==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 11-K
ANNUAL REPORT
------------------
Pursuant to Section 15(d) of the
Securities Exchange Act of 1934
------------------
For the Fiscal Year Ended December 31, 1998 Commission file number 1-9076
------------------
Full Title of the Plan:
DEFINED CONTRIBUTION PLAN OF FORTUNE BRANDS, INC. AND
PARTICIPATING OPERATING COMPANIES
------------------
Name of issuer of the securities held pursuant to the plan
And the address of its principal executive office:
FORTUNE BRANDS, INC.
1700 East Putnam Avenue
Old Greenwich, Connecticut 06870
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<PAGE>
DEFINED CONTRIBUTION PLAN OF FORTUNE BRANDS, INC. AND PARTICIPATING
OPERATING COMPANIES
INDEX TO FINANCIAL STATEMENTS AND EXHIBIT FILED AS
REQUIRED BY ITEM 4 OF FORM 11-K
---------------
Page(s)
-------
Report of Independent Accountants 2
Financial Statements:
Statement of Net Assets Available for
Benefits as of December 31, 1998 and 1997 3-4
Statement of Changes in Net Assets
Available for Benefits for the years ended
December 31, 1998 and 1997 5-6
Notes to Financial Statements 7-19
Exhibit 23 - Consent of Independent Accountants 21
Note: Supplemental schedules required by the Employee Retirement Income
Security Act will be filed by the Fortune Brands, Inc. Master Defined
Contribution Plan Trust.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Corporate Employee Benefits Committee of
Fortune Brands, Inc.
In our opinion the accompanying statements of net assets available for
benefits and the related statements of changes in net assets available for
benefits present fairly, in all material respects, the net assets available for
benefits of the Defined Contribution Plan of Fortune Brands, Inc. and
Participating Operating Companies (the "Plan"), as of December 31, 1998 and
1997, and the changes in net assets available for benefits for the years then
ended, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Corporate Employee Benefits
Committee; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Our audits were conducted for the purpose of forming an opinion on the
basic financial statements taken as a whole. The fund information in the
statement of net assets available for benefits and the statement of changes in
net assets available for benefits is presented for purposes of additional
analysis rather than to present the net assets available for benefits and
changes in net assets available for benefits of each fund. The fund information
is the responsibility of the Corporate Employee Benefits Committee. The fund
information has been subjected to the auditing procedures applied in the audits
of the basic financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
/s/ PricewaterhouseCoopers LLP
11 Madison Avenue
New York, New York 10010
June 25, 1999
-2-
<PAGE>
<TABLE>
<CAPTION>
Defined Contribution Plan of Fortune Brands, Inc. and Participating Operating Companies
Statement of Net Assets Available for Benefits with Fund Information
December 31, 1998
(In Thousands)
Large- Small- Growth Value- Corporate
Cap Cap Inter- S&P Oriented Oriented /Govern- Govern-
Fortune Value Growth Growth national 500 Diversi- Diversi- ment ment
Stock Equity Equity Equity Equity Index fied fied Bond Securities
Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund
---- ---- ---- ------ ------- ---- ----- ------ ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Beneficial interest in
Fortune Brands Inc. Master
Trust net assets $22,191 $121,324 $58,188 $65,706 $11,296 $44,146 $97,300 $22,957 $13,904 $41,979
Receivables:
Company contributions 648 1,154 954 1,235 239 876 849 340 150 332
Member contributions 41 177 112 156 18 102 134 25 (3) 96
Interest and dividends 4 143 1 - - - 493 1 64 218
Loan principal receivable 10 41 22 34 1 8 47 1 (4) 54
(payable) -------- --------- --------- --------- -------- -------- --------- -------- --------- ---------
Total assets 22,894 122,839 59,277 67,131 11,554 45,132 98,823 23,324 14,111 42,679
-------- --------- --------- --------- -------- -------- --------- -------- --------- ---------
Liabilities
Accrued expenses 3 115 10 11 1 7 102 4 2 48
-------- --------- --------- --------- -------- -------- --------- -------- --------- ---------
Total liabilities 3 115 10 11 1 7 102 4 2 48
-------- --------- --------- --------- -------- -------- --------- -------- --------- ---------
Net assets available for $22,891 $122,724 $59,267 $67,120 $11,553 $45,125 $98,721 $23,320 $14,109 $42,631
benefits ======== ========= ========= ========= ======== ======== ========= ======== ======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Defined Contribution Plan of Fortune Brands, Inc. and Participating Operating Companies
Statement of Net Assets Available for Benefits with Fund Information (Continued)
December 31, 1998
(In Thousands)
Short-
Term
Invest- Frozen Gallaher
ment Fixed ADR Loan
Fund Fund Fund Fund Total
---- ---- ---- ------ -------
<S> <C> <C> <C> <C> <C>
Assets
Beneficial interest in
Fortune Brands Inc. Master
Trust net assets $18,021 $3,915 $11,313 $12,872 $545,112
Receivables:
Company contributions 508 - - - 7,285
Member contributions 38 - - - 896
Interest and dividends 80 - - - 1,004
Loan principal receivable 18 - - (232) -
(payable) ------- -------- -------- --------- ---------
Total assets 18,665 3,915 11,313 12,640 554,297
------- -------- -------- --------- ---------
Liabilities
Accrued expenses 3 1,338 2 - 1,646
------- -------- -------- --------- ---------
Total liabilities 3 1,338 2 - 1,646
------- -------- -------- --------- ---------
Net assets available for
benefits $18,662 $2,577 $11,311 $12,640 $552,651
======= ======== ======== ======== =========
</TABLE>
The accompanying notes are an integral part of the financial statements
