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 23, 1998 (January 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 January 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 January 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: January 23, 1998
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EXHIBIT INDEX
Sequentially
Exhibit Numbered Page
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20. Press release of Registrant dated
January 23, 1998.
EXHIBIT 20
NEWS RELEASE
NEWS RELEASE
Fortune Brands, Inc., 1700 East Putnam Avenue, Old Greenwich, CT 06870
NEWS RELEASE
Media Relations: Investor Relations:
Roger W. W. Baker Daniel A. Conforti
(203)698-5148 (203)698-5132
FORTUNE BRANDS ANNOUNCES STRONG RESULTS AND OUTLOOK;
FOURTH QUARTER PRO FORMA BASIC E.P.S. UP 19%;
FULL YEAR UP 16%;
EXPECTS EXCELLENT YEAR IN 1998
Old Greenwich, CT, January 23, 1998 -- Fortune Brands, Inc. (NYSE-
FO), the international consumer products company, today announced
strong results for the 1997 fourth quarter and full year and
projected strong growth again in 1998.
The Company reported a 19% increase in pro forma basic
earnings per Common share to 51 cents for the quarter ended
December 31, 1997, versus 43 cents a year earlier. Diluted
E.P.S. rose 17% to 49 cents. Cash earnings per share (pro forma
E.P.S. plus goodwill amortization) were substantially higher at
66 cents (63 cents diluted).
Pro forma E.P.S. excludes restructuring and other
nonrecurring charges of $113 million ($171 million pre-tax) for
the quarter and $201 million ($298 million pre-tax) for the year.
Pro forma E.P.S. also reflects the net cash payment Gallaher made
to the Company in connection with the spin-off of that company,
and the assumption that these proceeds were used to repay debt
and purchase shares at the beginning of 1996.
For the year, pro forma basic earnings per share were $1.51,
up 16% from $1.30 in 1996. Pro forma diluted earnings per share
rose 16% to $1.48 from $1.28 in 1996. Cash earnings, including
59 cents (57 cents diluted) of goodwill amortization, were $2.10
per share ($2.05 cents diluted).
Consolidated net sales were up 2% for the quarter. For the
year, sales were up 3%, but underlying sales increased 5%
excluding acquisitions, divestitures, the impact of currency
translation, excise taxes and an extra month of Whyte & Mackay
operations in 1996. Comparable operating company contribution
was up 8% for both the quarter and the year.
Net fluctuations in exchange rates for foreign currencies,
primarily a decline in the Australian dollar partially offset by
an increase in the British pound, adversely affected sales,
operating company contribution and pro forma E.P.S. by $14
million, $3 million and 1 cent, respectively, in the quarter, and
by $7 million, $5 million and 2 cents for the year.
"We had a great year," noted Chairman and Chief Executive
Officer Thomas C. Hays. "We launched Fortune Brands. We
achieved a 16% increase in pro forma E.P.S. We took major steps
to accelerate growth and reduce costs. We increased the
dividend. And we closed the year with strong momentum across all
brand groups.
"We're projecting another excellent year in 1998, starting
with a strong first quarter," Hays said. "We expect to achieve
E.P.S. growth in the range of 13-15% in 1998, assuming a
satisfactory economic and pricing environment and no further
erosion in exchange rates. That's also our long-term growth
target."
"Based on current foreign exchange rates," Hays added, "we
anticipate a modestly adverse translation impact in 1998 --
around 3 cents a share. That's less than 2% of consensus
estimates for the year.
"Our strong outlook is supported by powerful consumer
brands, tremendous financial strength and a tight strategic focus
on three 'essentials' -- revenue growth, cost initiatives and
asset management.
"We're driving revenue growth with market share gains and
strong new product and new market development. Cost initiatives
include substantial restructuring actions that we expect will
produce annualized savings exceeding $50 million, much of that
beginning in 1998. We expect to plow back much of the savings to
support the future growth of our brands, and the savings add to
our confidence that we can achieve our long-term growth goal.
Our asset management strategy features aggressive steps to reduce
working capital and to focus on high-return assets.
"Over the past three years, we've moved boldly and massively
to enhance returns and shareholder value. We've sold or spun off
businesses with over $10 billion in revenues -- tobacco, life
insurance, and tobacco-related retail and other low-return
operations. We've also invested nearly $2 billion to reduce
diluted shares by more than 45 million shares.
