===============================================================================
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:
MASTERBRAND INDUSTRIES, INC. HOURLY EMPLOYEE SAVINGS PLAN
---------------
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
================================================================================
<PAGE>
MASTERBRAND INDUSTRIES, INC. HOURLY EMPLOYEE SAVINGS PLAN
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 7-17
Exhibit 23 - Consent of Independent Accountants 19
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 MasterBrand Industries, Inc. Retirement Plan Investment Committee
In our opinion the accompanying statements of net assets available for
benefits and the related statements of changes in net assets available for
benefits present fairly, in all material respects, the net assets available for
benefits of the MasterBrand Industries, Inc. Hourly Employee Savings Plan (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 MasterBrand Industries, Inc. Retirement Plan Investment
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 MasterBrand Industries, Inc. Retirement Plan
Investment 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>
MasterBrand Industries, Inc. Hourly Employee Savings Plan
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 $ 365 $ 3,974 $ 1,273 $ 1,461 $ 127 $ 1,175 $ 3,150 $ 265 $ 243 $ 4,089
Receivables:
Company contributions 6 19 13 15 3 14 12 6 5 7
Member contributions 14 48 32 38 7 35 29 14 12 17
Interest and dividends - 5 - - - - 16 - 1 22
Loan principal receivable 3 10 7 8 2 7 6 3 2 4
(payable) ------ ------- -------- ------- ------ ------- ------- ------ ------ ---------
Total assets available for $ 388 $ 4,056 $ 1,325 $1,522 $ 139 $ 1,231 $ 3,213 $ 288 $ 263 $ 4,139
benefits ====== ======= ======== ======= ====== ======= ======= ====== ====== =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MasterBrand Industries, Inc. Hourly Employee Savings Plan
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 $ 297 $ 10 $ 83 $ 1,295 $17,807
Receivables:
Company contributions 2 - - - 102
Member contributions 8 - - - 254
Interest and dividends 1 - - - 45
Loan principal receivable 1 - - (53) -
(payable) ------ ----- ---- ------- -------
Total assets available for $ 309 $ 10 $ 83 $ 1,242 $18,208
benefits ====== ===== ===== ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements
-3-
<PAGE>
<TABLE>
<CAPTION>
MasterBrand Industries, Inc. Hourly Employee Savings Plan
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 $ 212 $ 2,741 $ 507 $ 1,032 $ 68 $ 380 $ 2,236 $ 146 $ 33 $ 3,843
Receivables:
Company contributions 2 8 2 5 1 3 6 1 - 14
Member contributions 4 20 1 8 1 6 14 1 - 31
Interest and dividends - 3 - - - - 15 - - 56
Loan principal receivable - 5 - 2 - - 3 - - 14
(payable) ----- ------- ------ ------- ------ ------ ------ ------ ----- ---------
Total assets available for $ 218 $ 2,777 $ 510 $ 1,047 $ 70 $ 389 $ 2,274 $ 148 $ 33 $ 3,958
benefits ===== ======= ====== ======= ====== ====== ======= ====== ===== =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MasterBrand Industries, Inc. Hourly Employee Savings Plan
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 $ 549 $ 23 $ 83 $ 1,107 $12,960
Receivables:
Company contributions 3 - - - 45
Member contributions 6 - - - 92
Interest and dividends 3 - - - 77
Loan principal receivable 3 - - (27) -
(payable) ----- ----- ----- ------- -------
Total assets available for $ 564 $ 23 $ 83 $ 1,080 $13,174
benefits ===== ===== ===== ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements
-4-
<PAGE>
<TABLE>
<CAPTION>
MasterBrand Industries, Inc. Hourly Employee Savings Plan
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
Net appreciation
(depreciation)
in fair value of $ (41) $ 770 $ 227 $ 63 $ (1) $ 179 $ 681 $ 16 $ 12 $ 154
investments
Company contributions 38 138 77 90 11 87 90 21 12 146
Member contributions 189 630 482 396 64 546 392 109 89 372
------ ------- ------- ------- ------- ------- ------- ------ ------ --------
Total additions 186 1,538 786 549 74 812 1,163 146 113 672
------ ------- ------- ------- ------- ------- ------- ------ ------ --------
Deductions
Benefits paid to members 24 250 31 68 7 36 212 12 19 457
------ ------- ------- ------- ------- ------- ------- ------ ------ --------
Total deductions 24 250 31 68 7 36 212 12 19 457
