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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1993 Commission file number 1-9076
AMERICAN BRANDS, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 13-3295276
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1700 East Putnam Avenue, Old Greenwich, Connecticut 06870-0811
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 698-5000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, par value $3.125 per share New York Stock Exchange, Inc.
$2.67 Convertible Preferred Stock,
without par value New York Stock Exchange, Inc.
9 1/8% Debentures Due 2016 New York Stock Exchange, Inc.
9% Notes Due 1999 New York Stock Exchange, Inc.
8 5/8% Debentures Due 2021 New York Stock Exchange, Inc.
8 1/2% Notes Due 2003 New York Stock Exchange, Inc.
7 7/8% Debentures Due 2023 New York Stock Exchange, Inc.
7 1/2% Notes Due 1999 New York Stock Exchange, Inc.
5 1/4% Notes Due 1995 New York Stock Exchange, Inc.
Preferred Share Purchase Rights New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
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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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of Registrant's voting stock held by non-
affiliates of Registrant, at February 4, 1994, was $6,918,007,068. The
number of shares outstanding of Registrant's Common Stock, par value $3.125
per share, at March 4, 1994, was 201,811,463.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Certain information contained in the Annual Report to Stockholders of
Registrant for the fiscal year ended December 31, 1993 is incorporated
by reference into Part I, Part II and Part IV hereof.
(2) Certain information contained in the Proxy Statement for the Annual
Meeting of Stockholders of Registrant to be held on May 3, 1994 is
incorporated by reference into Part III hereof.
PART I
Item 1. Business.
(a) General development of business.
Registrant is a holding company with subsidiaries engaged in
various businesses. A subsidiary, Gallaher Limited ("Gallaher"), and
certain of its subsidiaries are engaged in the manufacture and sale of
cigarettes, cigars and smoking tobaccos principally in the United Kingdom,
and another subsidiary, The American Tobacco Company ("ATCO"), is engaged
in the manufacture and sale of cigarettes principally in the United States
and, through a subsidiary, the production of cigarette-tipping and other
printed packaging materials. Subsidiaries of Registrant are also engaged
in the distilled spirits business, the life insurance business, and the
manufacture and sale of various types of hardware and home improvement
products, office products, supplies and accessories, golf products, and
rubber products and, principally in the United Kingdom, the businesses of
optical goods and services, retail distribution and houseware products.
Registrant was incorporated under the laws of Delaware in 1985
and until 1986 conducted no business. Prior to 1986, the businesses of
Registrant's subsidiaries were conducted by American Brands, Inc., a New
Jersey corporation organized in 1904 ("American New Jersey"), and its
subsidiaries. American New Jersey was merged into The American Tobacco
Company on December 31, 1985, and the shares of the principal first-tier
subsidiaries formerly held by American New Jersey were transferred to
Registrant. In addition, Registrant assumed all liabilities and
obligations in respect of the public debt securities of American New Jersey
outstanding immediately prior to the merger. Unless the context otherwise
indicates, references herein to American Brands, Inc. and to Registrant for
all periods prior to January 1, 1986 are to American New Jersey.
As a holding company, Registrant is a legal entity separate and
distinct from its subsidiaries. Accordingly, the right of Registrant, and
thus the right of Registrant's creditors (including holders of its debt
securities and other obligations) and stockholders, to participate in any
distribution of the assets or earnings of any subsidiary is subject to the
claims of creditors of the subsidiary, except to the extent that claims of
Registrant itself as a creditor of such subsidiary may be recognized, in
which event Registrant's claims may in certain circumstances be subordinate
to certain claims of others. In addition, as a holding company, a
principal source of Registrant's unconsolidated revenues and funds is
dividends and other payments from its subsidiaries. Registrant's principal
subsidiaries currently are not limited by long-term debt or other
agreements in their abilities to pay cash dividends or to make other
distributions with respect to their capital stock or other payments to
Registrant, although Registrant's subsidiaries engaged in the life
insurance business are generally subject to state insurance law
restrictions upon amounts that can be transferred to Registrant in the form
of dividends, loans or advances without approval of the relevant state
insurance authorities. These restrictions have not had and are not
expected to have a material effect on the ability of Registrant to meet its
cash obligations.
In recent years Registrant has been engaged in a program seeking
to enhance the operations of its subsidiaries in certain core businesses
and the development of other core businesses as well as certain specialty
businesses. Pursuant to such program Registrant has since 1986 made major
acquisitions in the distilled spirits business, the office products
business and the hardware and home improvement products business, which
acquisitions were financed at least in part by debt or debt securities
convertible into Common Stock. On June 30, 1993, ATCO acquired from B.A.T
Industries, PLC the Benson and Hedges cigarette trademark in Europe in
exchange for the assignment of its Lucky Strike and Pall Mall overseas
cigarette trademarks, and $107.2 million in cash, including expenses, and
contingent future payments based on volumes. See "Narrative description of
business - Tobacco Products, The American Tobacco Company." During the
fourth quarter of 1993, The Whyte & Mackay Group PLC ("Whyte & Mackay"), a
subsidiary of the Registrant's Gallaher Limited subsidiary, completed its
acquisition of Invergordon Distillers Group PLC ("Invergordon") by
purchasing the remaining 58.7% of the outstanding shares of Invergordon for
a cost, including fees and expenses, of $343.6 million. See "Narrative
description of business - Distilled Spirits." In addition, Registrant has
been making dispositions of businesses considered to be nonstrategic to its
long-term operations. In connection therewith, major dispositions by
Registrant since 1986 have included its food, security, personal care
products and pumps and valves operations and certain operations in the life
insurance and international tobacco businesses.
Registrant continues to pursue this strategy and in furtherance
thereof explores other possible acquisitions in fields related to its core
businesses and possibly other fields and dispositions of any businesses
that may be considered nonstrategic to its long-term operations. Although
no assurance can be given as to whether or when any such acquisitions or
dispositions will be consummated, if agreement with respect to any
acquisitions were to be reached, Registrant might finance such acquisitions
by issuance of additional debt or equity securities. The additional debt
from these or any other acquisitions, if consummated, would increase
Registrant's debt-to-equity ratio and such debt or equity securities might,
at least in the near term, have a dilutive effect on earnings per share.
Registrant also continues to consider other corporate strategies intended
to enhance stockholder value. It cannot be predicted whether or when any
such strategies might be implemented or what the financial effect thereof
might be upon Registrant's debt or equity securities.
(b) Financial information about industry segments.
See the table captioned "Information on Business Segments" and
the second table in the note captioned "Information on Business Segments"
in the Notes to Consolidated Financial Statements contained in the 1993
Annual Report to Stockholders of Registrant, which tables are incorporated
herein by reference.
(c) Narrative description of business.
The following is a description of the business of the
subsidiaries of Registrant in the industry segments of Tobacco Products,
Distilled Spirits, Life Insurance, Hardware and Home Improvement Products
and Office Products, as well as in other industries as discussed under
"Specialty Businesses" below. For financial information about classes of
similar products and services, see the table captioned "Information on
Business Segments" and the second table in the note captioned "Information
on Business Segments" in the Notes to Consolidated Financial Statements
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contained in the 1993 Annual Report to Stockholders of Registrant, which
tables are incorporated herein by reference.
Tobacco Products
Gallaher Limited
Gallaher is engaged primarily in the manufacture and sale of
tobacco products in the United Kingdom and elsewhere, principally in the
European Community. Its sales of tobacco products are the largest in the
United Kingdom. For 1993, Gallaher held approximately 41.7% of the
cigarette market in the United Kingdom, compared with approximately 41.5%
and 43.5% for 1992 and 1991, respectively. Total unit sales of cigarettes
to retail outlets and wholesalers in that country by foreign and domestic
manufacturers increased by 1.9% in 1993, and decreased 6.7% and 3% in 1992
and 1991, respectively. Gallaher's total unit sales to retail outlets and
wholesalers increased by 2.3% in 1993, and decreased in 1992 and 1991 by
10.9% and 6.3%, respectively. The unit sales increases in 1993 resulted
primarily from heavy retailer and wholesaler purchasing prior to the United
Kingdom budget announced in November 1993. It is estimated that the
underlying consumer demand declined in the area of 5.5% in 1993 and it is
likely that unit sales will decline in 1994. In 1993, filter cigarettes
continued to represent over 98% of total unit sales of cigarettes in the
United Kingdom for Gallaher and for the industry.
Gallaher's principal cigarette brands in the United Kingdom are
Benson and Hedges Special Filter, Silk Cut, Berkeley Superkings and
Kensitas. To respond to growing consumer preference for lower priced
cigarettes, Gallaher introduced Benson and Hedges Superkings and Benson and
Hedges Superkings Lights into the mid-price sector in early 1993. These
new brands, together with Berkeley Superkings Menthol, resulted in
Gallaher's share of that sector increasing from 32.6% in 1992 to 37.4% in
1993. Rights to some of these brands in various other countries are
claimed by others. Gallaher also markets other tobacco products, among
which are Hamlet cigars, Condor and Benson and Hedges Mellow Virginia
smoking tobaccos and Old Holborn roll-your-own cigarette tobacco. Sales
are made to retail outlets and wholesalers.
Following the exchange of trademarks in Europe between ATCO and
B.A.T Industries, PLC on June 30, 1993, Gallaher entered into an exclusive
trademark license agreement with ATCO, pursuant to which Gallaher
manufactures and sells Benson and Hedges products in tax-paid markets in
Europe and pays a royalty to ATCO based on volume.
Gallaher's principal competitors in the United Kingdom are
Imperial Tobacco, Rothmans, Philip Morris and imported brands. Gallaher
competes on the basis of the quality of its products and price and its
responsiveness to consumer preferences.
Gallaher buys its leaf tobacco from foreign sources, including
the United States. Large inventories of leaf tobacco are maintained by
Gallaher. Sufficient inventories of finished product are maintained by
Gallaher to respond promptly to orders.
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There has been social and political unrest in Northern Ireland
for many years. Notwithstanding this situation, there has been no
consequential damage to Gallaher's manufacturing facilities there.
The United Kingdom Finance Act, 1992 provided for an increase in
the excise duties on tobacco products with the result that the price of a
typical pack of cigarettes increased by 13 pence. The United Kingdom
Finance Act, 1993 provided for an increase in the excise duties on tobacco
products with the result that the price of a typical pack of cigarettes
increased by 10 pence. The United Kingdom budget introduced on November
30, 1993 provided for an increase in the excise duties on tobacco products
with the result that the price of a typical pack of cigarettes increased by
11 pence. It is believed that the continuing impact of price increases,
principally due to substantial excise tax increases in 1992 and 1993,
combined with the prolonged recession, have led to an overall reduction in
annual industry volumes, declines in consumer demand, greater price
competition and increased trading down by consumers to lower priced brands.
The effect of any further excise duty increases cannot be determined, but
such increases and any new duties or taxes, if enacted, will likely add to
the overall industry declines and the shift to lower priced brands.
An agreement took effect in September 1991 between
representatives of the United Kingdom tobacco industry and the United
Kingdom Health Ministers with respect to tobacco products and their
packaging and advertising. Among other things, the agreement provides for
limitations on expenditures for cigarette brand poster advertisements and
for a reduction in the number of external cigarette advertising signs at
retail premises. Specified warning statements are required to be printed
on cigarette packages and to appear in advertisements. Negotiations are
taking place on a new agreement, which would place further restrictions on
advertising. It is not possible to predict when any such agreement would
take effect. Regulations promulgated in the United Kingdom in July 1991 to
implement a Council Directive of the European Community require, effective
January 1, 1992, that all tobacco product packaging bear the warning
statement "Tobacco Seriously Damages Health" and that cigarette packaging
bear additional warning statements and carry an indication of tar and
nicotine yield. In addition, the Independent Television Commission Code of
Advertising Standards and Practice of December 1990, implementing a Council
Directive of the European Community, prohibits, effective October 1991, the
advertising of all tobacco products on television in the United Kingdom.
Television and radio advertising of cigarettes has been prohibited in the
United Kingdom for many years. Also, a Council Directive of the European
Community has been proposed by the Commission of the European Community to
provide for a total ban on tobacco advertising and sponsorship throughout
the European Community and to restrict the use of tobacco brand names on
non-tobacco products. In February 1992 the European Parliament, an
advisory body, approved such a total ban. Any such Council Directive, even
though approved by the European Parliament and the Commission, must be
adopted by the Council of Ministers of the member states of the Community
by a qualified majority of the member states prior to becoming effective
and may be adopted so as to be binding or non-binding on individual member
states.
A Council Directive of the European Community adopted in May 1990
required that the tar yield of cigarettes marketed in the European
Community should not be greater than 15 milligrams per cigarette after
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December 31, 1992, and 12 milligrams per cigarette after December 31, 1997.
None of Gallaher's cigarette brands have had a tar yield in excess of 15
milligrams per cigarette since December 31, 1992.
The Treaty of Rome has as an objective the removal of certain
restrictions on trading among the member states of the European Community,
and since January 1, 1993 trading barriers within the Community have been
eliminated in accordance with the Single European Act. Actions taken by
the Community effective January 1, 1993 in connection with the
implementation of the Single European Act include an increase in the
allowance of cigarettes for personal consumption that may be purchased
duty-paid in one member state and carried to another without payment of
additional duty. The removal of customs border posts was also scheduled to
occur effective January 1, 1993 but implementation has not been uniform
because of concerns raised by at least one member state. It is possible
that the Treaty of Rome, including implementation of the Single European
Act and other actions taken by the Community, will result in increased
competition in the market for tobacco products in the United Kingdom and in
other member states and cause a shift in sales of tobacco products brands
from certain member states, such as the United Kingdom, to other member
states in which prices of those brands are lower.
On July 18, 1989 the Council of Ministers enacted a non-binding
Council Resolution, as part of its on-going "Europe Against Cancer"
program, inviting member states to introduce legislation that would ban
smoking in most public places. In addition, various member states have
adopted legislation or non-binding guidelines that address smoking in
public places.
It is not possible to state whether additional legislation,
directives, regulations or action will be enacted, promulgated or taken in
or by the United Kingdom or the European Community or the nature of any
such legislation, directives, regulations or action, nor is it possible to
predict the effect any such legislation, directives, regulations or action
may have on the industry generally or on Gallaher.
Gallaher's subsidiary, Gallaher (Dublin) Limited, manufactures
tobacco products in the Republic of Ireland.
See Item 3, "Legal Proceedings".
For a description of the business of other subsidiaries of
Gallaher, see "Distilled Spirits" and "Specialty Businesses - Optical goods
and services - Retail distribution - Housewares".
The American Tobacco Company
ATCO is engaged in the manufacture and sale of filter and
nonfilter cigarettes, principally in the United States. ATCO sells its
cigarettes primarily to distributors, chain stores and other large retail
outlets. In 1993, unit sales of cigarettes in the United States accounted
for approximately 94.6% of ATCO's total unit sales. ATCO's domestic unit
sales of cigarettes increased slightly in 1991 and decreased 4.3% and 9.1%
in 1992 and 1993, respectively. Total unit sales of cigarettes for the
domestic industry declined in 1991, 1992 and 1993 approximately 2.4%, 0.4%
and 9%, respectively. However, it is estimated that the underlying decline
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in consumer demand in 1993 was in the range of 3% to 4%. ATCO's share of
the cigarette market in the United States increased to approximately 7.03%
in 1991 and decreased to approximately 6.76% and 6.75% in 1992 and 1993,
respectively. Unit sales of ATCO's more profitable premium brands were
down 20.9%, particularly nonfilter and charcoal filter brands which
continued to decline far in excess of the overall industry decline in
recent years. Unit sales of filter cigarettes (other than charcoal filter)
in 1993 are estimated to have been approximately 96% of total unit sales
for the domestic industry, compared to 74.9% of ATCO's total domestic unit
sales. ATCO's unit sales of nonfilter cigarettes decreased from 23.4% of
its total domestic unit sales of cigarettes for 1992 to 19.2% for 1993.
