EXHIBIT 13
FINANCIAL SECTION
American Brands, Inc. and Subsidiaries
CONTENTS
Results of Operations 16
Financial Condition 23
Consolidated Balance Sheet 26
Consolidated Statement of Income 28
Consolidated Statement of Cash Flows 29
Consolidated Statement of
Common Stockholders' Equity 30
Notes to Consolidated Financial Statements 31
Report of Independent Accountants 43
Report of Management 43
Eleven-Year Consolidated Selected Financial Data 44
Information on Business Segments 46
RESULTS OF OPERATIONS
Net Sales Operating Income
----------------------------------- --------------------------------
$(In millions) 1994 1993(1) 1992(1) 1994 1993(1) 1992(1)
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International tobacco $ 6,168.9 $ 5,940.0 $ 6,376.6 $ 517.2 $ 486.5 $ 554.4
Distilled spirits 1,268.2 1,194.6 1,268.3 221.2 214.7 195.8
Hardware and home
improvement products 1,270.6 1,119.5 1,014.8 176.5 155.5 159.0
Office products 1,049.7 977.2 1,003.5 74.5 63.2 58.1
Golf and leisure products 507.1 452.7 416.2 73.3 63.6 53.3
Other businesses(2) 1,287.3 1,445.0 1,798.4 2.1 27.9 33.0
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Ongoing operations 11,551.8 11,129.0 11,877.8 1,064.8 1,011.4 1,053.6
Domestic tobacco(2) 1,594.7 1,501.5 1,780.3 247.6 169.2 536.1
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Total $13,146.5 $12,630.5 $13,658.1 $1,312.4 $1,180.6 $1,589.7
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<FN>
(1) Restated for discontinued life insurance operations. See page 33 for Discontinued Operations.
(2) See page 32 for Dispositions.
16
CONSOLIDATED
1994 COMPARED TO 1993
Net sales and operating income from ongoing operations (which excludes
domestic tobacco and life insurance) increased 4% and 5%, respectively.
Translation of foreign currencies at higher average exchange rates favorably
affected net sales and operating income by $186 million and $19.1 million,
respectively. Excluding the effect of foreign exchange, net sales from ongoing
operations were up 2% on price increases (including international tobacco
excise tax increases), new products and inclusion of Invergordon for a full
year, partly offset by an unfavorable product mix in international tobacco, and
the sale of optical goods and services in July 1994. Operating income from
ongoing operations, excluding the effect of foreign exchange and restructuring
charges in 1993, was up 1% as increases in all five major business segments
were offset by a decline in "other businesses", principally reflecting the sale
of optical.
Consolidated net sales and operating income from continuing operations (which
includes domestic tobacco) rose 4% and 11%, respectively.
The net gain on disposal of businesses reflected a $577.9 million pretax gain
on the sale of domestic tobacco, partly offset by a $245 million non-cash
pretax loss on the expected sale of a number of nonstrategic businesses and
product lines, including U.K.-based Prestige and Forbuoys. The loss is based on
the anticipated sale of these operations for proceeds in the range of $150-$175
million. The operations to be disposed of had net sales of $752 million and a
small operating loss in 1994.
Interest and related expenses decreased $15.5 million (7%) on lower average
borrowings.
The effective income tax rate of 34.5% decreased from 38.2% last year,
principally as a result of a low effective rate on this year's disposal of
businesses and the proportionately lower impact of nondeductible goodwill on
higher income, partly offset by this year's lower reversal of tax provisions no
longer required.
Earnings per Common share from continuing operations of $4.38, compared with
$2.67 last year, was up $1.71, or 64%, reflecting a $1.32 net gain on the
disposal of businesses.
The loss from discontinued operations in 1994 of $151 million, or 75 cents
per share, compared with income from discontinued operations in 1993 of $127
million, or 63 cents per share.
Net income of $734.1 million, or $3.63 per share, compared with $469.8
million, or $2.32 per share in 1993, which reflected a non-cash charge of $198.4
million, or 98 cents per share, due to adoption of FAS Statements No. 106, 112
and 115 as described on page 31.
The Company's 1995 goal is for continued profit growth from its operating
companies, although distilled spirits and international tobacco continue to
contend with highly competitive environments. Reported income from continuing
operations in 1995 will be negatively affected, when compared to 1994, by the
absence of the results of domestic tobacco and the net gain on disposal of
businesses, partly offset by lower interest expense based on existing lower
levels of borrowings. In connection with the sale of American Tobacco and
Franklin, the Board of Directors authorized the purchase of up to 20 million
shares of the Company's Common stock in the open market and in privately
negotiated transactions from time to time, subject to market conditions.
Earnings per Common share in 1995 will benefit from the Company's purchase of
shares of its Common stock.
The Company derived 45% of its operating income in 1994 from Europe, primarily
the United Kingdom. The proportion of the Company's income derived from foreign
sources in 1995 will increase significantly due to the absence of businesses
sold. As a result, fluctuations in foreign currencies, principally sterling,
will increase the volatility of dollar results in future periods.
The Company currently uses forward foreign exchange contracts solely to offset
the impact of changes in foreign exchange rates on known transactions or
balances denominated in foreign currencies. See pages 24 and 39 for additional
information on Financial Instruments.
For a description of certain pending litigation, see page 42. As stated
therein, it is not possible to predict the outcome of such litigation, but
management believes that there are meritorious defenses to the pending actions
and that the pending actions will not have a material adverse effect upon the
results of operations, cash flow or financial condition of the Company.
17
Results of Operations (continued)
The Company is involved in proceedings concerning the discharge of materials
into the environment and the handling, disposal and clean-up of waste materials
and otherwise relating to the protection of the environment. As of February 1,
1995 various subsidiaries of the Company had been designated as potentially
responsible parties under "Superfund" or similar state laws with respect to 40
sites. 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 flow or financial condition of the Company.
1993 COMPARED TO 1992
Net sales and operating income from ongoing operations declined 6% and 4%,
respectively. Translation of foreign currencies at substantially lower average
exchange rates adversely affected net sales and operating income by $1.4
billion and $100.3 million, respectively. Excluding the effect of foreign
exchange, net sales from ongoing operations would have been up 5% on price
increases (including international tobacco excise tax increases) and new
products. Operating income from ongoing operations, excluding the effect of
foreign exchange and restructuring charges, would have been up 9% on price
increases, partly offset by higher marketing expenses.
Consolidated net sales and operating income from continuing operations (which
includes domestic tobacco) were down 8% and 26%, respectively.
Interest and related expenses decreased $24 million (10%) on lower average
interest and foreign exchange rates.
Earnings per Common share from continuing operations of $2.67 compared with
$3.81 in 1992.
Income from discontinued operations of $127 million, or 63 cents per share
compared with $96.9 million, or 48 cents per share in 1992.
Net income of $469.8 million, or $2.32 per share, which reflected a non-cash
charge of $198.4 million, or 98 cents per share, due to adoption of FAS
Statements No. 106, 112 and 115, compared with $883.8 million, or $4.29 per
share, in 1992.
INTERNATIONAL TOBACCO
1994 COMPARED TO 1993
Net sales in sterling were up slightly on price increases, principally
resulting from higher U.K. tobacco taxes, and a total cigarette volume increase
of 0.6%, largely offset by an unfavorable product mix and a 10.9% total cigar
volume decline. The total cigarette volume increase reflected export volume
gains of 70.3% from a full year's shipments of Benson and Hedges to Europe and
increased shipments to the C.I.S. and a 6.8% Gallaher (Dublin) volume gain. The
increase was largely offset by a 10.4% U.K. cigarette volume decline, primarily
resulting from a change in the timing of the U.K. budget during 1993. This
change resulted in two budget announcements in 1993, one in March and another
in November, the latter drawing significant sales into the fourth quarter of
1993 from the first quarter of 1994. The effects of the U.K. cigarette volume
decline were partly offset by manufacturers' price increases in August 1993 and
April 1994.
Operating income in sterling increased 2%, primarily on price increases and
the favorable comparison to 1993's workforce reduction provisions, partly
offset by an unfavorable product mix and increased marketing costs associated
with export expansion and support for Benson and Hedges Special Filter. On a
comparable basis, excluding 1993 restructuring charges, operating income in
sterling would have decreased 3%. In dollars, net sales and operating income as
reported increased 4% and 6%, respectively, reflecting translation at higher
average exchange rates.
Continuing the trend of tax increases in recent years, the U.K. budget
announcement in November 1994 resulted in a 10 pence increase in the tax on a
typical pack of cigarettes. A supplemental budget announcement in December 1994
resulted in a further increase of 6 pence in the tax on a typical pack of
cigarettes effective January 1, 1995. The U.K. budgets announced in March and
November 1993 and March 1992 resulted in an increase in the tax on a typical
pack of cigarettes of 10 pence, 11 pence and 13 pence, respectively. The
continuing impact of price increases, principally due to substantial excise tax
increases in recent years, has reduced annual industry volumes, led to greater
price competition and accelerated trading down by con-
18
sumers to lower priced brands. These changes are particularly affecting
Gallaher, the majority of whose sales are in the premium sector.
Despite these factors, Gallaher maintained its position as the number one
tobacco company in the U.K. Its share of consumer sales was 39.7% in 1994, as
compared with 40.6% in 1993. Consumer demand is estimated to have declined
about 3% as compared with 5.5% in 1993. The U.K. cigarette industry volume is
estimated to have declined 3.8%. Gallaher's U.K. cigarette market share was
estimated to be 38.8% for the year, as compared with 41.7% in 1993.
Voluntary agreements with the U.K. government have been entered into that
restrict the marketing of tobacco products, and proposed legislation has been
introduced in the U.K. and the European Community that might further restrict
advertising, labeling, sponsorship and the use of tobacco products in the U.K.
and elsewhere. It is possible that these and other restrictions, as well as any
future tax increases, would have an adverse effect on unit sales and add to
continuing industry declines.
1993 COMPARED TO 1992
Net sales in sterling increased 11% on price increases, which principally
resulted from higher U.K. tobacco taxes, and a 5.4% increase in total cigarette
volume (including exports and line extensions), partly offset by an unfavorable
product mix. U.K. cigarette volume increased 2.3% as compared with an estimated
industry volume increase of 1.9%. Consumer demand is estimated to have declined
in the area of 5.5%. Results benefited from substantial buying by the trade in
anticipation of the November 1993 U.K. budget increase. Gallaher's cigarette
market share in 1993 was 41.7%, as compared with 41.5% in 1992, and its share
of consumer sales increased.
Operating income in sterling increased 4%, resulting from price increases and
the 5.4% total volume increase, partly offset by higher advertising costs
associated with the launch of Benson and Hedges Superkings, and restructuring
charges. On a comparable basis with 1992, excluding restructuring charges,
operating income in sterling would have increased 8%. To control costs,
Gallaher closed a plant and instituted workforce reductions totaling over 16%
of its 1992 employment. Translated at substantially lower average exchange
rates, net sales and operating income in dollars declined 7% and 12%,
respectively.
DISTILLED SPIRITS
1994 COMPARED TO 1993
Worldwide net sales and operating income increased 6% and 3%, respectively.
Beam's net sales were down 3%, principally on lower domestic volume. Estimated
depletions of Beam's major brands from distributors to retailers declined 3% in
the U.S., in line with industry trends. Beam's international net sales
increased 25%. Total branded case sales were down 2.4% reflecting a 5.7%
decline in domestic branded case sales tempered by a 14.8% increase in
international branded case sales. Operating income increased 2% as a result of
lower media advertising and increased international shipments at higher
margins, largely offset by reduced domestic volume and margins and higher
international selling costs related to market development.
U.S. distilled spirits consumption continued its long-term decline. With
continuing heavy price competition and consumer rebates, margins may be under
further pressure as the intensifying competitive situation may continue to
limit future price increases.
Whyte & Mackay's net sales in sterling increased 38% on a total unit volume
increase of 151.8% due to the inclusion of Invergordon, consolidated beginning
December 1, 1993, and one-time bulk sales in 1994. Operating income in sterling
increased 9% on inclusion of Invergordon for a full year and benefits from
one-time bulk sales and other nonrecurring items in 1994, partly offset by
widespread and intense competitive activity, primarily in Whyte & Mackay's U.K.
branded business. Operating income in 1993 benefited from the application of
the equity method to prior periods for Invergordon. The intense price
competition in Whyte & Mackay's U.K. branded business is expected to continue
in 1995.