------ ------- ------- ------- ------- ------- ------- ------ ------ --------
Net transfers
Loans to members (20) (160) (40) (70) (4) (32) (120) (4) (2) (194)
Loan repayments 15 108 32 62 8 28 74 10 5 172
Interfund transfers 13 43 68 2 (2) 70 34 - 133 (12)
------ ------- ------- ------- ------- ------- ------- ------ ------ --------
Total net transfers 8 (9) 60 (6) 2 66 (12) 6 136 (34)
------ ------- ------- ------- ------- ------- ------- ------ ------ --------
Increase (decrease) in 170 1,279 815 475 69 842 939 140 230 181
net assets
Net assets available for
benefits,
beginning of year 218 2,777 510 1,047 70 389 2,274 148 33 3,958
------ ------- ------- ------- ------- ------- ------- ------ ------ --------
Net assets available for
benefits,
end of year $ 388 $ 4,056 $ 1,325 $ 1,522 $ 139 $ 1,231 $ 3,213 $ 288 $ 263 $ 4,139
====== ======= ======= ======= ======= ======= ======= ====== ====== =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MasterBrand Industries, Inc. Hourly Employee Savings Plan
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
Net appreciation
(depreciation)
in fair value of $ 33 $ (9) $ 17 $ 68 $ 2,169
investments
Company contributions 48 - - - 758
Member contributions 143 - - - 3,412
------ ----- ----- ----- --------
Total additions 224 (9) 17 68 6,339
------ ----- ----- ----- --------
Deductions
Benefits paid to members 65 4 9 111 1,305
------ ----- ----- ----- --------
Total deductions 65 4 9 111 1,305
------ ----- ----- ----- --------
Net transfers
Loans to members (52) - (6) 704 -
Loan repayments (15) - - (499) -
Interfund transfers (347) - (2) - -
------ ----- ----- ----- --------
Total net transfers (414) - (8) 205 -
------ ----- ----- ----- --------
Increase (decrease) in (255) (13) - 162 5,034
net assets
Net assets available for
benefits,
beginning of year 564 23 83 1,080 13,174
------ ----- ----- ----- --------
Net assets available for
benefits,
end of year $ 309 $ 10 $ 83 $1,242 $ 18,208
====== ===== ===== ====== ========
</TABLE>
The accompanying notes are an integral part of the financial statements
-5-
<PAGE>
<TABLE>
<CAPTION>
MasterBrand Industries, Inc. Hourly Employee Savings Plan
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
Net appreciation
(depreciation)
in fair value of $ 39 $ 694 $ 105 $ 231 $ 13 $ 82 $ 419 $ 15 $ 2 $ 268
investments
Company contributions 20 97 32 67 7 23 80 9 4 168
Member contributions 64 359 111 269 26 96 254 35 12 414
----- ------- ------ -------- ------ ------ -------- ------- ------- --------
Total additions 123 1,150 248 567 46 201 753 59 18 850
----- ------- ------ -------- ------ ------ -------- ------- ------- --------
Deductions
Benefits paid to members 15 227 34 40 3 83 151 13 4 362
----- ------- ------ -------- ------ ------ -------- ------- ------- --------
Total deductions 15 227 34 40 3 83 151 13 4 362
----- ------- ------ -------- ------ ------ -------- ------- ------- --------
Net transfers
Loans to members (26) (181) (21) (57) (4) (15) (96) (8) (1) (243)
Loan repayments 9 74 16 40 3 11 54 4 1 168
Interfund transfers (81) 100 27 (72) (18) 159 41 45 (1) (269)
----- ------- ------ -------- ------ ------ -------- ------- ------- --------
Total net transfers (98) (7) 22 (89) (19) 155 (1) 41 (l) (344)
----- ------- ------ -------- ------ ------ -------- ------- ------- --------
Increase (decrease) in 10 916 236 438 24 273 601 87 13 144
net assets
Net assets available for
benefits,
beginning of year 208 1,861 274 609 46 116 1,673 61 20 3,814
----- ------- ------ -------- ------ ------ -------- ------- ------- --------
Net assets available for
benefits,
end of year $ 218 $ 2,777 $ 510 $ 1,047 $ 70 $ 389 $ 2,274 $ 148 $ 33 $ 3,958
===== ======== ======= ======== ======= ====== ======== ======= ======= ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MasterBrand Industries, Inc. Hourly Employee Savings Plan
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
Net appreciation
(depreciation)
in fair value of $ 26 $ 1 $ 13 $ 94 $ 2,002
investments
Company contributions 31 - - - 538
Member contributions 82 - - - 1,722
------ ------ ------ -------- ----------
Total additions 139 1 13 94 4,262
------ ------ ------ -------- ----------
Deductions
Benefits paid to members 39 - 5 97 1,073
------ ------ ------ -------- ----------
Total deductions 39 - 5 97 1,073
------ ------ ------ -------- ----------
Net transfers
Loans to members (32) - (8) 692 -
Loan repayments 32 - - (412) -
