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
October 23 1998 (October 23, 1998)
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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 October 23, 1998 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 October 23, 1998.
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
Senior Vice President and
Chief Accounting Officer
Date: October 23, 1998
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EXHIBIT INDEX
Sequentially
Exhibit Numbered Page
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20. Press release of Registrant dated
October 23, 1998.
Exhibit 20
[GRAPHIC OMITTED]
NEWS RELEASE
NEWS RELEASE
Fortune Brands, Inc., 1700 East Putnam Avenue, Old Greenwich, CT 06870
NEWS RELEASE
Contact:
Media Relations Investor Relations
Clarkson Hine Anthony J. Diaz
(203) 698-5148 (203) 698-5553
FORTUNE BRANDS ANNOUNCES ANOTHER EXCELLENT QUARTER;
DILUTED E.P.S. UP 10% PRO FORMA;
SHARE REPURCHASES ACCELERATED;
OUTLOOK IS STRONG
Old Greenwich, CT, October 23, 1998 -- Fortune Brands, Inc. (NYSE-FO), the
consumer products company, today announced strong third quarter and nine month
results.
For the quarter, sales were up 10% to $1.3 billion, and diluted
earnings per share reached 32 cents, also up 10% (compared with last year's pro
forma). Cash earnings of 47 cents per share (after adding back 15 cents of
goodwill amortization) were 47% higher than reported E.P.S. For the nine months,
sales rose 9% to $3.8 billion, and diluted E.P.S. reached $1.12, up 13%
(compared with last year's pro forma). Cash E.P.S. for the nine months of $1.56
(after adding back 44 cents of goodwill amortization) was 39% higher than
reported E.P.S.
"Fortune Brands achieved double-digit earnings growth once again in the
third quarter and for the nine months, backed by record contribution from every
segment in both periods," noted Chairman and Chief Executive Officer Thomas C.
Hays. "This strong growth in a turbulent global economic environment reflects
the breadth of our powerful consumer brand portfolio and a strategy, including
add-on acquisitions, that is delivering results. To our benefit, we have very
limited exposure to the world's most troubled markets.
"Even though about 30% of our sales and 20% of profits are generated
outside the United States, we derive less than 4% of sales from Asia, Russia and
South America. That compares with more than 10% from the U.K., where the
currency has been strong. Consequently, foreign currency translation has had a
very modest adverse impact on earnings - a penny a share in the quarter, and 3
cents for the nine months. The modest adverse impact principally reflects
substantial declines in the Australian and Canadian dollars, partially offset by
a slight increase in the British pound.
"Our underlying results are even stronger than reported results," Hays
added. "Excluding the impact of currency translation, sales in the quarter were
up 11%, contribution was up 8% and E.P.S. was up 14%. For the nine months
(excluding the impact of currency translation), sales and contribution were each
up 10%, and E.P.S. was up 16%.
::Outlook::
"Looking to the future, we're encouraged that our sharp focus on
revenue growth, cost initiatives and asset management is delivering strong
growth. Last month, we announced a 5% increase in the dividend, the second
increase since Fortune Brands began trading on the New York Stock Exchange, just
17 months ago. We also realigned our management team to provide for an orderly
transition and succession.
"The recent market decline has created an opportunity for us to
purchase our shares at very attractive prices, so we have accelerated share
repurchases. We have purchased 3 million shares so far this year (including 2
million since the end of the second quarter), and, depending on market
conditions, we expect to continue making opportunistic purchases.
"Assuming no further deterioration in the economic and business
environment, we expect to achieve full-year 1998 E.P.S. growth approximating
13%, with another double-digit gain in the fourth quarter.
"Longer-term, we have strong confidence based on the strength and
breadth of our operations and the relatively non-cyclical nature of our
business. Our operations are largely focused in the U.S. and Western European
markets, which have to date been only modestly affected by the troubled
economies in Asia, Russia and South America. In this environment, the outlook
for Fortune Brands is very positive."
Brand Highlights
:::Home and Office Products Brands:::
Home and office products sales and contribution were up 17% and 12%,
respectively, in the quarter, both to record levels. A major home and office
cost initiative, the expansion of manufacturing operations in Nogales, Mexico,
is proceeding on schedule. Two new buildings producing a broad array of office
and padlock products at substantially lower cost are scheduled for occupancy
prior to year-end.
