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<SEC-DOCUMENT>0000950130-01-001233.txt : 20010312
<SEC-HEADER>0000950130-01-001233.hdr.sgml : 20010312
ACCESSION NUMBER: 0000950130-01-001233
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 17
CONFORMED PERIOD OF REPORT: 20001231
FILED AS OF DATE: 20010309
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: FORTUNE BRANDS INC
CENTRAL INDEX KEY: 0000789073
STANDARD INDUSTRIAL CLASSIFICATION: HEATING EQUIP, EXCEPT ELEC & WARM AIR & PLUMBING FIXTURES [3430]
IRS NUMBER: 133295276
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT:
SEC FILE NUMBER: 001-09076
FILM NUMBER: 1565334
BUSINESS ADDRESS:
STREET 1: 300 TOWER PARKWAY
CITY: LINCOLNSHIRE
STATE: IL
ZIP: 60069
BUSINESS PHONE: 2036985000
FORMER COMPANY:
FORMER CONFORMED NAME: AMERICAN BRANDS INC /DE/
DATE OF NAME CHANGE: 19920703
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>0001.txt
<DESCRIPTION>FORM 10-K FOR PERIOD ENDING 12/31/2000
<TEXT>
<PAGE>
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, 2000 Commission file number 1-9076
FORTUNE BRANDS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3295276
---------------- ---------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 Tower Parkway, Lincolnshire, IL 60069-3640
------------------------------------------------------------------
(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:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
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 1/2% Notes Due 2003 New York Stock Exchange, Inc.
8 5/8% Debentures Due 2021 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.
Securities registered pursuant to Section 12(g) of the Act: None
--------------
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 9, 2001, was $5,198,097,296. The number
of shares outstanding of Registrant's common stock, par value $3.125 per share,
at February 28, 2001, were 153,759,959.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
(1) Certain information contained in the Annual Report to Stockholders of
Registrant for the fiscal year ended December 31, 2000 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 24, 2001 (to be filed not
later than 120 days after the end of Registrant's fiscal year) is
incorporated by reference into Part III hereof.
2
<PAGE>
PART I
Item 1. Business.
(a) General development of business.
Registrant is a holding company with subsidiaries engaged in the
manufacture, production 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 International
B.V. (Maxxium), 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. Additionally,
in 2000, Registrant's spirits and wine business made a cash investment of
approximately $25 million in Maxxium towards its total investment of $110
million. The investments of Registrant's subsidiary in Maxxium were recorded at
the book value of assets contributed
3
<PAGE>
plus cash invested. In 1998, Registrant's subsidiaries completed three
acquisitions of home products, office products and spirits and wine businesses
for an aggregate cost of $271.8 million in cash, including fees and expenses. In
1997, Registrant's subsidiaries completed five acquisitions of office products,
golf clubs 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 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. On October 9, 2000, Registrant announced that it is exploring
strategic options for its office products business. The evaluation is
continuing and includes the possible sale of the office products business.
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 possible 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,
including share repurchases. 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 2000, pre-tax
restructuring and other nonrecurring charges totaling $73 million across all
segments of its business. In 1999, Registrant recorded $196 million in pre-tax
restructuring and other nonrecurring charges across all segments of its
business. Additionally, in 1997, Registrant recorded $298.2 million in pre-tax
restructuring and other nonrecurring charges across all of its principal
operating companies.
4
<PAGE>
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, changes in interest rates,
competitive product and pricing pressures, trade consolidations, the impact of
excise tax increases with respect to distilled spirits, regulatory developments,
the uncertainties of litigation, changes in golf equipment regulatory standards,
the impact of weather, particularly on the home and golf products groups,
expenses and disruptions related to shifts in manufacturing to different
locations and sources, challenges in the integration of acquisitions and joint
ventures, risks associated with Registrant's implementation of strategic options
for ACCO World Corporation, as well as other risks and uncertainties detailed
from time to time in Registrant's Securities and Exchange Commission filings.
(b) Financial information about industry segments.
See Note 14 "Information on Business Segments" in the Notes to
Consolidated Financial Statements contained in the 2000 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 14 "Information on Business Segments" in the Notes
to Consolidated Financial Statements contained in the 2000 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).
