UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period Commission file number 1-9076
ended September 30, 1999
FORTUNE BRANDS, INC.
---------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3295276
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1700 East Putnam Avenue, Old Greenwich, Connecticut 06870-0811
---------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 698-5000
------------
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 ( )
The number of shares outstanding of the registrant's Common stock, par value
$3.125 per share, at October 29, 1999 was 164,082,498 shares.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
- ------ --------------------
FORTUNE BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
---------------------------------------
(In millions)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(Unaudited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 69.3 $ 40.3
Accounts receivable, net 910.7 919.9
Inventories
Bulk whiskey 335.6 338.0
Other raw materials, supplies and
work in process 257.1 280.8
Finished products 436.4 468.8
-------- --------
1,029.1 1,087.6
Other current assets 266.8 217.5
-------- --------
Total current assets 2,275.9 2,265.3
Property, plant and equipment, net 1,107.2 1,119.9
Intangibles resulting from
business acquisitions, net 2,536.9 3,761.3
Other assets 277.1 213.2
--------- --------
Total assets $6,197.1 $7,359.7
========= ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
2
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
---------------------------------------
(In millions, except per share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(Unaudited)
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities
Notes payable to banks $ 31.7 $ 71.5
Commercial paper 678.0 249.9
Current portion of long-term debt 1.5 183.3
Accounts payable 245.8 274.9
Accrued taxes 457.5 472.4
Accrued expenses and other liabilities 656.4 592.6
-------- --------
Total current liabilities 2,070.9 1,844.6
Long-term debt 969.7 981.7
Deferred income taxes 43.5 49.9
Postretirement and other liabilities 429.2 386.0
-------- --------
Total liabilities 3,513.3 3,262.2
-------- --------
Stockholders' equity
$2.67 Convertible Preferred stock -
redeemable at Company's option 10.0 10.5
Common stock, par value $3.125 per
share, 229.6 shares issued 717.4 717.4
Paid-in capital 117.7 147.6
Accumulated other
comprehensive income (loss) (11.1) 4.7
Retained earnings 4,103.8 5,245.4
Treasury stock, at cost (2,254.0) (2,028.1)
-------- --------
Total stockholders' equity 2,683.8 4,097.5
-------- ---------
Total liabilities and
stockholders' equity $6,197.1 $7,359.7
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
for the Nine Months Ended September 30, 1999 and 1998
-----------------------------------------------------
(In millions, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Net sales $4,052.3 $3,830.0
Cost of products sold 2,131.2 1,967.7
Excise taxes on spirits and wine 297.3 307.0
Advertising, selling, general and
administrative expenses 1,131.6 1,047.6
Amortization of intangibles 65.7 80.5
Write-down of goodwill 1,126.0 -
Restructuring charges 106.7 -
Interest and related expenses 77.4 76.6
Other (income) expenses, net 2.6 3.7
-------- --------
Income (loss) before income taxes
and extraordinary items (886.2) 346.9
Income taxes 105.6 149.2
-------- --------
Income (loss) before extraordinary items (991.8) 197.7
Extraordinary items - (30.5)
-------- --------
Net income (loss) $ (991.8) $ 167.2
======== ========
Earnings per Common share
Basic
Income (loss) before extraordinary items $(5.92) $1.14
Extraordinary items - (.18)
------ -----
Net income (loss) $(5.92) $ .96
====== =====
Diluted
Income (loss) before extraordinary items $(5.92) $1.12
Extraordinary items - (.18)
------ -----
Net income (loss) $(5.92) $.94
====== =====
Dividends paid per Common share $.66 $.63
====== =====
Average number of Common shares outstanding
Basic 167.6 172.5
===== =====
Diluted 167.6 176.8
===== =====
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
for the Three Months Ended September 30, 1999 and 1998
-----------------------------------------------------
(In millions, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Net sales $1,339.3 $1,300.3
Cost of products sold 699.9 681.0
Excise taxes on spirits and wine 94.0 107.5
Advertising, selling, general and
administrative expenses 379.3 346.3
Amortization of intangibles 19.2 27.3
Restructuring charges 26.8 -
Interest and related expenses 26.2 26.2
Other (income) expenses, net 2.6 2.6
-------- --------
Income before income taxes 91.3 109.4
Income taxes 43.1 52.6
--------- --------
Net income $ 48.2 $ 56.8
======== ========
Earnings per Common share
Basic $ .29 $.33
==== ====
Diluted $ .28 $.32
==== ====
Dividends paid per Common share $ .22 $.21
==== ====
Average number of Common shares outstanding
Basic 165.9 172.3
===== =====
Diluted 169.4 175.9
===== =====
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
for the Nine Months Ended September 30, 1999 and 1998
-----------------------------------------------------
(In millions)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
--------- -------
<S> <C> <C>
Operating activities
Net income (loss) $ (991.8) $167.2
Write-down of goodwill 1,126.0 -
Restructuring charges 106.7 -
Extraordinary items - 30.5
Depreciation and amortization 173.2 186.5
Decrease in accounts receivable 7.7 1.9
Decrease (increase) in inventories 50.4 (61.4)
Decrease in accounts payable, accrued
expenses and other liabilities (72.6) (47.7)
(Decrease)increase in accrued taxes (1.0) 1.6
Other operating activities, net (50.3) (30.3)
--------- ------
Net cash provided from operating activities 348.3 248.3
--------- ------
Investing activities
Additions to property, plant and equipment (136.0) (169.9)
Acquisitions, net of cash acquired (27.3) (270.4)
Proceeds from disposition of operations - 17.0
Other investing activities, net 20.1 0.6
-------- ------
Net cash used by investing activities (143.2) (422.7)
-------- ------
Financing activities
Increase in short-term debt, net 388.6 136.4
Issuance of long-term debt 1.7 617.5
Repayment of long-term debt (194.2) (374.8)
Dividends to stockholders (111.6) (109.3)
Cash purchases of Common stock for treasury (336.5) (84.3)
Proceeds received from exercise of stock options 78.7 48.8
Other financing activities, net (0.6) (36.2)
-------- ------
Net cash (used) provided by financing activities (173.9) 198.1
-------- ------
Effect of foreign exchange rate changes on cash (2.2) (3.7)
-------- ------
Net increase in cash and cash equivalents 29.0 20.0
Cash and cash equivalents at beginning of period 40.3 54.2
-------- ------
Cash and cash equivalents at end of period $ 69.3 $ 74.2
======== ======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
6
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
for the Nine Months Ended September 30, 1999 and 1998
-------------------------------------------------------------
(In millions)
(Unaudited)
<TABLE>
<CAPTION>
$2.67 Accumulated
Convertible other Treasury
Preferred Common Paid-in comprehensive Retained stock,
stock stock capital income (loss) earnings at cost Total
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 $11.3 $717.4 $151.1 $ 6.9 $5,129.7 $(1,999.3) $4,017.1
Comprehensive income
Net income - - - - 167.2 - 167.2
Changes during the period - - - 9.1 - - 9.1
------ ------ ------ ----- -------- ------ --------
Total comprehensive income (loss) - - - 9.1 167.2 - 176.3
------ ------ ------ ----- -------- ------ --------
Dividends - - - - (147.5) - (147.5)
Purchases - - - - - (84.1) (84.1)
Conversion of preferred stock and
delivery of stock plan shares (0.6) - (7.4) - - 71.2 63.2
----- ------ ------ ----- -------- --------- --------
Balance at September 30, 1998 $10.7 $717.4 $143.7 $16.0 $5,149.4 $(2,012.2) $4,025.0
===== ====== ====== ===== ======== ========= ========
Balance at December 31, 1998 $10.5 $717.4 $147.6 $ 4.7 $5,245.4 $(2,028.1) $4,097.5
Comprehensive income
Net income (loss) - - - - (991.8) - (991.8)
Changes during the period - - - (15.8) - - (15.8)
----- ----- ------ ------ -------- -------- --------
Total comprehensive income (loss) - - - (15.8) (991.8) - (1,007.6)
----- ----- ------ ------ -------- -------- --------
Dividends - - - - (149.8) - (149.8)
Purchases - - - - - (337.6) (337.6)
Conversion of preferred stock and
delivery of stock plan shares (0.5) - (29.9) - - 111.7 81.3
----- ------ ------ ------ -------- --------- --------
Balance at September 30, 1999 $10.0 $717.4 $117.7 $(11.1) $4,103.8 $(2,254.0) $2,683.8
===== ====== ====== ======= ======== ========= ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
7
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Principles of Consolidation
The condensed consolidated balance sheet as of September 30,
1999, the related condensed consolidated statements of income for the
three-month and nine-month periods ended September 30, 1999 and 1998,
and the related condensed consolidated statements of cash flows and
stockholders' equity for the nine-month periods ended September 30,
1999 and 1998 are unaudited. In the opinion of management, all
adjustments necessary for a fair presentation of such financial
statements have been included. Such adjustments included write-downs of
goodwill and restructuring and other nonrecurring charges in 1999 and
normal recurring items. Interim results may not be indicative of
results for a full year.
