UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period Commission file number 1-9076
ended June 30, 1998
FORTUNE BRANDS, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3295276
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1700 East Putnam Avenue, Old Greenwich, Connecticut 06870-0811
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 698-5000
------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes (X) No ( )
The number of shares outstanding of the registrant's Common stock, par value
$3.125 per share, at July 31, 1998 was 172,792,016 shares.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
- ------ --------------------
FORTUNE BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
---------------------------------------
(In millions)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 90.1 $ 54.2
Accounts receivable, net 938.4 862.0
Inventories
Bulk whiskey 344.8 338.1
Other raw materials, supplies and
work in process 274.7 258.7
Finished products 414.4 358.4
-------- --------
1,033.9 955.2
Other current assets 230.9 224.2
-------- --------
Total current assets 2,293.3 2,095.6
Property, plant and equipment, net 1,030.4 980.9
Intangibles resulting from
business acquisitions, net 3,749.6 3,674.1
Other assets 208.0 191.9
-------- --------
Total assets $7,281.3 $6,942.5
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
---------------------------------------
(In millions, except per share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities
Notes payable to banks $ 70.0 $ 36.8
Commercial paper 448.4 191.6
Accounts payable 240.9 254.6
Accrued taxes 430.1 475.2
Accrued expenses and other liabilities 601.2 634.1
Current portion of long-term debt 209.4 176.2
-------- --------
Total current liabilities 2,000.0 1,768.5
Long-term debt 782.3 739.1
Deferred income taxes 42.3 38.5
Postretirement and other liabilities 378.7 379.3
-------- --------
Total liabilities 3,203.3 2,925.4
-------- --------
Stockholders' equity
$2.67 Convertible Preferred stock -
redeemable at Company's option 10.8 11.3
Common stock, par value $3.125 per
share, 229.6 shares issued 717.4 717.4
Paid-in capital 145.7 151.1
Accumulated other comprehensive income 6.0 6.9
Retained earnings 5,167.1 5,129.7
Treasury stock, at cost (1,969.0) (1,999.3)
-------- --------
Total stockholders' equity 4,078.0 4,017.1
-------- --------
Total liabilities and
stockholders' equity $7,281.3 $6,942.5
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
for the Six Months Ended June 30, 1998 and 1997
-----------------------------------------------------
(In millions, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Net sales $2,529.7 $2,340.6
Cost of products sold 1,286.7 1,237.2
Excise taxes on distilled spirits 199.5 185.8
Advertising, selling, general and
administrative expenses 701.3 641.4
Amortization of intangibles 53.2 51.9
Restructuring charges - 55.8
Interest and related expenses 50.4 68.7
Other (income) expenses, net 1.1 2.8
-------- --------
Income from continuing operations
before income taxes 237.5 97.0
Income taxes 96.6 57.7
-------- --------
Income from continuing operations 140.9 39.3
Income from discontinued operations - 65.1
Extraordinary items (30.5) -
-------- --------
Net income $ 110.4 $ 104.4
======== ========
Earnings per Common share
Basic
Income from continuing operations $ .81 $.23
Income from discontinued operations - .38
Extraordinary items (.18) -
----- ----
Net income $ .63 $.61
===== ====
Diluted
Income from continuing operations $ .80 $.22
Income from discontinued operations - .38
Extraordinary items (.18) -
----- ----
Net income $ .62 $.60
===== ====
Dividends paid per Common share $.42 $1.00
==== =====
Average number of Common shares outstanding
Basic 172.6 171.7
===== =====
Diluted 177.2 173.1
===== =====
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
for the Three Months Ended June 30, 1998 and 1997
-----------------------------------------------------
(In millions, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Net sales $1,326.2 $1,235.5
Cost of products sold 668.0 662.7
Excise taxes on distilled spirits 112.4 103.8
Advertising, selling, general and
administrative expenses 354.8 328.4
Amortization of intangibles 26.9 25.9
Restructuring charges - 55.8
Interest and related expenses 25.3 30.8
Other (income) expenses, net (1.0) 0.7
-------- --------
Income from continuing operations
before income taxes 139.8 27.4
Income taxes 51.9 23.1
-------- --------
Income from continuing operations 87.9 4.3
Loss from discontinued operations - (36.5)
Extraordinary items (22.1) -
-------- --------
Net income (loss) $ 65.8 $ (32.2)
======== ========
Earnings per Common share
Basic
Income from continuing operations $ .50 $ .03
Loss from discontinued operations - (.22)
Extraordinary items (.13) -
----- -----
Net income (loss) $ .37 $(.19)
===== =====
Diluted
Income from continuing operations $ .50 $ .02
Loss from discontinued operations - (.20)
Extraordinary items (.13) -
----- -----
Net income (loss) $ .37 $(.18)
===== =====
Dividends paid per Common share $.21 $.50
==== ====
Average number of Common shares outstanding
Basic 172.9 172.0
===== =====
Diluted 177.3 173.4
===== =====
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
for the Six Months Ended June 30, 1998 and 1997
-----------------------------------------------------
(In millions)
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Operating activities
Net income $ 110.4 $ 104.4
Restructuring charges - 55.8
Income from discontinued operations - (65.1)
Extraordinary items 30.5 -
Depreciation and amortization 124.2 123.2
(Increase) decrease in accounts receivable (58.8) 16.9
Increase in inventories (56.9) (9.3)
Decrease in accounts payable, accrued
expenses and other liabilities (83.9) (69.4)
Decrease in accrued taxes (18.7) (20.9)
Other operating activities, net (15.9) (25.4)
------ --------
Net cash provided from continuing
operating activities 30.9 110.2
------ --------
Investing activities
Additions to property, plant and equipment (110.3) (74.5)
Acquisitions, net of cash acquired (172.8) -
Proceeds from disposition of operations 16.0 -
Other investing activities, net 3.5 0.2
------ --------
Net cash used by investing activities (263.6) (74.3)
------ --------
Financing activities
Increase (decrease) in short-term debt, net 291.6 (690.5)
Issuance of long-term debt 417.4 -
Repayment of long-term debt (340.4) (601.0)
Dividends to stockholders (73.0) (172.5)
Cash purchases of Common stock for treasury (34.9) (55.0)
Other financing activities, net 9.2 72.9
------ --------
Net cash provided (used) by financing activities 269.9 (1,446.1)
------ --------
Effect of foreign exchange rate changes on cash (1.3) (2.3)
------ --------
Cash provided by discontinued operations - 1,535.1
------ --------
Net increase in cash and cash equivalents 35.9 122.6
Cash and cash equivalents at beginning of period 54.2 34.9
------ --------
Cash and cash equivalents at end of period $ 90.1 $ 157.5
====== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
for the Six Months Ended June 30, 1998 and 1997
-------------------------------------------------------------
(In millions)
(Unaudited)
<TABLE>
<CAPTION>
$2.67 Accumulated
Convertible other Treasury
Preferred Common Paid-in comprehensive Retained stock,
stock stock capital income earnings at cost Total
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $12.9 $717.4 $166.5 $(204.1) $5,025.4 $(2,042.1) $3,676.0
Comprehensive income
Net income - - - - 104.4 - 104.4
Changes during the period - - - (24.3) - - (24.3)
------ ------- -------
Total comprehensive income - - - (24.3) 104.4 - 80.1
------ ------- -------
Cash dividends - - - - (172.5) - (172.5)
Purchases - - - - - (68.8) (68.8)
Conversion of preferred stock and
delivery of stock plan shares (0.7) - (2.7) - - 82.4 79.0
Gallaher spin-off - - - 260.7 249.2 - 509.9
----- ------ ------- ------- -------- --------- --------
Balance at June 30, 1997 $12.2 $717.4 $163.8 $ 32.3 $5,206.5 $(2,028.5) $4,103.7
===== ====== ======= ======= ========= ========= ========
Balance at December 31, 1997 $11.3 $717.4 $151.1 $ 6.9 $5,129.7 $(1,999.3) $4,017.1
Comprehensive income
Net income - - - - 110.4 - 110.4
Changes during the period - - - (0.9) - - (0.9)
----- -------- --------
Total comprehensive income - - - (0.9) 110.4 - 109.5
----- -------- --------
Cash dividends - - - - (73.0) - (73.0)
Purchases - - - - - (35.7) (35.7)
Conversion of preferred stock and
delivery of stock plan shares (0.5) - (5.4) - - 66.0 60.1
----- ------ ------ ----- -------- --------- --------
Balance at June 30, 1998 $10.8 $717.4 $145.7 $ 6.0 $5,167.1 $(1,969.0) $4,078.0
===== ====== ====== ===== ======== ========= ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Principles of Consolidation
The condensed consolidated balance sheet as of June 30, 1998, the
related condensed consolidated statements of income for the three-month
and six-month periods ended June 30, 1998 and 1997, and the related
condensed consolidated statements of cash flows and stockholders'
equity for the six-month periods ended June 30, 1998 and 1997 are
unaudited. In the opinion of management, all adjustments necessary for
a fair presentation of such financial statements have been included.
Such adjustments consisted of restructuring and other nonrecurring
charges and normal recurring items. Interim results may not be
indicative of results for a full year.
The condensed consolidated financial statements and notes are
presented as permitted by Form 10-Q and do not contain certain
information included in the Company's annual consolidated financial
statements and notes. The year-end condensed consolidated balance sheet
was derived from the Company's audited financial statements, but does
not include all disclosures required by generally accepted accounting
principles. This Form 10-Q should be read in conjunction with the
Company's consolidated financial statements and notes incorporated by
reference in its 1997 Annual Report on Form 10-K.
2. Acquisitions
On June 12, 1998, the Company's home products subsidiary acquired
Schrock Cabinet Company for an aggregate cost of approximately
$107.5 million.
On February 27, 1998, the Company's office products subsidiary
acquired the Apollo Presentation Products group of companies, marketers
of office and conference presentation products, for an aggregate cost
of approximately $65 million.
During the second half of 1997, acquisitions were made in the home
and office products segments for an aggregate cost of $92 million,
including fees, expenses and $9.5 million resulting from the issuance
of Common shares. In connection with the 1997 acquisitions, liabilities
amounting to $72 million were included at the dates of acquisition. The
cost exceeded the fair value of net assets acquired by $90 million.
These operations have been included in consolidated results from
the dates of acquisition. Had operations of the acquisitions made in
1997 been consolidated from January 1, 1996, and the acquisitions made
in 1998 been consolidated from January 1, 1997, they would not have
materially affected results.
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Acquisitions (Concluded)
On July 22, 1998, the Company announced that its distilled spirits
subsidiary entered into a definitive agreement to purchase the Geyser
Peak wine business and certain related vineyard property for an
aggregate cost of approximately $100 million.
3. Discontinued Operations
On May 30, 1997, Gallaher Group Plc ("Gallaher"), the Company's
international tobacco subsidiary, was spun off and the Company's name
was changed from American Brands, Inc. to Fortune Brands, Inc. As a
result, the Company's stockholders owned shares in two publicly-traded
companies -- Fortune Brands, Inc. and Gallaher.
