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[Conformed]
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999 Commission file number 1-9076
FORTUNE BRANDS, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 13-3295276
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
300 Tower Parkway, Lincolnshire, IL 60069-3640
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 484-4400
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
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<S> <C>
Common Stock, par value $3.125 per share New York Stock Exchange, Inc.
$2.67 Convertible Preferred Stock,
without par value New York Stock Exchange, Inc.
8 5/8% Debentures Due 2021 New York Stock Exchange, Inc.
8 1/2% Notes Due 2003 New York Stock Exchange, Inc.
7 7/8% Debentures Due 2023 New York Stock Exchange, Inc.
Preferred Share Purchase Rights New York Stock Exchange, Inc.
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes[X] No[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of Registrant's voting stock held by non-
affiliates of Registrant, at February 10, 2000, was $4,147,233,371. The number
of shares outstanding of Registrant's common stock, par value $3.125 per share,
at March 14, 2000, was 159,859,908.
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DOCUMENTS INCORPORATED BY REFERENCE
(1) Certain information contained in the Annual Report to Stockholders of
Registrant for the fiscal year ended December 31, 1999 is incorporated by
reference into Part I, Part II and Part IV hereof.
(2) Certain information contained in the Proxy Statement for the Annual Meeting
of Stockholders of Registrant to be held on April 25, 2000 is incorporated
by reference into Part III hereof.
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PART I
Item 1. Business.
(a) General development of business.
Registrant is a holding company with subsidiaries engaged in the
manufacture and sale of home products, office products, golf products and
spirits and wine.
Registrant was incorporated under the laws of Delaware in 1985 and
until 1986 conducted no business. Prior to 1986, the businesses of Registrant's
subsidiaries were conducted by American Brands, Inc., a New Jersey corporation
organized in 1904 ("American New Jersey"), and its subsidiaries. American New
Jersey was merged into The American Tobacco Company on December 31, 1985, and
the shares of the principal first-tier subsidiaries formerly held by American
New Jersey were transferred to Registrant. In addition, Registrant assumed all
liabilities and obligations in respect of the public debt securities of American
New Jersey outstanding immediately prior to the merger. On May 30, 1997,
Registrant's name was changed from American Brands, Inc. to Fortune Brands, Inc.
As a holding company, Registrant is a legal entity separate and
distinct from its subsidiaries. Accordingly, the right of Registrant, and thus
the right of Registrant's creditors (including holders of its debt securities
and other obligations) and stockholders, to participate in any distribution of
the assets or earnings of any subsidiary is subject to the claims of creditors
of the subsidiary, except to the extent that claims of Registrant itself as a
creditor of such subsidiary may be recognized, in which event Registrant's
claims may in certain circumstances be subordinate to certain claims of others.
In addition, as a holding company, a principal source of Registrant's
unconsolidated revenues and funds is dividends and other payments from its
subsidiaries. Registrant's principal subsidiaries currently are not limited by
long-term debt or other agreements in their abilities to pay cash dividends or
to make other distributions with respect to their capital stock or other
payments to Registrant.
In recent years, Registrant has been engaged in a strategy of seeking
to enhance the operations of its principal operating companies. Pursuant to this
strategy, in 1999 subsidiaries of Registrant completed two acquisitions, one in
Registrant's home products business and another in the office products business,
for an aggregate cost of $103.6 million in cash, including fees and expenses.
Also in 1999, Registrant's spirits and wine business formed an international
sales and distribution joint venture, named Maxxium Worldwide B.V. (formerly
known as Maxxium International B.V.), with Remy-Cointreau and Highland
Distillers, to distribute and sell spirits in key markets outside the United
States. Registrant's subsidiary agreed to contribute assets related to its
international distribution network and periodic cash payments with a total
estimated value of $110 million in return for a one-third interest in the
venture. During 1999, Registrant's subsidiary made a cash investment of
approximately $30 million in the venture. The investments of Registrant's
subsidiary in Maxxium were recorded at the book value of assets contributed plus
cash invested. In 1998, Registrant's subsidiaries completed three acquisitions
of home products, office products and spirits and wine businesses for an
aggregate
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cost of $271.8 million in cash, including fees and expenses. In 1997,
Registrant's subsidiaries completed five acquisitions of office products, golf
products and home products businesses for an aggregate cost of $92 million,
including fees and expenses. In 1996, Registrant acquired Cobra Golf
Incorporated ("Cobra"), a leading manufacturer of golf clubs, for an aggregate
cost of $712 million in cash, including fees and expenses.
Registrant has also disposed of subsidiaries having significant
revenues but engaged in businesses considered by Registrant to be nonstrategic
to its long-term operations. For example, in 1995, Registrant sold American
Franklin Company, whose subsidiaries were engaged in the life insurance
business, to American General Corporation for $1.17 billion. In 1997, Registrant
completed the spin-off of Gallaher Group Plc ("Gallaher Group") to Registrant's
stockholders. Subsidiaries of Gallaher Group compete in the international
tobacco business.
In addition, a number of other nonstrategic businesses and product
lines have been sold. In 1997, one of Registrant's office products subsidiaries
sold Sax Arts & Crafts, a marketer to schools of arts and crafts supplies. In
1998, one of Registrant's home products subsidiaries sold assets relating to the
manufacture of door locks and related hardware.
Registrant continues to pursue its strategy to enhance the operations
of its principal operating companies. Registrant actively explores possible
acquisitions in fields related to its principal operating companies. Registrant
also cannot exclude the possibility of acquisitions in other fields or further
dispositions. Registrant is currently reviewing the portfolio of brands owned by
its operating companies and evaluating its options for increasing shareholder
value. Although no assurance can be given as to whether or when any acquisitions
or dispositions will be consummated, if agreement with respect to any
acquisitions were to be reached, Registrant might finance such acquisitions by
issuing additional debt or equity securities. The additional debt from any
acquisitions, if consummated, would increase Registrant's debt-to-equity ratio
and such debt or equity securities might, at least in the near term, have a
dilutive effect on earnings per share. Registrant also continues to consider
other corporate strategies intended to enhance stockholder value. Registrant
cannot predict whether or when any such strategies might be implemented or what
the financial effect thereof might be upon Registrant's debt or equity
securities.
Another aspect of Registrant's strategy to enhance the operations of
its principal operating companies has been to continuously evaluate the
productivity of their product lines and existing asset base and actively seek to
identify opportunities to improve Registrant's and its subsidiaries cost
structure. This strategy led Registrant to record, in 1999, pre-tax
restructuring and other nonrecurring charges totaling $196 million across all
segments of its business. Additionally, in 1997, the Registrant recorded $298.2
million in pretax restructuring and other nonrecurring charges across all of its
principal operating companies. Future opportunities may involve, among other
things, the relocation of manufacturing or assembly to locations generally
having lower costs and the reorganization of operations.
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Cautionary Statement
Except for the historical information contained in this Annual Report
on Form 10-K, certain statements in this document, including without limitation,
certain matters discussed in Part I, Item 1 -- Business and Item 3 -- Legal
Proceedings and in Part II, Item 7 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations, are forward-looking statements,
as defined in the Private Securities Litigation Reform Act of 1995, that involve
a number of risks and uncertainties. Readers are cautioned that these forward-
looking statements speak only as of the date hereof. Actual results may differ
materially from those projected as a result of certain risks and uncertainties
including, but not limited to, changes in general economic conditions, foreign
exchange rate fluctuations, competitive product and pricing pressures, trade
consolidations, the impact of excise tax increases with respect to distilled
spirits, regulatory developments, the uncertainties of litigation, changes in
golf equipment regulatory standards, the impact of weather, particularly on the
home products and golf brand groups, expenses and disruptions related to shifts
in manufacturing to different locations and sources, delays in the integration
of acquisitions and joint ventures, as well as other risks and uncertainties
detailed from time to time in the Company's Securities and Exchange Commission
filings.
(b) Financial information about industry segments.
See Note 15 "Information on Business Segments" in the Notes to
Consolidated Financial Statements contained in the 1999 Annual Report to
Stockholders of Registrant, which Note is incorporated herein by reference.
(c) Narrative description of business.
The following is a description of the business of the subsidiaries of
Registrant in the industry segments of Home Products, Office Products, Golf
Products and Spirits and Wine. For financial information about the above
industry segments, see Note 15 "Information on Business Segments" in the Notes
to Consolidated Financial Statements contained in the 1999 Annual Report to
Stockholders of Registrant, which Note is incorporated herein by reference.
Home Products
MasterBrand Industries, Inc. ("MasterBrand") is a holding company for
subsidiaries in the home products business. Subsidiaries include Moen
Incorporated ("Moen"), MasterBrand Cabinets, Inc. ("MasterBrand Cabinets"),
Master Lock Company ("Master Lock") and Waterloo Industries, Inc. ("Waterloo").
The home products business is highly competitive. MasterBrand's operating
companies compete on the basis of product quality, price, service and
responsiveness to distributor and retailer needs and end-user consumer
preferences. Factors that affect MasterBrand's results of operations include the
levels of home improvement and residential construction activity, principally in
the U.S. (including repair and remodeling and new construction).
Moen manufactures and packages faucets, sinks, bath furnishings and
plumbing accessories and parts and a wide variety of plumbing supply and repair
products in the U.S. and East Asia. Moen branded faucets are sold under a
variety of trade names, including Villeta, extensa, Boutique, Traditional,
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Touch Control, One-Touch, Monticello, PureTouch, Concentrix, Chateau and Legend,
and other products are sold under the Moen, Chicago Specialty, Dearborn Brass,
Wrightway, Hoov-R-Line and CSI Donner brand names. Composite kitchen sinks are
sold under the MoenStone brand name. Sales are made through Moen's own sales
force and independent manufacturers' representatives primarily to wholesalers,
mass merchandisers and home centers and also to industrial distributors,
repackagers and original equipment manufacturers. Some plumbing parts and repair
products are purchased from other manufacturers and repackaged for resale.
Products are sold principally in the U.S. and Canada and also in East Asia,
Mexico and Latin America. Moen's chief competitors include Masco's
Delta/Peerless, Black & Decker's Price Pfister, Kohler and American Standard.
MasterBrand Cabinets, Inc. is engaged in manufacturing stock and semi-
custom kitchen cabinets and bathroom vanities and ready-to-assemble kitchen and
bath cabinets. MasterBrand Cabinets sells under the brand names Aristokraft,
Decora, Schrock, Diamond and Kemper. Sales under the Aristokraft brand name are
made in the U.S. primarily through stocking distributors for resale to kitchen
and bath specialty dealers, lumber and building material dealers, remodelers and
builders. Decora brands are sold primarily in the U.S. to kitchen and bath
specialty dealers. The Schrock, Diamond and Kemper brands are primarily sold in
the U.S. to home centers and kitchen and bath specialty dealers. In October
1999, MasterBrand Cabinets acquired all of the outstanding common stock of NHB
Group, Ltd. ("NHB") of Peterborough, Ontario, Canada. NHB is a leader in the
growing ready-to-assemble kitchen and bath cabinet category. NHB markets its
products under the brand names Kitchen Classics, The Georgetown Collection,
Parkhill, and NHB through home centers and kitchen and bath specialty dealers in
the U.S. and Canada. MasterBrand Cabinets' competitors include American
Woodmark, Masco's Merillat, KraftMaid and Mills Pride brands, and Armstrong
World Industries' Triangle Pacific brand.
Master Lock manufactures key-controlled and combination padlocks,
chain bicycle and cable locks, built-in locker locks, automotive locks and other
specialty security devices. Sales of products designed for consumer use are made
to wholesale distributors, home centers and hardware and other retail outlets.
Sales of lock systems are made to industrial and institutional users, original
equipment manufacturers and retail outlets. Master Lock competes with Abus,
Belwith, Kryptonite, Hampton, American Lock, Winner and various imports in the
padlock segment.
Waterloo manufactures tool storage products, principally high quality
steel toolboxes, tool chests, workbenches and related products. Waterloo sells
to Sears for resale under the Craftsman brand owned by Sears and under the
Waterloo brand name to specialty industrial and automotive dealers, mass
merchandisers, home centers and hardware stores. Waterloo competes with Snap-On,
Kennedy, Stanley, Stack-On, and others in the metal storage segment, and with
Contico, Zag, Rubbermaid and others in the plastic hand box category.
Raw materials used for the manufacture of products offered by
MasterBrand's operating companies are primarily red oak and maple lumber,
particleboard, rolled steel, brass, zinc, copper, nickel, and various plastic
resins. These materials are available from a number of sources.
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Sales of MasterBrand operating companies' products are becoming
increasingly concentrated in a smaller number of major customers, principally
mass merchant superstores, home centers, large distributors and large
homebuilders. The MasterBrand operating companies also are increasingly facing
competition on a value-priced basis. As the hardware and home building and
remodeling industries continues to consolidate, the growth of large mass
merchants, home centers and home builders will continue to present pricing and
service challenges to manufacturers and will present opportunities for the most
efficient manufacturers.
Office Products
ACCO World Corporation ("ACCO") is a holding company for subsidiaries
engaged in designing, developing, manufacturing and marketing a wide variety of
traditional and computer-related office products, supplies, personal computer
accessory products, time management products, presentation aids and label
products. Products are manufactured by subsidiaries, joint ventures and
licensees of ACCO, or manufactured to such subsidiaries' specifications by
third-party suppliers throughout the world, principally in the U.S., Mexico,
Canada, Western Europe, Australia, Taiwan and China.
ACCO Brands, Inc. ("ACCO Brands"), ACCO's primary U.S. operating
company, manufactures or sources and sells binders, fasteners, paper clips,
punches, staples, stapling equipment and storage products, computer supplies and
accessories, labels and presentation products. ACCO Canada Inc. ("ACCO Canada"),
a subsidiary of ACCO, manufactures a limited product range and distributes in
Canada a range of office products similar to that distributed by ACCO Brands in
the U.S. Principal office products brands include ACCO fastener products,
Swingline staples and stapling equipment, Wilson Jones binders and columnar
pads, Perma Products corrugated storage products, Kensington and Gravis computer
accessories and supplies, MACO and Wilson Jones labels and Apollo presentation
products. Products are sold throughout the U.S. and Canada by in-house sales
forces and independent representatives to office and computer products
wholesalers, retailers, dealers, mail order companies and mass merchandisers.
Recent acquisitions of North American office products companies include the
following: in 1997, Advanced Gravis Computer Technology Ltd., a leading marketer
of personal computer joysticks and game pads, and May Tag & Label Corp., a
manufacturer of labeling products sold under the MACO brand; in February 1998,
the Apollo group of companies, a North American leader in presentation products;
and in October 1999, Boone International, Inc., a leading manufacturer of
bulletin and dry-erase boards, chalkboards and dry-erase markers and accessories
for home, home office and commercial use. Sales are concentrated in the U.S.,
Canada and Australia.
Subsidiaries of ACCO Europe PLC ("ACCO Europe"), another subsidiary
of ACCO, manufacture or source and distribute a wide range of office supplies
and machines, storage and retrieval filing systems and presentation products.
ACCO Europe's products are sold primarily in the U.K., Ireland, Western Europe
and Australia through its subsidiaries' sales forces and through distributors.
Principal brands used by ACCO Europe's subsidiaries include ACCO fastening
products, Kensington and Gravis computer accessories, Rexel stapling products,
Nyrex and Twinlock filing products, Nobo and Sasco presentation products and, in
Australia, Marbig products. In 1997, a subsidiary of ACCO Europe acquired
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Nobo Group plc, a leading manufacturer of presentation aids, principally in the
U.K. and continental Europe.
Day-Timers, Inc.("Day-Timers"), a subsidiary of ACCO, manufactures
personal organizers, planners and time management computer software in the U.S.
Management believes Day-Timers is the leading direct marketer of time management
aids in North America. Products are sold in the U.S. by Day-Timers, and in
Canada, Australia and Europe by subsidiaries of Day-Timers, through direct mail
advertising, catalogs to consumers and businesses, and electronic commerce. In
addition, products are sold through ACCO Brands and ACCO Canada to retailers and
mass merchandisers. ACCO Brands also conducts time management seminars for
personnel of corporations in the U.S. and similar activities are conducted by
Day-Timers' subsidiaries in Canada and Australia.
The office products business is increasingly concentrated in a small
number of major customers, principally office products superstores, wholesalers
and contract stationers. The continuing consolidation of both competitors and
customers is causing increased pricing pressures that have negatively affected
results. The reduction in net prices was compounded by the decision of several
customers to reduce inventory levels. These conditions continued throughout 1999
and continue to present challenges for the office products group and its
competitors. ACCO Brands believes its business will return to solid contribution
growth in 2000, and will continue to position the business for long-term growth
through the transition to low-cost manufacturing and an emphasis on faster-
growing and higher-return product categories.
Management believes that manufacturing within the office products
industry remains highly fragmented; however, significant manufacturing
consolidations occurred during 1998, particularly the acquisition of Leitz by
Esselte and of IBICO by GBC, and 1999, specifically the joint venture between
Avery Dennison and Steinbeis Holding GmbH. Due to local market preferences for
product design and paper sizes, many office product manufacturers supply on a
regional basis only. Many manufacturers supply a relatively narrow range of
products. ACCO's key competitors on a worldwide basis include Avery Dennison,
Esselte, Newell, Fellowes, Eagle OPG Inc. and GBC. Primary competitors for
personal organizers in the North American market are Franklin Quest and Day-
Runner, and key competitors in the international market for personal organizers,
although less developed than in the North American market, include Day-Runner in
the U.K. and Quo Vadis in France. In computer accessories, ACCO competes against
Logitech, Fellowes, Microsoft, Targus and others. ACCO's operating companies
compete on the basis of product quality, service and responsiveness to consumer
preferences.
ACCO's subsidiaries purchase raw materials, components and products
from a variety of sources, including non-U.S. vendors, on competitively
available terms that fluctuate based on market conditions. ACCO has established
substantial and growing production operations in Mexico, helping to reduce its
cost base.
Golf Products
Acushnet Company ("Acushnet"), together with its subsidiaries, is a
leading manufacturer and distributor of golf balls, golf clubs, golf shoes and
golf gloves. Other products include bags, dress and athletic shoes as well as
socks, accessories and apparel outerwear. Acushnet's leading brands are
Titleist, Pinnacle and Cobra golf balls; Titleist and Cobra golf clubs; Scotty
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Cameron by Titleist and Bulls Eye putters; FootJoy golf shoes; and FootJoy and
Titleist golf gloves. Acushnet products are sold primarily to on-course golf pro
shops and selected off-course specialty stores, sporting goods stores and mass
merchants throughout the United States. Sales are made in the U.K., Canada,
Germany, Austria, Denmark, Ireland, France, Sweden, The Netherlands, South
Africa, Thailand and Japan through subsidiaries and outside these areas through
distributors or agents.
Acushnet and its subsidiaries compete on the basis of product quality,
price, service and responsiveness to consumer preferences. In golf balls,
Acushnet's main competitors are Spalding, Wilson, Dunlop/Slazenger and
Bridgestone and new entrants such as Callaway, Taylor Made and Nike. In golf
clubs, Callaway, Taylor Made, Ping, Adams, Orlimar, Tommy Armour, Spalding and
Mizuno are the main competitors. In golf shoes, Etonic, Nike, Dexter, Reebok,
Mizuno, Stylo and Adidas are the main competitors. In golf gloves, Wilson,
Daiwa, Dunlop/Maxfli, Kasco, Slazenger, Nike, Etonic, Tommy Armour, Mizuno and
Bridgestone are the main competitors.
In 1999 and 1998, the golf club market was adversely affected by lower
customer demand, leading to volume declines and price discounting. Overall
retail sales of golf clubs fell an estimated 3% to 6% in 1999. The Cobra brand
was adversely affected by the market's overall weakness, resulting in declines
in sales and profits. Titleist clubs posted volume, sales and profit growth.
Conditions in the club market remain very competitive, with major competitors
introducing new products and consumers becoming more price conscious. In 1999,
aggressive actions were undertaken, including discontinuance of club product
lines, asset write-offs and reductions in force, in order to bring Cobra
expenses in line with lower demand and to identify further synergies between
Titleist and Cobra.
The United States Golf Association (USGA) establishes standards for
golf equipment used in competitive play in the United States. In 1998, the USGA
announced the immediate implementation of a new rule with respect to the
performance of golf clubs. Acushnet's golf products currently marketed conform
to this new rule. In the long term, this new rule could hamper innovation and
make it more difficult to use technological advances to produce USGA conforming
products. However, it is not possible to determine whether in the long term this
new rule will have a material effect on the golf club industry.
The USGA has announced its intention to propose new rules addressing
the initial velocity and overall distance standards for golf balls. Until more
details regarding such potential rule changes become available, Acushnet cannot
determine whether they would have a material effect on its golf ball business
and/or the golf ball industry. However, the new rules being considered could
incorporate rules that would create a two-tiered set of standards for golf
balls, one for tour professionals and one for consumers, and that would shorten
the overall distance that golf balls are allowed to travel. The adoption of
either change could materially impact Acushnet's golf business.
In February 2000, Callaway introduced a line of golf balls. Taylor
Made and Nike introduced golf balls into their product offerings in 1999. Each
of these companies has significant brand awareness in the golf market. It is not
possible to predict what effect these new entries will have on Acushnet's
business.
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Acushnet's advertising and promotional campaigns rely in part on a
large number of touring professionals and club professionals using and endorsing
its products. Acushnet has been competing for the endorsement and promotional
services of touring professionals. As a result, these costs have risen and may
continue to rise.
There is currently a substantial market in "knock-off" and counterfeit
golf clubs which imitate or copy the protected features of original equipment
manufacturers golf club products. Acushnet has an active program of enforcing
its intellectual property rights against those who make or sell such products.
Spirits and Wine
Jim Beam Brands Worldwide, Inc. ("JBB Worldwide") is a holding company
for subsidiaries in the distilled spirits and wine business. Principal
subsidiaries include Jim Beam Brands Co. ("Beam"), Alberta Distillers Limited,
Jim Beam Brands Australia Pty. Limited and JBB (Greater Europe) PLC ("JBB
(Greater Europe)").
In August 1999, JBB Worldwide formed an international sales and
distribution joint venture, named Maxxium International B.V., to distribute and
sell premium wines and spirits in key markets outside the United States. In
August 1998, JBB Worldwide purchased the Geyser Peak wine business and adjacent
vineyard property. The winery is located in Alexander Valley, Sonoma County,
California. Geyser Peak wine brands include Geyser Peak Reserve and Venezia,
Geyser Peak and Canyon Road. In February 1998, JBB Worldwide formed a joint
venture to distribute the Barwang brand of Australian wines on a global basis,
except in Australia and New Zealand.
Principal markets for the products of JBB Worldwide's subsidiaries are
the U.S., the U.K. and Australia. Approximately 87% of JBB Worldwide subsidiary
sales are to these three markets, with the U.S. and the U.K. representing 65%
and 16% of sales, respectively.
JBB Worldwide's leading brands are owned by its subsidiaries, except
that DeKuyper cordials are produced and sold in the U.S. under a perpetual
license, Gilbey's gin and Gilbey's vodka are produced and sold in the U.S. under
a license expiring September 30, 2007 and the rights to the Kamchatka vodka
brand in California are claimed by another entity.
Beam, whose operations are located in the U.S., currently produces, or
imports, and markets a broad line of distilled spirits, including bourbon and
other whiskeys, cordials, gin, vodka, rum, tequila and cognac. Beam and its
predecessors have been distillers of bourbon whiskey since 1795. Beam's nine
leading brand names are Jim Beam Bourbon Whiskey, DeKuyper cordials, Windsor
Canadian Supreme Whisky, Lord Calvert Canadian Whisky, Gilbey's gin, Gilbey's
vodka, Kamchatka vodka, Wolfschmidt vodka and Kessler American Blended Whiskey.
As discussed above, in 1998 Beam also added wines to its product offerings.
JBB (Greater Europe) is located in the U.K. and produces, bottles, and
sells blended and single malt Scotch whiskies, markets and sells vodka, and
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sells Scotch whisky in bulk. JBB (Greater Europe) has its origins as a distiller
of Scotch whisky in 1844. JBB (Greater Europe)'s principal brand names are Whyte
& Mackay Special Reserve, The Claymore, The Dalmore, Cluny, Mackinlay, Isle of
Jura and Bruichladdich Scotch whiskies, Glayva Scotch whisky liqueur and
Vladivar vodka.
Products of JBB Worldwide's subsidiaries are sold through various
distributors and in the 18 "control" states (and one county) in the U.S. that
have established government control over certain aspects of the purchase and
distribution of alcoholic beverages.
The distilled spirits business is highly competitive, with many brands
sold in the consumer market. Management believes there are approximately nine
major competitors worldwide and many smaller distillers and bottlers. Management
also believes that, based on units and sales value, the JBB Worldwide group,
with four brands that each sell over one million cases worldwide, is the second
or third largest producer and marketer of distilled spirits in the U.S. and is
among the nine major competitors worldwide. JBB Worldwide's subsidiaries compete
on the basis of product quality, price, service and responsiveness to consumer
preferences.
For many years through 1995, consumption of distilled spirits declined
in many countries, including JBB's major market, the U.S. However, since 1996,
consumption in the U.S. has been steady or has increased slightly, indicating
that the historic decline may be reversing. From 1996 through 1999, cases of
Beam's products sold by distributors to retailers declined, although the rate of
decline slowed in 1998 and 1999. The number of cases sold may be affected by
Beam's historic concentration on mid-to-low priced products that may not be
fully benefiting from the factors influencing the recent industry trends. The
number of cases sold may also be affected by price increases Beam has taken in
recent years to increase profits as compared to unit sales.
The merger of Grand Metropolitan PLC and Guinness PLC to create Diageo
PLC in late 1997 may reflect a trend towards consolidation in the highly
competitive global spirits business. The creation of Diageo PLC, and the breadth
of its portfolio, as well as the continued consolidation of the supplier,
distributor and retailer tiers may present pricing and service challenges for
distilled spirits producers, as well as opportunities for the most efficient
producers.
The principal raw materials for the production, storage and aging of
distilled products are primarily corn, other grains, and new oak barrels, and
are readily available from a number of sources except that new oak barrels are
available from only two major sources, one of which is owned by a competitor.
Beam has entered into a long-term supply agreement for new oak barrels. The
long-term supply agreement may be terminated without cause by the supplier or
Beam. Each party is required, however, to provide several years prior notice
before any termination would become effective. Registrant believes that this
notice requirement allows sufficient time to identify alternative sources of
supply to address Beam's cooperage needs without interruption. Although the
terms of any new arrangement may not be as favorable as Beam's current
arrangement, Registrant does not believe that the change in supply would have a
material adverse effect upon its results of operations. Beam has had a
continuing relationship with its current supplier for more than two decades.
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Blended Scotch whiskies are composed of a variety of grain and malt
whiskies blended to provide a consistent product. The Scotch industry is
therefore dependent on the trading of whiskies between whisky companies.
The principal raw materials used in the production of wines are
grapes, barrels and packaging materials. Grapes are primarily purchased from
independent growers under long-term supply contracts and, from time to time, are
adversely affected by weather and other forces which may limit production. In
fiscal 1999, approximately 5-10% of Geyser Peak's total grape supply came from
company-owned land. Beam is party to numerous long-term supply agreements for
different types of grapes from many different growers. Either party may
terminate these agreements without cause. However, termination typically
requires that the grower provide Beam with at least two years' prior notice. As
a result of the number of agreements and growers, and the length of time
required to terminate an agreement, Registrant believes that termination by a
grower of its agreements would not result in a business interruption.
Because whiskeys are aged for various periods, generally from three to
eight years, subsidiaries of JBB Worldwide maintain, in accordance with industry
practice, substantial inventories of bulk whiskey in warehouse facilities.
Whiskey production is generally scheduled to meet demand years into the future,
and production schedules are adjusted from time to time to bring inventories
into balance with estimated future demand.
The production, storage, transportation, distribution and sale of the
products of JBB Worldwide's subsidiaries are subject to regulation by federal,
state, local and foreign authorities. Various local jurisdictions prohibit or
restrict the sale of distilled spirits and wine in whole or in part. As a result
of the publicity surrounding litigation against manufacturers of tobacco
products and other class action litigation some commentators have suggested that
other industries, including beverage alcohol, may be the targets of litigation.
Registrant believes, and counsel has advised generally, that in the event such
actions are commenced, Registrant and its subsidiaries would have meritorious
defenses to such suits and they would be vigorously contested.
In the U.S., U.K. and many other countries, distilled spirits and wine
are subject to federal excise taxes and/or customs duties as well as state,
local and other taxes. There have been no increases in the U.S. federal excise
tax since January 1, 1991, although proposals to increase such taxes have been
made from time to time. In addition, there are proposals pending to increase or
impose new distilled spirits taxes in various jurisdictions.
The U.K. budget announcements in March 1999 and 2000 did not provide
for an increase in excise tax duties on distilled spirits. Changes in the U.K.
excise duties on distilled spirits in previous years have resulted in increases
or decreases in the price of a typical 700-milliliter bottle of Scotch whisky,
as follows:
12
<PAGE>
Amount of
Increase (Decrease)
Effective Date in Excise Tax Duties
-------------- --------------------
January 1, 1995 26 pence
November 28, 1995 (27 pence)
November 26, 1996 (26 pence)
January 1, 1998 19 pence
It is believed that the U.S. Federal excise tax increase in 1991
contributed to a decline in distilled spirits unit sales for the industry,
including Beam.
The effect of any future excise tax increases in any jurisdiction
cannot be determined, but it is possible that any future excise tax increases
would have an adverse effect on unit sales and increase existing competitive
pressures.
The Alcoholic Beverage Labeling Act of 1988 (the "Labeling Act") and
regulations of the Bureau of Alcohol, Tobacco and Firearms of the Department of
the Treasury (the "BATF") require that containers of alcoholic beverages for
sale or distribution in the U.S. and to members of the United States Armed
Forces abroad bear a specific written warning statement. It is not possible to
state whether any additional or different requirements imposing further labeling
or other warning statement requirements will be enacted in the U.S. Requirements
that distilled spirits containers bear warning statements have been established
in certain other markets in which JBB Worldwide subsidiaries sell products,
notably South Korea, Thailand and Japan. It is not possible to predict the
effect, if any, that existing or future labeling or other warning statement
requirements may have on the industry generally or on JBB Worldwide
specifically.
Previously, there has been discussion and legislation introduced to
ban or significantly restrict U.S. television advertising of beverage alcohol
products. Although no legislation is currently pending or has been enacted, most
TV networks and local affiliated stations in the U.S. currently decline to
accept distilled spirits advertising. JBB Worldwide's operating subsidiaries
outside the U.S. have conducted broadcast advertising in markets where legal. In
1998, the BATF approved two statements for wine labels referencing the health
effects of wine consumption. One of these statements encourages consumers to
consult with their family doctor about the health effects of wine consumption,
and the other statement directs consumers to obtain a copy of the Federal
Government's Dietary Guidelines for Americans in order to learn more about the
health effects of wine consumption. Producers may voluntarily place these
statements on wine labels, but Beam has no present intention of placing either
statement on its wine labels. The BATF has not yet authorized such statements
for any beer or spirits labels. It is not possible to predict the effect, if
any, the use of these statements may have on Beam's or its competitors'
businesses. The approval of these statements also has generated criticism
calling for additional legislative restrictions on beverage alcohol advertising,
although as previously stated no such legislation is pending. It is also not
possible to predict when or whether additional restrictions on
13
<PAGE>
advertising may be implemented in the U.S. or elsewhere. If new restrictions are
implemented, they may have an adverse effect on unit sales and industry trends.
Other Matters
Employees
Registrant and its subsidiaries had, as of December 31, 1999, the
following number of employees:
Home Products 11,900
Office Products 9,650
Golf Products 4,400
Spirits and Wine 2,050
Corporate Office 130
------
Total 28,130
======
Environmental matters
Registrant and its subsidiaries are subject to federal, state and
local laws and regulations concerning the discharge of materials into the
environment and the handling, disposal and clean-up of waste materials and
otherwise relating to the protection of the environment. While it is not
possible to quantify with certainty the potential impact of actions regarding
environmental matters, particularly remediation and other compliance efforts
that Registrant's subsidiaries may undertake in the future, in the opinion of
management of Registrant, compliance with the present environmental protection
laws, before taking into account estimated recoveries from third parties, will
not have a material adverse effect upon the capital expenditures, financial
condition, results of operations or competitive position of Registrant and its
subsidiaries.
(d) Financial information about foreign and domestic operations and
export sales.
Registrant's subsidiaries operate in the United States, Europe
(principally the U.K.) and other areas (principally Canada and Australia). See
the table captioned "Information on Business Segments" contained in the 1999
Annual Report to Stockholders of Registrant, which table is incorporated herein.
Registrant has investments in various foreign countries, principally the United
Kingdom, as well as Australia and Canada, and, therefore, changes in the value
of the currencies of these countries can have an effect on Registrant's
financial statements when translated into U.S. dollars.
Item 2. Properties.
Registrant leases its principal executive offices in Lincolnshire,
Illinois. Additionally, Registrant continues to lease and has sublet a portion
of the premises in Old Greenwich, Connecticut that formerly served as its
executive
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<PAGE>
offices. The following is a description of the principal properties of
Registrant's subsidiaries.
Home Products
Principal properties of subsidiaries of MasterBrand include twenty-
nine plants and one distribution center owned and operated in the U.S. A 60%-
owned joint venture in China owns and operates one plant. In addition,
subsidiaries of MasterBrand lease and operate four plants and three warehouses
in the U.S. and sixteen distribution centers, of which ten are in the U.S., four
in Canada and one each in Mexico and Brazil. Moen owns its executive offices in
North Olmsted, Ohio. Master Lock's and Master Brand Cabinets' executive offices
are located within owned plants. Waterloo's executive offices in Waterloo, Iowa
are leased.
Office Products
ACCO leases its executive offices in Lincolnshire, Illinois. Principal
properties of subsidiaries of ACCO include six plants that are owned and
operated in the U.S., eight in the U.K. of which seven are manufacturing
facilities and one is a distribution center, two in Mexico, and one each in
Australia, Germany, Italy, France and the Republic of Ireland. In addition,
subsidiaries of ACCO lease and operate seven facilities in the U.S., three in
each of Canada and the U.K., and one in each of France, Germany, Italy and
Mexico. Of these leased facilities, (i) three in the U.S., two in the U.K. and
one in Canada are combined manufacturing and distribution facilities, (ii) two
in Canada and one in each of the U.S., Mexico, the U.K., Italy, France and
Germany are distribution facilities and (iii) three in the U.S., and one in
Germany are manufacturing facilities.
Golf Products
Acushnet owns a combined worldwide headquarters, research and
development, distribution and packaging facility in Fairhaven, Massachusetts. In
addition, it owns and operates five plants and two test facilities. Acushnet
also leases a combined office, distribution and warehouse facility, a warehouse,
two manufacturing facilities, a test facility, and two research and development
facilities, all located in the U.S. Acushnet is also in the process of disposing
one owned manufacturing facility, one leased manufacturing facility, one leased
research and development facility and one leased warehouse facility in the
United States.
Acushnet leases an office in Taiwan. A subsidiary of Acushnet leases
three combined sales office and warehouse facilities in Canada. Other Acushnet
subsidiaries own and operate a plant and a warehouse in England, lease a sales
office and warehouse in each of Germany, France, Sweden, Austria, Denmark, The
Netherlands and South Africa and lease a sales office in the Republic of
Ireland. A subsidiary of Acushnet in Japan leases two sales offices and one
warehouse facility. A subsidiary of Acushnet in Thailand leases a sales office,
warehouse facility and manufacturing facility and owns a
15
<PAGE>
manufacturing facility on leased land. Acushnet's minority-owned joint venture
in China leases and operates one plant and is in the process of building a new
plant on leased land.
Spirits and Wine
JBB Worldwide operates from executive offices leased by Beam in
Deerfield, Illinois. Other subsidiaries of JBB Worldwide lease offices in
Scotland, Canada and Australia. Subsidiaries of JBB Worldwide own and operate
seven bottling plants, twelve distilleries (of which three are malt distilleries
not currently in use), a winery (including vineyards, production and bottling
facilities on site) and numerous warehouses for the aging of bulk whiskeys all
located in the U.S., Scotland and Canada. In addition, JBB Worldwide
subsidiaries lease sales offices and warehouse space for the storage of
promotional material in various locations throughout the world.
Registrant and its subsidiaries are of the opinion that their
properties are suitable to their respective businesses and have productive
capacities adequate to meet the needs of such businesses.
Item 3. Legal Proceedings.
Overview
On December 22, 1994, Registrant sold The American Tobacco Company
("ATCO") to Brown & Williamson Tobacco Corporation ("B&W"), at the time a wholly
owned subsidiary of B.A.T Industries p.l.c. In connection with the sale, B&W and
ATCO ("the Indemnitors") agreed to indemnify Registrant against claims including
legal expenses arising from smoking and health and fire safe cigarette matters
relating to the tobacco business of ATCO.
Numerous legal actions, proceedings and claims are pending in various
jurisdictions against leading tobacco manufacturers, including B&W both
individually and as successor by merger to ATCO, based upon allegations that
cancer and other ailments have resulted from tobacco use. Registrant has been
named as a defendant in some of these cases. These claims generally fall within
three categories: (i) smoking and health cases alleging personal injury brought
on behalf of individual plaintiffs, (ii) smoking and health cases alleging
personal injury and other damages and purporting to be brought on behalf of
classes of individual plaintiffs, and (iii) health care cost recovery cases,
including class actions, brought by foreign governments, unions, health trusts,
federal and state taxpayers and others seeking reimbursement for health care
expenditures allegedly caused by cigarette smoking. As noted below, in 1998,
certain United States tobacco companies, including B&W, entered into a Master
Settlement Agreement that resolved all remaining health care cost recovery cases
brought by the various States, U.S. territories, and the District of Columbia.
Damages claimed in some of the smoking and health class actions and remaining
health care cost recovery cases range into the billions of dollars.
Certain former asbestos manufacturers and asbestos manufacturers'
personal injury settlement trusts have also sought unspecified amounts in
indemnity or contribution in third party actions against all or most of the
major domestic tobacco manufacturers. It has also been reported that civil and
criminal investigations of tobacco manufacturers are pending before certain
16
<PAGE>
prosecutorial and other authorities.
In recent years there has been a substantial increase in the number of
smoking and health cases filed in the United States, a trend which continued to
accelerate in 1999.
Individual Cases
As of March 23, 2000, there were approximately 93 smoking and health
cases pending on behalf of individual plaintiffs in which Registrant has been
named as one of the defendants, compared with approximately 230 such cases as of
March 29, 1999. See "List of Pending Cases" below. This reduction in the number
of pending cases is in part attributable to the fact that Registrant is no
longer classifying (i) cases from which it has been dismissed without prejudice,
or (ii) cases which have been discontinued without prejudice and in which no
complaint was ever filed, as "Pending Cases".
Class Actions
As of March 23, 2000, there were approximately 22 purported smoking
and health class actions pending in which Registrant has been named as one of
the defendants compared with approximately 28 such cases as of March 23, 1999.
See "List of Pending Cases" below.
Health Care Cost Recovery Actions
As of March 23, 2000, there were approximately 3 health care recovery
actions pending in which Registrant has been named as one of the defendants,
compared with approximately 9 such cases as of March 29, 1999. See "List of
Pending Cases" below.
