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 23, 1999 (July 23, 1999)
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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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INFORMATION TO BE INCLUDED IN THE REPORT
Item 5. Other Events.
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Registrant's press release dated July 23, 1999 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 July 23, 1999.
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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 Craig P. Omtvedt
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Craig P. Omtvedt
Senior Vice President and
Chief Accounting Officer
Date: July 23, 1999
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EXHIBIT INDEX
Sequentially
Exhibit Numbered Page
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20. Press release of Registrant dated
July 23, 1999.
EXHIBIT 20
[FORTUNE BRANDS LOGO]
NEWS RELEASE
NEWS RELEASE
Fortune Brands, Inc., 1700 East Putnam Avenue, Old Greenwich, CT 06870
NEWS RELEASE
Contact:
Media Relations: Investor Relations:
Clarkson Hine Anthony J. Diaz
(203) 698-5148 (203) 698-5553
FORTUNE BRANDS DELIVERS
STRONG SECOND QUARTER RESULTS
EPS Up 18% Before Charges with Record Contribution from Home Products,
Golf Equipment, and Spirits and Wine, and Lower Goodwill Amortization;
Double-Digit EPS Growth Projected for Full Year
Old Greenwich, CT, July 23, 1999 -- Fortune Brands, Inc. (NYSE:FO), the consumer
products company, today announced strong 1999 second quarter operating earnings
growth driven by a 7% sales increase and record operating company contribution.
For the quarter, the company reported diluted E.P.S. before charges of 59 cents,
up 18% from 50 cents a year ago, on income from operations of $100 million
versus $88 million.
In the quarter, the company recorded a non-cash charge of $1,206 million ($7.22
per share) for its previously announced change in goodwill accounting and a
pre-tax charge of $109 million (equivalent to 42 cents per share after tax) for
its previously announced restructuring program including downsizing and
relocating the corporate office. Including these charges, the company reported a
net loss of $1,176 million, or $7.04 per share, compared with net income of $66
million, or 37 cents per share, a year ago.
A sharp increase in sales and contribution for home products - primarily faucets
and kitchen and bath cabinets - plus healthy contribution gains for golf
equipment and spirits and wine, boosted the company's performance.
Second quarter financial highlights include:
o Sales +7% to $1.42 billion
o Income from operations before charges +14% to $100 million
o Diluted EPS before charges +18% to 59 cents (+8% excluding a
5 cent per share benefit from lower amortization associated
with the change in goodwill accounting)
"The power of our leading consumer brands and the success of our strategy drove
our 9th straight solid growth quarter since the company began trading as Fortune
Brands," said Chairman and Chief Executive Officer Thomas C. Hays. "We remain on
track to deliver another double-digit growth year in EPS before charges, even
excluding the benefit of lower goodwill amortization."
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Fortune Brands Delivers Strong Second Quarter Results
Page 2
"Major strategic initiatives currently under way are already paying off," Hays
added. "The downsizing and relocation of our corporate office is proceeding as
planned. Overall, the restructuring steps initiated in the second quarter put us
on track for more than $40 million in annual cost savings." Hays also noted that
the international spirits and wine distribution joint venture among Jim Beam
Brands Worldwide, Remy-Cointreau and Highland Distillers is scheduled to begin
operations next month. "The cost savings alone from this innovative partnership
should provide a modest earnings benefit this year with substantially more
positive earnings impact going forward."
In addition, the company continued to aggressively buy back shares under its
enhanced 1999 share repurchase authorization. Year to date, the company has
repurchased more than 7.3 million shares.
Operational highlights for the second quarter include:
o Record sales for Moen faucets (#1 in North America) and Aristokraft and
Schrock kitchen and bath cabinets propelled record overall sales and
contribution for home products. New products and productivity improvements
enhanced performance for Moen, the company's top-selling brand, which
generated double-digit increases in sales and contribution. A double-digit
sales increase for Aristokraft, combined with even stronger than expected
performance for Schrock (acquired June 1998), significantly enhanced
results for the nation's second largest cabinet business.
o Record contribution from the spirits and wine business was fueled by
continued growth of the world's number one bourbon, Jim Beam, the benefit
of price increases, and strong U.S. demand for DeKuyper Sour Apple Pucker
and new Watermelon Pucker. Critical acclaim for Geyser Peak wines continued
to pour in, including Winemaker of the Year (for an unprecedented second
straight year) and Best Zinfandel in the World at the prestigious 1999
International Wine and Spirits competition.
