UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
July 24, 1998 (July 22, 1998)
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Date of Report (Date of earliest event reported)
FORTUNE BRANDS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 1-9076 13-3295276
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
l700 East Putnam Avenue, Old Greenwich, Connecticut 06870-0811
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 698-5000
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<PAGE>
INFORMATION TO BE INCLUDED IN THE REPORT
Item 5. Other Events.
- ------ ------------
Registrant's press releases dated July 22, 1998 and July 24, 1998 are
filed herewith as Exhibits 20a and 20b, respectively, and are incorporated
herein by reference.
Item 7. Financial Statements and Exhibits.
- ------ ---------------------------------
(c) Exhibits.
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20a. Press release of Registrant dated July 22, 1998.
20b. Press release of Registrant dated July 24, 1998.
SIGNATURE
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Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this Current Report to be signed on its
behalf by the undersigned thereunto duly authorized.
FORTUNE BRANDS, INC.
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(Registrant)
By C. P. Omtvedt
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C. P. Omtvedt
Senior Vice President and
Chief Accounting Officer
Date: July 24, 1998
<PAGE>
EXHIBIT INDEX
Sequentially
Exhibit Numbered Page
- ------- -------------
20a. Press release of Registrant dated
July 22, 1998.
20b. Press release of Registrant dated
July 24, 1998.
Exhibit 20a.
[GRAPHIC OMITTED]
NEWS RELEASE
NEWS RELEASE
Fortune Brands, Inc., 1700 East Putnam Avenue, Old Greenwich, CT 06870
NEWS RELEASE
Contact:
Anthony J. Diaz
(203)698-5553
FORTUNE BRANDS ANNOUNCES AGREEMENT TO ACQUIRE
GEYSER PEAK WINERY -- LEVERAGING DISTILLED SPIRITS DISTRIBUTION
Old Greenwich, CT, July 22, 1998 -- Fortune Brands, Inc. (NYSE-FO), the consumer
products company, announced today that its distilled spirits business has
entered into a definitive agreement to purchase the Geyser Peak wine business
for $59 million plus funds to retire approximately $35 million in debt. In a
related transaction, adjacent vineyard property will be purchased for $6
million.
With annual volume of approximately half a million cases, the Geyser
Peak Winery is a leader in a variety of fast-growing California premium wine
categories. Premium California wine sales have been growing at an annual rate of
15% over the past five years, and Geyser Peak's 1997 sales reached $35 million,
up 18%.
The winery and its flagship Geyser Peak brand have a premier
reputation, worldwide. At the 1998 International Wine & Spirit Competition last
month in London, Geyser Peak won the coveted "Winemaker of the Year" as well as
the Best Blended Red Wine Worldwide Award. This past year, it was the top winner
in several wine competitions, including "Winery of the Year" at the San
Francisco International Wine Competition. Geyser Peak wines are available
nationally and internationally in major hotels and leading restaurants and on
leading airlines. The winery is located in Geyserville, Alexander Valley, Sonoma
County, California.
"Geyser Peak brings strong brands and excellent growth. We have
identified substantial distribution and cost synergies, and we expect the
acquisition to be non-dilutive to earnings in 1998 and modestly accretive in
1999," noted Chairman and Chief Executive Officer Thomas C. Hays.
"The premium wine category has been achieving double-digit unit and
dollar growth, Geyser Peak has been growing even faster, and we expect sales to
benefit significantly from the strong distribution capability of our Jim Beam
Brands Worldwide distilled spirits business. In turn, we expect Beam's high
margin brands to benefit from Geyser Peak's strong sales presence at on-premise
restaurant and bar accounts. This channel is very important for the growth of
new brands, such as the Small Batch Bourbons and ultra-premium tequilas. Geyser
Peak will also represent the premium Australian wine, Barwang, for the joint
venture established by Beam earlier this year with McWilliams Wines."
"We are delighted that our great brands will become part of the Fortune
Brands family," said Henry F. Trione, Chairman and CEO of Geyser Peak Winery.
"We are very confident that our fine wines, which have achieved wide acclaim
over the years, will thrive with the benefit of Beam's powerful distribution."
"We're adding Geyser Peak to a spirits business that has been
performing very well," Hays added. "Operating company contribution from the
spirits brands was up 8% in the first quarter. Later this week, we expect to
announce these brands achieved excellent profit growth again in the second
quarter and that Fortune Brands had another fine quarter.
