-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RPe4M8ewvtpjqWElCnglxx7ukCYwFGHalbNsTuacKLQ9s4uAkxZG0J1B4gmDRB7Y ySiZ3puOQmD7O0SKAjUqpQ== 0000950130-00-001704.txt : 20000411 0000950130-00-001704.hdr.sgml : 20000411 ACCESSION NUMBER: 0000950130-00-001704 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 19 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FORTUNE BRANDS INC CENTRAL INDEX KEY: 0000789073 STANDARD INDUSTRIAL CLASSIFICATION: HEATING EQUIP, EXCEPT ELEC & WARM AIR & PLUMBING FIXTURES [3430] IRS NUMBER: 133295276 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-09076 FILM NUMBER: 583665 BUSINESS ADDRESS: STREET 1: 300 TOWER PARKWAY CITY: LINCOLNSHIRE STATE: IL ZIP: 60069 BUSINESS PHONE: 2036985000 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN BRANDS INC /DE/ DATE OF NAME CHANGE: 19920703 10-K405 1 FORM 10-K [Conformed] 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 For the fiscal year ended December 31, 1999 Commission file number 1-9076 FORTUNE BRANDS, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) DELAWARE 13-3295276 ---------------- --------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 300 Tower Parkway, Lincolnshire, IL 60069-3640 -------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (847) 484-4400 Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange Title of each class on which registered --------------------- --------------------- 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. 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. Preferred Share Purchase Rights New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None -------------- 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. [X] The aggregate market value of Registrant's voting stock held by non- affiliates of Registrant, at February 10, 2000, was $4,147,233,371. The number of shares outstanding of Registrant's common stock, par value $3.125 per share, at March 14, 2000, was 159,859,908. DOCUMENTS INCORPORATED BY REFERENCE (1) Certain information contained in the Annual Report to Stockholders of Registrant for the fiscal year ended December 31, 1999 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 April 25, 2000 is incorporated by reference into Part III hereof. 2 PART I Item 1. Business. (a) General development of business. Registrant is a holding company with subsidiaries engaged in the manufacture and sale of home products, office products, golf products and spirits and wine. 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. On May 30, 1997, Registrant's name was changed from American Brands, Inc. to Fortune Brands, Inc. 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. In recent years, Registrant has been engaged in a strategy of seeking to enhance the operations of its principal operating companies. Pursuant to this strategy, in 1999 subsidiaries of Registrant completed two acquisitions, one in Registrant's home products business and another in the office products business, for an aggregate cost of $103.6 million in cash, including fees and expenses. Also in 1999, Registrant's spirits and wine business formed an international sales and distribution joint venture, named Maxxium Worldwide B.V. (formerly known as Maxxium International B.V.), with Remy-Cointreau and Highland Distillers, to distribute and sell spirits in key markets outside the United States. Registrant's subsidiary agreed to contribute assets related to its international distribution network and periodic cash payments with a total estimated value of $110 million in return for a one-third interest in the venture. During 1999, Registrant's subsidiary made a cash investment of approximately $30 million in the venture. The investments of Registrant's subsidiary in Maxxium were recorded at the book value of assets contributed plus cash invested. In 1998, Registrant's subsidiaries completed three acquisitions of home products, office products and spirits and wine businesses for an aggregate 3 cost of $271.8 million in cash, including fees and expenses. In 1997, Registrant's subsidiaries completed five acquisitions of office products, golf products and home products businesses for an aggregate cost of $92 million, including fees and expenses. In 1996, Registrant acquired Cobra Golf Incorporated ("Cobra"), a leading manufacturer of golf clubs, for an aggregate cost of $712 million in cash, including fees and expenses. Registrant has also disposed of subsidiaries having significant revenues but engaged in businesses considered by Registrant to be nonstrategic to its long-term operations. For example, in 1995, Registrant sold American Franklin Company, whose subsidiaries were engaged in the life insurance business, to American General Corporation for $1.17 billion. In 1997, Registrant completed the spin-off of Gallaher Group Plc ("Gallaher Group") to Registrant's stockholders. Subsidiaries of Gallaher Group compete in the international tobacco business. In addition, a number of other nonstrategic businesses and product lines have been sold. In 1997, one of Registrant's office products subsidiaries sold Sax Arts & Crafts, a marketer to schools of arts and crafts supplies. In 1998, one of Registrant's home products subsidiaries sold assets relating to the manufacture of door locks and related hardware. Registrant continues to pursue its strategy to enhance the operations of its principal operating companies. Registrant actively explores possible acquisitions in fields related to its principal operating companies. Registrant also cannot exclude the possibility of acquisitions in other fields or further dispositions. Registrant is currently reviewing the portfolio of brands owned by its operating companies and evaluating its options for increasing shareholder value. Although no assurance can be given as to whether or when any acquisitions or dispositions will be consummated, if agreement with respect to any acquisitions were to be reached, Registrant might finance such acquisitions by issuing additional debt or equity securities. The additional debt from any 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. Registrant cannot predict whether or when any such strategies might be implemented or what the financial effect thereof might be upon Registrant's debt or equity securities. Another aspect of Registrant's strategy to enhance the operations of its principal operating companies has been to continuously evaluate the productivity of their product lines and existing asset base and actively seek to identify opportunities to improve Registrant's and its subsidiaries cost structure. This strategy led Registrant to record, in 1999, pre-tax restructuring and other nonrecurring charges totaling $196 million across all segments of its business. Additionally, in 1997, the Registrant recorded $298.2 million in pretax restructuring and other nonrecurring charges across all of its principal operating companies. Future opportunities may involve, among other things, the relocation of manufacturing or assembly to locations generally having lower costs and the reorganization of operations. 4 Cautionary Statement Except for the historical information contained in this Annual Report on Form 10-K, certain statements in this document, including without limitation, certain matters discussed in Part I, Item 1 -- Business and Item 3 -- Legal Proceedings and in Part II, Item 7 -- Management's Discussion and Analysis of Financial Condition and Results of Operations, are forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995, that involve a number of risks and uncertainties. Readers are cautioned that these forward- looking statements speak only as of the date hereof. Actual results may differ materially from those projected as a result of certain risks and uncertainties including, but not limited to, changes in general economic conditions, foreign exchange rate fluctuations, competitive product and pricing pressures, trade consolidations, the impact of excise tax increases with respect to distilled spirits, regulatory developments, the uncertainties of litigation, changes in golf equipment regulatory standards, the impact of weather, particularly on the home products and golf brand groups, expenses and disruptions related to shifts in manufacturing to different locations and sources, delays in the integration of acquisitions and joint ventures, as well as other risks and uncertainties detailed from time to time in the Company's Securities and Exchange Commission filings. (b) Financial information about industry segments. See Note 15 "Information on Business Segments" in the Notes to Consolidated Financial Statements contained in the 1999 Annual Report to Stockholders of Registrant, which Note is 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 Home Products, Office Products, Golf Products and Spirits and Wine. For financial information about the above industry segments, see Note 15 "Information on Business Segments" in the Notes to Consolidated Financial Statements contained in the 1999 Annual Report to Stockholders of Registrant, which Note is incorporated herein by reference. Home Products MasterBrand Industries, Inc. ("MasterBrand") is a holding company for subsidiaries in the home products business. Subsidiaries include Moen Incorporated ("Moen"), MasterBrand Cabinets, Inc. ("MasterBrand Cabinets"), Master Lock Company ("Master Lock") and Waterloo Industries, Inc. ("Waterloo"). The home products business is highly competitive. MasterBrand's operating companies compete on the basis of product quality, price, service and responsiveness to distributor and retailer needs and end-user consumer preferences. Factors that affect MasterBrand's results of operations include the levels of home improvement and residential construction activity, principally in the U.S. (including repair and remodeling and new construction). Moen manufactures and packages faucets, sinks, bath furnishings and plumbing accessories and parts and a wide variety of plumbing supply and repair products in the U.S. and East Asia. Moen branded faucets are sold under a variety of trade names, including Villeta, extensa, Boutique, Traditional, 5 Touch Control, One-Touch, Monticello, PureTouch, Concentrix, Chateau and Legend, and other products are sold under the Moen, Chicago Specialty, Dearborn Brass, Wrightway, Hoov-R-Line and CSI Donner brand names. Composite kitchen sinks are sold under the MoenStone brand name. 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. Some plumbing parts and repair products are purchased from other manufacturers and repackaged for resale. Products are sold principally in the U.S. and Canada and also in East Asia, Mexico and Latin America. Moen's chief competitors include Masco's Delta/Peerless, Black & Decker's Price Pfister, Kohler and American Standard. MasterBrand Cabinets, Inc. is engaged in manufacturing stock and semi- custom kitchen cabinets and bathroom vanities and ready-to-assemble kitchen and bath cabinets. MasterBrand Cabinets sells under the brand names Aristokraft, Decora, Schrock, Diamond and Kemper. Sales under the Aristokraft brand name are made in the U.S. primarily through stocking distributors for resale to kitchen and bath specialty dealers, lumber and building material dealers, remodelers and builders. Decora brands are sold primarily in the U.S. to kitchen and bath specialty dealers. The Schrock, Diamond and Kemper brands are primarily sold in the U.S. to home centers and kitchen and bath specialty dealers. In October 1999, MasterBrand Cabinets acquired all of the outstanding common stock of NHB Group, Ltd. ("NHB") of Peterborough, Ontario, Canada. NHB is a leader in the growing ready-to-assemble kitchen and bath cabinet category. NHB markets its products under the brand names Kitchen Classics, The Georgetown Collection, Parkhill, and NHB through home centers and kitchen and bath specialty dealers in the U.S. and Canada. MasterBrand Cabinets' competitors include American Woodmark, Masco's Merillat, KraftMaid and Mills Pride brands, and Armstrong World Industries' Triangle Pacific brand. Master Lock manufactures key-controlled and combination padlocks, chain bicycle and cable locks, built-in locker locks, automotive locks and other specialty security devices. Sales of products designed for consumer use are made to wholesale distributors, home centers and hardware and other retail outlets. Sales of lock systems are made to industrial and institutional users, original equipment manufacturers and retail outlets. Master Lock competes with Abus, Belwith, Kryptonite, Hampton, American Lock, Winner and various imports in the padlock segment. Waterloo manufactures tool storage products, principally high quality steel toolboxes, tool chests, workbenches and related products. Waterloo sells to Sears for resale under the Craftsman brand owned by Sears and under the Waterloo brand name to specialty industrial and automotive dealers, mass merchandisers, home centers and hardware stores. Waterloo competes with Snap-On, Kennedy, Stanley, Stack-On, and others in the metal storage segment, and with Contico, Zag, Rubbermaid and others in the plastic hand box category. Raw materials used for the manufacture of products offered by MasterBrand's operating companies are primarily red oak and maple lumber, particleboard, rolled steel, brass, zinc, copper, nickel, and various plastic resins. These materials are available from a number of sources. 6 Sales of MasterBrand operating companies' products are becoming increasingly concentrated in a smaller number of major customers, principally mass merchant superstores, home centers, large distributors and large homebuilders. The MasterBrand operating companies also are increasingly facing competition on a value-priced basis. As the hardware and home building and remodeling industries continues to consolidate, the growth of large mass merchants, home centers and home builders will continue to present pricing and service challenges to manufacturers and will present opportunities for the most efficient manufacturers. Office Products ACCO World Corporation ("ACCO") is a holding company for subsidiaries engaged in designing, developing, manufacturing and marketing a wide variety of traditional and computer-related office products, supplies, personal computer accessory products, time management products, presentation aids and label products. Products are manufactured by subsidiaries, joint ventures and licensees of ACCO, or manufactured to such subsidiaries' specifications by third-party suppliers throughout the world, principally in the U.S., Mexico, Canada, Western Europe, Australia, Taiwan and China. ACCO Brands, Inc. ("ACCO Brands"), ACCO's primary U.S. operating company, manufactures or sources and sells binders, fasteners, paper clips, punches, staples, stapling equipment and storage products, computer supplies and accessories, labels and presentation products. ACCO Canada Inc. ("ACCO Canada"), a subsidiary of ACCO, manufactures a limited product range and distributes in Canada a range of office products similar to that distributed by ACCO Brands in the U.S. Principal office products brands include ACCO fastener products, Swingline staples and stapling equipment, Wilson Jones binders and columnar pads, Perma Products corrugated storage products, Kensington and Gravis computer accessories and supplies, MACO and Wilson Jones labels and Apollo presentation products. Products are sold throughout the U.S. and Canada by in-house sales forces and independent representatives to office and computer products wholesalers, retailers, dealers, mail order companies and mass merchandisers. Recent acquisitions of North American office products companies include the following: in 1997, Advanced Gravis Computer Technology Ltd., a leading marketer of personal computer joysticks and game pads, and May Tag & Label Corp., a manufacturer of labeling products sold under the MACO brand; in February 1998, the Apollo group of companies, a North American leader in presentation products; and in October 1999, Boone International, Inc., a leading manufacturer of bulletin and dry-erase boards, chalkboards and dry-erase markers and accessories for home, home office and commercial use. Sales are concentrated in the U.S., Canada and Australia. Subsidiaries of ACCO Europe PLC ("ACCO Europe"), another subsidiary of ACCO, manufacture or source and distribute a wide range of office supplies and machines, storage and retrieval filing systems and presentation products. ACCO Europe's products are sold primarily in the U.K., Ireland, Western Europe and Australia through its subsidiaries' sales forces and through distributors. Principal brands used by ACCO Europe's subsidiaries include ACCO fastening products, Kensington and Gravis computer accessories, Rexel stapling products, Nyrex and Twinlock filing products, Nobo and Sasco presentation products and, in Australia, Marbig products. In 1997, a subsidiary of ACCO Europe acquired 7 Nobo Group plc, a leading manufacturer of presentation aids, principally in the U.K. and continental Europe. Day-Timers, Inc.("Day-Timers"), a subsidiary of ACCO, manufactures personal organizers, planners and time management computer software in the U.S. Management believes Day-Timers is the leading direct marketer of time management aids in North America. Products are sold in the U.S. by Day-Timers, and in Canada, Australia and Europe by subsidiaries of Day-Timers, through direct mail advertising, catalogs to consumers and businesses, and electronic commerce. In addition, products are sold through ACCO Brands and ACCO Canada to retailers and mass merchandisers. ACCO Brands also conducts time management seminars for personnel of corporations in the U.S. and similar activities are conducted by Day-Timers' subsidiaries in Canada and Australia. The office products business is increasingly concentrated in a small number of major customers, principally office products superstores, wholesalers and contract stationers. The continuing consolidation of both competitors and customers is causing increased pricing pressures that have negatively affected results. The reduction in net prices was compounded by the decision of several customers to reduce inventory levels. These conditions continued throughout 1999 and continue to present challenges for the office products group and its competitors. ACCO Brands believes its business will return to solid contribution growth in 2000, and will continue to position the business for long-term growth through the transition to low-cost manufacturing and an emphasis on faster- growing and higher-return product categories. Management believes that manufacturing within the office products industry remains highly fragmented; however, significant manufacturing consolidations occurred during 1998, particularly the acquisition of Leitz by Esselte and of IBICO by GBC, and 1999, specifically the joint venture between Avery Dennison and Steinbeis Holding GmbH. Due to local market preferences for product design and paper sizes, many office product manufacturers supply on a regional basis only. Many manufacturers supply a relatively narrow range of products. ACCO's key competitors on a worldwide basis include Avery Dennison, Esselte, Newell, Fellowes, Eagle OPG Inc. and GBC. Primary competitors for personal organizers in the North American market are Franklin Quest and Day- Runner, and key competitors in the international market for personal organizers, although less developed than in the North American market, include Day-Runner in the U.K. and Quo Vadis in France. In computer accessories, ACCO competes against Logitech, Fellowes, Microsoft, Targus and others. ACCO's operating companies compete on the basis of product quality, service and responsiveness to consumer preferences. ACCO's subsidiaries purchase raw materials, components and products from a variety of sources, including non-U.S. vendors, on competitively available terms that fluctuate based on market conditions. ACCO has established substantial and growing production operations in Mexico, helping to reduce its cost base. Golf Products Acushnet Company ("Acushnet"), together with its subsidiaries, is a leading manufacturer and distributor of golf balls, golf clubs, golf shoes and golf gloves. Other products include bags, dress and athletic shoes as well as socks, accessories and apparel outerwear. Acushnet's leading brands are Titleist, Pinnacle and Cobra golf balls; Titleist and Cobra golf clubs; Scotty 8 Cameron by Titleist and Bulls Eye putters; FootJoy golf shoes; and FootJoy and Titleist golf gloves. Acushnet products are sold primarily to on-course golf pro shops and selected off-course specialty stores, sporting goods stores and mass merchants throughout the United States. Sales are made in the U.K., Canada, Germany, Austria, Denmark, Ireland, France, Sweden, The Netherlands, South Africa, Thailand and Japan through subsidiaries and outside these areas through distributors or agents. Acushnet and its subsidiaries compete on the basis of product quality, price, service and responsiveness to consumer preferences. In golf balls, Acushnet's main competitors are Spalding, Wilson, Dunlop/Slazenger and Bridgestone and new entrants such as Callaway, Taylor Made and Nike. In golf clubs, Callaway, Taylor Made, Ping, Adams, Orlimar, Tommy Armour, Spalding and Mizuno are the main competitors. In golf shoes, Etonic, Nike, Dexter, Reebok, Mizuno, Stylo and Adidas are the main competitors. In golf gloves, Wilson, Daiwa, Dunlop/Maxfli, Kasco, Slazenger, Nike, Etonic, Tommy Armour, Mizuno and Bridgestone are the main competitors. In 1999 and 1998, the golf club market was adversely affected by lower customer demand, leading to volume declines and price discounting. Overall retail sales of golf clubs fell an estimated 3% to 6% in 1999. The Cobra brand was adversely affected by the market's overall weakness, resulting in declines in sales and profits. Titleist clubs posted volume, sales and profit growth. Conditions in the club market remain very competitive, with major competitors introducing new products and consumers becoming more price conscious. In 1999, aggressive actions were undertaken, including discontinuance of club product lines, asset write-offs and reductions in force, in order to bring Cobra expenses in line with lower demand and to identify further synergies between Titleist and Cobra. The United States Golf Association (USGA) establishes standards for golf equipment used in competitive play in the United States. In 1998, the USGA announced the immediate implementation of a new rule with respect to the performance of golf clubs. Acushnet's golf products currently marketed conform to this new rule. In the long term, this new rule could hamper innovation and make it more difficult to use technological advances to produce USGA conforming products. However, it is not possible to determine whether in the long term this new rule will have a material effect on the golf club industry. The USGA has announced its intention to propose new rules addressing the initial velocity and overall distance standards for golf balls. Until more details regarding such potential rule changes become available, Acushnet cannot determine whether they would have a material effect on its golf ball business and/or the golf ball industry. However, the new rules being considered could incorporate rules that would create a two-tiered set of standards for golf balls, one for tour professionals and one for consumers, and that would shorten the overall distance that golf balls are allowed to travel. The adoption of either change could materially impact Acushnet's golf business. In February 2000, Callaway introduced a line of golf balls. Taylor Made and Nike introduced golf balls into their product offerings in 1999. Each of these companies has significant brand awareness in the golf market. It is not possible to predict what effect these new entries will have on Acushnet's business. 9 Acushnet's advertising and promotional campaigns rely in part on a large number of touring professionals and club professionals using and endorsing its products. Acushnet has been competing for the endorsement and promotional services of touring professionals. As a result, these costs have risen and may continue to rise. There is currently a substantial market in "knock-off" and counterfeit golf clubs which imitate or copy the protected features of original equipment manufacturers golf club products. Acushnet has an active program of enforcing its intellectual property rights against those who make or sell such products. Spirits and Wine Jim Beam Brands Worldwide, Inc. ("JBB Worldwide") is a holding company for subsidiaries in the distilled spirits and wine business. Principal subsidiaries include Jim Beam Brands Co. ("Beam"), Alberta Distillers Limited, Jim Beam Brands Australia Pty. Limited and JBB (Greater Europe) PLC ("JBB (Greater Europe)"). In August 1999, JBB Worldwide formed an international sales and distribution joint venture, named Maxxium International B.V., to distribute and sell premium wines and spirits in key markets outside the United States. In August 1998, JBB Worldwide purchased the Geyser Peak wine business and adjacent vineyard property. The winery is located in Alexander Valley, Sonoma County, California. Geyser Peak wine brands include Geyser Peak Reserve and Venezia, Geyser Peak and Canyon Road. In February 1998, JBB Worldwide formed a joint venture to distribute the Barwang brand of Australian wines on a global basis, except in Australia and New Zealand. Principal markets for the products of JBB Worldwide's subsidiaries are the U.S., the U.K. and Australia. Approximately 87% of JBB Worldwide subsidiary sales are to these three markets, with the U.S. and the U.K. representing 65% and 16% of sales, respectively. JBB Worldwide's leading brands are owned by its subsidiaries, except that DeKuyper cordials are produced and sold in the U.S. under a perpetual license, Gilbey's gin and Gilbey's vodka are produced and sold in the U.S. under a license expiring September 30, 2007 and the rights to the Kamchatka vodka brand in California are claimed by another entity. Beam, whose operations are located in the U.S., currently produces, or imports, and markets a broad line of distilled spirits, including bourbon and other whiskeys, cordials, gin, vodka, rum, tequila and cognac. Beam and its predecessors have been distillers of bourbon whiskey since 1795. Beam's nine leading brand names are Jim Beam Bourbon Whiskey, DeKuyper cordials, Windsor Canadian Supreme Whisky, Lord Calvert Canadian Whisky, Gilbey's gin, Gilbey's vodka, Kamchatka vodka, Wolfschmidt vodka and Kessler American Blended Whiskey. As discussed above, in 1998 Beam also added wines to its product offerings. JBB (Greater Europe) is located in the U.K. and produces, bottles, and sells blended and single malt Scotch whiskies, markets and sells vodka, and 10 sells Scotch whisky in bulk. JBB (Greater Europe) has its origins as a distiller of Scotch whisky in 1844. JBB (Greater Europe)'s principal brand names are Whyte & Mackay Special Reserve, The Claymore, The Dalmore, Cluny, Mackinlay, Isle of Jura and Bruichladdich Scotch whiskies, Glayva Scotch whisky liqueur and Vladivar vodka. Products of JBB Worldwide's subsidiaries are sold through various distributors and in the 18 "control" states (and one county) in the U.S. that have established government control over certain aspects of the purchase and distribution of alcoholic beverages. The distilled spirits business is highly competitive, with many brands sold in the consumer market. Management believes there are approximately nine major competitors worldwide and many smaller distillers and bottlers. Management also believes that, based on units and sales value, the JBB Worldwide group, with four brands that each sell over one million cases worldwide, is the second or third largest producer and marketer of distilled spirits in the U.S. and is among the nine major competitors worldwide. JBB Worldwide's subsidiaries compete on the basis of product quality, price, service and responsiveness to consumer preferences. For many years through 1995, consumption of distilled spirits declined in many countries, including JBB's major market, the U.S. However, since 1996, consumption in the U.S. has been steady or has increased slightly, indicating that the historic decline may be reversing. From 1996 through 1999, cases of Beam's products sold by distributors to retailers declined, although the rate of decline slowed in 1998 and 1999. The number of cases sold may be affected by Beam's historic concentration on mid-to-low priced products that may not be fully benefiting from the factors influencing the recent industry trends. The number of cases sold may also be affected by price increases Beam has taken in recent years to increase profits as compared to unit sales. The merger of Grand Metropolitan PLC and Guinness PLC to create Diageo PLC in late 1997 may reflect a trend towards consolidation in the highly competitive global spirits business. The creation of Diageo PLC, and the breadth of its portfolio, as well as the continued consolidation of the supplier, distributor and retailer tiers may present pricing and service challenges for distilled spirits producers, as well as opportunities for the most efficient producers. The principal raw materials for the production, storage and aging of distilled products are primarily corn, other grains, and new oak barrels, and are readily available from a number of sources except that new oak barrels are available from only two major sources, one of which is owned by a competitor. Beam has entered into a long-term supply agreement for new oak barrels. The long-term supply agreement may be terminated without cause by the supplier or Beam. Each party is required, however, to provide several years prior notice before any termination would become effective. Registrant believes that this notice requirement allows sufficient time to identify alternative sources of supply to address Beam's cooperage needs without interruption. Although the terms of any new arrangement may not be as favorable as Beam's current arrangement, Registrant does not believe that the change in supply would have a material adverse effect upon its results of operations. Beam has had a continuing relationship with its current supplier for more than two decades. 11 Blended Scotch whiskies are composed of a variety of grain and malt whiskies blended to provide a consistent product. The Scotch industry is therefore dependent on the trading of whiskies between whisky companies. The principal raw materials used in the production of wines are grapes, barrels and packaging materials. Grapes are primarily purchased from independent growers under long-term supply contracts and, from time to time, are adversely affected by weather and other forces which may limit production. In fiscal 1999, approximately 5-10% of Geyser Peak's total grape supply came from company-owned land. Beam is party to numerous long-term supply agreements for different types of grapes from many different growers. Either party may terminate these agreements without cause. However, termination typically requires that the grower provide Beam with at least two years' prior notice. As a result of the number of agreements and growers, and the length of time required to terminate an agreement, Registrant believes that termination by a grower of its agreements would not result in a business interruption. Because whiskeys are aged for various periods, generally from three to eight years, subsidiaries of JBB Worldwide maintain, in accordance with industry practice, substantial inventories of bulk whiskey in warehouse facilities. Whiskey production is generally scheduled to meet demand years into the future, and production schedules are adjusted from time to time to bring inventories into balance with estimated future demand. The production, storage, transportation, distribution and sale of the products of JBB Worldwide's subsidiaries are subject to regulation by federal, state, local and foreign authorities. Various local jurisdictions prohibit or restrict the sale of distilled spirits and wine in whole or in part. As a result of the publicity surrounding litigation against manufacturers of tobacco products and other class action litigation some commentators have suggested that other industries, including beverage alcohol, may be the targets of litigation. Registrant believes, and counsel has advised generally, that in the event such actions are commenced, Registrant and its subsidiaries would have meritorious defenses to such suits and they would be vigorously contested. In the U.S., U.K. and many other countries, distilled spirits and wine are subject to federal excise taxes and/or customs duties as well as state, local and other taxes. There have been no increases in the U.S. federal excise tax since January 1, 1991, although proposals to increase such taxes have been made from time to time. In addition, there are proposals pending to increase or impose new distilled spirits taxes in various jurisdictions. The U.K. budget announcements in March 1999 and 2000 did not provide for an increase in excise tax duties on distilled spirits. Changes in the U.K. excise duties on distilled spirits in previous years have resulted in increases or decreases in the price of a typical 700-milliliter bottle of Scotch whisky, as follows: 12 Amount of Increase (Decrease) Effective Date in Excise Tax Duties -------------- -------------------- January 1, 1995 26 pence November 28, 1995 (27 pence) November 26, 1996 (26 pence) January 1, 1998 19 pence It is believed that the U.S. Federal excise tax increase in 1991 contributed to a decline in distilled spirits unit sales for the industry, including Beam. The effect of any future excise tax increases in any jurisdiction cannot be determined, but it is possible that any future excise tax increases would have an adverse effect on unit sales and increase existing competitive pressures. The Alcoholic Beverage Labeling Act of 1988 (the "Labeling Act") and regulations of the Bureau of Alcohol, Tobacco and Firearms of the Department of the Treasury (the "BATF") require that containers of alcoholic beverages for sale or distribution in the U.S. and to members of the United States Armed Forces abroad bear a specific written warning statement. It is not possible to state whether any additional or different requirements imposing further labeling or other warning statement requirements will be enacted in the U.S. Requirements that distilled spirits containers bear warning statements have been established in certain other markets in which JBB Worldwide subsidiaries sell products, notably South Korea, Thailand and Japan. It is not possible to predict the effect, if any, that existing or future labeling or other warning statement requirements may have on the industry generally or on JBB Worldwide specifically. Previously, there has been discussion and legislation introduced to ban or significantly restrict U.S. television advertising of beverage alcohol products. Although no legislation is currently pending or has been enacted, most TV networks and local affiliated stations in the U.S. currently decline to accept distilled spirits advertising. JBB Worldwide's operating subsidiaries outside the U.S. have conducted broadcast advertising in markets where legal. In 1998, the BATF approved two statements for wine labels referencing the health effects of wine consumption. One of these statements encourages consumers to consult with their family doctor about the health effects of wine consumption, and the other statement directs consumers to obtain a copy of the Federal Government's Dietary Guidelines for Americans in order to learn more about the health effects of wine consumption. Producers may voluntarily place these statements on wine labels, but Beam has no present intention of placing either statement on its wine labels. The BATF has not yet authorized such statements for any beer or spirits labels. It is not possible to predict the effect, if any, the use of these statements may have on Beam's or its competitors' businesses. The approval of these statements also has generated criticism calling for additional legislative restrictions on beverage alcohol advertising, although as previously stated no such legislation is pending. It is also not possible to predict when or whether additional restrictions on 13 advertising may be implemented in the U.S. or elsewhere. If new restrictions are implemented, they may have an adverse effect on unit sales and industry trends. Other Matters Employees Registrant and its subsidiaries had, as of December 31, 1999, the following number of employees: Home Products 11,900 Office Products 9,650 Golf Products 4,400 Spirits and Wine 2,050 Corporate Office 130 ------ Total 28,130 ====== Environmental matters 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 upon the capital expenditures, financial condition, results of operations or competitive position of Registrant and its subsidiaries. (d) Financial information about foreign and domestic operations and export sales. Registrant's subsidiaries operate in the United States, Europe (principally the U.K.) and other areas (principally Canada and Australia). See the table captioned "Information on Business Segments" contained in the 1999 Annual Report to Stockholders of Registrant, which table is incorporated herein. Registrant has investments in various foreign countries, principally the United Kingdom, as well as Australia and Canada, and, therefore, changes in the value of the currencies of these countries can have an effect on Registrant's financial statements when translated into U.S. dollars. Item 2. Properties. Registrant leases its principal executive offices in Lincolnshire, Illinois. Additionally, Registrant continues to lease and has sublet a portion of the premises in Old Greenwich, Connecticut that formerly served as its executive 14 offices. The following is a description of the principal properties of Registrant's subsidiaries. Home Products Principal properties of subsidiaries of MasterBrand include twenty- nine plants and one distribution center owned and operated in the U.S. A 60%- owned joint venture in China owns and operates one plant. In addition, subsidiaries of MasterBrand lease and operate four plants and three warehouses in the U.S. and sixteen distribution centers, of which ten are in the U.S., four in Canada and one each in Mexico and Brazil. Moen owns its executive offices in North Olmsted, Ohio. Master Lock's and Master Brand Cabinets' executive offices are located within owned plants. Waterloo's executive offices in Waterloo, Iowa are leased. Office Products ACCO leases its executive offices in Lincolnshire, Illinois. Principal properties of subsidiaries of ACCO include six plants that are owned and operated in the U.S., eight in the U.K. of which seven are manufacturing facilities and one is a distribution center, two in Mexico, and one each in Australia, Germany, Italy, France and the Republic of Ireland. In addition, subsidiaries of ACCO lease and operate seven facilities in the U.S., three in each of Canada and the U.K., and one in each of France, Germany, Italy and Mexico. Of these leased facilities, (i) three in the U.S., two in the U.K. and one in Canada are combined manufacturing and distribution facilities, (ii) two in Canada and one in each of the U.S., Mexico, the U.K., Italy, France and Germany are distribution facilities and (iii) three in the U.S., and one in Germany are manufacturing facilities. Golf Products Acushnet owns a combined worldwide headquarters, research and development, distribution and packaging facility in Fairhaven, Massachusetts. In addition, it owns and operates five plants and two test facilities. Acushnet also leases a combined office, distribution and warehouse facility, a warehouse, two manufacturing facilities, a test facility, and two research and development facilities, all located in the U.S. Acushnet is also in the process of disposing one owned manufacturing facility, one leased manufacturing facility, one leased research and development facility and one leased warehouse facility in the United States. Acushnet leases an office in Taiwan. A subsidiary of Acushnet leases three combined sales office and warehouse facilities in Canada. Other Acushnet subsidiaries own and operate a plant and a warehouse in England, lease a sales office and warehouse in each of Germany, France, Sweden, Austria, Denmark, The Netherlands and South Africa and lease a sales office in the Republic of Ireland. A subsidiary of Acushnet in Japan leases two sales offices and one warehouse facility. A subsidiary of Acushnet in Thailand leases a sales office, warehouse facility and manufacturing facility and owns a 15 manufacturing facility on leased land. Acushnet's minority-owned joint venture in China leases and operates one plant and is in the process of building a new plant on leased land. Spirits and Wine JBB Worldwide operates from executive offices leased by Beam in Deerfield, Illinois. Other subsidiaries of JBB Worldwide lease offices in Scotland, Canada and Australia. Subsidiaries of JBB Worldwide own and operate seven bottling plants, twelve distilleries (of which three are malt distilleries not currently in use), a winery (including vineyards, production and bottling facilities on site) and numerous warehouses for the aging of bulk whiskeys all located in the U.S., Scotland and Canada. In addition, JBB Worldwide subsidiaries lease sales offices and warehouse space for the storage of promotional material in various locations throughout the world. Registrant and its subsidiaries are of the opinion that their properties are suitable to their respective businesses and have productive capacities adequate to meet the needs of such businesses. Item 3. Legal Proceedings. Overview On December 22, 1994, Registrant sold The American Tobacco Company ("ATCO") to Brown & Williamson Tobacco Corporation ("B&W"), at the time a wholly owned subsidiary of B.A.T Industries p.l.c. In connection with the sale, B&W and ATCO ("the Indemnitors") agreed to indemnify Registrant against claims including legal expenses arising from smoking and health and fire safe cigarette matters relating to the tobacco business of ATCO. Numerous legal actions, proceedings and claims are pending in various jurisdictions against leading tobacco manufacturers, including B&W both individually and as successor by merger to ATCO, based upon allegations that cancer and other ailments have resulted from tobacco use. Registrant has been named as a defendant in some of these cases. These claims generally fall within three categories: (i) smoking and health cases alleging personal injury brought on behalf of individual plaintiffs, (ii) smoking and health cases alleging personal injury and other damages and purporting to be brought on behalf of classes of individual plaintiffs, and (iii) health care cost recovery cases, including class actions, brought by foreign governments, unions, health trusts, federal and state taxpayers and others seeking reimbursement for health care expenditures allegedly caused by cigarette smoking. As noted below, in 1998, certain United States tobacco companies, including B&W, entered into a Master Settlement Agreement that resolved all remaining health care cost recovery cases brought by the various States, U.S. territories, and the District of Columbia. Damages claimed in some of the smoking and health class actions and remaining health care cost recovery cases range into the billions of dollars. Certain former asbestos manufacturers and asbestos manufacturers' personal injury settlement trusts have also sought unspecified amounts in indemnity or contribution in third party actions against all or most of the major domestic tobacco manufacturers. It has also been reported that civil and criminal investigations of tobacco manufacturers are pending before certain 16 prosecutorial and other authorities. In recent years there has been a substantial increase in the number of smoking and health cases filed in the United States, a trend which continued to accelerate in 1999. Individual Cases As of March 23, 2000, there were approximately 93 smoking and health cases pending on behalf of individual plaintiffs in which Registrant has been named as one of the defendants, compared with approximately 230 such cases as of March 29, 1999. See "List of Pending Cases" below. This reduction in the number of pending cases is in part attributable to the fact that Registrant is no longer classifying (i) cases from which it has been dismissed without prejudice, or (ii) cases which have been discontinued without prejudice and in which no complaint was ever filed, as "Pending Cases". Class Actions As of March 23, 2000, there were approximately 22 purported smoking and health class actions pending in which Registrant has been named as one of the defendants compared with approximately 28 such cases as of March 23, 1999. See "List of Pending Cases" below. Health Care Cost Recovery Actions As of March 23, 2000, there were approximately 3 health care recovery actions pending in which Registrant has been named as one of the defendants, compared with approximately 9 such cases as of March 29, 1999. See "List of Pending Cases" below. Certain Developments Affecting The Indemnitors In July of 1998, trial began in a Florida action against B&W (individually and as successor by merger to ATCO) and other U.S. tobacco manufacturer defendants brought on behalf of a class of Florida residents allegedly injured as a result of their alleged addiction to cigarettes containing nicotine (Engle v. R. J. Reynolds tobacco Company, et al.). The jury in Phase I of the trial found for the plaintiffs and against certain tobacco manufacturers (including B&W individually and as successor by merger to ATCO). Phase II of the trial, in which the same jury is to address the individual claims of the named class representatives, commenced on November 1, 1999. The trial court judge ruled that the jury in Phase II may award an aggregate classwide lump-sum amount of punitive damages. This ruling is being challenged by the defendants in Florida's appellate courts. Registrant is not a party to the Engle litigation. In September of 1999, the United States government filed a recoupment lawsuit in Federal Court in Washington, D.C. against the leading tobacco manufacturers (including B&W individually and as a successor to ATCO) seeking recovery of costs paid by the Federal government for claimed smoking-related illness. Registrant is not a party to this action. 