The supplemental 1994 U.K. budget resulted in a 26 pence tax increase on a
typical bottle effective January 1, 1995. The 1993 U.K. budgets did not result
in a tax increase on distilled spirits as compared with a 31 pence tax
increase
19
Results of Operations (continued)
on a typical bottle announced in March 1992. It is possible that these and any
future U.K. and U.S. tax increases, as well as any restrictions on advertising,
would have an adverse effect on unit sales and add to continuing industry
declines.
1993 COMPARED TO 1992
Net sales decreased 6% while record operating income in 1993 rose 10%.
Beam's net sales were down 5% on lower domestic volume, principally reflecting
competitive pricing pressures, the effect of lower foreign exchange rates and a
domestic bulk sale in 1992. Worldwide branded case sales were down 1.7% due to
a domestic decline of 4.6%. Record operating income was up slightly on the
timing of operating expenses and higher margins, partly offset by higher
international selling costs.
Whyte & Mackay's net sales in sterling were up 6% on inclusion of Invergordon
for one month and higher volume, mainly in export markets, partly offset by a
significant level of bulk sales in 1992. Excluding Invergordon, worldwide case
sales were up 10.4% and U.K. case sales were up 6.5%. Translated at
substantially lower average foreign exchange rates, net sales were down 9% in
dollars. Operating income in sterling and dollars was up with continuing profit
improvement from higher margins, despite the lingering effects of the U.K.
recession and competitive pricing pressures, partly offset by higher general
and administrative expenses. Operating income included a $6.7 million benefit
resulting from the application of the equity method to prior periods for
Invergordon.
HARDWARE AND HOME IMPROVEMENT PRODUCTS
1994 COMPARED TO 1993
Record net sales increased 13% on new products and line extensions, price
increases and volume gains. All four companies in the group achieved record net
sales. Moen was up on new products, volume gains and price increases;
Aristokraft was up on line extensions and price increases; Master Lock was up
on higher volume, new products and line extensions; and Waterloo was up
principally on new products. Record operating income was up 14% with
increases in each company. The increase reflected net sales gains, partly
offset by higher raw material costs at Aristokraft and higher marketing and
other operating expenses at Moen.
1993 COMPARED TO 1992
Net sales were up 10%, reaching record levels in all companies, on new
products, price increases and volume gains. Operating income was down 2%.
Excluding a one-time gain from a change in an employee benefit program in 1992,
operating income would have been up 2%, reflecting price and volume gains,
partly offset by higher manufacturing costs associated with the introduction of
several new faucet lines, unfavorable product mix and higher marketing and
administrative expenses.
OFFICE PRODUCTS
1994 COMPARED TO 1993
Record net sales increased 7% on new products and volume gains despite
continuing pricing pressures. ACCO continued to increase penetration in the
fastest growing distribution channels. Operating income increased 18% on the
record net sales and improved margins, partly offset by increased operating
expenses. The net sales and operating income increases reflected improvements
in both domestic and international businesses.
1993 COMPARED TO 1992
Net sales declined 3% reflecting the absence of two nonstrategic businesses
sold in 1992 and substantially lower average foreign exchange rates. Excluding
these items, net sales would have been up 8%. Net sales benefited from new
products and volume gains resulting in an increase in market share,
particularly in the faster growing channels of distribution, despite continuing
pricing pressures. Operating income was up 9%, principally reflecting volume
gains and the benefits of ongoing cost reductions, partly offset by translation
at substantially lower average foreign exchange rates and the continuing
effects of pricing pressures. On a comparable basis, principally excluding the
effects of the two businesses sold and the lower average foreign exchange
rates, operating income would have been up 24%.
20
GOLF AND LEISURE PRODUCTS
1994 COMPARED TO 1993
Record net sales and operating income were up 12% and 15%, respectively. The
increases primarily resulted from new golf balls and golf shoes and strong
volume gains in all lines. Operating income was also impacted by increased
marketing and other operating expenses.
1993 COMPARED TO 1992
Record net sales were up 9% on new products, volume gains and price increases,
partly offset by unfavorable exchange rates. Record operating income increased
19% on record net sales, partly offset by higher advertising costs to meet
competitive activity.
OTHER BUSINESSES
1994 COMPARED TO 1993
Net sales declined $157.7 million (11%) and operating income decreased $25.8
million (92%). Excluding optical goods and services and Acushnet's rubber
division, both sold in 1994, net sales of $1,026.7 million increased $2.9
million, and an operating loss of $5.2 million compared with operating income
of $1.2 million in 1993. The unfavorable change in operating income reflected
volume declines in retail distribution.
Other businesses principally includes a number of nonstrategic businesses
which are expected to be sold in 1995, including U.K.-based Prestige and
Forbuoys.
1993 COMPARED TO 1992
Net sales declined $353.4 million (20%) and operating income decreased $5.1
million (15%). In sterling, net sales from foreign businesses declined 5%
primarily on retail distribution's volume declines and fewer outlets, partly
offset by price increases. In sterling, operating income from foreign
businesses increased 9%, principally due to optical. Retail distribution
declined 29% in sterling on volume decreases and higher selling and other
expenses. In dollars, net sales and operating income from foreign businesses
declined 19% and 5%, respectively, due to translation at substantially lower
average foreign exchange rates.
DOMESTIC TOBACCO
1994 COMPARED TO 1993
Domestic tobacco represents the results of operations of The American Tobacco
Company and its subsidiaries, sold on December 22, 1994. Net sales increased 6%
reflecting increased volume and favorable comparison with a $29.9 million trade
inventory buydown charge in 1993, partly offset by the effects of the August
1993 list price reductions. Operating income increased 46% as 1994 benefited
from lower expenses reflecting reversals of accruals relating to returned
goods, coupon redemption and other marketing programs and volume gains, partly
offset by lower prices and a less favorable product mix. Operating income in
1993 was adversely affected by restructuring provisions and trade inventory
buydown costs, partly offset by a gain on the assignment of trademarks.
1993 COMPARED TO 1992
Net sales declined 16% on substantial volume declines, price decreases and a
$29.9 million trade inventory buydown, partly offset by new products. The
effects of list price reductions were partly offset by a federal excise tax
increase on January 1, 1993. Operating income declined 68% on volume declines,
lower prices (including buydown costs), a less favorable product mix, higher
promotional expenses to meet intense competitive activity and $44 million in
restructuring provisions (principally for voluntary early retirement programs),
partly offset by a $25.5 million gain on the assignment of trademarks.
21
Results of Operations (concluded)
DISCONTINUED OPERATIONS
1994 COMPARED TO 1993
Income from discontinued life insurance operations for 1994, excluding the
$206.8 million loss on the disposal, was $55.8 million as compared with $127
million in 1993. The decline reflects an unfavorable $104.7 million pretax
change in investment gains/losses and the unfavorable comparison of eleven
months of operations due to the November 30, 1994 measurement date on the
disposal.
1993 Compared to 1992
Income from discontinued operations of $127 million was up $30.1 million, or
31%, on higher net investment income, principally reflecting the $51.8 million
higher pretax realized investment gains, mainly due to bond redemptions.
QUARTERLY FINANCIAL DATA unaudited
(In millions, except per share amounts)
1994 1st 2nd 3rd 4th
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Continuing operations
Net sales $3,000.9 $3,040.9 $3,354.6 $3,750.1
Gross profit 874.4 910.1 924.1 1,016.0
Operating income 290.9 296.6 310.7 414.2
Income from continuing operations 129.5 151.9 131.8 471.9
Income (loss) from discontinued operations 19.7 12.0 20.1 (202.8)
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Net income $ 149.2 $ 163.9 $ 151.9 $ 269.1
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Earnings per Common share
Primary
Continuing operations $.64 $.75 $.65 $2.34
Discontinued operations .10 .06 .10 (1.01)
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Net income $.74 $.81 $.75 $1.33
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Fully diluted
Continuing operations $.63 $.74 $.64 $2.23
Discontinued operations .09 .06 .09 (.95)
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Net income $.72 $.80 $.73 $1.28
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1993 1st 2nd 3rd 4th
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Continuing operations
Net sales $3,495.7 $2,578.7 $3,046.2 $3,509.9
Gross profit 969.2 876.3 819.6 963.9
Operating income 379.7 263.7 203.2 334.0
Income from continuing operations 216.3 119.3 61.7 143.9
Income from discontinued operations 30.8 32.0 23.3 40.9
Accounting changes (201.0) -- -- 2.6
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Net income $ 46.1 $ 151.3 $ 85.0 $ 187.4
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Earnings per Common share
Primary
Continuing operations $1.07 $.59 $.30 $.71
Discontinued operations .15 .16 .12 .20
Accounting changes (.99) -- -- .01
--------------------------------------------------------------------------------------------
Net income $.23 $.75 $.42 $.92
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Fully diluted
Continuing operations $1.04 $.58 $.31 $.70
Discontinued operations .14 .15 .11 .20
Accounting changes (.95) -- -- .01
--------------------------------------------------------------------------------------------
Net income $.23 $.73 $.42 $.91
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All previously published quarterly financial data have been restated for
discontinued operations. See page 33 for Discontinued Operations. Income from
continuing operations in the fourth quarter of 1994 includes a net gain of $267
million on the disposal of businesses, or $1.32 and $1.25 per Common share
primary and fully diluted, respectively. See page 32 for Dispositions.
22
FINANCIAL CONDITION
American Brands, Inc. and Subsidiaries
CASH FLOW
NET CASH PROVIDED FROM CONTINUING OPERATING ACTIVITIES
Net cash provided from continuing operating activities during 1994 of $996.4
million, as compared with $668.3 million in 1993, exceeded the funds required
for capital expenditures and dividends by $391.9 million. The increase was
principally attributable to international tobacco. Fluctuations in accounts
receivable, inventories and accrued taxes were the result of changes in the
timing of the 1993 U.K. budgets and the supplemental budget announcement on
December 8, 1994.
Net cash provided included American Tobacco's cash flows of $150 million,
$234.7 million and $284.5 million for 1994, 1993 and 1992, respectively. The
absence of American Tobacco's cash flow in 1995 will be partially offset by the
use of the proceeds from its sale.
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES
Net cash provided by investing activities of $921.1 million compared with a
use of $666.3 million in 1993. The increase is principally due to the sale of
American Tobacco and the absence of acquisitions in 1994.
Capital expenditures. Capital spending is focused on the operating companies
becoming the lowest cost producers of the highest quality products. Capital
expenditures for 1994 of $201.4 million decreased 17% compared with 1993
expenditures of $243.4 million, reflecting a reduction in expenditures in
hardware and home improvement, domestic tobacco, international tobacco and
other businesses, as shown on page 42. Funds for 1995 capital expenditures,
estimated at $225 million, are expected to be generated internally.
Dispositions. On December 22, 1994, the Company sold American Tobacco for $1
billion. On July 12, 1994, Dollond & Aitchison, a U.K.-based subsidiary of
Gallaher Limited, was sold for a total consideration of $146 million.
On January 31, 1995, the Company sold its life insurance business for $1.17
billion.
The Company plans to dispose of a number of nonstrategic businesses and
product lines. Proceeds in the range of $150-$175 million are anticipated
during 1995.
Acquisitions. On June 30, 1993, the Benson and Hedges cigarette trademark in
Europe was acquired in exchange for the Lucky Strike and Pall Mall trademarks
overseas and $107.2 million in cash and contingent payments based on future
volume. During the fourth quarter 1993, Whyte & Mackay purchased the remaining
outstanding ordinary shares of Invergordon for $343.6 million.
NET CASH USED BY FINANCING ACTIVITIES
Net cash used by financing activities of $1.9 billion in 1994 compared with
$41 million in 1993. The increased use of cash resulted from the reduction of
short and long-term debt principally with proceeds received from the sale of
American Tobacco.
CASH PROVIDED BY DISCONTINUED OPERATIONS
Franklin provided $37.8 million in dividends during 1994 as compared with
$45.1 million in 1993.
DIVIDENDS
Dividends paid on Common stock in 1994 rose to $401.7 million, or $1.9925 per
share, from $397.5 million, or $1.97 per share in 1993.
With the June 1, 1994 payment, the quarterly dividend on Common stock was
increased 1.5% to 50 cents per share, or an indicated annual rate of $2.00 per
share.