"Our strong, sustained growth reflects a strategy sharply focused on
revenue growth, cost initiatives and asset management," Hays said. "We continue
to see attractive add-on acquisition opportunities that support this strategy,
and Geyser Peak is the eighth acquisition we have announced or completed since
the beginning of last year. In total, the acquired brands have annualized sales
of around $465 million, and integration of the seven previously completed
acquisitions is right on track, creating substantial value."
The Geyser Peak Winery acquisition, which is subject to a number of
customary closing conditions, is expected to be completed in approximately 30
days. Geyser Peak wines include ultra-premium Geyser Peak Reserve and Venezia,
super-premium Geyser Peak and FoxRidge, and popular premium Canyon Road. The
industry categorizes ultra-premiums as wines selling for over $14 a bottle,
super-premiums as $7-14, and popular premiums at $5-7.
* * * *
Fortune Brands, Inc. is a consumer products company with headquarters
in Old Greenwich, Connecticut. Its operating companies have premier brands and
leading market positions in home and office products, golf equipment and
distilled spirits. Home and office brands include Moen faucets, Master locks and
Aristokraft and Schrock cabinets sold by units of MasterBrand Industries and
Day-Timer and Swingline sold by units of ACCO World Corporation. Acushnet
Company's golf brands include Titleist, Cobra and FootJoy. Major distilled
spirits brands sold by units of Jim Beam Brands Worldwide, Inc. include Jim Beam
and Knob Creek Bourbon, DeKuyper cordials and Whyte & Mackay Scotch.
* * *
This press release contains statements relating to future results,
which are forward-looking statements as that term is defined in the Private
Securities Litigation Reform Act of 1995. Actual results may differ materially
from those projected as a result of certain risks and uncertainties, including
but not limited to changes in general economic conditions, foreign exchange rate
fluctuations, competitive product and pricing pressures, the impact of excise
tax increases with respect to distilled spirits, regulatory developments, the
uncertainties of litigation, the impact of weather, particularly on the home
products and golf brand groups, expenses and disruptions related to shifts in
manufacturing to different locations and sources, delays in the integration of
recent acquisitions, as well as other risks and uncertainties detailed from time
to time in the Company's Securities and Exchange Commission filings.
# # #
Exhibit 20b.
[GRAPHIC OMITTED]
NEWS RELEASE
NEWS RELEASE
Fortune Brands, Inc., 1700 East Putnam Avenue, Old Greenwich, CT 06870
NEWS RELEASE
Contact:
Anthony J. Diaz
(203)698-5553
FORTUNE BRANDS ANNOUNCES ANOTHER STRONG QUARTER;
DILUTED E.P.S. UP 14% PRO FORMA;
REAFFIRMS GROWTH OUTLOOK FOR 1998
Old Greenwich, CT, July 24, 1998 -- Fortune Brands, Inc. (NYSE-FO), the
consumer products company, today announced strong second quarter results.
Diluted earnings per share of 50 cents were up 14% compared with last year's pro
forma earnings. Cash earnings of 65 cents per share (after adding back 15 cents
of goodwill amortization) were 30% higher than reported E.P.S. Net sales reached
$1.33 billion, up 7%.
For the six months, sales were $2.53 billion, up 8%. Diluted E.P.S. was
80 cents, up 14% compared with last year's pro forma, and cash earnings of $1.09
(after adding back 29 cents of goodwill amortization) were 36% higher than
reported E.P.S.
"Fortune Brands continued to perform very well in the second quarter,"
noted Chairman and Chief Executive Officer Thomas C. Hays, "and we expect
excellent growth for the full year. Every category achieved increases in
revenues and contribution for both the quarter and six months. The strong
earnings gains reflect excellent new product results, share gains in key markets
and sustained focus on revenue growth, cost initiatives and asset management.
The breadth of our operations and powerful consumer brands has been driving
strong, consistent growth despite ongoing challenges.
"New product successes abound. Like Moen's new PureTouch
water-filtering system, which combines a faucet with a unique built-in filter in
a stylish design. PureTouch began shipping at the beginning of the second
quarter, and orders-to-date have already doubled the full year forecast.
DeKuyper Sour Apple Pucker schnapps, introduced in April 1997, is another home
run, selling over 300,000 cases in the past 12 months and still growing. The new
Titleist Tour Distance golf ball has achieved a meteoric rise in the marketplace
since its introduction last September, becoming one of the top-selling golf
balls in the industry with a 6.9% share in just nine months. And 78 new office
products were introduced worldwide in the quarter, contributing significantly to
record sales in that category.