"The result is a focused consumer products company with
revenues approaching $5 billion, a strong growth profile,
powerful financial resources, and a price-earnings ratio that has
more than doubled. Nevertheless," Hays noted, "we believe that
on a cash earnings basis, our stock is still modestly priced
compared with other leading consumer products companies.
"We're also creating value by capitalizing on consolidation
opportunities with high return, add-on acquisitions. During
1997, we completed five add-on acquisitions that leverage our
strong category positions."
Brand Highlights
:::Home and Office Products Brands:::
Home and office products sales and contribution were up 5%
and 9%, respectively, in the quarter. We're making strong
progress in capitalizing on opportunities created by the
coordinated management of these brands and expect to achieve
significant cost savings in 1998 and beyond. Home and office
products represent nearly half of consolidated contribution and
have solid growth characteristics.
---Office Products ---
Sales from the office products brands were up 7% in the
quarter, benefiting from acquisitions, and contribution was up
13%. We're the global leader in office supplies.
Growth was particularly strong in North America. Sales of
Kensington computer accessories were up 16%, driven by aggressive
new product introductions. Solid double-digit sales gains were
achieved in local currencies in Canada and Mexico. The Day-Timer
brand achieved excellent profit growth in the reseller channel,
expanding from its traditional mail-order base.
Contribution from Europe, both from the U.K. and the
Continent, was up substantially, even though trading conditions
on the Continent remain challenging. In Australia, good gains
were achieved in local currency.
We're capitalizing on our leading position by acquiring
brands that can benefit from our powerful distribution
capability. Three add-on acquisitions completed over the past
year strengthen our position in fast-growing product categories,
and we expect these brands to enhance growth and returns in 1998
and beyond. We also profitably divested two nonstrategic office
products businesses in 1997.
Major actions to reduce costs are underway, including the
move of labor-intensive operations to Mexico, the amalgamation of
two operations in Australia, and a major facilities
rationalization in Europe. These steps are strategically
essential in the face of continuing margin pressure created by
ongoing customer consolidation. Reflecting sharp focus on
working capital and capital expenditures, return on net operating
assets continued to increase.
We expect another double-digit contribution growth year in
1998 from the office products brands.
---Home Products ---
Contribution from the home products brands increased 5% for
the quarter, backed by record sales for Moen, Aristokraft and
Waterloo.
Moen, the number 1 faucet brand in North America, is
benefiting from major new 1997 product introductions, including a
new line of kitchen faucets and the new, non-tarnish LifeShine
finish that has just been enhanced with titanium for even greater
durability. This month, Moen launched the innovative new
PureTouch water-filtering system, which offers great tasting
filtered water at the touch of a button. The PureTouch uniquely
combines a filter and faucet in a stylish design. Moen's
patented Replaceable MicroTech 5000 Filter Cartridge, developed
by Culligan, reduces chlorine, lead and potentially harmful
microorganisms but keeps beneficial fluoride intact. Moen's
contribution was a record for the year.
We completed the acquisition of Donner, a leading bathroom
accessories brand, in November. With consumers increasingly
buying matching faucets and bathroom accessories, the combination
of Moen and Donner gives us the capability to introduce
complementary lines attractive to consumers. The acquisition
also strengthens our international market position and enhances
our international sourcing capabilities.
Aristokraft, which is number 2 in cabinets, posted record
sales and contribution for the quarter and year. The gains
reflect higher unit sales and an ongoing, aggressive cost
reduction program. Waterloo, the world leader in tool storage,
achieved solid growth, benefiting from efficiencies at a new
plant in Muskogee, Oklahoma.
Although results for Master Lock, the number 1 padlock in
the world, continued to reflect the impact of price reductions
taken early in 1997, unit sales were up 12% in the quarter. This
increase reflects particularly solid gains at retail. Master
Lock has launched a major range of new padlocks featuring
attractive new colors, designs, and packaging targeted at
consumers with high-security needs, lock professionals, and the
growing sports and female markets. Late in the year, agreement
was reached to dispose of the nonstrategic door hardware
operation. We're pleased with the substantial progress achieved
by Master Lock in 1997, including the new product introductions
and increased outsourcing.
Overall, with continued sharp focus on working capital
management, we generated strong cash flow from the home products
brands. Our long-term goal for these brands is high-single-digit
contribution growth, and, excluding Master Lock, these brands
posted a 9% increase in 1997. For 1998, we expect higher
contribution at Master Lock and an overall high single-digit
increase from the home products brands.