17 Resolution of Health Care Cost Recovery Actions By States, U.S. Territories and the District of Columbia On November 23, 1998, certain U.S. tobacco companies, including B&W, entered into a Master Settlement Agreement (the "MSA") with certain state attorneys general that would result in the dismissal of all remaining health care reimbursement lawsuits brought by the various States, U.S. territories, and the District of Columbia. Registrant is not a party to the MSA and is not bound by any of the payment obligations or other restrictions of the MSA. Under the MSA, the settling States agreed to dismiss their current health care reimbursement lawsuits and not to refile such suits in the future. The MSA provides for the release by the settling States of claims for past conduct, acts or omissions (including future damages resulting from past conduct, acts or omissions) in any way related, in whole or in part, to the use, sale, distribution, manufacture, development, advertising, marketing or health effects of, the exposure to, or research, statements or warnings about, tobacco products. The release includes any claim that was brought or comparable claims that could have been brought by the States in their health care cost recovery actions. It also includes claims for future conduct, acts or omissions, or claims in any way related, in whole or in part, to the use of or exposure to tobacco products manufactured in the ordinary course of business, including future claims for reimbursement of health care costs allegedly associated with the use of or exposure to tobacco products. All 52 government entities permitted to participate in the MSA, including 46 States, American Samoa, Guam, Puerto Rico, the U.S. Virgin Islands, the Northern Mariana Islands and the District of Columbia, have dismissed their health care reimbursement suits pursuant to the MSA. The MSA provides for the release of claims against participating manufacturers, as well as their predecessors, successors, and past, present, and future affiliates. "Affiliate" is defined to include past or present persons or entities who own or control, are owned by or controlled by, or are under common ownership of a 10% or more equity interest. Registrant understands that it is a released party under the terms of the MSA. Under the MSA, participating manufacturers are required to make initial "upfront" payments totaling nearly $13 billion between 1998 and 2003 to the settling States. Additional annual payments must be made beginning in 2000 in perpetuity (starting at $4.5 billion in 2000 and increasing to $9 billion in 2018 and thereafter), and payments to several funds (a "strategic contribution" fund to reward individual States for their contributions to the settlement, a public health foundation, and a public advertising and awareness fund) are also required. Further payments of $300 million per year will also be required, if the market share of the participating manufacturers in the preceding year was at least 99.05%. These payments are subject to various credits and adjustments, depending on industry volume, inflation, and other factors. The initial up front payment was allocated among the participating manufacturers according to market capitalizations; all other payments are to be allocated according to market share. Moreover, participating manufacturers agreed to a variety of additional restrictions and limitations, including, for example, restrictions on advertising, marketing and lobbying. The MSA also calls for the participating manufacturers to pay attorneys' fees for the States' attorneys in the settled litigation. 18 Prior to the MSA, health care cost recovery actions filed by the states of Minnesota, Texas, Florida and Mississippi were settled separately on terms which included monetary payments of several billion dollars. Registrant was not a party to the Minnesota or Texas action and was voluntarily dismissed from the Florida and Mississippi actions. Registrant is not a party to any of the settlements nor is it required to pay any money under these settlements. List of Pending Cases For a list of pending cases, see Exhibit 99 to this Form 10-K and, for a discussion of other pending litigation, see Note 19 "Pending Litigation" in the Notes to Consolidated Financial Statements contained in the 1999 Annual Report to Stockholders of Registrant, which Note is incorporated herein by reference. List of Terminated Cases For a list of terminated cases, see Exhibit 99 to this Form 10-K. Conclusion Management believes that there are meritorious defenses to the pending actions referred to in Exhibit 99 of this Form 10-K and these actions are being vigorously contested. However, it is not possible to predict the outcome of the pending litigation, and it is possible that some of these actions could be decided unfavorably. Management is unable to make a meaningful estimate of the amount or range of loss that could result from an unfavorable outcome of the pending litigation. Management believes that the pending actions will not have a material adverse effect upon the results of operations, cash flows or financial condition of Registrant as long as the Indemnitors continue to fulfill their obligations to indemnify Registrant under the aforementioned indemnification agreement (see "Overview" on page 16). 19 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 - ---- ------------------------------------ --- Norman H. Wesley Chairman of the Board and Chief Executive 50 Officer of Registrant since December 1999; President and Chief Operating Officer of Registrant during 1999; Chairman of the Board and Chief Executive Officer of Fortune Brands Home & Office, Inc. from December 1997 to December 1999; President and Chief Executive Officer of ACCO World Corporation prior thereto. Craig P. Omtvedt Senior Vice President and Chief Financial 50 Officer of Registrant since January 2000; Senior Vice President and Chief Accounting Officer of Registrant during 1998 and 1999; Vice President and Chief Accounting Officer of Registrant during 1997; Vice President - Deputy Controller and Chief Internal Auditor of Registrant during 1996; Deputy Controller and Chief Internal Auditor of Registrant prior thereto. Thomas J. Flocco Senior Vice President - Strategy & Corporate 37 Development of Registrant since January 2000; Partner, McKinsey & Company, a management consulting firm, from 1998 to 1999; Engagement Manager, McKinsey & Company, specializing in the consumer products area, prior thereto. Mark Hausberg Senior Vice President - Finance and Treasurer 50 of Registrant since January 2000; Vice President and Treasurer from January 1996 to December 1999; Treasurer of Registrant prior thereto. 20 Present positions and offices with Registrant and principal occupations Name during the past five years Age - ---- ------------------------------------------- --- Mark A. Roche Senior Vice President, General Counsel and 45 Secretary of Registrant since January 2000; Senior Vice President and General Counsel of Registrant during 1999; Vice President and General Counsel during 1998; Vice President and Associate General Counsel of Registrant from January 1996 to December 1997; Associate General Counsel of Registrant prior thereto. Anne C. Linsdau Vice President - Human Resources of Registrant 46 since November 1997; Vice President - Human Resources, Magazine Publishing Services, with R.R. Donnelley & Sons Company from August 1995 to November 1997; Vice President - Human Resources with BE&K, Inc. prior thereto. Michael R. Mathieson Vice President, Controller and Chief Accounting 47 Officer of Registrant since January 2000; Controller of Registrant since July 1998; Vice President and Corporate Controller of Avon Products, Inc. prior thereto. 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. 21 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 1999 Annual Report to Stockholders of Registrant, which information and discussion are incorporated herein by reference. On February 25, 2000, there were 36,984 record holders of Registrant's common stock, par value $3.125 per share. Item 6. Selected Financial Data. See the information for 1995 through 1999 in the table captioned "Six- Year Consolidated Selected Financial Data" contained in the 1999 Annual Report to Stockholders of 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 Condition" contained in the 1999 Annual Report to Stockholders of Registrant, which discussion and analysis are incorporated herein by reference. Item 7A. Quantitative and Qualitative Disclosures about Market Risk. See the discussion and analysis under "Market Risk," "Foreign Exchange Contracts" and "Interest Rates" under the caption "Financial Condition" in the 1999 Annual Report to Stockholders of Registrant, which discussion is 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 Stockholders' Equity, Notes to Consolidated Financial Statements and Report of Independent Accountants contained in the 1999 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 1999 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. 22 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 April 25, 2000, 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 April 25, 2000, which information is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management. See 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 April 25, 2000, which information is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions. None. 23 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, 1999, 1998 and 1997 contained in the 1999 Annual Report to Stockholders of Registrant is incorporated herein by reference. Consolidated Balance Sheet as of December 31, 1999 and 1998 contained in the 1999 Annual Report to Stockholders of Registrant is incorporated herein by reference. Consolidated Statement of Cash Flows for the years ended December 31, 1999, 1998 and 1997 contained in the 1999 Annual Report to Stockholders of Registrant is incorporated herein by reference. Consolidated Statement of Stockholders' Equity for the years ended December 31, 1999, 1998 and 1997 contained in the 1999 Annual Report to Stockholders of Registrant is incorporated herein by reference. Notes to Consolidated Financial Statements contained in the 1999 Annual Report to Stockholders of Registrant are incorporated herein by reference. Report of Independent Accountants contained in the 1999 Annual Report to Stockholders of Registrant is incorporated herein by reference. (2) Financial Statement Schedules See Index to Financial Statement Schedule of Registrant and subsidiaries at page F-1, which Index is incorporated herein by reference. (3) Exhibits 3(i). Restated Certificate of Incorporation of Registrant is incorporated herein by reference to Exhibit 3(i) to the Annual Report on Form 10-K of Registrant for the fiscal year ended December 31, 1998. 3(ii)a. Amendment to By-laws of Registrant. 3(ii)b. By-laws of Registrant as in effect on the date hereof. 10a1. Fortune Brands, Inc. Annual Executive Incentive Compensation Plan is incorporated herein by reference to Exhibit 10a1 to the Quarterly Report on Form 10-Q of Registrant dated August 12, 1997.* 10b1. 1986 Stock Option Plan of Fortune Brands, Inc. and amendments thereto are incorporated herein by reference to Exhibit 10b2 to the Annual 24 Report on Form 10-K of Registrant for the Fiscal Year ended December 31, 1992 maintained in Commission File No. 1-9076.* 10b2. Amendment to 1986 Stock Option Plan of Fortune Brands, Inc. constituting Exhibit 10b1 hereto is incorporated herein by reference to Exhibit 10b to the Quarterly Report on Form 10-Q of Registrant dated November 11, 1993 maintained in Commission File No. 1-9076.* 10b3. Amendment to 1986 Stock Option Plan of Fortune Brands, Inc. and Amendment thereto constituting Exhibits 10b1 and 10b2 hereto is incorporated herein by reference to Exhibit 10b to the Quarterly Report on Form 10-Q of Registrant dated August 11, 1994 maintained in Commission File No. 1-9076.* 10b4. Amendment to the 1986 Stock Option Plan of Fortune Brands, Inc. and Amendments thereto constituting Exhibits 10b1, 10b2 and 10b3 hereto is incorporated herein by reference to Exhibit 10a2 to the Quarterly Report on Form 10-Q of Registrant dated November 11, 1997.* 10b5. 1990 Long-Term Incentive Plan of Fortune Brands, Inc. (As Amended and Restated as of January 1, 1994) is incorporated herein by reference to Exhibit 10a to the Quarterly Report on Form 10-Q of Registrant dated August 11, 1994 maintained in Commission File No. 1-9076.* 10b6. Amendment to 1990 Long-Term Incentive Plan of Fortune Brands, Inc. constituting Exhibit 10b5 hereto is incorporated herein by reference to Exhibit 10a1 to the Quarterly Report on Form 10-Q of Registrant dated November 11, 1997.* 10b7. Fortune Brands, Inc. Non-Employee Director Stock Option Plan is incorporated herein by reference to Exhibit 10b1 to the Quarterly Report on Form 10-Q of Registrant dated August 12, 1997.* 10b8. Amendment to Registrant's Non-Employee Director Stock Option Plan constituting Exhibit 10b7 hereto is incorporated herein by reference to Exhibit 10a1 to the Quarterly Report on Form 10-Q of Registrant dated August 12, 1998.* 10b9. Amendment to Registrant's Non-Employee Director Stock Option Plan and Amendment thereto constituting Exhibits 10b7 and 10b8 hereto.* 10b10. Fortune Brands, Inc. 1999 Long-Term Incentive Plan is incorporated herein by reference to Exhibit 4e1 to the Registration Statement for the Fortune Brands, Inc. 1999 Long-Term Incentive Plan filed by Registrant on Form S-8, dated February 1, 2000.* 10c1. Amended Supplemental Plan of Fortune Brands, Inc.* 10c2. Trust Agreement, made as of the 2nd day of January, 1991, among Registrant, The Chase Manhattan Bank ("Chase"), et al. establishing a trust in favor of Gilbert L. Klemann, II for purposes of paying amounts under the Amended Supplemental 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, 1995.* 25 10c3. Amendment made as of the 1st day of November, 1993 to Trust Agreement constituting Exhibit 10c2 hereto is incorporated herein by reference to Exhibit 10c3 to the Annual Report on Form 10-K of Registrant for the Fiscal Year ended December 31, 1995.* 10c4. Amendment made as of the 1st day of January, 1995, to the Trust Agreement and Amendment thereto constituting Exhibits 10c2 and 10c3 hereto is incorporated herein by reference to Exhibit 10c4 to the Annual Report on Form 10-K of Registrant for the Fiscal Year ended December 31, 1995.* 10c5. Amendment made as of the 1st day January, 1997, to Trust Agreement and Amendments thereto constituting Exhibits 10c2, 10c3 and 10c4 hereto is incorporated herein by reference to Exhibit 10c5 to the Annual Report on Form 10-K of Registrant for the Fiscal Year ended December 31, 1997.* 10c6. Schedule identifying substantially identical agreements to Trust Agreement and Amendments thereto constituting Exhibits 10c2, 10c3, 10c4 and 10c5 hereto in favor of Thomas C. Hays, Norman H. Wesley, John T. Ludes, Dudley L. Bauerlein, Jr., Mark Hausberg, Anne C. Linsday, Craig P. Omtvedt, Mark A. Roche and Robert J. Rukeyser.* 10c7. Amendment made as of the 24th day of February, 1997, to Trust Agreement and Amendments thereto constituting Exhibits 10c2, 10c3, 10c4 and 10c5 hereto relating to the trust established in favor of Thomas C. Hays, is incorporated herein by reference to Exhibit 10c7 to the Annual Report on Form 10-K of Registrant for the Fiscal Year ended December 31, 1997.* 10c8. Trust Agreement, made as of the 1st day of November, 1993, among Gilbert L. Klemann, II, Registrant and Chase establishing a grantor trust in favor of Gilbert L. Klemann, II for purposes of paying amounts under the Amended Supplemental Plan constituting Exhibit 10c1 hereto is incorporated herein by reference to Exhibit 10c6 to the Annual Report on Form 10-K of Registrant for the Fiscal Year ended December 31, 1995.* 10c9. Amendment made as of 1st day of January, 1996 to Trust Agreement constituting Exhibit 10c8 hereto is incorporated herein by reference to the Quarterly Report on Form 10-Q of Registrant dated August 8, 1996.* 10c10. Amendment made as of the 1st day of January, 1997 to Trust Agreement and Amendment thereto constituting Exhibits 10c8 and 10c9 hereto is incorporated herein by reference to Exhibit 10c1 to the Quarterly Report on Form 10-Q of Registrant dated August 12, 1997.* 10c11. Amendment made as of the 1st day of August, 1998 to Trust Agreement and Amendments thereto constituting Exhibits 10c8, 10c9 and 10c10 hereto is incorporated herein by reference to Exhibit 10a1 to the Quarterly Report on Form 10-Q of Registrant dated November 11, 1998.* 26 10c12. Schedule identifying substantially identical agreements to the Trust Agreement and Amendments thereto constituting Exhibits 10c8, 10c9, 10c10 and 10c11 hereto in favor of Thomas C. Hays, Norman H. Wesley, John T. Ludes, Dudley L. Bauerlein, Jr., Mark Hausberg, Anne C. Linsdau, Craig P. Omtvedt, Mark A. Roche and Robert J. Rukeyser.* 10c13. Amendment made as of the 24th day of February, 1997 to Trust Agreement and Amendments thereto constituting Exhibits 10c8, 10c9, 10c10 and 10c11 hereto, among Thomas C. Hays, Registrant and Chase, is incorporated herein by reference to Exhibit 10c12 to the Annual Report on Form 10-K of Registrant for the Fiscal Year ended December 31, 1997.* 10d1. 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 maintained in Commission File No. 1-9076.* 10d2. Resolutions of the Board of Directors of Registrant adopted on July 26, 1994 amending the resolutions constituting Exhibit 10d1 hereto is incorporated herein by reference to Exhibit 10e2 to the Annual Report on Form 10-K of Registrant for the Fiscal Year ended December 31, 1994.* 10e1. Severance and Retirement Agreement made as of February 24, 1997, between Registrant and Thomas C. Hays is incorporated herein by reference to Exhibit 10d1 to the Quarterly Report on Form 10-Q of Registrant dated August 12, 1997. 10f1. 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 maintained in Commission File No. 1- 9076.* 10f2. Resolution of the Board of Directors of Registrant adopted on July 26, 1988 with respect to retirement and health benefits provided to Mark A. Roche 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, 1998.* 10g1. Letter dated January 23, 1996 from Registrant with respect to deferred payment of fees to Eugene R. Anderson 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, 1995.* 10g2. Letter dated August 11, 1995 from Registrant with respect to deferred payment of fees to Gordon R. Lohman is incorporated herein by reference to Exhibit 10b to the Quarterly Report on Form 10-Q of Registrant dated November 9, 1995.* 27 10h1. 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 maintained in Commission File No. 1-9076.* 10h2. Amendment dated November 28, 1994 to the Agreement constituting Exhibit 10h1 hereto is incorporated herein by reference to Exhibit 10r2 to the Annual Report on Form 10-K of Registrant for the Fiscal Year ended December 31, 1994.* 10h3. Schedule identifying substantially identical agreements to the Agreement and Amendment thereto constituting Exhibits 10h1 and 10h2 hereto entered into by Registrant with Thomas C. Hays, Norman H. Wesley, John T. Ludes, Dudley L. Bauerlein, Jr., Mark Hausberg, Anne C. Linsdau, Craig P. Omtvedt, Mark A. Roche and Robert J. Rukeyser.* 10i1. Trust Agreement, made as of the 2nd day of January, 1991, among Registrant, Chase, et al. establishing a trust in favor of Gilbert L. Klemann, II for purposes of paying amounts under the Agreement and Amendment thereto constituting Exhibits 10h1 and 10h2 hereto 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, 1994.* 10i2. Amendment made as of the 1st day of November, 1993 to Trust Agreement constituting Exhibit 10i1 hereto is incorporated herein by reference to Exhibit 10s2 to the Annual Report on Form 10-K of Registrant for the Fiscal Year ended December 31, 1994.* 10i3. Amendment made as of the 1st day of January, 1997 to Trust Agreement and Amendment thereto constituting Exhibits 10i1 and 10i2 hereto is incorporated herein by reference to Exhibit 10i3 to the Annual Report on Form 10-K of Registrant for the Fiscal Year ended December 31, 1997.* 10i4. Schedule identifying substantially identical agreements to the Trust Agreement and Amendments thereto constituting Exhibits 10i1, 10i2 and 10i3 hereto in favor of Thomas C. Hays, Norman H. Wesley, John T. Ludes, Dudley L. Bauerlein, Jr., Mark Hausberg, Anne C. Linsdau, Craig P. Omtvedt, Mark A. Roche and Robert J. Rukeyser.* 10j1. 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 maintained in Commission File No. 1-9076.* 10j2. Agreement dated as of October 28, 1991 amending the Agreement constituting Exhibit 10j1 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 maintained in Commission File No. 1-9076.* 28 10j3. Amendment effective as of January 1, 1995 to the Agreement and Amendment thereto constituting Exhibits 10j1 and 10j2 hereto is incorporated herein by reference to Exhibit 10u3 to the Annual Report on Form 10-K of Registrant for the Fiscal Year ended December 31, 1994.* 10j4. Schedule identifying substantially identical agreements to the Agreement and Amendments thereto constituting Exhibits 10j1, 10j2 and 10j3 hereto entered into by Registrant with Norman H. Wesley, John T. Ludes, Dudley L. Bauerlein, Jr., Craig P. Omtvedt, Mark A. Roche and Robert J. Rukeyser is incorporated by reference to Exhibit 10j4 to the Annual Report on Form 10-K of Registrant to the Fiscal Year ended December 31, 1998.* 10j5 Amendment dated as of August 1, 1998 to the Agreement and Amendments thereto constituting Exhibits 10j1, 10j2 and 10j3 hereto is incorporated herein by reference to Exhibit 10b1 to the Quarterly Report on Form 10-Q of Registrant dated November 11, 1998.* 10j6. Schedule identifying substantially identical agreements to the Amendment constituting Exhibit 10j5 hereto entered into by Registrant with Norman H. Wesley, John T. Ludes, Dudley L. Bauerlein, Jr., Mark A. Roche and Robert J. Rukeyser is incorporated by reference to Exhibit 10j6 to the Annual Report on Form 10-K of Registrant for the Fiscal Year ended December 31, 1998.* 10j7. Amendment dated as of September 29, 1998 between Registrant and John T. Ludes to the Agreement and Amendments between Registrant and Mr. Ludes substantially identical to Exhibits 10j1, 10j2, 10j3 and 10j5 hereto is incorporated herein by reference to Exhibit 10b5 to the Quarterly Report on Form 10-Q of Registrant dated November 11, 1998.* 10j8. Amendment dated as of August 1, 1998 between Registrant and Craig C. Omtvedt to the Agreement and Amendments between Registrant and Mr. Omtvedt substantially identical to Exhibits 10j1, 10j2 and 10j3 hereto is incorporated by reference to Exhibit 10j8 to the Annual Report on Form 10-K of Registrant for the Fiscal Year ended December 31, 1998.* 10j9 Schedule identifying substantially identical agreements to the Amendment constituting Exhibit 10j8 hereto entered into by Registrant with Norman Wesley and Mark A. Roche is incorporated by reference to Exhibit 10j9 to the Annual Report on Form 10-K of Registrant for the Fiscal Year ended December 31, 1998.* 10j10. Amendment dated as of July 26, 1999 to the Agreement dated as of January 2, 1991 between Registrant and Gilbert L. Klemann, II and Amendments thereto constituting Exhibits 10j1, 10j2, 10j3 and 10j5 hereto is incorporated herein by reference to Exhibit 10a1 to the Quarterly Report on Form 10-Q of registrant dated November 12, 1999.* 10j11. Schedule identifying substantially identical agreements to the Amendment constituting Exhibit 10j10 hereto, in favor of Dudley L. Bauerlein, Jr., Robert J. Rukeyser and Mark Hausberg.* 10j12. Agreement dated as of November 18, 1997 between Registrant and Anne C. Linsdau.* 29 10j13. Schedule identifying identical agreement to the Agreement constituting Exhibit 10j12 hereto, in favor of Mark Hausberg.* 10k1. Rights Agreement dated as of November 19, 1997 between Registrant and First Chicago Trust Company of New York, as Rights Agent, is incorporated herein by reference to Exhibit 4a to the Current Report on Form 8-K of Registrant dated December 2, 1997. 10l1. Indemnification Agreement, dated as of December 22, 1994, among Registrant, The American Tobacco Company and Brown & Williamson Tobacco Corporation, 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, 1997. 12. Statement re computation of ratio of earnings to fixed charges. 13. 1999 Annual Report to Stockholders of Registrant. 21. Subsidiaries of Registrant. 23(i). Consent of Independent Accountants, PricewaterhouseCoopers LLP. 24. Powers of Attorney relating to execution of this Annual Report on Form 10-K. 27. Financial Data Schedules for Fiscal Year ended December 31, 1999 (Article 5). 99. List of Pending/Terminated Cases. * 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 21, 1999, in respect of Registrant's press release dated October 21, 1999 announcing Registrant's financial results for the three-month and nine- month periods ended September 30, 1999 (Items 5 and 7(c)). Registrant filed a Current Report on Form 8-K, dated December 10, 1999, in respect of the issuance and sale by Registrant on November 2, 1999 of $200,000,000 aggregate principal amount of its 7 1/8% Notes Due 2004 in a private placement (Items 5 and 7(c)). Registrant filed a Current Report on Form 8-K, dated January 11, 2000, in respect of Registrant's press release dated January 11, 2000, announcing Registrant's estimate of earnings per share growth in 1999 and expectation of earnings per share growth in 2000 (Items 5 and 7(c)). Registrant filed a Current Report on Form 8-K, dated January 20, 2000, in respect of Registrant's press release dated January 20, 2000, announcing Registrant's financial results for the three-month and twelve-month periods ended December 31, 1999 (Items 5 and 7(c)). 30 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. FORTUNE BRANDS, INC. (Registrant) By /s/ Craig P. Omtvedt Craig P. Omtvedt Senior Vice President and Date: March 29, 2000 Chief Financial 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. /s/ Norman H. Wesley* -------------------- Norman H. Wesley, Chairman of the Board and Chief Executive Officer (principal executive officer and Director) Date: March 29, 2000 /s/ Craig P. Omtvedt -------------------- Craig P. Omtvedt, Senior Vice President and Chief Financial Officer (principal financial officer) Date: March 29, 2000 /s/ Michael R. Mathieson -------------------------- Michael R. Mathieson, Vice President, Controller and Chief Accounting Officer (principal accounting officer) Date: March 29, 2000 /s/ Eugene R. Anderson * ------------------------ Eugene R. Anderson, Director Date: March 29, 2000 /s/ Patricia O. Ewers * ----------------------- Patricia O. Ewers, Director Date: March 29, 2000 /s/ Thomas C. Hays * -------------------- Thomas C. Hays, Director Date: March 29, 2000 31 /s/ John W. Johnstone, Jr. * ---------------------------- John W. Johnstone, Jr., Director Date: March 29, 2000 /s/ Sidney Kirschner * ---------------------- Sidney Kirschner, Director Date: March 29, 2000 /s/ Gordon R. Lohman * ---------------------- Gordon R. Lohman, Director Date: March 29, 2000 /s/ Charles H. Pistor, Jr. * ---------------------------- Charles H. Pistor, Jr., Director Date: March 29, 2000 /s/ Eugene A. Renna * --------------------- Eugene A. Renna, Director Date: March 29, 2000 /s/ Anne M. Tatlock * --------------------- Anne M. Tatlock, Director Date: March 29, 2000 /s/ Peter M. Wilson * --------------------- Peter M. Wilson, Director Date: March 29, 2000 *By /s/ Mark A. Roche ----------------- Mark A. Roche, Attorney-in-Fact 32 INDEX TO FINANCIAL STATEMENT SCHEDULE Pages ----- FORTUNE BRANDS, INC. AND SUBSIDIARIES Report of Independent Accountants F-2 Schedule -------- II Valuation and qualifying accounts For the years ended December 31, 1999, 1998 and 1997 F-3 F-1 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors and Stockholders of Fortune Brands, Inc.: Our audits of the consolidated financial statements referred to in our report dated February 3, 2000 appearing on page 57 of the 1999 Annual Report to Stockholders of Fortune Brands, Inc. (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, the financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PricewaterhouseCoopers LLP New York, New York 10010 February 3, 2000 F-2 FORTUNE BRANDS, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS For the Years Ended December 31, 1999, 1998 and 1997 (In millions) - --------------------------------------------------------------------------------
Col. A Col. B Col. C Col. D Col. E ------ ------ ------ ------ ------ Additions --------- Balance at Charged Balance Beginning to Costs at End Description of Period and Expenses Deductions of Period - --------------------------------------------------------------------------------------------- 1999: Allowance for cash discounts $ 8.9 $ 76.3 $ 76.4 (1) $ 8.8 Allowance for returns 19.1 156.4 157.1 (1) 19.2 (0.8) (3) Allowance for doubtful accounts 33.4 15.0 14.6 (2) 35.4 (1.6) (3) ------ ------ ------ ------ $ 61.4 $247.7 $245.7 $ 63.4 ====== ====== ====== ====== 1998: Allowance for cash discounts $ 8.2 $ 93.1 $ 92.4 (1) $ 8.9 Allowance for returns 20.4 150.3 151.6 (1) 19.1 Allowance for doubtful accounts 25.7 14.3 9.9 (2) 33.4 (3.3)(3) ------ ------ ------ ------ $ 54.3 $257.7 $250.6 $ 61.4 ====== ====== ====== ====== 1997: Allowance for cash discounts $ 7.4 $ 71.1 $ 70.3 (1) $ 8.2 Allowance for returns 18.9 129.0 127.5 (1) 20.4 Allowance for doubtful accounts 23.3 11.9 10.6 (2) 25.7 (1.1)(3) ------ ------ ------ ------ $ 49.6 $212.0 $207.3 $ 54.3 ====== ====== ====== ======
(1) Cash discounts and returns allowed customers. (2) Doubtful accounts written off, net of recoveries. (3) Balance at acquisition date of subsidiaries. F-3 EXHIBIT INDEX -------------
Sequentially Exhibit Numbered Page - ------- ------------- 3(i). Restated Certificate of Incorporation of Registrant is incorporated herein by reference to Exhibit 3(i) to the Annual Report on Form 10-K of Registrant for the fiscal year ended December 31, 1998. 3(ii)a. Amendment to By-laws of Registrant. 3(ii)b. By-laws of Registrant as in effect on the date hereof. 10a1. Fortune Brands, Inc. Annual Executive Incentive Compensation Plan is incorporated herein by reference to Exhibit 10a1 to the Quarterly Report on Form 10-Q of Registrant dated August 12, 1997.* 10b1. 1986 Stock Option Plan of Fortune Brands, Inc. and amendments thereto are 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 maintained in Commission File No. 1-9076.* 10b2. Amendment to 1986 Stock Option Plan of Fortune Brands, Inc. constituting Exhibit 10b1 hereto is incorporated herein by reference to Exhibit 10b to the Quarterly Report on Form 10-Q of Registrant dated November 11, 1993 maintained in Commission File No. 1-9076.* 10b3. Amendment to 1986 Stock Option Plan of Fortune Brands, Inc. and Amendment thereto constituting Exhibits 10b1 and 10b2 hereto is incorporated herein by reference to Exhibit 10b to the Quarterly Report on Form 10-Q of Registrant dated August 11, 1994.* 10b4. Amendment to the 1986 Stock Option Plan of Fortune Brands, Inc. and Amendments thereto constituting Exhibits 10b1, 10b2 and 10b3 hereto is incorporated herein by reference to Exhibit 10a2 to the Quarterly Report on Form 10-Q of Registrant dated November 11, 1997.* 10b5. 1990 Long-Term Incentive Plan of Fortune Brands, Inc. (As Amended and Restated as of January 1, 1994) is incorporated herein by reference to Exhibit 10a to the Quarterly Report on Form 10-Q of Registrant dated August 11, 1994 maintained in Commission File No. 1-9076.* 10b6. Amendment to 1990 Long-Term Incentive Plan of Fortune Brands, Inc. constituting Exhibit 10b5 hereto is incorporated herein by reference to Exhibit 10a1 to the Quarterly Report on Form 10-Q of Registrant dated November 11, 1997.* 10b7. Fortune Brands, Inc. Non-Employee Director Stock Option Plan is incorporated herein by reference to Exhibit 10b1 to the Quarterly Report on Form 10-Q of Registrant dated August 12, 1997.*
10b8. Amendment to Registrant's Non-Employee Director Stock Option Plan constituting Exhibit 10b7 hereto is incorporated herein by reference to Exhibit 10a1 to the Quarterly Report on Form 10-Q of Registrant dated August 12, 1998.* 10b9. Amendment to Registrant's Non-Employee Director Stock Option Plan and Amendment thereto constituting Exhibits 10b7 and 10b8 hereto.* 10b10. Fortune Brands, Inc. 1999 Long-Term Incentive Plan is incorporated herein by reference to Exhibit 4e1 to the Registration Statement for the Fortune Brands, Inc. 1999 Long-Term Incentive Plan filed by Registrant on Form S-8, dated February 1, 2000.* 10c1. Amended Supplemental Plan of Fortune Brands, Inc.* 10c2. Trust Agreement, made as of the 2nd day of January, 1991, among Registrant, The Chase Manhattan Bank ("Chase"), et al. establishing a trust in favor of Gilbert L. Klemann, II for purposes of paying amounts under the Amended Supplemental 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, 1995.* 10c3. Amendment made as of the 1st day of November, 1993 to Trust Agreement constituting Exhibit 10c2 hereto is incorporated herein by reference to Exhibit 10c3 to the Annual Report on Form 10-K of Registrant for the Fiscal Year ended December 31, 1995.* 10c4. Amendment made as of the 1st day of January, 1995, to the Trust Agreement and Amendment thereto constituting Exhibits 10c2 and 10c3 hereto is incorporated herein by reference to Exhibit 10c4 to the Annual Report on Form 10-K of Registrant for the Fiscal Year ended December 31, 1995.* 10c5. Amendment made as of the 1st day January, 1997, to Trust Agreement and Amendments thereto constituting Exhibits 10c2, 10c3 and 10c4 hereto is incorporated herein by reference to Exhibit 10c5 to the Annual Report on Form 10-K of Registrant for the Fiscal Year ended December 31, 1997.* 10c6. Schedule identifying substantially identical agreements to Trust Agreement and Amendments thereto constituting Exhibits 10c2, 10c3, 10c4 and 10c5 hereto in favor of Thomas C. Hays, Norman H. Wesley, John T. Ludes, Dudley L. Bauerlein, Jr., Mark Hausberg, Anne C. Linsdau, Craig P. Omtvedt, Mark A. Roche and Robert J. Rukeyser.* 10c7. Amendment made as of the 24th day of February, 1997, to Trust Agreement and Amendments thereto constituting Exhibits 10c2, 10c3, 10c4 and 10c5 hereto relating to the trust established in favor of Thomas C. Hays, is incorporated herein by reference to Exhibit 10c7 to the Annual Report on Form 10-K of Registrant for the Fiscal Year ended December 31, 1997.* 10c8. Trust Agreement, made as of the 1st day of November, 1993, among Gilbert L. Klemann, II, Registrant and Chase establishing a grantor trust in favor of Gilbert L. Klemann, II for purposes of paying amounts under the Amended Supplemental Plan constituting Exhibit 10c1 hereto is incorporated herein by reference to Exhibit 10c6 to the Annual Report on Form 10-K of Registrant for the Fiscal Year ended December 31, 1995.* 10c9. Amendment made as of 1st day of January, 1996 to Trust Agreement constituting Exhibit 10c8 hereto is incorporated herein by reference to the Quarterly Report on Form 10-Q of Registrant dated August 8, 1996.* 10c10. Amendment made as of the 1st day of January, 1997 to Trust Agreement and Amendment thereto constituting Exhibits 10c8 and 10c9 hereto is incorporated herein by reference to Exhibit 10c1 to the Quarterly Report on Form 10-Q of Registrant dated August 12, 1997.* 10c11. Amendment made as of the 1st day of August, 1998 to Trust Agreement and Amendments thereto constituting Exhibits 10c8, 10c9 and 10c10 hereto is incorporated herein by reference to Exhibit 10a1 to the Quarterly Report on Form 10-Q of Registrant dated November 11, 1998.* 10c12. Schedule identifying substantially identical agreements to the Trust Agreement and Amendments thereto constituting Exhibits 10c8, 10c9, 10c10 and 10c11 hereto in favor of Thomas C. Hays, Norman H. Wesley, John T. Ludes, Dudley L. Bauerlein, Jr., Mark Hausberg, Anne C. Linsdau, Craig P. Omtvedt, Mark A. Roche and Robert J. Rukeyser.* 10c13. Amendment made as of the 24th day of February, 1997 to Trust Agreement and Amendments thereto constituting Exhibits 10c8, 10c9, 10c10 and 10c11 hereto, among Thomas C. Hays, Registrant and Chase, is incorporated herein by reference to Exhibit 10c12 to the Annual Report on Form 10-K of Registrant for the Fiscal Year ended December 31, 1997.* 10d1. 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 maintained in Commission File No. 1-9076.* 10d2. Resolutions of the Board of Directors of Registrant adopted on July 26, 1994 amending the resolutions constituting Exhibit 10d1 hereto is incorporated herein by reference to Exhibit 10e2 to the Annual Report on Form 10-K of Registrant for the Fiscal Year ended December 31, 1994.* 10e1. Severance and Retirement Agreement made as of February 24, 1997, between Registrant and Thomas C. Hays is incorporated herein by reference to Exhibit 10d1 to the Quarterly Report on Form 10-Q of Registrant dated August 12, 1997. 10f1. 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 maintained in Commission File No. 1-9076.* 10f2. Resolution of the Board of Directors of Registrant adopted on July 26, 1988 with respect to retirement and health benefits provided to Mark A. Roche 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, 1998.* 10g1. Letter dated January 23, 1996 from Registrant with respect to deferred payment of fees to Eugene R. Anderson 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, 1995.* 10g2. Letter dated August 11, 1995 from Registrant with respect to deferred payment of fees to Gordon R. Lohman is incorporated herein by reference to Exhibit 10b to the Quarterly Report on Form 10-Q of Registrant dated November 9, 1995.* 10h1. 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 maintained in Commission File No. 1-9076.* 10h2. Amendment dated November 28, 1994 to the Agreement constituting Exhibit 10h1 hereto is incorporated herein by reference to Exhibit 10r2 to the Annual Report on Form 10-K of Registrant for the Fiscal Year ended December 31, 1994.* 10h3. Schedule identifying substantially identical agreements to the Agreement and Amendment thereto constituting Exhibits 10h1 and 10h2 hereto entered into by Registrant with Thomas C. Hays, Norman H. Wesley, John T. Ludes, Dudley L. Bauerlein, Jr., Mark Hausberg, Anne C. Linsdau, Craig P. Omtvedt, Mark A. Roche and Robert J. Rukeyser.* 10i1. Trust Agreement, made as of the 2nd day of January, 1991, among Registrant, Chase, et al. establishing a trust in favor of Gilbert L. Klemann, II for purposes of paying amounts under the Agreement and Amendment thereto constituting Exhibits 10h1 and 10h2 hereto 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, 1994.* 10i2. Amendment made as of the 1st day of November, 1993 to Trust Agreement constituting Exhibit 10i1 hereto is incorporated herein by reference to Exhibit 10s2 to the Annual Report on Form 10-K of Registrant for the Fiscal Year ended December 31, 1994.* 10i3. Amendment made as of the 1st day of January, 1997 to Trust Agreement and Amendment thereto constituting Exhibits 10i1 and 10i2 hereto is incorporated herein by reference to Exhibit 10i3 to the Annual Report on Form 10-K of Registrant for the Fiscal Year ended December 31, 1997.* 10i4. Schedule identifying substantially identical agreements to the Trust Agreement and Amendments thereto constituting Exhibits 10i1, 10i2 and 10i3 hereto in favor of Thomas C. Hays, Norman H. Wesley, John T. Ludes, Dudley L. Bauerlein, Jr., Craig P. Omtvedt, Mark Hausberg, Anne C. Linsdau, Mark A. Roche and Robert J. Rukeyser.* 10j1. 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 maintained in Commission File No. 1-9076.* 10j2. Agreement dated as of October 28, 1991 amending the Agreement constituting Exhibit 10j1 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 maintained in Commission File No. 1-9076.* 10j3. Amendment effective as of January 1, 1995 to the Agreement and Amendment thereto constituting Exhibits 10j1 and 10j2 hereto is incorporated herein by reference to Exhibit 10u3 to the Annual Report on Form 10-K of Registrant for the Fiscal Year ended December 31, 1994.* 10j4. Schedule identifying substantially identical agreements to the Agreement and Amendments thereto constituting Exhibits 10j1, 10j2 and 10j3 hereto entered into by Registrant with Norman H. Wesley, John T. Ludes, Dudley L. Bauerlein, Jr., Craig P. Omtvedt, Mark A. Roche and Robert J. Rukeyser is incorporated by reference to Exhibit 10j4 to the Annual Report on Form 10-K of Registrant to the Fiscal Year ended December 31, 1998.* 10j5 Amendment dated as of August 1, 1998 to the Agreement and Amendments thereto constituting Exhibits 10j1, 10j2 and 10j3 hereto is incorporated herein by reference to Exhibit 10b1 to the Quarterly Report on Form 10-Q of Registrant dated November 11, 1998.* 10j6. Schedule identifying substantially identical agreements to the Amendment constituting Exhibit 10j5 hereto entered into by Registrant with Norman H. Wesley, John T. Ludes, Dudley L. Bauerlein, Jr., Mark A. Roche and Robert J. Rukeyser is incorporated by reference to Exhibit 10j6 to the Annual Report on Form 10-K of Registrant for the Fiscal Year ended December 31, 1998.* 10j7. Amendment dated as of September 29, 1998 between Registrant and John T. Ludes to the Agreement and Amendments between Registrant and Mr. Ludes substantially identical to Exhibits 10j1, 10j2, 10j3 and 10j5 hereto is incorporated herein by reference to Exhibit 10b5 to the Quarterly Report on Form 10-Q of Registrant dated November 11, 1998.* 10j8. Amendment dated as of August 1, 1998 between Registrant and Craig C. Omtvedt to the Agreement and Amendments between Registrant and Mr. Omtvedt substantially identical to Exhibits 10j1, 10j2 and 10j3 hereto is incorporated by reference to Exhibit 10j8 to the Annual Report on Form 10-K of Registrant for the Fiscal Year ended December 31, 1998.* 10j9 Schedule identifying substantially identical agreements to the Amendment constituting Exhibit 10j8 hereto entered into by Registrant with Norman Wesley and Mark A. Roche is incorporated by reference to Exhibit 10j9 to the Annual Report on Form 10-K of Registrant for the Fiscal Year ended December 31, 1998.* 10j10. Amendment dated as of July 26, 1999 to the Agreement dated as of January 2, 1991 between Registrant and Gilbert L. Klemann, II and Amendments thereto constituting Exhibits 10j1, 10j2, 10j3 and 10j5 hereto is incorporated herein by reference to Exhibit 10a1 to the Quarterly Report on Form 10-Q of registrant dated November 12, 1999.* 10j11. Schedule identifying substantially identical agreements to the Amendment constituting Exhibit 10j10 hereto, in favor of Dudley L. Bauerlein, Jr., Robert J. Rukeyser and Mark Hausberg.* 10j12. Agreement dated as of November 18, 1997 between Registrant and Anne C. Linsdau.* 10j13. Schedule identifying identical agreement to the Agreement constituting Exhibit 10j12 hereto, in favor of Mark Hausberg.* 10k1. Rights Agreement dated as of November 19, 1997 between Registrant and First Chicago Trust Company of New York, as Rights Agent, is incorporated herein by reference to Exhibit 4a to the Current Report on Form 8-K of Registrant dated December 2, 1997. 10l1. Indemnification Agreement, dated as of December 22, 1994, among Registrant, The American Tobacco Company and Brown & Williamson Tobacco Corporation, 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, 1997. 12. Statement re computation of ratio of earnings to fixed charges. 13. 1999 Annual Report to Stockholders of Registrant. 21. Subsidiaries of Registrant. 23(i). Consent of Independent Accountants, PricewaterhouseCoopers LLP. 24. Powers of Attorney relating to execution of this Annual Report on Form 10-K. 27. Financial Data Schedules for Fiscal Year ended December 31, 1999 (Article 5). 