"With innovative new products and powerful distribution, we're
achieving some dramatic share gains. Titleist's top-grade golf ball unit market
share in the U.S., for example, has increased from 40.7% at year-end to 43.2%,
and over the past year, its dollar market share has surged from 45.6% to 50.3%.
In office products, Swingline is dramatically enhancing its position as the
number 1 stapler brand in the world. Swingline sales were up more than 14%
through mid-year, share has reached nearly 60%, and June was the best month in
the brand's history.
"We're also making excellent progress in enhancing cost competitiveness
and asset management. The restructuring activities initiated last year are
proceeding well and are already delivering significant cost savings. Notably,
construction and occupancy of two new facilities in Nogales, Mexico are on
schedule, and production of Master locks and additional office products is well
underway in Nogales. Overall, we continue to expect annual savings exceeding $50
million, much of which we're plowing back into brand development. These actions
and the cost savings add to our confidence that we can achieve our long-term
growth goal.
"Looking ahead, we expect another fine year in 1998. Our long-term
E.P.S. growth goal is 13-15%, assuming a satisfactory economic and pricing
environment. That's still our expectation for 1998, although we continue to be
adversely affected by foreign exchange and are seeing intensified pricing and
unit pressures in the golf club business.
"We're investing aggressively to enhance our portfolio of great
consumer brands, and we continue to identify add-on acquisition opportunities
that capitalize on existing brand and distribution strengths. These
opportunities enhance our confidence that we can achieve our goals.
"During the second quarter, we completed a strategically important
acquisition, and earlier this week, we announced another. In June, we acquired
Schrock Cabinet Company, a leader in the growing U.S. kitchen and bath cabinet
category. Schrock fits very effectively with our strongly performing Aristokraft
unit. On Wednesday, we announced agreement to acquire Geyser Peak Winery, a
leader with a premier reputation in fast-growing California premium wine
categories. Geyser Peak brings strong brands and an excellent growth profile to
our very profitable Jim Beam Brands distilled spirits business. We expect that
these acquisitions will be accretive to earnings in the first 12 months.
"Altogether, since the beginning of last year, we have announced or
completed eight add-on acquisitions, adding annualized sales of around $465
million for a total investment of approximately $395 million, including debt.
Integration of the seven completed acquisitions is right on track, creating
substantial value.
"So we are very upbeat about Fortune Brands' prospects, both for the
remainder of 1998 and as we look out over the next several years."
Foreign currency translation had a modestly negative impact during the
quarter. Net fluctuations in exchange rates for foreign currencies, primarily an
18% decline in the Australian dollar partially offset by a slight increase in
the British pound, adversely affected sales, operating company contribution and
E.P.S. by $14 million, $3 million and 1 cent, respectively. For the six months,
the adverse impact on sales, contribution and E.P.S. was $29 million, $6 million
and 2 cents, respectively.
Brand Highlights
:::Home and Office Products Brands:::
Home and office products sales and contribution were up 10% and 11%,
respectively, in the quarter. We've continued to capitalize on home and office
distribution strengths with high-return, add-on acquisitions. Since the
beginning of last year, we've completed six home and office acquisitions,
including the June purchase of Schrock. The addition of Schrock nearly doubles
our sales in kitchen and bath cabinets, an attractive category in which
Aristokraft already has a strong position. Schrock and Aristokraft had combined
1997 sales of $430 million, and the combination creates a strong number 2 market
presence in the U.S.
Aggressive actions to reduce costs are well underway, including
production shifts to lower cost locations and substantially increased
outsourcing.
--- Office Products ---
Sales from the office products brands rose 12% in the quarter to a
record, and contribution was up 20%. The sales increase reflects the benefit of
recent acquisitions (partially offset by 1997 divestitures) as well as very
strong unit gains, somewhat offset by continued pricing pressures from a
consolidating customer base as well as adverse currency translation. Our ACCO
World operation is the global leader in office supplies.
ACCO has completed three acquisitions over the past year. Integration
is on target, and these brands are already enhancing performance. Nobo and
Apollo Presentation Products created a strong global presence in the growing
presentation products category. The Maco brand, acquired last October, created a
presence in the fast-growing label market. A fourth brand, Gravis, a leader in
joysticks and game pads, was acquired early last year and is now fully
integrated with our Kensington computer accessories business.
North American sales in the quarter were up 15%, benefiting from
acquisitions, and were particularly strong in June, driven by strong customer
response to Back-To-School products and promotions. Even excluding acquisitions
and a 1997 disposition, North American sales were up 11%. Solid gains were
achieved for Wilson Jones binder products, ACCO punches and, as noted, Swingline
stapling products. Day-Timer sales were up double-digits, and earlier this
month, Day-Timer introduced Day-Timer Personal Pages, a highly innovative
product that provides consumers with custom-printed pages for their Day-Timer
organizers.
