SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
ANNUAL REPORT
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Pursuant to Section 15(D) of the
Securities Exchange Act of 1934
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For the fiscal year ended December 31, 1999
Commission file number 1-9076
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Full Title of the Plan:
FORTUNE BRANDS HOURLY EMPLOYEE RETIREMENT SAVINGS PLAN
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Name of the issuer of the securities held pursuant to the plan
and the address of its principal executive office:
FORTUNE BRANDS, INC.
300 Tower Parkway
Lincolnshire, Illinois 60069
=========================================================================
FORTUNE BRANDS HOURLY EMPLOYEE RETIREMENT SAVINGS PLAN
INDEX TO FINANCIAL STATEMENTS, SUPPLEMENTAL SCHEDULE AND EXHIBIT
FILED AS REQUIRED BY ITEM 4 OF FORM 11-K
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Page(s)
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Report of Independent Accountants 2
Financial Statements:
Statement of Net Assets Available for
Benefits as of December 31, 1999 and 1998 3
Statement of Changes in Net Assets
Available for Benefits for the years ended
December 31, 1999 and 1998 4
Notes to Financial Statements 5-12
Supplemental Schedule:
Item 27(e) - Schedule of Nonexempt Transactions
for the year ended December 31, 1999 13
Exhibit 23 - Consent of Independent Accountants 15
Note: Supplemental schedules required by the Employee Retirement Income
Security Act that have not been included herein will be filed by the
Fortune Brands, Inc. Savings Plans Master Trust.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Corporate Employee Benefits Committee of
Fortune Brands, Inc.
In our opinion the accompanying statements of net assets available for benefits
and the related statements of changes in net assets available for benefits
present fairly, in all material respects, the net assets available for benefits
of the Fortune Brands Hourly Employee Retirement Savings Plan (the "Plan"), as
of December 31, 1999 and 1998, and the changes in net assets available for
benefits for the years then ended, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Corporate Employee Benefits Committee of Fortune Brands,
Inc.; our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits in accordance with auditing
standards generally accepted in the United States which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
Our audit of the Plan's financial statements as of and for the year ended
December 31, 1999 was made for the purpose of forming an opinion on the
financial statements taken as a whole. The supplemental schedule, Schedule of
Nonexempt Transactions, for the year ended December 31, 1999 is presented for
the purpose of additional analysis and is not a required part of the basic
financial statements, but is supplemental information required by the Department
of Labor's Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974. The supplemental schedule has been
subjected to the procedures applied in the audit of the basic financial
statements as of and for the year ended December 31, 1999, and, in our opinion,
is fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
PricewaterhouseCoopers LLP
Chicago, Illinois 60601
June 28, 2000
2
Fortune Brands Hourly Employee Retirement Savings Plan
Statement of Net Assets Available for Benefits
as of December 31, 1999 and 1998
(In Thousands)
1999 1998
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Assets:
Beneficial interest in Fortune Brands, Inc.
Savings Plans Master Trust net assets $ 23,950 $ 17,807
Receivables:
Company contributions 69 102
Participant contributions 174 254
Interest and dividends - 45
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Net assets available for benefits $ 24,193 $ 18,208
========= =========
The accompanying notes are an integral part of the financial statements.
3
Fortune Brands Hourly Employee Retirement Savings Plan
Statement of Changes in Net Assets Available for Benefits
for the years ended December 31, 1999 and 1998
(In Thousands)
1999 1998
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Additions:
Allocated share of Master Trust Investment activities $ 2,855 $ 2,169
Company contributions 1,431 758
Participant contributions 3,012 3,412
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Total additions 7,298 6,339
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Deductions:
Benefits paid to participants 1,313 1,305
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Total deductions 1,313 1,305
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Increase in net assets 5,985 5,034
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Net assets available for benefits beginning of year 18,208 13,174
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Net assets available for benefits end of year $24,193 $18,208
======= =======
The accompanying notes are an integral part of the financial statements.
4
Fortune Brands Hourly Employee Retirement Savings Plan
Notes To Financial Statements
1. Description of Plan:
General:
The Fortune Brands Hourly Employee Retirement Savings Plan (the "Plan") is
a defined contribution plan covering certain hourly, non-union employees of
certain operating subsidiaries of Fortune Brands, Inc. participating in the
Plan. MasterBrand Cabinets, Inc., Moen Incorporated and Waterloo
Industries, Inc. are the operating subsidiaries that contribute to the
Plan and are referred to collectively as the "Companies" and individually
as a "Company". The Plan is subject to the requirements of the Employee
Retirement Income Security Act of 1974 ("ERISA").
