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, 1999
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 30, 1999 was 166,398,507 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,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 66.3 $ 40.3
Accounts receivable, net 956.2 919.9
Inventories
Bulk whiskey 332.8 338.0
Other raw materials, supplies and
work in process 248.9 280.8
Finished products 472.4 468.8
-------- --------
1,054.1 1,087.6
Other current assets 291.5 217.5
-------- --------
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 2,554.1 3,761.3
Other assets 212.7 213.2
-------- --------
Total assets $6,232.6 $7,359.7
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
1
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
---------------------------------------
(In millions, except per share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities
Notes payable to banks $ 52.6 $ 71.5
Commercial paper 680.9 249.9
Current portion of long-term debt 1.4 183.3
Accounts payable 250.9 274.9
Accrued taxes 472.9 472.4
Accrued expenses and other liabilities 597.9 592.6
-------- --------
Total current liabilities 2,056.6 1,844.6
Long-term debt 974.5 981.7
Deferred income taxes 50.5 49.9
Postretirement and other liabilities 384.0 386.0
-------- --------
Total liabilities 3,465.6 3,262.2
-------- --------
Stockholders' equity
$2.67 Convertible Preferred stock -
redeemable at Company's option 10.2 10.5
Common stock, par value $3.125 per
share, 229.6 shares issued 717.4 717.4
Paid-in capital 119.9 147.6
Accumulated other
comprehensive income (loss) (24.8) 4.7
Retained earnings 4,130.5 5,245.4
Treasury stock, at cost (2,186.2) (2,028.1)
-------- --------
Total stockholders' equity 2,767.0 4,097.5
-------- --------
Total liabilities and
stockholders' equity $6,232.6 $7,359.7
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
2
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
for the Six Months Ended June 30, 1999 and 1998
-----------------------------------------------------
(In millions, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Net sales $ 2,713.0 $2,529.7
Cost of products sold 1,431.3 1,286.7
Excise taxes on spirits and wine 203.3 199.5
Advertising, selling, general and
administrative expenses 752.3 701.3
Amortization of intangibles 46.5 53.2
Write-down of goodwill 1,126.0 -
Restructuring charges 79.9 -
Interest and related expenses 51.2 50.4
Other (income) expenses, net - 1.1
--------- --------
Income (loss) before income taxes
and extraordinary items (977.5) 237.5
Income taxes 62.5 96.6
--------- --------
Income (loss) before extraordinary items (1,040.0) 140.9
Extraordinary items - (30.5)
--------- --------
Net income (loss) $(1,040.0) $ 110.4
========= ========
Earnings per Common share
Basic
Income (loss) before extraordinary items $(6.18) $ .81
Extraordinary items - (.18)
------ -----
Net income (loss) $(6.18) $ .63
====== =====
Diluted
Income (loss) before extraordinary items $(6.18) $ .80
Extraordinary items - (.18)
------ -----
Net income (loss) $(6.18) $ .62
====== =====
Dividends paid per Common share $.44 $.42
==== ====
Average number of Common shares outstanding
Basic 168.4 172.6
===== =====
Diluted 168.4 177.2
===== =====
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
for the Three Months Ended June 30, 1999 and 1998
-----------------------------------------------------
(In millions, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Net sales $ 1,420.7 $1,326.2
Cost of products sold 753.6 668.0
Excise taxes on spirits and wine 106.6 112.4
Advertising, selling, general and
administrative expenses 388.0 354.8
Amortization of intangibles 19.2 26.9
Write-down of goodwill 1,126.0 -
Restructuring charges 79.9 -
Interest and related expenses 25.9 25.3
Other (income) expenses, net (0.9) (1.0)
--------- --------
Income (loss) before income taxes and
extraordinary items (1,077.6) 139.8
Income taxes 18.5 51.9
--------- --------
Income (loss) before extraordinary items (1,096.1) 87.9
Extraordinary items - (22.1)
--------- --------
Net income (loss) $(1,096.1) $ 65.8
========= ========
Earnings per Common share
Basic
Income (loss) before extraordinary items $(6.56) $ .50
Extraordinary items - (.13)
------ -----
Net income (loss) $(6.56) $ .37
====== =====
Diluted
Income (loss) before extraordinary items $(6.56) $ .50
Extraordinary items - (.13)
------ -----
Net income (loss) $(6.56) $ .37
====== =====
Dividends paid per Common share $.22 $.21
==== ====
Average number of Common shares outstanding
Basic 167.0 172.9
===== =====
Diluted 167.0 177.3
===== =====
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
for the Six Months Ended June 30, 1999 and 1998
-----------------------------------------------------
(In millions)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Operating activities
Net income (loss) $(1,040.0) $110.4
Write-down of goodwill 1,126.0 -
Restructuring charges 79.9 -
Extraordinary items - 30.5
Depreciation and amortization 120.9 124.2
Increase in accounts receivable (41.3) (58.8)
Decrease (increase) in inventories 22.5 (56.9)
Decrease in accounts payable, accrued
expenses and other liabilities (71.2) (83.9)
Increase (decrease) in accrued taxes 8.1 (18.7)
Other operating activities, net (64.9) (15.9)
--------- ------
Net cash provided from operating activities 140.0 30.9
--------- ------
Investing activities
Additions to property, plant and equipment (84.3) (110.3)
Acquisitions, net of cash acquired - (172.8)
Proceeds from disposition of operations - 16.0
Other investing activities, net 9.8 3.5
--------- ------
Net cash used by investing activities (74.5) (263.6)
--------- ------
Financing activities
Increase in short-term debt, net 414.7 291.6
Issuance of long-term debt 1.7 417.4
Repayment of long-term debt (189.7) (340.4)
Dividends to stockholders (74.9) (73.0)
Cash purchases of Common stock for treasury (261.5) (34.9)
Proceeds received from exercise of stock options 72.4 45.8
Other financing activities, net - (36.6)
--------- ------
Net cash (used) provided by financing activities (37.3) 269.9
--------- ------
Effect of foreign exchange rate changes on cash (2.2) (1.3)
--------- ------
Net increase in cash and cash equivalents 26.0 35.9
Cash and cash equivalents at beginning of period 40.3 54.2
--------- ------
Cash and cash equivalents at end of period $ 66.3 $ 90.1
========= ======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
for the Six Months Ended June 30, 1999 and 1998
-------------------------------------------------------------
(In millions)
(Unaudited)
<TABLE>
<CAPTION>
$2.67 Accumulated
Convertible other Treasury
Preferred Common Paid-in comprehensive Retained stock,
stock stock capital income (loss) earnings at cost Total
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
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 (loss) - - - (0.9) 110.4 - 109.5
------ ------ ------ ----- -------- ------ --------
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
===== ====== ====== ===== ======== ========= ========
Balance at December 31, 1998 $10.5 $717.4 $147.6 $ 4.7 $5,245.4 $(2,028.1) $4,097.5
Comprehensive income
Net income (loss) - - - - (1,040.0) - (1,040.0)
Changes during the period - - - (29.5) - - (29.5)
----- ----- ------ ------ -------- -------- --------
Total comprehensive income (loss) - - - (29.5) (1,040.0) - (1,069.5)
----- ----- ------ ------ -------- -------- --------
Dividends - - - - (74.9) - (74.9)
Purchases - - - - - (261.0) (261.0)
Conversion of preferred stock and
delivery of stock plan shares (0.3) - (27.7) - - 102.9 74.9
----- ------ ------ ------ -------- --------- --------
Balance at June 30, 1999 $10.2 $717.4 $119.9 $(24.8) $4,130.5 $(2,186.2) $2,767.0
===== ====== ====== ====== ======== ========= ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
6
<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, 1999, the
related condensed consolidated statements of income for the three-month
and six-month periods ended June 30, 1999 and 1998, and the related
condensed consolidated statements of cash flows and stockholders'
equity for the six-month periods ended June 30, 1999 and 1998 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 write-downs of goodwill and restructuring
and other nonrecurring charges in 1999 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 1998 Annual Report on Form 10-K.
2. Change in Accounting for Goodwill
Effective April 1, 1999, the Company elected to change its method
for assessing recoverability of goodwill from one based on undiscounted
cash flows to one based on discounted cash flows. The Company
determined that using a discounted cash flow methodology was a
preferable policy. The rate used in determining discounted cash flows
was a rate corresponding to the Company's cost of capital. The Company
believes that fair value (i.e., discounted cash flow) is preferable
because it is consistent with the basis used for investment decisions
(acquisitions and capital projects) and takes into account the specific
and detailed operating plans and strategies of each business. This
change represents a change in accounting principle, which is
indistinguishable from a change in estimate. Accordingly, the effect of
the change is recorded in the second quarter of 1999.