In Europe, sales for the quarter were up 32% including an acquisition
but also reflecting strong underlying growth. Excluding an acquisition and a
disposition, European sales were up 9%, with sales on the Continent up 12% and
U.K. sales up 7%. A notably successful new product is the revolutionary Rexel
"Bindmate" document binding machine, which has halved the cost of a binding
machine to consumers in the important small office/home office market.
Office products contribution is benefiting from wide-ranging cost
reduction and restructuring initiatives as well as acquisitions. These actions
are honing competitiveness in a category undergoing intense customer
consolidation. Despite ongoing competitive pressure, we continue to expect
double-digit sales and contribution growth from the office products brands for
the full year.
---Home Products ---
Sales and contribution from the home products brands increased 9% and
8%, respectively, in the quarter, both to records. All brands achieved solid
sales and contribution increases, with momentum at wholesale building as the
quarter progressed. Sales to retailers were generally strong throughout the
quarter.
Moen achieved a 12% sales gain, benefiting from continued rollout of
new products, last November's acquisition of the Donner bathroom accessories
brand and strong retail and wholesale sales. New-housing-related sales also
strengthened significantly in the quarter, following weather-related softness in
the first quarter. Response from the trade to new products was strong, notably
for the innovative new PureTouch water-filtering system and newly introduced
Moen decorator bath accessories. Benefiting from aggressive supply chain
management programs, including demand flow technology, Moen has continued to
drive down working capital requirements; in the quarter, working capital
efficiency reached a record level. Overall, the Moen brand posted record sales
and contribution for the six months
Master Lock, the number one padlock in the world, is continuing its
strong turnaround. For the quarter, bookings and units shipped were up 20% and
14%, respectively, driven by strong acceptance of new products and double-digit
increases in shelf facings at major retailers. Master Lock is also back on
television with a series of hard hitting campaigns. In an innovative move to
reinforce its powerful "shot lock" brand image, Master Lock has garnered
tremendous publicity by airing the first nationally broadcast 1-second
television commercial. The TV campaign also features 15- and 30-second
commercials for the new Master Lock shrouded EX and Pro Series locks and Master
Corrozex locks. Restructuring initiatives to enhance cost competitiveness are
progressing well, with production now underway in Mexico.
The kitchen and bath cabinet operations posted a 21% sales increase to
a record, benefiting from two weeks of results for newly acquired Schrock
Cabinets, but Aristokraft also had a fine quarter. Aristokraft sales were up 9%,
with solid increases in every geographic region and continued expansion of the
distributor base. Sales for Waterloo, the world leader in tool storage,
increased 6% to a record.
For the full year, we now expect double-digit sales and contribution
growth from the home products brands.
:::Golf Brands:::
The golf brands achieved record sales and contribution in the quarter,
up 8% and 4%, respectively. These gains were achieved in spite of very difficult
conditions in the golf club category.
The Titleist brand continued to perform very well, with sales up 19%,
building on a 26% increase in the first quarter. Titleist golf balls and golf
clubs both achieved strong gains. Total golf ball revenues were up 16%
year-to-date, driven by a 10% increase in top grade shipments. The new Titleist
Tour Distance, the new and improved double cover Titleist HP2 Distance golf
ball, and the new Titleist Professional are all contributing to golf ball sales
momentum. On a worldwide basis through June, Titleist won 88 professional tour
events in 1998, five times more than the nearest competitor. Titleist is also
the leader in usage and money won on the professional tours. Users include such
world ranked players as Tiger Woods, Davis Love III, David Duval, Phil
Mickelson, Ernie Els and Justin Leonard.
Total golf club revenues, including the Titleist and Cobra brands, were
up 9% for the quarter and 17% for the six months, even though the golf club
market has declined this year. The category, as has been noted by other golf
companies, has been adversely affected by lower consumer demand, resulting in a
volume decline in the U.S. market in the range of 5-10% and extensive price
discounting.
Total unit sales for our golf club brands were up 6% for the six
months, with a 2% decline in the quarter. 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 Titleist, although unit sales of irons were off 13% in the quarter,
demand for metalwoods surged. Metalwood volume tripled, compared with a year
earlier, reflecting very strong demand for Titleist Titanium drivers, and putter
volume was up as demand for the Scotty Cameron by Titleist putter continued to
grow. Overall, Titleist golf club volume declined nearly 3% in the quarter, but
revenues were up 41%, reflecting favorable product mix and firm pricing. For the
six months, Titleist club volume was up nearly 1% to nearly 1.1 million sticks,
and revenues were up 46%.