ATCO's unit sales of charcoal filter cigarettes decreased from 7.0% of its
total domestic unit sales for 1992 to 5.9% for 1993. The industry's less
profitable price-value category, comprising discount and deep discount
brands, grew from 30% to 37% as price increases over the years, including
excise taxes, have resulted in trading down by consumers, particularly to
deep discount brands. Unit sales of ATCO's price-value brands increased
5.3% as the introduction of deep discount brands more than offset declines
in discount brands. Price-value brands accounted for 52% of ATCO's U.S.
unit sales in 1993, compared to 45% in 1992. The intense price and
promotional competition in the domestic tobacco industry continues. In
April 1993, the industry promotionally reduced the prices of many leading
brands. In August 1993, ATCO's principal competitors decreased list prices
of their premium and discount brands and increased list prices of their
deep discount brands. ATCO announced similar decreases in list prices of
its premium and discount brands, but did not significantly change the list
prices of its deep discount brands. In November 1993, ATCO and its
competition raised prices of certain brands, but the amount of these
increases was far less than the amount of the August decreases. Conditions
in the U.S. tobacco market remain unsettled. ATCO products are also sold
overseas, principally in Japan and other Asian countries, with expansion
into the Middle East, Poland, Korea and the C.I.S.
Registrant believes that ATCO is the fifth largest manufacturer
of cigarettes in the United States. ATCO's principal competitors in the
United States are Philip Morris, R.J. Reynolds, Brown & Williamson,
Lorillard and Liggett. ATCO competes on the basis of the quality and price
of its products and its responsiveness to consumer preferences.
The principal brands produced by ATCO are Lucky Strike, Pall
Mall, Tareyton, Carlton, American, Montclair, Misty, Riviera, Private
Stock, Prime and Summit. Although ATCO has exclusive ownership in the
United States of its brands mentioned above, the ownership of most of its
principal brands in various foreign countries is claimed by others.
On June 30, 1993, ATCO acquired from B.A.T Industries, PLC the
Benson and Hedges cigarette trademark in Europe in exchange for the
assignment of its Lucky Strike and Pall Mall overseas cigarette trademarks,
and $107.2 million in cash, including expenses, and contingent future
payments based on volumes. ATCO recognized a pretax gain of $25.5 million
as a result of the assignment of the Lucky Strike and Pall Mall trademarks.
Certain of the contingent payments are guaranteed and, accordingly, their
present value is included in the initial $183 million of intangibles that
have been recorded. Any payments in excess of the guarantees will also be
amortized over periods not to exceed 40 years. In a related event, on June
30, 1993 ATCO entered into a trademark license agreement with Gallaher.
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Pursuant to the agreement, Gallaher has the exclusive right to manufacture
and sell Benson and Hedges products in tax-paid markets in Europe and pays
a royalty to ATCO based on volume.
There is a federal excise tax on cigarettes, and such tax was
increased by four cents per pack effective January 1, 1991, and an
additional four cents per pack effective January 1, 1993. All the states,
the District of Columbia and many municipalities and counties impose
additional cigarette taxes. In addition, legislation has been introduced
in the United States Congress to further increase the federal excise tax
and to impose other federal taxes. Proposals to increase or adopt new
cigarette taxes are also pending in various state and local jurisdictions.
The Clinton administration has proposed a tax increase on cigarettes to 99
cents per pack from the current level of 24 cents per pack to help pay the
cost of the administration's proposed health care program. As part of an
alternative proposal to the Clinton administration program, the Health
Subcommittee of the House Ways and Means Committee has proposed increasing
the federal tax on cigarettes by $1.25 to $1.49 per pack to help pay the
cost of providing universal health care. The effect of any further excise
tax increases cannot be determined, but such increases and any new taxes,
if enacted, will likely add to the overall industry declines and the shift
to lower priced brands.
Tobacco is an agricultural commodity subject to United States
Government controls and price supports that can affect market prices
substantially. Legislation has been introduced in the United States
Congress that would eliminate the federal price support program. The
market price of flue-cured tobacco decreased from an average of $1.75 per
pound in calendar year 1992 to an average of $1.74 per pound in calendar
year 1993. Burley leaf prices increased from an average of $1.81 per pound
in calendar year 1992 to an average of $1.85 per pound in calendar year
1993. Average market prices do not necessarily reflect ATCO's actual leaf
costs since ATCO's purchases are in a wide range of quality and price
categories.
ATCO buys its leaf tobacco on the domestic and international
markets. Large inventories of leaf tobacco are maintained by ATCO because
the production of leaf tobacco is subject to changing weather conditions
and because most leaf tobacco, when purchased, requires additional aging.
Sufficient inventories of finished product are maintained by ATCO to
respond promptly to orders. The Omnibus Budget Reconciliation Act of 1993
(the "Reconciliation Act") as signed into law on August 10, 1993 contains
provisions which penalize domestic cigarette companies that manufacture
cigarettes containing less than 75% U.S. grown tobacco. The Reconciliation
Act also imposes additional assessments and fees on imported tobacco which
is generally less expensive. The Reconciliation Act will result in ATCO
incurring greater cost for its leaf tobacco, as well as maintaining its
current inventory of foreign tobacco for a longer period before it can be
used in cigarette production. Based on the preliminary rules issued, the
impact of this legislation may increase ATCO's 1994 manufacturing cost by
an estimated $10 million.
The Federal Cigarette Labeling and Advertising Act (the "Labeling
Act") has required since 1966 that cigarettes manufactured, packaged or
imported for sale or distribution in the United States include a warning
statement relating to smoking and health on their packaging. ATCO and five
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other cigarette manufacturers are parties to consent orders, entered into
with the Federal Trade Commission in 1972, which relate to the placement of
prescribed statements in cigarette advertising. The Comprehensive Smoking
Education Act (amending effective in 1985 the Labeling Act) requires that
packages of cigarettes distributed in the United States and cigarette
advertisements in the United States bear in quarterly rotation, in lieu of
the previously required statement, the statements: "SURGEON GENERAL'S
WARNING: Smoking Causes Lung Cancer, Heart Disease, Emphysema, And May
Complicate Pregnancy"; "SURGEON GENERAL'S WARNING: Quitting Smoking Now
Greatly Reduces Serious Risks to Your Health"; "SURGEON GENERAL'S WARNING:
Smoking By Pregnant Women May Result in Fetal Injury, Premature Birth, And
Low Birth Weight"; and "SURGEON GENERAL'S WARNING: Cigarette Smoke Contains
Carbon Monoxide". Statements also are required in billboard
advertisements. The Labeling Act prohibits any other requirement of a
statement relating to smoking and health on any cigarette packaging,
advertising or promotional material. The United States Supreme Court in a
1992 decision in Cipollone v. Liggett Group, Inc., et al., held that the
1965 version of the Labeling Act, which requires specified warnings on
cigarette packaging, advertising and promotional materials, did not preempt
lawsuits seeking money damages for personal injuries allegedly caused by
cigarette smoking. The Supreme Court further held that the Public Health
Cigarette Smoking Act of 1969, which, among other things, amended the
preemption provision of the 1965 version of the Labeling Act effective July
1, 1969, preempts such lawsuits based on alleged failure to warn and
neutralization of the federally mandated warnings to the extent that those
claims rely on omissions or inclusions in cigarette advertising or
promotions, but that the 1969 version of the Labeling Act does not preempt
claims based on alleged breach of express warranty, or certain claims based
on intentional fraud and misrepresentation or conspiracy. Legislation has
been introduced in the United States Congress that if enacted would limit
the effect of the preemption provisions of the Labeling Act. See Item 3,
"Legal Proceedings". All radio and television advertising of cigarettes is
prohibited by the Labeling Act.
Under the Comprehensive Smoking Education Act, each person who
manufactures, packages or imports cigarettes is required to provide
annually to the Secretary of Health and Human Services, on a confidential
basis, a list of the ingredients added to tobacco in the manufacture of
cigarettes. Annual reports to the United States Congress are also required
from the Secretary of Health and Human Services as to current information
on the health consequences of smoking and from the Federal Trade Commission
on the effectiveness of cigarette labeling and current practices and
methods of cigarette advertising and promotion. In connection with the
reporting responsibilities of the Secretary of Health and Human Services,
the Surgeon General of the United States has from time to time issued
reports addressing aspects of smoking and health issues. In December 1986,
the Surgeon General released a report concluding, among other things, that
"involuntary smoking is a cause of disease, including lung cancer, in
healthy nonsmokers." In May 1988, the Surgeon General released a report
which, among other things, reviewed literature on aspects of tobacco use
and concluded that cigarettes are addicting. In February 1994, the Surgeon
General released a report on the prevention of tobacco use among young
people which concluded, among other things, that "[c]ommunitywide efforts
that include tobacco tax increases, enforcement of minors' access laws,
youth-oriented mass media campaigns, and school-based tobacco use
prevention programs are successful in reducing adolescent use of tobacco."
-8-
Both the Secretary of Health and Human Services and the Federal Trade
Commission also are required to make recommendations with regard to further
legislation.
Legislation has been introduced in the United States Congress
that if enacted would amend the Labeling Act to require that the statements
that the Labeling Act requires to appear on cigarette packaging and
advertisements include the following: "SURGEON GENERAL'S WARNING: Smoking
is Addictive. Once You Start You May Not Be Able To Stop"; and "SURGEON
GENERAL'S WARNING: NICOTINE IN CIGARETTES IS AN ADDICTIVE DRUG".
Legislation has also been introduced in the United States Congress that if
enacted would require nine rotating health warnings on cigarette packages
and advertisements and would change the format of the required warnings.
In addition, legislation has been introduced in the United States Congress
that if enacted would make unlawful the export, by any corporation or any
foreign subsidiary, from the United States or any other country any
cigarettes the package of which does not contain the label statements
required by the Labeling Act.
In 1992, the Alcohol, Drug Abuse and Mental Health Administration
Reorganization Act was adopted. This Act requires, effective January 1,
1994, states to adopt a minimum age of 18 for the purchase of tobacco
products.
Legislation has also been introduced in the United States
Congress that if enacted would require the Secretary of Health and Human
Services to establish a Center for Tobacco Products whose functions would
include collecting information regarding, and determining whether to
require disclosure of and impose restrictions on, additives contained in
tobacco products, reviewing the information required to be contained in
rotating warning labels and making federal grants to promote better
enforcement of state laws concerning the sale of tobacco products to
minors, to promote anti-smoking efforts, including the reduction of the
incidence of smoking in the workplace, and to encourage public information
campaigns concerning the use of tobacco products. Legislation has also
been introduced in the United States Congress that if enacted would further
restrict or ban advertising and restrict promotion of cigarettes and would
ban the sale of cigarettes from vending machines. In addition, legislation
has been introduced in the United States Congress that if enacted would
disallow income tax deductions for tobacco products advertising expenses.
In 1986 and 1987, there were proposals for legislation to eliminate the
deductibility of federal excise taxes, including excise taxes on tobacco
products, but these proposals were not enacted. There have also been
proposals to bring the manufacture and sale of cigarettes under the
jurisdiction of the Food and Drug Administration.
Legislation has been introduced in the United States Congress to
restrict smoking to designated areas in all federal facilities as well as
to prohibit smoking in such facilities. Legislation has also been
introduced to prohibit smoking in most public facilities. The Department
of Defense has announced a policy prohibiting smoking in all offices and
any other indoor work areas. Smoking on virtually all domestic airline
flights is prohibited by federal legislation. A number of states and
municipalities, as well as certain federal agencies, have enacted or
promulgated or are considering legislation and regulations which are
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intended to discourage smoking through educational efforts or which impose
various restrictions or requirements relating to smoking.
On January 7, 1993, the Environmental Protection Agency ("EPA")
released in final form its "risk assessment" report on environmental
tobacco smoke. The EPA's report concludes that environmental tobacco smoke
is a human carcinogen which causes lung cancer in nonsmokers and that
exposure to environmental tobacco smoke is causally associated with an
increased incidence of respiratory effects and disorders in children.
While it is not possible to predict the effects of the EPA report, it has
and will likely continue to result in additional regulation of smoking in
public and in workplaces as well as voluntary restrictions by private
entities relating to their facilities.
In September 1991, the Occupational Safety and Health
Administration ("OSHA") issued a request for information relating to indoor
air quality, including environmental tobacco smoke. The stated purpose of
the request is to assist OSHA in determining whether it is necessary and
appropriate to pursue regulatory action. On March 25, 1994, OSHA proposed
new rules regulating air quality in all indoor and enclosed work places
under OSHA jurisdiction and restricting smoking to designated areas where
employees are not required to enter in the performance of normal work
activities.
Under the terms of the Fire Safe Cigarette Act of 1990, the
Consumer Product Safety Commission ("CPSC") submitted a report to Congress
on August 10, 1993 regarding the technical and commercial feasibility,
economic impact and other consequences of developing cigarettes that have a
minimum propensity to ignite upholstered furniture and mattresses. This
report accepted many of the recommendations of a report prepared by a
technical advisory group established to assist the CPSC. The accepted
recommendations include a standard test method to determine cigarette
ignition propensity. However, in its report, the CPSC suggested additional
research prior to the adoption of a performance standard to reduce
cigarette ignition propensity. On February 23, 1994, Congressman Joseph
Moakley (D-Mass.) introduced legislation which would require the CPSC to
set a performance standard to reduce cigarette ignition. The CPSC would be
required to set such a standard within one year of enactment of the
legislation, and the tobacco industry (including ATCO) would have an
additional year to meet the standard for all cigarettes manufactured or
sold in the United States. It is not possible to predict the impact on
ATCO or the industry of the CPSC report or any resulting legislation or
regulation.
It is not possible to state whether additional federal, state or
local legislation, regulations or action will be enacted, promulgated or
taken or the nature of any such legislation, regulations or action, nor is
it possible to predict the effect any such legislation, regulations or
action may have on the industry generally or on ATCO.
Golden Belt Manufacturing Company ("Golden Belt"), a subsidiary
of ATCO, is primarily engaged in the production of cigarette-tipping
materials and other printed packaging materials, including labels and foil
laminates. Sales are made primarily in the United States through its own
sales force.
-10-
See Item 3, "Legal Proceedings".
Distilled Spirits
Jim Beam Brands Co. ("Beam") and its predecessors have been
distillers of bourbon whiskey since 1795. Beam, together with its
subsidiaries, currently produces, or imports, and markets a broad line of
distilled spirits, including bourbon and other whiskeys, cordials, gin,
vodka and rum. In December 1991, Beam acquired certain trademarks relating
to seven brands (Kessler, Leroux, Calvert Extra, Calvert Gin, Lord Calvert,
Wolfschmidt and Ronrico) from Joseph E. Seagram & Sons, Inc. and certain of
its affiliates ("Seagram").
Beam's nine leading brand names are Jim Beam bourbon, Windsor
Canadian Supreme Whisky, Lord Calvert Canadian Whisky, DeKuyper cordials,
Gilbey's gin, Gilbey's vodka, Kamchatka vodka, Wolfschmidt vodka and
Kessler American Blended Whiskey. Principal bourbon brand names are Jim
Beam, the largest-selling bourbon whiskey in the United States and in the
world, Old Grand-Dad, the largest-selling bonded bourbon in the United
States and in the world, Booker's, a super-premium bourbon whiskey, Old
Taylor and Old Crow. Beam also produces Jim Beam Bourbon Whiskey and Cola,
which combines bourbon with a cola soft drink. DeKuyper Peachtree Schnapps
is the top-selling domestically-produced cordial brand in the United
States. Beam also produces Chateaux and Leroux cordials, Beam's 8-Star
Blend and Calvert Extra blended whiskeys, Dark Eyes vodka and Calvert Gin,
and imports, in bottle or in bulk, Canada House Canadian whisky, The
Dalmore and The Claymore scotch whiskies, Kamora coffee liqueur, Ronrico,
Pusser's and San Tropique rums, Molinari Sambuca and Aalborg Akvavit.