:::Golf Brands:::
The golf brands continued to achieve strong growth, with
double-digit sales and contribution gains to records for the
quarter and year led by a 17% annual sales increase for the
Titleist brand. We are the worldwide leader in golf equipment.
We sold a record 259 million golf balls in 1997, up 12%.
Gains for Titleist, the number 1 ball in golf, were driven by
sustained strength of the Titleist Professional, Titleist HP2
Tour and HP2 Distance golf balls and the introduction of the new
Titleist Professional and Titleist Tour Distance in September.
The Titleist Professional, used by 1997 majors winners Tiger
Woods, Ernie Els and Davis Love III, finished the year with a 46%
unit sales increase. Titleist completed 1997 number 1 in
worldwide wins, number 1 in worldwide players, and number 1 in
money won. Titleist was played, worldwide, by more than five
times as many tour players - and won more than five times as many
events - as its nearest competitor. Titleist players finished 1-
2-3 on the 1997 PGA Tour Money List. The Pinnacle brand also had
an outstanding year, with a 22% unit sales increase, led by
Pinnacle Gold and Pinnacle Equalizer.
Titleist golf clubs generated surging consumer demand.
Sales were up 31% for the year on a 17% unit sales increase.
This sensational growth was driven by strong increases in all
major markets for Titleist DCI irons, the Scotty Cameron by
Titleist putter line and the new Titleist Titanium drivers.
Titleist DCI's were the number 1 played iron for the fifth
consecutive year at the PGA Club Professional Championships.
Titleist was the number 1 putter on the PGA Tour in players and
wins. And the new Titleist Titanium drivers, introduced in the
third quarter, have already won two major championships and are
now played by Tiger Woods.
The Cobra brand achieved a turnaround in 1997 with higher
sales, leading market positions and an array of major new
products. Every product sold today has been introduced or
substantially upgraded since August 1996. Cobra is the number 1
offset wood and has a leading position in senior- and women-
positioned irons and woods. The King Cobra Oversize Deep Face
driver was used by the winner of the Masters and 7 other PGA Tour
events in 1997. Altogether, Cobra was played by the winners in
38 events worldwide during 1997, including Hale Irwin, Steve
Jones and Greg Norman, who ended the 1997 season as the number 1
ranked player in the world. This month, a new, enhanced version
of the King Cobra II irons was introduced, with performance-
enhancing features including an ultra-light shaft and optimized
club head weighting. An enhanced line of King Cobra Ti and King
Cobra Ti Offset woods featuring ultra-light shafts was introduced
during the fourth quarter, and an array of significant new Cobra
products will be introduced in the first quarter of 1998.
FootJoy, the number 1 golf shoe and golf glove, posted an 8%
sales increase for the year, led by growth in the U.S. and
European markets. Solid golf shoe gains were achieved by
DryJoys, DryJoys Turfmasters and Soft-Joys Terrains. In golf
gloves, growth was fueled by the continued success of Sta-Sof and
Weather-Sof. FootJoy has entered into an exclusive licensing and
distribution agreement with Softspikes, the number 1 alternative
cleat, worldwide. The new DryJoys Turfmasters and Soft-Joys
Terrains are equipped with Softspikes XP extra performance cleats
and molded traction studs on the outsole to provide extra
traction.
We expect double-digit contribution growth from the golf
brands in 1998.
:::Distilled Spirits Brands:::
Contribution from the distilled spirits brands was up 3% in
the quarter and over 5% for the year to a record $257 million.
Sales declined 8% in the quarter, reflecting a decision to
significantly reduce trade inventories as well as reduced volume
of lower margin private label Scotch and the impact of foreign
currency translation. For the year, sales - excluding excise
taxes and an incremental month of sales in 1996 for the Whyte &
Mackay operations - declined slightly.
Brand sales for Jim Beam, which is the number 1 Bourbon in
the world, were up 3% for the year. DeKuyper, the number 1
cordial line in the U.S., was up 6%.
Distilled spirits contribution benefited from an improved
product mix, including excellent performance by high margin new
products. DeKuyper U.S. depletions (sales by distributors to
retailers) were up 11% in the quarter and 8% for the year, driven
by very strong consumer demand for the recently introduced Pucker
flavors. Total Pucker shipments reached 300,000 cases, including
200,000 cases of Sour Apple Pucker, introduced just this past
April.