The sale of American Tobacco and the life insurance business will have no
material impact on the Company's ability to pay dividends. Although the
dividend payout ratio is currently higher than it has been in the past, the
ratio may be brought down over time with future growth in earnings per share.
23
Financial Condition (continued)
FINANCIAL POSITION
At year end, total debt decreased $1.5 billion to $2.2 billion. Short-term
debt decreased $477.1 million to $705.8 million and long-term debt decreased
$980.3 million to $1.5 billion. The ratio of total debt to total capital
decreased from 46.2% in 1993 to 32.4% at year end 1994. The decrease was
principally the result of the sale of American Tobacco late in the year.
Proceeds from the sale of Franklin will be used for debt reduction, share
purchases, and, as opportunities arise, strategic acquisitions. The ultimate
use of the funds, or combination of uses, may alter the debt to capital ratio.
During 1994, $74 million of 91/2% Eurosterling Notes and $82.5 million in
Medium Term Notes matured.
At December 31, 1994, the Company had $850 million of debt securities
(including Medium Term Notes) available for sale under its shelf registration
with the Securities and Exchange Commission.
At year end, the Company had $4 billion of longterm credit facilities,
substantially all of which remained unused. During the year, the Company
extended the expiration dates of these credit facilities to June 15, 1999.
These facilities are available for general corporate purposes, including
acquisitions and support for the Company's short-term borrowings in the
commercial paper market. In addition, Gallaher has Pounds Sterling 300 million
(approximately $470 million) in committed, short-term revolving credit
agreements available for general corporate purposes, including acquisitions.
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.
Working capital increased from $575.4 million in 1993 to $1.6 billion in
1994, principally reflecting the reclassification of the expected proceeds from
the sale of Franklin as well as the use of proceeds from the sale of American
Tobacco. Management believes that the 1994 level, excluding the Franklin
reclassification, was adequate to support continued growth.
FOREIGN EXCHANGE
The Company has sizeable investments in Europe, primarily the U.K. Therefore,
changes in the value of foreign currencies, principally sterling, can affect
the Company's balance sheet and cash flow statements when translated into
dollars. As a result of the sale of American Tobacco and Franklin, changes in
the sterling exchange rate will have a greater effect on these statements.
FINANCIAL INSTRUMENTS
The Company does not enter into financial instruments for trading or
speculative purposes. Financial instruments, principally forward foreign
exchange contracts, are used to reduce the impact of changes in foreign
currency exchange rates with respect to short-term loans, dividends declared by
foreign subsidiaries and a portion of the Company's investment in Gallaher.
Interest rate swaps are used to reduce the impact of changes in interest rates.
The counterparties are major financial institutions. Although the Company's
theoretical risk is the replacement cost at the then estimated fair value of
these instruments, management believes that the risk of incurring losses is
remote and that such losses, if any, would be immaterial.
The Company enters into forward foreign exchange contracts principally to
hedge the currency fluctuations in transactions denominated in foreign
currencies, principally short-term loans to Gallaher, thereby limiting the
Company's risk that would otherwise result from changes in exchange rates. The
periods of the forward foreign exchange contracts correspond to the periods of
the hedged transactions. Gains and losses on forward foreign exchange contracts
and the offsetting losses and gains on hedged transactions are reflected in the
income statement. During the year, the Company also enters into forward foreign
exchange contracts to hedge a portion of its net investment in Gallaher. The
gains or losses on these contracts effectively offset losses and gains on the
portion of the net investment being hedged, which are reflected in Common
stockholders' equity.
24
Financial Condition (concluded)
At December 31, 1994, the Company had outstanding forward foreign exchange
contracts to purchase $24 million and sell $557 million of various foreign
currencies (principally sterling), with a weighted average maturity of 13 days.
At December 31, 1993, the Company had outstanding forward foreign exchange
contracts to purchase $106 million and sell $658 million of various foreign
currencies (principally sterling), with a weighted average maturity of 37 days.
The Company enters into interest rate swap agreements to manage its exposure
to interest rate changes. The swaps involve the exchange of fixed and variable
interest rate payments without exchanging the notional principal amount.
Payments or receipts on the agreements are recorded as adjustments to interest
expense, and did not have a significant effect on interest expense for 1994,
1993 or 1992. At December 31, 1994 and 1993, the Company had outstanding
interest rate swap agreements denominated in dollars and sterling, maturing at
various dates through 1999, with aggregate notional principal amounts of $406.6
million and $342.4 million, respectively. See page 39 for additional
information on Financial Instruments.
TAXES
Total international and domestic excise taxes were $5.7 billion and income
taxes amounted to $466.1 million. Including Social Security and other taxes,
the Company's total taxes amounted to $6.3 billion, as compared with $6 billion
in 1993.
COMMON STOCKHOLDERS' EQUITY
Common stockholders' equity at year end increased $367.5 million to $4.6
billion primarily due to net income, partly offset by dividends to stockholders
and the purchase of 900,000 shares for the treasury. In 1994, Common
stockholders' equity also reflected an increase of $68.4 million due to foreign
currency translation adjustments.
Return on average Common stockholders' equity was 16.6%, reflecting the gain
on sale of American Tobacco partially offset by the loss on discontinued
operations, as compared with 11.1% in 1993. Excluding the impact of the
one-time charge due to the adoption of the FAS Statements, 1993 return on
equity would have been 15.2%.
At year end, the Company had 28.4 million treasury shares, an amount
sufficient to cover future requirements of shares deliverable upon conversions
of outstanding preferred stock and debentures, the exercise of outstanding
stock options and grants of other stock-based awards.
In connection with the sale of American Tobacco and Franklin, the Board of
Directors authorized the purchase of up to 20 million shares of Common stock of
which in excess of 9 million shares had been purchased by February 28, 1995.
During the year, the Common stock traded within a range of $29.375 to
$38.375. The Common stock generated a total return of 271.8%, or 14% compounded
annually, over the ten-year period ended December 31, 1994.
Book value per Common share was $22.97 at year end.
QUARTERLY COMMON STOCK
DIVIDEND PAYMENTS
1994 1993
--------------------------------------------------------------------------
Payment Amount Amount
Date per Share per Share
--------------------------------------------------------------------------
March 1 $ .4925 $ .4925
June 1 .50 .4925
September 1 .50 .4925
December 1 .50 .4925
--------------------------------------------------------------------------
$1.9925 $1.97
--------------------------------------------------------------------------
QUARTERLY COMPOSITE COMMON
STOCK PRICES
1994 1994 1993 1993
--------------------------------------------------------------------------
High Low High Low
--------------------------------------------------------------------------
First 35-7/8 29-7/8 40-5/8 31-7/8
Second 34-3/4 29-3/8 34-1/4 28-1/2
Third 37-1/8 31-1/2 34-3/8 29-7/8
Fourth 38-3/8 32-7/8 35-3/4 32
--------------------------------------------------------------------------
The Common stock is listed on the New York Stock Exchange, which is the
principal market for this security. The high and low prices are as reported in
the consolidated transaction reporting system.
25
CONSOLIDATED BALANCE SHEET
American Brands, Inc. and Subsidiaries
----------------------------------------------------------------------------------------------------------------------------------
December 31 (In millions, except per share amounts) 1994 1993
----------------------------------------------------------------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents $ 110.1 $ 62.5
Accounts receivable less allowances for discounts, doubtful accounts and returns, 1994 $52; 1993 $62.5 1,067.9 1,241.6
Inventories
Leaf tobacco 132.2 477.7
Bulk whiskey 351.4 359.3
Other raw materials, supplies and work in process 266.8 306.9
Finished products 1,265.3 899.3
-------- --------
2,015.7 2,043.2
Net assets of discontinued operations 1,170.0 --
Other current assets 307.2 385.8
----------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 4,670.9 3,733.1
----------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment
Land and improvements 77.0 92.3
Buildings and improvements to leaseholds 558.7 636.9
Machinery and equipment 1,540.7 1,847.2
Construction in progress 52.3 114.3
-------- --------
2,228.7 2,690.7
Less accumulated depreciation 1,016.0 1,218.6
-------- --------
Property, plant and equipment, net 1,212.7 1,472.1
Intangibles resulting from business acquisitions, net 3,549.1 3,637.9
Net assets of discontinued operations -- 1,344.0
Other assets 361.7 379.4
----------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $9,794.4 $10,566.5
----------------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
26
December 31 1994 1993
----------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities
Notes payable to banks $ 77.3 $ 298.9
Commercial paper 103.3 711.3
Accounts payable 471.4 454.1
Accrued excise and other taxes 1,082.1 726.3
Accrued expenses and other liabilities 856.2 794.4
Current portion of long-term debt 525.2 172.7
----------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 3,115.5 3,157.7
----------------------------------------------------------------------------------------------------------------------------------
Long-term debt 1,512.1 2,492.4
Deferred income taxes 133.0 124.7
Postretirement and other liabilities 396.3 520.3
----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 5,156.9 6,295.1
----------------------------------------------------------------------------------------------------------------------------------
Convertible preferred stock--redeemable at Company's option
$2.67 Convertible Preferred stock, without par value, stated value $30.50 per share 15.7 17.1
----------------------------------------------------------------------------------------------------------------------------------
Common stockholders' equity
Common stock, par value $3.125 per share, 229.6 shares issued 717.4 717.4
Paid-in capital 174.6 173.3
Unrealized appreciation on investments -- 5.3
Foreign currency adjustments (249.0) (317.4)
Retained earnings 4,724.4 4,393.4
Treasury stock, at cost (745.6) (717.7)
----------------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKHOLDERS' EQUITY 4,621.8 4,254.3
----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $9,794.4 $10,566.5
----------------------------------------------------------------------------------------------------------------------------------
27
CONSOLIDATED STATEMENT OF INCOME
American Brands, Inc. and Subsidiaries
For years ended December 31 (In millions, except per share amounts) 1994 1993 1992
--------------------------------------------------------------------------------------------------------------------
Net Sales $13,146.5 $12,630.5 $13,658.1
--------------------------------------------------------------------------------------------------------------------
Cost of products sold 3,765.1 3,587.6 3,823.5
Excise taxes on products sold 5,656.8 5,413.9 5,783.3
--------- --------- ---------
9,421.9 9,001.5 9,606.8
--------------------------------------------------------------------------------------------------------------------
Gross Profit 3,724.6 3,629.0 4,051.3
--------------------------------------------------------------------------------------------------------------------
Advertising, selling and administrative expenses 2,315.9 2,315.2 2,388.5
Amortization of intangibles 96.3 92.4 81.6
Restructuring charges (credits), net -- 40.8 (8.5)
--------- --------- ---------
2,412.2 2,448.4 2,461.6
--------------------------------------------------------------------------------------------------------------------
Operating Income 1,312.4 1,180.6 1,589.7
--------------------------------------------------------------------------------------------------------------------
Interest and related expenses 212.1 227.6 251.6
Corporate administrative expenses 69.9 78.1 80.7
Other (income) expenses, net 12.1 (0.5) 6.1
--------- --------- ---------
294.1 305.2 338.4
--------------------------------------------------------------------------------------------------------------------
1,018.3 875.4 1,251.3
--------------------------------------------------------------------------------------------------------------------
Gain on disposal of businesses, net 332.9 -- --
--------------------------------------------------------------------------------------------------------------------
Income From Continuing Operations Before Income Taxes 1,351.2 875.4 1,251.3
Income taxes 466.1 334.2 464.4
--------------------------------------------------------------------------------------------------------------------
Income From Continuing Operations Before Cumulative Effect of
Accounting Changes 885.1 541.2 786.9
Income (loss) from discontinued operations (151.0) 127.0 96.9
Cumulative effect of accounting changes -- (198.4) --
