<PAGE>
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 June 30, 2000
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.)
300 Tower Parkway, Lincolnshire, Illinois 60069-3640
---------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 484-4400
--------------
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 July 31, 2000 was 156,914,222 shares.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
------ --------------------
FORTUNE BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
---------------------------------------
(In millions)
June 30, December 31,
2000 1999
------------- ------------
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 89.5 $ 71.9
Accounts receivable, net 988.9 956.5
Inventories
Bulk whiskey 319.3 326.0
Other raw materials, supplies and
work in process 301.0 284.3
Finished products 467.0 451.1
-------- --------
1,087.3 1,061.4
Other current assets 234.4 223.0
-------- --------
Total current assets 2,400.1 2,312.8
Property, plant and equipment, net 1,171.0 1,176.5
Intangibles resulting from
business acquisitions, net 2,537.8 2,592.1
Other assets 339.1 335.7
-------- --------
Total assets $6,448.0 $6,417.1
======== ========
See Notes to Condensed Consolidated Financial Statements.
2
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
---------------------------------------
(In millions, except per share amounts)
June 30, December 31,
2000 1999
------------ -----------
(Unaudited)
Liabilities and stockholders' equity
Current liabilities
Notes payable to banks $ 40.5 $ 35.1
Commercial paper 866.6 602.2
Current portion of long-term debt 7.7 2.7
Accounts payable 256.8 272.2
Accrued taxes 444.4 436.3
Accrued expenses and other liabilities 567.5 654.4
-------- --------
Total current liabilities 2,183.5 2,002.9
Long-term debt 1,157.4 1,204.8
Deferred income taxes 57.7 48.3
Postretirement and other liabilities 409.1 422.9
-------- --------
Total liabilities 3,807.7 3,678.9
-------- --------
Stockholders' equity
$2.67 Convertible Preferred stock -
redeemable at Company's option 9.5 9.9
Common stock, par value $3.125 per
share, 229.6 shares issued 717.4 717.4
Paid-in capital 128.1 130.8
Accumulated other
comprehensive loss (57.3) (14.9)
Retained earnings 4,292.7 4,205.2
Treasury stock, at cost (2,450.1) (2,310.2)
-------- --------
Total stockholders' equity 2,640.3 2,738.2
-------- ---------
Total liabilities and
stockholders' equity $ 6,448.0 $ 6,417.1
======== =========
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
for the Six Months Ended June 30, 2000 and 1999
-----------------------------------------------------
(In millions, except per share amounts)
(Unaudited)
2000 1999
-------- --------
Net sales $2,864.4 $ 2,713.0
Cost of products sold 1,518.5 1,431.3
Excise taxes on spirits and wine 170.6 203.3
Advertising, selling, general and
administrative expenses 786.8 752.3
Amortization of intangibles 39.8 46.5
Write-down of goodwill - 1,126.0
Restructuring charges 8.1 79.9
Interest and related expenses 65.7 51.2
Other expenses (income), net 3.6 -
------- --------
Income (Loss) Before Taxes 271.3 (977.5)
Income taxes 109.6 62.5
-------- --------
Net Income (Loss) $ 161.7 $(1,040.0)
======== ========
Earnings (Loss) per Common Share
Basic $ 1.01 $ (6.18)
======== ========
Diluted $ 1.00 $ (6.18)
======== ========
Dividends paid per Common share $ .46 $ .44
======== ========
Average number of Common shares
outstanding
Basic 159.7 168.4
======== ========
Diluted 162.1 168.4
======== ========
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
for the Three Months Ended June 30, 2000 and 1999
-----------------------------------------------------
(In millions, except per share amounts)
(Unaudited)
2000 1999
--------- ---------
Net sales $1,500.6 $ 1,420.7
Cost of products sold 791.1 753.6
Excise taxes on spirits and wine 90.3 106.6
Advertising, selling, general and
administrative expenses 395.2 388.0
Amortization of intangibles 19.9 19.2
Write-down of goodwill - 1,126.0
Restructuring charges 5.6 79.9
Interest and related expenses 33.8 25.9
Other expenses (income), net 2.8 (0.9)
-------- ---------
Income (Loss) Before Taxes 161.9 (1,077.6)
Income taxes 64.5 18.5
-------- ---------
Net income (loss) $ 97.4 $(1,096.1)
======== =========
Earnings (Loss) per Common share
Basic $ 0.61 $ (6.56)
======== =========
Diluted $ 0.61 $ (6.56)
======== =========
Dividends paid per Common share $ .23 $ .22
======== =========
Average number of Common shares outstanding
Basic 158.3 167.0
======== =========
Diluted 160.6 167.0
======== =========
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
for the Six Months Ended June 30, 2000 and 1999
-----------------------------------------------------
(In millions)
(Unaudited)
2000 1999
------- ---------
Operating activities
Net income (loss) $ 161.7 $(1,040.0)
Depreciation and amortization 118.3 120.9
Restructuring charges 8.1 79.9
Write-down of goodwill - 1,126.0
Increase in accounts receivable (49.9) (41.3)
(Increase) decrease in inventories (48.6) 22.5
Decrease in accounts payable, accrued
expenses and other liabilities (56.1) (71.2)
Increase in accrued taxes 25.1 8.1
Other operating activities, net (40.9) (64.9)
------- ---------
Net cash provided from operating activities 117.7 140.0
Investing activities
Additions to property, plant and equipment (95.3) (84.3)
Investment in joint venture (25.6) -
Other investing activities, net 5.3 9.8
------- ---------
Net cash used by investing activities (115.6) (74.5)
------- ---------
Financing activities
Increase in short-term debt, net 271.4 414.7
Issuance of long-term debt - 1.7
Repayment of long-term debt (42.0) (189.7)
Dividends to stockholders (74.2) (74.9)
Cash purchases of Common stock for treasury (139.9) (261.5)
Proceeds received from exercise of stock options 0.8 72.4
------- ---------
Net cash provided (used) by financing activities 16.1 (37.3)
------- ---------
Effect of foreign exchange rate changes on cash (0.6) (2.2)
------- ---------
Net increase in cash and cash equivalents 17.6 26.0
Cash and cash equivalents at beginning of period 71.9 40.3
------- ---------
Cash and cash equivalents at end of period $ 89.5 $ 66.3
======= =========
See Notes to Condensed Consolidated Financial Statements.