Certain Developments Affecting The Indemnitors
In July of 1998, trial began in a Florida action against B&W
(individually and as successor by merger to ATCO) and other U.S. tobacco
manufacturer defendants brought on behalf of a class of Florida residents
allegedly injured as a result of their alleged addiction to cigarettes
containing nicotine (Engle v. R. J. Reynolds tobacco Company, et al.). The jury
in Phase I of the trial found for the plaintiffs and against certain tobacco
manufacturers (including B&W individually and as successor by merger to ATCO).
Phase II of the trial, in which the same jury is to address the individual
claims of the named class representatives, commenced on November 1, 1999. The
trial court judge ruled that the jury in Phase II may award an aggregate
classwide lump-sum amount of punitive damages. This ruling is being challenged
by the defendants in Florida's appellate courts. Registrant is not a party to
the Engle litigation.
In September of 1999, the United States government filed a recoupment
lawsuit in Federal Court in Washington, D.C. against the leading tobacco
manufacturers (including B&W individually and as a successor to ATCO) seeking
recovery of costs paid by the Federal government for claimed smoking-related
illness. Registrant is not a party to this action.
17
<PAGE>
Resolution of Health Care Cost Recovery Actions By States, U.S.
Territories and the District of Columbia
On November 23, 1998, certain U.S. tobacco companies, including B&W,
entered into a Master Settlement Agreement (the "MSA") with certain state
attorneys general that would result in the dismissal of all remaining health
care reimbursement lawsuits brought by the various States, U.S. territories, and
the District of Columbia. Registrant is not a party to the MSA and is not bound
by any of the payment obligations or other restrictions of the MSA.
Under the MSA, the settling States agreed to dismiss their current
health care reimbursement lawsuits and not to refile such suits in the future.
The MSA provides for the release by the settling States of claims for past
conduct, acts or omissions (including future damages resulting from past
conduct, acts or omissions) in any way related, in whole or in part, to the use,
sale, distribution, manufacture, development, advertising, marketing or health
effects of, the exposure to, or research, statements or warnings about, tobacco
products. The release includes any claim that was brought or comparable claims
that could have been brought by the States in their health care cost recovery
actions. It also includes claims for future conduct, acts or omissions, or
claims in any way related, in whole or in part, to the use of or exposure to
tobacco products manufactured in the ordinary course of business, including
future claims for reimbursement of health care costs allegedly associated with
the use of or exposure to tobacco products. All 52 government entities permitted
to participate in the MSA, including 46 States, American Samoa, Guam, Puerto
Rico, the U.S. Virgin Islands, the Northern Mariana Islands and the District of
Columbia, have dismissed their health care reimbursement suits pursuant to the
MSA.
The MSA provides for the release of claims against participating
manufacturers, as well as their predecessors, successors, and past, present, and
future affiliates. "Affiliate" is defined to include past or present persons or
entities who own or control, are owned by or controlled by, or are under common
ownership of a 10% or more equity interest. Registrant understands that it is a
released party under the terms of the MSA.
Under the MSA, participating manufacturers are required to make
initial "upfront" payments totaling nearly $13 billion between 1998 and 2003 to
the settling States. Additional annual payments must be made beginning in 2000
in perpetuity (starting at $4.5 billion in 2000 and increasing to $9 billion in
2018 and thereafter), and payments to several funds (a "strategic contribution"
fund to reward individual States for their contributions to the settlement, a
public health foundation, and a public advertising and awareness fund) are also
required. Further payments of $300 million per year will also be required, if
the market share of the participating manufacturers in the preceding year was at
least 99.05%. These payments are subject to various credits and adjustments,
depending on industry volume, inflation, and other factors. The initial up front
payment was allocated among the participating manufacturers according to market
capitalizations; all other payments are to be allocated according to market
share. Moreover, participating manufacturers agreed to a variety of additional
restrictions and limitations, including, for example, restrictions on
advertising, marketing and lobbying. The MSA also calls for the participating
manufacturers to pay attorneys' fees for the States' attorneys in the settled
litigation.
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<PAGE>
Prior to the MSA, health care cost recovery actions filed by the
states of Minnesota, Texas, Florida and Mississippi were settled separately on
terms which included monetary payments of several billion dollars. Registrant
was not a party to the Minnesota or Texas action and was voluntarily dismissed
from the Florida and Mississippi actions. Registrant is not a party to any of
the settlements nor is it required to pay any money under these settlements.
List of Pending Cases
For a list of pending cases, see Exhibit 99 to this Form 10-K and, for
a discussion of other pending litigation, see Note 19 "Pending Litigation" in
the Notes to Consolidated Financial Statements contained in the 1999 Annual
Report to Stockholders of Registrant, which Note is incorporated herein by
reference.
List of Terminated Cases
For a list of terminated cases, see Exhibit 99 to this Form 10-K.
Conclusion
Management believes that there are meritorious defenses to the pending
actions referred to in Exhibit 99 of this Form 10-K and these actions are being
vigorously contested. However, it is not possible to predict the outcome of the
pending litigation, and it is possible that some of these actions could be
decided unfavorably. Management is unable to make a meaningful estimate of the
amount or range of loss that could result from an unfavorable outcome of the
pending litigation. Management believes that the pending actions will not have a
material adverse effect upon the results of operations, cash flows or financial
condition of Registrant as long as the Indemnitors continue to fulfill their
obligations to indemnify Registrant under the aforementioned indemnification
agreement (see "Overview" on page 16).
19
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 4a. Executive Officers of the Registrant.
The name, present positions and offices with Registrant, principal
occupations during the past five years and age of each of Registrant's present
executive officers are as follows:
Present positions and offices with
Registrant and principal occupations
Name during the past five years Age
- ---- ------------------------------------ ---
Norman H. Wesley Chairman of the Board and Chief Executive 50
Officer of Registrant since December 1999;
President and Chief Operating Officer of
Registrant during 1999; Chairman of the Board
and Chief Executive Officer of Fortune Brands
Home & Office, Inc. from December 1997 to
December 1999; President and Chief Executive
Officer of ACCO World Corporation prior
thereto.
Craig P. Omtvedt Senior Vice President and Chief Financial 50
Officer of Registrant since January 2000;
Senior Vice President and Chief Accounting
Officer of Registrant during 1998 and 1999;
Vice President and Chief Accounting Officer of
Registrant during 1997; Vice President - Deputy
Controller and Chief Internal Auditor of
Registrant during 1996; Deputy Controller and
Chief Internal Auditor of Registrant prior
thereto.
Thomas J. Flocco Senior Vice President - Strategy & Corporate 37
Development of Registrant since January 2000;
Partner, McKinsey & Company, a management
consulting firm, from 1998 to 1999; Engagement
Manager, McKinsey & Company, specializing in
the consumer products area, prior thereto.
Mark Hausberg Senior Vice President - Finance and Treasurer 50
of Registrant since January 2000; Vice
President and Treasurer from January 1996 to
December 1999; Treasurer of Registrant prior
thereto.
20
<PAGE>
Present positions and offices with
Registrant and principal occupations
Name during the past five years Age
- ---- ------------------------------------------- ---
Mark A. Roche Senior Vice President, General Counsel and 45
Secretary of Registrant since January 2000;
Senior Vice President and General Counsel of
Registrant during 1999; Vice President and
General Counsel during 1998; Vice President and
Associate General Counsel of Registrant from
January 1996 to December 1997; Associate
General Counsel of Registrant prior thereto.
Anne C. Linsdau Vice President - Human Resources of Registrant 46
since November 1997; Vice President - Human
Resources, Magazine Publishing Services, with
R.R. Donnelley & Sons Company from August 1995
to November 1997; Vice President - Human
Resources with BE&K, Inc. prior thereto.
Michael R. Mathieson Vice President, Controller and Chief Accounting 47
Officer of Registrant since January 2000;
Controller of Registrant since July 1998; Vice
President and Corporate Controller of Avon
Products, Inc. prior thereto.
In the case of each of the above-listed executive officers, the
occupation or occupations given were his principal occupation and employment
during the period or periods indicated. None of such executive officers is
related to any other such executive officer. None was selected pursuant to any
arrangement or understanding between him and any other person. All executive
officers are elected annually.
21
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
See the information in the tables captioned "Quarterly Common Stock
Dividend Payments" and "Quarterly Composite Common Stock Prices" and the
discussion relating thereto contained in the 1999 Annual Report to Stockholders
of Registrant, which information and discussion are incorporated herein by
reference. On February 25, 2000, there were 36,984 record holders of
Registrant's common stock, par value $3.125 per share.
Item 6. Selected Financial Data.
See the information for 1995 through 1999 in the table captioned "Six-
Year Consolidated Selected Financial Data" contained in the 1999 Annual Report
to Stockholders of Registrant, which information is incorporated herein by
reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
See the discussion and analysis under the captions "Results of
Operations" and "Financial Condition" contained in the 1999 Annual Report to
Stockholders of Registrant, which discussion and analysis are incorporated
herein by reference.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
See the discussion and analysis under "Market Risk," "Foreign Exchange
Contracts" and "Interest Rates" under the caption "Financial Condition" in the
1999 Annual Report to Stockholders of Registrant, which discussion is
incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data.
See the information in the Consolidated Statement of Income,
Consolidated Balance Sheet, Consolidated Statement of Cash Flows, Consolidated
Statement of Stockholders' Equity, Notes to Consolidated Financial Statements
and Report of Independent Accountants contained in the 1999 Annual Report to
Stockholders of Registrant, which information is incorporated herein by
reference. For unaudited selected quarterly financial data, see the table
captioned "Quarterly Financial Data" contained in the 1999 Annual Report to
Stockholders of Registrant, which table is incorporated herein by reference.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
22
<PAGE>
PART III
Item 10. Directors and Executive Officers of Registrant.
See the information under the caption "Election of Directors"
contained in the Proxy Statement for the Annual Meeting of Stockholders of
Registrant to be held on April 25, 2000, which information is incorporated
herein by reference. See also the information with respect to executive officers
of Registrant under Item 4a of Part I hereof, which information is incorporated
herein by reference.
Item 11. Executive Compensation.
See the information up to but not including the subcaption "Report of
the Compensation and Stock Option Committee on Executive Compensation" under the
caption "Executive Compensation" contained in the Proxy Statement for the Annual
Meeting of Stockholders of Registrant to be held on April 25, 2000, which
information is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
See the information under the caption "Certain Information Regarding
Security Holdings" contained in the Proxy Statement for the Annual Meeting of
Stockholders of Registrant to be held on April 25, 2000, which information is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
None.
23
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Financial Statements, Financial Statement Schedules and Exhibits.
(1) Financial Statements (all financial statements listed below are of
Registrant and its consolidated subsidiaries)
Consolidated Statement of Income for the years ended December 31,
1999, 1998 and 1997 contained in the 1999 Annual Report to Stockholders
of Registrant is incorporated herein by reference.
Consolidated Balance Sheet as of December 31, 1999 and 1998 contained
in the 1999 Annual Report to Stockholders of Registrant is incorporated
herein by reference.
Consolidated Statement of Cash Flows for the years ended December 31,
1999, 1998 and 1997 contained in the 1999 Annual Report to Stockholders
of Registrant is incorporated herein by reference.
Consolidated Statement of Stockholders' Equity for the years ended
December 31, 1999, 1998 and 1997 contained in the 1999 Annual Report to
Stockholders of Registrant is incorporated herein by reference.
Notes to Consolidated Financial Statements contained in the 1999
Annual Report to Stockholders of Registrant are incorporated herein by
reference.
Report of Independent Accountants contained in the 1999 Annual Report
to Stockholders of Registrant is incorporated herein by reference.
(2) Financial Statement Schedules
See Index to Financial Statement Schedule of Registrant and
subsidiaries at page F-1, which Index is incorporated herein by
reference.
(3) Exhibits
3(i). Restated Certificate of Incorporation of Registrant is incorporated
herein by reference to Exhibit 3(i) to the Annual Report on Form 10-K
of Registrant for the fiscal year ended December 31, 1998.
3(ii)a. Amendment to By-laws of Registrant.
3(ii)b. By-laws of Registrant as in effect on the date hereof.
10a1. Fortune Brands, Inc. Annual Executive Incentive Compensation Plan is
incorporated herein by reference to Exhibit 10a1 to the Quarterly
Report on Form 10-Q of Registrant dated August 12, 1997.*
10b1. 1986 Stock Option Plan of Fortune Brands, Inc. and amendments thereto
are incorporated herein by reference to Exhibit 10b2 to the Annual
24
<PAGE>
Report on Form 10-K of Registrant for the Fiscal Year ended December
31, 1992 maintained in Commission File No. 1-9076.*
10b2. Amendment to 1986 Stock Option Plan of Fortune Brands, Inc.
constituting Exhibit 10b1 hereto is incorporated herein by reference
to Exhibit 10b to the Quarterly Report on Form 10-Q of Registrant
dated November 11, 1993 maintained in Commission File No. 1-9076.*
10b3. Amendment to 1986 Stock Option Plan of Fortune Brands, Inc. and
Amendment thereto constituting Exhibits 10b1 and 10b2 hereto is
incorporated herein by reference to Exhibit 10b to the Quarterly
Report on Form 10-Q of Registrant dated August 11, 1994 maintained in
Commission File No. 1-9076.*
10b4. Amendment to the 1986 Stock Option Plan of Fortune Brands, Inc. and
Amendments thereto constituting Exhibits 10b1, 10b2 and 10b3 hereto is
incorporated herein by reference to Exhibit 10a2 to the Quarterly
Report on Form 10-Q of Registrant dated November 11, 1997.*
10b5. 1990 Long-Term Incentive Plan of Fortune Brands, Inc. (As Amended and
Restated as of January 1, 1994) is incorporated herein by reference to
Exhibit 10a to the Quarterly Report on Form 10-Q of Registrant dated
August 11, 1994 maintained in Commission File No. 1-9076.*
10b6. Amendment to 1990 Long-Term Incentive Plan of Fortune Brands, Inc.
constituting Exhibit 10b5 hereto is incorporated herein by reference
to Exhibit 10a1 to the Quarterly Report on Form 10-Q of Registrant
dated November 11, 1997.*
10b7. Fortune Brands, Inc. Non-Employee Director Stock Option Plan is
incorporated herein by reference to Exhibit 10b1 to the Quarterly
Report on Form 10-Q of Registrant dated August 12, 1997.*
10b8. Amendment to Registrant's Non-Employee Director Stock Option Plan
constituting Exhibit 10b7 hereto is incorporated herein by reference
to Exhibit 10a1 to the Quarterly Report on Form 10-Q of Registrant
dated August 12, 1998.*
10b9. Amendment to Registrant's Non-Employee Director Stock Option Plan and
Amendment thereto constituting Exhibits 10b7 and 10b8 hereto.*
10b10. Fortune Brands, Inc. 1999 Long-Term Incentive Plan is incorporated
herein by reference to Exhibit 4e1 to the Registration Statement for
the Fortune Brands, Inc. 1999 Long-Term Incentive Plan filed by
Registrant on Form S-8, dated February 1, 2000.*
10c1. Amended Supplemental Plan of Fortune Brands, Inc.*
10c2. Trust Agreement, made as of the 2nd day of January, 1991, among
Registrant, The Chase Manhattan Bank ("Chase"), et al. establishing a
trust in favor of Gilbert L. Klemann, II for purposes of paying
amounts under the Amended Supplemental Plan constituting Exhibit 10c1
hereto is incorporated herein by reference to Exhibit 10c2 to the
Annual Report on Form 10-K of Registrant for the Fiscal Year ended
December 31, 1995.*
25
<PAGE>
10c3. Amendment made as of the 1st day of November, 1993 to Trust Agreement
constituting Exhibit 10c2 hereto is incorporated herein by reference
to Exhibit 10c3 to the Annual Report on Form 10-K of Registrant for
the Fiscal Year ended December 31, 1995.*
10c4. Amendment made as of the 1st day of January, 1995, to the Trust
Agreement and Amendment thereto constituting Exhibits 10c2 and 10c3
hereto is incorporated herein by reference to Exhibit 10c4 to the
Annual Report on Form 10-K of Registrant for the Fiscal Year ended
December 31, 1995.*
10c5. Amendment made as of the 1st day January, 1997, to Trust Agreement and
Amendments thereto constituting Exhibits 10c2, 10c3 and 10c4 hereto is
incorporated herein by reference to Exhibit 10c5 to the Annual Report
on Form 10-K of Registrant for the Fiscal Year ended December 31,
1997.*
10c6. Schedule identifying substantially identical agreements to Trust
Agreement and Amendments thereto constituting Exhibits 10c2, 10c3,
10c4 and 10c5 hereto in favor of Thomas C. Hays, Norman H. Wesley,
John T. Ludes, Dudley L. Bauerlein, Jr., Mark Hausberg, Anne C.
Linsday, Craig P. Omtvedt, Mark A. Roche and Robert J. Rukeyser.*
10c7. Amendment made as of the 24th day of February, 1997, to Trust
Agreement and Amendments thereto constituting Exhibits 10c2, 10c3,
10c4 and 10c5 hereto relating to the trust established in favor of
Thomas C. Hays, is incorporated herein by reference to Exhibit 10c7 to
the Annual Report on Form 10-K of Registrant for the Fiscal Year ended
December 31, 1997.*
10c8. Trust Agreement, made as of the 1st day of November, 1993, among
Gilbert L. Klemann, II, Registrant and Chase establishing a grantor
trust in favor of Gilbert L. Klemann, II for purposes of paying
amounts under the Amended Supplemental Plan constituting Exhibit 10c1
hereto is incorporated herein by reference to Exhibit 10c6 to the
Annual Report on Form 10-K of Registrant for the Fiscal Year ended
December 31, 1995.*
10c9. Amendment made as of 1st day of January, 1996 to Trust Agreement
constituting Exhibit 10c8 hereto is incorporated herein by reference
to the Quarterly Report on Form 10-Q of Registrant dated August 8,
1996.*
10c10. Amendment made as of the 1st day of January, 1997 to Trust Agreement
and Amendment thereto constituting Exhibits 10c8 and 10c9 hereto is
incorporated herein by reference to Exhibit 10c1 to the Quarterly
Report on Form 10-Q of Registrant dated August 12, 1997.*
10c11. Amendment made as of the 1st day of August, 1998 to Trust Agreement
and Amendments thereto constituting Exhibits 10c8, 10c9 and 10c10
hereto is incorporated herein by reference to Exhibit 10a1 to the
Quarterly Report on Form 10-Q of Registrant dated November 11, 1998.*
26
<PAGE>
10c12. Schedule identifying substantially identical agreements to the Trust
Agreement and Amendments thereto constituting Exhibits 10c8, 10c9,
10c10 and 10c11 hereto in favor of Thomas C. Hays, Norman H. Wesley,
John T. Ludes, Dudley L. Bauerlein, Jr., Mark Hausberg, Anne C.
Linsdau, Craig P. Omtvedt, Mark A. Roche and Robert J. Rukeyser.*
10c13. Amendment made as of the 24th day of February, 1997 to Trust Agreement
and Amendments thereto constituting Exhibits 10c8, 10c9, 10c10 and
10c11 hereto, among Thomas C. Hays, Registrant and Chase, is
incorporated herein by reference to Exhibit 10c12 to the Annual Report
on Form 10-K of Registrant for the Fiscal Year ended December 31,
1997.*
10d1. Resolutions of the Board of Directors of Registrant adopted on October
28, 1986 and July 26, 1988 adopting and amending a retirement plan for
directors of Registrant who are not officers or employees of
Registrant or a subsidiary thereof are incorporated herein by
reference to Exhibit 10e1 to the Annual Report on Form 10-K of
Registrant for the Fiscal Year ended December 31, 1991 maintained in
Commission File No. 1-9076.*
10d2. Resolutions of the Board of Directors of Registrant adopted on July
26, 1994 amending the resolutions constituting Exhibit 10d1 hereto is
incorporated herein by reference to Exhibit 10e2 to the Annual Report
on Form 10-K of Registrant for the Fiscal Year ended December 31,
1994.*
10e1. Severance and Retirement Agreement made as of February 24, 1997,
between Registrant and Thomas C. Hays is incorporated herein by
reference to Exhibit 10d1 to the Quarterly Report on Form 10-Q of
Registrant dated August 12, 1997.
10f1. Resolution of the Board of Directors of Registrant adopted on November
27, 1990 with respect to retirement and health benefits provided to
Gilbert L. Klemann, II is incorporated herein by reference to Exhibit
10p1 to the Annual Report on Form 10-K of Registrant for the Fiscal
Year ended December 31, 1991 maintained in Commission File No. 1-
9076.*
10f2. Resolution of the Board of Directors of Registrant adopted on July 26,
1988 with respect to retirement and health benefits provided to Mark
A. Roche is incorporated herein by reference to Exhibit 10f2 to the
Annual Report on Form 10-K of Registrant for the Fiscal Year ended
December 31, 1998.*
10g1. Letter dated January 23, 1996 from Registrant with respect to deferred
payment of fees to Eugene R. Anderson is incorporated herein by
reference to Exhibit 10k1 to the Annual Report on Form 10-K of
Registrant for the Fiscal Year ended December 31, 1995.*
10g2. Letter dated August 11, 1995 from Registrant with respect to deferred
payment of fees to Gordon R. Lohman is incorporated herein by
reference to Exhibit 10b to the Quarterly Report on Form 10-Q of
Registrant dated November 9, 1995.*
27
<PAGE>
10h1. Agreement dated January 2, 1991 between Registrant and Gilbert L.
Klemann, II is incorporated herein by reference to Exhibit 10s1 to the
Annual Report on Form 10-K of Registrant for the Fiscal Year ended
December 31, 1992 maintained in Commission File No. 1-9076.*
10h2. Amendment dated November 28, 1994 to the Agreement constituting Exhibit
10h1 hereto is incorporated herein by reference to Exhibit 10r2 to the
Annual Report on Form 10-K of Registrant for the Fiscal Year ended
December 31, 1994.*
10h3. Schedule identifying substantially identical agreements to the
Agreement and Amendment thereto constituting Exhibits 10h1 and 10h2
hereto entered into by Registrant with Thomas C. Hays, Norman H.
Wesley, John T. Ludes, Dudley L. Bauerlein, Jr., Mark Hausberg, Anne C.
Linsdau, Craig P. Omtvedt, Mark A. Roche and Robert J. Rukeyser.*
10i1. Trust Agreement, made as of the 2nd day of January, 1991, among
Registrant, Chase, et al. establishing a trust in favor of Gilbert L.
Klemann, II for purposes of paying amounts under the Agreement and
Amendment thereto constituting Exhibits 10h1 and 10h2 hereto is
incorporated herein by reference to Exhibit 10s1 to the Annual Report
on Form 10-K of Registrant for the Fiscal Year ended December 31,
1994.*
10i2. Amendment made as of the 1st day of November, 1993 to Trust Agreement
constituting Exhibit 10i1 hereto is incorporated herein by reference to
Exhibit 10s2 to the Annual Report on Form 10-K of Registrant for the
Fiscal Year ended December 31, 1994.*
10i3. Amendment made as of the 1st day of January, 1997 to Trust Agreement
and Amendment thereto constituting Exhibits 10i1 and 10i2 hereto is
incorporated herein by reference to Exhibit 10i3 to the Annual Report
on Form 10-K of Registrant for the Fiscal Year ended December 31,
1997.*
10i4. Schedule identifying substantially identical agreements to the Trust
Agreement and Amendments thereto constituting Exhibits 10i1, 10i2 and
10i3 hereto in favor of Thomas C. Hays, Norman H. Wesley, John T.
Ludes, Dudley L. Bauerlein, Jr., Mark Hausberg, Anne C. Linsdau, Craig
P. Omtvedt, Mark A. Roche and Robert J. Rukeyser.*
10j1. Agreement dated as of January 2, 1991 between Registrant and Gilbert L.
Klemann, II and amendment thereto is incorporated herein by reference
to Exhibit 10y1 to the Annual Report on Form 10-K of Registrant for the
Fiscal Year ended December 31, 1991 maintained in Commission File No.
1-9076.*
10j2. Agreement dated as of October 28, 1991 amending the Agreement
constituting Exhibit 10j1 hereto is incorporated herein by reference to
Exhibit 10w2 to the Annual Report on Form 10-K of Registrant for the
Fiscal Year ended December 31, 1992 maintained in Commission File
No. 1-9076.*
28
<PAGE>
10j3. Amendment effective as of January 1, 1995 to the Agreement and
Amendment thereto constituting Exhibits 10j1 and 10j2 hereto is
incorporated herein by reference to Exhibit 10u3 to the Annual Report
on Form 10-K of Registrant for the Fiscal Year ended December 31,
1994.*
10j4. Schedule identifying substantially identical agreements to the
Agreement and Amendments thereto constituting Exhibits 10j1, 10j2 and
10j3 hereto entered into by Registrant with Norman H. Wesley, John T.
Ludes, Dudley L. Bauerlein, Jr., Craig P. Omtvedt, Mark A. Roche and
Robert J. Rukeyser is incorporated by reference to Exhibit 10j4 to the
Annual Report on Form 10-K of Registrant to the Fiscal Year ended
December 31, 1998.*
10j5 Amendment dated as of August 1, 1998 to the Agreement and Amendments
thereto constituting Exhibits 10j1, 10j2 and 10j3 hereto is
incorporated herein by reference to Exhibit 10b1 to the Quarterly
Report on Form 10-Q of Registrant dated November 11, 1998.*
10j6. Schedule identifying substantially identical agreements to the
Amendment constituting Exhibit 10j5 hereto entered into by Registrant
with Norman H. Wesley, John T. Ludes, Dudley L. Bauerlein, Jr., Mark A.
Roche and Robert J. Rukeyser is incorporated by reference to Exhibit
10j6 to the Annual Report on Form 10-K of Registrant for the Fiscal
Year ended December 31, 1998.*
10j7. Amendment dated as of September 29, 1998 between Registrant and John T.
Ludes to the Agreement and Amendments between Registrant and Mr. Ludes
substantially identical to Exhibits 10j1, 10j2, 10j3 and 10j5 hereto is
incorporated herein by reference to Exhibit 10b5 to the Quarterly
Report on Form 10-Q of Registrant dated November 11, 1998.*
10j8. Amendment dated as of August 1, 1998 between Registrant and Craig C.
Omtvedt to the Agreement and Amendments between Registrant and Mr.
Omtvedt substantially identical to Exhibits 10j1, 10j2 and 10j3
hereto is incorporated by reference to Exhibit 10j8 to the
Annual Report on Form 10-K of Registrant for the Fiscal Year ended
December 31, 1998.*
10j9 Schedule identifying substantially identical agreements to the
Amendment constituting Exhibit 10j8 hereto entered into by Registrant
with Norman Wesley and Mark A. Roche is incorporated by reference to
Exhibit 10j9 to the Annual Report on Form 10-K of Registrant for the
Fiscal Year ended December 31, 1998.*
10j10. Amendment dated as of July 26, 1999 to the Agreement dated as of
January 2, 1991 between Registrant and Gilbert L. Klemann, II and
Amendments thereto constituting Exhibits 10j1, 10j2, 10j3 and 10j5
hereto is incorporated herein by reference to Exhibit 10a1 to the
Quarterly Report on Form 10-Q of registrant dated November 12, 1999.*
10j11. Schedule identifying substantially identical agreements to the
Amendment constituting Exhibit 10j10 hereto, in favor of Dudley L.
Bauerlein, Jr., Robert J. Rukeyser and Mark Hausberg.*
10j12. Agreement dated as of November 18, 1997 between Registrant and Anne C.
Linsdau.*
29
<PAGE>
10j13. Schedule identifying identical agreement to the Agreement constituting
Exhibit 10j12 hereto, in favor of Mark Hausberg.*
10k1. Rights Agreement dated as of November 19, 1997 between Registrant and
First Chicago Trust Company of New York, as Rights Agent, is
incorporated herein by reference to Exhibit 4a to the Current Report on
Form 8-K of Registrant dated December 2, 1997.
10l1. Indemnification Agreement, dated as of December 22, 1994, among
Registrant, The American Tobacco Company and Brown & Williamson
Tobacco Corporation, is incorporated herein by reference to Exhibit
10m1 to the Annual Report on Form 10-K of Registrant for the Fiscal
Year ended December 31, 1997.
12. Statement re computation of ratio of earnings to fixed charges.
13. 1999 Annual Report to Stockholders of Registrant.
21. Subsidiaries of Registrant.
23(i). Consent of Independent Accountants, PricewaterhouseCoopers LLP.
24. Powers of Attorney relating to execution of this Annual Report on Form
10-K.
27. Financial Data Schedules for Fiscal Year ended December 31, 1999
(Article 5).
99. List of Pending/Terminated Cases.
* Indicates that exhibit is a management contract or compensatory plan
or arrangement.
In lieu of filing certain instruments with respect to long-term debt of
the kind described in Item 601(b)(4) of Regulation S-K, Registrant agrees to
furnish a copy of such instruments to the Securities and Exchange Commission
upon request.
(b) Reports on Form 8-K.
Registrant filed a Current Report on Form 8-K, dated October 21, 1999,
in respect of Registrant's press release dated October 21, 1999
announcing Registrant's financial results for the three-month and nine-
month periods ended September 30, 1999 (Items 5 and 7(c)).
Registrant filed a Current Report on Form 8-K, dated December 10, 1999,
in respect of the issuance and sale by Registrant on November 2, 1999
of $200,000,000 aggregate principal amount of its 7 1/8% Notes Due 2004
in a private placement (Items 5 and 7(c)).
Registrant filed a Current Report on Form 8-K, dated January 11, 2000,
in respect of Registrant's press release dated January 11, 2000,
announcing Registrant's estimate of earnings per share growth in 1999
and expectation of earnings per share growth in 2000 (Items 5 and
7(c)).
Registrant filed a Current Report on Form 8-K, dated January 20, 2000,
in respect of Registrant's press release dated January 20, 2000,
announcing Registrant's financial results for the three-month and
twelve-month periods ended December 31, 1999 (Items 5 and 7(c)).
30
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
FORTUNE BRANDS, INC.
(Registrant)
By /s/ Craig P. Omtvedt
Craig P. Omtvedt
Senior Vice President and
Date: March 29, 2000 Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
Registrant and in the capacities and on the dates indicated.
/s/ Norman H. Wesley*
--------------------
Norman H. Wesley, Chairman of the Board and
Chief Executive Officer (principal executive officer and Director)
Date: March 29, 2000
/s/ Craig P. Omtvedt
--------------------
Craig P. Omtvedt, Senior Vice President and
Chief Financial Officer (principal financial officer)
Date: March 29, 2000
/s/ Michael R. Mathieson
--------------------------
Michael R. Mathieson, Vice President,
Controller and Chief Accounting Officer (principal accounting officer)
Date: March 29, 2000
/s/ Eugene R. Anderson *
------------------------
Eugene R. Anderson, Director
Date: March 29, 2000
/s/ Patricia O. Ewers *
-----------------------
Patricia O. Ewers, Director
Date: March 29, 2000
/s/ Thomas C. Hays *
--------------------
Thomas C. Hays, Director
Date: March 29, 2000
31
<PAGE>
/s/ John W. Johnstone, Jr. *
----------------------------
John W. Johnstone, Jr., Director
Date: March 29, 2000
/s/ Sidney Kirschner *
----------------------
Sidney Kirschner, Director
Date: March 29, 2000
/s/ Gordon R. Lohman *
----------------------
Gordon R. Lohman, Director
Date: March 29, 2000
/s/ Charles H. Pistor, Jr. *
----------------------------
Charles H. Pistor, Jr., Director
Date: March 29, 2000
/s/ Eugene A. Renna *
---------------------
Eugene A. Renna, Director
Date: March 29, 2000
/s/ Anne M. Tatlock *
---------------------
Anne M. Tatlock, Director
Date: March 29, 2000
/s/ Peter M. Wilson *
---------------------
Peter M. Wilson, Director
Date: March 29, 2000
*By /s/ Mark A. Roche
-----------------
Mark A. Roche, Attorney-in-Fact
32
<PAGE>
INDEX TO FINANCIAL STATEMENT SCHEDULE
Pages
-----
FORTUNE BRANDS, INC. AND SUBSIDIARIES
Report of Independent Accountants F-2
Schedule
--------
II Valuation and qualifying accounts
For the years ended December 31, 1999, 1998 and 1997 F-3
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
and Stockholders of
Fortune Brands, Inc.:
Our audits of the consolidated financial statements referred to in our report
dated February 3, 2000 appearing on page 57 of the 1999 Annual Report to
Stockholders of Fortune Brands, Inc. (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the financial statement schedule listed in Item
14(a)(2) of this Form 10-K. In our opinion, the financial statement schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
New York, New York 10010
February 3, 2000
F-2
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1999, 1998 and 1997 (In millions)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
------ ------ ------ ------ ------
Additions
---------
Balance at Charged Balance
Beginning to Costs at End
Description of Period and Expenses Deductions of Period
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999:
Allowance for cash discounts $ 8.9 $ 76.3 $ 76.4 (1) $ 8.8
Allowance for returns 19.1 156.4 157.1 (1) 19.2
(0.8) (3)
Allowance for doubtful accounts 33.4 15.0 14.6 (2) 35.4
(1.6) (3)
------ ------ ------ ------
$ 61.4 $247.7 $245.7 $ 63.4
====== ====== ====== ======
1998:
Allowance for cash discounts $ 8.2 $ 93.1 $ 92.4 (1) $ 8.9
Allowance for returns 20.4 150.3 151.6 (1) 19.1
Allowance for doubtful accounts 25.7 14.3 9.9 (2) 33.4
(3.3)(3)
------ ------ ------ ------
$ 54.3 $257.7 $250.6 $ 61.4
====== ====== ====== ======
1997:
Allowance for cash discounts $ 7.4 $ 71.1 $ 70.3 (1) $ 8.2
Allowance for returns 18.9 129.0 127.5 (1) 20.4
Allowance for doubtful accounts 23.3 11.9 10.6 (2) 25.7
(1.1)(3)
------ ------ ------ ------
$ 49.6 $212.0 $207.3 $ 54.3
====== ====== ====== ======
</TABLE>
(1) Cash discounts and returns allowed customers.
(2) Doubtful accounts written off, net of recoveries.
(3) Balance at acquisition date of subsidiaries.
F-3
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered Page
- ------- -------------
<S> <C>
3(i). Restated Certificate of Incorporation of Registrant is incorporated herein by
reference to Exhibit 3(i) to the Annual Report on Form 10-K of
Registrant for the fiscal year ended December 31, 1998.
3(ii)a. Amendment to By-laws of Registrant.
3(ii)b. By-laws of Registrant as in effect on the date hereof.
10a1. Fortune Brands, Inc. Annual Executive Incentive Compensation Plan is
incorporated herein by reference to Exhibit 10a1 to the Quarterly
Report on Form 10-Q of Registrant dated August 12, 1997.*
10b1. 1986 Stock Option Plan of Fortune Brands, Inc. and amendments thereto
are incorporated herein by reference to Exhibit 10b2 to the Annual
Report on Form 10-K of Registrant for the Fiscal Year ended December
31, 1992 maintained in Commission File No. 1-9076.*
10b2. Amendment to 1986 Stock Option Plan of Fortune Brands, Inc.
constituting Exhibit 10b1 hereto is incorporated herein by reference to
Exhibit 10b to the Quarterly Report on Form 10-Q of Registrant dated
November 11, 1993 maintained in Commission File No. 1-9076.*
10b3. Amendment to 1986 Stock Option Plan of Fortune Brands, Inc. and
Amendment thereto constituting Exhibits 10b1 and 10b2 hereto is
incorporated herein by reference to Exhibit 10b to the Quarterly Report
on Form 10-Q of Registrant dated August 11, 1994.*
10b4. Amendment to the 1986 Stock Option Plan of Fortune Brands, Inc. and
Amendments thereto constituting Exhibits 10b1, 10b2 and 10b3 hereto is
incorporated herein by reference to Exhibit 10a2 to the Quarterly
Report on Form 10-Q of Registrant dated November 11, 1997.*
10b5. 1990 Long-Term Incentive Plan of Fortune Brands, Inc. (As Amended and
Restated as of January 1, 1994) is incorporated herein by reference to
Exhibit 10a to the Quarterly Report on Form 10-Q of Registrant dated
August 11, 1994 maintained in Commission File No. 1-9076.*
10b6. Amendment to 1990 Long-Term Incentive Plan of Fortune Brands, Inc.
constituting Exhibit 10b5 hereto is incorporated herein by reference to
Exhibit 10a1 to the Quarterly Report on Form 10-Q of Registrant dated
November 11, 1997.*
10b7. Fortune Brands, Inc. Non-Employee Director Stock Option Plan is
incorporated herein by reference to Exhibit 10b1 to the Quarterly
Report on Form 10-Q of Registrant dated August 12, 1997.*
</TABLE>
<PAGE>
10b8. Amendment to Registrant's Non-Employee Director Stock Option Plan
constituting Exhibit 10b7 hereto is incorporated herein by reference to
Exhibit 10a1 to the Quarterly Report on Form 10-Q of Registrant dated
August 12, 1998.*
10b9. Amendment to Registrant's Non-Employee Director Stock Option Plan and
Amendment thereto constituting Exhibits 10b7 and 10b8 hereto.*
10b10. Fortune Brands, Inc. 1999 Long-Term Incentive Plan is incorporated
herein by reference to Exhibit 4e1 to the Registration Statement for
the Fortune Brands, Inc. 1999 Long-Term Incentive Plan filed by
Registrant on Form S-8, dated February 1, 2000.*
10c1. Amended Supplemental Plan of Fortune Brands, Inc.*
10c2. Trust Agreement, made as of the 2nd day of January, 1991, among
Registrant, The Chase Manhattan Bank ("Chase"), et al. establishing a
trust in favor of Gilbert L. Klemann, II for purposes of paying amounts
under the Amended Supplemental Plan constituting Exhibit 10c1 hereto is
incorporated herein by reference to Exhibit 10c2 to the Annual Report
on Form 10-K of Registrant for the Fiscal Year ended December 31,
1995.*
10c3. Amendment made as of the 1st day of November, 1993 to Trust Agreement
constituting Exhibit 10c2 hereto is incorporated herein by reference to
Exhibit 10c3 to the Annual Report on Form 10-K of Registrant for the
Fiscal Year ended December 31, 1995.*
10c4. Amendment made as of the 1st day of January, 1995, to the Trust
Agreement and Amendment thereto constituting Exhibits 10c2 and 10c3
hereto is incorporated herein by reference to Exhibit 10c4 to the
Annual Report on Form 10-K of Registrant for the Fiscal Year ended
December 31, 1995.*
10c5. Amendment made as of the 1st day January, 1997, to Trust Agreement and
Amendments thereto constituting Exhibits 10c2, 10c3 and 10c4 hereto is
incorporated herein by reference to Exhibit 10c5 to the Annual Report
on Form 10-K of Registrant for the Fiscal Year ended December 31,
1997.*
10c6. Schedule identifying substantially identical agreements to Trust
Agreement and Amendments thereto constituting Exhibits 10c2, 10c3, 10c4
and 10c5 hereto in favor of Thomas C. Hays, Norman H. Wesley,
John T. Ludes, Dudley L. Bauerlein, Jr., Mark Hausberg, Anne C.
