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
April 22, 1998 (April 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.
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Registrant's press release dated April 22, 1998 is filed herewith as
Exhibit 20 and is incorporated herein by reference.
Item 7. Financial Statements and Exhibits.
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(c) Exhibits.
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20. Press release of Registrant dated April 22, 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: April 22, 1998
<PAGE>
EXHIBIT INDEX
Sequentially
Exhibit Numbered Page
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20. Press release of Registrant dated
April 22, 1998.
EXHIBIT 20
NEWS RELEASE
NEWS RELEASE
Fortune Brands, Inc., 1700 East Putnam Avenue, Old Greenwich, CT 06870
NEWS RELEASE
Contact:
Daniel A. Conforti
(203)698-5132
FORTUNE BRANDS ANNOUNCES STRONG FIRST QUARTER RESULTS;
SALES UP 9%, CONTRIBUTION UP 11%, E.P.S. UP 15% PRO FORMA
Old Greenwich, CT, April 22, 1998 -- Fortune Brands, Inc. (NYSE-FO),
the consumer products company, today announced strong first quarter results. Net
sales were up 9%, operating company contribution rose 11%, and diluted earnings
per share of 30 cents were up 15% compared with last year's pro forma. Cash
earnings of 44 cents per share (after adding back 14 cents of goodwill
amortization) were 47% higher than reported E.P.S.
"Fortune Brands is performing very well," noted Chairman and Chief
Executive Officer Thomas C. Hays. "We achieved a strong increase in E.P.S., in
line with our long-term goal. Every brand group reported solid gains in sales
and contribution. We have a strategy that's sharply focused on revenue growth,
cost initiatives and asset management, and that strategy is working. Fortune
Brands is on track for another excellent growth year."
Revenue Growth. Net sales reached $1.2 billion, up 9%. The home and
office and golf brands posted record sales, up 7% and 17%, respectively, and
distilled spirits sales rose 5%. The strong overall sales growth reflects the
benefit of recent acquisitions and strong acceptance of new products. Golf ball
sales, for example, were up 20% in the quarter, with 50% of sales generated by
new or enhanced products. DeKuyper, the number 1 cordial brand in the U.S.,
achieved a 10% increase in depletions (sales by distributors to retailers),
driven by continued sharp growth for the recently introduced Pucker flavors.
Master Lock's innovative new padlocks have been strongly received by the trade
and consumers, resulting in double-digit sales increases to major retailers.
Cost initiatives. Major restructuring initiatives and other actions
launched this past year to tighten the cost structure and enhance
competitiveness are already beginning to yield expected savings. For the golf
brands, for example, Cobra golf club manufacturing and sourcing costs have been
significantly reduced, Cobra and Titleist international operations have been
rationalized, and packaging for golf balls has been consolidated. In office
products, the expansion of the Nogales, Mexico operation is progressing rapidly,
the integration of the Nobo operation in Europe is proceeding ahead of original
plans, and the integration of two separately managed Australian operations is
proceeding well.
Asset management. Our asset management strategy features aggressive
steps to reduce working capital and to focus on high-return assets. We've
achieved solid reductions in days sales in inventory across all brand groups.
For example, manufacturing efficiencies and restructuring initiatives have cut
days sales in inventory over the past year by 10 days for the home brands and by
13 days for the office brands.
"We're off to a fine start in 1998," Hays noted, "despite El
Nino-related weather disruptions and adverse foreign currency translation. To
gain competitive advantage, we're continuing to capitalize on an array of
powerful consumer brands, including 14 with annual sales in the range of $100
million or more, and tremendous financial strength. We're leveraging those
assets to achieve superior growth. Assuming a satisfactory economic and pricing
environment and no further erosion in exchange rates, we expect to achieve
full-year E.P.S. growth in 1998 in the range of 13-15%. That's also our
long-term growth target."
Foreign currency translation had a modestly negative impact during the
quarter. Net fluctuations in exchange rates for foreign currencies, primarily a
14% 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 $15 million, $3 million and 1 cent.