--- Office Products ---
Sales from the office products brands rose 9% in the quarter, and
contribution was up 15%, both to records. The gains reflect the benefit of
recent acquisitions and volume gains, driven by new products, somewhat offset by
continued pricing pressures from a consolidating customer base as well as by
adverse currency translation. Our ACCO World operation is the global leader in
office supplies.
ACCO has continued to gain market share in the U.S., with the fastest
growth being generated by large, global customers. Correspondingly, ACCO now
operates with a global team structure, shifting key personnel as needed from
market to market.
Margins improved in the quarter and year-to-date, benefiting from
manufacturing efficiencies and other cost and productivity improvements. A new
west coast vinyl and corrugated manufacturing and distribution facility is now
operational in California, the integration of manufacturing and distribution in
Europe for Nobo presentation products (acquired last year) is proceeding well,
and two Australian operations are being merged. With continued focus on asset
management, substantial improvement in working capital efficiency and return on
net operating assets was achieved.
We expect strong results from office products again in the fourth
quarter, with double-digit sales and contribution growth for the full year.
- ---Home Products ---
Home products had another excellent quarter, with sales and
contribution up 23% and 10%, respectively, both to records.
Sales at Moen, the number 1 faucet brand in North America, were a
record, up over 19%, and contribution moved strongly ahead, benefiting from
significant sales increases to large customers, new products and last November's
acquisition of the Donner bathroom accessories brand. Moen achieved very strong
growth with home centers, reflecting increased distribution of new products,
including single-handle kitchen and new LifeShine tarnish-free brass finish
decorator bath faucets. Demand for the new PureTouch water-filtering system has
been very strong, and Moen has been adding capacity to meet the demand. Cost
reduction initiatives include continued consolidation of Donner operations and
phased implementation of a new SAP enterprise system. Working capital
efficiency is at a record level, while customer fill rates also improved to a
record.
The kitchen and bath cabinet brands are performing very well,
reflecting double-digit sales and contribution gains to records at Aristokraft
and the addition of Schrock, acquired in June. Schrock is achieving record sales
with home centers, with additional growth expected. Together, Schrock and
Aristokraft have a strong number 2 market position in the U.S.
Master Lock, the number one padlock in the world, achieved an 8%
increase in unit sales. New products introduced in 1998 accounted for 10% of
total volume, reflecting strong acceptance by the trade and consumers of the new
EX Series and a broad array of other new products. Master Lock has also achieved
double-digit increases in shelf space at major retailers. Contribution is
benefiting from cost reduction and restructuring initiatives. By year-end, about
40% of product demand will be satisfied by lower cost sources of supply.
We expect excellent growth again in the fourth quarter from the home
products brands, with double-digit sales and contribution gains for the full
year.
:::Golf Brands:::
The golf brands achieved record sales and contribution in the quarter
with modest increases, up 3% and 1%, respectively. These gains were achieved in
spite of very difficult conditions in the golf club market and reflect strong
gains for golf balls and Titleist titanium drivers.
Golf ball sales were up 10% in the quarter on a 7% worldwide top-grade
volume increase. North American unit sales were up 11%, offsetting lower sales
in Europe. Volume in Asia-Pacific was flat. New products are driving the strong
growth, notably the new Titleist Tour Distance and the sustained strength of the
Titleist Professional (+32% year-to-date). Titleist is strongly positioned as
the number 1 ball in golf. The Pinnacle brand is also performing very well, led
by a 37% year-to-date increase for the Pinnacle Equalizer and a double-digit
increase for the volume leader, Pinnacle Gold LS. During the quarter, the
Pinnacle Titanium Extreme was introduced as the longest Pinnacle golf ball ever
developed.
Golf club sales declined 2% in the quarter, with strong demand for the
Titleist brand mostly offsetting lower Cobra sales and margins. The overall golf
club market continues to be soft, with worldwide industry revenues off an
estimated 10-15%. Sales for the Cobra brand, with its broad market profile,
declined in line with the market. Cost reduction initiatives are underway to
bring expenses in line with the lower demand as Cobra and Titleist further
capitalize on opportunities for synergies while maintaining strong separate
brand identities.