Beam's products are bottled in the United States and are sold
through various distributors and, in the 18 "control" states (and one
county) which have established government control of the purchase and
distribution of alcoholic beverages, through state (or county, as the case
may be) liquor authorities. Beam products are also bottled in eleven
foreign countries. Beam's international volume, which accounted for
approximately 20% and 18% of its total unit sales in 1993 and 1992,
respectively, is exported to over 80 foreign markets for sale through
distributors and brokers.
The distilled spirits business is highly competitive, with many
brands sold in the consumer market. Registrant believes there are
approximately ten major competitors worldwide and many smaller distillers
and bottlers. Registrant also believes that, based on unit sales, Beam is
the second largest producer and marketer of distilled spirits in the United
States and among the ten major competitors worldwide and has six million-
case-selling brands in the United States. Beam competes on the basis of
the quality and price of its products and its responsiveness to consumer
preferences.
The United States market for beverage alcohol has in recent years
demanded an increasingly broad variety of products. Demand for distilled
spirits generally, as well as for bourbon and other whiskeys, has declined
resulting in increased price competition as competitors vie for market
share. It is estimated that unit sales of distilled spirits (which do not
include bulk sales) in the United States declined by approximately 6.7% in
1991, 3% in 1992 and 2.2% in 1993. Total unit sales of Beam's brands in
-11-
the United States decreased by approximately 4.9% in 1991, increased 35% in
1992, primarily due to the acquisition of the trademarks for seven brands
from Seagram, and decreased 4.6% in 1993. Total unit sales of Beam's
brands, including export sales, decreased by 3% in 1991, increased 29% in
1992, primarily due to the acquisition from Seagram, and decreased 1.7% in
1993. In both 1993 and 1992, bourbon accounted for approximately 25% and
other whiskeys for approximately 28% of Beam's total unit sales in the
United States, respectively.
Beam's leading brands are owned by Beam and its subsidiaries,
except that DeKuyper cordials are produced and sold under a perpetual
license and Gilbey's gin and Gilbey's vodka are produced and sold under a
long-term license and the Kamchatka brand is claimed by another entity in
California.
Raw materials for the production, storage and aging of Beam's
products are principally corn, rye, barley malt and white oak barrels and
are readily available from a number of sources, except that white oak
barrels are available from only two major sources, one of which is owned by
a competitor of Beam. Because whiskeys are aged for various periods,
generally from four to eight years, Beam maintains, in accordance with
industry practice, substantial inventories of bulk whiskey in warehouse
facilities. In addition, whiskey production is generally scheduled to meet
demand for four to eight years in the future, and production schedules are
adjusted from time to time to bring inventories into balance with estimated
future demand.
In Canada, a line of distilled spirits, including Windsor
Canadian Supreme Whisky, is produced by a subsidiary, Alberta Distillers
Limited. In Australia, a subsidiary, Fortune Brands Pty. Ltd., markets and
distributes Beam's products as well as several brands under agency
agreements.
The production, storage, transportation, distribution and sale of
Beam's products are subject to regulation by federal, state and local
authorities. Various local jurisdictions prohibit or restrict the sale of
distilled spirits in whole or in part.
In the United States, Canada and many other countries, distilled
spirits are subject to excise taxes and/or custom duties. State, local and
other governmental authorities in such countries also impose taxes on
distilled spirits. On January 1, 1991, the United States federal excise
tax was increased by one dollar per proof gallon of distilled spirits. In
addition, there are proposals pending to increase or impose new distilled
spirits taxes in various jurisdictions. It is believed that the federal
excise tax increase contributed to the increased decline in distilled
spirits unit sales for Beam and the industry in 1991 and in 1992 for the
industry. Increasing the federal excise tax on distilled spirits has been
considered from time to time as a possible means to help pay for the cost
of the national health-care program, but is not included in the Clinton
administration's current proposal. The effect of any future excise tax
increases cannot be determined, but it is possible that any future tax
increases would have an adverse effect on unit sales and add to continuing
industry declines.
-12-
The Alcoholic Beverage Labeling Act of 1988 and regulations
promulgated thereunder by the Bureau of Alcohol, Tobacco and Firearms of
the Department of the Treasury (the "Bureau") require that containers of
alcoholic beverages bottled on or after November 18, 1989 for sale or
distribution in the United States or for sale, distribution or shipment to
members of the United States Armed Forces abroad bear the statement:
"GOVERNMENT WARNING: (1) According to the Surgeon General, women should not
drink alcoholic beverages during pregnancy because of the risk of birth
defects. (2) Consumption of alcoholic beverages impairs your ability to
drive a car or operate machinery, and may cause health problems." The
Alcoholic Beverage Labeling Act of 1988 and the regulations prohibit any
other requirement of a statement relating to alcoholic beverages and health
on any beverage alcohol container or package containing such a container.
If the Secretary of the Treasury, after appropriate investigation and
consultation with the Surgeon General, finds available scientific
information justifying a change in, addition to or deletion of all or part
of the required statement, he is required to report such information to the
United States Congress together with specific recommendations with respect
thereto. On March 8, 1991, the Bureau issued a request for information to
"enable the agency to determine whether the wording . . . should be
amended." Registrant understands that the Bureau has recommended that the
current warning statements are sufficient and has reported its findings to
the United States Congress. In addition, legislation has been introduced
in the United States Congress that would require seven rotating warning
statements in all beverage alcohol advertising and promotional materials.
It is not possible to state whether any legislation or additional
regulations or action imposing additional labeling or other warning
statement requirements will be enacted, promulgated or taken in the U.S. or
export markets served by Beam, nor is it possible to predict the effect, if
any, that the existing labeling requirement or any additional labeling or
other warning statement requirements may have on the industry generally or
on Beam.
See Item 3, "Legal Proceedings".
Whyte & Mackay has been a distiller of scotch whisky since 1844.
Whyte & Mackay and its subsidiaries produce, bottle, market and sell
blended and single malt scotch whiskies, market and sell vodka and sell
scotch whisky in bulk. The principal brand names are Whyte & Mackay
Special Reserve, The Claymore and The Dalmore scotch whiskies and Vladivar
vodka. Whyte & Mackay believes that in both 1993 and 1992, its shares of
the United Kingdom scotch whisky and vodka markets were approximately 14%
and 11%, respectively. Whyte & Mackay's products are sold in the United
Kingdom through its own sales force and outside the United Kingdom,
principally in Japan and France, through independent distributors.
It is estimated that total case sales of scotch whisky in the
United Kingdom decreased by approximately 3% and 6% in 1991 and 1992,
respectively, but increased by 3% in 1993, and worldwide decreased by
approximately 6% in 1991, but increased by approximately 3% and 4% in 1992
and 1993, respectively. Whyte & Mackay's total case sales of scotch whisky
in the United Kingdom declined by approximately 9% in 1991 and 3% in 1992,
but increased by approximately 4% in 1993. Whyte & Mackay's total case
sales of scotch whisky worldwide decreased by approximately 8% in 1991 but
increased by approximately 1% and 10% in 1992 and 1993, respectively.
During 1993, 81% of Whyte & Mackay's total case sales were derived from
-13-
scotch whisky. In addition, 59% of Whyte & Mackay's total scotch whisky
case sales were made in the United Kingdom in 1993.
Blended scotch whiskies comprise a variety of grain and malt
whiskies blended to provide a consistent product. The industry is
therefore dependent on a high level of trading of whiskies between whisky
companies. Whyte & Mackay owns and operates three malt whisky distilleries
in the Highland region of Scotland whose product is used in the production
of Whyte & Mackay's blended whiskies and for trading purposes. Production
is also bottled as malt whiskies from the individual distilleries. Such
distilleries are located at Dalmore, Tomintoul and Fettercairn and produce
The Dalmore, Tomintoul-Glenlivet and Old Fettercairn single malt scotch
whiskies respectively.
Whyte & Mackay imports and markets in the United Kingdom a number
of brands, including Jim Beam bourbon, under agency arrangements. In the
United States, Beam is an importer and distributor of Whyte & Mackay's
brands.
During 1991, Whyte & Mackay purchased 41.3% of the outstanding
ordinary shares of Invergordon, a distiller, blender and marketer of scotch
whisky for a cost, including fees and expenses, of $255.5 million. During
the fourth quarter of 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 principal brand names of Invergordon are Mackinlay, Cluny,
Glayva, Isle of Jura and Bruichladdich. Invergordon owns and operates four
malt distilleries and one grain distillery in the Highland region of
Scotland and the Islands of Scotland whose product is used in the
production of Invergordon's blended whiskies and for trading purposes.
Production is also bottled as malt whiskies and as a single grain whisky
from the individual distilleries. In addition, Invergordon has a 50%
interest in Greenwich Distillers Limited, a distiller of neutral spirit for
the distilled spirits industry.
The United Kingdom Finance Act, 1992 provided for an increase in
the excise duties on distilled spirits with the result that the price of a
typical bottle of scotch whisky (which during 1991 decreased in size from
75 to 70 centilitres to comply with European Community standards) increased
by 31 pence. The price increase which resulted from this increase in taxes
on distilled spirits includes an associated increase customarily
implemented in conjunction with increases in United Kingdom distilled
spirits taxes to preserve wholesalers' and retailers' percentage gross
margins. It is believed that the 1992 increase was a major contributor to
reductions of volume sales for Whyte & Mackay and the industry in the
United Kingdom in that year. The United Kingdom Finance Act, 1993 did not
provide for any increase in the excise duties on distilled spirits. The
United Kingdom budget introduced on November 30, 1993 also did not provide
for any increase in the excise duties on distilled spirits. This second
budget in 1993 reflected the change in timing of United Kingdom budget
announcements from March to November. The effect of any future excise duty
increases cannot be determined, but it is possible that any future tax
increases would have an adverse effect on unit sales, add to the continuing
industry declines and lead to an increase in already competitive pricing
pressures.
-14-
Life Insurance
The Franklin Life Insurance Company ("Franklin") issues
individual life insurance, annuity and accident and health insurance
policies, group annuities and group life insurance, group credit life
insurance and group credit accident and health insurance, participates in
the U.S. Government's Servicemen's Group Life Insurance program and offers
a variety of whole life, universal life, retirement income and level and
decreasing term insurance plans. Emphasis is placed on the sale of
individual insurance programs that comply with the definition of life
insurance as provided in the Deficit Reduction Act of 1984. Franklin
writes insurance in all states of the United States (except that only
reinsurance is written in New York), the District of Columbia, Puerto Rico
and the U.S. Virgin Islands. A wholly-owned subsidiary of Franklin, The
Franklin United Life Insurance Company, is engaged in the writing of
individual life insurance, annuity and accident and health insurance
policies, group credit life and group credit accident and health insurance
in New York. Another subsidiary, The American Franklin Life Insurance
Company, is engaged in the writing of reinsurance, term, universal and
variable universal life insurance and single premium whole life insurance
and the sale of disability insurance and individual health insurance and is
licensed in 46 states and the District of Columbia. Through another
subsidiary, Franklin Financial Services Corporation, a registered broker-
dealer, Franklin also engages in the distribution of variable annuities and
mutual fund investments.
Franklin and its life insurance subsidiaries are legal reserve
stock life insurance companies and operate in an industry which is highly
competitive. There are about 2,000 legal reserve stock life insurance
companies in the United States. Competition comes from both stock and
mutual companies and is based upon price, product design and services
rendered to policyholders.
As of December 31, 1992, according to A. M. Best Company, Inc., a
statistical reporter upon financial position, history and operating results
of life insurance companies, among all life insurance companies doing
business in the United States and Canada, (i) Franklin had approximately
3/10 of 1% of the admitted assets of all such companies and ranked sixty-
first; (ii) Franklin had approximately 2/10 of 1% of the life insurance in
force in the United States and Canada and ranked eighty-fourth; and (iii)
Franklin wrote approximately 3/10 of 1% of the total new insurance written
in 1992 by such companies and ranked seventy-third. As of December 31,
1992, Franklin ranked thirty-sixth among United States stock life insurance
companies when measured by admitted assets and fifty-sixth among such
companies when measured by insurance in force.
Franklin operates on the general agency plan in which insurance
is sold by independent agents who are not employees of the company.
Certain highly publicized claims have been brought against other
companies in the industry alleging that some advertising and sales
practices are in violation of state insurance laws. It is possible that
this could lead to further regulation of the industry and restrictions on
advertising and sales practices relating to sales of insurance products.
-15-
Hardware and Home Improvement Products
MasterBrand Industries, Inc. ("MasterBrand") is a holding
company for subsidiaries in the Hardware and Home Improvement Products
business. Subsidiaries include Moen Incorporated ("Moen"), Master Lock
Company ("Master Lock"), Aristokraft, Inc. ("Aristokraft") and Waterloo
Industries, Inc. ("Waterloo").
Moen manufactures single- and two-handle faucets, sinks and
plumbing accessories and parts in the United States and East Asia and also
manufactures and packages a wide variety of plumbing supply and repair
products in the United States. Faucets are sold under a variety of
tradenames, including Moen, Moentrol, Touch Control, One-Touch, Riser,
Monticello, Concentrix, Chateau, Legend, Pulsation, Fountain-Flo and Sani-
Stream, and other products are sold under the Moen, Chicago Specialty,
Dearborn Brass, Wrightway, Anchor Brass, Shower After Shower and Hoov-R-
Line brand names. Some of the plumbing parts and repair products are
purchased from other manufacturers. Products are sold principally in the
United States and also in Canada, East Asia and Mexico. Sales are made
through Moen's own sales force and independent manufacturers'
representatives primarily to wholesalers, mass merchandisers and home
centers and also to industrial distributors, repackagers and original
equipment manufacturers.
Legislation has been introduced in the United States Congress
that if enacted would require a reduction in the lead content of plumbing
pipes, fittings and fixtures that convey drinking water, unless the EPA
issues regulations that establish minimum leaching levels of lead from new
plumbing pipes, fittings and fixtures. It is not possible to predict
whether federal, state or local legislation, regulations or action will be
enacted, promulgated or taken or the nature of any such legislation,
regulations or action, nor is it possible to predict the effect any such
legislation, regulations or action may have on the industry generally or on
Moen.
Master Lock manufactures key-controlled and combination padlocks,
chain and cable locks, bicycle locks, built-in locker locks and other
specialty security devices, and also manufactures door lock sets and door
hardware. Sales of products designed for consumer use are made to
wholesale distributors and to hardware and other retail outlets, while
sales of lock systems are made to industrial and institutional users,
original equipment manufacturers and retail outlets. Most sales are
brokered through independent manufacturers' representatives, primarily in
the United States and Canada.
Aristokraft manufactures kitchen cabinets and bathroom vanities.
Stock and semi-custom cabinets are sold under the brand names of
Aristokraft and Decora, respectively. Sales under the Aristokraft brand
name are made in the United States primarily through stocking distributors
for resale to kitchen and bath specialty dealers, lumber and building
material dealers, remodelers and builders. Decora products are sold
primarily to kitchen and bath specialty dealers and regional home centers.
Waterloo is the leading manufacturer of tool storage products in
the United States, consisting primarily of high quality steel tool boxes,
tool chests, workbenches and related products manufactured for private
-16-
label sale by one of the largest national retailers in the United States.
Similar products are sold under the Waterloo and All American brand names
to specialty industrial and automotive dealers, mass merchandisers, home
centers and hardware stores. Waterloo also manufactures hospital carts and
storage units and sells such products to institutional users.
See Item 3, "Legal Proceedings".
Office Products
ACCO World Corporation ("ACCO") is a holding company with
subsidiaries engaged worldwide in designing, developing, manufacturing and
marketing a wide variety of traditional and computer-related office
products and supplies, time management products, presentation aids,
workstation furniture and accessories. Products are manufactured by
subsidiaries, joint ventures and licensees of ACCO, or manufactured to such
subsidiaries' specification, throughout the world, principally in the
United States, Canada, Western Europe and Australia.