The condensed consolidated financial statements and notes are
presented as permitted by Form 10-Q and do not contain certain
information included in the Company's annual consolidated financial
statements and notes. The year-end condensed consolidated balance sheet
was derived from the Company's audited financial statements, but does
not include all disclosures required by generally accepted accounting
principles. This Form 10-Q should be read in conjunction with the
Company's consolidated financial statements and notes incorporated by
reference in its 1998 Annual Report on Form 10-K.
2. 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 was a
preferable policy. The rate used in determining discounted cash flows
was a rate corresponding to the Company's cost of capital. The Company
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. Accordingly, the effect of
the change was recorded in the second quarter of 1999.
As a result of the change to a discounted cash flow
methodology, the Company recorded a non-cash write-down of goodwill of
$1,126 million ($6.71 per share) in the second quarter of 1999.
8
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Change in Accounting for Goodwill (Concluded)
The write-downs by business segment were: golf products -
$517.7 million, spirits and wine - $502.7 million and office products -
$105.6 million. These charges represent the amount required to
write-down the carrying values of the goodwill of these segments to the
Company's estimate, as of April 1, 1999, of the estimated future
discounted cash flows using the methodology described below.
Effective April 1, 1999, the Company's accounting policy for
assessing recoverability of goodwill is as follows:
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. Estimated cash flows are determined by
disaggrega-ting its 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.
3. Acquisitions/Joint Venture
In October 1999, the home products business acquired NHB Group
Ltd., a Canadian 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 approximately $100 million, including
fees and expenses.
9
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Acquisitions/Joint Venture (Concluded)
On August 13, 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, which
began operating in August 1999, 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 will be recorded at its book value of
assets contributed plus cash.
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. These operations have been included in
consolidated results from the dates of acquisition. Had the
acquisitions been consolidated from January 1, 1997, they would not
have materially affected results.
4. Information on Business Segments
Net sales and operating company contribution are as follows:
<TABLE>
<CAPTION>
Operating
Net Company
Sales Contribution
--------------- --------------
Nine Months Ended September 30,
1999 1998 1999 1998
---- ---- ---- ----
(In millions)
<S> <C> <C> <C> <C>
Home products $1,379.9 $1,143.3 $210.9 $172.2
Office products 963.2 986.5 47.0 79.0
Golf products 801.6 820.1 139.5 137.6
Spirits and wine 907.6 880.1 186.7 172.0
-------- -------- ------ ------
$4,052.3 $3,830.0 $584.1 $560.8
======== ======== ====== ======
</TABLE>
10
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Information on Business Segments (Continued)
<TABLE>
<CAPTION>
Operating
Net Company
Sales Contribution
--------------- --------------
Nine Months Ended September 30,
1999 1998 1999 1998
---- ---- ---- ----
(In millions)
<S> <C> <C> <C> <C>
Home products $ 474.9 $ 433.8 $ 71.3 $ 61.1
Office products 338.9 346.3 25.1 30.1
Golf products 222.0 214.7 28.9 27.1
Spirits and wine 303.5 305.5 69.1 65.2
-------- -------- ------ ------
$1,339.3 $1,300.3 $194.4 $183.5
======== ======== ====== ======
</TABLE>
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.
11
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Information on Business Segments (Concluded)
A reconciliation of operating company contribution to
consolidated income (loss) before income taxes and extraordinary items
is as follows:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1999 1998
------ ------
(In millions)
<S> <C> <C>
Operating company contribution $ 584.1 $560.8
Amortization of intangibles 65.7 80.5
Write-down of goodwill 1,126.0 -
Restructuring charges 106.7 -
Other nonrecurring charges 39.6 -
Interest and related expenses 77.4 76.6
Non-operating expenses 54.9 56.8
-------- ------
Income (loss) before income taxes
and extraordinary items (886.2) $346.9
======== ======
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1999 1998
------- ------
(In millions)
<S> <C> <C>
Operating company contribution $194.4 $183.5
Amortization of intangibles 19.2 27.3
Restructuring charges 26.8 -
Other nonrecurring charges 10.7 -
Interest and related expenses 26.2 26.2
Non-operating expenses 20.2 20.6
------- ------
Income before income taxes $ 91.3 $109.4
======= ======
</TABLE>
12
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Earnings Per Share
The computation of basic and diluted earnings per Common share
for "Income (loss) before extraordinary items" is as follows:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
---------------- ------------------
1999 1998 1999 1998
---- ---- ---- ----
(In millions, except per share amounts)
<S> <C> <C> <C> <C>
Income (loss) before extraordinary items $(991.8) $197.7 $48.2 $56.8
Less: Preferred stock dividends 0.7 0.7 0.2 0.3
------- ------ ----- -----
Income (loss) available to Common
stockholders - basic (992.5) 197.0 48.0 56.6
Convertible Preferred stock
dividend requirements - 0.7 0.2 0.3
------ ------ ----- -----
Income (loss) available to Common
stockholders - diluted $(992.5) $197.7 $48.2 $56.5
======= ====== ====== =====
Weighted average number of Common
shares outstanding - basic 167.6 172.5 165.9 172.3
Conversion of Convertible
Preferred stock - 2.2 2.0 2.2
Exercise of stock options - 2.1 1.5 1.4
----- ----- ----- -----
Weighted average number of Common
shares outstanding - diluted 167.6 176.8 169.4 175.9
===== ===== ===== =====
Earning (Loss) per Common share
Basic $(5.92) $1.14 $.29 $.33
====== ===== ==== ====
Diluted $(5.92) $1.12 $.28 $.32
====== ===== ==== ====
</TABLE>
The calculations of earnings per share on a diluted basis for
the nine months ended September 30, 1999 excludes the impact of the
Convertible Preferred stock and stock options, since they would result
in an antidilutive effect.
13
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Extraordinary Items
During the six-month period ended June 30, 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 for the nine months ended
September 30, 1998.
7. Restructuring and Other Nonrecurring Charges
Restructuring/Other Nonrecurring Charges - 1997
-----------------------------------------------
During 1997, the Company recorded pre-tax restructuring and
other nonrecurring charges of $298.2 million as follows:
<TABLE>
<CAPTION>
Nonrecurring
Cost of Sales
Restructuring Charges Total
------------- --------------- -----
(In millions)
<S> <C> <C> <C>
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
------ ----- ------
Total $209.1 $89.1 $298.2
====== ===== ======
</TABLE>
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.
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.
14
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Restructuring and Other Nonrecurring Charges (Continued)
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:
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1999
-------------------------------------------------------
Balance at Cash Non-Cash Balance at
12/31/98 Expenditures Write-offs 9/30/99
---------- ------------ ---------- ----------
(In millions)
<S> <C> <C> <C> <C>
Rationalization of
operations
Employment
termination costs $ 8.6 $(6.7) $(1.9)(1) $ -
Facility closing
costs 1.2 (0.8) (0.4)(1) -
Other 1.2 (1.4) 0.2 (1) -
International distribution
and lease agreements 4.2 (0.3) (3.9)(1) -
Loss on disposal of
fixed assets
and businesses 3.2 (0.8) (2.4) -
----- ---- ----- -----
$18.4 $(10.0) $(8.4) $ -
===== ====== ====== =====
</TABLE>
(1) 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 activities related to the 1997 restructuring and other
nonrecurring charges have been completed.
15
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Restructuring and Other Nonrecurring Charges (Continued)
Restructuring/Other Nonrecurring Charges - 1999
-----------------------------------------------
On April 27, 1999, the Company announced plans to reduce its
corporate workforce (at the time 185 people) by about one-third, and
relocate the corporate headquarters to an existing facility in
Lincolnshire, Illinois, by the end of 1999. These actions are expected
to result in a total of approximately $80-$90 million of pre-tax
restructuring and other nonrecurring charges during 1999, including $74
million recorded in the nine-month period ended September 30, 1999
($66.4 million and $7.6 million in the second and third quarters,
respectively).
Also on April 27, 1999, the Company announced that additional
restructuring actions will be taken to further reduce costs. While the
review of other potential projects, including evaluation of potential
savings, is still underway, charges totaling $72.3 million were
recorded in the nine-month period ended September 30, 1999 ($42.4
million and $29.9 million in the second and third quarters,
respectively). 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 next six to nine months in the range of $50-$70 million as
actions are initiated.