New Cobra products include the King Cobra Baffler L.P. fairway wood and
Baffler utility wood. Cobra also just launched a line of golf balls, the new
Cobra Dista, in California and Arizona. The line includes three double-cover
balls and a two-piece ball that are matched to players' swing speeds.
Titleist clubs, with a focus on low handicap players, continued to
achieve strong growth, benefiting from highly successful new products. Unit
sales of Titleist drivers more than doubled, compared with last year's third
quarter. New Titleist club products introduced in the quarter include Titleist
DCI 981 irons with an increased progressive offset blade, Titleist DCI 981SL
irons for golfers with slower swing speeds seeking improved ball flight and
longer distance, and a series of seven Vokey design wedges, which have been
used in over 15 victories on the 1998 worldwide professional tours.
The FootJoy brand achieved a solid rebound in the quarter, with unit
sales of FootJoy golf shoes up 11%. This gain was driven by excellent acceptance
of an array of new footwear products. FootJoy is the number 1 golf shoe, with
nearly 50% of the U.S. market, and is the number 1 golf glove.
Overall for the golf brands, the fourth quarter is seasonally very
slow, generating over the past two years an average of less than 8% of full year
contribution. Off this small contribution base, we expect a decline for the
quarter but an increase for the full year.
:::Spirits and Wine Brands:::
For the spirits and wine brands, contribution moved modestly ahead to
records for both the quarter and nine months. Excluding the impact of foreign
currency translation, the underlying gains were significantly stronger, up 4%
and 9% for the quarter and year-to-date periods, respectively. The adverse
currency impact principally reflects lower average exchange rates for the
Australian dollar in the quarter and year-to-date periods of 19% and 17%,
respectively, versus the year ago periods.
The solid underlying gains reflect excellent results in the U.S. market
and the benefit of last year's restructuring actions. In the U.S., sales
increased 4% in the quarter and 5% for the nine months, reflecting strong
performance by DeKuyper cordials and Jim Beam Bourbon. U.S. contribution was
up 8% for the quarter and 12% for the nine months.
U.S. depletions (sales by distributors to retailers) for the very
profitable DeKuyper cordial line were up 8% in the quarter, driven by continued
powerful growth by DeKuyper Sour Apple Pucker. Shipments for Sour Apple Pucker
reached a record in September and exceeded 100,000 cases in the quarter. The
flagship Jim Beam Bourbon achieved a 3% increase in depletions in the quarter,
driven by increased on-premise acceptance and successful promotions. For the
super premium spirits, including Small Batch Bourbons, Dalmore Scotch, Tangle
Ridge Canadian and El Tesoro and Chinaco tequillas, depletions were up 31% for
the nine months.
Even though the Asian and Russian economic downturns have affected
international growth, international contribution excluding currency translation
was up 4% for the nine months and flat for the quarter.
As expected, the Geyser Peak wine business, acquired late in August,
has not yet had a material impact on results. Geyser Peak is a leader in a
variety of fast-growing California premium wine categories. Late in the quarter,
distribution of Barwang Australian wines, imported under a joint venture
agreement, was kicked off in six U.S. markets and was well received by the
trade. We expect all these wines to benefit significantly from Beam's powerful
distribution.
We expect the spirits and wine brands to complete an excellent
contribution growth year in 1998 with a slight increase in the fourth quarter,
despite the ongoing adverse impact of foreign currency translation. With strong
cash flow, these brands generate significantly faster increases in pre-tax
income.
* * * *
Fortune Brands, Inc. is a consumer products company with headquarters in Old
Greenwich, Connecticut. Its operating companies have premier brands and leading
market positions in home and office products, golf equipment and distilled
spirits. Home and office brands include Moen faucets, Master locks and
Aristokraft and Schrock cabinets sold by units of MasterBrand Industries and
Day-Timer and Swingline sold by units of ACCO World Corporation. Acushnet
Company's golf brands include Titleist, Cobra and FootJoy. Major spirit and wine
brands sold by units of Jim Beam Brands Worldwide, Inc. include Jim Beam and
Knob Creek Bourbon, DeKuyper cordials, Whyte & Mackay Scotch and Geyser Peak and
Canyon Road wines.
* * *
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. Readers are cautioned that these
forward-looking statements speak only as of the date hereof. 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, changes in golf
equipment regulatory standards, the impact of weather, particularly on the home
products and golf brand groups, expenses and disruptions related to shifts in
manufacturing to different locations and sources, delays in the integration of
recent acquisitions, as well as other risks and uncertainties detailed from time
to time in the Company's Securities and Exchange Commission filings.