For Cobra, results were more in line with the overall market, and the
market softness is significantly impacting Cobra sales and profits. Unit sales
of Cobra irons were off 11% in the quarter, but metalwood volume was up 14%.
Putter volume surged 9-fold, reflecting powerful demand for Bobby Grace by Cobra
putters, the fastest-growing putters on the Senior PGA Tour. For the quarter,
total Cobra unit sales were off 2%, and revenues declined 8%, reflecting
category-wide pricing pressure. For the six months, Cobra units were up 10%, and
revenues were up 2%.
Sales for the FootJoy brand were flat year-to-date, reflecting very
competitive market conditions. FootJoy, the world's number 1 golf shoe, has
taken the lead in converting its entire line to spikeless or alternative cleated
outsoles. The new 1998-99 product line, featuring over 80 new styles and 13 new
turf-friendly outsoles, was introduced in June and has received very favorable
initial response. FootJoy golf glove volume was up 12% year-to-date.
For the full year, depending on evolving market conditions, we continue
to expect increases in sales and contribution, reflecting the strength and
balance of the golf brands. However, with the very soft conditions in the golf
club market, we do not expect that we will achieve, in 1998, our long-term
double-digit sales and contribution growth goals for these brands.
:::Distilled Spirits Brands:::
For the distilled spirits brands, contribution rose 6% in the quarter
to a record on a 1% increase in sales, building on strong first quarter results.
For the six months, contribution rose 7% to a record on a 3% sales increase.
Results benefited from an improved product mix, reflecting strong demand for
DeKuyper cordials and Jim Beam Bourbon, partly offset by adverse foreign
currency translation rates, particularly for the Australian dollar.
DeKuyper Sour Apple Pucker, the latest in an ongoing string of
innovative new DeKuyper product introductions, drove a 12% increase in
depletions (sales by distributors to retailers) for the DeKuyper brand in both
the quarter and six months. The success of Sour Apple has stimulated expanded
distribution and related volume increases for the entire DeKuyper line. DeKuyper
is the number 1 cordial brand in the U.S
U.S. sales increased 8% in both the quarter and six months. Beam's
estimated U.S. depletions decreased 1% year-to-date but with a favorable shift
to higher margin brands, including DeKuyper, Jim Beam -- the world's number 1
Bourbon, and the Small Batch Bourbons. The acquisition of Geyser Peak Winery
will enhance the focus on high margin brands and on-premise business, including
restaurants and bars.
Internationally, Australia is the largest export market for the
distilled spirits brands. The Australian dollar has been directly affected by
the Asian economic crisis. Compared with a year earlier, the exchange rate for
the Australian dollar was 18% lower in the quarter and 16% for the six months,
and the recent rate has been even lower. For the six months, foreign currency
translation adversely affected distilled spirits sales and contribution by $8
million and $5 million, respectively.
Despite the unsettled conditions in Asia, international results in
local currencies are up modestly year-to-date. In Australia, Jim Beam Bourbon
volume increased 9% in the second quarter after some weakness in the first
quarter, and Jim Beam premix cocktail volume increased 20%, despite a generally
weak spirits market.
Worldwide shipments of Jim Beam Bourbon were up 5%, and premix
cocktails were up 27% in the quarter.
We expect more modest contribution growth from these brands through the
remainder of 1998. With strong cash flow, these brands generate significantly
faster increases in pre-tax income.
* * * *
Fortune Brands, Inc. is a consumer products company with
headquarters in Old Greenwich, Connecticut. Its operating companies have premier
brands and leading market positions in home and office products, golf equipment
and distilled spirits. Home and office brands include Moen faucets, Master locks
and Aristokraft and Schrock cabinets sold by units of MasterBrand Industries and
Day-Timer and Swingline sold by units of ACCO World Corporation. Acushnet
Company's golf brands include Titleist, Cobra and FootJoy. Major distilled
spirits brands sold by units of Jim Beam Brands Worldwide, Inc. include Jim Beam
and Knob Creek Bourbon, DeKuyper cordials and Whyte & Mackay Scotch.