Linsdau, Craig P. Omtvedt, Mark A. Roche and Robert J. Rukeyser.*
<PAGE>
10c7. Amendment made as of the 24th day of February, 1997, to Trust Agreement
and Amendments thereto constituting Exhibits 10c2, 10c3, 10c4 and 10c5
hereto relating to the trust established in favor of Thomas C. Hays, is
incorporated herein by reference to Exhibit 10c7 to the Annual Report
on Form 10-K of Registrant for the Fiscal Year ended December 31,
1997.*
10c8. Trust Agreement, made as of the 1st day of November, 1993, among
Gilbert L. Klemann, II, Registrant and Chase establishing a grantor
trust in favor of Gilbert L. Klemann, II for purposes of paying amounts
under the Amended Supplemental Plan constituting Exhibit 10c1 hereto is
incorporated herein by reference to Exhibit 10c6 to the Annual Report
on Form 10-K of Registrant for the Fiscal Year ended December 31,
1995.*
10c9. Amendment made as of 1st day of January, 1996 to Trust Agreement
constituting Exhibit 10c8 hereto is incorporated herein by reference to
the Quarterly Report on Form 10-Q of Registrant dated August 8, 1996.*
10c10. Amendment made as of the 1st day of January, 1997 to Trust Agreement
and Amendment thereto constituting Exhibits 10c8 and 10c9 hereto is
incorporated herein by reference to Exhibit 10c1 to the Quarterly
Report on Form 10-Q of Registrant dated August 12, 1997.*
10c11. Amendment made as of the 1st day of August, 1998 to Trust Agreement and
Amendments thereto constituting Exhibits 10c8, 10c9 and 10c10 hereto is
incorporated herein by reference to Exhibit 10a1 to the Quarterly
Report on Form 10-Q of Registrant dated November 11, 1998.*
10c12. Schedule identifying substantially identical agreements to the Trust
Agreement and Amendments thereto constituting Exhibits 10c8, 10c9,
10c10 and 10c11 hereto in favor of Thomas C. Hays, Norman H. Wesley,
John T. Ludes, Dudley L. Bauerlein, Jr., Mark Hausberg, Anne C.
Linsdau, Craig P. Omtvedt, Mark A. Roche and Robert J. Rukeyser.*
10c13. Amendment made as of the 24th day of February, 1997 to Trust Agreement
and Amendments thereto constituting Exhibits 10c8, 10c9, 10c10 and
10c11 hereto, among Thomas C. Hays, Registrant and Chase, is
incorporated herein by reference to Exhibit 10c12 to the Annual Report
on Form 10-K of Registrant for the Fiscal Year ended December 31,
1997.*
10d1. Resolutions of the Board of Directors of Registrant adopted on October
28, 1986 and July 26, 1988 adopting and amending a retirement plan for
directors of Registrant who are not officers or employees of Registrant
or a
<PAGE>
subsidiary thereof are incorporated herein by reference to Exhibit 10e1
to the Annual Report on Form 10-K of Registrant for the Fiscal Year
ended December 31, 1991 maintained in Commission File No. 1-9076.*
10d2. Resolutions of the Board of Directors of Registrant adopted on July 26,
1994 amending the resolutions constituting Exhibit 10d1 hereto is
incorporated herein by reference to Exhibit 10e2 to the Annual Report
on Form 10-K of Registrant for the Fiscal Year ended December 31,
1994.*
10e1. Severance and Retirement Agreement made as of February 24, 1997,
between Registrant and Thomas C. Hays is incorporated herein by
reference to Exhibit 10d1 to the Quarterly Report on Form 10-Q of
Registrant dated August 12, 1997.
10f1. Resolution of the Board of Directors of Registrant adopted on November
27, 1990 with respect to retirement and health benefits provided to
Gilbert L. Klemann, II is incorporated herein by reference to
Exhibit 10p1 to the Annual Report on Form 10-K of Registrant for the
Fiscal Year ended December 31, 1991 maintained in Commission
File No. 1-9076.*
10f2. Resolution of the Board of Directors of Registrant adopted on July 26,
1988 with respect to retirement and health benefits provided to Mark A.
Roche is incorporated herein by reference to Exhibit 10f2 to the Annual
Report on Form 10-K of Registrant for the Fiscal Year ended December
31, 1998.*
10g1. Letter dated January 23, 1996 from Registrant with respect to deferred
payment of fees to Eugene R. Anderson is incorporated herein by
reference to Exhibit 10k1 to the Annual Report on Form 10-K of
Registrant for the Fiscal Year ended December 31, 1995.*
10g2. Letter dated August 11, 1995 from Registrant with respect to deferred
payment of fees to Gordon R. Lohman is incorporated herein by reference
to Exhibit 10b to the Quarterly Report on Form 10-Q of Registrant dated
November 9, 1995.*
10h1. Agreement dated January 2, 1991 between Registrant and Gilbert L.
Klemann, II is incorporated herein by reference to Exhibit 10s1 to the
Annual Report on Form 10-K of Registrant for the Fiscal Year ended
December 31, 1992 maintained in Commission File No. 1-9076.*
10h2. Amendment dated November 28, 1994 to the Agreement constituting Exhibit
10h1 hereto is incorporated herein by reference to Exhibit 10r2 to the
Annual Report on Form 10-K of Registrant for the Fiscal Year ended
December 31, 1994.*
<PAGE>
10h3. Schedule identifying substantially identical agreements to the
Agreement and Amendment thereto constituting Exhibits 10h1 and 10h2
hereto entered into by Registrant with Thomas C. Hays, Norman H.
Wesley, John T. Ludes, Dudley L. Bauerlein, Jr., Mark Hausberg, Anne C.
Linsdau, Craig P. Omtvedt, Mark A. Roche and Robert J. Rukeyser.*
10i1. Trust Agreement, made as of the 2nd day of January, 1991, among
Registrant, Chase, et al. establishing a trust in favor of Gilbert L.
Klemann, II for purposes of paying amounts under the Agreement and
Amendment thereto constituting Exhibits 10h1 and 10h2 hereto is
incorporated herein by reference to Exhibit 10s1 to the Annual Report
on Form 10-K of Registrant for the Fiscal Year ended December 31,
1994.*
10i2. Amendment made as of the 1st day of November, 1993 to Trust Agreement
constituting Exhibit 10i1 hereto is incorporated herein by reference to
Exhibit 10s2 to the Annual Report on Form 10-K of Registrant for the
Fiscal Year ended December 31, 1994.*
10i3. Amendment made as of the 1st day of January, 1997 to Trust Agreement
and Amendment thereto constituting Exhibits 10i1 and 10i2 hereto is
incorporated herein by reference to Exhibit 10i3 to the Annual Report
on Form 10-K of Registrant for the Fiscal Year ended December 31,
1997.*
10i4. Schedule identifying substantially identical agreements to the Trust
Agreement and Amendments thereto constituting Exhibits 10i1, 10i2 and
10i3 hereto in favor of Thomas C. Hays, Norman H. Wesley, John T.
Ludes, Dudley L. Bauerlein, Jr., Craig P. Omtvedt, Mark Hausberg, Anne
C. Linsdau, Mark A. Roche and Robert J. Rukeyser.*
10j1. Agreement dated as of January 2, 1991 between Registrant and Gilbert L.
Klemann, II and amendment thereto is incorporated herein by reference
to Exhibit 10y1 to the Annual Report on Form 10-K of Registrant for the
Fiscal Year ended December 31, 1991 maintained in Commission File No.
1-9076.*
10j2. Agreement dated as of October 28, 1991 amending the Agreement
constituting Exhibit 10j1 hereto is incorporated herein by reference to
Exhibit 10w2 to the Annual Report on Form 10-K of Registrant for the
Fiscal Year ended December 31, 1992 maintained in Commission File
No. 1-9076.*
10j3. Amendment effective as of January 1, 1995 to the Agreement and
Amendment thereto constituting Exhibits 10j1 and 10j2 hereto is
incorporated herein by reference to Exhibit 10u3 to the Annual Report
on Form 10-K of Registrant for the Fiscal Year ended December 31,
1994.*
<PAGE>
10j4. Schedule identifying substantially identical agreements to the
Agreement and Amendments thereto constituting Exhibits 10j1, 10j2 and
10j3 hereto entered into by Registrant with Norman H. Wesley, John T.
Ludes, Dudley L. Bauerlein, Jr., Craig P. Omtvedt, Mark A. Roche and
Robert J. Rukeyser is incorporated by reference to Exhibit 10j4 to the
Annual Report on Form 10-K of Registrant to the Fiscal Year ended
December 31, 1998.*
10j5 Amendment dated as of August 1, 1998 to the Agreement and Amendments
thereto constituting Exhibits 10j1, 10j2 and 10j3 hereto is
incorporated herein by reference to Exhibit 10b1 to the Quarterly
Report on Form 10-Q of Registrant dated November 11, 1998.*
10j6. Schedule identifying substantially identical agreements to the
Amendment constituting Exhibit 10j5 hereto entered into by Registrant
with Norman H. Wesley, John T. Ludes, Dudley L. Bauerlein, Jr., Mark A.
Roche and Robert J. Rukeyser is incorporated by reference to Exhibit
10j6 to the Annual Report on Form 10-K of Registrant for the Fiscal
Year ended December 31, 1998.*
10j7. Amendment dated as of September 29, 1998 between Registrant and John T.
Ludes to the Agreement and Amendments between Registrant and Mr. Ludes
substantially identical to Exhibits 10j1, 10j2, 10j3 and 10j5 hereto is
incorporated herein by reference to Exhibit 10b5 to the Quarterly
Report on Form 10-Q of Registrant dated November 11, 1998.*
10j8. Amendment dated as of August 1, 1998 between Registrant and Craig C.
Omtvedt to the Agreement and Amendments between Registrant and Mr.
Omtvedt substantially identical to Exhibits 10j1, 10j2 and 10j3
hereto is incorporated by reference to Exhibit 10j8 to the Annual
Report on Form 10-K of Registrant for the Fiscal Year ended December
31, 1998.*
10j9 Schedule identifying substantially identical agreements to the
Amendment constituting Exhibit 10j8 hereto entered into by Registrant
with Norman Wesley and Mark A. Roche is incorporated by reference to
Exhibit 10j9 to the Annual Report on Form 10-K of Registrant for the
Fiscal Year ended December 31, 1998.*
10j10. Amendment dated as of July 26, 1999 to the Agreement dated as of
January 2, 1991 between Registrant and Gilbert L. Klemann, II and
Amendments thereto constituting Exhibits 10j1, 10j2, 10j3 and 10j5
hereto is incorporated herein by reference to Exhibit 10a1 to the
Quarterly Report on Form 10-Q of registrant dated November 12, 1999.*
10j11. Schedule identifying substantially identical agreements to the
Amendment constituting Exhibit 10j10 hereto, in favor of Dudley L.
Bauerlein, Jr., Robert J. Rukeyser and Mark Hausberg.*
<PAGE>
10j12. Agreement dated as of November 18, 1997 between Registrant and Anne C.
Linsdau.*
10j13. Schedule identifying identical agreement to the Agreement constituting
Exhibit 10j12 hereto, in favor of Mark Hausberg.*
10k1. Rights Agreement dated as of November 19, 1997 between Registrant and
First Chicago Trust Company of New York, as Rights Agent, is
incorporated herein by reference to Exhibit 4a to the Current Report on
Form 8-K of Registrant dated December 2, 1997.
10l1. Indemnification Agreement, dated as of December 22, 1994, among
Registrant, The American Tobacco Company and Brown & Williamson Tobacco
Corporation, is incorporated herein by reference to Exhibit 10m1 to the
Annual Report on Form 10-K of Registrant for the Fiscal Year ended
December 31, 1997.
12. Statement re computation of ratio of earnings to fixed charges.
13. 1999 Annual Report to Stockholders of Registrant.
21. Subsidiaries of Registrant.
23(i). Consent of Independent Accountants, PricewaterhouseCoopers LLP.
24. Powers of Attorney relating to execution of this Annual Report on Form
10-K.
27. Financial Data Schedules for Fiscal Year ended December 31, 1999
(Article 5).
99. List of Pending/Terminated Cases.
<PAGE>
EXHIBIT 3(ii)a
FORTUNE BRANDS, INC.
BY-LAW AMENDMENTS
ADOPTED ON NOVEMBER 16, 1999
EFFECTIVE NOVEMBER 16, 1999
Article III, Section 1 was amended to read in its entirety as follows:
SECTION 1. Regular meetings of the Board of Directors shall be held at the
office of the Company in Lincolnshire, Illinois, or at such other place as may
from time to time be designated by the directors, the Chairman of the Board or
the President, at eight-thirty in the forenoon on the last Tuesday of each month
other than March, May, June, August, October and December and at two o'clock in
the afternoon on the day on which the annual meeting of stockholders is held.
If any such day shall be a holiday, the meeting scheduled for that day shall be
held on the next business day. Special meetings may be held as determined by
the Board of Directors, and may be called by the Chairman of the Board at any
time and shall be called by him on the request of three directors or, if the
Chairman of the Board fails to call such meeting when so requested, the same may
be called by any three directors;
Article III, Section 2 was amended to read in its entirety as follows:
SECTION 2. No notice need be given of regular meetings of the directors,
except that at least one day's notice shall be given of any place other than the
office of the Company in Lincolnshire, Illinois at which any such meeting is to
be held, but such notice need not be given to any director who signs a written
waiver of notice before or after the meeting. Attendance of a director at a
meeting shall constitute a waiver of notice of such meeting, except when the
director attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened.
<PAGE>
EXHIBIT 3(ii)(b)
BY-LAWS
of
FORTUNE BRANDS, INC.
(As Amended)
ARTICLE I
Directors
Section 1. The number of directors constituting the entire Board of
Directors of the Company, which shall be no fewer than ten and no greater than
twenty, shall be determined by action of the Board of Directors adopted at any
regular or special meeting of the Board of Directors by the affirmative vote of
at least two-thirds of all directors then in office, provided notice of the
proposed change in the number of directors shall be given in writing to each of
the directors then in office. Any amendment to this Section 1 of these By-laws
may be adopted at any regular or special meeting of the Board of Directors by
the affirmative vote of at least two-thirds of all the directors then in office.
Section 2. Each director shall hold office until his successor is
elected and qualified or until his earlier resignation or removal. Any director
of the Company may resign at any time upon written notice to the Company. Except
as otherwise provided for, or fixed by, or pursuant to the provisions of Article
IV of the Certificate of Incorporation relating to the rights of the holders of
any class or series of stock having a preference over the Common Stock, newly
created directorships resulting from any increase in the number of directors or
any vacancy on the Board of Directors resulting from death, resignation,
disqualification, removal or other cause shall be filled solely by the
affirmative vote of a majority of the remaining directors then in office, even
though less than a quorum of the Board of Directors, or by a sole remaining
director.
Section 3. In order to qualify to hold office as a director of the
Company, a person must hold at least one share of stock of the Company.
Section 4. The directors may hold their meetings and have an office
and keep the books of the Company in Old Greenwich, Connecticut, or elsewhere
outside of the State of Delaware.
Section 5. The Board of Directors, by resolution adopted by a majority
of the entire Board, may appoint from among its members an Executive Committee
which shall have at least three members. To the extent provided in such
resolution, such committee shall have and may exercise all the powers and
authority of the Board, including the power to authorize the seal of the Company
to be affixed to all papers that require it, except that such committee shall
not have such power and authority in reference to
(1) amending the Certificate of Incorporation (except that
such committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by
the Board of Directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix the designations and any of
<PAGE>
the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the Company or
the conversion into, or the exchange of such shares for, shares of any
other class or classes or any other series of the same or any other
class or classes of stock of the Company or fix the number of shares
of any series of stock or authorize the increase or decrease of the
shares of any series);
(2) adopting an agreement of merger or consolidation under
Sections 251 or 252 of the General Corporation Law of Delaware;
(3) recommending to the stockholders any action that
requires stockholders' approval;
(4) making, amending or repealing any By-law of the
Company;
(5) electing or appointing any director, or removing any
officer or director;
(6) amending or repealing any resolution theretofore
adopted by the Board of Directors;
(7) fixing compensation of the directors for serving on the
Board of Directors or on any committee; or
(8) unless the resolution shall expressly so provide,
declaring a dividend, authorizing the issuance of stock or adopting a
certificate of ownership and merger pursuant to Section 253 of the
General Corporation Law of Delaware.
Actions taken at a meeting of such committee shall be reported to the
Board of Directors at its next meeting following such committee meeting; except
that, when the meeting of the Board is held within two days after the committee
meeting, such report shall be made to the Board at either its first or second
meeting following such committee meeting.
ARTICLE II
Meetings of Stockholders
Section l. The annual meeting of the stockholders of the Company for
the election of directors, and such other business as may properly come before
the meeting, shall be held at such place as may from time to time be designated
by the directors, on the first Wednesday of May, at ten o'clock in the forenoon,
or at such other hour as the directors may designate, or on such other day and
at such hour as the directors may designate. If the day fixed for the meeting is
a legal holiday, the meeting shall be held at the same hour on the next business
day which is not a legal holiday.
Section 2. Special meetings of the stockholders, to be held at such
place as may from time to time be designated by the directors, may be called
only by the Chairman of the Board, the President or the Board of Directors, by
<PAGE>
resolution adopted by a majority of the entire Board, for such purposes as shall
be specified in the call.
Section 3. Except as otherwise provided by law, due notice of each
annual meeting of the stockholders shall be given by a written or printed notice
signed by the Secretary or an Assistant Secretary of the Company and mailed,
postage prepaid, at least ten days prior to such meeting to each stockholder of
record entitled to vote thereat appearing on the books of the Company at the
address given thereon.
Due notice of each special meeting shall be given also in the manner
above provided. The notice shall state the object of the special meeting, and no
other business shall be transacted at such meeting.
Section 4. The holders of a majority in voting power of the
outstanding shares of capital stock entitled to vote, present in person or
represented by proxy, shall constitute a quorum at a meeting of stockholders.
Except as otherwise required by law or the Certificate of Incorporation, the
affirmative vote of shares representing a majority in voting power of the shares
present in person or represented by proxy at a meeting at which a quorum is
present and entitled to vote on the subject matter shall be the act of the
stockholders, and except that directors shall be elected by a plurality of votes
cast at an election. The stockholders present at a duly convened meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough stockholders to leave less than a quorum.
Section 5. Each meeting of the stockholders, whether annual or
special, shall be presided over by the Chairman of the Board if present, and if
he is not present by the President if present. If neither officer specified in
the preceding sentence is present, the meeting shall be presided over by the
person designated in writing by the Chairman of the Board, or if the Chairman of
the Board has made no designation, by the person designated by the President, or
if the President has made no designation, by the person designated by the Board
of Directors. If neither officer specified in the first sentence of this section
is present, and no one designated by the Chairman of the Board or the President
or the Board of Directors is present, the meeting may elect any stockholder of
record who is entitled to vote for directors, or any person present holding a
proxy for such a stockholder, to preside. The Secretary of the Company (or in
his absence any Assistant Secretary) shall be the Secretary of any such meeting;
in the absence of the Secretary and Assistant Secretaries, any person may be
elected by the meeting to act as Secretary of the meeting.
Section 6. Any voting proxy given by a stockholder must be in writing,
executed by the stockholder, or, in lieu thereof, to the extent permitted by
law, may be transmitted in a telegram, cablegram or other means of electronic
transmission setting forth or submitted with information from which it can be
determined that the telegram, cablegram or other electronic transmission was
authorized by the stockholder. A copy, facsimile transmission or other reliable
reproduction of a written or electronically-transmitted proxy authorized by this
Section 6 may be substituted for or used in lieu of the original writing or
electronic transmission to the extent permitted by law.
Section 7. Any previously scheduled annual or special meeting of
stockholders may, by resolution of the Board of Directors, be postponed upon
public announcement made prior to the date previously scheduled for such
<PAGE>
meeting of stockholders. For purposes of this Article II, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Company with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended. The
person presiding over any meeting of stockholders, or a majority of the voting
power of the shares entitled to vote, present in person or represented by proxy,
even if less than a quorum, may adjourn the meeting from time to time. No notice
of the time and 10-30-90 place of adjourned meetings need be given except as
required by law.
Section 8. The directors shall appoint one or more inspectors of
election and of the vote at any time prior to the date of any meeting of
stockholders at which an election is to be held or a vote is to be taken. In the
event any inspector so appointed is absent from such meeting or for any other
reason fails to act as such at the meeting, the person presiding pursuant to
these By-laws may appoint a substitute who shall have all the powers and duties
of such inspector. The inspector or inspectors so appointed shall act at such
meeting, make such reports thereof and take such other action as shall be
provided by law and as may be directed by the person presiding over the meeting.
Each inspector, before entering upon the discharge of his duties, shall take and
sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his ability.
Section 9. The directors may, at any time prior to any annual or
special meeting of the stockholders, adopt an order of business for such meeting
which shall be the order of business to be followed at such meeting. The date
and time of the opening and the closing of the polls for each matter upon which
the stockholders will vote at such meeting shall be announced at such meeting by
the person presiding over such meeting.
Section l0. At any meeting of stockholders a stock vote shall be taken
on any resolution or other matter presented to the meeting for action if so
ordered by the person presiding over the meeting or on the demand of any
stockholder of record entitled to vote at the meeting or any person present
holding a proxy for such a stockholder. Such order or demand for a stock vote
may be made either before or after a vote has been taken on such resolution or
other matter in a manner other than by stock vote and before or after the result
of the vote taken otherwise than by stock vote has been announced. The result of
a stock vote taken in accordance with this By-law shall supersede the result of
any vote previously taken in any manner other than by stock vote.
Section 11. (A) Nominations of persons for election to the Board of
Directors of the Company may be made as provided in the Certificate of
Incorporation. The proposal of other business to be considered by the
stockholders may be made at an annual meeting of stockholders (1) pursuant to
the Company's notice of meeting, (2) by or at the direction of the Board of
Directors or (3) by any stockholder of the Company who was a stockholder of
record at the time of giving of the notice provided for in this Section 11, who
is entitled to vote thereon at the meeting and who complies with the notice
procedures set forth in this Section 11.
(B) For business (other than the nomination of persons for election to
the Board of Directors) to be properly brought before an annual meeting by a
stockholder pursuant to clause (3) of paragraph (A) of this Section 11, the
stockholder must have given timely notice thereof in writing to the Secretary
<PAGE>
of the Company. To be timely, a stockholder's notice shall be delivered, either
by personal delivery or by United States mail, postage prepaid, to the Secretary
not later than one hundred twenty (120) days in advance of such meeting. Such
stockholder's notice shall set forth (1) a brief description of the business
desired to be brought before the meeting, the reasons for conducting such
business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made and (2) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the proposal is made (a) the name and address of such
stockholder, as they appear on the Company's books, and of such beneficial owner
and (b) the class and number of shares of the Company which are owned
beneficially and of record by such stockholder and such beneficial owner.
(C) The person presiding over an annual meeting of stockholders shall
have the power and duty to determine whether any business proposed by any
stockholder to be brought before the meeting was made in accordance with the
procedures set forth in this Section 11 and, if any proposed business is not in
compliance with this Section 11, to declare that such defective proposal shall
be disregarded.
(D) In addition to the foregoing provisions of this Section 11, a
stockholder shall comply with all applicable requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder with
respect to the matters set forth in this Section 11. Nothing in this Section 11
shall be deemed to affect any rights of stockholders to request inclusion of
proposals in the Company's proxy statement pursuant to Rule l4a-8 under such
Act.
ARTICLE III
Meetings of Directors
Section 1. Regular meetings of the Board of Directors shall be held at
the office of the Company in Lincolnshire, Illinois or at such other place as
may from time to time be designated by the directors, the Chairman of the Board
or the President, at eight-thirty in the forenoon on the last Tuesday of each
month other than March, May, June, August, October and December and at two
o'clock in the afternoon on the day on which the annual meeting of stockholders
is held. If any such day shall be a holiday, the meeting scheduled for that day
shall be held on the next business day. Special meetings may be held as
determined by the Board of Directors, and may be called by the Chairman of the
Board at any time and shall be called by him on the request of three directors,
or, if the Chairman of the Board fails to call such meeting when so requested,
the same may be called by any three directors.
Section 2. No notice need be given of regular meetings of the
directors, except that at least one day's notice shall be given of any place
other than the office of the Company in Lincolnshire, Illinois at which any such
meeting is to be held, but such notice need not be given to any director who
signs a written waiver of notice before or after the meeting. Attendance of a
director at a meeting shall constitute a waiver of notice of such meeting,
except when the director attends a meeting for the express purpose of objecting,
at the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened.
<PAGE>
Section 3. At any meeting six directors shall constitute a quorum
unless otherwise provided for in these By-laws or in the Certificate of
Incorporation or in any applicable statute, but in no case less than one-third
of all the directors then in office.
Section 4. Members of the Board of Directors or of any Committee
thereof may participate in meetings of the Board of Directors or of such
committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and such participation shall constitute presence in person at such meeting.
Section 5. Any action required or permitted to be taken at any meeting
of the Board of Directors or of any committee thereof may be taken without a
meeting if all members of the Board of Directors or of such committee, as the
case may be, consent thereto in writing and the writing or writings are filed
with the minutes of proceedings of the Board of Directors or of such committee.
ARTICLE IV
Officers
Section 1. The Board of Directors shall annually choose from amongst
its members a Chairman of the Board. The Board shall also annually choose a Vice
Chairman (if any), a President (if any), one or more Executive Vice Presidents
(if any), one or more Senior Vice Presidents (if any), a principal financial
officer, a principal accounting officer, such other Vice Presidents (if any) as
it shall determine, a Secretary, a Treasurer and a Controller (if any), who need
not be directors.
Section 2. The Board of Directors may elect other officers and define
their powers and duties.
Section 3. Any two offices not inconsistent with each other may be
held by the same person.
Section 4. All officers elected by the Board of Directors shall hold
office, subject to removal by the Board, until their successors are chosen and
qualified. The affirmative vote of at least two-thirds of all of the directors
then in office shall be required to remove or reduce the salary of any officer
elected by the Board of Directors.
Section 5. All agents and employees shall be appointed and may be
removed by the Chairman of the Board, subject to the control of the Board of
Directors.
Section 6. Vacancies among officers of the Company shall be filled as,
and to the extent that, the Board of Directors shall determine by vote of a
majority of the directors present at any regular or special meeting at which not
less than a majority of all the directors then in office are present.
Section 7. The Chairman of the Board shall be the Chief Executive
Officer of the Company and shall have general direction of its business affairs,
subject, however, to the control of the Board of Directors. He shall,
<PAGE>
if present, preside at all meetings of the Board of Directors and shall perform
such other duties and have such responsibilities as the Board may from time to
time determine.
Section 8. The Vice Chairman (if any), the President (if any), the
Executive Vice Presidents (if any), the Senior Vice Presidents (if any) and such
other Vice Presidents as shall have been chosen shall have such powers and
perform such duties as shall at any time be delegated to them by the Board of
Directors. At the request of the Chairman of the Board, or in case of his
absence or disability, the President (if any), or if there is no President such
other elected officer designated by the Chairman of the Board in a writing filed
with the records of the Secretary, shall perform the duties of the Chairman of
the Board, subject to the control of the Board of Directors.
Section 9. The Secretary shall give the requisite notice of meetings
of stockholders and directors and shall record the proceedings of such meetings,
shall have the custody of the seal of the Company and shall affix it or cause it
to be affixed to such instruments as require the seal and attest it and, besides
his powers and duties prescribed by law, shall have such other powers and
perform such other duties as shall at any time be required of him by the Board
of Directors.
Section 10. The Assistant Secretaries shall assist the Secretary in
the discharge of his duties and shall have such powers and perform such other
duties as shall at any time be delegated to them by the Board of Directors, and
in the absence or disability of the Secretary, shall perform the duties of his
office, subject to the control of the Board.
Section 11. The Treasurer shall have charge of the funds and
securities of the Company and shall have such powers and perform such duties as
shall at any time be delegated to him by the Board of Directors.
Section 12. The Assistant Treasurers shall assist the Treasurer in the
discharge of his duties and shall have such powers and perform such other duties
as shall at any time be delegated to them by the Board of Directors, and in the
absence or disability of the Treasurer, shall perform the duties of his office
subject to the control of the Board.
Section 13. Any other officer, agent or employee of the Company may be
required to give such security for the faithful performance of his duties as
shall be determined by the Board of Directors, who shall also determine the
custody of any security given.
ARTICLE V
Salaries
Section 1. The salaries of all officers elected by the Board of
Directors who hold offices of a rank of Vice President or above shall be fixed
by the Compensation and Stock Option Committee.
Section 2. Salaries of all other officers elected by the Board and
all other agents and employees shall be fixed by or in the manner determined by
the Board.
<PAGE>
Section 3. The Board of Directors, by the affirmative vote of a
majority of directors in office and irrespective of any personal interest of any
directors, shall have authority to establish reasonable compensation of
directors for services to the Company as directors, officers or otherwise,
except that the Compensation and Stock Option Committee, by the affirmative vote
of a majority of Committee members in office and irrespective of any personal
interest of any Committee members or other directors, shall have authority to
establish such compensation of directors who also are officers elected by the
Board and hold offices of a rank of Vice President or above.
ARTICLE VI
Seal
Section 1. The Seal of the Company shall be in such form as the Board
of Directors may from time to time prescribe and it may be used by causing it or
a facsimile thereof to be impressed or affixed or in any other manner
reproduced.
ARTICLE VII
Signatures on Commercial
Instruments and Contracts
Section 1. All checks or bank drafts shall be signed by any two of the
following named officers: Chairman of the Board, Vice Chairman, President, the
principal financial officer, the principal accounting officer, any Vice
President, Secretary, any Assistant Secretary, Treasurer, any Assistant
Treasurer, Controller, any Assistant Controller; and in such other manner as the
Board of Directors may from time to time designate.
Section 2. All notes or other obligations or contracts shall be signed
by the Chairman of the Board, the Vice Chairman, the President, the principal
financial officer, the principal accounting officer, or any Vice President and
also by one of the following officers: the Secretary, an Assistant Secretary,
the Treasurer, an Assistant Treasurer, the Controller, or an Assistant
Controller (provided that no individual shall sign the instrument in two
capacities), or shall be signed by the Chairman of the Board, the Vice Chairman,
the President, the principal financial officer, the principal accounting
officer, or any Vice President, with the corporate seal or a facsimile thereof
affixed thereto or imprinted thereon, attested by the Secretary or an Assistant
Secretary; or such notes, obligations or contracts shall be signed in such
manner and by one or more of such officers or other persons on behalf of the
Company as the Board of Directors may from time to time authorize or direct.
When and as authorized or directed by the Board of Directors, the signatures of
such officers or other persons or any of them signing on behalf of the Company
may be facsimiles.
<PAGE>
ARTICLE VIII
Capital Stock
Section 1. Certificates of the capital stock of the Company shall be
issued for shares duly numbered and registered in the order of their issue, and
shall be in the form the directors shall prescribe.
Section 2. The capital stock shall be transferable on the transfer
books of the Company, subject to these By-laws, by the owner in person, or by
attorney or legal representative, written evidence of whose authority shall be
filed with the Company.
Section 3. No transfer of capital stock can be required except upon
surrender and cancellation of the certificate representing the same.
Section 4. The Board of Directors may at any time, in its discretion,
appoint one or more transfer agents or registrars of the shares of stock of the
Company and terminate the appointment of any transfer agent or registrar. The
Board of Directors may also designate the Company to perform such functions
alone or in conjunction with one or more other transfer agents or registrars.
Section 5. (A) For the purpose of determining the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or for the purpose of determining stockholders entitled to
receive payment of any dividend or allotment of any right, or for the purpose of
any other action, the Board of Directors may fix, in advance, a date as the
record date for any such determination of stockholders. Such date shall be not
more than 60 nor less than 10 days before the date of such meeting, nor more
than 60 days prior to any other action.
(B) When a determination of stockholders of record entitled to notice
of or to vote at any meeting of stockholders has been made as provided in this
Section 5, such determination shall apply to any adjournment thereof, unless the
Board of Directors fixes a new record date under this Section 5 for the
adjourned meeting.
ARTICLE IX
Committee on Conflicts of Interests
Section 1. The Board of Directors, by resolution adopted by a majority
of the entire Board, shall appoint a Committee on Conflicts of Interests which
shall have at least three members. To the extent provided by resolution of the
Board, such committee shall have the power to interpret, administer and apply
the policies of the Company as established by the Board from time to time with
respect to conflicts of interests.
ARTICLE X
Dividends
Section 1. Dividends on the Preferred Stock and the Common Stock of
the Company may be declared by the Board of Directors, at any regular or special
meeting, as provided by law and the Certificate of Incorporation.
<PAGE>
ARTICLE XI
Amendments
Section 1. The Board of Directors shall, except as otherwise provided
in these By-laws or the Certificate of Incorporation, have the power to alter,
amend or repeal these By-laws at any meeting by the affirmative vote of two-
thirds of the directors then in office, provided notice of the proposed
alteration, amendment or repeal be given in writing to each of the directors,
and provided also that no alteration, amendment or repeal of a specification in
any section of these By-laws of a stated fraction of directors as the minimum
number whose presence or vote is requisite for action under such section may be
made without the presence or vote or both, as the case may be, of the minimum
number so specified.
ARTICLE XII
[Repealed effective April 30, 1997.]
ARTICLE XIII
Indemnification
Section 1. (A) Each person (an "indemnitee") who was or is made or
threatened to be made a party to or was or is involved (as a witness or
otherwise) in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding"), by reason of the
fact that he or she or a person of whom he or she is the legal representative
was or is a director, officer or employee of the Company or was or is serving at
the request of the Company as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis of
such proceeding was or is alleged action in an official capacity as a director,
officer, employee or agent or in any other capacity while serving as a director,
officer, employee or agent, shall be indemnified and held harmless by the
Company to the fullest extent permitted by the General Corporation Law of the
State of Delaware as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Company to provide broader indemnification rights than said law permitted the
Company to provide prior to such amendment), against all expense, liability and
loss (including attorneys' fees and retainers therefor, judgments, fines, excise
taxes or penalties under the Employee Retirement Income Security Act of 1974, as
amended, and amounts paid in settlement) reasonably incurred or suffered by such
person in connection therewith and such indemnification shall continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of his or her heirs, executors and administrators;
provided, however, that except as provided in Section 3 of this Article XIII
with respect to proceedings seeking to enforce rights to indemnification, the
Company shall indemnify any such person seeking indemnification in connection
with a proceeding (or part thereof) initiated by such person only if such
proceeding (or part thereof) was authorized by the Board of Directors of the
Company.
<PAGE>
(B) The right to indemnification conferred in this Article XIII is and
shall be a contract right. The right to indemnification conferred in this
Article XIII shall include the right to be paid by the Company the expenses
(including attorneys' fees and retainers therefor) reasonably incurred in
connection with any such proceeding in advance of its final disposition, such
advances to be paid by the Company within 20 days after the receipt by the
Company of a statement or statements from the indemnitee requesting such advance
or advances from time to time; provided, however, that if the General
Corporation Law of the State of Delaware requires, the payment of such expenses
incurred by a director or officer in his or her capacity as a director or
officer (and not in any other capacity in which service was or is rendered by
such person while a director or officer, including, without limitation, service
to an employee benefit plan) in advance of the final disposition of a
proceeding, shall be made only upon delivery to the Company of an undertaking by
or on behalf of such director or officer, to repay all amounts so advanced if it
shall ultimately be determined that such director or officer is not entitled to
be indemnified under this Article XIII or otherwise.
Section 2. (A) To obtain indemnification under this Article XIII, an
indemnitee shall submit to the Company a written request, including therein or
therewith such documentation and information as is reasonably available to the
indemnitee and is reasonably necessary to determine whether and to what extent
the indemnitee is entitled to indemnification. Upon written request by an
indemnitee for indemnification pursuant to the first sentence of this Section
2(A), a determination, if required by applicable law, with respect to the
indemnitee's entitlement thereto shall be made as follows: (1) if requested by
the indemnitee, by Independent Counsel (as hereinafter defined), or (2) if no
request is made by the indemnitee for a determination by Independent Counsel,
(a) by the Board of Directors by a majority vote of a quorum consisting of
Disinterested Directors (as hereinafter defined), or (b) if a quorum of the
Board of Directors consisting of Disinterested Directors is not obtainable or,
even if obtainable, such quorum of Disinterested Directors so directs, by
Independent Counsel in a written opinion to the Board of Directors, a copy of
which shall be delivered to the indemnitee, or (c) by the stockholders of the
Company. In the event the determination of entitlement to indemnification is to
be made by Independent Counsel at the request of the indemnitee, the Independent
Counsel shall be selected by the indemnitee unless the indemnitee shall request
that such selection be made by the Board of Directors, in which event the
Independent Counsel shall be selected by the Board of Directors. If it is so
determined that the indemnitee is entitled to indemnification, payment to the
indemnitee shall be made within 10 days after such determination.
(B) In making a determination with respect to entitlement to
indemnification hereunder, the person, persons or entity making such
determination shall presume that the indemnitee is entitled to indemnification
under this Article XIII, and the Company shall have the burden of proof to
overcome that presumption in connection with the making by any person, persons
or entity of any determination contrary to that presumption.
Section 3. (A) If a claim under Section 1 of this Article XIII is
not paid in full by the Company within 30 days after a written claim pursuant to
Section 2(A) of this Article XIII has been received by the Company, or if an
advance is not made within 20 days after a request therefor pursuant to Section
1(B) of this Article XIII has been received by the Company, the indemnitee may
at any time thereafter bring suit (or, at the indemnitee's option, an
arbitration proceeding before a single arbitrator pursuant to the rules of the
<PAGE>
American Arbitration Association) against the Company to recover the unpaid
amount of the claim or the advance and, if successful in whole or in part, the
indemnitee shall be entitled to be paid also the expense of prosecuting such
claim. It shall be a defense to any such suit or proceeding (other than a suit
or proceeding brought to enforce a claim for expenses incurred in connection
with any proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Company) that the
indemnitee has not met the standards of conduct which make it permissible under
the General Corporation Law of the State of Delaware for the Company to
indemnify the indemnitee for the amount claimed or that such indemnification
otherwise is not permitted under the General Corporation Law of the State of
Delaware, but the burden of proving such defense shall be on the Company.
(B) Neither the failure of the Company (including its Board of
Directors, Independent Counsel or stockholders) to have made a determination
prior to the commencement of such action that indemnification of the indemnitee
is proper in the circumstances because he or she has met the applicable standard
of conduct set forth in the General Corporation Law of the State of Delaware,
nor an actual determination by the Company (including its Board of Directors,
Independent Counsel or stockholders) that the indemnitee has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that the indemnitee has not met the applicable standard of conduct.
(C) If a determination shall have been made pursuant to Section 2(A)
of this Article XIII that the indemnitee is entitled to indemnification, the
Company shall be bound by such determination in any judicial proceeding or
arbitration commenced pursuant to paragraph (A) of this Section 3.
(D) The Company shall be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to paragraph (A) of this Section 3
that the procedures and presumptions of this Article XIII are not valid, binding
and enforceable and shall stipulate in any such court or before any such
arbitrator that the Company is bound by all the provisions of this Article XIII.
Section 4. The right to indemnification and the payment of expenses
incurred in connection with a proceeding in advance of its final disposition
conferred in this Article XIII shall not be exclusive of any other right which
any person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, By-laws, agreement, vote of stockholders or
Disinterested Directors or otherwise.
Section 5. The Company may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Company or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Company would have
the power to indemnify such person against such expense, liability or loss under
the General Corporation Law of the State of Delaware. To the extent that the
Company maintains any policy or policies providing such insurance, each such
director, officer or employee, and each such agent to which rights to
indemnification have been granted as provided in Section 6 of this Article XIII,
shall be covered by such policy or policies in accordance with its or their
terms to the maximum extent of the coverage thereunder for any such director,
officer, employee or agent.