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.
Also, in connection with the spin-off, Gallaher 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.
The condensed consolidated financial statements were reclassified
to identify Gallaher's international tobacco operations as discontinued
operations. Summarized results of operations for the international
tobacco operations, net of allocation of interest expense based on the
ratio of Gallaher's net assets to consolidated net assets of the
Company, are as follows:
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Discontinued Operations (Concluded)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, 1997* June 30, 1997*
------------------ ------------------
(In millions,
except per share amounts)
<S> <C> <C>
Net sales $2,575.0 $835.2
======== ======
Income before taxes $186.4 $ 33.7
Spin-off expense (67.1) (67.1)
Income taxes (54.2) (3.1)
------ ------
Income (loss) from
discontinued operations $ 65.1 $(36.5)
====== ======
Earnings (loss) per Common share
Basic $.38 $(.22)
==== =====
Diluted $.38 $(.20)
==== =====
</TABLE>
* Includes results through May 30, 1997; five months in the six
months ended June 30, 1997 and two months in the three months
ended June 30, 1997.
4. Earnings Per Share
Basic earnings per Common share are based on the weighted average
number of Common shares outstanding in each period and after preferred
stock dividend requirements.
Diluted earnings per Common share assume that any dilutive
convertible preferred shares outstanding at the beginning of each
period were converted at those dates, with preferred stock dividend
requirements and outstanding Common shares adjusted accordingly. It
also assumes that outstanding Common shares were increased by shares
issuable upon exercise of those stock options for which market price
exceeds exercise price, less shares that could have been purchased by
the Company with related proceeds.
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Earnings Per Share (Concluded)
The computation of basic and diluted earnings per Common share for
"Income from continuing operations" is as follows:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
----------------- ------------------
1998 1997 1998 1997
---- ---- ---- ----
(In millions, except per share amounts)
<S> <C> <C> <C> <C>
Income from continuing operations $140.9 $39.3 $87.9 $4.3
Less: Preferred stock dividends 0.4 0.5 0.2 0.2
------ ----- ----- ----
Income available to Common
stockholders - basic 140.5 38.8 87.7 4.1
Convertible Preferred stock
dividend requirements 0.4 - 0.2 -
------ ----- ----- ----
Income available to Common
stockholders - diluted $140.9 $38.8 $87.9 $4.1
====== ===== ===== ====
Weighted average number of
Common shares outstanding - basic 172.6 171.7 172.9 172.0
Conversion of Convertible
Preferred stock 2.2 - 2.2 -
Exercise of stock options 2.4 1.4 2.2 1.4
----- ----- ----- -----
Weighted average number of Common
shares outstanding - diluted 177.2 173.1 177.3 173.4
===== ===== ===== =====
Earnings per Common share
Basic $.81 $.23 $.50 $.03
==== ==== ==== ====
Diluted $.80 $.22 $.50 $.02
==== ==== ==== ====
</TABLE>
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Extraordinary Items
During the six-month period ended June 30, 1998, the Company purchased
the following principal amounts of its outstanding debt: $31.4 million
of 7-1/2% Notes, Due 1999, $50.4 million of 8-1/2% Notes, Due 2003,
$10.5 million of 9% Notes, Due 1999 and $32.7 million of 8-5/8%
Debentures, Due 2021, and the Company also redeemed the outstanding
$50.1 million of 12-1/2% Sterling Loan Stock, Due 2009. The
extinguishment of debt resulted in a charge of $30.5 million ($46.9
million pre-tax), or 18 cents per Common share for the six months ended
June 30, 1998 and a charge of $22.1 million ($33.9 million pre-tax), or
13 cents per Common share for the three months ended June 30, 1998.
6. Long-Term Debt
On June 30, 1998, the Company issued $200 million of 6-5/8%
Debentures, Due 2028. On March 31, 1998, the Company issued $200
million of 6-1/4% Notes, Due 2008. The net proceeds were used for
general corporate purposes.
7. Restructuring and Other Nonrecurring Charges
During the three-month and six-month periods ended June 30, 1997,
the Company recorded pre-tax restructuring and other nonrecurring
charges of $89.3 million as follows:
<TABLE>
<CAPTION>
Nonrecurring
Cost of Sales
Restructuring Charges Total
------------- ------ -----
(In millions, except per share amounts)
<S> <C> <C> <C>
Home products $ 9.1 $ 8.3 $17.4
Office products 23.4 0.1 23.5
----- ----- -----
Home and office products 32.5 8.4 40.9
Distilled spirits 23.3 25.1 48.4
----- ----- -----
$55.8 $33.5 89.3
===== =====
Income tax benefit 23.9
-----
Net charge $65.4
=====
Charge per Common share
Basic $.38
====
Diluted $.38
====
</TABLE>
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. 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 $12.6 million pre-tax gain on
the sale of nonstrategic businesses.
Distilled spirits 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.
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.
The Company recorded an aggregate of $298.2 million of pre-tax
restructuring and other nonrecurring charges in 1997. In connection
with the restructuring, the home and office products segments will be
reducing their workforces by 7%, or 1,125 individuals, primarily
production employees. As of June 30, 1998 approximately 300 positions
were eliminated. The remaining restructuring liability at June 30,
1998, which relates principally to employee termination costs that will
be paid during 1998, was $47.6 million. The remaining net book value of
assets to be disposed approximated $24 million. The Company anticipates
that the restructuring activities will be substantially completed
during 1998.
8. Comprehensive Income
During the first quarter of 1998, the Company adopted FAS Statement No.
130, "Reporting Comprehensive Income" and has elected to report
comprehensive income in the condensed consolidated statement of
stockholders' equity. Comprehensive income is defined as the change in
equity from transactions and other events from nonowner sources and
includes net income and other comprehensive income. The components of
accumulated other comprehensive income are as follows:
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Comprehensive Income (Concluded)
<TABLE>
<CAPTION>
Foreign Minimum Accumulated
currency pension liability other
adjustments adjustment comprehensive income
----------- ---------- --------------------
(In millions)
<S> <C> <C> <C>
Balance December 31, 1996 $(195.9) $(8.2) $(204.1)
Changes in six months (24.3) - (24.3)
Gallaher spin-off 260.7 - 260.7
------- ----- -------
Balance June 30, 1997 $ 40.5 $(8.2) $ 32.3
======= ===== =======
Balance December 31, 1997 $19.9 $(13.0) $ 6.9
Changes in six months (0.9) - (0.9)
----- ------ -----
Balance June 30, 1998 $19.0 $(13.0) $ 6.0
===== ====== =====
</TABLE>
For the three-month periods ended June 30, 1998 and 1997, total
comprehensive income was $55.8 million and a loss of $26.9 million,
respectively.
9. 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 thepending 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.
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Concluded)
9. 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.
10. Environmental
The Company is subject to laws and regulations relating to the
protection of the environment. While it is not possible to quantify
with certainty the potential impact of actions regarding environmental
matters, particularly remediation and other compliance efforts that the
Company's subsidiaries may undertake in the future, in the opinion of
management, compliance with the present environmental protection laws,
before taking into account estimated recoveries from third parties,
will not have a material adverse effect upon the results of operations,
cash flows or financial condition of the Company.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors of Fortune Brands, Inc.:
We have reviewed the condensed consolidated balance sheet of
Fortune Brands, Inc. and Subsidiaries as of June 30, 1998, the related
condensed consolidated statements of income for the three-month and
six-month periods ended June 30, 1998 and 1997, and the condensed
consolidated statements of cash flows and stockholders' equity for the
six-month periods ended June 30, 1998 and 1997. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data, and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit in accordance with generally
accepted auditing standards, the objective of which is the expression
of an opinion regarding the consolidated financial statements taken as
a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the condensed consolidated
financial statements referred to above for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet as of December 31,
1997, and the related consolidated statements of income, cash flows and
stockholders' equity for the year then ended (not presented herein) and
in our report dated February 4, 1998, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated
balance sheet as of December 31, 1997 is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which it
has been derived.
1301 Avenue of the Americas PricewaterhouseCoopers LLP
New York, New York
August 12, 1998
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------ AND RESULTS OF OPERATIONS
-----------------------------------------------------------
FORTUNE BRANDS, INC. AND SUBSIDIARIES
--------------------------------------
Results of Operations for the Six Months Ended June 30, 1998 as Compared
to the Six Months Ended June 30, 1997
-------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Sales Operating Income(1)
--------------------- ----------------------------------------
1998 1997 1998 1997 1997(2)
----- ---- ----- ---- -------
(In millions)
<S> <C> <C> <C> <C> <C>
Home products $ 709.5 $ 664.2 $ 95.8 $ 71.4 $ 88.8
Office products 640.2 575.5 37.3 9.6 33.1
-------- -------- ------ ------ ------
Home and office products 1,349.7 1,239.7 133.1 81.0 121.9
Golf products 605.4 541.3 101.8 90.7 90.7
Distilled spirits 574.6 559.6 89.2 34.1 82.5
-------- -------- ------ ------ ------
$2,529.7 $2,340.6 $324.1 $205.8 $295.1
======== ======== ====== ====== ======
</TABLE>
(1) Operating income represents net sales less all costs and expenses
excluding corporate administrative expenses, interest and related
expenses and other (income) expenses, net.
(2) Excludes restructuring and other nonrecurring charges of $89.3 million.
CONSOLIDATED
- ------------
Net sales increased 8% on benefits from new products, line extensions,
acquisitions and price increases, partly offset by volume declines in some
existing products, the sale of nonstrategic businesses and lower average
foreign exchange rates (primarily the Australian dollar). Operating income
increased 57% principally due to last year's $89.3 million of restructuring and
other nonrecurring charges in distilled spirits, office products and home
products. (See Note 7 in the Notes to Condensed Consolidated Financial
Statements.) Operating income excluding these charges increased 10%,
principally due to the higher sales, partly offset by higher operating expenses
coupled with effects of lower average foreign exchange rates. Excluding these
charges and the effects of translation at lower average foreign exchange rates,
net sales and operating income were up 9% and 12%, respectively.
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
CONSOLIDATED (Continued)
- ------------
During 1997, the Company recorded an aggregate of $298.2 million of pre-tax
restructuring and other nonrecurring charges. (See Note 7.) The following
restructuring activities are underway: the expansion of the Nogales, Mexico
operation to include office products' Swingline stapling production and a
significant portion of home products' Master Lock assembly operations, the
integration of office products in Europe and Australia and the planned reduction
of workforces in the home and office products segments. The Company anticipates
that the remaining restructuring activities will be substantially completed
during 1998.
Interest and related expenses decreased 27% reflecting lower average borrowings
principally from the use of the proceeds from the Gallaher spin-off, as
discussed below.
The effective income tax rate comparisons for the six-month periods ended June
30, 1998 and 1997 were distorted by the 1997 restructuring and other
nonrecurring charges. Excluding these charges, the effective income tax rates
were 40.7% and 43.8%, respectively. The lower effective tax rate this year
principally reflected the reduced impact of nondeductible goodwill on higher
pre-tax income as well as lower state taxes.