6
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
for the Six Months Ended June 30, 2000 and 1999
-------------------------------------------------------------
(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, 1998 $10.5 $717.4 $147.6 $ 4.7 $ 5,245.4 $(2,028.1) $ 4,097.5
Comprehensive income
Net loss - - - - (1,040.0) - (1,040.0)
Foreign currency adjustments - - - (29.5) - - (29.5)
----- ------ ------- ------ --------- --------- ---------
Total comprehensive loss - - - (29.5) (1,040.0) - (1,069.5)
----- ------ ------- ------ --------- --------- ---------
Dividends - - - - (74.9) - (74.9)
Purchases - - - - - (261.0) (261.0)
Conversion of preferred stock and
delivery of stock plan shares (0.3) - (27.7) - - 102.9 74.9
----- ------ ------- ------ --------- --------- ---------
Balance at June 30, 1999 $10.2 $717.4 $119.9 $(24.8) $ 4,130.5 $(2,186.2) $ 2,767.0
===== ====== ======= ====== ========= ========= =========
Balance at December 31, 1999 $ 9.9 $717.4 $130.8 $(14.9) $ 4,205.2 $(2,310.2) $ 2,738.2
Comprehensive income
Net income - - - - 161.7 - 161.7
Foreign currency adjustments - - - (42.4) - - (42.4)
----- ------ ------- ------ --------- --------- ---------
Total comprehensive (loss) income - - - (42.4) 161.7 - 119.3
----- ------ ------- ------ --------- --------- ---------
Dividends - - - - (74.2) - (74.2)
Purchases - - - - - (144.5) (144.5)
Conversion of preferred stock and
delivery of stock plan shares (0.4) - (2.7) - - 4.6 1.5
----- ------ ------- ------ --------- --------- ---------
Balance at June 30, 2000 $ 9.5 $717.4 $128.1 $(57.3) $ 4,292.7 $(2,450.1) $ 2,640.3
===== ====== ======= ====== ========= ========= =========
</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 June 30, 2000, the related
condensed consolidated statements of income for the three month and six
month periods ended June 30, 2000 and 1999, and the related condensed
consolidated statements of cash flows and stockholders' equity for the six
month periods ended June 30, 2000 and 1999 are unaudited. In the opinion
of management, all adjustments necessary for a fair presentation of such
financial statements have been included. Such adjustments included
restructuring and other nonrecurring charges, write-downs of goodwill 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 1999 Annual
Report on Form 10-K.
2. Change in Accounting for Goodwill
During 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. 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 in the second quarter of 1999. Because of this
change, goodwill amortization decreased $6.7 million for the six months
ended June 30, 2000 as compared to the same period last year.
3. Joint Venture/Acquisitions
In January 2000, the Company's spirits and wine business made an
additional cash investment of $25.6 million in its international sales and
distribution joint venture, named Maxxium International B.V. Maxxium was
formed in 1999 by the Company's spirits and wine business, Remy-Cointreau
and Highland Distillers to distribute and sell premium wines and spirits in
key markets outside the United States.
In 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
8
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Joint Venture/Acquisitions (Concluded)
boards, easels and other presentation products. The aggregate cost of these
acquisitions was $103.6 million, including fees and expenses. The cost
exceeded fair value of net assets acquired by $78 million.
Pro forma financial statements are not presented for the NHB and Boone
acquisitions as their results of operation are not material to these
financial statements.