<PAGE>
Section 6. The Company may, to the extent authorized from time to time
by the Board of Directors, grant rights to indemnification, and rights to be
paid by the Company the expenses incurred in connection with any proceeding in
advance of its final disposition, to any agent of the Company to the fullest
extent of the provisions of this Article XIII with respect to the
indemnification and advancement of expenses of directors, officers and employees
of the Company.
Section 7. If any provision or provisions of this Article XIII shall
be held to be invalid, illegal or unenforceable for any reason whatsoever: (A)
the validity, legality and enforceability of the remaining provisions of this
Article XIII (including without limitation, each portion of any Section of this
Article XIII containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid, illegal or unenforceable) shall not
in any way be affected or impaired thereby; and (B) to the fullest extent
possible, the provisions of this Article XIII (including, without limitation,
each portion of any Section of this Article XIII containing any such provision
held to be invalid, illegal or unenforceable) shall be construed so as to give
effect to the intent manifested by the provision held invalid, illegal or
unenforceable.
Section 8. For purposes of this Article XIII:
(A) "Disinterested Director" means a director of the Company who is
not and was not a party to the matter in respect of which indemnification is
sought by the indemnitee.
(B) "Independent Counsel" means a law firm, or a member of a law firm,
that is experienced in matters of corporation law and neither presently is, nor
in the past five years has been, retained to represent: (1) the Company or the
indemnitee in any matter material to either such party, or (2) any other party
to the matter giving rise to a claim for indemnification. Notwithstanding the
foregoing, the term "Independent Counsel" shall not include any person who,
under the applicable standards of professional conduct then prevailing, would
have a conflict of interest in representing either the Company or the indemnitee
in an action to determine the indemnitee's rights under this Article XIII.
Section 9. Any notice, request or other communication required or
permitted to be given to the Company under this Article XIII shall be in writing
and either delivered in person or sent by telecopy, telex, telegram or certified
or registered mail, postage prepaid, return receipt requested, to the Secretary
of the Company and shall be effective only upon receipt by the Secretary.
<PAGE>
EXHIBIT 10b9
Amendments to the Fortune Brands, Inc.
Non-Employee Director Stock Option Plan
---------------------------------------
(Effective April 27, 1999)
1. Section 4(a) of the Plan is amended by changing the first sentence thereof
as follows:
"Subject to all the terms and conditions of the Plan, each Eligible
Director shall be granted an Option covering 2,500 shares of Common Stock
per year for services as a non-employee director during such year, such
grant to be made on the date of the Annual Meeting of stockholders of
Fortune during such year."
2. Section 7(b)(iii) of the Plan is amended in its entirety as follows:
"(iii) A "Change in Control" shall be deemed to have occurred if (A)
any person (as that term is used in Sections 13(d) and 14(d) of the
Exchange Act, as in effect on April 27, 1999) is or becomes the beneficial
owner (as that term is used in Section 13(d) of the Exchange Act, and the
rules and regulations promulgated thereunder, as in effect on April 27,
1999) of 20% or more of the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of directors
("Voting Securities") of Fortune, excluding, however, the following: (1)
any acquisition directly from Fortune, other than an acquisition by virtue
of the exercise of a conversion privilege unless the security being so
converted was itself acquired directly from Fortune, (2) any acquisition by
Fortune, (3) any acquisition by an employee benefit plan (or related trust)
sponsored or maintained by Fortune or entity controlled by Fortune, or (4)
any acquisition pursuant to a transaction that complies with clauses (1),
(2) and (3) of Section 7(b)(iii)(C), (B) more than 50% of the members of
the Board of Directors of Fortune shall not be Continuing Directors (which
term, as used herein, means the directors of Fortune (1) who were members
of the Board of Directors of Fortune on April 27, 1999 or (2) who
subsequently became directors of Fortune and who were elected or designated
to be candidates for election as nominees of the Board of Directors, or
whose election or nomination for election by Fortune's stockholders was
otherwise approved, by a vote of a majority of the Continuing Directors
then on the Board of Directors but shall not include, in any event, any
individual whose initial assumption of office occurs as a result of either
an actual or threatened election contest (as such terms are used in Rule
14(a)-11 of Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or
<PAGE>
consents by or on behalf of a person other than the Board of Directors),
(C) Fortune shall be merged or consolidated with, or, in any transaction or
series of transactions, substantially all of the business or assets of
Fortune shall be sold or otherwise acquired by, another corporation or
entity unless, as a result thereof, (1) the stockholders of Fortune
immediately prior thereto shall beneficially own, directly or indirectly,
at least 60% of the combined Voting Securities of the surviving, resulting
or transferee corporation or entity (including, without limitation, a
corporation that as a result of such transaction owns Fortune or all or
substantially all of Fortune's assets either directly or through one or
more subsidiaries) ("Newco") immediately thereafter in substantially the
same proportions as their ownership immediately prior to such corporate
transaction, (2) no person beneficially owns (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act, and the rules and regulations
promulgated thereunder (as in effect on April 27, 1999)), directly or
indirectly, 20% or more of the combined Voting Securities of Newco
immediately after such corporate transaction except to the extent that such
ownership of Fortune existed prior to such corporate transaction and (3)
more than 50% of the members of the Board of Directors of Newco shall be
Continuing Directors or (D) the stockholders of Fortune approve a complete
liquidation or dissolution of Fortune."
2
<PAGE>
EXHIBIT 10c1
FORTUNE BRANDS, INC. SUPPLEMENTAL PLAN
(as amended)
Section 1. PURPOSE. This Supplemental Plan is established in order
to induce employees of outstanding ability to join or continue in the employ of
the Company and to increase their efforts for its welfare by providing them with
supplemental benefits that cannot be provided by the Company's tax qualified
defined benefit and defined contribution plans as a result of Internal Revenue
Code limitations.
Section 2. DEFINITIONS. As used in this Plan, the following words
shall have the following meanings:
(a) "Actual Earnings" means all earnings of an employee in any Plan
Year for Qualifying Employment including overtime and extra shift pay, holiday
and vacation pay, amounts paid for periods of approved absence, back pay which
has been either awarded or agreed to by the Company, earnings elected to be
deferred by the Employee as tax deferred contributions under the Company's
Profit-Sharing Plan, supplemental tax deferred amounts under this Plan, or as
contributions under a plan established pursuant to Section 125 of the Internal
Revenue Code, or under Section 119 of the Internal Revenue Code, and all
compensation under the Management Incentive Plan and the Fortune Brands, Inc.
Annual Executive Incentive Compensation Plan paid during such Plan Year, but
excluding (1) Worker's Compensation payments, (2) amounts paid by the Company
for insurance, retirement or other benefits and bonuses, and (3) contributions
to or allocations under any profit-sharing plan and benefits under this Plan or
other benefits. The Actual Earnings of an employee covered under a disability
income plan of the Company shall be deemed to continue as provided in the
Retirement Plan.
(b) "Affiliated Employment" means employment by any corporation which,
at the time of such employment, is or was an affiliate of the Company or the
Prior Company, or thereafter becomes or became an affiliate of the Company or
the Prior Company. "Affiliated Plan" means a defined benefit pension plan by
which an employee
<PAGE>
of the Company had been covered during Affiliated Employment.
(c) "Allocation" means the sum of the Company contribution, tax
deferred contribution elected by a Profit-Sharing Plan member and the related
matching contribution allocated to the accounts of a Profit-Sharing Plan member
under the Profit-Sharing Plan for a Plan Year, but shall not include any tax
deferred contribution to the Profit-Sharing Plan elected by a Profit-Sharing
Plan member for any Plan Year in excess of $7,000 (or such greater amount
permitted for such Plan Year in accordance with regulations promulgated by the
Secretary of the Treasury or his delegate with respect to arrangements qualified
under Section 401(k) of the Internal Revenue Code).
(d) "Average Actual Earnings" means the total Actual Earnings of an
employee in the five consecutive Plan Years of Qualifying Employment that
provide the highest aggregate of Actual Earnings, divided by five. If an
employee's consecutive Plan Years of Qualifying Employment within such period
are less than five, "Average Actual Earnings" means his total Actual Earnings
during the five Plan Years (or fewer) of Qualifying Employment that provide the
highest aggregate of Actual Earnings, divided by the number of such Plan Years
of Qualifying Employment and fractions thereof.
(e) "Committee" means the Corporate Employee Benefits Committee of the
Company.
(f) "Company" means Fortune Brands, Inc., a Delaware corporation, its
successors and assigns. "Prior Company" means American Brands, Inc., a New
Jersey corporation organized under an Agreement of Consolidation in 1904.
(g) "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
(h) "Executive Participant" means an employee of the Company who is
within the category of a select group of management or highly compensated
employees as referred to in Sections 201(a)(2), 301(a)(3) and 401(a)(1) of ERISA
and who either holds or held the office of a Vice President of the Company or
any office senior thereto or, during the current Plan Year or a
2
<PAGE>
prior Plan Year, was covered under the Fortune Brands, Inc. Annual Executive
Incentive Compensation Plan or the Company's Management Incentive Plan or any
successor programs and is in pay grade M009 or a higher pay grade.
(i) "415 Limitations" means the Retirement Plan and Profit-Sharing
Plan provisions adopted pursuant to Section 415 of the Internal Revenue Code to
limit (i) annual Retirement Plan benefits pursuant to Section 415(b) thereof,
(ii) annual additions to the Profit-Sharing Plan pursuant to Section 415(c)
thereof and (iii) the aggregate of annual Retirement Plan benefits and additions
to the Profit-Sharing Plan pursuant to Section 415(e) thereof.
(j) "401(a)(17) Limitations" means the Retirement Plan and Profit-
Sharing Plan provisions adopted pursuant to Section 401(a)(17) of the Internal
Revenue Code to limit compensation considered for purposes of computing
Retirement Plan benefits and Profit-Sharing Plan contributions to $150,000 (or
such greater amount permitted for such year in accordance with regulations
promulgated by the Secretary of the Treasury or his delegate).
(k) "404(l) Limitation" means the limitation imposed by Section 404(l)
of the Internal Revenue Code on the maximum tax deductible contribution to the
Profit-Sharing Plan.
(l) "Grantor Trust" means a trust for the benefit of an Executive
Participant established pursuant to Section 6 to provide for the payment of
benefits under this Plan.
(m) "Highly Compensated Employee" means an employee or former employee
of the Company who comes within the definition of a highly compensated employee
set forth in Section 414(q) of the Internal Revenue Code (or any successor
provision) for any Plan Year.
(n) "Normal Retirement Date" means the last day of the calendar month
in which a person's 65th birthday occurs.
(o) "Qualifying Employment" means the sum of Service and Affiliated
Employment.
3
<PAGE>
(p) "Plan Year" means the calendar year.
(q) "Profit-Sharing Plan" means the Defined Contribution Plan of
Fortune Brands, Inc. and Participating Operating Companies, as amended from time
to time.
(r) "Retirement Plan" means the Retirement Plan for Employees and
Former Employees of Fortune Brands, Inc., as amended from time to time.
(s) "Segregated Account" means an account established with a bank or
other financial institution approved by the Company, or other form of segregated
account approved by the Company, established pursuant to Section 6 by or for the
benefit of an Executive Participant to provide for the payment of benefits under
this Plan.
(t) "Service" means employment by the Company or the Prior Company.
(u) "Surviving Spouse" means the surviving husband or wife of an
employee of the Company who has been married to the employee throughout the one-
year period ending on the date of the death of such employee.
(v) "Tax Deferred Contributions" means salary reduction contributions
elected to be made to the Profit-Sharing Plan pursuant to Section 401(k) of the
Internal Revenue Code.
Section 3. SUPPLEMENTAL RETIREMENT BENEFITS. (a) Each person who
was at any time a Highly Compensated Employee and to whom benefits become
payable under the Retirement Plan shall be paid a supplemental annual retirement
benefit under this Plan equal in amount to the difference between (i) the
benefit paid under the Retirement Plan and the Affiliated Plans and (ii) the
benefit that would be payable if the 401(a)(17) Limitations and the 415
Limitations were not contained therein; provided, however, that for purposes of
computing the amount of benefit under this Plan, years of Qualifying Employment
shall not exceed 35. If such a Highly Compensated Employee's Surviving Spouse
is entitled to a pre-retirement spouse's benefit under the Retirement Plan and
subject to Section 6, the Surviving Spouse shall be paid a benefit hereunder
equal to the
4
<PAGE>
difference between (i) the spouse's benefit payable under the Retirement Plan
and the Affiliated Plans and (ii) the spouse's benefit that would be payable if
the 401(a)(17) Limitations and the 415 Limitations were not contained therein.
(b) Each Executive Participant who holds the office of Vice President
of the Company, or any office senior thereto on April 27, 1999, or any Executive
Participant who is thereafter elected to the office of Vice President of the
Company, or any office senior thereto, and is designated by the Compensation and
Stock Option Committee of the Company to receive the benefit set forth in this
Section 3(b), shall retire hereunder at the date of his termination of
employment and be paid a supplemental annual retirement benefit under this Plan
equal to 52 1/2% of the Executive Participant's Average Actual Earnings reduced
(i) for an Executive Participant who retires prior to Normal Retirement Date
with less than 35 years of Qualifying Employment by 1 1/2% of Average Actual
Earnings for each year and fraction thereof that the Executive Participant's
retirement date precedes Normal Retirement Date and further reduced (ii) by
benefits payable under the Retirement Plan, the Affiliated Plans and the defined
benefit pension plans of any other prior employer and supplemental retirement
benefits payable under paragraphs (a) and (d) of this Section 3. If a pre-
retirement spouse's benefit is payable under the Retirement Plan to the
Surviving Spouse of an Executive Participant who is entitled to receive the
benefit set forth in this Section 3(b), or if an Executive Participant who is
entitled to receive the benefit set forth in this Section 3(b) dies before
supplemental retirement benefits commence with a Surviving Spouse eligible for a
spouse's benefit under the Retirement Plan, the Surviving Spouse shall be paid a
benefit hereunder, subject to Section 6, equal to the difference between (i) the
spouse's benefit payable under the Retirement Plan and the Affiliated Plans and
(ii) the spouse's benefit that would have been payable if the Executive
Participant's benefit had been calculated in accordance with the formula set
forth in the first sentence of this paragraph (b) of this Section 3 (prior to
any reduction for calculating the spouse's benefit).
(c) Subject to Section 6, the supplemental retirement benefits
provided by this Plan shall be paid to the Executive Participant or Highly
Compensated
5
<PAGE>
Employee (or to any beneficiary designated by him in accordance with the
Retirement Plan, or to his Surviving Spouse if eligible for a spouse's benefit
under the Retirement Plan) concurrently with the payment of the benefits payable
under the Retirement Plan and in a form permitted thereby. In the event the
supplemental retirement benefit commences prior to Normal Retirement Date or is
payable in a form other than an annuity for the life of the former employee
only, the supplemental retirement benefit shall be adjusted to the same extent
as under the Retirement Plan. The Committee may, however, direct that the
supplemental retirement benefit payable with respect to a former employee be
paid as an actuarially equivalent single sum payment (and shall direct that any
supplemental retirement benefit with a present value of less than $3,500 shall
be paid as an actuarially equivalent single sum payment), provided that (except
for a distribution to pay taxes as provided in Section 5 and except as provided
in Section 6) no such payment may be made prior to termination of Qualifying
Employment or prior to the date that benefits may become payable under the
Retirement Plan. In determining actuarial equivalency of a single sum payment in
cash, the interest rate used shall be equal to the average monthly yield on ten
year coupon U.S. Treasury bonds (as published by the Federal Reserve) for the
month of termination of Qualifying Employment and the prior five months and the
mortality table used at the time under the Retirement Plan for funding purposes.
For any Executive Participant who terminates Qualifying Employment between May 1
and December 31, 1997, however, the interest rate used shall be whichever of the
following results in the greater benefit: (i) 120% of the applicable monthly
immediate annuity purchase rate which would be used by the Pension Benefit
Guaranty Corporation for the month of termination of Qualifying Employment, for
the purpose of determining the present value of a single sum distribution on
plan termination, (ii) 120% of the average of the applicable monthly annuity
purchase rates which would be used by the Pension Benefit Guaranty Corporation
for the month of termination of Qualifying Employment and the prior five months
and (iii) the average monthly yield on ten year coupon U.S. Treasury bonds (as
published by the Federal Reserve) for the month of termination of Qualifying
Employment and the prior five months.
6
<PAGE>
(d) Each Executive Participant shall be paid a supplemental annual
retirement benefit under this Plan equal in amount to the difference between (i)
the benefit paid under the Retirement Plan and (ii) the benefit that would have
been payable under the Retirement Plan if the Executive Participant had accrued
a benefit thereunder for his full period of Service (not in excess of 35 years).
If a pre-retirement spouse's benefit is payable under the Retirement Plan to the
Surviving Spouse of an Executive Participant, or if an Executive Participant
dies before the benefits payable hereunder commence with a Surviving Spouse
eligible for a spouse's benefit under the Retirement Plan, the Surviving Spouse
shall be paid a benefit hereunder, subject to Section 6, equal to the difference
between (i) the spouse's benefit payable under the Retirement Plan and (ii) the
spouse's benefit that would have been payable if the Participant's benefit had
been calculated in accordance with the formula set forth in the first sentence
of this paragraph (d) of this Section 3 (prior to any reduction for calculating
the spouse's benefit). The benefit provided by this paragraph (d) of this
Section 3 shall be forfeitable if the Participant's Retirement Plan benefit is
forfeitable.
(e) An Executive Participant (1) who has attained age 50 and who has
completed at least nine years of Qualifying Employment as of December 31, 1999,
(2) who is classified by the Company as being actively at work on April 27,
1999, (3) who is not a Vice President or a more senior officer of the Company
and (4) who has elected on or before June 11, 1999 to voluntarily retire and
does retire between June 30, 1999 and December 31, 1999 pursuant to the
Company's Voluntary Early Retirement Incentive Program and who executes a Waiver
and Release substantially in the form of Exhibit A attached hereto shall be
eligible for a retirement benefit hereunder that is not reduced for early
payment pursuant to the second sentence of Section 3(c). An Executive
Participant who meets the requirements of clauses (2), (3) and (4) and does not
meet the requirements of clause (1) but is within one year of meeting such
requirements shall also be eligible for the enhanced retirement pension provided
by this Section 3(e). Each such Executive Participant shall be credited with
additional Service of three years, provided, however, that no Executive
Participant shall be credited with more than 38 years of Service. In addition,
an employee of the Company in pay grade M008 who meets the eligibility
requirements set forth in this
7
<PAGE>
Section 3(e) except for not being an Executive Participant shall be eligible to
elect the enhanced early retirement benefit and be paid an amount under this
Plan equal to the difference between (i) the benefit paid under the Retirement
Plan and (ii) the benefit that would have been payable under the Retirement Plan
if the enhanced retirement benefit provided for herein were paid under the
Retirement Plan. Notwithstanding anything else in this Plan to the contrary, the
amount set forth in the preceding sentence shall be paid in a single sum in cash
and shall be calculated using the interest rate equal to the average monthly
yield on ten year coupon U.S. Treasury bonds (as published by the Federal
Reserve) for the month of termination of Qualifying Employment and the prior
five months and the mortality table used at the time under the Retirement Plan
for funding purposes.
Section 4. SUPPLEMENTAL PROFIT-SHARING BENEFITS. (a) In the event
that the Allocation under the Profit-Sharing Plan is limited by the 401(a)(17)
Limitations and the 415 Limitations for 1987 or any subsequent Plan Year for a
Highly Compensated Employee, the Highly Compensated Employee shall receive a
supplemental profit-sharing award under this Plan for such Plan Year equal to
the difference between (i) the Allocation actually made to the Highly
Compensated Employee and (ii) the Allocation that would have been made to the
Profit-Sharing Plan for such Plan Year if the 401(a)(17) Limitations and the 415
Limitations were not contained therein. In addition, in the event the
contribution to the Profit-Sharing Plan for any Plan Year is limited by the
404(l) Limitation, each Highly Compensated Employee shall receive a supplemental
profit-sharing award under this Plan for such Plan Year equal to the difference
between (i) the Allocation actually made to the Highly Compensated Employee and
(ii) the Allocation that would have been made to the Profit-Sharing Plan for
such Plan Year for such Highly Compensated Employee if the contribution to the
Profit-Sharing Plan was not limited by the 404(l) Limitation.
(b) Except as provided in Section 6, the award for any Plan Year shall
be made as of the first day of the following year and shall be deemed to be
thereafter invested in an interest bearing investment selected by the Trusts
Investment Committee (or successor committee) of the Company. The amount of a
Highly Compensated Employee's or Executive Participant's supplemental
8
<PAGE>
profit-sharing benefits under this Plan shall be the aggregate amount of such
awards together with any deemed investment gain thereon and less any deemed
investment loss.
(c) Supplemental profit-sharing awards and deemed investment gain
thereon shall be fully vested and nonforfeitable.
(d) Supplemental profit-sharing plan benefits shall be paid by a
single sum payment as soon as practicable following termination of Qualifying
Employment, subject to Section 6.
(e) Subject to Section 6, a Highly Compensated Employee may designate
a beneficiary to receive the unpaid portion of his supplemental profit-sharing
benefits in the event of his death. The designation shall be made in a writing
filed with the Committee on a form approved by it signed by the Highly
Compensated Employee. If no effective designation of beneficiary shall be on
file with the Committee when supplemental profit-sharing benefits would
otherwise be distributable to a beneficiary, then such benefits shall be
distributed to the spouse of the Highly Compensated Employee or, if there is no
spouse, to the executor of the will or the administrator of his estate or, if no
such executor or administrator shall be appointed within six months after his
death, the Committee shall direct that distribution be made, in such shares as
the Committee shall determine, to the child, parent or other blood relative of
such Highly Compensated Employee or to such other person or persons as the
Committee may determine.
Section 5. FUNDING. Benefits under this Plan shall not initially be
funded in order that the Plan may be exempt from the provisions of Parts 2, 3
and 4 of Title I of ERISA. The Committee shall maintain records of supplemental
profit-sharing awards and supplemental tax deferred amounts and related Company
matching awards pursuant to Section 7 and the assumed investment thereof and
records for the calculation of supplemental retirement benefits. The Company
may, however, segregate assets which are intended to be a source for payment of
benefits hereunder for Executive Participants. In the event benefits are
hereafter determined to be taxable for Executive Participants prior to actual
receipt thereof and subject to Section 6, a payment shall be made to such
9
<PAGE>
Executive Participants in an amount sufficient to pay such taxes notwithstanding
that the Executive Participant may not then have terminated Qualifying
Employment or that the payment is being made prior to the date that benefits
would otherwise be paid under the Retirement Plan. Amounts so paid shall then
be used as an offset to the supplemental retirement and profit-sharing benefits,
if any, thereafter payable which shall also be paid in an actuarially equivalent
lump sum (calculated as set forth in Section 3(d)) promptly upon the later of
termination of Qualifying Employment or attainment of age 55.
Section 6. GRANTOR TRUSTS AND SEGREGATED ACCOUNTS. Notwithstanding
Section 5 of this Plan, the Company may provide for the establishment of Grantor
Trusts and Segregated Accounts by or for the benefit of individual Executive
Participants to provide for the payment of benefits (other than supplemental tax
deferred amounts and related Company matching awards pursuant to Section 7)
under this Plan, consistent with the following provisions:
(a) The Trustee of the Grantor Trusts shall be a bank or trust company
approved by the Company and established under the laws of the United States or a
state within the United States and having either total assets of at least $15
billion or trust assets of at least $25 billion. Each Grantor Trust shall be
established pursuant to a trust agreement having terms and provisions approved
by the Company and consistent with this Section. The Grantor Trust shall be
solely for the purpose of providing benefits under the Plan with respect to the
Executive Participant, and neither the Company nor any creditors of the Company
shall have any interest in the assets of the Grantor Trust. The Company shall
be the administrator of the Grantor Trust, and shall have such powers as are
granted by the trust agreement.
(b) The Company shall pay the fees and expenses of the Trustee and all
the expenses for the management and administration of each Grantor Trust and
Segregated Account for all periods prior to the Executive Participant's
termination of employment, and for a period of sixty (60) days thereafter and
for any further period as may be authorized by the Company, and shall indemnify
the Executive Participant against any liability or cost
10
<PAGE>
in respect thereof, including any tax liabilities or costs.
(c) Each Segregated Account shall be a savings or other type of
account approved by the Company established with a bank or trust company
approved by the Company and established under the laws of the United States or a
state within the United States and having either total assets of at least $15
billion or trust assets of at least $25 billion, or other form of segregated
account with such a bank or trust company or other financial institution
approved by the Company, in each case with such terms and provisions as are
approved by the Company and consistent with this Section.
(d) The Company may from time to time make contributions to either the
Grantor Trust, or Segregated Account if directed by an Executive Participant, in
amounts which when added to the existing balances in the Executive Participant's
Grantor Trust and Segregated Account will be approximately equal to the present
value of the after tax equivalent of the Executive Participant's accrued
benefits under Sections 3 and 4.
(e) As promptly as practicable after the Executive Participant's
termination of employment, whether by retirement, death or otherwise, the
Company may make a final contribution to the Executive Participant's Grantor
Trust, or Segregated Account if directed by the Executive Participant, in an
amount which when added to the existing balances in the Executive Participant's
Grantor Trust and Segregated Account, will be equal to (i) the sum of the
present value of the after tax equivalent of (A) if the termination of
employment is not by reason of the death of the Executive Participant, the
Executive Participant's benefit under Section 3, or if the termination of
employment is by reason of the death of the Executive Participant, the Executive
Participant's benefit under Section 3 immediately prior to his death and (B) the
Executive Participant's supplemental profit-sharing benefit under Section 4,
offset by (ii) any amounts previously actually withdrawn by the Executive
Participant from his Grantor Trust or Segregated Account and income which would
have been earned thereon, calculated as provided in paragraph (k) of this
Section 6.
11
<PAGE>
(f) Amounts in a Grantor Trust or Segregated Account shall be invested
separately as to amounts representing the Executive Participant's supplemental
retirement benefit under Section 3 and the Executive Participant's supplemental
profit-sharing benefit under Section 4. Supplemental retirement benefit amounts
invested in a Grantor Trust shall be invested solely in the Vista Select Bond
Fund to the extent practicable and otherwise in the Chase Manhattan Personal
Trust Market Rate Account. As soon as practicable after the Executive
Participant's 60th birthday, one-half of the amounts held in the Vista Select
Bond Fund attributable to supplemental retirement benefits, and as soon as
practicable after the Executive Participant's 63rd birthday, the remainder of
the amounts held in the Vista Select Bond Fund attributable to supplemental
retirement benefits, shall be invested solely in the Chase Manhattan Personal
Trust Market Rate Account, provided that supplemental retirement benefit amounts
shall not be transferred from the Vista Select Bond Fund to the Chase Manhattan
Personal Trust Market Rate Account after the Executive Participant's 60th
birthday or the Executive Participant's 63rd birthday if the amount held in the
Vista Select Bond Fund attributable to supplemental retirement benefits is in a
"loss position". The amount held in the Vista Select Bond Fund attributable to
supplemental retirement benefits shall be in a "loss position" on the Executive
Participant's 60th birthday if the current market value thereof at the Executive
Participant's 60th birthday is less than 95% of the actuarial present value of
the Executive Participant's supplemental retirement benefit calculated as of the
end of the prior calendar year. The amount held in the Vista Select Bond Fund
attributable to supplemental retirement benefits shall be in a "loss position"
on the Executive Participant's 63rd birthday if the current market value thereof
at the Executive Participant's 63rd birthday is less than 50% of 95% of the
actuarial present value of the Executive Participant's supplemental retirement
benefit calculated as of the end of the prior calendar year. The Company shall
notify the Trustee promptly after the end of each calendar year of the actuarial
present value of the Executive Participant's supplemental retirement benefit.
In the event that transfers cannot be made as soon as practicable after the
Executive Participant's 60th or 63rd birthday because the amount of the Vista
Select Bond Fund attributable to supplemental retirement benefits is then in a
"loss position", the
12
<PAGE>
amounts attributable to supplemental retirement benefits shall be transferred as
soon as practicable after the amount of the Vista Select Bond Fund attributable
to supplemental retirement benefits is no longer in a "loss position".
Supplemental profit-sharing benefit amounts invested in a Grantor Trust shall be
invested in one or more of the (i) Vista Balanced Fund, (ii) Chase Manhattan
Personal Trust Market Rate Account, (iii) Dodge & Cox Stock Fund, (iv) MFS
Institutional Emerging Equities Fund, (v) Vanguard International Growth
Portfolio or (vi) PIMCO Total Return Fund, in such portions as are elected by
the Executive Participant on a written election form approved by and filed with
the Committee, all to the extent practicable and otherwise in the Chase
Manhattan Personal Trust Market Rate Account. The Executive Participant may
change such election at any time by filing a new written election form with the
Committee. The Committee shall promptly notify the Trustee as to any such
elections or changes therein. Supplemental retirement benefit amounts and
supplemental profit-sharing benefit amounts invested in a Segregated Account
shall be invested solely in the Chase Manhattan Personal Trust Market Rate
Account. In lieu of the calculation of investment gain or loss on supplemental
profit-sharing awards prescribed by Section 4(b), an Executive Participant's
profit-sharing benefit under Section 4 shall include the actual investment gain
or loss on supplemental profit-sharing benefit amounts invested in accordance
with this paragraph (f).
(g) The Executive Participant may designate a beneficiary to receive
amounts held in his Grantor Trust in the event of his death. The designation
shall be made in a writing filed with the Committee on a form approved by it and
signed by the Executive Participant. The Committee shall notify the Trustee as
to any such designation or changes therein. The provisions of Section 3(a),
(b), (c) and (d) and Section 4(e), providing for the payment of benefits to the
Surviving Spouse of the Executive Participant, or other person designated by the
Executive Participant or the Committee, in the event of the death of the
Executive Participant, shall not apply to amounts in the Executive Participant's
Grantor Trust or Segregated Account.
(h) The Company shall make payments to the Executive Participant (or
his beneficiary) from time to time in the approximate amounts required to
compensate
13
<PAGE>
the Executive Participant (or his beneficiary) for additional federal, state and
local taxes on income resulting from the inclusion in the Executive
Participant's or beneficiary's taxable income of contributions to the Executive
Participant's Grantor Trust and Segregated Account, the final payment pursuant
to paragraph (e) of this Section 6, and the income of the Grantor Trust and
Segregated Account for periods prior to termination of employment (including
amounts paid by the Company pursuant to paragraphs (b) and (e)) of this Section
6.
(i) An Executive Participant may elect to transfer all or any portion
of the funds in his Grantor Trust to his Segregated Account, or to transfer all
or any portion of the funds in his Segregated Account to his Grantor Trust, upon
written notice of not less than sixty (60) days to the Company and the Trustee
and the financial institution with which the Segregated Account is established.
(j) An Executive Participant may withdraw all or any portion of the
funds in his Grantor Trust or Segregated Account at any time upon not less than
sixty (60) days' written notice to the Company and to the Trustee, or the
financial institution with which the Segregated Account is established, as the
case may be.
(k) Benefits payable to an Executive Participant or Surviving Spouse
or other beneficiary under Sections 3 and 4 shall be offset by the pre-tax
equivalent of amounts in the Executive Participant's Grantor Trust and
Segregated Account at the time of the Executive Participant's termination of
employment, including any final contribution or payment pursuant to paragraph
(e) of this Section 6, and by the present value of the pre-tax equivalent of any
amounts withdrawn by the Executive Participant from his Grantor Trust or
Segregated Account, plus the amounts of income which would have been earned on
such withdrawn amounts from the time of withdrawal until the time of termination
of employment, calculated by applying an earnings rate equal to the after-tax
equivalent of an interest rate equal to the average monthly yield on ten year
coupon U.S. Treasury bonds (as published by the Federal Reserve) for the month
of termination of Qualifying Employment and the prior five months.
14
<PAGE>
(l) The Grantor Trust shall terminate upon the expiration of sixty
(60) days following the termination of employment of the Executive Participant,
unless continued by agreement between the Executive Participant and the Trustee.
(m) Upon the making of the final contribution or other payment
pursuant to paragraph (e) of this Section 6, and the payment pursuant to
paragraph (h) of this Section 6 in respect of additional taxes resulting from
such final contribution or payment, the Company shall have no further liability
for benefits otherwise payable under Sections 3 and 4 to the Executive
Participant or his Surviving Spouse, estate or other beneficiaries.
(n) The provisions of this Section 6 shall supersede the provisions of
any other Section of this Plan to the extent such other provisions might be
considered to conflict with the provisions of this Section 6.
SECTION 7. SUPPLEMENTAL TAX DEFERRED AMOUNTS AND RELATED COMPANY
MATCHING AWARDS. (a) A Highly Compensated Employee who is a participant in the
Profit-Sharing Plan and whose Tax Deferred Contributions are limited by the
40l(a)(17) Limitations may elect that the Company reduce his compensation and
credit him with a supplemental tax deferred amount under this Plan for any Plan
Year equal to the difference between (i) an amount up to the maximum Tax
Deferred Contribution that the Highly Compensated Employee could have elected to
be made to the Profit-Sharing Plan but for the 40l(a)(17) Limitations and (ii)
the maximum Tax Deferred Contribution that the Highly Compensated Employee could
have elected to be made to the Profit-Sharing Plan with his compensation subject
to the 40l(a)(17) Limitations; provided that the sum of the Tax Deferred
Contributions to the Profit-Sharing Plan and the supplemental tax deferred
amount credited under this Plan for a Highly Compensated Employee for any Plan
Year shall not exceed the limitation set forth in Section 402(g) of the Internal
Revenue Code, or any successor provision, for such Plan Year.
(b) A Highly Compensated Employee who is credited with a supplemental
tax deferred amount under Section 7(a) shall also be credited with a related
15
<PAGE>
Company matching award equal to 50% of his supplemental tax deferred amount for
any Plan Year.
(c) An election by a Highly Compensated Employee pursuant to paragraph
(a) must be made by filing a form approved by the Committee with the Committee
no later than the beginning of the Plan Year for which the election is to be
effective specifying the amount of the supplemental tax deferred amount elected;
provided that if a Highly Compensated Employee does not become eligible to elect
Tax Deferred Contributions to the Profit-Sharing Plan until after the first day
of a Plan Year, the Highly Compensated Employee may file his election pursuant
to paragraph (a) for such Plan Year with the Committee no later than the
effective date of the Highly Compensated Employee's eligibility to make Tax
Deferred Contributions. An election pursuant to this paragraph will continue in
effect for subsequent Plan Years unless changed by the Highly Compensated
Employee by filing a form approved by the Committee with the Committee prior to
the beginning of the Plan Year for which such change is to be effective. The
election shall be irrevocable for any Plan Year.
(d) The supplemental tax deferred amounts and Company matching awards
pursuant to this Section 7 shall be deemed to have been made as of the first day
of the Plan Year for which the election made pursuant to paragraph (c) is
effective and shall be deemed to be thereafter invested in an interest bearing
investment selected by the Trusts Investment Committee (or successor committee)
of the Company. The amount of a Highly Compensated Employee's supplemental tax
deferred amounts and related Company matching award benefits under this Plan
shall be the aggregate amount of such awards together with any deemed investment
gain thereon and less any deemed investment loss.
(e) Supplemental tax deferred amounts and related Company matching
awards under this Plan and deemed investment gain thereon shall be fully vested
and nonforfeitable.
(f) Benefits under this Section 7 shall be paid by a single sum cash
payment as soon as practicable following termination of Qualifying Employment.
16
<PAGE>
(g) A Highly Compensated Employee may designate a beneficiary to
receive the unpaid portion of his supplemental tax deferred contribution amounts
and related Company matching award benefits in the event of his death. The
designation shall be made in a writing filed with the Committee on a form
approved by it and signed by the Highly Compensated Employee. If no effective
designation of beneficiary shall be on file with the Committee when benefits
under this Section 7 would otherwise be distributable to a beneficiary, then
such benefits shall be distributed to the spouse of the Highly Compensated
Employee or if there is no spouse, to the executor of the will or the
administrator of his estate or, if no such executor or administrator shall be
appointed within six months after his death, the Committee shall direct that
distribution be made, in such shares as the Committee shall determine, to the
child, parent or other blood relative of such Highly Compensated Employee or to
such other person or persons as the Committee may determine.
Section 8. ADMINISTRATION. This Plan shall be administered by the
Committee. All decisions and interpretations of the Committee shall be
conclusive and binding on the Company and Highly Compensated Employees and
Executive Participants. The Plan may be amended or terminated by the Board of
Directors of the Company at any time; provided, however, that no such amendment
or termination shall deprive any Highly Compensated Employee or Executive
Participant of supplemental retirement or profit-sharing plan benefits accrued
to the date of such amendment or termination or modify the last two sentences of
Section 5 in a manner adverse to any Executive Participant; and provided
further, however, that the Plan shall not be amended without approval of the
stockholders of the Company if such amendment would materially increase the cost
of the Plan to the Company.
Section 9. NONASSIGNABILITY. Subject to Section 6, no Highly
Compensated Employee or Executive Participant shall have the right to assign,
pledge or otherwise dispose of any benefits payable to him hereunder nor shall
any benefit hereunder be subject to garnishment, attachment, transfer by
operation of law, or any legal process.
17
<PAGE>
EXHIBIT 10c6
Schedule identifying substantially identical agreements, among Fortune Brands,
Inc. ("Fortune") and The Chase Manhattan Bank, et al., establishing a trust in
favor of each of the following persons, to the Agreement and the Amendments
thereto constituting Exhibits 10c2, 10c3, 10c4 and 10c5 to the Annual Report on
Form 10-K of Fortune for the Fiscal Year ended December 31, 1999.
- --------------------------------------------------------------------------------
Name
------
Thomas C. Hays
Norman H. Wesley
John T. Ludes
Dudley L. Bauerlein, Jr.
Mark Hausberg
Anne C. Linsdau
Craig P. Omtvedt
Mark A. Roche
Robert J. Rukeyser
<PAGE>
EXHIBIT 10c12
Schedule identifying substantially identical agreements, among Fortune Brands,
Inc. ("Fortune"), and The Chase Manhattan Bank and each of the following
persons, to the Trust Agreement and Amendments constituting Exhibits 10c8, 10c9,
10c10 and 10c11 to the Annual Report on Form 10-K of Fortune for the Fiscal
Year ended December 31, 1999.
- --------------------------------------------------------------------------------
Name
----
Thomas C. Hays
Norman H. Wesley
John T. Ludes
Dudley L. Bauerlein, Jr.
Mark Hausberg
Anne C. Linsdau
Craig P. Omtvedt
Mark A. Roche
Robert J. Rukeyser
<PAGE>
EXHIBIT 10h3
Schedule identifying substantially identical agreements, among Fortune Brands,
Inc. ("Fortune") and each of the following persons, to the Agreement and
Amendment constituting Exhibits 10h1 amd 10h2 to the Annual Report on Form 10-K
of Fortune for the Fiscal Year ended December 31, 1999.
- --------------------------------------------------------------------------------
Name
----
Thomas C. Hays
Norman H. Wesley
John T. Ludes
Dudley L. Bauerlein, Jr.
Mark Hausberg
Anne C. Linsdau
Craig P. Omtvedt
Mark A. Roche
Robert J. Rukeyser
<PAGE>
EXHIBIT 10i4
Schedule identifying substantially identical agreements, among Fortune Brands,
Inc. ("Fortune") and The Chase Manhattan Bank, et al. in favor of each of the
following persons, to the Trust Agreement and Amendments thereto constituting
Exhibits 10i1, 10i2 and 10i3 to the Annual Report on Form 10-K of Fortune for
the Fiscal Year ended December 31, 1999.