99. List of Pending/Terminated Cases. EX-3.A 2 AMENDMENT TO THE BY-LAWS EXHIBIT 3(ii)a FORTUNE BRANDS, INC. BY-LAW AMENDMENTS ADOPTED ON NOVEMBER 16, 1999 EFFECTIVE NOVEMBER 16, 1999 Article III, Section 1 was amended to read in its entirety as follows: SECTION 1. Regular meetings of the Board of Directors shall be held at the office of the Company in Lincolnshire, Illinois, or at such other place as may from time to time be designated by the directors, the Chairman of the Board or the President, at eight-thirty in the forenoon on the last Tuesday of each month other than March, May, June, August, October and December and at two o'clock in the afternoon on the day on which the annual meeting of stockholders is held. If any such day shall be a holiday, the meeting scheduled for that day shall be held on the next business day. Special meetings may be held as determined by the Board of Directors, and may be called by the Chairman of the Board at any time and shall be called by him on the request of three directors or, if the Chairman of the Board fails to call such meeting when so requested, the same may be called by any three directors; Article III, Section 2 was amended to read in its entirety as follows: SECTION 2. No notice need be given of regular meetings of the directors, except that at least one day's notice shall be given of any place other than the office of the Company in Lincolnshire, Illinois at which any such meeting is to be held, but such notice need not be given to any director who signs a written waiver of notice before or after the meeting. Attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except when the director attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. EX-3.B 3 BYLAWS OF REGISTRANT AS IN EFFECT ON THE DATE EXHIBIT 3(ii)(b) BY-LAWS of FORTUNE BRANDS, INC. (As Amended) ARTICLE I Directors Section 1. The number of directors constituting the entire Board of Directors of the Company, which shall be no fewer than ten and no greater than twenty, shall be determined by action of the Board of Directors adopted at any regular or special meeting of the Board of Directors by the affirmative vote of at least two-thirds of all directors then in office, provided notice of the proposed change in the number of directors shall be given in writing to each of the directors then in office. Any amendment to this Section 1 of these By-laws may be adopted at any regular or special meeting of the Board of Directors by the affirmative vote of at least two-thirds of all the directors then in office. Section 2. Each director shall hold office until his successor is elected and qualified or until his earlier resignation or removal. Any director of the Company may resign at any time upon written notice to the Company. Except as otherwise provided for, or fixed by, or pursuant to the provisions of Article IV of the Certificate of Incorporation relating to the rights of the holders of any class or series of stock having a preference over the Common Stock, newly created directorships resulting from any increase in the number of directors or any vacancy on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled solely by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors, or by a sole remaining director. Section 3. In order to qualify to hold office as a director of the Company, a person must hold at least one share of stock of the Company. Section 4. The directors may hold their meetings and have an office and keep the books of the Company in Old Greenwich, Connecticut, or elsewhere outside of the State of Delaware. Section 5. The Board of Directors, by resolution adopted by a majority of the entire Board, may appoint from among its members an Executive Committee which shall have at least three members. To the extent provided in such resolution, such committee shall have and may exercise all the powers and authority of the Board, including the power to authorize the seal of the Company to be affixed to all papers that require it, except that such committee shall not have such power and authority in reference to (1) amending the Certificate of Incorporation (except that such committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors as provided in Section 151(a) of the General Corporation Law of Delaware, fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Company or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Company or fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series); (2) adopting an agreement of merger or consolidation under Sections 251 or 252 of the General Corporation Law of Delaware; (3) recommending to the stockholders any action that requires stockholders' approval; (4) making, amending or repealing any By-law of the Company; (5) electing or appointing any director, or removing any officer or director; (6) amending or repealing any resolution theretofore adopted by the Board of Directors; (7) fixing compensation of the directors for serving on the Board of Directors or on any committee; or (8) unless the resolution shall expressly so provide, declaring a dividend, authorizing the issuance of stock or adopting a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of Delaware. Actions taken at a meeting of such committee shall be reported to the Board of Directors at its next meeting following such committee meeting; except that, when the meeting of the Board is held within two days after the committee meeting, such report shall be made to the Board at either its first or second meeting following such committee meeting. ARTICLE II Meetings of Stockholders Section l. The annual meeting of the stockholders of the Company for the election of directors, and such other business as may properly come before the meeting, shall be held at such place as may from time to time be designated by the directors, on the first Wednesday of May, at ten o'clock in the forenoon, or at such other hour as the directors may designate, or on such other day and at such hour as the directors may designate. If the day fixed for the meeting is a legal holiday, the meeting shall be held at the same hour on the next business day which is not a legal holiday. Section 2. Special meetings of the stockholders, to be held at such place as may from time to time be designated by the directors, may be called only by the Chairman of the Board, the President or the Board of Directors, by resolution adopted by a majority of the entire Board, for such purposes as shall be specified in the call. Section 3. Except as otherwise provided by law, due notice of each annual meeting of the stockholders shall be given by a written or printed notice signed by the Secretary or an Assistant Secretary of the Company and mailed, postage prepaid, at least ten days prior to such meeting to each stockholder of record entitled to vote thereat appearing on the books of the Company at the address given thereon. Due notice of each special meeting shall be given also in the manner above provided. The notice shall state the object of the special meeting, and no other business shall be transacted at such meeting. Section 4. The holders of a majority in voting power of the outstanding shares of capital stock entitled to vote, present in person or represented by proxy, shall constitute a quorum at a meeting of stockholders. Except as otherwise required by law or the Certificate of Incorporation, the affirmative vote of shares representing a majority in voting power of the shares present in person or represented by proxy at a meeting at which a quorum is present and entitled to vote on the subject matter shall be the act of the stockholders, and except that directors shall be elected by a plurality of votes cast at an election. The stockholders present at a duly convened meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Section 5. Each meeting of the stockholders, whether annual or special, shall be presided over by the Chairman of the Board if present, and if he is not present by the President if present. If neither officer specified in the preceding sentence is present, the meeting shall be presided over by the person designated in writing by the Chairman of the Board, or if the Chairman of the Board has made no designation, by the person designated by the President, or if the President has made no designation, by the person designated by the Board of Directors. If neither officer specified in the first sentence of this section is present, and no one designated by the Chairman of the Board or the President or the Board of Directors is present, the meeting may elect any stockholder of record who is entitled to vote for directors, or any person present holding a proxy for such a stockholder, to preside. The Secretary of the Company (or in his absence any Assistant Secretary) shall be the Secretary of any such meeting; in the absence of the Secretary and Assistant Secretaries, any person may be elected by the meeting to act as Secretary of the meeting. Section 6. Any voting proxy given by a stockholder must be in writing, executed by the stockholder, or, in lieu thereof, to the extent permitted by law, may be transmitted in a telegram, cablegram or other means of electronic transmission setting forth or submitted with information from which it can be determined that the telegram, cablegram or other electronic transmission was authorized by the stockholder. A copy, facsimile transmission or other reliable reproduction of a written or electronically-transmitted proxy authorized by this Section 6 may be substituted for or used in lieu of the original writing or electronic transmission to the extent permitted by law. Section 7. Any previously scheduled annual or special meeting of stockholders may, by resolution of the Board of Directors, be postponed upon public announcement made prior to the date previously scheduled for such meeting of stockholders. For purposes of this Article II, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Company with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended. The person presiding over any meeting of stockholders, or a majority of the voting power of the shares entitled to vote, present in person or represented by proxy, even if less than a quorum, may adjourn the meeting from time to time. No notice of the time and 10-30-90 place of adjourned meetings need be given except as required by law. Section 8. The directors shall appoint one or more inspectors of election and of the vote at any time prior to the date of any meeting of stockholders at which an election is to be held or a vote is to be taken. In the event any inspector so appointed is absent from such meeting or for any other reason fails to act as such at the meeting, the person presiding pursuant to these By-laws may appoint a substitute who shall have all the powers and duties of such inspector. The inspector or inspectors so appointed shall act at such meeting, make such reports thereof and take such other action as shall be provided by law and as may be directed by the person presiding over the meeting. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his ability. Section 9. The directors may, at any time prior to any annual or special meeting of the stockholders, adopt an order of business for such meeting which shall be the order of business to be followed at such meeting. The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at such meeting shall be announced at such meeting by the person presiding over such meeting. Section l0. At any meeting of stockholders a stock vote shall be taken on any resolution or other matter presented to the meeting for action if so ordered by the person presiding over the meeting or on the demand of any stockholder of record entitled to vote at the meeting or any person present holding a proxy for such a stockholder. Such order or demand for a stock vote may be made either before or after a vote has been taken on such resolution or other matter in a manner other than by stock vote and before or after the result of the vote taken otherwise than by stock vote has been announced. The result of a stock vote taken in accordance with this By-law shall supersede the result of any vote previously taken in any manner other than by stock vote. Section 11. (A) Nominations of persons for election to the Board of Directors of the Company may be made as provided in the Certificate of Incorporation. The proposal of other business to be considered by the stockholders may be made at an annual meeting of stockholders (1) pursuant to the Company's notice of meeting, (2) by or at the direction of the Board of Directors or (3) by any stockholder of the Company who was a stockholder of record at the time of giving of the notice provided for in this Section 11, who is entitled to vote thereon at the meeting and who complies with the notice procedures set forth in this Section 11. (B) For business (other than the nomination of persons for election to the Board of Directors) to be properly brought before an annual meeting by a stockholder pursuant to clause (3) of paragraph (A) of this Section 11, the stockholder must have given timely notice thereof in writing to the Secretary of the Company. To be timely, a stockholder's notice shall be delivered, either by personal delivery or by United States mail, postage prepaid, to the Secretary not later than one hundred twenty (120) days in advance of such meeting. Such stockholder's notice shall set forth (1) a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made and (2) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the proposal is made (a) the name and address of such stockholder, as they appear on the Company's books, and of such beneficial owner and (b) the class and number of shares of the Company which are owned beneficially and of record by such stockholder and such beneficial owner. (C) The person presiding over an annual meeting of stockholders shall have the power and duty to determine whether any business proposed by any stockholder to be brought before the meeting was made in accordance with the procedures set forth in this Section 11 and, if any proposed business is not in compliance with this Section 11, to declare that such defective proposal shall be disregarded. (D) In addition to the foregoing provisions of this Section 11, a stockholder shall comply with all applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder with respect to the matters set forth in this Section 11. Nothing in this Section 11 shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Company's proxy statement pursuant to Rule l4a-8 under such Act. ARTICLE III Meetings of Directors Section 1. Regular meetings of the Board of Directors shall be held at the office of the Company in Lincolnshire, Illinois or at such other place as may from time to time be designated by the directors, the Chairman of the Board or the President, at eight-thirty in the forenoon on the last Tuesday of each month other than March, May, June, August, October and December and at two o'clock in the afternoon on the day on which the annual meeting of stockholders is held. If any such day shall be a holiday, the meeting scheduled for that day shall be held on the next business day. Special meetings may be held as determined by the Board of Directors, and may be called by the Chairman of the Board at any time and shall be called by him on the request of three directors, or, if the Chairman of the Board fails to call such meeting when so requested, the same may be called by any three directors. Section 2. No notice need be given of regular meetings of the directors, except that at least one day's notice shall be given of any place other than the office of the Company in Lincolnshire, Illinois at which any such meeting is to be held, but such notice need not be given to any director who signs a written waiver of notice before or after the meeting. Attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except when the director attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Section 3. At any meeting six directors shall constitute a quorum unless otherwise provided for in these By-laws or in the Certificate of Incorporation or in any applicable statute, but in no case less than one-third of all the directors then in office. Section 4. Members of the Board of Directors or of any Committee thereof may participate in meetings of the Board of Directors or of such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at such meeting. Section 5. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board of Directors or of such committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the Board of Directors or of such committee. ARTICLE IV Officers Section 1. The Board of Directors shall annually choose from amongst its members a Chairman of the Board. The Board shall also annually choose a Vice Chairman (if any), a President (if any), one or more Executive Vice Presidents (if any), one or more Senior Vice Presidents (if any), a principal financial officer, a principal accounting officer, such other Vice Presidents (if any) as it shall determine, a Secretary, a Treasurer and a Controller (if any), who need not be directors. Section 2. The Board of Directors may elect other officers and define their powers and duties. Section 3. Any two offices not inconsistent with each other may be held by the same person. Section 4. All officers elected by the Board of Directors shall hold office, subject to removal by the Board, until their successors are chosen and qualified. The affirmative vote of at least two-thirds of all of the directors then in office shall be required to remove or reduce the salary of any officer elected by the Board of Directors. Section 5. All agents and employees shall be appointed and may be removed by the Chairman of the Board, subject to the control of the Board of Directors. Section 6. Vacancies among officers of the Company shall be filled as, and to the extent that, the Board of Directors shall determine by vote of a majority of the directors present at any regular or special meeting at which not less than a majority of all the directors then in office are present. Section 7. The Chairman of the Board shall be the Chief Executive Officer of the Company and shall have general direction of its business affairs, subject, however, to the control of the Board of Directors. He shall, if present, preside at all meetings of the Board of Directors and shall perform such other duties and have such responsibilities as the Board may from time to time determine. Section 8. The Vice Chairman (if any), the President (if any), the Executive Vice Presidents (if any), the Senior Vice Presidents (if any) and such other Vice Presidents as shall have been chosen shall have such powers and perform such duties as shall at any time be delegated to them by the Board of Directors. At the request of the Chairman of the Board, or in case of his absence or disability, the President (if any), or if there is no President such other elected officer designated by the Chairman of the Board in a writing filed with the records of the Secretary, shall perform the duties of the Chairman of the Board, subject to the control of the Board of Directors. Section 9. The Secretary shall give the requisite notice of meetings of stockholders and directors and shall record the proceedings of such meetings, shall have the custody of the seal of the Company and shall affix it or cause it to be affixed to such instruments as require the seal and attest it and, besides his powers and duties prescribed by law, shall have such other powers and perform such other duties as shall at any time be required of him by the Board of Directors. Section 10. The Assistant Secretaries shall assist the Secretary in the discharge of his duties and shall have such powers and perform such other duties as shall at any time be delegated to them by the Board of Directors, and in the absence or disability of the Secretary, shall perform the duties of his office, subject to the control of the Board. Section 11. The Treasurer shall have charge of the funds and securities of the Company and shall have such powers and perform such duties as shall at any time be delegated to him by the Board of Directors. Section 12. The Assistant Treasurers shall assist the Treasurer in the discharge of his duties and shall have such powers and perform such other duties as shall at any time be delegated to them by the Board of Directors, and in the absence or disability of the Treasurer, shall perform the duties of his office subject to the control of the Board. Section 13. Any other officer, agent or employee of the Company may be required to give such security for the faithful performance of his duties as shall be determined by the Board of Directors, who shall also determine the custody of any security given. ARTICLE V Salaries Section 1. The salaries of all officers elected by the Board of Directors who hold offices of a rank of Vice President or above shall be fixed by the Compensation and Stock Option Committee. Section 2. Salaries of all other officers elected by the Board and all other agents and employees shall be fixed by or in the manner determined by the Board. Section 3. The Board of Directors, by the affirmative vote of a majority of directors in office and irrespective of any personal interest of any directors, shall have authority to establish reasonable compensation of directors for services to the Company as directors, officers or otherwise, except that the Compensation and Stock Option Committee, by the affirmative vote of a majority of Committee members in office and irrespective of any personal interest of any Committee members or other directors, shall have authority to establish such compensation of directors who also are officers elected by the Board and hold offices of a rank of Vice President or above. ARTICLE VI Seal Section 1. The Seal of the Company shall be in such form as the Board of Directors may from time to time prescribe and it may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. ARTICLE VII Signatures on Commercial Instruments and Contracts Section 1. All checks or bank drafts shall be signed by any two of the following named officers: Chairman of the Board, Vice Chairman, President, the principal financial officer, the principal accounting officer, any Vice President, Secretary, any Assistant Secretary, Treasurer, any Assistant Treasurer, Controller, any Assistant Controller; and in such other manner as the Board of Directors may from time to time designate. Section 2. All notes or other obligations or contracts shall be signed by the Chairman of the Board, the Vice Chairman, the President, the principal financial officer, the principal accounting officer, or any Vice President and also by one of the following officers: the Secretary, an Assistant Secretary, the Treasurer, an Assistant Treasurer, the Controller, or an Assistant Controller (provided that no individual shall sign the instrument in two capacities), or shall be signed by the Chairman of the Board, the Vice Chairman, the President, the principal financial officer, the principal accounting officer, or any Vice President, with the corporate seal or a facsimile thereof affixed thereto or imprinted thereon, attested by the Secretary or an Assistant Secretary; or such notes, obligations or contracts shall be signed in such manner and by one or more of such officers or other persons on behalf of the Company as the Board of Directors may from time to time authorize or direct. When and as authorized or directed by the Board of Directors, the signatures of such officers or other persons or any of them signing on behalf of the Company may be facsimiles. ARTICLE VIII Capital Stock Section 1. Certificates of the capital stock of the Company shall be issued for shares duly numbered and registered in the order of their issue, and shall be in the form the directors shall prescribe. Section 2. The capital stock shall be transferable on the transfer books of the Company, subject to these By-laws, by the owner in person, or by attorney or legal representative, written evidence of whose authority shall be filed with the Company. Section 3. No transfer of capital stock can be required except upon surrender and cancellation of the certificate representing the same. Section 4. The Board of Directors may at any time, in its discretion, appoint one or more transfer agents or registrars of the shares of stock of the Company and terminate the appointment of any transfer agent or registrar. The Board of Directors may also designate the Company to perform such functions alone or in conjunction with one or more other transfer agents or registrars. Section 5. (A) For the purpose of determining the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or for the purpose of determining stockholders entitled to receive payment of any dividend or allotment of any right, or for the purpose of any other action, the Board of Directors may fix, in advance, a date as the record date for any such determination of stockholders. Such date shall be not more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. (B) When a determination of stockholders of record entitled to notice of or to vote at any meeting of stockholders has been made as provided in this Section 5, such determination shall apply to any adjournment thereof, unless the Board of Directors fixes a new record date under this Section 5 for the adjourned meeting. ARTICLE IX Committee on Conflicts of Interests Section 1. The Board of Directors, by resolution adopted by a majority of the entire Board, shall appoint a Committee on Conflicts of Interests which shall have at least three members. To the extent provided by resolution of the Board, such committee shall have the power to interpret, administer and apply the policies of the Company as established by the Board from time to time with respect to conflicts of interests. ARTICLE X Dividends Section 1. Dividends on the Preferred Stock and the Common Stock of the Company may be declared by the Board of Directors, at any regular or special meeting, as provided by law and the Certificate of Incorporation. ARTICLE XI Amendments Section 1. The Board of Directors shall, except as otherwise provided in these By-laws or the Certificate of Incorporation, have the power to alter, amend or repeal these By-laws at any meeting by the affirmative vote of two- thirds of the directors then in office, provided notice of the proposed alteration, amendment or repeal be given in writing to each of the directors, and provided also that no alteration, amendment or repeal of a specification in any section of these By-laws of a stated fraction of directors as the minimum number whose presence or vote is requisite for action under such section may be made without the presence or vote or both, as the case may be, of the minimum number so specified. ARTICLE XII [Repealed effective April 30, 1997.] ARTICLE XIII Indemnification Section 1. (A) Each person (an "indemnitee") who was or is made or threatened to be made a party to or was or is involved (as a witness or otherwise) in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she or a person of whom he or she is the legal representative was or is a director, officer or employee of the Company or was or is serving at the request of the Company as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding was or is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Company to the fullest extent permitted by the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Company to provide broader indemnification rights than said law permitted the Company to provide prior to such amendment), against all expense, liability and loss (including attorneys' fees and retainers therefor, judgments, fines, excise taxes or penalties under the Employee Retirement Income Security Act of 1974, as amended, and amounts paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that except as provided in Section 3 of this Article XIII with respect to proceedings seeking to enforce rights to indemnification, the Company shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the Company. (B) The right to indemnification conferred in this Article XIII is and shall be a contract right. The right to indemnification conferred in this Article XIII shall include the right to be paid by the Company the expenses (including attorneys' fees and retainers therefor) reasonably incurred in connection with any such proceeding in advance of its final disposition, such advances to be paid by the Company within 20 days after the receipt by the Company of a statement or statements from the indemnitee requesting such advance or advances from time to time; provided, however, that if the General Corporation Law of the State of Delaware requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the Company of an undertaking by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Article XIII or otherwise. Section 2. (A) To obtain indemnification under this Article XIII, an indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to the indemnitee and is reasonably necessary to determine whether and to what extent the indemnitee is entitled to indemnification. Upon written request by an indemnitee for indemnification pursuant to the first sentence of this Section 2(A), a determination, if required by applicable law, with respect to the indemnitee's entitlement thereto shall be made as follows: (1) if requested by the indemnitee, by Independent Counsel (as hereinafter defined), or (2) if no request is made by the indemnitee for a determination by Independent Counsel, (a) by the Board of Directors by a majority vote of a quorum consisting of Disinterested Directors (as hereinafter defined), or (b) if a quorum of the Board of Directors consisting of Disinterested Directors is not obtainable or, even if obtainable, such quorum of Disinterested Directors so directs, by Independent Counsel in a written opinion to the Board of Directors, a copy of which shall be delivered to the indemnitee, or (c) by the stockholders of the Company. In the event the determination of entitlement to indemnification is to be made by Independent Counsel at the request of the indemnitee, the Independent Counsel shall be selected by the indemnitee unless the indemnitee shall request that such selection be made by the Board of Directors, in which event the Independent Counsel shall be selected by the Board of Directors. If it is so determined that the indemnitee is entitled to indemnification, payment to the indemnitee shall be made within 10 days after such determination. (B) In making a determination with respect to entitlement to indemnification hereunder, the person, persons or entity making such determination shall presume that the indemnitee is entitled to indemnification under this Article XIII, and the Company shall have the burden of proof to overcome that presumption in connection with the making by any person, persons or entity of any determination contrary to that presumption. Section 3. (A) If a claim under Section 1 of this Article XIII is not paid in full by the Company within 30 days after a written claim pursuant to Section 2(A) of this Article XIII has been received by the Company, or if an advance is not made within 20 days after a request therefor pursuant to Section 1(B) of this Article XIII has been received by the Company, the indemnitee may at any time thereafter bring suit (or, at the indemnitee's option, an arbitration proceeding before a single arbitrator pursuant to the rules of the American Arbitration Association) against the Company to recover the unpaid amount of the claim or the advance and, if successful in whole or in part, the indemnitee shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such suit or proceeding (other than a suit or proceeding brought to enforce a claim for expenses incurred in connection with any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Company) that the indemnitee has not met the standards of conduct which make it permissible under the General Corporation Law of the State of Delaware for the Company to indemnify the indemnitee for the amount claimed or that such indemnification otherwise is not permitted under the General Corporation Law of the State of Delaware, but the burden of proving such defense shall be on the Company. (B) Neither the failure of the Company (including its Board of Directors, Independent Counsel or stockholders) to have made a determination prior to the commencement of such action that indemnification of the indemnitee is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the General Corporation Law of the State of Delaware, nor an actual determination by the Company (including its Board of Directors, Independent Counsel or stockholders) that the indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the indemnitee has not met the applicable standard of conduct. (C) If a determination shall have been made pursuant to Section 2(A) of this Article XIII that the indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to paragraph (A) of this Section 3. (D) The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to paragraph (A) of this Section 3 that the procedures and presumptions of this Article XIII are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Article XIII. Section 4. The right to indemnification and the payment of expenses incurred in connection with a proceeding in advance of its final disposition conferred in this Article XIII shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, By-laws, agreement, vote of stockholders or Disinterested Directors or otherwise. Section 5. The Company may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Company or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Company would have the power to indemnify such person against such expense, liability or loss under the General Corporation Law of the State of Delaware. To the extent that the Company maintains any policy or policies providing such insurance, each such director, officer or employee, and each such agent to which rights to indemnification have been granted as provided in Section 6 of this Article XIII, shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage thereunder for any such director, officer, employee or agent. Section 6. The Company may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification, and rights to be paid by the Company the expenses incurred in connection with any proceeding in advance of its final disposition, to any agent of the Company to the fullest extent of the provisions of this Article XIII with respect to the indemnification and advancement of expenses of directors, officers and employees of the Company. Section 7. If any provision or provisions of this Article XIII shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (A) the validity, legality and enforceability of the remaining provisions of this Article XIII (including without limitation, each portion of any Section of this Article XIII containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (B) to the fullest extent possible, the provisions of this Article XIII (including, without limitation, each portion of any Section of this Article XIII containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. Section 8. For purposes of this Article XIII: (A) "Disinterested Director" means a director of the Company who is not and was not a party to the matter in respect of which indemnification is sought by the indemnitee. (B) "Independent Counsel" means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent: (1) the Company or the indemnitee in any matter material to either such party, or (2) any other party to the matter giving rise to a claim for indemnification. Notwithstanding the foregoing, the term "Independent Counsel" shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or the indemnitee in an action to determine the indemnitee's rights under this Article XIII. Section 9. Any notice, request or other communication required or permitted to be given to the Company under this Article XIII shall be in writing and either delivered in person or sent by telecopy, telex, telegram or certified or registered mail, postage prepaid, return receipt requested, to the Secretary of the Company and shall be effective only upon receipt by the Secretary. EX-10.(B)(9) 4 AMENDMENT TO NON-EMPLOYEE DIR. STOCK OPTION PLAN EXHIBIT 10b9 Amendments to the Fortune Brands, Inc. Non-Employee Director Stock Option Plan --------------------------------------- (Effective April 27, 1999) 1. Section 4(a) of the Plan is amended by changing the first sentence thereof as follows: "Subject to all the terms and conditions of the Plan, each Eligible Director shall be granted an Option covering 2,500 shares of Common Stock per year for services as a non-employee director during such year, such grant to be made on the date of the Annual Meeting of stockholders of Fortune during such year." 2. Section 7(b)(iii) of the Plan is amended in its entirety as follows: "(iii) A "Change in Control" shall be deemed to have occurred if (A) any person (as that term is used in Sections 13(d) and 14(d) of the Exchange Act, as in effect on April 27, 1999) is or becomes the beneficial owner (as that term is used in Section 13(d) of the Exchange Act, and the rules and regulations promulgated thereunder, as in effect on April 27, 1999) of 20% or more of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors ("Voting Securities") of Fortune, excluding, however, the following: (1) any acquisition directly from Fortune, other than an acquisition by virtue of the exercise of a conversion privilege unless the security being so converted was itself acquired directly from Fortune, (2) any acquisition by Fortune, (3) any acquisition by an employee benefit plan (or related trust) sponsored or maintained by Fortune or entity controlled by Fortune, or (4) any acquisition pursuant to a transaction that complies with clauses (1), (2) and (3) of Section 7(b)(iii)(C), (B) more than 50% of the members of the Board of Directors of Fortune shall not be Continuing Directors (which term, as used herein, means the directors of Fortune (1) who were members of the Board of Directors of Fortune on April 27, 1999 or (2) who subsequently became directors of Fortune and who were elected or designated to be candidates for election as nominees of the Board of Directors, or whose election or nomination for election by Fortune's stockholders was otherwise approved, by a vote of a majority of the Continuing Directors then on the Board of Directors but shall not include, in any event, any individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14(a)-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board of Directors), (C) Fortune shall be merged or consolidated with, or, in any transaction or series of transactions, substantially all of the business or assets of Fortune shall be sold or otherwise acquired by, another corporation or entity unless, as a result thereof, (1) the stockholders of Fortune immediately prior thereto shall beneficially own, directly or indirectly, at least 60% of the combined Voting Securities of the surviving, resulting or transferee corporation or entity (including, without limitation, a corporation that as a result of such transaction owns Fortune or all or substantially all of Fortune's assets either directly or through one or more subsidiaries) ("Newco") immediately thereafter in substantially the same proportions as their ownership immediately prior to such corporate transaction, (2) no person beneficially owns (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act, and the rules and regulations promulgated thereunder (as in effect on April 27, 1999)), directly or indirectly, 20% or more of the combined Voting Securities of Newco immediately after such corporate transaction except to the extent that such ownership of Fortune existed prior to such corporate transaction and (3) more than 50% of the members of the Board of Directors of Newco shall be Continuing Directors or (D) the stockholders of Fortune approve a complete liquidation or dissolution of Fortune." 2 EX-10.(C)(1) 5 AMENDED SUPPLEMENTAL PLAN OF FORTUNE BRANDS, INC. EXHIBIT 10c1 FORTUNE BRANDS, INC. SUPPLEMENTAL PLAN (as amended) Section 1. PURPOSE. This Supplemental Plan is established in order to induce employees of outstanding ability to join or continue in the employ of the Company and to increase their efforts for its welfare by providing them with supplemental benefits that cannot be provided by the Company's tax qualified defined benefit and defined contribution plans as a result of Internal Revenue Code limitations. Section 2. DEFINITIONS. As used in this Plan, the following words shall have the following meanings: (a) "Actual Earnings" means all earnings of an employee in any Plan Year for Qualifying Employment including overtime and extra shift pay, holiday and vacation pay, amounts paid for periods of approved absence, back pay which has been either awarded or agreed to by the Company, earnings elected to be deferred by the Employee as tax deferred contributions under the Company's Profit-Sharing Plan, supplemental tax deferred amounts under this Plan, or as contributions under a plan established pursuant to Section 125 of the Internal Revenue Code, or under Section 119 of the Internal Revenue Code, and all compensation under the Management Incentive Plan and the Fortune Brands, Inc. Annual Executive Incentive Compensation Plan paid during such Plan Year, but excluding (1) Worker's Compensation payments, (2) amounts paid by the Company for insurance, retirement or other benefits and bonuses, and (3) contributions to or allocations under any profit-sharing plan and benefits under this Plan or other benefits. The Actual Earnings of an employee covered under a disability income plan of the Company shall be deemed to continue as provided in the Retirement Plan. (b) "Affiliated Employment" means employment by any corporation which, at the time of such employment, is or was an affiliate of the Company or the Prior Company, or thereafter becomes or became an affiliate of the Company or the Prior Company. "Affiliated Plan" means a defined benefit pension plan by which an employee of the Company had been covered during Affiliated Employment. (c) "Allocation" means the sum of the Company contribution, tax deferred contribution elected by a Profit-Sharing Plan member and the related matching contribution allocated to the accounts of a Profit-Sharing Plan member under the Profit-Sharing Plan for a Plan Year, but shall not include any tax deferred contribution to the Profit-Sharing Plan elected by a Profit-Sharing Plan member for any Plan Year in excess of $7,000 (or such greater amount permitted for such Plan Year in accordance with regulations promulgated by the Secretary of the Treasury or his delegate with respect to arrangements qualified under Section 401(k) of the Internal Revenue Code). (d) "Average Actual Earnings" means the total Actual Earnings of an employee in the five consecutive Plan Years of Qualifying Employment that provide the highest aggregate of Actual Earnings, divided by five. If an employee's consecutive Plan Years of Qualifying Employment within such period are less than five, "Average Actual Earnings" means his total Actual Earnings during the five Plan Years (or fewer) of Qualifying Employment that provide the highest aggregate of Actual Earnings, divided by the number of such Plan Years of Qualifying Employment and fractions thereof. (e) "Committee" means the Corporate Employee Benefits Committee of the Company. (f) "Company" means Fortune Brands, Inc., a Delaware corporation, its successors and assigns. "Prior Company" means American Brands, Inc., a New Jersey corporation organized under an Agreement of Consolidation in 1904. (g) "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. (h) "Executive Participant" means an employee of the Company who is within the category of a select group of management or highly compensated employees as referred to in Sections 201(a)(2), 301(a)(3) and 401(a)(1) of ERISA and who either holds or held the office of a Vice President of the Company or any office senior thereto or, during the current Plan Year or a 2 prior Plan Year, was covered under the Fortune Brands, Inc. Annual Executive Incentive Compensation Plan or the Company's Management Incentive Plan or any successor programs and is in pay grade M009 or a higher pay grade. (i) "415 Limitations" means the Retirement Plan and Profit-Sharing Plan provisions adopted pursuant to Section 415 of the Internal Revenue Code to limit (i) annual Retirement Plan benefits pursuant to Section 415(b) thereof, (ii) annual additions to the Profit-Sharing Plan pursuant to Section 415(c) thereof and (iii) the aggregate of annual Retirement Plan benefits and additions to the Profit-Sharing Plan pursuant to Section 415(e) thereof. (j) "401(a)(17) Limitations" means the Retirement Plan and Profit- Sharing Plan provisions adopted pursuant to Section 401(a)(17) of the Internal Revenue Code to limit compensation considered for purposes of computing Retirement Plan benefits and Profit-Sharing Plan contributions to $150,000 (or such greater amount permitted for such year in accordance with regulations promulgated by the Secretary of the Treasury or his delegate). (k) "404(l) Limitation" means the limitation imposed by Section 404(l) of the Internal Revenue Code on the maximum tax deductible contribution to the Profit-Sharing Plan. (l) "Grantor Trust" means a trust for the benefit of an Executive Participant established pursuant to Section 6 to provide for the payment of benefits under this Plan. (m) "Highly Compensated Employee" means an employee or former employee of the Company who comes within the definition of a highly compensated employee set forth in Section 414(q) of the Internal Revenue Code (or any successor provision) for any Plan Year. (n) "Normal Retirement Date" means the last day of the calendar month in which a person's 65th birthday occurs. (o) "Qualifying Employment" means the sum of Service and Affiliated Employment. 