Income from continuing operations of $140.9 million, or 81 cents per Common
share, for the six months ended June 30, 1998 compared with $39.3 million, or 23
cents per share, for the same period last year. The increase was principally due
to last year's $65.4 million in net restructuring and other nonrecurring
charges. Excluding these charges, income from continuing operations of $140.9
million, was up $36.2 million, or 35%.
On May 30, 1997, Gallaher Group Plc ("Gallaher"), the Company's international
tobacco subsidiary, was spun off ("Gallaher spin-off") and the Company's name
was changed from American Brands, Inc. to Fortune Brands, Inc. The consolidated
financial statements were restated to present Gallaher as a discontinued
operation. (See Note 3.)
Income from discontinued operations for the six months ended June 30, 1997
represented Gallaher's net income of $65.1 million, or 38 cents per share. In
addition, the 1997 amount included $67.1 million in spin-off expenses. (See Note
3.)
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
CONSOLIDATED (Concluded)
- ------------
The extraordinary items charge in the six months ended June 30, 1998 of $30.5
million ($46.9 million pre-tax), or 18 cents per share, resulted from the
extinguishment of debt. (See Note 5.)
Net income of $110.4 million, or 63 cents per share, compared with $104.4
million, or 61 cents per share, for the same period last year.
Income from continuing operations of $140.9 million, and basic and diluted
earnings per share of 81 cents and 80 cents, respectively, in the six months
ended June 30, 1998 compared with pro forma income from continuing operations of
$120.1 million, and basic and diluted earnings per share of 71 cents and 70
cents, respectively, in the six months ended June 30, 1997. Pro forma results
reflect adjustments to income from continuing operations to exclude
restructuring and other nonrecurring charges and to include a net cash payment
that approximated $1.25 billion, after taxes, that Gallaher made to the Company
in connection with the Gallaher spin-off and the assumption that such proceeds
were used to purchase 2.5 million Common shares and repay debt as of January 1,
1997. This pro forma information is provided for informational purposes only and
does not purport to be indicative of the results of operations which would
actually have been obtained if the transactions had occurred on January 1, 1997,
or which may exist or be obtained in the future.
See Notes 9 and 10 for discussions of pending litigation and environmental
matters.
In June 1997, FAS Statement No. 131, "Disclosures about Segments of an
Enterprise and Related Information", was issued, to be effective with the 1998
annual financial statements. FAS No. 131 establishes standards for reporting
information about operating segments in annual financial statements. FAS No. 131
also establishes standards for related disclosures about products and services,
geographic areas, and major customers and requires financial statement
disclosure for prior periods to be restated. The Company is in the process of
evaluating the disclosure requirements under this standard.
In June 1998, FAS Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities", was issued, to be effective for fiscal quarters beginning
after June 15, 1999. FAS No. 133 establishes accounting and reporting standards
for derivative instruments and for hedging activities. The Company is in the
process of evaluating the effect of adoption on future results and the
disclosure requirements under this standard.
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
Home Products
- -------------
Net sales increased 7% on an overall volume increase (line extensions and new
products, partly offset by volume declines in some existing products), benefit
of acquisitions and price increases, partly offset by the absence of Master
Lock's door hardware business and Moen's operations in Japan. Operating income
increased 34% principally due to last year's $17.4 million restructuring and
other nonrecurring charge related to the disposition of certain product lines
and the rationalization of operations. Operating income excluding this charge
increased 8% principally reflecting the sales increase, partly offset by higher
volume-related selling expenses.
Office Products
- ---------------
Net sales increased 11% on benefit from acquisitions and an overall volume
increase (principally from new products), partly offset by reduced prices, the
absence of two nonstrategic businesses sold in 1997 and lower average foreign
exchange rates. Operating income increased 289% principally due to last year's
$23.5 million restructuring charge 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. Operating
income excluding this charge increased 13% reflecting the sales increase and
improved gross margin (principally stabilized raw material costs and other cost
reductions primarily in North America), partly offset by increased operating
expenses.
The higher operating expenses were substantially related to maintaining customer
service levels as restructuring programs are being implemented and higher
customer program costs. Operating income benefited from the acquisitions and was
negatively impacted by translation of foreign results at lower average foreign
exchange rates.
Golf Products
- -------------
Net sales were up 12% on an overall volume increase in golf balls, clubs and
gloves (new products and line extensions, partly offset by volume declines in
some existing products coupled with discontinued products associated with new
product introductions) and price increases, partly offset by a volume decline in
golf shoes and lower average foreign exchange rates. Operating income increased
12% reflecting the higher sales and improved gross margin, partly offset by
higher advertising and promotional
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
Golf Products (Concluded)
- -------------
expenditures and research and development expenses associated with the support
of existing products and the development of new products.
The golf club market has been adversely affected this year by lower consumer
demand, resulting in a volume decline in the U.S. market in the range of 5-10%
and extensive price discounting. Both Titleist and Cobra were affected by the
overall weakness in the market for irons, though both achieved solid volume
gains in metalwoods and putters. For the second quarter, Titleist golf club
sales were up on a favorable product mix and firm pricing. For Cobra, results
were more in line with the overall market, and the market softness is
significantly impacting Cobra sales and profits. As a result, for the year 1998,
depending on evolving market conditions, more modest increases than have been
achieved for the first six months are now expected in the golf products
segment's sales and operating income.
The United States Golf Association ("USGA") establishes standards for golf
equipment used in competitive play in the United States. In the second quarter
of 1998, the USGA proposed a new rule with respect to the performance of golf
clubs. The Company has reviewed the proposed rule change regarding golf clubs
and believes that if the rule is adopted in the form presently proposed, most or
all of its products currently marketed and under development will conform to
such rule. This rule change could hamper innovation and limit flexibility in
producing USGA conforming products. At the present time, it is not possible to
determine whether this rule change will have a material effect on the golf club
industry and the Company's golf products segment.
In addition, as has been previously discussed in the Company's Annual Report on
Form 10-K, the USGA has been considering for several years a plan to change the
testing conditions for determining whether a golf ball conforms to the USGA's
overall distance standard. At the time that the USGA proposed its new golf club
rule, it also indicated an intention to propose a new rule in the fourth quarter
with respect to the overall distance standard for golf balls. Until such rule is
proposed, the Company cannot determine whether the USGA's actions, if taken,
will have an effect on its golf ball business and/or the golf ball industry.
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
Distilled Spirits
- -----------------
Net sales increased 3% on volume and price increases, partly offset by lower
foreign exchange rates and the unfavorable comparison to a 1997 domestic bulk
sale. The overall volume increase principally reflected higher case shipments in
the U.S. (benefits from reduced trade inventories in late 1997) and Canada, line
extensions and new products, partly offset by lower volume in Europe. Operating
income increased 162% principally due to last year's $48.4 million restructuring
and other nonrecurring charge 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
discontinuation of certain product lines. Operating income excluding this charge
increased 8% on the sales increase and improved gross margin, (principally price
increases and favorable product mix), partly offset by increased operating
expenses (principally volume-related selling expenses in the U.S.). Operating
results improved in North America while Australian results declined due to the
negative impact of translation at a 16% lower average foreign exchange rate. For
the remainder of 1998, more modest growth in operating income is expected.
The merger of Grand Metropolitan PLC and Guinness PLC to create Diageo PLC in
late 1997 reflects the trend towards consolidation in the highly competitive
global spirits business. The creation of Diageo PLC and the breadth of its
portfolio of brands, as well as the continued consolidation of the supplier,
distributor and retailer tiers may present pricing and service challenges for
distilled spirits producers, as well as opportunities for the most efficient
producers.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net cash provided from continuing operating activities of $30.9 million for the
six months ended June 30, 1998 compared with net cash provided by continuing
operating activities of $110.2 million for the same six-month period last year.
Net cash used by investing activities for the six months ended June 30, 1998 was
$263.6 million, as compared with net cash used of $74.3 million in the same
six-month period last year. The increased use of funds in 1998 reflects the
acquisitions of Apollo Presentation Products and Schrock Cabinet Company and
higher capital expenditures (including $33.6 million related to previously
announced 1997 restructuring activities), partly offset by proceeds from a
disposed operation.
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES (Concluded)
- -------------------------------
Net cash provided by financing activities for the six months ended June 30, 1998
was $269.9 million, as compared with net cash used by financing activities of
$1,446.1 million in the same six-month period last year, reflecting the
repayment in 1997 of debt using the proceeds provided by Gallaher in conjunction
with the spin-off of that company, and lower dividends paid and purchases of
Common stock for treasury this year. Pursuant to the systematic share purchase
program approved in 1997, 926,100 Common shares were purchased by the Company
during the six months ended June 30, 1998.
Total debt at June 30, 1998 was $1.5 billion, an increase of $366.4 million from
December 31, 1997. The ratio of total debt to total capital increased from 22.2%
at December 31, 1997 to 27% at June 30, 1998.
During the six months ended June 30, 1998, the Company purchased or redeemed
$175.1 million principal amount of its outstanding debt. (See Note 5.) On June
30, 1998, the Company issued $200 million of 6-5/8% Debentures, Due 2028. On
March 31, 1998, the Company issued $200 million of 6-1/4% Notes, Due 2008. (See
Note 6.)
Management believes that the Company's internally generated funds, together with
its access to global credit markets, are more than adequate to meet the
Company's capital needs.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
- ------ FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
FORTUNE BRANDS, INC. AND SUBSIDIARIES
--------------------------------------
Results of Operations for the Three Months Ended June 30, 1998 as Compared
to the Three Months Ended June 30, 1997
---------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Sales Operating Income(1)
------------------------ ----------------------------------------
1998 1997 1998 1997 1997(2)
---- ---- ---- ---- -------
(In millions)
<S> <C> <C> <C> <C> <C>
Home products $ 367.1 $ 335.5 $ 48.2 $ 27.0 $ 44.4
Office products 318.4 285.4 14.7 (11.6) 11.9
-------- -------- ------ ------ ------
Home and office products 685.5 620.9 62.9 15.4 56.3
Golf products 328.4 305.4 64.4 61.6 61.6
Distilled spirits 312.3 309.2 55.0 2.9 51.3
-------- -------- ------ ------ ------
$1,326.2 $1,235.5 $182.3 $ 79.9 $169.2
======== ======== ====== ====== ======
</TABLE>
(1) Operating income represents net sales less all costs and expenses
excluding corporate administrative expenses, interest and related
expenses and other (income) expenses, net.
(2) Excludes restructuring and other nonrecurring charges of $89.3 million.
CONSOLIDATED
- ------------
Net sales increased 7% on benefits from new products, line extensions,
acquisitions and price increases, partly offset by volume declines in some
existing products, the sale of nonstrategic businesses and lower average foreign
exchange rates (primarily the Australian dollar). Operating income increased
128% principally due to last year's $89.3 million of restructuring and other
nonrecurring charges in distilled spirits, office products and home products.
(See Note 7 in the Notes to Condensed Consolidated Financial Statements.)