- --------------------------------------------------------------------------------
Name
----
Thomas C. Hays
Norman H. Wesley
John T. Ludes
Dudley L. Bauerlein, Jr.
Mark Hausberg
Anne C. Linsdau
Craig P. Omtvedt
Mark A. Roche
Robert J. Rukeyser
<PAGE>
EXHIBIT 10j11
Schedule identifying substantially identical agreements, between Fortune Brands,
Inc. ("Fortune") and the following persons, to the Agreement constituting
Exhibit 10j10 to the Annual Report on Form 10-K of Fortune for the Fiscal Year
ended December 31, 1999.
- --------------------------------------------------------------------------------
Name
----
Dudley L. Bauerlein, Jr.
Robert J. Rukeyser
Mark Hausberg
<PAGE>
EXHIBIT 10j12
SEVERANCE AGREEMENT
AGREEMENT dated as of November 18, 1997 between FORTUNE BRANDS, INC.,
a Delaware corporation (the "Company"), and ANNE C. LINSDAU (the "Executive"),
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Company has offered full-time employment to the Executive
and the Executive desires to accept such offer, but to be provided with the
assurance of receiving certain severance benefits in the event the Company were
to take certain actions resulting in the termination of her employment; and
WHEREAS, the Company desires to induce the Executive to join its full-
time employ by providing her with the assurance of receiving certain severance
benefits; and
WHEREAS, the Company and the Executive desire to enter into this
Agreement to set forth the terms and conditions of such severance benefits;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements hereinafter contained, the parties do hereby agree as follows:
<PAGE>
1. Termination of Employment.
-------------------------
(a) Entitlement to Benefits. If and only if during the term of this
-----------------------
Agreement the Executive's employment with the Company is terminated by the
Company other than for Disability or Cause (each as defined in this Section l),
the Executive shall be entitled to benefits as provided in Section 2. The
Executive shall not be entitled to any benefits hereunder in the event her
employment with the Company is terminated as a result of her death, by the
Company for Disability or Cause or by the Executive for any reason.
(b) Disability. Termination of employment by the Company for
----------
Disability hereunder shall be deemed to have occurred only if, as a result of
the Executive's incapacity due to physical or mental illness, the Executive
shall have been absent from her duties with the Company on a full-time basis for
180 consecutive days and, within 30 days after Notice of Termination (as defined
in Section 1(d)) is given to the Executive by the Company, the Executive shall
not have returned to the full-time performance of her duties.
(c) Cause. Termination of employment by the Company for Cause shall
-----
be deemed to have occurred only if (i) termination shall have been the result of
(A) an
2
<PAGE>
act or acts of dishonesty on the Executive's part constituting a felony and
intended to result directly or indirectly in substantial gain or personal
enrichment to her at the expense of the Company, or (B) the Executive's willful
and continued failure substantially to perform her duties and responsibilities
as an officer of the Company (other than any such failure resulting from her
incapacity due to physical or mental illness) after a demand for substantial
performance is delivered to the Executive by the Board of Directors of the
Company which specifically identifies the manner in which such Board believes
that the Executive has not substantially performed her duties and the Executive
is given a reasonable time after such demand substantially to perform her
duties, and (ii) there shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than three-quarters
of the members of the Board of Directors of the Company at a meeting thereof
called and held for the purpose (after reasonable notice to the Executive and an
opportunity for her, together with her counsel, to be heard before such Board),
finding that in the good faith opinion of the Board of Directors of the Company
the Executive was guilty of conduct set forth above in clause
3
<PAGE>
(i)(A) or (i)(B) of this Section 1(c) and specifying the particulars thereof in
detail. The Executive's employment shall in no event be considered to have been
terminated by the Company for Cause if the act or failure to act upon which such
termination is based (x) was done or omitted to be done (l) as a result of bad
judgment or negligence on her part, or (2) without intent of gaining therefrom
directly or indirectly a profit to which the Executive was not legally entitled
or (3) as a result of her good faith belief that such act or failure to act was
in or was not opposed to the interests of the Company, or (y) is an act or
failure to act in respect of which the Executive meets the applicable standard
of conduct prescribed for indemnification or reimbursement or payment of
expenses under the By-laws of the Company or the laws of the state of its
incorporation or the directors' and officers' liability insurance of the
Company, in each case as in effect at the time of such act or failure to act.
(d) Notice of Termination. Any termination by the Company for
---------------------
Disability or Cause shall be communicated by Notice of Termination to the
Executive. For purposes of this Agreement, a "Notice of Termination" shall mean
a notice in writing which shall indicate the specific
4
<PAGE>
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated.
(e) Termination Date. As used herein, "Termination Date" shall mean
----------------
(i) if employment is terminated by the Company for Disability, 30 days after
Notice of Termination is given (provided that the Executive shall not have
returned to the performance of her duties on a full-time basis during such 30-
day period), (ii) if employment is terminated by the Company for Cause, the date
on which a Notice of Termination is given and (iii) if employment is terminated
for any other reason, the date on which the Executive ceases to perform her
duties as an officer of the Company; provided, however, that, in the case of any
termination by the Company, if within 30 days after any required Notice of
Termination is given the Executive, the Executive notifies the Company that a
dispute exists concerning the termination, the Termination Date shall be the
date on which the dispute is finally determined, either by written agreement of
the parties or by a final judgment, order or decree of court of competent
jurisdiction (the
5
<PAGE>
time for appeal therefrom having expired and no appeal having been perfected);
provided further, however, that if the dispute is resolved in favor of the
Company, the Termination Date shall not be so extended but shall be the date
determined under clauses (i) and (ii) of this Section 1(e).
2. Compensation Upon Termination.
-----------------------------
(a) If the Executive's employment is terminated by the Company for
Disability or Cause or by the Executive for any reason, the Company shall have
no obligation to pay any compensation to the Executive under this Agreement in
respect of periods beginning on and after the Termination Date, but this
Agreement shall have no effect on any other obligation the Company may have to
pay the Executive compensation to which she may otherwise be entitled.
(b) If the Company shall terminate the Executive's employment other
than for Disability or Cause, then the Company shall pay to the Executive as
severance pay in a lump sum on the fifth day following the Termination Date the
following amounts:
(i) her full base salary through the Termination Date at the rate
in effect on the date
6
<PAGE>
hereof plus any increases therein subsequent thereto;
(ii) in lieu of any further salary payments, incentive compensation
awards or profit-sharing plan allocations to the Executive for periods
subsequent to the Termination Date, an amount equal to the product of (A)
the sum of (1) her annual base salary at the rate in effect on the date
hereof plus any increases therein subsequent thereto, plus (2) the greater
of $94,500 and the amount awarded to her under the Annual Executive
Incentive Compensation Plan of the Company and any other plans or any
arrangements of the Company and its affiliates (the "Incentive Compensation
Plans") for the calendar year immediately preceding the year in which the
Termination Date occurs (whether or not fully paid), plus\\ (3) the greater
of the amount that was allocated to the Executive's account under the
Defined Contribution Plan of Fortune Brands, Inc. and Participating
Operating Companies (the "Profit-Sharing Plan"), including the Company
401(k) matching contribution thereto, the profit-sharing provisions of the
Supplemental Plan of Fortune Brands, Inc. (the "Supplemental Plan"),
including
7
<PAGE>
the Company matching award related to the supplemental tax deferred amounts
therein, and any other defined contribution plan of the Company or an
affiliate thereof for 1998 and the amount that would have been required to
be so allocated to her (assuming that she elected the maximum employee
contribution) for the year immediately preceding the year in which the
Termination Date occurs, multiplied by (B) the lesser of the number one and
the fraction of a year from the Termination Date to the Executive's Normal
Retirement Date (as defined in the Retirement Plan for Employees and Former
Employees of Fortune Brands, Inc. (the "Retirement Plan")); and
(iii) all legal fees and expenses incurred by the Executive as a
result of such termination (including, but not limited to, all such fees
and expenses, if any, incurred in contesting or disputing any such
termination or in seeking to obtain or enforce any right or benefit
provided by this Agreement).
(c) If the Company shall terminate the Executive's employment other
than for Disability or Cause, the Company shall maintain in full force and
8
<PAGE>
effect, for the Executive's continued benefit for a one-year period (or, if
shorter, the period until her Normal Retirement Date) after the Termination
Date, all employee life, health, accident, disability, medical and other
employee welfare benefit plans, programs or arrangements in which she was
participating on the date hereof plus all improvements therein subsequent
thereto, provided that her continued participation is possible under the terms
and provisions of such plans, programs and arrangements. In the event that the
Executive's participation in any such plan, program or arrangement is barred,
the Company shall arrange to provide her with benefits substantially similar to
those which she would have been entitled to receive under such plan, program or
arrangement if she had remained a participant for such additional one-year
period (or, if shorter, such additional period until her Normal Retirement Date)
after the Termination Date.
(d) If the Company shall terminate the Executive's employment other
than for Disability or Cause, then in addition to the retirement benefits to
which the Executive is entitled under the Retirement Plan, the Supplemental Plan
and any other defined benefit pension plan maintained by the Company or any
affiliate,
9
<PAGE>
and any other program, practice or arrangement of the Company or any affiliate
to provide the Executive with a defined pension benefit after termination of
employment, and any successor plans thereto (all such plans being collectively
referred to herein as the "Pension Plans"), the Company shall pay the Executive
monthly beginning at the earliest date that payments commence under any of the
Pension Plans an amount equal to the excess of (i) over (ii) below where
(i) equals the sum of the aggregate monthly amounts of pension
payments (determined as a straight life annuity) to which the Executive
would have been entitled under the terms of each of the Pension Plans in
which she was an active participant (without regard to any amendment made
subsequent to the date hereof which adversely affects in any manner the
computation of the Executive's benefits) determined as if she were fully
vested thereunder and had accumulated one additional year (or, if less, the
fraction of a year from the Termination Date to the Executive's Normal
Retirement Date) of Service thereunder (subsequent to his Termination Date)
at her rate of Actual Earnings in effect on
10
<PAGE>
the date hereof plus any increases subsequent thereto,
and where
(ii) equals the sum of the aggregate monthly amounts of pension
payments (determined as a straight life annuity) to which the Executive is
entitled under the terms of each of the Pension Plans in which she was an
active participant at the date hereof or subsequently.
For purposes of clause (i), the amounts payable pursuant to Sections
2(b)(ii)(A)(l) and (2) and (2)(b)(ii)(B) shall be considered as part of the
Executive's Actual Earnings and such amounts shall be deemed to represent one
year (or, if less, the fraction of a year from the Termination Date to the
Executive's Normal Retirement Date) of Actual Earnings for purposes of
determining his highest consecutive five year average rate of Actual Earnings.
The supplemental pension benefits determined under this Section 2(d) shall be
payable by the Company to the Executive and her contingent annuitant, if any, or
to the Executive's surviving spouse as a spouse's benefit if the Executive dies
prior to commencement of benefits under this Agreement, in the same manner and
for as long as her pension benefits under the Supplemental Plan and
11
<PAGE>
shall be adjusted actuarially to reflect payment in a form other than a straight
life annuity. Benefits hereunder which commence prior to age 60 shall be
actuarially reduced to reflect early commencement to the extent, if any,
provided in the Retirement Plan as if the Executive's Termination Date were an
Early Retirement Date. All capitalized terms used in this Section 2(d) shall
have the same meaning as in the Retirement Plan as in effect on the date hereof,
unless otherwise defined herein or otherwise required by the context.
(e) If the Company shall terminate the Executive's employment other
than for Disability or Cause, the Company shall pay to the Executive as
additional severance pay in a lump sum on the fifth day following the
Termination Date an amount, if any, equal to the nonvested portion of her
account balances under the Profit-Sharing Plan and the defined contribution plan
of any affiliate of the Company in which there is maintained for her an account
balance which is not fully vested.
(f) If the Company shall terminate the Executive's employment other
than for Disability or Cause, the Executive shall be entitled to the following
as incentive compensation through the Termination Date:
12
<PAGE>
(i) the unpaid portion of the amount awarded to her as incentive
compensation under the Incentive Compensation Plans for the calendar year
immediately preceding the year in which the Termination Date occurs,
payable at the time awards thereunder are normally paid; and
(ii) incentive compensation under the Incentive Compensation Plans
for the calendar year in which the Termination Date occurs, payable at the
time awards thereunder are normally paid, in an amount equal to the amount
the Executive would have received thereunder for such period if she had
been awarded an amount for the year in which the Termination Date occurs
equal to the amount awarded to her for the calendar year immediately
preceding the year in which the Termination Date occurs (provided that such
incentive compensation shall be $94,500 if the Termination Date occurs in
1998), with such incentive compensation amount prorated for the portion of
the year through the Termination Date.
(g) If the Company shall terminate the Executive's employment other
than for Disability or Cause and a dispute exists concerning the termination as
set
13
<PAGE>
forth in Section 1(e), the Company shall continue to pay the Executive's full
base salary through the date the dispute is finally resolved as provided in
Section 1(e).
(h) The Executive shall not be required to mitigate the amount of any
payment provided for in this Section 2 by seeking other employment or otherwise,
nor shall the amount of any payment provided for in this Section 2 be reduced by
any compensation earned by the Executive as the result of employment by another
employer after the Termination Date or by any other compensation.
(i) Subject to Section 2(j), this Agreement and the obligations of
the Company hereunder shall not be in derogation of any other obligations of the
Company not set forth herein to pay any compensation or to pay or provide any
benefit to the Executive.
(j) Notwithstanding any other provision of this Agreement, (a) any
amount otherwise payable to the Executive pursuant to the agreement dated as of
November 18, 1997 between the Company and the Executive providing compensation
after termination of employment following a change in control of the Company
shall be reduced by the amount of any payments made by the Company to the
Executive under this Section 2, and (b) any benefits to which the Executive is
entitled under the
14
<PAGE>
Company's severance pay program covering salaried employees generally shall be
reduced by benefits paid under Section 2(b)(ii) of this Agreement.
3. Successors; Binding Agreement.
-----------------------------
(a) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company, and any parent
company thereof, by agreement or agreements in form and substance satisfactory
to the Executive, expressly to assume and agree to perform this Agreement, and
in the case of any such parent company expressly to guarantee and agree to cause
the performance of this Agreement, in the same manner and to the same extent as
the Company would be required to perform it if no such succession had taken
place. As used in this Agreement, "Company" shall mean the Company as defined
in the first sentence of this Agreement and any successor to all or
substantially all its business or assets or which otherwise becomes bound by all
the terms and provisions of this Agreement, whether by the terms hereof, by
operation of law or otherwise.
15
<PAGE>
(b) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive and her
personal or legal representatives and successors in interest under this
Agreement.
4. Term. This Agreement shall continue in full force and effect
----
until the third anniversary of the date that notice of termination of this
Agreement is given by the Company to the Executive or by the Executive to the
Company.
5. Notice. Any notice, demand or other communication required or
------
permitted under this Agreement shall be effective only if it is in writing and
delivered personally or sent by registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:
16
<PAGE>
If to the Company:
Fortune Brands, Inc.
1700 East Putnam Avenue
Old Greenwich, Connecticut 06870
Attention: Secretary
If to the Executive:
Anne C. Linsdau
400 East Ohio
Apt. 4501
Chicago, Illinois 60611
or to such other address as either party may designate by notice to the other
and shall be deemed to have been given as of the date so personally delivered or
mailed.
6. Miscellaneous. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Delaware. This Agreement cannot be
modified or any term or condition waived in whole or in part except by a writing
signed by the party against whom enforcement of the modification or waiver is
sought. No waiver by either party hereto at any time of any breach by the other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. The headings in this Agreement are included for convenience of
reference only
17
<PAGE>
and shall not in any way affect the meaning or interpretation of this Agreement.
7. Separability. The invalidity or unenforceability of any provision
------------
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
8. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which so executed shall be deemed to be an original, and
such counterparts will together constitute but one Agreement.
9. Withholding of Taxes. The Company may withhold from any benefits
--------------------
payable under this Agreement
18
<PAGE>
all federal, state, city or other taxes as shall be required pursuant to any law
or governmental regulation or ruling.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its officer thereunto duly authorized and its seal to be hereunto
affixed and attested and the Executive has hereunto set his hand as of the date
first above written.
[Seal] FORTUNE BRANDS, INC.
By
-----------------------------
ATTEST:
- -------------------------
Secretary
-----------------------------
Anne C. Linsdau
19
<PAGE>
EXHIBIT 10j13
Schedule identifying substantially identical agreement, between Fortune Brands,
Inc. ("Fortune") and the following person, to the Agreement constituting Exhibit
10j11 to the Annual Report on Form 10-K of Fortune for the Fiscal Year ended
December 31, 1999.
- --------------------------------------------------------------------------------
Name
----
Mark Hausberg
<PAGE>
EXHIBIT 12
FORTUNE BRANDS, INC.
Statement Re Computation of Ratio of Earnings to Fixed Charges
(Dollar amounts in millions)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1995 1996 1997 1998 1999
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Continuing Operations
- ---------------------
Earnings Available:
Income before
provision for
taxes on income
and minority interest $358.9 $340.1 $145.2 $516.4 ($725.2)
Less: Excess of
earnings over
dividends of less
than fifty percent
owned companies 0.2 0.2 0.2 0.2 0.2
Capitalized interest - 0.3 - - 4.1
------ ------ ------ ------ -------
358.7 339.6 145.0 516.2 (720.9)
------ ------ ------ ------ -------
Fixed Charges:
Interest expense
(including capitalized
interest) and amortization
of debt discount and expenses 147.1 172.6 122.4 105.4 113.9
Portion of rentals
representative of
an interest factor 13.5 15.1 14.7 17.0 19.0
------ ------ ------ ------ -------
Total Fixed Charges 160.6 187.7 137.1 122.4 132.9
------ ------ ------ ------ -------
Total Earnings
Available $519.3 $527.3 $282.1 $638.6 $(588.0)
====== ====== ====== ====== =======
Ratio of Earnings to
Fixed Charges 3.23 2.81 2.06 5.22 (A)
====== ====== ====== ====== =======
</TABLE>
(A) As a result of the loss reported for the year ended December 31, 1999,
Registrant was unable to cover the fixed charges indicated.
Included in earnings was a second quarter 1999 goodwill write-down of
$1,126 million as disclosed in Note 1 to Registrant's consolidated
financial statements. If the write-down were excluded from earnings, the
ratio of earnings to fixed charges for the year ended December 31, 1999
would have been 4.05.
<PAGE>
Exhibit 13
Financial HIGHLIGHTS
Fortune Brands, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Pro Forma/(a)/
(In millions, except per share amounts) 1999 1998 Change 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES
Home products $1,922.6 $1,624.4 $1,394.0
Office products 1,367.2 1,387.7 1,294.2
Golf products 965.3 962.9 911.6
Spirits and wine 1,269.6 1,265.9 1,244.7
- -----------------------------------------------------------------------------------------------------------------------------------
$5,524.7 $5,240.9 5.4% $4,844.5
===================================================================================================================================
OPERATING COMPANY CONTRIBUTION/(b)/
Home products $300.2 $252.5 $222.9
Office products 88.5 134.0 128.1
Golf products 147.0 142.9 138.2
Spirits and wine 293.6 268.9 257.2
- -----------------------------------------------------------------------------------------------------------------------------------
$829.3 $798.3 3.9% $746.4
===================================================================================================================================
Income (loss) from continuing operations before
extraordinary items $(890.6) $293.6
===================================================================================================================================
Earnings per common share from continuing operations
before extraordinary items
Basic $(5.35) $1.70
Diluted $(5.35) $1.67
===================================================================================================================================
Income from continuing operations before
extraordinary items and net charges/(c)/ $339.8 $293.6 15.7% $257.8
===================================================================================================================================
Earnings per common share before extraordinary items
and net charges
Basic $2.03 $1.70 19.4% $1.51
Diluted $1.99 $1.67 19.2% $1.48
===================================================================================================================================
EBITDA (as defined)/(d)/ $907.0 $865.7 5% $797.3
===================================================================================================================================
Dividends paid per common share $.89 $.85 5% $.81
===================================================================================================================================
Actual number of common shares outstanding 163.2 170.9
Average number of common shares outstanding 166.6 172.2 170.3
===================================================================================================================================
</TABLE>
/(a)/Unaudited pro forma results exclude restructuring and other nonrecurring
charges in 1997 (See Note 14) and reflect the net cash payment Gallaher Group
Plc made to the Company in connection with the spin-off on May 30, 1997 (See
Note 3) and the assumption that such proceeds were used to purchase 2.5 million
common shares and repay debt as of January 1, 1997. Pro forma information is
presented for informational purposes only and does not purport to be indicative
of the results of operations which would actually have been obtained if the
transactions had occurred on January 1, 1997.
/(b)/Operating company contribution is net sales less all costs and expenses
other than restructuring and other nonrecurring charges, write-down of good-
will, amortization of intangibles, corporate administrative expenses, interest
and related expenses, other (income) expenses, net and income taxes.
/(c)/Income from continuing operations before extraordinary items and net
charges was $339.8 million, or $2.03 basic and $1.99 diluted per share for 1999,
compared with $293.6 million, or $1.70 basic and $1.67 diluted per share for
1998. The net charges for 1999 represent: the goodwill write-down of $1,126
million, or $6.76 per share; restructuring and other nonrecurring charges of
$196 million ($125.6 million after-tax), or 75 cents per share; and the sale of
a financing subsidiary for a $31.6 million ($21.2 million after tax) gain, or 13
cents per share.
We reported a net loss in 1999. Because of this, the calculation of reported
earnings per share on a diluted basis excludes the impact of the convertible
preferred stock and stock options. For comparative purposes, however, the impact
of the convertible preferred stock and stock options are considered.
/(d)/EBITDA, as defined, is income from continuing operations before
extraordinary items and net charges, interest expense, income taxes and
depreciation and amortization. EBITDA, which is earnings before interest, taxes,
depreciation and amortization, is a measure commonly used by analysts and
investors. Accordingly, this information has been presented to permit a more
complete analysis of the Company's operating performance. EBITDA should not be
considered a substitute for net income or cash flow prepared in accordance with
generally accepted accounting principles as a measure of the profitability or
liquidity of the Company.
<PAGE>
Results of OPERATIONS
Fortune Brands, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Net Sales Operating Company Contribution/(a)/
- -----------------------------------------------------------------------------------------------------------------------------------
(In millions) 1999 1998 1997 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Home products $1,922.6 $1,624.4 $1,394.0 $300.2 $252.5 $222.9
Office products 1,367.2 1,387.7 1,294.2 88.5 134.0 128.1
Golf products 965.3 962.9 911.6 147.0 142.9 138.2
Spirits and wine 1,269.6 1,265.9 1,244.7 293.6 268.9 257.2
- -----------------------------------------------------------------------------------------------------------------------------------
Continuing operations $5,524.7 $5,240.9 $4,844.5 $829.3 $798.3 $746.4
===================================================================================================================================
</TABLE>
/(a)/Operating company contribution (OCC) is net sales less all costs and
expenses other than restructuring and other nonrecurring charges, write-down of
goodwill, amortization of intangibles, corporate administrative expenses,
interest and related expenses, other (income) expenses, net and income taxes.
(See Note 15.)
CONSOLIDATED
1999 COMPARED TO 1998 Net sales grew by $283.8 million, an increase of 5%. The
increase was primarily due to new products and line extensions, as well as
acquisitions made in 1999 and 1998. The benefits from acquisitions occurred
principally in the home products segment, and to a lesser extent in the spirits
and wine and office products segments. These increases were partly offset by
volume declines in some existing products, lower prices and lower average
foreign exchange rates. In addition, reported sales of spirits and wine were
negatively impacted as sales through the Maxxium joint venture are net of excise
taxes and distribution costs, which are now incurred by the venture. Absent this
change, sales would have increased 7%. Operating company contribution, our key
measure by which we gauge performance, grew 4% on gains in every segment but
office products.
As of April 1, 1999, we elected to change our method of measuring the
recoverability of goodwill from an undiscounted cash flow method to a
discounted cash flow method. We believe the discounted cash flow method, as
described in Note 1 of the Notes to Consolidated Financial Statements, is
preferable because it is consistent with the basis used for investment decisions
and takes into consideration the specific and detailed operating plans and
strategies of each operation. The adoption of the discounted cash flow method
may result in greater earnings volatility since any subsequent decreases in
discounted cash flows of certain segments may result in the write-down of
goodwill. As a result of this change for measuring recoverability, we recorded a
non-cash write-down of goodwill of $1,126 million ($6.76 per share). The write-
down was recorded in the following business segments: golf products - $517.7
million; spirits and wine - $502.7 million; and office products - $105.6
million. Amortization of intangibles declined to $85.5 million in 1999 from
$108.2 million in 1998 due to this write-down.
During 1999, we recorded aggregate pre-tax restructuring and other nonrecurring
charges of $196 million, $125.6 million after-tax, or 75 cents per share. (See
Note 14.) The actions consist of restructuring activities associated with all
segments of the Company. The corporate charge of $82.3 million includes employee
severance resulting from a reduction of the corporate workforce by about 40
percent (75 to 80 positions), relocation of the corporate headquarters to a
lower-cost facility in Lincolnshire, Illinois, and lease termination costs
related to the move. In total, we estimate total projected pre-tax annualized
savings from these corporate actions to be $30 million. Home products charges of
$29.2 million include reductions in force (856 positions) as a result of the
move of substantially all of the lock assembly operations and certain specialty
plumbing operations to Mexico. Office products charges of $23.6 million include
reductions in force resulting from the move of labeling and printing production
to Mexico and other reductions in force in the U.S. and Europe (406 positions in
total), as well as employee termination costs and asset write-downs. Golf
products charges of $42.1 million include costs related to termination of
licensing agreements, product line discontinuances, asset write-offs (including
a note receivable related to a previously sold operation) and reductions in
force (180 positions) principally resulting from consolidation of golf club
facilities from six to three. Spirits and wine charges of $18.8 million include
termination of distribution contracts, lease cancellation costs and employee
severance costs (50 positions) related to the formation of the Maxxium joint
venture. We estimate initial total projected pre-tax annualized savings from all
these actions to be approximately $60 million beginning in 2000. Approximately
half of the savings from these actions will be used for longer-term brand
building.
We also announced that we would take additional restructuring actions to further
reduce costs. Additional actions, including a review of worldwide supply chain
management and product lines and plant relocation, could result in restructuring
and other nonrecurring charges being recorded over the first six months of 2000
in the range of $30-$40 million as actions are initiated.
Other (income) expenses, net in 1999 included a gain of $31.6 million ($21.2
million after-tax), or 13 cents per share, on the sale of a financing
subsidiary.
Interest and related expenses increased 4%. This increase reflects higher
average borrowings due to share repurchases and acquisitions, partly offset by
lower interest rates.
29
<PAGE>
Results of OPERATIONS
Fortune Brands, Inc. and Subsidiaries
The effective income tax rate comparison was distorted primarily by the absence
of tax benefits on the write-down of goodwill and lower pre-tax income due to
the impact of the restructuring and other nonrecurring charges taken in 1999.
Excluding these charges, the effective income tax rates were 40.4% for 1999 and
42.6% for 1998. The lower effective tax rate this year principally reflected
lower nondeductible goodwill amortization, tax savings initiatives and a refund
associated with the settlement of a tax audit.
The income (loss) from continuing operations before extraordinary items was a
loss for 1999 of $890.6 million, or $5.35 per share, compared with income for
1998 of $293.6 million, or $1.70 basic and $1.67 diluted per share.
In 1998, we incurred extraordinary items charges of $30.5 million ($46.9 million
pre-tax), or 18 cents per share. The charge related to purchasing debt. (See
Note 16.)
Net loss of $890.6 million, or $5.35 per share, compared with net income of
$263.1 million, or $1.52 basic and $1.49 diluted per share, for 1998.
Income from continuing operations before extraordinary items and net charges was
$339.8 million, or $2.03 basic and $1.99 diluted per share for 1999, compared
with $293.6 million, or $1.70 basic and $1.67 diluted per share for 1998. The
net charges for 1999 represent: the goodwill write-down of $1,126 million, or
$6.76 per share; restructuring and other nonrecurring charges of $196 million
($125.6 million after-tax), or 75 cents per share; and the sale of a financing
subsidiary for a gain of $31.6 million ($21.2 million after tax), or 13 cents
per share.
We derived approximately 24% of our 1999 and 26% of our 1998 operating company
contribution from international markets, principally Australia, the United
Kingdom, and Canada. Fluctuations in the exchange rates of foreign currencies
represent a principal exposure that may affect results in future periods.
Fluctuations in average foreign exchange rates did not materially impact 1999
operating company contribution. We cannot accurately predict fluctuations in
foreign exchange rates. A 10% change in average exchange rates for the foreign
currencies from 1999 average rates would result in a change in 1999 operating
company contribution of approximately $20 million, or about 2 1/2%.
PENDING LITIGATION On December 22, 1994, the Company sold The American Tobacco
Company subsidiary to Brown & Williamson Tobacco Corporation, a wholly-owned
subsidiary of B.A.T Industries p.l.c. In connection with the sale, Brown &
Williamson Tobacco Corporation and The American Tobacco Company ("the
Indemnitors") agreed to indemnify the Company against claims including legal
expenses arising from smoking and health and fire safe cigarette matters
relating to the tobacco business of The American Tobacco Company.
The Company is a defendant in numerous actions based upon allegations that human
ailments have resulted from tobacco use. Management believes that there are
meritorious defenses to the pending actions and these actions are being
vigorously contested. However, it is not possible to predict the outcome of the
pending litigation, and it is possible that some of these actions could be
decided unfavorably. Management is unable to make a meaningful estimate of the
amount or range of loss that could result from an unfavorable outcome of the
pending litigation. Management believes that the pending actions will not have a
material adverse effect upon the results of operations, cash flows or financial
condition of the Company as long as the Indemnitors continue to fulfill their
obligations to indemnify the Company under the aforementioned indemnification
agreement.
In addition to the lawsuits described above, the Company and its subsidiaries
are defendants in lawsuits associated with their business and operations. It is
not possible to predict the outcome of the pending actions, but management
believes that there are meritorious defenses to these actions and that these
actions will not have a material adverse effect upon the results of operations,
cash flows or financial condition of the Company. These actions are being
vigorously contested.
ENVIRONMENTAL MATTERS Along with other responsible parties, our subsidiaries
face claims relating to the protection of the environment. As of February 1,
2000 various of our subsidiaries had been designated as potentially responsible
parties under "Superfund" or similar state laws with respect to 46 sites. We
believe that the cost of complying with the present environmental protection
laws, before considering estimated recoveries either from other responsible
parties or insurance, will not have a material adverse effect upon our results
of operations, cash flows or financial condition.
RECENTLY ISSUED ACCOUNTING STANDARDS In June 1999, FAS Statement No. 137,
"Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of FAS Statement No. 133," was issued, deferring the effective
date of FAS Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities," from January 1, 2000 to January 1, 2001. FAS Statement No.
133 establishes accounting and reporting standards for derivative instruments
and for hedging activities. We are in the process of evaluating the effect of
adoption on future results and the disclosure requirements under this standard.
30
<PAGE>
YEAR 2000 READINESS DISCLOSURE The "Year 2000," or "Y2K," problem existed
because many computer programs and computerized devices used only the last two
digits to refer to a year. Uncorrected, these programs and devices might not
properly have recognized a year that begins with "20" instead of "19." We
resolved our critical Year 2000 issues on a timely basis. We have not identified
any continuing material Y2K compliance issues, including those related to third
parties. The total costs (including costs of existing internal resources)
expended through December 31, 1999, were approximately $25 million, which were
provided by internally generated sources.
CONVERSION TO THE EURO Certain of our subsidiaries are engaged in business in
some of the countries that participate in the European monetary union. The
previous national currencies of these countries will still be accepted as legal
tender until at least January 1, 2002. We do not expect the conversion to the
Euro to have a material effect on our results of operations, cash flows or
financial condition.
COST INITIATIVES We continuously evaluate the productivity of our product lines
and existing asset base and actively seek to identify opportunities to improve
our cost structure. Future opportunities may involve, among other things, the
reorganization of operations or the relocation of manufacturing or assembly to
locations generally having lower costs. Implementing any significant identified
cost reduction and efficiency opportunities could result in charges.
1998 COMPARED TO 1997 Net sales grew by $396.4 million, an increase of 8%. The
introduction of new products and line extensions, acquisitions, and price
increases primarily caused the increase. The net sales increase was tempered by
fewer units sold of some existing products, the sale of nonstrategic businesses
and the effects of lower average foreign exchange rates (primarily the
Australian dollar).
In 1998, OCC grew $51.9 million, up 7%. The higher sales principally caused this
increase. The increase was tempered by lower average foreign exchange rates and
higher operating expenses. OCC benefited from the restructuring activities
initiated in 1997. If the exchange rates had remained constant at their 1997
levels, net sales and operating company contribution would have increased 9%.
During 1997, we recorded an aggregate of $298.2 million of pre-tax restructuring
and other nonrecurring charges. (See Note 14.) During 1998, the following
activities were in the process of being finalized: the completion of the
Nogales, Mexico, operation related to Office products' Swingline stapling
production and a significant portion of Home products' Master Lock assembly
operations, and the resultant reduction of workforces (approximately 500
positions) in the home and office products segments. These remaining
restructuring activities were completed during 1999. We expect these actions to
produce annualized savings exceeding $50 million.
Interest and related expenses decreased $14 million, or 12%. This decrease
reflects lower average borrowings principally because of the use of a portion of
the proceeds paid to us by Gallaher Group Plc in 1997 in connection with its
spin-off from the Company. (See Note 3.)
Lower pre-tax income in 1997 due to restructuring and other nonrecurring charges
distorted the effective income tax rate comparisons for 1998 and 1997. Excluding
these charges, the effective income tax rates were 42.6% and 44.6%,
respectively. We had a lower effective tax rate in 1998 principally because of
foreign and state tax initiatives and nondeductible goodwill had a smaller
impact on higher pre-tax income.
Income from continuing operations of $293.6 million, or $1.70 per basic share
($1.67 diluted), for 1998 compared with $41.5 million, or 24 cents per basic
share (23 cents diluted), for 1997. The significant increase occurred
principally because in 1997 we recorded $201 million, or $1.17 per basic share
($1.16 diluted), in net restructuring and other nonrecurring charges. Excluding
these charges, income from continuing operations increased $51.1 million, or
21%.
Income from discontinued operations for 1997 represented Gallaher's net income
before the spin-off. It was $65.1 million, or 38 cents per share. (See Note 3.)
In 1998, we incurred extraordinary item charges of $30.5 million ($46.9 million
pre-tax), or 18 cents per share, and in 1997 the charges were $8.1 million
($12.4 million pre-tax), or five cents per share. In both years, the charges
related to purchasing or redeeming debt. (See Note 16.)
Net income of $263.1 million, or $1.52 per basic share ($1.49 diluted), compared
with $98.5 million, or 57 cents per basic share (56 cents diluted), for 1997.
Pro forma financial information is discussed because of the significant changes
to our businesses that occurred in 1997. Pro forma results reflect the exclusion
of the 1997 restructuring and other nonrecurring charges, the inclusion of a net
cash payment that approximated $1.25 billion after taxes, that Gallaher paid to
us in connection with its spin-off and the assumption that as of January 1, 1997
we used those proceeds to purchase 2.5 million common shares and repay debt.
Income from continuing operations of $293.6 million, and basic and diluted
earnings per share of $1.70 and $1.67, respectively, for 1998 compared with pro
forma income from continuing operations of $257.8 million, and pro forma basic
and diluted earnings per share of $1.51 and $1.48, respectively, in 1997. This
pro forma information is provided for informational purposes only. We cannot
state for certain that these results of operations actually would have been
obtained if transactions had occurred on January 1, 1997.
31
<PAGE>
Results of OPERATIONS
Fortune Brands, Inc. and Subsidiaries
HOME PRODUCTS
1999 COMPARED TO 1998 Net sales increased $298.2 million, or 18%. The increase
was primarily attributable to the acquisition of Schrock cabinets in June 1998
and to overall volume and price increases. The overall volume increases reflect
higher volume in existing products, line extensions and new products.
Operating company contribution increased $47.7 million, or 19%. The operating
company contribution increase resulted from higher sales and improved gross
margin, partly offset by increased operating expenses. The gross margin
improvement reflects the benefits of higher volume, productivity improvements
and higher selling prices. The increased operating expenses were attributable to
higher volume-related selling expenses and higher advertising expenses
(principally at Moen) as well as increased general and administrative expenses.
Sales of our companies' home products are becoming increasingly concentrated in
a smaller number of major customers, principally mass merchant superstores, home
centers and large distributors and home builders. Our products also are
increasingly facing competition on a value-priced basis. As the home building
industry continues to consolidate, the growth of large mass merchants and home
centers will continue to present us and our competitors with pricing and service
challenges. It will also present opportunities for the most efficient
manufacturers.
1998 COMPARED TO 1997 Net sales increased $230.4 million, or 17%. The increase
was attributable primarily to the acquisitions of Schrock cabinets in June 1998
and Donner bath products in December 1997 and the benefit of overall volume and
price increases. The overall volume increase reflects line extensions and the
introduction of new products, but was partially offset by volume declines in
some existing products. Master Lock disposed of its door hardware business in
early 1998 and Moen disposed of its operations in Japan in 1997, actions which
tempered the segment's sales increase. All companies except Master Lock reported
higher sales.
Operating company contribution increased $29.6 million, up 13%. The increase
principally reflects higher sales, and was partially offset by a lower gross
margin (principally lower margins at acquired companies) and increased operating
expenses. Moen's higher volume-related selling programs, advertising and Y2K
spending were the principal reasons for the increased operating expenses.
OFFICE PRODUCTS
1999 COMPARED TO 1998 Net sales decreased $20.5 million, or 1%. The decline
resulted from softness in the U.S. and U.K. markets for traditional office
supplies, inventory reduction programs by major customers as well as weak
volumes primarily in the direct mail channel for time management products. In
addition, sales decreased due to lower prices (including higher rebates and
allowances) and lower average foreign exchange rates. The decrease in net sales
was partly offset by the benefits of an acquisition and introduction of new
products, particularly technology products at Kensington.
Operating company contribution decreased $45.5 million, or 34%. The decrease
reflects the lower sales and lower gross margin, partly offset by lower
operating expenses. The gross margin decreased due to lower prices and
additional costs related to current integration and relocation of operations in
North America and Europe. The decrease in operating expenses resulted from lower
freight costs (favorable comparison to 1998 costs incurred to maintain customer
service levels during restructuring activities) and decreased general and
administrative costs, partly offset by higher customer program costs and higher
information technology related expenses.
The office products business is increasingly concentrated in a small number of
major customers, principally office products superstores, wholesalers and
contract stationers. The continuing consolidation of both competitors and
customers is causing increased pricing pressures that have negatively affected
results. The reduction in net prices was compounded by the decision of several
customers to reduce inventory levels. These conditions continued throughout 1999
and continue to present challenges for our office products group and its
competitors. We believe our office products business will return to solid
contribution growth in 2000, and we continue to position the business for
long-term growth through the transition to low-cost manufacturing and an
emphasis on faster-growing and higher-return product categories.