As a result of the change to a discounted cash flow methodology,
the Company recorded a non-cash write-down of goodwill of $1,126
million ($6.74 per share basic and diluted) in the three-month period
ended June 30, 1999.
7
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Change in Accounting for Goodwill (Concluded)
The write-downs by business segment are: golf products - $517.7
million, spirits and wine - $502.7 million and office products - $105.6
million. These charges represent the amount required to write-down the
carrying values of the goodwill of these segments to the Company's
estimate, as of April 1, 1999, of the estimated future discounted cash
flows using the methodology described below.
Effective April 1, 1999, the Company's accounting policy for
assessing recoverability of goodwill is as follows:
Goodwill is amortized on a straight line basis over its estimated
useful life, principally over a forty year period, except for certain
amounts related to businesses acquired prior to 1971, which are not
being amortized because they have been determined to have continuing
value over an indefinite period.
The Company evaluates the recoverability of goodwill by
estimating the future discounted cash flows of the businesses to which
the goodwill relates. Estimated cash flows are determined by
disaggregating its business segments to an operational and
organizational level for which meaningful identifiable cash flows can
be determined. When estimated future discounted cash flows are less
than the carrying value of the net assets (tangible and identifiable
intangible) and related goodwill, impairment losses of goodwill are
charged to operations. Impairment losses, limited to the carrying value
of goodwill, represent the excess of the sum of the carrying value of
the net assets (tangible and identifiable intangible) and goodwill over
the discounted cash flows of the business being evaluated. In
determining the estimated future cash flows, the Company considers
current and projected future levels of income as well as business
trends, prospects and market and economic conditions. Prior to April 1,
1999, the assessment of recoverability and measurement of impairment of
goodwill was based on undiscounted cash flows.
3. Joint Venture/Acquisitions
The spirits and wine business has entered into an international
sales and distribution joint venture with Remy-Cointreau and Highland
Distillers to distribute and sell products in markets outside the
United States. To create this joint venture, each company has agreed to
contribute approximately $110 million in distribution assets and/or
cash. The joint venture commenced operations in August.
8
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Joint Venture/Acquisitions (Concluded)
During 1998, acquisitions were made in the home products, office
products and spirits and wine segments for an aggregate cost of $271.8
million, including fees and expenses. In connection with these
acquisitions, liabilities amounting to $51 million were included at the
dates of acquisition. The cost exceeded the fair value of net assets
acquired by $193.7 million. These operations have been included in
consolidated results from the dates of acquisition. Had the
acquisitions been consolidated from January 1, 1997, they would not
have materially affected results.
4. Information on Business Segments
Net sales and operating company contribution are as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------
Operating
Net Company
Sales Contribution
--------------- --------------
1999 1998 1999 1998
---- ---- ---- ----
(In millions)
<S> <C> <C> <C> <C>
Home products $ 905.0 $ 709.5 $139.6 $111.1
Office products 624.3 640.2 21.9 48.9
Golf products 579.6 605.4 110.6 110.5
Spirits and wine 604.1 574.6 117.6 106.8
-------- -------- ------ ------
$2,713.0 $2,529.7 $389.7 $377.3
======== ======== ====== ======
</TABLE>
9
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Information on Business Segments (Continued)
<TABLE>
<CAPTION>
Three Months Ended June 30,
----------------------------
Operating
Net Company
Sales Contribution
--------------- --------------
1999 1998 1999 1998
---- ---- ---- ----
(In millions)
<S> <C> <C> <C> <C>
Home products $ 463.8 $ 367.1 $ 70.9 $ 55.9
Office products 309.1 318.4 6.4 20.7
Golf products 329.5 328.4 74.1 68.8
Spirits and wine 318.3 312.3 67.5 63.8
-------- -------- ------ ------
$1,420.7 $1,326.2 $218.9 $209.2
======== ======== ====== ======
</TABLE>
Operating company contribution is net sales less all costs and
expenses other than restructuring and other nonrecurring charges,
write-down of goodwill, amortization of intangibles, corporate
administrative expenses, interest and related expenses, other (income)
expenses, net and income taxes.
10
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Information on Business Segments (Concluded)
A reconciliation of operating company contribution to consolidated
income (loss) before income taxes and extraordinary items is as
follows:
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------
1999 1998
------ ------
(In millions)
<S> <C> <C>
Operating company contribution $ 89.7 $377.3
Amortization of intangibles 46.5 53.2
Write-down of goodwill 1,126.0 -
Restructuring and other
nonrecurring charges 108.8 -
Interest and related expenses 51.2 50.4
Non-operating expenses 34.7 36.2
------- ------
Income (loss) before income taxes
and extraordinary items $(977.5) $237.5
======= ======
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended June 30,
----------------------------
1999 1998
------ ------
(In millions)
<S> <C> <C>
Operating company contribution $ 218.9 $209.2
Amortization of intangibles 19.2 26.9
Write-down of goodwill 1,126.0 -
Restructuring and other
nonrecurring charges 108.8 -
Interest and related expenses 25.9 25.3
Non-operating expenses 16.6 17.2
--------- ------
Income (loss) before income taxes
and extraordinary items $(1,077.6) $139.8
========= ======
</TABLE>
11
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Earnings Per Share
The computation of basic and diluted earnings per Common share
for "Income (loss) before extraordinary items" is as follows:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
----------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
(In millions, except per share amounts)
<S> <C> <C> <C> <C>
Income (loss) before extraordinary items $(1,040.0) $140.9 $(1,096.1) $87.9
Less: Preferred stock dividends 0.4 0.4 0.2 0.2
-------- ------ -------- -----
Income available to Common
stockholders - basic (1,040.4) 140.5 (1,096.3) 87.7
Convertible Preferred stock
dividend requirements - 0.4 - 0.2
-------- ------ -------- -----
Income available to Common
stockholders - diluted $(1,040.4) $140.9 $(1,096.3) $87.9
========= ====== ========= =====
Weighted average number of Common
shares outstanding - basic 168.4 172.6 167.0 172.9
Conversion of Convertible
Preferred stock - 2.2 - 2.2
Exercise of stock options - 2.4 - 2.2
----- ----- ----- -----
Weighted average number of Common
shares outstanding - diluted 168.4 177.2 167.0 177.3
===== ===== ===== =====
Earnings per Common share
Basic $(6.18) $.81 $(6.56) $.50
====== ====== ====== ====
Diluted $(6.18) $.80 $(6.56) $.50
====== ====== ====== ====
</TABLE>
The calculations of earnings per share on a diluted basis for 1999
excludes the impact of the Convertible Preferred stock and stock
options, since they would result in an antidilutive effect.
12
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Extraordinary Items
During the six-month period ended June 30, 1998, the Company
purchased or redeemed 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 share for the three months ended June
30, 1998.
7. Restructuring and Other Nonrecurring Charges
Restructuring/Other Nonrecurring Program - 1997
-----------------------------------------------
During 1997, the Company recorded pre-tax restructuring and other
nonrecurring charges of $298.2 million as follows:
<TABLE>
<CAPTION>
Nonrecurring
Cost of Sales
Restructuring Charges Total
------------- --------------- -----
(In millions)
<S> <C> <C> <C>
Home products $ 79.5 $17.3 $ 96.8
Office products 82.5 4.8 87.3
Golf products 15.9 34.8 50.7
Spirits and wine 31.2 32.2 63.4
------ ----- ------
Total $209.1 $89.1 $298.2
====== ===== ======
</TABLE>
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.
Golf products include charges related to the discontinuance of
certain product lines and the rationalization of operations.
Spirits and wine include charges related to a change in 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.
13
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Restructuring and Other Nonrecurring Charges (Continued)
The rationalization of operations referred to above includes the
closure, consolidation, sale and/or disposal of five manufacturing
facilities (four in the U.S. and one in the U.K.); two combined
manufacturing and distribution facilities (one in each of Australia and
Europe); six distribution centers (three in Australia, two in the U.S.
and one in Japan); and three office facilities (one in Australia and
two in the U.K.). The rationalization also includes the termination of
a foreign joint venture.