ACCO USA, Inc., a subsidiary of ACCO, manufactures binders,
fasteners, paper clips, punches, staples, stapling equipment and storage
products, as well as computer binders, supplies and accessories, in the
United States, and ACCO Canada Inc., a subsidiary of ACCO, manufactures and
distributes a similar range of office products in Canada. Principal brands
include ACCO products, Swingline staples and stapling equipment, Wilson
Jones binders and columnar pads and Perma Products corrugated board storage
products. Products are sold throughout the United States and Canada by
their respective sales forces to office products wholesalers, retailers and
dealers and are sold to mass merchandisers either directly or brokered
through independent manufacturers' representatives.
Subsidiaries of ACCO Europe PLC, a subsidiary of ACCO,
manufacture and distribute a wide range of office supplies and machines and
storage and retrieval filing systems. Their products are sold primarily in
the United Kingdom, Ireland, Western Europe and Australia through their own
sales forces and distributors.
Day-Timers, Inc., a subsidiary of ACCO, manufactures personal
organizers and planners in the United States and Canada and is estimated by
management to be the leading direct marketer of time management aids in
North America. Products are sold through direct mail advertising and
catalogs to consumers and businesses. A subsidiary conducts time
management seminars for personnel of corporations and other entities
throughout the United States and operates four retail stores. Another
subsidiary markets, principally in the United States, art and craft
supplies primarily to schools.
Vogel Peterson Furniture Company, a subsidiary of ACCO,
manufactures in the United States and distributes ergonomic chairs,
workstation components, office coat racks and partitions. Products are
sold in the United States and Canada to office product and furniture
dealers.
Kensington Microware Limited, a subsidiary of ACCO, designs,
develops and markets a range of computer accessories and supplies
principally in the United States.
-17-
Specialty Businesses
Golf products
The Titleist and Foot-Joy operations of Acushnet Company
("Acushnet") are comprised of the Titleist and Foot-Joy Worldwide Division
of Acushnet and, a subsidiary of Acushnet, Foot-Joy, Inc. ("Foot-Joy").
The Titleist and Foot-Joy Worldwide Division is a leading manufacturer and
distributor of golf balls and golf clubs, and also has a line of golf
accessories. The Division's leading brands are Titleist and Pinnacle golf
balls and DCI, Pro Trajectory and Bulls Eye golf clubs. Foot-Joy is the
leading manufacturer of golf shoes and golf gloves. Foot-Joy products also
include dress and athletic shoes as well as socks and related accessories.
Foot-Joy's leading brands are Classics and Dry-Joys golf shoes and Sta-Sof
and Weather-Sof golf gloves. Titleist and Foot-Joy products are sold
primarily to golf pro shops throughout the United States by the Titleist
and Foot-Joy Worldwide sales force, in the United Kingdom, in Canada and in
Germany through a subsidiary, in Japan through a majority-owned joint
venture, and outside these areas primarily through distributors.
Rubber products
The Rubber Division of Acushnet manufactures in the United States
and a majority-owned joint venture manufactures in Thailand a wide variety
of molded products made from natural and synthetic rubber and other
elastomeric materials. Sales are made primarily by the division's own
sales force and through distributors to industrial users principally in the
United States.
Optical goods and services
Dollond & Aitchison Group PLC ("Dollond & Aitchison"), a
subsidiary of Gallaher, and its subsidiaries are opticians. Dollond &
Aitchison is the largest retail optical group in the United Kingdom, with
447 optical service branches, and its subsidiaries form the largest retail
optical groups in Italy and Spain, with 85 branches and 77 branches,
respectively, and have 6 branches in the Republic of Ireland and a 50%
interest in 13 branches in Switzerland. Its subsidiary, Keeler Limited,
manufactures and sells a wide range of ophthalmic and medical instruments.
Retail distribution
Forbuoys PLC, a subsidiary of Gallaher, operates approximately
663 retail newspaper, tobacco, confectionery and stationery outlets in the
United Kingdom. Marshell Group Limited, a subsidiary of Gallaher, operates
approximately 562 kiosks that sell tobacco products in large stores and 66
retail newspaper, tobacco and confectionery outlets. Another subsidiary of
Gallaher, TM Group PLC, the largest vending machine operator in the United
Kingdom, dispenses cigarettes, snack foods and hot drinks through
approximately 41,000 on-site machines.
Housewares
The Prestige Group PLC ("Prestige"), a subsidiary of Gallaher,
manufactures houseware products, including cookware, kitchen tools and
-18-
carpet sweepers, in the United Kingdom and elsewhere. Its principal brand
names are Prestige and Ewbank. A subsidiary of Registrant is operated in
conjunction with Prestige and manufactures kitchen utensils in the United
States.
Other Matters
Employees
Registrant and its subsidiaries (other than Gallaher and its
subsidiaries) had, as of December 31, 1993, approximately 23,300 employees
in the United States and Canada, a substantial number of whom were covered
by collective bargaining agreements with various unions. Of this number,
approximately 3,300 were employed in the Tobacco Products segment, 1,500 in
the Distilled Spirits segment, 1,350 in the Life Insurance segment, 8,300
in the Hardware and Home Improvement Products segment, 5,000 in the Office
Products segment and 3,850 in the Specialty Businesses segment. In
addition, approximately 3,200 employees were employed in Europe by
subsidiaries of Registrant in the Office Products segment, a substantial
number of whom were covered by collective bargaining agreements with
various unions. Gallaher and its subsidiaries had, as of December 31,
1993, approximately 19,100 employees, a substantial number of whom were
covered by collective bargaining agreements with various unions and
approximately 4,700 of whom were employed in the Tobacco Products segment,
1,200 in the Distilled Spirits segment and 13,200 in the Specialty
Businesses segment.
In addition to the approximately 1,350 employees included in the
Life Insurance segment above, Franklin was represented by approximately 30
regional managers, 1,830 area managers, general agents and district
managers and 870 soliciting agents. The Franklin United Life Insurance
Company had approximately 210 agents.
Environmental controls
Registrant and its subsidiaries are subject to federal, state and
local laws and regulations 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. While it is not
possible to quantify with certainty the potential impact of actions
regarding environmental matters, particularly remediation and other
compliance efforts that Registrant's subsidiaries may undertake in the
future, in the opinion of management of Registrant compliance with the
present environmental protection laws, before taking into account estimated
recoveries from third parties, will not have a material adverse effect on
the capital expenditures, financial condition, results of operations or
competitive position of Registrant and its subsidiaries.
See Item 3, "Legal Proceedings".
(d) Financial information about foreign and domestic operations
and export sales.
Registrant's subsidiaries operate in the United States, Europe
(principally the United Kingdom) and other areas (principally Canada and
Australia). See the table captioned "Information on Business Segments"
-19-
contained in the 1993 Annual Report to Stockholders of Registrant, which
table is incorporated herein by reference. As is disclosed in such table,
Registrant has sizable investments in, and derives substantial income from,
Europe (principally the United Kingdom), and, therefore, changes in the
value of foreign currencies (principally sterling) can have a material
effect on Registrant's financial statements when expressed in dollars.
Item 2. Properties.
Registrant leases its principal executive offices in Old
Greenwich, Connecticut. The following is a description of properties of
Registrant's subsidiaries.
Tobacco Products
The principal properties of Gallaher and its subsidiaries include
Gallaher's head office in Weybridge, Surrey, England, office and warehouse
facilities in Northolt, Middlesex, England and Crewe, Cheshire, England, a
factory in Northern Ireland for the manufacture of cigarettes and smoking
tobaccos, a factory in England for the manufacture of cigarettes and two
factories in Wales for the manufacture of cigars. Each of these properties
is owned or held under long-term lease with an option to acquire by
Gallaher or one of its subsidiaries. The principal properties of Gallaher
and its subsidiaries also include a factory in the Republic of Ireland,
owned and operated by Gallaher (Dublin) Limited, for the manufacture of
cigarettes and smoking tobaccos. Gallaher also has a research laboratory
in the Northern Ireland factory complex. For a description of properties
of other subsidiaries of Gallaher, see "Distilled Spirits" and "Specialty
Businesses".
ATCO leases its executive offices in Stamford, Connecticut.
ATCO's cigarette manufacturing plant is owned by it and is located in
Reidsville, North Carolina. ATCO owns its administrative offices, a
research facility and an auxiliary processing facility near Richmond,
Virginia. Golden Belt, a subsidiary of ATCO, owns and operates a plant in
North Carolina.
Distilled Spirits
Beam leases its executive offices in Deerfield, Illinois, and a
subsidiary leases an office in Burnaby, British Columbia. Beam and its
subsidiaries own and operate five bottling plants and three distilleries
and approximately 95 warehouses for the aging of bulk whiskies, and lease
and operate 17 regional sales offices and several warehouses for the
storage of promotional material, all located in the United States,
Australia and Canada. Beam also owns and operates approximately 70 U.S.
bonded warehouses. Whyte & Mackay leases its head office in Glasgow,
Scotland and owns and operates three distilleries and two blending and
bottling plants in Scotland. Invergordon owns its head offices in
Edinburgh, Scotland and owns and operates four malt distilleries, one grain
distillery and a blending and bottling plant in Scotland.
Life Insurance
Franklin owns its home office building in Springfield, Illinois.
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Hardware and Home Improvement Products
MasterBrand leases its executive offices in Deerfield, Illinois
and a subsidiary, Moen, owns its executive office in North Olmstead, Ohio.
Principal properties of subsidiaries of MasterBrand include nineteen
plants, four distribution centers and one warehouse owned and operated in
the United States. A 50%-owned joint venture in Taiwan owns and operates
one plant. In addition, subsidiaries of MasterBrand lease and operate
three plants and four warehouses in the United States and eleven
distribution centers, of which eight are in the United States and one each
in Canada, Japan and Mexico.
Office Products
ACCO leases its executive offices in Deerfield, Illinois.
Principal properties of subsidiaries of ACCO include eight plants owned and
operated in the United States, seven in the United Kingdom, and one in each
of Germany, Italy, France, Australia, The Netherlands, the Republic of
Ireland and Mexico. In addition, subsidiaries of ACCO lease and operate
eleven facilities in the United States, four in the United Kingdom, three
in Canada and one in each of Australia, France and Italy. Of these leased
facilities, (i) four in the United States, two in the United Kingdom, three
in Canada and one in each of Australia and France, are combined
manufacturing and distribution facilities, (ii) five in the United States,
two in the United Kingdom and one in Italy, are distribution facilities and
(iii) two in the United States are manufacturing facilities. A subsidiary
also leases four retail stores in the United States.
Specialty Businesses
Acushnet owns its combined executive office and research and
development facility in Fairhaven, Massachusetts. In addition, it owns and
operates two plants, one warehouse, two plants with combined manufacturing
and warehousing operations and a test facility, and leases and operates one
plant, two warehouses, a research and development facility and a test
facility, all located in the United States. In addition, Foot-Joy owns and
operates a plant and a warehouse and leases and operates a retail store and
a warehouse in the United States and also leases an office in Taiwan. A
subsidiary of Acushnet leases two combined sales offices and warehouse
facilities in Canada. Other Acushnet subsidiaries own and operate a plant
and a warehouse in England and lease a sales office and a warehouse in
Germany, Austria, Denmark and France, and lease a sales office in the
Republic of Ireland. Acushnet's majority-owned joint venture in Japan
leases two sales offices and one storage facility there. Acushnet's
majority-owned joint venture in Thailand leases and operates one
manufacturing and warehouse facility there and Foot-Joy's majority-owned
joint venture in Thailand leases and operates two plants there. Plants of
subsidiaries of Gallaher include three plants in England owned or leased
and operated by Dollond & Aitchison. Prestige leases its head office in
Egham, England and owns and operates a plant in Burnley, England. Prestige
also owns and operates a plant in each of Spain and Australia. A
subsidiary of Registrant, which is operated in conjunction with Prestige,
leases one plant in North Carolina.
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Registrant and its subsidiaries are of the opinion that their
properties are suitable to their respective businesses and have productive
capacities adequate to the needs of such businesses.
Item 3. Legal Proceedings.
(a) (i) ATCO and other leading tobacco manufacturers have been
sued by parties seeking damages for cancer and other ailments claimed to
have resulted from tobacco use and by certain asbestos manufacturers
seeking unspecified amounts in indemnity or contribution in third-party
actions against all or most of the major domestic tobacco manufacturers.
At March 25, 1994, ATCO or ATCO's predecessor had disposed of 233 actions,
and the industry a total of 422, all without recovery by the plaintiffs or
by the third-party plaintiffs. Although there was a jury award which was
overturned on appeal against another tobacco manufacturer in the Cipollone
case, discussed below, there has been no actual recovery of damages to date
in any such action against the tobacco manufacturers; however, unfavorable
decisions in other cases could increase filing of additional actions
against the tobacco manufacturers, which would add to the high cost of
defending such litigation as well as increase the defendants' damage
exposure.
Eighteen cases have come to trial, all against manufacturers as
direct defendants. Sixteen of such cases resulted in judgments for the
defendant or defendants. At March 25, 1994, ATCO was a defendant in 28
pending cases. In two cases, ATCO has been joined as a defendant with
members of the asbestos industry and it is alleged that the combination of
smoking and exposure to asbestos produced injury and death. One case in
which ATCO is a defendant, Butler, et al. v. R.J. Reynolds Tobacco Co., et
al., described below, in which plaintiffs are seeking damages for alleged
injuries claimed to have resulted from exposure to tobacco smoking of
others, is scheduled to come to trial on September 5, 1994. In Wilkes, et
al. v. The American Tobacco Company, et al., described below, the jury
found in favor of the defendants on June 17, 1993. Plaintiffs have
appealed from the judgment entered on the jury verdict and from the trial
court's denial of their request to seek "lifetime damages" unrelated to the
cause of death and their request to seek punitive damages. ATCO has cross-
appealed from the trial court's pretrial ruling regarding "absolute
liability" and the court's ruling striking defendants' affirmative
defenses.
In Horton, et al. v. The American Tobacco Company, et al.,
described below, on September 24, 1990, the jury found "for the plaintiffs
against [T]he American Tobacco Company and against New Deal Tobacco and
Candy Company, Inc. and assessed actual damages at $0." Plaintiffs have
appealed from the judgment entered on the jury verdict and from the court's
denial of their post-trial motion for, alternatively, an additur on
damages, a new trial on the issue of damages or a new trial on all issues.
ATCO has cross-appealed from the judgment and from the court's order
denying its motion for judgment notwithstanding the verdict. Oral argument
on the appeals took place before the Mississippi Supreme Court on August
17, 1993. In Broin, et al. v. Philip Morris Companies Inc., et al.,
described below, certain airline flight attendants are seeking unspecified
compensatory and $5 billion punitive damages for alleged injuries claimed
to have resulted from exposure to tobacco smoking of others and are seeking
to establish class-action status on behalf of other alleged nonsmoking
-22-
flight attendants. ATCO's counsel, Chadbourne & Parke, have advised that,
in their opinion, the specified damages claimed in pending actions against
ATCO, which approximate $6,618,185,000 in the aggregate, are exaggerated.
It has been reported that certain groups of attorneys are interested in
promoting product liability suits against the tobacco manufacturers. It
has also been reported that other claims against the tobacco manufacturers
may be made seeking damages for alleged injuries claimed to have resulted
from exposure to tobacco smoking of others.
In Cordova v. Liggett Group Inc., et al., described below,
plaintiffs are seeking injunctive relief and restitution on behalf of the
general public of the State of California for defendants' claimed failure
to disclose to the public information regarding research relating to
smoking and health sponsored by The Council for Tobacco Research, an
organization whose members include ATCO and other cigarette manufacturers.