5
<PAGE>
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, 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. ("MasterBrand Cabinets") is engaged in
manufacturing ready-to-assemble stock and semi-custom kitchen cabinets and
bathroom vanities. MasterBrand Cabinets sells under the brand names
Aristokraft, Decora', Schrock, Diamond, Kemper and NHB. 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. 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 Masco's Merillat, KraftMaid and Mills
Pride brands, Armstrong World Industries' Triangle Pacific brand, American
Woodmark Corporation and The Omega Group's HomeCrest, KitchenCraft and Omega
brands.
Master Lock manufactures key-controlled and combination padlocks,
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.
6
<PAGE>
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.
The continued consolidation of the customer base in the home products
industry, including home centers and large homebuilders, as well as increased
price competition will continue to present us and our competitors with pricing
and service challenges. Customer consolidation will also present opportunities
for the most efficient manufacturers and skilled marketers.
Our home products business may be impacted in 2001 by a potential
moderation in the housing market and overall economic conditions.
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. 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.
7
<PAGE>
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 second leading seller of paper-based
organizers 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.
The office products business is increasingly concentrated in a small
number of major customers, principally office products superstores, large
retailers, wholesalers and contract stationers. The continuing consolidation of
both competitors and customers is causing increased pricing pressures and
rebates that have negatively affected results. Pricing pressures were compounded
by the decision of several customers to continue to reduce inventory levels.
These conditions persisted throughout 2000 and continue to present challenges
for our office products group and its competitors.
During the fourth quarter of 2000, Registrant recorded a non-cash
write-down of goodwill of $502.6 million ($487.3 million after tax, or $3.09 per
share) in its office products business. This action resulted from the
significant shortfall in office products earnings, the softening conditions in
the office products industry and the ongoing strategic review process, which
led to the implementation of additional restructuring actions.
On October 9, 2000, Registrant announced that it is exploring
strategic options for its office products unit. The evaluation is continuing and
includes the possible sale of the office products business.
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 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.
8
<PAGE>
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 and Pinnacle golf balls; Titleist and Cobra golf clubs; Scotty 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 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 2000 and 1999, the golf club market was adversely affected by lower
customer demand, leading to volume declines and price discounting. The Cobra
brand was adversely affected by the competition's aggressive introduction of new
products. Titleist clubs posted 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 2000, aggressive
actions were undertaken, including field sales force consolidation and programs
to bring Cobra expenses in line with lower demand and to identify further
synergies between Titleist and Cobra.
In 2000, the golf shoe product lines posted record sales and increased
market share through the introduction of new products.
The golf ball business experienced a product mix shift as Titleist
branded golf balls declined 2% while lower-priced Pinnacle golf balls increased
12%.
Competitors with significant brand awareness have introduced golf
balls into their product offerings in the past two years. The combined share of
Titleist and Pinnacle in the domestic golf ball market fell approximately 2% in
2000. It is not possible to predict what long-term effect these new entrants
or their impact on trade inventories will have on our business, but significant
research and development and marketing expenditures to defend market share will
continue.
9
<PAGE>
The United States Golf Association (USGA) establishes standards for
golf equipment used in competitive play in the United States. On November 2,
1998, the USGA announced the immediate implementation of a new golf club
performance rule that established a rebound velocity standard for driving clubs.
The Royal and Ancient Golf Club (R&A) establishes standards for golf equipment
used in competitive play outside the United States and Mexico. On September 21,
2000, the R&A issued a Notice to Manufacturers announcing its decision not to
adopt the USGA's rebound velocity standard or any new rule or test protocol for
driving clubs. The R&A's decision not to adopt the rule implemented by the USGA
will result in conflicting conformance standards for driving clubs in the United
States and the rest of the world. The divergence between the USGA and the R&A
on this issue may cause confusion to consumers and could be disruptive to the
United States and world markets for driving clubs. In addition, the USGA 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 the USGA rule or the divergence in rules will have a
material effect on the golf club industry and our golf products business.
The USGA has announced its intention to propose new rules addressing
the initial velocity and overall distance standards for golf balls. Until more
details regarding such potential rule changes become available, we cannot
determine whether they would have a material effect on our group's golf ball
business and/or the golf ball industry. However, the new rules being considered
could incorporate rules that would shorten the overall distance that golf balls
are allowed to travel and that could hamper innovation in the design and
manufacture of golf balls. The adoption of any such rules could materially
impact our golf products business and/or the golf ball industry.
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
("Alberta"), Jim Beam Brands Australia Pty. Limited (Australia) and JBB (Greater
Europe) PLC ("JBB (Greater Europe)").
10
<PAGE>
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, 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 68%
and 12% 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 below, in 1998 Beam also added wines to its product offerings.