Operating income excluding these charges increased 8%, principally due to the
higher sales, partly offset by higher operating expenses coupled with effects of
lower average foreign exchange rates. Excluding these charges and the effects of
translation at lower average foreign exchange rates, net sales and operating
income were up 8% and 10%, respectively.
Interest and related expenses decreased 18% reflecting lower average borrowings
principally from the use of the proceeds from the Gallaher spin-off, as
discussed below.
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
CONSOLIDATED (Concluded)
- ------------
The effective income tax rate comparisons for the three-month periods ended June
30, 1998 and 1997 were distorted by the 1997 restructuring and other
nonrecurring charges. Excluding these charges, the effective income tax rates
were 37.1% and 40.3%, respectively. The lower effective tax rate this year
principally reflected the reduced impact of nondeductible goodwill on higher
pre-tax income as well as lower state taxes.
Income from continuing operations of $87.9 million, or 50 cents per Common
share, for the three months ended June 30, 1998 compared with $4.3 million, or
three cents per share, for the same period last year. The increase was
principally due to last year's $65.4 million in net restructuring and other
nonrecurring charges. Excluding these charges, income from continuing operations
of $87.9 million was up $18.2 million, or 26%.
Loss from discontinued operations for the three months ended June 30, 1997
represented Gallaher's net loss of $36.5 million, or 22 cents per share. In
addition, the 1997 amount included $67.1 million in spin-off expenses. (See Note
3.)
The extraordinary items charge in the three months ended June 30, 1998 of $22.1
million ($33.9 million pre-tax), or 13 cents per share, resulted from the
extinguishment of debt. (See Note 5.)
Net income of $65.8 million, or 37 cents per share, compared with a net loss of
$32.2 million, or 19 cents per share, for the same period last year.
Income from continuing operations of $87.9 million, and basic and diluted
earnings per share of 50 cents in the three months ended June 30, 1998 compared
with pro forma income from continuing operations of $74.8 million, and basic and
diluted earnings per share of 44 cents in the three months ended June 30, 1997.
Pro forma results reflect adjustments to income from continuing operations to
exclude restructuring and other nonrecurring charges and to include a net cash
payment that approximated $1.25 billion, after taxes, that Gallaher made to the
Company in connection with the Gallaher spin-off and the assumption that such
proceeds were used to purchase 2.5 million Common shares and repay debt as of
January 1, 1997. This pro forma information is provided for informational
purposes only and does not purport to be indicative of the results of operations
which would actually have been obtained if the transactions had occurred on
January 1, 1997, or which may exist or be obtained in the future.
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
Home Products
- -------------
Net sales increased 9% on an overall volume increase (line extensions and new
products, partly offset by volume declines in some existing products), benefit
of acquisitions and price increases, partly offset by the absence of Master
Lock's door hardware division and Moen's operations in Japan. Operating income
increased 79% principally due to last year's $17.4 million restructuring and
nonrecurring charge as discussed in the section discussing the six month
results. Operating income excluding this charge increased 9% principally on the
sales increase, partly offset by higher volume-related selling expenses.
Office Products
- ---------------
Net sales increased 12% on benefit from acquisitions and an overall volume
increase (new products and higher volume on existing products), partly offset by
the absence of two nonstrategic businesses sold in 1997, reduced prices and
lower average foreign exchange rates. Operating income of $14.7 million compared
to an operating loss of $11.6 million in 1997 which included the $23.5 million
restructuring charge as described in the section discussing the six month
results. Operating income excluding this charge increased 24% reflecting the
sales increase and improved gross margin (principally stabilized raw material
costs and other cost reductions), partly offset by increased operating expenses.
The higher operating expenses were related to higher customer program costs and
costs related to maintaining customer service levels as restructuring programs
are being implemented. Operating income benefited from the acquisitions and was
negatively impacted by translation of foreign results at lower average foreign
exchange rates.
Golf Products
- -------------
Net sales were up 8% on volume increases in golf balls and gloves (principally
new products and line extensions) and price increases, partly offset by a volume
decline in golf clubs and golf shoes, discontinued products and lower average
foreign exchange rates. Operating income increased 5% reflecting the higher
sales and improved gross margin, partly offset by higher advertising and
promotional expenditures and research and development expenses associated with
the support of existing products and the development of new products. See the
section on "Golf Products" describing the six month results for additional
information on golf clubs.
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Concluded)
---------------------------------------------------------
Distilled Spirits
- -----------------
Net sales increased 1% on volume and price increases, partly offset by lower
foreign exchange rates and the unfavorable comparison to a 1997 domestic bulk
sale. The overall volume increase principally reflected higher case shipments in
the U.S. (benefits from reduced trade inventories in late 1997) and Canada,
partly offset by lower volume in Europe. Operating income of $55 million was up
$52.1 million principally due to last year's $48.4 million restructuring and
other nonrecurring charge as described in the section discussing the six month
results. Excluding this charge, operating income increased 7% on the sales
increase and improved gross margin (principally price increases and favorable
product mix), partly offset by increased operating expenses (principally
volume-related selling expenses in the U.S.). Operating results improved in
North America while Australian results declined due to the negative impact of
translation at an 18% lower average foreign exchange rate and Europe declined
due to the reduced volume.
CAUTIONARY STATEMENT
- --------------------
This Quarterly Report on Form 10-Q 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, changes in golf equipment
regulatory standards, the impact of weather (particularly on the home and golf
products 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.
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
- ------ -----------------
(a) Overview
Reference is made to the disclosure in Part I, Item 3, "Legal
Proceedings", of Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 under the heading "Overview".
Individual Cases
Reference is made to the disclosure in Part I, Item 3, "Legal
Proceedings", of Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 under the heading "Individual Cases". As of August 12,
1998, there were approximately 112 smoking and health cases pending on behalf of
individual plaintiffs in which Registrant has been named as one of the
defendants (excluding approximately 28 cases in Texas that were voluntarily
dismissed but which may be refiled under certain conditions), compared with
approximately 97 such cases as of March 27, 1998. See "Recent Case Developments"
below.
Class Actions
Reference is made to the disclosure in Part I, Item 3, "Legal
Proceedings", of Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 under the heading "Class Actions". As of August 12,
1998, there were approximately 28 purported smoking and health class actions
pending in which Registrant has been named as one of the defendants (including
four that involve allegations of various personal injuries related to exposure
to ETS), compared with approximately 25 such cases as of March 27, 1998.
Health Care Cost Recovery Actions
Reference is made to the disclosure in Part I, Item 3, "Legal
Proceedings", of Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 under the heading "Health Care Cost Recovery Actions".
Recent Case Developments
Reference is made to the disclosure in Part I, Item 3, "Legal
Proceedings", of Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 under the heading "Recent Case Developments".
On June 10, 1998, a jury in a Florida case awarded the estate of a
smoker $52,249 for medical expenses, $500,000 to his surviving widow for loss of
companionship and $450,000 in punitive damages, in a smoking and health case
against Brown and Williamson Tobacco Corporation ("B&W") (as successor by merger
to The American Tobacco Company ("ATCO")) (Widdick, described in Part I, Item 3,
"Legal Proceedings", of Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997 under the heading "List of Pending Cases").
Defendant B&W has filed a motion for judgment notwithstanding the verdict or for
a new trial. Registrant is not a party to the Widdick litigation. In June of
1998, a Florida appellate court overturned a verdict by a Florida jury that had
awarded a former smoker and his spouse $750,000 in a smoking and health case
against B&W (as successor by merger to ATCO) (Carter, described in Part I, Item
3, "Legal Proceedings", of Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 under the heading "List of Pending Cases").
The court found, among other things, that the action had been time-barred.
Plaintiff has moved for rehearing and clarification. Registrant was not a party
to the Carter litigation.
In July of 1998, jury selection began in a Florida action against B&W
(individually and as successor by merger to ATCO) and other U.S. tobacco
manufacturer defendants brought on behalf of a class of Florida residents
allegedly injured as a result of their alleged addiction to cigarettes
containing nicotine (Engle, described in Part I, Item 3, "Legal Proceedings", of
Registrant's Annual Report on Form 10-K for the fiscal year ended December 31,
1997 under the heading "List of Pending Cases"). Trial in that action is
expected to last several months. Registrant is not a party to the Engle
litigation . See also "Proposed Resolution of Certain Regulatory and Litigation
Issues" below.
Trial Dates
Reference is made to the disclosure in Part I, Item 3, "Legal
Proceedings", of Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 under the heading "Trial Dates". Registrant has been
dismissed for lack of personal jurisdiction from one attorney general action
scheduled for trial during 1998 (State of Oklahoma, described in Part I, Item 3,
"Legal Proceedings", of Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997 under the heading "List of Pending Cases"). Two
purported class actions trials have been postponed and are no longer scheduled
for trial in 1998 (Clay; Akamsit, described in Part I, Item 3, "Legal
Proceedings", of Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 under the heading "List of Pending Cases").
Proposed Resolution of Certain Regulatory
and Litigation Issues
Reference is made to the disclosure in Part I, Item 3, "Legal
Proceedings", of Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 under the heading "Proposed Resolution of Certain
Regulatory and Litigation Issues". The Proposed Resolution failed to be enacted
by Congress. There are reports that discussions are currently underway among
various state attorneys general and members of the industry to attempt to arrive
at a resolution of various outstanding lawsuits against the industry.
State Settlements
Reference is made to disclosure in Part I, Item 3, "Legal
Proceedings", of Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 under the heading "Mississippi, Florida and Texas
Settlements". It has also been reported that the settling defendants have also
settled the health care cost recovery action brought in Minnesota on terms that
would have been more favorable to such state than would have been applicable
under the Proposed Resolution had it been enacted. In accordance with such
settlement, the settling defendants reportedly agreed, among other things, to
make an initial payment of approximately $1.8 billion in five annual
installments.
It is not yet known how the more recent state settlement will affect
the settlements reached earlier by other states, which entitle them to receive
the benefits of more favorable provisions contained in later agreements, or how
it will affect discussions in the U.S. Congress regarding legislation affecting
tobacco and health.