Plaintiff's complaint in Cordova references the opinion filed February 6,
1992 by Judge Sarokin of the United States District Court for the District
of New Jersey in the case of Haines v. Liggett Group Inc., et al., to which
ATCO is not a party. In that opinion, Judge Sarokin ruled that plaintiff
had made sufficient showing of evidence to warrant disclosure under the
crime-fraud exception to the attorney-client privilege of documents
regarding research relating to smoking and health sponsored by The Council
for Tobacco Research which the defendants in that case had claimed were
protected from discovery by plaintiff. Defendants in Haines sought
appellate review of Judge Sarokin's February 6, 1992 opinion. On September
4, 1992, the United States Court of Appeals for the Third Circuit granted
defendant's petition for writ of mandamus and directed that Judge Sarokin's
February 6, 1992 ruling be vacated and that the case be remanded and
assigned to another District Court judge. The opinion of the Court of
Appeals also stated that the District Court judge to whom the case is
reassigned on remand may reconsider the magistrate judge's order stating
that the crime-fraud exception did not apply, which order had been reversed
by Judge Sarokin's ruling, or alternatively may remand the proceedings to
the magistrate judge for his reconsideration. On September 14, 1992, Judge
Sarokin, as directed, vacated his February 6, 1992 opinion and orders in
Haines. Plaintiff's allegations in Haines may be similar to allegations
which have been made in other actions in which ATCO is a defendant. ATCO
has been advised that the United States Attorney for the Eastern District
of New York has commenced a criminal investigation in connection with
activities relating to The Council for Tobacco Research following the
February 6, 1992 opinion in Haines. It is not possible to predict the
outcome of the investigation.
Another case, Cipollone v. Liggett Group, Inc., et al., tried
against manufacturers other than ATCO, resulted in a jury award of $400,000
against one of three defendants on a theory of breach of warranty. On
January 5, 1990, the jury award in Cipollone was reversed and remanded for
a new trial by the United States Court of Appeals for the Third Circuit.
Plaintiff petitioned the United States Supreme Court to review that ruling.
As described below, on June 24, 1992, the Supreme Court reversed in part
and affirmed in part the ruling of the Court of Appeals. The Cipollone
case was tried before Judge Sarokin. On September 11, 1992, following the
September 4, 1992 decision of the United States Court of Appeals for the
Third Circuit in Haines discussed above, Judge Sarokin removed himself from
the Cipollone case. On November 5, 1992, plaintiff voluntarily dismissed
the Cipollone case with prejudice. Counsel for plaintiff in Cipollone also
-23-
represented the plaintiffs in Smith, et al. v. R.J. Reynolds Tobacco Co.,
et al. and the plaintiff in Haines. On December 2, 1992, plaintiffs'
counsel in Smith filed a motion to withdraw as counsel of record; that
motion was granted on January 8, 1993. Plaintiffs appealed the ruling. On
August 9, 1993, the Appellate Division of the New Jersey Superior Court
vacated the lower court's ruling which had permitted plaintiffs' counsel to
withdraw. The appellate court directed that the trial court convene a
hearing on plaintiffs' counsel's motion to withdraw. Plaintiff's counsel
in Haines also sought to withdraw and be substituted by new counsel. The
motion to withdraw in Haines, however, was denied by United States District
Judge Lechner on January 26, 1993. Counsel appealed. Argument on that
appeal was heard before the Court of Appeals for the Third Circuit on
September 22, 1993.
On June 24, 1992, the Supreme Court reversed in part and affirmed
in part the ruling of the Court of Appeals for the Third Circuit in
Cipollone. The Supreme Court held that the 1965 version of the Labeling
Act did not preempt lawsuits seeking money damages for personal injuries
allegedly caused by cigarette smoking. The Supreme Court further held that
the Public Health Cigarette Smoking Act of 1969, which, among other things,
amended the preemption provision of the 1965 version of the Labeling Act
effective July 1, 1969, preempts such lawsuits based on alleged failure to
warn and the neutralization of the federally mandated warnings to the
extent that those claims rely on omissions or inclusions in cigarette
advertising or promotions, but that the 1969 version of the Labeling Act
does not preempt claims based on alleged breach of express warranty, or
certain claims based on intentional fraud and misrepresentation or
conspiracy.
In addition, legislation has been introduced in the United States
Congress that if enacted would limit the effect of the preemption
provisions of the Labeling Act. It is not possible to predict whether or
not the Supreme Court's decision in Cipollone will affect, or whether or
not the enactment of any such legislation would affect, filing of
additional actions against tobacco manufacturers and, as a result,
litigation costs and defendant's damage exposure.
ATCO has received a civil investigative demand from the U.S.
Department of Justice, Antitrust Division, seeking the production of
documents relating to matters including "fire-safe or self-extinguishing
cigarettes". The civil investigative demand states that it has been issued
in the course of an investigation to determine whether there is or has been
a violation of Section 1 of the Sherman Act. It is not possible to predict
the outcome of the investigation.
While it is not possible to predict the outcome of pending
litigation, management of Registrant does not believe that, based on
failure of recovery to date except as noted above and the advice of
counsel, the pending litigation will have a material adverse effect on
Registrant's financial condition. If, however, there were to be a
significant increase in such litigation, the increased financial burden
could be material. See the note captioned "Pending Litigation" in the
Notes to Consolidated Financial Statements contained in the 1993 Annual
Report to Stockholders of Registrant, which note is incorporated herein by
reference.
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ATCO's counsel have advised that, in their opinion, on the basis
of their investigations generally with respect to suits and claims of this
character, ATCO has meritorious defenses to the above-mentioned actions and
threatened actions. The actions will be vigorously defended on the merits.
Except as otherwise noted, the following sets forth the principal
parties to the above-described pending proceedings, the court in which such
proceedings are pending and the date such proceedings were instituted
against ATCO or ATCO's predecessor: Allgood v. R.J. Reynolds Tobacco
Company, et al., United States District Court for the Southern District of
Texas, January 4, 1991; Arabie v. R.J. Reynolds Tobacco Company, et al.,
District Court, State of Louisiana, Parish of Jefferson, October 5, 1993;
Blanchard, et al. v. Brown and Williamson Tobacco Corp., et al., District
Court, State of Texas, County of Galveston, December 28, 1992; Bluitt v.
R.J. Reynolds Tobacco Co., et al., United States District Court for the
Northern District of Texas, August 30, 1993; Bridges, et al. v. The
American Tobacco Company, Supreme Court, State of New York, County of
Albany, November 17, 1970; Broin, et al. v. Philip Morris Companies, Inc.,
et al., Circuit Court of the 11th Judicial Circuit, State of Florida,
County of Dade, November 8, 1991; Butler v. R.J. Reynolds Tobacco Co., et
al., United States District Court for the Southern District of Mississippi,
October 23, 1992; Chustz v. R.J. Reynolds Tobacco Company, et al., United
States District Court for the Middle District of Louisiana, August 13,
1993; Cordova v. Liggett Group, Inc., et al., Superior Court of the State
of California for the County of San Diego, May 12, 1992; Dunn v. RJR
Nabisco Holdings Corporation, et al., Superior Court State of Indiana,
County of Delaware, May 28, 1993; Dyer, et al. v. American Tobacco Company,
Inc., et al., District Court, State of Texas, County of Travis, December
20, 1985; Gilboy, et al. v. American Tobacco Company, et al., District
Court, State of Louisiana, Parish of East Baton Rouge, April 8, 1987;
Grinnell, et al. v. The American Tobacco Co., Inc., et al., District Court,
State of Texas, County of Jefferson, October 22, 1985; Haight, et al. v.
The American Tobacco Co., et al., Circuit Court of Kanawha County, West
Virginia, May 30, 1984; Horton, et al. v. The American Tobacco Company, et
al., Circuit Court, State of Mississippi, County of Lafayette, May 12,
1986; Hulin, et al. v. Fibreboard Corporation, et al., United States
District Court for the Middle District of Louisiana, January 15, 1986;
Hutchin v. American Tobacco Company, et al., United States District Court
for the Western District of Louisiana, September 29, 1992; Manago, et al.
v. Lorillard, Inc. et al., Supreme Court, State of New York, County of
Queens, March 21, 1988; Miceli v. American Tobacco Company, et al.,
District Court, State of Louisiana, Parish of East Baton Rouge, August 3,
1987; Miceli v. Armstrong World Industries, et al., District Court, State
of Louisiana, Parish of East Baton Rouge, January 18, 1989; Pitre v. GAF
Corporation, et al., District Court, Parish of East Baton Rouge, State of
Louisiana, December 18, 1992; Rogers, I.D., et al. v. R.J. Reynolds Tobacco
Company, et al., District Court, State of Texas, County of Jefferson, March
14, 1985; Rogers, Y., Executrix v. R.J. Reynolds Tobacco Co., et al.,
Superior Court, State of Indiana, County of Marion, March 27, 1987;
Rothgeb, et al. v. The American Tobacco Company, et al., District Court,
State of Texas, County of Travis, June 9, 1986; Smith, et al. v. R.J.
Reynolds Tobacco Co., et al., Superior Court, State of New Jersey, County
of Middlesex, September 24, 1984; Smith, Administrator v. American Tobacco
Company, Court of Common Pleas, Commonwealth of Pennsylvania, County of
Philadelphia, summons served July 1, 1970; Voth v. Forsyth Tobacco
Products, et al., United States District Court for the District of Oregon,
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August 10, 1993; Wilkes, et al. v. The American Tobacco Company, et al.,
Circuit Court, State of Mississippi, County of Holmes, January 6, 1988.
With regard to proceedings of the above-described type which have
been terminated and not previously reported as such: Jamerson v. American
Brands, Inc., et al., which was previously pending in the United States
District Court for the Eastern District of New York and instituted on July
25, 1990, was voluntarily dismissed by stipulation on November 5, 1993;
White v. The American Tobacco Company, et al., which was previously pending
in the United States District Court for the District of Nevada and
instituted on February 13, 1989, was dismissed on summary judgment on
December 2, 1991, and affirmed by the United States Court of Appeals for
the Ninth Circuit on August 20, 1993; Bentz v. Eagle Tobacco Corp., et al.,
which was previously pending in the United States District Court for the
District of Oregon and instituted on September 27, 1993, was dismissed with
prejudice on October 21, 1993; Guillory v. R.J. Reynolds tobacco Company,
et al., which was previously pending in the United States District Court
for the Western District of Louisiana and instituted on February 18, 1993,
was voluntarily dismissed without prejudice on November 22, 1993; Dalio v.
Philip Morris, Inc., et al., which was previously pending in Superior
Court, County of Middlesex, Massachusetts and instituted on January 11,
1993, was dismissed with prejudice by stipulation on January 7, 1994; and
Marks v. R.J. Reynolds Tobacco Company, et al., which was previously
pending in the United States District Court for the Western District of
Louisiana and instituted on September 21, 1992, was dismissed with
prejudice as to ATCO on January 24, 1994.
(ii) Dean v. Gallaher Limited is an action commenced in the High
Court of Justice in Northern Ireland in which plaintiff seeks unspecified
damages including lost income for claimed personal injuries allegedly
related to cigarette smoking. In March 1988, plaintiff obtained Legal Aid
to proceed up to the point of trial. He served his Writ of Summons in
August 1988 and his Statement of Claim in August 1989. Plaintiff filed an
amended Statement of Claim on October 6, 1993. Gallaher subsequently filed
a motion to strike from the amended Statement of Claim a predecessor to
Gallaher, Hergall (1981) Limited (In Liquidation) ("Hergall"), as a second
defendant in the action. The motion was heard on November 30, 1993 and was
granted. Plaintiff served a Writ of Summons on Hergall on December 1, 1993
and a Statement of Claim against Hergall on February 22, 1994. Plaintiff's
lawyers also purported to re-amend the statement of claim against Gallaher.
Applications are expected to be made by Gallaher and Hergall in May 1994 to
strike out parts of the statements of claim against those companies. The
companies have obtained orders extending the time in which their defenses
must be served until after the hearing of the "strike-out" applications.
Plaintiff's appeals against those extension of time orders are also due to
be heard in May 1994. Lawyers in the United Kingdom have sought Legal Aid
to prepare and file other smoking and health lawsuits against tobacco
manufacturers, but to date, all such requests have been denied, with the
exception of the plaintiffs in the Dean case and the Brennan case described
below. An application for Judicial Review of the refusal to grant Legal
Aid to approximately 225 prospective plaintiffs in actions against tobacco
companies, including Gallaher, is pending. Tobacco manufacturers,
including Gallaher, have been advised they are entitled to participate in
the Judicial Review and are seeking an order of the court to that effect.
In Brennan v. Gallaher Limited, pending in the High Court of Justice in
Northern Ireland, plaintiff, a former employee of Gallaher, seeks
-26-
unspecified damages for claimed personal injuries from the alleged
"provision of cigarettes for [sic] the plaintiff". Plaintiff served her
Writ of Summons in October 1990, and no Statement of Claim has been
received. Counsel have advised that, in their opinion, on the basis of
their investigation, Gallaher has meritorious defenses to these actions,
and they will be vigorously defended on the merits. In addition, Gallaher
received a letter before action dated July 23, 1992 from a solicitor in
Scotland acting for Alfred McTear stating that his client had instructed
him to make a claim against Gallaher for lung cancer claimed to have been
caused by smoking. In January 1993 Gallaher received a letter from
plaintiff's solicitors indicating that they did not intend to proceed
against Gallaher and on January 28, 1993, plaintiff filed and served a Writ
of Summons and Condescendence in the Court of Session naming only Imperial
Tobacco Limited as defendant.
(b) Registrant is aware of four lawsuits brought against
manufacturers of alcoholic beverages in which alleged birth defects in
infants were claimed to have been caused by the consumption of alcohol
during pregnancy by the mothers of the infants. None of those actions is
currently pending. Beam was a defendant in one of these lawsuits, and such
lawsuit resulted in a jury verdict in favor of Beam in 1989. The other
actions were dismissed without prejudice at the request of the plaintiffs.
Registrant is also aware of other lawsuits against manufacturers of
alcoholic beverages in which other various claimed injuries have been
alleged to have been caused by their products. Beam has successfully
defended such actions brought against it in the past. On September 29,
1992, the jury in Brune v. Brown-Forman Corp., a Nueces County, Texas state
court action alleging the defendant failed to warn about the risk of death
from excessive alcohol consumption, returned a verdict holding the
defendant responsible for 35% of $1,500,000 in damages. Brown-Forman has
appealed this verdict. Neither Registrant nor any of its subsidiaries,
including Jim Beam Brands Co., is a party to this action.
(c) Forstmann Leff Associates, Inc., et al. v. American Brands,
Inc., et al., is an action commenced in the United States District Court
for the Southern District of New York on June 28, 1988. Plaintiffs,
alleged holders of 12.85% Senior Subordinated Notes due 1997 and 13.05%
Subordinated Debentures due 1999 of E-II Holdings Inc., formerly a
subsidiary of Registrant ("E-II"), allege, inter alia, that defendants
violated Sections 14(e), 10(b) and 20(a) of the Securities Exchange Act of
1934 and Rule 10b-5 promulgated thereunder and engaged in common law fraud
by intentionally or recklessly making certain allegedly false and
misleading statements of material fact, failing to disclose certain
material facts and failing to correct false and misleading statements in
connection with the Offer To Purchase And Consent Solicitation for All
12.85% Senior Subordinated Notes due 1997 and All 13.05% Subordinated
Debentures due 1999 of E-II (the "Offer to Purchase") by AMBR Holdings
Inc., formerly a subsidiary of Registrant ("AMBR"), and certain filings
made by Registrant, AMBR and E-II with the Securities and Exchange
Commission regarding their alleged plans for the disposition of E-II and
certain subsidiaries of E-II. On August 26, 1991, plaintiffs served their
fourth amended complaint making substantially the same allegations as did
their previous complaints and seeking not less than $400 million in damages
against Registrant and two executive officers and a former executive
officer of Registrant. The Board of Directors of Registrant has determined
that such officers and former officer shall be indemnified in full by
-27-
Registrant for all expense, liability and loss reasonably incurred by them
in connection with such action. On November 19, 1993 Registrant settled
for approximately $11 million the claims of the remaining plaintiffs
holding approximately 20% of the total face amount of E-II debt securities
originally alleged to be represented in the Forstmann Leff action. These
remaining plaintiffs also released all of their claims against two
executive officers and a former executive officer of Registrant.