--------------------------------------------------------------------------------------------------------------------
Net Income $ 734.1 $ 469.8 $ 883.8
--------------------------------------------------------------------------------------------------------------------
Earnings Per Common Share
Primary
Income from continuing operations $4.38 $2.67 $3.81
Income (loss) from discontinued operations (.75) .63 .48
Cumulative effect of accounting changes -- (.98) --
--------------------------------------------------------------------------------------------------------------------
Net income $3.63 $2.32 $4.29
--------------------------------------------------------------------------------------------------------------------
Fully diluted
Income from continuing operations $4.24 $2.63 $3.69
Income (loss) from discontinued operations (.71) .60 .44
Cumulative effect of accounting changes -- (.94) --
--------------------------------------------------------------------------------------------------------------------
Net income $3.53 $2.29 $4.13
--------------------------------------------------------------------------------------------------------------------
Dividends Paid Per Common Share $1.9925 $1.97 $1.805
--------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
28
CONSOLIDATED STATEMENT OF CASH FLOWS
American Brands, Inc. and Subsidiaries
For years ended December 31 (In millions) 1994 1993 1992
--------------------------------------------------------------------------------------------------------------------
(Restated) (Restated)
Operating Activities
Net income $ 734.1 $ 469.8 $ 883.8
Loss (income) from discontinued operations 151.0 (127.0) (96.9)
Changes in accounting principles -- 198.4 --
Gain on disposals, net (331.5) (28.3) (2.3)
Depreciation and amortization 314.4 293.9 289.0
Decrease (increase) in accounts receivable 168.4 40.1 (64.6)
(Increase) decrease in inventories (425.5) (147.9) 150.6
(Increase) decrease in other assets (19.1) 15.1 (56.9)
Increase (decrease) in accrued excise and other taxes 362.8 (179.7) (344.9)
Increase in accounts payable, accrued expenses and other liabilities 10.4 184.4 29.6
Increase in deferred income taxes 38.0 26.1 27.3
Other operating activities, net (6.6) (76.6) (69.0)
--------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED FROM CONTINUING OPERATING ACTIVITIES 996.4 668.3 745.7
--------------------------------------------------------------------------------------------------------------------
Investing Activities
Additions to property, plant and equipment (201.4) (243.4) (285.7)
Proceeds from the disposition of property, plant and equipment 21.1 19.3 18.9
Proceeds from the disposition of operations, net of cash 1,121.8 9.6 13.7
Acquisitions, net of cash acquired (19.9) (456.7) --
Other investing activities, net (0.5) 4.9 (3.5)
--------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 921.1 (666.3) (256.6)
--------------------------------------------------------------------------------------------------------------------
Financing Activities
(Decrease) increase in short-term debt (1,147.3) 296.9 399.8
Issuance of long-term debt 35.9 511.2 357.7
Repayment of long-term debt (376.6) (387.3) (689.1)
Dividends to stockholders (403.1) (399.1) (377.8)
Cash purchases of Common stock for treasury (20.1) (57.9) (100.4)
Redemption and purchases of $2.75 Preferred stock -- -- (134.4)
Other financing activities, net 1.9 (4.8) 11.2
--------------------------------------------------------------------------------------------------------------------
NET CASH USED BY FINANCING ACTIVITIES (1,909.3) (41.0) (533.0)
--------------------------------------------------------------------------------------------------------------------
Effect of foreign exchange rate changes on cash 1.6 1.6 (38.7)
--------------------------------------------------------------------------------------------------------------------
Cash provided by discontinued operations 37.8 45.1 55.1
--------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 47.6 $ 7.7 $ (27.5)
--------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year $ 62.5 $54.8 $82.3
Cash and cash equivalents at end of year $110.1 $62.5 $54.8
--------------------------------------------------------------------------------------------------------------------
Cash paid during the year for
Interest, net of capitalized amount $226.1 $245.1 $265.5
Income taxes $354.2 $470.5 $502.6
--------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
29
CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY
American Brands, Inc. and Subsidiaries
Unrealized
appreciation Foreign Treasury
Common Paid-in (depreciation) currency Retained stock,
(In millions) stock capital on investments adjustments earnings at cost
-----------------------------------------------------------------------------------------------------------------
Balance at January 1, 1992 $717.4 $182.3 $ 27.4 $ 19.0 $3,816.7 $(599.5)
Net income -- -- -- -- 883.8 --
Cash dividends -- -- -- -- (377.8) --
Translation adjustments -- -- -- (279.9) -- --
Net unrealized depreciation -- -- (16.9) -- -- --
Purchases -- -- -- -- -- (122.5)
Conversion of securities and
delivery of stock plan shares -- (0.2) -- -- -- 36.9
Redemption of $2.75 Preferred stock -- (4.2) -- -- -- --
-----------------------------------------------------------------------------------------------------------------
Balance at December 31, 1992 717.4 177.9 10.5 (260.9) 4,322.7 (685.1)
Net income -- -- -- -- 469.8 --
Cash dividends -- -- -- -- (399.1) --
Translation adjustments -- -- -- (56.5) -- --
Net unrealized depreciation -- -- (5.2) -- -- --
Purchases -- -- -- -- -- (40.3)
Conversion of securities and
delivery of stock plan shares -- (4.6) -- -- -- 7.7
-----------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 717.4 173.3 5.3 (317.4) 4,393.4 (717.7)
Net income -- -- -- -- 734.1 --
Cash dividends -- -- -- -- (403.1) --
Translation adjustments -- -- -- 68.4 -- --
Net unrealized depreciation -- -- (5.3) -- -- --
Purchases -- -- -- -- -- (32.5)
Conversion of securities and
delivery of stock plan shares -- 1.3 -- -- -- 4.6
-----------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994 $717.4 $174.6 $ -- $(249.0) $4,724.4 $(745.6)
-----------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
American Brands, Inc. and Subsidiaries
SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
all majority-owned subsidiaries, other than the Franklin Life Insurance
business which is accounted for as a discontinued operation. Fiscal year ends
of certain subsidiaries of Gallaher Limited and ACCO World Corporation are
November 30 to facilitate year-end closing.
Consolidated financial statements have been restated for discontinued
operations. The accompanying notes present amounts related only to continuing
operations.
ACCOUNTING CHANGES
On January 1, 1993, the Company adopted FAS Statement No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" and FAS Statement
No. 112, "Employers' Accounting for Postemployment Benefits." On December 31,
1993, the Company adopted FAS Statement No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." The initial effects of adopting
these statements were recorded as cumulative changes in accounting principles
as follows:
FAS Statements No.
(In millions, except -----------------------------------
per share amounts) 106 112 115 Total
--------------------------------------------------------------
Pretax charge (credit) $310.0 $15.0 $(4.1) $320.9
Income taxes 119.0 5.0 (1.5) 122.5
--------------------------------------------------------------
Net loss (income) $191.0 $10.0 $(2.6) $198.4
--------------------------------------------------------------
Earnings per Common share $.94 $.05 $(.01) $.98
--------------------------------------------------------------
CASH AND CASH EQUIVALENTS
Highly liquid investments with original maturities of three months or less
are included in cash and cash equivalents.
INVENTORIES
Inventories are priced at the lower of cost (principally average and
first-in, first-out and minor amounts at last-in, first-out) or market. In
accordance with generally recognized trade practice, the leaf tobacco and bulk
whiskey inventories are classified as current assets, although part of such
inventories, due to the duration of aging processes, ordinarily will not be
sold within one year.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost. Depreciation is provided,
principally on a straight-line basis, over the estimated useful lives of the
assets. Gains or losses resulting from dispositions are included in income.
Betterments and renewals which improve and extend the life of an asset are
capitalized; maintenance and repair costs are expensed.
INTANGIBLES RESULTING FROM BUSINESS ACQUISITIONS
Intangibles resulting from business acquisitions, comprising cost in excess
of net assets of businesses acquired, and brands and trademarks, are being
amortized on a straight-line basis over 40 years, except for intangibles
acquired prior to 1971, which are not being amortized because they are
considered to have a continuing value over an indefinite period. The Company
periodically evaluates the recoverability of intangibles resulting from
business acquisitions and measures the amount of impairment, if any, by
assessing current and future levels of income and cash flows as well as other
factors, such as business trends and prospects and market and economic
conditions. Amortization amounted to $96.3 million, $92.4 million and $81.6
million in 1994, 1993 and 1992, respectively. The cumulative amortization
amounted to $512 million and $429 million at December 31, 1994 and 1993,
respectively.
INCOME TAXES
Deferred tax liabilities or assets are established for temporary differences
between financial and tax reporting bases and are subsequently adjusted to
reflect changes in tax rates expected to be in effect when the temporary
differences reverse. A valuation allowance is established for any deferred tax
asset for which realization is not likely.
Deferred income taxes are not provided on undistributed earnings of foreign
subsidiaries, aggregating approximately $1.4 billion at December 31, 1994, as
such earnings are expected to be permanently reinvested in these companies.
31
Notes (continued)
EARNINGS PER SHARE
Earnings per Common share are based on the weighted average number of Common
shares outstanding in each year and after preferred stock dividend
requirements.
Fully diluted earnings per Common share assume that any convertible
debentures and convertible preferred shares outstanding at the beginning of
each year or at their date of issuance, if later, were converted at those
dates, with related interest, 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
which could have been purchased by the Company with related proceeds.
ACQUISITIONS
In 1991, Whyte & Mackay acquired 41.3% of the outstanding shares of
Invergordon Distillers Group PLC ("Invergordon") for a cost, including fees and
expenses, of $255.5 million, which was accounted for under the cost method. In
December 1993, Whyte & Mackay completed its acquisition of Invergordon by
purchasing the remaining 58.7% of the outstanding shares of Invergordon for a
cost, including fees and expenses, of $343.6 million. The aggregate cost of
Invergordon of $599.1 million exceeded the fair value of net assets acquired by
$492.9 million. Operations, including the effect of the application of the
equity method to prior periods, were consolidated from December 1, 1993. Had
operations been consolidated from January 1, 1992, they would not have
materially affected the periods being reported. In connection with the
acquisition of Invergordon, liabilities amounting to $108.4 million were
recorded at date of acquisition.
On June 30, 1993, the Benson and Hedges cigarette trademark in Europe was
acquired in exchange for assignment of the Lucky Strike and Pall Mall overseas
cigarette trademarks and $107.2 million in cash, including expenses, and
contingent future payments based on volumes. Results from the Benson and Hedges
trademark were included in international tobacco from the date of acquisition.
A pretax gain of $25.5 million was recognized in domestic tobacco as a result
of the assignment of the Lucky Strike and Pall Mall trademarks. Certain of the
contingent payments were guaranteed and, accordingly, their present value was
included in the initial $183 million of intangibles recorded. Any payments in
excess of the guarantees will also be amortized over periods not to exceed 40
years.
DISPOSITIONS
On December 22, 1994, the Company sold The American Tobacco Company, its
domestic tobacco business, for $1 billion in cash, before related expenses.
The Company plans to dispose of a number of nonstrategic businesses and
product lines, including U.K.-based Prestige and Forbuoys, and recorded a loss,
substantially non-cash, based on the anticipated sale of these businesses for
proceeds in the range of $150-$175 million. The operations to be disposed of
had net sales of $752 million and a small operating loss in 1994.
The components of the gain on the disposal of businesses, net are as follows:
Earnings per
(In millions, except Pretax Income Net Common
per share amounts) Gain (Loss) Taxes Income share
-------------------------------------------------------------------
Domestic tobacco $577.9 $69.6 $508.3 $2.52
Other businesses (245.0) (3.7) (241.3) (1.20)
-------------------------------------------------------------------
$332.9 $65.9 $267.0 $1.32
-------------------------------------------------------------------
On July 12, 1994, the Company sold the Dollond & Aitchison Group PLC, a
subsidiary of Gallaher Limited, for total consideration of $146 million which
approximated the carrying value of the company.
32
DISCONTINUED OPERATIONS
On November 30, 1994, the Company entered into an agreement to sell Franklin
for $1.17 billion in cash, before related expenses. The sale was completed on
January 31, 1995.
The net assets and results of operations of Franklin have been reclassified
to identify them as discontinued operations.