3 (p) "Plan Year" means the calendar year. (q) "Profit-Sharing Plan" means the Defined Contribution Plan of Fortune Brands, Inc. and Participating Operating Companies, as amended from time to time. (r) "Retirement Plan" means the Retirement Plan for Employees and Former Employees of Fortune Brands, Inc., as amended from time to time. (s) "Segregated Account" means an account established with a bank or other financial institution approved by the Company, or other form of segregated account approved by the Company, established pursuant to Section 6 by or for the benefit of an Executive Participant to provide for the payment of benefits under this Plan. (t) "Service" means employment by the Company or the Prior Company. (u) "Surviving Spouse" means the surviving husband or wife of an employee of the Company who has been married to the employee throughout the one- year period ending on the date of the death of such employee. (v) "Tax Deferred Contributions" means salary reduction contributions elected to be made to the Profit-Sharing Plan pursuant to Section 401(k) of the Internal Revenue Code. Section 3. SUPPLEMENTAL RETIREMENT BENEFITS. (a) Each person who was at any time a Highly Compensated Employee and to whom benefits become payable under the Retirement Plan shall be paid a supplemental annual retirement benefit under this Plan equal in amount to the difference between (i) the benefit paid under the Retirement Plan and the Affiliated Plans and (ii) the benefit that would be payable if the 401(a)(17) Limitations and the 415 Limitations were not contained therein; provided, however, that for purposes of computing the amount of benefit under this Plan, years of Qualifying Employment shall not exceed 35. If such a Highly Compensated Employee's Surviving Spouse is entitled to a pre-retirement spouse's benefit under the Retirement Plan and subject to Section 6, the Surviving Spouse shall be paid a benefit hereunder equal to the 4 difference between (i) the spouse's benefit payable under the Retirement Plan and the Affiliated Plans and (ii) the spouse's benefit that would be payable if the 401(a)(17) Limitations and the 415 Limitations were not contained therein. (b) Each Executive Participant who holds the office of Vice President of the Company, or any office senior thereto on April 27, 1999, or any Executive Participant who is thereafter elected to the office of Vice President of the Company, or any office senior thereto, and is designated by the Compensation and Stock Option Committee of the Company to receive the benefit set forth in this Section 3(b), shall retire hereunder at the date of his termination of employment and be paid a supplemental annual retirement benefit under this Plan equal to 52 1/2% of the Executive Participant's Average Actual Earnings reduced (i) for an Executive Participant who retires prior to Normal Retirement Date with less than 35 years of Qualifying Employment by 1 1/2% of Average Actual Earnings for each year and fraction thereof that the Executive Participant's retirement date precedes Normal Retirement Date and further reduced (ii) by benefits payable under the Retirement Plan, the Affiliated Plans and the defined benefit pension plans of any other prior employer and supplemental retirement benefits payable under paragraphs (a) and (d) of this Section 3. If a pre- retirement spouse's benefit is payable under the Retirement Plan to the Surviving Spouse of an Executive Participant who is entitled to receive the benefit set forth in this Section 3(b), or if an Executive Participant who is entitled to receive the benefit set forth in this Section 3(b) dies before supplemental retirement benefits commence with a Surviving Spouse eligible for a spouse's benefit under the Retirement Plan, the Surviving Spouse shall be paid a benefit hereunder, subject to Section 6, equal to the difference between (i) the spouse's benefit payable under the Retirement Plan and the Affiliated Plans and (ii) the spouse's benefit that would have been payable if the Executive Participant's benefit had been calculated in accordance with the formula set forth in the first sentence of this paragraph (b) of this Section 3 (prior to any reduction for calculating the spouse's benefit). (c) Subject to Section 6, the supplemental retirement benefits provided by this Plan shall be paid to the Executive Participant or Highly Compensated 5 Employee (or to any beneficiary designated by him in accordance with the Retirement Plan, or to his Surviving Spouse if eligible for a spouse's benefit under the Retirement Plan) concurrently with the payment of the benefits payable under the Retirement Plan and in a form permitted thereby. In the event the supplemental retirement benefit commences prior to Normal Retirement Date or is payable in a form other than an annuity for the life of the former employee only, the supplemental retirement benefit shall be adjusted to the same extent as under the Retirement Plan. The Committee may, however, direct that the supplemental retirement benefit payable with respect to a former employee be paid as an actuarially equivalent single sum payment (and shall direct that any supplemental retirement benefit with a present value of less than $3,500 shall be paid as an actuarially equivalent single sum payment), provided that (except for a distribution to pay taxes as provided in Section 5 and except as provided in Section 6) no such payment may be made prior to termination of Qualifying Employment or prior to the date that benefits may become payable under the Retirement Plan. In determining actuarial equivalency of a single sum payment in cash, the interest rate used shall be equal to the average monthly yield on ten year coupon U.S. Treasury bonds (as published by the Federal Reserve) for the month of termination of Qualifying Employment and the prior five months and the mortality table used at the time under the Retirement Plan for funding purposes. For any Executive Participant who terminates Qualifying Employment between May 1 and December 31, 1997, however, the interest rate used shall be whichever of the following results in the greater benefit: (i) 120% of the applicable monthly immediate annuity purchase rate which would be used by the Pension Benefit Guaranty Corporation for the month of termination of Qualifying Employment, for the purpose of determining the present value of a single sum distribution on plan termination, (ii) 120% of the average of the applicable monthly annuity purchase rates which would be used by the Pension Benefit Guaranty Corporation for the month of termination of Qualifying Employment and the prior five months and (iii) the average monthly yield on ten year coupon U.S. Treasury bonds (as published by the Federal Reserve) for the month of termination of Qualifying Employment and the prior five months. 6 (d) Each Executive Participant shall be paid a supplemental annual retirement benefit under this Plan equal in amount to the difference between (i) the benefit paid under the Retirement Plan and (ii) the benefit that would have been payable under the Retirement Plan if the Executive Participant had accrued a benefit thereunder for his full period of Service (not in excess of 35 years). If a pre-retirement spouse's benefit is payable under the Retirement Plan to the Surviving Spouse of an Executive Participant, or if an Executive Participant dies before the benefits payable hereunder commence with a Surviving Spouse eligible for a spouse's benefit under the Retirement Plan, the Surviving Spouse shall be paid a benefit hereunder, subject to Section 6, equal to the difference between (i) the spouse's benefit payable under the Retirement Plan and (ii) the spouse's benefit that would have been payable if the Participant's benefit had been calculated in accordance with the formula set forth in the first sentence of this paragraph (d) of this Section 3 (prior to any reduction for calculating the spouse's benefit). The benefit provided by this paragraph (d) of this Section 3 shall be forfeitable if the Participant's Retirement Plan benefit is forfeitable. (e) An Executive Participant (1) who has attained age 50 and who has completed at least nine years of Qualifying Employment as of December 31, 1999, (2) who is classified by the Company as being actively at work on April 27, 1999, (3) who is not a Vice President or a more senior officer of the Company and (4) who has elected on or before June 11, 1999 to voluntarily retire and does retire between June 30, 1999 and December 31, 1999 pursuant to the Company's Voluntary Early Retirement Incentive Program and who executes a Waiver and Release substantially in the form of Exhibit A attached hereto shall be eligible for a retirement benefit hereunder that is not reduced for early payment pursuant to the second sentence of Section 3(c). An Executive Participant who meets the requirements of clauses (2), (3) and (4) and does not meet the requirements of clause (1) but is within one year of meeting such requirements shall also be eligible for the enhanced retirement pension provided by this Section 3(e). Each such Executive Participant shall be credited with additional Service of three years, provided, however, that no Executive Participant shall be credited with more than 38 years of Service. In addition, an employee of the Company in pay grade M008 who meets the eligibility requirements set forth in this 7 Section 3(e) except for not being an Executive Participant shall be eligible to elect the enhanced early retirement benefit and be paid an amount under this Plan equal to the difference between (i) the benefit paid under the Retirement Plan and (ii) the benefit that would have been payable under the Retirement Plan if the enhanced retirement benefit provided for herein were paid under the Retirement Plan. Notwithstanding anything else in this Plan to the contrary, the amount set forth in the preceding sentence shall be paid in a single sum in cash and shall be calculated using the interest rate equal to the average monthly yield on ten year coupon U.S. Treasury bonds (as published by the Federal Reserve) for the month of termination of Qualifying Employment and the prior five months and the mortality table used at the time under the Retirement Plan for funding purposes. Section 4. SUPPLEMENTAL PROFIT-SHARING BENEFITS. (a) In the event that the Allocation under the Profit-Sharing Plan is limited by the 401(a)(17) Limitations and the 415 Limitations for 1987 or any subsequent Plan Year for a Highly Compensated Employee, the Highly Compensated Employee shall receive a supplemental profit-sharing award under this Plan for such Plan Year equal to the difference between (i) the Allocation actually made to the Highly Compensated Employee and (ii) the Allocation that would have been made to the Profit-Sharing Plan for such Plan Year if the 401(a)(17) Limitations and the 415 Limitations were not contained therein. In addition, in the event the contribution to the Profit-Sharing Plan for any Plan Year is limited by the 404(l) Limitation, each Highly Compensated Employee shall receive a supplemental profit-sharing award under this Plan for such Plan Year equal to the difference between (i) the Allocation actually made to the Highly Compensated Employee and (ii) the Allocation that would have been made to the Profit-Sharing Plan for such Plan Year for such Highly Compensated Employee if the contribution to the Profit-Sharing Plan was not limited by the 404(l) Limitation. (b) Except as provided in Section 6, the award for any Plan Year shall be made as of the first day of the following year and shall be deemed to be thereafter invested in an interest bearing investment selected by the Trusts Investment Committee (or successor committee) of the Company. The amount of a Highly Compensated Employee's or Executive Participant's supplemental 8 profit-sharing benefits under this Plan shall be the aggregate amount of such awards together with any deemed investment gain thereon and less any deemed investment loss. (c) Supplemental profit-sharing awards and deemed investment gain thereon shall be fully vested and nonforfeitable. (d) Supplemental profit-sharing plan benefits shall be paid by a single sum payment as soon as practicable following termination of Qualifying Employment, subject to Section 6. (e) Subject to Section 6, a Highly Compensated Employee may designate a beneficiary to receive the unpaid portion of his supplemental profit-sharing benefits in the event of his death. The designation shall be made in a writing filed with the Committee on a form approved by it signed by the Highly Compensated Employee. If no effective designation of beneficiary shall be on file with the Committee when supplemental profit-sharing benefits would otherwise be distributable to a beneficiary, then such benefits shall be distributed to the spouse of the Highly Compensated Employee or, if there is no spouse, to the executor of the will or the administrator of his estate or, if no such executor or administrator shall be appointed within six months after his death, the Committee shall direct that distribution be made, in such shares as the Committee shall determine, to the child, parent or other blood relative of such Highly Compensated Employee or to such other person or persons as the Committee may determine. Section 5. FUNDING. Benefits under this Plan shall not initially be funded in order that the Plan may be exempt from the provisions of Parts 2, 3 and 4 of Title I of ERISA. The Committee shall maintain records of supplemental profit-sharing awards and supplemental tax deferred amounts and related Company matching awards pursuant to Section 7 and the assumed investment thereof and records for the calculation of supplemental retirement benefits. The Company may, however, segregate assets which are intended to be a source for payment of benefits hereunder for Executive Participants. In the event benefits are hereafter determined to be taxable for Executive Participants prior to actual receipt thereof and subject to Section 6, a payment shall be made to such 9 Executive Participants in an amount sufficient to pay such taxes notwithstanding that the Executive Participant may not then have terminated Qualifying Employment or that the payment is being made prior to the date that benefits would otherwise be paid under the Retirement Plan. Amounts so paid shall then be used as an offset to the supplemental retirement and profit-sharing benefits, if any, thereafter payable which shall also be paid in an actuarially equivalent lump sum (calculated as set forth in Section 3(d)) promptly upon the later of termination of Qualifying Employment or attainment of age 55. Section 6. GRANTOR TRUSTS AND SEGREGATED ACCOUNTS. Notwithstanding Section 5 of this Plan, the Company may provide for the establishment of Grantor Trusts and Segregated Accounts by or for the benefit of individual Executive Participants to provide for the payment of benefits (other than supplemental tax deferred amounts and related Company matching awards pursuant to Section 7) under this Plan, consistent with the following provisions: (a) The Trustee of the Grantor Trusts shall be a bank or trust company approved by the Company and established under the laws of the United States or a state within the United States and having either total assets of at least $15 billion or trust assets of at least $25 billion. Each Grantor Trust shall be established pursuant to a trust agreement having terms and provisions approved by the Company and consistent with this Section. The Grantor Trust shall be solely for the purpose of providing benefits under the Plan with respect to the Executive Participant, and neither the Company nor any creditors of the Company shall have any interest in the assets of the Grantor Trust. The Company shall be the administrator of the Grantor Trust, and shall have such powers as are granted by the trust agreement. (b) The Company shall pay the fees and expenses of the Trustee and all the expenses for the management and administration of each Grantor Trust and Segregated Account for all periods prior to the Executive Participant's termination of employment, and for a period of sixty (60) days thereafter and for any further period as may be authorized by the Company, and shall indemnify the Executive Participant against any liability or cost 10 in respect thereof, including any tax liabilities or costs. (c) Each Segregated Account shall be a savings or other type of account approved by the Company established with a bank or trust company approved by the Company and established under the laws of the United States or a state within the United States and having either total assets of at least $15 billion or trust assets of at least $25 billion, or other form of segregated account with such a bank or trust company or other financial institution approved by the Company, in each case with such terms and provisions as are approved by the Company and consistent with this Section. (d) The Company may from time to time make contributions to either the Grantor Trust, or Segregated Account if directed by an Executive Participant, in amounts which when added to the existing balances in the Executive Participant's Grantor Trust and Segregated Account will be approximately equal to the present value of the after tax equivalent of the Executive Participant's accrued benefits under Sections 3 and 4. (e) As promptly as practicable after the Executive Participant's termination of employment, whether by retirement, death or otherwise, the Company may make a final contribution to the Executive Participant's Grantor Trust, or Segregated Account if directed by the Executive Participant, in an amount which when added to the existing balances in the Executive Participant's Grantor Trust and Segregated Account, will be equal to (i) the sum of the present value of the after tax equivalent of (A) if the termination of employment is not by reason of the death of the Executive Participant, the Executive Participant's benefit under Section 3, or if the termination of employment is by reason of the death of the Executive Participant, the Executive Participant's benefit under Section 3 immediately prior to his death and (B) the Executive Participant's supplemental profit-sharing benefit under Section 4, offset by (ii) any amounts previously actually withdrawn by the Executive Participant from his Grantor Trust or Segregated Account and income which would have been earned thereon, calculated as provided in paragraph (k) of this Section 6. 11 (f) Amounts in a Grantor Trust or Segregated Account shall be invested separately as to amounts representing the Executive Participant's supplemental retirement benefit under Section 3 and the Executive Participant's supplemental profit-sharing benefit under Section 4. Supplemental retirement benefit amounts invested in a Grantor Trust shall be invested solely in the Vista Select Bond Fund to the extent practicable and otherwise in the Chase Manhattan Personal Trust Market Rate Account. As soon as practicable after the Executive Participant's 60th birthday, one-half of the amounts held in the Vista Select Bond Fund attributable to supplemental retirement benefits, and as soon as practicable after the Executive Participant's 63rd birthday, the remainder of the amounts held in the Vista Select Bond Fund attributable to supplemental retirement benefits, shall be invested solely in the Chase Manhattan Personal Trust Market Rate Account, provided that supplemental retirement benefit amounts shall not be transferred from the Vista Select Bond Fund to the Chase Manhattan Personal Trust Market Rate Account after the Executive Participant's 60th birthday or the Executive Participant's 63rd birthday if the amount held in the Vista Select Bond Fund attributable to supplemental retirement benefits is in a "loss position". The amount held in the Vista Select Bond Fund attributable to supplemental retirement benefits shall be in a "loss position" on the Executive Participant's 60th birthday if the current market value thereof at the Executive Participant's 60th birthday is less than 95% of the actuarial present value of the Executive Participant's supplemental retirement benefit calculated as of the end of the prior calendar year. The amount held in the Vista Select Bond Fund attributable to supplemental retirement benefits shall be in a "loss position" on the Executive Participant's 63rd birthday if the current market value thereof at the Executive Participant's 63rd birthday is less than 50% of 95% of the actuarial present value of the Executive Participant's supplemental retirement benefit calculated as of the end of the prior calendar year. The Company shall notify the Trustee promptly after the end of each calendar year of the actuarial present value of the Executive Participant's supplemental retirement benefit. In the event that transfers cannot be made as soon as practicable after the Executive Participant's 60th or 63rd birthday because the amount of the Vista Select Bond Fund attributable to supplemental retirement benefits is then in a "loss position", the 12 amounts attributable to supplemental retirement benefits shall be transferred as soon as practicable after the amount of the Vista Select Bond Fund attributable to supplemental retirement benefits is no longer in a "loss position". Supplemental profit-sharing benefit amounts invested in a Grantor Trust shall be invested in one or more of the (i) Vista Balanced Fund, (ii) Chase Manhattan Personal Trust Market Rate Account, (iii) Dodge & Cox Stock Fund, (iv) MFS Institutional Emerging Equities Fund, (v) Vanguard International Growth Portfolio or (vi) PIMCO Total Return Fund, in such portions as are elected by the Executive Participant on a written election form approved by and filed with the Committee, all to the extent practicable and otherwise in the Chase Manhattan Personal Trust Market Rate Account. The Executive Participant may change such election at any time by filing a new written election form with the Committee. The Committee shall promptly notify the Trustee as to any such elections or changes therein. Supplemental retirement benefit amounts and supplemental profit-sharing benefit amounts invested in a Segregated Account shall be invested solely in the Chase Manhattan Personal Trust Market Rate Account. In lieu of the calculation of investment gain or loss on supplemental profit-sharing awards prescribed by Section 4(b), an Executive Participant's profit-sharing benefit under Section 4 shall include the actual investment gain or loss on supplemental profit-sharing benefit amounts invested in accordance with this paragraph (f). (g) The Executive Participant may designate a beneficiary to receive amounts held in his Grantor Trust in the event of his death. The designation shall be made in a writing filed with the Committee on a form approved by it and signed by the Executive Participant. The Committee shall notify the Trustee as to any such designation or changes therein. The provisions of Section 3(a), (b), (c) and (d) and Section 4(e), providing for the payment of benefits to the Surviving Spouse of the Executive Participant, or other person designated by the Executive Participant or the Committee, in the event of the death of the Executive Participant, shall not apply to amounts in the Executive Participant's Grantor Trust or Segregated Account. (h) The Company shall make payments to the Executive Participant (or his beneficiary) from time to time in the approximate amounts required to compensate 13 the Executive Participant (or his beneficiary) for additional federal, state and local taxes on income resulting from the inclusion in the Executive Participant's or beneficiary's taxable income of contributions to the Executive Participant's Grantor Trust and Segregated Account, the final payment pursuant to paragraph (e) of this Section 6, and the income of the Grantor Trust and Segregated Account for periods prior to termination of employment (including amounts paid by the Company pursuant to paragraphs (b) and (e)) of this Section 6. (i) An Executive Participant may elect to transfer all or any portion of the funds in his Grantor Trust to his Segregated Account, or to transfer all or any portion of the funds in his Segregated Account to his Grantor Trust, upon written notice of not less than sixty (60) days to the Company and the Trustee and the financial institution with which the Segregated Account is established. (j) An Executive Participant may withdraw all or any portion of the funds in his Grantor Trust or Segregated Account at any time upon not less than sixty (60) days' written notice to the Company and to the Trustee, or the financial institution with which the Segregated Account is established, as the case may be. (k) Benefits payable to an Executive Participant or Surviving Spouse or other beneficiary under Sections 3 and 4 shall be offset by the pre-tax equivalent of amounts in the Executive Participant's Grantor Trust and Segregated Account at the time of the Executive Participant's termination of employment, including any final contribution or payment pursuant to paragraph (e) of this Section 6, and by the present value of the pre-tax equivalent of any amounts withdrawn by the Executive Participant from his Grantor Trust or Segregated Account, plus the amounts of income which would have been earned on such withdrawn amounts from the time of withdrawal until the time of termination of employment, calculated by applying an earnings rate equal to the after-tax equivalent of an interest rate equal to the average monthly yield on ten year coupon U.S. Treasury bonds (as published by the Federal Reserve) for the month of termination of Qualifying Employment and the prior five months. 14 (l) The Grantor Trust shall terminate upon the expiration of sixty (60) days following the termination of employment of the Executive Participant, unless continued by agreement between the Executive Participant and the Trustee. (m) Upon the making of the final contribution or other payment pursuant to paragraph (e) of this Section 6, and the payment pursuant to paragraph (h) of this Section 6 in respect of additional taxes resulting from such final contribution or payment, the Company shall have no further liability for benefits otherwise payable under Sections 3 and 4 to the Executive Participant or his Surviving Spouse, estate or other beneficiaries. (n) The provisions of this Section 6 shall supersede the provisions of any other Section of this Plan to the extent such other provisions might be considered to conflict with the provisions of this Section 6. SECTION 7. SUPPLEMENTAL TAX DEFERRED AMOUNTS AND RELATED COMPANY MATCHING AWARDS. (a) A Highly Compensated Employee who is a participant in the Profit-Sharing Plan and whose Tax Deferred Contributions are limited by the 40l(a)(17) Limitations may elect that the Company reduce his compensation and credit him with a supplemental tax deferred amount under this Plan for any Plan Year equal to the difference between (i) an amount up to the maximum Tax Deferred Contribution that the Highly Compensated Employee could have elected to be made to the Profit-Sharing Plan but for the 40l(a)(17) Limitations and (ii) the maximum Tax Deferred Contribution that the Highly Compensated Employee could have elected to be made to the Profit-Sharing Plan with his compensation subject to the 40l(a)(17) Limitations; provided that the sum of the Tax Deferred Contributions to the Profit-Sharing Plan and the supplemental tax deferred amount credited under this Plan for a Highly Compensated Employee for any Plan Year shall not exceed the limitation set forth in Section 402(g) of the Internal Revenue Code, or any successor provision, for such Plan Year. (b) A Highly Compensated Employee who is credited with a supplemental tax deferred amount under Section 7(a) shall also be credited with a related 15 Company matching award equal to 50% of his supplemental tax deferred amount for any Plan Year. (c) An election by a Highly Compensated Employee pursuant to paragraph (a) must be made by filing a form approved by the Committee with the Committee no later than the beginning of the Plan Year for which the election is to be effective specifying the amount of the supplemental tax deferred amount elected; provided that if a Highly Compensated Employee does not become eligible to elect Tax Deferred Contributions to the Profit-Sharing Plan until after the first day of a Plan Year, the Highly Compensated Employee may file his election pursuant to paragraph (a) for such Plan Year with the Committee no later than the effective date of the Highly Compensated Employee's eligibility to make Tax Deferred Contributions. An election pursuant to this paragraph will continue in effect for subsequent Plan Years unless changed by the Highly Compensated Employee by filing a form approved by the Committee with the Committee prior to the beginning of the Plan Year for which such change is to be effective. The election shall be irrevocable for any Plan Year. (d) The supplemental tax deferred amounts and Company matching awards pursuant to this Section 7 shall be deemed to have been made as of the first day of the Plan Year for which the election made pursuant to paragraph (c) is effective and shall be deemed to be thereafter invested in an interest bearing investment selected by the Trusts Investment Committee (or successor committee) of the Company. The amount of a Highly Compensated Employee's supplemental tax deferred amounts and related Company matching award benefits under this Plan shall be the aggregate amount of such awards together with any deemed investment gain thereon and less any deemed investment loss. (e) Supplemental tax deferred amounts and related Company matching awards under this Plan and deemed investment gain thereon shall be fully vested and nonforfeitable. (f) Benefits under this Section 7 shall be paid by a single sum cash payment as soon as practicable following termination of Qualifying Employment. 16 (g) A Highly Compensated Employee may designate a beneficiary to receive the unpaid portion of his supplemental tax deferred contribution amounts and related Company matching award benefits in the event of his death. The designation shall be made in a writing filed with the Committee on a form approved by it and signed by the Highly Compensated Employee. If no effective designation of beneficiary shall be on file with the Committee when benefits under this Section 7 would otherwise be distributable to a beneficiary, then such benefits shall be distributed to the spouse of the Highly Compensated Employee or if there is no spouse, to the executor of the will or the administrator of his estate or, if no such executor or administrator shall be appointed within six months after his death, the Committee shall direct that distribution be made, in such shares as the Committee shall determine, to the child, parent or other blood relative of such Highly Compensated Employee or to such other person or persons as the Committee may determine. Section 8. ADMINISTRATION. This Plan shall be administered by the Committee. All decisions and interpretations of the Committee shall be conclusive and binding on the Company and Highly Compensated Employees and Executive Participants. The Plan may be amended or terminated by the Board of Directors of the Company at any time; provided, however, that no such amendment or termination shall deprive any Highly Compensated Employee or Executive Participant of supplemental retirement or profit-sharing plan benefits accrued to the date of such amendment or termination or modify the last two sentences of Section 5 in a manner adverse to any Executive Participant; and provided further, however, that the Plan shall not be amended without approval of the stockholders of the Company if such amendment would materially increase the cost of the Plan to the Company. Section 9. NONASSIGNABILITY. Subject to Section 6, no Highly Compensated Employee or Executive Participant shall have the right to assign, pledge or otherwise dispose of any benefits payable to him hereunder nor shall any benefit hereunder be subject to garnishment, attachment, transfer by operation of law, or any legal process. 17 EX-10.(C)(6) 6 SCH. IDENTIFYING SUBSTANTIALLY IDENTICAL AGMT. TO TRUST AGMT. EXHIBIT 10c6 Schedule identifying substantially identical agreements, among Fortune Brands, Inc. ("Fortune") and The Chase Manhattan Bank, et al., establishing a trust in favor of each of the following persons, to the Agreement and the Amendments thereto constituting Exhibits 10c2, 10c3, 10c4 and 10c5 to the Annual Report on Form 10-K of Fortune for the Fiscal Year ended December 31, 1999. - -------------------------------------------------------------------------------- Name ------ Thomas C. Hays Norman H. Wesley John T. Ludes Dudley L. Bauerlein, Jr. Mark Hausberg Anne C. Linsdau Craig P. Omtvedt Mark A. Roche Robert J. Rukeyser EX-10.(C)(12) 7 SCH. IDENTIFYING SUBTANTIALLY IDENTICAL AGMT. TO TRUST AGMT. EXHIBIT 10c12 Schedule identifying substantially identical agreements, among Fortune Brands, Inc. ("Fortune"), and The Chase Manhattan Bank and each of the following persons, to the Trust Agreement and Amendments constituting Exhibits 10c8, 10c9, 10c10 and 10c11 to the Annual Report on Form 10-K of Fortune for the Fiscal Year ended December 31, 1999. - -------------------------------------------------------------------------------- Name ---- Thomas C. Hays Norman H. Wesley John T. Ludes Dudley L. Bauerlein, Jr. Mark Hausberg Anne C. Linsdau Craig P. Omtvedt Mark A. Roche Robert J. Rukeyser EX-10.(H)(3) 8 SCH. IDENTIFYING SUBSTANTIALLY IDENTICAL AGMT. TO TRUST AGMT. EXHIBIT 10h3 Schedule identifying substantially identical agreements, among Fortune Brands, Inc. ("Fortune") and each of the following persons, to the Agreement and Amendment constituting Exhibits 10h1 amd 10h2 to the Annual Report on Form 10-K of Fortune for the Fiscal Year ended December 31, 1999. - -------------------------------------------------------------------------------- Name ---- Thomas C. Hays Norman H. Wesley John T. Ludes Dudley L. Bauerlein, Jr. Mark Hausberg Anne C. Linsdau Craig P. Omtvedt Mark A. Roche Robert J. Rukeyser EX-10.(I)(4) 9 SCH. IDENTIFYING SUBSTANTIALLY IDENTICAL AGMT. TO TRUST AGMT. EXHIBIT 10i4 Schedule identifying substantially identical agreements, among Fortune Brands, Inc. ("Fortune") and The Chase Manhattan Bank, et al. in favor of each of the following persons, to the Trust Agreement and Amendments thereto constituting Exhibits 10i1, 10i2 and 10i3 to the Annual Report on Form 10-K of Fortune for the Fiscal Year ended December 31, 1999. - -------------------------------------------------------------------------------- Name ---- Thomas C. Hays Norman H. Wesley John T. Ludes Dudley L. Bauerlein, Jr. Mark Hausberg Anne C. Linsdau Craig P. Omtvedt Mark A. Roche Robert J. Rukeyser EX-10.(J)(11) 10 SCHEDULE EXHIBIT 10j11 Schedule identifying substantially identical agreements, between Fortune Brands, Inc. ("Fortune") and the following persons, to the Agreement constituting Exhibit 10j10 to the Annual Report on Form 10-K of Fortune for the Fiscal Year ended December 31, 1999. - -------------------------------------------------------------------------------- Name ---- Dudley L. Bauerlein, Jr. Robert J. Rukeyser Mark Hausberg EX-10.(J)(12) 11 AGREEMENT BETWEEN REGISTRANT AND ANNE C. LINSDAU EXHIBIT 10j12 SEVERANCE AGREEMENT AGREEMENT dated as of November 18, 1997 between FORTUNE BRANDS, INC., a Delaware corporation (the "Company"), and ANNE C. LINSDAU (the "Executive"), W I T N E S S E T H : - - - - - - - - - - WHEREAS, the Company has offered full-time employment to the Executive and the Executive desires to accept such offer, but to be provided with the assurance of receiving certain severance benefits in the event the Company were to take certain actions resulting in the termination of her employment; and WHEREAS, the Company desires to induce the Executive to join its full- time employ by providing her with the assurance of receiving certain severance benefits; and WHEREAS, the Company and the Executive desire to enter into this Agreement to set forth the terms and conditions of such severance benefits; NOW, THEREFORE, in consideration of the premises and of the mutual agreements hereinafter contained, the parties do hereby agree as follows: 1. Termination of Employment. ------------------------- (a) Entitlement to Benefits. If and only if during the term of this ----------------------- Agreement the Executive's employment with the Company is terminated by the Company other than for Disability or Cause (each as defined in this Section l), the Executive shall be entitled to benefits as provided in Section 2. The Executive shall not be entitled to any benefits hereunder in the event her employment with the Company is terminated as a result of her death, by the Company for Disability or Cause or by the Executive for any reason. (b) Disability. Termination of employment by the Company for ---------- Disability hereunder shall be deemed to have occurred only if, as a result of the Executive's incapacity due to physical or mental illness, the Executive shall have been absent from her duties with the Company on a full-time basis for 180 consecutive days and, within 30 days after Notice of Termination (as defined in Section 1(d)) is given to the Executive by the Company, the Executive shall not have returned to the full-time performance of her duties. (c) Cause. Termination of employment by the Company for Cause shall ----- be deemed to have occurred only if (i) termination shall have been the result of (A) an 2 act or acts of dishonesty on the Executive's part constituting a felony and intended to result directly or indirectly in substantial gain or personal enrichment to her at the expense of the Company, or (B) the Executive's willful and continued failure substantially to perform her duties and responsibilities as an officer of the Company (other than any such failure resulting from her incapacity due to physical or mental illness) after a demand for substantial performance is delivered to the Executive by the Board of Directors of the Company which specifically identifies the manner in which such Board believes that the Executive has not substantially performed her duties and the Executive is given a reasonable time after such demand substantially to perform her duties, and (ii) there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the members of the Board of Directors of the Company at a meeting thereof called and held for the purpose (after reasonable notice to the Executive and an opportunity for her, together with her counsel, to be heard before such Board), finding that in the good faith opinion of the Board of Directors of the Company the Executive was guilty of conduct set forth above in clause 3 (i)(A) or (i)(B) of this Section 1(c) and specifying the particulars thereof in detail. The Executive's employment shall in no event be considered to have been terminated by the Company for Cause if the act or failure to act upon which such termination is based (x) was done or omitted to be done (l) as a result of bad judgment or negligence on her part, or (2) without intent of gaining therefrom directly or indirectly a profit to which the Executive was not legally entitled or (3) as a result of her good faith belief that such act or failure to act was in or was not opposed to the interests of the Company, or (y) is an act or failure to act in respect of which the Executive meets the applicable standard of conduct prescribed for indemnification or reimbursement or payment of expenses under the By-laws of the Company or the laws of the state of its incorporation or the directors' and officers' liability insurance of the Company, in each case as in effect at the time of such act or failure to act. (d) Notice of Termination. Any termination by the Company for --------------------- Disability or Cause shall be communicated by Notice of Termination to the Executive. For purposes of this Agreement, a "Notice of Termination" shall mean a notice in writing which shall indicate the specific 4 termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. (e) Termination Date. As used herein, "Termination Date" shall mean ---------------- (i) if employment is terminated by the Company for Disability, 30 days after Notice of Termination is given (provided that the Executive shall not have returned to the performance of her duties on a full-time basis during such 30- day period), (ii) if employment is terminated by the Company for Cause, the date on which a Notice of Termination is given and (iii) if employment is terminated for any other reason, the date on which the Executive ceases to perform her duties as an officer of the Company; provided, however, that, in the case of any termination by the Company, if within 30 days after any required Notice of Termination is given the Executive, the Executive notifies the Company that a dispute exists concerning the termination, the Termination Date shall be the date on which the dispute is finally determined, either by written agreement of the parties or by a final judgment, order or decree of court of competent jurisdiction (the 5 time for appeal therefrom having expired and no appeal having been perfected); provided further, however, that if the dispute is resolved in favor of the Company, the Termination Date shall not be so extended but shall be the date determined under clauses (i) and (ii) of this Section 1(e). 