Registrant had previously settled for approximately $37.3 million the
claims of the holders of approximately 80% of the total face amount of E-II
debt securities originally alleged to be represented in the action. As in
the case of the earlier settlements, previously-established reserves fully
covered the amount paid in the settlement with the remaining plaintiffs.
(d) People of the State of California ex rel. Daniel E. Lungren,
Attorney General of the State of California v. American Standard, et al.,
is an action commenced on December 15, 1992 against Moen and 15 other
faucet manufacturers and distributors in the Superior Court of the State of
California, County of San Francisco. The Attorney General of California
alleges violations of California Health and Safety Code Sections 25249.5
and 25249.6 (Proposition 65), as well as two violations of the California
Business and Professions Code Section 17200, for alleged intentional
discharge of lead from faucets to sources of drinking water and failure to
provide clear and reasonable warnings to consumers, and seeks civil
penalties of up to $2,500 per day per violation on each cause of action.
The Attorney General also seeks injunctive relief prohibiting further
discharges of lead from faucets into drinking water sources or, in the
alternative, requiring clear and reasonable warnings regarding lead in
faucets, restitution to consumers and other relief. A related action
against these companies and others, including Moen, MasterBrand and
Registrant, has also been brought by environmental groups in the same
court, Natural Resources Defense Council, et al., v. Price Pfister, Inc.,
et al. In that case, plaintiffs allege the same claims as the Attorney
General's action and also allege certain other violations, including
violation of the Consumer Legal Remedies Act, Civil Code Section 1750. The
plaintiffs seek similar injunctive relief and establishment of a public
information campaign concerning lead from faucets, restitution and
disgorgement of funds obtained from California consumers by unlawful or
unfair business practices and establishment of a fund for medical
monitoring of infants exposed to lead from faucets. The plaintiffs also
seek compensatory damages, statutory penalties, punitive damages,
reasonable attorneys' fees and costs. On July 26, 1993, an agreement was
filed whereby plaintiffs in Natural Resources Defense Council agreed to
dismiss without prejudice the action as to MasterBrand and Registrant. The
plaintiffs in both actions moved for injunctive relief to require certain
of the defendants to post prescribed warnings. In Natural Resources
Defense Council, the court refused to issue any order regarding the motion
pending resolution of defendants' demurrer challenging plaintiffs' standing
to bring the action, which demurrer was filed on April 16, 1993. A hearing
on the demurrer has been delayed until further notice from the court. In
Lungren, on May 17, 1993, the court issued an order requiring certain of
the defendants in the action, including Moen, to provide warnings in
accordance with the protocol voluntarily proposed by the defendants. The
court made no finding of liability for failure to warn. On April 16, 1993,
defendants filed a demurrer in respect of plaintiffs' claims based on
defendants' alleged intentional discharge of lead from faucets to sources
-28-
of drinking water. A hearing on the demurrer has been delayed until
further notice from the court. These actions will be vigorously contested.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 4a. Executive Officers of the Registrant.
The name, present positions and offices with Registrant,
principal occupations during the past five years and age of each of
Registrant's present executive officers are as follows:
Present positions and offices with
Registrant and principal occupations
Name during the past five years Age
- ---- ------------------------------------ ---
William J. Alley Chairman of the Board and Chief Executive 64
Officer of Registrant
Thomas C. Hays President and Chief Operating Officer of 58
Registrant
Arnold Henson Executive Vice President and Chief Financial 62
Officer of Registrant
Robert L. Plancher Senior Vice President and Chief Accounting 62
Officer of Registrant
Robert J. Rukeyser Senior Vice President -- Corporate Affairs 51
of Registrant since 1990; Vice President --
Operations of Registrant prior thereto
Gilbert L. Klemann, II Senior Vice President and General Counsel 43
of Registrant since 1991; Vice President
and Associate General Counsel of Registrant
during 1991; Partner, Chadbourne & Parke
(law firm) prior thereto
John T. Ludes Group Vice President of Registrant; President 57
and Chief Executive Officer of Acushnet since
1982; Chairman of Titleist and Foot-Joy
Worldwide since 1992
Howard C. Humphrey Vice President -- Life Insurance of 60
Registrant since 1989; Chairman of the Board,
President and Chief Executive Officer
of Franklin since 1992; Chairman of the
Board and Chief Executive Officer of
Franklin from 1990 to 1992; Chairman
of the Board, President and Chief Executive
Officer of Franklin prior thereto
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Present positions and offices with
Registrant and principal occupations
Name during the past five years Age
- ---- ------------------------------------ ---
Randall W. Larrimore Vice President -- Hardware and Home 46
Improvement Products of Registrant;
President and Chief Executive Officer
of MasterBrand
Steven C. Mendenhall Vice President and Chief Administrative 45
Officer of Registrant since 1993; Vice
President -- Human Resources prior thereto
Barry M. Berish Vice President -- Distilled Spirits of 61
Registrant since 1990; Chairman of the
Board and Chief Executive Officer of
Beam since 1993; President and Chief
Executive Officer of Beam prior thereto
Norman H. Wesley Vice President -- Office Products of 44
Registrant since 1990; President and Chief
Executive Officer of ACCO since 1990;
President and Chief Operating Officer of
ACCO prior thereto
Mr. Peter M. Wilson, who has been a member of the Executive
Committee of the Board of Directors of Registrant and Chairman and Chief
Executive of Gallaher since February 1, 1994, is deemed to be an executive
officer of Registrant for the purposes of this Item 4a. Mr. Wilson was
Joint Deputy Chairman of Gallaher from 1987 to 1989 and Deputy Chairman
from 1989 to 1994 and has been Chairman and Chief Executive of Gallaher
Tobacco Limited since 1987. His age is 52.
In the case of each of the above-listed executive officers, the
occupation or occupations given were his principal occupation and
employment during the period or periods indicated. None of such executive
officers is related to any other such executive officer. None was selected
pursuant to any arrangement or understanding between him and any other
person. All executive officers are elected annually.
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters.
See the information in the tables captioned "Quarterly Common
Stock Dividend Payments" and "Quarterly Composite Common Stock Prices" and
the discussion relating thereto contained in the 1993 Annual Report to
Stockholders of the Registrant, which information and discussion are
incorporated herein by reference. On March 4, 1994, there were 63,697
record holders of Registrant's Common Stock, par value $3.125 per share.
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Item 6. Selected Financial Data.
See the information in the table captioned "Eleven-Year
Consolidated Selected Financial Data" contained in the 1993 Annual Report
to Stockholders of the Registrant, which information is incorporated herein
by reference.
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
See the discussion and analysis under the captions "Results of
Operations" and "Financial Review" contained in the 1993 Annual Report to
Stockholders of Registrant, which discussion and analysis are incorporated
herein by reference.
Item 8. Financial Statements and Supplementary Data.
See the information in the Consolidated Statement of Income,
Consolidated Balance Sheet, Consolidated Statement of Cash Flows,
Consolidated Statement of Common Stockholders' Equity, Notes to
Consolidated Financial Statements and Report of Independent Accountants
contained in the 1993 Annual Report to Stockholders of Registrant, which
information is incorporated herein by reference. For unaudited selected
quarterly financial data, see the table captioned "Quarterly Financial
Data" contained in the 1993 Annual Report to Stockholders of Registrant,
which table is incorporated herein by reference.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of Registrant.
See the information under the caption "Election of Directors"
contained in the Proxy Statement for the Annual Meeting of Stockholders of
Registrant to be held on May 3, 1994, which information is incorporated
herein by reference. See also the information with respect to executive
officers of Registrant under Item 4a of Part I hereof, which information is
incorporated herein by reference.
Item 11. Executive Compensation.
See the information up to but not including the subcaption
"Report of the Compensation and Stock Option Committee on Executive
Compensation" under the caption "Executive Compensation" contained in the
Proxy Statement for the Annual Meeting of Stockholders of Registrant to be
held on May 3, 1994, which information is incorporated herein by reference.
-31-
Item 12. Security Ownership of Certain
Beneficial Owners and Management.
See the information in the table and notes related thereto and in
the third to last paragraph under the caption "Election of Directors" and
the information under the caption "Certain Information Regarding Security
Holdings" contained in the Proxy Statement for the Annual Meeting of
Stockholders of Registrant to be held on May 3, 1994, which information is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
See the information in the second to last paragraph under the
caption "Election of Directors" contained in the Proxy Statement for the
Annual Meeting of Stockholders of Registrant to be held on May 3, 1994,
which information is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K.
(a) Financial Statements, Financial Statement Schedules and
Exhibits.
(1) Financial Statements (all financial statements listed below are of
Registrant and its consolidated subsidiaries)
Consolidated Statement of Income for the years ended December 31,
1993, 1992 and 1991 contained in the 1993 Annual Report to
Stockholders of Registrant is incorporated herein by reference.
Consolidated Balance Sheet as of December 31, 1993 and 1992
contained in the 1993 Annual Report to Stockholders of Registrant
is incorporated herein by reference.
Consolidated Statement of Cash Flows for the years ended December
31, 1993, 1992 and 1991 contained in the 1993 Annual Report to
Stockholders of Registrant is incorporated herein by reference.
Consolidated Statement of Common Stockholders' Equity for the
years ended December 31, 1993, 1992 and 1991 contained in the
1993 Annual Report to Stockholders of Registrant is incorporated
herein by reference.
Notes to Consolidated Financial Statements contained in the 1993
Annual Report to Stockholders of Registrant are incorporated
herein by reference.
Report of Independent Accountants contained in the 1993 Annual
Report to Stockholders of Registrant is incorporated herein by
reference.
-32-
(2) Financial Statement Schedules
See Index to Financial Statement Schedules of Registrant and
subsidiaries at page F-1, which Index is incorporated herein by
reference.
(3) Exhibits
3(i). Certificate of Incorporation of Registrant as in effect on the
date hereof is incorporated herein by reference to Exhibit 3a2 to
the Quarterly Report on Form 10-Q of Registrant dated May 14,
1990.
3(ii). By-laws of Registrant as in effect on the date hereof are
incorporated herein by reference to Exhibit 3(ii)b to the
Quarterly Report on Form 10-Q of Registrant dated November 11,
1993.
10a1. Article XII ("Incentive Compensation") of the By-laws of
Registrant is incorporated herein by reference to Exhibit 3(ii)b
to the Quarterly Report on Form 10-Q of Registrant dated November
11, 1993.*
10b1. Stock Option Plan of American Brands, Inc., as amended is
incorporated herein by reference to Exhibit 10b1 to the Annual
Report on Form 10-K of Registrant for the Fiscal Year ended
December 31, 1992.*
10b2. Amendment to Stock Option Plan of American Brands, Inc.
constituting Exhibit 10b1 hereto is incorporated herein by
reference to Exhibit 10a to the Quarterly Report on Form 10-Q of
Registrant dated November 11, 1993.*
10b3. 1986 Stock Option Plan of American Brands, Inc. and amendments
thereto is incorporated herein by reference to Exhibit 10b2 to
the Annual Report on Form 10-K of Registrant for the Fiscal Year
ended December 31, 1992.*
10b4. Amendment to 1986 Stock Option Plan of American Brands, Inc.
constituting Exhibit 10b3 hereto is incorporated herein by
reference to Exhibit 10b to the Quarterly Report on Form 10-Q of
Registrant dated November 11, 1993.*
10b5. 1990 Long-Term Incentive Plan of American Brands, Inc. is
incorporated herein by reference to Exhibit 10b4 to the Annual
Report on Form 10-K of Registrant for the Fiscal Year ended
December 31, 1990.*
10b6. Amendment to 1990 Long-Term Incentive Plan of American Brands,
Inc. constituting Exhibit 10b5 hereto is incorporated herein by
reference to Exhibit 10 to the Quarterly Report on Form 10-Q of
Registrant dated May 13, 1993.*
10b7. Stock Plan for Non-employee Directors of American Brands, Inc. is
incorporated herein by reference to Exhibit 10b5 to the Annual
-33-
Report on Form 10-K of Registrant for the Fiscal Year ended
December 31, 1990.*
10c1. Amended Supplemental Retirement Plan of American Brands, Inc.*
10c2. Trust Agreement, made as of the 1st day of February, 1989, among
Registrant, The Chase Manhattan Bank (National Association)
("Chase"), et al. establishing a trust in favor of William J.
Alley for purposes of paying amounts under the Amended
Supplemental Retirement Plan constituting Exhibit 10c1 hereto is
incorporated herein by reference to Exhibit 10c2 to the Annual
Report on Form 10-K of Registrant for the Fiscal Year ended
December 31, 1988.*
10c3. Amendment made as of the 1st day of November, 1993 to Trust
Agreement constituting Exhibit 10c2 hereto.*
10c4. Schedule identifying substantially identical agreements to the
Trust Agreement and Amendment thereto constituting Exhibits 10c2
and 10c3 hereto, respectively, in favor of Thomas C. Hays, Arnold
Henson, Robert L. Plancher, Gilbert L. Klemann, II, John T.
Ludes, Robert J. Rukeyser, Randall W. Larrimore and Steven C.
Mendenhall.*
10c5. Trust Agreement, made as of the 1st day of November, 1993, among
William J. Alley, Registrant and Chase establishing a grantor
trust in favor of William J. Alley for purposes of paying amounts
under the Amended Supplemental Retirement Plan constituting
Exhibit 10c1 hereto.*
10c6. Schedule identifying substantially identical agreements to the
Trust Agreement constituting Exhibit 10c5 hereto in favor of
Thomas C. Hays, Arnold Henson, Robert L. Plancher, Gilbert L.
Klemann, II, John T. Ludes, Robert J. Rukeyser, Randall W.
Larrimore and Steven C. Mendenhall.*
10d1. Executive mortgage program of Registrant in connection with
relocation of corporate headquarters is incorporated herein by
reference to Exhibit 10d1 to the Annual Report on Form 10-K of
Registrant for the Fiscal Year ended December 31, 1991.*
10e1. Resolutions of the Board of Directors of Registrant adopted on
October 28, 1986 and July 26, 1988 adopting and amending a
retirement plan for directors of Registrant who are not officers
or employees of Registrant or a subsidiary thereof are
incorporated herein by reference to Exhibit 10e1 to the Annual
Report on Form 10-K of Registrant for the Fiscal Year ended
December 31, 1991.*
10f1. The Franklin Life Insurance Company Supplemental Retirement Plan
effective January 1, 1988 as amended and restated effective
January 1, 1993.*
10f2. Trust Agreement, made as of the 25th day of January, 1990, among
The Franklin Life Insurance Company ("The Franklin"), The Marine
Bank of Springfield and Milliman & Robertson, establishing a
-34-
trust in favor of Howard C. Humphrey for purposes of paying
amounts under the supplemental retirement plan constituting
Exhibit 10f1 hereto is incorporated herein by reference to
Exhibit 10f2 to the Annual Report on Form 10-K of Registrant for
the Fiscal Year ended December 31, 1990.*
10f4. Trust Agreement, made as of the 16th day of December, 1993, among
Howard C. Humphrey, The Franklin and Bank One, Springfield (State
Association) establishing a grantor trust in favor of Howard C.