The following provides a brief description of the Plan. For a complete
description of the Plan, participants should refer to the specific
provisions of the Plan document or to the Prospectus/Summary Plan
Description, each of which is available from the Plan Administrator at 300
Tower Parkway, Lincolnshire, Illinois 60069.
The financial statements present the net assets available for benefits as
of December 31, 1999 and 1998, and the changes in net assets available for
benefits for the years then ended of the Plan. The assets of the Plan are
included in a pool of investments known as the Fortune Brands, Inc. Savings
Plans Master Trust ("Master Trust"), along with the assets of the Fortune
Brands Retirement Savings Plan. The Master Trust investments are
administered by The Fidelity Management Trust Company (the "Trustee").
Prior to October, 1999, the Master Trust investments were administered by
The Northern Trust Company (the "Prior Trustee").
Effective October, 1999, the Plan changed its name from the MasterBrand
Industries, Inc. Hourly Employee Savings Plan to the Fortune Brands Hourly
Employee Retirement Savings Plan.
Contributions:
Each participant may elect to contribute on a before-tax basis ("elective
contributions") up to 21% (17% prior to September 1, 1998) of eligible
compensation. A participant's elective contributions may not exceed the
dollar amount provided by the Internal Revenue Code (the "Code"), which was
$10,000 in 1999 and 1998. The Plan also permits each participant to make
after-tax contributions to the Plan ("supplemental contributions").
However, total elective and after-tax contributions may not exceed 21%
(17% prior to September 1, 1998) of the participant's total eligible
compensation.
Moen Incorporated contributes, on behalf of each participant employed by
Moen Incorporated, an amount equal to 50% of the participant's elective and
supplemental contributions up to 6% of eligible compensation. Prior to
January 1, 1999 Waterloo Industries, Inc. made a matching
5
Fortune Brands Hourly Employee Retirement Savings Plan
Notes To Financial Statements (Continued)
1. Descriptions of Plan (Continued):
Contributions (Continued):
contribution on behalf of each participant employed in the Muskogee,
Oklahoma facility of Waterloo Industries, Inc. of an amount equal to 50% of
such participant's elective and supplemental contributions up to 6% of
eligible compensation and contributes on behalf of each other participant
employed by Waterloo Industries, Inc. an amount equal to 50% of such
participant's elective and supplemental contributions up to 3% of eligible
compensation.
Effective as of January 1, 1999, Waterloo Industries, Inc. contributes, on
behalf of each eligible participant employed by Waterloo Industries, Inc.,
an amount equal to 50% of the participant's elective and supplemental
contributions up to 6% of the eligible compensation. For 1999 only,
Waterloo Industries, Inc. will also contribute $200 for each participant at
its Pocohontas, Arkansas and Sedalia, Missouri facilities whether the
participant makes elective or supplemental contributions. MasterBrand
Cabinets, Inc. contributes 20% of the participant's contribution up to 3%
of eligible compensation for Littlestown, Pennsylvania and Crossville,
Tennessee or distribution centers. The Schrock Cabinet division of
MasterBrand Cabinets, Inc. ("Schrock") contributes, on behalf of each
eligible participant employed by Schrock, 50% of the participant's elective
and supplemental contributions up to 5% of eligible compensation and an
additional 50% of the participant's elective and supplemental contributions
up to 3% of eligible compensation.
Participants may direct investment of their elective contributions,
supplemental contributions, matching contributions, and their Plan account
balances in the investment funds, excluding the Gallaher ADR Fund,
described above.
Participant account balances are maintained to reflect each participant's
beneficial interest in the Plan's funds. Participant account balances are
increased by participant and Company contributions (including rollovers
from other plans) and decreased by the amount of withdrawals and
distributions. Income and losses on Plan assets and certain administrative
expenses are allocated to participants' accounts based on the ratio of each
participant's account balance invested in an investment fund to the total
of all participants' account balances invested in that fund as of the
preceding valuation date.
