UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
| For the quarterly period | Commission file number 1-9076 | |
| ended September 30, 2003 |
FORTUNE BRANDS, INC.
| DELAWARE | 13-3295276 | |
|
|
||
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
300 Tower Parkway, Lincolnshire, Illinois 60069-3640
Registrant’s telephone number, including area code: (847) 484-4400
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( )
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes (X) No ( )
The number of shares outstanding of the Registrant’s common stock, par value $3.125 per share, at October 31, 2003 was 145,869,516 shares.
1
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
FORTUNE BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions)
(Unaudited)
| September 30, | December 31, | ||||||||||
| 2003 | 2002 | ||||||||||
Assets
|
|||||||||||
Current assets |
|||||||||||
Cash and cash equivalents |
$ | 161.7 | $ | 15.4 | |||||||
Accounts receivable, net |
942.3 | 845.1 | |||||||||
Inventories |
|||||||||||
Bulk whiskey |
221.9 | 200.5 | |||||||||
Other raw materials, supplies and
work in process |
250.8 | 247.0 | |||||||||
Finished products |
396.3 | 388.3 | |||||||||
| 869.0 | 835.8 | ||||||||||
Other current assets |
281.3 | 206.8 | |||||||||
Total current assets |
2,254.3 | 1,903.1 | |||||||||
Property, plant and equipment, net |
1,191.0 | 1,189.6 | |||||||||
Goodwill resulting from business
acquisitions, net |
1,517.4 | 1,443.6 | |||||||||
Other intangible assets resulting
from business acquisitions, net |
883.3 | 889.1 | |||||||||
Other assets |
398.4 | 396.8 | |||||||||
Total assets |
$ | 6,244.4 | $ | 5,822.2 | |||||||
See Notes to Condensed Consolidated Financial Statements.
2
FORTUNE BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions, except per share amounts)
(Unaudited)
| September 30, | December 31, | |||||||||||
| 2003 | 2002 | |||||||||||
Liabilities and stockholders’ equity |
||||||||||||
Current liabilities |
||||||||||||
Notes payable to banks |
$ | 14.6 | $ | 37.8 | ||||||||
Commercial paper |
367.2 | 123.5 | ||||||||||
Current portion of long-term debt |
25.6 | 132.9 | ||||||||||
Accounts payable |
278.5 | 268.2 | ||||||||||
Accrued taxes |
387.6 | 316.7 | ||||||||||
Accrued customer programs |
169.5 | 152.8 | ||||||||||
Accrued salaries, wages and other
compensation |
137.7 | 141.3 | ||||||||||
Accrued expenses and other
liabilities |
396.6 | 341.5 | ||||||||||
Total current liabilities |
1,777.3 | 1,514.7 | ||||||||||
Long-term debt |
841.5 | 841.7 | ||||||||||
Deferred income |
180.0 | 200.2 | ||||||||||
Postretirement and other liabilities |
564.5 | 553.5 | ||||||||||
Total liabilities |
3,363.3 | 3,110.1 | ||||||||||
Minority interest in consolidated
subsidiaries |
368.4 | 398.9 | ||||||||||
Stockholders’ equity |
||||||||||||
$2.67 Convertible Preferred stock -
redeemable at Company’s option |
7.6 | 7.9 | ||||||||||
Common stock, par value $3.125 per
share, 229.6 million shares issued |
717.4 | 717.4 | ||||||||||
Paid-in capital |
117.4 | 116.0 | ||||||||||
Accumulated other comprehensive loss |
(133.5 | ) | (177.6 | ) | ||||||||
Retained earnings |
4,785.5 | 4,529.9 | ||||||||||
Treasury stock, at cost |
(2,981.7 | ) | (2,880.4 | ) | ||||||||
Total stockholders’ equity |
2,512.7 | 2,313.2 | ||||||||||
Total liabilities and
stockholders’ equity |
$6,244.4 | $5,822.2 | ||||||||||
See Notes to Condensed Consolidated Financial Statements.