4. Information on Business Segments
Net sales and operating company contribution are as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------
Operating
Net Company
Sales Contribution
------------------ ----------------
2000 1999 2000 1999
---- ---- ---- ----
(In millions)
<S> <C> <C> <C> <C>
Home products $1,047.8 $ 905.0 $157.1 $139.6
Office products 658.1 624.3 26.0 21.9
Golf products 585.1 579.6 112.4 110.6
Spirits and wine 573.4 604.1 125.5 117.6
-------- -------- ------ ------
$2,864.4 $2,713.0 $421.0 $389.7
======== ======== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
Operating
Net Company
Sales Contribution
------------------ -----------------
2000 1999 2000 1999
---- ---- ---- ----
(In millions)
<S> <C> <C> <C> <C>
Home products $ 544.0 $ 463.8 $ 82.3 $ 70.9
Office products 331.8 309.1 10.5 6.4
Golf products 324.0 329.5 74.2 74.1
Spirits and wine 300.8 318.3 71.5 67.5
-------- -------- ------ ------
$1,500.6 $1,420.7 $238.5 $218.9
======== ======== ====== ======
</TABLE>
9
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Information on Business Segments (Concluded)
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 expense,
interest and related expenses, other (income) expenses, net and income
taxes.
A reconciliation of operating company contribution to consolidated income
(loss) before income taxes is as follows:
Six Months Ended June 30,
2000 1999
------ ------
(In millions)
Operating company contribution $421.0 $ 389.7
Amortization of intangibles 39.8 46.5
Write-down of goodwill - 1,126.0
Restructuring and other
nonrecurring charges 18.1 108.8
Interest and related expenses 65.7 51.2
Non-operating expenses 26.1 34.7
------ --------
Income (loss) before income taxes $271.3 $ (977.5)
====== ========
Three Months Ended June 30,
2000 1999
------ ------
(In millions)
Operating company contribution $238.5 $ 218.9
Amortization of intangibles 19.9 19.2
Write-down of goodwill - 1,126.0
Restructuring and other
nonrecurring charges 11.1 108.8
Interest and related expenses 33.8 25.9
Non-operating expenses 11.8 16.6
------ ---------
Income (loss) before income taxes $161.9 $(1,077.6)
====== =========
10
<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 "Net
income (loss)" is as follows:
Six Months Ended Three Months Ended
June 30, June 30,
----------------- ------------------
2000 1999 2000 1999
------ --------- ------ ---------
(In millions, except per share amounts)
Net income (loss) $161.7 $(1,040.0) $ 97.4 $(1,096.1)
Less: Preferred stock dividends 0.4 0.4 0.2 0.2
------ --------- ------ ---------
Income available to Common
stockholders - basic 161.3 (1,040.4) 97.2 (1,096.3)
Convertible Preferred stock
dividend requirements 0.4 - 0.2 -
------ --------- ------ ---------
Income available to Common
stockholders - diluted $161.7 $(1,040.4) $ 97.4 $(1,096.3)
====== ========= ====== =========
Weighted average number of Common
shares outstanding - basic 159.7 168.4 158.3 167.0
Conversion of Convertible
Preferred stock 2.0 - 2.0 -
Exercise of stock options 0.4 - 0.4 -
------ --------- ------ ---------
Weighted average number of Common
shares outstanding - diluted 162.1 168.4 160.7 167.0
====== ========= ====== =========
Earnings per Common share
Basic $ 1.01 $ (6.18) $ 0.61 $ (6.56)
====== ========= ====== =========
Diluted $ 1.00 $ (6.18) $ 0.61 $ (6.56)
====== ========= ====== =========
The calculations of earnings per share on a diluted basis for 1999
excludes the impact of the Convertible Preferred stock and stock options,
since they would result in an antidilutive effect.
6. Restructuring and Other Nonrecurring Charges
During 1999, the Company recorded $196.0 million of pre-tax restructuring
and other nonrecurring charges. These included employee termination costs,
lease termination costs, asset write-offs, inventory write-offs due to
discontinuance of certain product lines and relocation costs associated
with establishing a new corporate headquarters.
11
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Restructuring and Other Nonrecurring Charges (Continued)
In connection with the restructuring program established in 1999, the
Company recorded pre-tax restructuring charges for the three month and six
month periods ended June 30, 2000 as follows:
Restructuring Charges
-------------------------------------
Six Months Ended Three Months Ended
June 30, 2000 June 30, 2000
------------------- --------------------
(In millions)
Home products $2.4 $2.4
Office products 3.8 2.5
Golf products 1.9 0.7
----- -----
Total $8.1 $5.6
===== =====
The above charges include costs associated with the elimination of 251
and 144 positions for the six months and three months ended June 30, 2000,
respectively.
Home products include charges related to employee termination costs.
Office products include charges related to employee termination costs and
asset write-offs.
Golf products include charges related to lease cancellation and employee
termination costs.
Reconciliation of the restructuring liability, as of June 30, 2000 is as
follows:
<TABLE>
<CAPTION>
Balance at 2000 Cash Non-Cash Balance at
12/31/99 Provision Expenditures Write-offs 6/30/00
--------- -------- ----------- --------- ---------
(In millions)
<S> <C> <C> <C> <C> <C>
Rationalization of
Operations
Employment
Termination costs (1) $ 38.3 $ 6.6 $(26.8) $(0.4) $ 17.7
Other 1.5 (0.6) (0.5) 0.8 1.2
International distribution
and lease agreements 16.3 1.4 (1.7) (8.2) 7.8
Loss on disposal of assets 0.8 0.7 - (0.2) 1.3
------ ------ ------ ------ --------
$ 56.9 $ 8.1 $(29.0) $(8.0) $ 28.0
====== ====== ====== ====== ========
</TABLE>
(1) Of the 1,873 positions planned for elimination, 1,476 had been
eliminated as of June 30, 2000.