Humphrey for purposes of paying amounts under the Supplemental
Retirement Plan constituting Exhibit 10f1 hereto.*
10g1. Gallaher Limited Executive Incentive Plan adopted on June 20,
1990 is incorporated herein by reference to Exhibit 10g1 to the
Annual Report on Form 10-K of Registrant for the Fiscal Year
ended December 31, 1990.*
10g2. Trust Deed dated March 24, 1983 between Gallaher Limited
("Gallaher") and Gallaher Pensions Limited, and amendments
thereto, providing supplemental retirement benefits to certain
executives of Gallaher are incorporated herein by reference to
Exhibits 10g2 and 10g3 to the Annual Report on Form 10-K of
Registrant for the Fiscal Year ended December 31, 1989.*
10g3. Trust Deed dated June 3, 1992 further amending Exhibit 10g2
hereto is incorporated herein by reference to Exhibit 10g3 to the
Annual Report on Form 10-K of Registrant for the Fiscal Year
ended December 31, 1992.*
10g4. Trust Deed dated January 24, 1994 further amending Exhibit 10g2
hereto.*
10h1. ACCO World Corporation Management Incentive Plan is incorporated
herein by reference to Exhibit 10h1 to the Annual Report on Form
10-K of Registrant for the Fiscal Year ended December 31, 1991.*
10i1. ACCO World Corporation Supplemental Benefit Plan for Key
Employees is incorporated herein by reference to Exhibit 10k1 to
the Annual Report on Form 10-K of Registrant for the Fiscal Year
ended December 31, 1989.*
10j1. American Franklin Company Senior Executive and Key Manager
Incentive Plan is incorporated herein by reference to Exhibit
10j1 to the Annual Report on Form 10-K of Registrant for the
Fiscal Year ended December 31, 1990.*
10k1. Jim Beam Brands Co. Senior Executive and Key Manager Incentive
Plan is incorporated herein by reference to Exhibit 10m4 to the
Annual Report on Form 10-K of Registrant for the Fiscal Year
ended December 31, 1991.*
10k2. Jim Beam Brands Co. Amended Excess Benefit Plan.*
10k3. Trust Agreement, made as of December 24, 1991, among Jim Beam
Brands Co. ("Beam"), Chase and Hewitt Associates, establishing a
trust in favor of Barry M. Berish for purposes of paying amounts
-35-
under the Amended Excess Benefit Plan constituting Exhibit 10k2
hereto is incorporated herein by reference to Exhibit 10m3 to the
Annual Report on Form 10-K of Registrant for the Fiscal Year
ended December 31, 1991.*
10k4. Amendment made as of the 17th day of November, 1993 to Trust
Agreement constituting Exhibit 10k3 hereto.*
10k5. Trust Agreement, made as of the 15th day of December, 1993, among
Barry M. Berish, Beam and Chase establishing a grantor trust in
favor of Barry M. Berish for purposes of paying amounts under the
Amended Excess Benefit Plan constituting Exhibit 10k2 hereto.*
10l1. Resolution of the Board of Directors of Registrant adopted on
December 11, 1985 with respect to retirement and health benefits
provided to William J. Alley is incorporated herein by reference
to Exhibit 10e2 to the Registration Statement on Form 8-B of
Registrant dated January 27, 1986.*
10l2. Agreement dated as of March 1, 1988 between Registrant and
William J. Alley and amendments thereto providing certain
retirement benefits is incorporated herein by reference to
Exhibit 10l2 to the Annual Report on Form 10-K of Registrant for
the Fiscal Year ended December 31, 1992.*
10m1. Resolutions of the Board of Directors of Registrant adopted on
December 11, 1985 and February 23, 1988 with respect to
retirement and health benefits provided to Arnold Henson is
incorporated herein by reference to Exhibit 10m1 to the Annual
Report on Form 10-K of Registrant for the Fiscal Year ended
December 31, 1992.*
10n1. Resolution of the Board of Directors of Registrant adopted on
November 27, 1990 with respect to retirement and health benefits
provided to Gilbert L. Klemann, II is incorporated herein by
reference to Exhibit 10p1 to the Annual Report on Form 10-K of
Registrant for the Fiscal Year ended December 31, 1991.*
10o1. Service Agreement dated February 11, 1994 between Gallaher and
Peter M. Wilson.*
10o2. Letter dated September 20, 1991 from Gallaher in respect of
retirement benefits provided to Peter M. Wilson.*
10o3. Letter dated March 15, 1994 amending Exhibit 10o2 hereto.*
10o4. Service Agreement dated May 15, 1989 between Gallaher and Anthony
D. Househam and amendments thereto are incorporated herein by
reference to Exhibits 10p1 and 10q2 to the Annual Reports on Form
10-K of Registrant for the Fiscal Years ended December 31, 1989
and 1990, respectively.*
10o5. Letter dated September 20, 1991 from Gallaher in respect of
retirement benefits provided to Anthony D. Househam is
incorporated herein by reference to Exhibit 10q2 to the Annual
-36-
Report on Form 10-K of Registrant for the Fiscal Year ended
December 31, 1991.*
10p1. ACCO World Corporation Supplemental Retirement Plan and amendment
thereto is incorporated herein by reference to Exhibit 10r1 to
the Annual Report on Form 10-K of Registrant for the Fiscal Year
ended December 31, 1991.*
10p2. Amendment to the ACCO World Corporation Supplemental Retirement
Plan constituting Exhibit 10p1 hereto is incorporated herein by
reference to Exhibit 10p2 to the Annual Report on Form 10-K of
Registrant for the Fiscal Year ended December 31, 1992.*
10q1. Employment Agreement entered into as of June 8, 1987 by and
between ACCO International Inc. (a predecessor of ACCO USA, Inc.)
and Norman H. Wesley is incorporated herein by reference to
Exhibit 10r1 to the Annual Report on Form 10-K of Registrant for
the Fiscal Year ended December 31, 1990.*
10r1. Letters dated July 31, 1984 and February 26, 1990 from Registrant
with respect to deferred payment of fees to Eugene R. Anderson
are incorporated herein by reference to Exhibit 10t1 to the
Annual Report on Form 10-K of Registrant for the Fiscal Year
ended December 31, 1991.*
10s1. Agreement dated January 2, 1991 between Registrant and Gilbert L.
Klemann, II is incorporated herein by reference to Exhibit 10s1
to the Annual Report on Form 10-K of Registrant for the Fiscal
Year ended December 31, 1992.*
10s2. Schedule identifying substantially identical agreements to the
Agreement constituting Exhibit 10s1 hereto entered into by
Registrant with William J. Alley, Thomas C. Hays, Arnold Henson,
Howard C. Humphrey, Robert L. Plancher, John T. Ludes, Robert J.
Rukeyser, Randall W. Larrimore and Steven C. Mendenhall.*
10s3. Agreement dated April 14, 1992 between Franklin and Howard C.
Humphrey is incorporated herein by reference to Exhibit 10s3 to
the Annual Report on Form 10-K of Registrant for the Fiscal Year
ended December 31, 1992.*
10t1. Trust Agreement, made as of the 1st day of February 1989, among
Registrant, Chase, et al. establishing a trust in favor of
William J. Alley for purposes of paying amounts under the
Agreement in the form constituting Exhibit 10s1 hereto is
incorporated herein by reference to Exhibit 10gg1 to the Annual
Report on Form 10-K of Registrant for the Fiscal Year ended
December 31, 1988.*
10t2. Amendment made as of the 1st day of November, 1993 to Trust
Agreement constituting Exhibit 10t1 hereto.*
10t3. Schedule identifying substantially identical agreements to the
Trust Agreement and Amendment thereto constituting Exhibits 10t1
and 10t2 hereto, respectively, in favor of Thomas C. Hays, Arnold
Henson, Robert L. Plancher, Gilbert L. Klemann, II, John T.
-37-
Ludes, Howard C. Humphrey, Robert J. Rukeyser, Randall W.
Larrimore and Steven C. Mendenhall.*
10u1. Agreement dated as of March 1, 1988 and amendments thereto
between Registrant and William J. Alley are incorporated herein
by reference to Exhibit 10u1 to the Annual Report on Form 10-k of
Registrant for the Fiscal Year ended December 31, 1992.*
10v1. Agreement dated as of March 1, 1988 and amendments thereto
between Registrant and Thomas C. Hays are incorporated herein by
reference to Exhibit 10v1 to the Annual Report on Form 10-K of
Registrant for the Fiscal Year ended December 31, 1992.*
10v2. Schedule identifying substantially identical agreements to the
Agreement constituting Exhibit 10v1 hereto entered into by
Registrant with Arnold Henson, Robert L. Plancher, John T. Ludes,
Robert J. Rukeyser and Steven C. Mendenhall.*
10w1. Agreement dated as of January 2, 1991 between Registrant and
Gilbert L. Klemann, II and amendment thereto is incorporated
herein by reference to Exhibit 10y1 to the Annual Report on Form
10-K of Registrant for the Fiscal Year ended December 31, 1991.*
10w2. Agreement dated as of October 28, 1991 amending the Agreement
constituting Exhibit 10w1 hereto is incorporated herein by
reference to Exhibit 10w2 to the Annual Report on Form 10-K of
Registrant for the Fiscal Year ended December 31, 1992.*
10x1. Agreement dated March 7, 1988 between Registrant and Randall W.
Larrimore and amendments thereto is incorporated herein by
reference to Exhibit 10x1 to the Annual Report on Form 10-K of
Registrant for the Fiscal Year ended December 31, 1992.*
l0y1. Agreement dated as of February 1, 1990 between American Franklin
and Howard C. Humphrey is incorporated herein by reference to
Exhibit l0mm1 to the Annual Report on Form 10-K of Registrant for
the Fiscal Year ended December 31, 1989.*
l0z1. Agreement dated as of February 1, 1990 between Beam and Barry M.
Berish is incorporated herein by reference to Exhibit 10pp1 to
the Annual Report on Form 10-K of Registrant for the Fiscal Year
ended December 31, 1990.*
l0aa1. Rights Agreement dated as of December 13, 1987 between Registrant
and First Chicago Trust Company of New York, as Rights Agent, and
amendments thereto is incorporated herein by reference to Exhibit
10aa1 to the Annual Report on Form 10-K of Registrant for the
Fiscal Year ended December 31, 1992.*
10bb1. Stock Purchase Agreement dated as of July 20, 1990 among MI
Acquisition, Inc., Stanadyne Partners, Forstmann Little & Co.
Subordinated Debt and Equity Management Buyout Partnership III
("MBO") and certain individual shareholders of The Moen Group,
Inc. and Amendment No. 1 to Stock Purchase Agreement dated as of
August 21, 1990 are incorporated herein by reference to Exhibit
-38-
2a to the Current Report on Form 8-K of Registrant dated August
29, 1990.
10bb2. Escrow Agreement dated as of August 21, 1990 among MI
Acquisition, Inc., Stanadyne Partners, MBO and Chemical Bank as
successor by merger to Manufacturers Hanover Trust Company is
incorporated herein by reference to Exhibit 2b to the Current
Report on Form 8-K of Registrant dated August 29, 1990.
11. Statement setting forth net income for computation of earnings
per Common share, primary and fully diluted, and statement
setting forth computation of weighted average number of Common
shares outstanding on a fully diluted basis.
12. Statement re computation of ratio of earnings to fixed charges.
13. 1993 Annual Report to Stockholders of Registrant.
22. Subsidiaries of Registrant.
23(i)a. Consent of Independent Accountants, Coopers & Lybrand.
23(i)b. Consent of Counsel, Chadbourne & Parke.
24. Powers of Attorney relating to execution of this Annual Report on
Form 10-K.
* Indicates that exhibit is a management contract or compensatory
plan or arrangement.
In lieu of filing certain instruments with respect to long-term
debt of the kind described in Item 601(b)(4) of Regulation S-K, Registrant
agrees to furnish a copy of such instruments to the Securities and Exchange
Commission upon request.
(b) Reports on Form 8-K.
Registrant filed a Current Report on Form 8-K, dated October 20, 1993,
in respect of Registrant's press release dated October 20, 1993
announcing Registrant's financial results for the three-month and
nine-month periods ended September 30, 1993 (Items 5 and 7(c)).
Registrant filed a Current Report on Form 8-K, dated October 21, 1993,
in respect of Registrant's press release dated October 21, 1993
announcing the acquisition by The Whyte & Mackay Group PLC, a United
Kingdom subsidiary of Registrant's Gallaher Limited subsidiary, of an
additional share interest in Invergordon Distillers Group PLC and a
mandatory cash offer for the remaining shares of Invergordon (Items 5
and 7(c)).
Registrant filed a Current Report on Form 8-K, dated November 23,
1993, in respect of a settlement reached by Registrant and the
remaining defendants in the Forstmann Leff Associates, Inc. et al. v.
American Brands, Inc., et al. described in paragraph (c) Item 3 herein
(Item 5).
-39-
Registrant filed a Current Report on Form 8-K, dated January 26, 1994,
in respect of Registrant's press release dated January 24, 1994
announcing Registrant's financial results for the three-month and
twelve-month periods ended December 31, 1993 (Items 5 and 7(c)).
Registrant filed a Current Report on Form 8-K, dated February 22,
1994, in respect of (i) Management's Discussion and Analysis of
Results of Operations (1993 compared to 1992 and 1992 compared to
1991) and Financial Review, (ii) Consolidated Statement of Income for
the years ended December 31, 1993, 1992 and 1991, (iii) Consolidated
Balance Sheet as of December 31, 1993 and 1992, (iv) Consolidated
Statement of Cash Flows for the years ended December 31, 1993, 1992
and 1991, (v) Consolidated Statement of Common Stockholders' Equity
for the years ended December 31, 1993, 1992 and 1991, (vi) Notes to
Consolidated Financial Statements, (vii) Report of Independent
Accountants, (viii) Report of Management, (ix) Information on Business
Segments and (x) Eleven-Year Consolidated Selected Financial Data of
Registrant and consolidated subsidiaries (Items 5 and 7 (c)).
This annual report shall not be construed as a waiver of the
right to contest the validity or scope of any or all of the provisions of
the Securities Exchange Act of 1934, as amended, under the Constitution of
the United States, or the validity of any rule or regulation made or to be
made under such Act.
-40-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AMERICAN BRANDS, INC.
(Registrant)
By William J. Alley
William J. Alley
Chairman of the Board and
Date: March 28, 1994 Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this report has been signed below by the following
persons on behalf of Registrant and in the capacities and on the dates
indicated.
William J. Alley
William J. Alley, Chairman of the Board and
Chief Executive Officer (principal executive
officer) and Director
Date: March 28, 1994
T.C. Hays
T.C. Hays, President and Chief
Operating Officer and Director
Date: March 28, 1994
A. Henson
A. Henson, Executive Vice President and
Chief Financial Officer (principal
financial officer) and Director
Date: March 28, 1994
-41-
R.L. Plancher*
R.L. Plancher, Senior Vice President and
Chief Accounting Officer (principal
accounting officer)
Date: March 28, 1994
Howard C. Humphrey*
Howard C. Humphrey, Vice President
- Life Insurance and Director
Date: March 28, 1994
Eugene R. Anderson*
Eugene R. Anderson, Director
Date: March 28, 1994
Patricia O. Ewers*
Patricia O. Ewers, Director
Date: March 28, 1994
John W. Johnstone, Jr.*
John W. Johnstone, Jr., Director
Date: March 28, 1994
Wendell J. Kelley*
Wendell J. Kelley, Director
Date: March 28, 1994
Sidney Kirschner*
Sidney Kirschner, Director
Date: March 28, 1994
Gordon R. Lohman*
Gordon R. Lohman, Director
Date: March 28, 1994
Charles H. Pistor, Jr.*
Charles H. Pistor, Jr., Director
Date: March 28, 1994
Peter M. Wilson*
Peter M. Wilson, Director
Date: March 28, 1994
*By A. Robert Colby
A. Robert Colby, Attorney-in-Fact
-42-
INDEX TO FINANCIAL STATEMENT SCHEDULES
Pages
-----
AMERICAN BRANDS, INC. AND SUBSIDIARIES
Report of Independent Accountants ............................. F-2
Schedules
---------
III Condensed Financial Information of Registrant
As of December 31, 1993 and 1992 and for
the years ended December 31, 1993, 1992
and 1991 .......................................... F-3
VIII Valuation and qualifying accounts
For the years ended December 31,
1993, 1992 and 1991 ............................... F-8
IX Short-term borrowings
For the years ended December 31,
1993, 1992 and 1991 ............................... F-9
X Supplementary income statement information
For the years ended December 31,
1993, 1992 and 1991 ............................... F-10
Schedules other than those listed above are omitted as the
information is either not applicable, not required or has been furnished in
the financial statements or notes thereto incorporated by reference in Item
8 hereof.
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
American Brands, Inc.:
Our report on the consolidated financial statements of American
Brands, Inc. and Subsidiaries has been incorporated by reference in this
Form 10-K from the 1993 Annual Report to Stockholders of American Brands,
Inc. In connection with our audits of such financial statements, we have
also audited the related financial statement schedules listed in the index
on page F-1 of this Form 10-K.