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.
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
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, The Claymore, The Dalmore, Cluny, Mackinlay and Isle of Jura Scotch
whiskies, Glayva Scotch whisky liqueur and Vladivar vodka.
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.
11
<PAGE>
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 increased slightly, indicating that
the historic decline may be reversing. From 1996 through 2000, cases of our
spirits products sold by distributors to retailers declined, although the rate
of decline has slowed since 1998. The number of cases sold may be affected by
our spirits and wine business's historic strength in mid-to-low priced products
that may not be fully benefiting from the factors influencing the recent
industry trends. Our spirits and wine business has introduced and developed
several premium brands in recent years and is focusing on the introduction of
additional premium products to its portfolio to capitalize on the fastest
growing segment of the spirits and wine industry. The number of cases sold may
also be affected by price increases our spirits and wine business has
implemented in recent years.
The Maxxium joint venture, the merger of Grand Metropolitan and
Guinness to create Diageo in late 1997 and the pending sale of Seagram to Diageo
and Pernod-Ricard may reflect a trend towards consolidation in the highly
competitive global spirits and wine business. The creation of Diageo, 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 our subsidiaries and their competitors. It may also present
opportunities, particularly for the most efficient competitors.
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. 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 2000, approximately 5-10% of Geyser Peak's total grape supply came from
company-owned land.
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,
12
<PAGE>
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. The U.K. excise duties on distilled spirits have
fluctuated over the past six years, increasing by 26 pence in January 1995 and
by 19 pence in January 1998, and decreasing by 27 pence in November 1995 and by
26 pence in November 1996. 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. 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's products are sold, 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 U.S. television advertising of spirits. 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. 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 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 and calls for additional legislative restrictions on beverage alcohol
advertising, although to date, no such legislation is pending. It is also not
possible to predict when or whether additional restrictions on 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.
13
<PAGE>
Other Matters
Employees
Registrant and its subsidiaries had approximately, as of December 31, 2000,
the following number of employees:
Home Products 12,750
Office Products 8,370
Golf Products 4,500
Spirits and Wine 2,050
Corporate Office 130
------
Total 27,800
======
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 2000
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 premises in Old Greenwich, Connecticut. that formerly served as its executive
offices. The following table indicates the principal properties of Registrant's
subsidiaries:
14
<PAGE>
<TABLE>
<CAPTION>
- ------------------------ ----------------------- ----------------------- ----------------------- -----------------------
Segment Manufacturing Plants Distribution Centers Warehouses Other
- ------------------------ ----------------------- ----------------------- ----------------------- -----------------------
Owned Leased Owned Leased Owned Leased Owned Leased
- ------------------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Home
- ------------------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
U.S. 27 3 1 12 4 3
- ------------------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
Asia 1(JV)
- ------------------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
Canada 4
- ------------------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
Mexico 1
- ------------------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
Brazil 1
- ------------------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
- ------------------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
Office
- ------------------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
U.S. 6 5 2 1
- ------------------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
Europe 11 3 1 4
- ------------------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
Canada 1 2
- ------------------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
Mexico 2 2
- ------------------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
Australia 1
- ------------------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
New Zealand 1
- ------------------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
- ------------------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
Golf
- ------------------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
U.S. 6 2 4
- ------------------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
Europe 2 3 1 4
- ------------------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
Canada 1 1
- ------------------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
Asia 2(1 JV) 1 1 1 3
- ------------------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
Africa 1
- ------------------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
- ------------------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
Spirits and Wine
- ------------------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
U.S. 8 1 9 1
- ------------------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
Europe 8 9 1 1
- ------------------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
Canada 1 1 1
- ------------------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
Australia 1
- ------------------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
- ------------------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
Total U.S. 47 8 2 14 15 3 4 2
- ------------------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
Total Non-U.S. 28 10 1 16 11 2 - 11
- ------------------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
TOTAL 75 18 3 30 26 5 4 13
- ------------------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
</TABLE>
JV = Joint Venture
Registrant and its subsidiaries are of the opinion that their
properties are suitable to their respective businesses and have productive
capacities adequate to the needs of such businesses.
15
<PAGE>
Item 3. Legal Proceedings.
Overview
On December 22, l994, Registrant sold The American Tobacco Company
("ATCO") to Brown & Williamson Tobacco Corporation ("B&W"), at the time a wholly
owned subsidiary of B.A.T Industries p.l.c. In connection with the sale, B&W
and ATCO ("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
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 2000.