# # #
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FORTUNE BRANDS, INC.
CONSOLIDATED STATEMENT OF INCOME
(In millions, except per share amounts)
(Unaudited)
Three Months
Ended September 30,
1998 1997 % Change
Net Sales $1,300.3 $1,185.5 9.7
Cost of products sold 681.0 612.3 11.2
Excise taxes on distilled 107.5 100.9 6.5
spirits
Advertising, selling, general
and administrative expenses 346.3 318.5 8.7
Amortization of intangibles 27.3 26.0 5.0
Restructuring and other
nonrecurring charges - 38.1 -
Interest and related expenses 26.2 24.0 9.2
Other (income) expenses, net 2.6 4.7 (44.7)
Income From Continuing Operations
Before Income Taxes 109.4 61.0 79.3
Income taxes 52.6 33.0 59.4
Income From Continuing Operations 56.8 28.0 102.9
Income from discontinued operations - - -
Extraordinary items - - -
Net Income $56.8 $28.0 102.9
Earnings Per Common Share
Basic
Income from operations $0.33 $0.29 13.8
Restructuring and other
nonrecurring charges - (0.13) -
Income from continuing operations 0.33 0.16 106.3
Income from discontinued - - -
operations
Extraordinary items - - -
Net income $0.33 $0.16 106.3
Diluted
Income from operations $0.32 $0.28 14.3
Restructuring and other
nonrecurring charges - (0.12) -
Income from continuing operations 0.32 0.16 100.0
Income from discontinued - - -
operations
Extraordinary items - - -
Net income $0.32 $0.16 100.0
Avg. Common Shares Outstanding
Basic 172.3 171.3 0.6
Diluted 175.9 175.7 0.1
FORTUNE BRANDS, INC.
CONSOLIDATED STATEMENT OF INCOME
(In millions, except per share amounts)
(Unaudited)
Nine Months
Ended September 30,
1998 1997 % Change
Net Sales $3,830.0 $3,526.1 8.6
Cost of products sold 1,967.7 1,816.0 8.4
Excise taxes on distilled 307.0 286.7 7.1
spirits
Advertising, selling, general
and administrative expenses 1,047.6 959.9 9.1
Amortization of intangibles 80.5 77.9 3.3
Restructuring and other
nonrecurring charges - 127.4 -
Interest and related expenses 76.6 92.7 (17.4)
Other (income) expenses, net 3.7 7.5 (50.7)
Income From Continuing Operations
Before Income Taxes 346.9 158.0 119.6
Income taxes 149.2 90.7 64.5
Income From Continuing Operations 197.7 67.3 193.8
Income from discontinued operations - 65.1 -
Extraordinary items (30.5) - -
Net Income $167.2 $132.4 26.3
Earnings Per Common Share
Basic
Income from operations $1.14 $0.90 26.7
Restructuring and other
nonrecurring charges - (0.51) -
Income from continuing operations 1.14 0.39 192.3
Income from discontinued - 0.38 -
operations
Extraordinary items (0.18) - -
Net income $0.96 $0.77 24.7
Diluted
Income from operations $1.12 $0.88 27.3
Restructuring and other
nonrecurring charges - (0.50) -
Income from continuing operations 1.12 0.38 194.7
Income from discontinued - 0.38 -
operations
Extraordinary items (0.18) - -
Net income $0.94 $0.76 23.7
Avg. Common Shares Outstanding
Basic 172.5 171.6 0.5
Diluted 176.8 175.2 0.9
(NOTES FOLLOW)
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FORTUNE BRANDS, INC.
(In millions, except per share amounts)
NOTES:
(1) PRO FORMA FINANCIAL INFORMATION
On May 30, 1997, Gallaher Group Plc ("Gallaher"), the Company's
international tobacco subsidiary, was spun off. 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 approximated $1.25
billion, after taxes. The Company used the proceeds to pay down debt.
The following sets forth income from operations (income from continuing
operations excluding restructuring and other nonrecurring charges) for
the three-month and nine-month periods ended September 30, 1997. The
nine months is also 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,
1997, while the three months is adjusted to reflect only the purchase
of the 2.5 million Common shares as of January 1, 1997.