List of Pending Cases
Reference is made to the disclosure in Part I, Item 3, "Legal
Proceedings" of Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 under the heading "List of Pending Cases" and in
paragraph (a) of Part II, Item 1, "Legal Proceedings" of Registrant's Quarterly
Report on Form 10-Q for the period ended March 31, 1998. In addition to those
proceedings previously reported, Registrant has been named as a defendant in the
following proceedings:
Arnett v. The American Tobacco Company, et al., Supreme Court of New
York, New York County, May 28, 1998;
Avallone v. The American Tobacco Company, et al., Superior Court of
New Jersey, Middlesex County, April 23, 1998;
Brown-Jones v. The American Tobacco Company, et al., Superior Court of
Georgia, Richmond County, January 13, 1998;
Coyle v. The American Tobacco Company, et al., United States District
Court for the Northern District of Nevada, January 26, 1998;
Gallup, V. v. The American Tobacco Company, et al., United States
District Court for the Northern District of Nevada, May 21, 1998;
Gelfond v. The American Tobacco Company, et al., Supreme Court of New
York, New York County, May 1, 1998;
Kennon v. Brown & Williamson Tobacco Corp., et al., District Court for
East Baton Rouge, State of Louisiana, October 3, 1997;
Landry v. The American Tobacco Company, et al., District Court for
East Baton Rouge, State of Louisiana, May 18, 1998;
Little v. Brown & Williamson Tobacco Corp., et al., Court of Common
Pleas, Charleston, South Carolina, May 26, 1998;
Magnus v. The American Tobacco Company, et al., United States District
Court for the Eastern District of New York, May 6, 1998;
Murphy v. The American Tobacco Company, et al., United States District
Court for the District of Nevada, Southern Division, January 6, 1998;
O'Hara v. The American Tobacco Company, et al., Supreme Court of New
York, New York County, February 23, 1998;
Rivenburgh, M. v. The American Tobacco Company, et al., United States
District Court for the Southern District of Nevada, January 6, 1998;
Simmons v. The American Tobacco Company, et al., Court of Common Pleas
for the County of Philadelphia, Pennsylvania, April 1, 1998;
Sparks v. Brown & Williamson Tobacco Corp., et al., Court of Common
Pleas for Trumbull County, Ohio, July 16, 1998;
Tiscavitch v. American Brands, Inc., et al., Court of Common Pleas for
Philadelphia County, Pennsylvania, May 28, 1998;
Tucker v. The American Tobacco Company, et al., United States District
Court for the Northern District of Nevada, January 26, 1998;
Ulrich, S. v. The American Tobacco Company, et al., United States
District Court for the Southern District of Nevada, January 6, 1998; and
Utah Laborers, et al. v. The American Tobacco Company, et al., United
States District Court for the District of Utah, June 4, 1998.
List of Cases Terminated
With regard to proceedings which have been terminated and not
previously reported as such:
Dunn v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of Delaware County, Indiana, and instituted on May
28, 1993, ended when a final judgment was entered in favor of the defendants,
including Registrant, on all counts on March 25, 1998; and
Gelfond v. Fortune Brands, Inc., et al., which was previously pending
in the Supreme Court of New York, New York County, and instituted on October 21,
1997, was dismissed without prejudice on April 15, 1998.
Conclusion
Registrant's counsel have advised that on the basis of their
investigations generally with respect to suits and claims of this character,
Registrant has meritorious defenses to the above-mentioned actions.
Management believes that there are meritorious defenses to the
above-mentioned 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 Registrant as long as the Indemnitors continue to fulfill their
obligations to indemnify Registrant under the aforementioned indemnification
agreement (see "Overview" above).
(b) Reference is made to Note 9, "Pending Litigation", in the Notes to
Condensed Consolidated Financial Statements set forth in Part I, Item 1 of this
Quarterly Report on Form 10-Q.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------ ---------------------------------------------------
(a) The Annual Meeting of Stockholders was held on April 28, 1998.
(c)(i) Registrant's Certificate of Incorporation provides for the
classification of the Board of Directors into three classes, as nearly equal in
number as possible, with staggered terms of office and provides that upon the
expiration of the term of office for a class of directors, nominees for such
class shall be elected for a term of three years or until their successors are
duly elected and qualified. The four nominees for Class III directors, Mr. John
T. Ludes, Ms. Anne M. Tatlock, Mr. John W. Thompson and Mr. Peter M. Wilson,
were elected by a plurality of the combined votes cast by the holders of
Registrant's Common Stock and $2.67 Convertible Preferred Stock voting thereon:
(A) Mr. Ludes: 147,870,850 votes for and 2,623,008 votes withheld;
(B) Ms. Tatlock: 147,829,327 votes for and 2,664,531 votes withheld;
(C) Mr. Thompson: 147,817,579 votes for and 2,676,279 votes withheld;
(D) Mr. Wilson: 147,844,015 votes for and 2,649,843 votes withheld.
(c)(ii) A proposal (designated Item 2 and set forth in Registrant's
Proxy Statement), approved by the Board of Directors, to elect Coopers & Lybrand
L.L.P. independent accountants of Registrant for the year 1998 was approved by a
majority of the combined votes cast by the holders of Registrant's Common Stock
and $2.67 Convertible Preferred Stock voting thereon: 149,299,039 affirmative
votes; 803,476 negative votes; and 391,343 votes abstained.
(c)(iii) A proposal (designated Item 3 and set forth in Registrant's
Proxy Statement) requesting the elimination of election of directors by classes
was defeated by a majority of the combined votes cast by the holders of
Registrant's Common Stock and $2.67 Convertible Preferred Stock voting thereon:
70,733,680 negative votes; 59,742,623 affirmative votes; 2,623,724 votes
abstained; and 18,586,094 broker non-votes.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
- ------ --------------------------------
(a) Exhibits.
--------
3(ii)(a) Amendment to By-laws of Registrant.
3(ii)(b) By-laws of Registrant as in effect on the date
hereof.
10a1. Amendment to Registrant's Non-Employee Director
Stock Option Plan constituting Exhibit 10b1 to
Registrant's Quarterly Report on
Form 10-Q dated August 12, 1997.
12. Statement re computation of ratio of earnings to
fixed charges.
15. Letter from PricewaterhouseCoopers LLP dated
August 12, 1998 re unaudited financial
information.
27. Financial Data Schedule (Article 5).
In lieu of filing certain instruments with respect to long-term debt
of the kind described in Item 601(b)(4) of Regulation S-K, Registrant agrees to
furnish a copy of such instruments to the Securities and Exchange Commission
upon request.
(b) Reports on Form 8-K.
-------------------
Registrant filed a Current Report on Form 8-K, dated April 1, 1998, in
respect of Registrant's issuance and sale of $200,000,000 aggregate
principal amount of its 6-1/4% Notes Due 2008 in an underwritten public
offering (Items 5 and 7(c)).
Registrant filed a Current Report on Form 8-K, dated April 22, 1998, in
respect of Registrant's press release dated April 22, 1998 announcing
Registrant's financial results for the three-month period ended March
31, 1998 (Items 5 and 7(c)).
Registrant filed a Current Report on Form 8-K, dated June 3, 1998, in
respect of Registrant's press release dated June 3, 1998 announcing
that Registrant had entered into a definitive agreement to purchase
assets of Schrock Cabinet Company (Items 5 and 7(c)).
Registrant filed a Current Report on Form 8-K, dated June 15, 1998, in
respect of Registrant's press release dated June 12, 1998 announcing
that Registrant had completed the purchase of assets of Schrock Cabinet
Company (Items 5 and 7(c)).
Registrant filed a Current Report on Form 8-K, dated July 1, 1998, in
respect of Registrant's issuance and sale of $200,000,000 aggregate
principal amount of its 6-5/8% Debentures Due 2028 in an underwritten
public offering (Items 5 and 7(c)).
Registrant filed a Current Report on Form 8-K, dated July 24, 1998, in
respect of (i) Registrant's press release dated July 22, 1998
announcing that Registrant had entered into a definitive agreement to
purchase Geyser Peak Winery and (ii) Registrant's press release dated
July 25, 1998 announcing Registrant's financial results for the
three-month and six-month periods ended June 30, 1998 (Items 5 and
7(c)).
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
FORTUNE BRANDS, INC.
--------------------
(Registrant)
Date: August 12, 1998 By /s/ C. P. Omtvedt
--------------- -----------------------
C. P. Omtvedt
Senior Vice President and
Chief Accounting Officer
<PAGE>
EXHIBIT INDEX
-------------
Sequentially
Exhibit Numbered Page
- ------- -------------
3(ii)(a) Amendment to By-laws of Registrant.
3(ii)(b) By-laws of Registrant as in effect on the date
hereof.
10a1. Amendment to Registrant's Non-Employee Director
Stock Option Plan constituting Exhibit 10b1 to
Registrant's Quarterly Report on Form 10-Q dated
August 12, 1997.
12. Statement re computation of ratio of earnings to
fixed charges.
15. Letter from PricewaterhouseCoopers LLP dated
August 12, 1998 re unaudited financial information.
27. Financial Data Schedule (Article 5).
EXHIBIT 3(ii)a
FORTUNE BRANDS, INC.
BY-LAW AMENDMENT
ADOPTED ON JULY 28, 1998
EFFECTIVE JULY 28, 1998
Article I, Section 1 was amended to read in its entirety as follows:
Section 1. The number of directors constituting the entire Board of
Directors of the Company shall be fixed at thirteen. The number of the directors
may be altered by amendment of these By-laws, which amendment may be adopted at
any regular or special meeting of the Board of Directors by the affirmative vote
of at least two-thirds of all the directors then in office.
EXHIBIT 3(ii)b
--------------
BY-LAWS
of
FORTUNE BRANDS, INC.
(As Amended)
ARTICLE I
Directors
Section 1. The number of directors constituting the entire Board of
Directors of the Company shall be fixed at thirteen. The number of the directors
may be altered by amendment of these By-laws, which amendment may be adopted at
any regular or special meeting of the Board of Directors by the affirmative vote
of at least two-thirds of all the directors then in office.
Section 2. Each director shall hold office until his successor is
elected and qualified or until his earlier resignation or removal. Any director
of the Company may resign at any time upon written notice to the Company. Except
as otherwise provided for, or fixed by, or pursuant to the provisions of Article
IV of the Certificate of Incorporation relating to the rights of the holders of
any class or series of stock having a preference over the
7-28-98
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2 BY-LAWS
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Common Stock, newly created directorships resulting from any increase in the
number of directors or any vacancy on the Board of Directors resulting from
death, resignation, disqualification, removal or other cause shall be filled
solely by the affirmative vote of a majority of the remaining directors then in
office, even though less than a quorum of the Board of Directors, or by a sole
remaining director.
Section 3. In order to qualify to hold office as a director of the
Company, a person must hold at least one share of stock of the Company.
Section 4. The directors may hold their meetings and have an office and
keep the books of the Company in Old Greenwich, Connecticut, or elsewhere
outside of the State of Delaware.
Section 5. The Board of Directors, by resolution adopted by a majority
of the entire Board, may appoint from among its members an Executive Committee
which shall have at least three members. To the extent provided in such
resolution, such committee shall have and may exercise all the powers and
authority of the Board, including the power to authorize the seal of the Company
to be affixed to all papers that require it, except that such
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BY-LAWS 3
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committee shall not have such power and authority in reference to
(1) amending the Certificate of Incorporation (except that
such committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by
the Board of Directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix the designations and any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the Company or the
conversion into, or the exchange of such shares for, shares of any
other class or classes or any other series of the same or any other
class or classes of stock of the Company or fix the number of shares of
any series of stock or authorize the increase or decrease of the shares
of any series);
(2) adopting an agreement of merger or consolidation under
Sections 251 or 252 of the General Corporation Law of
Delaware;
(3) recommending to the stockholders any action that requires
stockholders' approval;
1-1-86
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4 BY-LAWS
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(4) making, amending or repealing any By-law of the Company;
(5) electing or appointing any director, or removing any
officer or director;
(6) amending or repealing any resolution theretofore adopted
by the Board of Directors;
(7) fixing compensation of the directors for serving on the
Board of Directors or on any committee; or
(8) unless the resolution shall expressly so provide,
declaring a dividend, authorizing the issuance of stock or
adopting a certificate of ownership and merger pursuant to
Section 253 of the General Corporation Law of Delaware.