* * *
This press release contains statements relating to future results,
which are forward-looking statements as that term is defined in the Private
Securities Litigation Reform Act of 1995. Actual results may differ materially
from those projected as a result of certain risks and uncertainties, including
but not limited to changes in general economic conditions, foreign exchange rate
fluctuations, competitive product and pricing pressures, the impact of excise
tax increases with respect to distilled spirits, regulatory developments, the
uncertainties of litigation, changes in golf equipment regulatory standards, the
impact of weather, particularly on the home products and golf brand groups,
expenses and disruptions related to shifts in manufacturing to different
locations and sources, delays in the integration of recent acquisitions, as well
as other risks and uncertainties detailed from time to time in the Company's
Securities and Exchange Commission filings.
# # #
<PAGE>
FORTUNE BRANDS, INC.
CONSOLIDATED STATEMENT OF INCOME
(In millions, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30,
1998 1997 % Change
<S> <C> <C> <C>
Net Sales $1,326.2 $1,235.5 7.3
Cost of products sold 668.0 629.2 6.2
Excise taxes on distilled spirits 112.4 103.8 8.3
Advertising, selling, general
and administrative expenses 354.8 328.4 8.0
Amortization of intangibles 26.9 25.9 3.9
Restructuring and other
nonrecurring charges - 89.3 -
Interest and related expenses 25.3 30.8 (17.9)
Other (income) expenses, net (1.0) 0.7 (242.9)
Income From Continuing Operations
Before Income Taxes 139.8 27.4 410.2
Income Taxes 51.9 23.1 124.7
Income From Continuing Operations 87.9 4.3 -
Income from discontinued operations - (36.5) -
Extraordinary items (22.1) - -
Net Income $65.8 ($32.2) 304.3
Earnings Per Common Share
Basic
Income from operations $0.50 $0.41 22.0
Restructuring and other
nonrecurring charges - (0.38) -
Income from continuing operations 0.50 0.03 -
Income from discontinued operations - (0.22) -
Extraordinary items (0.13) - -
Net income $0.37 ($0.19) 294.7
Diluted
Income from operations $0.50 $0.40 25.0
Restructuring and other
nonrecurring charges - (0.38) -
Income from continuing operations 0.50 0.02 -
Income from discontinued operations - (0.20) -
Extraordinary items (0.13) - -
Net income $0.37 ($0.18) 305.6
Avg. Common Shares Outstanding
Basic 172.9 172.0 0.5
Diluted 177.3 173.4 2.2
</TABLE>
<PAGE>
FORTUNE BRANDS, INC.
CONSOLIDATED STATEMENT OF INCOME
(In millions, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1998 1997 % Change
<S> <C> <C> <C>
Net Sales $2,529.7 $2,340.6 8.1
Cost of products sold 1,286.7 1,203.7 6.9
Excise taxes on distilled spirits 199.5 185.8 7.4
Advertising, selling, general
and administrative expenses 701.3 641.4 9.3
Amortization of intangibles 53.2 51.9 2.5
Restructuring and other
nonrecurring charges - 89.3 -
Interest and related expenses 50.4 68.7 (26.6)
Other (income) expenses, net 1.1 2.8 (60.7)
Income From Continuing Operations
Before Income Taxes 237.5 97.0 144.8
Income Taxes 96.6 57.7 67.4
Income From Continuing Operations 140.9 39.3 258.5
Income from discontinued operations - 65.1 -
Extraordinary items (30.5) - -
Net Income $110.4 $104.4 5.7
Earnings Per Common Share
Basic
Income from operations $0.81 $0.61 32.8
Restructuring and other
nonrecurring charges - (0.38) -
Income from continuing operations 0.81 0.23 252.2
Income from discontinued operations - 0.38 -
Extraordinary items (0.18) - -
Net income $0.63 $0.61 3.3
Diluted
Income from operations $0.80 $0.60 33.3
Restructuring and other
nonrecurring charges - (0.38) -
Income from continuing operations 0.80 0.22 263.6
Income from discontinued operations - 0.38 -
Extraordinary items (0.18) - -
Net income $0.62 $0.60 3.3
Avg. Common Shares Outstanding
Basic 172.6 171.7 0.5
Diluted 177.2 173.1 2.4
</TABLE>
(NOTES FOLLOW)
<PAGE>
FORTUNE BRANDS, INC.
(In millions, except per share amounts)
NOTES:
(1) PRO FORMA FINANCIAL INFORMATION
On May 30, 1997, Gallaher Group Plc ("Gallaher"), the Company's
international tobacco subsidiary, was spun off. To allocate the overall
debt burden of the Company at the time of the spin-off, Gallaher
borrowed and paid to the Company an amount that approximated $1.25
billion, after taxes. The Company used the proceeds to pay down debt.