Three Months Ended September 30,
1998 1997 % Change
Pro Forma
Income from Operations $56.8 $51.0 11.4
Earnings Per Common Share-
Basic $.33 $.29 13.8
Diluted .32 .29 10.3
Nine Months Ended September 30,
1998 1997 % Change
Pro Forma
Income from Operations $197.7 $171.1 15.5
Earnings Per Common Share-
Basic $1.14 $1.00 14.0
Diluted 1.12 .99 13.1
(2) AMORTIZATION OF INTANGIBLES
Amortization of Intangibles Per Common Share is as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
Basic $.15 $.15 $.45 $.44
Diluted .15 .15 .44 .43
- 2 -
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FORTUNE BRANDS, INC.
(In millions)
NOTES (CONTINUED):
(3) INFORMATION ON BUSINESS SEGMENTS
NET SALES:
Three Months Ended September 30,
1998 1997 % Change
Home Products $433.8 $ 352.4 23.1
Office Products 346.3 316.4 9.5
Home and Office Products 780.1 668.8 16.6
Golf Products 214.7 208.7 2.9
Spirits and Wine 305.5 308.0 (0.8)
Total $1,300.3 $1,185.5 9.7
Nine Months Ended September 30,
1998 1997 % Change
Home Products $1,143.3 $1,016.6 12.5
Office Products 986.5 891.9 10.6
Home and Office Products 2,129.8 1,908.5 11.6
Golf Products 820.1 750.0 9.3
Spirits and Wine 880.1 867.6 1.4
Total $3,830.0 $3,526.1 8.6
OPERATING COMPANY CONTRIBUTION:
Three Months Ended September 30,
1998 1997 % Change
Home Products $ 61.1 $ 55.3 10.5
Office Products 30.1 26.1 15.3
Home and Office Products 91.2 81.4 12.0
Golf Products 27.1 26.7 1.5
Spirits and Wine 65.2 64.8 0.6
Total 183.5 $172.9 6.1
Nine Months Ended September 30,
1998 1997 % Change
Home Products $172.2 $158.9 8.4
Office Products 79.0 69.9 13.0
Home and Office Products 251.2 228.8 9.8
Golf Products 137.6 126.3 8.9
Spirits and Wine 172.0 164.8 4.4
Total $560.8 $519.9 7.9
Operating company contribution is operating income before restructuring
and other nonrecurring charges and amortization of intangibles.
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FORTUNE BRANDS, INC.
(In millions, except per share amounts)
NOTES (CONTINUED):
(4) DISCONTINUED OPERATIONS
In connection with the spin-off of Gallaher on May 30, 1997, the
financial statements were reclassified to identify tobacco operations
as discontinued operations for all periods. Summarized results of
operations for the nine months ended September 30, 1997, 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:
Nine Months
Ended
September 30, 1997*
Net Sales $2,575.0
Income Before Taxes $186.4
Spin-Off Expenses (67.1)
Income Taxes (54.2)
Income (Loss) From
Discontinued Operations $ 65.1
* Includes results through May 30, 1997.
(5) RESTRUCTURING AND OTHER NONRECURRING CHARGES
During the three-month and nine-month periods ended September 30, 1997,
the Company recorded pre-tax restructuring and other nonrecurring
charges of $38.1 and $127.4, respectively, as follows:
Three Months Ended
September 30, 1997
Nonrecurring
Cost of Sales
Restructuring Charges Total
Home Products $ 6.8 $ - $ 6.8
Golf Products 11.6 19.7 31.3
Total $18.4 $19.7 $38.1
Income Tax Benefit 15.1
Net Charge $23.0
Charge Per Common Share
Basic $0.13
Diluted $0.12
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FORTUNE BRANDS, INC.
(In millions, except per share amounts)
NOTES (CONTINUED):
(5) RESTRUCTURING AND OTHER NONRECURRING CHARGES (CONCLUDED)
Nine Months Ended
September 30, 1997
Nonrecurring
Cost of Sales
Restructuring Charges Total
Home Products $15.9 $ 8.3 $ 24.2
Office Products 23.5 - 23.5
Home and Office Products 39.4 8.3 47.7
Golf Products 11.6 19.7 31.3
Spirits and Wine 23.2 25.2 48.4
Total $74.2 $53.2 $127.4
Income Tax Benefit 39.0
Net Charge $88.4
Charge per Common Share
Basic $0.51
Diluted $0.50
Home products include charges related to the disposition of certain
product lines and the rationalization of operations.