Reconciliation of the liability of the restructuring and other
nonrecurring charges is as follows:
<TABLE>
<CAPTION>
1997
-------------------------------------------------------------------------
Cash Non-Cash Balance at
Total Expenditures Write-offs 12/31/97
----- ------------ ---------- --------
(In millions)
<S> <C> <C> <C> <C>
Rationalization of
operations
Employment
termination costs $ 59.3 $(18.2) $ (4.6) $36.5
Facility closing
costs 19.2 (.5) (7.3) 11.4
Other 54.8 (9.4)(1) (42.4)(1) 3.0
Inventories 70.0 - (70.0)(1) -
International distribution
and lease agreements 27.2 (.9) (21.8) 4.5
Loss on disposal of fixed
assets and businesses 67.7 - (61.5) 6.2
------ ------ ------- -----
$298.2 $(29.0) $(207.6) $61.6
====== ====== ======= =====
</TABLE>
(1) Cash expenditures of $8.5 million and non-cash write-offs of $80.6
million included in the 1997 amounts shown related to the
$89.1 million of nonrecurring cost of sales charges.
14
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Restructuring and Other Nonrecurring Charges (Continued)
<TABLE>
<CAPTION>
1998
----------------------------------------------------
Balance at Cash Non-Cash Balance at
12/31/97 Expenditures Write-offs 12/31/98
---------- ------------- ---------- ----------
(In millions)
<S> <C> <C> <C> <C>
Rationalization of
operations
Employment
termination costs $36.5 $(25.4) $(2.5)(2) $ 8.6
Facility closing
costs 11.4 (14.8) 4.6(2) 1.2
Other 3.0 (.6) (1.2) 1.2
International distribution
and lease agreements 4.5 (.1) (.2) 4.2
Loss on disposal of
fixed assets and
businesses (3) 6.2 (.2) (2.8)(2) 3.2
----- ------ ----- -----
$61.6 $(41.1) $(2.1) $18.4
===== ====== ===== =====
</TABLE>
(2) Non-cash write-offs include reclasses to reduce employment
termination costs by $2.6 million, reduce loss on disposal of
fixed assets and businesses by $2.5 million and increase
facility closing costs by $5.1 million.
(3) During 1998, after unsuccessful efforts to sell a division in
its home products segment at an acceptable value, the Company
decided to retain and operate it. The estimated fair value of
the division at the time of this decision approximated the
Company's carrying value.
<TABLE>
<CAPTION>
Six Months Ended June 30, 1999
----------------------------------------------------
Balance at Cash Non-Cash Balance at
12/31/98 Expenditures Write-offs 6/30/99
---------- ------------ ---------- ----------
(In millions)
<S> <C> <C> <C> <C>
Rationalization of
operations
Employment
termination costs $ 8.6 $(6.1) $(1.3)(4) $1.2
Facility closing
costs 1.2 (0.5) 1.5(4) 2.2
Other 1.2 (1.4) 0.2(4) -
International distribution
and lease agreements 4.2 (0.3) (1.9)(4) 2.0
Loss on disposal of
fixed assets
and businesses 3.2 (0.4) 0.6 3.4
----- ------ ----- ----
$18.4 $(8.7) $(0.9) $8.8
===== ====== ===== ====
</TABLE>
(4) Non-cash write-offs include reclasses to reduce employment
termination costs by $1 million and international distribution
and lease agreements by $1.9 million and to increase facility
closing costs by $2.7 million and other by $0.2 million.
15
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Restructuring and Other Nonrecurring Charges (Continued)
The activities related to the 1997 program are substantially
complete. The following activities are in the process of being
finalized: the completion of the Nogales, Mexico operation related to
office products' Swingline stapling production and a significant
portion of home products' Master Lock assembly operations, and the
resultant reduction of workforces in the office and home products
segments. The employment termination costs represented office products
and home products combined 7% planned workforce reductions of 1,125
individuals, primarily production employees. As of June 30, 1999, 177
positions were not yet eliminated. The program is expected to be
completed by the end of 1999.
Restructuring/Other Nonrecurring Program - 1999
-----------------------------------------------
On April 27, 1999, the Company announced plans to reduce its
corporate headquarters workforce (currently 185) by about one-third,
and relocate the corporate headquarters to an existing facility in
Lincolnshire, Illinois, by the end of 1999. These actions are expected
to result in a total of approximately $80-$90 million of pre-tax
restructuring and other nonrecurring charges during 1999, including
$66.4 million recorded in the second quarter.
The Company also announced in the second quarter that additional
restructuring actions will be taken to reduce operational costs. These
actions could result in restructuring and other nonrecurring charges
being recorded over the next twelve months in the range of $100-$150
million as actions are initiated. While the review of other potential
projects, including evaluation of potential savings, is still underway,
charges totaling $42.4 million were recorded in the second quarter.
16
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Restructuring and Other Nonrecurring Charges (Continued)
During the three months ended June 30, 1999, the Company recorded
pre-tax restructuring and other nonrecurring charges of $108.8 million
as follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1999
--------------------------------------------------------------------
Nonrecurring
-----------------------
Cost of SG&A
Restructuring Sales Charges Charges Total
------------- ------------- ------- -----
(In millions)
<S> <C> <C> <C> <C>
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
===== ===== ==== ======
</TABLE>
Home products includes reductions in force (approximately 140
positions) as a result of the move of some specialty plumbing
operations to Mexico.
Office products includes reductions in force resulting from the
move of labeling and printing production to Mexico as well as other
reductions in force in the U.S. and Europe. The total reduction in
force approximates 390 positions.
Golf products includes costs related to termination of licensing
agreements, product line discontinuances, asset write-offs (including a
note receivable related to a previously sold operation) and reductions
in force (approximately 35 positions).
Corporate office includes employee related and lease termination
costs related to the move to Lincolnshire, Illinois. Employee costs
represent severance payments, costs related to a voluntary early
retirement program, and expensess for long-term incentive and pension
plans and relate to 130 positions. Of the 130 positions, approximately
50 will be eliminated.
17
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Restructuring and Other Nonrecurring Charges (Concluded)
Reconciliation of the liability of the restructuring and other
nonrecurring charges is as follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1999
-----------------------------------------------------
Cash Non-Cash Balance at
Total Expenditures Write-offs 6/30/99
-------- ------------ ---------- ----------
(In millions)
<S> <C> <C> <C> <C>
Rationalization of
operations
Employment
termination costs(1) $ 56.5 $(3.1) - $ 53.4
Other 4.6 (0.1) - 4.5
Discontinuance of
product lines 23.4 (2.2) $(1.3) 19.9
International distribution
and lease agreements 17.3 - (0.1) 17.2
Loss on disposal of assets 7.0 - (0.3) 6.7
------ ----- ----- ------
$108.8 $(5.4) $(1.7) $101.7
====== ===== ===== ======
</TABLE>
(1) As of June 30, 1999, 172 of the 615 positions were eliminated.
8. Comprehensive Income (Loss)
The components of accumulated other comprehensive income (loss)
are as follows:
<TABLE>
<CAPTION>
Foreign Minimum Accumulated
currency pension liability other comprehensive
adjustments adjustment income (loss)
----------- ---------- -------------------
(In millions)
<S> <C> <C> <C>
Balance at December 31, 1997 $ 19.9 $(13.0) $ 6.9
Changes in six months (0.9) - (0.9)
------- ------ -----
Balance at June 30, 1998 $ 19.0 $(13.0) $ 6.0
======= ====== =====
Balance at December 31, 1998 $ 12.5 $(7.8) $ 4.7
Changes in six months (29.5) - (29.5)
------- ------ -------
Balance at June 30, 1999 $(17.0) $(7.8) $(24.8)
======= ====== =======
</TABLE>
18
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Comprehensive Income (Loss) (Concluded)
For the three-month periods ended June 30, 1999 and 1998, total
comprehensive income (loss) was a loss of $1,102 million and income of
$55.8 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 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.
19
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Concluded)
10. Environmental
The Company is subject to laws and regulations relating to the
protection of the environment. The Company provides for expenses
associated with environmental remediation obligations when such amounts
are probable and can be reasonably estimated. Such accruals are
adjusted as new information develops or circumstances change and are
not discounted. 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.
20
<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, 1999, the related
condensed consolidated statements of income for the three-month and
six-month periods ended June 30, 1999 and 1998, and the condensed
consolidated statements of cash flows and stockholders' equity for the
six-month periods ended June 30, 1999 and 1998. 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,
1998, 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 3, 1999, 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, 1998 is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which it
has been derived.
