-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JCICeWQl+PMohfvpSXe06K6jsQKnsPyL3JjptTo2W4u6XIBI8dkeIFy1p6YueCAf YHZnSy+x3PyZoR7KWJS31Q== 0000893838-98-000129.txt : 19980814 0000893838-98-000129.hdr.sgml : 19980814 ACCESSION NUMBER: 0000893838-98-000129 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980813 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FORTUNE BRANDS INC CENTRAL INDEX KEY: 0000789073 STANDARD INDUSTRIAL CLASSIFICATION: HEATING EQUIP, EXCEPT ELEC & WARM AIR & PLUMBING FIXTURES [3430] IRS NUMBER: 133295276 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09076 FILM NUMBER: 98685328 BUSINESS ADDRESS: STREET 1: 1700 E PUTNAM AVE CITY: OLD GREENWICH STATE: CT ZIP: 06870-0811 BUSINESS PHONE: 2036985000 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN BRANDS INC /DE/ DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period Commission file number 1-9076 ended June 30, 1998 FORTUNE BRANDS, INC. - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 13-3295276 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1700 East Putnam Avenue, Old Greenwich, Connecticut 06870-0811 - ------------------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (203) 698-5000 ------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( ) The number of shares outstanding of the registrant's Common stock, par value $3.125 per share, at July 31, 1998 was 172,792,016 shares. PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS. - ------ -------------------- FORTUNE BRANDS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET --------------------------------------- (In millions)
June 30, December 31, 1998 1997 ------------ ------------ (Unaudited) Assets Current assets Cash and cash equivalents $ 90.1 $ 54.2 Accounts receivable, net 938.4 862.0 Inventories Bulk whiskey 344.8 338.1 Other raw materials, supplies and work in process 274.7 258.7 Finished products 414.4 358.4 -------- -------- 1,033.9 955.2 Other current assets 230.9 224.2 -------- -------- Total current assets 2,293.3 2,095.6 Property, plant and equipment, net 1,030.4 980.9 Intangibles resulting from business acquisitions, net 3,749.6 3,674.1 Other assets 208.0 191.9 -------- -------- Total assets $7,281.3 $6,942.5 ======== ========
See Notes to Condensed Consolidated Financial Statements. FORTUNE BRANDS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET --------------------------------------- (In millions, except per share amounts)
June 30, December 31, 1998 1997 ------------ ------------ (Unaudited) Liabilities and stockholders' equity Current liabilities Notes payable to banks $ 70.0 $ 36.8 Commercial paper 448.4 191.6 Accounts payable 240.9 254.6 Accrued taxes 430.1 475.2 Accrued expenses and other liabilities 601.2 634.1 Current portion of long-term debt 209.4 176.2 -------- -------- Total current liabilities 2,000.0 1,768.5 Long-term debt 782.3 739.1 Deferred income taxes 42.3 38.5 Postretirement and other liabilities 378.7 379.3 -------- -------- Total liabilities 3,203.3 2,925.4 -------- -------- Stockholders' equity $2.67 Convertible Preferred stock - redeemable at Company's option 10.8 11.3 Common stock, par value $3.125 per share, 229.6 shares issued 717.4 717.4 Paid-in capital 145.7 151.1 Accumulated other comprehensive income 6.0 6.9 Retained earnings 5,167.1 5,129.7 Treasury stock, at cost (1,969.0) (1,999.3) -------- -------- Total stockholders' equity 4,078.0 4,017.1 -------- -------- Total liabilities and stockholders' equity $7,281.3 $6,942.5 ======== ========
See Notes to Condensed Consolidated Financial Statements. FORTUNE BRANDS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF INCOME for the Six Months Ended June 30, 1998 and 1997 ----------------------------------------------------- (In millions, except per share amounts) (Unaudited)
1998 1997 ---------- ---------- Net sales $2,529.7 $2,340.6 Cost of products sold 1,286.7 1,237.2 Excise taxes on distilled spirits 199.5 185.8 Advertising, selling, general and administrative expenses 701.3 641.4 Amortization of intangibles 53.2 51.9 Restructuring charges - 55.8 Interest and related expenses 50.4 68.7 Other (income) expenses, net 1.1 2.8 -------- -------- Income from continuing operations before income taxes 237.5 97.0 Income taxes 96.6 57.7 -------- -------- Income from continuing operations 140.9 39.3 Income from discontinued operations - 65.1 Extraordinary items (30.5) - -------- -------- Net income $ 110.4 $ 104.4 ======== ======== Earnings per Common share Basic Income from continuing operations $ .81 $.23 Income from discontinued operations - .38 Extraordinary items (.18) - ----- ---- Net income $ .63 $.61 ===== ==== Diluted Income from continuing operations $ .80 $.22 Income from discontinued operations - .38 Extraordinary items (.18) - ----- ---- Net income $ .62 $.60 ===== ==== Dividends paid per Common share $.42 $1.00 ==== ===== Average number of Common shares outstanding Basic 172.6 171.7 ===== ===== Diluted 177.2 173.1 ===== =====
See Notes to Condensed Consolidated Financial Statements. FORTUNE BRANDS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF INCOME for the Three Months Ended June 30, 1998 and 1997 ----------------------------------------------------- (In millions, except per share amounts) (Unaudited)
1998 1997 ---------- ---------- Net sales $1,326.2 $1,235.5 Cost of products sold 668.0 662.7 Excise taxes on distilled spirits 112.4 103.8 Advertising, selling, general and administrative expenses 354.8 328.4 Amortization of intangibles 26.9 25.9 Restructuring charges - 55.8 Interest and related expenses 25.3 30.8 Other (income) expenses, net (1.0) 0.7 -------- -------- Income from continuing operations before income taxes 139.8 27.4 Income taxes 51.9 23.1 -------- -------- Income from continuing operations 87.9 4.3 Loss from discontinued operations - (36.5) Extraordinary items (22.1) - -------- -------- Net income (loss) $ 65.8 $ (32.2) ======== ======== Earnings per Common share Basic Income from continuing operations $ .50 $ .03 Loss from discontinued operations - (.22) Extraordinary items (.13) - ----- ----- Net income (loss) $ .37 $(.19) ===== ===== Diluted Income from continuing operations $ .50 $ .02 Loss from discontinued operations - (.20) Extraordinary items (.13) - ----- ----- Net income (loss) $ .37 $(.18) ===== ===== Dividends paid per Common share $.21 $.50 ==== ==== Average number of Common shares outstanding Basic 172.9 172.0 ===== ===== Diluted 177.3 173.4 ===== =====
See Notes to Condensed Consolidated Financial Statements. FORTUNE BRANDS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS for the Six Months Ended June 30, 1998 and 1997 ----------------------------------------------------- (In millions) (Unaudited)
1998 1997 --------- --------- Operating activities Net income $ 110.4 $ 104.4 Restructuring charges - 55.8 Income from discontinued operations - (65.1) Extraordinary items 30.5 - Depreciation and amortization 124.2 123.2 (Increase) decrease in accounts receivable (58.8) 16.9 Increase in inventories (56.9) (9.3) Decrease in accounts payable, accrued expenses and other liabilities (83.9) (69.4) Decrease in accrued taxes (18.7) (20.9) Other operating activities, net (15.9) (25.4) ------ -------- Net cash provided from continuing operating activities 30.9 110.2 ------ -------- Investing activities Additions to property, plant and equipment (110.3) (74.5) Acquisitions, net of cash acquired (172.8) - Proceeds from disposition of operations 16.0 - Other investing activities, net 3.5 0.2 ------ -------- Net cash used by investing activities (263.6) (74.3) ------ -------- Financing activities Increase (decrease) in short-term debt, net 291.6 (690.5) Issuance of long-term debt 417.4 - Repayment of long-term debt (340.4) (601.0) Dividends to stockholders (73.0) (172.5) Cash purchases of Common stock for treasury (34.9) (55.0) Other financing activities, net 9.2 72.9 ------ -------- Net cash provided (used) by financing activities 269.9 (1,446.1) ------ -------- Effect of foreign exchange rate changes on cash (1.3) (2.3) ------ -------- Cash provided by discontinued operations - 1,535.1 ------ -------- Net increase in cash and cash equivalents 35.9 122.6 Cash and cash equivalents at beginning of period 54.2 34.9 ------ -------- Cash and cash equivalents at end of period $ 90.1 $ 157.5 ====== ========
See Notes to Condensed Consolidated Financial Statements. FORTUNE BRANDS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY for the Six Months Ended June 30, 1998 and 1997 ------------------------------------------------------------- (In millions) (Unaudited)
$2.67 Accumulated Convertible other Treasury Preferred Common Paid-in comprehensive Retained stock, stock stock capital income earnings at cost Total ==================================================================================================================================== Balance at December 31, 1996 $12.9 $717.4 $166.5 $(204.1) $5,025.4 $(2,042.1) $3,676.0 Comprehensive income Net income - - - - 104.4 - 104.4 Changes during the period - - - (24.3) - - (24.3) ------ ------- ------- Total comprehensive income - - - (24.3) 104.4 - 80.1 ------ ------- ------- Cash dividends - - - - (172.5) - (172.5) Purchases - - - - - (68.8) (68.8) Conversion of preferred stock and delivery of stock plan shares (0.7) - (2.7) - - 82.4 79.0 Gallaher spin-off - - - 260.7 249.2 - 509.9 ----- ------ ------- ------- -------- --------- -------- Balance at June 30, 1997 $12.2 $717.4 $163.8 $ 32.3 $5,206.5 $(2,028.5) $4,103.7 ===== ====== ======= ======= ========= ========= ======== Balance at December 31, 1997 $11.3 $717.4 $151.1 $ 6.9 $5,129.7 $(1,999.3) $4,017.1 Comprehensive income Net income - - - - 110.4 - 110.4 Changes during the period - - - (0.9) - - (0.9) ----- -------- -------- Total comprehensive income - - - (0.9) 110.4 - 109.5 ----- -------- -------- Cash dividends - - - - (73.0) - (73.0) Purchases - - - - - (35.7) (35.7) Conversion of preferred stock and delivery of stock plan shares (0.5) - (5.4) - - 66.0 60.1 ----- ------ ------ ----- -------- --------- -------- Balance at June 30, 1998 $10.8 $717.4 $145.7 $ 6.0 $5,167.1 $(1,969.0) $4,078.0 ===== ====== ====== ===== ======== ========= ========
See Notes to Condensed Consolidated Financial Statements. FORTUNE BRANDS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Principles of Consolidation The condensed consolidated balance sheet as of June 30, 1998, the related condensed consolidated statements of income for the three-month and six-month periods ended June 30, 1998 and 1997, and the related condensed consolidated statements of cash flows and stockholders' equity for the six-month periods ended June 30, 1998 and 1997 are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of such financial statements have been included. Such adjustments consisted of restructuring and other nonrecurring charges and normal recurring items. Interim results may not be indicative of results for a full year. The condensed consolidated financial statements and notes are presented as permitted by Form 10-Q and do not contain certain information included in the Company's annual consolidated financial statements and notes. The year-end condensed consolidated balance sheet was derived from the Company's audited financial statements, but does not include all disclosures required by generally accepted accounting principles. This Form 10-Q should be read in conjunction with the Company's consolidated financial statements and notes incorporated by reference in its 1997 Annual Report on Form 10-K. 2. Acquisitions On June 12, 1998, the Company's home products subsidiary acquired Schrock Cabinet Company for an aggregate cost of approximately $107.5 million. On February 27, 1998, the Company's office products subsidiary acquired the Apollo Presentation Products group of companies, marketers of office and conference presentation products, for an aggregate cost of approximately $65 million. During the second half of 1997, acquisitions were made in the home and office products segments for an aggregate cost of $92 million, including fees, expenses and $9.5 million resulting from the issuance of Common shares. In connection with the 1997 acquisitions, liabilities amounting to $72 million were included at the dates of acquisition. The cost exceeded the fair value of net assets acquired by $90 million. These operations have been included in consolidated results from the dates of acquisition. Had operations of the acquisitions made in 1997 been consolidated from January 1, 1996, and the acquisitions made in 1998 been consolidated from January 1, 1997, they would not have materially affected results. FORTUNE BRANDS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2. Acquisitions (Concluded) On July 22, 1998, the Company announced that its distilled spirits subsidiary entered into a definitive agreement to purchase the Geyser Peak wine business and certain related vineyard property for an aggregate cost of approximately $100 million. 3. Discontinued Operations On May 30, 1997, Gallaher Group Plc ("Gallaher"), the Company's international tobacco subsidiary, was spun off and the Company's name was changed from American Brands, Inc. to Fortune Brands, Inc. As a result, the Company's stockholders owned shares in two publicly-traded companies -- Fortune Brands, Inc. and Gallaher. To allocate the overall debt burden of the Company at the time of the spin-off, Gallaher borrowed and paid to the Company an amount that approximated $1.25 billion, after taxes. The Company used the proceeds to pay down debt. Also, in connection with the spin-off, Gallaher and Gallaher Limited agreed to indemnify the Company against claims arising from smoking and health and fire safe cigarette matters relating to the tobacco business of Gallaher and its subsidiaries. The condensed consolidated financial statements were reclassified to identify Gallaher's international tobacco operations as discontinued operations. Summarized results of operations for the international tobacco operations, net of allocation of interest expense based on the ratio of Gallaher's net assets to consolidated net assets of the Company, are as follows: FORTUNE BRANDS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 3. Discontinued Operations (Concluded)