-3-
<PAGE>
<TABLE>
<CAPTION>
Defined Contribution Plan of Fortune Brands, Inc. and Participating Operating Companies
Statement of Net Assets Available for Benefits with Fund Information
December 31, 1997
(In Thousands)
Large- Small- Growth Value- Corporate
Cap Cap Inter- S&P Oriented Oriented /Govern- Govern-
Fortune Value Growth Growth national 500 Diversi- Diversi- ment ment
Stock Equity Equity Equity Equity Index fied fied Bond Securities
Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund
---- ---- ---- ------ ------- ---- ----- ------ ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Beneficial interest in
Fortune Brands Inc. Master
Trust net assets $24,982 $97,278 $39,586 $57,931 $9,603 $27,986 $75,182 $20,711 $8,459 $38,494
Receivables:
Company contributions 851 1,254 1,177 1,629 309 820 988 420 158 294
Member contributions 19 102 30 54 16 45 70 22 4 37
Interest and dividends 12 124 2 4 4 1 488 - 1 562
Loan principal receivable
(payable) 6 42 7 12 5 8 24 3 - 18
-------- --------- --------- --------- --------- --------- --------- -------- --------- ---------
Total assets 25,870 98,800 40,802 59,630 9,937 28,860 76,752 21,156 8,622 39,405
-------- --------- --------- --------- --------- --------- --------- -------- --------- ---------
Liabilities
Accrued expenses 6 118 9 14 3 7 106 5 4 54
-------- --------- --------- --------- --------- --------- --------- -------- --------- ---------
Total liabilities 6 118 9 14 3 7 106 5 4 54
-------- --------- --------- --------- --------- --------- --------- -------- --------- ---------
Net assets available for
benefits $25,864 $98,682 $40,793 $59,616 $9,934 $28,853 $76,646 $21,151 $8,618 $39,351
======== ========= ========= ======== ======== ======== ======== ======== ======== =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Defined Contribution Plan of Fortune Brands, Inc. and Participating Operating Companies
Statement of Net Assets Available for Benefits with Fund Information (Continued)
December 31, 1997
(In Thousands)
Short-
Term
Invest- Frozen Gallaher
ment Fixed ADR Loan
Fund Fund Fund Fund Total
---- ---- ---- ------ -------
<S> <C> <C> <C> <C> <C>
Assets
Beneficial interest in
Fortune Brands Inc. Master
Trust net assets $14,848 $3,705 $10,734 $12,275 $441,774
Receivables:
Company contributions 727 - - - 8,627
Member contributions 22 - - - 421
Interest and dividends 72 - - - 1,270
Loan principal receivable
(payable) 11 - - (136) -
-------- -------- --------- --------- ---------
Total assets 15,680 3,705 10,734 12,139 452,092
-------- -------- --------- --------- ---------
Liabilities
Accrued expenses 3 1,124 10 - 1,463
-------- -------- --------- --------- ---------
Total liabilities 3 1,124 10 - 1,463
-------- -------- --------- --------- ---------
Net assets available for
benefits $15,677 $2,581 $10,724 $12,139 $450,629
======== ======== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements
-4-
<PAGE>
<TABLE>
<CAPTION>
Defined Contribution Plan of Fortune Brands, Inc and Participating Operating Companies
Statement of Changes in Net Assets Available for Benefits with Fund Information
December 31, 1998
(In Thousands)
Large- Small- Growth Value- Corporate
Cap Cap Inter- S&P Oriented Oriented /Govern- Govern-
Fortune Value Growth Growth national 500 Diversi- Diversi- ment ment
Stock Equity Equity Equity Equity Index fied fied Bond Securities
Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund
---- ---- ---- ------ ------- ---- ----- ------ ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Additions
Plan share in interest and
dividends $ 735 $ 1,783 $ 381 $ 144 $ 163 $ 628 $ 2,296 $ 753 $ 623 $ 2,393
Net appreciation
(depreciation)
in fair value of (3,801) 26,117 14,180 7,941 1,498 8,363 21,411 630 307 273
investments
Company contributions 1,016 2,696 1,933 2,668 474 1,665 2,004 694 304 984
Member contributions 1,247 4,767 3,003 4,239 753 2,664 3,207 1,808 611 1,650
--------- --------- --------- --------- --------- --------- -------- -------- --------- --------
Total additions (803) 35,363 19,497 14,992 2,888 13,320 28,918 3,885 1,845 5,300
--------- --------- --------- --------- --------- --------- -------- -------- --------- --------
Deductions
Benefits paid to members 1,699 7,793 1,849 2,542 346 572 5,932 621 484 3,703
--------- --------- --------- --------- --------- --------- -------- -------- --------- --------
Total deductions 1,699 7,793 1,849 2,542 346 572 5,932 621 484 3,703
--------- --------- --------- --------- --------- --------- -------- -------- --------- --------
Net transfers
Loans to members (279) (1,190) (677) (920) (128) (578) (897) (212) (77) (699)
Loan repayments 292 1,121 600 978 103 473 860 201 67 647
Interfund transfers (484) (3,459) 903 (5,004) (898) 3,629 (874) (1,084) 4,140 1,735
--------- --------- --------- --------- --------- --------- -------- -------- --------- --------
Total net transfers (471) (3,528) 826 (4,946) (923) 3,524 (911) (1,095) 4,130 1,683
--------- --------- --------- --------- --------- --------- -------- -------- --------- --------
Increase (decrease) in net
assets (2,973) 24,042 18,474 7,504 1,619 16,272 22,075 2,169 5,491 3,280
Net assets available for
benefits
beginning of year 25,864 98,682 40,793 59,616 9,934 28,853 76,646 21,151 8,618 39,351
--------- --------- --------- --------- --------- --------- -------- -------- --------- --------
Net assets available for
benefits
end of year $22,891 $122,724 $59,267 $67,120 $11,553 $45,125 $98,721 $23,320 $14,109 $42,631
========= ========= ========= ========= ========= ========= ======== ======== ======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Defined Contribution Plan of Fortune Brands, Inc and Participating Operating Companies