1998 COMPARED TO 1997 Net sales increased $93.5 million, up 7%. The increase was
primarily attributable to acquisitions made in both years as well as an overall
volume increase. The sales increase was tempered by lower prices and the absence
of two nonstrategic businesses sold in 1997. The overall volume increase
reflects the introduction of new products, partially offset by volume declines
in some existing products. Excluding acquisitions and divestitures, net sales
were down slightly because increases in North America and Continental Europe
were more than offset by declines in Australia (largely due to lower average
foreign exchange rates).
32
<PAGE>
Operating company contribution increased $5.9 million, up 5%. This increase
reflects the sales increase and an improvement in gross margin, partially offset
by higher operating expenses. The gross margin increase principally reflects
stabilized raw material costs and other cost reductions, mostly offset by lower
gross margins at acquired companies. The increased operating expenses reflect
higher volume-related freight and distribution costs, higher customer service
costs incurred to maintain customer service levels while undergoing
restructuring programs, higher customer program costs, advertising and Y2K
expenses. Operating company contribution benefited from the acquisitions and was
hurt by lower average foreign exchange rates.
GOLF PRODUCTS
1999 COMPARED TO 1998 Net sales increased slightly, up $2.4 million, on sales
gains in Titleist golf clubs, Titleist and Pinnacle golf balls and FootJoy shoes
and gloves, reflecting volume increases principally on benefits from new
products and line extensions. The increase was partly offset by a sales decline
for Cobra golf clubs reflecting discounting on older models and continued
softness in the golf club market.
Operating company contribution increased $4.1 million, or 3%, on the higher
sales and improved gross margin (manufacturing efficiencies resulting from
increased automation). The increase was partly offset by higher operating
expenses reflecting increased advertising expenses, partly offset by savings
associated with 1998 and 1999 staff reductions at Cobra.
In 1999, the golf club market was adversely affected by lower customer demand,
leading to volume declines and price discounting. Overall retail sales of golf
clubs fell an estimated 3% to 6%. The Cobra brand was adversely affected by the
market's overall weakness, resulting in declines in sales and profits. Titleist
clubs, on the strength of increased customer demand for the DCI series irons and
975D drivers, posted volume, sales and profit growth. Conditions in the club
market remain very competitive, with major competitors introducing new products
and consumers becoming more price conscious.
The United States Golf Association (USGA) establishes standards for golf
equipment used in competitive play in the United States. On November 2, 1998,
the USGA announced the immediate implementation of a new rule with respect to
the performance of golf clubs. All of our group's golf products currently
marketed conform to this new rule. In the long term, this new rule could hamper
innovation and make it more difficult to use technological advances to produce
USGA conforming products. However, it is not possible to determine whether in
the long term this new rule will have a material effect on the golf club
industry and our golf products segment.
The USGA has announced its intention to propose new rules addressing the initial
velocity and overall distance standards for golf balls. Until more details
regarding such potential rule changes become available, we cannot determine
whether they would have a material effect on our group's golf ball business
and/or the golf ball industry. However, the new rules being considered could
incorporate rules that would create a two-tiered set of standards for golf
balls, one for tour professionals and one for consumers, and that would shorten
the overall distance that golf balls are allowed to travel. The adoption of
either change could materially impact our golf business.
In February 2000, Callaway introduced a line of golf balls. Taylor Made and Nike
introduced golf balls into their product offerings in 1999. Each of these
companies has significant brand awareness in the golf market. It is not possible
to predict what effect these new entries will have on our business.
1998 COMPARED TO 1997 Net sales increased $51.3 million, up 6%. An overall
volume increase in golf balls, clubs and gloves (new products and line
extensions) and price increases primarily caused the increase. The increase was
tempered by volume declines in golf shoes and irons and by trade incentives on
existing club models in connection with introducing new product lines.
Operating company contribution increased $4.7 million, up 3%. This increase
primarily reflects the higher sales. It was partially offset by higher operating
expenses, including increased advertising and promotional expenditures and
research and development expenses associated with the support of existing
products and the development of new products.
The golf club market was adversely affected in 1998 by lower consumer demand,
leading to increased inventory and price discounting. These changes led to an
estimated revenue decline in the U.S. market in the range of 10-15%. Both the
Titleist and Cobra brands were affected by the overall weakness in the market
for irons, though both achieved volume gains in metal woods. Titleist golf club
net sales were up on a favorable product mix and firm pricing. For Cobra, sales
results were more in line with the overall market trend and profits declined
significantly, particularly in the second half of the year.
33
<PAGE>
Results of OPERATIONS
Fortune Brands, Inc. and Subsidiaries
SPIRITS AND WINE
1999 COMPARED TO 1998 Net sales increased slightly on the benefit of the August
1998 Geyser Peak wine acquisition, and overall volume increases and higher
prices that offset the effect on reported sales of the Maxxium joint venture (as
discussed below) and lower average foreign exchange rates. Product is now sold
to Maxxium net of excise taxes in certain markets and at a lower price since the
related distribution costs are now incurred by Maxxium. The overall volume
increases reflect line extensions in the U.S. (principally DeKuyper cordial
line) and new products, partly offset by lower volumes on existing brands
resulting from lower shipments of Scotch products in Europe and lower-margin
U.S. brands. Shipments of Jim Beam bourbon and DeKuyper cordials increased.
Operating company contribution increased $24.7 million, or 9%. The increase
resulted from the higher sales, improved gross margin (principally reflecting
favorable product mix and price increases) and the full year benefit of the
Geyser Peak wine acquisition, partly offset by higher operating expenses, net of
a reduction in distribution expenses that are now incurred by the Maxxium joint
venture. The higher operating expenses were caused by increased volume-related
selling expenses. Operating results improved in the United States, but Scotch
unit volumes in Europe declined.
The merger of Grand Metropolitan PLC and Guinness PLC to create Diageo PLC in
late 1997 may reflect a trend towards consolidation in the highly competitive
global spirits business. The creation of Diageo PLC and the breadth of its
portfolio, as well as continued consolidation of the supplier, distributor and
retailer tiers, may present pricing and service challenges for our subsidiaries
and their competitors. It may also present opportunities, particularly for the
most efficient manufacturers.
In August 1999, the spirits and wine business formed an international sales and
distribution joint venture, named Maxxium International B.V., with
Remy-Cointreau and Highland Distillers, to distribute and sell premium wines and
spirits in key markets outside the United States. The Company agreed to
contribute assets related to its international distribution network and periodic
cash payments with a total estimated value of $110 million in return for a
one-third interest in the venture. The Company's investments in Maxxium are
recorded at its book value of assets contributed plus cash invested. As a result
of the Maxxium joint venture, distribution costs also decreased.
Beverage alcohol sales are particularly sensitive to higher excise tax rates.
Although no excise tax increases are presently pending in the two largest
markets, the U.S. and the U.K., the possibility of future increases cannot be
ruled out. In addition, previously there have been proposals to ban U.S.
broadcast television advertising of spirits. Although no legislation is pending
or has been enacted, most broadcast TV networks and local affiliated stations in
the U.S. currently decline to accept distilled spirits advertising. Our
operating subsidiaries outside the U.S. have conducted broadcast television and
other electronic advertising in certain markets where permitted. It is
impossible to predict whether any future excise tax increases or restrictions on
advertising will occur, and whether they may have an adverse effect on unit
sales and industry trends if they occur.
For many years through 1995, consumption of distilled spirits declined in many
countries, including our major market, the U.S. However, since 1996, consumption
in the U.S. has been steady or has increased slightly, indicating that the
historic decline may be reversing. From 1996 through 1999, cases of our spirits
products sold by distributors to retailers declined, although the rate of
decline slowed in 1998 and 1999. The number of cases sold may be affected by our
historic concentration on mid-to-low priced products that may not be fully
benefiting from the factors influencing the recent industry trends. The number
of cases sold may also be affected by price increases we have taken in recent
years to increase profits as compared to unit sales.
1998 COMPARED TO 1997 Net sales increased $21.2 million, up 2%. Price and
overall volume increases and the benefit of the Geyser Peak wine business
(acquired August 1998) were the primary drivers of this growth. The increase was
partially offset by lower average foreign exchange rates and the unfavorable
comparison to a one-time domestic bulk sale in 1997. The overall volume increase
principally reflects higher case shipments in the U.S. (benefits from reduced
trade inventories in late 1997), Australia and Canada, line extensions and new
products. Volume in Europe was lower.
Operating company contribution increased $11.7 million, up 5%. The sales
increase and an improved gross margin (principally reflecting price increases
and more favorable product mix) were the primary reasons for this increase.
Increased operating expenses, chiefly increased domestic brand spending on Jim
Beam bourbon, DeKuyper cordials and Small Batch Bourbons, tempered the amount of
the OCC increase. Operating results improved in North America and Europe.
Australian results declined primarily because the average foreign exchange rate
was 15% lower than the prior year.
34
<PAGE>
Quarterly FINANCIAL DATA (unaudited)
Fortune Brands, Inc. and Subsidiaries
<TABLE>
<CAPTION>
(In millions, except per share amounts)
1999 1st 2nd 3rd 4th
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $1,292.3 $1,420.7 $1,339.3 $1,472.4
Gross profit 517.9 560.5 545.4 626.0
Operating company contribution 170.8 218.9 194.4 245.2
Net income (loss)/(a)/ 56.1 (1,096.1) 48.2 101.2
Earnings per common share/(b)
Basic
Net income (loss)/(a)/ $.33 $(6.56) $.29 $.62
- -------------------------------------------------------------------------------------
Diluted
Net income (loss)/(a)/ $.32 $(6.56) $.28 $.61
=====================================================================================
1998 1st 2nd 3rd 4th
- -------------------------------------------------------------------------------------
Net sales $1,203.5 $1,326.2 $1,300.3 $1,410.9
Gross profit 497.7 545.8 511.8 574.0
Operating company contribution 168.1 209.2 183.5 237.5
Income from continuing operations $53.0 $87.9 $56.8 $95.9
Extraordinary items (8.4) (22.1) -- --
- -------------------------------------------------------------------------------------
Net income $44.6 $65.8 $56.8 $95.9
- -------------------------------------------------------------------------------------
Earnings per common share/(b)/
Basic
Continuing operations $.31 $.50 $.33 $.56
Extraordinary items (.05) (.13) -- --
- -------------------------------------------------------------------------------------
Net income $.26 $.37 $.33 $.56
- -------------------------------------------------------------------------------------
Diluted
Continuing operations $.30 $.50 $.32 $.55
Extraordinary items (.05) (.13) -- --
- -------------------------------------------------------------------------------------
Net income $.25 $.37 $.32 $.55
=====================================================================================
</TABLE>
/(a)/In 1999, net income (loss) and basic and diluted earnings per common share
reflected restructuring and other nonrecurring charges of $69.9 million ($108.8
million pre-tax), or 42 cents, in the second quarter, (See Note 14) and a
write-down of goodwill of $1,126 million, or $6.76, in the second quarter due to
a change in accounting principle (See Note 1); restructuring and other
nonrecurring charges of $23.4 million ($37.5 million pre-tax), or 14 cents, in
the third quarter; and restructuring and other nonrecurring charges of $32.3
million ($49.7 million pre-tax), or 19 cents, and a gain of $21.2 million ($31.6
million pre-tax), or 13 cents, from the sale of a financing subsidiary in the
fourth quarter.
/(b)/The sum of the quarterly earnings per common share will not necessarily
equal the amount shown for the year since the computations are performed
independently and assumed conversion of preferred stock and exercise of stock
options is not considered in loss periods due to it being antidilutive.
35
<PAGE>
Financial CONDITION
Fortune Brands, Inc. and Subsidiaries
NET CASH PROVIDED FROM CONTINUING OPERATING
ACTIVITIES Net cash provided from continuing operating activities in 1999 was
$488.4 million. This compared with $404.2 million in 1998. The principal reasons
for the increase were: reductions in inventory levels, particularly in Golf and
Office products, as a result of concerted efforts in inventory management; and
higher operating company contribution.
NET CASH USED BY INVESTING ACTIVITIES Net cash used by investing activities in
1999 was $349.2 million. This compared with $502.8 million in 1998.
Capital expenditures. We focus our capital spending on becoming the lowest cost
producers of the highest quality products. Capital expenditures in 1999 were
$240.5 million as compared with $251.9 million in 1998. This includes $36.4
million in 1999 and $64.7 million in 1998 related to restructuring activities
(principally land and buildings related to relocation of certain operations to
Mexico). See Note 15 for capital expenditures. We estimate the 2000 capital
expenditures to be $240 million. We expect to generate these funds internally.
Acquisitions and Joint Venture. In 1999, we acquired NHB Group, Ltd and Boone
International, Inc. and entered into the Maxxium joint venture for a total of
$132.3 million, net of cash acquired. In 1998, we acquired Apollo Presentation
Products, Schrock Cabinet Company and Geyser Peak Winery for a total of $271.8
million, net of cash acquired. In 1997, we acquired five companies for $84.6
million, net of cash acquired. (See Note 2.)
Dispositions. In 1998, Master Lock Company disposed of its door hardware
business for $17 million. In 1997, we disposed of two nonstrategic businesses
for a total of $48 million.
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES
Net cash used by financing activities in 1999 was $107.3 million. This compared
with net cash provided of $90.2 million in 1998. The decrease principally
reflects purchases of our common stock, which amounted to $397.7 million during
1999, as compared with $112 million during 1998.
CASH PROVIDED BY DISCONTINUED OPERATIONS To allocate the overall debt burden of
the Company at the time of the Gallaher spin-off in 1997, Gallaher borrowed and
paid to us approximately $1.25 billion, after taxes. We used a portion of the
proceeds to pay down debt.
DIVIDENDS
We paid common dividends in 1999 of $.89 per share. Dividends paid to common
stockholders in 1999 increased to $148.7 million from $146.5 million. On
December 1, 1999, we increased the common stock quarterly dividend by 5% to $.23
per share, or an indicated annual rate of $.92 per share.
FINANCIAL POSITION
At December 31, 1999, total debt increased $358.4 million to $1.8 billion.
Short-term debt increased $135.3 million and long-term debt increased $223.1
million. Our total debt to total capital ratio increased to 40.3% at December
31, 1999 from 26.6% at December 31, 1998. The increase was primarily a result of
the write-down of goodwill.
During 1999, we issued $200 million of 7 1/8% Notes, Due 2004.
In 1998, we purchased or redeemed $175.1 million principal amount of our debt.
(See Note 16.)
At December 31, 1999, $1 billion of debt securities were available for public
sale under our shelf registration with the Securities and Exchange Commission.
At year end 1999, we had $1.5 billion of long-term credit facilities,
substantially all of which remained unused. These facilities are available for
general corporate purposes, including acquisitions. They also support our
short-term borrowings in the commercial paper market.
We believe that our internally generated funds, together with access to global
credit markets, are adequate to meet our capital needs.
Working capital decreased to $309.9 million in 1999 from $420.7 million in 1998.
Increases in short-term debt (reflecting purchases of common stock and
acquisitions in 1999, partly offset by the benefit of a long-term financing) and
restructuring related liabilities were the principal reasons for the decrease.
We believe that our 1999 working capital level was adequate to support continued
growth.
FOREIGN EXCHANGE
We have investments in various foreign countries, principally the United
Kingdom, as well as Australia and Canada. Therefore, changes in the value of the
currencies of these countries affect our balance sheet and cash flow statements
when translated into U.S. dollars.
36
<PAGE>
MARKET RISK
We are exposed to various market risks, including changes in foreign currency
exchange rates and interest rates. Market risk is the potential loss arising
from adverse changes in market rates and prices, such as foreign currency
exchange and interest rates. We do not enter into derivatives or other financial
instruments for trading or speculative purposes. We enter into financial
instruments to manage and reduce the impact of changes in foreign currency
exchange rates and interest rates. The counterparties are major financial
institutions.
In conjunction with a long-term financing arrangement, we entered into
derivative contracts in the fourth quarter which were required to be marked to
market. These contracts had fair market values which were principally offsetting
and were no longer outstanding as of December 31, 1999.
FOREIGN EXCHANGE CONTRACTS We enter into forward foreign exchange contracts
principally to hedge the currency fluctuations in transactions denominated in
foreign currencies. These contracts limit the risk that would otherwise result
from changes in exchange rates. We primarily hedge short-term intercompany
loans, intercompany purchases and dividends declared by foreign operating
companies. The periods of the forward foreign exchange contracts correspond to
the periods of the hedged transactions. We reflect any gains and losses on
forward foreign exchange contracts and the offsetting losses and gains on hedged
transactions on our income statement.
At December 31, 1999, we had outstanding forward foreign exchange contracts to
purchase $38 million and sell $129 million of various currencies (principally
pound sterling) with a weighted average maturity of 64 days. At December 31,
1998, we had outstanding forward foreign exchange contracts to purchase $35
million and sell $201 million of various currencies (principally pound sterling)
with a weighted average maturity of 110 days.
The estimated fair value of foreign currency contracts represents the amount
required to enter into offsetting contracts with similar remaining maturities
based on quoted market prices. At December 31, 1999 and 1998, the fair value of
all outstanding contracts and the contract amounts were essentially the same. A
10% fluctuation in exchange rates for these currencies would change the fair
value by approximately $9 million and $17 million, respectively. However, since
these contracts hedge foreign currency denominated transactions, any change in
the fair value of the contracts would offset the changes in the underlying value
of the transactions being hedged.
INTEREST RATES We may, from time to time, enter into interest rate swap
agreements to manage our exposure to interest rate changes. The swaps involve
the exchange of fixed and variable interest rate payments without exchanging the
notional principal amount. We record the payments or receipts on the agreements
as adjustments to interest expense. At December 31, 1999, we did not have any
outstanding interest rate swap agreements. At December 31, 1998, we had
outstanding interest rate swap agreements denominated in dollars, maturing at
various dates in 1999, with an aggregate notional principal amount of $200
million. Under those agreements, we received a floating rate based on thirty day
commercial paper rates and paid a fixed interest rate. Those swaps effectively
converted our interest rate on $200 million of debt from a variable rate into a
fixed rate.
The fair value of interest rate swap agreements represents the estimated
receipts or payments that would be made to terminate the agreements. At December
31, 1998, we would have paid $4.2 million to terminate the agreements. If the
thirty day commercial paper rates decreased 1%, it would have increased the
amount paid by approximately $1 million at December 31, 1998. We based the fair
value on dealer quotes, considering current interest rates.
The fair market value of long-term fixed interest rate debt is subject to
interest rate risk. Generally, the fair market value of fixed interest rate debt
will increase as interest rates fall and decrease as interest rates rise. The
estimated fair value of our total long-term debt (including current portion) at
December 31, 1999 and 1998 was $1,171.1 million and $1,252.3 million,
respectively. If the prevailing interest rates at December 31, 1999 and 1998
increased by 1%, the fair value of our total long-term debt would decrease by
approximately $64 million and $76 million, respectively. We based fair values on
quoted market prices, where available, and on investment bankers' quotes using
current interest rates, considering credit ratings and the remaining terms to
maturity.
See Notes 1 and 13 for a discussion of the accounting policies for Derivative
Financial Instruments and information on Financial Instruments, respectively.
37
<PAGE>
Financial CONDITION
Fortune Brands, Inc. and Subsidiaries
STOCKHOLDERS' EQUITY
Stockholders' equity at year end 1999 decreased $1.4 billion to $2.7 billion.
This decrease principally reflects the write-down of goodwill and purchases of
common shares.
We purchased, through open market purchases and pursuant to a systematic share
purchase program, 11 million and 3.4 million shares of common stock during 1999
and 1998, respectively. The systematic share purchase program was terminated in
January 2000.
QUARTERLY COMMON STOCK DIVIDEND PAYMENTS
1999 1998
- --------------------------------------------------------------------------------
Payment date Per share Per share
- --------------------------------------------------------------------------------
March 1 $.22 $.21
June 1 .22 .21
September 1 .22 .21
December 1 .23 .22
- --------------------------------------------------------------------------------
$.89 $.85
================================================================================
CAUTIONARY STATEMENT
This annual report contains statements relating to future results. They are
forward-looking statements as that term is defined in the Private Securities
Litigation Reform Act of 1995. We caution readers that these forward-looking
statements speak only as of the date hereof. Actual results may differ
materially from those projected as a result of certain risks and uncertainties,
including but not limited to:
. changes in general economic conditions,
. foreign exchange rate fluctuations,
. competitive product and pricing pressures,
. trade consolidations,
. the impact of excise tax increases with respect to distilled spirits,
. regulatory developments,
. the uncertainties of litigation,
. changes in golf equipment regulatory standards,
. the impact of weather, particularly on the home products and golf brand
groups,
. expenses and disruptions related to shifts in manufacturing to different
locations and sources,
. delays in the integration of acquisitions and joint ventures, as well as
. other risks and uncertainties detailed from time to time in the Company's
Securities and Exchange Commission filings.
QUARTERLY COMPOSITE COMMON STOCK PRICES
1999 1998
- --------------------------------------------------------------------------------
High Low High Low
- --------------------------------------------------------------------------------
First 39 29 3/8 41 13/16 35
Second 45 7/8 38 1/16 42 1/4 35 9/16
Third 43 32 1/4 39 15/16 25 1/4
Fourth 36 3/8 30 13/16 36 5/16 26 3/8
================================================================================
The common stock is listed on the New York Stock Exchange, which is the
principal market for this security.
The high and low prices are as reported in the consolidated transaction
reporting system.
38
<PAGE>
Notes to CONSOLIDATED FINANCIAL STATEMENTS
Fortune Brands, Inc. and Subsidiaries
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION The consolidated financial statements include the accounts
of the Company and all majority-owned subsidiaries. The consolidated financial
statements are prepared in conformity with generally accepted accounting
principles, which require management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, sales and expenses for the
reporting periods. Actual results for future periods could differ from those
estimates.
Certain reclassifications have been made in the prior years financial statements
to conform with the current year presentation.
CASH AND CASH EQUIVALENTS Highly liquid investments
with an original maturity of three months or less are included in cash and cash
equivalents.
INVENTORIES Inventories are priced at the lower of cost (principally average,
first-in, first-out and minor amounts at last-in, first-out) or market. In
accordance with generally recognized trade practice, bulk whiskey inventories
are classified as current assets, although part of such inventories, due to the
duration of aging processes, ordinarily will not be sold within one year.
PROPERTY, PLANT AND EQUIPMENT Property, plant and
equipment are carried at cost. Depreciation is provided, principally on a
straight-line basis, over the estimated useful lives of the assets. Gains or
losses resulting from dispositions are included in income. Betterments and
renewals which improve and extend the life of an asset are capitalized;
maintenance and repair costs are expensed.
INTANGIBLES Goodwill is amortized on a straight line basis over its estimated
useful life, principally over a forty year period, except for certain amounts
related to businesses acquired prior to 1971, which are not being amortized
because they have been determined to have continuing value over an indefinite
period.
The Company evaluates the recoverability of goodwill by estimating the future
discounted cash flows of the businesses to which the goodwill relates. The rate
used in determining discounted cash flows is a rate corresponding to the
Company's cost of capital. Estimated cash flows are then determined by
disaggregating the Company's business segments to an operational and
organizational level for which meaningful identifiable cash flows can be
determined. When estimated future discounted cash flows are less than the
carrying value of the net assets (tangible and identifiable intangibles) and
related goodwill, impairment losses of goodwill are charged to operations.
Impairment losses, limited to the carrying value of goodwill, represent the
excess of the sum of the carrying value of the net assets (tangible and
identifiable intangible) and goodwill over the discounted cash flows of the
business being evaluated. In determining the estimated future cash flows, the
Company considers current and projected future levels of income as well as
business trends, prospects and market and economic conditions. Prior to April 1,
1999, the assessment of recoverability and measurement of impairment of goodwill
was based on undiscounted cash flows.
Included in intangible assets, at December 31, 1999 and 1998, were $880.1
million and $909.4 million, respectively, of identifiable intangibles, net of
cumulative amortization, comprised primarily of brands and trademarks which are
being amortized over their useful life of up to 40 years.
Change in accounting for goodwill Effective April 1, 1999, the Company elected
- ---------------------------------
to change its method for assessing recoverability of goodwill from one based on
undiscounted cash flows to one based on discounted cash flows. The Company
determined that using a discounted cash flow methodology is a preferable policy.
The rate used in determining discounted cash flows is a rate corresponding to
the Company's cost of capital. Management believes that fair value (i.e.,
discounted cash flow) is preferable because it is consistent with the basis used
for investment decisions (acquisitions and capital projects) and takes into
account the specific and detailed operating plans and strategies of each
business. This change represents a change in accounting principle which is
indistinguishable from a change in estimate, and accordingly, the effect of the
change was recorded in the second quarter of 1999.
This change resulted in a non-cash write-down of goodwill of $1,126 million
($6.76 per share) in the second quarter of 1999. The write-downs by business
segment were: golf products - $517.7 million; spirits and wine - $502.7 million;
and office products - $105.6 million.
ADVERTISING COSTS Advertising costs, which amounted to $365.6 million, $318.6
million and $303 million in 1999, 1998 and 1997, respectively, are principally
charged to expense as incurred.
The Company capitalizes certain direct-response advertising costs. Such costs
are generally amortized in proportion to when revenues are recognized. The
amounts of direct response advertising capitalized in 1999 and 1998 were $24.3
and $28 million respectively. Amortization of $26.8 million, $27.4 million and
$23.8 million was recorded in the years ended December 31, 1999, 1998 and 1997,
respectively and is included in the above amounts.
44
<PAGE>
RESEARCH AND DEVELOPMENT Research and development expenses, which amounted to
$55.6 million, $54 million and $46.6 million in 1999, 1998 and 1997,
respectively, are charged to expense as incurred.
INCOME TAXES Deferred tax liabilities or assets are established for temporary
differences between financial and tax reporting bases and are subsequently
adjusted to reflect changes in tax rates expected to be in effect when the
temporary differences reverse.
Deferred income taxes are not provided on undistributed earnings of foreign
subsidiaries, aggregating approximately $168.4 million at December 31, 1999, as
such earnings are expected to be permanently reinvested in these companies.
FOREIGN CURRENCY TRANSLATION Foreign currency balance sheet accounts are
translated into U.S. dollars at the rates of exchange at the balance sheet date.
Income and expenses are translated at the average rates of exchange in effect
during the year. The related translation adjustments are made directly to a
separate component of the "Accumulated other comprehensive income (loss)"
caption in stockholders' equity.
DERIVATIVE FINANCIAL INSTRUMENTS Derivative financial instruments are utilized
by the Company to reduce foreign currency exchange and interest rate risks. The
Company has established policies and procedures for risk assessment and the
approval, reporting and monitoring of derivative financial instrument
activities. The Company does not enter into financial instruments for trading or
speculative purposes.
In conjunction with a long-term financing arrangement, the Company entered into
derivative contracts in the fourth quarter that were required to be marked to
market. These contracts had fair market values that were principally offsetting
and were no longer outstanding as of December 31, 1999.
Gains and losses on forward foreign exchange contracts used to hedge the
currency fluctuations on transactions denominated in foreign currencies and the
offsetting losses and gains on hedged transactions are recorded in the "Other
(income) expenses, net" caption in the income statement.
Gains and losses on forward foreign exchange contracts used to hedge a portion
of the Company's investment in foreign subsidiaries and the offsetting losses
and gains on the portion of the investment being hedged are recorded in the
"Accumulated other comprehensive income (loss)" caption in stockholders' equity.
Payments or receipts on interest rate swap agreements are recorded in the
"Interest and related expenses" caption in the income statement.
RECENTLY ISSUED ACCOUNTING STANDARDS In June 1999, FAS Statement No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FAS Statement No. 133," was issued, deferring the effective
date of FAS Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities," from January 1, 2000 to January 1, 2001. FAS Statement No.
133 establishes accounting and reporting standards for derivative instruments
and for hedging activities. The Company is in the process of evaluating the
effect of adoption on future results and the disclosure requirements under this
standard.
2. ACQUISITIONS, DISPOSALS AND JOINT VENTURE
In October 1999, the home products business acquired NHB Group Ltd., a
Canadian-based manufacturer of ready-to-assemble kitchen and bath cabinetry and
the office products business acquired Boone International Inc., a U.S.-based
manufacturer of dry-erase boards and markers, bulletin boards, easels and other
presentation products. The aggregate cost of these acquisitions was $103.6
million, including fees and expenses. The cost exceeded the estimated fair value
of net assets acquired by $78 million.
During 1998, acquisitions were made in the home products, office products and
spirits and wine segments for an aggregate cost of $271.8 million, including
fees and expenses. In connection with these acquisitions, liabilities amounting
to $51 million were included at the dates of acquisition. The cost exceeded the
fair value of net assets acquired by $193.7 million.
During 1997, acquisitions were made in the home and office products segments for
an aggregate cost of $92 million, including fees, expenses and $9.5 million
resulting from the issuance of common shares. In connection with the 1997
acquisitions, liabilities amounting to $72 million were included at the dates of
acquisition. The cost exceeded the fair value of net assets acquired by $90
million.
These operations have been included in consolidated results from the dates of
acquisition. Had the acquisitions been consolidated at the beginning of the year
prior to the acquisitions, they would not have materially affected results.
In December 1999, the Company recognized a gain of $31.6 million, $21.2 million
after tax, on the sale of a financing subsidiary. This amount is included in the
"Other (income) expenses, net" caption in the income statement.
45
<PAGE>
Notes to CONSOLIDATED FINANCIAL STATEMENTS
Fortune Brands, Inc. and Subsidiaries
In August 1999, the spirits and wine business formed an international sales and
distribution joint venture, named Maxxium International B.V., with
Remy-Cointreau and Highland Distillers, to distribute and sell spirits in key
markets outside the United States. The Company agreed to contribute assets
related to its international distribution network and periodic cash payments
with a total estimated value of $110 million in return for a one-third interest
in the venture. During 1999, the Company made a cash investment of approximately
$30 million. The Company's investments in Maxxium were recorded at its book
value of assets contributed plus cash invested.
3. DISCONTINUED OPERATIONS
On May 30, 1997, Gallaher Group Plc ("Gallaher"), the Company's international
tobacco subsidiary, was spun off and the Company's name was changed from
American Brands, Inc. to Fortune Brands, Inc. As a result, the Company's
stockholders owned shares in two publicly-traded companies - Fortune Brands,
Inc. and Gallaher.
To allocate the overall debt burden of the Company at the time of the spin-off,
Gallaher borrowed and paid to the Company an amount that approximated $1.25
billion, after taxes. The Company used the proceeds to pay down debt.
Also, in connection with the spin-off, Gallaher and Gallaher Limited agreed to
indemnify the Company against claims arising from smoking and health and fire
safe cigarette matters relating to the tobacco business of Gallaher and its
subsidiaries.
The consolidated financial statements were reclassified to identify Gallaher's
international tobacco operations as discontinued operations for all periods.
Summarized data for the discontinued operations, net of allocation of interest
expense based on a ratio of Gallaher's net assets to consolidated net assets of
the Company, is as follows:
RESULTS OF OPERATIONS
(In millions, except per share amounts) 1997(a)
- --------------------------------------------------------------------------------
Net sales $2,575.0
- --------------------------------------------------------------------------------
Income before taxes $186.4
Spin-off expenses (67.1)
Income taxes (54.2)
- --------------------------------------------------------------------------------
Income from discontinued operations $65.1
================================================================================
Earnings per common share
Basic $.38
================================================================================
Diluted $.38
================================================================================
(a)Results through May 30, 1997.
4. SHORT-TERM BORROWINGS AND CREDIT FACILITIES
At December 31, 1999 and 1998, there were $637.3 million and $321.4 million of
short-term borrowings outstanding, respectively, comprised of notes payable to
banks and commercial paper. The weighted average interest rate on these
borrowings was 5.2% and 5.3%, respectively.
At December 31, 1999 and 1998, there were $12.4 million and $40.8 million
outstanding under committed bank credit agreements, which provide for unsecured
borrowings of up to $21.8 million and $56 million, respectively, for general
corporate purposes, including acquisitions.
In addition, the Company had uncommitted bank lines of credit, which provide for
unsecured borrowings for working capital of up to $65.7 million of which $16.4
million was outstanding at year end.
See Note 13 for a description of the Company's use of financial instruments.
5. LONG-TERM DEBT
The components of long-term debt are as follows:
(In millions) 1999 1998
- --------------------------------------------------------------------------------
Notes payable/(a)/ $ 200.0 $ 200.0
Revolving credit notes/(a)/ 42.7 16.6
Other notes/(b)/ 11.0 11.0
6 1/4% Notes, Due 2008 200.0 200.0
6 5/8% Debentures, Due 2028 200.0 200.0
8 1/2% Notes, Due 2003/(c)/ 106.9 106.9
8 5/8% Debentures, Due 2021/(c)/ 90.9 90.9
7 7/8% Debentures, Due 2023 150.0 150.0
7 1/2% Notes, Due 1999/(c)/ -- 118.6
9% Notes, Due 1999/(c)/ -- 62.8
7 1/8% Notes, Due 2004 200.0 --
Miscellaneous 6.0 8.2
- --------------------------------------------------------------------------------
1,207.5 1,165.0
Less current portion 2.7 183.3
- --------------------------------------------------------------------------------
$1,204.8 $ 981.7
================================================================================
/(a)/The Company maintains revolving credit agreements expiring in 2002 with
various banks, which provide for unsecured borrowings of up to $1.5 billion. The
interest rate is set at the time of each borrowing. A commitment fee of .10% per
annum is paid on the unused portion. The fee is subject to increases up to a
maximum of .20% per annum in the event the Company's long-term debt rating falls
below specified levels. Borrowings under these agreements may be made for
general corporate purposes, including acquisitions and support for the Company's
short-term borrowings in the commercial paper market. The Company has the
ability and intent to refinance $200 million of short-term notes payable;
accordingly, short-term notes payable in this amount have been classified as
long-term debt at December 31, 1999.
/(b)/The Other notes mature in 2001, with a weighted average coupon of 8.8%.
/(c)/See Note 16.
Estimated payments for maturing debt during the next five years are as follows:
2000, $2.7 million; 2001, $14.2 million; 2002, $241.8 million; 2003, $107.7
million; and 2004, $200.2 million.
46
<PAGE>
6. $2.67 CONVERTIBLE PREFERRED STOCK -
REDEEMABLE AT COMPANY'S OPTION
Shares of the $2.67 Convertible Preferred stock issued and outstanding at
December 31, 1999, 1998 and 1997 were 323,325 shares, 344,831 shares and 369,939
shares, respectively. Reacquired, redeemed or converted authorized shares that
are not outstanding are required to be retired or restored to the status of
authorized but unissued shares of preferred stock without series designation.
The holders of $2.67 Convertible Preferred stock are entitled to cumulative
dividends, three-tenths of a vote per share (in certain events, to the exclusion
of the common shares), preference in liquidation over holders of common stock of
$30.50 per share plus accrued dividends and convert each share of such stock
into 6.205 shares of common stock. Authorized but unissued common shares are
reserved for issuance upon such conversions, but treasury shares may be and are
delivered. Shares converted were 21,506 shares, 25,108 shares and 52,793 shares
during 1999, 1998 and 1997, respectively. The Company may redeem such Preferred
stock at a price of $30.50 per share, plus accrued dividends.
A cash dividend of $2.67 per share in the aggregate amounts of $0.9 million,
$0.9 million and $1.1 million was paid in each of the years ended December 31,
1999, 1998 and 1997, respectively.
7. CAPITAL STOCK
The Company has 750 million authorized shares of common stock and 60 million
authorized shares of preferred stock.
There were 163,243,041 and 170,884,270 common shares outstanding at December 31,
1999 and 1998, respectively.
The cash dividends paid on the common stock for the years ended December 31,
1999, 1998 and 1997 aggregated $148.7 million, $146.5 million and $242.3
million, respectively.
Treasury shares purchased and received as consideration for stock options
exercised amounted to 11,181,299 shares in 1999, 3,444,180 shares in 1998 and
2,507,737 shares in 1997. Treasury shares delivered in connection with exercise
of stock options and grants of other stock awards and conversion of preferred
stock and debentures amounted to 3,540,070 shares in 1999, 2,472,461 shares in
1998 and 3,521,779 shares in 1997. In connection with a 1997 acquisition,
276,162 shares were issued. At December 31, 1999 and 1998 there were 66,326,983
and 58,685,754 common treasury shares, respectively.
8. PREFERRED SHARE PURCHASE RIGHTS
Each outstanding share of common stock also evidences one Preferred Share
Purchase Right ("Right"). The Rights will generally become exercisable only in
the event of an acquisition of, or a tender offer for, 15% or more of the common
stock. If exercisable, each Right is exercisable for 1/100th of a share of
Series A Junior Participating Preferred Stock at an exercise price of $150.
Also, upon an acquisition of 15% or more of the common stock, or upon an
acquisition of the Company or the transfer of 50% or more of its assets or
earning power, each Right (other than Rights held by the 15% acquiror, if
applicable), if exercisable, will generally be exercisable for common shares of
the Company or the acquiring company, as the case may be, having a market value
of twice the exercise price. In certain events, however, Rights may be exchanged
by the Company for common stock at a rate of one share per Right. The Rights may
be redeemed at any time prior to an acquisition of 15% or more of the common
stock at a redemption price of $.01 per Right. Until a Right is exercised, the
holder, as such, will have no voting, dividend or other rights as a stockholder
of the Company. The Rights expire on December 24, 2007.
All 2.5 million of the authorized Series A Preferred shares are reserved for
issuance upon exercise of Rights, and at December 31, 1999, outstanding Rights
would have been exercisable as described above in the aggregate for 1,632,430 of
such shares.
47
<PAGE>
Notes to CONSOLIDATED FINANCIAL STATEMENTS
Fortune Brands, Inc. and Subsidiaries
9. STOCK PLANS
The 1999 Long-Term Incentive Plan authorizes the granting to key employees of
the Company and its subsidiaries of incentive and nonqualified stock options,
stock appreciation rights, restricted stock, performance awards and other
stock-based awards, any of which may be granted alone or in combination with
other types of awards or dividend equivalents. Such grants may be made on or
before December 31, 2004 for up to 12 million shares of common stock, but no
more than 2 million shares may be granted to any one individual. Stock options
and stock appreciation rights may no longer be granted under the Company's 1986
Stock Option Plan, and stock options, stock appreciation rights, restricted
stock, performance awards and other stock-based awards may no longer be granted
under the Company's 1990 Long-Term Incentive Plan, as amended. Outstanding
awards under these plans may continue to be exercised or paid pursuant to their
terms.
Stock options under the Plans have exercise prices equal to fair market values
at dates of grant. Options generally may not be exercised prior to one year or
more than ten years from the date of grant. Options granted since November 1998
generally vest one-third each year over a three year period after the date of
grant. Stock appreciation rights, which may be granted in conjunction with
option grants, permit the optionees to receive shares of common stock, cash or a
combination of shares and cash measured by the difference between the option
exercise price and the fair market value of the common stock at the time of
exercise of such right.
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations in accounting for its stock plans as
allowed under FAS Statement No. 123, "Accounting for Stock-Based Compensation."
Had compensation cost for the fixed stock options granted in 1999, 1998 and 1997
been determined consistent with FAS No. 123, pro forma net income (loss) and
earnings per common share would have been as follows:
<TABLE>
<CAPTION>
(In millions, except per share amounts) 1999 1998 1997 1997/(a)/
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income (loss) $(897.6) $252.9 $78.7 $90.6
=================================================================================
Earnings per common share Basic $(5.39) $1.46 $.45 $.52
=================================================================================
Diluted $(5.39) $1.43 $.45 $.52
=================================================================================
</TABLE>
/(a)/Excludes incremental fair value, as calculated under the Black-Scholes
option-pricing model, related to the adjustment of options in the Gallaher
spin-off.