Six Months Ended Three Months Ended June 30, 1997* June 30, 1997* ------------------ ------------------ (In millions, except per share amounts) Net sales $2,575.0 $835.2 ======== ====== Income before taxes $186.4 $ 33.7 Spin-off expense (67.1) (67.1) Income taxes (54.2) (3.1) ------ ------ Income (loss) from discontinued operations $ 65.1 $(36.5) ====== ====== Earnings (loss) per Common share Basic $.38 $(.22) ==== ===== Diluted $.38 $(.20) ==== =====
* Includes results through May 30, 1997; five months in the six months ended June 30, 1997 and two months in the three months ended June 30, 1997. 4. Earnings Per Share Basic earnings per Common share are based on the weighted average number of Common shares outstanding in each period and after preferred stock dividend requirements. Diluted earnings per Common share assume that any dilutive convertible preferred shares outstanding at the beginning of each period were converted at those dates, with preferred stock dividend requirements and outstanding Common shares adjusted accordingly. It also assumes that outstanding Common shares were increased by shares issuable upon exercise of those stock options for which market price exceeds exercise price, less shares that could have been purchased by the Company with related proceeds. FORTUNE BRANDS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 4. Earnings Per Share (Concluded) The computation of basic and diluted earnings per Common share for "Income from continuing operations" is as follows:
Six Months Ended Three Months Ended June 30, June 30, ----------------- ------------------ 1998 1997 1998 1997 ---- ---- ---- ---- (In millions, except per share amounts) Income from continuing operations $140.9 $39.3 $87.9 $4.3 Less: Preferred stock dividends 0.4 0.5 0.2 0.2 ------ ----- ----- ---- Income available to Common stockholders - basic 140.5 38.8 87.7 4.1 Convertible Preferred stock dividend requirements 0.4 - 0.2 - ------ ----- ----- ---- Income available to Common stockholders - diluted $140.9 $38.8 $87.9 $4.1 ====== ===== ===== ==== Weighted average number of Common shares outstanding - basic 172.6 171.7 172.9 172.0 Conversion of Convertible Preferred stock 2.2 - 2.2 - Exercise of stock options 2.4 1.4 2.2 1.4 ----- ----- ----- ----- Weighted average number of Common shares outstanding - diluted 177.2 173.1 177.3 173.4 ===== ===== ===== ===== Earnings per Common share Basic $.81 $.23 $.50 $.03 ==== ==== ==== ==== Diluted $.80 $.22 $.50 $.02 ==== ==== ==== ====
FORTUNE BRANDS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 5. Extraordinary Items During the six-month period ended June 30, 1998, the Company purchased the following principal amounts of its outstanding debt: $31.4 million of 7-1/2% Notes, Due 1999, $50.4 million of 8-1/2% Notes, Due 2003, $10.5 million of 9% Notes, Due 1999 and $32.7 million of 8-5/8% Debentures, Due 2021, and the Company also redeemed the outstanding $50.1 million of 12-1/2% Sterling Loan Stock, Due 2009. The extinguishment of debt resulted in a charge of $30.5 million ($46.9 million pre-tax), or 18 cents per Common share for the six months ended June 30, 1998 and a charge of $22.1 million ($33.9 million pre-tax), or 13 cents per Common share for the three months ended June 30, 1998. 6. Long-Term Debt On June 30, 1998, the Company issued $200 million of 6-5/8% Debentures, Due 2028. On March 31, 1998, the Company issued $200 million of 6-1/4% Notes, Due 2008. The net proceeds were used for general corporate purposes. 7. Restructuring and Other Nonrecurring Charges During the three-month and six-month periods ended June 30, 1997, the Company recorded pre-tax restructuring and other nonrecurring charges of $89.3 million as follows:
Nonrecurring Cost of Sales Restructuring Charges Total ------------- ------ ----- (In millions, except per share amounts) Home products $ 9.1 $ 8.3 $17.4 Office products 23.4 0.1 23.5 ----- ----- ----- Home and office products 32.5 8.4 40.9 Distilled spirits 23.3 25.1 48.4 ----- ----- ----- $55.8 $33.5 89.3 ===== ===== Income tax benefit 23.9 ----- Net charge $65.4 ===== Charge per Common share Basic $.38 ==== Diluted $.38 ====
FORTUNE BRANDS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 7. Restructuring and Other Nonrecurring Charges (Concluded) Home products include charges related to the disposition of certain product lines and the rationalization of operations. Office products include charges related to the rationalization of operations, the discontinuance of certain product lines and lease cancellation costs, partly offset by a $12.6 million pre-tax gain on the sale of nonstrategic businesses. Distilled spirits include charges related to a change in estimate for bulk whiskey valuations which resulted from the integration of the worldwide distilled spirits business, international distribution and lease agreements and the discontinuance of certain product lines. The rationalization of operations referred to above includes the closure of certain manufacturing facilities, the consolidation of certain selling facilities and the sale or disposal of certain facilities. The Company recorded an aggregate of $298.2 million of pre-tax restructuring and other nonrecurring charges in 1997. In connection with the restructuring, the home and office products segments will be reducing their workforces by 7%, or 1,125 individuals, primarily production employees. As of June 30, 1998 approximately 300 positions were eliminated. The remaining restructuring liability at June 30, 1998, which relates principally to employee termination costs that will be paid during 1998, was $47.6 million. The remaining net book value of assets to be disposed approximated $24 million. The Company anticipates that the restructuring activities will be substantially completed during 1998. 8. Comprehensive Income During the first quarter of 1998, the Company adopted FAS Statement No. 130, "Reporting Comprehensive Income" and has elected to report comprehensive income in the condensed consolidated statement of stockholders' equity. Comprehensive income is defined as the change in equity from transactions and other events from nonowner sources and includes net income and other comprehensive income. The components of accumulated other comprehensive income are as follows: FORTUNE BRANDS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 8. Comprehensive Income (Concluded)
Foreign Minimum Accumulated currency pension liability other adjustments adjustment comprehensive income ----------- ---------- -------------------- (In millions) Balance December 31, 1996 $(195.9) $(8.2) $(204.1) Changes in six months (24.3) - (24.3) Gallaher spin-off 260.7 - 260.7 ------- ----- ------- Balance June 30, 1997 $ 40.5 $(8.2) $ 32.3 ======= ===== ======= Balance December 31, 1997 $19.9 $(13.0) $ 6.9 Changes in six months (0.9) - (0.9) ----- ------ ----- Balance June 30, 1998 $19.0 $(13.0) $ 6.0 ===== ====== =====
For the three-month periods ended June 30, 1998 and 1997, total comprehensive income was $55.8 million and a loss of $26.9 million, respectively. 9. Pending Litigation Tobacco Litigation and Indemnification On December 22, 1994, the Company sold The American Tobacco Company subsidiary to Brown & Williamson Tobacco Corporation, a wholly-owned subsidiary of B.A.T Industries p.l.c. In connection with the sale, Brown & Williamson Tobacco Corporation and The American Tobacco Company ("the Indemnitors") agreed to indemnify the Company against claims including legal expenses arising from smoking and health and fire safe cigarette matters relating to the tobacco business of The American Tobacco Company. The Company is a defendant in numerous actions based upon allegations that human ailments have resulted from tobacco use. Management believes that there are meritorious defenses to the pending actions and these actions are being vigorously contested. However, it is not possible to predict the outcome of the pending litigation, and it is possible that some of these actions could be decided unfavorably. Management is unable to make a meaningful estimate of the amount or range of loss that could result from an unfavorable outcome of thepending litigation. Management believes that the pending actions will not have a material adverse effect upon the results of operations, cash flows or financial condition of the Company as long as the Indemnitors continue to fulfill their obligations to indemnify the Company under the aforementioned indemnification agreement. FORTUNE BRANDS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Concluded) 9. Pending Litigation (Concluded) Other Litigation In addition to the lawsuits described above, the Company and its subsidiaries are defendants in lawsuits associated with their business and operations. It is not possible to predict the outcome of the pending actions, but management believes that there are meritorious defenses to these actions and that these actions will not have a material adverse effect upon the results of operations, cash flows or financial condition of the Company. These actions are being vigorously contested. 10. Environmental The Company is subject to laws and regulations relating to the protection of the environment. While it is not possible to quantify with certainty the potential impact of actions regarding environmental matters, particularly remediation and other compliance efforts that the Company's subsidiaries may undertake in the future, in the opinion of management, compliance with the present environmental protection laws, before taking into account estimated recoveries from third parties, will not have a material adverse effect upon the results of operations, cash flows or financial condition of the Company. REPORT OF INDEPENDENT ACCOUNTANTS --------------------------------- To the Board of Directors of Fortune Brands, Inc.: We have reviewed the condensed consolidated balance sheet of Fortune Brands, Inc. and Subsidiaries as of June 30, 1998, the related condensed consolidated statements of income for the three-month and six-month periods ended June 30, 1998 and 1997, and the condensed consolidated statements of cash flows and stockholders' equity for the six-month periods ended June 30, 1998 and 1997. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the consolidated financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet as of December 31, 1997, and the related consolidated statements of income, cash flows and stockholders' equity for the year then ended (not presented herein) and in our report dated February 4, 1998, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1997 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. 1301 Avenue of the Americas PricewaterhouseCoopers LLP New York, New York August 12, 1998 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION - ------ AND RESULTS OF OPERATIONS ----------------------------------------------------------- FORTUNE BRANDS, INC. AND SUBSIDIARIES -------------------------------------- Results of Operations for the Six Months Ended June 30, 1998 as Compared to the Six Months Ended June 30, 1997 -------------------------------------------------------------------------
Net Sales Operating Income(1) --------------------- ---------------------------------------- 1998 1997 1998 1997 1997(2) ----- ---- ----- ---- ------- (In millions) Home products $ 709.5 $ 664.2 $ 95.8 $ 71.4 $ 88.8 Office products 640.2 575.5 37.3 9.6 33.1 -------- -------- ------ ------ ------ Home and office products 1,349.7 1,239.7 133.1 81.0 121.9 Golf products 605.4 541.3 101.8 90.7 90.7 Distilled spirits 574.6 559.6 89.2 34.1 82.5 -------- -------- ------ ------ ------ $2,529.7 $2,340.6 $324.1 $205.8 $295.1 ======== ======== ====== ====== ======