Actions taken at a meeting of such committee shall be reported to the
Board of Directors at its next meeting following such committee meeting; except
that, when the meeting of the Board is held within two days after the committee
meeting, such report shall be made to the Board at either its first or second
meeting following such committee meeting.
1-1-86
<PAGE>
BY-LAWS 5
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ARTICLE II
Meetings of Stockholders
Section l. The annual meeting of the stockholders of the Company for
the election of directors, and such other business as may properly come before
the meeting, shall be held at such place as may from time to time be designated
by the directors, on the first Wednesday of May, at ten o'clock in the forenoon,
or at such other hour as the directors may designate, or on such other day and
at such hour as the directors may designate. If the day fixed for the meeting is
a legal holiday, the meeting shall be held at the same hour on the next business
day which is not a legal holiday.
Section 2. Special meetings of the stockholders, to be held at such
place as may from time to time be designated by the directors, may be called
only by the Chairman of the Board, the President or the Board of Directors, by
resolution adopted by a majority of the entire Board, for such purposes as shall
be specified in the call.
Section 3. Except as otherwise provided by law, due notice of each
annual meeting of the stockholders shall be given by a written or printed notice
signed by the Secretary
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<PAGE>
6 BY-LAWS
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or an Assistant Secretary of the Company and mailed, postage prepaid, at least
ten days prior to such meeting to each stockholder of record entitled to vote
thereat appearing on the books of the Company at the address given thereon.
Due notice of each special meeting shall be given also in the manner
above provided. The notice shall state the object of the special meeting, and no
other business shall be transacted at such meeting.
Section 4. The holders of a majority in voting power of the outstanding
shares of capital stock entitled to vote, present in person or represented by
proxy, shall constitute a quorum at a meeting of stockholders. Except as
otherwise required by law or the Certificate of Incorporation, the affirmative
vote of shares representing a majority in voting power of the shares present in
person or represented by proxy at a meeting at which a quorum is present and
entitled to vote on the subject matter shall be the act of the stockholders, and
except that directors shall be elected by a plurality of votes cast at an
election. The stockholders present at a duly convened meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
10-30-90
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BY-LAWS 7
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Section 5. Each meeting of the stockholders, whether annual or special,
shall be presided over by the Chairman of the Board if present, and if he is not
present by the President if present. If neither officer specified in the
preceding sentence is present, the meeting shall be presided over by the person
designated in writing by the Chairman of the Board, or if the Chairman of the
Board has made no designation, by the person designated by the President, or if
the President has made no designation, by the person designated by the Board of
Directors. If neither officer specified in the first sentence of this section is
present, and no one designated by the Chairman of the Board or the President or
the Board of Directors is present, the meeting may elect any stockholder of
record who is entitled to vote for directors, or any person present holding a
proxy for such a stockholder, to preside. The Secretary of the Company (or in
his absence any Assistant Secretary) shall be the Secretary of any such meeting;
in the absence of the Secretary and Assistant Secretaries, any person may be
elected by the meeting to act as Secretary of the meeting.
Section 6. Any voting proxy given by a stockholder must be in writing,
executed by the stockholder, or, in lieu thereof, to the extent permitted by
law, may be transmitted in a telegram, cablegram or other means of
10-30-90
<PAGE>
8 BY-LAWS
- -------------------------------------------------------------------------------
electronic transmission setting forth or submitted with information from which
it can be determined that the telegram, cablegram or other electronic
transmission was authorized by the stockholder. A copy, facsimile transmission
or other reliable reproduction of a written or electronically-transmitted proxy
authorized by this Section 6 may be substituted for or used in lieu of the
original writing or electronic transmission to the extent permitted by law.
Section 7. Any previously scheduled annual or special meeting of
stockholders may, by resolution of the Board of Directors, be postponed upon
public announcement made prior to the date previously scheduled for such meeting
of stockholders. For purposes of this Article II, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Company with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended. The
person presiding over any meeting of stockholders, or a majority of the voting
power of the shares entitled to vote, present in person or represented by proxy,
even if less than a quorum, may adjourn the meeting from time to time. No notice
of the time and
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<PAGE>
BY-LAWS 9
- -------------------------------------------------------------------------------
place of adjourned meetings need be given except as required by law.
Section 8. The directors shall appoint one or more inspectors of
election and of the vote at any time prior to the date of any meeting of
stockholders at which an election is to be held or a vote is to be taken. In the
event any inspector so appointed is absent from such meeting or for any other
reason fails to act as such at the meeting, the person presiding pursuant to
these By-laws may appoint a substitute who shall have all the powers and duties
of such inspector. The inspector or inspectors so appointed shall act at such
meeting, make such reports thereof and take such other action as shall be
provided by law and as may be directed by the person presiding over the meeting.
Each inspector, before entering upon the discharge of his duties, shall take and
sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his ability.
Section 9. The directors may, at any time prior to any annual or
special meeting of the stockholders, adopt an order of business for such meeting
which shall be the order of business to be followed at such meeting. The date
and time of the opening and the closing of the polls for each matter upon which
the stockholders will vote at
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<PAGE>
10 BY-LAWS
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such meeting shall be announced at such meeting by the person presiding over
such meeting.
Section l0. At any meeting of stockholders a stock vote shall be taken
on any resolution or other matter presented to the meeting for action if so
ordered by the person presiding over the meeting or on the demand of any
stockholder of record entitled to vote at the meeting or any person present
holding a proxy for such a stockholder. Such order or demand for a stock vote
may be made either before or after a vote has been taken on such resolution or
other matter in a manner other than by stock vote and before or after the result
of the vote taken otherwise than by stock vote has been announced. The result of
a stock vote taken in accordance with this By-law shall supersede the result of
any vote previously taken in any manner other than by stock vote.
Section 11. (A) Nominations of persons for election to the Board of
Directors of the Company may be made as provided in the Certificate of
Incorporation. The proposal of other business to be considered by the
stockholders may be made at an annual meeting of stockholders (1) pursuant to
the Company's notice of meeting, (2) by or at the direction of the Board of
Directors or (3) by any stockholder of the Company who was a stockholder of
record at the time of giving of the notice provided for
10-30-90
<PAGE>
BY-LAWS 11
- -------------------------------------------------------------------------------
in this Section 11, who is entitled to vote thereon at the meeting and who
complies with the notice procedures set forth in this Section 11.
(B) For business (other than the nomination of persons for election to
the Board of Directors) to be properly brought before an annual meeting by a
stockholder pursuant to clause (3) of paragraph (A) of this Section 11, the
stockholder must have given timely notice thereof in writing to the Secretary of
the Company. To be timely, a stockholder's notice shall be delivered, either by
personal delivery or by United States mail, postage prepaid, to the Secretary
not later than one hundred twenty (120) days in advance of such meeting. Such
stockholder's notice shall set forth (1) a brief description of the business
desired to be brought before the meeting, the reasons for conducting such
business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made and (2) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the proposal is made (a) the name and address of such
stockholder, as they appear on the Company's books, and of such beneficial owner
and (b) the class and number of shares of the Company which are owned
beneficially and of record by such stockholder and such beneficial owner.
10-30-90
<PAGE>
12 BY-LAWS
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(C) The person presiding over an annual meeting of stockholders shall
have the power and duty to determine whether any business proposed by any
stockholder to be brought before the meeting was made in accordance with the
procedures set forth in this Section 11 and, if any proposed business is not in
compliance with this Section 11, to declare that such defective proposal shall
be disregarded.
(D) In addition to the foregoing provisions of this Section 11, a
stockholder shall comply with all applicable requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder with
respect to the matters set forth in this Section 11. Nothing in this Section 11
shall be deemed to affect any rights of stockholders to request inclusion of
proposals in the Company's proxy statement pursuant to Rule l4a-8 under such
Act.
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<PAGE>
BY-LAWS 13
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ARTICLE III
Meetings of Directors
Section 1. Regular meetings of the Board of Directors shall be held at
the office of the Company in Old Greenwich, Connecticut, or at such other place
as may from time to time be designated by the directors, the Chairman of the
Board or the President, at ten o'clock in the forenoon on the last Tuesday of
each month other than March, May, June, August and December and at three o'clock
in the afternoon on the day on which the annual meeting of stockholders is held.
If any such day shall be a holiday, the meeting scheduled for that day shall be
held on the next business day. Special meetings may be held as determined by the
Board of Directors, and may be called by the Chairman of the Board at any time
and shall be called by him on the request of three directors, or, if the
Chairman of the Board fails to call such meeting when so requested, the same may
be called by any three directors.
Section 2. No notice need be given of regular meetings of the
directors, except that at least one day's notice shall be given of any place
other than the office of the Company in Old Greenwich, Connecticut at which any
1-31-89
<PAGE>
14 BY-LAWS
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such meeting is to be held, but such notice need not be given to any director
who signs a written waiver of notice before or after the meeting. Attendance of
a director at a meeting shall constitute a waiver of notice of such meeting,
except when the director attends a meeting for the express purpose of objecting,
at the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened.
Section 3. At any meeting six directors shall constitute a quorum
unless otherwise provided for in these By-laws or in the Certificate of
Incorporation or in any applicable statute, but in no case less than one-third
of all the directors then in office.
Section 4. Members of the Board of Directors or of any Committee
thereof may participate in meetings of the Board of Directors or of such
committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and such participation shall constitute presence in person at such meeting.
Section 5. Any action required or permitted to be taken at any meeting
of the Board of Directors or of any committee thereof may be taken without a
meeting if all members of the Board of Directors or of such committee,
1-1-86
<PAGE>
BY-LAWS 15
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as the case may be, consent thereto in writing and the writing or writings are
filed with the minutes of proceedings of the Board of Directors or of such
committee.
ARTICLE IV
Officers
Section 1. The Board of Directors shall annually choose from amongst
its members a Chairman of the Board. The Board shall also annually choose a
President, an Executive Vice President, one or more Senior Vice Presidents (if
any), a principal financial officer, such other Vice Presidents (if any) as it
shall determine, a Secretary, a Treasurer and a Controller, who need not be
directors.
Section 2. The Board of Directors may elect other officers and define
their powers and duties.
Section 3. Any two offices not inconsistent with each other may be held
by the same person.
Section 4. All officers elected by the Board of Directors shall hold
office, subject to removal by the Board, until their successors are chosen and
qualified. The affirmative vote of at least two-thirds of all of the directors
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<PAGE>
16 BY-LAWS
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then in office shall be required to remove or reduce the salary of any officer
elected by the Board of Directors.
Section 5. All agents and employees shall be appointed and may be
removed by the Chairman of the Board, subject to the control of the Board of
Directors.