Statement of Changes in Net Assets Available for Benefits with Fund Information (Continued)
December 31, 1998
(In Thousands)
Short-
Term
Invest- Frozen Gallaher
ment Fixed ADR Loan
Fund Fund Fund Fund Total
---- ---- ---- ------ -------
<S> <C> <C> <C> <C> <C>
Additions
Plan share in interest and
dividends $ 959 $ 137 $ 27 $ 1,039 $ 12,061
Net appreciation
(depreciation)
in fair value of - - 2,670 - 79,589
investments
Company contributions 835 - - - 15,273
Member contributions 709 - - - 24,658
-------- -------- --------- --------- ---------
Total additions 2,503 137 2,697 1,039 131,581
-------- -------- --------- --------- ---------
Deductions
Benefits paid to members 2,000 141 932 945 29,559
-------- -------- --------- --------- ---------
Total deductions 2,000 141 932 945 29,559
-------- -------- --------- --------- ---------
Net transfers
Loans to members (306) - (91) 6,054 -
Loan repayments 305 - - (5,647) -
Interfund transfers 2,483 - (1,087) - -
-------- -------- --------- --------- ---------
Total net transfers 2,482 - (1,178) 407 -
-------- -------- --------- --------- ---------
Increase (decrease) in net 2,985 (4) 587 501 102,022
assets
Net assets available for
benefits
beginning of year 15,677 2,581 10,724 12,139 450,629
-------- -------- --------- --------- ---------
Net assets available for
benefits
end of year $18,662 $2,577 $11,311 $ 12,640 $ 552,651
======== ======== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements
-5-
<PAGE>
<TABLE>
<CAPTION>
Defined Contribution Plan of Fortune Brands, Inc and Participating Operating Companies
Statement of Changes in Net Assets Available for Benefits with Fund Information
December 31, 1997
(In Thousands)
Large- Small- Growth Value- Corporate
Cap Cap Inter- S&P Oriented Oriented /Govern- Govern-
Fortune Value Growth Growth national 500 Diversi- Diversi- ment ment
Stock Equity Equity Equity Equity Index fied fied Bond Securities
Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund
---- ---- ---- ------ ------- ---- ----- ------ ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Additions
Plan share in interest $ 918 $ 967 $ 279 $ 29 $ 119 $ 393 $ 1,499 $ 647 $ 471 $ 2,261
and dividends
Net appreciation
(depreciation)
in fair value of 3,541 22,988 7,541 10,011 131 5,599 13,469 2,599 266 156
investments
Company contributions 1,188 2,594 1,969 2,970 539 1,319 2,232 720 283 1,077
Member contributions 817 4,047 2,713 4,353 759 1,864 3,010 1,070 422 1,891
--------- -------- -------- --------- --------- -------- --------- -------- --------- ---------
Total additions 6,464 30,596 12,502 17,363 1,548 9,175 20,210 5,036 1,442 5,385
--------- -------- -------- --------- --------- -------- --------- -------- --------- ---------
Deductions
Benefits paid to members 2,989 5,991 2,160 2,596 716 1,497 6,575 1,257 838 6,091
--------- -------- -------- --------- --------- -------- --------- -------- --------- ---------
Total deductions 2,989 5,991 2,160 2,596 716 1,497 6,575 1,257 838 6,091
--------- -------- -------- --------- --------- -------- --------- -------- --------- ---------
Net transfers
Loans to members (269) (1,321) (480) (748) (131) (294) (1,102) (188) (70) (969)
Loan repayments 264 1,083 545 1,027 163 358 880 213 72 671
Interfund transfers (10,264) 717 463 (2,132) (771) 3,457 (7,728) 4,825 544 (2,611)
--------- -------- -------- --------- --------- -------- --------- -------- --------- ---------
Total net transfers (10,269) 479 528 (1,853) (739) 3,521 (7,950) 4,850 546 (2,909)
--------- -------- -------- --------- --------- -------- --------- -------- --------- ---------
Increase (decrease) in net (6,794) 25,084 10,870 12,914 93 11,199 5,685 8,629 1,150 (3,615)
assets
Net assets available for
benefits
beginning of year 32,658 73,598 29,923 46,702 9,841 17,654 70,961 12,522 7,468 42,966
--------- -------- -------- --------- --------- -------- --------- -------- --------- ---------
Net assets available for
benefits
end of year $25,864 $98,682 $40,793 $59,616 $9,934 $28,853 $ 76,646 $21,151 $ 8,618 $ 39,351
======== ======== ======== ========= ========= ======== ========= ======== ========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Defined Contribution Plan of Fortune Brands, Inc and Participating Operating Companies
Statement of Changes in Net Assets Available for Benefits with Fund Information (Continued)
December 31, 1997
(In Thousands)
Short-
Term
Invest- Frozen Gallaher
ment Fixed ADR Loan
Fund Fund Fund Fund Total
---- ---- ---- ------ -------
<S> <C> <C> <C> <C> <C>
Additions
Plan share in interest
and dividends $ 967 $ 129 $ 13 $ 893 $ 9,585
Net appreciation
(depreciation)
in fair value of
investments - - 1,634 - 67,935
Company contributions 1,034 - - - 15,925
Member contributions 711 - - - 21,657
-------- --------- --------- --------- ----------
Total additions 2,712 129 1,647 893 115,102
-------- --------- --------- --------- ----------
Deductions
Benefits paid to members 5,849 122 322 1,278 38,281
-------- --------- --------- --------- ----------
Total deductions 5,849 122 322 1,278 38,281
-------- --------- --------- --------- ----------
Net transfers
Loans to members (230) - (61) 5,863 -
Loan repayments 242 - - (5,518) -
Interfund transfers 4,040 - 9,460 - -
-------- --------- --------- --------- ----------
Total net transfers 4,052 - 9,399 345 -
-------- --------- --------- --------- ----------
Increase (decrease) in net
assets 915 7 10,724 (40) 76,821
Net assets available for
benefits
beginning of year 14,762 2,574 - 12,179 373,808
-------- --------- --------- --------- ----------
Net assets available for
benefits
end of year $15,677 $ 2,581 $10,724 $12,139 $450,629
======== ========= ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of the financial statements
-6-
<PAGE>
Defined Contribution Plan of Fortune Brands, Inc.