2. Compensation Upon Termination. ----------------------------- (a) If the Executive's employment is terminated by the Company for Disability or Cause or by the Executive for any reason, the Company shall have no obligation to pay any compensation to the Executive under this Agreement in respect of periods beginning on and after the Termination Date, but this Agreement shall have no effect on any other obligation the Company may have to pay the Executive compensation to which she may otherwise be entitled. (b) If the Company shall terminate the Executive's employment other than for Disability or Cause, then the Company shall pay to the Executive as severance pay in a lump sum on the fifth day following the Termination Date the following amounts: (i) her full base salary through the Termination Date at the rate in effect on the date 6 hereof plus any increases therein subsequent thereto; (ii) in lieu of any further salary payments, incentive compensation awards or profit-sharing plan allocations to the Executive for periods subsequent to the Termination Date, an amount equal to the product of (A) the sum of (1) her annual base salary at the rate in effect on the date hereof plus any increases therein subsequent thereto, plus (2) the greater of $94,500 and the amount awarded to her under the Annual Executive Incentive Compensation Plan of the Company and any other plans or any arrangements of the Company and its affiliates (the "Incentive Compensation Plans") for the calendar year immediately preceding the year in which the Termination Date occurs (whether or not fully paid), plus\\ (3) the greater of the amount that was allocated to the Executive's account under the Defined Contribution Plan of Fortune Brands, Inc. and Participating Operating Companies (the "Profit-Sharing Plan"), including the Company 401(k) matching contribution thereto, the profit-sharing provisions of the Supplemental Plan of Fortune Brands, Inc. (the "Supplemental Plan"), including 7 the Company matching award related to the supplemental tax deferred amounts therein, and any other defined contribution plan of the Company or an affiliate thereof for 1998 and the amount that would have been required to be so allocated to her (assuming that she elected the maximum employee contribution) for the year immediately preceding the year in which the Termination Date occurs, multiplied by (B) the lesser of the number one and the fraction of a year from the Termination Date to the Executive's Normal Retirement Date (as defined in the Retirement Plan for Employees and Former Employees of Fortune Brands, Inc. (the "Retirement Plan")); and (iii) all legal fees and expenses incurred by the Executive as a result of such termination (including, but not limited to, all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement). (c) If the Company shall terminate the Executive's employment other than for Disability or Cause, the Company shall maintain in full force and 8 effect, for the Executive's continued benefit for a one-year period (or, if shorter, the period until her Normal Retirement Date) after the Termination Date, all employee life, health, accident, disability, medical and other employee welfare benefit plans, programs or arrangements in which she was participating on the date hereof plus all improvements therein subsequent thereto, provided that her continued participation is possible under the terms and provisions of such plans, programs and arrangements. In the event that the Executive's participation in any such plan, program or arrangement is barred, the Company shall arrange to provide her with benefits substantially similar to those which she would have been entitled to receive under such plan, program or arrangement if she had remained a participant for such additional one-year period (or, if shorter, such additional period until her Normal Retirement Date) after the Termination Date. (d) If the Company shall terminate the Executive's employment other than for Disability or Cause, then in addition to the retirement benefits to which the Executive is entitled under the Retirement Plan, the Supplemental Plan and any other defined benefit pension plan maintained by the Company or any affiliate, 9 and any other program, practice or arrangement of the Company or any affiliate to provide the Executive with a defined pension benefit after termination of employment, and any successor plans thereto (all such plans being collectively referred to herein as the "Pension Plans"), the Company shall pay the Executive monthly beginning at the earliest date that payments commence under any of the Pension Plans an amount equal to the excess of (i) over (ii) below where (i) equals the sum of the aggregate monthly amounts of pension payments (determined as a straight life annuity) to which the Executive would have been entitled under the terms of each of the Pension Plans in which she was an active participant (without regard to any amendment made subsequent to the date hereof which adversely affects in any manner the computation of the Executive's benefits) determined as if she were fully vested thereunder and had accumulated one additional year (or, if less, the fraction of a year from the Termination Date to the Executive's Normal Retirement Date) of Service thereunder (subsequent to his Termination Date) at her rate of Actual Earnings in effect on 10 the date hereof plus any increases subsequent thereto, and where (ii) equals the sum of the aggregate monthly amounts of pension payments (determined as a straight life annuity) to which the Executive is entitled under the terms of each of the Pension Plans in which she was an active participant at the date hereof or subsequently. For purposes of clause (i), the amounts payable pursuant to Sections 2(b)(ii)(A)(l) and (2) and (2)(b)(ii)(B) shall be considered as part of the Executive's Actual Earnings and such amounts shall be deemed to represent one year (or, if less, the fraction of a year from the Termination Date to the Executive's Normal Retirement Date) of Actual Earnings for purposes of determining his highest consecutive five year average rate of Actual Earnings. The supplemental pension benefits determined under this Section 2(d) shall be payable by the Company to the Executive and her contingent annuitant, if any, or to the Executive's surviving spouse as a spouse's benefit if the Executive dies prior to commencement of benefits under this Agreement, in the same manner and for as long as her pension benefits under the Supplemental Plan and 11 shall be adjusted actuarially to reflect payment in a form other than a straight life annuity. Benefits hereunder which commence prior to age 60 shall be actuarially reduced to reflect early commencement to the extent, if any, provided in the Retirement Plan as if the Executive's Termination Date were an Early Retirement Date. All capitalized terms used in this Section 2(d) shall have the same meaning as in the Retirement Plan as in effect on the date hereof, unless otherwise defined herein or otherwise required by the context. (e) If the Company shall terminate the Executive's employment other than for Disability or Cause, the Company shall pay to the Executive as additional severance pay in a lump sum on the fifth day following the Termination Date an amount, if any, equal to the nonvested portion of her account balances under the Profit-Sharing Plan and the defined contribution plan of any affiliate of the Company in which there is maintained for her an account balance which is not fully vested. (f) If the Company shall terminate the Executive's employment other than for Disability or Cause, the Executive shall be entitled to the following as incentive compensation through the Termination Date: 12 (i) the unpaid portion of the amount awarded to her as incentive compensation under the Incentive Compensation Plans for the calendar year immediately preceding the year in which the Termination Date occurs, payable at the time awards thereunder are normally paid; and (ii) incentive compensation under the Incentive Compensation Plans for the calendar year in which the Termination Date occurs, payable at the time awards thereunder are normally paid, in an amount equal to the amount the Executive would have received thereunder for such period if she had been awarded an amount for the year in which the Termination Date occurs equal to the amount awarded to her for the calendar year immediately preceding the year in which the Termination Date occurs (provided that such incentive compensation shall be $94,500 if the Termination Date occurs in 1998), with such incentive compensation amount prorated for the portion of the year through the Termination Date. (g) If the Company shall terminate the Executive's employment other than for Disability or Cause and a dispute exists concerning the termination as set 13 forth in Section 1(e), the Company shall continue to pay the Executive's full base salary through the date the dispute is finally resolved as provided in Section 1(e). (h) The Executive shall not be required to mitigate the amount of any payment provided for in this Section 2 by seeking other employment or otherwise, nor shall the amount of any payment provided for in this Section 2 be reduced by any compensation earned by the Executive as the result of employment by another employer after the Termination Date or by any other compensation. (i) Subject to Section 2(j), this Agreement and the obligations of the Company hereunder shall not be in derogation of any other obligations of the Company not set forth herein to pay any compensation or to pay or provide any benefit to the Executive. (j) Notwithstanding any other provision of this Agreement, (a) any amount otherwise payable to the Executive pursuant to the agreement dated as of November 18, 1997 between the Company and the Executive providing compensation after termination of employment following a change in control of the Company shall be reduced by the amount of any payments made by the Company to the Executive under this Section 2, and (b) any benefits to which the Executive is entitled under the 14 Company's severance pay program covering salaried employees generally shall be reduced by benefits paid under Section 2(b)(ii) of this Agreement. 3. Successors; Binding Agreement. ----------------------------- (a) The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, and any parent company thereof, by agreement or agreements in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement, and in the case of any such parent company expressly to guarantee and agree to cause the performance of this Agreement, in the same manner and to the same extent as the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as defined in the first sentence of this Agreement and any successor to all or substantially all its business or assets or which otherwise becomes bound by all the terms and provisions of this Agreement, whether by the terms hereof, by operation of law or otherwise. 15 (b) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive and her personal or legal representatives and successors in interest under this Agreement. 4. Term. This Agreement shall continue in full force and effect ---- until the third anniversary of the date that notice of termination of this Agreement is given by the Company to the Executive or by the Executive to the Company. 5. Notice. Any notice, demand or other communication required or ------ permitted under this Agreement shall be effective only if it is in writing and delivered personally or sent by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: 16 If to the Company: Fortune Brands, Inc. 1700 East Putnam Avenue Old Greenwich, Connecticut 06870 Attention: Secretary If to the Executive: Anne C. Linsdau 400 East Ohio Apt. 4501 Chicago, Illinois 60611 or to such other address as either party may designate by notice to the other and shall be deemed to have been given as of the date so personally delivered or mailed. 6. Miscellaneous. This Agreement shall be governed by and construed ------------- in accordance with the laws of the State of Delaware. This Agreement cannot be modified or any term or condition waived in whole or in part except by a writing signed by the party against whom enforcement of the modification or waiver is sought. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. The headings in this Agreement are included for convenience of reference only 17 and shall not in any way affect the meaning or interpretation of this Agreement. 7. Separability. The invalidity or unenforceability of any provision ------------ of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. 8. Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which so executed shall be deemed to be an original, and such counterparts will together constitute but one Agreement. 9. Withholding of Taxes. The Company may withhold from any benefits -------------------- payable under this Agreement 18 all federal, state, city or other taxes as shall be required pursuant to any law or governmental regulation or ruling. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its officer thereunto duly authorized and its seal to be hereunto affixed and attested and the Executive has hereunto set his hand as of the date first above written. [Seal] FORTUNE BRANDS, INC. By ----------------------------- ATTEST: - ------------------------- Secretary ----------------------------- Anne C. Linsdau 19 EX-10.(J)(13) 12 SCHEDULE EXHIBIT 10j13 Schedule identifying substantially identical agreement, between Fortune Brands, Inc. ("Fortune") and the following person, to the Agreement constituting Exhibit 10j11 to the Annual Report on Form 10-K of Fortune for the Fiscal Year ended December 31, 1999. - -------------------------------------------------------------------------------- Name ---- Mark Hausberg EX-12 13 INDEMNIFICATION AGREEMENT EXHIBIT 12 FORTUNE BRANDS, INC. Statement Re Computation of Ratio of Earnings to Fixed Charges (Dollar amounts in millions)
Years Ended December 31, ----------------------------------------- 1995 1996 1997 1998 1999 ------ ------ ------ ------ ------- Continuing Operations - --------------------- Earnings Available: Income before provision for taxes on income and minority interest $358.9 $340.1 $145.2 $516.4 ($725.2) Less: Excess of earnings over dividends of less than fifty percent owned companies 0.2 0.2 0.2 0.2 0.2 Capitalized interest - 0.3 - - 4.1 ------ ------ ------ ------ ------- 358.7 339.6 145.0 516.2 (720.9) ------ ------ ------ ------ ------- Fixed Charges: Interest expense (including capitalized interest) and amortization of debt discount and expenses 147.1 172.6 122.4 105.4 113.9 Portion of rentals representative of an interest factor 13.5 15.1 14.7 17.0 19.0 ------ ------ ------ ------ ------- Total Fixed Charges 160.6 187.7 137.1 122.4 132.9 ------ ------ ------ ------ ------- Total Earnings Available $519.3 $527.3 $282.1 $638.6 $(588.0) ====== ====== ====== ====== ======= Ratio of Earnings to Fixed Charges 3.23 2.81 2.06 5.22 (A) ====== ====== ====== ====== =======
(A) As a result of the loss reported for the year ended December 31, 1999, Registrant was unable to cover the fixed charges indicated. Included in earnings was a second quarter 1999 goodwill write-down of $1,126 million as disclosed in Note 1 to Registrant's consolidated financial statements. If the write-down were excluded from earnings, the ratio of earnings to fixed charges for the year ended December 31, 1999 would have been 4.05. EX-13 14 1999 ANNUAL REPORT TO STOCKHOLDERS OF REGISTRANT Exhibit 13 Financial HIGHLIGHTS Fortune Brands, Inc. and Subsidiaries
Pro Forma/(a)/ (In millions, except per share amounts) 1999 1998 Change 1997 - ----------------------------------------------------------------------------------------------------------------------------------- NET SALES Home products $1,922.6 $1,624.4 $1,394.0 Office products 1,367.2 1,387.7 1,294.2 Golf products 965.3 962.9 911.6 Spirits and wine 1,269.6 1,265.9 1,244.7 - ----------------------------------------------------------------------------------------------------------------------------------- $5,524.7 $5,240.9 5.4% $4,844.5 =================================================================================================================================== OPERATING COMPANY CONTRIBUTION/(b)/ Home products $300.2 $252.5 $222.9 Office products 88.5 134.0 128.1 Golf products 147.0 142.9 138.2 Spirits and wine 293.6 268.9 257.2 - ----------------------------------------------------------------------------------------------------------------------------------- $829.3 $798.3 3.9% $746.4 =================================================================================================================================== Income (loss) from continuing operations before extraordinary items $(890.6) $293.6 =================================================================================================================================== Earnings per common share from continuing operations before extraordinary items Basic $(5.35) $1.70 Diluted $(5.35) $1.67 =================================================================================================================================== Income from continuing operations before extraordinary items and net charges/(c)/ $339.8 $293.6 15.7% $257.8 =================================================================================================================================== Earnings per common share before extraordinary items and net charges Basic $2.03 $1.70 19.4% $1.51 Diluted $1.99 $1.67 19.2% $1.48 =================================================================================================================================== EBITDA (as defined)/(d)/ $907.0 $865.7 5% $797.3 =================================================================================================================================== Dividends paid per common share $.89 $.85 5% $.81 =================================================================================================================================== Actual number of common shares outstanding 163.2 170.9 Average number of common shares outstanding 166.6 172.2 170.3 ===================================================================================================================================
/(a)/Unaudited pro forma results exclude restructuring and other nonrecurring charges in 1997 (See Note 14) and reflect the net cash payment Gallaher Group Plc made to the Company in connection with the spin-off on May 30, 1997 (See Note 3) and the assumption that such proceeds were used to purchase 2.5 million common shares and repay debt as of January 1, 1997. Pro forma information is presented for informational purposes only and does not purport to be indicative of the results of operations which would actually have been obtained if the transactions had occurred on January 1, 1997. /(b)/Operating company contribution is net sales less all costs and expenses other than restructuring and other nonrecurring charges, write-down of good- will, amortization of intangibles, corporate administrative expenses, interest and related expenses, other (income) expenses, net and income taxes. /(c)/Income from continuing operations before extraordinary items and net charges was $339.8 million, or $2.03 basic and $1.99 diluted per share for 1999, compared with $293.6 million, or $1.70 basic and $1.67 diluted per share for 1998. The net charges for 1999 represent: the goodwill write-down of $1,126 million, or $6.76 per share; restructuring and other nonrecurring charges of $196 million ($125.6 million after-tax), or 75 cents per share; and the sale of a financing subsidiary for a $31.6 million ($21.2 million after tax) gain, or 13 cents per share. We reported a net loss in 1999. Because of this, the calculation of reported earnings per share on a diluted basis excludes the impact of the convertible preferred stock and stock options. For comparative purposes, however, the impact of the convertible preferred stock and stock options are considered. /(d)/EBITDA, as defined, is income from continuing operations before extraordinary items and net charges, interest expense, income taxes and depreciation and amortization. EBITDA, which is earnings before interest, taxes, depreciation and amortization, is a measure commonly used by analysts and investors. Accordingly, this information has been presented to permit a more complete analysis of the Company's operating performance. EBITDA should not be considered a substitute for net income or cash flow prepared in accordance with generally accepted accounting principles as a measure of the profitability or liquidity of the Company. Results of OPERATIONS Fortune Brands, Inc. and Subsidiaries
Net Sales Operating Company Contribution/(a)/ - ----------------------------------------------------------------------------------------------------------------------------------- (In millions) 1999 1998 1997 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------------------------- Home products $1,922.6 $1,624.4 $1,394.0 $300.2 $252.5 $222.9 Office products 1,367.2 1,387.7 1,294.2 88.5 134.0 128.1 Golf products 965.3 962.9 911.6 147.0 142.9 138.2 Spirits and wine 1,269.6 1,265.9 1,244.7 293.6 268.9 257.2 - ----------------------------------------------------------------------------------------------------------------------------------- Continuing operations $5,524.7 $5,240.9 $4,844.5 $829.3 $798.3 $746.4 ===================================================================================================================================
/(a)/Operating company contribution (OCC) is net sales less all costs and expenses other than restructuring and other nonrecurring charges, write-down of goodwill, amortization of intangibles, corporate administrative expenses, interest and related expenses, other (income) expenses, net and income taxes. (See Note 15.) CONSOLIDATED 1999 COMPARED TO 1998 Net sales grew by $283.8 million, an increase of 5%. The increase was primarily due to new products and line extensions, as well as acquisitions made in 1999 and 1998. The benefits from acquisitions occurred principally in the home products segment, and to a lesser extent in the spirits and wine and office products segments. These increases were partly offset by volume declines in some existing products, lower prices and lower average foreign exchange rates. In addition, reported sales of spirits and wine were negatively impacted as sales through the Maxxium joint venture are net of excise taxes and distribution costs, which are now incurred by the venture. Absent this change, sales would have increased 7%. Operating company contribution, our key measure by which we gauge performance, grew 4% on gains in every segment but office products. As of April 1, 1999, we elected to change our method of measuring the recoverability of goodwill from an undiscounted cash flow method to a discounted cash flow method. We believe the discounted cash flow method, as described in Note 1 of the Notes to Consolidated Financial Statements, is preferable because it is consistent with the basis used for investment decisions and takes into consideration the specific and detailed operating plans and strategies of each operation. The adoption of the discounted cash flow method may result in greater earnings volatility since any subsequent decreases in discounted cash flows of certain segments may result in the write-down of goodwill. As a result of this change for measuring recoverability, we recorded a non-cash write-down of goodwill of $1,126 million ($6.76 per share). The write- down was recorded in the following business segments: golf products - $517.7 million; spirits and wine - $502.7 million; and office products - $105.6 million. Amortization of intangibles declined to $85.5 million in 1999 from $108.2 million in 1998 due to this write-down. During 1999, we recorded aggregate pre-tax restructuring and other nonrecurring charges of $196 million, $125.6 million after-tax, or 75 cents per share. (See Note 14.) The actions consist of restructuring activities associated with all segments of the Company. The corporate charge of $82.3 million includes employee severance resulting from a reduction of the corporate workforce by about 40 percent (75 to 80 positions), relocation of the corporate headquarters to a lower-cost facility in Lincolnshire, Illinois, and lease termination costs related to the move. In total, we estimate total projected pre-tax annualized savings from these corporate actions to be $30 million. Home products charges of $29.2 million include reductions in force (856 positions) as a result of the move of substantially all of the lock assembly operations and certain specialty plumbing operations to Mexico. Office products charges of $23.6 million include reductions in force resulting from the move of labeling and printing production to Mexico and other reductions in force in the U.S. and Europe (406 positions in total), as well as employee termination costs and asset write-downs. Golf products charges of $42.1 million include costs related to termination of licensing agreements, product line discontinuances, asset write-offs (including a note receivable related to a previously sold operation) and reductions in force (180 positions) principally resulting from consolidation of golf club facilities from six to three. Spirits and wine charges of $18.8 million include termination of distribution contracts, lease cancellation costs and employee severance costs (50 positions) related to the formation of the Maxxium joint venture. We estimate initial total projected pre-tax annualized savings from all these actions to be approximately $60 million beginning in 2000. Approximately half of the savings from these actions will be used for longer-term brand building. We also announced that we would take additional restructuring actions to further reduce costs. Additional actions, including a review of worldwide supply chain management and product lines and plant relocation, could result in restructuring and other nonrecurring charges being recorded over the first six months of 2000 in the range of $30-$40 million as actions are initiated. Other (income) expenses, net in 1999 included a gain of $31.6 million ($21.2 million after-tax), or 13 cents per share, on the sale of a financing subsidiary. Interest and related expenses increased 4%. This increase reflects higher average borrowings due to share repurchases and acquisitions, partly offset by lower interest rates. 29 Results of OPERATIONS Fortune Brands, Inc. and Subsidiaries The effective income tax rate comparison was distorted primarily by the absence of tax benefits on the write-down of goodwill and lower pre-tax income due to the impact of the restructuring and other nonrecurring charges taken in 1999. Excluding these charges, the effective income tax rates were 40.4% for 1999 and 42.6% for 1998. The lower effective tax rate this year principally reflected lower nondeductible goodwill amortization, tax savings initiatives and a refund associated with the settlement of a tax audit. The income (loss) from continuing operations before extraordinary items was a loss for 1999 of $890.6 million, or $5.35 per share, compared with income for 1998 of $293.6 million, or $1.70 basic and $1.67 diluted per share. In 1998, we incurred extraordinary items charges of $30.5 million ($46.9 million pre-tax), or 18 cents per share. The charge related to purchasing debt. (See Note 16.) Net loss of $890.6 million, or $5.35 per share, compared with net income of $263.1 million, or $1.52 basic and $1.49 diluted per share, for 1998. Income from continuing operations before extraordinary items and net charges was $339.8 million, or $2.03 basic and $1.99 diluted per share for 1999, compared with $293.6 million, or $1.70 basic and $1.67 diluted per share for 1998. The net charges for 1999 represent: the goodwill write-down of $1,126 million, or $6.76 per share; restructuring and other nonrecurring charges of $196 million ($125.6 million after-tax), or 75 cents per share; and the sale of a financing subsidiary for a gain of $31.6 million ($21.2 million after tax), or 13 cents per share. We derived approximately 24% of our 1999 and 26% of our 1998 operating company contribution from international markets, principally Australia, the United Kingdom, and Canada. Fluctuations in the exchange rates of foreign currencies represent a principal exposure that may affect results in future periods. Fluctuations in average foreign exchange rates did not materially impact 1999 operating company contribution. We cannot accurately predict fluctuations in foreign exchange rates. A 10% change in average exchange rates for the foreign currencies from 1999 average rates would result in a change in 1999 operating company contribution of approximately $20 million, or about 2 1/2%. PENDING LITIGATION On December 22, 1994, the Company sold The American Tobacco Company subsidiary to Brown & Williamson Tobacco Corporation, a wholly-owned subsidiary of B.A.T Industries p.l.c. In connection with the sale, Brown & Williamson Tobacco Corporation and The American Tobacco Company ("the Indemnitors") agreed to indemnify the Company against claims including legal expenses arising from smoking and health and fire safe cigarette matters relating to the tobacco business of The American Tobacco Company. The Company is a defendant in numerous actions based upon allegations that human ailments have resulted from tobacco use. Management believes that there are meritorious defenses to the pending actions and these actions are being vigorously contested. However, it is not possible to predict the outcome of the pending litigation, and it is possible that some of these actions could be decided unfavorably. Management is unable to make a meaningful estimate of the amount or range of loss that could result from an unfavorable outcome of the pending litigation. Management believes that the pending actions will not have a material adverse effect upon the results of operations, cash flows or financial condition of the Company as long as the Indemnitors continue to fulfill their obligations to indemnify the Company under the aforementioned indemnification agreement. In addition to the lawsuits described above, the Company and its subsidiaries are defendants in lawsuits associated with their business and operations. It is not possible to predict the outcome of the pending actions, but management believes that there are meritorious defenses to these actions and that these actions will not have a material adverse effect upon the results of operations, cash flows or financial condition of the Company. These actions are being vigorously contested. ENVIRONMENTAL MATTERS Along with other responsible parties, our subsidiaries face claims relating to the protection of the environment. As of February 1, 2000 various of our subsidiaries had been designated as potentially responsible parties under "Superfund" or similar state laws with respect to 46 sites. We believe that the cost of complying with the present environmental protection laws, before considering estimated recoveries either from other responsible parties or insurance, will not have a material adverse effect upon our results of operations, cash flows or financial condition. RECENTLY ISSUED ACCOUNTING STANDARDS In June 1999, FAS Statement No. 137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FAS Statement No. 133," was issued, deferring the effective date of FAS Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities," from January 1, 2000 to January 1, 2001. FAS Statement No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. We are in the process of evaluating the effect of adoption on future results and the disclosure requirements under this standard. 30 YEAR 2000 READINESS DISCLOSURE The "Year 2000," or "Y2K," problem existed because many computer programs and computerized devices used only the last two digits to refer to a year. Uncorrected, these programs and devices might not properly have recognized a year that begins with "20" instead of "19." We resolved our critical Year 2000 issues on a timely basis. We have not identified any continuing material Y2K compliance issues, including those related to third parties. The total costs (including costs of existing internal resources) expended through December 31, 1999, were approximately $25 million, which were provided by internally generated sources. CONVERSION TO THE EURO Certain of our subsidiaries are engaged in business in some of the countries that participate in the European monetary union. The previous national currencies of these countries will still be accepted as legal tender until at least January 1, 2002. We do not expect the conversion to the Euro to have a material effect on our results of operations, cash flows or financial condition. COST INITIATIVES We continuously evaluate the productivity of our product lines and existing asset base and actively seek to identify opportunities to improve our cost structure. Future opportunities may involve, among other things, the reorganization of operations or the relocation of manufacturing or assembly to locations generally having lower costs. Implementing any significant identified cost reduction and efficiency opportunities could result in charges. 1998 COMPARED TO 1997 Net sales grew by $396.4 million, an increase of 8%. The introduction of new products and line extensions, acquisitions, and price increases primarily caused the increase. The net sales increase was tempered by fewer units sold of some existing products, the sale of nonstrategic businesses and the effects of lower average foreign exchange rates (primarily the Australian dollar). In 1998, OCC grew $51.9 million, up 7%. The higher sales principally caused this increase. The increase was tempered by lower average foreign exchange rates and higher operating expenses. OCC benefited from the restructuring activities initiated in 1997. If the exchange rates had remained constant at their 1997 levels, net sales and operating company contribution would have increased 9%. During 1997, we recorded an aggregate of $298.2 million of pre-tax restructuring and other nonrecurring charges. (See Note 14.) During 1998, the following activities were in the process of being finalized: the completion of the Nogales, Mexico, operation related to Office products' Swingline stapling production and a significant portion of Home products' Master Lock assembly operations, and the resultant reduction of workforces (approximately 500 positions) in the home and office products segments. These remaining restructuring activities were completed during 1999. We expect these actions to produce annualized savings exceeding $50 million. Interest and related expenses decreased $14 million, or 12%. This decrease reflects lower average borrowings principally because of the use of a portion of the proceeds paid to us by Gallaher Group Plc in 1997 in connection with its spin-off from the Company. (See Note 3.) Lower pre-tax income in 1997 due to restructuring and other nonrecurring charges distorted the effective income tax rate comparisons for 1998 and 1997. Excluding these charges, the effective income tax rates were 42.6% and 44.6%, respectively. We had a lower effective tax rate in 1998 principally because of foreign and state tax initiatives and nondeductible goodwill had a smaller impact on higher pre-tax income. Income from continuing operations of $293.6 million, or $1.70 per basic share ($1.67 diluted), for 1998 compared with $41.5 million, or 24 cents per basic share (23 cents diluted), for 1997. The significant increase occurred principally because in 1997 we recorded $201 million, or $1.17 per basic share ($1.16 diluted), in net restructuring and other nonrecurring charges. Excluding these charges, income from continuing operations increased $51.1 million, or 21%. Income from discontinued operations for 1997 represented Gallaher's net income before the spin-off. It was $65.1 million, or 38 cents per share. (See Note 3.) In 1998, we incurred extraordinary item charges of $30.5 million ($46.9 million pre-tax), or 18 cents per share, and in 1997 the charges were $8.1 million ($12.4 million pre-tax), or five cents per share. In both years, the charges related to purchasing or redeeming debt. (See Note 16.) Net income of $263.1 million, or $1.52 per basic share ($1.49 diluted), compared with $98.5 million, or 57 cents per basic share (56 cents diluted), for 1997. Pro forma financial information is discussed because of the significant changes to our businesses that occurred in 1997. Pro forma results reflect the exclusion of the 1997 restructuring and other nonrecurring charges, the inclusion of a net cash payment that approximated $1.25 billion after taxes, that Gallaher paid to us in connection with its spin-off and the assumption that as of January 1, 1997 we used those proceeds to purchase 2.5 million common shares and repay debt. Income from continuing operations of $293.6 million, and basic and diluted earnings per share of $1.70 and $1.67, respectively, for 1998 compared with pro forma income from continuing operations of $257.8 million, and pro forma basic and diluted earnings per share of $1.51 and $1.48, respectively, in 1997. This pro forma information is provided for informational purposes only. We cannot state for certain that these results of operations actually would have been obtained if transactions had occurred on January 1, 1997. 31 Results of OPERATIONS Fortune Brands, Inc. and Subsidiaries HOME PRODUCTS 1999 COMPARED TO 1998 Net sales increased $298.2 million, or 18%. The increase was primarily attributable to the acquisition of Schrock cabinets in June 1998 and to overall volume and price increases. The overall volume increases reflect higher volume in existing products, line extensions and new products. Operating company contribution increased $47.7 million, or 19%. The operating company contribution increase resulted from higher sales and improved gross margin, partly offset by increased operating expenses. The gross margin improvement reflects the benefits of higher volume, productivity improvements and higher selling prices. The increased operating expenses were attributable to higher volume-related selling expenses and higher advertising expenses (principally at Moen) as well as increased general and administrative expenses. Sales of our companies' home products are becoming increasingly concentrated in a smaller number of major customers, principally mass merchant superstores, home centers and large distributors and home builders. Our products also are increasingly facing competition on a value-priced basis. As the home building industry continues to consolidate, the growth of large mass merchants and home centers will continue to present us and our competitors with pricing and service challenges. It will also present opportunities for the most efficient manufacturers. 1998 COMPARED TO 1997 Net sales increased $230.4 million, or 17%. The increase was attributable primarily to the acquisitions of Schrock cabinets in June 1998 and Donner bath products in December 1997 and the benefit of overall volume and price increases. The overall volume increase reflects line extensions and the introduction of new products, but was partially offset by volume declines in some existing products. Master Lock disposed of its door hardware business in early 1998 and Moen disposed of its operations in Japan in 1997, actions which tempered the segment's sales increase. All companies except Master Lock reported higher sales. Operating company contribution increased $29.6 million, up 13%. The increase principally reflects higher sales, and was partially offset by a lower gross margin (principally lower margins at acquired companies) and increased operating expenses. Moen's higher volume-related selling programs, advertising and Y2K spending were the principal reasons for the increased operating expenses. OFFICE PRODUCTS 1999 COMPARED TO 1998 Net sales decreased $20.5 million, or 1%. The decline resulted from softness in the U.S. and U.K. markets for traditional office supplies, inventory reduction programs by major customers as well as weak volumes primarily in the direct mail channel for time management products. In addition, sales decreased due to lower prices (including higher rebates and allowances) and lower average foreign exchange rates. The decrease in net sales was partly offset by the benefits of an acquisition and introduction of new products, particularly technology products at Kensington. Operating company contribution decreased $45.5 million, or 34%. The decrease reflects the lower sales and lower gross margin, partly offset by lower operating expenses. The gross margin decreased due to lower prices and additional costs related to current integration and relocation of operations in North America and Europe. The decrease in operating expenses resulted from lower freight costs (favorable comparison to 1998 costs incurred to maintain customer service levels during restructuring activities) and decreased general and administrative costs, partly offset by higher customer program costs and higher information technology related expenses. The office products business is increasingly concentrated in a small number of major customers, principally office products superstores, wholesalers and contract stationers. The continuing consolidation of both competitors and customers is causing increased pricing pressures that have negatively affected results. The reduction in net prices was compounded by the decision of several customers to reduce inventory levels. These conditions continued throughout 1999 and continue to present challenges for our office products group and its competitors. We believe our office products business will return to solid contribution growth in 2000, and we continue to position the business for long-term growth through the transition to low-cost manufacturing and an emphasis on faster-growing and higher-return product categories. 1998 COMPARED TO 1997 Net sales increased $93.5 million, up 7%. The increase was primarily attributable to acquisitions made in both years as well as an overall volume increase. The sales increase was tempered by lower prices and the absence of two nonstrategic businesses sold in 1997. The overall volume increase reflects the introduction of new products, partially offset by volume declines in some existing products. Excluding acquisitions and divestitures, net sales were down slightly because increases in North America and Continental Europe were more than offset by declines in Australia (largely due to lower average foreign exchange rates). 32 Operating company contribution increased $5.9 million, up 5%. This increase reflects the sales increase and an improvement in gross margin, partially offset by higher operating expenses. The gross margin increase principally reflects stabilized raw material costs and other cost reductions, mostly offset by lower gross margins at acquired companies. The increased operating expenses reflect higher volume-related freight and distribution costs, higher customer service costs incurred to maintain customer service levels while undergoing restructuring programs, higher customer program costs, advertising and Y2K expenses. Operating company contribution benefited from the acquisitions and was hurt by lower average foreign exchange rates. GOLF PRODUCTS 1999 COMPARED TO 1998 Net sales increased slightly, up $2.4 million, on sales gains in Titleist golf clubs, Titleist and Pinnacle golf balls and FootJoy shoes and gloves, reflecting volume increases principally on benefits from new products and line extensions. The increase was partly offset by a sales decline for Cobra golf clubs reflecting discounting on older models and continued softness in the golf club market. Operating company contribution increased $4.1 million, or 3%, on the higher sales and improved gross margin (manufacturing efficiencies resulting from increased automation). The increase was partly offset by higher operating expenses reflecting increased advertising expenses, partly offset by savings associated with 1998 and 1999 staff reductions at Cobra. In 1999, the golf club market was adversely affected by lower customer demand, leading to volume declines and price discounting. Overall retail sales of golf clubs fell an estimated 3% to 6%. The Cobra brand was adversely affected by the market's overall weakness, resulting in declines in sales and profits. Titleist clubs, on the strength of increased customer demand for the DCI series irons and 975D drivers, posted volume, sales and profit growth. Conditions in the club market remain very competitive, with major competitors introducing new products and consumers becoming more price conscious. The United States Golf Association (USGA) establishes standards for golf equipment used in competitive play in the United States. On November 2, 1998, the USGA announced the immediate implementation of a new rule with respect to the performance of golf clubs. All of our group's golf products currently marketed conform to this new rule. In the long term, this new rule could hamper innovation and make it more difficult to use technological advances to produce USGA conforming products. However, it is not possible to determine whether in the long term this new rule will have a material effect on the golf club industry and our golf products segment. The USGA has announced its intention to propose new rules addressing the initial velocity and overall distance standards for golf balls. Until more details regarding such potential rule changes become available, we cannot determine whether they would have a material effect on our group's golf ball business and/or the golf ball industry. However, the new rules being considered could incorporate rules that would create a two-tiered set of standards for golf balls, one for tour professionals and one for consumers, and that would shorten the overall distance that golf balls are allowed to travel. The adoption of either change could materially impact our golf business. In February 2000, Callaway introduced a line of golf balls. Taylor Made and Nike introduced golf balls into their product offerings in 1999. Each of these companies has significant brand awareness in the golf market. It is not possible to predict what effect these new entries will have on our business. 1998 COMPARED TO 1997 Net sales increased $51.3 million, up 6%. An overall volume increase in golf balls, clubs and gloves (new products and line extensions) and price increases primarily caused the increase. The increase was tempered by volume declines in golf shoes and irons and by trade incentives on existing club models in connection with introducing new product lines. Operating company contribution increased $4.7 million, up 3%. This increase primarily reflects the higher sales. It was partially offset by higher operating expenses, including increased advertising and promotional expenditures and research and development expenses associated with the support of existing products and the development of new products. The golf club market was adversely affected in 1998 by lower consumer demand, leading to increased inventory and price discounting. These changes led to an estimated revenue decline in the U.S. market in the range of 10-15%. Both the Titleist and Cobra brands were affected by the overall weakness in the market for irons, though both achieved volume gains in metal woods. Titleist golf club net sales were up on a favorable product mix and firm pricing. For Cobra, sales results were more in line with the overall market trend and profits declined significantly, particularly in the second half of the year. 33 Results of OPERATIONS Fortune Brands, Inc. and Subsidiaries SPIRITS AND WINE 1999 COMPARED TO 1998 Net sales increased slightly on the benefit of the August 1998 Geyser Peak wine acquisition, and overall volume increases and higher prices that offset the effect on reported sales of the Maxxium joint venture (as discussed below) and lower average foreign exchange rates. Product is now sold to Maxxium net of excise taxes in certain markets and at a lower price since the related distribution costs are now incurred by Maxxium. The overall volume increases reflect line extensions in the U.S. (principally DeKuyper cordial line) and new products, partly offset by lower volumes on existing brands resulting from lower shipments of Scotch products in Europe and lower-margin U.S. brands. Shipments of Jim Beam bourbon and DeKuyper cordials increased. Operating company contribution increased $24.7 million, or 9%. The increase resulted from the higher sales, improved gross margin (principally reflecting favorable product mix and price increases) and the full year benefit of the Geyser Peak wine acquisition, partly offset by higher operating expenses, net of a reduction in distribution expenses that are now incurred by the Maxxium joint venture. The higher operating expenses were caused by increased volume-related selling expenses. Operating results improved in the United States, but Scotch unit volumes in Europe declined. The merger of Grand Metropolitan PLC and Guinness PLC to create Diageo PLC in late 1997 may reflect a trend towards consolidation in the highly competitive global spirits business. The creation of Diageo PLC and the breadth of its portfolio, as well as continued consolidation of the supplier, distributor and retailer tiers, may present pricing and service challenges for our subsidiaries and their competitors. It may also present opportunities, particularly for the most efficient manufacturers. In August 1999, the spirits and wine business formed an international sales and distribution joint venture, named Maxxium International B.V., with Remy-Cointreau and Highland Distillers, to distribute and sell premium wines and spirits in key markets outside the United States. The Company agreed to contribute assets related to its international distribution network and periodic cash payments with a total estimated value of $110 million in return for a one-third interest in the venture. The Company's investments in Maxxium are recorded at its book value of assets contributed plus cash invested. As a result of the Maxxium joint venture, distribution costs also decreased. Beverage alcohol sales are particularly sensitive to higher excise tax rates. Although no excise tax increases are presently pending in the two largest markets, the U.S. and the U.K., the possibility of future increases cannot be ruled out. In addition, previously there have been proposals to ban U.S. broadcast television advertising of spirits. Although no legislation is pending or has been enacted, most broadcast TV networks and local affiliated stations in the U.S. currently decline to accept distilled spirits advertising. Our operating subsidiaries outside the U.S. have conducted broadcast television and other electronic advertising in certain markets where permitted. It is impossible to predict whether any future excise tax increases or restrictions on advertising will occur, and whether they may have an adverse effect on unit sales and industry trends if they occur. For many years through 1995, consumption of distilled spirits declined in many countries, including our major market, the U.S. However, since 1996, consumption in the U.S. has been steady or has increased slightly, indicating that the historic decline may be reversing. From 1996 through 1999, cases of our spirits products sold by distributors to retailers declined, although the rate of decline slowed in 1998 and 1999. The number of cases sold may be affected by our historic concentration on mid-to-low priced products that may not be fully benefiting from the factors influencing the recent industry trends. The number of cases sold may also be affected by price increases we have taken in recent years to increase profits as compared to unit sales. 1998 COMPARED TO 1997 Net sales increased $21.2 million, up 2%. Price and overall volume increases and the benefit of the Geyser Peak wine business (acquired August 1998) were the primary drivers of this growth. The increase was partially offset by lower average foreign exchange rates and the unfavorable comparison to a one-time domestic bulk sale in 1997. The overall volume increase principally reflects higher case shipments in the U.S. (benefits from reduced trade inventories in late 1997), Australia and Canada, line extensions and new products. Volume in Europe was lower. Operating company contribution increased $11.7 million, up 5%. The sales increase and an improved gross margin (principally reflecting price increases and more favorable product mix) were the primary reasons for this increase. Increased operating expenses, chiefly increased domestic brand spending on Jim Beam bourbon, DeKuyper cordials and Small Batch Bourbons, tempered the amount of the OCC increase. Operating results improved in North America and Europe. Australian results declined primarily because the average foreign exchange rate was 15% lower than the prior year. 34 Quarterly FINANCIAL DATA (unaudited) Fortune Brands, Inc. and Subsidiaries