These pro forma amounts are not necessarily indicative of future amounts.
Changes during the three years ended December 31, 1999 in shares under options
were as follows:
Weighted-Average
Options Exercise Price
- --------------------------------------------------------------------------------
Outstanding at January 1, 1997 9,781,150 $40.64
Granted 99,100 52.75
Exercised (2,267,110) 37.04
Lapsed (43,000) 48.66
Cancelled (297,400) 46.65
- --------------------------------------------------------------------------------
Outstanding at May 30, 1997 7,272,740 41.63
Gallaher Spin-off Adjustment/(a)/ 4,427,250 --
- --------------------------------------------------------------------------------
Outstanding at May 30, 1997 after
Gallaher spin-off 11,699,990 25.88
Granted 1,786,000 35.63
Exercised (1,325,538) 23.38
Lapsed (56,653) 30.26
- --------------------------------------------------------------------------------
Outstanding at December 31, 1997 12,103,799 27.57
Granted 2,612,300 35.01
Exercised (2,230,843) 25.58
Lapsed (69,930) 34.55
- --------------------------------------------------------------------------------
Outstanding at December 31, 1998 12,415,326 29.45
Granted 2,225,401 34.23
Exercised (3,284,072) 26.10
Lapsed (198,311) 34.21
- --------------------------------------------------------------------------------
Outstanding at December 31, 1999 11,158,344 $31.30
================================================================================
/(a)/On May 30, 1997, in connection with the Gallaher spin-off, the Company
adjusted the number of shares under options and the option exercise prices to
preserve, as closely as possible, the economic value of the options that existed
at the time of the spin-off.
Options exercisable at the end of each of the three years ended December 31,
1999 were as follows:
Options Weighted-Average
Exercisable Exercise Price
- --------------------------------------------------------------------------------
December 31, 1999 7,641,037 $29.84
December 31, 1998 9,732,526 $27.92
December 31, 1997 10,166,612 $26.07
48
<PAGE>
The weighted-average fair values of options granted during 1999, 1998 and 1997
were $8.80, $6.70 and $7.66, respectively. The fair value of each option grant
is estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions used for grants in 1999, 1998
and 1997:
1999 1998 1997
- --------------------------------------------------------------------------------
Expected dividend yield 2.7% 2.7% 2.6%
Expected volatility 28.0% 21.0% 20.9%
Risk-free interest rate 6.0% 4.8% 5.8%
Expected term 4.5 Years 4.5 Years 4.5 Years
Options outstanding at December 31, 1999 were as follows:
Weighted-Average
Range Of Number Remaining Weighted-Average
Exercise Prices Outstanding Contractual Life Exercise Price
- --------------------------------------------------------------------------------
$20.98 to $26.26 2,454,489 5.0 $23.79
27.58 to 33.41 2,517,858 5.3 29.80
34.19 to 39.88 6,185,997 9.0 34.88
- --------------------------------------------------------------------------------
$20.98 to $39.88 11,158,344 7.3 $31.30
================================================================================
Options exercisable at December 31, 1999 were as follows:
Number Weighted-Average
Exercisable Exercise Price
- --------------------------------------------------------------------------------
2,454,489 $23.79
2,512,108 29.80
2,674,440 35.43
- --------------------------------------------------------------------------------
7,641,037 $29.84
================================================================================
At December 31, 1999, performance awards were outstanding pursuant to which up
to 142,140 shares, 147,300 shares, 223,950 shares and 145,050 shares may be
issued in 2000, 2001, 2002 and 2003, respectively, depending on the extent to
which certain specified performance objectives are met.
117,690 shares, 81,569 shares and 40,240 shares were issued pursuant to
performance awards during 1999, 1998 and 1997, respectively. The costs of
performance awards are expensed over the performance period.
Compensation expense for stock based plans recorded for 1999, 1998 and 1997 was
$3.4 million, $4.3 million and $5 million, respectively.
Shares available in connection with future awards under the Company's stock
plans at December 31, 1999, 1998 and 1997 were: 9,752,818; and 6,843,255; and
8,216,471, respectively. Authorized but unissued shares are reserved for
issuance in connection with awards, but treasury shares may be and are
delivered.
10. PENSION AND OTHER RETIREE BENEFITS
The Company has a number of pension plans, principally in the United States,
covering substantially all employees. The plans provide for payment of
retirement benefits, mainly commencing between the ages of 60 and 65, and also
for payment of certain disability and severance benefits. After meeting certain
qualifications, an employee acquires a vested right to future benefits. The
benefits payable under the plans are generally determined on the basis of an
employee's length of service and earnings. Annual contributions to the plans are
sufficient to satisfy legal funding requirements.
The Company provides postretirement health care and life insurance benefits to
certain employees and retirees in the United States and certain employee groups
outside the United States. Most employees and retirees outside the United States
are covered by government health care programs.
The components of net pension and postretirement costs are as follows:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
-------------------------------------------------------------------------------
(In millions) 1999/(a)/ 1998 1997 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $33.6 $31.4 $26.2 $2.2 $2.1 $1.9
Interest cost 52.9 50.5 46.5 7.8 8.5 8.2
Expected return on plan assets (70.0) (66.3) (58.5) -- -- --
Net amortization and deferral 5.9 4.2 3.3 (2.3) (1.5) (2.8)
- -----------------------------------------------------------------------------------------------------------------------------------
$22.4 $19.8 $17.5 $7.7 $9.1 $7.3
===================================================================================================================================
</TABLE>
/(a)/The above costs exclude: special termination benefits ($17.4 million); a
curtailment loss ($8.5 million); and a settlement loss ($3.8 million) which were
recorded as a component of employee termination costs in restructuring charges.
(See Note 14.)
49
<PAGE>
Notes to CONSOLIDATED FINANCIAL STATEMENTS
Fortune Brands, Inc. and Subsidiaries
The reconciliation of beginning and ending balances of benefit obligations and
fair value of plan assets, and the funded status of the plans are as follows:
Pension Benefits Postretirement Benefits
- --------------------------------------------------------------------------------
(In millions) 1999 1998 1999 1998
- --------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at
beginning of year $803.7 $718.7 $121.6 $125.2
Service cost 33.6 31.4 2.2 2.1
Interest cost 52.9 50.5 7.8 8.5
Actuarial (gain) loss (30.7) 22.8 (16.8) (6.8)
Participants' contributions 3.0 4.3 0.9 0.9
Acquisitions -- 15.1 -- 1.2
Exchange rate changes (8.1) 0.1 (0.2) (0.2)
Benefits paid (52.2) (39.6) (7.2) (9.3)
Other items 14.2 0.4 0.6 --
- --------------------------------------------------------------------------------
Benefit obligation
at end of year 816.4 803.7 108.9 121.6
- --------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS:
Fair value of plan assets
at beginning of year 806.5 750.2 -- --
Actual return on plan assets 79.3 59.2 -- --
Employer contributions 23.5 14.3 6.3 8.4
Participants' contributions 3.0 4.3 0.9 0.9
Acquisitions -- 12.0 -- --
Exchange rate changes (8.6) (1.2) -- --
Benefits paid (52.3) (35.4) (7.2) (9.3)
Other items 6.6 3.1 -- --
- --------------------------------------------------------------------------------
Fair value of plan assets
at end of year 858.0 806.5 -- --
- --------------------------------------------------------------------------------
FUNDED STATUS 41.6 2.8 (108.9) (121.6)
Unrecognized actuarial
(gain) loss (29.1) 39.1 (36.3) (24.0)
Unrecognized transition gain (2.8) (4.2) -- --
Unrecognized prior
service cost 21.9 25.0 (2.4) (2.7)
Other 0.4 (1.8) -- --
- --------------------------------------------------------------------------------
Net amount recognized $32.0 $60.9 $(147.6) $(148.3)
================================================================================
Amounts recognized in the balance sheet are as follows:
Pension Benefits Postretirement Benefits
- --------------------------------------------------------------------------------
(In millions) 1999 1998 1999 1998
- --------------------------------------------------------------------------------
Pension benefit cost $75.8 $73.9 $ -- $ --
Accrued benefit liability (57.9) (43.4) (147.6) (148.3)
Intangible assets 8.9 17.5 -- --
Accumulated other
comprehensive income 5.2 12.9 -- --
- --------------------------------------------------------------------------------
Net amount recognized $32.0 $60.9 $(147.6) $(148.3)
================================================================================
Weighted-average assumptions:
Discount rate 7.2% 6.7% 7.4% 6.7%
Expected long-term rate
of return on plan assets 9.2% 9.5% -- --
Rate of compensation
increase 5.0% 4.3% 5.0% 6.0%
================================================================================
The projected benefit obligation, accumulated benefit obligation and fair value
of plan assets for the pension plans with accumulated benefit obligations in
excess of plan assets were $129.4 million, $118.8 million and $80.1 million,
respectively, as of December 31, 1999 and $230.6 million, $215.3 million and
$186 million, respectively, as of December 31, 1998.
The assumed health care cost trend rate used in measuring the health care
portion of the postretirement cost for 2000 is 7%, gradually declining to 5% by
the year 2007 and remaining at that level thereafter. Assumed health care cost
trend rates have a significant effect on the amounts reported for postretirement
benefits. A one percent increase in assumed health care cost trend rates would
increase the total of the service and interest cost components for 1999 and the
postretirement benefit obligation as of December 31, 1999 by $1 million and $8.7
million, respectively. A one percent decrease in assumed health care cost trend
rates would decrease the total of the service and interest cost components for
1999 and the postretirement benefit obligation as of December 31, 1999 by
approximately $0.9 million and $8.2 million, respectively.
The Company sponsors a number of defined contribution plans. Contributions are
determined under various formulas. Costs related to such plans amounted to $21.3
million, $22.7 million and $21.4 million in 1999, 1998 and 1997, respectively.
11. LEASE COMMITMENTS
Future minimum rental payments under noncancelable operating leases as of
December 31, 1999 are as follows:
(In millions)
- --------------------------------------------------------------------------------
2000 $53.5
2001 47.4
2002 41.3
2003 32.9
2004 29.8
Remainder 126.5
- --------------------------------------------------------------------------------
Total minimum rental payments 331.4
Less minimum rentals to be received under
noncancelable subleases 18.3
- --------------------------------------------------------------------------------
$313.1
================================================================================
Total rental expense for all operating leases (reduced by minor amounts from
subleases) amounted to $50.3 million, $49.8 million and $42.5 million in 1999,
1998 and 1997, respectively.
50
<PAGE>
12. INCOME TAXES
The components of income (loss) from continuing operations before income taxes
are as follows:
(In millions) 1999 1998 1997
- -------------------------------------------------------------------------
Domestic operations $(320.0) $407.1 $120.8
Foreign operations (400.7) 104.8 18.9
- -------------------------------------------------------------------------
$(720.7) $511.9 $139.7
=========================================================================
A reconciliation of income taxes at the 35% federal statutory income tax rate to
income taxes as reported is as follows:
(In millions) 1999 1998 1997
- -------------------------------------------------------------------------
Income (benefit) taxes computed
at federal statutory
income tax rate $(252.2) $179.2 $48.9
Other income taxes,
net of federal tax benefit 21.3 17.4 10.9
Goodwill write-down
and amortization not
deductible for income
tax purposes 418.5 33.4 32.9
Miscellaneous, including
reversals of tax provisions
no longer required (17.7) (11.7) 5.5
- -------------------------------------------------------------------------
Income taxes as reported $ 169.9 $218.3 $98.2
=========================================================================
Income taxes are as follows:
(In millions) 1999 1998 1997
- -------------------------------------------------------------------------
Currently payable
Federal $ 45.8 $106.7 $100.3
Foreign 98.9 35.3 38.2
Other 28.2 25.3 21.1
Deferred
Federal and other (6.8) 42.2 (42.3)
Foreign 3.8 8.8 (19.1)
- -------------------------------------------------------------------------
$169.9 $218.3 $ 98.2
=========================================================================
The components of net deferred tax assets (liabilities) are as follows:
(In millions) 1999 1998
- -------------------------------------------------------------------------
Current assets
Compensation and benefits $ 10.6 $ 11.1
Other reserves 30.9 28.3
Capitalized interest-inventory 13.9 13.5
Restructuring 17.7 20.5
Interest 1.9 1.9
Accounts receivable 14.9 14.8
Miscellaneous 29.5 29.3
- -------------------------------------------------------------------------
119.4 119.4
- -------------------------------------------------------------------------
Current liabilities
Inventories (12.3) (10.3)
Miscellaneous (16.9) (10.5)
- -------------------------------------------------------------------------
(29.2) (20.8)
- -------------------------------------------------------------------------
Deferred income taxes included in
Other current assets 90.2 98.6
- -------------------------------------------------------------------------
Noncurrent assets
Compensation and benefits 48.9 27.3
Other retiree benefits 30.8 48.7
Other reserves 28.2 35.1
Foreign exchange 1.3 0.8
Miscellaneous 31.4 16.0
- -------------------------------------------------------------------------
140.6 127.9
- -------------------------------------------------------------------------
Noncurrent liabilities
Depreciation (70.4) (63.1)
Pensions (6.4) (9.4)
Trademark amortization (74.1) (67.2)
Miscellaneous (38.0) (38.1)
- -------------------------------------------------------------------------
(188.9) (177.8)
- -------------------------------------------------------------------------
Deferred income taxes (48.3) (49.9)
- -------------------------------------------------------------------------
Net deferred tax asset $41.9 $ 48.7
=========================================================================
13. FINANCIAL INSTRUMENTS
The Company does not enter into financial instruments for trading or speculative
purposes. In conjunction with a long-term financing arrangement, the Company
entered into derivative contracts in the fourth quarter that were required to be
marked to market. These contracts had fair market values which were principally
offsetting and were no longer outstanding as of December 31, 1999.
Financial instruments are used to reduce the impact of changes in foreign
currency exchange rates and interest rates. The principal financial instruments
used are forward foreign exchange contracts and interest rate swaps. The
counterparties are major financial institutions. Although the Company's
theoretical risk is the replacement cost at the then estimated fair value of
these instruments, management believes that the risk of incurring losses is
remote and that such losses, if any, would be immaterial.
51
<PAGE>
Notes to CONSOLIDATED FINANCIAL STATEMENTS
Fortune Brands, Inc. and Subsidiaries
The Company enters into forward foreign exchange contracts principally to hedge
currency fluctuations in transactions denominated in foreign currencies, thereby
limiting the Company's risk that would otherwise result from changes in exchange
rates. The periods of the forward foreign exchange contracts correspond to the
periods of the hedged transactions. The Company periodically enters into forward
foreign exchange contracts to hedge a portion of its net investments in U.K.
operating companies.
At December 31, 1999, the Company had outstanding forward foreign exchange
contracts to purchase $38 million and sell $129 million of various foreign
currencies (principally pound sterling), with maturities ranging from January 3,
2000 to December 22, 2000, with a weighted average maturity of 64 days. At
December 31, 1998, the Company also had outstanding forward foreign exchange
contracts to purchase $35 million and sell $201 million of various foreign
currencies (principally pound sterling), with maturities ranging from January 4,
1999 to January 28, 2000, with a weighted average maturity of 110 days.
The estimated fair value of foreign currency contracts represents the amount
required to enter into offsetting contracts with similar remaining maturities
based on quoted market prices. At December 31, 1999 and 1998, the fair value of
all outstanding contracts and the contract amounts were essentially the same.
The Company may, from time to time, enter into interest rate swap agreements to
manage its exposure to interest rate changes. The swaps involve the exchange of
fixed and variable interest rate payments without exchanging the notional
principal amount.
At December 31, 1999, the Company did not have any outstanding interest rate
swap agreements. As of December 31, 1998, the Company had outstanding interest
rate swap agreements denominated in dollars, maturing at various dates in 1999,
with an aggregate notional principal amount of $200 million. Under these
agreements, the Company received a floating rate based on thirty day commercial
paper rates, or a weighted average rate of 5.2% at December 31, 1998, and paid a
weighted average fixed interest rate of 7.8% at December 31, 1998.
The fair value of these interest rate swap agreements represents the estimated
receipts or payments that would be made to terminate the agreements. At December
31, 1998, the Company would have paid $4.2 million to terminate the agreements.
The fair value is based on dealer quotes, considering current interest rates.
The estimated fair value of the Company's cash and cash equivalents, notes
payable to banks and commercial paper, approximates the carrying amounts due
principally to their short maturities.
The estimated fair value of the Company's $1,207.5 million and $1,165 million
total long-term debt (including current portion) at December 31, 1999 and 1998
was approximately $1,171.1 million and $1,252.3 million, respectively. The fair
value is determined from quoted market prices, where available, and from
investment bankers using current interest rates, considering credit ratings and
the remaining terms to maturity.
Concentration of credit risk with respect to accounts receivable is limited
because a large number of geographically diverse customers make up the operating
companies' domestic and international customer base, thus spreading the credit
risk.
14. RESTRUCTURING AND OTHER NONRECURRING CHARGES
During 1997, the Company recorded pre-tax restructuring and other nonrecurring
charges as follows:
Nonrecurring
Cost of Sales
(In millions) Restructuring Charges Total
- --------------------------------------------------------------------------------
Home products $ 79.5 $17.3 $ 96.8
Office products 82.5 4.8 87.3
Golf products 15.9 34.8 50.7
Spirits and wine 31.2 32.2 63.4
- --------------------------------------------------------------------------------
$209.1 $89.1 $298.2
================================================================================
Home products included charges related to the disposition of certain product
lines and the rationalization of operations.
Office products included charges related to the rationalization of operations,
the discontinuance of certain product lines and lease cancellation costs, partly
offset by a $12.6 million pre-tax gain on the sale of nonstrategic businesses.
Golf products included charges related to the discontinuance of certain product
lines and the rationalization of operations.
52
<PAGE>
Spirits and wine included charges related to a change in bulk whiskey valuations
which resulted from the integration of the worldwide distilled spirits business,
international distribution and lease agreements and the discontinuance of
certain product lines.
The rationalization of operations referred to above included the closure,
consolidation, sale and/or disposal of five manufacturing facilities (four in
the U.S. and one in the U.K.); two combined manufacturing and distribution
facilities (one in each of Australia and Europe); six distribution centers
(three in Australia, two in the U.S. and one in Japan); and three office
facilities (one in Australia and two in the U.K.). The rationalization also
included the termination of a foreign joint venture.
Reconciliation of the liability of the restructuring and other nonrecurring
charges is as follows:
<TABLE>
<CAPTION>
Balance at Cash Non-Cash Balance at
(In millions) 12/31/98 Expenditures Write-offs 12/31/99
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Rationalization of operations
Employment termination
costs $ 8.6 $ (6.7) $ (1.9)(a) $--
Facility closing costs 1.2 (0.8) (0.4)(a) --
Other 1.2 (1.4) 0.2(1) --
International distribution
and lease agreements 4.2 (0.3) (3.9)(a) --
Loss on disposal of fixed
assets and businesses 3.2 (0.8) (2.4) --
- ------------------------------------------------------------------------------------------------------------------
$ 18.4 $ (10.0) $ (8.4) $--
==================================================================================================================
</TABLE>
(a) Non-cash write-offs include reclasses to reduce employment termination costs
by $1 million and international distribution and lease agreements by $1.9
million and to increase facility closing costs by $2.7 million and other by
$0.2 million.
The other activities related to the 1997 restructuring and other nonrecurring
charges have been completed.
During 1999, the Company recorded pre-tax restructuring charges as follows:
(In millions) Restructuring
- --------------------------------------------
Home products $ 24.0
Office products 16.2
Golf products 11.4
Spirits and wine 18.8
Corporate office 66.4
- --------------------------------------------
$136.8
============================================
Home products include charges related to reductions in force (856 positions) as
a result of the move of substantially all of the lock assembly operations and
certain specialty plumbing operations to Mexico.
Office products include charges related to reductions in force resulting from
the move of labeling and printing production to Mexico as well as other
reductions in force in the U.S. and Europe. The total reduction in force is 406
positions.
Golf products include charges related to asset write-offs and reductions in
force (180 positions) principally resulting from consolidation of golf club
facilities from six to three.
Spirits and wine include charges related to termination of distribution
contracts, lease cancellation costs and employee severance costs (50 positions)
related to the formation of the Maxxium joint venture.
Corporate office includes charges related to employee and lease termination
costs related to the move to Lincolnshire, Illinois. Employee costs represent
severance payments, costs related to a voluntary early retirement program, and
expenses for long-term incentive and pension plans. These costs related to 130
people who either did not relocate or whose positions were eliminated.
Reconciliation of the restructuring liability is as follows:
<TABLE>
<CAPTION>
Total Cash Non-Cash Balance at
(In millions) Provision Expenditures Write-offs 12/31/99
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Rationalization of operations
Employee termination
costs(a) $ 86.8 $ (14.1) $ (34.4) $ 38.3
Other 6.6 (4.9) (0.2) 1.5
International distribution
and lease agreements 34.1 (0.6) (17.2) 16.3
Loss on disposal of assets 9.3 -- (8.5) 0.8
- ----------------------------------------------------------------------------------------------------------------------
$ 136.8 $ (19.6) $ (60.3) $ 56.9
======================================================================================================================
</TABLE>
(a) As of December 31, 1999, 1,005 of the 1,622 positions were eliminated.
During 1999, the Company recorded pre-tax other nonrecurring charges as follows:
<TABLE>
<CAPTION>
Cost of
Sales SG&A
(In millions) Charges Charges Total
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Home products $ 3.5 $ 1.7 $ 5.2
Office products 2.3 5.1 7.4
Golf products 25.2 5.5 30.7
Corporate office -- 15.9 15.9
- -----------------------------------------------------------------------------------------
$ 31.0 $ 28.2 $ 59.2
=========================================================================================
</TABLE>
53
<PAGE>
Notes to CONSOLIDATED FINANCIAL STATEMENTS
Fortune Brands, Inc. and Subsidiaries
Other nonrecurring charges include charges related to the 1999 restructuring
activities:
Home products include relocation costs for certain manufacturing facilities.
Office products include inventory write-offs due to discontinuance of certain
product lines, relocation costs for manufacturing facilities and a loss on the
sale of a business.
Golf products include inventory write-offs due to discontinuance of club product
lines, additional warranty costs and a write-off of a note receivable related to
a previously sold operation.
Corporate office includes relocation costs associated with establishing a new
corporate headquarters, and the amortization of corporate furniture and
leasehold improvements from the measurement date through the end of the year.
15. INFORMATION ON BUSINESS SEGMENTS
The Company's subsidiaries operate principally in the following business
segments:
Home products include kitchen and bathroom faucets, plumbing supply and repair
products manufactured, packaged or distributed by Moen, locks manufactured by
Master Lock, kitchen cabinets and bathroom vanities manufactured under the
Aristokraft and Schrock brands, and tool storage products manufactured by
Waterloo.
Office products include paper fastening, computer accessories, time management,
presentation and other office products manufactured by ACCO World subsidiaries.
Golf products of the Acushnet Company include golf balls, shoes, gloves and
clubs manufactured and marketed under the Titleist and FootJoy brands and golf
clubs manufactured and marketed under the Cobra brand.
Spirits and wine include products produced or imported by Jim Beam Brands
Worldwide subsidiaries.
The Company's subsidiaries operate principally in the United States, the United
Kingdom, Canada and Australia.
Net sales and operating company contribution for the years 1999, 1998 and 1997
and segment assets for the related year ends by business segments and by
geographic areas, are shown on page 58.
Operating company contribution is net sales less all costs and expenses other
than restructuring and other nonrecurring charges, write-down of goodwill,
amortization of intangibles, corporate administrative expenses, interest and
related expenses, other (income) expenses, net and income taxes. A
reconciliation of operating company contribution to consolidated income (loss)
from continuing operations before income taxes is as follows:
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating company
contribution $ 829.3 $ 798.3 $ 746.4
Restructuring charges 136.8 -- 209.1
Other nonrecurring charges 59.2 -- 89.1
Amortization of intangibles 85.5 108.2 104.2
Write-down of goodwill 1,126.0 -- --
Interest and related expenses 106.8 102.7 116.7
Non-operating expenses 35.7 75.5 87.6
- -------------------------------------------------------------------------------------------------
Income (loss) from continuing
operations before income
taxes as reported $ (720.7) $ 511.9 $ 139.7
==================================================================================================
</TABLE>
Reconciliation of segment assets to consolidated total assets is as follows:
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Segment assets $ 3,642.9 $ 3,473.2 $ 3,113.7
Intangibles resulting from
business acquisitions, net 2,592.1 3,761.3 3,674.1
Corporate 182.1 125.2 154.7
- -------------------------------------------------------------------------------------------------
$ 6,417.1 $ 7,359.7 $ 6,942.5
==================================================================================================
Long-lived assets are as follows:(a)
(In millions) 1999 1998 1997
United States $ 911.7 $ 852.3 $ 724.2
United Kingdom 188.6 194.8 203.1
Canada 25.4 21.2 22.9
Australia 14.1 16.8 4.3
Other countries 36.7 34.8 26.4
- -------------------------------------------------------------------------------------------------
$ 1,176.5 $ 1,119.9 $ 980.9
==================================================================================================
</TABLE>
(a) Represents property, plant and equipment, net
54
<PAGE>
Depreciation is as follows:
(In millions) 1999 1998 1997
- --------------------------------------------------------------------------------
Home products $ 43.1 $ 41.8 $ 42.3
Office products 38.8 42.5 39.9
Golf products 21.6 20.0 16.3
Spirits and wine 38.8 35.7 37.1
Corporate 2.7 2.9 2.9
- --------------------------------------------------------------------------------
$145.0 $142.9 $138.5
================================================================================
Amortization of intangibles is as follows:
(In millions) 1999 1998 1997
- --------------------------------------------------------------------------------
Home products $ 32.4 $ 31.7 $ 29.9
Office products 21.7 23.3 21.5
Golf products 6.5 17.4 17.8
Spirits and wine 24.9 35.8 35.0
- --------------------------------------------------------------------------------
$ 85.5 $108.2 $104.2
================================================================================
Capital expenditures are as follows:
(In millions) 1999 1998 1997
- --------------------------------------------------------------------------------
Home products $113.0 $ 57.6 $ 55.6
Office products 55.5 107.2 43.0
Golf products 37.2 39.9 59.4
Spirits and wine 34.4 46.3 37.5
Corporate 0.4 0.9 1.4
- --------------------------------------------------------------------------------
$240.5 $251.9 $196.9
================================================================================
16. EXTRAORDINARY ITEMS
In 1998, the Company purchased the following principal amounts of its
outstanding debt: $31.4 million of 7 1/2% Notes, Due 1999, $50.4 million of
8 1/2% Notes, Due 2003, $10.5 million of 9% Notes, Due 1999 and $32.7 million of
8 5/8 % Debentures, Due 2021, and the Company also redeemed the outstanding
$50.1 million of 12 1/2% Sterling Loan Stock, Due 2009. The extinguishment of
debt resulted in a charge of $30.5 million ($46.9 million pre-tax), or 18 cents
per share.
In 1997, we purchased the following principal amounts of its outstanding debt:
$42.7 million of 8 1/2% Notes, Due 2003, $26.7 million of 9% Notes, Due 1999 and
$26.4 million of 8 5/8% Debentures, Due 2021. The extinguishment of debt
resulted in a charge of $8.1 million ($12.4 million pre-tax) or five cents per
share.
17. EARNINGS PER SHARE
Basic earnings per common share are based on the weighted average number of
common shares outstanding in each year and after preferred stock dividend
requirements. Diluted earnings per common share assume that any dilutive
convertible debentures and convertible preferred shares outstanding at the
beginning of each year were converted at those dates, with related interest,
preferred stock dividend requirements and outstanding common shares adjusted
accordingly. It also assumes that outstanding common shares were increased by
shares issuable upon exercise of those stock options for which market price
exceeds exercise price, less shares which could have been purchased by the
Company with related proceeds. The Convertible Preferred stock and stock
options, amounting to 3.7 million shares, were not included in the computation
of diluted earnings per common share for 1999 and the Convertible Preferred
stock, amounting to 3.9 million shares, was not included in 1997 since they
would have resulted in an antidilutive effect.
The computation of basic and diluted earnings per common share for "Income
(loss) from continuing operations" is as follows:
(In millions,
except per share amounts) 1999 1998 1997
- -----------------------------------------------------------------
Income (loss) from
continuing operations $ (890.6) $293.6 $ 41.5
Less: Preferred stock dividends 0.9 0.9 1.1
- -----------------------------------------------------------------
Income available to common
stockholders - basic (891.5) 292.7 40.4
Convertible Preferred stock
dividend requirements -- 0.9 --
- -----------------------------------------------------------------
Income available to common
stockholders - diluted $ (891.5) $293.6 $ 40.4
=================================================================
Weighted average number
of common shares
outstanding - basic 166.6 172.2 171.6
Conversion of Convertible
Preferred stock -- 2.2 --
Exercise of stock options -- 1.8 1.7
- -----------------------------------------------------------------
Weighted average number
of common shares
outstanding - diluted 166.6 176.2 173.3
Earnings per common share
Basic $ (5.35) $1.70 $ .24
=================================================================
Diluted $ (5.35) $1.67 $ .23
=================================================================
55
<PAGE>
Notes to CONSOLIDATED FINANCIAL STATEMENTS
Fortune Brands, Inc. and Subsidiaries
18. COMPREHENSIVE INCOME
Comprehensive income is defined as net income and other changes in stockholders'
equity from transactions and other events from sources other than stockholders.
The components of and changes in other accumulated comprehensive income (loss)
are as follows:
Minimum Accumulated
Foreign Pension Other
Currency Liability Comprehensive
(In millions) Adjustments Adjustment Income (Loss)
- --------------------------------------------------------------------------------
Balance at January 1, 1997 $ (195.9) $ (8.2) $ (204.1)
Changes during year
(including taxes of $30.1) (44.9) (4.8) (49.7)
Gallaher spin-off 260.7 -- 260.7
- --------------------------------------------------------------------------------
Balance at December 31, 1997 19.9 (13.0) 6.9
Comprehensive income
changes during year
(net of taxes of $7.1) (7.4) 5.2 (2.2)
- --------------------------------------------------------------------------------
Balance at December 31, 1998 12.5 (7.8) 4.7
Changes during year
(net of taxes of $2.4) (24.4) 4.8 (19.6)
- --------------------------------------------------------------------------------
Balance at December 31, 1999 $ (11.9) $ (3.0) $ (14.9)
================================================================================
19. PENDING LITIGATION
TOBACCO LITIGATION AND INDEMNIFICATION
On December 22, 1994, the Company sold The American Tobacco Company subsidiary
to Brown & Williamson Tobacco Corporation, a wholly-owned subsidiary of B.A.T
Industries p.l.c. In connection with the sale, Brown & Williamson Tobacco
Corporation and The American Tobacco Company ("the Indemnitors") agreed to
indemnify the Company against claims including legal expenses arising from
smoking and health and fire safe cigarette matters relating to the tobacco
business of The American Tobacco Company.
The Company is a defendant in numerous actions based upon allegations that human
ailments have resulted from tobacco use. Management believes that there are
meritorious defenses to the pending actions and these actions are being
vigorously contested. However, it is not possible to predict the outcome of the
pending litigation, and it is possible that some of these actions could be
decided unfavorably. Management is unable to make a meaningful estimate of the
amount or range of loss that could result from an unfavorable outcome of the
pending litigation. Management believes that the pending actions will not have a
material adverse effect upon the results of operations, cash flows or financial
condition of the Company as long as the Indemnitors continue to fulfill their
obligations to indemnify the Company under the aforementioned indemnification
agreement.
OTHER LITIGATION In addition to the lawsuits described above, the Company and
its subsidiaries are defendants in lawsuits associated with their business and
operations. It is not possible to predict the outcome of the pending actions,
but management believes that there are meritorious defenses to these actions and
that these actions will not have a material adverse effect upon the results of
operations, cash flows or financial condition of the Company. These actions are
being vigorously contested.
20. ENVIRONMENTAL
The Company is subject to laws and regulations relating to the protection of the
environment.
The Company provides for expenses associated with environmental remediation
obligations when such amounts are probable and can be reasonably estimated. Such
accruals are adjusted as new information develops or circumstances change and
are not discounted.
While it is not possible to quantify with certainty the potential impact of
actions regarding environmental matters, particularly remediation and other
compliance efforts that the Company's subsidiaries may undertake in the future,
in the opinion of management, compliance with the present environmental
protection laws, before taking into account estimated recoveries from third
parties, will not have a material adverse effect upon the results of operations,
cash flows or financial condition of the Company.
56
<PAGE>
Report of INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND
STOCKHOLDERS OF FORTUNE BRANDS, INC.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, cash flows and stockholders' equity present
fairly, in all material respects, the consolidated financial position of Fortune
Brands, Inc. and Subsidiaries at December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the management of Fortune Brands, Inc.; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
As discussed in Note 1, effective April 1, 1999, the Company changed its
accounting policy for assessing recoverability of goodwill from one based on
undiscounted cash flows to one based on discounted cash flows.
New York, New York 10010
February 3, 2000
Report of MANAGEMENT
TO THE STOCKHOLDERS OF FORTUNE BRANDS, INC.
We have prepared the consolidated balance sheet of Fortune Brands, Inc. and
Subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of income, cash flows and stockholders' equity for each of the three
years in the period ended December 31, 1999. The financial statements have been
prepared in accordance with generally accepted accounting principles. Financial
information elsewhere in this Annual Report is consistent with that in the
financial statements.
The system of internal controls of the Company and its subsidiaries is designed
to provide reasonable assurances that the financial records are adequate and can
be relied upon to provide information for the preparation of financial
statements and that established policies and procedures are carefully followed.
Independent accountants are elected annually by the stockholders of the Company
to audit the financial statements. PricewaterhouseCoopers LLP, independent
accountants, are currently engaged to perform such audit. Their audit is in
accordance with generally accepted auditing standards and includes tests of
transactions and selective tests of internal accounting controls.
The Audit Committee of the Board of Directors, consisting solely of outside
directors, meets periodically with the independent accountants, internal
auditors and management to review accounting, auditing, and financial reporting
matters. The auditors have direct access to the Audit Committee.
NORMAN H. WESLEY
Chairman of the Board and
Chief Executive Officer
/s/ CRAIG P. OMTVEDT
CRAIG P. OMTVEDT
Senior Vice President and
Chief Financial Officer
57
<PAGE>
Information on BUSINESS SEGMENTS(a)
Fortune Brands, Inc. and Subsidiaries
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
BUSINESS SEGMENTS
NET SALES
<S> <C> <C> <C> <C> <C> <C>
Home products $1,922.6 $1,624.4 $1,394.0 $1,374.1 $1,306.8 $1,270.6
Office products 1,367.2 1,387.7 1,294.2 1,228.7 1,206.1 1,049.7
Golf products 965.3 962.9 911.6 811.4 579.3 507.1
Spirits and wine 1,269.6 1,265.9 1,244.7 1,303.5 1,288.6 1,268.2
- ---------------------------------------------------------------------------------------------------------------
Ongoing operations 5,524.7 5,240.9 4,844.5 4,717.7 4,380.8 4,095.6
Other businesses/(b)/ -- -- -- -- 547.3 1,281.4
- ---------------------------------------------------------------------------------------------------------------
$5,524.7 $5,240.9 $4,844.5 $4,717.7 $4,928.1 $5,377.0
===============================================================================================================
OPERATING COMPANY CONTRIBUTION
Home products $ 300.2 $ 252.5 $ 222.9 $ 214.1 $ 208.4 $ 206.6
Office products 88.5 134.0 128.1 116.3 105.5 95.0
Golf products 147.0 142.9 138.2 125.3 84.2 74.4
Spirits and wine 293.6 268.9 257.2 244.1 241.9 255.1
- ---------------------------------------------------------------------------------------------------------------
Ongoing operations 829.3 798.3 746.4 699.8 640.0 631.1
Other businesses/(b)/ -- -- -- -- 6.8 4.0
- ---------------------------------------------------------------------------------------------------------------
$ 829.3 $ 798.3 $ 746.4 $ 699.8 $ 646.8 $ 635.1
===============================================================================================================
SEGMENT ASSETS/(c)/
Home products $1,008.3 $ 826.2 $ 735.8 $ 752.7 $ 738.1 $ 686.5
Office products 987.6 1,011.5 861.4 856.9 794.1 750.8
Golf products 604.8 667.6 617.1 579.8 361.9 315.3
Spirits and wine 1,042.2 967.9 899.4 986.9 939.4 932.2
- ---------------------------------------------------------------------------------------------------------------
Ongoing operations 3,642.9 3,473.2 3,113.7 3,176.3 2,833.5 2,684.8
Other businesses/(b)/ -- -- -- -- -- 527.6
- ---------------------------------------------------------------------------------------------------------------
$3,642.9 $3,473.2 $3,113.7 $3,176.3 $2,833.5 $3,212.4
===============================================================================================================
GEOGRAPHIC AREAS
NET SALES/(d)/
United States $4,143.1 $3,814.7 $3,432.4 $3,330.6 $3,116.5 $2,917.2
United Kingdom 508.9 551.7 499.5 522.8 498.6 492.9
Canada 237.7 235.6 223.9 194.2 184.7 183.6
Australia 157.1 158.4 199.6 190.9 160.6 141.3
Other countries 477.9 480.5 489.1 479.2 420.4 360.6
- ---------------------------------------------------------------------------------------------------------------
Ongoing operations $5,524.7 $5,240.9 $4,844.5 $4,717.7 $4,380.8 $4,095.6
===============================================================================================================
</TABLE>
(a) See Note 15 for further Information on Business Segments.
(b) Other businesses included retail distribution and housewares sold during
1995 and optics sold in 1994.
(c) Represents total assets excluding intercompany receivables and intangibles
resulting from business acquisitions, net.
(d) Net sales are attributed to countries based on location of customer.