During the nine-month and three-month periods ended September
30, 1999, the Company recorded pre-tax restructuring charges as
follows:
Restructuring Charges
----------------------------------------------
Nine Months Ended Three Months Ended
September 30, 1999 September 30, 1999
-------------------- --------------------
(In millions)
Home products $23.6 $21.5
Office products 5.3 0.2
Golf products 11.4 5.1
Corporate office 66.4 _
----- ----
Total $106.7 $26.8
===== ====
16
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Restructuring and Other Nonrecurring Charges (Continued)
Home products includes reductions in force (approximately 820
positions) as a result of the move of substantially all of the lock
assembly operations and certain specialty plumbing operations to
Mexico.
Office products includes 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 approximates 390 positions.
Golf products includes asset write-offs and reductions in
force (approximately 180 positions) principally resulting from
consolidation of golf club facilities from six to three.
Corporate office includes employee related 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 relate to 130 people who are
either not relocating or whose positions are being eliminated.
Reconciliation of the restructuring liability is as follows:
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1999
--------- ------------ ---------- -----------
Total Cash Non-Cash Balance at
Provision Expenditures Write-offs 9/30/99
--------- ------------ ---------- -----------
(In millions)
<S> <C> <C> <C> <C>
Rationalization of
Operations
Employment
termination costs (1) $ 79.6 $ (6.3) $(28.9) $44.4
Other 5.6 (4.1) (0.2) 1.3
International distribution
and lease agreements 18.0 (0.4) (16.8) 0.8
Loss on disposal of assets 3.5 - (3.2) 0.3
------ ------- ------- ------
$106.7 $(10.8) $(49.1) $46.8
====== ======= ======= ======
</TABLE>
(1) As of September 30, 1999, 535 of the 1,520 positions were eliminated.
17
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Restructuring and Other Nonrecurring Charges (Concluded)
During the nine-month and three-month periods ended September
30, 1999, the Company recorded pre-tax other nonrecurring charges as
follows:
<TABLE>
<CAPTION>
Other Nonrecurring Charges
--------------------------------------------------------------------------
Nine Months Ended Three Months Ended
September 30, 1999 September 30, 1999
--------------------------------- -------------------------------
(In Millions)
Cost of Cost of
Sales SG&A Sales SG&A
Charges Charges Total Charges Charges Total
------- ------- ----- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Home Products $ 1.3 $ 0.7 $ 2.0 $ 1.3 $ 0.7 $ 2.0
Golf Products 23.9 5.5 29.4 0.5 - 0.5
Office Products - 0.6 0.6 - 0.6 0.6
Corporate Office - 7.6 7.6 - 7.6 7.6
----- ----- ----- ----- ----- -----
Total $25.2 $14.4 $39.6 $ 1.8 $ 8.9 $10.7
===== ===== ===== ===== ===== =====
</TABLE>
Other nonrecurring charges include charges related to the
restructuring activities:
Golf products includes inventory charges associated with discontinuance
of product lines and asset write-offs (including a note receivable
related to a previously sold operation).
Corporate office and Home products include relocation and
implementation costs and accelerated depreciation on furniture and
leasehold improvements.
18
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Comprehensive Income (Loss)
The components of accumulated other comprehensive income
(loss) are as follows:
<TABLE>
<CAPTION>
Foreign Minimum Accumulated
currency pension liability other comprehensive
adjustments adjustment income (loss)
----------- ----------------- -------------------
(In millions)
<S> <C> <C> <C>
Balance at December 31, 1997 $ 19.9 $(13.0) $ 6.9
Changes in nine months 9.1 - 9.1
------ ------ -----
Balance at September 30, 1998 $ 29.0 $(13.0) $16.0
====== ====== =====
Balance at December 31, 1998 $ 12.5 $(7.8) $ 4.7
Changes in nine months (15.8) - (15.8)
------ ------ -------
Balance at September 30, 1999 $ (3.3) $(7.8) $(11.1)
====== ====== =======
</TABLE>
For the three-month periods ended September 30, 1999 and 1998,
total comprehensive income was $61.9 million and $66.8 million,
respectively.
9. 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.
19
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Pending Litigation (Concluded)
Tobacco Litigation and Indemnification (Concluded)
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
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Concluded)
10. 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.
21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors of Fortune Brands, Inc.:
We have reviewed the condensed consolidated balance sheet of
Fortune Brands, Inc. and Subsidiaries as of September 30, 1999, the
related condensed consolidated statements of income for the three-month
and nine-month periods ended September 30, 1999 and 1998, and the
condensed consolidated statements of cash flows and stockholders'
equity for the nine-month periods ended September 30, 1999 and 1998.
These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards
established by the American Institute of Certified Public Accountants.
A review of interim financial information consists principally of
applying analytical procedures to financial data, and making inquiries
of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit in accordance with generally
accepted auditing standards, the objective of which is the expression
of an opinion regarding the consolidated financial statements taken as
a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the condensed consolidated
financial statements referred to above for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally
accepted auditing standards, the consolidated balance sheet as of
December 31, 1998, and the related consolidated statements of income,
cash flows and stockholders' equity for the year then ended (not
presented herein) and in our report dated February 3, 1999, we
expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 31,
1998 is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
PricewaterhouseCoopers LLP
11 Madison Avenue
New York, New York 10010
November 12, 1999
22
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
- ------ FINANCIAL CONDITION AND RESULTS OF OPERATIONS
-----------------------------------------------------------
FORTUNE BRANDS, INC. AND SUBSIDIARIES
--------------------------------------
Results of Operations for the Nine Months Ended September 30, 1999 as
Compared to the Nine Months Ended September 30, 1998
--------------------------------------------------------------------------
<TABLE>
<CAPTION>
Operating Company
Net Sales Contribution(1)
----------------- ------------------------
1999 1998 1999 1998
----- ---- ---- ----
(In millions)
<S> <C> <C> <C> <C>
Home products $1,379.9 $1,143.3 $210.9 $172.2
Office products 963.2 986.5 47.0 79.0
Golf products 801.6 820.1 139.5 137.6
Spirits and wine 907.6 880.1 186.7 172.0
-------- -------- ------ ------
$4,052.3 $3,830.0 $584.1 $560.8
======== ======== ====== ======
</TABLE>
(1) 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.
CONSOLIDATED
- ------------
Net sales increased $222.3 million, or 6%, on benefits from new products and
line extensions, acquisitions made in 1998, 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, changes in the way the Company sells through the MaxxiuM spirits and
wine joint venture (as described below), lower prices and lower average foreign
exchange rates. Operating company contribution increased 4% on gains in all
segments except office products.
As of April 1, 1999, the Company elected to change its method of measuring the
recoverability of goodwill from an undiscounted cash flow approach to a
discounted cash flow approach. The Company believes the discounted cash flow
approach, as described in Note 2 of the Notes to Condensed 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.
23
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
CONSOLIDATED (Continued)
- ------------
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-downs of goodwill.
As a result of this change for measuring impairment, the company recorded a
non-cash write-down of goodwill of $1,126 million ($6.71 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. As a result of the write-down, amortization of intangibles declined to
$65.7 million in the nine months ended September 30, 1999 from $80.5 million for
the same nine-month period last year.
On April 27, 1999, the Company announced plans to reduce its corporate workforce
(at the time 185 people) by about one-third and relocate the corporate
headquarters to an existing facility in Lincolnshire, Illinois, by the end of
1999. These actions are expected to result in a total of approximately $80-$90
million of pre-tax restructuring and other nonrecurring charges during 1999,
including $74 million recorded in the nine-month period ended September 30, 1999
($66.4 million and $7.6 million recorded in the second and third quarters,
respectively). These charges include employee related 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 relate to 130
people who are either not relocating or whose positions are being eliminated. As
a result, the Company will significantly change the structure of its
headquarters organization. The Company estimates total projected pre-tax
annualized savings from these actions to be in the range of $30 million.
Also on April 27, 1999, the Company announced that additional restructuring
actions will be taken to further reduce costs. While the review of other
potential projects, including evaluation of potential savings, is still
underway, charges totaling $72.3 million were recorded in the nine-month period
ended September 30, 1999 ($42.4 million and $29.9 million in the second and
third quarters, respectively). 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
next six to nine months in the range of $50-$70 million as actions are
initiated. Home products charges include reductions in force (approximately 820
positions) as a result of the move of substantially all of the lock assembly
operations and certain specialty
24
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
CONSOLIDATED (Continued)
- ------------
plumbing operations to Mexico. Office products charges include 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 office
products reduction in force approximates 390 positions. Golf products charges
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 (approximately 180 positions)
principally resulting from consolidation of golf club facilities from six to
three. The Company estimates total projected pre-tax savings from these actions
to be in the range of $20 million beginning in 2000. Much of the savings from
these actions are expected to be invested to further develop products and
brands.