(1) Operating income represents net sales less all costs and expenses excluding corporate administrative expenses, interest and related expenses and other (income) expenses, net. (2) Excludes restructuring and other nonrecurring charges of $89.3 million. CONSOLIDATED - ------------ Net sales increased 8% on benefits from new products, line extensions, acquisitions and price increases, partly offset by volume declines in some existing products, the sale of nonstrategic businesses and lower average foreign exchange rates (primarily the Australian dollar). Operating income increased 57% principally due to last year's $89.3 million of restructuring and other nonrecurring charges in distilled spirits, office products and home products. (See Note 7 in the Notes to Condensed Consolidated Financial Statements.) Operating income excluding these charges increased 10%, principally due to the higher sales, partly offset by higher operating expenses coupled with effects of lower average foreign exchange rates. Excluding these charges and the effects of translation at lower average foreign exchange rates, net sales and operating income were up 9% and 12%, respectively. FORTUNE BRANDS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) --------------------------------------------------------- CONSOLIDATED (Continued) - ------------ During 1997, the Company recorded an aggregate of $298.2 million of pre-tax restructuring and other nonrecurring charges. (See Note 7.) The following restructuring activities are underway: the expansion of the Nogales, Mexico operation to include office products' Swingline stapling production and a significant portion of home products' Master Lock assembly operations, the integration of office products in Europe and Australia and the planned reduction of workforces in the home and office products segments. The Company anticipates that the remaining restructuring activities will be substantially completed during 1998. Interest and related expenses decreased 27% reflecting lower average borrowings principally from the use of the proceeds from the Gallaher spin-off, as discussed below. The effective income tax rate comparisons for the six-month periods ended June 30, 1998 and 1997 were distorted by the 1997 restructuring and other nonrecurring charges. Excluding these charges, the effective income tax rates were 40.7% and 43.8%, respectively. The lower effective tax rate this year principally reflected the reduced impact of nondeductible goodwill on higher pre-tax income as well as lower state taxes. Income from continuing operations of $140.9 million, or 81 cents per Common share, for the six months ended June 30, 1998 compared with $39.3 million, or 23 cents per share, for the same period last year. The increase was principally due to last year's $65.4 million in net restructuring and other nonrecurring charges. Excluding these charges, income from continuing operations of $140.9 million, was up $36.2 million, or 35%. On May 30, 1997, Gallaher Group Plc ("Gallaher"), the Company's international tobacco subsidiary, was spun off ("Gallaher spin-off") and the Company's name was changed from American Brands, Inc. to Fortune Brands, Inc. The consolidated financial statements were restated to present Gallaher as a discontinued operation. (See Note 3.) Income from discontinued operations for the six months ended June 30, 1997 represented Gallaher's net income of $65.1 million, or 38 cents per share. In addition, the 1997 amount included $67.1 million in spin-off expenses. (See Note 3.) FORTUNE BRANDS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) --------------------------------------------------------- CONSOLIDATED (Concluded) - ------------ The extraordinary items charge in the six months ended June 30, 1998 of $30.5 million ($46.9 million pre-tax), or 18 cents per share, resulted from the extinguishment of debt. (See Note 5.) Net income of $110.4 million, or 63 cents per share, compared with $104.4 million, or 61 cents per share, for the same period last year. Income from continuing operations of $140.9 million, and basic and diluted earnings per share of 81 cents and 80 cents, respectively, in the six months ended June 30, 1998 compared with pro forma income from continuing operations of $120.1 million, and basic and diluted earnings per share of 71 cents and 70 cents, respectively, in the six months ended June 30, 1997. Pro forma results reflect adjustments to income from continuing operations to exclude restructuring and other nonrecurring charges and to include a net cash payment that approximated $1.25 billion, after taxes, that Gallaher made to the Company in connection with the Gallaher spin-off and the assumption that such proceeds were used to purchase 2.5 million Common shares and repay debt as of January 1, 1997. This pro forma information is provided for informational purposes only and does not purport to be indicative of the results of operations which would actually have been obtained if the transactions had occurred on January 1, 1997, or which may exist or be obtained in the future. See Notes 9 and 10 for discussions of pending litigation and environmental matters. In June 1997, FAS Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information", was issued, to be effective with the 1998 annual financial statements. FAS No. 131 establishes standards for reporting information about operating segments in annual financial statements. FAS No. 131 also establishes standards for related disclosures about products and services, geographic areas, and major customers and requires financial statement disclosure for prior periods to be restated. The Company is in the process of evaluating the disclosure requirements under this standard. In June 1998, FAS Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities", was issued, to be effective for fiscal quarters beginning after June 15, 1999. FAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. The Company is in the process of evaluating the effect of adoption on future results and the disclosure requirements under this standard. FORTUNE BRANDS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) --------------------------------------------------------- Home Products - ------------- Net sales increased 7% on an overall volume increase (line extensions and new products, partly offset by volume declines in some existing products), benefit of acquisitions and price increases, partly offset by the absence of Master Lock's door hardware business and Moen's operations in Japan. Operating income increased 34% principally due to last year's $17.4 million restructuring and other nonrecurring charge related to the disposition of certain product lines and the rationalization of operations. Operating income excluding this charge increased 8% principally reflecting the sales increase, partly offset by higher volume-related selling expenses. Office Products - --------------- Net sales increased 11% on benefit from acquisitions and an overall volume increase (principally from new products), partly offset by reduced prices, the absence of two nonstrategic businesses sold in 1997 and lower average foreign exchange rates. Operating income increased 289% principally due to last year's $23.5 million restructuring charge related to the rationalization of operations, the discontinuance of certain product lines and lease cancellation costs, partly offset by a pre-tax gain on the sale of nonstrategic businesses. Operating income excluding this charge increased 13% reflecting the sales increase and improved gross margin (principally stabilized raw material costs and other cost reductions primarily in North America), partly offset by increased operating expenses. The higher operating expenses were substantially related to maintaining customer service levels as restructuring programs are being implemented and higher customer program costs. Operating income benefited from the acquisitions and was negatively impacted by translation of foreign results at lower average foreign exchange rates. Golf Products - ------------- Net sales were up 12% on an overall volume increase in golf balls, clubs and gloves (new products and line extensions, partly offset by volume declines in some existing products coupled with discontinued products associated with new product introductions) and price increases, partly offset by a volume decline in golf shoes and lower average foreign exchange rates. Operating income increased 12% reflecting the higher sales and improved gross margin, partly offset by higher advertising and promotional FORTUNE BRANDS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) --------------------------------------------------------- Golf Products (Concluded) - ------------- expenditures and research and development expenses associated with the support of existing products and the development of new products. The golf club market has been adversely affected this year by lower consumer demand, resulting in a volume decline in the U.S. market in the range of 5-10% and extensive price discounting. Both Titleist and Cobra were affected by the overall weakness in the market for irons, though both achieved solid volume gains in metalwoods and putters. For the second quarter, Titleist golf club sales were up on a favorable product mix and firm pricing. For Cobra, results were more in line with the overall market, and the market softness is significantly impacting Cobra sales and profits. As a result, for the year 1998, depending on evolving market conditions, more modest increases than have been achieved for the first six months are now expected in the golf products segment's sales and operating income. The United States Golf Association ("USGA") establishes standards for golf equipment used in competitive play in the United States. In the second quarter of 1998, the USGA proposed a new rule with respect to the performance of golf clubs. The Company has reviewed the proposed rule change regarding golf clubs and believes that if the rule is adopted in the form presently proposed, most or all of its products currently marketed and under development will conform to such rule. This rule change could hamper innovation and limit flexibility in producing USGA conforming products. At the present time, it is not possible to determine whether this rule change will have a material effect on the golf club industry and the Company's golf products segment. In addition, as has been previously discussed in the Company's Annual Report on Form 10-K, the USGA has been considering for several years a plan to change the testing conditions for determining whether a golf ball conforms to the USGA's overall distance standard. At the time that the USGA proposed its new golf club rule, it also indicated an intention to propose a new rule in the fourth quarter with respect to the overall distance standard for golf balls. Until such rule is proposed, the Company cannot determine whether the USGA's actions, if taken, will have an effect on its golf ball business and/or the golf ball industry. FORTUNE BRANDS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) --------------------------------------------------------- Distilled Spirits - ----------------- Net sales increased 3% on volume and price increases, partly offset by lower foreign exchange rates and the unfavorable comparison to a 1997 domestic bulk sale. The overall volume increase principally reflected higher case shipments in the U.S. (benefits from reduced trade inventories in late 1997) and Canada, line extensions and new products, partly offset by lower volume in Europe. Operating income increased 162% principally due to last year's $48.4 million restructuring and other nonrecurring charge related to a change in estimate for bulk whiskey valuations which resulted from the integration of the worldwide distilled spirits business, international distribution and lease agreements and the discontinuation of certain product lines. Operating income excluding this charge increased 8% on the sales increase and improved gross margin, (principally price increases and favorable product mix), partly offset by increased operating expenses (principally volume-related selling expenses in the U.S.). Operating results improved in North America while Australian results declined due to the negative impact of translation at a 16% lower average foreign exchange rate. For the remainder of 1998, more modest growth in operating income is expected. The merger of Grand Metropolitan PLC and Guinness PLC to create Diageo PLC in late 1997 reflects the trend towards consolidation in the highly competitive global spirits business. The creation of Diageo PLC and the breadth of its portfolio of brands, as well as the continued consolidation of the supplier, distributor and retailer tiers may present pricing and service challenges for distilled spirits producers, as well as opportunities for the most efficient producers. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Net cash provided from continuing operating activities of $30.9 million for the six months ended June 30, 1998 compared with net cash provided by continuing operating activities of $110.2 million for the same six-month period last year. Net cash used by investing activities for the six months ended June 30, 1998 was $263.6 million, as compared with net cash used of $74.3 million in the same six-month period last year. The increased use of funds in 1998 reflects the acquisitions of Apollo Presentation Products and Schrock Cabinet Company and higher capital expenditures (including $33.6 million related to previously announced 1997 restructuring activities), partly offset by proceeds from a disposed operation. FORTUNE BRANDS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) --------------------------------------------------------- LIQUIDITY AND CAPITAL RESOURCES (Concluded) - ------------------------------- Net cash provided by financing activities for the six months ended June 30, 1998 was $269.9 million, as compared with net cash used by financing activities of $1,446.1 million in the same six-month period last year, reflecting the repayment in 1997 of debt using the proceeds provided by Gallaher in conjunction with the spin-off of that company, and lower dividends paid and purchases of Common stock for treasury this year. Pursuant to the systematic share purchase program approved in 1997, 926,100 Common shares were purchased by the Company during the six months ended June 30, 1998. Total debt at June 30, 1998 was $1.5 billion, an increase of $366.4 million from December 31, 1997. The ratio of total debt to total capital increased from 22.2% at December 31, 1997 to 27% at June 30, 1998. During the six months ended June 30, 1998, the Company purchased or redeemed $175.1 million principal amount of its outstanding debt. (See Note 5.) On June 30, 1998, the Company issued $200 million of 6-5/8% Debentures, Due 2028. On March 31, 1998, the Company issued $200 million of 6-1/4% Notes, Due 2008. (See Note 6.) Management believes that the Company's internally generated funds, together with its access to global credit markets, are more than adequate to meet the Company's capital needs. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF - ------ FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- FORTUNE BRANDS, INC. AND SUBSIDIARIES -------------------------------------- Results of Operations for the Three Months Ended June 30, 1998 as Compared to the Three Months Ended June 30, 1997 ---------------------------------------------------------------------------