Vesting:
Participants are immediately vested in their own contributions plus
earnings thereon. Vesting in the Company matching contributions plus
earnings thereon occurs after one year of service.
Loans:
A participant may apply for a loan of at least $1,000 from the vested
portion of the participant's account balances in an amount which does not
exceed one-half of the participant's vested balance, provided that the loan
also may not exceed $50,000 reduced by any other loan outstanding under the
Plan within the previous twelve months.
6
Fortune Brands Hourly Employee Retirement Savings Plan
Notes To Financial Statements (Continued)
1. Description of Plan (Continued):
Loans (Continued):
The term of any loan shall not exceed five years, unless the loan is
related to the purchase of the participant's principal residence. No more
than one home residence loan and one loan for any other purpose may be
outstanding at any time.
A new loan may not be applied for until 30 days after any prior loan is
repaid in full. Each loan bears a rate of interest equal to the prime rate
on the last day of the previous quarter at the time the loan is made, as
defined in the Wall Street Journal. Each loan must be collateralized by a
portion of the participant's account balances and evidenced by a written
obligation payable to the Trustee which is invested in the Loan Fund.
Repayment is made by payroll deduction so that the loan is repaid over the
term of the loan in substantially level installments not less frequently
than quarterly.
Distributions and Withdrawals:
Benefits are payable from a participant's account under the Plan's
provisions, upon a participant's death, retirement or other termination of
employment in a lump sum or in installment payments. The Plan also permits
withdrawals to be made by participants who have incurred a "hardship" as
defined in the Plan or after the attainment of age 59 1/2.
Distributions and withdrawals to which a participant is entitled are those,
subject to certain eligibility and forfeiture provisions, that can be
provided by the aggregate of employer and employee contributions and the
income thereon (including net realized and unrealized investment gains and
losses) allocated to such participant's account.
Other:
Although it has not expressed any intent to do so, each Company has the
right under the Plan to discontinue its contributions at any time and
MasterBrand Industries, Inc. ("MasterBrand"), as Plan Sponsor and
Administrator, may terminate the Plan at any time subject to the provisions
of ERISA.
For changes effective during 1999 and 2000, see "Plan Amendments" (Note 4).
2. Summary of Significant Accounting Policies:
Presentation:
The accompanying financial statements have been prepared on the accrual
basis of accounting.
7
Fortune Brands Hourly Employee Retirement Savings Plan
Notes To Financial Statements (Continued)
2. Summary of Significant Accounting Policies (Continued):
Investment Valuation and Income:
The Master Trust's investments in securities (bonds, debentures, notes and
stocks) traded on a national securities exchange are valued at the last
reported sale price on the last business day of the year; securities traded
in the over-the-counter market are valued at the last reported bid price;
and listed securities for which no sale was reported on that date are
valued at the mean between the last reported bid and asked prices.
Participations in collective trust funds are stated at the Master Trust's
beneficial interest in the aggregate fair value of assets held by the fund,
as reported by the fund's manager.
Purchases and sales of securities are recorded on a trade-date basis. Gains
or losses on sales of securities are based on average cost.
Dividend income is recorded on the ex-dividend date. Income from other
investments is recorded as earned on an accrual basis.
The ratio of the Plan's assets to the fair value of all assets held in each
fund in the Master Trust is used to allocate interest income, dividend
income, realized gains (losses) and unrealized appreciation (depreciation)
in market value of investments on a monthly basis.
In 1999 and 1998, certain expenses incurred by the Plan were netted against
earnings prior to allocation to participant accounts. These include
investment manager, trust, and recordkeeper expenses.
Benefits are recorded when paid.