Brand Highlights
:::Home and Office Products Brands:::
Home and office products sales and contribution were up 7% and 6%,
respectively, in the quarter. We've been capitalizing on home and office
distribution strengths by making high-return add-on acquisitions. We've
completed five since the beginning of last year, including the February 1998
acquisition of Apollo, a North American leader in presentation products with
annual sales of approximately $60 million. Aggressive actions to reduce costs
have been initiated, including production shifts to lower cost locations and
substantially increased outsourcing.
--- Office Products ---
Sales from the office products brands were up 11% in the quarter and
contribution was up 6%, both to records. The operating margin was impacted by
higher expenses to maintain customer service levels during a period of
transition related to restructuring initiatives.
The February acquisition of Apollo together with last year's
acquisition of Nobo, a European leader, has created a strong global presence in
the growing presentation products category. Overall in office supplies, ACCO is
the global leader.
North American operations posted a 13% sales increase in the quarter,
reflecting acquisitions and solid unit increases. Kensington, a leader in
computer accessories, continued to achieve double-digit growth, benefiting from
new products, despite the softness in the computer reseller channel. Canadian
and Mexican operations also achieved double-digit sales gains. Sales in Europe
were up 25%, benefiting from the Nobo acquisition as well as some strengthening
on the Continent.
Despite ongoing competitive pressure, we 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 4% and
6%, respectively, for the quarter, both to records. Moen, the leading faucet
brand in North America, and Aristokraft, a leader in kitchen and bath cabinets,
both posted record results.
Moen posted a 10% sales gain and record contribution, benefiting from
continued rollout of the new single-handle faucet line, last November's
acquisition of the Donner bathroom accessories brand and strong retail sales.
Moen achieved record results despite El Nino-related home construction delays,
which depressed demand. The innovative new PureTouch water-filtering system,
which combines a faucet with a unique built-in filter in a stylish design, has
received very strong response from the trade following its January announcement;
shipments began this week.
Aristokraft posted double-digit sales and contribution increases,
benefiting from strong acceptance of new cabinet products. Master Lock, the #1
padlock brand in the world, achieved an excellent recovery in contribution,
driven by a 5% unit sales increase and major cost reduction initiatives. Strong
response to new Master Lock padlock products has resulted in a 19% increase in
shelf facing commitments at major retailers.
Sales for the home products brands were adversely affected by the
disposition of low-return operations, including the door hardware and Moen
Japanese businesses, partly offset by the acquisition of Donner. These actions
should enhance margins and returns. Continued sharp focus on working capital
management resulted in significantly higher cash flow from the home products
brands.
For the full year, assuming normal weather conditions, we expect high
single-digit sales and contribution growth from the home products brands.
:::Golf Brands:::
The golf brands had another outstanding quarter, with sales and
contribution up 17% and 24%, respectively, to records. Titleist brand sales
surged 26%, and Cobra was up 15%. An amazing 84% of the players at the Masters
played at least one of our premier golf brands.
Titleist golf ball sales were up 20%, led by the new and improved
Titleist Professional, the all new Titleist Tour Distance, and the new and
improved Titleist HP2 Tour and Distance golf balls. Titleist golf club sales
were up 52%, led by the strong success of Titleist Titanium drivers and Scotty
Cameron by Titleist putters.
Cobra golf club sales were up 23%. Sales of Cobra metalwoods were up
39%, irons were up 10%, and putters were up near four-fold. Golf club unit sales
increased 25% in the quarter.
The FootJoy brand also achieved good growth, with golf shoe sales
driven by the continued success of DryJoys, the world's leading waterproof golf
shoe, and by FootJoy's leading position in spikeless shoes. FootJoy golf shoes
and golf gloves remain, far and away, the number 1 golf shoe and the number 1
golf glove at both the professional level and at retail.
Titleist strengthened its position as the golf ball category leader
with an increase in market share. Titleist is the golf ball of choice of such
world ranked players as Tiger Woods, Davis Love III, Ernie Els, Justin Leonard,
Phil Mickelson and David Duval. Titleist has won more than three out of every
four professional tournaments played in 1998 - seven times as many wins as its
nearest competitor.