12
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Restructuring and Other Nonrecurring Charges (Concluded)
The Company expects that substantially all remaining payments and write-
offs will be made within the next twelve months.
During the three month and six month periods ended June 30, 2000, the
Company recorded pre-tax other nonrecurring charges as follows:
<TABLE>
<CAPTION>
Other Nonrecurring Charges
---------------------------------------------------------
Six Months Ended Three Months Ended
June 30, 2000 June 30, 2000
---------------------------- ----------------------
(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 $3.2 $2.3 $ 5.5 $1.9 $2.1 $4.0
Office Products 1.9 - 1.9 1.4 - 1.4
Golf Products 0.2 0.1 0.3 0.1 - 0.1
Corporate Office - 2.3 2.3 - - -
---- ---- ----- ---- ---- ----
Total $5.3 $4.7 $10.0 $3.4 $2.1 $5.5
==== ==== ===== ==== ==== ====
</TABLE>
Other nonrecurring charges include charges related to the restructuring
activities as follows:
Home products include costs associated with a plant relocation and the
establishment of a distribution center.
Office products include relocation costs for manufacturing facilities and
outside consulting costs.
Golf products include plant relocation costs.
Corporate office includes relocation costs associated with establishing a
new corporate headquarters.
13
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. 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, 1998 $ 12.5 $(7.8) $ 4.7
Changes in six months (29.5) - (29.5)
------ ----- ------
Balance at June 30, 1999 $(17.0) $(7.8) $(24.8)
====== ===== ======
Balance at December 31, 1999 $(11.9) $(3.0) $(14.9)
Changes in six months (42.4) - (42.4)
------ ----- ------
Balance at June 30, 2000 $(54.3) $(3.0) $(57.3)
====== ===== ======
</TABLE>
For the three-month periods ended June 30, 2000 and 1999, total
comprehensive income (loss) resulted in income of $68.5 million and loss of
$1,102 million, respectively.
8. Pending Litigation
Tobacco Litigation and Indemnification
On December 22, 1994, the Company sold The American Tobacco Company
subsidiary to Brown & Williamson Tobacco Corporation, a wholly-owned
subsidiary of B.A.T Industries p.l.c. In connection with the sale, Brown &
Williamson Tobacco Corporation and The American Tobacco Company ("the
Indemnitors") agreed to indemnify the Company against claims including
legal expenses arising from smoking and health and fire safe cigarette
matters relating to the tobacco business of The American Tobacco Company.
The Company is a defendant in numerous actions based upon
allegations that human ailments have resulted from tobacco use. Management
believes that there are meritorious defenses to the pending actions and
these actions are being vigorously contested. However, it is not possible
to predict the outcome of the pending litigation, and it is possible that
some of these actions could be decided unfavorably. Management is unable
to make a meaningful estimate of the amount or range of loss that could
result from an unfavorable outcome of the pending litigation. Management
believes that the pending actions will not have a material adverse effect
upon the results of operations, cash flows or financial condition of the
Company as long as the Indemnitors continue to fulfill their
14
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Concluded)
8. Pending Litigation (Concluded)
Tobacco Litigation and Indemnification (Concluded)
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.
9. 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.
15
<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 June 30, 2000, the related condensed
consolidated statements of income, for the three month and six month
periods ended June 30, 2000, and 1999 and the related consolidated
statements of cash flows and stockholders' equity for the six month periods
ended June 30, 2000 and 1999. 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 interim financial statements
for them to be in conformity with accounting principles generally accepted
in the United States.
We have previously audited, in accordance with auditing standards
generally accepted in the United States, the consolidated balance sheet as
of December 31, 1999, 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, 2000, 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, 1999 is fairly stated in all
material respects in relation to the consolidated balance sheet from which
it has been derived.
PricewaterhouseCoopers LLP
Chicago, Illinois 60601
July 19, 2000
16
<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 Six Months Ended June 30, 2000 as Compared to the
Six Months Ended June 30, 1999
-------------------------------------------------------------------------------
Operating Company
Net Sales Contribution(1)
--------- -----------------
2000 1999 2000 1999
-------- -------- ------ ------
(In millions)
Home products $1,047.8 $ 905.0 $157.1 $139.6
Office products 658.1 624.3 26.0 21.9
Golf products 585.1 579.6 112.4 110.6
Spirits and wine 573.4 604.1 125.5 117.6
-------- -------- ------ ------
$2,864.4 $2,713.0 $421.0 $389.7
======== ======== ====== ======
(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 expense,
interest and related expenses, other (income) expenses, net and income taxes.