In total, the Company recorded pre-tax restructuring and other nonrecurring
charges of $146.3 million, $93.3 million after-tax, or 56 cents per share during
the nine months ended September 30, 1999.
Interest and related expenses increased 1% reflecting higher average borrowings,
partly offset by lower interest rates.
The effective income tax rate comparison was distorted by the absence of tax
benefits on the write-down of goodwill and the impact of the restructuring and
other nonrecurring charges taken in 1999. Excluding these charges, the effective
income tax rates for the nine months ended September 30, 1999 and 1998 were
41.1% and 43.0%, respectively. The lower effective tax rate this year
principally reflected lower nondeductible goodwill amortization and a refund
associated with the settlement of a tax audit.
The loss before extraordinary items of $991.8 million, or $5.92 per share, for
the nine months ended September 30, 1999 compared with income before
extraordinary items of $197.7 million, or $1.14 basic and $1.12 diluted per
share, for the same nine-month period last year.
The extraordinary items charge in the nine months ended September 30, 1998 of
$30.5 million ($46.9 million pre-tax), or 18 cents per share, resulted from the
extinguishment of debt. (See Note 6.)
Net loss of $991.8 million, or $5.92 per share, compared with net income of
$167.2 million, or 96 cents basic and 94 cents diluted per share, for the same
nine-month period last year.
Income from operations before charges, which represents income (loss) before
extraordinary items, adjusted to exclude both the $1,126 million
25
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
CONSOLIDATED (Continued)
- ------------
goodwill write-down and the $146.3 million ($93.3 million after-tax)
restructuring and other nonrecurring charges taken in 1999, was $227.5 million,
or $1.35 basic and $1.33 diluted per share for the nine months ended September
30, 1999, as compared with $197.7 million, or $1.14 basic and $1.12 diluted per
share for the same nine-month period last year.
In June 1999, FAS Statement No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB 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.
YEAR 2000 READINESS DISCLOSURE
- ------------------------------
GENERAL. The "Year 2000", or "Y2K", problem exists because many computer
programs and computerized devices use only the last two digits to refer to a
year. As a result, these programs and devices may not properly recognize a year
that begins with "20" instead of "19". If this problem is not corrected, many
computer applications could fail or produce erroneous results.
In early 1997, we established a task force, comprised of our and our
subsidiaries' information technology specialists, to develop an action plan to
address the Year 2000 issues. The task force functions primarily as a means to
coordinate information sharing across our operating companies, to assess and
facilitate the progress towards becoming Y2K compliant and to regularly advise
our management and Board of Directors regarding the project's status.
PROJECT OVERVIEW. We and our operating companies have focused our Y2K compliance
efforts in three areas: information technology ("IT") related systems and
processes such as operating systems, applications and programs; embedded logic
("non-IT") systems and processes such as manufacturing machines, security
devices, etc.; and compliance efforts of third parties (such as suppliers,
customers, joint venture partners, government, utilities and other service
providers). Within each of the IT and non-IT areas, the project includes
inventorying all programs and devices and identifying those that are affected by
the Y2K issue, developing strategies
26
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
CONSOLIDATED (Continued)
- ------------
YEAR 2000 READINESS DISCLOSURE (Continued)
- ------------------------------
PROJECT OVERVIEW (Concluded)
party aspect of the project involves contacting and, where appropriate, visiting
with significant third parties to request that they confirm their own Y2K
compliance.
In addition to the efforts that have been focused on resolution of the Year 2000
issue, some of our business segments also have undertaken the normal course
replacement of older IT systems and non-IT devices with enterprise programs and
other system solutions to improve business processes. These enterprise programs
also will result in making the affected systems Year 2000 compliant.
INTERNAL STATE OF READINESS. The Company believes all critical IT and non-IT
projects are complete.
THIRD PARTY RISKS. Many third parties have responded to our requests for
information and have indicated their intention to be Y2K compliant. We have made
more extensive inquiries with our significant suppliers and customers, and we
have conducted limited testing of third party systems that interface with
certain of our systems. If one or more significant third parties fail to be Y2K
compliant, results may include, among other things, temporary plant closings,
delays in the delivery of products, delays in the receipt of supplies and
invoice and collection errors.
The Y2K compliance of third parties is inherently difficult to assess. As a
result, each of our business segments consider disruptions caused by the failure
of such parties to be Y2K compliant to present the most reasonably likely
worst-case scenarios. In addition to the risks facing businesses generally, such
as the failure of significant service providers in the utilities,
communications, transportation, banking, financial and government sectors to be
Y2K compliant, we face certain risks specific to our businesses. The continuing
rationalization of manufacturing activities in the home, office and golf
segments has resulted in an increase in the level of manufacturing, and
purchases from vendors and suppliers in less-developed countries. The Y2K
compliance in such countries is particularly difficult to assess, and the
failure of key suppliers to be Y2K compliant could cause disruptions in these
segments. Also, the continued trend
27
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Concluded)
---------------------------------------------------------
CONSOLIDATED (Continued)
- ------------
YEAR 2000 READINESS DISCLOSURE (Continued)
- ------------------------------
THIRD PARTY RISKS (Continued)
towards consolidation among the customer base in the home and office products
segments presents increased risks if one of these large customers is not Y2K
compliant and interrupts purchases. Because the sales in these segments are
becoming concentrated on a number of larger customers, the failure of one or
more such customers to be Y2K compliant could result in interruptions in sales
to affected customers. Finally, the spirits and wine segment faces potential
disruptions in the U.S. related to non-compliance by any of the state and local
government entities that control the distribution and sale of spirits and wine
in 18 "control" states. In essence, the requirement that spirits and wine be
sold only through the government in such jurisdictions may legally prohibit the
spirits and wine segment from taking the necessary steps to continue to sell or
distribute products until such government entities' Y2K problems are
successfully resolved.
CONTINGENCY PLANNING. We have been focusing our efforts on compliance, and we
believe the critical IT and non-IT portions of the project are compliant. In
addition, we are engaged in continuing efforts to evaluate the Y2K compliance of
our significant third party suppliers and customers. The Year 2000 problem
presents a number of risks that are beyond our reasonable control. Accordingly,
the Company's various segments will implement contingency plans with respect to
critical activities to the extent considered necessary. Depending upon the needs
as assessed by each segment, such plans may include one or more of the following
elements: arranging for additional raw material, component and manufacturing
capacity sources; a limited building of supplies and inventory; the escrow of
computer source codes for key software applications; arranging for the
availability of appropriate staff at critical periods; development of manual
work-around procedures and reviewing data recovery disaster plans.
COSTS TO ADDRESS YEAR 2000 ISSUES. Based on the efforts to date and on project
plans, we currently estimate that the total costs (including costs of existing
internal resources) will be approximately $25 million, which is being provided
by internally generated sources. Of the total cost, we spent approximately 95
percent as of September 30, 1999.
28
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Concluded)
---------------------------------------------------------
CONSOLIDATED (Concluded)
- ------------
YEAR 2000 READINESS DISCLOSURE (Concluded)
- ------------------------------
THIRD PARTY RISKS (Concluded)
CONCLUSION. Based on current assessment efforts, we believe that our critical
internal Year 2000 issues have been resolved. However, the Year 2000 problem
presents a number of risks that are beyond our reasonable control, particularly
with respect to the Y2K compliance of third parties, both domestic and
international. Although we believe that our Y2K program is designed to
appropriately identify and address those issues which are within our reasonable
control, there can be no assurance that our efforts will be fully effective or
that Y2K issues will not have a material adverse effect upon our results of
operations, cash flows or financial condition.
29
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
Home Products
- -------------
Net sales increased $236.6 million, or 21%. The increase was primarily
attributable to the acquisition of Schrock cabinets in June 1998 and overall
volume and price increases. The overall volume increases reflect higher volume
in existing products, line extensions and the introduction of new products.
Operating company contribution increased $38.7 million, or 22%. The operating
company contribution increase was caused by higher sales and improved gross
margin, partly offset by increased operating expenses. The gross margin
improvement reflected the benefits of higher volume, favorable product mix and
higher selling prices. The increased operating expenses were caused by higher
volume-related selling expenses and higher advertising expenses (principally at
Moen) as well as increased general and administrative expenses.