3. Reconciliation to Form 5500:
The following is a reconciliation of net assets available for benefits as
stated in the financial statements to Form 5500 at December 31, 1999 and
1998:
1999 1998
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(In Thousands)
Net assets available for benefits as stated in the financial
statements $24,193 $18,208
Less distributions payable to terminated employees and amounts
payable applicable to Plan participants who have retired or
terminated employment but elected to have their assets
remain in the Plan 1,387 1,248
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Net assets available for benefits as stated in Form 5500 $22,806 $16,960
======= =======
8
Fortune Brands Hourly Employee Retirement Savings Plan
Notes To Financial Statements (Continued)
3. Reconciliation to Form 5500 (Continued):
The following is a reconciliation of benefits paid to participants as
stated in the statement of changes in net assets available for benefits to
the Form 5500 at December 31, 1999 and 1998:
1999 1998
-------- --------
(In Thousands)
Benefits paid to Participants as stated in the financial statements $1,313 $1,305
Add: Amounts payable to terminated employees and amounts applicable
to Plan participants who have retired or terminated
employment but elected to have their assets remain in the
Plan as of current year-end 1,387 1,248
Less: Amounts payable to terminated employees and amounts applicable
to Plan participants who have retired or terminated
employment but elected to have their assets remain in the
Plan as of prior year-end 1,248 458
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Benefits paid to participants as stated in Form 5500 $1,452 $2,095
========== ========
4. Plan Amendments:
The Plan was amended effective as of October 1, 1999 to:
. provide for daily valuation of participants' accounts;
. provide that an employee will automatically have 401(k)
contributions deducted from the employees' payroll unless the
employee elects otherwise;
. eliminate the one year of service waiting period before an employee
may participate;
. authorize changes in contribution of investment elections by
participants on a daily basis;
. permit retirees to change the amount of periodic installment payments
twice every twelve months; and
. provide that an employee who is not covered by a pension plan
shall be deemed to have retired after termination of employment
(i) on or after age 65, (ii) on or after age 55 and completion
of at least five years of vesting service, (iii) due to a
disability that qualifies the employee for social security
benefits or benefits under an employer's long term disability
plan.
The Plan was amended effective January 1, 1999 to provide for immediate
distribution to alternate payees under qualified domestic relations orders.
9
Fortune Brands Hourly Employee Retirement Savings Plan
Notes To Financial Statements (Continued)
4. Plan Amendments (Continued):
The Plan was amended effective January 1, 1999 to enhance company matching
contributions for Waterloo Industries, Inc. participants at Sedalia,
Missouri and Pocahontas, Arkansas.
The Plan was amended effective as of September 1, 1998 to increase the
maximum 401(k) contribution rate and after-tax contribution rate from 17%
of compensation to 21% of compensation.
The Plan was amended effective as of June 12, 1998 to permit participation
by certain employees of Schrock Cabinet Company.
The Plan was amended to comply with the Small Business Job Protection
Act, the Uniformed Services Employment and Reemployment Rights Act, the
Uruguay Round Agreements Act, the Taxpayer Relief Act of 1997 and the IRS
Restructuring and Reform Act, including:
. increasing the voluntary cash-out amount from $3,500 to $5,000
(effective as of January 1, 1999);
. including 401(k) and flexible benefit plan amounts in compensation for
purposes of determining maximum contribution limits (effective as of
January 1, 1998);
. and eliminating the limitation aggregating defined benefits plan and
defined contribution amounts (effective as of January 1, 2000).
5. Assets Held In Master Trust:
The investments of the Master Trust are maintained under a trust agreement
with the Trustee. Prior to October 1999, the Master Trust was maintained
under a trust agreement with the Prior Trustee. The Plan had a total
beneficial interest of 3.57% and 3.16% in the Master Trust's net assets at
December 31, 1999 and 1998, respectively.
Assets of the Master Trust at December 31, 1999 and 1998 are summarized as
follows:
1999 1998
-------- --------
(In Thousands)
Common stock - corporate:
Employer stock $ 24,594 $ 22,159
Non-employer stock 218,076 199,728
U.S. Government securities 8,061 56,037
Corporate debt instruments 21,880 19,921
Insurance company general account - 3,890
Registered investment companies 346,306 217,478
Collateralized promissory notes from participants 15,544 15,025
Interest bearing cash 36,451 28,681
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Total $670,912 $562,919
===================
10
Fortune Brands Hourly Employee Retirement Savings Plan
Notes To Financial Statements (Continued)
5. Assets Held in Master Trust (Continued):
Investments that represent 5% or more of the Master Trust's net assets are
separately identified in the Master Trust filing.
Net appreciation (depreciation) on Master Trust investments for the years
ended December 31, 1999 and 1998 were as follows:
1999 1998
-------- --------
(In Thousands)
Common stock - corporate $ 32,551 $ 48,272
U. S. Government securities (1,521) 1,234
Corporate debt instruments (2,251) 195
Registered investment companies 66,899 33,970
-------- --------
Total $ 95,678 $ 83,671
======== ========
Interest income, in thousands, for the years ended December 31, 1999 and
1998 was $4,524 and $6,699, respectively. Dividend income for the years
ended December 31, 1999 and 1998 was $2,647 and $4,349, respectively.