Titleist golf clubs are also winning increasing popularity with the
finest players in the game. Titleist irons are used by Tiger Woods, Davis Love
III, David Duval, Steve Elkington, Brad Faxon, Jay Sigel, Karrie Webb and Kelly
Robbins. Titleist Titanium drivers are a solid number 2 on the PGA Tour, and
Scotty Cameron by Titleist putters are number 1 on the PGA Tour.
Cobra golf clubs are the product of choice of Greg Norman, golf's
all-time money winner, and Hale Irwin, 1997 PGA Senior Tour player of the year.
In January, Cobra introduced the King Cobra II+ iron, featuring the lightest
weight graphite shaft used by any major manufacturer. Cobra also introduced the
new Baffler Lo Profile, the next generation of low profile fairway woods. The
Bobby Grace putter by Cobra featuring the gold colored HSM (Hole-Seeking
Material) insert has become the fastest growing putter on the PGA Senior Tour
and LPGA Tour and was the number 1 putter at The Tradition, the first major PGA
Senior Tour event of the year.
The strong results for the quarter were achieved even though the
weather in California and Florida has affected rounds of play there. The weather
could obviously have an impact on top-line growth going forward, so we're
continuing to keep a tight watch on expenses.
For the full year, we expect double-digit sales and contribution growth
from the golf brands.
:::Distilled Spirits Brands:::
For the distilled spirits brands, sales rose 5% in the quarter, and
contribution was up 8%. Results benefited from trade inventory reductions
achieved late in 1997, partly offset by adverse foreign currency translation
rates, particularly for the Australian dollar.
The 10% increase in DeKuyper depletions built on an 8% increase for
full year 1997. DeKuyper Sour Apple Pucker continued to achieve strong growth in
consumer demand. The high margin Small Batch Bourbons continued to achieve
double-digit volume growth.
International sales were up 3%, despite the adverse impact of foreign
currency translation, particularly the 14% decline in the average exchange rate
for the Australian dollar. Australia is Jim Beam Brands' largest international
market. Sales and contribution increased modestly in Australian dollars, with
higher volume for Jim Beam premix cocktails and lower spending offsetting lower
volume on Jim Beam Bourbon. Aside from the translation impact on Australian
results, the Asian economic situation did not cause any significant volume or
profit decline. Sales in the United Kingdom of Whyte & Mackay Scotch were
encouraging, bolstered by newly designed packaging.
We expect more modest contribution growth from the distilled spirits
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 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.
# # #
<PAGE>
FORTUNE BRANDS, INC.
CONSOLIDATED STATEMENT OF INCOME
(In millions, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997 % Change
<S> <C> <C> <C>
Net Sales $1,203.5 $1,105.1 8.9
Cost of products sold 618.7 574.5 7.7
Excise taxes on distilled spirits 87.1 82.0 6.2
Advertising, selling, general
and administrative expenses 346.5 313.0 10.7
Amortization of intangibles 26.3 26.0 1.2
Interest and related expenses 25.1 37.9 (33.8)
Other (income) expenses, net 2.1 2.1 -
Income From Continuing Operations
Before Income Taxes 97.7 69.6 40.4
Income Taxes 44.7 34.6 29.2
Income From Continuing Operations 53.0 35.0 51.4
Income from discontinued operations - 101.6 -
Extraordinary items (8.4) - -
Net Income $44.6 $136.6 (67.3)
Earnings Per Common Share
Basic
Income from continuing operations 0.31 0.20 55.0
Income from discontinued operations - 0.60 -
Extraordinary items (0.05) - -
Net income $0.26 $0.80 (67.5)
Diluted
Income from continuing operations 0.30 0.20 50.0
Income from discontinued operations - 0.58 -
Extraordinary items (0.05) - -
Net income $0.25 $0.78 (67.9)
Avg. Common Shares Outstanding
Basic 172.3 171.3 0.6
Diluted 177.1 174.3 1.6
</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 continuing operations for the
three months ended March 31, 1997, 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>
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Three Months Ended March 31,
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1998 1997 % Change
Pro Forma
<S> <C> <C> <C>
------------------ --------------------- ------------------
Income from Continuing
Operations $53.0 $45.3 17.0
------------------ --------------------- ------------------
Earnings Per Common Share-
Basic $.31 $.27 14.8
Diluted .30 .26 15.4
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</TABLE>
(2) AMORTIZATION OF INTANGIBLES
Amortization of Intangibles Per Common Share is as follows:
<TABLE>
<CAPTION>
-------------------------------------
Three Months Ended March 31,
-------------------------------------
1998 1997
<S> <C> <C>
------------------- -----------------
Basic $.15 $.15
Diluted .14 .14
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</TABLE>
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<PAGE>
FORTUNE BRANDS, INC.