(In millions, except per share amounts) 1999 1st 2nd 3rd 4th - ------------------------------------------------------------------------------------- Net sales $1,292.3 $1,420.7 $1,339.3 $1,472.4 Gross profit 517.9 560.5 545.4 626.0 Operating company contribution 170.8 218.9 194.4 245.2 Net income (loss)/(a)/ 56.1 (1,096.1) 48.2 101.2 Earnings per common share/(b) Basic Net income (loss)/(a)/ $.33 $(6.56) $.29 $.62 - ------------------------------------------------------------------------------------- Diluted Net income (loss)/(a)/ $.32 $(6.56) $.28 $.61 ===================================================================================== 1998 1st 2nd 3rd 4th - ------------------------------------------------------------------------------------- Net sales $1,203.5 $1,326.2 $1,300.3 $1,410.9 Gross profit 497.7 545.8 511.8 574.0 Operating company contribution 168.1 209.2 183.5 237.5 Income from continuing operations $53.0 $87.9 $56.8 $95.9 Extraordinary items (8.4) (22.1) -- -- - ------------------------------------------------------------------------------------- Net income $44.6 $65.8 $56.8 $95.9 - ------------------------------------------------------------------------------------- Earnings per common share/(b)/ Basic Continuing operations $.31 $.50 $.33 $.56 Extraordinary items (.05) (.13) -- -- - ------------------------------------------------------------------------------------- Net income $.26 $.37 $.33 $.56 - ------------------------------------------------------------------------------------- Diluted Continuing operations $.30 $.50 $.32 $.55 Extraordinary items (.05) (.13) -- -- - ------------------------------------------------------------------------------------- Net income $.25 $.37 $.32 $.55 =====================================================================================
/(a)/In 1999, net income (loss) and basic and diluted earnings per common share reflected restructuring and other nonrecurring charges of $69.9 million ($108.8 million pre-tax), or 42 cents, in the second quarter, (See Note 14) and a write-down of goodwill of $1,126 million, or $6.76, in the second quarter due to a change in accounting principle (See Note 1); restructuring and other nonrecurring charges of $23.4 million ($37.5 million pre-tax), or 14 cents, in the third quarter; and restructuring and other nonrecurring charges of $32.3 million ($49.7 million pre-tax), or 19 cents, and a gain of $21.2 million ($31.6 million pre-tax), or 13 cents, from the sale of a financing subsidiary in the fourth quarter. /(b)/The sum of the quarterly earnings per common share will not necessarily equal the amount shown for the year since the computations are performed independently and assumed conversion of preferred stock and exercise of stock options is not considered in loss periods due to it being antidilutive. 35 Financial CONDITION Fortune Brands, Inc. and Subsidiaries NET CASH PROVIDED FROM CONTINUING OPERATING ACTIVITIES Net cash provided from continuing operating activities in 1999 was $488.4 million. This compared with $404.2 million in 1998. The principal reasons for the increase were: reductions in inventory levels, particularly in Golf and Office products, as a result of concerted efforts in inventory management; and higher operating company contribution. NET CASH USED BY INVESTING ACTIVITIES Net cash used by investing activities in 1999 was $349.2 million. This compared with $502.8 million in 1998. Capital expenditures. We focus our capital spending on becoming the lowest cost producers of the highest quality products. Capital expenditures in 1999 were $240.5 million as compared with $251.9 million in 1998. This includes $36.4 million in 1999 and $64.7 million in 1998 related to restructuring activities (principally land and buildings related to relocation of certain operations to Mexico). See Note 15 for capital expenditures. We estimate the 2000 capital expenditures to be $240 million. We expect to generate these funds internally. Acquisitions and Joint Venture. In 1999, we acquired NHB Group, Ltd and Boone International, Inc. and entered into the Maxxium joint venture for a total of $132.3 million, net of cash acquired. In 1998, we acquired Apollo Presentation Products, Schrock Cabinet Company and Geyser Peak Winery for a total of $271.8 million, net of cash acquired. In 1997, we acquired five companies for $84.6 million, net of cash acquired. (See Note 2.) Dispositions. In 1998, Master Lock Company disposed of its door hardware business for $17 million. In 1997, we disposed of two nonstrategic businesses for a total of $48 million. NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES Net cash used by financing activities in 1999 was $107.3 million. This compared with net cash provided of $90.2 million in 1998. The decrease principally reflects purchases of our common stock, which amounted to $397.7 million during 1999, as compared with $112 million during 1998. CASH PROVIDED BY DISCONTINUED OPERATIONS To allocate the overall debt burden of the Company at the time of the Gallaher spin-off in 1997, Gallaher borrowed and paid to us approximately $1.25 billion, after taxes. We used a portion of the proceeds to pay down debt. DIVIDENDS We paid common dividends in 1999 of $.89 per share. Dividends paid to common stockholders in 1999 increased to $148.7 million from $146.5 million. On December 1, 1999, we increased the common stock quarterly dividend by 5% to $.23 per share, or an indicated annual rate of $.92 per share. FINANCIAL POSITION At December 31, 1999, total debt increased $358.4 million to $1.8 billion. Short-term debt increased $135.3 million and long-term debt increased $223.1 million. Our total debt to total capital ratio increased to 40.3% at December 31, 1999 from 26.6% at December 31, 1998. The increase was primarily a result of the write-down of goodwill. During 1999, we issued $200 million of 7 1/8% Notes, Due 2004. In 1998, we purchased or redeemed $175.1 million principal amount of our debt. (See Note 16.) At December 31, 1999, $1 billion of debt securities were available for public sale under our shelf registration with the Securities and Exchange Commission. At year end 1999, we had $1.5 billion of long-term credit facilities, substantially all of which remained unused. These facilities are available for general corporate purposes, including acquisitions. They also support our short-term borrowings in the commercial paper market. We believe that our internally generated funds, together with access to global credit markets, are adequate to meet our capital needs. Working capital decreased to $309.9 million in 1999 from $420.7 million in 1998. Increases in short-term debt (reflecting purchases of common stock and acquisitions in 1999, partly offset by the benefit of a long-term financing) and restructuring related liabilities were the principal reasons for the decrease. We believe that our 1999 working capital level was adequate to support continued growth. FOREIGN EXCHANGE We have investments in various foreign countries, principally the United Kingdom, as well as Australia and Canada. Therefore, changes in the value of the currencies of these countries affect our balance sheet and cash flow statements when translated into U.S. dollars. 36 MARKET RISK We are exposed to various market risks, including changes in foreign currency exchange rates and interest rates. Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign currency exchange and interest rates. We do not enter into derivatives or other financial instruments for trading or speculative purposes. We enter into financial instruments to manage and reduce the impact of changes in foreign currency exchange rates and interest rates. The counterparties are major financial institutions. In conjunction with a long-term financing arrangement, we entered into derivative contracts in the fourth quarter which were required to be marked to market. These contracts had fair market values which were principally offsetting and were no longer outstanding as of December 31, 1999. FOREIGN EXCHANGE CONTRACTS We enter into forward foreign exchange contracts principally to hedge the currency fluctuations in transactions denominated in foreign currencies. These contracts limit the risk that would otherwise result from changes in exchange rates. We primarily hedge short-term intercompany loans, intercompany purchases and dividends declared by foreign operating companies. The periods of the forward foreign exchange contracts correspond to the periods of the hedged transactions. We reflect any gains and losses on forward foreign exchange contracts and the offsetting losses and gains on hedged transactions on our income statement. At December 31, 1999, we had outstanding forward foreign exchange contracts to purchase $38 million and sell $129 million of various currencies (principally pound sterling) with a weighted average maturity of 64 days. At December 31, 1998, we had outstanding forward foreign exchange contracts to purchase $35 million and sell $201 million of various currencies (principally pound sterling) with a weighted average maturity of 110 days. The estimated fair value of foreign currency contracts represents the amount required to enter into offsetting contracts with similar remaining maturities based on quoted market prices. At December 31, 1999 and 1998, the fair value of all outstanding contracts and the contract amounts were essentially the same. A 10% fluctuation in exchange rates for these currencies would change the fair value by approximately $9 million and $17 million, respectively. However, since these contracts hedge foreign currency denominated transactions, any change in the fair value of the contracts would offset the changes in the underlying value of the transactions being hedged. INTEREST RATES We may, from time to time, enter into interest rate swap agreements to manage our exposure to interest rate changes. The swaps involve the exchange of fixed and variable interest rate payments without exchanging the notional principal amount. We record the payments or receipts on the agreements as adjustments to interest expense. At December 31, 1999, we did not have any outstanding interest rate swap agreements. At December 31, 1998, we had outstanding interest rate swap agreements denominated in dollars, maturing at various dates in 1999, with an aggregate notional principal amount of $200 million. Under those agreements, we received a floating rate based on thirty day commercial paper rates and paid a fixed interest rate. Those swaps effectively converted our interest rate on $200 million of debt from a variable rate into a fixed rate. The fair value of interest rate swap agreements represents the estimated receipts or payments that would be made to terminate the agreements. At December 31, 1998, we would have paid $4.2 million to terminate the agreements. If the thirty day commercial paper rates decreased 1%, it would have increased the amount paid by approximately $1 million at December 31, 1998. We based the fair value on dealer quotes, considering current interest rates. The fair market value of long-term fixed interest rate debt is subject to interest rate risk. Generally, the fair market value of fixed interest rate debt will increase as interest rates fall and decrease as interest rates rise. The estimated fair value of our total long-term debt (including current portion) at December 31, 1999 and 1998 was $1,171.1 million and $1,252.3 million, respectively. If the prevailing interest rates at December 31, 1999 and 1998 increased by 1%, the fair value of our total long-term debt would decrease by approximately $64 million and $76 million, respectively. We based fair values on quoted market prices, where available, and on investment bankers' quotes using current interest rates, considering credit ratings and the remaining terms to maturity. See Notes 1 and 13 for a discussion of the accounting policies for Derivative Financial Instruments and information on Financial Instruments, respectively. 37 Financial CONDITION Fortune Brands, Inc. and Subsidiaries STOCKHOLDERS' EQUITY Stockholders' equity at year end 1999 decreased $1.4 billion to $2.7 billion. This decrease principally reflects the write-down of goodwill and purchases of common shares. We purchased, through open market purchases and pursuant to a systematic share purchase program, 11 million and 3.4 million shares of common stock during 1999 and 1998, respectively. The systematic share purchase program was terminated in January 2000. QUARTERLY COMMON STOCK DIVIDEND PAYMENTS 1999 1998 - -------------------------------------------------------------------------------- Payment date Per share Per share - -------------------------------------------------------------------------------- March 1 $.22 $.21 June 1 .22 .21 September 1 .22 .21 December 1 .23 .22 - -------------------------------------------------------------------------------- $.89 $.85 ================================================================================ CAUTIONARY STATEMENT This annual report contains statements relating to future results. They are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. We caution readers that these forward-looking statements speak only as of the date hereof. Actual results may differ materially from those projected as a result of certain risks and uncertainties, including but not limited to: . changes in general economic conditions, . foreign exchange rate fluctuations, . competitive product and pricing pressures, . trade consolidations, . the impact of excise tax increases with respect to distilled spirits, . regulatory developments, . the uncertainties of litigation, . changes in golf equipment regulatory standards, . the impact of weather, particularly on the home products and golf brand groups, . expenses and disruptions related to shifts in manufacturing to different locations and sources, . delays in the integration of acquisitions and joint ventures, as well as . other risks and uncertainties detailed from time to time in the Company's Securities and Exchange Commission filings. QUARTERLY COMPOSITE COMMON STOCK PRICES 1999 1998 - -------------------------------------------------------------------------------- High Low High Low - -------------------------------------------------------------------------------- First 39 29 3/8 41 13/16 35 Second 45 7/8 38 1/16 42 1/4 35 9/16 Third 43 32 1/4 39 15/16 25 1/4 Fourth 36 3/8 30 13/16 36 5/16 26 3/8 ================================================================================ The common stock is listed on the New York Stock Exchange, which is the principal market for this security. The high and low prices are as reported in the consolidated transaction reporting system. 38 Notes to CONSOLIDATED FINANCIAL STATEMENTS Fortune Brands, Inc. and Subsidiaries 1. SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The consolidated financial statements include the accounts of the Company and all majority-owned subsidiaries. The consolidated financial statements are prepared in conformity with generally accepted accounting principles, which require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales and expenses for the reporting periods. Actual results for future periods could differ from those estimates. Certain reclassifications have been made in the prior years financial statements to conform with the current year presentation. CASH AND CASH EQUIVALENTS Highly liquid investments with an original maturity of three months or less are included in cash and cash equivalents. INVENTORIES Inventories are priced at the lower of cost (principally average, first-in, first-out and minor amounts at last-in, first-out) or market. In accordance with generally recognized trade practice, bulk whiskey inventories are classified as current assets, although part of such inventories, due to the duration of aging processes, ordinarily will not be sold within one year. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are carried at cost. Depreciation is provided, principally on a straight-line basis, over the estimated useful lives of the assets. Gains or losses resulting from dispositions are included in income. Betterments and renewals which improve and extend the life of an asset are capitalized; maintenance and repair costs are expensed. INTANGIBLES Goodwill is amortized on a straight line basis over its estimated useful life, principally over a forty year period, except for certain amounts related to businesses acquired prior to 1971, which are not being amortized because they have been determined to have continuing value over an indefinite period. The Company evaluates the recoverability of goodwill by estimating the future discounted cash flows of the businesses to which the goodwill relates. The rate used in determining discounted cash flows is a rate corresponding to the Company's cost of capital. Estimated cash flows are then determined by disaggregating the Company's business segments to an operational and organizational level for which meaningful identifiable cash flows can be determined. When estimated future discounted cash flows are less than the carrying value of the net assets (tangible and identifiable intangibles) and related goodwill, impairment losses of goodwill are charged to operations. Impairment losses, limited to the carrying value of goodwill, represent the excess of the sum of the carrying value of the net assets (tangible and identifiable intangible) and goodwill over the discounted cash flows of the business being evaluated. In determining the estimated future cash flows, the Company considers current and projected future levels of income as well as business trends, prospects and market and economic conditions. Prior to April 1, 1999, the assessment of recoverability and measurement of impairment of goodwill was based on undiscounted cash flows. Included in intangible assets, at December 31, 1999 and 1998, were $880.1 million and $909.4 million, respectively, of identifiable intangibles, net of cumulative amortization, comprised primarily of brands and trademarks which are being amortized over their useful life of up to 40 years. Change in accounting for goodwill Effective April 1, 1999, the Company elected - --------------------------------- to change its method for assessing recoverability of goodwill from one based on undiscounted cash flows to one based on discounted cash flows. The Company determined that using a discounted cash flow methodology is a preferable policy. The rate used in determining discounted cash flows is a rate corresponding to the Company's cost of capital. Management believes that fair value (i.e., discounted cash flow) is preferable because it is consistent with the basis used for investment decisions (acquisitions and capital projects) and takes into account the specific and detailed operating plans and strategies of each business. This change represents a change in accounting principle which is indistinguishable from a change in estimate, and accordingly, the effect of the change was recorded in the second quarter of 1999. This change resulted in a non-cash write-down of goodwill of $1,126 million ($6.76 per share) in the second quarter of 1999. The write-downs by business segment were: golf products - $517.7 million; spirits and wine - $502.7 million; and office products - $105.6 million. ADVERTISING COSTS Advertising costs, which amounted to $365.6 million, $318.6 million and $303 million in 1999, 1998 and 1997, respectively, are principally charged to expense as incurred. The Company capitalizes certain direct-response advertising costs. Such costs are generally amortized in proportion to when revenues are recognized. The amounts of direct response advertising capitalized in 1999 and 1998 were $24.3 and $28 million respectively. Amortization of $26.8 million, $27.4 million and $23.8 million was recorded in the years ended December 31, 1999, 1998 and 1997, respectively and is included in the above amounts. 44 RESEARCH AND DEVELOPMENT Research and development expenses, which amounted to $55.6 million, $54 million and $46.6 million in 1999, 1998 and 1997, respectively, are charged to expense as incurred. INCOME TAXES Deferred tax liabilities or assets are established for temporary differences between financial and tax reporting bases and are subsequently adjusted to reflect changes in tax rates expected to be in effect when the temporary differences reverse. Deferred income taxes are not provided on undistributed earnings of foreign subsidiaries, aggregating approximately $168.4 million at December 31, 1999, as such earnings are expected to be permanently reinvested in these companies. FOREIGN CURRENCY TRANSLATION Foreign currency balance sheet accounts are translated into U.S. dollars at the rates of exchange at the balance sheet date. Income and expenses are translated at the average rates of exchange in effect during the year. The related translation adjustments are made directly to a separate component of the "Accumulated other comprehensive income (loss)" caption in stockholders' equity. DERIVATIVE FINANCIAL INSTRUMENTS Derivative financial instruments are utilized by the Company to reduce foreign currency exchange and interest rate risks. The Company has established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities. The Company does not enter into financial instruments for trading or speculative purposes. In conjunction with a long-term financing arrangement, the Company entered into derivative contracts in the fourth quarter that were required to be marked to market. These contracts had fair market values that were principally offsetting and were no longer outstanding as of December 31, 1999. Gains and losses on forward foreign exchange contracts used to hedge the currency fluctuations on transactions denominated in foreign currencies and the offsetting losses and gains on hedged transactions are recorded in the "Other (income) expenses, net" caption in the income statement. Gains and losses on forward foreign exchange contracts used to hedge a portion of the Company's investment in foreign subsidiaries and the offsetting losses and gains on the portion of the investment being hedged are recorded in the "Accumulated other comprehensive income (loss)" caption in stockholders' equity. Payments or receipts on interest rate swap agreements are recorded in the "Interest and related expenses" caption in the income statement. RECENTLY ISSUED ACCOUNTING STANDARDS In June 1999, FAS Statement No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FAS Statement No. 133," was issued, deferring the effective date of FAS Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities," from January 1, 2000 to January 1, 2001. FAS Statement No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. The Company is in the process of evaluating the effect of adoption on future results and the disclosure requirements under this standard. 2. ACQUISITIONS, DISPOSALS AND JOINT VENTURE In October 1999, the home products business acquired NHB Group Ltd., a Canadian-based manufacturer of ready-to-assemble kitchen and bath cabinetry and the office products business acquired Boone International Inc., a U.S.-based manufacturer of dry-erase boards and markers, bulletin boards, easels and other presentation products. The aggregate cost of these acquisitions was $103.6 million, including fees and expenses. The cost exceeded the estimated fair value of net assets acquired by $78 million. During 1998, acquisitions were made in the home products, office products and spirits and wine segments for an aggregate cost of $271.8 million, including fees and expenses. In connection with these acquisitions, liabilities amounting to $51 million were included at the dates of acquisition. The cost exceeded the fair value of net assets acquired by $193.7 million. During 1997, acquisitions were made in the home and office products segments for an aggregate cost of $92 million, including fees, expenses and $9.5 million resulting from the issuance of common shares. In connection with the 1997 acquisitions, liabilities amounting to $72 million were included at the dates of acquisition. The cost exceeded the fair value of net assets acquired by $90 million. These operations have been included in consolidated results from the dates of acquisition. Had the acquisitions been consolidated at the beginning of the year prior to the acquisitions, they would not have materially affected results. In December 1999, the Company recognized a gain of $31.6 million, $21.2 million after tax, on the sale of a financing subsidiary. This amount is included in the "Other (income) expenses, net" caption in the income statement. 45 Notes to CONSOLIDATED FINANCIAL STATEMENTS Fortune Brands, Inc. and Subsidiaries In August 1999, the spirits and wine business formed an international sales and distribution joint venture, named Maxxium International B.V., with Remy-Cointreau and Highland Distillers, to distribute and sell spirits in key markets outside the United States. The Company agreed to contribute assets related to its international distribution network and periodic cash payments with a total estimated value of $110 million in return for a one-third interest in the venture. During 1999, the Company made a cash investment of approximately $30 million. The Company's investments in Maxxium were recorded at its book value of assets contributed plus cash invested. 3. DISCONTINUED OPERATIONS On May 30, 1997, Gallaher Group Plc ("Gallaher"), the Company's international tobacco subsidiary, was spun off and the Company's name was changed from American Brands, Inc. to Fortune Brands, Inc. As a result, the Company's stockholders owned shares in two publicly-traded companies - Fortune Brands, Inc. and Gallaher. To allocate the overall debt burden of the Company at the time of the spin-off, Gallaher borrowed and paid to the Company an amount that approximated $1.25 billion, after taxes. The Company used the proceeds to pay down debt. Also, in connection with the spin-off, Gallaher and Gallaher Limited agreed to indemnify the Company against claims arising from smoking and health and fire safe cigarette matters relating to the tobacco business of Gallaher and its subsidiaries. The consolidated financial statements were reclassified to identify Gallaher's international tobacco operations as discontinued operations for all periods. Summarized data for the discontinued operations, net of allocation of interest expense based on a ratio of Gallaher's net assets to consolidated net assets of the Company, is as follows: RESULTS OF OPERATIONS (In millions, except per share amounts) 1997(a) - -------------------------------------------------------------------------------- Net sales $2,575.0 - -------------------------------------------------------------------------------- Income before taxes $186.4 Spin-off expenses (67.1) Income taxes (54.2) - -------------------------------------------------------------------------------- Income from discontinued operations $65.1 ================================================================================ Earnings per common share Basic $.38 ================================================================================ Diluted $.38 ================================================================================ (a)Results through May 30, 1997. 4. SHORT-TERM BORROWINGS AND CREDIT FACILITIES At December 31, 1999 and 1998, there were $637.3 million and $321.4 million of short-term borrowings outstanding, respectively, comprised of notes payable to banks and commercial paper. The weighted average interest rate on these borrowings was 5.2% and 5.3%, respectively. At December 31, 1999 and 1998, there were $12.4 million and $40.8 million outstanding under committed bank credit agreements, which provide for unsecured borrowings of up to $21.8 million and $56 million, respectively, for general corporate purposes, including acquisitions. In addition, the Company had uncommitted bank lines of credit, which provide for unsecured borrowings for working capital of up to $65.7 million of which $16.4 million was outstanding at year end. See Note 13 for a description of the Company's use of financial instruments. 5. LONG-TERM DEBT The components of long-term debt are as follows: (In millions) 1999 1998 - -------------------------------------------------------------------------------- Notes payable/(a)/ $ 200.0 $ 200.0 Revolving credit notes/(a)/ 42.7 16.6 Other notes/(b)/ 11.0 11.0 6 1/4% Notes, Due 2008 200.0 200.0 6 5/8% Debentures, Due 2028 200.0 200.0 8 1/2% Notes, Due 2003/(c)/ 106.9 106.9 8 5/8% Debentures, Due 2021/(c)/ 90.9 90.9 7 7/8% Debentures, Due 2023 150.0 150.0 7 1/2% Notes, Due 1999/(c)/ -- 118.6 9% Notes, Due 1999/(c)/ -- 62.8 7 1/8% Notes, Due 2004 200.0 -- Miscellaneous 6.0 8.2 - -------------------------------------------------------------------------------- 1,207.5 1,165.0 Less current portion 2.7 183.3 - -------------------------------------------------------------------------------- $1,204.8 $ 981.7 ================================================================================ /(a)/The Company maintains revolving credit agreements expiring in 2002 with various banks, which provide for unsecured borrowings of up to $1.5 billion. The interest rate is set at the time of each borrowing. A commitment fee of .10% per annum is paid on the unused portion. The fee is subject to increases up to a maximum of .20% per annum in the event the Company's long-term debt rating falls below specified levels. Borrowings under these agreements may be made for general corporate purposes, including acquisitions and support for the Company's short-term borrowings in the commercial paper market. The Company has the ability and intent to refinance $200 million of short-term notes payable; accordingly, short-term notes payable in this amount have been classified as long-term debt at December 31, 1999. /(b)/The Other notes mature in 2001, with a weighted average coupon of 8.8%. /(c)/See Note 16. Estimated payments for maturing debt during the next five years are as follows: 2000, $2.7 million; 2001, $14.2 million; 2002, $241.8 million; 2003, $107.7 million; and 2004, $200.2 million. 46 6. $2.67 CONVERTIBLE PREFERRED STOCK - REDEEMABLE AT COMPANY'S OPTION Shares of the $2.67 Convertible Preferred stock issued and outstanding at December 31, 1999, 1998 and 1997 were 323,325 shares, 344,831 shares and 369,939 shares, respectively. Reacquired, redeemed or converted authorized shares that are not outstanding are required to be retired or restored to the status of authorized but unissued shares of preferred stock without series designation. The holders of $2.67 Convertible Preferred stock are entitled to cumulative dividends, three-tenths of a vote per share (in certain events, to the exclusion of the common shares), preference in liquidation over holders of common stock of $30.50 per share plus accrued dividends and convert each share of such stock into 6.205 shares of common stock. Authorized but unissued common shares are reserved for issuance upon such conversions, but treasury shares may be and are delivered. Shares converted were 21,506 shares, 25,108 shares and 52,793 shares during 1999, 1998 and 1997, respectively. The Company may redeem such Preferred stock at a price of $30.50 per share, plus accrued dividends. A cash dividend of $2.67 per share in the aggregate amounts of $0.9 million, $0.9 million and $1.1 million was paid in each of the years ended December 31, 1999, 1998 and 1997, respectively. 7. CAPITAL STOCK The Company has 750 million authorized shares of common stock and 60 million authorized shares of preferred stock. There were 163,243,041 and 170,884,270 common shares outstanding at December 31, 1999 and 1998, respectively. The cash dividends paid on the common stock for the years ended December 31, 1999, 1998 and 1997 aggregated $148.7 million, $146.5 million and $242.3 million, respectively. Treasury shares purchased and received as consideration for stock options exercised amounted to 11,181,299 shares in 1999, 3,444,180 shares in 1998 and 2,507,737 shares in 1997. Treasury shares delivered in connection with exercise of stock options and grants of other stock awards and conversion of preferred stock and debentures amounted to 3,540,070 shares in 1999, 2,472,461 shares in 1998 and 3,521,779 shares in 1997. In connection with a 1997 acquisition, 276,162 shares were issued. At December 31, 1999 and 1998 there were 66,326,983 and 58,685,754 common treasury shares, respectively. 8. PREFERRED SHARE PURCHASE RIGHTS Each outstanding share of common stock also evidences one Preferred Share Purchase Right ("Right"). The Rights will generally become exercisable only in the event of an acquisition of, or a tender offer for, 15% or more of the common stock. If exercisable, each Right is exercisable for 1/100th of a share of Series A Junior Participating Preferred Stock at an exercise price of $150. Also, upon an acquisition of 15% or more of the common stock, or upon an acquisition of the Company or the transfer of 50% or more of its assets or earning power, each Right (other than Rights held by the 15% acquiror, if applicable), if exercisable, will generally be exercisable for common shares of the Company or the acquiring company, as the case may be, having a market value of twice the exercise price. In certain events, however, Rights may be exchanged by the Company for common stock at a rate of one share per Right. The Rights may be redeemed at any time prior to an acquisition of 15% or more of the common stock at a redemption price of $.01 per Right. Until a Right is exercised, the holder, as such, will have no voting, dividend or other rights as a stockholder of the Company. The Rights expire on December 24, 2007. All 2.5 million of the authorized Series A Preferred shares are reserved for issuance upon exercise of Rights, and at December 31, 1999, outstanding Rights would have been exercisable as described above in the aggregate for 1,632,430 of such shares. 47 Notes to CONSOLIDATED FINANCIAL STATEMENTS Fortune Brands, Inc. and Subsidiaries 9. STOCK PLANS The 1999 Long-Term Incentive Plan authorizes the granting to key employees of the Company and its subsidiaries of incentive and nonqualified stock options, stock appreciation rights, restricted stock, performance awards and other stock-based awards, any of which may be granted alone or in combination with other types of awards or dividend equivalents. Such grants may be made on or before December 31, 2004 for up to 12 million shares of common stock, but no more than 2 million shares may be granted to any one individual. Stock options and stock appreciation rights may no longer be granted under the Company's 1986 Stock Option Plan, and stock options, stock appreciation rights, restricted stock, performance awards and other stock-based awards may no longer be granted under the Company's 1990 Long-Term Incentive Plan, as amended. Outstanding awards under these plans may continue to be exercised or paid pursuant to their terms. Stock options under the Plans have exercise prices equal to fair market values at dates of grant. Options generally may not be exercised prior to one year or more than ten years from the date of grant. Options granted since November 1998 generally vest one-third each year over a three year period after the date of grant. Stock appreciation rights, which may be granted in conjunction with option grants, permit the optionees to receive shares of common stock, cash or a combination of shares and cash measured by the difference between the option exercise price and the fair market value of the common stock at the time of exercise of such right. The Company applies APB Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations in accounting for its stock plans as allowed under FAS Statement No. 123, "Accounting for Stock-Based Compensation." Had compensation cost for the fixed stock options granted in 1999, 1998 and 1997 been determined consistent with FAS No. 123, pro forma net income (loss) and earnings per common share would have been as follows:
(In millions, except per share amounts) 1999 1998 1997 1997/(a)/ - --------------------------------------------------------------------------------- Net income (loss) $(897.6) $252.9 $78.7 $90.6 ================================================================================= Earnings per common share Basic $(5.39) $1.46 $.45 $.52 ================================================================================= Diluted $(5.39) $1.43 $.45 $.52 =================================================================================
/(a)/Excludes incremental fair value, as calculated under the Black-Scholes option-pricing model, related to the adjustment of options in the Gallaher spin-off. These pro forma amounts are not necessarily indicative of future amounts. Changes during the three years ended December 31, 1999 in shares under options were as follows: Weighted-Average Options Exercise Price - -------------------------------------------------------------------------------- Outstanding at January 1, 1997 9,781,150 $40.64 Granted 99,100 52.75 Exercised (2,267,110) 37.04 Lapsed (43,000) 48.66 Cancelled (297,400) 46.65 - -------------------------------------------------------------------------------- Outstanding at May 30, 1997 7,272,740 41.63 Gallaher Spin-off Adjustment/(a)/ 4,427,250 -- - -------------------------------------------------------------------------------- Outstanding at May 30, 1997 after Gallaher spin-off 11,699,990 25.88 Granted 1,786,000 35.63 Exercised (1,325,538) 23.38 Lapsed (56,653) 30.26 - -------------------------------------------------------------------------------- Outstanding at December 31, 1997 12,103,799 27.57 Granted 2,612,300 35.01 Exercised (2,230,843) 25.58 Lapsed (69,930) 34.55 - -------------------------------------------------------------------------------- Outstanding at December 31, 1998 12,415,326 29.45 Granted 2,225,401 34.23 Exercised (3,284,072) 26.10 Lapsed (198,311) 34.21 - -------------------------------------------------------------------------------- Outstanding at December 31, 1999 11,158,344 $31.30 ================================================================================ /(a)/On May 30, 1997, in connection with the Gallaher spin-off, the Company adjusted the number of shares under options and the option exercise prices to preserve, as closely as possible, the economic value of the options that existed at the time of the spin-off. Options exercisable at the end of each of the three years ended December 31, 1999 were as follows: Options Weighted-Average Exercisable Exercise Price - -------------------------------------------------------------------------------- December 31, 1999 7,641,037 $29.84 December 31, 1998 9,732,526 $27.92 December 31, 1997 10,166,612 $26.07 48 The weighted-average fair values of options granted during 1999, 1998 and 1997 were $8.80, $6.70 and $7.66, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1999, 1998 and 1997: 1999 1998 1997 - -------------------------------------------------------------------------------- Expected dividend yield 2.7% 2.7% 2.6% Expected volatility 28.0% 21.0% 20.9% Risk-free interest rate 6.0% 4.8% 5.8% Expected term 4.5 Years 4.5 Years 4.5 Years Options outstanding at December 31, 1999 were as follows: Weighted-Average Range Of Number Remaining Weighted-Average Exercise Prices Outstanding Contractual Life Exercise Price - -------------------------------------------------------------------------------- $20.98 to $26.26 2,454,489 5.0 $23.79 27.58 to 33.41 2,517,858 5.3 29.80 34.19 to 39.88 6,185,997 9.0 34.88 - -------------------------------------------------------------------------------- $20.98 to $39.88 11,158,344 7.3 $31.30 ================================================================================ Options exercisable at December 31, 1999 were as follows: Number Weighted-Average Exercisable Exercise Price - -------------------------------------------------------------------------------- 2,454,489 $23.79 2,512,108 29.80 2,674,440 35.43 - -------------------------------------------------------------------------------- 7,641,037 $29.84 ================================================================================ At December 31, 1999, performance awards were outstanding pursuant to which up to 142,140 shares, 147,300 shares, 223,950 shares and 145,050 shares may be issued in 2000, 2001, 2002 and 2003, respectively, depending on the extent to which certain specified performance objectives are met. 117,690 shares, 81,569 shares and 40,240 shares were issued pursuant to performance awards during 1999, 1998 and 1997, respectively. The costs of performance awards are expensed over the performance period. Compensation expense for stock based plans recorded for 1999, 1998 and 1997 was $3.4 million, $4.3 million and $5 million, respectively. Shares available in connection with future awards under the Company's stock plans at December 31, 1999, 1998 and 1997 were: 9,752,818; and 6,843,255; and 8,216,471, respectively. Authorized but unissued shares are reserved for issuance in connection with awards, but treasury shares may be and are delivered. 10. PENSION AND OTHER RETIREE BENEFITS The Company has a number of pension plans, principally in the United States, covering substantially all employees. The plans provide for payment of retirement benefits, mainly commencing between the ages of 60 and 65, and also for payment of certain disability and severance benefits. After meeting certain qualifications, an employee acquires a vested right to future benefits. The benefits payable under the plans are generally determined on the basis of an employee's length of service and earnings. Annual contributions to the plans are sufficient to satisfy legal funding requirements. The Company provides postretirement health care and life insurance benefits to certain employees and retirees in the United States and certain employee groups outside the United States. Most employees and retirees outside the United States are covered by government health care programs. The components of net pension and postretirement costs are as follows:
Pension Benefits Postretirement Benefits ------------------------------------------------------------------------------- (In millions) 1999/(a)/ 1998 1997 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------------------------- Service cost $33.6 $31.4 $26.2 $2.2 $2.1 $1.9 Interest cost 52.9 50.5 46.5 7.8 8.5 8.2 Expected return on plan assets (70.0) (66.3) (58.5) -- -- -- Net amortization and deferral 5.9 4.2 3.3 (2.3) (1.5) (2.8) - ----------------------------------------------------------------------------------------------------------------------------------- $22.4 $19.8 $17.5 $7.7 $9.1 $7.3 ===================================================================================================================================
/(a)/The above costs exclude: special termination benefits ($17.4 million); a curtailment loss ($8.5 million); and a settlement loss ($3.8 million) which were recorded as a component of employee termination costs in restructuring charges. (See Note 14.) 49 Notes to CONSOLIDATED FINANCIAL STATEMENTS Fortune Brands, Inc. and Subsidiaries The reconciliation of beginning and ending balances of benefit obligations and fair value of plan assets, and the funded status of the plans are as follows: Pension Benefits Postretirement Benefits - -------------------------------------------------------------------------------- (In millions) 1999 1998 1999 1998 - -------------------------------------------------------------------------------- CHANGE IN BENEFIT OBLIGATION: Benefit obligation at beginning of year $803.7 $718.7 $121.6 $125.2 Service cost 33.6 31.4 2.2 2.1 Interest cost 52.9 50.5 7.8 8.5 Actuarial (gain) loss (30.7) 22.8 (16.8) (6.8) Participants' contributions 3.0 4.3 0.9 0.9 Acquisitions -- 15.1 -- 1.2 Exchange rate changes (8.1) 0.1 (0.2) (0.2) Benefits paid (52.2) (39.6) (7.2) (9.3) Other items 14.2 0.4 0.6 -- - -------------------------------------------------------------------------------- Benefit obligation at end of year 816.4 803.7 108.9 121.6 - -------------------------------------------------------------------------------- CHANGE IN PLAN ASSETS: Fair value of plan assets at beginning of year 806.5 750.2 -- -- Actual return on plan assets 79.3 59.2 -- -- Employer contributions 23.5 14.3 6.3 8.4 Participants' contributions 3.0 4.3 0.9 0.9 Acquisitions -- 12.0 -- -- Exchange rate changes (8.6) (1.2) -- -- Benefits paid (52.3) (35.4) (7.2) (9.3) Other items 6.6 3.1 -- -- - -------------------------------------------------------------------------------- Fair value of plan assets at end of year 858.0 806.5 -- -- - -------------------------------------------------------------------------------- FUNDED STATUS 41.6 2.8 (108.9) (121.6) Unrecognized actuarial (gain) loss (29.1) 39.1 (36.3) (24.0) Unrecognized transition gain (2.8) (4.2) -- -- Unrecognized prior service cost 21.9 25.0 (2.4) (2.7) Other 0.4 (1.8) -- -- - -------------------------------------------------------------------------------- Net amount recognized $32.0 $60.9 $(147.6) $(148.3) ================================================================================ Amounts recognized in the balance sheet are as follows: Pension Benefits Postretirement Benefits - -------------------------------------------------------------------------------- (In millions) 1999 1998 1999 1998 - -------------------------------------------------------------------------------- Pension benefit cost $75.8 $73.9 $ -- $ -- Accrued benefit liability (57.9) (43.4) (147.6) (148.3) Intangible assets 8.9 17.5 -- -- Accumulated other comprehensive income 5.2 12.9 -- -- - -------------------------------------------------------------------------------- Net amount recognized $32.0 $60.9 $(147.6) $(148.3) ================================================================================ Weighted-average assumptions: Discount rate 7.2% 6.7% 7.4% 6.7% Expected long-term rate of return on plan assets 9.2% 9.5% -- -- Rate of compensation increase 5.0% 4.3% 5.0% 6.0% ================================================================================ The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $129.4 million, $118.8 million and $80.1 million, respectively, as of December 31, 1999 and $230.6 million, $215.3 million and $186 million, respectively, as of December 31, 1998. The assumed health care cost trend rate used in measuring the health care portion of the postretirement cost for 2000 is 7%, gradually declining to 5% by the year 2007 and remaining at that level thereafter. Assumed health care cost trend rates have a significant effect on the amounts reported for postretirement benefits. A one percent increase in assumed health care cost trend rates would increase the total of the service and interest cost components for 1999 and the postretirement benefit obligation as of December 31, 1999 by $1 million and $8.7 million, respectively. A one percent decrease in assumed health care cost trend rates would decrease the total of the service and interest cost components for 1999 and the postretirement benefit obligation as of December 31, 1999 by approximately $0.9 million and $8.2 million, respectively. The Company sponsors a number of defined contribution plans. Contributions are determined under various formulas. Costs related to such plans amounted to $21.3 million, $22.7 million and $21.4 million in 1999, 1998 and 1997, respectively. 11. LEASE COMMITMENTS Future minimum rental payments under noncancelable operating leases as of December 31, 1999 are as follows: (In millions) - -------------------------------------------------------------------------------- 2000 $53.5 2001 47.4 2002 41.3 2003 32.9 2004 29.8 Remainder 126.5 - -------------------------------------------------------------------------------- Total minimum rental payments 331.4 Less minimum rentals to be received under noncancelable subleases 18.3 - -------------------------------------------------------------------------------- $313.1 ================================================================================ Total rental expense for all operating leases (reduced by minor amounts from subleases) amounted to $50.3 million, $49.8 million and $42.5 million in 1999, 1998 and 1997, respectively. 50 12. INCOME TAXES The components of income (loss) from continuing operations before income taxes are as follows: (In millions) 1999 1998 1997 - ------------------------------------------------------------------------- Domestic operations $(320.0) $407.1 $120.8 Foreign operations (400.7) 104.8 18.9 - ------------------------------------------------------------------------- $(720.7) $511.9 $139.7 ========================================================================= A reconciliation of income taxes at the 35% federal statutory income tax rate to income taxes as reported is as follows: (In millions) 1999 1998 1997 - ------------------------------------------------------------------------- Income (benefit) taxes computed at federal statutory income tax rate $(252.2) $179.2 $48.9 Other income taxes, net of federal tax benefit 21.3 17.4 10.9 Goodwill write-down and amortization not deductible for income tax purposes 418.5 33.4 32.9 Miscellaneous, including reversals of tax provisions no longer required (17.7) (11.7) 5.5 - ------------------------------------------------------------------------- Income taxes as reported $ 169.9 $218.3 $98.2 ========================================================================= Income taxes are as follows: (In millions) 1999 1998 1997 - ------------------------------------------------------------------------- Currently payable Federal $ 45.8 $106.7 $100.3 Foreign 98.9 35.3 38.2 Other 28.2 25.3 21.1 Deferred Federal and other (6.8) 42.2 (42.3) Foreign 3.8 8.8 (19.1) - ------------------------------------------------------------------------- $169.9 $218.3 $ 98.2 ========================================================================= The components of net deferred tax assets (liabilities) are as follows: (In millions) 1999 1998 - ------------------------------------------------------------------------- Current assets Compensation and benefits $ 10.6 $ 11.1 Other reserves 30.9 28.3 Capitalized interest-inventory 13.9 13.5 Restructuring 17.7 20.5 Interest 1.9 1.9 Accounts receivable 14.9 14.8 Miscellaneous 29.5 29.3 - ------------------------------------------------------------------------- 119.4 119.4 - ------------------------------------------------------------------------- Current liabilities Inventories (12.3) (10.3) Miscellaneous (16.9) (10.5) - ------------------------------------------------------------------------- (29.2) (20.8) - ------------------------------------------------------------------------- Deferred income taxes included in Other current assets 90.2 98.6 - ------------------------------------------------------------------------- Noncurrent assets Compensation and benefits 48.9 27.3 Other retiree benefits 30.8 48.7 Other reserves 28.2 35.1 Foreign exchange 1.3 0.8 Miscellaneous 31.4 16.0 - ------------------------------------------------------------------------- 140.6 127.9 - ------------------------------------------------------------------------- Noncurrent liabilities Depreciation (70.4) (63.1) Pensions (6.4) (9.4) Trademark amortization (74.1) (67.2) Miscellaneous (38.0) (38.1) - ------------------------------------------------------------------------- (188.9) (177.8) - ------------------------------------------------------------------------- Deferred income taxes (48.3) (49.9) - ------------------------------------------------------------------------- Net deferred tax asset $41.9 $ 48.7 ========================================================================= 13. FINANCIAL INSTRUMENTS The Company does not enter into financial instruments for trading or speculative purposes. In conjunction with a long-term financing arrangement, the Company entered into derivative contracts in the fourth quarter that were required to be marked to market. These contracts had fair market values which were principally offsetting and were no longer outstanding as of December 31, 1999. Financial instruments are used to reduce the impact of changes in foreign currency exchange rates and interest rates. The principal financial instruments used are forward foreign exchange contracts and interest rate swaps. The counterparties are major financial institutions. Although the Company's theoretical risk is the replacement cost at the then estimated fair value of these instruments, management believes that the risk of incurring losses is remote and that such losses, if any, would be immaterial. 51 Notes to CONSOLIDATED FINANCIAL STATEMENTS Fortune Brands, Inc. and Subsidiaries The Company enters into forward foreign exchange contracts principally to hedge currency fluctuations in transactions denominated in foreign currencies, thereby limiting the Company's risk that would otherwise result from changes in exchange rates. The periods of the forward foreign exchange contracts correspond to the periods of the hedged transactions. The Company periodically enters into forward foreign exchange contracts to hedge a portion of its net investments in U.K. operating companies. At December 31, 1999, the Company had outstanding forward foreign exchange contracts to purchase $38 million and sell $129 million of various foreign currencies (principally pound sterling), with maturities ranging from January 3, 2000 to December 22, 2000, with a weighted average maturity of 64 days. At December 31, 1998, the Company also had outstanding forward foreign exchange contracts to purchase $35 million and sell $201 million of various foreign currencies (principally pound sterling), with maturities ranging from January 4, 1999 to January 28, 2000, with a weighted average maturity of 110 days. The estimated fair value of foreign currency contracts represents the amount required to enter into offsetting contracts with similar remaining maturities based on quoted market prices. At December 31, 1999 and 1998, the fair value of all outstanding contracts and the contract amounts were essentially the same. The Company may, from time to time, enter into interest rate swap agreements to manage its exposure to interest rate changes. The swaps involve the exchange of fixed and variable interest rate payments without exchanging the notional principal amount. At December 31, 1999, the Company did not have any outstanding interest rate swap agreements. As of December 31, 1998, the Company had outstanding interest rate swap agreements denominated in dollars, maturing at various dates in 1999, with an aggregate notional principal amount of $200 million. Under these agreements, the Company received a floating rate based on thirty day commercial paper rates, or a weighted average rate of 5.2% at December 31, 1998, and paid a weighted average fixed interest rate of 7.8% at December 31, 1998. The fair value of these interest rate swap agreements represents the estimated receipts or payments that would be made to terminate the agreements. At December 31, 1998, the Company would have paid $4.2 million to terminate the agreements. The fair value is based on dealer quotes, considering current interest rates. The estimated fair value of the Company's cash and cash equivalents, notes payable to banks and commercial paper, approximates the carrying amounts due principally to their short maturities. The estimated fair value of the Company's $1,207.5 million and $1,165 million total long-term debt (including current portion) at December 31, 1999 and 1998 was approximately $1,171.1 million and $1,252.3 million, respectively. The fair value is determined from quoted market prices, where available, and from investment bankers using current interest rates, considering credit ratings and the remaining terms to maturity. Concentration of credit risk with respect to accounts receivable is limited because a large number of geographically diverse customers make up the operating companies' domestic and international customer base, thus spreading the credit risk. 14. RESTRUCTURING AND OTHER NONRECURRING CHARGES During 1997, the Company recorded pre-tax restructuring and other nonrecurring charges as follows: Nonrecurring Cost of Sales (In millions) Restructuring Charges Total - -------------------------------------------------------------------------------- Home products $ 79.5 $17.3 $ 96.8 Office products 82.5 4.8 87.3 Golf products 15.9 34.8 50.7 Spirits and wine 31.2 32.2 63.4 - -------------------------------------------------------------------------------- $209.1 $89.1 $298.2 ================================================================================ Home products included charges related to the disposition of certain product lines and the rationalization of operations. Office products included charges related to the rationalization of operations, the discontinuance of certain product lines and lease cancellation costs, partly offset by a $12.6 million pre-tax gain on the sale of nonstrategic businesses. Golf products included charges related to the discontinuance of certain product lines and the rationalization of operations. 52 Spirits and wine included charges related to a change in bulk whiskey valuations which resulted from the integration of the worldwide distilled spirits business, international distribution and lease agreements and the discontinuance of certain product lines. The rationalization of operations referred to above included the closure, consolidation, sale and/or disposal of five manufacturing facilities (four in the U.S. and one in the U.K.); two combined manufacturing and distribution facilities (one in each of Australia and Europe); six distribution centers (three in Australia, two in the U.S. and one in Japan); and three office facilities (one in Australia and two in the U.K.). The rationalization also included the termination of a foreign joint venture. Reconciliation of the liability of the restructuring and other nonrecurring charges is as follows:
Balance at Cash Non-Cash Balance at (In millions) 12/31/98 Expenditures Write-offs 12/31/99 - ------------------------------------------------------------------------------------------------------------------ Rationalization of operations Employment termination costs $ 8.6 $ (6.7) $ (1.9)(a) $-- Facility closing costs 1.2 (0.8) (0.4)(a) -- Other 1.2 (1.4) 0.2(1) -- International distribution and lease agreements 4.2 (0.3) (3.9)(a) -- Loss on disposal of fixed assets and businesses 3.2 (0.8) (2.4) -- - ------------------------------------------------------------------------------------------------------------------ $ 18.4 $ (10.0) $ (8.4) $-- ==================================================================================================================
(a) Non-cash write-offs include reclasses to reduce employment termination costs by $1 million and international distribution and lease agreements by $1.9 million and to increase facility closing costs by $2.7 million and other by $0.2 million. The other activities related to the 1997 restructuring and other nonrecurring charges have been completed. During 1999, the Company recorded pre-tax restructuring charges as follows: (In millions) Restructuring - -------------------------------------------- Home products $ 24.0 Office products 16.2 Golf products 11.4 Spirits and wine 18.8 Corporate office 66.4 - -------------------------------------------- $136.8 ============================================ Home products include charges related to reductions in force (856 positions) as a result of the move of substantially all of the lock assembly operations and certain specialty plumbing operations to Mexico. Office products include charges related to reductions in force resulting from the move of labeling and printing production to Mexico as well as other reductions in force in the U.S. and Europe. The total reduction in force is 406 positions. Golf products include charges related to asset write-offs and reductions in force (180 positions) principally resulting from consolidation of golf club facilities from six to three. Spirits and wine include charges related to termination of distribution contracts, lease cancellation costs and employee severance costs (50 positions) related to the formation of the Maxxium joint venture. Corporate office includes charges related to employee and lease termination costs related to the move to Lincolnshire, Illinois. Employee costs represent severance payments, costs related to a voluntary early retirement program, and expenses for long-term incentive and pension plans. These costs related to 130 people who either did not relocate or whose positions were eliminated. Reconciliation of the restructuring liability is as follows:
Total Cash Non-Cash Balance at (In millions) Provision Expenditures Write-offs 12/31/99 - ---------------------------------------------------------------------------------------------------------------------- Rationalization of operations Employee termination costs(a) $ 86.8 $ (14.1) $ (34.4) $ 38.3 Other 6.6 (4.9) (0.2) 1.5 International distribution and lease agreements 34.1 (0.6) (17.2) 16.3 Loss on disposal of assets 9.3 -- (8.5) 0.8 - ---------------------------------------------------------------------------------------------------------------------- $ 136.8 $ (19.6) $ (60.3) $ 56.9 ======================================================================================================================
(a) As of December 31, 1999, 1,005 of the 1,622 positions were eliminated. During 1999, the Company recorded pre-tax other nonrecurring charges as follows:
Cost of Sales SG&A (In millions) Charges Charges Total - ----------------------------------------------------------------------------------------- Home products $ 3.5 $ 1.7 $ 5.2 Office products 2.3 5.1 7.4 Golf products 25.2 5.5 30.7 Corporate office -- 15.9 15.9 - ----------------------------------------------------------------------------------------- $ 31.0 $ 28.2 $ 59.2 =========================================================================================
53 Notes to CONSOLIDATED FINANCIAL STATEMENTS Fortune Brands, Inc. and Subsidiaries Other nonrecurring charges include charges related to the 1999 restructuring activities: Home products include relocation costs for certain manufacturing facilities. Office products include inventory write-offs due to discontinuance of certain product lines, relocation costs for manufacturing facilities and a loss on the sale of a business. Golf products include inventory write-offs due to discontinuance of club product lines, additional warranty costs and a write-off of a note receivable related to a previously sold operation. Corporate office includes relocation costs associated with establishing a new corporate headquarters, and the amortization of corporate furniture and leasehold improvements from the measurement date through the end of the year. 15. INFORMATION ON BUSINESS SEGMENTS The Company's subsidiaries operate principally in the following business segments: Home products include kitchen and bathroom faucets, plumbing supply and repair products manufactured, packaged or distributed by Moen, locks manufactured by Master Lock, kitchen cabinets and bathroom vanities manufactured under the Aristokraft and Schrock brands, and tool storage products manufactured by Waterloo. Office products include paper fastening, computer accessories, time management, presentation and other office products manufactured by ACCO World subsidiaries. Golf products of the Acushnet Company include golf balls, shoes, gloves and clubs manufactured and marketed under the Titleist and FootJoy brands and golf clubs manufactured and marketed under the Cobra brand. Spirits and wine include products produced or imported by Jim Beam Brands Worldwide subsidiaries. The Company's subsidiaries operate principally in the United States, the United Kingdom, Canada and Australia. Net sales and operating company contribution for the years 1999, 1998 and 1997 and segment assets for the related year ends by business segments and by geographic areas, are shown on page 58. Operating company contribution is net sales less all costs and expenses other than restructuring and other nonrecurring charges, write-down of goodwill, amortization of intangibles, corporate administrative expenses, interest and related expenses, other (income) expenses, net and income taxes. A reconciliation of operating company contribution to consolidated income (loss) from continuing operations before income taxes is as follows:
(In millions) 1999 1998 1997 - ------------------------------------------------------------------------------------------------- Operating company contribution $ 829.3 $ 798.3 $ 746.4 Restructuring charges 136.8 -- 209.1 Other nonrecurring charges 59.2 -- 89.1 Amortization of intangibles 85.5 108.2 104.2 Write-down of goodwill 1,126.0 -- -- Interest and related expenses 106.8 102.7 116.7 Non-operating expenses 35.7 75.5 87.6 - ------------------------------------------------------------------------------------------------- Income (loss) from continuing operations before income taxes as reported $ (720.7) $ 511.9 $ 139.7 ==================================================================================================
Reconciliation of segment assets to consolidated total assets is as follows:
(In millions) 1999 1998 1997 - ------------------------------------------------------------------------------------------------- Segment assets $ 3,642.9 $ 3,473.2 $ 3,113.7 Intangibles resulting from business acquisitions, net 2,592.1 3,761.3 3,674.1 Corporate 182.1 125.2 154.7 - ------------------------------------------------------------------------------------------------- $ 6,417.1 $ 7,359.7 $ 6,942.5 ================================================================================================== Long-lived assets are as follows:(a) (In millions) 1999 1998 1997 United States $ 911.7 $ 852.3 $ 724.2 United Kingdom 188.6 194.8 203.1 Canada 25.4 21.2 22.9 Australia 14.1 16.8 4.3 Other countries 36.7 34.8 26.4 - ------------------------------------------------------------------------------------------------- $ 1,176.5 $ 1,119.9 $ 980.9 ==================================================================================================
(a) Represents property, plant and equipment, net 54 Depreciation is as follows: (In millions) 1999 1998 1997 - -------------------------------------------------------------------------------- Home products $ 43.1 $ 41.8 $ 42.3 Office products 38.8 42.5 39.9 Golf products 21.6 20.0 16.3 Spirits and wine 38.8 35.7 37.1 Corporate 2.7 2.9 2.9 - -------------------------------------------------------------------------------- $145.0 $142.9 $138.5 ================================================================================ Amortization of intangibles is as follows: (In millions) 1999 1998 1997 - -------------------------------------------------------------------------------- Home products $ 32.4 $ 31.7 $ 29.9 Office products 21.7 23.3 21.5 Golf products 6.5 17.4 17.8 Spirits and wine 24.9 35.8 35.0 - -------------------------------------------------------------------------------- $ 85.5 $108.2 $104.2 ================================================================================ Capital expenditures are as follows: (In millions) 1999 1998 1997 - -------------------------------------------------------------------------------- Home products $113.0 $ 57.6 $ 55.6 Office products 55.5 107.2 43.0 Golf products 37.2 39.9 59.4 Spirits and wine 34.4 46.3 37.5 Corporate 0.4 0.9 1.4 - -------------------------------------------------------------------------------- $240.5 $251.9 $196.9 ================================================================================ 16. EXTRAORDINARY ITEMS In 1998, the Company purchased the following principal amounts of its outstanding debt: $31.4 million of 7 1/2% Notes, Due 1999, $50.4 million of 8 1/2% Notes, Due 2003, $10.5 million of 9% Notes, Due 1999 and $32.7 million of 8 5/8 % Debentures, Due 2021, and the Company also redeemed the outstanding $50.1 million of 12 1/2% Sterling Loan Stock, Due 2009. The extinguishment of debt resulted in a charge of $30.5 million ($46.9 million pre-tax), or 18 cents per share. In 1997, we purchased the following principal amounts of its outstanding debt: $42.7 million of 8 1/2% Notes, Due 2003, $26.7 million of 9% Notes, Due 1999 and $26.4 million of 8 5/8% Debentures, Due 2021. The extinguishment of debt resulted in a charge of $8.1 million ($12.4 million pre-tax) or five cents per share. 17. EARNINGS PER SHARE Basic earnings per common share are based on the weighted average number of common shares outstanding in each year and after preferred stock dividend requirements. Diluted earnings per common share assume that any dilutive convertible debentures and convertible preferred shares outstanding at the beginning of each year were converted at those dates, with related interest, preferred stock dividend requirements and outstanding common shares adjusted accordingly. It also assumes that outstanding common shares were increased by shares issuable upon exercise of those stock options for which market price exceeds exercise price, less shares which could have been purchased by the Company with related proceeds. The Convertible Preferred stock and stock options, amounting to 3.7 million shares, were not included in the computation of diluted earnings per common share for 1999 and the Convertible Preferred stock, amounting to 3.9 million shares, was not included in 1997 since they would have resulted in an antidilutive effect. The computation of basic and diluted earnings per common share for "Income (loss) from continuing operations" is as follows: (In millions, except per share amounts) 1999 1998 1997 - ----------------------------------------------------------------- Income (loss) from continuing operations $ (890.6) $293.6 $ 41.5 Less: Preferred stock dividends 0.9 0.9 1.1 - ----------------------------------------------------------------- Income available to common stockholders - basic (891.5) 292.7 40.4 Convertible Preferred stock dividend requirements -- 0.9 -- - ----------------------------------------------------------------- Income available to common stockholders - diluted $ (891.5) $293.6 $ 40.4 ================================================================= Weighted average number of common shares outstanding - basic 166.6 172.2 171.6 Conversion of Convertible Preferred stock -- 2.2 -- Exercise of stock options -- 1.8 1.7 - ----------------------------------------------------------------- Weighted average number of common shares outstanding - diluted 166.6 176.2 173.3 Earnings per common share Basic $ (5.35) $1.70 $ .24 ================================================================= Diluted $ (5.35) $1.67 $ .23 ================================================================= 55 Notes to CONSOLIDATED FINANCIAL STATEMENTS Fortune Brands, Inc. and Subsidiaries 18. COMPREHENSIVE INCOME Comprehensive income is defined as net income and other changes in stockholders' equity from transactions and other events from sources other than stockholders. The components of and changes in other accumulated comprehensive income (loss) are as follows: Minimum Accumulated Foreign Pension Other Currency Liability Comprehensive (In millions) Adjustments Adjustment Income (Loss) - -------------------------------------------------------------------------------- Balance at January 1, 1997 $ (195.9) $ (8.2) $ (204.1) Changes during year (including taxes of $30.1) (44.9) (4.8) (49.7) Gallaher spin-off 260.7 -- 260.7 - -------------------------------------------------------------------------------- Balance at December 31, 1997 19.9 (13.0) 6.9 Comprehensive income changes during year (net of taxes of $7.1) (7.4) 5.2 (2.2) - -------------------------------------------------------------------------------- Balance at December 31, 1998 12.5 (7.8) 4.7 Changes during year (net of taxes of $2.4) (24.4) 4.8 (19.6) - -------------------------------------------------------------------------------- Balance at December 31, 1999 $ (11.9) $ (3.0) $ (14.9) ================================================================================ 19. PENDING LITIGATION TOBACCO LITIGATION AND INDEMNIFICATION On December 22, 1994, the Company sold The American Tobacco Company subsidiary to Brown & Williamson Tobacco Corporation, a wholly-owned subsidiary of B.A.T Industries p.l.c. In connection with the sale, Brown & Williamson Tobacco Corporation and The American Tobacco Company ("the Indemnitors") agreed to indemnify the Company against claims including legal expenses arising from smoking and health and fire safe cigarette matters relating to the tobacco business of The American Tobacco Company. The Company is a defendant in numerous actions based upon allegations that human ailments have resulted from tobacco use. Management believes that there are meritorious defenses to the pending actions and these actions are being vigorously contested. However, it is not possible to predict the outcome of the pending litigation, and it is possible that some of these actions could be decided unfavorably. Management is unable to make a meaningful estimate of the amount or range of loss that could result from an unfavorable outcome of the pending litigation. Management believes that the pending actions will not have a material adverse effect upon the results of operations, cash flows or financial condition of the Company as long as the Indemnitors continue to fulfill their obligations to indemnify the Company under the aforementioned indemnification agreement. OTHER LITIGATION In addition to the lawsuits described above, the Company and its subsidiaries are defendants in lawsuits associated with their business and operations. It is not possible to predict the outcome of the pending actions, but management believes that there are meritorious defenses to these actions and that these actions will not have a material adverse effect upon the results of operations, cash flows or financial condition of the Company. These actions are being vigorously contested. 20. ENVIRONMENTAL The Company is subject to laws and regulations relating to the protection of the environment. The Company provides for expenses associated with environmental remediation obligations when such amounts are probable and can be reasonably estimated. Such accruals are adjusted as new information develops or circumstances change and are not discounted. While it is not possible to quantify with certainty the potential impact of actions regarding environmental matters, particularly remediation and other compliance efforts that the Company's subsidiaries may undertake in the future, in the opinion of management, compliance with the present environmental protection laws, before taking into account estimated recoveries from third parties, will not have a material adverse effect upon the results of operations, cash flows or financial condition of the Company. 56 Report of INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF FORTUNE BRANDS, INC. In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income, cash flows and stockholders' equity present fairly, in all material respects, the consolidated financial position of Fortune Brands, Inc. and Subsidiaries at December 31, 1999 and 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the management of Fortune Brands, Inc.; 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 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. As discussed in Note 1, effective April 1, 1999, the Company changed its accounting policy for assessing recoverability of goodwill from one based on undiscounted cash flows to one based on discounted cash flows. New York, New York 10010 February 3, 2000 Report of MANAGEMENT TO THE STOCKHOLDERS OF FORTUNE BRANDS, INC. We have prepared the consolidated balance sheet of Fortune Brands, Inc. and Subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, cash flows and stockholders' equity for each of the three years in the period ended December 31, 1999. The financial statements have been prepared in accordance with generally accepted accounting principles. Financial information elsewhere in this Annual Report is consistent with that in the financial statements. The system of internal controls of the Company and its subsidiaries is designed to provide reasonable assurances that the financial records are adequate and can be relied upon to provide information for the preparation of financial statements and that established policies and procedures are carefully followed. Independent accountants are elected annually by the stockholders of the Company to audit the financial statements. PricewaterhouseCoopers LLP, independent accountants, are currently engaged to perform such audit. Their audit is in accordance with generally accepted auditing standards and includes tests of transactions and selective tests of internal accounting controls. The Audit Committee of the Board of Directors, consisting solely of outside directors, meets periodically with the independent accountants, internal auditors and management to review accounting, auditing, and financial reporting matters. The auditors have direct access to the Audit Committee. NORMAN H. WESLEY Chairman of the Board and Chief Executive Officer /s/ CRAIG P. OMTVEDT CRAIG P. OMTVEDT Senior Vice President and Chief Financial Officer 57 Information on BUSINESS SEGMENTS(a) Fortune Brands, Inc. and Subsidiaries
(In millions) 1999 1998 1997 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------- BUSINESS SEGMENTS NET SALES Home products $1,922.6 $1,624.4 $1,394.0 $1,374.1 $1,306.8 $1,270.6 Office products 1,367.2 1,387.7 1,294.2 1,228.7 1,206.1 1,049.7 Golf products 965.3 962.9 911.6 811.4 579.3 507.1 Spirits and wine 1,269.6 1,265.9 1,244.7 1,303.5 1,288.6 1,268.2 - --------------------------------------------------------------------------------------------------------------- Ongoing operations 5,524.7 5,240.9 4,844.5 4,717.7 4,380.8 4,095.6 Other businesses/(b)/ -- -- -- -- 547.3 1,281.4 - --------------------------------------------------------------------------------------------------------------- $5,524.7 $5,240.9 $4,844.5 $4,717.7 $4,928.1 $5,377.0 =============================================================================================================== OPERATING COMPANY CONTRIBUTION Home products $ 300.2 $ 252.5 $ 222.9 $ 214.1 $ 208.4 $ 206.6 Office products 88.5 134.0 128.1 116.3 105.5 95.0 Golf products 147.0 142.9 138.2 125.3 84.2 74.4 Spirits and wine 293.6 268.9 257.2 244.1 241.9 255.1 - --------------------------------------------------------------------------------------------------------------- Ongoing operations 829.3 798.3 746.4 699.8 640.0 631.1 Other businesses/(b)/ -- -- -- -- 6.8 4.0 - --------------------------------------------------------------------------------------------------------------- $ 829.3 $ 798.3 $ 746.4 $ 699.8 $ 646.8 $ 635.1 =============================================================================================================== SEGMENT ASSETS/(c)/ Home products $1,008.3 $ 826.2 $ 735.8 $ 752.7 $ 738.1 $ 686.5 Office products 987.6 1,011.5 861.4 856.9 794.1 750.8 Golf products 604.8 667.6 617.1 579.8 361.9 315.3 Spirits and wine 1,042.2 967.9 899.4 986.9 939.4 932.2 - --------------------------------------------------------------------------------------------------------------- Ongoing operations 3,642.9 3,473.2 3,113.7 3,176.3 2,833.5 2,684.8 Other businesses/(b)/ -- -- -- -- -- 527.6 - --------------------------------------------------------------------------------------------------------------- $3,642.9 $3,473.2 $3,113.7 $3,176.3 $2,833.5 $3,212.4 =============================================================================================================== GEOGRAPHIC AREAS NET SALES/(d)/ United States $4,143.1 $3,814.7 $3,432.4 $3,330.6 $3,116.5 $2,917.2 United Kingdom 508.9 551.7 499.5 522.8 498.6 492.9 Canada 237.7 235.6 223.9 194.2 184.7 183.6 Australia 157.1 158.4 199.6 190.9 160.6 141.3 Other countries 477.9 480.5 489.1 479.2 420.4 360.6 - --------------------------------------------------------------------------------------------------------------- Ongoing operations $5,524.7 $5,240.9 $4,844.5 $4,717.7 $4,380.8 $4,095.6 ===============================================================================================================
(a) See Note 15 for further Information on Business Segments. (b) Other businesses included retail distribution and housewares sold during 1995 and optics sold in 1994. (c) Represents total assets excluding intercompany receivables and intangibles resulting from business acquisitions, net. (d) Net sales are attributed to countries based on location of customer. 58 Six-Year CONSOLIDATED SELECTED FINANCIAL DATA Fortune Brands, Inc. and Subsidiaries
(In millions, except per share amounts and number of common stockholders) 1999(b) 1998(b) 1997(b) 1996(b) 1995 1994(c) - ----------------------------------------------------------------------------------------------------------------------------------- OPERATING DATA(a) Net sales $5,524.7 $5,240.9 $4,844.5 $4,717.7 $4,928.1 $5,377.0 Gross profit 2,249.8 2,129.3 1,885.4 1,863.4 1,816.4 1,971.1 Depreciation and amortization 230.5 251.1 242.7 238.3 224.0 244.5 Operating company contribution 829.3 798.3 746.4 699.8 646.8 635.1 Interest and related expenses 106.8 102.7 116.7 165.5 136.6 173.0 Income taxes 169.9 218.3 98.2 157.9 171.5 119.8 Income (loss) from continuing operations (890.6) 293.6 41.5 181.7 185.9 (78.8) Income from discontinued operations -- -- 65.1 315.1 357.2 812.9 Extraordinary items -- (30.5) (8.1) (10.3) (2.7) -- Net income (loss)(d) (890.6) 263.1 98.5 486.5 540.4 734.1 Earnings per common share Basic Continuing operations(d) $(5.35) $1.70 $.24 $1.04 $.99 $(.40) Discontinued operations -- -- .38 1.82 1.91 4.03 Extraordinary items -- (.18) (.05) (.06) (.01) -- - ----------------------------------------------------------------------------------------------------------------------------------- Net income (loss) $(5.35) $1.52 $.57 $2.80 $2.89 $3.63 =================================================================================================================================== Diluted Continuing operations(d) $(5.35) $1.67 $.23 $1.03 $.98 $(.40) Discontinued operations -- -- .38 1.79 1.89 4.03 Extraordinary items -- (.18) (.05) (.06) (.01) -- - ----------------------------------------------------------------------------------------------------------------------------------- Net income (loss) $(5.35) $1.49 $.56 $2.76 $2.86 $3.63 =================================================================================================================================== COMMON SHARE DATA(a) Dividends paid $148.7 $146.5 $242.3 $347.2 $376.2 $401.7 Dividends paid per share $.89 $.85 $1.41 $2.00 $2.00 $1.9925 Average number of shares outstanding 166.6 172.2 171.6 173.3 186.9 201.6 Book value per share $16.71 $23.92 $23.31 $21.48 $21.61 $22.95 Number of stockholders, December 31(e) 37,266 41,603 46,537 52,832 56,769 60,611 =================================================================================================================================== BALANCE SHEET DATA(a) Inventories $1,061.4 $1,087.6 $955.2 $1,037.9 $950.9 $1,156.0 Current assets(f) 2,312.8 2,265.3 2,095.6 2,842.1 2,112.5 3,726.1 Working capital(f) 309.9 420.7 327.1 774.0 651.7 1,673.4 Property, plant and equipment, net 1,176.5 1,119.9 980.9 972.6 904.3 979.7 Intangibles, net 2,592.1 3,761.3 3,674.1 3,730.7 3,103.2 3,346.4 Net assets of discontinued operations -- -- -- -- 520.7 334.9 Total assets 6,417.1 7,359.7 6,942.5 7,737.3 6,833.4 8,557.9 Short-term debt 640.0 504.7 404.6 782.2 470.0 553.7 Long-term debt 1,204.8 981.7 739.1 1,598.3 1,063.0 1,485.5 Stockholders' equity 2,738.2 4,097.5 4,017.1 3,676.0 3,864.0 4,633.1 Capital expenditures 240.5 251.9 196.9 199.7 175.6 157.6 ===================================================================================================================================
(a) See pages 29 through 38 of Financial Section. (b) See Notes 2 and 3. 1996 includes the acquisition in January of Cobra Golf Incorporated. (c) The year 1994 reflects as discontinued operations, the results of the former domestic tobacco subsidiary, The American Tobacco Company, and the former Franklin life insurance business. (d) Net income and both basic and diluted earnings per common share in 1994 include $241.3 million and $1.20, respectively, on the loss on disposal of businesses. (e) On January 31, 2000, there were 37,287 common stockholders of record, not necessarily reflecting beneficial ownership. (f) 1996 and 1994 include net assets of discontinued operations as current assets. 59 EX-21 15 SUBSIDIARIES OF REGISTRANT EXHIBIT 21 SUBSIDIARIES OF REGISTRANT The following is a list of subsidiaries of Registrant as of the date hereof and the state or other jurisdiction of incorporation of each. Except as indicated below, each subsidiary does business under its own name. Indentations indicate that the voting securities of a subsidiary are wholly owned by the subsidiary immediately preceding the indentation, unless otherwise indicated. The names of certain subsidiaries are omitted. Such subsidiaries would not, if considered in the aggregate as a single subsidiary, constitute a significant subsidiary within the meaning of Item 601(b)(21)(ii) of Regulation S-K. State or Other Jurisdiction Subsidiary of Incorporation - ---------- ---------------- ACCO World Corporation Delaware ACCO Brands, Inc. Delaware ACCO Canada Inc. Ontario, Canada ACCO Europe PLC England ACCO Australia Pty. Limited Australia ACCO Eastlight Limited England ACCO-Rexel Limited (1) Republic of Ireland ACCO UK Limited England Hetzel Vermogensverwaltungs GmbH Germany Hetzel GmbH & Co. KG (Limited Partnership) Germany ACCO France S.A. France ACCO Mexicana S.A. de C.V. Mexico Boone International, Inc. Delaware Day-Timers, Inc. Delaware Day-Timers of Canada, Ltd. Canada Day-Timers Pty. Limited Australia International Business Controls, B.V. Netherlands ACCO Italia S.p.A. Italy Fortune Brands Home & Office, Inc. (2) Delaware Acushnet Company Delaware Acushnet Cayman Limited Cayman Islands Acushnet Lionscore, Ltd. (3) Cayman Islands Acushnet Foot-Joy (Thailand) Limited Thailand Acushnet Foreign Sales Corporation Barbados Acushnet International Inc. Delaware Acushnet Canada Inc. Canada Acushnet Manufacturing Inc./Fabrication Acushnet Inc. Canada - -------------------- 1. 66.67% owned by ACCO-Rexel Group Services Limited and 33.33% owned by ACCO World Corporation. 2. 50% owned by ACCO World Corporation and 50% owned by MasterBrand Industries, Inc. 3. 40% owned by Acushnet Cayman Limited.