The high margin Small Batch Bourbons continued to achieve
strong consumer acceptance. Shipments were up 44% for the year
(61% for the quarter). Knob Creek shipments increased 53% for
the year.
Contribution also benefited from effective cost controls and
price increases. The price increases favorably affected
contribution at the expense of some volume, principally on lower
margin products.
The international operations achieved excellent profit
growth in local currencies during 1997, with contribution at
constant exchange rates up 11% for the year. These solid gains
were led by a very strong performance in Asia-Pacific. In
Australia, contribution was a record; volume for Jim Beam -
Australia's top-selling distilled spirit -- was up 4%, and Jim
Beam premixed cocktails were up 14%, both to records. In the
Czech Republic, a significant emerging market, full year volume
reached 110,000 cases, more than double the volume just two years
earlier.
We expect modest contribution growth from the distilled
spirits brands in 1998. With strong cash flow, these 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 FootJoy. Major distilled spirits brands sold
by units of JBB Worldwide, Inc. include Jim Beam and Knob Creek
Bourbon, 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 December 31,
1997 1996 % Change
Net Sales $1,318.4 $1,296.8 1.7
Cost of products sold 635.3 632.3 0.5
Excise taxes on distilled 132.0 143.5 (8.0)
spirits
Advertising, selling, general
and administrative expenses 341.7 334.0 2.3
Amortization of intangibles 26.3 25.8 1.9
Restructuring and other
nonrecurring charges 170.8 - -
Interest and related expenses 24.0 42.9 (44.1)
Other (income) expenses, net 6.6 2.9 127.6
Income From Continuing Operations
Before Income Taxes (18.3) 115.4 (115.9)
Income taxes 7.5 52.7 (85.8)
Income From Continuing Operations (25.8) 62.7 (141.1)
Income from discontinued operations - 51.3 -
Extraordinary items (8.1) - -
Net Income ($33.9) $114.0 (129.7)
Earnings Per Common Share
Basic
Income from operations $0.51 $0.36 41.7
Restructuring and other
nonrecurring charges (0.66) - -
Income from continuing operations (0.15) 0.36 (141.7)
Income from discontinued - 0.31 -
operations
Extraordinary items (0.05) - -
Net income ($0.20) $0.67 (129.9)
Diluted
Income from operations $0.51 $0.36 41.7
Restructuring and other
nonrecurring charges (0.66) - -
Income from continuing operations (0.15) 0.36 (141.7)
Income from discontinued - 0.30 -
operations
Extraordinary items (0.05) - -
Net income ($0.20) $0.66 (130.3)
Avg. Common Shares Outstanding
Basic 171.7 170.3 0.8
Diluted 171.7 173.5 (1.0)
FORTUNE BRANDS, INC.
CONSOLIDATED STATEMENT OF INCOME
(In millions, except per share amounts)
(Unaudited)
Twelve Months Ended December 31,
1997(1) 1996 % Change
Net Sales $4,844.5 $4,717.7 2.7
Cost of products sold 2,451.3 2,401.1 2.1
Excise taxes on distilled 418.7 453.2 (7.6)
spirits
Advertising, selling, general
and administrative expenses 1,301.6 1,249.5 4.2
Amortization of intangibles 104.2 102.7 1.5
Restructuring and other
nonrecurring charges 298.2 - -
Interest and related expenses 116.7 165.5 (29.5)
Other (income) expenses, net 14.1 6.1 131.1
Income From Continuing Operations
Before Income Taxes 139.7 339.6 (58.9)
Income taxes 98.2 157.9 (37.8)
Income From Continuing Operations 41.5 181.7 (77.2)
Income from discontinued operations 65.1 315.1 (79.3)
Extraordinary items (8.1) (10.3) 21.4
Net Income $98.5 $486.5 (79.8)
Earnings Per Common Share
Basic
Income from operations $1.41 $1.04 35.6
Restructuring and other
nonrecurring charges (1.17) - -
Income from continuing operations 0.24 1.04 (76.9)
Income from discontinued 0.38 1.82 (79.1)
operations
Extraordinary items (0.05) (0.06) 16.7
Net income $0.57 $2.80 (79.6)
Diluted
Income from operations $1.39 $1.03 35.0
Restructuring and other
nonrecurring charges (1.16) - -
Income from continuing operations 0.23 1.03 (77.7)
Income from discontinued 0.38 1.79 (78.8)
operations
Extraordinary items (0.05) (0.06) 16.7
Net income $0.56 $2.76 (79.7)
Avg. Common Shares Outstanding
Basic 171.6 173.3 (1.0)
Diluted 173.3 176.1 (1.6)
FORTUNE BRANDS, INC.