CONSOLIDATED
------------
Net sales increased $151.4 million, or 6%, principally on the benefits of line
extensions and new products, acquisitions made in 1999 in the home and office
products segments and price increases. These increases were partly offset by
volume declines in some existing products, changes in the way the Company sells
international spirits and wine as a result of the Maxxium spirits and wine joint
venture and lower average foreign exchange rates. Operating company contribution
increased $31.3 million, or 8%, on the benefit of overall volume increases, in
all segments except golf, improved product mix and to a lesser extent the
acquisitions made in 1999.
During 1999, we elected to change our method for assessing recoverability of
goodwill from one based on undiscounted cash flows to one based on discounted
cash flows. As a result of the change to a discounted cash flow methodology, we
recorded a non-cash write-down of goodwill of $1,126 million in the second
quarter of 1999. Because of this change, goodwill amortization decreased $6.7
million for the six months ended June 30, 2000 as compared to the same period
last year.
17
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
CONSOLIDATED (Continued)
------------
For the six months ended June 30, 2000, we recorded pre-tax restructuring and
other nonrecurring charges of $18.1 million, $11.5 million after-tax, or seven
cents per share. These charges principally relate to the downsizing and
relocation of the Corporate office, product discontinuances and manufacturing
consolidation in the golf segment, rationalization of operations in the home
segment, relocation costs for manufacturing facilities in the office segment and
other workforce reduction initiatives across these segments.
Interest and related expenses increased $14.5 million, or 28%, reflecting higher
average borrowings to fund share repurchases, acquisitions and investments in a
joint venture and higher average interest rates.
The effective income tax rate comparison was distorted by the write-down of
goodwill taken in the second quarter of 1999 and the impact of significant
restructuring and other nonrecurring charges taken in the second quarter of 1999
and the first six months of 2000. Excluding these, the effective income tax
rates for the six months ended June 30, 2000 and 1999 were 40.2% and 39.4%,
respectively.
Net income of $161.7 million, or $1.01 basic and $1.00 diluted per share,
compared with a net loss of $1,040 million, or $6.18 per share, for the same six
month period last year.
Income from operations before net charges, which represents income before the
$18.1 million ($11.5 million after-tax) restructuring and other nonrecurring
charges taken in the six month period ended June 30, 2000, and the $1,126
million goodwill write-down and the $108.8 million ($69.9 million after-tax)
restructuring and other nonrecurring charges taken in the six month period ended
June 30, 1999, was $173.2 million, or $1.08 basic and $1.07 diluted per share,
for the six months ended June 30, 2000, as compared with $155.9 million, or 92
cents basic and 90 cents diluted per share for the same six 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.
18
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
Home Products
-------------
Net sales increased $142.8 million, or 16%. The increase was primarily
attributable to overall volume increases, the acquisition of NHB Group in
October 1999 and to a lesser extent price increases. The overall volume
increases reflect higher volume in existing products, line extensions and to a
lesser degree the introduction of new products. Operating company contribution
increased $17.5 million, or 13%. The operating company contribution increase was
caused by the higher sales, improved product mix and restructuring related
savings and was partly offset by increased operating expenses, principally
selling expenses and costs associated with the startup of manufacturing and
distribution facilities.
Office Products
---------------
Net sales increased $33.8 million, or 5%. The improvement resulted primarily
from the acquisition of Boone in October 1999 and to a lesser extent the
introduction of new products. The increase in net sales was partly offset by
volume declines in existing products and lower average foreign exchange rates.
Operating company contribution increased $4.1 million, or 19%. The increase was
achieved primarily through the acquisition of Boone, savings achieved through
our restructuring program initiated in 1999 and a reduction in one-time
transition costs in the current period. This increase was partly offset by a
continued sales decline in our time management business, higher operating
expenses, impact of lower foreign exchange and higher selling and distribution
expenses (to support higher overall unit volumes).
Golf Products
-------------
Net sales grew $5.5 million, or 1%, principally due to line extensions and new
product introductions in the Titleist and FootJoy brands and to a lesser extent
overall price increases. The increase was offset by continued weakness in Cobra
golf club volume. Operating company contribution increased $1.8 million, or 2%
on the higher sales and improved
19
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
Golf Products (Concluded)
-------------
gross margins in all golf product categories, partly offset by increased
advertising, selling and general and administrative expenses.
While our golf ball brands achieved record sales, as expected, new competitors
are receiving trial resulting in an adverse share impact of about 1 1/2%.
Titleist will continue to monitor the market and will continue to invest
sensibly to defend share.
The United States Golf Association (USGA) establishes standards for golf
equipment used in competitive play in the United States. On November 2, 1998,
the USGA announced the immediate implementation of a new golf club performance
rule that established a rebound velocity standard for driving clubs. The Royal
and Ancient Golf Club (R&A) establishes standards for golf equipment used in
competitive play outside the United States and Mexico. On May 3, 2000, the R&A
issued a Notice to Manufacturers announcing its intention to adopt a new rule
prescribing wall thickness standards for driving clubs. The R&A indicated its
intent to implement the new rule as early as October 2000. The R&A's adoption of
a rule different than the rule implemented by the USGA could result in
conflicting conformance standards for driving clubs in the US and the rest of
the world. These new rules could hamper innovation and make it more difficult to
use technological advances to produce USGA and R&A conforming products. However,
it is not possible to determine whether in the long term these new rules will
have a material effect on the golf club industry and our golf products segment.