o Improved product mix and strong cost control reversed a first quarter
decline in golf contribution. Record sales of Titleist golf balls and golf
clubs - including strong demand for the new Titleist DCI 981 irons and
Vokey wedges -- helped drive record contribution for the golf business,
offsetting lower sales at Cobra. The Titleist Professional golf ball posted
double-digit sales gains in golf shops and Titleist continued to excel on
the worldwide professional tours. To date, the number 1 ball in golf has
captured 89% of the victories on the PGA Tour, where Titleist also leads
all competitors in driver, iron and putter victories.
o Even though unit sales for office products grew, anticipated factors
including a challenging pricing environment associated with major mid-1998
trade consolidations, inventory reductions by major customers and
transitional costs related to major cost saving initiatives adversely
affected performance for office products in the seasonally slowest quarter.
Although the company now anticipates a decrease in full year contribution
for office products, it continues to expect favorable comparisons in the
second half of 1999.
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Fortune Brands Delivers Strong Second Quarter Results
Page 3
The $1.2 billion non-cash charge associated with the change in accounting for
goodwill -- from an undiscounted cash flow basis to a discounted cash flow basis
- -- consists of $1.1 billion split approximately evenly between golf and spirits,
with the remaining balance in the office products segment.
The majority of the $109 million restructuring and nonrecurring charge relates
to the downsizing and relocation of the corporate office. The charge also
reflects product discontinuations in the golf segment and other workforce
reduction initiatives.
* * *
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 spirits and
wine. Home brands include Moen faucets, Master locks and Aristokraft and Schrock
cabinets sold by units of MasterBrand Industries. Office brands include
Day-Timer, Swingline and Wilson Jones sold by units of ACCO World Corporation.
Acushnet Company's golf brands include Titleist, Cobra and FootJoy. Major
spirits and wine brands sold by units of Jim Beam Brands Worldwide, Inc. include
Jim Beam and Knob Creek bourbon, DeKuyper cordials, Whyte & Mackay Scotch and
Geyser Peak and Canyon Road wines.
* * *
This press release contains statements relating to future results, which are
forward-looking statements as that term is defined in the Private Securities
Litigation Reform Act of 1995. Readers are cautioned that these forward-looking
statements speak only as of the date hereof. Actual results may differ
materially from those projected as a result of certain risks and uncertainties,
including but not limited to changes in general economic conditions, foreign
exchange rate fluctuations, competitive product and pricing pressures, the
impact of excise tax increases with respect to distilled spirits, regulatory
developments, the uncertainties of litigation, changes in golf equipment
regulatory standards, the impact of weather, particularly on the home products
and golf brand groups, expenses and disruptions related to shifts in
manufacturing to different locations and sources, expenses and disruptions
related to the move in the corporate headquarters and the replacement of
management personnel not making the move, delays in the integration of recent
acquisitions, the timely resolution of the Year 2000 issue, as well as other
risks and uncertainties detailed from time to time in the Company's Securities
and Exchange Commission filings.
# # #
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FORTUNE BRANDS, INC.
CONSOLIDATED STATEMENT OF INCOME
(In millions, except per share amounts)
(Unaudited)
Three Months Ended June 30,
1999 1998 % Change
Net Sales $1,420.7 $1,326.2 7.1
Cost of goods sold 730.2 668.0 9.3
Excise taxes on spirits and wine 106.6 112.4 (5.2)
Advertising, selling, general
and administrative expenses 382.5 354.8 7.8
Amortization of intangibles 18.6 26.9 (30.9)
Write-off of goodwill 1,206.4 - -
Restructuring and other
nonrecurring charges 108.8 - -
Interest expense 25.9 25.3 2.4
Other (income) expense, net (0.9) (1.0) 10.0
Income (Loss) Before Taxes (1,157.4) 139.8 -
Income taxes 18.5 51.9 (64.4)
Income (Loss) Before
Extraordinary Items (1,175.9) 87.9 -
Extraordinary items * - (22.1) -
Net Income (Loss) (1,175.9) $65.8 -
Earnings Per Common Share
Basic
Income from operations $0.60 $0.50 20.0
Write-off of goodwill (7.22) - -
Restructuring and other
nonrecurring charges (0.42) - -
Income (loss) before
extraordinary items (7.04) 0.50 -
Extraordinary items * - (0.13) -
Net income (loss) ($7.04) $0.37 -
Diluted
Income from operations $0.60 $0.50 20.0
Write-off of goodwill (7.22) - -
Restructuring and other
nonrecurring charges (0.42) - -
Income (loss) before
extraordinary items (7.04) 0.50 -
Extraordinary items * - (0.13) -
Net income (loss) ($7.04) $0.37 -
Avg. Common Shares Outstanding
Basic 167.0 172.9 (3.4)
Diluted 167.0 177.3 (5.8)
FORTUNE BRANDS, INC.