State or Other Jurisdiction Subsidiary of Incorporation - ---------- ---------------- Acushnet Golf Thailand Ltd. Thailand Acushnet GmbH Germany Acushnet-Danmark ApS Denmark Acushnet France S.A. France Acushnet Nederland B.V. Netherlands Acushnet Osterreich GmbH Austria Acushnet South Africa (Pty.) Ltd. South Africa Acushnet Sverige AB Sweden Acushnet Japan, Inc. Japan Acushnet Limited England Cobra Golf Incorporated Delaware Cobra Golf Export Incorporated Barbados Fortune Brands Finance Canada Ltd. Ontario, Canada Fortune Brands International Corporation Delaware Jim Beam Brands Worldwide, Inc. Delaware Alberta Distillers Limited Alberta, Canada Carrington Distillers Limited Ontario, Canada Featherstone & Co. Limited Ontario, Canada Bourbon Warehouse Receipts, Inc. Deleware Jim Beam Brands Netherlands, B.V. Netherlands Maxxium Worldwide B.V. (4) Netherlands Jim Beam Brands Australia Pty. Limited New South Wales, Australia Barwang International Pty. Limited (5) Australia JBB (Greater Europe) PLC (6) Scotland Jim Beam Brands Co. Delaware James B. Beam Distilling International Co., Inc. Barbados JBB Spirits (New York) Inc. New York John de Kuyper & Son, Incorporated Delaware Wood Terminal Company Delaware MasterBrand Industries, Inc. Delaware MasterBrand Industries Foreign Sales Corporation (7) Barbados MasterBrand Cabinets, Inc. Delaware NHB Industries Limited Canada NHB Holdings, Inc. Delaware NHB Industries, Inc. Alabama September Properties, Inc. Alabama
_____________ 4. 33.3% owned by Jim Beam Brands Netherlands, B.V. 5. 50% owned by Jim Beam Brands Australia Pty. Limited. 6. 428,055,999 shares owned by Jim Beam Brands Worldwide, Inc; 1 share owned by Jim Beam Brands Co. 7. Owned equally by MasterBrand Cabinets, Inc., Master Lock Company, Moen Incorporated, Waterloo Industries, Inc. and 21st Century Companies, Inc. State or Other Jurisdiction Subsidiary of Incorporation - ---------- ---------------- Master Lock Company Delaware Master Lock de Nogales, S.A. de C.V. Mexico Master Lock Europe, S.A. (8) France Master Lock Pacific Limited (9) Hong Kong Moen Incorporated Delaware Moen International, Inc. Connecticut Creative Specialties International Company Limited (10) Hong Kong Moen Sonora S.A. de C.V. Mexico Moen China, Limited (11) Hong Kong Moen de Mexico, S.A. de C.V. Mexico Moen Guangzhou Faucet Co., Ltd. (12) China Moen, Inc. Ontario, Canada Moen of Pennsylvania, Inc. Delaware 21/st/ Century Companies, Inc. Delaware Waterloo Industries, Inc. Delaware 1700 Insurance Company Ltd. Bermuda ________________________________________________________________________________ 8. 99.68% owned by Master Lock Company. 9. Owned 99.9% by Master Lock Company and 0.1% by Fortune Brands International Corporation (FBIC). 10. 60% owned by Moen Incorporated. 11. Owned 99% by Moen Incorporated and 1% by Moen International, Inc. 12. 66.03% owned by Moen Incorporated. EX-23.I 16 CONSENT OF INDEPENDENT ACCOUNTANTS PWC 11P EXHIBIT 23(i) CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference into (a) the Registration Statement on Form S-8 (Registration No. 33-64071) relating to the Defined Contribution Plan of Fortune Brands, Inc. and Participating Operating Companies, the Registration Statement on Form S-8 (Registration No. 33-64075) relating to the MasterBrand Industries, Inc. Hourly Employee Savings Plan, the Registration Statement on Form S-8 (Registration No. 333-95909) relating to the 1999 Long- Term Incentive Plan of Fortune Brands, Inc., the Registration Statement on Form S-8 (Registration No. 333-95919) relating to the Fortune Brands Retirement Savings Plan, the Registration Statement on Form S-8 (Registration No. 333-95925) relating to the Fortune Brands Hourly Employee Retirement Savings Plan, the Registration Statement on Form S-8 (Registration No. 333-51173) relating to the Fortune Brands, Inc. Non-Employee Director Stock Option Plan, and the prospectuses related thereto, and (b) the prospectuses related to the Registration Statements on Form S-3 (Registration Nos. 33-50832, 33-42397, 33-23039, 33-3985 and 333-76371) of Fortune Brands, Inc. of our report dated February 3, 2000, relating to the consolidated financial statements, which appears in the 1999 Annual Report to Stockholders of Fortune Brands, Inc., which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the consolidated financial statement schedule which appears in this Annual Report on Form 10-K. PricewaterhouseCoopers LLP New York, New York 10010 March 29, 2000 EX-24 17 POWERS OF ATTORNEY RELATING TO EXECUTION OF REPORT EXHIBIT 24 POWER OF ATTORNEY The undersigned, acting in the capacity or capacities stated with their respective names below, hereby constitute and appoint MARK A. ROCHE, EDWARD P. SMITH and A. ROBERT COLBY, and each of them severally, the attorneys-in-fact of the undersigned with full power to them and each of them to sign for and in the name of the undersigned in the capacities indicated below the Annual Report on Form 10-K of Fortune Brands, Inc. for the fiscal year ended December 31, 1999, and any and all amendments thereto: Signature Title Date /s/ Norman H. Wesley Chairman of the Board February 28, 2000 - ------------------------ Norman H. Wesley and Chief Executive Officer (principal Executive officer) and Director /s/ Craig P. Omtvedt Senior Vice President February 28, 2000 - ------------------------ Craig P. Omtvedt and Chief Financial Officer (principal financial officer) /s/ Michael R. Mathieson Vice President, February 23, 2000 - ------------------------ Michael R. Mathieson Controller and Chief Accounting Officer (principal accounting officer) /s/ Eugene R. Anderson Director February 28, 2000 - ------------------------ Eugene R. Anderson /s/ Patricia O. Ewers Director February 28, 2000 - ------------------------ Patricia O. Ewers Signature Title Date /s/ Thomas C. Hays Director February 28, 2000 - -------------------------- Thomas C. Hays /s/ John W. Johnstone, Jr. Director February 28, 2000 - -------------------------- John W. Johnstone, Jr. /s/ Sidney J. Kirschner Director February 28, 2000 - -------------------------- Sidney J. Kirschner /s/ Gordon R. Lohman Director February 28, 2000 - -------------------------- Gordon R. Lohman /s/ Charles H. Pistor, Jr. Director February 28, 2000 - -------------------------- Charles H. Pistor /s/ Eugene A. Renna Director February 28, 2000 - -------------------------- Eugene A. Renna /s/ Anne M. Tatlock Director February 28, 2000 - -------------------------- Anne M. Tatlock /s/ Peter M. Wilson Director February 28, 2000 - -------------------------- Peter M. Wilson EX-27 18 FINANCIAL DATA SCHEDULE
5 THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND RELATED STATEMENT OF INCOME AS OF DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 72 0 1,020 63 1,061 2,313 2,189 1,012 6,417 2,003 1,205 717 0 10 2,011 6,417 5,525 5,525 2,873 2,873 402 15 107 (721) 170 (891) 0 0 0 (891) (5.35) (5.35)
EX-99 19 LIST OF PENDING / TERMINATED CASES EXHIBIT 99 List of Pending Cases The following sets forth the principal parties to the proceedings referred to in Item 3 of this Form 10-K in which Registrant is currently named as a defendant, the court in which such proceedings are pending and the date such proceedings were instituted against Registrant: Acomo, P. v. American Tobacco Company, et al., District Court of New Mexico, Santa Fe County, June 16, 1999; Akers, B. v. The American Tobacco Company, et al., Circuit Court of the State of West Virginia, Kanawha County, October 28, 1998; Alexander, E. v. Philip Morris Companies, Inc., et al., USDC, Eastern District of LA, St. Landry Parish District Court, September 27, 1999; Anderson, J. v. The American Tobacco Company, et al., Circuit Court of Knox County, Tennessee, May 23, 1997; Avallone, J. v. The American Tobacco Company, et al., Superior Court of New Jersey, Middlesex County, April 23, 1998; Badon, C. v. R.J.R. Nabisco, Inc., et al., Judicial District Court, Parish of Cameron, Louisiana, May 23, 1994; Bellows, B. v. The American Tobacco Company, et al., Supreme Court of New York, New York County, December 1, 1997; Benavidez, P. v. Philip Morris, Inc., et al., Superior Court of the State of California, County of Alameda, November 5, 1999; Bergeron, D. (Trustees of Massachusetts Carpenters) v. Philip Morris, et al., Eastern District of New York, September 29, 1999; Blain, R. v. RJR Nabisco, Inc., et al., Circuit Court of the State of West Virginia, Kanawha County, June, 2, 1999; Brazil (State of Goias) v. Philip Morris Companies, Inc., et al., Circuit Court of the Eleventh Judicial Circuit in and for Dade County, Florida, November 17, 1999; Caiazzo, B. v. The American Tobacco Company, et al., Supreme Court of New York, New York County, September 26, 1997; Carll, J. v. The American Tobacco Company, et al., Supreme Court of New York, New York County, July 20, 1997; Cavanagh, D. v. The American Tobacco Company, et al., Supreme Court of New York, Richmond County, May 6, 1997; Collins, J. v. The American Tobacco Company, et al., Supreme Court of New York, Westchester County, May 16, 1997; Condon, R. v. The American Tobacco Company, et al., Supreme Court of New York, New York County, May 13, 1997; Connor, C. v. The American Tobacco Company, et al., Second Judicial District Court of Bernalillo County, New Mexico, October 10, 1996; Cotroneo, L. v. Fortune Brands, Inc., Supreme Court of New York, Queens County, October 21, 1997; Coyne v. American Brands, Inc. n/k/a Fortune Brands, Inc. et al., USDC, NDOH (Federal) Cuyahoga, September 17, 1996; Crane, J. v. The American Tobacco Company, et al., Supreme Court of New York, New York County, April 4, 1997; Crayton, R. v. The American Tobacco Company et al., Superior Court of the State of California, County of Alameda, March 22, 2000; Creech, W. v. The American Tobacco Company, et al., Supreme Court of New York, Richmond County, January 6, 1997; 2 DaSilva, JC v. The American Tobacco Company, et al., Supreme Court of New York, New York County, April 3, 1997; Denberg v. The American Tobacco Company, et al., Circuit Court of Cook County, Illinois, July 7, 1997 (formerly reported under the caption "Daley"); Dierker, J. v. R.J. Reynolds Tobacco Company, et al., Thirty Fourth Judicial District Court, Parish of St. Bernard, State of LA, January 6, 2000; Doss, E. v. R. J. Reynolds Tobacco Company, et al., Jefferson County, Mississippi, March 21, 2000; Dzak, D. v. The American Tobacco Company, et al., Supreme Court of New York, Queens County, December 8, 1996; Eiser, L. v. The American Tobacco Company, et al., Court of Common Pleas of Philadelphia County, Philadelphia, March 30, 1999; Evans, B. v. Philip Morris Incorporated, et al., Circuit Court of Jasper County, Mississippi, June 10, 1997; Evans, R. v. The American Tobacco Company, et al., Supreme Court of New York, Kings County, August 23, 1996; Felix v. The American Tobacco Company, et al., Supreme Court of New York, Kings County, December 1, 1997 (formerly reported under the caption "Guilloteau"; Geiger, W. v. The American Tobacco Company, et al., Supreme Court of New York, Queens County, May 1, 1997; Gelfond, M. v. Fortune Brands, Inc., et al., Supreme Court of New York, New York County, May 1, 1998; Golden, R. v. The American Tobacco Company, et al., Supreme Court of New York, New York County, July 10, 1997; Greco, A. v. The American Tobacco Company, et al., Supreme Court of New York, Queens County, June 27, 1997; 3 Hansen, C. v. The American Tobacco Company, et al., Supreme Court of New York, Suffolk County, October 16, 1997; Hansen, P. v. The American Tobacco Company, et al., United States District Court for the State of Arkansas, Western Division, November 4, 1996 (formerly reported under the caption "McGinty"); Huffman, C. v. American Tobacco Company, et al., Circuit Court of the State of West Virginia, Kanawha County, February 13, 1998; Iacono, A. v. The American Tobacco Company, et al., Supreme Court, Kings County, New York, August 20, 1997 (formerly reported under the caption "Mednick"); Inzerilla, R. v. The American Tobacco Company, et al., Supreme Court of New York, Queens County, July 16, 1996; Jackson, C. v. Philip Morris Incorporated, et al., District Court of Salt Lake County, Utah, March 10, 1998; Jaust, T. v. The American Tobacco Company, et al., Supreme Court of New York, New York County, September 10, 1997; Juliano, S. v. The American Tobacco Company, et al., Supreme Court of New York, Richmond County, July 24, 1997; Keenan, T. v. The American Tobacco Company, et al., Supreme Court of New York, New York County, September 15, 1997; Kestenbaum, D. v. The American Tobacco Company, et al., Supreme Court of New York, New York County, May 23, 1997; Knutsen, D. v. The American Tobacco Company, et al., Supreme Court of New York, Kings County, October 11, 1996; Kotlyar, Y. v. The American Tobacco Company, et al., Supreme Court of New York, Queens County, December 1, 1997; 4 Krigbaum, W. v. The American Tobacco Company, et al., Superior Court of California, County of Santa Clara, December 20, 1999; Labriola, R. v. The American Tobacco Company, et al., Supreme Court of New York, Suffolk County, May 28, 1997; Lehman, R. v. The American Tobacco Company, et al., Supreme Court of New York, New York County, July 10, 1997; Leibstein, S. v. The American Tobacco Company, et al., Supreme Court of New York, Nassau County, June 30, 1997; Lennon, L. v. The American Tobacco Company, et al., Supreme Court of New York, New York County, November 5, 1997; Lien, L. v. The American Tobacco Company, et al., Supreme Court of New York, Suffolk County, April 28, 1997; Litke, S. v. American Brands, Inc., et al., Supreme Court of New York, Kings County, May 7, 1997; Lombardo, S. v. The American Tobacco Company, et al., Supreme Court of New York, Nassau County, June 6, 1997; Long, J. v. The American Tobacco Company, et al., Supreme Court of New York, Bronx County, September 24, 1997; Lopardo, T. v. The American Tobacco Company, et al., Supreme Court of New York, Nassau County, September 25, 1997; Lucca, J. v. The American Tobacco Company, et al., Supreme Court of New York, Kings County, February 3, 1997; Lynch, R. v. The American Tobacco Company, et al., Supreme Court of New York, New York County, September 24, 1997; Magnus, A. v. The American Tobacco Company, et al., United States District Court for the Eastern District of New York, May 6, 1998; 5 Maisonet, B. v. The American Tobacco Company, et al., Supreme Court of New York, Kings County, May 12, 1997; Margolin, F. v. The American Tobacco Company, et al., Supreme Court of New York, New York County, November 22, 1996; Martin, G. v. The American Tobacco Company, et al., Supreme Court of New York, Queens County, June 30, 1997; McCune, J. v. The American Tobacco Company, et al., United States District Court for the Southern District of West Virginia, January 31, 1997; McDowell, L. v. The American Tobacco Company; 5th Judicial District, Parish of Franklin, State of Louisiana, March 3, 2000; McGuiness, D. v. The American Tobacco Company, et al., Supreme Court of New York, New York County, May 28, 1998 (formerly reported under the caption "Arnett"); McGuinness, J. v. The American Tobacco Company, et al., Supreme Court of New York, New York County, June 30, 1997; McLane, J. v. The American Tobacco Company, et al., Supreme Court of New York, Richmond County, May 13, 1997; Miele v. The American Tobacco Company, et al., Supreme Court of New York, Nassau County, June 30, 1997, (formerly reported under the caption "Cameron"); Miller, A. v. Brown & Williamson Tobacco Corporation, et al., Circuit Court, Kanawha County, West Virginia, January 26, 1999; Mishk, J. v. The American Tobacco Company, et al., Supreme Court of New York, New York County, May 2, 1997; Morris, L. v. R.J. Reynolds, et al., Circuit Court of the State of West Virginia, Kanawha County, March 13, 1998; National Asbestos Workers Medical Fund v. The American Tobacco Company, et al., United States District Court, Eastern District of New York, March 27, 1998; 6 Newberg v. The American Tobacco Co., et al., Supreme Court of New York, Kings County, July 14, 1998 (formerly reported under the caption "Krochtengel"); Newell, K. v. The American Tobacco Company, et al., Supreme Court of New York, Suffolk County, October 3, 1997; Newkirk, S. v. The American Tobacco Company, et al., Circuit Court of the State of West Virginia, Kanawha County, July 31, 1998; Norton, W. v. Brown & Williamson Tobacco Corporation, et al., United States District Court for the Southern District of Indiana, May 3, 1996; Owens, J. v. R.J. Reynolds Tobacco Company, et al., USDC, Eastern District of LA, December 28, 1999; Panama (The Republic of) v. The American Tobacco Company, et al., Civil District Court for the Parish of Orleans, New Orleans, Louisiana, August 25, 1998; Parsons, D. v. AC&S, Inc., et al., Circuit Court of the State of West Virginia, Kanawha County, February 27, 1998; Perez, P. v. The American Tobacco Company, et al., Supreme Court of New York, Kings County, June 23, 1997; Perri, A. v. The American Tobacco Company, et al., Supreme Court of New York, Nassau County, October 17, 1997; Piccione, Y. v. The American Tobacco Company, et al., Supreme Court of New York, Kings County, September 29, 1997; Portnoy, L. v. The American Tobacco Company, et al., Supreme Court of New York, New York County, October 21, 1997; Reitano, L. v. The American Tobacco Company, et al., Supreme Court of New York, Kings County, August 22, 1996; 7 Rico, S. v. The American Tobacco Company, et al., Supreme Court of New York, New York County, November 30, 1998; Rubinobitz, L. v. The American Tobacco Company, et al., Supreme Court of New York, Nassau County, May 28, 1997; Russoff v. The American Tobacco Company, et al., Supreme Court of New York, Kings County, January 6, 1997 (formerly reported under the caption "Rinaldi"); Sao Paulo (State of) of the Federative Republic of Brazil) v. The American Tobacco Company, et al., State of Louisiana, February 14, 2000; Schulhoff, E. v. The American Tobacco Company, et al., Supreme Court of New York, Queens County, October 7, 1997; Schwartz, I. v. The American Tobacco Company, et al., Supreme Court of New York, Nassau County, May 19, 1997; Schwartz, P. v. The American Tobacco Company, et al., Supreme Court New York, Kings County, December 9, 1996; Scott, G. v. The American Tobacco Company, et al., United States District Court for the Eastern District of Louisiana, Orleans Parish, May 28, 1996; Senzer, B. v. The American Tobacco Company, et al., Supreme Court of New York, Queens County, May 13, 1997; Shaffer, G. v. The American Tobacco Company, et al., Superior Court of California, County of Sacramento, February 14, 2000; Shapiro, M. v. The American Tobacco Company, et al., Supreme Court of New York, New York County, June 17, 1997; Siegel, P. v. The American Tobacco Company, et al., Supreme Court of New York, Kings County, August 22, 1996; Silverman, P. v. Lorillard Tobacco Company, et al., Supreme Court of New York, Kings County, July 7, 1999; 8 Smith, BJ v. The American Tobacco Company, et al., Supreme Court of New York, Queens County, August 27, 1997; Sola, L. v. The American Tobacco Company, et al., Supreme Court of New York, Bronx County, July 16, 1996; Sprung, L. v. The American Tobacco Company, et al., Supreme Court of New York, Kings County, May 13, 1997; Standish, J. v. The American Tobacco Company, Supreme Court of New York, Bronx County, July 11, 1997; Sweeney, E. v. The American Tobacco Co., et al., Court of Common Pleas, State of Pennsylvania, Allegheny County, October 30, 1998; Tennessee (Beckom) v. The American Tobacco Company, et al., United States District Court, Eastern Division of Tennessee, May 8, 1997; Thomas, E. v. The American Tobacco Co., et al., Circuit Court, State of Missouri, Jefferson County, October 9, 1998; Thompson, J. v. American Tobacco Company, Inc., et al., State of Minnesota District Court, County of Ramsey Judicial District, September 4, 1996 (formerly reported under the caption "Masepohl"); Tsango v. The American Tobacco Company, et al., Supreme Court of New York, Kings County, July 2, 1997, (formerly reported under the caption "Leiderman"); Tucker, D. v. The American Tobacco Company, et al., U.S.D.C., District of Nevada, March 21, 2000; Ukraine Soviet Republic (The) v. American Brands, Inc. n/k/a Fortune Brands, Inc. et al., USDC, The District of Columbia, November 19, 1999; Utah Laborers, et al. v. The American Tobacco Company, et al., United States District Court for the District of Utah, June 4, 1998; 9 Valentin, A. v. Fortune Brands, Inc., et al., Supreme Court of New York, Queens County, September 2, 1997; Wagner v. The American Tobacco Company, et al., Supreme Court of New York, Kings County, April 17, 1997 (formerly reported under the caption "Levinson"); Walgreen, C. v. The American Tobacco Company, et al., Supreme Court of New York, New York County, May 23, 1997; Werner, R. v. Fortune Brands, Inc., et al., Supreme Court of New York, Queens County, December 12, 1997; Wilkinson, L. v. The American Tobacco Company, et al., Circuit Court, Putnam County, West Virginia, January 19, 1999; Young, A. v. The American Tobacco Company, et al., Civil District Court for the Parish of Orleans, Louisiana, November 12, 1997; Zarudsky, W. v. The American Tobacco Company, et al., Supreme Court of New York, Nassau County, May 28, 1997; Zeringue, E. v. The American Tobacco Co., et al., District Court of Louisiana, Jefferson Parish, September 9, 1998; and Zuzalski, W. v. The American Tobacco Company, et al., Supreme Court of New York, Queens County, April 3, 1997. 10 List of Terminated Cases The following cases, previously listed as pending, have been dismissed and not previously reported as such: Adkins, B. v. The American Tobacco Company, et al., Circuit Court of the State of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00; Altman, S. v. Fortune Brands, Inc., et al., Supreme Court of New York, New York County, December 16, 1997, Dismissed 10/5/98; Anderson, C. v. Fortune Brands, Inc., et al., Supreme Court of New York, Kings County, October 30, 1997, Dismissed 3/15/00; Anderson, D. v. The American Tobacco Company, et al., Circuit Court of the State of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00; Badillo v. The American Tobacco Company, et al., United States District Court for the District of Nevada, October 8, 1997, Dismissed; Baum v. The American Tobacco Company, et al., Circuit Court of the State of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00; Blankenship, D. v. The American Tobacco Company, et al., Circuit Court of the State of West Virginia, Kanawha County, July 23, 1999, Dismissed; Boggess v. The American Tobacco Company, et al., Circuit Court of the State of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00; Bolin v. The American Tobacco Company, et al., Circuit Court of the State of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00; 11 Brammer v. The American Tobacco Company, et al., United States District Court for the Southern District of Iowa, June 30, 1997, Dismissed 7/13/99; Brown, E. v. The American Tobacco Company, et al., Circuit Court of the State of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00; Brown-Jones v. The American Tobacco Company, et al., Superior Court of Georgia, Richmond County, January 13, 1998, Dismissed; Brumfield v. The American Tobacco Company, et al., Circuit Court of the State of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00; Byus v. The American Tobacco Company, et al., Circuit Court of the State of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00; Carter v. The American Tobacco Company, et al., Circuit Court of the State of West Virginia, Kanawha County, October 28, 1998, Dismissed; Chamberlain v. The American Tobacco Company, et al., United States District Court for the Northern District of Ohio, August 14, 1996, Dismissed; Childers v. The American Tobacco Company, et al., Circuit Court of the State of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00; Christensen v. Philip Morris Companies, Inc., et al., United States District Court, Las Vegas, Nevada, April, 3, 1998, Dismissed; Clay, D. v. The American Tobacco Company, et al., Circuit Court of the State of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00; Clay, J. v. The American Tobacco Company, et al., United States District Court for the Southern District of Illinois, May 22, 1997, Dismissed 8/9/99; 12 Colfield v. The American Tobacco Co., et al., United States District Court for the Eastern District of California, September 3, 1998, Dismissed; Combs v. The American Tobacco Company, et al., Circuit Court of the State of West Virginia, Kanawha County, October 28, 1998, Dismissed; Compton v. The American Tobacco Company, et al., Circuit Court of the State of West Virginia, Kanawha County, October 28, 1998, Dismissed; Construction Laborers of Greater St. Louis Welfare Fund, et al. v. The American Tobacco Co., et al., United States District Court for the Eastern District of Missouri, October 20, 1998, Dismissed 1/19/00; Cook v. The American Tobacco Co., et al., United States District Court for the Eastern District of California, September 3, 1998, Dismissed; Cooper v. The American Tobacco Company, et al., Circuit Court of the State of West Virginia, Kanawha County, October 28, 1998, Dismissed; Craig v. The American Tobacco Company, et al., Circuit Court of the State of West Virginia, Kanawha County, October 28, 1998, Dismissed; Creekmoore v. Brown & Williamson Tobacco Corporation, et al., Superior Court of the State of North Carolina, Buncombe County, July 31, 1998, Dismissed 5/11/99; Davis v. R.J. Reynolds Tobacco Company, et al., Iowa District Court, Polk County, October 23, 1997, Dismissed 2/8/00; Dean v. The American Tobacco Company, et al., Circuit Court of the State of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00; Dempsey v. The American Tobacco Company, et al., Circuit Court of the State of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00; 13 Doss v. R.J. Reynolds, et al., Circuit Court of Mississippi, Jefferson County, August 17, 1999, Dismissed; Duncan v. The American Tobacco Company, et al., Circuit Court of the State of West Virginia, Kanawha County, October 28, 1998, Dismissed; Fink v. The American Tobacco Company, et al., Supreme Court of New York, New York County, June 16, 1997, Dismissed 1/26/99; Fuller v. The American Tobacco Company, et al., Circuit Court of the State of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00; Green, M. v. The American Tobacco Company, et al., 18th Judicial District Court of Sedgwick County, Kansas, Civil Department, February 6, 1997 (formerly reported under the caption "Emig"), Dismissed; Gruder v. Fortune Brands, Inc., et al., Supreme Court of New York, Kings County, December 17, 1997, Dismissed 11/23/98; Hellen v. The American Tobacco Company, et al., Supreme Court of New York, Kings County, August 23, 1996, Dismissed 10/4/99; Helt v. The American Tobacco Co., et al., United States District Court for the Eastern District of California, September 3, 1998, Dismissed; Hibbs v. The American Tobacco Company, et al., Circuit Court of the State of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00; Hodge v. The American Tobacco Company, et al., Circuit Court of the State of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00; Humphreys v. The American Tobacco Company, et al., Circuit Court of the State of West Virginia, Kanawha County, October 28, 1998, Dismissed; 14 Husty v. The American Tobacco Company, et al., Circuit Court of the State of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00; Jenkins v. The American Tobacco Company, et al., Circuit Court of the State of West Virginia, Kanawha County, October 28, 1998, Dismissed; Jones v. The American Tobacco Company, et al., Circuit Court of the State of West Virginia, Kanawha County, October 28, 1998, Dismissed; King, D. v. The American Tobacco Company, et al., Circuit Court of the State of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00; Kupat Holim Clalit v. Philip Morris, Inc., et al., Jerusalem District Court, September 28, 1998, Dismissed; Likens v. The American Tobacco Company, et al., Circuit Court of the State of West Virginia, Kanawha County, October 28, 1998, Dismissed; Little v. Brown & Williamson Tobacco Corp., et al., Court of Common Pleas, Charleston, South Carolina, May 26, 1998, Dismissed; Mason v. American Brands, Inc. n/k/a Fortune Brands, Inc. et al., Iowa District Court, Polk County, March 12, 1999, Dismissed 6/28/99; Maynard v. The American Tobacco Company, et al., Circuit Court of the State of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00; McCormick v. The American Tobacco Company, et al., Circuit Court of the State of West Virginia, Kanawha County, October 28, 1998, Dismissed; McNelly v. The American Tobacco Company, et al., Circuit Court of the State of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00; 15 Miller, B. v. The American Tobacco Company, et al., Circuit Court of the State of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00; Mitchem v. The American Tobacco Company, et al., Circuit Court of the State of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00; Murphy v. The American Tobacco Company, et al., United States District Court for the District of Nevada, Southern Division, January 6, 1998, Dismissed; Peterson v. The American Tobacco Company, et al., Circuit Court of the First Circuit, Hawaii, February 6, 1997, Dismissed 12/2/99; Piscitello v. Philip Morris Incorporated, et al., Superior Court of New Jersey Law Division, Middlesex County, July 28, 1997, Dismissed 10/27/99; Randolph v. The American Tobacco Company, et al., Circuit Court of the State of West Virginia, Kanawha County, October 28, 1998, Dismissed; Ritchie v. The American Tobacco Company, et al., Circuit Court of the State of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00; Sanders v. The American Tobacco Company, et al., Circuit Court of the State of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00; Shamblen v. The American Tobacco Company, et al., Circuit Court of the State of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00; Speece v. The American Tobacco Company, et al., Circuit Court of the State of West Virginia, Kanawha County, October 28, 1998, Dismissed; Stone, N. v. The American Tobacco Company, et al., Circuit Court of the State of West Virginia, Kanawha County, July 31, 1998; Dismissed February 8, 2000; 16 Tantum v. The American Tobacco Company, et al., Court of Common Pleas for the County of Philadelphia, Pennsylvania, December 21, 1998, Dismissed 2/8/00; Thompson, B. v. The American Tobacco Co., et al., Circuit Court of the State of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00; Thompson, E. v. The American Tobacco Company, et al., Circuit Court of the State of West Virginia, Kanawha County, July 31, 1998, Dismissed; Tranquill v. The American Tobacco Company, et al., Circuit Court of the State of West Virginia, Kanawha County, October 28, 1998, Dismissed; University of South Alabama v. The American Tobacco Company, et al., United States District Court, Southern Division of Alabama, May 23, 1997, Dismissed 1/13/00; Van Fossen v. The American Tobacco Co., et al., United States District Court for the Eastern District of California, September 3, 1998, Dismissed; Wayne v. The American Tobacco Company, et al., Circuit Court of the State of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00; Whaley v. The American Tobacco Company, et al., Circuit Court of the State of West Virginia, Kanawha County, October 28, 1998, Dismissed; Whiddon v. The American Tobacco Company, Inc., et al., 36th Judicial District Court, Parish of Beauregard, Louisiana, December 19, 1997, Dismissed 2/3/98; Williams v. The American Tobacco Company, et al., Circuit Court of the State of West Virginia, Kanawha County, October 28, 1998, Dismissed; 17 The following cases, previously listed as pending, but in which no complaint was ever filed with the court, have been discontinued without prejudice. Anes v. The American Tobacco Co., et al., Court of Common Pleas for the County of Philadelphia, Pennsylvania, July 1, 1997; Daly v. The American Tobacco Company, et al., Court of Common Pleas for the County of Philadelphia, Pennsylvania, July 1, 1997; El-Haddi v The American Tobacco Company, et al., Court of Common Pleas for the County of Philadelphia, Pennsylvania, May 29, 1997; Ferguson v. The American Tobacco Company, et al., Court of Common Pleas for the County of Philadelphia, Pennsylvania, May 29, 1997; Folkman v. The American Tobacco Co., et al., Court of Common Pleas for the County of Philadelphia, Pennsylvania, October 28, 1998; Glaser v. The American Tobacco Co., et al., Court of Common Pleas for the County of Philadelphia, Pennsylvania, July 21, 1997; Greenfield v. The American Tobacco Co., et al., Court of Common Pleas for the County of Philadelphia, Pennsylvania, January 28, 1998; Harley v. The American Tobacco Co., et al., Court of Common Pleas for the County of Philadelphia, Pennsylvania, August 28, 1998; Orr v. The American Tobacco Company, et al., Court of Common Pleas for the County of Philadelphia, Pennsylvania, May 29, 1997; Pennetti v. The American Tobacco Co., et al., Court of Common Pleas for the County of Philadelphia, Pennsylvania, April 13, 1998; 18 Simmons v. The American Tobacco Company, et al., Court of Common Pleas for the County of Philadelphia, Pennsylvania, April 1, 1998; Thompson, G. v. The American Tobacco Co., et al., Court of Common Pleas for the County of Philadelphia, Pennsylvania, October 30, 1997; Tiscavitch v. The American Tobacco Co., et al., Court of Common Pleas for the County of Philadelphia, Pennsylvania, May 28, 1998; Upshur v. The American Tobacco Company, et al., Court of Common Pleas for the County of Philadelphia, Pennsylvania, October 10, 1997. 19 -----END PRIVACY-ENHANCED MESSAGE-----