The USGA has announced its intention to propose new rules addressing the initial
velocity and overall distance standards for golf balls. Until more details
regarding such potential rule changes become available, we cannot determine
whether they would have a material effect on our group's golf ball business
and/or the golf ball industry. However, the new rules being considered could
incorporate rules that would shorten the overall distance that golf balls are
allowed to travel and that could stifle innovation in the design and manufacture
of golf balls. The adoption of any such rules could materially impact our golf
business and/or the golf ball industry.
Spirits and Wine
----------------
Net sales decreased $30.7 million, or 5%, principally on the effect of the
Maxxium joint venture and to a lesser extent lower average foreign exchange
rates. Product is now sold to Maxxium, net of excise taxes in certain markets,
at a lower price since the related distribution costs are now
20
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
Spirits and Wine (Concluded)
----------------
incurred by Maxxium. On a comparable basis to prior periods, excluding the
impact of Maxxium, net sales would have been $44.4 million higher with an
adjusted sales percentage improvement of 2%. This underlying increase was led
by volume increases and higher prices. The volume increases primarily reflect
line extensions and introductions of new products, principally in the United
States.
Operating company contribution increased $7.9 million, or 7%. The increase
resulted primarily from favorable price and volume changes in the United States.
This increase was partly offset by the foreign exchange impact of a strong U.S.
dollar and higher operating expenses, net of a reduction in the distribution
expenses that are now incurred by Maxxium. Although operating results improved
in the United States, international results were flat overall. In Australia,
pre-mix unit volumes declined due to the introduction of low priced pre-mix
cocktails by competitors.
In August 1999, the spirits and wine business formed an international sales and
distribution joint venture named Maxxium International B.V. with Remy-Cointreau
and Highland Distillers, 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 invested with a total estimated value of $110
million in return for a one-third interest in the venture. Our investment in
Maxxium is accounted for under the equity method. (See Note 3.)
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Net cash provided from operating activities was $117.7 million for the six
months ended June 30, 2000 compared with $140.0 million for the same six month
period last year.
Net cash used by investing activities for the six months ended June 30, 2000 was
$115.6 million, as compared with $74.5 million in the same six month period last
year, principally reflecting an additional investment, of approximately $26
million, in the Maxxium joint venture.
21
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
Liquidity and Capital Resources (Concluded)
-------------------------------
Net cash provided by financing activities for the six months ended June 30, 2000
was $16.1 million, compared with net cash used by financing activities
of $37.3 in the same six month period last year. During the six months ended
June 30, 2000, we purchased 5,782,100 shares through open market purchases.
Total debt at June 30, 2000 was $2.1 billion, an increase of $227.4 million from
December 31, 1999. The ratio of total debt to total capital increased to 44% at
June 30, 2000 from 40.3% at December 31, 1999. The increase principally
reflected increased borrowings to finance share repurchases and an investment in
a joint venture.
We believe that our internally generated funds, together with access to global
credit markets, are adequate to meet our capital needs.
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 Three Months Ended June 30, 2000 as Compared to
the Three Months Ended June 30, 1999
--------------------------------------------------------------------------------
Operating
Net Sales Company Contribution(1)
---------------------- -----------------------
2000 1999 2000 1999
-------- -------- ------ ------
(In millions)
Home products $ 544.0 $ 463.8 $ 82.3 $ 70.9
Office products 331.8 309.1 10.5 6.4
Golf products 324.0 329.5 74.2 74.1
Spirits and wine 300.8 318.3 71.5 67.5
-------- -------- ------ ------
$1,500.6 $1,420.7 $238.5 $218.9
======== ======== ====== ======
(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 expense,
interest and related expenses, other (income) expenses, net and income
taxes.
CONSOLIDATED
------------
Net sales increased $79.9 million, or 6%, principally on the benefits of line
extensions and new products, acquisitions made in 1999 in the home and office
products segments and to a lesser degree higher volume in existing products,
specifically in our home and spirits and wine segments. These increases were
partly offset by changes in the way the Company sells international spirits and
wine as a result of the Maxxium spirits and wine joint venture and lower average
foreign exchange rates. Operating company contribution increased $19.6 million,
or 9% on the higher sales and improved margins partly offset by increased
volume-related selling and general and administrative expenses.
During the three-month period ended June 30, 2000, the Company recorded pre-tax
restructuring and nonrecurring charges of $11.1 million, $7.0 million after-tax,
or four cents basic and diluted per share. (See Note 6 and the section on
"Consolidated" describing the six months results for additional information on
restructuring.)
23
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
CONSOLIDATED (Concluded)
------------
Interest and related expenses increased $7.9 million, or 30%, reflecting higher
average borrowings to fund share repurchases, acquisitions and an investment in
a joint venture and higher interest rates.