and Participating Operating Companies
Notes To Financial Statements
1. Description of Plan:
General:
The Defined Contribution Plan of Fortune Brands, Inc. and Participating
Operating Companies (the "Plan") is designed to encourage and
facilitate systematic savings and investment by eligible employees.
Fortune Brands, Inc. ("Fortune") and each of its operating company
subsidiaries participating in the Plan are referred to collectively as
the "Companies" and individually as a "Company". The Plan is subject to
the provisions of the Employee Retirement Income Security Act of 1974
("ERISA").
Effective May 30, 1997, American Brands, Inc. completed the spin-off of
its Gallaher Group Plc subsidiary and changed its name to Fortune
Brands, Inc. The spin-off resulted in a dividend of one Gallaher
American Depositary Receipt (ADR) which was paid as a dividend for each
share of common stock held in the Fortune Stock Fund of the Plan.
The financial statements present the net assets available for benefits
as of December 31, 1998 and 1997, and the changes in net assets
available for benefits for the years then ended of the Plan,
respectively. The assets of the Plan are included in a pool of
investments known as the Fortune Brands, Inc. Defined Contribution Plan
Trust ("Master Trust"), along with the assets of the MasterBrand
Industries, Inc. Hourly Employee Savings Plan. The Master Trust
investments are administered by The Northern Trust Company, as trustee
(the "Trustee").
There are fourteen investment funds established pursuant to the Plan at
December 31, 1998 and 97: (1) the Fortune Stock Fund, invested by the
Trustee solely in Common stock of Fortune (certain classes of
short-term obligations may be purchased by the Trustee pending such
investment); (2) the Value Equity Fund, a portfolio of common stocks
invested by a professional investment manager; (3) the Large-Cap Growth
Equity Fund, invested in a mutual fund consisting primarily of a
portfolio of stocks of medium to large-size companies; (4) the
Small-Cap Growth Equity Fund, invested in a mutual fund consisting
primarily of a portfolio of stocks of small to medium-size companies
that are early in their life cycle; (5) the International Equity Fund,
invested in a mutual fund consisting primarily of stock of companies
incorporated outside the United States; (6) the S&P 500 Index Fund,
invested in a mutual fund that invests in the 500 stocks that make up
the Standard & Poor's 500 Index; (7) the Growth-Oriented Diversified
Fund, invested by a professional investment manager in other
securities, including primarily common and preferred stocks, bonds, and
government securities; (8) the Value-Oriented Diversified Fund,
invested in a mutual fund consisting primarily of a portfolio of stocks
and bonds of companies which have a low price relative to the
respective company's earnings or cash flow, or relative to the past
price history of the stock; (9) the Corporate/Government Bond Fund,
invested in a mutual fund consisting primarily of investment grade
corporate bonds, bonds issued by the United States Government or its
agencies, domestic bank obligations and commercial paper; (10) the
Government Securities Fund, a portfolio of U.S., state and local
government and government agency securities with maturities ranging
from 1 to 3 years, invested by a professional investment manager; (11)
the Short-Term Investment Fund, invested by the Trustee in a pooled
fund of various short-term instruments; (12) the Frozen Fixed Fund,
invested in guaranteed income contracts acquired prior to 1996; (13)
the Gallaher ADR Fund, invested by the Trustee solely in American
Depositary Receipts of Gallaher Group Plc; and (14) the Loan Fund,
invested in obligations of members who have borrowed from the Plan.
-7-
<PAGE>
Defined Contribution Plan of Fortune Brands, Inc.
and Participating Operating Companies
Notes To Financial Statements (Continued)
1. Description of Plan (Continued):
Contributions:
The Plan is a defined contribution plan. Contributions are held by the
Trustee and accumulated in separate member accounts. Members may
generally make tax deferred contributions under Section 401(k) of the
Internal Revenue Code (the "Code") of up to 21% (17% prior to September
1, 1998) of eligible compensation subject to lower limits for employees
of Fortune and certain participating companies. Members' annual tax
deferred contributions are limited by the Code to $10,000 in 1998 and
$9,500 in 1997. Members of MasterBrand Industries, Inc. and its
participating operating subsidiaries ("MasterBrand Participating
Employers") may also make after-tax contributions, but the sum of tax
deferred contributions and after-tax contributions may not exceed 21%
(17% prior to September 1, 1998) of eligible compensation. Fortune
provides a matching contribution equal to 50% of the member's tax
deferred contributions, not to exceed 6% of eligible compensation. (See
Note 4 "Plan Amendments") Each MasterBrand Participating Employer other
than Schrock Cabinet Company provides a matching contribution equal to
50% of the member's tax deferred contributions and after-tax
contributions, not to exceed 6% of eligible compensation. Schrock
Cabinet Company provides a matching contribution of 50% of the member's
tax deferred contributions up to 5% of eligible compensation and an
additional 50% of the member's tax deferred contributions up to 3% of
eligible compensation. ACCO World Corporation and its participating
operating subsidiaries ("ACCO Participating Employers") provide a
matching contribution equal to 30% of the member's tax deferred
contributions, not to exceed 6% of eligible compensation. Acushnet
Company and its participating operating subsidiaries ("Acushnet
Participating Employers") provide a matching contribution of 50% of the
member's tax deferred contributions up to 5% of eligible compensation
and an additional 50% of the member's tax deferred contributions up to
2% of eligible compensation. Jim Beam Brands Worldwide, Inc. and its
participating operating subsidiaries ("Beam Participating Employers")
do not provide matching contributions.