Interfund transfers (14) - 83 - -
------ ------ ------ -------- ----------
Total net transfers (14) - 75 280 -
------ ------ ------ -------- ----------
Increase (decrease) in 86 1 83 277 3,189
net assets
Net assets available for
benefits,
beginning of year 478 22 - 803 9,985
------ ------ ------ -------- ----------
Net assets available for
benefits,
end of year $ 564 $ 23 $ 83 $ 1,080 $ 13,174
====== ====== ====== ======== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements
-6-
<PAGE>
MasterBrand Industries, Inc. Hourly Employee Savings Plan
Notes To Financial Statements
1. Description of Plan:
General:
The MasterBrand Industries, Inc. Hourly Employee Savings Plan (the
"Plan") is a defined contribution plan covering certain hourly,
non-union employees of the companies participating in the Plan. Each
covered member who has completed at least 1,000 hours of service in the
twelve month period beginning on their date of hire or in any calendar
year after their date of hire is eligible to participate. The Plan is
subject to the requirements of the Employee Retirement Income Security
Act of 1974 ("ERISA").
Aristokraft, Inc., Master Lock Company, Moen Incorporated, Waterloo
Industries, Inc. and Schrock Cabinet Company contribute to the Plan and
are referred to collectively as the "Companies" and individually as a
"Company". The assets of the Plan are included in a pool of investments
known as the Fortune Brands, Inc. Master Defined Contribution Plan
Trust ("Master Trust"), along with the assets of the Defined
Contribution Plan of Fortune Brands, Inc. and Participating Operating
Companies. The Master Trust investments are administered by The
Northern Trust Company, as trustee (the "Trustee").
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.
Plan Provisions:
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
-7-
<PAGE>
MasterBrand Industries, Inc. Hourly Employee Savings Plan
Notes To Financial Statements (Continued)
1. Description of Plan (Continued):
Gallaher Group Plc; and (14) the Loan Fund, invested in obligations of
members who have borrowed from the Plan.
Contributions:
Each member may elect to contribute on a before-tax basis ("elective
contributions") up to 21% (17% prior to September 1, 1998) of eligible
compensation. A member's elective contributions may not exceed the
dollar amount provided by the Internal Revenue Code (the "Code"), which
was $10,000 in 1998 and $9,500 in 1997. The Plan also permits each
member to make after-tax contributions to the Plan ("supplemental
contributions"). However, total elective and supplemental contributions
may not exceed 21% (17% prior to September 1, 1998) of the member's
total eligible compensation.
Moen Incorporated contributes, on behalf of each member employed by
Moen Incorporated, an amount equal to 50% of the member's elective and
supplemental contributions up to 6% of eligible compensation. Prior to
January 1, 1999 Waterloo Industries, Inc. made a matching contribution
on behalf of each member employed in the Muskogee, Oklahoma facility of
Waterloo Industries, Inc. of an amount equal to 50% of such member's
elective and supplemental contributions up to 6% of eligible
compensation and contributes on behalf of each other member employed by
Waterloo Industries, Inc. an amount equal to 50% of such member's
elective and supplemental contributions up to 3% of eligible
compensation. Effective as of January 1, 1999, Waterloo Industries,
Inc. contributes, on behalf of each eligible member employed by
Waterloo Industries, Inc., an amount equal to 50% of the member's
elective and supplemental contributions up to 6% of the eligible
compensation. For 1999 only, Waterloo Industries, Inc. will also
contribute $200 for each member at its Pocohontas, Arkansas and
Sedalia, Missouri facilities whether the member makes elective its
supplemental contributions. Aristokraft, Inc. contributes 20% of the
member's contribution up to 3% of eligible compensation for
Littlestown, PA and Crossville, TN or distribution centers. Schrock
Cabinet Company contributes, on behalf of each eligible member employed
by Schrock Cabinet Company, 50% of the member's elective and
supplemental contributions up to 5% of eligible compensation and an
additional 50% of the member's elective and supplemental contribution
up to 3% of eligible compensation. Master Lock Company does not provide
matching contributions to members they employ.