Net Sales Operating Income(1) ------------------------ ---------------------------------------- 1998 1997 1998 1997 1997(2) ---- ---- ---- ---- ------- (In millions) Home products $ 367.1 $ 335.5 $ 48.2 $ 27.0 $ 44.4 Office products 318.4 285.4 14.7 (11.6) 11.9 -------- -------- ------ ------ ------ Home and office products 685.5 620.9 62.9 15.4 56.3 Golf products 328.4 305.4 64.4 61.6 61.6 Distilled spirits 312.3 309.2 55.0 2.9 51.3 -------- -------- ------ ------ ------ $1,326.2 $1,235.5 $182.3 $ 79.9 $169.2 ======== ======== ====== ====== ======
(1) Operating income represents net sales less all costs and expenses excluding corporate administrative expenses, interest and related expenses and other (income) expenses, net. (2) Excludes restructuring and other nonrecurring charges of $89.3 million. CONSOLIDATED - ------------ Net sales increased 7% on benefits from new products, line extensions, acquisitions and price increases, partly offset by volume declines in some existing products, the sale of nonstrategic businesses and lower average foreign exchange rates (primarily the Australian dollar). Operating income increased 128% principally due to last year's $89.3 million of restructuring and other nonrecurring charges in distilled spirits, office products and home products. (See Note 7 in the Notes to Condensed Consolidated Financial Statements.) Operating income excluding these charges increased 8%, principally due to the higher sales, partly offset by higher operating expenses coupled with effects of lower average foreign exchange rates. Excluding these charges and the effects of translation at lower average foreign exchange rates, net sales and operating income were up 8% and 10%, respectively. Interest and related expenses decreased 18% reflecting lower average borrowings principally from the use of the proceeds from the Gallaher spin-off, as discussed below. FORTUNE BRANDS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) --------------------------------------------------------- CONSOLIDATED (Concluded) - ------------ The effective income tax rate comparisons for the three-month periods ended June 30, 1998 and 1997 were distorted by the 1997 restructuring and other nonrecurring charges. Excluding these charges, the effective income tax rates were 37.1% and 40.3%, respectively. The lower effective tax rate this year principally reflected the reduced impact of nondeductible goodwill on higher pre-tax income as well as lower state taxes. Income from continuing operations of $87.9 million, or 50 cents per Common share, for the three months ended June 30, 1998 compared with $4.3 million, or three cents per share, for the same period last year. The increase was principally due to last year's $65.4 million in net restructuring and other nonrecurring charges. Excluding these charges, income from continuing operations of $87.9 million was up $18.2 million, or 26%. Loss from discontinued operations for the three months ended June 30, 1997 represented Gallaher's net loss of $36.5 million, or 22 cents per share. In addition, the 1997 amount included $67.1 million in spin-off expenses. (See Note 3.) The extraordinary items charge in the three months ended June 30, 1998 of $22.1 million ($33.9 million pre-tax), or 13 cents per share, resulted from the extinguishment of debt. (See Note 5.) Net income of $65.8 million, or 37 cents per share, compared with a net loss of $32.2 million, or 19 cents per share, for the same period last year. Income from continuing operations of $87.9 million, and basic and diluted earnings per share of 50 cents in the three months ended June 30, 1998 compared with pro forma income from continuing operations of $74.8 million, and basic and diluted earnings per share of 44 cents in the three months ended June 30, 1997. Pro forma results reflect adjustments to income from continuing operations to exclude restructuring and other nonrecurring charges and to include a net cash payment that approximated $1.25 billion, after taxes, that Gallaher made to the Company in connection with the Gallaher spin-off and the assumption that such proceeds were used to purchase 2.5 million Common shares and repay debt as of January 1, 1997. This pro forma information is provided for informational purposes only and does not purport to be indicative of the results of operations which would actually have been obtained if the transactions had occurred on January 1, 1997, or which may exist or be obtained in the future. FORTUNE BRANDS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) --------------------------------------------------------- Home Products - ------------- Net sales increased 9% on an overall volume increase (line extensions and new products, partly offset by volume declines in some existing products), benefit of acquisitions and price increases, partly offset by the absence of Master Lock's door hardware division and Moen's operations in Japan. Operating income increased 79% principally due to last year's $17.4 million restructuring and nonrecurring charge as discussed in the section discussing the six month results. Operating income excluding this charge increased 9% principally on the sales increase, partly offset by higher volume-related selling expenses. Office Products - --------------- Net sales increased 12% on benefit from acquisitions and an overall volume increase (new products and higher volume on existing products), partly offset by the absence of two nonstrategic businesses sold in 1997, reduced prices and lower average foreign exchange rates. Operating income of $14.7 million compared to an operating loss of $11.6 million in 1997 which included the $23.5 million restructuring charge as described in the section discussing the six month results. Operating income excluding this charge increased 24% reflecting the sales increase and improved gross margin (principally stabilized raw material costs and other cost reductions), partly offset by increased operating expenses. The higher operating expenses were related to higher customer program costs and costs related to maintaining customer service levels as restructuring programs are being implemented. Operating income benefited from the acquisitions and was negatively impacted by translation of foreign results at lower average foreign exchange rates. Golf Products - ------------- Net sales were up 8% on volume increases in golf balls and gloves (principally new products and line extensions) and price increases, partly offset by a volume decline in golf clubs and golf shoes, discontinued products and lower average foreign exchange rates. Operating income increased 5% reflecting the higher sales and improved gross margin, partly offset by higher advertising and promotional expenditures and research and development expenses associated with the support of existing products and the development of new products. See the section on "Golf Products" describing the six month results for additional information on golf clubs. FORTUNE BRANDS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Concluded) --------------------------------------------------------- Distilled Spirits - ----------------- Net sales increased 1% on volume and price increases, partly offset by lower foreign exchange rates and the unfavorable comparison to a 1997 domestic bulk sale. The overall volume increase principally reflected higher case shipments in the U.S. (benefits from reduced trade inventories in late 1997) and Canada, partly offset by lower volume in Europe. Operating income of $55 million was up $52.1 million principally due to last year's $48.4 million restructuring and other nonrecurring charge as described in the section discussing the six month results. Excluding this charge, operating income increased 7% on the sales increase and improved gross margin (principally price increases and favorable product mix), partly offset by increased operating expenses (principally volume-related selling expenses in the U.S.). Operating results improved in North America while Australian results declined due to the negative impact of translation at an 18% lower average foreign exchange rate and Europe declined due to the reduced volume. CAUTIONARY STATEMENT - -------------------- This Quarterly Report on Form 10-Q contains statements relating to future results, which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected as a result of certain risks and uncertainties, including but not limited to changes in general economic conditions, foreign exchange rate fluctuations, competitive product and pricing pressures, the impact of excise tax increases with respect to distilled spirits, regulatory developments, the uncertainties of litigation, changes in golf equipment regulatory standards, the impact of weather (particularly on the home and golf products groups), expenses and disruptions related to shifts in manufacturing to different locations and sources, delays in the integration of recent acquisitions, as well as other risks and uncertainties detailed from time to time in the Company's Securities and Exchange Commission filings. PART II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS. - ------ ----------------- (a) Overview Reference is made to the disclosure in Part I, Item 3, "Legal Proceedings", of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 under the heading "Overview". Individual Cases Reference is made to the disclosure in Part I, Item 3, "Legal Proceedings", of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 under the heading "Individual Cases". As of August 12, 1998, there were approximately 112 smoking and health cases pending on behalf of individual plaintiffs in which Registrant has been named as one of the defendants (excluding approximately 28 cases in Texas that were voluntarily dismissed but which may be refiled under certain conditions), compared with approximately 97 such cases as of March 27, 1998. See "Recent Case Developments" below. Class Actions Reference is made to the disclosure in Part I, Item 3, "Legal Proceedings", of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 under the heading "Class Actions". As of August 12, 1998, there were approximately 28 purported smoking and health class actions pending in which Registrant has been named as one of the defendants (including four that involve allegations of various personal injuries related to exposure to ETS), compared with approximately 25 such cases as of March 27, 1998. Health Care Cost Recovery Actions Reference is made to the disclosure in Part I, Item 3, "Legal Proceedings", of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 under the heading "Health Care Cost Recovery Actions". Recent Case Developments Reference is made to the disclosure in Part I, Item 3, "Legal Proceedings", of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 under the heading "Recent Case Developments". On June 10, 1998, a jury in a Florida case awarded the estate of a smoker $52,249 for medical expenses, $500,000 to his surviving widow for loss of companionship and $450,000 in punitive damages, in a smoking and health case against Brown and Williamson Tobacco Corporation ("B&W") (as successor by merger to The American Tobacco Company ("ATCO")) (Widdick, described in Part I, Item 3, "Legal Proceedings", of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 under the heading "List of Pending Cases"). Defendant B&W has filed a motion for judgment notwithstanding the verdict or for a new trial. Registrant is not a party to the Widdick litigation. In June of 1998, a Florida appellate court overturned a verdict by a Florida jury that had awarded a former smoker and his spouse $750,000 in a smoking and health case against B&W (as successor by merger to ATCO) (Carter, described in Part I, Item 3, "Legal Proceedings", of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 under the heading "List of Pending Cases"). The court found, among other things, that the action had been time-barred. Plaintiff has moved for rehearing and clarification. Registrant was not a party to the Carter litigation. In July of 1998, jury selection began in a Florida action against B&W (individually and as successor by merger to ATCO) and other U.S. tobacco manufacturer defendants brought on behalf of a class of Florida residents allegedly injured as a result of their alleged addiction to cigarettes containing nicotine (Engle, described in Part I, Item 3, "Legal Proceedings", of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 under the heading "List of Pending Cases"). Trial in that action is expected to last several months. Registrant is not a party to the Engle litigation . See also "Proposed Resolution of Certain Regulatory and Litigation Issues" below. Trial Dates Reference is made to the disclosure in Part I, Item 3, "Legal Proceedings", of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 under the heading "Trial Dates". Registrant has been dismissed for lack of personal jurisdiction from one attorney general action scheduled for trial during 1998 (State of Oklahoma, described in Part I, Item 3, "Legal Proceedings", of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 under the heading "List of Pending