Profit-sharing contributions are made by certain participating
employers and allocated to their members in proportion to eligible
compensation. Acushnet and MasterBrand Participating Employers do not
provide an annual profit-sharing contribution. Fortune contributes on
an annual basis, 1/6 of 1% of its Adjusted Income from Continuing
Operations (as defined in the Plan). The ACCO and Beam Participating
Employers make a determination each year as to the amount of their
profit-sharing contribution. Profit-sharing contributions are subject
to certain Plan and statutory limitations.
Members may direct investment of their tax deferred contributions,
after-tax contributions, matching contributions, profit-sharing
contributions, if any, and their Plan account balances in the
investment funds, excluding the Frozen Fixed Fund and the Gallaher ADR
Fund, described above.
Vesting:
Salaried employees of the Companies may generally participate in the
Plan upon completion of one year of service. Members are immediately
vested in their own contributions and the Company's matching
contributions plus actual earnings thereon. Vesting in the Companies'
annual profit-sharing contribution plus actual earnings thereon is
based on the earlier of the
-8-
<PAGE>
Defined Contribution Plan of Fortune Brands, Inc.
and Participating Operating Companies
Notes To Financial Statements (Continued)
1. Description of Plan (Continued):
Vesting (Continued):
following occurrences: (1) retirement; (2) death; (3) disability; (4)
attainment of age 65; or (5) years of service (as summarized in the
schedule below):
<TABLE>
<CAPTION>
Number of Full JBB
Years of Service Fortune Worldwide ACCO Acushnet * MasterBrand *
---------------- ------- --------- ---- -------- -----------
<S> <C> <C> <C> <C> <C>
Less than 1 0% 0% 0%
1 but less than 2 0 0 20
2 but less than 3 0 0 40
3 but less than 4 0 20 60
4 but less than 5 0 40 80
5 but less than 6 100 60 100
6 but less than 7 100 80 100
7 or more 100 100 100
</TABLE>
* Acushnet and MasterBrand Participating Employers do not provide an
annual profit-sharing contribution.
Forfeitures:
Company contributions forfeited by nonvested terminated members are
retained by the Plan and used to reduce subsequent Company
contributions. If a terminated member returns to the Plan within a
specified period of time (generally 5 years), the member's previously
forfeited amount will be reinstated to their account.
Loans:
A member may apply for a loan of at least $1,000 from the vested
portion of the member's account balances in an amount which does not
exceed one-half of the member's vested balance, provided that the loan
also may not exceed $50,000 reduced by any other loan outstanding under
the Plan within the previous twelve months. Whenever all or any part of
an account balance is borrowed, the amount is transferred to the Loan
Fund and the dollars, representing the account balance or part thereof,
are canceled. The term of any loan shall not exceed five years, unless
the loan is related to the purchase of the member's principal
residence. No more than one home residence loan and one loan for any
other purpose may be outstanding at any one time.
A new loan may not be applied for until 90 days after any prior loan is
repaid in full. Each loan bears a rate of interest fixed by the
Corporate Employee Benefits Committee at the time the loan is made.
Each loan must be collateralized by a portion of the member's account
balances and evidenced by a written obligation payable to the Trustee
which is invested in the Loan Fund. Repayment is made by payroll
deduction so that the loan is repaid over the term of the loan in
substantially level installments not less frequently than quarterly. No
loan may be made from the Frozen Fixed Fund.
-9-
<PAGE>
Defined Contribution Plan of Fortune Brands, Inc.
and Participating Operating Companies
Notes To Financial Statements (Continued)
1. Description of Plan (Concluded):
Distributions and Withdrawals:
Benefits are payable from a member's account under the Plan provisions,
upon a member's death, retirement or other termination of employment in
a lump sum or in installment payments. The Plan also permits
withdrawals to be made by members who have incurred a "hardship" as
defined in the Plan or after attainment of age 59 1/2.
Distributions and withdrawals to which a member is entitled are those,
subject to certain eligibility and forfeiture provisions, that can be
provided by the aggregate of employer and employee contributions and
the income thereon (including net realized and unrealized investment
gains and losses) allocated to such member's account.
Other:
Although they have not expressed any intent to do so, the Companies
have the right under the Plan to discontinue contributions at any time
and Fortune has the right to terminate the Plan subject to the
provisions of ERISA. In the event of Plan termination, members will
become fully vested in their accounts.
For changes effective during 1998 and 1999, see "Plan Amendments"
(Note 4).
For a complete description of the Plan, members should refer to the
specific provisions in the Company's Plan document or to the
prospectus/summary plan description, each of which is available from
the Plan Administrator at 1700 East Putnam Ave., Old Greenwich,
Connecticut 06870.
2. Summary of Significant Accounting Policies:
Presentation:
Certain 1997 reclassifications have been made to conform with the
current year presentation.