CONSOLIDATED STATEMENT OF INCOME
(In millions, except per share amounts)
(Unaudited)
Six Months Ended June 30,
1999 1998 % Change
Net Sales $2,713.0 $2,529.7 7.2
Cost of goods sold 1,407.9 1,286.7 9.4
Excise taxes on spirits and wine 203.3 199.5 1.9
Advertising, selling, general
and administrative expenses 746.8 701.3 6.5
Amortization of intangibles 45.9 53.2 (13.7)
Write-off of goodwill 1,206.4 - -
Restructuring and other
nonrecurring charges 108.8 - -
Interest expense 51.2 50.4 1.6
Other (income) expense, net - 1.1 -
Income (Loss) Before Taxes (1,057.3) 237.5 -
Income taxes 62.5 96.6 (35.3)
Income (Loss) Before
Extraordinary Items (1,119.8) 140.9 -
Extraordinary items * - (30.5) -
Net Income (Loss) (1,119.8) $110.4 -
Earnings Per Common Share
Basic
Income from operations $0.93 $0.81 14.8
Write-off of goodwill (7.16) - -
Restructuring and other
nonrecurring charges (0.42) - -
Income (loss) before
extraordinary items (6.65) 0.81 -
Extraordinary items * - (0.18) -
Net income (loss) ($6.65) $0.63 -
Diluted
Income from operations $0.93 $0.80 16.3
Write-off of goodwill (7.16) - -
Restructuring and other
nonrecurring charges (0.42) - -
Income (loss) before
extraordinary items (6.65) 0.80 -
Extraordinary items * - (0.18) -
Net income (loss) ($6.65) $0.62 -
Avg. Common Shares Outstanding
Basic 168.4 172.6 (2.4)
Diluted 168.4 177.2 (5.0)
Actual Common Shares Outstanding
Basic 166.7 172.8 (3.5)
Diluted 170.6 177.2 (3.7)
* Extraordinary items amounts represent charges for the early extinguishment
of debt.
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FORTUNE BRANDS, INC.
(In millions, except per share amounts)
(Unaudited)
Three Months Ended
June 30,
1999 1998 % Change
SEGMENT DATA
NET SALES
Home Products $ 463.8 $ 367.1 26.3
Office Products 309.1 318.4 (2.9)
Golf Products 329.5 328.4 0.3
Spirits and Wine 318.3 312.3 1.9
Total $1,420.7 $1,326.2 7.1
OPERATING COMPANY CONTRIBUTION*
Home Products $ 70.9 $ 55.9 26.8
Office Products 6.4 20.7 (69.1)
Golf Products 74.1 68.8 7.7
Spirits and Wine 67.5 63.8 5.8
Total $218.9 $209.2 4.6
Six Months Ended
June 30,
1999 1998 % Change
SEGMENT DATA
NET SALES
Home Products $ 905.0 $ 709.5 27.6
Office Products 624.3 640.2 (2.5)
Golf Products 579.6 605.4 (4.3)
Spirits and Wine 604.1 574.6 5.1
Total $2,713.0 $2,529.7 7.2
OPERATING COMPANY CONTRIBUTION*
Home Products $139.6 $111.1 25.7
Office Products 21.9 48.9 (55.2)
Golf Products 110.6 110.5 0.1
Spirits and Wine 117.6 106.8 10.1
Total $389.7 $377.3 3.3
* Operating company contribution (OCC) is net sales less all costs and
expenses other than restructuring and other nonrecurring charges, write-off
of goodwill, amortization of intangibles, corporate administrative expense,
interest expense, other (income) expense, net and income taxes.