Section 6. Vacancies among officers of the Company shall be filled as,
and to the extent that, the Board of Directors shall determine by vote of a
majority of the directors present at any regular or special meeting at which not
less than a majority of all the directors then in office are present.
Section 7. The Chairman of the Board shall be the Chief Executive
Officer of the Company and shall have general direction of its business affairs,
subject, however, to the control of the Board of Directors. He shall, if
present, preside at all meetings of the Board of Directors and shall perform
such other duties and have such responsibilities as the Board may from time to
time determine.
Section 8. At the request of the Chairman of the Board, or in case of
his absence or disability, the President shall perform the duties of the
Chairman of the Board, subject to the control of the Board of Directors, and the
President shall have such other powers and
6-15-87
<PAGE>
BY-LAWS 17
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perform such other duties as shall at any time be delegated to him by the Board
Of Directors. The Executive Vice President and the Senior Vice Presidents (if
any) and such other Vice Presidents as shall have been chosen shall have such
powers and perform such duties as shall at any time be delegated to them by the
Board of Directors.
Section 9. The Secretary shall give the requisite notice of meetings of
stockholders and directors and shall record the proceedings of such meetings,
shall have the custody of the seal of the Company and shall affix it or cause it
to be affixed to such instruments as require the seal and attest it and, besides
his powers and duties prescribed by law, shall have such other powers and
perform such other duties as shall at any time be required of him by the Board
of Directors.
Section 10. The Assistant Secretaries shall assist the Secretary in the
discharge of his duties and shall have such powers and perform such other duties
as shall at any time be delegated to them by the Board of Directors, and in the
absence or disability of the Secretary, shall perform the duties of his office,
subject to the control of the Board.
Section 11. The Treasurer shall have charge of the funds and securities
of the Company and shall have such
6-15-87
<PAGE>
18 BY-LAWS
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powers and perform such duties as shall at any time be delegated to him by the
Board of Directors.
Section 12. The Assistant Treasurers shall assist the Treasurer in the
discharge of his duties and shall have such powers and perform such other duties
as shall at any time be delegated to them by the Board of Directors, and in the
absence or disability of the Treasurer, shall perform the duties of his office
subject to the control of the Board.
Section 13. Any other officer, agent or employee of the Company may be
required to give such security for the faithful performance of his duties as
shall be determined by the Board of Directors, who shall also determine the
custody of any security given.
ARTICLE V
Salaries
Section 1. The salaries of all officers elected by the Board of
Directors who hold offices of a rank of Vice President or above shall be fixed
by the Compensation and Stock Option Committee.
Section 2. Salaries of all other officers elected by the Board and all
other agents and employees shall be fixed by or in the manner determined by the
Board.
3-1-93
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BY-LAWS 19
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Section 3. The Board of Directors, by the affirmative vote of a
majority of directors in office and irrespective of any personal interest of any
directors, shall have authority to establish reasonable compensation of
directors for services to the Company as directors, officers or otherwise,
except that the Compensation and Stock Option Committee, by the affirmative vote
of a majority of Committee members in office and irrespective of any personal
interest of any Committee members or other directors, shall have authority to
establish such compensation of directors who also are officers elected by the
Board and hold offices of a rank of Vice President or above.
ARTICLE VI
Seal
Section 1. The Seal of the Company shall be in such form as the Board
of Directors may from time to time prescribe and it may be used by causing it or
a facsimile thereof to be impressed or affixed or in any other manner
reproduced.
ARTICLE VII
Signatures on Commercial
Instruments and Contracts
Section 1. All checks or bank drafts shall be signed
3-1-93
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20 BY-LAWS
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by any two of the following named officers: Chairman of the Board, President,
the principal financial officer, the principal accounting officer, any Vice
President, Secretary, any Assistant Secretary, Treasurer, any Assistant
Treasurer, Controller, any Assistant Controller; and in such other manner as the
Board of Directors may from time to time designate.
Section 2. All notes or other obligations or contracts shall be signed
by the Chairman of the Board, the President, the principal financial officer,
the principal accounting officer, or any Vice President and also by one of the
following officers: the Secretary, an Assistant Secretary, the Treasurer, an
Assistant Treasurer, the Controller, or an Assistant Controller (provided that
no individual shall sign the same instrument in two capacities), or shall be
signed by the Chairman of the Board, the President, the principal financial
officer, the principal accounting officer, or any Vice President, with the
corporate seal or a facsimile thereof affixed thereto or imprinted thereon,
attested by the Secretary or an Assistant Secretary; or such notes, obligations
or contracts shall be signed in such manner and by one or more of such officers
or other persons on behalf of the Company as the Board of Directors may from
time to time authorize or direct. When and as authorized or directed by the
Board of Directors, the signatures of such officers or
6-15-87
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BY-LAWS 21
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other persons or any of them signing on behalf of the Company may be facsimiles.
ARTICLE VIII
Capital Stock
Section 1. Certificates of the capital stock of the Company shall be
issued for shares duly numbered and registered in the order of their issue, and
shall be in the form the directors shall prescribe.
Section 2. The capital stock shall be transferable on the transfer
books of the Company, subject to these By-laws, by the owner in person, or by
attorney or legal representative, written evidence of whose authority shall be
filed with the Company.
Section 3. No transfer of capital stock can be required except upon
surrender and cancellation of the certificate representing the same.
Section 4. The Board of Directors may at any time, in its discretion,
appoint one or more transfer agents or registrars of the shares of stock of the
Company and terminate the appointment of any transfer agent or registrar. The
Board of Directors may also designate the Company to perform such functions
alone or in conjunction with one or more other transfer agents or registrars.
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22 BY-LAWS
- -------------------------------------------------------------------------------
Section 5. (A) For the purpose of determining the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or for the purpose of determining stockholders entitled to receive
payment of any dividend or allotment of any right, or for the purpose of any
other action, the Board of Directors may fix, in advance, a date as the record
date for any such determination of stockholders. Such date shall be not more
than 60 nor less than 10 days before the date of such meeting, nor more than 60
days prior to any other action.
(B) When a determination of stockholders of record entitled to notice
of or to vote at any meeting of stockholders has been made as provided in this
Section 5, such determination shall apply to any adjournment thereof, unless the
Board of Directors fixes a new record date under this Section 5 for the
adjourned meeting.
ARTICLE IX
Committee on Conflicts of Interests
Section 1. The Board of Directors, by resolution adopted by a majority
of the entire Board, shall appoint a Committee on Conflicts of Interests which
shall have at
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<PAGE>
BY-LAWS 23
- -------------------------------------------------------------------------------
least three members. To the extent provided by resolution of the Board, such
committee shall have the power to interpret, administer and apply the policies
of the Company as established by the Board from time to time with respect to
conflicts of interests.
ARTICLE X
Dividends
Section 1. Dividends on the Preferred Stock and the Common Stock of the
Company may be declared by the Board of Directors, at any regular or special
meeting, as provided by law and the Certificate of Incorporation.
ARTICLE XI
Amendments
Section 1. The Board of Directors shall, except as otherwise provided
in these By-laws or the Certificate of Incorporation, have the power to alter,
amend or repeal these By-laws at any meeting by the affirmative vote of
two-thirds of the directors then in office, provided notice of the proposed
alteration, amendment or repeal be given in writing to each of the directors,
and provided also that
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24 BY-LAWS
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no alteration, amendment or repeal of a specification in any section of these
By-laws of a stated fraction of directors as the minimum number whose presence
or vote is requisite for action under such section may be made without the
presence or vote or both, as the case may be, of the minimum number so
specified.
ARTICLE XII
[Repealed effective April 30, 1997.]
4-30-97
<PAGE>
25 BY-LAWS
- -------------------------------------------------------------------------------
ARTICLE XIII
Indemnification
Section 1. (A) Each person (an "indemnitee") who was or is made or
threatened to be made a party to or was or is involved (as a witness or
otherwise) in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding"), by reason of the
fact that he or she or a person of whom
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<PAGE>
BY-LAWS 26
- -------------------------------------------------------------------------------
he or she is the legal representative was or is a director, officer or employee
of the Company or was or is serving at the request of the Company as a director,
officer, employee or agent of another corporation or of a partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, whether the basis of such proceeding was or is alleged action in
an official capacity as a director, officer, employee or agent or in any other
capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Company to the fullest extent permitted by
the General Corporation Law of the State of Delaware as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Company to provide broader indemnification
rights than said law permitted the Company to provide prior to such amendment),
against all expense, liability and loss (including attorneys' fees and retainers
therefor, judgments, fines, excise taxes or penalties under the Employee
Retirement Income Security Act of 1974, as amended, and amounts paid in
settlement) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to
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<PAGE>
27 BY-LAWS
- -------------------------------------------------------------------------------
the benefit of his or her heirs, executors and administrators; provided,
however, that except as provided in Section 3 of this Article XIII with respect
to proceedings seeking to enforce rights to indemnification, the Company shall
indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the Board of Directors of the Company.
(B) The right to indemnification conferred in this Article XIII is and
shall be a contract right. The right to indemnification conferred in this
Article XIII shall include the right to be paid by the Company the expenses
(including attorneys' fees and retainers therefor) reasonably incurred in
connection with any such proceeding in advance of its final disposition, such
advances to be paid by the Company within 20 days after the receipt by the
Company of a statement or statements from the indemnitee requesting such advance
or advances from time to time; provided, however, that if the General
Corporation Law of the State of Delaware requires, the payment of such expenses
incurred by a director or officer in his or her capacity as a director or
officer (and not in any other capacity in which service was or is rendered by
such person while a director or officer, including, without
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<PAGE>
BY-LAWS 28
- -------------------------------------------------------------------------------
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to the Company of
an undertaking by or on behalf of such director or officer, to repay all amounts
so advanced if it shall ultimately be determined that such director or officer
is not entitled to be indemnified under this Article XIII or otherwise.
Section 2. (A) To obtain indemnification under this Article XIII, an
indemnitee shall submit to the Company a written request, including therein or
therewith such documentation and information as is reasonably available to the
indemnitee and is reasonably necessary to determine whether and to what extent
the indemnitee is entitled to indemnification. Upon written request by an
indemnitee for indemnification pursuant to the first sentence of this Section
2(A), a determination, if required by applicable law, with respect to the
indemnitee's entitlement thereto shall be made as follows: (1) if requested by
the indemnitee, by Independent Counsel (as hereinafter defined), or (2) if no
request is made by the indemnitee for a determination by Independent Counsel,
(a) by the Board of Directors by a majority vote of a quorum consisting of
Disinterested Directors (as hereinafter defined), or (b) if a quorum of the
Board of Directors consisting of Disinterested Directors is not
10-30-90
<PAGE>
29 BY-LAWS
- -------------------------------------------------------------------------------
obtainable or, even if obtainable, such quorum of Disinterested Directors so
directs, by Independent Counsel in a written opinion to the Board of Directors,
a copy of which shall be delivered to the indemnitee, or (c) by the stockholders
of the Company. In the event the determination of entitlement to indemnification
is to be made by Independent Counsel at the request of the indemnitee, the
Independent Counsel shall be selected by the indemnitee unless the indemnitee
shall request that such selection be made by the Board of Directors, in which
event the Independent Counsel shall be selected by the Board of Directors. If it
is so determined that the indemnitee is entitled to indemnification, payment to
the indemnitee shall be made within 10 days after such determination.