The effective income tax rate comparison was distorted by the write-down of
goodwill taken in the second quarter of 1999 and the impact of the restructuring
and other nonrecurring charges taken in the second quarter of 1999 and for the
three months ended June 30, 2000. Excluding these, the effective income tax
rates for the three months ended June 30, 2000 and 1999 were 39.7% and 36.5%,
respectively. The higher effective tax rate this year principally reflected a
refund associated with the settlement of a tax audit last year.
Net income of $97.4 million, or 61 cents per share, for the three months ended
June 30, 2000, compared with net loss of $1,096.1 million, or $6.56 per share,
for the same three-month period last year.
Income from operations before net charges, which represents income before the
$11.1 million ($7.0 million after-tax) restructuring and other nonrecurring
charges taken in the three month period June 30, 2000, and the $1,126 million
goodwill write-down and the $108.8 million ($69.9 million after-tax)
restructuring and other nonrecurring charges taken in the three month period
ended June 30, 1999, was $104.4 million, or 65 cents per share, for the three
months ended June 30, 2000, as compared with $99.8 million, or 60 cents and 58
cents basic and diluted per share, for the same three month period last year.
24
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
Home Products
-------------
Net sales increased $80.2 million, or 17%. The increase was primarily
attributable to overall volume increases and the acquisition of NHB Group in
October 1999. The overall volume increases reflect higher volume on existing
products, the introduction of new products and line extensions. Operating
company contribution increased $11.4 million, or 16%. The increase reflects the
higher sales, favorable product mix and improved productivity, partly offset by
higher operating expenses, principally volume-related selling expenses.
Office Products
---------------
Net sales increased $22.7 million, or 7%. The increase resulted from overall
volume increases and the acquisition of Boone in 1999. The overall volume gains
reflect the introduction of new products in the United States and higher volume
on existing products in Europe. These increases were partly offset by a
continued sales decline in our time management business and lower average
foreign exchange. Operating company contribution increased $4.1 million, or
64%. The increase reflects restructuring related savings, a reduction of one-
time transition costs and the acquisition of Boone, partly offset by higher
operating expenses and adverse foreign exchange rates.
Golf Products
-------------
Net sales decreased $5.5 million, or 2%. The decrease in sales was primarily due
to lower volumes in Cobra golf clubs, partly offset by volume increases in
shoes, gloves and Titleist golf clubs, the introduction of new products and to a
lesser extent the discontinuance of certain Cobra product lines versus the same
period last year. Operating company contribution was flat. Gross margins and
productivity improvements in the current period were offset by increased volume-
related selling expenses and higher advertising, marketing and general and
administrative expenses.
25
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
Spirits and Wine
----------------
Net sales decreased $17.5 million, or 6%, principally on the effect of the
Maxxium joint venture and to a lesser extent lower average foreign exchange
rates. Product is now sold to Maxxium net of excise taxes in certain markets
and at a lower price since the related distribution costs are now incurred by
Maxxium. On a comparable basis to prior periods, excluding the impact of
Maxxium, net sales would have been $24.1 million higher in the quarter with an
adjusted sales percentage improvement of 2%. The increase was attributable to
volume increases and higher prices. The volume increases reflect line
extensions, new products and higher sales of existing products, principally in
the United States.
Operating company contribution increased $4.0 million, or 6%. The increase
resulted primarily from favorable price and volume changes in the United States,
partly offset by the foreign exchange impact of a strong U.S. dollar, increased
brand spending in our wine business and higher operating expenses, net of a
reduction in the distribution expenses that are now incurred by Maxxium.
Although operating results improved in the United States, international results
were flat overall. In Australia, pre-mix unit volumes declined due to the
introduction of low priced pre-mix cocktails by competitors.
26
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------
CAUTIONARY STATEMENT
--------------------
This annual report contains statements relating to future results. They are
forward-looking statements as that term is defined in the Private Securities
Litigation Reform Act of 1995. 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, changes in interest rates, 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, challenges in the integration of acquisitions and joint ventures, as
well as other risks and uncertainties detailed from time to time in the
Company's Securities and Exchange Commission filings.
27
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
---------------------------
(a) Smoking and Health Proceedings
Indemnification Agreement
On December 22, 1994, Registrant sold The American Tobacco Company
("ATCO") to Brown & Williamson Tobacco Corporation ("B&W"), at the time a
wholly-owned subsidiary of B.A.T. Industries p.l.c. In connection with the
sale, B&W and ATCO (collectively, the "Indemnitors") agreed to indemnify
Registrant against claims including legal expenses arising from smoking and
health and fire sale cigarette matters relating to the tobacco business of ATCO.
Individual Cases
As of August 10, 2000, there were approximately 103 smoking and health
cases pending on behalf of individual plaintiffs in which Registrant has been
named as one of the defendants, compared with approximately 94 such cases as of
March 23, 2000. Previously, Registrant had reported in its Annual Report on
Form 10-K for the fiscal year ended December 31, 1999 that there were
approximately 93 such cases as of March 23, 2000.
Class Actions
As of August 10, 2000, there were approximately 22 purported smoking
and health class actions pending in which Registrant has been named as one of
the defendants, compared with approximately 22 such cases on March 23, 2000, as
reported by Registrant in its Annual Report on Form 10-K for the fiscal year
ended December 31, 1999.