INCOME FROM OPERATIONS BEFORE CHARGES
The following sets forth income from operations before charges, which represents
income (loss) before extraordinary items, adjusted to exclude both the $1,206.4
million goodwill write-off and the $108.8 million ($69.9 million after tax)
restructuring and other nonrecurring charges taken in the three-month period
ended June 30, 1999.
As a result of the charges, the Company reported a net loss in 1999. Because of
this, the calculation of reported earnings per share on a diluted basis excludes
the impact of the convertible preferred stock and stock options. For comparative
purposes, however, the impact of convertible preferred stock and stock options
should be considered. The below chart shows the result of including the dilutive
instruments.
Three Months Ended
June 30,
1999 1998 % Change
Income from Operations
Before Charges $100.4 $87.9 14.2
Earnings Per
Common Share
Basic $0.60 $0.50 20.0
Diluted 0.59 0.50 18.0
Six Months Ended
June 30,
1999 1998 % Change
Income from Operations
Before Charges $156.5 $140.9 11.1
Earnings Per
Common Share
Basic $0.93 $0.81 14.8
Diluted 0.91 0.80 13.8
CHANGE IN ACCOUNTING FOR GOODWILL AND
UNIDENTIFIABLE INTANGIBLES
As previously announced, effective April 1, 1999, the Company elected to change
its method for assessing recoverability and impairment of goodwill and
unidentifiable intangibles from one based on undiscounted cash flows to one
based on discounted cash flows. The Company determined that using a discounted
cash flow methodology is a preferable policy.
As a result of this change, the Company recorded a non-cash write-down of
goodwill and unidentifiable intangibles of $1,206.4 million ($7.22 per share
basic and diluted) in the three-month period ended June 30, 1999. The estimated
annualized effect, as a result of this change, will be a $35 million reduction
of goodwill amortization, or $0.21 per share basic and diluted.
The write-down represents the amounts required to write-down the carrying values
of the goodwill and unidentifiable intangibles in certain of the Company's
business segments as follows: Spirits & Wine - $561.6 million, Golf Products -
$539.2 million and Office Products - $105.6 million.
RESTRUCTURING AND OTHER NONRECURRING CHARGES
In connection with the Company's previously announced restructuring program,
during the three months ended June 30, 1999, the Company recorded pre-tax
restructuring and nonrecurring charges of $108.8 million. The charges by
segment, as shown below, principally relate to the downsizing and relocation of
the Corporate office, product discontinuations in the golf segment and other
workforce reduction initiatives across these segments.
Three and Six Months Ended June 30,
(In millions, except per share amounts)
Nonrecurring
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Cost of
Sales SG&A
Restructuring Charges Charges Total
Home Products $ 2.1 $ - $ - $ 2.1
Office Products 5.1 - - 5.1
Golf Products 6.3 23.4 5.5 35.2
Corporate Office 66.4 - - 66.4
Total $79.9 $23.4 $5.5 108.8
Income Tax Benefit 38.9
Net Charge $69.9
Charge Per Common Share
Basic $0.42
Diluted $0.42
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FORTUNE BRANDS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions)
June 30, December 31,
1999 1998
(Unaudited)
Assets
Current assets
Cash and cash equivalents $66.3 $40.3
Accounts receivable, net 956.2 919.9
Inventories 1,054.1 1,087.6
Other current assets 291.5 217.5
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Total current assets 2,368.1 2,265.3
Property, plant and equipment, net 1,097.7 1,119.9
Intangibles resulting from
business acquisitions, net 2,475.7 3,761.3
Other assets 212.7 213.2
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Total assets $6,154.2 $7,359.7
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Liabilities and Stockholders' Equity
Current liabilities
Short-term debt $733.5 $321.4
Current portion of long-term debt 1.4 183.3
Other current liabilities 1,321.7 1,339.9
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Total current liabilities 2,056.6 1,844.6
Long-term debt 974.5 981.7
Other long-term liabilities 434.6 435.9
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Total liabilities 3,465.7 3,262.2
Stockholders' equity 2,688.5 4,097.5
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Total liabilities and
stockholders' equity $6,154.2 $7,359.7
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