Individual Cases
As of March 1, 2001, 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 94 such cases as of
March 23, 2000. See "List of Pending Cases" below.
16
<PAGE>
Class Actions
As of March 1, 2001, there were approximately 18 purported smoking and
health class actions pending in which Registrant has been named as one of the
defendants compared with approximately 22 such cases as of March 23, 2000. See
"List of Pending Cases" below.
Health Care Cost Recovery Actions
As of March 1, 2001, there were approximately 4 health care recovery
actions pending in which Registrant has been named as one of the defendants,
compared with approximately 3 such cases as of March 23, 2000. 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).
In Phase II of the trial, the same jury addressed the individual claims of the
named class representatives. The trial court judge ruled that the jury in Phase
II could award an aggregate classwide lump-sum amount of punitive damages. This
ruling is being challenged by the defendants in Florida's appellate courts. On
April 17, 2000, the jury awarded an approximate aggregate amount of $12.7
million to three of the named class representatives, although it also found that
the claims of one of the three class representatives may have been barred by the
statute of limitations. On July 14, 2000, the jury awarded a total of $144.87
billion in punitive damages against the defendants, including $17.59 billion
against Brown and Williamson. On November 6, 2000, Florida Circuit Judge Robert
Kaye upheld this jury award, and held that the class of plaintiffs eligible to
recover damages should be extended to smokers with illnesses diagnosed more than
four years before the lawsuit was filed in 1994. Defendants have expressed their
intention to appeal these awards. Florida law sets a cap of $100 million on the
bond that companies must pay while the appeals process is under way. Plaintiffs
have argued that this cap is unconstitutional. Registrant is not a party to the
Engle litigation.
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. In September 2000, the U.S. District Court for the District of Columbia
ruled that the government could not use the Medical Care Recovery Act ("MCRA")
or Medicare Secondary Payor ("MSP") insurance provisions as a basis to try to
recover government expenses relating to tobacco smokers, and dismissed the
counts of the lawsuit relating to these laws. The court ruled that the
government could proceed with two counts under the federal RICO statute under
which the government seeks disgorgement of all of defendants' profits from the
sale of tobacco. In October 2000, the United States government filed a motion
for reconsideration seeking a partial reinstatement
17
<PAGE>
of the MCRA claim, and in February 2001, filed an amended complaint repleading
the MSP claim. The court has not ruled that either claim can go forward. A
tentative trial date of July 15, 2003 has been set with respect to all claims.
Registrant is not a party to this action.
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 will be allocated among the participating manufacturers according to
market capitalizations; all other payments are to be
18
<PAGE>
allocated according to market share. Moreover, participating manufacturers have
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.
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 18 "Pending Litigation" in
the Notes to Consolidated Financial Statements contained in the 2000 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, including the fact that the
Registrant never made or sold tobacco, 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).
Item 4. Submission of Matters to a Vote of Security Holders.
None.
19
<PAGE>
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 51
Executive 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.
Thomas J. Flocco Senior Vice President - Strategy & 38
Corporate 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 51
Treasurer of Registrant since January
2000; Vice President and Treasurer from
January 1996 to December 1999; Treasurer
of Registrant prior thereto.
Craig P. Omtvedt Senior Vice President and Chief Financial 51
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.
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 46
and 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 47
Registrant since November 1997; Vice
President - Human Resources, Magazine
Publishing Services, with R.R. Donnelley
& Sons Company prior thereto.
Michael R. Mathieson Vice President, Controller and Chief 48
Accounting 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 the 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 the executive officer 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 2000 Annual Report to Stockholders
of Registrant, which information and discussion are incorporated herein by
reference. On February 28, 2001, there were 33,491 record holders of
Registrant's common stock, par value $3.125 per share.
Item 6. Selected Financial Data.
See the information for 1995 through 2000 in the table captioned "Six-
Year Consolidated Selected Financial Data" contained in the 2000 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 2000 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
2000 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 2000 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 2000 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 24, 2001 (to be filed not later than 120 days
after the end of Registrant's fiscal year), 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 24, 2001 (to be filed
not later than 120 days after the end of Registrant's fiscal year), 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 24, 2001 (to be filed not later
than 120 days after the end of Registrant's fiscal year), 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,
2000, 1999 and 1998 contained in the 2000 Annual Report to
Stockholders of Registrant is incorporated herein by reference.