Summarized data for Franklin, net of allocation of total interest expense
based on a normal debt to equity ratio for a life insurance company, is as
follows:
RESULTS OF OPERATIONS
(In millions) 1994 1993 1992
-------------------------------------------------------------
Revenues $951.8 $1,070.9 $965.5
-------------------------------------------------------------
Income from operations
Income before taxes $ 91.3 $200.7 $146.8
Income taxes 35.5 73.7 49.9
-------------------------------------------------------------
Net income from operations 55.8 127.0 96.9
-------------------------------------------------------------
Loss on disposal of operations
Income during the phase-out
period, net of $4.2 million
of income taxes 4.2 -- --
Loss on disposal (211.0) -- --
-------------------------------------------------------------
Net loss on disposal (206.8) -- --
-------------------------------------------------------------
Net income (loss) from
discontinued operations $(151.0) $127.0 $96.9
-------------------------------------------------------------
NET ASSETS OF DISCONTINUED OPERATIONS
(In millions) 1994 1993
-------------------------------------------------------------
Revenues $1,070.9 $965.5
Investments $6,268.8 $5,808.8
Other assets 1,206.2 1,307.7
Policy reserves and claims (2,772.4) (2,553.4)
Investment-type contract deposits (2,897.3) (2,732.3)
Other liabilities (424.3) (486.8)
Write-down to estimated realizable value (211.0) --
-------------------------------------------------------------
Net assets of discontinued operations $1,170.0 $1,344.0
-------------------------------------------------------------
SHORT-TERM BORROWINGS
AND CREDIT FACILITIES
At December 31, 1994 and 1993, there were $180.6 million and $1,010.2 million
of short-term borrowings outstanding, respectively, comprised of notes payable
to banks and commercial paper. The weighted average interest rate on these
borrowings was 6% and 4.1%, respectively.
At December 31, 1994, there was $57.8 million outstanding under committed
bank credit agreements which provide for unsecured borrowings of up to $513
million for general corporate purposes, including acquisitions. Fees of 1/8%
per annum are paid.
In addition, the Company had uncommitted bank lines of credit which provide
for unsecured borrowings for working capital of up to $799.1 million, of which
$18.2 million was outstanding at year end.
For a description of the Company's use of financial instruments, see page 39.
33
Notes (continued)
LONG-TERM DEBT
The components of long-term debt are as follows:
(In millions) 1994 1993
--------------------------------------------------------------
Notes payable(a) $ -- $ 300.0
Revolving credit notes(a) 32.5 211.2
Other notes(b) 274.0 356.5
5-3/4% Eurodollar Convertible Debentures,
Due 2005(c) 200.0 200.0
7-5/8% Eurodollar Convertible Debentures,
Due 2001(d) 150.0 150.0
Other Eurodollar Convertible Debentures(e) 40.7 41.0
8-1/2% Notes, Due 2003 200.0 200.0
5-1/4% Notes, Due 1995 200.0 200.0
8-5/8% Debentures, Due 2021 150.0 150.0
9-1/8% Debentures, Due 2016 150.0 150.0
7-7/8% Debentures, Due 2023 150.0 150.0
7-1/2% Notes, Due 1999 150.0 150.0
9% Notes, Due 1999 100.0 100.0
9-1/2% Eurosterling Notes, Due 1994 -- 74.0
9-1/4% Eurosterling Notes, Due 1998 78.3 74.0
12% Eurosterling Notes, Due 1995 62.6 59.2
12-1/2% Sterling Loan Stock, Due 2009 47.0 44.4
Miscellaneous 52.2 54.8
--------------------------------------------------------------
2,037.3 2,665.1
Less current portion 525.2 172.7
--------------------------------------------------------------
$1,512.1 $2,492.4
--------------------------------------------------------------
<FN>
(a) The Company maintains revolving credit agreements expiring in 1999 with
various banks which provide for unsecured borrowings of up to $4 billion,
including $1 billion in various Eurocurrencies. The interest rate is set at the
time of each borrowing, and a commitment fee of 1/4% per annum is paid.
Borrowings under these agreements may be made for general corporate purposes,
including acquisitions and support for the Company's short-term borrowings in
the commercial paper market.
At December 31, 1993, $300 million of short-term notes payable were
reclassified as long-term debt since the Company intended to exercise its
rights under these arrangements to refinance these notes, in the event that it
became advisable. There was no reclassification at December 31, 1994.
(b) The Other notes have maturity dates ranging from one to seven years, with
a weighted average coupon of 8.5%.
(c) The 5-3/4% Eurodollar Convertible Debentures, Due 2005, are convertible
into Common shares at a conversion price of $39.50 per share. Each debenture
holder will have a one-time put on April 11, 1995, at a price of 114.74%, plus
accrued interest, and if there is a fundamental change in the Common stock
prior to April 11, 1995, at a price of 105.75%, or thereafter prior to April
11, 2000 at par, plus accrued interest. The Company may redeem all or part of
the debentures at its option any time after April 11, 1995 at par, plus accrued
interest.
(d) The 7-5/8% Eurodollar Convertible Debentures, Due 2001, are convertible
into Common shares at a conversion price of $53.19 per share. If a fundamental
change in the Common stock occurs, each debenture holder will have the right to
repayment at a price of 105.3375% declining to par at maturity, plus accrued
interest. The Company may redeem all or part of the debentures at its option at
a price of 105.3375% declining to par at maturity, plus accrued interest.
(e) The Other Eurodollar Convertible Debentures include 7-3/4% Debentures,
Due 2002, of $39.6 million and $39.9 million in 1994 and 1993, respectively,
and 5-3/8% Debentures, Due 2003, of $1.1 million, in each of 1994 and 1993.
These debentures are convertible into Common shares based on conversion prices
of $28.35 and $29 per share, respectively.
Estimated payments for maturing debt and sinking fund requirements, assuming
the one-time put option on the 5-3/4% Eurodollar Convertible Debentures is
exercised in 1995, during the next five years are as follows: 1995, $525.2
million; 1996, $113.5 million; 1997, $57 million; 1998, $173.9 million; and
1999, $281.7 million.
REDEEMABLE PREFERRED STOCK
On August 17, 1992, the Company redeemed its outstanding $2.75 Preferred
stock at a redemption price of $31.46 per share, plus an amount representing
accrued dividends of 52 cents per share. The aggregate redemption payment
including accrued dividends was $133.9 million.
A cash dividend of $2.75 per share in the aggregate amount of $8 million was
paid in the year ended December 31, 1992.
CONVERTIBLE PREFERRED STOCK--
REDEEMABLE AT COMPANY'S OPTION
Shares of the $2.67 Convertible Preferred stock issued and outstanding at
December 31, 1994, 1993 and 1992 were 516,186 shares, 561,286 shares and
624,933 shares, respectively. Reacquired, redeemed or converted authorized
shares that are not outstanding are required to be retired or restored to the
status of authorized but unissued shares
34
of preferred stock without series designation. The holders of $2.67 Convertible
Preferred stock are entitled to cumulative dividends, to three-tenths of a vote
per share (in certain events, to the exclusion of the Common shares), to
preference in liquidation over holders of Common stock of $30.50 per share plus
accrued dividends and to convert each share of such stock into 4.08 shares of
Common stock. Authorized but unissued Common shares are reserved for issuance
upon such conversions, but treasury shares may be and are delivered. 45,100
shares, 63,647 shares and 117,634 shares were converted during 1994, 1993 and
1992, respectively. The Company may redeem such Preferred stock at a price of
$30.50 per share, plus accrued dividends.
A cash dividend of $2.67 per share in the aggregate amounts of $1.4 million,
$1.6 million and $1.8 million was paid in each of the years ended December 31,
1994, 1993 and 1992, respectively.
CAPITAL STOCK
The Company has 750 million authorized shares of Common stock and 60 million
authorized shares of preferred stock.
There were 201,210,623 Common shares outstanding at December 31, 1994.
The cash dividends paid on the Common stock for the years ended December 31,
1994, 1993 and 1992 aggregated $401.7 million, $397.5 million and $368 million,
respectively.
Treasury shares purchased as well as those received as consideration for
stock options exercised amounted to 950,220 shares in 1994, 1,159,262 shares in
1993 and 2,882,362 shares in 1992. Treasury shares delivered in connection with
exercise of stock options and grants of other stock awards and conversion of
preferred stock and debentures amounted to 416,795 shares in 1994, 326,494
shares in 1993 and 1,541,437 shares in 1992. At December 31, 1994, there were
28,359,401 treasury shares.
PREFERRED SHARE PURCHASE RIGHTS
Each outstanding share of Common stock also evidences one Preferred Share
Purchase Right ("Right"). The Rights will generally become exercisable only in
the event of an acquisition of or a tender offer for 10% or more of the Common
stock. If exercisable, each Right is exercisable for one two-hundredth of a
share of Series A Junior Participating Preferred Stock at an exercise price of
$52.50. Also, upon an acquisition of 10% or more of the Common stock, or upon
an acquisition of the Company or the transfer of 50% or more of its assets or
earning power, each Right (other than Rights held by the 10% acquiror, if
applicable), if exercisable, will generally be exercisable for common shares of
the Company or the acquiring company, as the case may be, having a market value
of twice the exercise price. In certain events, however, Rights may be
exchanged by the Company for Common stock at a rate of one share per Right. The
Rights may be redeemed at any time prior to an acquisition of 10% or more of
the Common stock at a redemption price of $.005 per Right. Until a Right is
exercised, the holder, as such, will have no voting, dividend or other rights
as a stockholder of the Company. Unless either redeemed or exchanged, the
Rights will expire on December 24, 1997.
All 1.4 million of the authorized Series A Preferred shares are reserved for
issuance upon exercise of Rights, and at December 31, 1994, outstanding Rights
were exercisable as described above in the aggregate for 1,006,053 of such
shares.
STOCK PLANS
The 1990 Long-Term Incentive Plan, as amended, authorizes the granting to key
employees of the Company and its subsidiaries of incentive and nonqualified
stock options, stock appreciation rights, restricted stock, performance awards
and other stock-based awards, any of which may be granted alone or in
combination with other types of awards
35
Notes (continued)
or dividend equivalents. Such grants may be made after December 31, 1993 and on
or before December 31, 1999 for up to 12 million shares of Common stock. The
Company's Long-Term Incentive Plan for Key Employees of Subsidiaries also
authorizes the granting to key employees of the Company's subsidiaries of
similar types of awards other than stock options and stock appreciation rights,
and one million shares have been reserved for issuance upon payment of any
awards granted thereunder after December 31, 1990. Stock options and stock
appreciation rights may no longer be granted under the Company's 1981 or 1986
Stock Option Plans, but outstanding awards may continue to be exercised until
their expiration dates.
Stock options under the Plans have exercise prices of fair market values at
dates of grant. Options generally may not be exercised prior to one year or
more than ten years from the date of grant. Stock appreciation rights, which
may be granted in conjunction with option grants, permit the optionees to
receive shares of Common stock, cash or a combination of shares and cash
measured by the difference between the option exercise price and the fair
market value of the Common stock at the time of exercise of such right.
Changes during the three years ended December 31, 1994 in shares under option
were as follows:
Option Prices Shares
-----------------------------------------------------
Under option at
January 1, 1992 $11.83 to $46.63 6,129,950
Options granted 44.38 to $46.81 1,554,550
Options exercised 11.83 to $44.56 (1,034,090)
Options lapsed -- (60,500)
-----------------------------------------------------
Under option at
December 31, 1992 $14.44 to $46.81 6,589,910
Options granted 33.75 to $34.25 2,358,600
Options exercised 14.44 to $33.91 (73,150)
Options lapsed -- (96,300)
-----------------------------------------------------
Under option at
December 31, 1993 $15.03 to $46.81 8,779,060
Options granted $34.13 to $35.13 2,562,200
Options exercised $15.77 to $34.59 (239,650)
Options lapsed -- (953,880)
Options cancelled -- (472,890)
-----------------------------------------------------
UNDER OPTION AT
DECEMBER 31, 1994 $15.03 to $46.81 9,674,840
-----------------------------------------------------
At December 31, 1994, options for 7,464,240 shares were exercisable.
At December 31, 1994, the restriction period had ended on the 93,000
restricted and deferred shares awarded under the Long-Term Incentive Plans in
1991 and 1990. In 1994, 16,320 restricted shares were awarded. At December 31,
1994, performance awards were outstanding pursuant to which up to 142,120
shares, 107,605 shares and 107,605 shares may be issued in 1995, 1996 and 1997,
respectively, depending on the extent to which certain specified performance
objectives are met. 14,135 shares, 9,048 shares and 838 shares were issued
pursuant to performance awards during 1994, 1993 and 1992, respectively. The
costs of restricted and deferred shares and performance awards are expensed
over the restriction or performance period.
Shares available in connection with future awards under the Company's stock
plans at January 1 and December 31, 1994 were 1.2 million and 10.6 million,
respectively. Authorized but unissued shares are reserved for issuance in
connection with awards, but treasury shares may be and are delivered.