3
FORTUNE BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
for the Nine Months Ended September 30, 2003 and 2002
(In millions, except per share amounts)
(Unaudited)
| 2003 | 2002 | |||||||||
Net sales |
$ | 4,558.0 | $ | 4,246.1 | ||||||
Cost of products sold |
2,478.9 | 2,322.4 | ||||||||
Excise taxes on spirits and wine |
220.4 | 225.2 | ||||||||
Advertising, selling, general and
administrative expenses |
1,163.3 | 1,087.5 | ||||||||
Amortization of intangibles |
14.1 | 11.4 | ||||||||
Restructuring charges |
17.4 | 36.6 | ||||||||
Write-down of identifiable intangibles |
12.0 | — | ||||||||
Operating income |
651.9 | 563.0 | ||||||||
Interest and related expenses |
55.0 | 56.2 | ||||||||
Other income, net |
(35.5 | ) | (35.6 | ) | ||||||
Income before income taxes and minority
interests |
632.4 | 542.4 | ||||||||
Income taxes |
198.0 | 136.5 | ||||||||
Minority interests |
12.1 | 11.8 | ||||||||
Net income |
$ | 422.3 | $ | 394.1 | ||||||
Earnings per common share |
||||||||||
Basic |
$ | 2.90 | $ | 2.63 | ||||||
Diluted |
$ | 2.82 | $ | 2.55 | ||||||
Dividends paid per common share |
$ | 0.84 | $ | 0.75 | ||||||
Average number of common shares outstanding |
||||||||||
Basic |
145.5 | 149.7 | ||||||||
Diluted |
149.7 | 154.4 | ||||||||
See Notes to Condensed Consolidated Financial Statements.
4
FORTUNE BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
for the Three Months Ended September 30, 2003 and 2002
(In millions, except per share amounts)
(Unaudited)
| 2003 | 2002 | ||||||||
Net sales |
$ | 1,583.8 | $ | 1,463.1 | |||||
Cost of products sold |
851.7 | 799.6 | |||||||
Excise taxes on spirits and wine |
78.6 | 75.9 | |||||||
Advertising, selling, general and
administrative expenses |
400.4 | 368.2 | |||||||
Amortization of intangibles |
4.6 | 4.7 | |||||||
Restructuring charges |
9.6 | 17.3 | |||||||
Operating income |
238.9 | 197.4 | |||||||
Interest and related expenses |
18.2 | 18.5 | |||||||
Other income, net |
(18.8 | ) | (5.3 | ) | |||||
Income before income taxes and minority
interests |
239.5 | 184.2 | |||||||
Income taxes |
89.5 | 66.9 | |||||||
Minority interests |
3.9 | 4.1 | |||||||
Net income |
$ | 146.1 | $ | 113.2 | |||||
Earnings per common share |
|||||||||
Basic |
$ | 1.01 | $ | 0.75 | |||||
Diluted |
$ | 0.98 | $ | 0.73 | |||||
Dividends paid per common share |
$ | 0.30 | $ | 0.25 | |||||
Average number of common shares outstanding |
|||||||||
Basic |
145.1 | 150.0 | |||||||
Diluted |
149.7 | 154.6 | |||||||
See Notes to Condensed Consolidated Financial Statements.