58
<PAGE>
Six-Year CONSOLIDATED SELECTED FINANCIAL DATA
Fortune Brands, Inc. and Subsidiaries
<TABLE>
<CAPTION>
(In millions, except per share amounts
and number of common stockholders) 1999(b) 1998(b) 1997(b) 1996(b) 1995 1994(c)
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATING DATA(a)
<S> <C> <C> <C> <C> <C> <C>
Net sales $5,524.7 $5,240.9 $4,844.5 $4,717.7 $4,928.1 $5,377.0
Gross profit 2,249.8 2,129.3 1,885.4 1,863.4 1,816.4 1,971.1
Depreciation and amortization 230.5 251.1 242.7 238.3 224.0 244.5
Operating company contribution 829.3 798.3 746.4 699.8 646.8 635.1
Interest and related expenses 106.8 102.7 116.7 165.5 136.6 173.0
Income taxes 169.9 218.3 98.2 157.9 171.5 119.8
Income (loss) from continuing operations (890.6) 293.6 41.5 181.7 185.9 (78.8)
Income from discontinued operations -- -- 65.1 315.1 357.2 812.9
Extraordinary items -- (30.5) (8.1) (10.3) (2.7) --
Net income (loss)(d) (890.6) 263.1 98.5 486.5 540.4 734.1
Earnings per common share
Basic
Continuing operations(d) $(5.35) $1.70 $.24 $1.04 $.99 $(.40)
Discontinued operations -- -- .38 1.82 1.91 4.03
Extraordinary items -- (.18) (.05) (.06) (.01) --
- -----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $(5.35) $1.52 $.57 $2.80 $2.89 $3.63
===================================================================================================================================
Diluted
Continuing operations(d) $(5.35) $1.67 $.23 $1.03 $.98 $(.40)
Discontinued operations -- -- .38 1.79 1.89 4.03
Extraordinary items -- (.18) (.05) (.06) (.01) --
- -----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $(5.35) $1.49 $.56 $2.76 $2.86 $3.63
===================================================================================================================================
COMMON SHARE DATA(a)
Dividends paid $148.7 $146.5 $242.3 $347.2 $376.2 $401.7
Dividends paid per share $.89 $.85 $1.41 $2.00 $2.00 $1.9925
Average number of shares outstanding 166.6 172.2 171.6 173.3 186.9 201.6
Book value per share $16.71 $23.92 $23.31 $21.48 $21.61 $22.95
Number of stockholders, December 31(e) 37,266 41,603 46,537 52,832 56,769 60,611
===================================================================================================================================
BALANCE SHEET DATA(a)
Inventories $1,061.4 $1,087.6 $955.2 $1,037.9 $950.9 $1,156.0
Current assets(f) 2,312.8 2,265.3 2,095.6 2,842.1 2,112.5 3,726.1
Working capital(f) 309.9 420.7 327.1 774.0 651.7 1,673.4
Property, plant and equipment, net 1,176.5 1,119.9 980.9 972.6 904.3 979.7
Intangibles, net 2,592.1 3,761.3 3,674.1 3,730.7 3,103.2 3,346.4
Net assets of discontinued operations -- -- -- -- 520.7 334.9
Total assets 6,417.1 7,359.7 6,942.5 7,737.3 6,833.4 8,557.9
Short-term debt 640.0 504.7 404.6 782.2 470.0 553.7
Long-term debt 1,204.8 981.7 739.1 1,598.3 1,063.0 1,485.5
Stockholders' equity 2,738.2 4,097.5 4,017.1 3,676.0 3,864.0 4,633.1
Capital expenditures 240.5 251.9 196.9 199.7 175.6 157.6
===================================================================================================================================
</TABLE>
(a) See pages 29 through 38 of Financial Section.
(b) See Notes 2 and 3. 1996 includes the acquisition in January of Cobra Golf
Incorporated.
(c) The year 1994 reflects as discontinued operations, the results of the former
domestic tobacco subsidiary, The American Tobacco Company, and the former
Franklin life insurance business.
(d) Net income and both basic and diluted earnings per common share in 1994
include $241.3 million and $1.20, respectively, on the loss on disposal of
businesses.
(e) On January 31, 2000, there were 37,287 common stockholders of record, not
necessarily reflecting beneficial ownership.
(f) 1996 and 1994 include net assets of discontinued operations as current
assets.
59
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
The following is a list of subsidiaries of Registrant as of the date hereof
and the state or other jurisdiction of incorporation of each. Except as
indicated below, each subsidiary does business under its own name. Indentations
indicate that the voting securities of a subsidiary are wholly owned by the
subsidiary immediately preceding the indentation, unless otherwise indicated.
The names of certain subsidiaries are omitted. Such subsidiaries would not,
if considered in the aggregate as a single subsidiary, constitute a significant
subsidiary within the meaning of Item 601(b)(21)(ii) of Regulation S-K.
State or Other
Jurisdiction
Subsidiary of Incorporation
- ---------- ----------------
ACCO World Corporation Delaware
ACCO Brands, Inc. Delaware
ACCO Canada Inc. Ontario, Canada
ACCO Europe PLC England
ACCO Australia Pty. Limited Australia
ACCO Eastlight Limited England
ACCO-Rexel Limited (1) Republic of Ireland
ACCO UK Limited England
Hetzel Vermogensverwaltungs GmbH Germany
Hetzel GmbH & Co. KG (Limited Partnership) Germany
ACCO France S.A. France
ACCO Mexicana S.A. de C.V. Mexico
Boone International, Inc. Delaware
Day-Timers, Inc. Delaware
Day-Timers of Canada, Ltd. Canada
Day-Timers Pty. Limited Australia
International Business Controls, B.V. Netherlands
ACCO Italia S.p.A. Italy
Fortune Brands Home & Office, Inc. (2) Delaware
Acushnet Company Delaware
Acushnet Cayman Limited Cayman Islands
Acushnet Lionscore, Ltd. (3) Cayman Islands
Acushnet Foot-Joy (Thailand) Limited Thailand
Acushnet Foreign Sales Corporation Barbados
Acushnet International Inc. Delaware
Acushnet Canada Inc. Canada
Acushnet Manufacturing Inc./Fabrication Acushnet Inc. Canada
- --------------------
1. 66.67% owned by ACCO-Rexel Group Services Limited and 33.33% owned by ACCO
World Corporation.
2. 50% owned by ACCO World Corporation and 50% owned by MasterBrand Industries,
Inc.
3. 40% owned by Acushnet Cayman Limited.
<PAGE>
<TABLE>
<CAPTION>
State or Other
Jurisdiction
Subsidiary of Incorporation
- ---------- ----------------
<S> <C>
Acushnet Golf Thailand Ltd. Thailand
Acushnet GmbH Germany
Acushnet-Danmark ApS Denmark
Acushnet France S.A. France
Acushnet Nederland B.V. Netherlands
Acushnet Osterreich GmbH Austria
Acushnet South Africa (Pty.) Ltd. South Africa
Acushnet Sverige AB Sweden
Acushnet Japan, Inc. Japan
Acushnet Limited England
Cobra Golf Incorporated Delaware
Cobra Golf Export Incorporated Barbados
Fortune Brands Finance Canada Ltd. Ontario, Canada
Fortune Brands International Corporation Delaware
Jim Beam Brands Worldwide, Inc. Delaware
Alberta Distillers Limited Alberta, Canada
Carrington Distillers Limited Ontario, Canada
Featherstone & Co. Limited Ontario, Canada
Bourbon Warehouse Receipts, Inc. Deleware
Jim Beam Brands Netherlands, B.V. Netherlands
Maxxium Worldwide B.V. (4) Netherlands
Jim Beam Brands Australia Pty. Limited New South Wales, Australia
Barwang International Pty. Limited (5) Australia
JBB (Greater Europe) PLC (6) Scotland
Jim Beam Brands Co. Delaware
James B. Beam Distilling International Co., Inc. Barbados
JBB Spirits (New York) Inc. New York
John de Kuyper & Son, Incorporated Delaware
Wood Terminal Company Delaware
MasterBrand Industries, Inc. Delaware
MasterBrand Industries Foreign Sales Corporation (7) Barbados
MasterBrand Cabinets, Inc. Delaware
NHB Industries Limited Canada
NHB Holdings, Inc. Delaware
NHB Industries, Inc. Alabama
September Properties, Inc. Alabama
</TABLE>
_____________
4. 33.3% owned by Jim Beam Brands Netherlands, B.V.
5. 50% owned by Jim Beam Brands Australia Pty. Limited.
6. 428,055,999 shares owned by Jim Beam Brands Worldwide, Inc; 1 share owned by
Jim Beam Brands Co.
7. Owned equally by MasterBrand Cabinets, Inc., Master Lock Company, Moen
Incorporated, Waterloo Industries, Inc. and 21st Century Companies, Inc.
<PAGE>
State or Other
Jurisdiction
Subsidiary of Incorporation
- ---------- ----------------
Master Lock Company Delaware
Master Lock de Nogales, S.A. de C.V. Mexico
Master Lock Europe, S.A. (8) France
Master Lock Pacific Limited (9) Hong Kong
Moen Incorporated Delaware
Moen International, Inc. Connecticut
Creative Specialties International Company Limited (10) Hong Kong
Moen Sonora S.A. de C.V. Mexico
Moen China, Limited (11) Hong Kong
Moen de Mexico, S.A. de C.V. Mexico
Moen Guangzhou Faucet Co., Ltd. (12) China
Moen, Inc. Ontario, Canada
Moen of Pennsylvania, Inc. Delaware
21/st/ Century Companies, Inc. Delaware
Waterloo Industries, Inc. Delaware
1700 Insurance Company Ltd. Bermuda
________________________________________________________________________________
8. 99.68% owned by Master Lock Company.
9. Owned 99.9% by Master Lock Company and 0.1% by Fortune Brands International
Corporation (FBIC).
10. 60% owned by Moen Incorporated.
11. Owned 99% by Moen Incorporated and 1% by Moen International, Inc.
12. 66.03% owned by Moen Incorporated.
<PAGE>
EXHIBIT 23(i)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference into (a) the Registration
Statement on Form S-8 (Registration No. 33-64071) relating to the Defined
Contribution Plan of Fortune Brands, Inc. and Participating Operating Companies,
the Registration Statement on Form S-8 (Registration No. 33-64075) relating to
the MasterBrand Industries, Inc. Hourly Employee Savings Plan, the Registration
Statement on Form S-8 (Registration No. 333-95909) relating to the 1999 Long-
Term Incentive Plan of Fortune Brands, Inc., the Registration Statement on Form
S-8 (Registration No. 333-95919) relating to the Fortune Brands Retirement
Savings Plan, the Registration Statement on Form S-8 (Registration No.
333-95925) relating to the Fortune Brands Hourly Employee Retirement Savings
Plan, the Registration Statement on Form S-8 (Registration No. 333-51173)
relating to the Fortune Brands, Inc. Non-Employee Director Stock Option Plan,
and the prospectuses related thereto, and (b) the prospectuses related to the
Registration Statements on Form S-3 (Registration Nos. 33-50832, 33-42397,
33-23039, 33-3985 and 333-76371) of Fortune Brands, Inc. of our report dated
February 3, 2000, relating to the consolidated financial statements, which
appears in the 1999 Annual Report to Stockholders of Fortune Brands, Inc., which
is incorporated in this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report on the consolidated financial statement
schedule which appears in this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
New York, New York 10010
March 29, 2000
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
The undersigned, acting in the capacity or capacities stated with their
respective names below, hereby constitute and appoint MARK A. ROCHE, EDWARD P.
SMITH and A. ROBERT COLBY, and each of them severally, the attorneys-in-fact of
the undersigned with full power to them and each of them to sign for and in the
name of the undersigned in the capacities indicated below the Annual Report on
Form 10-K of Fortune Brands, Inc. for the fiscal year ended December 31, 1999,
and any and all amendments thereto:
Signature Title Date
/s/ Norman H. Wesley Chairman of the Board February 28, 2000
- ------------------------
Norman H. Wesley and Chief Executive
Officer (principal
Executive officer) and
Director
/s/ Craig P. Omtvedt Senior Vice President February 28, 2000
- ------------------------
Craig P. Omtvedt and Chief Financial
Officer (principal
financial officer)
/s/ Michael R. Mathieson Vice President, February 23, 2000
- ------------------------
Michael R. Mathieson Controller and Chief
Accounting Officer
(principal accounting
officer)
/s/ Eugene R. Anderson Director February 28, 2000
- ------------------------
Eugene R. Anderson
/s/ Patricia O. Ewers Director February 28, 2000
- ------------------------
Patricia O. Ewers
<PAGE>
Signature Title Date
/s/ Thomas C. Hays Director February 28, 2000
- --------------------------
Thomas C. Hays
/s/ John W. Johnstone, Jr. Director February 28, 2000
- --------------------------
John W. Johnstone, Jr.
/s/ Sidney J. Kirschner Director February 28, 2000
- --------------------------
Sidney J. Kirschner
/s/ Gordon R. Lohman Director February 28, 2000
- --------------------------
Gordon R. Lohman
/s/ Charles H. Pistor, Jr. Director February 28, 2000
- --------------------------
Charles H. Pistor
/s/ Eugene A. Renna Director February 28, 2000
- --------------------------
Eugene A. Renna
/s/ Anne M. Tatlock Director February 28, 2000
- --------------------------
Anne M. Tatlock
/s/ Peter M. Wilson Director February 28, 2000
- --------------------------
Peter M. Wilson
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED BALANCE SHEET AND RELATED STATEMENT OF INCOME AS OF
DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 72
<SECURITIES> 0
<RECEIVABLES> 1,020
<ALLOWANCES> 63
<INVENTORY> 1,061
<CURRENT-ASSETS> 2,313
<PP&E> 2,189
<DEPRECIATION> 1,012
<TOTAL-ASSETS> 6,417
<CURRENT-LIABILITIES> 2,003
<BONDS> 1,205
<COMMON> 717
0
10
<OTHER-SE> 2,011
<TOTAL-LIABILITY-AND-EQUITY> 6,417
<SALES> 5,525
<TOTAL-REVENUES> 5,525
<CGS> 2,873
<TOTAL-COSTS> 2,873
<OTHER-EXPENSES> 402
<LOSS-PROVISION> 15
<INTEREST-EXPENSE> 107
<INCOME-PRETAX> (721)
<INCOME-TAX> 170
<INCOME-CONTINUING> (891)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (891)
<EPS-BASIC> (5.35)
<EPS-DILUTED> (5.35)
</TABLE>
<PAGE>
EXHIBIT 99
List of Pending Cases
The following sets forth the principal parties to the proceedings referred
to in Item 3 of this Form 10-K in which Registrant is currently named as a
defendant, the court in which such proceedings are pending and the date such
proceedings were instituted against Registrant:
Acomo, P. v. American Tobacco Company, et al., District Court of New
Mexico, Santa Fe County, June 16, 1999;
Akers, B. v. The American Tobacco Company, et al., Circuit Court of the
State of West Virginia, Kanawha County, October 28, 1998;
Alexander, E. v. Philip Morris Companies, Inc., et al., USDC, Eastern
District of LA, St. Landry Parish District Court, September 27, 1999;
Anderson, J. v. The American Tobacco Company, et al., Circuit Court of Knox
County, Tennessee, May 23, 1997;
Avallone, J. v. The American Tobacco Company, et al., Superior Court of New
Jersey, Middlesex County, April 23, 1998;
Badon, C. v. R.J.R. Nabisco, Inc., et al., Judicial District Court, Parish
of Cameron, Louisiana, May 23, 1994;
Bellows, B. v. The American Tobacco Company, et al., Supreme Court of New
York, New York County, December 1, 1997;
Benavidez, P. v. Philip Morris, Inc., et al., Superior Court of the State
of California, County of Alameda, November 5, 1999;
Bergeron, D. (Trustees of Massachusetts Carpenters) v. Philip Morris, et
al., Eastern District of New York, September 29, 1999;
<PAGE>
Blain, R. v. RJR Nabisco, Inc., et al., Circuit Court of the State of West
Virginia, Kanawha County, June, 2, 1999;
Brazil (State of Goias) v. Philip Morris Companies, Inc., et al., Circuit
Court of the Eleventh Judicial Circuit in and for Dade County, Florida, November
17, 1999;
Caiazzo, B. v. The American Tobacco Company, et al., Supreme Court of New
York, New York County, September 26, 1997;
Carll, J. v. The American Tobacco Company, et al., Supreme Court of New
York, New York County, July 20, 1997;
Cavanagh, D. v. The American Tobacco Company, et al., Supreme Court of New
York, Richmond County, May 6, 1997;
Collins, J. v. The American Tobacco Company, et al., Supreme Court of New
York, Westchester County, May 16, 1997;
Condon, R. v. The American Tobacco Company, et al., Supreme Court of New
York, New York County, May 13, 1997;
Connor, C. v. The American Tobacco Company, et al., Second Judicial
District Court of Bernalillo County, New Mexico, October 10, 1996;
Cotroneo, L. v. Fortune Brands, Inc., Supreme Court of New York, Queens
County, October 21, 1997;
Coyne v. American Brands, Inc. n/k/a Fortune Brands, Inc. et al., USDC,
NDOH (Federal) Cuyahoga, September 17, 1996;
Crane, J. v. The American Tobacco Company, et al., Supreme Court of New
York, New York County, April 4, 1997;
Crayton, R. v. The American Tobacco Company et al., Superior Court of the
State of California, County of Alameda, March 22, 2000;
Creech, W. v. The American Tobacco Company, et al., Supreme Court of New
York, Richmond County, January 6, 1997;
2
<PAGE>
DaSilva, JC v. The American Tobacco Company, et al., Supreme Court of New
York, New York County, April 3, 1997;
Denberg v. The American Tobacco Company, et al., Circuit Court of Cook
County, Illinois, July 7, 1997 (formerly reported under the caption "Daley");
Dierker, J. v. R.J. Reynolds Tobacco Company, et al., Thirty Fourth
Judicial District Court, Parish of St. Bernard, State of LA, January 6, 2000;
Doss, E. v. R. J. Reynolds Tobacco Company, et al., Jefferson County,
Mississippi, March 21, 2000;
Dzak, D. v. The American Tobacco Company, et al., Supreme Court of New
York, Queens County, December 8, 1996;
Eiser, L. v. The American Tobacco Company, et al., Court of Common Pleas of
Philadelphia County, Philadelphia, March 30, 1999;
Evans, B. v. Philip Morris Incorporated, et al., Circuit Court of Jasper
County, Mississippi, June 10, 1997;
Evans, R. v. The American Tobacco Company, et al., Supreme Court of New
York, Kings County, August 23, 1996;
Felix v. The American Tobacco Company, et al., Supreme Court of New York,
Kings County, December 1, 1997 (formerly reported under the caption
"Guilloteau";
Geiger, W. v. The American Tobacco Company, et al., Supreme Court of New
York, Queens County, May 1, 1997;
Gelfond, M. v. Fortune Brands, Inc., et al., Supreme Court of New York, New
York County, May 1, 1998;
Golden, R. v. The American Tobacco Company, et al., Supreme Court of New
York, New York County, July 10, 1997;
Greco, A. v. The American Tobacco Company, et al., Supreme Court of New
York, Queens County, June 27, 1997;
3
<PAGE>
Hansen, C. v. The American Tobacco Company, et al., Supreme Court of New
York, Suffolk County, October 16, 1997;
Hansen, P. v. The American Tobacco Company, et al., United States District
Court for the State of Arkansas, Western Division, November 4, 1996 (formerly
reported under the caption "McGinty");
Huffman, C. v. American Tobacco Company, et al., Circuit Court of the State
of West Virginia, Kanawha County, February 13, 1998;
Iacono, A. v. The American Tobacco Company, et al., Supreme Court, Kings
County, New York, August 20, 1997 (formerly reported under the caption
"Mednick");
Inzerilla, R. v. The American Tobacco Company, et al., Supreme Court of New
York, Queens County, July 16, 1996;
Jackson, C. v. Philip Morris Incorporated, et al., District Court of Salt
Lake County, Utah, March 10, 1998;
Jaust, T. v. The American Tobacco Company, et al., Supreme Court of New
York, New York County, September 10, 1997;
Juliano, S. v. The American Tobacco Company, et al., Supreme Court of New
York, Richmond County, July 24, 1997;
Keenan, T. v. The American Tobacco Company, et al., Supreme Court of New
York, New York County, September 15, 1997;
Kestenbaum, D. v. The American Tobacco Company, et al., Supreme Court of
New York, New York County, May 23, 1997;
Knutsen, D. v. The American Tobacco Company, et al., Supreme Court of New
York, Kings County, October 11, 1996;
Kotlyar, Y. v. The American Tobacco Company, et al., Supreme Court of New
York, Queens County, December 1, 1997;
4
<PAGE>
Krigbaum, W. v. The American Tobacco Company, et al., Superior Court of
California, County of Santa Clara, December 20, 1999;
Labriola, R. v. The American Tobacco Company, et al., Supreme Court of New
York, Suffolk County, May 28, 1997;
Lehman, R. v. The American Tobacco Company, et al., Supreme Court of New
York, New York County, July 10, 1997;
Leibstein, S. v. The American Tobacco Company, et al., Supreme Court of New
York, Nassau County, June 30, 1997;
Lennon, L. v. The American Tobacco Company, et al., Supreme Court of New
York, New York County, November 5, 1997;
Lien, L. v. The American Tobacco Company, et al., Supreme Court of New
York, Suffolk County, April 28, 1997;
Litke, S. v. American Brands, Inc., et al., Supreme Court of New York,
Kings County, May 7, 1997;
Lombardo, S. v. The American Tobacco Company, et al., Supreme Court of New
York, Nassau County, June 6, 1997;
Long, J. v. The American Tobacco Company, et al., Supreme Court of New
York, Bronx County, September 24, 1997;
Lopardo, T. v. The American Tobacco Company, et al., Supreme Court of New
York, Nassau County, September 25, 1997;
Lucca, J. v. The American Tobacco Company, et al., Supreme Court of New
York, Kings County, February 3, 1997;
Lynch, R. v. The American Tobacco Company, et al., Supreme Court of New
York, New York County, September 24, 1997;
Magnus, A. v. The American Tobacco Company, et al., United States District
Court for the Eastern District of New York, May 6, 1998;
5
<PAGE>
Maisonet, B. v. The American Tobacco Company, et al., Supreme Court of New
York, Kings County, May 12, 1997;
Margolin, F. v. The American Tobacco Company, et al., Supreme Court of New
York, New York County, November 22, 1996;
Martin, G. v. The American Tobacco Company, et al., Supreme Court of New
York, Queens County, June 30, 1997;
McCune, J. v. The American Tobacco Company, et al., United States District
Court for the Southern District of West Virginia, January 31, 1997;
McDowell, L. v. The American Tobacco Company; 5th Judicial District, Parish
of Franklin, State of Louisiana, March 3, 2000;
McGuiness, D. v. The American Tobacco Company, et al., Supreme Court of New
York, New York County, May 28, 1998 (formerly reported under the caption
"Arnett");
McGuinness, J. v. The American Tobacco Company, et al., Supreme Court of
New York, New York County, June 30, 1997;
McLane, J. v. The American Tobacco Company, et al., Supreme Court of New
York, Richmond County, May 13, 1997;
Miele v. The American Tobacco Company, et al., Supreme Court of New York,
Nassau County, June 30, 1997, (formerly reported under the caption "Cameron");
Miller, A. v. Brown & Williamson Tobacco Corporation, et al., Circuit
Court, Kanawha County, West Virginia, January 26, 1999;
Mishk, J. v. The American Tobacco Company, et al., Supreme Court of New
York, New York County, May 2, 1997;
Morris, L. v. R.J. Reynolds, et al., Circuit Court of the State of West
Virginia, Kanawha County, March 13, 1998;
National Asbestos Workers Medical Fund v. The American Tobacco Company, et
al., United States District Court, Eastern District of New York, March 27, 1998;
6
<PAGE>
Newberg v. The American Tobacco Co., et al., Supreme Court of New York,
Kings County, July 14, 1998 (formerly reported under the caption "Krochtengel");
Newell, K. v. The American Tobacco Company, et al., Supreme Court of New
York, Suffolk County, October 3, 1997;
Newkirk, S. v. The American Tobacco Company, et al., Circuit Court of the
State of West Virginia, Kanawha County, July 31, 1998;
Norton, W. v. Brown & Williamson Tobacco Corporation, et al., United States
District Court for the Southern District of Indiana, May 3, 1996;
Owens, J. v. R.J. Reynolds Tobacco Company, et al., USDC, Eastern District
of LA, December 28, 1999;
Panama (The Republic of) v. The American Tobacco Company, et al., Civil
District Court for the Parish of Orleans, New Orleans, Louisiana, August 25,
1998;
Parsons, D. v. AC&S, Inc., et al., Circuit Court of the State of West
Virginia, Kanawha County, February 27, 1998;
Perez, P. v. The American Tobacco Company, et al., Supreme Court of New
York, Kings County, June 23, 1997;
Perri, A. v. The American Tobacco Company, et al., Supreme Court of New
York, Nassau County, October 17, 1997;
Piccione, Y. v. The American Tobacco Company, et al., Supreme Court of New
York, Kings County, September 29, 1997;
Portnoy, L. v. The American Tobacco Company, et al., Supreme Court of New
York, New York County, October 21, 1997;
Reitano, L. v. The American Tobacco Company, et al., Supreme Court of New
York, Kings County, August 22, 1996;
7
<PAGE>
Rico, S. v. The American Tobacco Company, et al., Supreme Court of New
York, New York County, November 30, 1998;
Rubinobitz, L. v. The American Tobacco Company, et al., Supreme Court of
New York, Nassau County, May 28, 1997;
Russoff v. The American Tobacco Company, et al., Supreme Court of New York,
Kings County, January 6, 1997 (formerly reported under the caption "Rinaldi");
Sao Paulo (State of) of the Federative Republic of Brazil) v. The American
Tobacco Company, et al., State of Louisiana, February 14, 2000;
Schulhoff, E. v. The American Tobacco Company, et al., Supreme Court of New
York, Queens County, October 7, 1997;
Schwartz, I. v. The American Tobacco Company, et al., Supreme Court of New
York, Nassau County, May 19, 1997;
Schwartz, P. v. The American Tobacco Company, et al., Supreme Court New
York, Kings County, December 9, 1996;
Scott, G. v. The American Tobacco Company, et al., United States District
Court for the Eastern District of Louisiana, Orleans Parish, May 28, 1996;
Senzer, B. v. The American Tobacco Company, et al., Supreme Court of New
York, Queens County, May 13, 1997;
Shaffer, G. v. The American Tobacco Company, et al., Superior Court of
California, County of Sacramento, February 14, 2000; Shapiro, M. v. The American
Tobacco Company, et al., Supreme Court of New York, New York County, June 17,
1997;
Siegel, P. v. The American Tobacco Company, et al., Supreme Court of New
York, Kings County, August 22, 1996;
Silverman, P. v. Lorillard Tobacco Company, et al., Supreme Court of New
York, Kings County, July 7, 1999;
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Smith, BJ v. The American Tobacco Company, et al., Supreme Court of New
York, Queens County, August 27, 1997;
Sola, L. v. The American Tobacco Company, et al., Supreme Court of New
York, Bronx County, July 16, 1996;
Sprung, L. v. The American Tobacco Company, et al., Supreme Court of New
York, Kings County, May 13, 1997;
Standish, J. v. The American Tobacco Company, Supreme Court of New York,
Bronx County, July 11, 1997;
Sweeney, E. v. The American Tobacco Co., et al., Court of Common Pleas,
State of Pennsylvania, Allegheny County, October 30, 1998;
Tennessee (Beckom) v. The American Tobacco Company, et al., United States
District Court, Eastern Division of Tennessee, May 8, 1997;
Thomas, E. v. The American Tobacco Co., et al., Circuit Court, State of
Missouri, Jefferson County, October 9, 1998;
Thompson, J. v. American Tobacco Company, Inc., et al., State of Minnesota
District Court, County of Ramsey Judicial District, September 4, 1996 (formerly
reported under the caption "Masepohl");
Tsango v. The American Tobacco Company, et al., Supreme Court of New York,
Kings County, July 2, 1997, (formerly reported under the caption "Leiderman");
Tucker, D. v. The American Tobacco Company, et al., U.S.D.C., District of
Nevada, March 21, 2000;
Ukraine Soviet Republic (The) v. American Brands, Inc. n/k/a Fortune
Brands, Inc. et al., USDC, The District of Columbia, November 19, 1999;
Utah Laborers, et al. v. The American Tobacco Company, et al., United
States District Court for the District of Utah, June 4, 1998;
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Valentin, A. v. Fortune Brands, Inc., et al., Supreme Court of New York,
Queens County, September 2, 1997;
Wagner v. The American Tobacco Company, et al., Supreme Court of New York,
Kings County, April 17, 1997 (formerly reported under the caption "Levinson");
Walgreen, C. v. The American Tobacco Company, et al., Supreme Court of New
York, New York County, May 23, 1997;
Werner, R. v. Fortune Brands, Inc., et al., Supreme Court of New York,
Queens County, December 12, 1997;
Wilkinson, L. v. The American Tobacco Company, et al., Circuit Court,
Putnam County, West Virginia, January 19, 1999;
Young, A. v. The American Tobacco Company, et al., Civil District Court for
the Parish of Orleans, Louisiana, November 12, 1997;
Zarudsky, W. v. The American Tobacco Company, et al., Supreme Court of New
York, Nassau County, May 28, 1997;
Zeringue, E. v. The American Tobacco Co., et al., District Court of
Louisiana, Jefferson Parish, September 9, 1998; and
Zuzalski, W. v. The American Tobacco Company, et al., Supreme Court of New
York, Queens County, April 3, 1997.
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List of Terminated Cases
The following cases, previously listed as pending, have been dismissed and
not previously reported as such:
Adkins, B. v. The American Tobacco Company, et al., Circuit Court of the
State of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00;
Altman, S. v. Fortune Brands, Inc., et al., Supreme Court of New York, New
York County, December 16, 1997, Dismissed 10/5/98;
Anderson, C. v. Fortune Brands, Inc., et al., Supreme Court of New York,
Kings County, October 30, 1997, Dismissed 3/15/00;
Anderson, D. v. The American Tobacco Company, et al., Circuit Court of the
State of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00;
Badillo v. The American Tobacco Company, et al., United States District
Court for the District of Nevada, October 8, 1997, Dismissed;
Baum v. The American Tobacco Company, et al., Circuit Court of the State of
West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00;
Blankenship, D. v. The American Tobacco Company, et al., Circuit Court of
the State of West Virginia, Kanawha County, July 23, 1999, Dismissed;
Boggess v. The American Tobacco Company, et al., Circuit Court of the State
of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00;
Bolin v. The American Tobacco Company, et al., Circuit Court of the State
of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00;
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Brammer v. The American Tobacco Company, et al., United States District
Court for the Southern District of Iowa, June 30, 1997, Dismissed 7/13/99;
Brown, E. v. The American Tobacco Company, et al., Circuit Court of the
State of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00;
Brown-Jones v. The American Tobacco Company, et al., Superior Court of
Georgia, Richmond County, January 13, 1998, Dismissed;
Brumfield v. The American Tobacco Company, et al., Circuit Court of the
State of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00;
Byus v. The American Tobacco Company, et al., Circuit Court of the State of
West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00;
Carter v. The American Tobacco Company, et al., Circuit Court of the State
of West Virginia, Kanawha County, October 28, 1998, Dismissed;
Chamberlain v. The American Tobacco Company, et al., United States District
Court for the Northern District of Ohio, August 14, 1996, Dismissed;
Childers v. The American Tobacco Company, et al., Circuit Court of the
State of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00;
Christensen v. Philip Morris Companies, Inc., et al., United States
District Court, Las Vegas, Nevada, April, 3, 1998, Dismissed;
Clay, D. v. The American Tobacco Company, et al., Circuit Court of the
State of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00;
Clay, J. v. The American Tobacco Company, et al., United States District
Court for the Southern District of Illinois, May 22, 1997, Dismissed 8/9/99;
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Colfield v. The American Tobacco Co., et al., United States District Court
for the Eastern District of California, September 3, 1998, Dismissed;
Combs v. The American Tobacco Company, et al., Circuit Court of the State
of West Virginia, Kanawha County, October 28, 1998, Dismissed;
Compton v. The American Tobacco Company, et al., Circuit Court of the State
of West Virginia, Kanawha County, October 28, 1998, Dismissed;
Construction Laborers of Greater St. Louis Welfare Fund, et al. v. The
American Tobacco Co., et al., United States District Court for the Eastern
District of Missouri, October 20, 1998, Dismissed 1/19/00;
Cook v. The American Tobacco Co., et al., United States District Court for
the Eastern District of California, September 3, 1998, Dismissed;
Cooper v. The American Tobacco Company, et al., Circuit Court of the State
of West Virginia, Kanawha County, October 28, 1998, Dismissed;
Craig v. The American Tobacco Company, et al., Circuit Court of the State
of West Virginia, Kanawha County, October 28, 1998, Dismissed;
Creekmoore v. Brown & Williamson Tobacco Corporation, et al., Superior
Court of the State of North Carolina, Buncombe County, July 31, 1998, Dismissed
5/11/99;
Davis v. R.J. Reynolds Tobacco Company, et al., Iowa District Court, Polk
County, October 23, 1997, Dismissed 2/8/00;
Dean v. The American Tobacco Company, et al., Circuit Court of the State of
West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00;
Dempsey v. The American Tobacco Company, et al., Circuit Court of the State
of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00;
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Doss v. R.J. Reynolds, et al., Circuit Court of Mississippi, Jefferson
County, August 17, 1999, Dismissed;
Duncan v. The American Tobacco Company, et al., Circuit Court of the State
of West Virginia, Kanawha County, October 28, 1998, Dismissed;
Fink v. The American Tobacco Company, et al., Supreme Court of New York,
New York County, June 16, 1997, Dismissed 1/26/99;
Fuller v. The American Tobacco Company, et al., Circuit Court of the State
of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00;
Green, M. v. The American Tobacco Company, et al., 18th Judicial District
Court of Sedgwick County, Kansas, Civil Department, February 6, 1997 (formerly
reported under the caption "Emig"), Dismissed;
Gruder v. Fortune Brands, Inc., et al., Supreme Court of New York, Kings
County, December 17, 1997, Dismissed 11/23/98;
Hellen v. The American Tobacco Company, et al., Supreme Court of New York,
Kings County, August 23, 1996, Dismissed 10/4/99;
Helt v. The American Tobacco Co., et al., United States District Court for
the Eastern District of California, September 3, 1998, Dismissed;
Hibbs v. The American Tobacco Company, et al., Circuit Court of the State
of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00;
Hodge v. The American Tobacco Company, et al., Circuit Court of the State
of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00;
Humphreys v. The American Tobacco Company, et al., Circuit Court of the
State of West Virginia, Kanawha County, October 28, 1998, Dismissed;
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Husty v. The American Tobacco Company, et al., Circuit Court of the State
of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00;
Jenkins v. The American Tobacco Company, et al., Circuit Court of the State
of West Virginia, Kanawha County, October 28, 1998, Dismissed;
Jones v. The American Tobacco Company, et al., Circuit Court of the State
of West Virginia, Kanawha County, October 28, 1998, Dismissed;
King, D. v. The American Tobacco Company, et al., Circuit Court of the
State of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00;
Kupat Holim Clalit v. Philip Morris, Inc., et al., Jerusalem District
Court, September 28, 1998, Dismissed;
Likens v. The American Tobacco Company, et al., Circuit Court of the State
of West Virginia, Kanawha County, October 28, 1998, Dismissed;
Little v. Brown & Williamson Tobacco Corp., et al., Court of Common Pleas,
Charleston, South Carolina, May 26, 1998, Dismissed;
Mason v. American Brands, Inc. n/k/a Fortune Brands, Inc. et al., Iowa
District Court, Polk County, March 12, 1999, Dismissed 6/28/99;
Maynard v. The American Tobacco Company, et al., Circuit Court of the State
of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00;
McCormick v. The American Tobacco Company, et al., Circuit Court of the
State of West Virginia, Kanawha County, October 28, 1998, Dismissed;
McNelly v. The American Tobacco Company, et al., Circuit Court of the State
of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00;
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Miller, B. v. The American Tobacco Company, et al., Circuit Court of the
State of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00;
Mitchem v. The American Tobacco Company, et al., Circuit Court of the State
of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00;
Murphy v. The American Tobacco Company, et al., United States District
Court for the District of Nevada, Southern Division, January 6, 1998, Dismissed;
Peterson v. The American Tobacco Company, et al., Circuit Court of the
First Circuit, Hawaii, February 6, 1997, Dismissed 12/2/99;
Piscitello v. Philip Morris Incorporated, et al., Superior Court of New
Jersey Law Division, Middlesex County, July 28, 1997, Dismissed 10/27/99;
Randolph v. The American Tobacco Company, et al., Circuit Court of the
State of West Virginia, Kanawha County, October 28, 1998, Dismissed;
Ritchie v. The American Tobacco Company, et al., Circuit Court of the State
of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00;
Sanders v. The American Tobacco Company, et al., Circuit Court of the State
of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00;
Shamblen v. The American Tobacco Company, et al., Circuit Court of the
State of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00;
Speece v. The American Tobacco Company, et al., Circuit Court of the State
of West Virginia, Kanawha County, October 28, 1998, Dismissed;
Stone, N. v. The American Tobacco Company, et al., Circuit Court of the
State of West Virginia, Kanawha County, July 31, 1998; Dismissed February 8,
2000;
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Tantum v. The American Tobacco Company, et al., Court of Common Pleas for
the County of Philadelphia, Pennsylvania, December 21, 1998, Dismissed 2/8/00;
Thompson, B. v. The American Tobacco Co., et al., Circuit Court of the
State of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00;
Thompson, E. v. The American Tobacco Company, et al., Circuit Court of the
State of West Virginia, Kanawha County, July 31, 1998, Dismissed;
Tranquill v. The American Tobacco Company, et al., Circuit Court of the
State of West Virginia, Kanawha County, October 28, 1998, Dismissed;
University of South Alabama v. The American Tobacco Company, et al., United
States District Court, Southern Division of Alabama, May 23, 1997, Dismissed
1/13/00;
Van Fossen v. The American Tobacco Co., et al., United States District
Court for the Eastern District of California, September 3, 1998, Dismissed;
Wayne v. The American Tobacco Company, et al., Circuit Court of the State
of West Virginia, Kanawha County, July 31, 1998, Dismissed 2/8/00;
Whaley v. The American Tobacco Company, et al., Circuit Court of the State
of West Virginia, Kanawha County, October 28, 1998, Dismissed;
Whiddon v. The American Tobacco Company, Inc., et al., 36th Judicial
District Court, Parish of Beauregard, Louisiana, December 19, 1997, Dismissed
2/3/98;
Williams v. The American Tobacco Company, et al., Circuit Court of the
State of West Virginia, Kanawha County, October 28, 1998, Dismissed;
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The following cases, previously listed as pending, but in which no complaint was
ever filed with the court, have been discontinued without prejudice.
Anes v. The American Tobacco Co., et al., Court of Common Pleas for the
County of Philadelphia, Pennsylvania, July 1, 1997;
Daly v. The American Tobacco Company, et al., Court of Common Pleas for the
County of Philadelphia, Pennsylvania, July 1, 1997;
El-Haddi v The American Tobacco Company, et al., Court of Common Pleas for
the County of Philadelphia, Pennsylvania, May 29, 1997;
Ferguson v. The American Tobacco Company, et al., Court of Common Pleas for
the County of Philadelphia, Pennsylvania, May 29, 1997;
Folkman v. The American Tobacco Co., et al., Court of Common Pleas for the
County of Philadelphia, Pennsylvania, October 28, 1998;
Glaser v. The American Tobacco Co., et al., Court of Common Pleas for the
County of Philadelphia, Pennsylvania, July 21, 1997;
Greenfield v. The American Tobacco Co., et al., Court of Common Pleas for
the County of Philadelphia, Pennsylvania, January 28, 1998;
Harley v. The American Tobacco Co., et al., Court of Common Pleas for the
County of Philadelphia, Pennsylvania, August 28, 1998;
Orr v. The American Tobacco Company, et al., Court of Common Pleas for the
County of Philadelphia, Pennsylvania, May 29, 1997;
Pennetti v. The American Tobacco Co., et al., Court of Common Pleas for the
County of Philadelphia, Pennsylvania, April 13, 1998;
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Simmons v. The American Tobacco Company, et al., Court of Common Pleas for
the County of Philadelphia, Pennsylvania, April 1, 1998;
Thompson, G. v. The American Tobacco Co., et al., Court of Common Pleas for
the County of Philadelphia, Pennsylvania, October 30, 1997;
Tiscavitch v. The American Tobacco Co., et al., Court of Common Pleas for
the County of Philadelphia, Pennsylvania, May 28, 1998;
Upshur v. The American Tobacco Company, et al., Court of Common Pleas for
the County of Philadelphia, Pennsylvania, October 10, 1997.
19