Office Products
- ---------------
Net sales decreased $23.3 million, or 2%. The decline resulted from softness in
the U.S. and U.K. markets for traditional office supplies as well as inventory
reduction programs by major customers. In addition, sales were lower due to
lower prices (principally 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 overall higher volume (benefits from introduction
of new products, partly offset by volume declines in existing products,
including time management products). Operating company contribution decreased
$32 million, or 41%. The decrease reflects the lower sales and lower gross
margin, partly offset by lower operating expenses. The gross margin decreased
because of 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 U.K. distribution expenses. Unfavorable operating
company contribution comparisons are expected for the fourth quarter of 1999 and
full year.
30
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
Golf Products
- -------------
Net sales decreased $18.5 million, or 2%, on a volume decline in total golf
clubs reflecting discounting on older models, continued softness in the golf
club market and delayed introduction of Cobra's new products. The sales decline
in Cobra golf clubs was partly offset by sales gains in Titleist golf clubs,
Titleist and Pinnacle golf balls and FootJoy shoes and gloves (volume increases
reflecting benefits from new products and line extensions). Operating company
contribution increased $1.9 million, or 1% as the sales decline was more than
offset by lower operating expenses and improved gross margin (manufacturing
efficiencies resulting from increased automation). Lower operating expenses
primarily reflected savings associated with the 1998 and 1999 staff reductions
at Cobra, reduced advertising and promotional, and research and development
expenses.
The United States Golf Association establishes standards for golf equipment used
in competitive play in the United States. The USGA has announced its intention
to propose new rules in late 1999 or 2000 addressing the initial velocity and
overall distance standards for golf balls. Until more details regarding the
proposed rule changes become available, we cannot determine whether they would
have an effect on our group's golf ball business and/or the golf ball industry.
Spirits and Wine
- ----------------
Net sales increased $27.5 million, or 3%, on the benefit of the August 1998
Geyser Peak wine acquisition, and overall volume increases and higher prices.
The increase was partly offset by the effect of the MaxxiuM joint venture (as
discussed below) and lower average foreign exchange rates. 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 private label Scotch products and most U.S.
brands. Shipments of Jim Beam bourbon and Dekuyper cordials increased. Operating
company contribution increased $14.7 million, or 9%. The increase resulted from
the higher sales and improved gross margin (principally reflecting favorable
product mix and price increases), partly offset by higher operating expenses,
net of a reduction in distribution expenses as a result of the MaxxiuM joint
venture. The higher operating expenses were caused by increased volume-related
selling expenses. Operating results improved in the United States while the
private label Scotch business declined.
31
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
Spirits and Wine (Concluded)
- ----------------
On August 13, 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, which began operating in August 1999, 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 will be recorded at its book value of assets contributed
plus cash. MaxxiuM commenced operations in August. Product is now sold to
MaxxiuM net of excise taxes in certain markets and at a lower price reflecting
the Company's anticipated lower distribution costs. As a result of the MaxxiuM
joint venture, distribution costs also decreased.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net cash provided from operating activities of $348.3 million for the nine
months ended September 30, 1999 compared with $248.3 million for the same
nine-month period last year, principally reflecting improved inventory
management in golf and office products segments.
Net cash used by investing activities for the nine months ended September 30,
1999 was $143.2 million, as compared with $422.7 million in the same nine-month
period last year that included the acquisitions of Apollo Presentation Products,
Schrock Cabinet Company and Geyser Peak Winery.
Net cash used by financing activities for the nine months ended September 30,
1999 was $173.9 million, as compared with net cash provided by financing
activities of $198.1 million in the same nine-month period last year. During the
nine months ended September 30, 1999, the Company purchased 9,218,683 Common
shares including those purchased pursuant to the systematic share purchase
program and other open market purchases.
Total debt at September 30, 1999 was $1.7 billion, an increase of $194.5 million
from December 31, 1998. The ratio of total debt to total capital increased from
26.6% at December 31, 1998 to 38.5% at September 30, 1999. The increase
principally reflected the impact on total capital of the $1,126 million
write-down of goodwill in the second quarter of 1999.
During the third quarter, the Company increased from $450 million to $1 billion
its ability to offer debt securities for sale under its shelf registration with
the Securities and Exchange Commission.
32
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES (Concluded)
- -------------------------------
During the nine months ended September 30, 1998, the Company purchased $175.1
million principal amount of its outstanding debt. (See Note 6.) On June 30 and
March 31, 1998, the Company issued $200 million of 6-5/8% Debentures, Due 2028
and $200 million of 6-1/4% Notes, Due 2008, respectively.
Management believes that the Company's internally generated funds, together with
its access to global credit markets, are adequate to meet the Company's capital
needs.
33
<PAGE>
Item 2 FORTUNE BRANDS, INC. AND SUBSIDIARIES
- ------ MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
-----------------------------------------------------------
FORTUNE BRANDS, INC. AND SUBSIDIARIES
- --------------------------------------
Results of Operations for the Three Months Ended September 30, 1999 as
Compared to the Three Months Ended September 30, 1998
-------------------------------------------------------------------------
<TABLE>
<CAPTION>
Operating
Net Sales Company Contribution(1)
------------------------- --------------------------
1999 1998 1999 1998
---- ---- ---- ------
(In millions)
<S> C> <C> <C> <C>
Home products $ 474.9 $ 433.8 $ 71.3 $ 61.1
Office products 338.9 346.3 25.1 30.1
Golf products 222.0 214.7 28.9 27.1
Spirits and wine 303.5 305.5 69.1 65.2
-------- -------- ------ ------
$1,339.3 $1,300.3 $194.4 $183.5
======== ======== ====== ======
</TABLE>
(1) 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.
CONSOLIDATED
- ------------
Net sales increased $39 million, or 3%, on benefits from new products and line
extensions, and an acquisition made in 1998 in the spirits and wine segment,
partly offset by changes in the way the Company sells through the MaxxiuM
spirits and wine joint venture, volume declines in some existing products, lower
prices and lower average foreign exchange rates. Operating company contribution
increased 6% on gains in all segments except office products.
As a result of the change for measuring impairment of goodwill, amortization of
intangibles declined to $19.2 million in the three months ended September 30,
1999 from $27.3 million for the same three-month period last year. See the
section on "Consolidated" describing the nine months results for additional
information on the change.
34
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
CONSOLIDATED (Concluded)
- ------------
During the three-month period ended September 30, 1999, the Company recorded
pre-tax restructuring and other nonrecurring charges of $37.5 million, $23.4
million after-tax, or 14 cents per share. (See Note 7 and the section on
"Consolidated" describing the nine months results for additional information on
restructuring.)
The effective income tax rate comparison was distorted as a result of the
restructuring and other nonrecurring charges. Excluding these charges, the
effective income tax rates for the three months ended September 30, 1999 and
1998 were 44.4% and 48.1%, respectively. The lower rate this year reflects the
lower nondeductible goodwill amortization.
Net income of $48.2 million, or 29 cents basic and 28 cents diluted per share,
for the three months ended September 30, 1999, compared with $56.8 million, or
33 cents basic and 32 cents diluted per share, for the same three-month period
last year.
Income from operations before charges, which represents income before
extraordinary items, adjusted to exclude the $37.5 million ($23.4 million
after-tax) restructuring and other nonrecurring charges taken in the three-month
period ended September 30, 1999, was $71.6 million, or 43 cents and 42 cents
basic and diluted per share, respectively, for the three months ended September
30, 1999, as compared with $56.8 million, or 33 cents basic and 32 cents diluted
per share for the same three-month period last year.
35
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
Home Products
- -------------
Net sales increased $41.1 million, or 9%. The increase was primarily
attributable to overall volume and price increases. The overall volume increases
reflect higher volume on existing products, the introduction of new products and
line extensions. Operating company contribution increased $10.2 million, or 17%.
The increase reflects the higher sales and improved gross margin, partly offset
by higher operating expenses. The improvement in gross margin reflects higher
prices and the benefits of higher volume and favorable product mix. The
increased operating expenses reflect higher volume-related selling expenses and
advertising expenses (principally at Moen) as well as higher general and
administrative expenses.
Office Products
- ---------------
Net sales decreased $7.4 million, or 2%. The decrease results from lower prices
(which includes higher rebates and allowances) and lower average foreign
exchange rates, partly offset by an overall volume increase reflecting benefits
from introduction of new products, partly offset by lower volumes in some
existing products. Operating company contribution decreased $5 million, or 17%.
The decrease reflects the lower sales and decreased gross margin, partly offset
by lower operating expenses. The gross margin declined because of lower prices
and additional costs related to current integration and relocation of operations
in North America and Europe. The lower operating expenses resulted from
decreased general and administrative expenses and lower Y2K expenses.