PricewaterhouseCoopers LLP
11 Madison Avenue
New York, New York 10010
August 16, 1999
21
<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, 1999 as Compared to
the Six Months Ended June 30, 1998
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Operating Company
Net Sales Contribution(1)
----------------- ------------------------
1999 1998 1999 1998
----- ---- ----- ----
(In millions)
<S> <C> <C> <C> <C>
Home products $ 905.0 $ 709.5 $ 139.6 $ 111.1
Office products 624.3 640.2 21.9 48.9
Golf products 579.6 605.4 110.6 110.5
Spirits and wine 604.1 574.6 117.6 106.8
-------- ------- ------ ------
$2,713.0 $2,529.7 $ 389.7 $ 377.3
======== ======== ======= =======
</TABLE>
(1) Operating company contribution is net sales less all costs and expenses
other than restructuring and other nonrecurring charges, write-down of
goodwill, amortization of intangibles, corporate administrative expenses,
interest and related expenses, other (income) expenses, net and income
taxes.
CONSOLIDATED
- ------------
Net sales increased $183.3 million, or 7%, on acquisitions made in 1998,
principally in the home products segment, and to a lesser extent in the spirits
and wine and office products segments, and on benefits from new products and
line extensions, partly offset by volume declines in some existing products,
lower average foreign exchange rates and lower prices. Operating company
contribution increased 3% on the benefits from the acquisitions.
As of April 1, 1999, the Company elected to change its method of measuring the
recoverability of goodwill from an undiscounted cash flow approach to a
discounted cash flow approach. The Company believes the discounted cash flow
approach, as described in Note 2 of the Notes to Condensed Consolidated
Financial Statements, is preferable because it is consistent with the basis used
for investment decisions and takes into consideration the specific and detailed
operating plans and strategies of each operation. The adoption of the discounted
cash flow method may result in greater earnings volatility since any subsequent
decreases in discounted cash flows of certain segments
22
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
CONSOLIDATED (Continued)
- ------------
may result in the write-downs of goodwill.
As a result of this change for measuring impairment, the Company recorded a
non-cash write-down of goodwill of $1,126 million ($6.68 per share basic and
diluted) in the six-month period ended June 30, 1999. The write-down was
recorded in the following business segments: golf products - $517.7 million,
spirits and wine - $502.7 million and office products - $105.6 million. As a
result of the write-down, amortization of intangibles declined to $46.5 million
in the six months ended June 30, 1999 from $53.2 million for the same six-month
period last year.
On April 27, 1999, the Company announced plans to reduce its corporate
headquarters workforce (currently 185) by about one-third and relocate the
corporate headquarters to an existing facility in Lincolnshire, Illinois, by the
end of 1999. These actions are expected to result in a total of approximately
$80-$90 million of pre-tax restructuring and other nonrecurring charges during
1999, including $66.4 million recorded in the second quarter. These charges
include employee related and lease termination costs related to the move to
Lincolnshire, Illinois. Employee costs represent severance payments, costs
related to a voluntary early retirement program, and expenses for long-term
incentive and pension plans and relate to 130 positions. Of the 130 positions,
approximately 50 will be eliminated. As a result, the Company will significantly
change the structure of its headquarters organization. The Company estimates
total projected pre-tax annualized savings from these actions to be in the range
of $30 million.
The Company also announced in the second quarter that additional restructuring
actions will be taken to reduce operational costs. These actions could result in
restructuring and other nonrecurring charges being recorded over the next twelve
months in the range of $100-$150 million as actions are initiated. While the
review of other potential projects, including evaluation of potential savings,
is still underway, charges totaling $42.4 million were recorded in the second
quarter. Home products includes reductions in force (approximately 140
positions) as a result of the move of some specialty plumbing operations to
Mexico. Office products includes reductions in force resulting from the move of
labeling and printing production to Mexico as well as other reductions in force
in the U.S. and Europe. The total reduction in force approximates 390 positions.
Golf products includes costs related to termination of licensing agreements,
product line discontinuances, asset write-offs (including a note receivable
related to a previously sold operation) and reductions in force (approximately
35 positions). The Company estimates total projected pre-tax annualized savings
from these actions to be in the
23
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
CONSOLIDATED (Continued)
- ------------
range of $10 million. Much of the savings from these actions are expected to be
invested to further develop brands.
In total, the Company recorded pre-tax restructuring and other nonrecurring
charges of $108.8 million, $69.9 million after-tax, or 42 cents basic and
diluted per share during the six months ended June 30, 1999.
Interest and related expenses increased 2% reflecting higher average borrowings,
partly offset by lower interest rates.
The effective income tax rate comparison was distorted by the absence of tax
benefits on the write-down of goodwill and the impact of the restructuring and
other nonrecurring charges taken in the second quarter of 1999. Excluding these
charges, the effective income tax rates for the six months ended June 30, 1999
and 1998 were 39.4% and 40.7%, respectively. The lower effective tax rate this
year principally reflected a refund associated with the settlement of a tax
audit and lower nondeductible goodwill amortization.
The loss before extraordinary items of $1,040 million, or $6.18 per basic Common
share, for the six months ended June 30, 1999 compared with income before
extraordinary items of $140.9 million, or 81 cents per share, for the same
six-month period last year.
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 6.)
Net loss of $1,040 million, or $6.18 per share, compared with net income of
$110.4 million, or 63 cents per share, for the same six-month period last year.
Income from operations before charges, which represents income (loss) before
extraordinary items, adjusted to exclude both the $1,126 million goodwill
write-down and the $108.8 million ($69.9 million after tax) restructuring and
other nonrecurring charges taken in the six-month period ended June 30, 1999,
was $155.9 million, or 92 cents basic and 90 cents diluted per share for the six
months ended June 30, 1999, as compared with $140.9 million, or 81 cents basic
and 80 cents diluted per share for the same six-month period last year.
24
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
CONSOLIDATED (Continued)
- ------------
In June 1999, FAS Statement No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133,"
was issued, deferring the effective date of FAS Statement No. 133, "Accounting
for Derivative Instruments and Hedging Activities," from January 1, 2000 to
January 1, 2001. FAS Statement 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.
YEAR 2000 READINESS DISCLOSURE
- ------------------------------
GENERAL. The "Year 2000", or "Y2K", problem exists because many computer
programs and computerized devices use only the last two digits to refer to a
year. As a result, these programs and devices may not properly recognize a year
that begins with "20" instead of "19". If this problem is not corrected, many
computer applications could fail or produce erroneous results.
In early 1997, we established a task force, comprised of our and our
subsidiaries' information technology specialists, to develop an action plan to
address the Year 2000 issues. The task force functions primarily as a means to
coordinate information sharing across our operating companies, to assess and
facilitate the progress towards becoming Y2K compliant and to regularly advise
our management and Board of Directors regarding the project's status.
PROJECT OVERVIEW. We and our operating companies have focused our Y2K compliance
efforts in three areas: information technology ("IT") related systems and
processes such as operating systems, applications and programs; embedded logic
("non-IT") systems and processes such as manufacturing machines, security
devices, etc.; and compliance efforts of third parties (such as suppliers,
customers, joint venture partners, government, utilities and other service
providers). Within each of the IT and non-IT areas, the project includes
inventorying all programs and devices and identifying those that are affected by
the Y2K issue, developing strategies to resolve the issues, testing such
strategies and installing the solutions. The third party aspect of the project
involves contacting and, where appropriate, visiting with significant third
parties to request that they confirm their own Y2K compliance.
25
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
CONSOLIDATED (Continued)
- ------------
YEAR 2000 READINESS DISCLOSURE (Continued)
- ------------------------------
PROJECT OVERVIEW (Concluded)
In addition to the efforts that have been focused on resolution of the Year 2000
issue, some of our business segments also have undertaken the normal course
replacement of older IT systems and non-IT devices with enterprise programs and
other system solutions to improve business processes. These enterprise programs
also will result in making the affected systems Year 2000 compliant.
INTERNAL STATE OF READINESS. The non-IT portion of the project is complete. The
IT portion of the project is substantially complete, and a few IT applications
in foreign office products locations will be made compliant during the third
quarter.
THIRD PARTY RISKS. Many third parties have responded to our requests for
information and have indicated their intention to be Y2K compliant. We have made
more extensive inquiries with our significant suppliers and customers, and we
have conducted limited testing of third party systems that interface with
certain of our systems. If one or more significant third parties fail to be Y2K
compliant, results may include, among other things, temporary plant closings,
delays in the delivery of products, delays in the receipt of supplies and
invoice and collection errors.