The accompanying financial statements have been prepared on the accrual
basis of accounting.
The Plan presents in the statement of changes in net assets available
for benefits, the net appreciation (depreciation) in the fair value of
its beneficial interest in investments held by the Master Trust, which
consists of the realized gains (losses) and the unrealized appreciation
(depreciation) on those investments.
Investment Valuation and Income:
The Master Trust's investments in securities (bonds, debentures, notes
and stocks) traded on a national securities exchange are valued at the
last reported sale price on the last business day of the year;
securities traded in the over-the-counter market are valued at the last
reported bid price; and listed securities for which no sale was
reported on that date are valued at the mean between the last reported
bid and asked prices. Participations in collective trust
-10-
<PAGE>
Defined Contribution Plan of Fortune Brands, Inc.
and Participating Operating Companies
Notes To Financial Statements (Continued)
2. Summary of Significant Accounting Policies (Continued):
Investment Valuation and Income (Continued):
funds are stated at the Master Trust's beneficial interest in the
aggregate fair value of assets held by the fund, as reported by the
fund's manager. Purchases and sales of securities are recorded on a
trade-date basis. Gains or losses on sales of securities are based on
average cost.
Dividend income is recorded on the ex-dividend date. Income from other
investments is recorded as earned on an accrual basis.
The ratio of the Plan's assets to the fair value of all assets held in
each fund in the Master Trust is used to allocate interest income,
dividend income, realized gains (losses) and unrealized appreciation
(depreciation) in market value of investments on a monthly basis.
In 1998 and 1997, certain expenses incurred by the Plan were netted
against earnings prior to allocation to member accounts. These include
investment manager, trust, and recordkeeper expenses.
Benefits are recorded when paid.
3. Reconciliation of Financial Statements to Form 5500:
The following is a reconciliation of net assets available for benefits
as stated in the financial statements to Form 5500 at December 31, 1998
and 1997:
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
(In Thousands)
<S> <C> <C>
Net assets available for benefits as stated in the financial
statements $552,651 $450,629
Less distributions payable to terminated employees and amounts
payable applicable to Plan members who have retired or
terminated employment but elected to have their assets
remain in the Plan 104,979 73,052
================= =================
Net assets available for benefits as stated in Form 5500 $447,672 $377,577
================= =================
</TABLE>
-11-
<PAGE>
Defined Contribution Plan of Fortune Brands, Inc.
and Participating Operating Companies
Notes To Financial Statements (Continued)
3. Reconciliation of Financial Statements to Form 5500 (Continued):
The following is a reconciliation of benefits paid to members as stated
in the statement of changes in net assets available for benefits to the
Form 5500 at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
(In Thousands)
<S> <C> <C>
Benefits paid to members as stated in the financial statements $29,559 $38,281
Add: Amounts payable to terminated employees and amounts applicable
to Plan members who have retired or terminated employment but
elected to have their assets remain in the Plan as of current
year-end 104,979 73,052
Less: Amounts payable to terminated employees and amounts applicable
to Plan members who have retired or terminated employment
but elected to have their assets remain in the Plan as of
prior year-end 73,052 50,778
================= =================
Benefits paid to members as stated in Form 5500 $61,486 $60,555
================= =================
</TABLE>
4. Plan Amendments and Subsequent Events:
The Plan was amended as of January 1, 1998 to:
o include Day-Timers, Inc., Fortune Brands Home & Office, Inc. and
May Tag & Label Corp. as ACCO Participating Employers;
o provide that employees of May Tag & Label Corp. who participated
in the May Tag & Label Corp. 401(k) Savings Plan shall
participate in this Plan on January 1, 1998 and be credited with
eligibility and vesting service for their period of employment
with May Tag & Label Corp. before it became affiliated with the
Fortune Brands' group of companies;
o provide that a Day-Timers' employee hired between December 1,
1996 and December 1, 1997 shall receive a full year 1998
profit-sharing allocation rather than merely for the period in
1998 during which the employee was a member;
o provide for a 1997 profit-sharing contribution of 3% of
compensation for members employed by Sax Arts and Crafts, Inc.;
o provide that a member who terminated employment and is
reemployed shall be eligible for participation immediately upon
reemployment;
o change the top-heavy minimum contribution formula to provide for
a greater top-heavy minimum contribution in the event that a
member also participates in a top-heavy defined benefit plan;
and
-12-
<PAGE>
Defined Contribution Plan of Fortune Brands, Inc.
and Participating Operating Companies
Notes To Financial Statements (Continued)
4. Plan Amendments and Subsequent Events (Continued):
o provide that the profit-sharing contribution for Beam
Participating Employers will be determined from year to year on
a discretionary basis.
The Plan was amended effective as of June 12, 1998 to permit
participation by certain employees of Schrock Cabinet Company.
The Plan was amended effective as of August 23, 1998 to permit
participation by certain employees of Peak Wines International, Inc.
The Plan was amended effective as of September 1, 1998 to increase the
maximum 401(k) contribution rate from 17% of compensation of 21% of
compensation.
The Plan was amended effective September 29, 1998 to:
o provide that the Corporate Employee Benefits Committee of
Fortune, rather than the Board of Directors of Fortune, shall
have the authority to amend the Plan solely with respect to
matters affecting Participating Employers other than Fortune and
to approve Plan mergers; and
o provide for immediate distribution to alternate payees under
qualified domestic relations orders.
The Plan was amended effective as of December 31, 1998 to exclude
participation by employees of the ACCO Presentation Products Group.
The Plan was amended effective as of January 1, 1999 to permit
participation by employees of Creative Specialties, Inc. and to provide
for the merger into the Plan of the CSI Donner 401(k) Retirement Plan.
