UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
| For the quarterly period ended March 31, 2004 | Commission file number 1-9076 |
FORTUNE BRANDS, INC.
(Exact name of Registrant as specified in its charter)
| DELAWARE | 13-3295276 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
300 Tower Parkway, Lincolnshire, Illinois 60069-3640
(Address of principal executive offices) (Zip Code)
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 April 30, 2004 was 146,248,459 shares.
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
FORTUNE BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions)
(Unaudited)
| March 31, 2004 |
December 31, 2003 | |||||
| Assets |
||||||
| Current assets |
||||||
| Cash and cash equivalents |
$ | 152.1 | $ | 104.6 | ||
| Accounts receivable, net |
1,048.9 | 973.4 | ||||
| Inventories |
||||||
| Bulk whiskey |
237.7 | 231.4 | ||||
| Other raw materials, supplies and work in process |
285.8 | 281.2 | ||||
| Finished products |
444.2 | 443.6 | ||||
| 967.7 | 956.2 | |||||
| Other current assets |
276.7 | 247.4 | ||||
| Total current assets |
2,445.4 | 2,281.6 | ||||
| Property, plant and equipment, net |
1,347.9 | 1,358.9 | ||||
| Goodwill resulting from business acquisitions, net |
1,978.5 | 2,439.5 | ||||
| Other intangible assets resulting from business acquisitions, net |
1,367.0 | 889.1 | ||||
| Other assets |
460.9 | 475.8 | ||||
| Total assets |
$ | 7,599.7 | $ | 7,444.9 | ||
See Notes to Condensed Consolidated Financial Statements.
2
FORTUNE BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions, except per share amounts)
(Unaudited)
| March 31, 2004 |
December 31, 2003 |
|||||||
| Liabilities and stockholders’ equity |
||||||||
| Current liabilities |
||||||||
| Notes payable to banks |
$ | 32.1 | $ | 24.1 | ||||
| Commercial paper |
616.3 | 506.3 | ||||||
| Current portion of long-term debt |
200.5 | 200.5 | ||||||
| Accounts payable |
343.9 | 316.4 | ||||||
| Accrued taxes |
405.5 | 342.6 | ||||||
| Accrued customer programs |
146.8 | 184.6 | ||||||
| Accrued salaries, wages and other compensation |
109.2 | 166.3 | ||||||
| Accrued expenses and other liabilities |
359.4 | 392.7 | ||||||
| Total current liabilities |
2,213.7 | 2,133.5 | ||||||
| Long-term debt |
1,245.0 | 1,242.6 | ||||||
| Deferred income |
166.5 | 173.3 | ||||||
| Postretirement and other liabilities |
811.7 | 806.5 | ||||||
| Total liabilities |
4,436.9 | 4,355.9 | ||||||
| Minority interest in consolidated subsidiaries |
369.7 | 369.5 | ||||||
| Stockholders’ equity |
||||||||
| $2.67 Convertible Preferred stock - redeemable at Company’s option |
7.4 | 7.5 | ||||||
| Common stock, par value $3.125 per share, 229.6 million shares issued |
717.4 | 717.4 | ||||||
| Paid-in capital |
136.1 | 126.7 | ||||||
| Accumulated other comprehensive loss |
(96.6 | ) | (106.2 | ) | ||||
| Retained earnings |
5,037.8 | 4,942.2 | ||||||
| Treasury stock, at cost |
(3,009.0 | ) | (2,968.1 | ) | ||||
| Total stockholders’ equity |
2,793.1 | 2,719.5 | ||||||
| Total liabilities and stockholders’ equity |
$ | 7,599.7 | $ | 7,444.9 | ||||
See Notes to Condensed Consolidated Financial Statements.
3
FORTUNE BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
for the Three Months Ended March 31, 2004 and 2003
(In millions, except per share amounts)
(Unaudited)
| 2004 |
2003 |
|||||||
| Net sales |
$ | 1,707.8 | $ | 1,392.1 | ||||
| Cost of products sold |
941.8 | 770.7 | ||||||
| Excise taxes on spirits and wine |
78.5 | 70.5 | ||||||
| Advertising, selling, general and administrative expenses |
444.1 | 371.4 | ||||||
| Amortization of intangibles |
11.1 | 4.8 | ||||||
| Restructuring charges |
2.7 | 2.1 | ||||||
| Operating income |
229.6 | 172.6 | ||||||
| Interest and related expenses |
21.7 | 18.2 | ||||||
| Other income, net |
(19.0 | ) | (8.9 | ) | ||||
| Income before income taxes and minority interests |
226.9 | 163.3 | ||||||
| Income taxes |
82.5 | 59.5 | ||||||
| Minority interests |
4.7 | 4.3 | ||||||
| Net income |
$ | 139.7 | $ | 99.5 | ||||
| Earnings per common share |
||||||||
| Basic |
$ | 0.95 | $ | 0.68 | ||||
| Diluted |
$ | 0.92 | $ | 0.66 | ||||
| Dividends paid per common share |
$ | 0.30 | $ | 0.27 | ||||
| Average number of common shares outstanding |
||||||||
| Basic |
146.3 | 146.2 | ||||||
| Diluted |
151.2 | 150.2 | ||||||
See Notes to Condensed Consolidated Financial Statements.