Cases"). Two purported class actions trials have been postponed and are no longer scheduled for trial in 1998 (Clay; Akamsit, described in Part I, Item 3, "Legal Proceedings", of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 under the heading "List of Pending Cases"). Proposed Resolution of Certain Regulatory and Litigation Issues Reference is made to the disclosure in Part I, Item 3, "Legal Proceedings", of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 under the heading "Proposed Resolution of Certain Regulatory and Litigation Issues". The Proposed Resolution failed to be enacted by Congress. There are reports that discussions are currently underway among various state attorneys general and members of the industry to attempt to arrive at a resolution of various outstanding lawsuits against the industry. State Settlements Reference is made to disclosure in Part I, Item 3, "Legal Proceedings", of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 under the heading "Mississippi, Florida and Texas Settlements". It has also been reported that the settling defendants have also settled the health care cost recovery action brought in Minnesota on terms that would have been more favorable to such state than would have been applicable under the Proposed Resolution had it been enacted. In accordance with such settlement, the settling defendants reportedly agreed, among other things, to make an initial payment of approximately $1.8 billion in five annual installments. It is not yet known how the more recent state settlement will affect the settlements reached earlier by other states, which entitle them to receive the benefits of more favorable provisions contained in later agreements, or how it will affect discussions in the U.S. Congress regarding legislation affecting tobacco and health. List of Pending Cases Reference is made to the disclosure in Part I, Item 3, "Legal Proceedings" of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 under the heading "List of Pending Cases" and in paragraph (a) of Part II, Item 1, "Legal Proceedings" of Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1998. In addition to those proceedings previously reported, Registrant has been named as a defendant in the following proceedings: Arnett v. The American Tobacco Company, et al., Supreme Court of New York, New York County, May 28, 1998; Avallone v. The American Tobacco Company, et al., Superior Court of New Jersey, Middlesex County, April 23, 1998; Brown-Jones v. The American Tobacco Company, et al., Superior Court of Georgia, Richmond County, January 13, 1998; Coyle v. The American Tobacco Company, et al., United States District Court for the Northern District of Nevada, January 26, 1998; Gallup, V. v. The American Tobacco Company, et al., United States District Court for the Northern District of Nevada, May 21, 1998; Gelfond v. The American Tobacco Company, et al., Supreme Court of New York, New York County, May 1, 1998; Kennon v. Brown & Williamson Tobacco Corp., et al., District Court for East Baton Rouge, State of Louisiana, October 3, 1997; Landry v. The American Tobacco Company, et al., District Court for East Baton Rouge, State of Louisiana, May 18, 1998; Little v. Brown & Williamson Tobacco Corp., et al., Court of Common Pleas, Charleston, South Carolina, May 26, 1998; Magnus v. The American Tobacco Company, et al., United States District Court for the Eastern District of New York, May 6, 1998; Murphy v. The American Tobacco Company, et al., United States District Court for the District of Nevada, Southern Division, January 6, 1998; O'Hara v. The American Tobacco Company, et al., Supreme Court of New York, New York County, February 23, 1998; Rivenburgh, M. v. The American Tobacco Company, et al., United States District Court for the Southern District of Nevada, January 6, 1998; Simmons v. The American Tobacco Company, et al., Court of Common Pleas for the County of Philadelphia, Pennsylvania, April 1, 1998; Sparks v. Brown & Williamson Tobacco Corp., et al., Court of Common Pleas for Trumbull County, Ohio, July 16, 1998; Tiscavitch v. American Brands, Inc., et al., Court of Common Pleas for Philadelphia County, Pennsylvania, May 28, 1998; Tucker v. The American Tobacco Company, et al., United States District Court for the Northern District of Nevada, January 26, 1998; Ulrich, S. v. The American Tobacco Company, et al., United States District Court for the Southern District of Nevada, January 6, 1998; and Utah Laborers, et al. v. The American Tobacco Company, et al., United States District Court for the District of Utah, June 4, 1998. List of Cases Terminated With regard to proceedings which have been terminated and not previously reported as such: Dunn v. The American Tobacco Company, et al., which was previously pending in the Circuit Court of Delaware County, Indiana, and instituted on May 28, 1993, ended when a final judgment was entered in favor of the defendants, including Registrant, on all counts on March 25, 1998; and Gelfond v. Fortune Brands, Inc., et al., which was previously pending in the Supreme Court of New York, New York County, and instituted on October 21, 1997, was dismissed without prejudice on April 15, 1998. Conclusion Registrant's counsel have advised that on the basis of their investigations generally with respect to suits and claims of this character, Registrant has meritorious defenses to the above-mentioned actions. Management believes that there are meritorious defenses to the above-mentioned pending actions and these actions are being vigorously contested. However, it is not possible to predict the outcome of the pending litigation, and it is possible that some of these actions could be decided unfavorably. Management is unable to make a meaningful estimate of the amount or range of loss that could result from an unfavorable outcome of the pending litigation. Management believes that the pending actions will not have a material adverse effect upon the results of operations, cash flows or financial condition of Registrant as long as the Indemnitors continue to fulfill their obligations to indemnify Registrant under the aforementioned indemnification agreement (see "Overview" above). (b) Reference is made to Note 9, "Pending Litigation", in the Notes to Condensed Consolidated Financial Statements set forth in Part I, Item 1 of this Quarterly Report on Form 10-Q. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. - ------ --------------------------------------------------- (a) The Annual Meeting of Stockholders was held on April 28, 1998. (c)(i) Registrant's Certificate of Incorporation provides for the classification of the Board of Directors into three classes, as nearly equal in number as possible, with staggered terms of office and provides that upon the expiration of the term of office for a class of directors, nominees for such class shall be elected for a term of three years or until their successors are duly elected and qualified. The four nominees for Class III directors, Mr. John T. Ludes, Ms. Anne M. Tatlock, Mr. John W. Thompson and Mr. Peter M. Wilson, were elected by a plurality of the combined votes cast by the holders of Registrant's Common Stock and $2.67 Convertible Preferred Stock voting thereon: (A) Mr. Ludes: 147,870,850 votes for and 2,623,008 votes withheld; (B) Ms. Tatlock: 147,829,327 votes for and 2,664,531 votes withheld; (C) Mr. Thompson: 147,817,579 votes for and 2,676,279 votes withheld; (D) Mr. Wilson: 147,844,015 votes for and 2,649,843 votes withheld. (c)(ii) A proposal (designated Item 2 and set forth in Registrant's Proxy Statement), approved by the Board of Directors, to elect Coopers & Lybrand L.L.P. independent accountants of Registrant for the year 1998 was approved by a majority of the combined votes cast by the holders of Registrant's Common Stock and $2.67 Convertible Preferred Stock voting thereon: 149,299,039 affirmative votes; 803,476 negative votes; and 391,343 votes abstained. (c)(iii) A proposal (designated Item 3 and set forth in Registrant's Proxy Statement) requesting the elimination of election of directors by classes was defeated by a majority of the combined votes cast by the holders of Registrant's Common Stock and $2.67 Convertible Preferred Stock voting thereon: 70,733,680 negative votes; 59,742,623 affirmative votes; 2,623,724 votes abstained; and 18,586,094 broker non-votes. Item 6. EXHIBITS AND REPORTS ON FORM 8-K. - ------ -------------------------------- (a) Exhibits. -------- 3(ii)(a) Amendment to By-laws of Registrant. 3(ii)(b) By-laws of Registrant as in effect on the date hereof. 10a1. Amendment to Registrant's Non-Employee Director Stock Option Plan constituting Exhibit 10b1 to Registrant's Quarterly Report on Form 10-Q dated August 12, 1997. 12. Statement re computation of ratio of earnings to fixed charges. 15. Letter from PricewaterhouseCoopers LLP dated August 12, 1998 re unaudited financial information. 27. Financial Data Schedule (Article 5). In lieu of filing certain instruments with respect to long-term debt of the kind described in Item 601(b)(4) of Regulation S-K, Registrant agrees to furnish a copy of such instruments to the Securities and Exchange Commission upon request. (b) Reports on Form 8-K. ------------------- Registrant filed a Current Report on Form 8-K, dated April 1, 1998, in respect of Registrant's issuance and sale of $200,000,000 aggregate principal amount of its 6-1/4% Notes Due 2008 in an underwritten public offering (Items 5 and 7(c)). Registrant filed a Current Report on Form 8-K, dated April 22, 1998, in respect of Registrant's press release dated April 22, 1998 announcing Registrant's financial results for the three-month period ended March 31, 1998 (Items 5 and 7(c)). Registrant filed a Current Report on Form 8-K, dated June 3, 1998, in respect of Registrant's press release dated June 3, 1998 announcing that Registrant had entered into a definitive agreement to purchase assets of Schrock Cabinet Company (Items 5 and 7(c)). Registrant filed a Current Report on Form 8-K, dated June 15, 1998, in respect of Registrant's press release dated June 12, 1998 announcing that Registrant had completed the purchase of assets of Schrock Cabinet Company (Items 5 and 7(c)). Registrant filed a Current Report on Form 8-K, dated July 1, 1998, in respect of Registrant's issuance and sale of $200,000,000 aggregate principal amount of its 6-5/8% Debentures Due 2028 in an underwritten public offering (Items 5 and 7(c)). Registrant filed a Current Report on Form 8-K, dated July 24, 1998, in respect of (i) Registrant's press release dated July 22, 1998 announcing that Registrant had entered into a definitive agreement to purchase Geyser Peak Winery and (ii) Registrant's press release dated July 25, 1998 announcing Registrant's financial results for the three-month and six-month periods ended June 30, 1998 (Items 5 and 7(c)). SIGNATURE --------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned, thereunto duly authorized. FORTUNE BRANDS, INC. -------------------- (Registrant) Date: August 12, 1998 By /s/ C. P. Omtvedt --------------- ----------------------- C. P. Omtvedt Senior Vice President and Chief Accounting Officer EXHIBIT INDEX ------------- Sequentially Exhibit Numbered Page - ------- ------------- 3(ii)(a) Amendment to By-laws of Registrant. 3(ii)(b) By-laws of Registrant as in effect on the date hereof. 10a1. Amendment to Registrant's Non-Employee Director Stock Option Plan constituting Exhibit 10b1 to Registrant's Quarterly Report on Form 10-Q dated August 12, 1997. 12. Statement re computation of ratio of earnings to fixed charges. 15. Letter from PricewaterhouseCoopers LLP dated August 12, 1998 re unaudited financial information. 