6. Risks and Uncertainties:
The Plan provides for various investment options in any combination of
stocks, bonds, fixed income securities, mutual funds, and other investment
securities. Investment securities are exposed to various risks, such as
interest rate, market and credit. Due to the level of risk associated with
certain investment securities and the level of uncertainty related to
changes in the value of investment securities, it is at least reasonably
possible that changes in market value could materially affect participants'
account balances and the amounts reported in the statement of net assets
available for benefits and the statement of changes in net assets available
for benefits.
7. Use of Estimates
The preparation of the Plan's financial statements in conformity with
generally accepted accounting principles requires the Plan administrator to
make estimates and assumptions that affect the reported amounts of net
assets available for benefits at the date of the financial statements and
the changes in net assets available for benefits during the reporting
period and, when applicable, the disclosures of contingent assets and
liabilities at the date of the financial statements. Actual results could
differ from those estimates.
11
Fortune Brands Hourly Employee Retirement Savings Plan
Notes To Financial Statements (Continued)
8. Credit Risks:
The Master Trust invests primarily in equity and fixed income funds. The
fund managers invest in a large number of corporations, industries and
other instruments in an attempt to limit exposure to significant losses.
The funds maintain a diverse portfolio of common stock across various
industry groups and a broad range of debt securities in terms of maturity
and industry groups in order to maintain diversity in Master Trust
investments.
The Plan, however, is subject to risk of loss up to its proportionate
share of such assets in the Master Trust.
9. Tax Status:
The Internal Revenue Service (IRS) issued a determination letter dated May
5, 1995 to MasterBrand stating that the Plan meets the requirements of
Section 401 (a) of the Code and that the Trust is exempt from federal
income taxes under Section 501 (a) of the Code. The Plan has been amended
since receiving the determination letter. However, the Plan Administrator
believes that the Plan is currently designed and operated in compliance
with the applicable requirements of the Code. Generally, distributions and
withdrawals under the Plan are taxable to Participants or their
beneficiaries in accordance with Section 402 of the Code.
10. Nonexempt Transaction
During the current plan year, the Company withheld contributions for
certain participants in the Plan but, due to administrative problems
relating to the transition to a new recordkeeper, did not remit those
contributions to the Plan within fifteen days following the month of the
withholding. In accordance with Department of Labor regulations, the delay
on the remittance of these contributions resulted in a prohibited loan to
the Company. The Company is correcting this prohibited transaction and will
file Form 5330 with the Internal Revenue Service.
12
Fortune Brands Hourly Employee Retirement Savings Plan
Item 27(e) - Schedule of Nonexempt Transactions
for the year ended December 31, 1999
(2)
Current Value
Identity of Party Description of (1) of Asset
Involved Relationship to Plan Transaction Cost of Asset (Estimated)
- ------------------- -------------------- ------------------- ------------- -------------
Fortune Brands, Inc. Sponsor / Employer Improper loan from $ 191,541 $202,338
Plan to Employer
for failure to
remit certain
employees' withheld
contributions to
the Plan timely.
(1) The cost of asset represents the back contributions remitted to the Plan on
or prior to January 14, 2000 for periods between October 1, 1999 through
November 30, 1999 for certain employees of the Fortune Brands Hourly
Employee Retirement Savings Plan.
(2) The current value of asset represents the back contributions and Fortune's
estimate of the interest that such contributions could have earned for the
period from the date such contributions were due through December 31, 1999
if they had been timely remitted to the Plan.
13
SIGNATURE
The Plan. Pursuant to the requirements of the Securities Exchange Act of
1934, the Corporate Employee Benefits Committee of Fortune Brands, Inc. under
the Fortune Brands Hourly Employee Retirement Savings Plan has duly caused this
annual report to be signed on its behalf by the undersigned thereunto duly
authorized.
FORTUNE BRANDS HOURLY EMPLOYEE
RETIREMENT SAVINGS PLAN
/s/ F. J. Cortese
By ------------------------------------
F. J. Cortese, Committee Member
Corporate Employee Benefits Committee
of Fortune Brands, Inc.
Date: June 28, 2000
14