PENSION AND OTHER RETIREE BENEFITS
The Company has a number of pension plans covering substantially all
employees. The plans provide for payment of retirement benefits, mainly
commencing between the ages of 60 and 65, and also for payment of certain
disability and severance benefits. After meeting certain qualifications, an
employee acquires a vested right to future benefits. The benefits payable under
the plans are generally determined on the basis of an employee's length of
service and earnings. Annual contributions to the plans are sufficient to
satisfy legal funding requirements.
U.S. PENSION PLANS
The components of net pension costs are as follows:
(In millions) 1994 1993 1992
-------------------------------------------------------
Service cost $24.3 $21.0 $18.8
Interest cost 67.6 65.7 63.7
Actual return on plan assets (48.8) (86.4) (49.7)
Net amortization and deferral (23.9) 10.8 (24.7)
-------------------------------------------------------
$19.2 $11.1 $ 8.1
-------------------------------------------------------
36
The funded status of the plans as of December 31 was
as follows:
1994 1993
------------------------- -------------------------
Assets Accumulated Assets Accumulated
exceed benefits exceed benefits
accumulated exceed accumulated exceed
(In millions) benefits assets benefits assets
-----------------------------------------------------------------------------
Accumulated benefit
obligation
Vested $194.9 $87.3 $704.2 $100.8
Nonvested 8.0 1.9 29.2 2.6
-----------------------------------------------------------------------------
$202.9 $89.2 $733.4 $103.4
-----------------------------------------------------------------------------
Projected benefit
obligation $246.7 $97.6 $843.6 $113.6
Fair value of plan
assets, principally
equity securities
and corporate bonds 270.0 61.4 833.1 66.5
-----------------------------------------------------------------------------
Excess (deficiency) of
assets over projected
benefit obligation 23.3 (36.2) (10.5) (47.1)
Unrecognized net
transition (gain) loss (10.8) 1.6 (2.8) 2.0
Unrecognized net loss from
experience differences 10.4 11.7 66.3 24.1
Unrecognized prior
service cost (1.1) 21.5 8.2 25.5
Adjustment needed to
recognize minimum
liability -- (24.3) -- (26.2)
-----------------------------------------------------------------------------
Prepaid pension cost
(pension liability) $21.8 $(25.7) $61.2 $(21.7)
-----------------------------------------------------------------------------
Actuarial assumptions:
Discount rate 8.75% 8.75% 7.25% 7.25%
-----------------------------------------------------------------------------
Weighted average rate of
compensation increase 5.2% 5.1% 5.0% 5.1%
-----------------------------------------------------------------------------
Expected long-term rate
of return on plan assets 9.5% 9.5% 9.5% 9.5%
-----------------------------------------------------------------------------
NON-U.S. PENSION PLANS
The components of net pension costs are as follows:
(In millions) 1994 1993 1992
---------------------------------------------------------
Service cost $38.8 $ 27.1 $29.1
Interest cost 68.7 62.3 66.5
Actual return on plan assets (61.0) (222.0) (32.1)
Net amortization and deferral (32.7) 144.4 (61.2)
---------------------------------------------------------
$13.8 $ 11.8 $ 2.3
---------------------------------------------------------
The funded status (assets exceed accumulated benefits) of the plans as of
December 31 was as follows:
(In millions) 1994 1993
----------------------------------------------------------
Accumulated benefit obligation
Vested $670.6 $720.1
Nonvested 3.7 3.8
----------------------------------------------------------
$674.3 $723.9
----------------------------------------------------------
Projected benefit obligation $ 773.4 $ 857.8
Fair value of plan assets, principally
equity securities and corporate bonds 1,017.6 1,021.8
----------------------------------------------------------
Excess of assets over projected
benefit obligation(a) 244.2 164.0
Unrecognized net transition gain (29.3) (35.1)
Unrecognized net (gain) loss from
experience differences (66.2) 3.3
Unrecognized prior service cost 45.0 49.9
----------------------------------------------------------
Prepaid pension cost $193.7 $182.1
----------------------------------------------------------
Actuarial assumptions:
Weighted average discount rate 9.0% 8.0%
----------------------------------------------------------
Weighted average rate of compensation
increase 7.0% 7.0%
----------------------------------------------------------
Expected long-term rate of return
on plan assets 9.5% 9.5%
----------------------------------------------------------
<FN>
(a) The excess of assets over the projected benefit obligation, calculated
under the valuation method mandated by FAS Statement No. 87, "Employers'
Accounting for Pensions," arises principally in the U.K. Under current U.K.
legislation, no part of this excess could be repaid to the Company from the
U.K. plans.
DEFINED CONTRIBUTION PLANS
The Company sponsors a number of defined contribution plans. Contributions
are determined under various formulas. Costs related to such plans amounted to
$26.2 million, $23.8 million and $29.7 million in 1994, 1993 and 1992,
respectively.
OTHER RETIREE BENEFITS
The Company provides postretirement health care and life insurance benefits
to certain employees and retirees in the United States and certain employee
groups outside the United States. Most employees and retirees outside the
United States are covered by government health care programs.
37
Notes (continued)
Effective January 1, 1993, the Company adopted FAS Statement No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," for
its retiree benefit plans. Under FAS No. 106, the Company is required to accrue
the estimated cost of these benefits during employees' active service periods.
The Company previously expensed the cost of these benefits as incurred.
The Company elected to recognize the one-time transition obligation charge
resulting from this change in accounting on the immediate recognition basis.
The transition obligation at January 1, 1993 was $310 million, net of $41.3
million of liabilities previously recorded. The cumulative change in accounting
principle, net of $119 million of deferred income taxes, was $191 million, or
94 cents per Common share. The increase in pretax expense for these benefits
for 1993 was $17.3 million.
The components of the postretirement benefit costs are as follows:
(In millions) 1994 1993
--------------------------------------------------------------
Service cost $ 8.1 $ 6.7
Interest cost 26.9 26.3
--------------------------------------------------------------
$35.0 $33.0
--------------------------------------------------------------
The status of the plans as of December 31 was as follows:
(In millions) 1994 1993
--------------------------------------------------------------
Accumulated postretirement benefit obligation
Retirees $122.1 $247.5
Fully eligible active plan participants 18.1 36.5
Other active plan participants 36.0 83.2
--------------------------------------------------------------
176.2 367.2
Unrecognized prior service costs 3.0 1.6
Unrecognized net gain (loss) from
experience differences 15.1 (31.3)
--------------------------------------------------------------
Accrued postretirement costs $194.3 $337.5
--------------------------------------------------------------
Assumed weighted average discount rate 8.8% 7.4%
--------------------------------------------------------------
The assumed health care cost trend rate used in measuring the health care
portion of the accumulated benefit obligation was 11.75% for 1994, gradually
declining to 6% by the year 2007 and remaining at that level thereafter. A 1%
increase in the assumed health care cost trend rate for each year would
increase the accumulated benefit obligation as of December 31, 1994 and
postretirement benefit costs for 1994 by approximately 10% and 13%,
respectively.
Postretirement health and life insurance benefits prior to January 1, 1993
were expensed as incurred and amounted to $13.5 million in 1992.
POSTEMPLOYMENT BENEFITS
The Company provides certain postemployment benefits to former or inactive
employees after employment but before retirement. Effective January 1, 1993,
the Company adopted FAS Statement No. 112, "Employers' Accounting for
Postemployment Benefits," which required a change from the cash basis to the
accrual basis for these postemployment benefits. Accordingly, the cumulative
effect of the accounting change as of January 1, 1993 of adopting FAS No. 112,
net of $5 million of income taxes, was a charge of $10 million, or five cents
per Common share.
INCOME TAXES
The components of income from continuing operations before income taxes are
as follows:
(In millions) 1994 1993 1992
--------------------------------------------------------
Domestic operations $ 924.7 $295.1 $ 646.4
Foreign operations 426.5 580.3 604.9
--------------------------------------------------------
$1,351.2 $875.4 $1,251.3
--------------------------------------------------------
A reconciliation of income taxes at the 35% federal statutory income tax rate
for 1994 and 1993, and 34% for 1992 to income taxes as reported is as follows:
(In millions) 1994 1993 1992
--------------------------------------------------------
Income taxes computed
at federal statutory
income tax rate $472.9 $306.4 $425.5
Other income taxes, net
of federal tax benefit 22.3 19.7 36.0
Lower effective rate on
disposal of businesses (50.6) -- --
Realization of capital loss
carryforwards -- (0.9) (20.8)
Goodwill not deductible
for income tax purposes 28.4 28.3 27.7
Tax differential relating
to foreign operations -- 11.0 (1.0)
Miscellaneous, including
reversals of tax provisions
no longer required (6.9) (30.3) (3.0)
--------------------------------------------------------
Income taxes as reported $466.1 $334.2 $464.4
--------------------------------------------------------
38
Income taxes are as follows:
(In millions) 1994 1993 1992
--------------------------------------------------------
Currently payable
Federal $208.9 $120.4 $207.6
Foreign 186.0 187.2 181.2
Other 26.2 0.4 47.3
Deferred
Federal and other 39.8 39.3 22.8
Foreign 5.2 (13.1) 5.5
--------------------------------------------------------
$466.1 $334.2 $464.4
--------------------------------------------------------
The components of net deferred tax assets (liabilities)
are as follows:
(In millions) 1994 1993
--------------------------------------------------------
Current assets
Compensation and benefits $ 14.7 $ 14.0
Other reserves 28.5 37.1
Product coupons 3.7 21.7
Capitalized interest-inventory 12.7 26.9
Restructuring 14.4 29.0
Interest 9.9 6.6
Accounts receivable 11.9 12.4
Miscellaneous 29.8 39.2
--------------------------------------------------------
125.6 186.9
--------------------------------------------------------
Current liabilities
Inventories (25.4) (27.9)
Miscellaneous (23.4) (18.0)
--------------------------------------------------------
(48.8) (45.9)
--------------------------------------------------------
Deferred income taxes included in
Other current assets 76.8 141.0
--------------------------------------------------------
Noncurrent assets
Compensation and benefits 16.2 22.8
Other retiree benefits 73.3 132.7
Other reserves 13.2 11.7
Foreign exchange 3.7 --
Miscellaneous 12.9 15.7
--------------------------------------------------------
119.3 182.9
--------------------------------------------------------
Noncurrent liabilities
Depreciation (115.5) (145.8)
Pensions (70.5) (96.7)
Trademark amortization (42.9) (30.8)
Miscellaneous (23.4) (34.3)
--------------------------------------------------------
(252.3) (307.6)
--------------------------------------------------------
Deferred income taxes (133.0) (124.7)
--------------------------------------------------------
Net deferred tax (liability) asset $(56.2) $16.3
--------------------------------------------------------
LEASE COMMITMENTS
Future minimum rental payments under noncancelable operating leases as of
December 31, 1994 are as follows:
(In millions)
--------------------------------------------
1995 $61.9
1996 55.4
1997 50.1
1998 45.5
1999 41.6
Remainder 332.5
--------------------------------------------
Total minimum rental payments 587.0
Less minimum rentals to be received
under noncancelable subleases 24.9
--------------------------------------------
$562.1
--------------------------------------------
Total rental expense for all operating leases (reduced by minor amounts from
subleases) amounted to $81.3 million, $88.7 million and $96.3 million in 1994,
1993 and 1992, respectively.
FINANCIAL INSTRUMENTS
The Company does not enter into financial instruments for trading or
speculative purposes. Financial instruments are used to reduce the impact of
changes in foreign currency exchange rates and interest rates. The principal
financial instruments used are forward foreign exchange contracts and interest
rate swaps. The counterparties are major financial institutions. Although the
Company's theoretical risk is the replacement cost at the then estimated fair
value of these instruments, management believes that the risk of incurring
losses is remote and that such losses, if any, would be immaterial.
39
Notes (continued)
The Company enters into forward foreign exchange contracts principally to
hedge the currency fluctuations in transactions denominated in foreign
currencies, principally short-term loans to Gallaher, thereby limiting the
Company's risk that would otherwise result from changes in exchange rates. The
periods of the forward foreign exchange contracts correspond to the periods of
the hedged transactions. Gains and losses on forward foreign exchange contracts
and the offsetting losses and gains on hedged transactions are recorded in the
"Other (income) expenses, net" caption. During the year, the Company also
enters into forward foreign exchange contracts which are treated as a hedge of
a portion of its net investment in Gallaher. The gains or losses on these
contracts, which effectively offset losses and gains on the portion of the net
investment being hedged, are included in the "Foreign currency adjustments"
caption in Common stockholders' equity.