Consolidated Balance Sheet as of December 31, 2000 and 1999
contained in the 2000 Annual Report to Stockholders of Registrant is
incorporated herein by reference.
Consolidated Statement of Cash Flows for the years ended December
31, 2000, 1999 and 1998 contained in the 2000 Annual Report to
Stockholders of Registrant is incorporated herein by reference.
Consolidated Statement of Stockholders' Equity for the years
ended December 31, 2000, 1999 and 1998 contained in the 2000 Annual
Report to Stockholders of Registrant is incorporated herein by
reference.
Notes to Consolidated Financial Statements contained in the 2000
Annual Report to Stockholders of Registrant are incorporated herein by
reference.
Report of Independent Accountants contained in the 2000 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 as in effect on
the date hereof 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). By-laws of Registrant as in effect on the date hereof are incorporated
by reference to Exhibit 3(ii)b to the Annual Report on Form 10-K of
Registrant for the fiscal year ended December 31, 1999.
24
<PAGE>
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. 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.*
10b2. Amendment to 1990 Long-Term Incentive Plan of Fortune Brands, Inc.
constituting Exhibit 10b1 hereto is incorporated herein by reference
to Exhibit 10a1 to the Quarterly Report on Form 10-Q of Registrant
dated November 11, 1997.*
10b3. Fortune Brands, Inc. 1999 Long-Term Incentive Plan is incorporated
herein by reference to Exhibit 4el 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.*
10b4. 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.*
10b5. 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.*
10b6. Amendment to Registrant's Non-Employee Director Stock Option Plan and
Amendment thereto constituting Exhibits 10b4 and 10b5 hereto is
incorporated herein by reference to Exhibit 10b9 to the Annual Report
on Form 10-K of Registrant for the fiscal year ended December 31,
1999.*
10b7. Fortune Brands, Inc. Stock Plan for Non-employee Directors is
incorporated by reference to Exhibit 10b5 to the Annual Report on Form
10-K of Registrant for the Fiscal Year ended December 31, 1999.*
10c1. Amended Supplemental Plan of Fortune Brands, Inc. is incorporated
herein by reference to Exhibit 10c1 to the Annual Report on Form 10-K
of Registrant for the Fiscal Year ended December 31, 1995 maintained
in Commission File No. 1-9076.*
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 maintained in Commission File No. 1-9076.*
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 maintained in Commission File
No. 1-9076.*
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 maintained in Commission File No. 1-9076.*
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 Norman H. Wesley, Mark Hausberg,
Anne C. Linsdau, Craig P. Omtvedt and Mark A. Roche.*
10c7. Amendment made as of January 1, 2000, to Trust Agreement and
Amendments thereto, constituting Exhibits 10c2, 10c3, 10c4 and 10c5
hereto relating to the trust established in favor of Norman H. Wesley,
is incorporated herein by reference to Exhibit 10a1 to the Quarterly
Report on Form 10-Q of Registrant dated May 12, 2000.*
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 maintained in Commission File No. 1-9076.*
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 Norman H. Wesley, Mark Hausberg,
Anne C. Linsdau, Craig P. Omtvedt and Mark A. Roche.*
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 maintained in Commission File No. 1-9076.*
10e1. Fortune Brands, Inc. Severance Plan for Vice Presidents, adopted
as of January 1, 2000, is incorporated by reference to Exhibit 10a1 to
the Quarterly Report on Form 10-Q of Registrant dated August 11,
2000.*
10f1. 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 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 maintained in Commission File No. 1-
9076.*
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 maintained in Commission File No. 1-
9076.*
10h3. Schedule identifying substantially identical agreements to the
Agreement and Amendment thereto constituting Exhibits 10h1 and 10h2
hereto entered into by Registrant with Norman H. Wesley, Mark
Hausberg, Anne C. Linsdau, Craig P. Omtvedt and Mark A. Roche.*
27
<PAGE>
10h4. Amendment made as of March 16, 2000, amending the Agreement,
constituting Exhibits 10h1 and 10h2 hereto, between Registrant and
Norman H. Wesley, is incorporated by reference to Exhibit 10b2 to the
Quarterly Report on Form 10-Q of Registrant dated May 12, 2000.*
10h5. Schedule identifying substantially identical agreements to the
Amendment constituting Exhibit 10h4 hereto, entered into by Registrant
with Mark Hausberg and Mark A. Roche.*
10h6. Agreement dated as of September 1, 2000 between Registrant and Thomas
J. Flocco is incorporated by reference to Exhibit 10b1 to the
Quarterly Report on Form 10-Q of Registrant dated November 13, 2000.*
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
maintained in Commission File No. 1-9076.*
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 maintained in Commission File
No. 1-9076.*
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 Norman H. Wesley, Mark Hausberg, Anne C.