(In millions, except per share amounts)
NOTES:
(1) All figures are subject to completion of audit.
(2) 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
approximated $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.
Three Months Ended December 31,
1997 1996 %Change
Income from Operations $86.7 $72.9 18.9
Earnings Per Common Share-
Basic $0.51 $0.43 18.6
Diluted 0.49 0.42 16.7
Twelve Months Ended December 31,
1997 1996 %Change
Income from Operations $257.8 $222.7 15.8
Earnings Per Common Share-
Basic $1.51 $1.30 16.2
Diluted 1.48 1.28 15.6
- 2 -
FORTUNE BRANDS, INC.
(In millions, except per share amounts)
NOTES (CONTINUED):
(2) PRO FORMA FINANCIAL INFORMATION (CONCLUDED)
Three Months Ended Twelve Months Ended
December 31, December 31,
1997 1996 1997 1996
Amortization of
Intangibles per
Common Share
Basic $0.15 $0.15 $0.59 $0.58
Diluted 0.14 0.15 0.57 0.57
The following shows the comparative effects of adopting FAS No. 128 -
"Earnings per Share" and refinement of the interest benefit relating to the
use of proceeds in 1997:
1997 1996
Reported Restated Reported %Change
BASIC
First Quarter $0.27 $0.27 $0.24 12.5
Second Quarter 0.45 0.44 0.38 15.8
Third Quarter 0.29 0.29 0.25 16.0
Nine Months $1.01 $1.00 $0.87 14.9
1997 1996
Reported Restated Reported %Change
DILUTED
First Quarter $0.27 $0.26 $0.24 8.3
Second Quarter 0.43 0.44 0.37 18.9
Third Quarter 0.29 0.29 0.25 16.0
Nine Months $0.99 $0.99 $0.86 15.1
- 3 -
FORTUNE BRANDS, INC.
(In millions)
NOTES (CONTINUED):
(3) INFORMATION ON BUSINESS SEGMENTS
NET SALES:
Three Months Ended December 31,
1997 1996 %Change
Home Products $ 377.4 $ 368.3 2.5
Office Products 402.3 375.4 7.2
Home and Office Products 779.7 743.7 4.8
Golf Products 161.6 142.3 13.6
Distilled Spirits 377.1 410.8 (8.2)
Total $1,318.4 $1,296.8 1.7
Twelve Months Ended December 31,
1997 1996 %Change
Home Products $1,394.0 $1,374.1 1.4
Office Products 1,294.2 1,228.7 5.3
Home and Office Products 2,688.2 2,602.8 3.3
Golf Products 911.6 811.4 12.3
Distilled Spirits 1,244.7 1,303.5 (4.5)
Total $4,844.5 $4,717.7 2.7
OPERATING COMPANY CONTRIBUTION:
Three Months Ended December 31,
1997 1996 %Change
Home Products $ 64.0 $ 61.1 4.7
Office Products 58.2 51.3 13.5
Home and Office Products 122.2 112.4 8.7
Golf Products 11.9 8.7 36.8
Distilled Spirits 92.4 89.5 3.2
Total $226.5 $210.6 7.5
Twelve Months Ended December 31,
1997 1996 %Change
Home Products $222.9 $214.1 4.1
Office Products 128.1 116.3 10.1
Home and Office Products 351.0 330.4 6.2
Golf Products 138.2 125.3 10.3
Distilled Spirits 257.2 244.1 5.4
Total $746.4 $699.8 6.7
Operating company contribution is operating income excluding restructuring,
other nonrecurring charges and amortization of intangibles.
- 4 -
FORTUNE BRANDS, INC.
(In millions)
NOTES (CONTINUED):
(4) 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 were reclassified at May 30, 1997, 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 Twelve Months Ended
Results Of Operations December 31, December 31,
1996 1997* 1996
Net Sales $2,138.5 $2,575.0 $6,861.6
Income Before Taxes $79.1 $186.4 $484.7
Spin-off Expenses - (67.1) -
Income Taxes (27.8) (54.2) (169.6)
Income From
Discontinued Opers. $51.3 $ 65.1 $315.1
* Reflects results through spin-off date, May 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.