27. Financial Data Schedule (Article 5). EX-3 2 EXHIBIT 3 EXHIBIT 3(ii)a FORTUNE BRANDS, INC. BY-LAW AMENDMENT ADOPTED ON JULY 28, 1998 EFFECTIVE JULY 28, 1998 Article I, Section 1 was amended to read in its entirety as follows: Section 1. The number of directors constituting the entire Board of Directors of the Company shall be fixed at thirteen. The number of the directors may be altered by amendment of these By-laws, which amendment may be adopted at any regular or special meeting of the Board of Directors by the affirmative vote of at least two-thirds of all the directors then in office. EX-3 3 EXHIBIT 3 EXHIBIT 3(ii)b -------------- BY-LAWS of FORTUNE BRANDS, INC. (As Amended) ARTICLE I Directors Section 1. The number of directors constituting the entire Board of Directors of the Company shall be fixed at thirteen. The number of the directors may be altered by amendment of these By-laws, which amendment may be adopted at any regular or special meeting of the Board of Directors by the affirmative vote of at least two-thirds of all the directors then in office. Section 2. Each director shall hold office until his successor is elected and qualified or until his earlier resignation or removal. Any director of the Company may resign at any time upon written notice to the Company. Except as otherwise provided for, or fixed by, or pursuant to the provisions of Article IV of the Certificate of Incorporation relating to the rights of the holders of any class or series of stock having a preference over the 7-28-98 2 BY-LAWS - ------------------------------------------------------------------------------- Common Stock, newly created directorships resulting from any increase in the number of directors or any vacancy on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled solely by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors, or by a sole remaining director. Section 3. In order to qualify to hold office as a director of the Company, a person must hold at least one share of stock of the Company. Section 4. The directors may hold their meetings and have an office and keep the books of the Company in Old Greenwich, Connecticut, or elsewhere outside of the State of Delaware. Section 5. The Board of Directors, by resolution adopted by a majority of the entire Board, may appoint from among its members an Executive Committee which shall have at least three members. To the extent provided in such resolution, such committee shall have and may exercise all the powers and authority of the Board, including the power to authorize the seal of the Company to be affixed to all papers that require it, except that such 10-30-90 BY-LAWS 3 - ------------------------------------------------------------------------------- committee shall not have such power and authority in reference to (1) amending the Certificate of Incorporation (except that such committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors as provided in Section 151(a) of the General Corporation Law of Delaware, fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Company or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Company or fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series); (2) adopting an agreement of merger or consolidation under Sections 251 or 252 of the General Corporation Law of Delaware; (3) recommending to the stockholders any action that requires stockholders' approval; 1-1-86 4 BY-LAWS - ------------------------------------------------------------------------------- (4) making, amending or repealing any By-law of the Company; (5) electing or appointing any director, or removing any officer or director; (6) amending or repealing any resolution theretofore adopted by the Board of Directors; (7) fixing compensation of the directors for serving on the Board of Directors or on any committee; or (8) unless the resolution shall expressly so provide, declaring a dividend, authorizing the issuance of stock or adopting a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of Delaware. Actions taken at a meeting of such committee shall be reported to the Board of Directors at its next meeting following such committee meeting; except that, when the meeting of the Board is held within two days after the committee meeting, such report shall be made to the Board at either its first or second meeting following such committee meeting. 1-1-86 BY-LAWS 5 - ------------------------------------------------------------------------------- ARTICLE II Meetings of Stockholders Section l. The annual meeting of the stockholders of the Company for the election of directors, and such other business as may properly come before the meeting, shall be held at such place as may from time to time be designated by the directors, on the first Wednesday of May, at ten o'clock in the forenoon, or at such other hour as the directors may designate, or on such other day and at such hour as the directors may designate. If the day fixed for the meeting is a legal holiday, the meeting shall be held at the same hour on the next business day which is not a legal holiday. Section 2. Special meetings of the stockholders, to be held at such place as may from time to time be designated by the directors, may be called only by the Chairman of the Board, the President or the Board of Directors, by resolution adopted by a majority of the entire Board, for such purposes as shall be specified in the call. Section 3. Except as otherwise provided by law, due notice of each annual meeting of the stockholders shall be given by a written or printed notice signed by the Secretary 10-30-90 6 BY-LAWS - ------------------------------------------------------------------------------- or an Assistant Secretary of the Company and mailed, postage prepaid, at least ten days prior to such meeting to each stockholder of record entitled to vote thereat appearing on the books of the Company at the address given thereon. Due notice of each special meeting shall be given also in the manner above provided. The notice shall state the object of the special meeting, and no other business shall be transacted at such meeting. Section 4. The holders of a majority in voting power of the outstanding shares of capital stock entitled to vote, present in person or represented by proxy, shall constitute a quorum at a meeting of stockholders. Except as otherwise required by law or the Certificate of Incorporation, the affirmative vote of shares representing a majority in voting power of the shares present in person or represented by proxy at a meeting at which a quorum is present and entitled to vote on the subject matter shall be the act of the stockholders, and except that directors shall be elected by a plurality of votes cast at an election. The stockholders present at a duly convened meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. 10-30-90 BY-LAWS 7 - ------------------------------------------------------------------------------- Section 5. Each meeting of the stockholders, whether annual or special, shall be presided over by the Chairman of the Board if present, and if he is not present by the President if present. If neither officer specified in the preceding sentence is present, the meeting shall be presided over by the person designated in writing by the Chairman of the Board, or if the Chairman of the Board has made no designation, by the person designated by the President, or if the President has made no designation, by the person designated by the Board of Directors. If neither officer specified in the first sentence of this section is present, and no one designated by the Chairman of the Board or the President or the Board of Directors is present, the meeting may elect any stockholder of record who is entitled to vote for directors, or any person present holding a proxy for such a stockholder, to preside. The Secretary of the Company (or in his absence any Assistant Secretary) shall be the Secretary of any such meeting; in the absence of the Secretary and Assistant Secretaries, any person may be elected by the meeting to act as Secretary of the meeting. Section 6. Any voting proxy given by a stockholder must be in writing, executed by the stockholder, or, in lieu thereof, to the extent permitted by law, may be transmitted in a telegram, cablegram or other means of 10-30-90 8 BY-LAWS - ------------------------------------------------------------------------------- electronic transmission setting forth or submitted with information from which it can be determined that the telegram, cablegram or other electronic transmission was authorized by the stockholder. A copy, facsimile transmission or other reliable reproduction of a written or electronically-transmitted proxy authorized by this Section 6 may be substituted for or used in lieu of the original writing or electronic transmission to the extent permitted by law. Section 7. Any previously scheduled annual or special meeting of stockholders may, by resolution of the Board of Directors, be postponed upon public announcement made prior to the date previously scheduled for such meeting of stockholders. For purposes of this Article II, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Company with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended. The person presiding over any meeting of stockholders, or a majority of the voting power of the shares entitled to vote, present in person or represented by proxy, even if less than a quorum, may adjourn the meeting from time to time. No notice of the time and 10-30-90 BY-LAWS 9 - ------------------------------------------------------------------------------- place of adjourned meetings need be given except as required by law. Section 8. The directors shall appoint one or more inspectors of election and of the vote at any time prior to the date of any meeting of stockholders at which an election is to be held or a vote is to be taken. In the event any inspector so appointed is absent from such meeting or for any other reason fails to act as such at the meeting, the person presiding pursuant to these By-laws may appoint a substitute who shall have all the powers and duties of such inspector. The inspector or inspectors so appointed shall act at such meeting, make such reports thereof and take such other action as shall be provided by law and as may be directed by the person presiding over the meeting. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his ability. Section 9. The directors may, at any time prior to any annual or special meeting of the stockholders, adopt an order of business for such meeting which shall be the order of business to be followed at such meeting. The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at 10-30-90 10 BY-LAWS - ------------------------------------------------------------------------------- such meeting shall be announced at such meeting by the person presiding over such meeting. Section l0. At any meeting of stockholders a stock vote shall be taken on any resolution or other matter presented to the meeting for action if so ordered by the person presiding over the meeting or on the demand of any stockholder of record entitled to vote at the meeting or any person present holding a proxy for such a stockholder. Such order or demand for a stock vote may be made either before or after a vote has been taken on such resolution or other matter in a manner other than by stock vote and before or after the result of the vote taken otherwise than by stock vote has been announced. The result of a stock vote taken in accordance with this By-law shall supersede the result of any vote previously taken in any manner other than by stock vote. Section 11. (A) Nominations of persons for election to the Board of Directors of the Company may be made as provided in the Certificate of Incorporation. The proposal of other business to be considered by the stockholders may be made at an annual meeting of stockholders (1) pursuant to the Company's notice of meeting, (2) by or at the direction of the Board of Directors or (3) by any stockholder of the Company who was a stockholder of record at the time of giving of the notice provided for 10-30-90 BY-LAWS 11 - ------------------------------------------------------------------------------- in this Section 11, who is entitled to vote thereon at the meeting and who complies with the notice procedures set forth in this Section 11. (B) For business (other than the nomination of persons for election to the Board of Directors) to be properly brought before an annual meeting by a stockholder pursuant to clause (3) of paragraph (A) of this Section 11, the stockholder must have given timely notice thereof in writing to the Secretary of the Company. To be timely, a stockholder's notice shall be delivered, either by personal delivery or by United States mail, postage prepaid, to the Secretary not later than one hundred twenty (120) days in advance of such meeting. Such stockholder's notice shall set forth (1) a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made and (2) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the proposal is made (a) the name and address of such stockholder, as they appear on the Company's books, and of such beneficial owner and (b) the class and number of shares of the Company which are owned beneficially and of record by such stockholder and such beneficial owner. 10-30-90 12 BY-LAWS - ------------------------------------------------------------------------------- (C) The person presiding over an annual meeting of stockholders shall have the power and duty to determine whether any business proposed by any stockholder to be brought before the meeting was made in accordance with the procedures set forth in this Section 11 and, if any proposed business is not in compliance with this Section 11, to declare that such defective proposal shall be disregarded. (D) In addition to the foregoing provisions of this Section 11, a stockholder shall comply with all applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder with respect to the matters set forth in this Section 11. Nothing in this Section 11 shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Company's proxy statement pursuant to Rule l4a-8 under such Act. 10-30-90 BY-LAWS 13 - ------------------------------------------------------------------------------- ARTICLE III Meetings of Directors Section 1. Regular meetings of the Board of Directors shall be held at the office of the Company in Old Greenwich, Connecticut, or at such other place as may from time to time be designated by the directors, the Chairman of the Board or the President, at ten o'clock in the forenoon on the last Tuesday of each month other than March, May, June, August and December and at three o'clock in the afternoon on the day on which the annual meeting of stockholders is held. If any such day shall be a holiday, the meeting scheduled for that day shall be held on the next business day. Special meetings may be held as determined by the Board of Directors, and may be called by the Chairman of the Board at any time and shall be called by him on the request of three directors, or, if the Chairman of the Board fails to call such meeting when so requested, the same may be called by any three directors. Section 2. No notice need be given of regular meetings of the directors, except that at least one day's notice shall be given of any place other than the office of the Company in Old Greenwich, Connecticut at which any 1-31-89 14 BY-LAWS - ------------------------------------------------------------------------------- such meeting is to be held, but such notice need not be given to any director who signs a written waiver of notice before or after the meeting. Attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except when the director attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Section 3. At any meeting six directors shall constitute a quorum unless otherwise provided for in these By-laws or in the Certificate of Incorporation or in any applicable statute, but in no case less than one-third of all the directors then in office. Section 4. Members of the Board of Directors or of any Committee thereof may participate in meetings of the Board of Directors or of such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at such meeting. Section 5. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board of Directors or of such committee, 1-1-86 BY-LAWS 15 - ------------------------------------------------------------------------------- as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the Board of Directors or of such committee. ARTICLE IV Officers Section 1. The Board of Directors shall annually choose from amongst its members a Chairman of the Board. The Board shall also annually choose a President, an Executive Vice President, one or more Senior Vice Presidents (if any), a principal financial officer, such other Vice Presidents (if any) as it shall determine, a Secretary, a Treasurer and a Controller, who need not be directors. Section 2. The Board of Directors may elect other officers and define their powers and duties. Section 3. Any two offices not inconsistent with each other may be held by the same person. Section 4. All officers elected by the Board of Directors shall hold office, subject to removal by the Board, until their successors are chosen and qualified. The affirmative vote of at least two-thirds of all of the directors 10-30-90 16 BY-LAWS - ------------------------------------------------------------------------------- then in office shall be required to remove or reduce the salary of any officer elected by the Board of Directors. Section 5. All agents and employees shall be appointed and may be removed by the Chairman of the Board, subject to the control of the Board of Directors. Section 6. Vacancies among officers of the Company shall be filled as, and to the extent that, the Board of Directors shall determine by vote of a majority of the directors present at any regular or special meeting at which not less than a majority of all the directors then in office are present. Section 7. The Chairman of the Board shall be the Chief Executive Officer of the Company and shall have general direction of its business affairs, subject, however, to the control of the Board of Directors. He shall, if present, preside at all meetings of the Board of Directors and shall perform such other duties and have such responsibilities as the Board may from time to time determine. Section 8. At the request of the Chairman of the Board, or in case of his absence or disability, the President shall perform the duties of the Chairman of the Board, subject to the control of the Board of Directors, and the President shall have such other powers and 6-15-87 BY-LAWS 17 - ------------------------------------------------------------------------------- perform such other duties as shall at any time be delegated to him by the Board Of Directors. The Executive Vice President and the Senior Vice Presidents (if any) and such other Vice Presidents as shall have been chosen shall have such powers and perform such duties as shall at any time be delegated to them by the Board of Directors. Section 9. The Secretary shall give the requisite notice of meetings of stockholders and directors and shall record the proceedings of such meetings, shall have the custody of the seal of the Company and shall affix it or cause it to be affixed to such instruments as require the seal and attest it and, besides his powers and duties prescribed by law, shall have such other powers and perform such other duties as shall at any time be required of him by the Board of Directors. Section 10. The Assistant Secretaries shall assist the Secretary in the discharge of his duties and shall have such powers and perform such other duties as shall at any time be delegated to them by the Board of Directors, and in the absence or disability of the Secretary, shall perform the duties of his office, subject to the control of the Board. Section 11. The Treasurer shall have charge of the funds and securities of the Company and shall have such 6-15-87 18 BY-LAWS - ------------------------------------------------------------------------------- powers and perform such duties as shall at any time be delegated to him by the Board of Directors. Section 12. The Assistant Treasurers shall assist the Treasurer in the discharge of his duties and shall have such powers and perform such other duties as shall at any time be delegated to them by the Board of Directors, and in the absence or disability of the Treasurer, shall perform the duties of his office subject to the control of the Board. Section 13. Any other officer, agent or employee of the Company may be required to give such security for the faithful performance of his duties as shall be determined by the Board of Directors, who shall also determine the custody of any security given. ARTICLE V Salaries Section 1. The salaries of all officers elected by the Board of Directors who hold offices of a rank of Vice President or above shall be fixed by the Compensation and Stock Option Committee. Section 2. Salaries of all other officers elected by the Board and all other agents and employees shall be fixed by or in the manner determined by the Board. 3-1-93 BY-LAWS 19 - ------------------------------------------------------------------------------- Section 3. The Board of Directors, by the affirmative vote of a majority of directors in office and irrespective of any personal interest of any directors, shall have authority to establish reasonable compensation of directors for services to the Company as directors, officers or otherwise, except that the Compensation and Stock Option Committee, by the affirmative vote of a majority of Committee members in office and irrespective of any personal interest of any Committee members or other directors, shall have authority to establish such compensation of directors who also are officers elected by the Board and hold offices of a rank of Vice President or above. ARTICLE VI Seal Section 1. The Seal of the Company shall be in such form as the Board of Directors may from time to time prescribe and it may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. ARTICLE VII Signatures on Commercial Instruments and Contracts Section 1. All checks or bank drafts shall be signed 3-1-93 20 BY-LAWS - ------------------------------------------------------------------------------- by any two of the following named officers: Chairman of the Board, President, the principal financial officer, the principal accounting officer, any Vice President, Secretary, any Assistant Secretary, Treasurer, any Assistant Treasurer, Controller, any Assistant Controller; and in such other manner as the Board of Directors may from time to time designate. Section 2. All notes or other obligations or contracts shall be signed by the Chairman of the Board, the President, the principal financial officer, the principal accounting officer, or any Vice President and also by one of the following officers: the Secretary, an Assistant Secretary, the Treasurer, an Assistant Treasurer, the Controller, or an Assistant Controller (provided that no individual shall sign the same instrument in two capacities), or shall be signed by the Chairman of the Board, the President, the principal financial officer, the principal accounting officer, or any Vice President, with the corporate seal or a facsimile thereof affixed thereto or imprinted thereon, attested by the Secretary or an Assistant Secretary; or such notes, obligations or contracts shall be signed in such manner and by one or more of such officers or other persons on behalf of the Company as the Board of Directors may from time to time authorize or direct. When and as authorized or directed by the Board of Directors, the signatures of such officers or 6-15-87 BY-LAWS 21 - ------------------------------------------------------------------------------- other persons or any of them signing on behalf of the Company may be facsimiles. ARTICLE VIII Capital Stock Section 1. Certificates of the capital stock of the Company shall be issued for shares duly numbered and registered in the order of their issue, and shall be in the form the directors shall prescribe. Section 2. The capital stock shall be transferable on the transfer books of the Company, subject to these By-laws, by the owner in person, or by attorney or legal representative, written evidence of whose authority shall be filed with the Company. Section 3. No transfer of capital stock can be required except upon surrender and cancellation of the certificate representing the same. Section 4. The Board of Directors may at any time, in its discretion, appoint one or more transfer agents or registrars of the shares of stock of the Company and terminate the appointment of any transfer agent or registrar. The Board of Directors may also designate the Company to perform such functions alone or in conjunction with one or more other transfer agents or registrars. 10-26-93 22 BY-LAWS - ------------------------------------------------------------------------------- Section 5. (A) For the purpose of determining the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or for the purpose of determining stockholders entitled to receive payment of any dividend or allotment of any right, or for the purpose of any other action, the Board of Directors may fix, in advance, a date as the record date for any such determination of stockholders. Such date shall be not more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. (B) When a determination of stockholders of record entitled to notice of or to vote at any meeting of stockholders has been made as provided in this Section 5, such determination shall apply to any adjournment thereof, unless the Board of Directors fixes a new record date under this Section 5 for the adjourned meeting. ARTICLE IX Committee on Conflicts of Interests Section 1. The Board of Directors, by resolution adopted by a majority of the entire Board, shall appoint a Committee on Conflicts of Interests which shall have at 10-30-90 BY-LAWS 23 - ------------------------------------------------------------------------------- least three members. To the extent provided by resolution of the Board, such committee shall have the power to interpret, administer and apply the policies of the Company as established by the Board from time to time with respect to conflicts of interests. ARTICLE X Dividends Section 1. Dividends on the Preferred Stock and the Common Stock of the Company may be declared by the Board of Directors, at any regular or special meeting, as provided by law and the Certificate of Incorporation. ARTICLE XI Amendments Section 1. The Board of Directors shall, except as otherwise provided in these By-laws or the Certificate of Incorporation, have the power to alter, amend or repeal these By-laws at any meeting by the affirmative vote of two-thirds of the directors then in office, provided notice of the proposed alteration, amendment or repeal be given in writing to each of the directors, and provided also that 10-30-90 24 BY-LAWS - ------------------------------------------------------------------------------- no alteration, amendment or repeal of a specification in any section of these By-laws of a stated fraction of directors as the minimum number whose presence or vote is requisite for action under such section may be made without the presence or vote or both, as the case may be, of the minimum number so specified. ARTICLE XII [Repealed effective April 30, 1997.] 