In our opinion, the financial statement schedules referred to
above, when considered in relation to the basic financial statements taken
as a whole, present fairly, in all material respects, the information
required to be included therein.
COOPERS & LYBRAND
1301 Avenue of the Americas
New York, New York
February 1, 1994
F-2
AMERICAN BRANDS, INC. (PARENT COMPANY)
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEET
(In millions)
December 31,
-------------------
1993 1992
---- ----
Assets
Current assets
Receivables from affiliated companies $ 565.8 $ 568.0
Other current assets 51.4 59.6
-------- --------
Total current assets 617.2 627.6
-------- --------
Investment in subsidiaries 3,566.5 3,704.6
Long-term receivables from affiliated companies 3,724.8 3,291.3
Other assets 141.2 174.9
-------- --------
Total assets $8,049.7 $7,798.4
======== ========
Liabilities and stockholders' equity
Current liabilities
Commercial paper $ 711.3 $ 433.4
Payables to affiliated companies 113.2 145.8
Other current liabilities 265.9 338.6
Current portion of long-term debt 156.5 133.6
-------- --------
Total current liabilities 1,246.9 1,051.4
Long-term debt 2,438.4 2,360.5
Postretirement and other liabilities 93.0 84.9
-------- --------
Total liabilities 3,778.3 3,496.8
-------- --------
Convertible preferred stock - redeemable at
Company's option 17.1 19.1
-------- --------
Common stockholders' equity 4,254.3 4,282.5
-------- --------
Total liabilities and stockholders' equity $8,049.7 $7,798.4
======== ========
The "Notes to Consolidated Financial Statements of American Brands, Inc.
and Subsidiaries" contained in the 1993 Annual Report to Stockholders of
Registrant are an integral part of these statements.
See accompanying "Notes to Condensed Financial Information of Registrant."
F-3
AMERICAN BRANDS, INC. (PARENT COMPANY)
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF INCOME
(In millions)
For the Years Ended
December 31,
--------------------------
1993 1992 1991
---- ---- ----
Interest from affiliates $332.6 $357.8 $341.9
Expenses:
Corporate administrative expenses 78.1 80.7 134.5
Interest: affiliates 12.9 8.2 17.6
non-affiliates 220.3 238.3 240.0
Other expenses, net 12.9 12.1 12.5
------ ------ ------
Total expenses 324.2 339.3 404.6
------ ------ ------
Income (loss) before income tax benefit,
equity in net income of subsidiaries
and cumulative effect of accounting
changes 8.4 18.5 (62.7)
Income tax benefit 1.4 9.4 50.6
------ ------ ------
Income (loss) before equity in net income of
subsidiaries and cumulative effect of
accounting changes 9.8 27.9 (12.1)
Equity in net income of subsidiaries 469.7 855.9 818.2
------ ------ ------
Income before cumulative effect of
accounting changes 479.5 883.8 806.1
Cumulative effect of accounting changes
(net of income taxes of $7.4) (9.7) - -
------ ------ ------
Net income $469.8 $883.8
$806.1
====== ====== ======
The "Notes to Consolidated Financial Statements of American Brands, Inc.
and Subsidiaries" contained in the 1993 Annual Report to Stockholders of
Registrant are an integral part of these statements.
See accompanying "Notes to Condensed Financial Information of Registrant."
F-4
AMERICAN BRANDS, INC. (PARENT COMPANY)
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF CASH FLOWS
(In millions)
For the Years Ended
December 31,
-------------------------
1993 1992 1991
---- ---- ----
Net cash provided from operating activities $663.5 $ 680.2 $ 712.4
------ -------- --------
Investing activities
Additional investment in subsidiary - (1.8) -
Other, net 4.4 (4.0) (4.5)
------ -------- --------
Net cash provided (used) by investing
activities 4.4 (5.8) (4.5)
------ -------- --------
Financing activities
Increase (decrease) in short-term debt 278.0 261.6 (484.1)
Issuance of long-term debt 473.0 351.4 1,155.4
Repayment of long-term debt (364.7) (672.6) (512.3)
Dividends to stockholders (399.1) (377.8) (337.6)
Cash purchases of Common stock for treasury (57.9) (100.4) (106.7)
Change in intercompany balances, net (592.3) (14.2) (427.8)
Redemption and purchases of $2.75
Preferred stock - (134.4) (1.8)
Other financing activities, net (4.9) 12.0 6.3
------ -------- --------
Net cash used by financing activities (667.9) (674.4) (708.6)
------ -------- --------
Net decrease in cash and cash
equivalents $ - $ - $ (0.7)
====== ======== ========
Cash and cash equivalents at
Beginning of year $ - $ - $ 0.7
End of year $ - $ - $ -
====== ======== ========
Cash paid during the year for
Interest $220.2 $ 233.6 $ 218.4
====== ======== ========
Income taxes $238.5 $ 280.8 $ 223.0
====== ======== ========
The "Notes to Consolidated Financial Statements of American Brands, Inc.
and Subsidiaries" contained in the 1993 Annual Report to Stockholders of
Registrant are an integral part of these statements.
See accompanying "Notes to Condensed Financial Information of Registrant."
F-5
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
------------------------------------------------------
1.Basis of Presentation
Pursuant to the rules and regulations of the Securities and Exchange
Commission, the Condensed Financial Statements of the Registrant do
not include all of the information and notes normally included with
financial statements prepared in accordance with generally accepted
accounting principles. Therefore, these Condensed Financial
Statements should be read in conjunction with the Consolidated
Financial Statements and Notes thereto included in the Annual Report
to Stockholders of Registrant as referenced in Form 10-K, Part II,
Item 8.
Certain 1992 balance sheet amounts have been reclassified to conform
to the 1993 presentation.
2.Accounting Changes
On January 1, 1993, Registrant adopted FAS Statement No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pension" and FAS No. 112, "Employers' Accounting for Postemployment
Benefits." The initial effects of adopting these statements were
recorded as cumulative changes in accounting principles.
3.Investment in Subsidiaries
During 1993, $134.8 million of intercompany debt was contributed to
the capital of a subsidiary by Registrant.
4.Cash Dividends from Subsidiaries
Dividends of $679.8 million in 1993, $648.1 million in 1992 and
$681.5 million in 1991 were paid to Registrant by its subsidiaries.
F-6
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Concluded)
5.Debt
The components of long-term debt are as follows (In millions):
1993 1992
---- ----
Notes payable $ 300.0 $ 200.0
Revolving credit notes 195.8 203.2
Other notes 356.5 376.5
5 3/4% Eurodollar Convertible Debentures,
Due 2005 200.0 200.0
7 5/8% Eurodollar Convertible Debentures,
Due 2001 150.0 150.0
Other Eurodollar Convertible Debentures 41.0 43.4
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 -
7 1/2% Notes, Due 1999 150.0 150.0
9 3/4% Eurosterling Notes, Due 1993 - 113.6
9% Notes, Due 1999 100.0 100.0
9 1/2% Eurosterling Notes, Due 1994 74.0 75.7
9 1/4% Eurosterling Notes, Due 1998 74.0 75.7
12% Eurosterling Notes, Due 1995 59.2 60.6
12 1/2% Sterling Loan Stock, Due 2009 44.4 45.4
-------- --------
2,594.9 2,494.1
Less current portion 156.5 133.6
-------- --------
$2,438.4 $2,360.5
======== ========
Estimated payments for maturing long-term debt requirements during
the next five years, assuming one-time put options are not exercised,
are as follows: 1994, $156.5 million; 1995, $777.7 million; 1996,
$101 million; 1997, $53.8 million; and 1998, $168.5 million.
At December 31, 1993, the Registrant guaranteed short-term committed
credit facilities of a UK-based subsidiary which provided for
unsecured borrowings of up to $444 million, of which $44 million was
outstanding.
F-7
AMERICAN BRANDS, INC. AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1993, 1992 and 1991
(In millions)
- ---------------------------------------------------------------------------
Col. A Col. B Col. C Col. D Col. E
------ ------ ------ ------ ------
Additions
---------
Charged Balance
Balance at to Costs at End
Beginning and of
Description of Period Expenses Deductions Period
- ---------------------------------------------------------------------------
1993:
Allowance for cash
discounts $ 7.9 $ 87.3 $ 88.9(1) $ 6.3
Allowance for
returns 17.3 150.6 146.0(1) 21.9
Allowance for
doubtful accounts 34.8 11.7 11.7(3) 34.3
0.5(2)
----- ------ ------ -----
$60.0 $249.6 $247.1 $62.5
===== ====== ====== =====
1992:
Allowance for cash
discounts $ 7.5 $ 88.6 $ 88.2(1) $ 7.9
Allowance for
returns 9.3 114.3 106.0(1) 17.3
0.3(2)
Allowance for
doubtful accounts 39.3 11.9 13.1(3) 34.8
3.3(2)
----- ------ ------ -----
$56.1 $214.8 $210.9 $60.0
===== ====== ====== =====
1991:
Allowance for cash
discounts $ 6.5 $ 84.8 $ 83.8(1) $ 7.5
Allowance for
returns 10.8 114.4 115.7(1) 9.3
0.2(2)
Allowance for
doubtful accounts 37.8 8.8 6.6(3) 39.3
0.7(2)
----- ------ ------ -----
$55.1 $208.0 $207.0 $56.1
===== ====== ====== =====
- -----------------------------
(1) Cash discounts and returns allowed customers.
(2) Effect of changes in foreign exchange rates.
(3) Doubtful accounts written off, net of recoveries.
F-8
AMERICAN BRANDS, INC. AND SUBSIDIARIES
SCHEDULE IX - SHORT-TERM BORROWINGS
For the Years Ended December 31, 1993, 1992 and 1991
(In millions)
- ---------------------------------------------------------------------------
Col. A Col. B Col. C Col. D Col. E Col. F
------ ------ ------ ------ ------ ------
Weighted Weighted
Average Maximum Average Average
Category of Balance Interest Amount Amount Interest
Aggregate at Rate at Outstanding Outstanding Rate
Short-term End of End of During the During the During the
Borrowings (1) Period Period Period Period (2) Period (3)
- ---------------------------------------------------------------------------
1993:
Notes payable to
banks $298.9 5.8% $424.9 $270.7 6.7%
Commercial paper 711.3 3.4 711.3 427.1 3.4
1992:
Notes payable to
banks $247.1 8.1% $302.0 $194.6 10.0%
Commercial paper 433.4 3.6 673.4 391.0 4.1
1991:
Notes payable to
banks $131.0 10.2% $217.6 $128.6 12.1%
Commercial paper 271.8 5.3 770.5 449.7 6.9
- ------------------------------
(1) Notes payable to banks represents borrowings in various currencies
primarily under credit agreements with banks. Commercial paper
represents paper sold by American Brands, Inc.
(2) Calculated on month-end outstanding balances during the year.
(3) Average amount outstanding during the year divided into actual
interest expense incurred.
F-9
AMERICAN BRANDS, INC. AND SUBSIDIARIES
SCHEDULE X-SUPPLEMENTARY INCOME STATEMENT INFORMATION
For the Years Ended December 31, 1993, 1992 and 1991
(In millions)
- ---------------------------------------------------------------------------
Col. A Col. B
------ ------
Charged to
Costs and
Item (1) Expenses
- ---------------------------------------------------------------------------
1993:
5. Advertising costs $510.2
1992:
5. Advertising costs $551.0
1991:
5. Advertising costs $519.1
- ------------------------------
(1) The items not listed either do not exceed one percent of revenues or
are set forth in the financial statements or notes thereto
incorporated by reference in Item 8 hereof.
F-10
EXHIBIT INDEX
10c1. Amended Supplemental Retirement Plan of American Brands, Inc.*
10c3. Amendment made as of the 1st day of November, 1993 to Trust
Agreement constituting Exhibit 10c2 hereto.*
10c4. Schedule identifying substantially identical agreements to the
Trust Agreement and Amendment thereto constituting Exhibits 10c2
and 10c3 hereto, respectively, in favor of Thomas C. Hays, Arnold
Henson, Robert L. Plancher, Gilbert L. Klemann, II, John T.
Ludes, Robert J. Rukeyser, Randall W. Larrimore and Steven C.
Mendenhall.*
10c5. Trust Agreement, made as of the 1st day of November, 1993, among
William J. Alley, Registrant and Chase establishing a grantor
trust in favor of William J. Alley for purposes of paying amounts
under the Amended Supplemental Retirement Plan constituting
Exhibit 10c1 hereto.*
10c6. Schedule identifying substantially identical agreements to the
Trust Agreement constituting Exhibit 10c5 hereto in favor of
Thomas C. Hays, Arnold Henson, Robert L. Plancher, Gilbert L.
Klemann, II, John T. Ludes, Robert J. Rukeyser, Randall W.
Larrimore and Steven C. Mendenhall.*
10f1. The Franklin Life Insurance Company Supplemental Retirement Plan
effective January 1, 1988 as amended and restated effective
January 1, 1993.*
10f3. Trust Agreement, made as of the 16th day of December, 1993, among
Howard C. Humphrey, The Franklin Life Insurance Company and Bank
One, Springfield (State Association) establishing a grantor trust
in favor of Howard C. Humphrey for purposes of paying amounts
under the Supplemental Retirement Plan constituting Exhibit 10f1
hereto.*
10g4. Trust Deed dated January 24, 1994 further amending Exhibit 10g2
hereto.*
10k2. Jim Beam Brands Co. Amended Excess Benefit Plan.*
10k4. Amendment made as of the 17th day of November, 1993 to Trust
Agreement constituting Exhibit 10k3 hereto.*
10k5. Trust Agreement, made as of the 15th day of December, 1993, among
Barry M. Berish, Beam and Chase establishing a grantor trust in
favor of Barry M. Berish for purposes of paying amounts under the
Amended Excess Benefit Plan constituting Exhibit 10k2 hereto.*
10o1. Service Agreement dated February 11, 1994 between Gallaher and
Peter M. Wilson.*
10o2. Letter dated September 20, 1991 from Gallaher in respect of
retirement benefits provided to Peter M. Wilson.*
10o3. Letter dated March 15, 1994 amending Exhibit 10o2 hereto.*
10s2. Schedule identifying substantially identical agreements to the
Agreement constituting Exhibit 10s1 hereto entered into by
Registrant with William J. Alley, Thomas C. Hays, Arnold Henson,
Howard C. Humphrey, Robert L. Plancher, John T. Ludes, Robert J.
Rukeyser, Randall W. Larrimore and Steven C. Mendenhall.*
10t2. Amendment made as of the 1st day of November, 1993 to Trust
Agreement constituting Exhibit 10t1 hereto.*
10t3. Schedule identifying substantially identical agreements to the
Trust Agreement and Amendment thereto constituting Exhibits 10t1
and 10t2 hereto, respectively, in favor of Thomas C. Hays, Arnold
Henson, Robert L. Plancher, Gilbert L. Klemann, II, John T.
Ludes, Howard C. Humphrey, Robert J. Rukeyser, Randall W.
Larrimore and Steven C. Mendenhall.*
10v2. Schedule identifying substantially identical agreements to the
Agreement constituting Exhibit 10v1 hereto entered into by
Registrant with Arnold Henson, Robert L. Plancher, John T. Ludes,
Robert J. Rukeyser and Steven C. Mendenhall.*
11. Statement setting forth net income for computation of earnings
per Common share, primary and fully diluted, and statement
setting forth computation of weighted average number of Common
shares outstanding on a fully diluted basis.
12. Statement re computation of ratio of earnings to fixed charges.
13. 1993 Annual Report to Stockholders of Registrant.
22. Subsidiaries of Registrant.
23(i)a. Consent of Independent Accountants, Coopers & Lybrand.
23(i)b. Consent of Counsel, Chadbourne & Parke.
24. Powers of Attorney relating to execution of this Annual Report on
Form 10-K.
* Indicates that exhibit is a management contract or compensatory
plan or arrangement.
-2-