36
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
Golf Products
- -------------
Net sales increased $7.3 million, or 3% on sales gains in Titleist golf clubs,
Titleist and Pinnacle golf balls, FootJoy shoes and FootJoy and Titleist gloves
principally reflecting benefits from new products and line extensions. The sales
increase was partly offset by sales and volume declines in Cobra golf clubs.
Operating company contribution increased $1.8 million, or 7% on the higher sales
and improved gross margin (favorable comparison to prior year closeout pricing
on older Cobra models), partly offset by higher advertising, promotion, and
selling expenses.
Spirits and Wine
- ----------------
Net sales decreased $2 million, or 1%, on the effect of the MaxxiuM joint
venture and lower average foreign exchange rates. This decline was partly offset
by higher overall volume, the August 1998 Geyser Peak wine acquisition and price
increases. The higher overall volume reflected increased DeKuyper shipments and
new products and line extensions. Operating company contribution increased $3.9
million, or 6% on improved gross margin (due to favorable product mix and price
increases), partly offset by higher operating expenses reflecting increased
marketing expenses, net of a reduction in distribution expenses as a result of
the MaxxiuM joint venture.
37
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Concluded)
---------------------------------------------------------
CAUTIONARY STATEMENT
- --------------------
This Quarterly Report on Form 10-Q 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. 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 recent acquisitions, the timely resolution
of the Year 2000 issue, as well as other risks and uncertainties detailed from
time to time in the Company's Securities and Exchange Commission filings.
38
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
- ------ -----------------
(a) Smoking and Health Proceedings
Indemnification Agreement
On December 22, l994, 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 (collectively, 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.
Individual Cases
As of November 11, 1999, there were approximately 159 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, as reported by Registrant in its Annual Report on Form
10-K for the fiscal year ended December 31, 1998.
Class Actions
As of November 11, 1999, there were approximately 26 purported
smoking and health class actions pending in which Registrant has been named as
one of the defendants, compared with approximately 28 such cases on March 29,
1999, as reported by Registrant in its Annual Report on Form 10-K for the fiscal
year ended December 31, 1998.
Health Care Cost Recovery Actions
As of November 11, 1999, there were approximately seven health care
cost recovery actions pending in which Registrant had been named as one of the
defendants, compared with approximately nine such cases as of March 29, 1999, as
reported by Registrant in its Annual Report on Form 10-K for the fiscal year
ended December 31, 1998.
Certain Developments in Cases Involving the Indemnitors
In Engle v. R.J. Reynolds Tobacco Company, et al. (reported under Part
I, Item 3, "Legal Proceedings" of Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998), 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 will address the individual claims of named class
representatives, commenced on November 1, 1999. The trial court
39
<PAGE>
Item 1. LEGAL PROCEEDINGS. (Concluded)
- ------ -----------------
judge has 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.
List of Pending Cases
See Exhibit 99 to this Form 10-Q for a list of additional proceedings
involving the smoking and health controversy in which Registrant has been named
as a defendant and not previously reported.
List of Terminated Cases
See Exhibit 99 to this Form 10-Q for a list of smoking and health
proceedings, in which Registrant had been named as a defendant, which have been
terminated and have not previously been reported as such.
Conclusion
Management believes that there are meritorious defenses to the
above-mentioned 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 Registrant as long as the Indemnitors continue to fulfill their
obligations to indemnify Registrant under the aforementioned indemnification
agreement.
(b) Reference is made to Note 9, "Pending Litigation", in the Notes to
Condensed Consolidated Financial Statements set forth in Part I, Item 1 of this
Quarterly Report on Form 10-Q.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
- ------ --------------------------------
(a) Exhibits.
--------
3(ii)(a). Amendment to By-Laws of Registrant.
3(ii)(b). By-Laws of Registrant as in effect on the date hereof.
10a1. 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 to
the Annual Report on Form 10-K of Registrant for the
fiscal year ended December 31, 1998.*
40
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K (Concluded)
- ------ --------------------------------------------
10a2. Schedule identifying substantially identical agreements to the
Amendment constituting Exhibit 10a1 hereto in favor of
Dudley L. Bauerlein, Jr. and Robert J. Rukeyser.*
12. Statement re computation of ratio of earnings to fixed charges.
15. Letter from PricewaterhouseCoopers LLP dated November 12, 1999
re unaudited financial information.
27. Financial Data Schedule (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
October 21, 1999 (Items 5 and 7(c)).
41
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
FORTUNE BRANDS, INC.
--------------------
(Registrant)
Date: November 12, 1999 By /s/ C.P. Omtvedt
------------------- --------------------
C.P. Omtvedt
Senior Vice President and
Chief Accounting Officer
42
<PAGE>
EXHIBIT INDEX
-------------
Sequentially
Exhibit Numbered Page
- ------- -------------
3(ii)(a). Amendment to By-Laws of Registrant.
3(ii)(b). By-Laws of Registrant as in effect on the
date hereof.
10a1. 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 to the Annual Report on
Form 10-K of Registrant for the fiscal year
ended December 31, 1998.*
10a2. Schedule identifying substantially identical
agreements to the Amendment constituting Exhibit
10a1 hereto in favor of Dudley L. Bauerlein,
Jr. and Robert J. Rukeyser.*
12. Statement re computation of ratio of
earnings to fixed charges.
15. Letter from PricewaterhouseCoopers LLP
dated November 12, 1999 re unaudited
financial information.
27. Financial Data Schedule (Article 5).
99. List of Pending/Terminated Cases.
* Indicates that exhibit is a management contractor compensatory plan
or arrangement.
43
EXHIBIT 3(ii)(a)
----------------
FORTUNE BRANDS, INC.
BY-LAW AMENDMENT
ADOPTED JULY 27, 1999
EFFECTIVE JULY 27, 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 Old Greenwich, Connecticut, 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 ten o'clock in the forenoon on the last Tuesday of
each month other than March, May, June, August, October and December and at
three 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.
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
1-1-99
2 BY-LAWS
- -------------------------------------------------------------------------------
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
10-30-90
BY-LAWS 3
- -------------------------------------------------------------------------------
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;
1-1-86
4 BY-LAWS
- -------------------------------------------------------------------------------
(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.
1-1-86
BY-LAWS 5
- -------------------------------------------------------------------------------
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
10-30-90
6 BY-LAWS
- -------------------------------------------------------------------------------
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.
10-30-90
BY-LAWS 7
- -------------------------------------------------------------------------------
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
10-30-90
8 BY-LAWS
- -------------------------------------------------------------------------------
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
BY-LAWS 9
- -------------------------------------------------------------------------------
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
10-30-90
10 BY-LAWS
- -------------------------------------------------------------------------------
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
10-30-90
BY-LAWS 11
- -------------------------------------------------------------------------------
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.
10-30-90
12 BY-LAWS
- -------------------------------------------------------------------------------
(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.
10-30-90
BY-LAWS 13
- -------------------------------------------------------------------------------
ARTICLE III
Meetings of Directors
Section 1. Regular meetings of the Board of Directors shall be held at
the office of the Company in Old Greenwich, Connecticut, 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 ten o'clock in the forenoon on the last Tuesday of
each month other than March, May, June, August, October and December and at
three 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 Old Greenwich, Connecticut at which any
7-27-99
14 BY-LAWS
- -------------------------------------------------------------------------------
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,
1-1-86
BY-LAWS 15
- -------------------------------------------------------------------------------
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
1-1-99
16 BY-LAWS
- -------------------------------------------------------------------------------
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
1-1-99
BY-LAWS 17
- -------------------------------------------------------------------------------
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
1-1-99
18 BY-LAWS
- -------------------------------------------------------------------------------
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.
3-1-93
BY-LAWS 19
- -------------------------------------------------------------------------------
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
3-1-93
20 BY-LAWS
- -------------------------------------------------------------------------------
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.
1-1-99
BY-LAWS 21
- -------------------------------------------------------------------------------
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.
1-1-99
22 BY-LAWS
- -------------------------------------------------------------------------------
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
10-30-90
BY-LAWS 23
- -------------------------------------------------------------------------------
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
10-30-90
24 BY-LAWS
- -------------------------------------------------------------------------------
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.]
4-30-97
25 BY-LAWS
- -------------------------------------------------------------------------------
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
5-3-94
BY-LAWS 26
- -------------------------------------------------------------------------------
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
10-30-90
27 BY-LAWS
- -------------------------------------------------------------------------------
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
10-30-90
BY-LAWS 28
- -------------------------------------------------------------------------------
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
10-30-90
29 BY-LAWS
- -------------------------------------------------------------------------------
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
10-30-90
BY-LAWS 30
- -------------------------------------------------------------------------------
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.