The Y2K compliance of third parties is inherently difficult to assess. As a
result, each of our business segments consider disruptions caused by the failure
of such parties to be Y2K compliant to present the most reasonably likely
worst-case scenarios. In addition to the risks facing businesses generally, such
as the failure of significant service providers in the utilities,
communications, transportation, banking, financial and government sectors to be
Y2K compliant, we face certain risks specific to our businesses. The continuing
rationalization of manufacturing activities in the home, office and golf
segments has resulted in an increase in the level of manufacturing, and
purchases from vendors and suppliers in less-developed countries. The Y2K
compliance in such countries is particularly difficult to assess, and the
failure of key suppliers to be Y2K compliant could cause disruptions in these
segments. Also, the continued trend towards consolidation among the customer
base in the home and office products segments presents special risks. Because
the sales in these segments are becoming concentrated on a number of larger
customers, the failure of one or more such customers to be Y2K compliant could
result in interruptions in
26
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Concluded)
---------------------------------------------------------
CONSOLIDATED (Concluded)
- ------------
YEAR 2000 READINESS DISCLOSURE (Concluded)
- ------------------------------
THIRD PARTY RISKS (Concluded)
sales to affected customers. Finally, the spirits and wine segment faces
potential disruptions in the U.S. related to non-compliance by any of the state
and local government entities that control the distribution and sale of spirits
and wine in 18 "control" states. In essence, the requirement that spirits and
wine be sold only through the government in such jurisdictions may legally
prohibit the spirits and wine segment from taking the necessary steps to
continue to sell or distribute products until such government entities' Y2K
problems are successfully resolved.
CONTINGENCY PLANNING. We have been focusing our efforts on compliance, and we
believe the critical IT and non-IT portions of the project are compliant. In
addition, we are engaged in continuing efforts to evaluate the Y2K compliance of
our significant third party suppliers and customers. The Year 2000 problem
presents a number of risks that are beyond our reasonable control. Accordingly,
contingency plans focusing on critical activities are being developed and will
be implemented to the extent necessary. Among the plans being considered are
arranging for contingent raw material, component and manufacturing capacity
sources; building supplies and inventory; escrowing the computer source codes of
key software applications; ensuring the availability of appropriate staff at
critical periods; development of manual work-around procedures and reviewing
data recovery disaster plans.
COSTS TO ADDRESS YEAR 2000 ISSUES. Based on the efforts to date and on project
plans, we currently estimate that the total costs (including costs of existing
internal resources) will be approximately $25 million, which is being provided
by internally generated sources. Of the total cost, we spent approximately 91
percent as of June 30, 1999. This cost estimate may change as the program
progresses.
CONCLUSION. Based on current assessment efforts, we anticipate that our internal
Year 2000 issues will be resolved in a timely manner. However, the Year 2000
problem presents a number of risks that are beyond our reasonable control,
particularly with respect to the Y2K compliance of third parties, both domestic
and international. Although we believe that our Y2K program is designed to
appropriately identify and address those issues which are within our reasonable
control, there can be no assurance that our efforts will be fully effective or
that Y2K issues will not have a material adverse effect upon our results of
operations, cash flows or financial condition.
27
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
Home Products
- -------------
Net sales increased $195.5 million, or 28%. The increase was primarily
attributable to the acquisition of Schrock cabinets in June 1998 and overall
volume and price increases. The overall volume increases reflect higher volume
in existing products, line extensions and the introduction of new products.
Operating company contribution increased $28.5 million, or 26%. The increase
reflects the higher sales and improved gross margin, partly offset by increased
operating expenses. The gross margin improvement reflected the benefits of
higher volume, favorable product mix and higher selling prices. The increased
operating expenses reflects higher volume-related selling expenses and higher
advertising expenses (principally at Moen) as well as increased general and
administrative expenses.
Office Products
- ---------------
Net sales decreased $15.9 million, or 2%. The decrease was primarily
attributable to lower overall volume, lower prices (including higher rebates and
allowances) and lower average foreign exchange rates, partly offset by the
benefits of an acquisition. The overall volume decline reflects lower volume in
some existing products, partly offset by the introduction of new products. The
lower volume primarily results from inventory reduction programs by major
customers. Operating company contribution decreased $27 million, or 55%. The
decrease reflects the lower sales and lower gross margin, partly offset by lower
operating expenses. The gross margin decreased because of lower prices and
additional costs related to current integration and relocation of operations in
North America, Europe and Australia. The decrease in operating expenses resulted
from lower freight costs (favorable comparison to 1998 costs incurred to
maintain customer service levels during restructuring activities) and decreased
general and administrative costs, partly offset by higher customer program
costs, higher Y2K expenses and higher U.K. distribution expenses. Favorable
operating company contribution comparisons are expected for the second half of
1999 but a decrease is expected for full year operating company contribution.
28
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
Golf Products
- -------------
Net sales decreased $25.8 million, or 4%, on an overall volume decline in total
golf clubs reflecting the timing of Cobra's new product introductions and the
continued softness in the golf club market. Cobra's introduction of new products
last year occurred in the first quarter. This year's newly introduced Cobra
Gravity Back irons began shipping later in the first quarter, and drivers
started shipping in April. As a result, the timing of new product introductions
and discounting on older models led to a significant decline in sales of Cobra
clubs and to a lower margin in golf clubs. The sales decline in total golf clubs
was partly offset by sales gains in Titleist golf clubs, Titleist and Pinnacle
golf balls and FootJoy shoes (volume increases reflecting benefits from new
products and line extensions). Operating company contribution increased
slightly. Lower operating expenses primarily reflected savings associated with
the 1998 staff reductions at Cobra, reduced advertising and promotional, and
research and development expenses. The lower operating expenses were almost
offset by the effects of lower sales.
The United States Golf Association establishes standards for golf equipment used
in competitive play in the United States. The USGA has announced its intention
to propose new rules in late 1999 or 2000 addressing the initial velocity and
overall distance standards for golf balls. Until more details regarding the
proposed rule changes become available, we cannot determine whether they would
have an effect on our group's golf ball business and/or the golf ball industry.
Spirits and Wine
- ----------------
Net sales increased $29.5 million, or 5%. The increase resulted from the August
1998 Geyser Peak wine acquisition, higher prices and overall volume increases,
partly offset by lower average foreign exchange rates. The overall volume
increases reflect line extensions in the U.S. (principally DeKuyper cordial
line) and new products, partly offset by lower volumes on existing brands. The
lower volume on existing brands results from lower shipments of private label
scotch products and most U.S. brands. Shipments of Jim Beam bourbon and Dekuyper
cordials increased. Operating company contribution increased $10.8 million, or
10%. The increase resulted from the higher sales and improved gross margin
(principally reflecting favorable product mix and price increases), partly
offset by higher operating expenses. The higher operating expenses were caused
by increased volume-related selling expenses. Operating results improved in
North America (including the benefit from the wine acquisition) while the
private label scotch business declined. For the remainder of the year, more
modest growth in operating company contribution is expected.
29
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
Spirits and Wine (Concluded)
- ----------------
The spirits and wine business has entered into an international sales and
distribution joint venture with Remy-Cointreau and Highland Distillers to
distribute and sell products in markets outside the United States. To create
this joint venture, each company has agreed to contribute approximately $110
million in distribution assets and/or cash. The joint venture commenced
operations in August.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net cash provided from operating activities of $140 million for the six months
ended June 30, 1999 compared with $30.9 million for the same six-month period
last year.
Net cash used by investing activities for the six months ended June 30, 1999 was
$74.5 million, as compared with $263.6 million in the same six-month period last
year that included the acquisitions of Apollo Presentation Products and Schrock
Cabinet Company.
Net cash used by financing activities for the six months ended June 30, 1999 was
$37.3 million, as compared with net cash provided by financing activities of
$269.9 million in the same six-month period last year. During the six months
ended June 30, 1999, the Company purchased 7,227,783 Common shares including
those purchased pursuant to the systematic share purchase program and other open
market purchases.
Total debt at June 30, 1999 was $1.7 billion, an increase of $223 million from
December 31, 1998. The ratio of total debt to total capital increased from 26.6%
at December 31, 1998 to 38.2% at June 30, 1999. The increase principally
reflected the impact on total capital of the $1,126 million write-down of
goodwill in the second quarter of 1999.
During the six months ended June 30, 1998, the Company purchased $175.1 million
principal amount of its outstanding debt. (See Note 6.) On June 30 and March 31,
1998, the Company issued $200 million of 6-5/8% Debentures, Due 2028 and $200
million of 6-1/4% Notes, Due 2008, respectively.
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.