4-30-97 25 BY-LAWS - ------------------------------------------------------------------------------- ARTICLE XIII Indemnification Section 1. (A) Each person (an "indemnitee") who was or is made or threatened to be made a party to or was or is involved (as a witness or otherwise) in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she or a person of whom 5-3-94 BY-LAWS 26 - ------------------------------------------------------------------------------- he or she is the legal representative was or is a director, officer or employee of the Company or was or is serving at the request of the Company as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding was or is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Company to the fullest extent permitted by the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Company to provide broader indemnification rights than said law permitted the Company to provide prior to such amendment), against all expense, liability and loss (including attorneys' fees and retainers therefor, judgments, fines, excise taxes or penalties under the Employee Retirement Income Security Act of 1974, as amended, and amounts paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to 10-30-90 27 BY-LAWS - ------------------------------------------------------------------------------- the benefit of his or her heirs, executors and administrators; provided, however, that except as provided in Section 3 of this Article XIII with respect to proceedings seeking to enforce rights to indemnification, the Company shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the Company. (B) The right to indemnification conferred in this Article XIII is and shall be a contract right. The right to indemnification conferred in this Article XIII shall include the right to be paid by the Company the expenses (including attorneys' fees and retainers therefor) reasonably incurred in connection with any such proceeding in advance of its final disposition, such advances to be paid by the Company within 20 days after the receipt by the Company of a statement or statements from the indemnitee requesting such advance or advances from time to time; provided, however, that if the General Corporation Law of the State of Delaware requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without 10-30-90 BY-LAWS 28 - ------------------------------------------------------------------------------- limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the Company of an undertaking by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Article XIII or otherwise. Section 2. (A) To obtain indemnification under this Article XIII, an indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to the indemnitee and is reasonably necessary to determine whether and to what extent the indemnitee is entitled to indemnification. Upon written request by an indemnitee for indemnification pursuant to the first sentence of this Section 2(A), a determination, if required by applicable law, with respect to the indemnitee's entitlement thereto shall be made as follows: (1) if requested by the indemnitee, by Independent Counsel (as hereinafter defined), or (2) if no request is made by the indemnitee for a determination by Independent Counsel, (a) by the Board of Directors by a majority vote of a quorum consisting of Disinterested Directors (as hereinafter defined), or (b) if a quorum of the Board of Directors consisting of Disinterested Directors is not 10-30-90 29 BY-LAWS - ------------------------------------------------------------------------------- obtainable or, even if obtainable, such quorum of Disinterested Directors so directs, by Independent Counsel in a written opinion to the Board of Directors, a copy of which shall be delivered to the indemnitee, or (c) by the stockholders of the Company. In the event the determination of entitlement to indemnification is to be made by Independent Counsel at the request of the indemnitee, the Independent Counsel shall be selected by the indemnitee unless the indemnitee shall request that such selection be made by the Board of Directors, in which event the Independent Counsel shall be selected by the Board of Directors. If it is so determined that the indemnitee is entitled to indemnification, payment to the indemnitee shall be made within 10 days after such determination. (B) In making a determination with respect to entitlement to indemnification hereunder, the person, persons or entity making such determination shall presume that the indemnitee is entitled to indemnification under this Article XIII, and the Company shall have the burden of proof to overcome that presumption in connection with the making by any person, persons or entity of any determination contrary to that presumption. Section 3. (A) If a claim under Section 1 of this Article XIII is not paid in full by the Company within 10-30-90 BY-LAWS 30 - ------------------------------------------------------------------------------- 30 days after a written claim pursuant to Section 2(A) of this Article XIII has been received by the Company, or if an advance is not made within 20 days after a request therefor pursuant to Section 1(B) of this Article XIII has been received by the Company, the indemnitee may at any time thereafter bring suit (or, at the indemnitee's option, an arbitration proceeding before a single arbitrator pursuant to the rules of the American Arbitration Association) against the Company to recover the unpaid amount of the claim or the advance and, if successful in whole or in part, the indemnitee shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such suit or proceeding (other than a suit or proceeding brought to enforce a claim for expenses incurred in connection with any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Company) that the indemnitee has not met the standards of conduct which make it permissible under the General Corporation Law of the State of Delaware for the Company to indemnify the indemnitee for the amount claimed or that such indemnification otherwise is not permitted under the General Corporation Law of the State of Delaware, but the burden of proving such defense shall be on the Company. 10-30-90 31 BY-LAWS - ------------------------------------------------------------------------------- (B) Neither the failure of the Company (including its Board of Directors, Independent Counsel or stockholders) to have made a determination prior to the commencement of such action that indemnification of the indemnitee is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the General Corporation Law of the State of Delaware, nor an actual determination by the Company (including its Board of Directors, Independent Counsel or stockholders) that the indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the indemnitee has not met the applicable standard of conduct. (C) If a determination shall have been made pursuant to Section 2(A) of this Article XIII that the indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to paragraph (A) of this Section 3. (D) The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to paragraph (A) of this Section 3 that the procedures and presumptions of this Article XIII are not valid, binding and enforceable and shall stipulate in any 10-30-90 BY-LAWS 32 - ------------------------------------------------------------------------------- such court or before any such arbitrator that the Company is bound by all the provisions of this Article XIII. Section 4. The right to indemnification and the payment of expenses incurred in connection with a proceeding in advance of its final disposition conferred in this Article XIII shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, By-laws, agreement, vote of stockholders or Disinterested Directors or otherwise. Section 5. The Company may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Company or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Company would have the power to indemnify such person against such expense, liability or loss under the General Corporation Law of the State of Delaware. To the extent that the Company maintains any policy or policies providing such insurance, each such director, officer or employee, and each such agent to which rights to indemnification have been granted as provided in Section 6 of this Article XIII, shall be covered by such policy or policies in accordance with its or their terms to the 10-30-90 33 BY-LAWS - ------------------------------------------------------------------------------- maximum extent of the coverage thereunder for any such director, officer, employee or agent. Section 6. The Company may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification, and rights to be paid by the Company the expenses incurred in connection with any proceeding in advance of its final disposition, to any agent of the Company to the fullest extent of the provisions of this Article XIII with respect to the indemnification and advancement of expenses of directors, officers and employees of the Company. Section 7. If any provision or provisions of this Article XIII shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (A) the validity, legality and enforceability of the remaining provisions of this Article XIII (including without limitation, each portion of any Section of this Article XIII containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (B) to the fullest extent possible, the provisions of this Article XIII (including, without limitation, each portion of any Section of this Article XIII containing any such provision held to be invalid, illegal or unenforceable) shall be 10-30-90 BY-LAWS 34 - ------------------------------------------------------------------------------- construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. Section 8. For purposes of this Article XIII: (A) "Disinterested Director" means a director of the Company who is not and was not a party to the matter in respect of which indemnification is sought by the indemnitee. (B) "Independent Counsel" means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent: (1) the Company or the indemnitee in any matter material to either such party, or (2) any other party to the matter giving rise to a claim for indemnification. Notwithstanding the foregoing, the term "Independent Counsel" shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or the indemnitee in an action to determine the indemnitee's rights under this Article XIII. Section 9. Any notice, request or other communication required or permitted to be given to the Company under this Article XIII shall be in writing and either 10-30-90 35 BY-LAWS - ------------------------------------------------------------------------------- delivered in person or sent by telecopy, telex, telegram or certified or registered mail, postage prepaid, return receipt requested, to the Secretary of the Company and shall be effective only upon receipt by the Secretary. EX-10 4 EXHIBIT 10 EXHIBIT 10a1 AMENDMENT TO THE FORTUNE BRANDS, INC. NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN Section 6(d) of the Fortune Brands, Inc. Non-employee Director Stock Option Plan is hereby amended in its entirety as follows: (d) No Option or portion thereof shall be transferable by the Participant otherwise than by will or by the laws of descent and distribution, except that an Option may be transferred by gift to any member of the holder's immediate family or to a trust or partnership solely for the benefit of such immediate family members to the extent permitted in the applicable Option Agreement. During the lifetime of the Participant, an Option shall be exercisable only by the Participant unless it has been transferred to a member of the holder's immediate family or to a trust or partnership solely for the benefit of such immediate family members, in which case it shall be exercisable only by such transferee. For the purpose of this provision, a holder's "immediate family" shall mean the holder's spouse, children and grandchildren. EX-12 5 EXHIBIT 12 EXHIBIT 12 ---------- FORTUNE BRANDS, INC. AND SUBSIDIARIES STATEMENT RE COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Dollar amounts in millions)
Six Months Ended Years Ended December 31, June 30, --------------------------------------------------------------- ------------- 1993 1994 1995 1996 1997 1998 ---- ---- ---- ---- ---- ---- Earnings Available: Income from continuing operations before income taxes, minority interest and extraordinary items......... $249.9 $ 43.4 $358.9 $340.1 $145.2 $143.1 Less: Excess of earnings over dividends of less than fifty percent owned companies...................... 0.1 - 0.2 0.2 0.2 0.1 Capitalized interest................. 0.3 0.2 - 0.3 - - ------ ------ ------ ------ ------ ----- 249.5 43.2 358.7 339.6 145.0 143.0 ====== ====== ====== ====== ====== ===== Fixed Charges: Interest expense (including capitalized interest) and amortization of debt discount and expenses............................. 200.5 184.6 147.1 172.6 122.4 52.0 Portion of rentals representative of an interest factor.................... 11.9 12.8 13.5 15.1 14.7 8.9 ------ ------ ------ ------ ------ ------ Total Fixed Charges................ 212.4 197.4 160.6 187.7 137.1 60.9 ------ ------ ------ ------ ------ ------ Total Earnings Available........... $461.9 $240.6 $519.3 $527.3 $282.1 $203.9 ====== ====== ====== ====== ====== ====== Ratio of Earnings to Fixed Charges............ 2.17 1.22 3.23 2.81 2.06 3.35 ==== ==== ==== ==== ==== ====
EX-15 6 EXHIBIT 15 EXHIBIT 15 ---------- August 12, 1998 Securities and Exchange Commission 450 5th Street, N.W. Attention: Filing Desk, Stop 1-4 Washington, D.C. 20549-1004 Re: Fortune Brands, Inc. We are aware that our report dated August 12, 1998, on our review of interim financial information of Fortune Brands, Inc. and Subsidiaries for the three-month and six-month periods ended June 30, 1998 and 1997 included in this Form 10-Q, has been incorporated by reference into (a) the Registration Statement on Form S-8 (Registration No. 33-64071) relating to the Defined Contribution Plan of Fortune Brands, Inc. and Participating Operating Companies, the Registration Statement on Form S-8 (Registration No. 33-64075) relating to the MasterBrand Industries, Inc. Hourly Employee Savings Plan, the Registration Statement on Form S-8 (Registration No. 33-58865) relating to the 1990 Long-Term Incentive Plan of Fortune Brands, Inc., the Registration Statement on Form S-8 (Registration No. 333-51173) relating to the Fortune Brands, Inc. Non-Employee Director Stock Option Plan, and the prospectuses related thereto, and (b) the prospectuses related to the Registration Statements on Form S-3 (Registration Nos. 33-50832, 33-42397, 33-23039 and 33-3985) of Fortune Brands, Inc. Pursuant to Rule 436(c) under the Securities Act of 1933, this report should not be considered a part of such registration statements or prospectuses or certification by us within the meaning of Sections 7 and 11 of that Act. Very truly yours, PricewaterhouseCoopers LLP 1301 Avenue of the Americas New York, New York 10019 EX-27 7 EXHIBIT 27
5 THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AND RELATED STATEMENT OF INCOME AS OF JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 $ 90 0 999 61 1,034 2,293 2,019 989 7,281 $2,000 782 717 0 11 3,350 7,281 $2,530 2,530 1,287 1,287 199 5 50 238 97 141 0 (31) 0 $110 $.63 $.62
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