Office products include charges related to the rationalization of
operations, the discontinuance of certain product lines and lease
cancellation costs, partly offset by a $12.6 pre-tax gain on the sale
of nonstrategic businesses.
Spirits and wine include charges related to a change in estimate for
bulk whiskey valuations which resulted from the integration of the
worldwide distilled spirits business, international distribution and
lease agreements and the discontinuance of certain product lines.
Golf products include charges related to the discontinuance of certain
product lines and the rationalization of operations.
The rationalization of operations referred to above includes the
closure of certain manufacturing facilities, the consolidation of
certain selling facilities and the sale or disposal of certain
facilities.
- 5 -
<PAGE>
FORTUNE BRANDS, INC.
(In millions)
NOTES (CONTINUED):
(6) EXTRAORDINARY ITEMS
During the six months ended June 30, 1998, the Company purchased the
following principal amounts of its outstanding debt: $31.4 of 7-1/2%
Notes, Due 1999, $50.4 of 8-1/2% Notes, Due 2003, $10.5 of 9% Notes,
Due 1999 and $32.7 of 8-5/8% Debentures, Due 2021 and redeemed the
outstanding $50.1 of 12-1/2% Sterling Loan Stock, Due 2009. The
extinguishment of debt resulted in a charge of $30.5 ($46.9 pre-tax),
or 18 cents per Common share.
(7) PENDING LITIGATION
Tobacco Litigation and Indemnification
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
("the Indemnitors") agreed to indemnify the Company against claims
including legal expenses arising from smoking and health and fire safe
cigarette matters relating to the tobacco business of The American
Tobacco Company.
The Company is a defendant in numerous actions based upon allegations
that human ailments have resulted from tobacco use. Management believes
that there are meritorious defenses to the pending actions and these
actions are being vigorously contested. However, it is not possible to
predict the outcome of the pending litigation, and it is possible that
some of these actions could be decided unfavorably. Management is
unable to make a meaningful estimate of the amount or range of loss
that could result from an unfavorable outcome of the pending
litigation. Management believes that the pending actions will not have
a material adverse effect upon the results of operations, cash flows or
financial condition of the Company as long as the Indemnitors continue
to fulfill their obligations to indemnify the Company under the
aforementioned indemnification agreement.
- 6 -
<PAGE>
FORTUNE BRANDS, INC.
(In millions)
NOTES (CONCLUDED):
(7) PENDING LITIGATION (CONCLUDED)
Other Litigation
In addition to the lawsuits described above, the Company and its
subsidiaries are defendants in lawsuits associated with their business
and operations. It is not possible to predict the outcome of the
pending actions, but management believes that there are meritorious
defenses to these actions and that these actions will not have a
material adverse effect upon the results of operations, cash flows or
financial condition of the Company. These actions are being vigorously
contested.
-7-
<PAGE>
FORTUNE BRANDS, INC.
CONDENSED CONSOLIDATED
BALANCE SHEET
(In millions)
September 30, December 31,
1998 1997
(Unaudited)
Assets
Current assets
Cash and cash equivalents $74.2 $54.2
Accounts receivable, net 879.8 862.0
Inventories 1,055.2 955.2
Other current assets 239.9 224.2
--------- ---------
Total current assets 2,249.1 2,095.6
Property, plant and equipment, net 1,081.5 980.9
Intangibles resulting from
business acquisitions, net 3,796.2 3,674.1
Other assets 225.7 191.9
--------- ---------
Total assets $7,352.5 $6,942.5
========= =========
Liabilities and Stockholders' Equity
Current liabilities
Short-term debt $363.4 $228.4
Current portion of long-term debt 184.3 176.2
Other current liabilities 1,381.9 1,363.9
--------- ---------
Total current liabilities 1,929.6 1,768.5
Long-term debt 975.5 739.1
Other long-term liabilities 422.4 417.8
--------- ---------
Total liabilities 3,327.5 2,925.4
Stockholders' equity 4,025.0 4,017.1
--------- ---------
Total liabilities and
stockholders' equity $7,352.5 $6,942.5
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