30
<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, 1999 as Compared
to the Three Months Ended June 30, 1998
---------------------------------------------------------------------------
<TABLE>
<CAPTION>
Operating
Net Sales Company Contribution(1)
----------------- --------------------------
1999 1998 1999 1998
---- ---- ---- -------
(In millions)
<S> <C> <C> <C> <C>
Home products $ 463.8 $ 367.1 $ 70.9 $ 55.9
Office products 309.1 318.4 6.4 20.7
Golf products 329.5 328.4 74.1 68.8
Spirits and wine 318.3 312.3 67.5 63.8
-------- -------- ------ ------
$1,420.7 $1,326.2 $218.9 $209.2
======== ======== ====== ======
</TABLE>
(1) Operating company contribution is net sales less all costs and expenses
other than restructuring and other nonrecurring charges, write-down of
goodwill, amortization of intangibles, corporate administrative expenses,
interest and related expenses, other (income) expenses, net and income
taxes.
CONSOLIDATED
- ------------
Net sales increased $94.5 million, or 7%, on acquisitions made in 1998,
principally in the home products segment, and to a lesser extent in the spirits
and wine segment, and on benefits from new products and line extensions, partly
offset by volume declines in some existing products, lower average foreign
exchange rates and lower prices. Operating company contribution increased 5% on
the benefits from the acquisitions.
As a result of the change for measuring impairment (See the section on
"Consolidated" describing the six months results for additional information on
the change.) the Company recorded a non-cash write-down of goodwill of $1,126
million ($6.74 per share basic and diluted) in the three-month period ended June
30, 1999. As a result of the write-down, amortization of intangibles declined to
$19.2 million in the three months ended June 30, 1999 from $26.9 million for the
same three-month period last year.
31
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
CONSOLIDATED (Concluded)
- ------------
During the three-month period ended June 30, 1999, the Company recorded pre-tax
restructuring and other nonrecurring charges of $108.8 million, $69.9 million
after-tax, or 42 cents basic and diluted per share. (See Note 7 and the section
on "Consolidated" describing the six months results for additional information
on restructuring.)
Interest and related expenses increased 2% reflecting higher average borrowings,
partly offset by lower interest rates.
The effective income tax rate comparison was distorted by the absence of tax
benefits on the write-down of goodwill and the impact of the restructuring and
other nonrecurring charges taken in the second quarter of 1999. Excluding these
charges, the effective income tax rates for the three months ended June 30, 1999
and 1998 were 36.5% and 37.1%, respectively.
The loss before extraordinary items of $1,096.1 million, or $6.56 per basic
Common share, for the three months ended June 30, 1999, compared with income
before extraordinary items of $87.9 million, or 50 cents per share, for the same
three-month period last year.
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 6.)
Net loss of $1,096.1 million, or $6.56 per share, for the three months ended
June 30, 1999, compared with net income of $65.8 million, or 37 cents per share,
for the same three-month period last year.
Income from operations before charges, which represents income (loss) before
extraordinary items, adjusted to exclude both the $1,126 million goodwill
write-down 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,
was $99.8 million, or 60 cents and 58 cents basic and diluted per share,
respectively, for the three months ended June 30, 1999, as compared with $87.9
million, or 50 cents basic and diluted per share for the same three-month period
last year.
32
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
Home Products
- -------------
Net sales increased $96.7 million, or 26%. The increase was primarily
attributable to the acquisition of Schrock cabinets in June 1998 and overall
volume and price increases. The overall volume increases reflect higher volume
on existing products, the introduction of new products and line extensions.
Operating company contribution increased $15 million, or 27%. The increase
reflects the higher sales and improved gross margin, partly offset by higher
operating expenses. The improvement in gross margin reflects higher prices and
the benefits of higher volume and favorable product mix. The increased operating
expenses reflect higher volume-related selling expenses and advertising expenses
(principally at Moen) as well as higher general and administrative expenses.
Office Products
- ---------------
Net sales decreased $9.3 million, or 3%. The decrease results from lower overall
volume, lower prices (which includes higher rebates and allowances) and lower
average foreign exchange rates. The overall volume decline reflects lower volume
in some existing products, partly offset by the introduction of new products.
The lower volume primarily results from inventory reduction programs by major
customers. Operating company contribution decreased $14.3 million, or 69%. The
decrease reflects the lower sales and decreased gross margin, partly offset by
lower operating expenses. The gross margin declined because of lower prices and
additional costs related to current integration and relocation of operations in
North America and Europe. The lower operating expenses resulted from decreased
general and administrative expenses, lower freight costs (favorable comparison
to 1998 costs incurred to maintain customer service levels during restructuring
activities), lower selling and distribution expenses.
33
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
Golf Products
- -------------
Net sales increased slightly on sales gains in Titleist golf clubs, Titleist and
Pinnacle golf balls and FootJoy shoes (volume increases reflecting benefits from
new products and line extensions). The sales increase was partly offset by
volume declines in Cobra golf clubs. Golf glove sales were down 3% on a 1%
volume decline reflecting softness in the U.S. market. Operating company
contribution increased $5.3 million, or 8% on the higher sales, improved gross
margin and lower operating expenses. Lower operating expenses primarily
reflected savings associated with the 1998 staff reductions at Cobra and reduced
advertising and promotional, and research and development expenses.
Spirits and Wine
- ----------------
Net sales increased $6 million, or 2%. The increase resulted from the August
1998 Geyser Peak wine acquisition and higher prices, partly offset by lower
overall volume. The lower overall volume resulted from decreases in existing
products, partly offset by line extensions and new products. The decreases in
existing products case shipments were the result of purchases made by customers
in the first quarter of 1999 in advance of announced price increases for both
Jim Beam bourbon in the U.S. and pre-mixed cocktails in Australia. Shipments of
most U.S. brands and volume in the European operations declined. Operating
company contribution increased $3.7 million, or 6%. The increase reflects higher
sales, partly offset by lower gross margin (due to unfavorable product mix
partly offset by price increases) and slightly higher operating expenses.
Operating results improved in North America (including the benefit from the wine
acquisition) while European and Australian operations declined.
34
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Concluded)
---------------------------------------------------------
CAUTIONARY STATEMENT
- --------------------
This Quarterly Report on Form 10-Q contains statements relating to future
results. They 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.
35
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
- ------ -----------------
(a) Smoking and Health Proceedings
Indemnification Agreement
On December 22, l994, Registrant sold The American Tobacco Company
("ATCO") to Brown & Williamson Tobacco Corporation ("B&W"), at the time a
wholly-owned subsidiary of B.A.T Industries p.l.c. In connection with the sale,
B&W and ATCO (collectively, the "Indemnitors") agreed to indemnify Registrant
against claims including legal expenses arising from smoking and health and fire
safe cigarette matters relating to the tobacco business of ATCO.
Individual Cases
As of August 11, 1999, there were approximately 158 smoking and
health cases pending on behalf of individual plaintiffs in which Registrant has
been named as one of the defendants, compared with approximately 230 such cases
as of March 29, 1999, as reported by Registrant in its Annual Report on Form
10-K for the fiscal year ended December 31, 1998.
Class Actions
As of August 11, 1999, there were approximately 25 purported smoking
and health class actions pending in which Registrant has been named as one of
the defendants, compared with approximately 28 such cases on March 29, 1999, as
reported by Registrant in its Annual Report on Form 10-K for the fiscal year
ended December 31, 1998.
Health Care Cost Recovery Actions
As of August 11, 1999, there were approximately seven health care
cost recovery actions pending in which Registrant had been named as one of the
defendants, compared with approximately nine such cases as of March 29, 1999, as
reported by Registrant in its Annual Report on Form 10-K for the fiscal year
ended December 31, 1998.
Certain Developments in Cases Involving the Indemnitors
In Engle v. R.J. Reynolds Tobacco Company, et al. (reported under Part
I, Item 3, "Legal Proceedings" of Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998), the jury in Phase I of the trial found
certain tobacco manufacturers (including B&W individually and as successor by
merger to ATCO) liable for causing various cigarette related diseases and also
found that punitive damages may be awarded. Phase II of the trial, in which the
jury will
36
<PAGE>
Item 1. LEGAL PROCEEDINGS. (Continued)
- ------ -----------------
determine specific causation and damages, is expected to begin September 7,
1999. Registrant is not a party to the Engle litigation.
In each of the following cases against certain tobacco manufacturers
(including B&W individually or as successor by merger to ATCO), juries returned
defense verdicts on the dates indicated:
a) Butler v. Philip Morris, Incorporated, et al. on June 1, 1999.