The following sets forth income from operations (income from continuing
operations excluding restructuring and other nonrecurring charges) for
the three-month and six-month periods ended June 30, 1997, and adjusted
to reflect the net cash payment Gallaher made to the Company and the
assumption that such proceeds were used to purchase 2.5 million Common
shares and repay debt as of January 1, 1997.
<TABLE>
<CAPTION>
-----------------------------------------------------------
Three Months Ended June 30,
------------------|---------------------|------------------
1998 | 1997 | % Change
| Pro Forma |
------------------|---------------------|------------------
<S> <C> <C> <C>
| |
Income from Operations $87.9 | $74.8 | 17.5
------------------|---------------------|------------------
Earnings Per Common Share- | |
Basic $.50 | $.44 | 13.6
Diluted .50 | .44 | 13.6
------------------|---------------------|------------------
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------
Six Months Ended June 30,
------------------|---------------------|------------------
1998 | 1997 | % Change
| Pro Forma |
<S> <C> <C> <C>
------------------|---------------------|------------------
| |
Income from Operations $140.9 | $120.1 | 17.3
------------------|---------------------|------------------
Earnings Per Common Share- | |
Basic $.81 | $.71 | 14.1
Diluted .80 | .70 | 14.3
------------------|---------------------|------------------
</TABLE>
(2) AMORTIZATION OF INTANGIBLES
Amortization of Intangibles Per Common Share is as follows:
<TABLE>
<CAPTION>
----------------------------------------- -------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------------- -------------------------------------
1998 1997 1998 1997
-------------------- -------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
-------------------- -------------------- ------------------ ------------------
Basic $.15 $.14 $.30 $.29
Diluted .15 .14 .29 .28
-------------------- -------------------- ------------------ ------------------
</TABLE>
- 2 -
<PAGE>
FORTUNE BRANDS, INC.
(In millions)
NOTES (CONTINUED):
(3) INFORMATION ON BUSINESS SEGMENTS
NET SALES:
<TABLE>
<CAPTION>
-----------------------------------------------------------
Three Months Ended June 30,
------------------- -------------------- ------------------
1998 1997 % Change
------------------- -------------------- ------------------
<S> <C> <C> <C>
Home Products $ 367.1 $ 335.5 9.4
Office Products 318.4 285.4 11.6
------------------- -------------------- ------------------
Home and Office Products 685.5 620.9 10.4
Golf Products 328.4 305.4 7.5
Distilled Spirits 312.3 309.2 1.0
------------------- -------------------- ------------------
Total $1,326.2 $1,235.5 7.3
------------------- -------------------- ------------------
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------
Six Months Ended June 30,
------------------- -------------------- ------------------
1998 1997 % Change
------------------- -------------------- ------------------
<S> <C> <C> <C>
Home Products $ 709.5 $ 664.2 6.8
Office Products 640.2 575.5 11.2
------------------- -------------------- ------------------
Home and Office Products 1,349.7 1,239.7 8.9
Golf Products 605.4 541.3 11.8
Distilled Spirits 574.6 559.6 2.7
------------------- -------------------- ------------------
Total $2,529.7 $2,340.6 8.1
------------------- -------------------- ------------------
</TABLE>
OPERATING COMPANY CONTRIBUTION:
<TABLE>
<CAPTION>
------------------------------------------------------------
Three Months Ended June 30,
------------------- -------------------- -------------------
1998 1997 % Change
------------------- -------------------- -------------------
<S> <C> <C> <C>
Home Products $ 55.9 $ 51.7 8.1
Office Products 20.7 17.2 20.3
------------------- -------------------- -------------------
Home and Office Products 76.6 68.9 11.2
Golf Products 68.8 66.1 4.1
Distilled Spirits 63.8 60.1 6.2
------------------- -------------------- -------------------
Total $209.2 $195.1 7.2
------------------- -------------------- -------------------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------
Six Months Ended June 30,
------------------- -------------------- -------------------
1998 1997 % Change
------------------- -------------------- -------------------
<S> <C> <C> <C>
Home Products $111.1 $103.6 7.2
Office Products 48.9 43.8 11.6
------------------- -------------------- -------------------
Home and Office Products 160.0 147.4 8.5
Golf Products 110.5 99.6 10.9
Distilled Spirits 106.8 100.0 6.8
------------------- -------------------- -------------------
Total $377.3 $347.0 8.7
------------------- -------------------- -------------------
</TABLE>
Operating company contribution is operating income before restructuring
and other nonrecurring charges and amortization of intangibles.
- 3 -
<PAGE>
FORTUNE BRANDS, INC.