(In millions)
NOTES (CONTINUED):
(3) INFORMATION ON BUSINESS SEGMENTS
NET SALES:
<TABLE>
<CAPTION>
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Three Months Ended March 31,
------------------- -------------------- ------------------
1998 1997 % Change
------------------- -------------------- ------------------
<S> <C> <C> <C>
Home Products $ 342.4 $ 328.7 4.2
Office Products 321.8 290.1 10.9
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Home and Office Products 664.2 618.8 7.3
Golf Products 277.0 235.9 17.4
Distilled Spirits 262.3 250.4 4.8
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Total $1,203.5 $1,105.1 8.9
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</TABLE>
OPERATING COMPANY CONTRIBUTION:
<TABLE>
<CAPTION>
------------------------------------------------------------
Three Months Ended March 31,
------------------- -------------------- -------------------
1998 1997 % Change
------------------- -------------------- -------------------
<S> <C> <C> <C>
Home Products $ 55.2 $ 51.9 6.4
Office Products 28.2 26.6 6.0
------------------- -------------------- -------------------
Home and Office Products 83.4 78.5 6.2
Golf Products 41.7 33.5 24.5
Distilled Spirits 43.0 39.9 7.8
------------------- -------------------- -------------------
Total $168.1 $151.9 10.7
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</TABLE>
Operating company contribution is operating income before
amortization of intangibles.
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<PAGE>
FORTUNE BRANDS, INC.
(In millions)
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 months ended March 31, 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
Ended
March 31, 1997
---------------------------------------
<S> <C>
Net Sales $1,739.8
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Income Before Taxes $152.7
Income Taxes (51.1)
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Income From
Discontinued Operations $101.6
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</TABLE>
(5) EXTRAORDINARY ITEMS
During the first quarter of 1998, the Company purchased the following
principal amounts of its outstanding debt: $23.2 of 8-1/2% Notes, Due
2003, $10.5 of 9% Notes, Due 1999 and $32.7 of 8-5/8% Debentures, Due
2021. The extinguishment of debt resulted in a charge of $8.4 ($13
pre-tax), or five cents per Common share.
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<PAGE>
FORTUNE BRANDS, INC.
(In millions)
NOTES (CONCLUDED):
(6) 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.
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<PAGE>
FORTUNE BRANDS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
(Unaudited)
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $173.8 $54.2
Accounts receivable, net 893.4 862.0
Inventories 1,019.2 955.2
Net assets of discontinued operations - -
Other current assets 219.1 224.2
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Total current assets 2,305.5 2,095.6
Property, plant and equipment, net 992.5 980.9
Intangibles resulting from
business acquisitions, net 3,702.5 3,674.1
Other assets 205.8 191.9
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Total assets $7,206.3 $6,942.5
========= ========
Liabilities and Stockholders' Equity
Current liabilities
Short-term debt $422.0 $228.4
Current portion of long-term debt 136.8 176.2
Other current liabilities 1,317.5 1,363.9
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Total current liabilities 1,876.3 1,768.5
Long-term debt 855.2 739.1
Other long-term liabilities 406.3 417.8
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Total liabilites 3,137.8 2,925.4
Stockholders' equity 4,068.5 4,017.1
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Total liabilities and
stockholders' equity $7,206.3 $6,942.5
========= ========
</TABLE>