Registrant was not a party to this action.
b) Gilboy v. American Tobacco Company, et al. on July 9, 1999.
Registrant was not a party to this action.
c) Steele v. Brown & Williamson Tobacco Corporation on May 13, 1999.
Registrant was not a party to this action.
List of Pending Cases
See Exhibit 99 to this Form 10-Q for a list of additional proceedings
involving the smoking and health controversy in which Registrant has been named
as a defendant.
List of Terminated Cases
See Exhibit 99 to this Form 10-Q for a list of smoking and health
proceedings, in which Registrant had been named as a defendant, which have been
terminated and have not previously been reported as such.
Conclusion
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.
(b) In Craig J. Wedde v. Valley Warehousing, Inc., et al. (reported
under Part II, Item 1, "Legal Proceedings" of Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1999), the action was dismissed as to
Registrant on the merits by stipulation of the parties ordered by the court on
June 30, 1999.
37
<PAGE>
Item 1. LEGAL PROCEEDINGS. (Concluded)
- ------ -----------------
(c) 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 27, 1999.
(b) 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 five nominees for Class I directors, Mr. Thomas
C. Hays, Mr. Sidney Kirschner, Mr. Gilbert L. Klemann, II, Mr. Gordon R. Lohman
and Mr. Charles H. Pistor, Jr., were duly elected at the 1999 Annual Meeting for
a term of office expiring at the 2002 Annual Meeting. The term of office of the
Class II directors, Mr. Eugene R. Anderson, Ms. Patricia O. Ewers, Mr. John W.
Johnstone, Jr. and Mr. Eugene A. Renna, and the term of office of the Class III
directors, Mr. John T. Ludes, Ms. Anne M. Tatlock, Mr. John W. Thompson, Mr.
Norman H. Wesley and Mr. Peter M. Wilson, also continued after the 1999 Annual
Meeting.
(c)(i) The five nominees for Class I directors 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. Hays: 148,726,718 votes for and 1,615,217 votes withheld;
(B) Mr. Kirschner: 148,808,166 votes for and 1,533,769 votes withheld;
(C) Mr. Klemann: 148,830,062 votes for and 1,511,873 votes withheld;
(D) Mr. Lohman: 148,843,352 votes for and 1,498,583 votes withheld;
(E) Mr. Pistor: 148,691,261 votes for and 1,650,674 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
PricewaterhouseCoopers LLP independent accountants of Registrant
38
<PAGE>
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. (Concluded)
- ------ ---------------------------------------------------
for the year 1999, 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: 146,236,612 affirmative votes; 1,984,133 negative votes; and
718,236 votes abstained.
(c)(iii) A proposal (designated Item 3 and set forth in Registrant's
Proxy Statement), approved by the Board of Directors, to approve the Fortune
Brands, Inc. 1999 Long-Term Incentive Plan, 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: 116,004,064 affirmative votes;
10,491,589 negative votes; 3,690,299 votes abstained; and 20,155,983 broker
non-votes.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
- ------ --------------------------------
(a) Exhibits.
--------
12. Statement re computation of ratio of earnings
to fixed charges.
15. Letter from PricewaterhouseCoopers LLP dated
August 16, 1999 re unaudited financial
information.
18. Letter from PricewaterhouseCoopers LLP dated
August 16, 1999 re change in accounting
principles.
27. Financial Data Schedule (Article 5).
99. List of Pending/Terminated Cases.
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 May 3, 1999, in
respect of Registrant's press release dated April 27, 1999 announcing
its headquarters relocation and goodwill accounting change (Items 5 and
7(c)).
39
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K. (Concluded)
- ------ --------------------------------
Registrant filed a Current Report on Form 8-K, dated July 23, 1999, in
respect of Registrant's press release dated July 23, 1999 announcing
Registrant's financial results for the three-month and six-month
periods ended June 30, 1999 (Items 5 and 7(c)).
40
<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 16, 1999 By /s/ C. P. Omtvedt
----------------- ----------------------
C. P. Omtvedt
Senior Vice President and
Chief Accounting Officer
41
<PAGE>
EXHIBIT INDEX
-------------
Sequentially
Exhibit Numbered Page
- ------- -------------
12. Statement re computation of ratio of
earnings to fixed charges.
15. Letter from PricewaterhouseCoopers LLP
dated August 16, 1999 re unaudited
financial information.
18. Letter from PricewaterhouseCoopers LLP
dated August 16, 1999 re change in
accounting principles.
27. Financial Data Schedule (Article 5).
99. List of Pending/Terminated Cases.
42
PART II - 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,
--------------------------------------------------------------- ----------
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Earnings Available:
Income (loss) from continuing operations
before income taxes, minority
interest and extraordinary items......... $ 43.4 $358.9 $340.1 $145.2 $516.4 $(975.9)
Less: Excess of earnings over
dividends of less than
fifty percent owned
companies...................... - 0.2 0.2 0.2 0.2 0.1
Capitalized interest................. 0.2 - 0.3 - - 2.8
------ ------ ------ ------ ------ --------
43.2 358.7 339.6 145.0 516.2 (978.8)
====== ====== ====== ====== ====== ========
Fixed Charges:
Interest expense (including
capitalized interest) and
amortization of debt discount
and expenses............................. 184.6 147.1 172.6 122.4 105.4 55.6
Portion of rentals representative
of an interest factor.................... 12.8 13.5 15.1 14.7 17.0 9.4
------ ------ ------ ------ ------ --------
Total Fixed Charges................ 197.4 160.6 187.7 137.1 122.4 65.0
------ ------ ------ ------ ------ --------
Total Earnings Available........... $240.6 $519.3 $527.3 $282.1 $638.6 $(913.8)
====== ====== ====== ====== ====== ========
Ratio of Earnings to Fixed Charges............ 1.22 3.23 2.81 2.06 5.22 (A)
==== ==== ==== ==== ==== ===
</TABLE>
(A) As a result of the loss reported for the six months ended June 30, 1999,
earnings were insufficient to cover fixed charges by $913.8 million.
Included in earnings was a second quarter 1999 goodwill write-down of
$1,126 million as disclosed in Note 2 of the Company's Condensed
Consolidated Financial Statements. If the write-down were excluded from
earnings, the ratio of earnings to fixed charges for the six months ended
June 30, 1999 would have been 3.26.
PART II - EXHIBIT 15
---------------------
August 16, 1999
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 16, 1999, on our review of
interim financial information of Fortune Brands, Inc. and Subsidiaries for the
six-month period ended June 30, 1999 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 Registration
Statements on Form S-3 (Registration Nos. 33-50832, 33-42397, 33-23039, 33-3985
and 333-76371) 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
11 Madison Avenue
New York, New York 10010
PART II - EXHIBIT 18
---------------------
August 16, 1999
Board of Directors
Fortune Brands, Inc.
1700 East Putnam Avenue
Old Greenwich, CT 06870
Dear Directors:
We are providing this letter to you for inclusion as an exhibit to your Form
10-Q filing pursuant to Item 601 of Regulation S-K.
We have been provided a copy of the Company's Quarterly report on Form 10-Q for
the period ended June 30, 1999. Note 2 therein describes a change in accounting
principle from use of an undiscounted cash flow methodology to assess
recoverability of goodwill to use of a discounted cash flow methodology. It
should be understood that the preferability of one acceptable method of
accounting over another for assessing recoverability of goodwill has not been
addressed in any authoritative accounting literature, and in expressing our
concurrence below we have relied on management's determination that this change
in accounting principle is preferable. Based on our reading of management's
stated reasons and justification for this change in accounting principle in the
Form 10-Q, and our discussions with management as to their judgement about the
relevant business planning factors relating to the change, we concur with
management that such change represents, in the Company's circumstances, the
adoption of a preferable accounting principle in conformity with Accounting
Principles Board Opinion No. 20.
We have not audited any financial statements of the Company as of any date or
for any period subsequent to December 31, 1998. Accordingly, our comments are
subject to change upon completion of an audit of the financial statements
covering the period of the accounting change.