Health Care Cost Recovery Actions
As of August 10, 2000, there were approximately three health care cost
recovery actions pending in which Registrant had been named as one of the
defendants, compared with approximately three such cases as of March 23, 2000,
as reported by Registrant in its Annual Report on Form 10-K for the fiscal year
ended December 31, 1999.
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 addressed the
28
<PAGE>
individual claims of named class representatives, commenced on November 1, 1999.
On April 17, 2000, the jury awarded an approximate aggregate amount of $12.7
million to three of the named class representatives, although it also found that
the claims of one of the three class representatives may have been barred by the
statute of limitations. On July 14, 2000, the jury awarded a total of $144.87
billion in punitive damages against the defendants, including $17.59 billion
against Brown and Williamson. Defendants have expressed their intention to
appeal these awards. Florida law sets a cap of $100 million on the bond that
companies must pay while the appeals process is under way. Plaintiffs have
argued that this cap is unconstitutional. 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 has 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 8, "Pending Litigation", in the Notes
to Condensed Consolidation Financial Statements set forth in Part I, Item 1 of
this Quarterly Report on Form 10-Q.
Item 3. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
------- --------------------------------------------------------
There are no material changes in the information provided in Item 7A
of the Company's Form 10-K for the fiscal year ended December 31,
1999.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------- ---------------------------------------------------
(a) The Annual Meeting of Stockholders was held on April 25, 2000.
(b) Registrant's Certificate of Incorporation provides for the
classification of the Board of Directors into three classes, as nearly equal in
number as possible, with staggered terms of office and provides that upon the
expiration of the term of office for a class of directors, nominees for such
class shall be elected for a term of three years or until their successors are
duly elected and qualified. The four nominees for Class II directors, Mr. Eugene
R. Anderson, Ms. Patricia O. Ewers, Mr. John W. Johnstone, Jr. and Mr. Eugene A.
Renna, were duly elected at the 2000 Annual Meeting for a term of office
expiring at the 2003 Annual Meeting. The term of office of the Class I
directors, Mr. Thomas C. Hays, Mr. Sidney Kirschner, Mr. Gilbert L. Klemann, II,
Mr. Gordon R. Lohman and Mr. Charles H. Pistor, and the term of office of the
Class III directors, Ms. Anne M. Tatlock, Mr. Norman H. Wesley and Mr. Peter M.
Wilson, also continued after the 2000 Annual Meeting. David M. Thomas was
elected a Class II director by the Board of Directors on July 25, 2000.
(c) (i) The five nominees for Class I directors were elected by a
plurality of the combined votes cast by the holders of
Registrant's Common Stock and $2.67 Convertible Preferred Stock
voting thereon: (A) Mr. Anderson: 141,940,835 votes for and
1,897,803 votes withheld; (B) Ms. Ewers: 142,116,349 votes for
and 1,722,289 votes withheld; (C) Mr. Johnstone: 142,071,618
votes for and 1,767,020 votes withheld; (D) Mr. Renna:
142,219,802 votes for and 1,618,836 votes withheld;
(ii) A proposal (designated Item 2 and set forth in Registrant's
Proxy Statement), approved by the Board of Directors, to elect
PricewaterhouseCoopers LLP independent accountants of Registrant
for the year 2000, was approved by a majority of the combined
votes cast by the holders of Registrant's Common Stock and $2.67
Convertible Preferred Stock voting thereon: 142,880,292
affirmative votes; 390,400 negative votes; and 567,946 votes
abstained.
(iii) A proposal (designated Item 3 and set forth in Registrant's
Proxy Statement), approved by the Board of Directors, to approve
the Registrant's Stock Plan for Non-employee Directors, was
approved by a majority of the combined votes cast by the holders
of Registrant's Common Stock and $2.67 Convertible Preferred
Stock voting thereon: 143,838,638 affirmative votes; 10,616,113
negative votes; and 2,100,609 votes abstained.
29
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
------- ---------------------------------
(a) Exhibits
--- --------
10al. Fortune Brands, Inc. Severance Plan for Vice Presidents, adopted
retroactively to January 1, 2000.*
12. Statement re computation of ratio of earnings to fixed charges.
15. Letter from PricewaterhouseCoopers LLP dated August 11, 2000 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 July 20, 2000, in respect
of Registrant's press release dated July 20, 2000 announcing Registrant's
financial results for the three month and six month periods ended June 30, 2000
(Items 5 and 7 (c)).
30
<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: August 11, 2000 By /s/ M.R. Mathieson
----------------- --------------------
M.R. Mathieson
Vice President, Controller
and Chief Accounting Officer
31
<PAGE>
EXHIBIT INDEX
-------------
Sequentially
Exhibit Numbered Page
------- -------------
10al. Fortune Brands, Inc. Severance Plan for Vice Presidents,
adopted retroactively to January 1, 2000.
12. Statement re computation of ratio of
earnings to fixed charges.
15. Letter from PricewaterhouseCoopers LLP
dated August 11, 2000 re unaudited
financial information.
27. Financial Data Schedule (Article 5).
99. List of Pending/Terminated Cases.
