SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
ANNUAL REPORT
---------------------
Pursuant to Section 15(D) of the
Securities Exchange Act of 1934
---------------------
For the fiscal year ended December 31, 2000
Commission file number 1-9076
---------------------
Full Title of the Plan:
FORTUNE BRANDS HOURLY EMPLOYEE RETIREMENT SAVINGS PLAN
---------------------
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
------------------------
Page(s)
-------
Report of Independent Accountants 1
Financial Statements:
Statement of Net Assets Available for
Benefits as of December 31, 2000 and 1999 2
Statement of Changes in Net Assets
Available for Benefits for the years ended
December 31, 2000 and 1999 3
Notes to Financial Statements 4-11
Supplemental Schedule:
Schedule G, Part III - Schedule of Nonexempt Transactions
for the year ended December 31, 2000 12
Exhibit 23 - Consent of Independent Accountants 14
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 MasterBrand Industries, Inc. Retirement Committee
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") at
December 31, 2000 and December 31, 1999, 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 of America. These financial statements
are the responsibility of the Plan's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, 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.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. We believe that our audits provide a
reasonable basis for our opinion.
Our audit of the Plan's financial statements as of and for the year ended
December 31, 2000 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, 2000 is presented for
the purpose of additional analysis and is not a required part of the basic
financial statements, but is supplementary 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, 2000, 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 8, 2001
1
Fortune Brands Hourly Employee Retirement Savings Plan
Statement of Net Assets Available for Benefits
as of December 31, 2000 and 1999
(In Thousands)
2000 1999
-------------- --------------
Assets:
Beneficial interest in Fortune Brands, Inc.
Savings Plans Master Trust net assets $ 27,878 $ 23,950
Receivables:
Company contributions 87 69
Participant contributions 65 174
-------------- --------------
Total assets 28,030 24,193
-------------- --------------
Net assets available for benefits $ 28,030 $ 24,193
============== ==============
The accompanying notes are an integral part of the financial statements.
2
Fortune Brands Hourly Employee Retirement Savings Plan
Statement of Changes in Net Assets Available for
Benefits for the years ended December 31, 2000
and 1999
(In Thousands)
2000 1999
-------------- --------------
Additions:
Allocated share of Fortune Brands, Inc. Savings
Plans Master Trust investment (losses) income $ (1,188) $ 2,855
Company contributions 1,987 1,431
Participant contributions 4,898 3,012
-------------- --------------
Total additions 5,697 7,298
-------------- --------------
Deductions:
Benefits paid to participants 1,860 1,313
------------ -------------
Total deductions 1,860 1,313
------------ -------------
Increase in net assets 3,837 5,985
------------ -------------
Net assets available for benefits
beginning of year 24,193 18,208
----------- -------------
Net assets available for benefits
end of year $ 28,030 $ 24,193
=========== =============
The accompanying notes are an integral part of the financial statements.
3
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, 2000 and 1999, 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").
Contributions:
Each participant may elect to contribute on a before-tax basis ("elective
contributions") up to 21% of eligible compensation. A participant's
elective contributions may not exceed the dollar amount provided by the
Internal Revenue Code (the "Code"), which was $10,500 and $10,000 in 2000
and 1999, respectively. The Plan also permits each participant to make
after-tax contributions to the Plan ("supplemental contributions").
However, total elective and supplemental contributions may not exceed 21%
of the participant's total eligible compensation.
Moen Incorporated contributes, on behalf of each eligible participant
employed by Moen Incorporated, an amount equal to 50% of the participant's
elective and supplemental contributions up to 6% of eligible compensation.
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.
contributed $200 for each participant at its Pocohontas, Arkansas and
Sedalia, Missouri facilities. MasterBrand Cabinets, Inc. contributes 20%
of the participant's contribution up to 3% of eligible compensation for
participants at its Littlestown, PA, Crossville, TN, and Kinston, NC
locations and participants at its distribution centers. Beginning in 2000,
MasterBrand Cabinets, Inc. will make an annual profit sharing contribution
in the amount of $200 for each eligible participant who is employed at the
Kinston, NC facility on December 31 of the applicable year.