Very truly yours,
PricewaterhouseCoopers LLP
11 Madison Avenue
New York, New York 10010
<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, 1999 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> $ 66
<SECURITIES> 0
<RECEIVABLES> 1,013
<ALLOWANCES> 57
<INVENTORY> 1,054
<CURRENT-ASSETS> 2,368
<PP&E> 2,139
<DEPRECIATION> 1,041
<TOTAL-ASSETS> 6,233
<CURRENT-LIABILITIES> $2,057
<BONDS> 975
<COMMON> 717
0
10
<OTHER-SE> 2,040
<TOTAL-LIABILITY-AND-EQUITY> 6,233
<SALES> $2,713
<TOTAL-REVENUES> 2,713
<CGS> 1,431
<TOTAL-COSTS> 1,431
<OTHER-EXPENSES> 203
<LOSS-PROVISION> 6
<INTEREST-EXPENSE> 51
<INCOME-PRETAX> (977)
<INCOME-TAX> 63
<INCOME-CONTINUING> (1,040)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $(1,040)
<EPS-BASIC> $(6.18)
<EPS-DILUTED> $(6.18)
</TABLE>
PART II - EXHIBIT 99
--------------------
List of Pending Cases
In addition to those pending cases previously reported in Exhibit 99 of
Registrant's Annual Report on Form 10-K for the fiscal year ended December 31,
1998 and Exhibit 99 of the Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999, Registrant has been named as a defendant in the
following smoking and health proceedings:
Blain, R. v. RJR Nabisco, Inc., et al., Circuit Court of the State of
West Virginia, Kanawha County, June, 2, 1999;
Blankenship, D. v. The American Tobacco Company, et al., Circuit Court
of the State of West Virginia, Kanawha
County, July 23, 1999;
Christensen v. Philip Morris Companies, Inc., et al., United States
District Court, Las Vegas, Nevada, April, 3, 1998;
Green, M. v. The American Tobacco Company, et al., 18th Judicial
District Court of Sedgwick County, Kansas, Civil Department, February 6, 1997
(formerly reported under the caption "Emig");
Rusoff v. The American Tobacco Company, et al., Supreme Court of New
York, Kings County, January 6, 1997 (formerly reported under the caption
"Rinaldi");
Silverman, P. v. Lorillard Tobacco Company, et al., Supreme Court of
New York, Kings County, July 7, 1999.
List of Cases Terminated
The following smoking and health proceedings have been terminated and
not previously reported as such:
Allen v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Austin v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Bland v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
<PAGE>
Bocook v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Boone v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Bowden v. The American Tobacco Company, et al., which was previously
pending in the United States District Court, Western District of Virginia, and
instituted on January 6, 1999, was voluntarily dismissed on June 21, 1999;
Bradford v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Brogan v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Brown, A. v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Brown, W. v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Bryant v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Burdette v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Castano v. The American Tobacco Company, et al., which was previously
pending in the United States District Court for the Eastern District of
Louisiana, and instituted on March 29, 1994, was administratively terminated by
court order on June 22, 1999;
<PAGE>
Clayton v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Coleman, I. v. The American Tobacco Company, et al., which was
previously pending in the Circuit Court of the State of West Virginia, Kanawha
County, and instituted on October 1, 1998, was dismissed with prejudice on July
21, 1999;
Coleman, L. v. The American Tobacco Company, et al., which was
previously pending in the Circuit Court of the State of West Virginia, Kanawha
County, and instituted on October 1, 1998, was dismissed with prejudice on July
21, 1999;
Conley v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Cottrill, C. v. The American Tobacco Company, et al., which was
previously pending in the Circuit Court of the State of West Virginia, Kanawha
County, and instituted on October 1, 1998, was dismissed with prejudice on July
21, 1999;
Cottrill, L. v. The American Tobacco Company, et al., which was
previously pending in the Circuit Court of the State of West Virginia, Kanawha
County, and instituted on October 1, 1998, was dismissed with prejudice on July
21, 1999;
County of Allegheny v. The American Tobacco Co., et al., which was
previously pending in the United States District Court for the Western District
of Pennsylvania, and instituted on March 12, 1999, was voluntarily dismissed
with prejudice on May 14, 1999;
Coyne v. American Brands, et al., which was previously pending in the
United States District Court for the Northern District of Ohio, and instituted
on September 16, 1996, was dismissed by U.S. Court of Appeals on July 12, 1999;
Crites v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Cunningham v. The American Tobacco Company, et al., which was
previously pending in the Circuit Court of the State of West Virginia, Kanawha
County, and instituted on October 1, 1998, was dismissed with prejudice on July
21, 1999;
<PAGE>
Daniels v. The American Tobacco Company, et al., which was previously
pending in the United States District Court, Southern District of California,
and instituted on April 2, 1998, Registrant was dismissed without prejudice on
November 17, 1998;
DiBacco v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
DiGirolamo v. The American Tobacco Company, et al., which was
previously pending in the Circuit Court of the State of West Virginia, Kanawha
County, and instituted on October 1, 1998, was dismissed with prejudice on July
21, 1999;
Duffield v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Eanes v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Edwards v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Fife v. The American Tobacco Company, et al., which was
previously pending in the Circuit Court of the State of West Virginia, Kanawha
County, and instituted on October 1, 1998, was dismissed with prejudice on July
21, 1999;
Freeman v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Gauze v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Gillespie v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
<PAGE>
Gilman v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Graham v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Hall v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Harbert v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Harding v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Heaster v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Hieneman v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Hodges v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Holbrook v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Jividen v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Mason County, and
instituted on January 13, 1999, was dismissed without prejudice on July 13,
1999;
<PAGE>
Johnson v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Keene v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Kennon v. Brown & Williamson Tobacco Corp., et al., which was
previously pending in the District Court for East Baton Rouge, State of
Louisiana, and instituted on October 3, 1997, was dismissed due to failure to
effect proper service on March, 11, 1999;
Keyes v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
King, J. v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Larkin v. The American Tobacco Company, et al., which was previously
pending in the Court of Common Pleas of Pennsylvania, Allegheny County, and
instituted on June 27, 1997, was discontinued without prejudice on June 11,
1998;
LeBrun v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Long, S. v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Mallett v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Miller, J. v. The American Tobacco Company, et al., which was
previously pending in the Circuit Court of the State of West Virginia, Kanawha
County, and instituted on October 1, 1998, was dismissed with prejudice on July
21, 1999;
<PAGE>
Mounts v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
O'Hara v. The American Tobacco Company, et al., which was previously
pending in the Supreme Court of New York, New York County, and instituted on
February 23, 1998, was dismissed on October 29, 1998;
Owen v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Phillips v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Price v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Ramsey v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Ritenour v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Rose, G. v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Roseff v. The American Tobacco Company, et al., which was previously
pending in the Supreme Court of New York, New York County, and instituted on
December 2, 1997, was dismissed without prejudice on July, 8, 1999;
Shipunoff v. The American Tobacco Co., et al., which was previously
pending in the United States District Court for the Eastern District of
California, and instituted on September 3, 1998, was dismissed with prejudice on
June, 1, 1999;
<PAGE>
Schultz v. The American Tobacco Co., et al., which was previously
pending in the Court of Common Pleas for the County of Dauphin, Pennsylvania,
and instituted on December 5, 1997, was voluntarily dismissed by the plaintiff
without prejudice on October 30, 1998;
Smith, C. v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Sopsher, C. v. The American Tobacco Company, et al., which was
previously pending in the Circuit Court of the State of West Virginia, Kanawha
County, and instituted on October 1, 1998, was dismissed with prejudice on July
21, 1999;
Sopsher, C. v. The American Tobacco Company, et al., which was
previously pending in the Circuit Court of the State of West Virginia, Kanawha
County, and instituted on October 1, 1998, was dismissed with prejudice on July
21, 1999;
Stern v. Liggett Group, Inc., which was previously pending in the
Supreme Court of New York, New York County, and instituted on January 29, 1997,
Registrant was dismissed on July 7, 1997;
Stockton v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Sumpter v. The American Tobacco Company, et al., which was previously
pending in the Superior Court of Indiana, Marion County, and instituted on
February 26, 1998, was dismissed without prejudice on September 9, 1998;
Surgeon v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Tepper v. Philip Morris Incorporated, et al., which was previously
pending in the Superior Court of New Jersey, Law Division, Bergen County, and
instituted on May 28, 1997, was voluntarily dismissed without prejudice on March
24, 1998;
Vance v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
<PAGE>
Vaughan v. Philip Morris, Inc., et al., which was previously pending in
the United States District Court for the Western District of Virginia, and
instituted on December 17, 1998, was voluntarily dismissed by the plaintiff on
June 22, 1999;
Walls v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Weese v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Wills v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Wiseman v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Woods, D. v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Woods, H. v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999;
Wright v. The American Tobacco Company, et al., which was previously
pending in the Circuit Court of the State of West Virginia, Kanawha County, and
instituted on October 1, 1998, was dismissed with prejudice on July 21, 1999.