(B) In making a determination with respect to entitlement to
indemnification hereunder, the person, persons or entity making such
determination shall presume that the indemnitee is entitled to indemnification
under this Article XIII, and the Company shall have the burden of proof to
overcome that presumption in connection with the making by any person, persons
or entity of any determination contrary to that presumption.
Section 3. (A) If a claim under Section 1 of this Article XIII is not
paid in full by the Company within
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<PAGE>
BY-LAWS 30
- -------------------------------------------------------------------------------
30 days after a written claim pursuant to Section 2(A) of this Article XIII has
been received by the Company, or if an advance is not made within 20 days after
a request therefor pursuant to Section 1(B) of this Article XIII has been
received by the Company, the indemnitee may at any time thereafter bring suit
(or, at the indemnitee's option, an arbitration proceeding before a single
arbitrator pursuant to the rules of the American Arbitration Association)
against the Company to recover the unpaid amount of the claim or the advance
and, if successful in whole or in part, the indemnitee shall be entitled to be
paid also the expense of prosecuting such claim. It shall be a defense to any
such suit or proceeding (other than a suit or proceeding brought to enforce a
claim for expenses incurred in connection with any proceeding in advance of its
final disposition where the required undertaking, if any is required, has been
tendered to the Company) that the indemnitee has not met the standards of
conduct which make it permissible under the General Corporation Law of the State
of Delaware for the Company to indemnify the indemnitee for the amount claimed
or that such indemnification otherwise is not permitted under the General
Corporation Law of the State of Delaware, but the burden of proving such defense
shall be on the Company.
10-30-90
<PAGE>
31 BY-LAWS
- -------------------------------------------------------------------------------
(B) Neither the failure of the Company (including its Board of
Directors, Independent Counsel or stockholders) to have made a determination
prior to the commencement of such action that indemnification of the indemnitee
is proper in the circumstances because he or she has met the applicable standard
of conduct set forth in the General Corporation Law of the State of Delaware,
nor an actual determination by the Company (including its Board of Directors,
Independent Counsel or stockholders) that the indemnitee has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that the indemnitee has not met the applicable standard of conduct.
(C) If a determination shall have been made pursuant to Section 2(A) of
this Article XIII that the indemnitee is entitled to indemnification, the
Company shall be bound by such determination in any judicial proceeding or
arbitration commenced pursuant to paragraph (A) of this Section 3.
(D) The Company shall be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to paragraph (A) of this Section 3
that the procedures and presumptions of this Article XIII are not valid, binding
and enforceable and shall stipulate in any
10-30-90
<PAGE>
BY-LAWS 32
- -------------------------------------------------------------------------------
such court or before any such arbitrator that the Company is bound by all the
provisions of this Article XIII.
Section 4. The right to indemnification and the payment of expenses
incurred in connection with a proceeding in advance of its final disposition
conferred in this Article XIII shall not be exclusive of any other right which
any person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, By-laws, agreement, vote of stockholders or
Disinterested Directors or otherwise.
Section 5. The Company may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Company or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Company would have
the power to indemnify such person against such expense, liability or loss under
the General Corporation Law of the State of Delaware. To the extent that the
Company maintains any policy or policies providing such insurance, each such
director, officer or employee, and each such agent to which rights to
indemnification have been granted as provided in Section 6 of this Article XIII,
shall be covered by such policy or policies in accordance with its or their
terms to the
10-30-90
<PAGE>
33 BY-LAWS
- -------------------------------------------------------------------------------
maximum extent of the coverage thereunder for any such director, officer,
employee or agent.
Section 6. The Company may, to the extent authorized from time to time
by the Board of Directors, grant rights to indemnification, and rights to be
paid by the Company the expenses incurred in connection with any proceeding in
advance of its final disposition, to any agent of the Company to the fullest
extent of the provisions of this Article XIII with respect to the
indemnification and advancement of expenses of directors, officers and employees
of the Company.
Section 7. If any provision or provisions of this Article XIII shall be
held to be invalid, illegal or unenforceable for any reason whatsoever: (A) the
validity, legality and enforceability of the remaining provisions of this
Article XIII (including without limitation, each portion of any Section of this
Article XIII containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid, illegal or unenforceable) shall not
in any way be affected or impaired thereby; and (B) to the fullest extent
possible, the provisions of this Article XIII (including, without limitation,
each portion of any Section of this Article XIII containing any such provision
held to be invalid, illegal or unenforceable) shall be
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<PAGE>
BY-LAWS 34
- -------------------------------------------------------------------------------
construed so as to give effect to the intent manifested by the provision held
invalid, illegal or unenforceable.
Section 8. For purposes of this Article XIII:
(A) "Disinterested Director" means a director of the Company who is not
and was not a party to the matter in respect of which indemnification is sought
by the indemnitee.
(B) "Independent Counsel" means a law firm, or a member of a law firm,
that is experienced in matters of corporation law and neither presently is, nor
in the past five years has been, retained to represent: (1) the Company or the
indemnitee in any matter material to either such party, or (2) any other party
to the matter giving rise to a claim for indemnification. Notwithstanding the
foregoing, the term "Independent Counsel" shall not include any person who,
under the applicable standards of professional conduct then prevailing, would
have a conflict of interest in representing either the Company or the indemnitee
in an action to determine the indemnitee's rights under this Article XIII.
Section 9. Any notice, request or other communication required or
permitted to be given to the Company under this Article XIII shall be in writing
and either
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<PAGE>
35 BY-LAWS
- -------------------------------------------------------------------------------
delivered in person or sent by telecopy, telex, telegram or certified or
registered mail, postage prepaid, return receipt requested, to the Secretary of
the Company and shall be effective only upon receipt by the Secretary.
EXHIBIT 10a1
AMENDMENT TO THE FORTUNE BRANDS, INC.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
Section 6(d) of the Fortune Brands, Inc. Non-employee Director Stock
Option Plan is hereby amended in its entirety as follows:
(d) No Option or portion thereof shall be transferable
by the Participant otherwise than by will or by the laws of
descent and distribution, except that an Option may be
transferred by gift to any member of the holder's immediate
family or to a trust or partnership solely for the benefit
of such immediate family members to the extent permitted in
the applicable Option Agreement. During the lifetime of the
Participant, an Option shall be exercisable only by the
Participant unless it has been transferred to a member of
the holder's immediate family or to a trust or partnership
solely for the benefit of such immediate family members, in
which case it shall be exercisable only by such transferee.
For the purpose of this provision, a holder's "immediate
family" shall mean the holder's spouse, children and
grandchildren.
EXHIBIT 12
----------
FORTUNE BRANDS, INC. AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollar amounts in millions)
<TABLE>
<CAPTION>
Six Months
Ended
Years Ended December 31, June 30,
--------------------------------------------------------------- -------------
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Earnings Available:
Income from continuing operations
before income taxes, minority
interest and extraordinary items......... $249.9 $ 43.4 $358.9 $340.1 $145.2 $143.1
Less: Excess of earnings over
dividends of less than
fifty percent owned
companies...................... 0.1 - 0.2 0.2 0.2 0.1
Capitalized interest................. 0.3 0.2 - 0.3 - -
------ ------ ------ ------ ------ -----
249.5 43.2 358.7 339.6 145.0 143.0
====== ====== ====== ====== ====== =====
Fixed Charges:
Interest expense (including
capitalized interest) and
amortization of debt discount
and expenses............................. 200.5 184.6 147.1 172.6 122.4 52.0
Portion of rentals representative
of an interest factor.................... 11.9 12.8 13.5 15.1 14.7 8.9
------ ------ ------ ------ ------ ------
Total Fixed Charges................ 212.4 197.4 160.6 187.7 137.1 60.9
------ ------ ------ ------ ------ ------
Total Earnings Available........... $461.9 $240.6 $519.3 $527.3 $282.1 $203.9
====== ====== ====== ====== ====== ======
Ratio of Earnings to Fixed Charges............ 2.17 1.22 3.23 2.81 2.06 3.35
==== ==== ==== ==== ==== ====
</TABLE>
EXHIBIT 15
----------
August 12, 1998
Securities and Exchange Commission
450 5th Street, N.W.
Attention: Filing Desk, Stop 1-4
Washington, D.C. 20549-1004
Re: Fortune Brands, Inc.
We are aware that our report dated August 12, 1998, on our review of
interim financial information of Fortune Brands, Inc. and Subsidiaries for the
three-month and six-month periods ended June 30, 1998 and 1997 included in this
Form 10-Q, has been incorporated by reference into (a) the Registration
Statement on Form S-8 (Registration No. 33-64071) relating to the Defined
Contribution Plan of Fortune Brands, Inc. and Participating Operating Companies,
the Registration Statement on Form S-8 (Registration No. 33-64075) relating to
the MasterBrand Industries, Inc. Hourly Employee Savings Plan, the Registration
Statement on Form S-8 (Registration No. 33-58865) relating to the 1990 Long-Term
Incentive Plan of Fortune Brands, Inc., the Registration Statement on Form S-8
(Registration No. 333-51173) relating to the Fortune Brands, Inc. Non-Employee
Director Stock Option Plan, and the prospectuses related thereto, and (b) the
prospectuses related to the Registration Statements on Form S-3 (Registration
Nos. 33-50832, 33-42397, 33-23039 and 33-3985) of Fortune Brands, Inc. Pursuant
to Rule 436(c) under the Securities Act of 1933, this report should not be
considered a part of such registration statements or prospectuses or
certification by us within the meaning of Sections 7 and 11 of that Act.
Very truly yours,
PricewaterhouseCoopers LLP
1301 Avenue of the Americas
New York, New York 10019
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AND RELATED STATEMENT OF INCOME AS
OF JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> $ 90
<SECURITIES> 0
<RECEIVABLES> 999
<ALLOWANCES> 61
<INVENTORY> 1,034
<CURRENT-ASSETS> 2,293
<PP&E> 2,019
<DEPRECIATION> 989
<TOTAL-ASSETS> 7,281
<CURRENT-LIABILITIES> $2,000
<BONDS> 782
<COMMON> 717
0
11
<OTHER-SE> 3,350
<TOTAL-LIABILITY-AND-EQUITY> 7,281
<SALES> $2,530
<TOTAL-REVENUES> 2,530
<CGS> 1,287
<TOTAL-COSTS> 1,287
<OTHER-EXPENSES> 199
<LOSS-PROVISION> 5
<INTEREST-EXPENSE> 50
<INCOME-PRETAX> 238
<INCOME-TAX> 97
<INCOME-CONTINUING> 141
<DISCONTINUED> 0
<EXTRAORDINARY> (31)
<CHANGES> 0
<NET-INCOME> $110
<EPS-PRIMARY> $.63
<EPS-DILUTED> $.62
</TABLE>