4
Fortune Brands Hourly Employee Retirement Savings Plan
Notes To Financial Statements (Continued)
1. Description of Plan (Continued):
Contributions (Continued):
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.
NHB Industries, Inc. (formerly NHB Holdings, Inc.), a subsidiary of
MasterBrand Cabinets, Inc., ("NHB") contributes, on behalf of each
eligible participant employed by NHB, an amount equal to 20% 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, profit-sharing
contributions, if any, and their Plan account balances in the investment
funds, excluding the Gallaher ADR Fund.
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 and profit sharing
contributions plus earnings thereon occurs after one year of service.
Forfeitures:
Company contributions forfeited by nonvested terminated participants are
retained by the Plan and used to reduce subsequent Company contributions.
If a terminated participant returns to the Plan within a specified period
of time (generally 5 years), the participant's previously forfeited amount
will be reinstated to their account.
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.
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.
5
Fortune Brands Hourly Employee Retirement Savings Plan
Notes To Financial Statements (Continued)
1. Description of Plan (Continued):
Loans (Continued):
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
Adminstrator, may terminate the Plan at any time subject to the provisions
of ERISA.
For changes effective during 2000 and 1999, 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.
6
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 2000 and 1999, 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, 2000 and
1999:
2000 1999
----------------- -----------------
(In Thousands)
Net assets available for benefits as stated in the financial
statements $ 28,030 $ 24,193
Less: Distributions payable to terminated employees and amounts
payable to Plan participants who have retired or terminated
employment but elected to have their assets remain in the
Plan 1,251 1,387
----------------- -----------------
Net assets available for benefits as stated in Form 5500 $ 26,779 $ 22,806
================= =================
7
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, 2000 and 1999:
2000 1999
----------------- -----------------
(In Thousands)
Benefits paid to Participants as stated in the financial statements $ 1,860 $ 1,313
Add: Amounts payable to terminated employees and Plan participants
who have retired or terminated employment but elected to have
their assets remain in the Plan as of current year-end 1,251 1,387
Less: Amounts payable to terminated employees and Plan participants
who have retired or terminated employment but elected to
have their assets remain in the Plan as of prior year-end 1,387 1,248
----------------- -----------------
Benefits paid to participants as stated in Form 5500 $ 1,724 $ 1,452
================= =================
4. Plan Amendments:
The Plan was amended effective as of January 1, 2001 to:
o provide that MasterBrand Cabinets, Inc. contribute, on behalf of
each eligible participant employed at its Grants Pass, OR and
Hillsboro, OR locations, an amount equal to 20% of the
participant's contributions up to 3% of eligible compensation;
and
o increase the Company matching contribution to 30% of the
participant's contribution up to 4% of eligible compensation for
participants employed at the Talladega, AL location of NHB, the
Littlestown, PA, Crossville, TN, or Kinston, NC locations of
MasterBrand Cabinets, Inc., or distribution centers of
MasterBrand Cabinets, Inc.
The Plan was amended effective as of December 1, 2000 to provide for an
annual profit sharing contribution in the amount of $200 for each eligible
participant who is employed at the Kinston, NC facility of MasterBrand
Cabinets, Inc. on December 31 of the applicable year. (See Note 1.)
The Plan was amended effective as of July 1, 2000 to permit participation
by employees of NHB employed at its Talladega, AL location.
The Plan was amended effective as of October 1, 1999 to:
o provide for daily valuation of participants' accounts;
o provide that an employee will automatically have 401(k)
contributions deducted from the employees' payroll unless the
employee elects otherwise;
o eliminate the one year of service waiting period before an
employee may participate;
8
Fortune Brands Hourly Employee Retirement Savings Plan
Notes To Financial Statements (Continued)
4. Plan Amendments (Continued):
o authorize changes in contribution or investment elections by
participants on a daily basis;
o permit retirees to change the amount of periodic installment
payments twice every twelve months; and
o 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 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, 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 4.40% and 3.57% in the Master Trust's net assets at
December 31, 2000 and 1999, respectively.