4
FORTUNE BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
for the Three Months Ended March 31, 2004 and 2003
(In millions)
(Unaudited)
| 2004 |
2003 |
|||||||
| Operating activities |
||||||||
| Net income |
$ | 139.7 | $ | 99.5 | ||||
| Restructuring charges |
1.2 | 1.7 | ||||||
| Depreciation and amortization |
59.6 | 46.0 | ||||||
| Deferred income taxes |
9.2 | 36.4 | ||||||
| Increase in accounts receivable |
(69.7 | ) | (46.1 | ) | ||||
| Increase in inventories |
(10.8 | ) | (17.4 | ) | ||||
| Decrease in accounts payable, accrued expenses and other liabilities |
(110.3 | ) | (83.1 | ) | ||||
| Increase in accrued taxes |
63.1 | 27.5 | ||||||
| Tax benefit on exercise of stock options |
11.7 | 0.6 | ||||||
| Other operating activities, net |
(9.8 | ) | (16.3 | ) | ||||
| Net cash provided from operating activities |
83.9 | 48.8 | ||||||
| Investing activities |
||||||||
| Additions to property, plant and equipment |
(52.1 | ) | (31.3 | ) | ||||
| Proceeds from the disposition of property, plant and equipment |
2.3 | 2.9 | ||||||
| Net cash used by investing activities |
(49.8 | ) | (28.4 | ) | ||||
| Financing activities |
||||||||
| Increase in short-term debt, net |
117.9 | 215.2 | ||||||
| Dividends paid to stockholders |
(44.1 | ) | (39.7 | ) | ||||
| Repayment of long-term debt |
(0.2 | ) | — | |||||
| Cash purchases of common stock for treasury |
(67.9 | ) | (90.3 | ) | ||||
| Proceeds received from exercise of stock options |
23.6 | 5.7 | ||||||
| Other financing activities, net |
(17.4 | ) | (24.9 | ) | ||||
| Net cash provided by financing activities |
11.9 | 66.0 | ||||||
| Effect of foreign exchange rate changes on cash |
1.5 | 1.9 | ||||||
| Net increase in cash and cash equivalents |
47.5 | 88.3 | ||||||
| Cash and cash equivalents at beginning of period |
104.6 | 15.4 | ||||||
| Cash and cash equivalents at end of period |
$ | 152.1 | $ | 103.7 | ||||
See Notes to Condensed Consolidated Financial Statements.
5
FORTUNE BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
for the Three Months Ended March 31, 2004 and 2003
(In millions except per share amounts)
(Unaudited)
| $2.67 Convertible preferred stock |
Common stock |
Paid-in capital |
Accumulated other comprehensive loss |
Retained earnings |
Treasury stock, at cost |
Total |
|||||||||||||||||||||
| Balance at December 31, 2002 |
$ | 7.9 | $ | 717.4 | $ | 116.0 | $ | (177.6 | ) | $ | 4,529.9 | $ | (2,880.4 | ) | $ | 2,313.2 | |||||||||||
| Comprehensive income |
|||||||||||||||||||||||||||
| Net income |
— | — | — | — | 99.5 | — | 99.5 | ||||||||||||||||||||
| Changes during the period |
— | — | — | 19.6 | — | — | 19.6 | ||||||||||||||||||||
| Total comprehensive income |
— | — | — | 19.6 | 99.5 | — | 119.1 | ||||||||||||||||||||
| Dividends ($0.27 per share) |
— | — | — | — | (39.7 | ) | — | (39.7 | ) | ||||||||||||||||||
| Purchases (0.7 shares) |
— | — | — | — | — | (86.6 | ) | (86.6 | ) | ||||||||||||||||||
| Tax benefit on exercise of stock options |
— | — | 0.6 | — | — | — | 0.6 | ||||||||||||||||||||
| Conversion of preferred stock (0.2 shares) and delivery of stock plan shares |
(0.1 | ) | — | (1.4 | ) | — | — | 8.1 | |||||||||||||||||||