The Plan was amended effective as of June 1, 1999 to permit partial
repayment of loans by terminated members.
The Plan was amended effective as of January 1, 1999 to include amounts
received under the Performance Recognition Program as Plan earnings.
The Plan was amended to comply with the Small Business Job Protection
Act, the Uniformed Services Employment and Reemployment Rights Act, the
Uruguay Round Agreements Act, the Taxpayer Relief Act of 1997 and the
IRS Restructuring and Reform Act, including:
o increasing the voluntary cash-out amount from $3,500 to $5,000
(effective as of January 1, 1999);
o eliminating mandatory in-service distributions at age 70 1/2
(effective as of January 1, 1997);
-13-
<PAGE>
Defined Contribution Plan of Fortune Brands, Inc.
and Participating Operating Companies
Notes To Financial Statements (Continued)
4. Plan Amendments and Subsequent Events (Continued):
o 401(k) and flexible benefit plan amounts in compensation for
purposes of determining maximum contribution limits (effective
as of January 1, 1998);
o changing the definition of highly compensated employee to those
earning more than $80,000 annually and eliminating family
aggregation rules (effective as of January 1, 1997); and
o eliminating the limitation aggregating defined benefits plan and
defined contribution amounts (effective as of January 1, 2000).
5. Fund Performance:
The annual rate of return earned for each Fund was as follows
(unaudited):
Year Ended December 31
Funds 1998 1997
- --------------------------------------------- ----------------- ----------------
Fortune Stock Fund (11.9)% 21.7%
Value Equity Fund 28.8 32.9
Large-Cap Growth Equity Fund 34.5 25.9
Small-Cap Growth Equity Fund 13.5 22.1
International Equity Fund 16.6 3.3
S & P 500 Index Fund 28.3 31.7
Growth-Oriented Diversified Fund 31.9 23.1
Value-Oriented Diversified Fund 6.4 20.3
Corporate/Government Bond Fund 9.5 10.1
Government Securities Fund 6.7 6.4
Short-Term Investment Fund 5.5 6.0
Frozen Fixed Fund 5.1 5.1
Gallaher ADR Fund 34.3 20.9
-14-
<PAGE>
Defined Contribution Plan of Fortune Brands, Inc.
and Participating Operating Companies
Notes To Financial Statements (Continued)
6. Assets Held In Master Trust:
The investments of the Master Trust are maintained under a trust
agreement with the Trustee. The Plan had a total beneficial interest of
96.85% and 97.15% in the Master Trust's net assets at December 31, 1998
and 1997, respectively.
1998 1997
----------------- ------------
(In Thousands)
Common stock - corporate $221,887 $181,507
U.S. Government securities 56,037 54,540
Corporate debt instruments 19,921 12,032
Insurance company general account 3,890 3,700
Registered investment companies 219,389 165,307
Collateralized promissory notes from 15,025 13,771
members
Interest bearing cash 28,681 25,622
================= =============
Total $564,830 $456,479
================= =============
Investments held by the Master Trust, in which the Plan has an interest
at December 31, are summarized below at fair market value. Investments
that represent 5% or more of the Master Trust's net assets are
separately identified in the Master Trust filing.
1998 1997
----------------- -------------
(In Thousands)
Fortune Stock Fund:
Common stock - corporate $22,159 $24,332
Interest bearing cash 1,092 823
----------------- -------------
Total $23,251 $25,155
================= =============
Plan Interest 98.43% 99.16%
================= =============
- --------------------------------------------------------------------------------
Value Equity Fund:
Common stock - corporate $125,388 $96,469
Interest bearing cash 1,956 3,559
----------------- -------------
Total $127,344 $100,028
================= =============
Plan Interest 96.88% 97.26%
================= =============
- --------------------------------------------------------------------------------
Large-Cap Growth Equity Fund:
Registered investment companies $58,758 $39,701
Interest bearing cash 76 644
----------------- -------------
Total $58,834 $40,345
================= =============
Plan Interest 97.84% 98.74%
================= =============
- --------------------------------------------------------------------------------
-15-
<PAGE>
Defined Contribution Plan of Fortune Brands, Inc.
and Participating Operating Companies
Notes To Financial Statements (Continued)
6. Assets Held In Master Trust (Continued):
1998 1997
----------------- -------------
(In Thousands)
Small-Cap Growth Equity Fund:
Registered investment companies $68,308 $58,923
Interest bearing cash 75 76
----------------- -------------
Total $68,383 $58,999
================= =============
Plan Interest 97.86% 98.25%
================= =============
- --------------------------------------------------------------------------------
International Equity Fund:
Registered investment companies $11,724 $9,679
Interest bearing cash 91 -
================= =============
Total $11,815 $9,679
================= =============
Plan Interest 98.29% 99.29%
================= =============
- --------------------------------------------------------------------------------
S & P 500 Index Fund:
Registered investment companies $45,022 $28,409
Interest bearing cash 78 62
----------------- -------------
Total $45,100 $28,471
================= =============
Plan Interest 97.39% 98.66%
================= =============
- --------------------------------------------------------------------------------
Growth-Oriented Diversified Fund:
Common stock - corporate $63,342 $50,188
U. S. Government securities 14,806 11,781
Corporate debt instruments 19,921 12,032
Interest bearing cash 2,064 3,770
----------------- -------------
Total $100,133 $77,771
================= =============
Plan Interest 96.84% 97.11%
================= =============
- --------------------------------------------------------------------------------
Value-Oriented Diversified Fund:
Registered investment companies $23,297 $20,385
Interest bearing cash 90 547
----------------- -------------
Total $23,387 $20,932
================= =============
Plan Interest 98.87% 99.30%
================= =============
- --------------------------------------------------------------------------------
-16-
<PAGE>
Defined Contribution Plan of Fortune Brands, Inc.