Master Trust assets at December 31, 2000 and 1999 are as follows:
2000 1999
----------------- -----------------
(In Thousands)
Interest and dividends receivable $ 829 $ -
Common stock -- corporate:
Employer stock 35,351 24,594
Non-employer stock 151,241 218,076
U.S. Government securities 18,830 8,061
Corporate debt instruments 18,601 21,880
Registered investment companies 354,237 346,306
Collateralized promissory notes from participants 16,635 15,544
Interest bearing cash 38,418 36,451
---------------- -----------------
Total assets 634,138 670,912
Administrative expenses payable (679) -
---------------- -----------------
Total net assets of the Master Trust available for benefits $ 633,463 $ 670,912
================ =================
Investments that represent 5% or more of the Master Trust's net assets are
separately identified in the Master Trust filing.
9
Fortune Brands Hourly Employee Retirement Savings Plan
Notes To Financial Statements (Continued)
5. Assets Held in Master Trust (Continued):
Net (depreciation) appreciation on Master Trust investments for the years
ended December 31, 2000 and 1999 were as follows:
2000 1999
----------------- -----------------
(In Thousands)
FF Common stock -- corporate $ (21,895) $ 32,551
U. S. Government securities 1,640 (1,521)
Corporate debt instruments (154) (2,251)
Registered investment companies (13,708) 66,899
----------------- -----------------
Total $ (34,117) $ 95,678
================= =================
Interest income, in thousands, for the years ended December 31, 2000 and
1999 was $6,073 and $4,524, respectively. Dividend income, in thousands,
for the years ended December 31, 2000 and 1999 was $2,980 and $2,647,
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.
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 loss. 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.
10
Fortune Brands Hourly Employee Retirement Savings Plan
Notes To Financial Statements (Concluded)
9. Tax Status:
The Internal Revenue Service ("IRS") issued a determination letter dated
May 5, 1995 to MasterBrand Industries, Inc. 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. Related-Party Transactions:
Certain Plan investments are shares of mutual funds managed by The
Fidelity Mangement Trust Company. The Fidelity Management Trust Company is
the trustee as defined by the Plan and, therefore, these transactions
qualify as party-in-interest transactions. Fees paid by the Plan for the
investment management services amounted to $299,507 and zero for the years
ended December 31, 2000 and 1999, respectively.
11. Nonexempt Transaction:
During 1999, 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 DOL regulations, the delay in the remittance of these contributions
resulted in a prohibited loan to the Company.
During 2000, the Company corrected this prohibited transaction by making
contributions to the Plan in the amount of $226,081, representing back
contributions plus the income that such contributions could have earned if
they had been timely remitted to the Plan. The Company also filed Form
5330 with the IRS.
11
Fortune Brands Hourly Employee Retirement Savings Plan
Schedule G, Part III - Schedule of Nonexempt Transactions
for the year ended December 31, 2000
(2) (3)
Identity of Party Description of (1) Current Value Net Gain on
Involved Relationship to Plan Transaction Cost of Asset of Asset on Transaction
--------------------- -------------------- ----------- ------------- -------- --------------
Fortune Brands, Inc. Employer Improper loan from $211,861 $0 $14,220
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 21, 2000 for periods between October 1, 1999
through December 31, 1999 for certain participants of the Plan.
(2) All back contributions plus income thereon were remitted to
the Plan during 2000. Therefore the current value of the asset at December
31, 2000 is zero.
(3) The net gain on transaction represents the income that such back
contributions could have earned for the period from the date such
contributions were due through the date they were remitted to the Plan if
they had been timely remitted to the Plan.
12
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/ Mark Hausberg
By .................................
Mark Hausberg, Committee Member
MasterBrand Industries, Inc.
Retirement Committee
Date: June 29, 2001
13