5
FORTUNE BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
for the Nine Months Ended September 30, 2003 and 2002
(In millions)
(Unaudited)
| 2003 | 2002 | |||||||||
Operating activities |
||||||||||
Net income |
$ | 422.3 | $ | 394.1 | ||||||
Restructuring charges |
10.0 | 18.1 | ||||||||
Depreciation and amortization |
143.6 | 133.0 | ||||||||
Deferred income taxes |
47.7 | 23.8 | ||||||||
Write-down of identifiable intangibles |
12.0 | — | ||||||||
(Increase) decrease in accounts receivable |
(69.0 | ) | 20.3 | |||||||
Decrease in inventories |
2.9 | 54.9 | ||||||||
Decrease in accounts payable, accrued
expenses and other liabilities |
(0.1 | ) | (52.3 | ) | ||||||
Increase in accrued taxes |
8.1 | 1.3 | ||||||||
Tax benefit on exercise of stock options |
9.8 | 25.5 | ||||||||
Other operating activities, net |
(48.3 | ) | (64.5 | ) | ||||||
Net cash provided from operating activities |
539.0 | 554.2 | ||||||||
Investing activities |
||||||||||
Additions to property, plant and equipment |
(121.2 | ) | (121.7 | ) | ||||||
Acquisitions, net of cash acquired |
(114.4 | ) | (433.0 | ) | ||||||
Proceeds from the disposition of operations |
— | 3.8 | ||||||||
Proceeds from the disposition of property, plant
and equipment |
11.0 | 4.3 | ||||||||
Net cash used by investing activities |
(224.6 | ) | (546.6 | ) | ||||||
Financing activities |
||||||||||
Increase in short-term debt, net |
217.3 | 243.0 | ||||||||
Dividends paid to stockholders |
(122.8 | ) | (112.9 | ) | ||||||
Issuance of long-term debt |
0.2 | 25.0 | ||||||||
Repayment of long-term debt |
(107.7 | ) | (101.2 | ) | ||||||
Cash purchases of common stock for treasury |
(168.0 | ) | (147.5 | ) | ||||||
Proceeds received from exercise of stock options |
47.6 | 126.7 | ||||||||
Other financing activities, net |
(41.7 | ) | — | |||||||
Net cash (used) provided by financing activities |
(175.1 | ) | 33.1 | |||||||
Effect of foreign exchange rate changes on cash |
7.0 | (0.2 | ) | |||||||
Net increase in cash and cash equivalents |
146.3 | 40.5 | ||||||||
Cash and cash equivalents at beginning of period |
15.4 | 48.7 | ||||||||
Cash and cash equivalents at end of period |
$ | 161.7 | $ | 89.2 | ||||||
See Notes to Condensed Consolidated Financial Statements.
6
FORTUNE BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
for the Nine Months Ended September 30, 2003 and 2002
(In millions)
(Unaudited)
| $2.67 | Accumulated | ||||||||||||||||||||||||||||
| Convertible | other | Treasury | |||||||||||||||||||||||||||
| preferred | Common | Paid-in | comprehensive | Retained | stock, | ||||||||||||||||||||||||
| stock | stock | capital | loss | earnings | at cost | Total | |||||||||||||||||||||||
Balance at December 31, 2001 |
$ | 8.6 | $ | 717.4 | $ | 113.2 | $ | (131.7 | ) | $ | 4,157.7 | $ | (2,762.5 | ) | $ | 2,102.7 | |||||||||||||
Comprehensive income |
|||||||||||||||||||||||||||||
Net income |
— | — | — | — | 394.1 | — | 394.1 | ||||||||||||||||||||||
Changes during the period |
— | — | — | 18.3 | — | — | 18.3 | ||||||||||||||||||||||
Total comprehensive income |
— | — | — | 18.3 | 394.1 | — | 412.4 | ||||||||||||||||||||||
Dividends |
— | — | — | — | (153.4 | ) | — | (153.4 | ) | ||||||||||||||||||||
Purchases |
— | — | — | — | — | (155.4 | ) | (155.4 | ) | ||||||||||||||||||||
Tax benefit on exercise of stock
options |
— | — | 25.5 | — | — | — | 25.5 | ||||||||||||||||||||||
Conversion of preferred stock,
delivery of stock plan shares and
the sale of stock in a
subsidiary |
(0.6 | ) | — | (24.7 | ) | — | — | 149.1 | 123.8 | ||||||||||||||||||||
Balance at September 30, 2002 |
$ | 8.0 | $ | 717.4 | $ | 114.0 | $ | (113.4 | ) | $ | 4,398.4 | $ | (2,768.8 | ) | $ | 2,355.6 | |||||||||||||