Linsdau, Craig P. Omtvedt and Mark A. Roche.*
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
maintained in Commission File No. 1-9076.*
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, Craig P.
Omtvedt and Mark A. Roche.*
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 and Mark A. Roche.*
10j7. Amendment dated as of August 1, 1998 between Registrant and Craig P.
Omtvedt to the Agreement and Amendments between Registrant and Mr.
Omtvedt substantially identical to Exhibits 10j1, 10j2 and 10j3 hereto
is incorporated herein by reference to Exhibit 10j8 to the Annual
Report on Form 10-K for the Fiscal Year ended December 31, 1998.*
10j8. Schedule identifying substantially identical agreements to the
Amendment constituting Exhibit 10j7 hereto entered into by Registrant
with Norman H. Wesley and Mark A. Roche is incorporated herein by
reference to Exhibit 10j9 to the Annual Report on Form 10-K of
Registrant for the Fiscal Year ended December 31, 1998.*
10j9. 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.*
10j10. Schedule identifying substantially identical agreement to the
Amendment constituting Exhibit 10j9 hereto, in favor of Mark
Hausberg.*
10j11. Agreement dated as of November 18, 1997 between Registrant and Anne C.
Linsdau is incorporated herein by reference to Exhibit 10j12 to the
Annual Report on Form 10-K of Registrant for the Fiscal Year ended
December 31, 1999.*
10j12. Schedule identifying substantially identical agreement to the
Agreement constituting Exhibit 10j11 hereto, in favor of Mark
Hausberg, is incorporated herein by reference to Exhibit 10j13 to the
Annual Report on Form 10-K of Registrant for the Fiscal Year ended
December 31, 1999.*
29
<PAGE>
10j13. Severance and Retirement Agreement made as of January 1, 2000, between
Registrant and Norman H. Wesley amending and restating the Agreement
referred to in Exhibits 10j1, 10j2, 10j3, 10j5 and 10j7 hereto for
Norman H. Wesley, is incorporated herein by reference to Exhibit 10c1
to the Quarterly Report on Form 10-Q of Registrant dated May 12,
2000.*
10j14. Severance Agreement dated as of January 1, 2000 between Registrant and
Thomas J. Flocco is incorporated by reference to Exhibit 10a1 to the
Quarterly Report on Form 10-Q of Registrant dated November 13, 2000.*
10j15. Amendment dated as of December 18, 2000 between Registrant and Mark A.
Roche to the Agreement and Amendments between Registrant and Mr. Roche
substantially identical to Exhibits 10j1, 10j2, 10j3, 10j5 and 10j7
hereto.*
10j16. Schedule identifying substantially identical agreements to the
Amendment constituting Exhibit 10j10 hereto entered into by Registrant
with 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. 2000 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.
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.
30
<PAGE>
(b) Reports on Form 8-K.
Registrant filed a Current Report on Form 8-K, dated October 10,
2000, in respect of Registrant's press release dated October 9, 2000
announcing that Registrant is exploring strategic options for its ACCO
World Corporation office products unit (Items 5 and 7(c)).
Registrant filed a Current Report on Form 8-K, dated October 20,
2000, in respect of Registrant's press release dated October 20, 2000
announcing Registrant's financial results for the three-month and
nine-month periods ended September 30, 2000 (Items 5 and 7(c)).
Registrant furnished a Current Report on Form 8-K, dated November 13,
2000, for the purpose of furnishing an investment brochure pursuant to
Regulation FD (Items 7(c) and 9).