(In millions, except per share amounts)
NOTES (CONTINUED):
(4) DISCONTINUED OPERATIONS
In connection with the spin-off of Gallaher on May 30, 1997, the
financial statements were reclassified to identify tobacco operations
as discontinued operations for all periods. Summarized results of
operations for the three-month and six-month periods ended June 30,
1997, for the international tobacco operations, net of allocation of
interest expense based on a ratio of Gallaher's net assets to
consolidated net assets of the Company, is as follows:
<TABLE>
<CAPTION>
------------------------------ --------------------------
Three Months Six Months
Ended Ended
June 30, 1997* June 30, 1997*
------------------------------ --------------------------
<S> <C> <C>
Net Sales $835.2 $2,575.0
------------------------------ --------------------------
Income Before Taxes $ 33.7 $ 186.4
Spin-Off Expenses (67.1) (67.1)
Income Taxes (3.1) (54.2)
------------------------------ --------------------------
Income (Loss) From
Discontinued Operations $(36.5) $ 65.1
------------------------------ --------------------------
</TABLE>
* Includes results through May 30, 1997; two months in the three
months ended June 30, 1997 and five months in the six months ended
June 30, 1997.
(5) 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 as follows:
<TABLE>
<CAPTION>
------------------------- ------------------------- ----------------
Nonrecurring
Cost of Sales
Restructuring Charges Total
------------------------- ------------------------- ----------------
<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 $0.38
Diluted $0.38
----------------
</TABLE>
- 4 -
<PAGE>
FORTUNE BRANDS, INC.
(In millions)
NOTES (CONTINUED):
(5) RESTRUCTURING AND OTHER NONRECURRING CHARGES (CONCLUDED)
Home products include charges related to the disposition of certain
product lines and the rationalization of operations.
Office products include charges related to the rationalization of
operations, the discontinuance of certain product lines and lease
cancellation costs, partly offset by a $12.6 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.
(6) EXTRAORDINARY ITEMS
During the six-month period ended June 30, 1998, the Company purchased
the following principal amounts of its outstanding debt: $31.4 of
7-1/2% Notes, Due 1999, $50.4 of 8-1/2% Notes, Due 2003, $10.5 of 9%
Notes, Due 1999 and $32.7 of 8-5/8% Debentures, Due 2021 and redeemed
the outstanding $50.1 of 12-1/2% Sterling Loan Stock, Due 2009. The
extinguishment of debt resulted in a charge of $30.5 ($46.9 pre-tax),
or 18 cents per Common share.
- 5 -
<PAGE>
FORTUNE BRANDS, INC.
(In millions)
NOTES (CONCLUDED):
(7) PENDING LITIGATION
Tobacco Litigation and Indemnification
On December 22, 1994, the Company sold The American Tobacco Company
subsidiary to Brown & Williamson Tobacco Corporation, a wholly-owned
subsidiary of B.A.T Industries p.l.c. In connection with the sale,
Brown & Williamson Tobacco Corporation and The American Tobacco Company
("the Indemnitors") agreed to indemnify the Company against claims
including legal expenses arising from smoking and health and fire safe
cigarette matters relating to the tobacco business of The American
Tobacco Company.
The Company is a defendant in numerous actions based upon allegations
that human ailments have resulted from tobacco use. Management believes
that there are meritorious defenses to the pending actions and these
actions are being vigorously contested. However, it is not possible to
predict the outcome of the pending litigation, and it is possible that
some of these actions could be decided unfavorably. Management is
unable to make a meaningful estimate of the amount or range of loss
that could result from an unfavorable outcome of the pending
litigation. Management believes that the pending actions will not have
a material adverse effect upon the results of operations, cash flows or
financial condition of the Company as long as the Indemnitors continue
to fulfill their obligations to indemnify the Company under the
aforementioned indemnification agreement.
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.
- 6 -
<PAGE>
FORTUNE BRANDS, INC.
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 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
========= =========
Liabilities and Stockholders' Equity
Current liabilities
Short-term debt $518.4 $228.4
Current portion of long-term debt 209.4 176.2
Other current liabilities 1,272.2 1,363.9
--------- ---------
Total current liabilities 2,000.0 1,768.5
Long-term debt 782.3 739.1
Other long-term liabilities 421.0 417.8
--------- ---------
Total liabilities 3,203.3 2,925.4
Stockholders' equity 4,078.0 4,017.1
--------- ---------
Total liabilities and
stockholders' equity $7,281.3 $6,942.5
========= =========
</TABLE>
-7-