10-30-90
31 BY-LAWS
- -------------------------------------------------------------------------------
(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
10-30-90
BY-LAWS 32
- -------------------------------------------------------------------------------
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
10-30-90
33 BY-LAWS
- -------------------------------------------------------------------------------
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
10-30-90
BY-LAWS 34
- -------------------------------------------------------------------------------
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
10-30-90
35 BY-LAWS
- -------------------------------------------------------------------------------
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.
Exhibit 10a1
------------
AMENDMENT TO SEVERANCE AGREEMENT
This AMENDMENT dated as of July 26, 1999 to the Severance Agreement
(the "Agreement") dated as of January 2, 1991, as amended, between FORTUNE
BRANDS, INC., a Delaware corporation (the "Company") and GILBERT L. KLEMANN, II
(the "Executive"),
W I T N E S S E T H :
WHEREAS, the Company (now known as Fortune Brands, Inc.) and the
Executive entered into the Agreement in order to provide severance benefits in
the event of termination of the Executive's employment and have entered into
amendments thereto, including an Amendment to Severance Agreement dated as of
August 1, 1998; and
WHEREAS, the Company and the Executive desire to terminate the
Amendment to Severance Agreement dated as of August 1, 1998 and to enter into
another Amendment to Severance Agreement in order to provide enhanced severance
benefits in the event that the Executive terminates employment for Good Reason
(as defined herein) or as a result of the Relocation (as defined herein);
NOW, THEREFORE, in consideration of the premises and to further assure
the retention of the Executive in the employ of the Company after the date of
this Amendment to Severance Agreement, the parties hereto do hereby agree as
follows:
<PAGE>
1. The Amendment to Severance Agreement dated as of August 1, 1998
between the Company and the Executive is terminated effective upon the Company
and the Executive signing this Amendment to Severance Agreement.
2. Section 1(a) of the Agreement is hereby amended in its entirety as
follows:
"(a) Entitlement to Benefits. If and only if during the term of
the Agreement the Executive's employment with the Company is terminated
by the Company other than for Disability or Cause or by the Executive
for Good Reason or as a result of the Relocation (each as defined in
this Section 1), 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 his employment with the Company is
terminated as a result of his death, by the Company for Disability or
Cause or by the Executive other than for Good Reason or as a result of
the Relocation."
3. Section 1(d) of the Agreement is hereby amended by changing the
first sentence thereof as follows:
"Any termination by the Company for Disability or Cause shall be
communicated by Notice of Termination to the Executive and any
termination by the Executive for Good Reason or as a result of the
Relocation shall be communicated by Notice of Termination to the
Company."
4. Section 1(e) of the Agreement is hereby amended in its
entirety as follows:
"(e) Termination Date. As used herein, 'Termination Date' shall
mean (i) if employment is terminated by the Company for
2
<PAGE>
Disability, 30 days after Notice of Termination is given (provided
that the Executive shall not have returned to the performance of his
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, (iii) if employment is terminated for
Good Reason, the date specified in the Notice of Termination, (iv) if
employment is terminated as a result of the Relocation, December 31,
1999, being the date heretofore communicated to the Executive as his
required Relocation Date and (v) if employment is terminated for any
other reason, the date on which the Executive ceases to perform his
duties for the Company; provided, however, that if within 30 days after
any Notice of Termination is given the party receiving such Notice of
Termination notifies the other party 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 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)
through (v) of this Section 1(e)."
5. Section 1(f) is hereby added to the Agreement as follows:
"(f) Good Reason. Termination of employment by the Executive for
Good Reason shall be deemed to have occurred only if the Executive
terminates his employment and provides a Notice of Termination to the
Company prior to such date for any of the following reasons:
(i) a reduction by the Company in the Executive's base salary as
in effect on July 26, 1999 plus all increases therein subsequent
thereto;
3
<PAGE>
(ii) the failure of the Company substantially to maintain and to
continue the Executive's participation in the Company's benefit
plans as in effect on July 26, 1999 and with all improvements
therein subsequent thereto (other than those plans or improvements
that have expired thereafter in accordance with their original
terms), or the taking of any action which would materially reduce
the Executive's benefits under any of such plans or deprive the
Executive of any material fringe benefit enjoyed by him on July 26,
1999 or subsequently. For the purposes hereof such benefit plans
shall include, but not be limited to, the Incentive Compensation
Plans, the Pension Plans, the Defined Contribution Plan and the
Company's Long-Term Incentive Plans;
(iii) the sum of the Executive's base salary and the amount paid
to the Executive as incentive compensation under the Incentive
Compensation Plans for any calendar year during the term hereof is
less than 90% of the sum of the Executive's base salary and the
amount paid to the Executive under the Incentive Compensation Plans
for 1998 or any subsequent year during the term hereof for which
the sum of such amounts was greater; provided, however, that this
paragraph shall not be applicable if the cause of the reduction of
the sum of the Executive's base salary and incentive compensation
is a failure of the Company to meet performance goals under the
Incentive Compensation Plans;
(iv) the failure of the Company to provide the Executive during
each calendar year with a number of paid vacation days at least
equal to the number of paid vacation days to which he was entitled
at the date hereof plus any increases therein subsequent thereto;
(v) any purported termination of the Executive's employment by
the Company which is not effected pursuant to a Notice of
Termination, and for purposes of this
4
<PAGE>
Agreement, no such purported termination shall be effective; or
(vi) any failure of the Company to comply with and satisfy
Section 3;
provided, however, that termination of employment by the Executive
under clauses (i), (ii) and (iii) above shall not be deemed to have
occurred for Good Reason if the reason for the compensation reduction
or failure of benefit plan coverage thereunder is due to a change in
the individual elements of aggregate compensation, which change is
applicable to officers of the Company generally, without a material
reduction in aggregate compensation."
6. Section 1(g) is hereby added to the Agreement as follows:
"(g) Relocation. Relocation means the relocation of the Company's
principal executive offices from Old Greenwich, Connecticut to
Lincolnshire, Illinois or the Company's requiring the Executive to be
based anywhere other than the Company's principal executive offices,
except for required travel on the Company's business to an extent
substantially consistent with his business travel obligations on July
26, 1999. In order to be eligible for benefits hereunder as a result of
the Relocation, the Executive must remain in the employ of the Company
until December 31, 1999, being the date heretofore communicated to the
Executive as his required Relocation Date."
7. Section 2(a) of the Agreement is hereby amended in its entirety as
follows:
"(a) If the Executive's employment is terminated by the Company
for Disability or Cause or by the Executive other than (i) for Good
Reason or (ii) as a result of the Relocation, the Company shall have no
obligation to pay any compensation to the Executive under this
Agreement in respect of
5
<PAGE>
periods beginning on or 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 he may otherwise be entitled."
8. Section 2(b) of the Agreement is hereby amended by adding "or the
Executive terminates his employment for Good Reason or as a result of the
Relocation," after the words "Disability or Cause," in the first sentence
thereof.
9. Section 2(c) of the Agreement is hereby amended by adding "or the
Executive terminates his employment for Good Reason or as a result of the
Relocation," after the words "Disability or Cause," in the first sentence
thereof.
10. Section 2(d) of the Agreement is hereby amended by adding "or the
Executive terminates his employment for Good Reason or as a result of the
Relocation," after the words "Disability or Cause," in the first sentence
thereof and to delete the following sentence therefrom:
"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."
11. Section 2(e) of the Agreement is hereby amended by adding "or the
Executive terminates his employment for Good Reason or as a result of the
Relocation," after the words "Disability or Cause," therein.
6
<PAGE>
12. Section 2(f) of the Agreement is hereby amended by adding "or the
Executive terminates his employment for Good Reason or as a result of the
Relocation," after the words "Disability or Cause," in the first sentence
thereof as well as to add "and reduced by the amount actually paid for such
calendar year under the Incentive Compensation Plans" at the end of clause (ii)
thereof.
13. Section 2(g) of the Agreement is hereby amended by adding "or the
Executive terminates his employment as a result of the Relocation or for Good
Reason" after the words "Disability or Cause" therein.
14. Section 2(j) is hereby amended in its entirety as follows:
"(j) Notwithstanding any other provision of this Agreement, (a)
any amount otherwise payable to the Executive pursuant to the agreement
dated as of January 2, 1991 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
(except for Section 2(k)) and (b) any benefits to which the Executive
is entitled under the Company's severance pay program covering salaried
employees generally shall be reduced by benefits paid under Section
2(b)(ii) of this Agreement."