At December 31, 1994, the Company had outstanding forward foreign exchange
contracts to purchase $24 million and sell $557 million of various foreign
currencies (principally sterling), with maturities ranging from January 3, 1995
to December 29, 1995, with a weighted average maturity of 13 days. At December
31, 1993, the Company had outstanding forward foreign exchange contracts to
purchase $106 million and sell $658 million of various foreign currencies
(principally sterling), with maturities ranging from January 3, 1994 to
December 31, 1994, with a weighted average maturity of 37 days.
The estimated fair value of foreign currency contracts represents the amount
required to enter into like contracts with similar remaining maturities based
on quoted market prices. At December 31, 1994 and 1993, the difference between
the contract amounts and fair values was immaterial.
The Company enters into interest rate swap agreements to manage its exposure
to interest rate changes. The swaps involve the exchange of fixed and variable
interest rate payments without exchanging the notional principal amount.
Payments or receipts on the agreements are recorded as adjustments to interest
expense.
At December 31, 1994 and 1993, the Company had outstanding interest rate swap
agreements denominated in dollars and sterling, maturing at various dates
through 1999, with aggregate notional principal amounts of $328.3 million and
$342.4 million, respectively. Under these agreements the Company receives a
floating rate principally based on thirty day commercial paper rates, or a
weighted average rate of 6.1% at December 31, 1994 and 3.9% at December 31,
1993, and pays a weighted average fixed interest rate of 7.7% and 7.8% for 1994
and 1993, respectively.
At December 31, 1994, the Company also had outstanding interest rate swap
agreements denominated in sterling, maturing in 1998, with an aggregate
notional principal amount of $78.3 million. Under these agreements, the Company
receives a fixed interest rate of 6.7% and pays a floating interest rate based
on the three month London Interbank Offered Rate (LIBOR), or a weighted average
rate of 6% at December 31, 1994.
The fair value of these interest rate swap agreements represents the
estimated receipts or payments that would be made to terminate the agreements.
At December 31, 1994, the Company would have received $2 million and at
December 31, 1993 would have paid $29 million to terminate the agreements. The
fair value is based on dealer quotes, considering current interest rates.
The estimated fair value of the Company's cash and cash equivalents, notes
payable to banks and commercial paper, approximates the carrying amounts due
principally to their short maturities.
The estimated fair value of the Company's $2,037.3 million and $2,665.1
million total long-term debt (including current portion) at December 31, 1994
and 1993 was approximately $2,072.6 million and $2,880 million, respectively.
The fair value is determined from quoted market prices, where available, and
from investment bankers using current interest rates considering credit ratings
and the remaining terms to maturity.
The Company's accounts receivable represents amounts due from customers,
principally in the tobacco products segment. At December 31, 1994 and 1993,
approximately 38% and 45% of accounts receivable were related to U.K.
operations, and 5% and 6% were due from a U.K. tobacco distributor,
respectively.
40
SUPPLEMENTARY PROFIT AND
LOSS INFORMATION
Supplementary profit and loss information is as follows:
(In millions) 1994 1993 1992
----------------------------------------------------------------
Federal and foreign excise
taxes included in net sales:
International tobacco $4,742.6 $4,548.0 $4,894.1
Domestic tobacco 425.3 360.9 337.0
Distilled spirits 488.9 505.0 552.2
----------------------------------------------------------------
$5,656.8 $5,413.9 $5,783.3
----------------------------------------------------------------
Research and development
expense $43.5 $39.7 $33.7
----------------------------------------------------------------
Corporate administrative expenses in 1993 included a $5 million provision for
staff reduction at the corporate headquarters.
INFORMATION ON BUSINESS SEGMENTS
The Company's subsidiaries operate principally in the following business
segments:
International tobacco includes cigarettes and other tobacco products
manufactured by Gallaher.
Distilled spirits includes products produced or imported by Jim Beam and
Whyte & Mackay.
Hardware and home improvement products includes kitchen and bathroom faucets,
plumbing supply and repair products manufactured, packaged or distributed by
Moen, locks manufactured by Master Lock, kitchen cabinets and bathroom vanities
manufactured by Aristokraft, and tool storage products manufactured by
Waterloo.
Office products includes office supplies, computer-related supplies and other
office products manufactured by ACCO World subsidiaries.
Golf and leisure products includes golf balls, shoes, gloves and clubs
manufactured and marketed by Titleist and Foot-Joy Worldwide.
Other businesses includes optical goods and services, sold in July 1994,
rubber products of Acushnet, sold in December 1994, and retail distribution and
housewares products of Gallaher subsidiaries. The Company plans to dispose of
the housewares products business and a significant portion of its retail
distribution business in 1995.
Domestic tobacco included cigarettes manufactured by American Tobacco, sold
on December 22, 1994.
The Company operates in the United States, Europe (principally the U.K.) and
other areas (principally Canada and Australia).
Restructuring charges (credits), net by industry segments are as follows:
(In millions) 1993 1992
--------------------------------------------------------------
International tobacco $29.8 $ --
Distilled spirits (15.8) --
Hardware and home improvement products 4.7 --
Office products 3.6 (8.5)
--------------------------------------------------------------
Ongoing operations 22.3 (8.5)
Domestic tobacco 18.5 --
--------------------------------------------------------------
$40.8 $(8.5)
--------------------------------------------------------------
Net sales and operating income for the years 1994, 1993 and 1992, and
identifiable assets for the related year ends by industry segments and by
geographic areas, are shown on page 46.
Reconciliation of identifiable assets to consolidated total assets is as
follows:
(In millions) 1994 1993 1992
----------------------------------------------------------------
Identifiable assets $8,452.0 $ 9,029.3 $8,364.8
Corporate 172.4 193.2 229.8
Net assets of discontinued
operations 1,170.0 1,344.0 1,274.2
----------------------------------------------------------------
$9,794.4 $10,566.5 $9,868.8
----------------------------------------------------------------
41
Notes (concluded)
Depreciation by industry segments is as follows:
(In millions) 1994 1993 1992
--------------------------------------------------------
International tobacco $ 41.1 $ 29.2 $ 29.8
Distilled spirits 36.2 31.6 29.5
Hardware and home
improvement products 34.4 30.7 29.3
Office products 36.7 35.4 37.6
Golf and leisure products 8.9 8.0 7.5
Other businesses 36.9 44.6 49.9
--------------------------------------------------------
Ongoing operations 194.2 179.5 183.6
Domestic tobacco 23.9 22.0 23.8
--------------------------------------------------------
$218.1 $201.5 $207.4
--------------------------------------------------------
Amortization of intangibles by industry segments is as follows:
(In millions) 1994 1993 1992
------------------------------------------------------
International tobacco $ 5.1 $ 2.3 $ --
Distilled spirits 33.9 32.2 23.0
Hardware and home
improvement products 30.1 30.1 30.2
Office products 20.5 20.9 21.0
Golf and leisure products 1.1 1.0 1.0
Other businesses 5.6 5.9 6.4
------------------------------------------------------
$96.3 $92.4 $81.6
------------------------------------------------------
Capital expenditures by industry segments are as follows:
(In millions) 1994 1993 1992
--------------------------------------------------------
International tobacco $ 33.0 $ 43.1 $ 42.9
Distilled spirits 34.3 29.8 41.4
Hardware and home
improvement products 45.3 62.7 53.9
Office products 33.5 26.0 24.2
Golf and leisure products 15.5 12.1 22.6
Other businesses 29.0 47.9 67.7
--------------------------------------------------------
Ongoing operations 190.6 221.6 252.7
Domestic tobacco 10.8 21.8 33.0
--------------------------------------------------------
$201.4 $243.4 $285.7
--------------------------------------------------------
PENDING LITIGATION
The Company and its subsidiaries are defendants in various lawsuits
associated with their business and operations, including actions based upon
allegations that human ailments have resulted from tobacco use. It is not
possible to predict the outcome of the pending litigation, but management
believes that there are meritorious defenses to the pending actions and that
the pending actions will not have a material adverse effect upon the results of
operations, cash flow or financial condition of the Company. These actions are
being vigorously contested.
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. Brown & Williamson Tobacco Corporation and The
American Tobacco Company have agreed to indemnify the Company against claims
arising from smoking and health and fire safe cigarette matters relating to the
tobacco business of The American Tobacco Company.
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 flow or financial condition of the Company.
42
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF AMERICAN BRANDS, INC.:
We have audited the accompanying consolidated balance sheet of American
Brands, Inc. and Subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of income, cash flows and Common stockholders' equity
for the years ended December 31, 1994, 1993 and 1992. These financial
statements are the responsibility of the management of American Brands, Inc.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of American Brands,
Inc. and Subsidiaries at December 31, 1994 and 1993, and the consolidated
results of their operations and their cash flows for the years ended December
31, 1994, 1993 and 1992, in conformity with generally accepted accounting
principles.
As discussed in Notes to Consolidated Financial Statements, in 1993 the
Company changed its methods of accounting for postretirement benefits other
than pensions, postemployment benefits and certain investments in debt and
equity securities.
Coopers & Lybrand L.L.P.
1301 Avenue of the Americas
New York, New York
February 1, 1995
REPORT OF MANAGEMENT
TO THE STOCKHOLDERS OF AMERICAN BRANDS, INC.:
We have prepared the consolidated balance sheet of American Brands, Inc. and
Subsidiaries as of December 31, 1994 and 1993, and the related consolidated
statements of income, cash flows and Common stockholders' equity for the years
ended December 31, 1994, 1993 and 1992. The financial statements have been
prepared in accordance with generally accepted accounting principles. Financial
information elsewhere in the Annual Report is consistent with that in the
financial statements.
The system of internal controls of the Company and its subsidiaries is
designed to provide reasonable assurances that the financial records are
adequate and can be relied upon to provide information for the preparation of
financial statements and that established policies and procedures are carefully
followed.
Independent accountants are elected annually by the stockholders of the
Company to audit the financial statements. Coopers & Lybrand L.L.P.,
independent accountants, are currently engaged to perform such audit. Their
audit is in accordance with generally accepted auditing standards and includes
tests of transactions and selective tests of internal accounting controls.
The Audit Committee of the Board of Directors, consisting solely of outside
directors, meets periodically with the independent accountants, internal
auditors and management to review accounting, auditing, and financial reporting
matters. The auditors have direct access to the Audit Committee.
43
ELEVEN-YEAR CONSOLIDATED SELECTED FINANCIAL DATA(1)(2)
American Brands, Inc. and Subsidiaries
(In millions, except per share amounts
and number of Common stockholders) 1994 1993(3) 1992 1991(3)
-------------------------------------------------------------------------------------------------
Operating Data
Net sales $13,146.5 $12,630.5 $13,658.1 $13,193.4
Gross profit 3,724.6 3,629.0 4,051.3 3,823.0
Depreciation and amortization 314.4 293.9 289.0 266.2
Operating income from continuing operations 1,312.4 1,180.6 1,589.7 1,479.0
Interest and related expenses 212.1 227.6 251.6 246.6
Income taxes 466.1 334.2 464.4 387.4
Income from continuing operations 885.1 541.2 786.9 716.2
Income (loss) from discontinued operations (151.0) 127.0 96.9 89.9
Cumulative effect of accounting changes -- (198.4) -- --
Net income 734.1(4) 469.8 883.8 806.1
Earnings per Common share
Primary
Continuing operations $4.38(4) $2.67 $3.81 $3.47
Discontinued operations (.75) .63 .48 .44
Cumulative effect of accounting changes -- (.98) -- --
-------------------------------------------------------------------------------------------------
Net income $3.63 $2.32 $4.29 $3.91
-------------------------------------------------------------------------------------------------
Fully diluted
Continuing operations $4.24(4) $2.63 $3.69 $3.33
Discontinued operations (.71) .60 .44 .41
Cumulative effect of accounting changes -- (.94) -- --
-------------------------------------------------------------------------------------------------
Net income $3.53 $2.29 $4.13 $3.74
-------------------------------------------------------------------------------------------------
Common Share Data
Dividends paid $401.7 $397.5 $368.0 $323.7
Dividends paid per share $1.9925 $1.97 $1.805 $1.5925
Average number of shares outstanding 201.6 201.8 204.0 202.6
Book value per share $22.97 $21.09 $21.14 $20.42
Number of stockholders, December 31 (5) 60,611 63,537 63,929 66,950
-------------------------------------------------------------------------------------------------
Balance Sheet Data
Inventories $2,015.7 $2,043.2 $1,810.2 $2,141.5
Current assets 4,670.9(6) 3,733.1 3,453.1 3,869.8
Working capital 1,555.4(6) 575.4 664.4 609.4
Property, plant and equipment, net 1,212.7 1,472.1 1,406.4 1,472.4
Intangibles, net 3,549.1 3,637.9 3,104.0 3,284.0
Net assets of discontinued operations -- 1,344.0 1,274.2 1,239.0
Total assets 9,794.4 10,566.5 9,868.8 10,521.9
Short-term debt 705.8 1,182.9 824.7 730.6
Long-term debt 1,512.1 2,492.4 2,406.8 2,551.9
Redeemable preferred stock -- -- -- 130.1
Common stockholders' equity 4,621.8 4,254.3 4,282.5 4,163.3
Capital expenditures 201.4 243.4 285.7 232.0
<FN>
(1) See pages 16 through 25 for Financial Section.