31
<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/ Norman H. Wesley
Norman H. Wesley
Chairman of the Board and
Date: March 9, 2001 Chief Executive 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)
Date: March 9, 2001
/s/ Craig P. Omtvedt
Craig P. Omtvedt, Senior Vice President and
Chief Financial Officer (principal financial officer)
Date: March 9, 2001
/s/ Michael R. Mathieson
Michael R. Mathieson, Vice President,
Controller and Chief Accounting Officer (principal accounting officer)
Date: March 9, 2001
/s/ Patricia O. Ewers*
Patricia O. Ewers, Director
Date: March 9, 2001
/s/ Thomas C. Hays*
Thomas C. Hays, Director
Date: March 9, 2001
/s/ John W. Johnstone, Jr.*
John W. Johnstone, Jr., Director
Date: March 9, 2001
32
<PAGE>
/s/ Sidney Kirschner*
Sidney Kirschner, Director
Date: March 9, 2001
/s/ Gordon R. Lohman*
Gordon R. Lohman, Director
Date: March 9, 2001
/s/ Charles H. Pistor, Jr.*
Charles H. Pistor, Jr., Director
Date: March 9, 2001
/s/ Eugene A. Renna*
Eugene A. Renna, Director
Date: March 9, 2001
/s/ Anne M. Tatlock*
Anne M. Tatlock, Director
Date: March 9, 2001
/s/ David M. Thomas*
David M. Thomas, Director
Date: March 9, 2001
/s/ Peter M. Wilson*
Peter M. Wilson, Director
Date: March 9, 2001
*By A. Robert Colby
A. Robert Colby, Attorney-in-Fact
33
<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,
2000, 1999 and 1998 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 report on the consolidated financial statements of Fortune Brands, Inc. and
Subsidiaries has been incorporated by reference in this Form 10-K from page 55
of the 2000 Annual Report to Stockholders of Fortune Brands, Inc. In connection
with our audits of such financial statements, we have also audited the related
financial statement schedule listed in the index on page F-1 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
PricewaterhouseCoopers LLP
Chicago, Illinois 60601
January 24, 2001
F-2
<PAGE>
FORTUNE BRANDS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 2000, 1999 and 1998 (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>
2000:
Allowance for cash
discounts $ 8.8 $ 72.4 $ 72.1 (1) $ 9.0
0.1 (4)
Allowance for
returns 19.2 173.0 171.5 (1) 20.4
0.3 (4)
Allowance for
doubtful accounts 35.4 8.6 12.4 (2) 30.5
1.1 (4)
----- ------ ------ -----
$63.4 $254.0 $257.5 $59.9
===== ====== ====== =====
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
===== ====== ====== =====
</TABLE>
(1) Cash discounts and returns allowed customers.
(2) Doubtful accounts written off, net of recoveries.
(3) Balance at acquisition date of subsidiaries.
(4) Foreign exchange rate changes.
F-3
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered Page
- ------- -------------
<S> <C>
3(i). Restated Certificate of Incorporation of Registrant as in effect on the
date hereof 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). By-laws of Registrant as in effect on the date hereof are incorporated
by reference to Exhibit 3(ii)b to the Annual Report on Form 10-K of
Registrant for the fiscal year ended December 31, 1999.
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. 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.*
10b2. Amendment to 1990 Long-Term Incentive Plan of Fortune Brands, Inc.
constituting Exhibit 10b1 hereto is incorporated herein by reference to
Exhibit 10a1 to the Quarterly Report on Form 10-Q of Registrant dated
November 11, 1997.*
10b3. 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.*
10b4. 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.*
10b5. 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.*
10b6. Amendment to Registrant's Non-Employee Director Stock Option Plan and
Amendment thereto constituting Exhibits 10b4 and 10b5 hereto is
incorporated herein by reference to Exhibit 10b9 to the Annual Report
on Form 10-K of Registrant for the fiscal year ended December 31,
1999.*
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10b7. Fortune Brands, Inc. Stock Plan for Non-employee Directors is
incorporated by reference to Exhibit 10b5 to the Annual Report on Form
10-K of Registrant for the Fiscal Year ended December 31, 1999.*
10c1. Amended Supplemental Plan of Fortune Brands, Inc. is incorporated
herein by reference to Exhibit 10c1 to the Annual Report on Form 10-K
of Registrant for the Fiscal Year ended December 31, 1995 maintained in
Commission File No. 1-9076.*
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
maintained in Commission File No. 1-9076.*
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 maintained in Commission File No.
1-9076.*
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 maintained in Commission File No. 1-9076.*
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 Norman H. Wesley, Mark Hausberg, Anne C.