- 5 -
FORTUNE BRANDS, INC.
(In millions, except per share amounts)
NOTES (CONTINUED):
(5) RESTRUCTURING AND OTHER NONRECURRING CHARGES
Three Months Ended
December 31, 1997
Nonrecurring
Cost of
Restructuring Sales Total
Charges
Home Products $ 63.6 $ 9.0 $ 72.6
Office Products 59.0 4.8 63.8
Home and Office Products 122.6 13.8 136.4
Golf Products 4.3 15.1 19.4
Distilled Spirits 7.9 7.1 15.0
Total $134.8 $36.0 170.8
Income Tax Benefit 58.2
Net Charge $112.6
Charge Per Common Share
Basic $0.66
Diluted $0.66
Twelve Months Ended
December 31, 1997
Nonrecurring
Cost of
Restructuring Sales Total
Charges
Home Products $ 79.5 $17.3 $ 96.8
Office Products 82.5 4.8 87.3
Home and Office Products 162.0 22.1 184.1
Golf Products 15.9 34.8 50.7
Distilled Spirits 31.2 32.2 63.4
Total $209.1 $89.1 298.2
Income Tax Benefit 97.2
Net Charge $201.0
Charge Per Common Share
Basic $1.17
Diluted $1.16
- 6 -
FORTUNE BRANDS, INC.
(In millions, except per share amounts)
NOTES (CONTINUED):
(5) RESTRUCTURING AND OTHER NONRECURRING CHARGES (CONCLUDED)
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 pre-tax gain on the sale of
nonstrategic businesses.
Golf Products include charges related to the discontinuance of certain
product lines and the rationalization of operations.
Distilled Spirits include charges resulting from the realignment and
harmonization of domestic and international operations and relates to the
standardization of bulk inventory valuations, costs related to
international distribution and lease agreements, discontinuance of certain
product lines and rationalization of operations.
(6) EXTRAORDINARY ITEMS
In the fourth quarter of 1997, the Company purchased the following
principal amounts of its outstanding debt: $42.7 of 8.5% Notes, Due 2003,
$26.7 of 9% Notes, Due 1999 and $26.4 of 8.625% Debentures, Due 2021. In
connection with the purchases, the Company recorded a charge of $8.1 ($12.4
pre-tax), or five cents per Common share.
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.
(7) EARNINGS PER SHARE
In the fourth quarter of 1997, the Company adopted Financial Accounting
Standards Board Statement No. 128 - "Earnings per Share". Accordingly, all
prior periods were restated. There is no change in basic earnings per
Common share. The change in diluted earnings per Common share for the nine
months ended September 30, 1997 and 1996, and twelve months ended December
31, 1996, is negligible.
- 7 -
FORTUNE BRANDS, INC.
(In millions)
NOTES (CONCLUDED):
(8) 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.
- 8 -
FORTUNE BRANDS, INC.
CONDENSED CONSOLIDATED
BALANCE SHEET
(In millions)
December 31, December 31,
1997 1996
(Unaudited) (Restated)
Assets
Current assets
Cash and cash equivalents $54.2 $34.9
Accounts receivable, net 862.0 892.4
Inventories 955.2 1,037.9
Net assets of discontinued operations - 683.3
Other current assets 224.2 193.6
--------- ---------
Total current assets 2,095.6 2,842.1
Property, plant and equipment, net 980.9 972.6
Intangibles resulting from
business acquisitions, net 3,674.1 3,730.7
Other assets 191.9 191.9
--------- ---------
Total assets $6,942.5 $7,737.3
========= =========
Liabilities and Stockholders' Equity
Current liabilities
Short-term debt $228.4 $728.3
Current portion of long-term debt 176.2 53.9
Other current liabilities 1,363.9 1,285.9
--------- ---------
Total current liabilities 1,768.5 2,068.1
Long-term debt 739.1 1,598.3
Other long-term liabilities 417.8 386.7
--------- ---------
Total liabilities 2,925.4 4,053.1
Stockholders' equity 4,017.1 3,684.2
--------- ---------
Total liabilities and
stockholders' equity $6,942.5 $7,737.3
========= =========