and Participating Operating Companies
Notes To Financial Statements (Continued)
6. Assets Held In Master Trust (Continued):
1998 1997
----------------- -----------------
(In Thousands)
Corporate/Government Bond Fund:
Registered investment companies $12,280 $8,210
Interest bearing cash 91 311
----------------- -----------------
Total $12,371 $8,521
================= =================
Plan Interest 98.03% 99.61%
================= =================
- --------------------------------------------------------------------------------
Government Securities Fund:
U. S. Government securities $41,231 $42,759
Interest bearing cash 4,146 -
----------------- -----------------
Total $45,377 $42,759
================= =================
Plan Interest 90.94% 90.88%
================= =================
- --------------------------------------------------------------------------------
Short-Term Investment Fund:
Interest bearing cash $18,245 $15,472
================= =================
Plan Interest 98.37% 96.44%
================= =================
- --------------------------------------------------------------------------------
Frozen Fixed Fund:
Insurance company general account $3,890 $3,700
Interest bearing cash 36 28
----------------- -----------------
Total $3,926 $3,728
================= =================
Plan Interest 99.75% 99.39%
================= =================
- --------------------------------------------------------------------------------
Gallaher ADR Fund:
Common stock - corporate $10,998 $10,518
Interest bearing cash 641 330
----------------- -----------------
Total $11,639 $10,848
================= =================
Plan Interest 99.28% 99.24%
================= =================
- --------------------------------------------------------------------------------
Loan Fund:
Collateralized promissory notes $15,025 $13,771
from members ================= =================
Plan Interest 91.73% 92.16%
================= =================
- --------------------------------------------------------------------------------
-17-
<PAGE>
Defined Contribution Plan of Fortune Brands, Inc.
and Participating Operating Companies
Notes To Financial Statements (Continued)
6. Assets Held In Master Trust (Continued):
The changes in the Master Trust for the years ended December 31 are as
follows:
1998 1997
-------------- -----------------
(In Thousands)
Additions:
Member contributions $24,046 $24,398
Company contributions 15,883 11,681
Interest 6,699 6,126
Dividends 4,349 4,269
Net appreciation in the fair value 83,671 69,605
of investments
Other income and net loan activity 5,672 2,767
------------- -----------------
Total additions 140,320 118,846
------------- -----------------
Deductions:
Benefits paid to members (30,168) (37,557)
Administrative expenses (1,801) (1,456)
------------- -----------------
Total deductions (31,969) (39,013)
------------- -----------------
Net increase 108,351 79,833
Net assets available for benefits,
Beginning of year 456,479 376,646
============= =================
Net assets available for benefits,
End of year $564,830 $456,479
============= =================
Net appreciation on Master Trust investments for the years ended
December 31, 1998 and 1997 were as follows:
1998 1997
-------------- -----------------
(In Thousands)
Common stock - corporate $48,272 $42,249
U. S. Government securities 1,234 652
Corporate debt instruments 195 88
Registered investment companies 33,970 26,616
============== =================
Total $83,671 $69,605
============== =================
-18-
<PAGE>
Defined Contribution Plan of Fortune Brands, Inc.
and Participating Operating Companies
Notes To Financial Statements (Concluded)
7. Risks and Uncertainties:
The Plan provides for various investment options in any combination of
stocks, bonds, fixed income securities, mutual funds and other
investment securities. Investment securities are exposed to various
risks, such as interest rate, market and credit. Due to the level of
risk associated with certain investment securities and the level of
uncertainty related to changes in the value of investment securities,
it is at least reasonably possible that changes in market value could
materially affect members' account balances and the amounts reported in
the statement of net assets available for benefits and the statement of
changes in net assets available for benefits.
8. Credit Risks:
The Master Trust invests primarily in equity and fixed income funds.
The fund managers invest in a large number of corporations, industries
and other instruments in an attempt to limit exposure to significant
loss.
The funds maintain a diverse portfolio of common stock across various
industry groups and a broad range of debt securities in terms of
maturity and industry groups in order to maintain diversity in Master
Trust investments.
The Plan, however, is subject to risk of loss up to its proportionate
share of such assets in the Master Trust.
9. Tax Status:
The Internal Revenue Service issued a determination letter dated
January 8, 1998 to the Company stating that the Plan meets the
requirements of Section 401(a) of the Code and that the Trust is exempt
from federal income taxes under Section 501(a) of the Code. Generally,
distributions and withdrawals under the Plan are taxable to members or
their beneficiaries in accordance with Section 402 of the Code.
-19-
<PAGE>
SIGNATURE
The Plan. Pursuant to the requirements of the Securities Exchange Act
of 1934, the Corporate Employee Benefits Committee of Fortune Brands, Inc. has
duly caused this annual report to be signed on its behalf by the undersigned
thereunto duly authorized.
Defined Contribution Plan of Fortune Brands,
Inc. and Participating Operating Companies
By /s/ Anne C. Linsdau
-----------------------------------------
Anne C. Linsdau, Chairman
Corporate Employee Benefits Committee of
Fortune Brands, Inc.
Date: June 29, 1999
-20-
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in (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. 333-76371, 33-50832,
33-42397, 33-23039 and 33-3985) of Fortune Brands, Inc., of our report dated
June 25, 1999, relating to the financial statements, which appear in this Form
11-K.
/s/ PricewaterhouseCoopers LLP
11 Madison Avenue
New York, New York 10010
June 28, 1999
-21-