15. Section 2(k) is hereby added to the Agreement as follows:
"(k) In addition to any other benefits which may be payable to the
Executive under the Pension Plans and Section 2(d) hereof, if the
Executive's employment with the Company is terminated by the Company
other than for Disability
7
<PAGE>
or Cause, or by the Executive for Good Reason or as a result of the
Relocation, and the Termination Date occurs before the Executive
attains Early Retirement Date (as defined in the Retirement Plan), the
Company shall pay to the Executive a supplemental pension benefit in an
amount equal to the difference between (i) the benefits payable from
the Pension Plans and Section 2(d) hereof and (ii) 65% of the
Executive's accrued benefit under the Pension Plans and Section 2(d)
hereof, provided that the Executive's full accrued benefit under the
Pension Plans and Section 2(d) hereof shall be paid without reduction
for early payment if the Executive has completed at least 30 years of
Qualifying Employment (as defined in the Retirement Plan) at the date
of the Executive's termination of employment with entitlement to a
benefit hereunder.
This additional pension benefit shall be payable outside the
Pension Plans and shall commence on the first day of the month
following the Executive's termination of employment with the Company
even though pension benefits may not yet then be payable under the
Pension Plans and Section 2(d) hereof. The benefit payable under this
Section 2(k) shall be paid to the Executive in the form of a 100% joint
and survivor annuity with the Executive's spouse as contingent
annuitant if the Executive is married at the date of commencement of
payments hereunder in which event the benefit shall be further reduced
for the joint and survivor annuity coverage to the same extent as
provided in the Supplemental Plan; provided that if the Executive is
not married at the date the enhanced pension benefits commence
hereunder, the enhanced pension benefits under this Section 2(k) shall
be paid as an annuity for the Executive's life only. At the time that
benefits commence under the Supplemental Plan, the monthly benefits
payable hereunder shall then be actuarially adjusted to the form of
benefit payable under the Supplemental Plan and shall be paid in the
same form as the benefit payable under the Supplemental Plan, with
survivorship benefits hereunder then payable after the Executive's
death to the same contingent annuitant to whom benefits are payable
under the Supplemental Plan, if any, that survives the Executive.
In the event that an employee grantor trust ("Grantor Trust") has
been established among the Company, the Executive and a trustee, the
Company may provide the additional pension benefits payable
8
<PAGE>
pursuant to Section 2(d) and Section 2(k) through the Grantor Trust
(or, at the Executive's request, the Segregated Account referred to in
the Grantor Trust) as soon as practicable after the termination of
employment of the Executive using the same actuarial basis and
methodology as for other Supplemental Plan benefits which are provided
through the Grantor Trust and assuming that the underlying monthly
pension benefits which are valued for Grantor Trust funding purposes
are payable in the form of an annuity for the life of the Executive
only and commencing immediately upon termination of employment but with
the early payment reduction calculated as if the Executive had
terminated employment at age 55."
16. All references to "American Brands, Inc." in the Agreement
be and they are hereby changed to references to "Fortune Brands, Inc."
IN WITNESS WHEREOF, the Company has caused this Amendment to Severance
Agreement to be signed by its officer thereunto duly authorized and its seal to
be hereunder affixed and attested and the Executive has hereunto set his hand as
of the date first written above.
FORTUNE BRANDS, INC.
(Corporate Seal) By /s/ Anne C. Linsdau
---------------------------------
Anne C. Linsdau
ATTEST: Vice President-Human Resources
/s/ Louis F. Fernous, Jr. /s/ Gilbert L. Klemann, II
- ----------------------------- -----------------------------
Secretary GILBERT L. KLEMANN, II
9
EXHIBIT 10a2
------------
Schedule identifying substantially identical
agreements between Fortune Brands, Inc. ("Fortune")
and each of the following persons, to the Amendment
constituting Exhibit 10a1 to the Quarterly Report
on Form 10-Q of Fortune for the period ended
September 30, 1999
----------------------------------------------------
Name
----
Robert J. Rukeyser
Dudley L. Bauerlein, Jr.
PART II - EXHIBIT 12
--------------------
FORTUNE BRANDS, INC. AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollar amounts in millions)
<TABLE>
<CAPTION>
Nine Months
Ended
Years Ended December 31, September 30,
----------------------------------------------------- -------------
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Earnings Available:
Income (loss) from continuing operations
before income taxes, minority
interest and extraordinary items......... $ 43.4 $358.9 $340.1 $145.2 $516.4 $(883.3)
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............... 0.2 - 0.3 - - 3.5
------ ------ ------ ------ ------ --------
43.2 358.7 339.6 145.0 516.2 (887.0)
====== ====== ====== ====== ====== ========
Fixed Charges:
Interest expense (including
capitalized interest) and
amortization of debt discount
and expenses........................... 184.6 147.1 172.6 122.4 105.4 83.2
Portion of rentals representative
of an interest factor.................. 12.8 13.5 15.1 14.7 17.0 14.0
------ ------ ------ ------ ------ -------
Total Fixed Charges.............. 197.4 160.6 187.7 137.1 122.4 97.2
------ ------ ------ ------ ------ --------
Total Earnings Available......... $240.6 $519.3 $527.3 $282.1 $638.6 $(789.8)
====== ====== ====== ====== ====== ========
Ratio of Earnings to Fixed Charges.......... 1.22 3.23 2.81 2.06 5.22 (A)
==== ==== ==== ==== ==== ===
</TABLE>
(A) As a result of the loss reported for the nine months ended September
30, 1999, earnings were insufficient to cover fixed charges by $789.8
million.
Included in earnings was a second quarter 1999 goodwill write-down of
$1,126 million as disclosed in Note 2 of the Company's Condensed
Consolidated Financial Statements. If the write-down were excluded from
earnings, the ratio of earnings to fixed charges for the nine months
ended September 30, 1999 would have been 3.46.
PART II - EXHIBIT 15
--------------------
November 12, 1999
Securities and Exchange Commission
450 5th Street, N.W.
Attention: Filing Desk, Stop 1-4
Washington, D.C. 20549-1004
Re: Fortune Brands, Inc.
We are aware that our report dated November 12, 1999, on our review of
interim financial information of Fortune Brands, Inc. and Subsidiaries for the
nine-month period ended September 30, 1999 included in this Form 10-Q, has been
incorporated 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. 33-58865) relating to the 1990 Long-Term Incentive Plan of
Fortune Brands, Inc., 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 Registration
Statements on Form S-3 (Registration Nos. 33-50832, 33-42397, 33-23039, 33-3985
and 333-76371) of Fortune Brands, Inc. Pursuant to Rule 436(c) under the
Securities Act of 1933, this report should not be considered a part of such
registration statements or prospectuses or certification by us within the
meaning of Sections 7 and 11 of that Act.
Very truly yours,
PricewaterhouseCoopers LLP
11 Madison Avenue
New York, New York 10010
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AND RELATED STATEMENT OF INCOME AS
OF September 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> $ 69
<SECURITIES> 0
<RECEIVABLES> 967
<ALLOWANCES> 56
<INVENTORY> 1,029
<CURRENT-ASSETS> 2,276
<PP&E> 2,130
<DEPRECIATION> 1,022
<TOTAL-ASSETS> 6,197
<CURRENT-LIABILITIES> 2,070
<BONDS> 970
<COMMON> 717
0
10
<OTHER-SE> 1,956
<TOTAL-LIABILITY-AND-EQUITY> 6,197
<SALES> 4,052
<TOTAL-REVENUES> 4,052
<CGS> 2,106
<TOTAL-COSTS> 2,106
<OTHER-EXPENSES> 297
<LOSS-PROVISION> 9
<INTEREST-EXPENSE> 77
<INCOME-PRETAX> (886)
<INCOME-TAX> 106
<INCOME-CONTINUING> (992)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $(992)
<EPS-BASIC> $(5.92)
<EPS-DILUTED> $(5.92)
</TABLE>
EXHIBIT 99
----------
List of Pending Cases
In addition to those pending cases previously reported in Exhibit 99 of
Registrant's Annual Report on Form 10-K for the fiscal year ended December 31,
1998 and Exhibit 99 of the Registrant's Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1999 and June 30, 1999, Registrant has been named as a
defendant in the following smoking and health proceedings:
Acomo Pueblo v. American Tobacco Company, et al., District Court of New
Mexico, Santa Fe County, June 16, 1999.
Bergeron (Trustees of Massachusetts Carpenters) v. Philip Morris, et
al., Eastern District of New York, September 29, 1999.
Doss v. R.J. Reynolds, et al., Circuit Court of Mississippi, Jefferson
County, August 17, 1999.
List of Cases Terminated
The following smoking and health proceedings have been terminated and not
previously reported as such:
City of Birmingham v. American Tobacco Company, et al., which was
pending in the United States District Court of Alabama, and instituted on May
28, 1997, was dismissed by the plaintiffs with prejudice on October 6, 1999.