Members may direct investment of their elective contributions,
supplemental contributions, matching contributions, and their Plan
account balances in the investment funds, excluding the Frozen Fixed
Fund and the Gallaher ADR Fund described above.
Member account balances are maintained to reflect each member's
beneficial interest in the Plan's funds. Member account balances are
increased by member and Company contributions (including rollovers from
other plans) and decreased by the amount of withdrawals and
distributions. Income and losses on Plan assets and certain
administrative expenses are allocated to members' accounts based on the
ratio of each member's account balance invested in an investment fund
to the total of all members' account balances invested in that fund as
of the preceding valuation date.
-8-
<PAGE>
MasterBrand Industries, Inc. Hourly Employee Savings Plan
Notes To Financial Statements (Continued)
1. Description of Plan (Concluded):
Vesting:
Members are immediately vested in their Company matching contributions
and their own contributions and any actual earnings thereon.
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 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 Fortune
Brands, Inc. 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.
Distributions and Withdrawals:
Benefits are payable from a member's account under the Plan's
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 the 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 it has not expressed any intent to do so, each Company has the
right under the Plan to discontinue its contributions at any time and
MasterBrand Industries, Inc. ("MasterBrand") may terminate the Plan at
any time subject to the provisions of ERISA.
For changes effective during 1998, see "Plan Amendments" (Note 4).
For a complete description of the Plan, members should refer to the
specific provisions of the Plan document or to the Prospectus/Summary
Plan Description, each of which is available from the Plan
Administrator at 300 Tower Parkway, Lincolnshire, Illinois 60069.
-9-
<PAGE>
MasterBrand Industries, Inc. Hourly Employee Savings Plan
Notes To Financial Statements (Continued)
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 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. Each
of the Companies participating in the Plan is a wholly-owned subsidiary
of MasterBrand Industries, Inc., which is a wholly-owned subsidiary of
Fortune Brands, Inc.
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.
-10-
<PAGE>
MasterBrand Industries, Inc. Hourly Employee Savings Plan
Notes To Financial Statements (Continued)
3. Reconciliation to Form 5500:
The following is a reconciliation of net assets available for benefits
as stated in the financial statements to Form 5500 at December 31, 1998
and 1997:
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
(In Thousands)
<S> <C> <C>
Net assets available for benefits as stated in the financial
statements $18,208 $13,174
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 1,248 458
================= =================
Net assets available for benefits as stated in Form 5500 $16,960 $12,716
================= =================
</TABLE>
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 $1,305 $1,073
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 1,248 458
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 458 379
================= =================
Benefits paid to members as stated in Form 5500 $2,095 $1,152
================= =================
</TABLE>
4. Plan Amendments:
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 September 1, 1998 to increase the
maximum 401(k) contribution rate and after-tax contribution rate from
17% of compensation of 21% of compensation.
The Plan was amended effective January 1, 1999 to provide for immediate
distribution to alternate payees under qualified domestic relations
orders.
The Plan was amended effective January 1, 1999 to enhance company
matching contributions for Waterloo Industries, Inc. members at
Sedalia, Missouri and Pocahontas, Arkansas.
-11-
<PAGE>
MasterBrand Industries, Inc. Hourly Employee Savings Plan
Notes To Financial Statements (Continued)
4. Plan Amendments (Continued):
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);
o including 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
-12-
<PAGE>
MasterBrand Industries, Inc. Hourly Employee Savings Plan
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
3.15% and 2.85% in the Master Trust's net assets at December 31, 1998
and 1997, respectively.