(2) Years prior to 1994 have been restated for discontinued operations. See page 33 for Discontinued Operations.
(3) See page 32 for Acquisitions. 1991 includes the acquisition in December by Jim Beam Brands Co. of certain distilled
spirits trademarks. 1990 includes the acquisitions of The Moen Group, Inc. in August and Whyte & Mackay in February.
1988 includes the acquisition in February of Aristokraft, Waterloo Industries, Twentieth Century Companies, Day-Timers
and Vogel Peterson. 1987 includes acquisitions in August of ACCO World Corporation and in May of National Distillers and
Chemical Corporation's distilled spirits business.
44
(In millions, except per share amounts
and number of Common stockholders) 1990(3) 1989(3) 1988(3) 1987(3)
--------------------------------------------------------------------------------------------------------------------------------
Operating Data
Net sales $12,975.4 $11,090.4 $11,056.6 $9,152.9
Gross profit 3,702.5 3,085.1 2,906.2 2,212.5
Depreciation and amortization 244.1 198.7 201.4 141.3
Operating income from continuing operations 1,462.1 1,242.9 1,120.6 901.5
Interest and related expenses 259.3 261.7 244.6 131.1
Income taxes 414.7 383.5 332.9 313.4
Income from continuing operations 507.1 543.4 480.0 391.3
Income (loss) from discontinued operations 81.5 89.9 85.9 121.3
Cumulative effect of accounting changes -- -- -- --
Net income 588.6(4) 633.3 565.9 512.6
Earnings per Common share
Primary
Continuing operations $2.53(4) $2.79 $2.40 $1.71
Discontinued operations .42 .48 .45 .54
Cumulative effect of accounting changes -- -- -- --
--------------------------------------------------------------------------------------------------------------------------------
Net income $2.95 $3.27 $2.85 $2.25
--------------------------------------------------------------------------------------------------------------------------------
Fully diluted
Continuing operations $2.43(4) $2.63 $2.29 $1.67
Discontinued operations .37 .42 .40 .51
Cumulative effect of accounting changes -- -- -- --
--------------------------------------------------------------------------------------------------------------------------------
Net income $2.80 $3.05 $2.69 $2.18
--------------------------------------------------------------------------------------------------------------------------------
Common Share Data
Dividends paid $274.3 $238.0 $221.9 $232.4
Dividends paid per share $1.405 $1.255 $1.13 $1.055
Average number of shares outstanding 194.5 189.2 193.4 220.3
Book value per share $17.98 $15.21 $13.20 $13.24
Number of stockholders, December 31 (5) 69,378 72,404 77,106 83,004
--------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data
Inventories $2,043.8 $1,675.0 $1,815.9 $1,693.4
Current assets 3,829.4 3,005.4 3,080.2 3,414.0
Working capital 622.3 440.2 434.5 1,006.6
Property, plant and equipment, net 1,488.3 1,201.7 1,179.6 1,078.7
Intangibles, net 2,975.3 1,831.4 1,911.2 1,381.6
Net assets of discontinued operations 1,143.4 1,114.0 1,273.3 1,249.8
Total assets 9,759.8 7,625.7 7,879.7 7,330.3
Short-term debt 845.4 740.0 829.3 751.4
Long-term debt 2,433.8 1,717.4 2,359.2 1,631.5
Redeemable preferred stock 131.9 135.6 137.5 137.5
Common stockholders' equity 3,602.0 2,912.4 2,466.4 2,915.3
Capital expenditures 293.1 253.8 226.7 181.7
--------------------------------------------------------------------------------------------------------------------------------
(In millions, except per share amounts
and number of Common stockholders) 1986 1985 1984
-------------------------------------------------------------------------------------------------------------
Operating Data
Net sales $7,252.9 $6,205.6 $5,916.1
Gross profit 1,754.1 1,493.6 1,410.7
Depreciation and amortization 98.5 86.3 80.9
Operating income from continuing operations 627.4 675.3 659.8
Interest and related expenses 77.1 81.0 82.0
Income taxes 235.3 262.5 240.6
Income from continuing operations 254.0 301.3 307.8
Income (loss) from discontinued operations 107.8 123.1 156.5
Cumulative effect of accounting changes -- -- --
Net income 361.8 424.4 464.3
Earnings per Common share
Primary
Continuing operations $1.08 $1.29 $1.32
Discontinued operations .49 .56 .71
Cumulative effect of accounting changes -- -- --
-------------------------------------------------------------------------------------------------------------
Net income $1.57 $1.85 $2.03
-------------------------------------------------------------------------------------------------------------
Fully diluted
Continuing operations $1.07 $1.27 $1.29
Discontinued operations .47 .54 .69
Cumulative effect of accounting changes -- -- --
-------------------------------------------------------------------------------------------------------------
Net income $1.54 $1.81 $1.98
-------------------------------------------------------------------------------------------------------------
Common Share Data
Dividends paid $224.1 $214.9 $204.4
Dividends paid per share $1.019 $.975 $.928
Average number of shares outstanding 219.7 220.4 220.2
Book value per share $11.51 $10.82 $9.52
Number of stockholders, December 31 (5) 86,477 94,862 101,303
-------------------------------------------------------------------------------------------------------------
Balance Sheet Data
Inventories $1,264.4 $1,254.8 $1,180.4
Current assets 2,052.3 1,975.6 1,750.0
Working capital 415.6 660.0 621.3
Property, plant and equipment, net 745.1 637.1 532.1
Intangibles, net 532.1 453.5 407.1
Net assets of discontinued operations 1,710.9 1,607.6 1,529.3
Total assets 5,145.6 4,735.0 4,257.1
Short-term debt 465.0 375.6 397.7
Long-term debt 671.1 735.5 727.7
Redeemable preferred stock 137.5 137.5 137.5
Common stockholders' equity 2,529.1 2,369.2 2,098.2
Capital expenditures 199.2 133.2 143.0
-------------------------------------------------------------------------------------------------------------
<FN>
(4) Net income and primary and fully diluted earnings per Common share in 1994 include $267 million and $1.32 and $1.25,
respectively, on the net gain on disposal of businesses (see page 32 for Dispositions) and in 1990 include $179.9
million and 93 cents and 83 cents, respectively, relating to a write-down of an investment.
(5) On January 31, 1995, there were 60,279 Common stockholders of record, not necessarily reflecting beneficial ownership.
(6) Includes $1,170 million of net assets of discontinued operations.
45
INFORMATION ON BUSINESS SEGMENTS(1)(2)
American Brands, Inc. and Subsidiaries
$(In millions) 1994 1993 1992 1991 1990 1989
----------------------------------------------------------------------------------------------------------------------------------
Business by Industry Segments
NET SALES
International tobacco $ 6,168.9 $ 5,940.0 $ 6,376.6 $ 6,373.7 $ 6,394.8 $ 5,402.8
Distilled spirits 1,268.2 1,194.6 1,268.3 1,061.2 1,005.3 735.4
Hardware and home improvement products 1,270.6 1,119.5 1,014.8 902.3 632.6 503.7
Office products 1,049.7 977.2 1,003.5 982.3 1,024.6 968.3
Golf and leisure products 507.1 452.7 416.2 391.0 359.5 325.4
Other businesses 1,287.3 1,445.0 1,798.4 1,756.5 1,962.0 1,584.1
----------------------------------------------------------------------------------------------------------------------------------
Ongoing operations 11,551.8 11,129.0 11,877.8 11,467.0 11,378.8 9,519.7
Domestic tobacco 1,594.7 1,501.5 1,780.3 1,726.4 1,596.6 1,570.7
----------------------------------------------------------------------------------------------------------------------------------
$13,146.5 $12,630.5 $13,658.1 $13,193.4 $12,975.4 $11,090.4
----------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME
International tobacco $ 517.2 $ 486.5 $ 554.4 $ 528.4 $ 580.6 $ 418.2
Distilled spirits 221.2 214.7 195.8 151.6 135.5 106.8
Hardware and home improvement products 176.5 155.5 159.0 141.5 78.1 69.7
Office products 74.5 63.2 58.1 37.7 87.2 96.5
Golf and leisure products 73.3 63.6 53.3 45.9 41.6 27.2
Other businesses 2.1 27.9 33.0 33.1 32.3 43.0
----------------------------------------------------------------------------------------------------------------------------------
Ongoing operations 1,064.8 1,011.4 1,053.6 938.2 955.3 761.4
Domestic tobacco 247.6 169.2 536.1 540.8 506.8 481.5
----------------------------------------------------------------------------------------------------------------------------------
$1,312.4 $1,180.6 $1,589.7 $1,479.0 $1,462.1 $1,242.9
----------------------------------------------------------------------------------------------------------------------------------
IDENTIFIABLE ASSETS
International tobacco $1,893.2 $1,540.2 $1,251.0 $1,690.2 $1,733.6 $1,426.1
Distilled spirits 2,208.1 2,229.7 1,830.9 1,947.4 1,295.2 806.6
Hardware and home improvement products 1,806.6 1,809.0 1,786.4 1,734.6 1,720.4 633.1
Office products 1,540.4 1,465.7 1,510.5 1,588.4 1,692.9 1,542.8
Golf and leisure products 336.2 308.9 264.0 240.6 248.4 228.1
Other businesses 667.5 973.7 916.0 1,088.7 1,101.1 879.6
----------------------------------------------------------------------------------------------------------------------------------
Ongoing operations 8,452.0 8,327.2 7,558.8 8,289.9 7,791.6 5,516.3
Domestic tobacco -- 702.1 806.0 762.9 654.8 648.3
----------------------------------------------------------------------------------------------------------------------------------
$8,452.0 $9,029.3 $8,364.8 $9,052.8 $8,446.4 $6,164.6
Business by Geographic Areas
NET SALES
United States $4,676.4 $4,415.2 $4,591.2 $4,206.8 $3,880.9 $3,690.7
Europe 8,073.9 7,881.8 8,740.9 8,736.3 8,948.6 7,263.2
Other countries 396.2 333.5 326.0 250.3 145.9 136.5
----------------------------------------------------------------------------------------------------------------------------------
$13,146.5 $12,630.5 $13,658.1 $13,193.4 $12,975.4 $11,090.4
----------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME
United States $ 671.4 $ 558.1 $ 914.5 $ 843.8 $ 765.0 $ 725.7
Europe 585.8 578.4 633.7 594.7 679.9 503.3
Other countries 55.2 44.1 41.5 40.5 17.2 13.9
----------------------------------------------------------------------------------------------------------------------------------
$1,312.4 $1,180.6 $1,589.7 $1,479.0 $1,462.1 $1,242.9
----------------------------------------------------------------------------------------------------------------------------------
IDENTIFIABLE ASSETS
United States $4,494.1 $5,043.7 $5,150.4 $5,030.2 $4,645.7 $3,478.4
Europe 3,709.4 3,767.3 3,019.8 3,840.1 3,648.9 2,545.1
Other countries 248.5 218.3 194.6 182.5 151.8 141.1
----------------------------------------------------------------------------------------------------------------------------------
$8,452.0 $9,029.3 $8,364.8 $9,052.8 $8,446.4 $6,164.6
----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) See page 41 for further Information on Business Segments.
(2) Years prior to 1994 have been restated for discontinued operations. See page 33 for Discontinued Operations.
46