48.8
Office Products 116.3 105.5 10.2
$1,281.5 $1,199.1 6.9
Income from operations (after taxes):
Three Months Twelve Months
Ended Dec. 31, % Ended Dec. 31, %
1996 1995 Change 1996 1995 Change
---- ---- ------ ---- ---- ------
Comparable basis $173.5 $168.9 2.7 $556.3 $539.6 3.1
Businesses
disposed - (2.6) - - (4.3) -
Restructuring
charges (59.5) (12.2) - (59.5) (12.2) -
Gain on disposal
of businesses - - - - 20.0 -
Income before
extra. items $114.0 $154.1 (26.0) $496.8 $543.1 (8.5)
AMERICAN BRANDS, INC.
(in millions)
NOTES (CONTINUED):
(4) On October 8, 1996, the Company announced plans to spin off its
U.K.-based Gallaher tobacco business. Completion of the transaction,
which is currently expected around mid-year, 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 shareholders will own shares in two publicly-traded companies -
Gallaher and Fortune Brands.
To allocate the overall debt burden of the Company at the time of the
spin-off, Gallaher will borrow and pay to Fortune Brands approximately
$1.4 billion. Fortune will use the proceeds (approximately $1.25 billion
after taxes) initially to pay down short-term debt. The Gallaher debt
will be in addition to its seasonal working capital requirements.
The combined initial annualized dividend per share currently
contemplated by the management of both companies (Fortune Brands and
Gallaher) will equal, based on a $1.56 sterling exchange rate, the
existing $2.00 per share American Brands dividend. U.S. and eligible U.K.
taxpayers will effectively receive about another 30 cents, or 15%, for a
total of about $2.30. This added benefit comes in the form of a refund
or credit of the U.K. Advance Corporation Tax that is paid by Gallaher on
its dividends. U.S. taxpayers will be entitled to a cash refund of the
A.C.T. paid by Gallaher less applicable U.K. withholding taxes which can
be credited against their U.S. income tax liability. The U.S. foreign
tax credit is subject to complicated limitations.
Future dividends for Fortune Brands and Gallaher will be determined by,
and be at the discretion of, the respective Board of each company
following the spin-off, subject to available profits and other
considerations.
It is currently contemplated that any post spin-off dividend payable by
Gallaher in respect of 1997 will be paid as to 50% of such dividend in
the form of an interim dividend in 1997 and as to the other 50% as a
final 1997 dividend, subject to Gallaher shareholder approval, payable in
1998. Thereafter, Gallaher anticipates that any dividends will be paid in
the form of a one-third interim dividend and a two-thirds final dividend,
as is customary for many U.K.
companies.
AMERICAN BRANDS, INC.
(in millions)
NOTES (CONTINUED):
(5) Fortune Brands pro forma as adjusted earnings per common
share:
Twelve Months
Ended December 31,
1996 1995 %Change
---- ---- -------
Primary $1.32 $1.22 8.2
Fully Diluted $1.30 $1.24* 4.8
* antidilutive
Fortune Brands pro forma as adjusted earnings per common share is
calculated using historical American Brands income before extraordinary
items adjusted to:
Exclude Gallaher tobacco operations which will be accounted for
as a discontinued operation when the transaction is
consummated.
Exclude 1995 distilled spirits restructuring charge and all
amounts relating to businesses sold.
Include benefit of net proceeds resulting from the payment
Gallaher will make to Fortune Brands at the time of the
spin-off as if the proceeds were received on January 1, 1995.
Assumes the net proceeds were used for a possible 10 million
share repurchase of Fortune Brands stock and the repayment of
debt on January 1, 1995.
(6) On March 5, 1996, the Company redeemed its $150 million 7-5/8%
Eurodollar Convertible Debentures, Due 2001 at a redemption price of
103.8125% of the principal amount plus accrued interest. On March 1,
1996, the Company redeemed its $150 million 9-1/8% Debentures, Due 2016,
at a redemption price of 104.4375% of the principal amount plus interest.
In connection with the redemptions, the Company recorded an extraordinary
items charge of $10.3 million ($15.8 million pre-tax), or six cents per
common share, and reduced the number of fully diluted shares outstanding
by 2.8 million.
AMERICAN BRANDS, INC.
(in millions)
NOTES (CONCLUDED):
On April 11, 1995, holders of $199.5 million of the $200 million 5-3/4%
Eurodollar Convertible Debentures, Due 2005, exercised their right to
"put" their Debentures at a price of 114.74% plus accrued interest. This
resulted in a total payment by the Company of $240.4 million, including
premium and accrued interest. In connection with this exercise, the
Company recorded an extraordinary item charge of $2.7 million ($4.1
million pre-tax), or one cent per common share, and reduced the number of
fully diluted shares outstanding by 5.1 million.
(7) 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)
December 31, December 31,
1996 1995
Assets (Unaudited)
Current Assets
Cash and Cash Equivalents $119.7 $139.9
Accounts Receivable, Net 1,125.0 984.4
Inventories 2,256.2 1,840.2
Other Current Assets 372.5 199.5
-------- --------
Total Current Assets 3,873.4 3,164.0
Property, Plant and Equipment, Net 1,230.9 1,137.3
Intangibles Resulting From
Business Acquisitions, Net 3,936.4 3,305.2
Other Assets 463.5 414.7
-------- --------
Total Assets $9,504.2 $8,021.2
======== ========
Liabilities and Stockholders' Equity
Current Liabilities
Short-Term Debt $1,405.8 $297.4
Current Portion - Long-Term Debt 53.9 413.4
Other Current Liabilities 2,235.6 1,700.5
-------- --------
Total Current Liabilities 3,695.3 2,411.3
Long-Term Debt 1,598.3 1,154.6
Other Long-Term Liabilities 526.4 578.1
-------- --------
Total Liabilities 5,820.0 4,144.0
Stockholders' Equity 3,684.2 3,877.2
-------- --------
Total Liabilities and Stockholders' Equity $9,504.2 $8,021.2
======== ========