Assets of the Master Trust at December 31, 1998 and 1997 are summarized
as follows:
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 members 15,025 13,771
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 1.57% .84%
=========== ==========
- --------------------------------------------------------------------------------
Value Equity Fund:
Common stock - corporate $125,388 $96,469
Interest bearing cash 1,956 3,559
----------- ----------
Total $127,344 $100,028
=========== ==========
Plan Interest 3.12% 2.74%
=========== ==========
- --------------------------------------------------------------------------------
Large-Cap Growth Equity Fund:
Registered investment companies $58,758 $39,701
Interest bearing cash 76 644
----------- ----------
Total $58,834 $40,345
=========== ==========
Plan Interest 2.16% 1.26%
=========== ==========
- --------------------------------------------------------------------------------
-13-
<PAGE>
MasterBrand Industries, Inc. Hourly Employee Savings Plan
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 2.14% 1.75%
=========== ===========
- --------------------------------------------------------------------------------
International Equity Fund:
Registered investment companies $11,724 $9,679
Interest bearing cash 91 -
=========== ===========
Total $11,815 $9,679
=========== ===========
Plan Interest 1.08% .71%
=========== ===========
- --------------------------------------------------------------------------------
S & P 500 Index Fund:
Registered investment companies $45,022 $28,409
Interest bearing cash 78 62
----------- ------------
Total $45,100 $28,471
=========== ============
Plan Interest 2.61% 1.34
=========== ============
- --------------------------------------------------------------------------------
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 3.16% 2.89%
============ ============
- --------------------------------------------------------------------------------
Value-Oriented Diversified Fund:
Registered investment companies $23,297 $20,385
Interest bearing cash 90 547
------------ ------------
Total $23,387 $20,932
============ ============
Plan Interest 1.13% .70%
============ ============
- --------------------------------------------------------------------------------
-14-
<PAGE>
MasterBrand Industries, Inc. Hourly Employee Savings Plan
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 1.97% .39%
=============== =============
- --------------------------------------------------------------------------------
Government Securities Fund:
U. S. Government securities $41,231 $42,759
Interest bearing cash 4,146 -
--------------- -------------
Total $45,377 $42,759
=============== =============
Plan Interest 9.06% 9.12%
=============== =============
- --------------------------------------------------------------------------------
Short-Term Investment Fund:
Interest bearing cash $18,245 $15,472
=============== =============
Plan Interest 1.63% 3.56%
=============== =============
- --------------------------------------------------------------------------------
Frozen Fixed Fund:
Insurance company general account $3,890 $3,700
Interest bearing cash 36 28
-------------- -------------
Total $3,926 $3,728
============== =============
Plan Interest .25% .61%
============== =============
- --------------------------------------------------------------------------------
Gallaher ADR Fund:
Common stock - corporate $10,998 $10,518
Interest bearing cash 641 330
-------------- -------------
Total $11,639 $10,848
============== =============
Plan Interest .72% .76%
============== =============
- --------------------------------------------------------------------------------
Loan Fund:
Collateralized promissory notes
from members $15,025 $13,771
============== =============
Plan Interest 8.27% 7.84%
============== =============
- --------------------------------------------------------------------------------
-15-
<PAGE>
MasterBrand Industries, Inc. Hourly Employee Savings Plan
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 of investments 83,671 69,605
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
================= ==============
-16-
<PAGE>
MasterBrand Industries, Inc. Hourly Employee Savings Plan
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 May 5,
1995 to MasterBrand stating that the Plan meets the requirements of
Section 401 (a) of the Code and that the Trust is exempt from federal
income taxes under Section 501 (a) of the Code. The Plan has been
amended since receiving the determination letter. However, the Plan
Administrator believes that the Plan is currently designed and operated
in compliance with the applicable requirements of the Code. Generally,
distributions and withdrawals under the Plan are taxable to Members or
their beneficiaries in accordance with Section 402 of the Code.
-17-
<PAGE>
SIGNATURE
The Plan. Pursuant to the requirements of the Securities Exchange Act
of 1934, the MasterBrand Industries, Inc. Retirement Plan Investment Committee
under the MasterBrand Industries, Inc. Hourly Employee Savings Plan has duly
caused this annual report to be signed on its behalf by the undersigned
thereunto duly authorized.
MASTERBRAND INDUSTRIES, INC.
HOURLY EMPLOYEE SAVINGS PLAN
By /s/ F. J. Cortese
----------------------------------------
F. J. Cortese, Committee Member
MasterBrand Industries, Inc.
Retirement Plan Investment Committee
Date: June 28, 1999
-18-
<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
-19-