Linsdau, Craig P. Omtvedt and Mark A. Roche.*
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10c7. Amendment made as of January 1, 2000, to Trust Agreement and Amendments
thereto, constituting Exhibits 10c2, 10c3, 10c4 and 10c5 hereto
relating to the trust established in favor of Norman H. Wesley, is
incorporated herein by reference to Exhibit 10a1 to the Quarterly
Report on Form 10-Q of Registrant dated May 12, 2000.*
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 maintained in Commission File No. 1-9076.*
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 Norman H. Wesley, Mark Hausberg,
Anne C. Linsdau, Craig P. Omtvedt and Mark A. Roche.*
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.*
</TABLE>
<PAGE>
<TABLE>
<S> <C>
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
maintained in Commission File No. 1-9076.*
10e1. Fortune Brands, Inc. Severance Plan for Vice Presidents, adopted
as of January 1, 2000, is incorporated by reference to Exhibit 10a1 to
the Quarterly Report on Form 10-Q of Registrant dated August 11, 2000.*
10f1. 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 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 maintained in Commission File No. 1-9076.*
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 maintained in Commission File No. 1-9076.*
10h3. Schedule identifying substantially identical agreements to the
Agreement and Amendment thereto constituting Exhibits 10h1 and 10h2
hereto entered into by Registrant with Norman H. Wesley, Mark Hausberg,
Anne C. Linsdau, Craig P. Omtvedt and Mark A. Roche.*
10h4. Amendment made as of March 16, 2000, amending the Agreement,
constituting Exhibits 10h1 and 10h2 hereto, between Registrant and
Norman H. Wesley, is incorporated by reference to Exhibit 10b2 to the
Quarterly Report on Form 10-Q of Registrant dated May 12, 2000.*
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10h5. Schedule identifying substantially identical agreements to the
Amendment constituting Exhibit 10h4 hereto, entered into by Registrant
with Mark Hausberg and Mark A. Roche.*
10h6 Agreement dated as of September 1, 2000 between Registrant and Thomas
J. Flocco is incorporated by reference to Exhibit 10b1 to the Quarterly
Report on Form 10-Q of Registrant dated November 13, 2000.*
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
maintained in Commission File No. 1-9076.*
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 maintained in Commission File No.
1-9076.*
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 Norman H. Wesley, Mark Hausberg, Anne C. Linsdau,
Craig P. Omtvedt and Mark A. Roche.*
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.*
</TABLE>
<PAGE>
<TABLE>
<S> <C>
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
maintained in Commission File No. 1-9076.*
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, Craig P.
Omtvedt and Mark A. Roche.*
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 and Mark A. Roche.*
10j7. 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 herein by reference to Exhibit 10j8 to the Annual
Report on Form 10-K for the Fiscal Year ended December 31, 1998.*
10j8 Schedule identifying substantially identical agreements to the
Amendment constituting Exhibit 10j7 hereto entered into by Registrant
with Norman H. Wesley and Mark A. Roche is incorporated herein by
reference to Exhibit 10j9 to the Annual Report on Form 10-K of
Registrant for the Fiscal Year ended December 31, 1998.*
10j9 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.*
10j10 Schedule identifying substantially identical agreement to the Amendment
constituting Exhibit 10j9 hereto, in favor of Mark Hausberg.*
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10j11 Agreement dated as of November 18, 1997 between Registrant and Anne C.
Linsdau is incorporated herein by reference to Exhibit 10j12 to the
Annual Report on Form 10-K of Registrant for the Fiscal Year ended
December 31, 1999.*
10j12 Schedule identifying substantially identical agreement to the Agreement
constituting Exhibit 10j11 hereto, in favor of Mark Hausberg, is
incorporated herein by reference to Exhibit 10j13 to the Annual Report
on Form 10-K of Registrant for the Fiscal Year ended December 31,
1999.*
10j13 Severance and Retirement Agreement made as of January 1, 2000, between
Registrant and Norman H. Wesley amending and restating the Agreement
referred to in Exhibits 10j1, 10j2, 10j3, 10j5 and 10j7 hereto for
Norman H. Wesley, is incorporated herein by reference to Exhibit 10c1
to the Quarterly Report on Form 10-Q of Registrant dated May 12, 2000.*
10j14 Severance Agreement dated as of January 1, 2000 between Registrant and
Thomas J. Flocco is incorporated by reference to Exhibit 10a1 to the
Quarterly Report on Form 10-Q of Registrant dated November 13, 2000.*
10j15 Amendment dated as of December 18, 2000 between Registrant and Mark A.
Roche to the Agreement and Amendments between Registrant and Mr. Roche
substantially identical to Exhibits 10j1, 10j2, 10j3, 10j5 and 10j7
hereto.*
10j16 Schedule identifying substantially identical agreements to the
Amendment constituting Exhibit 10j10 hereto entered into by Registrant
with 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. 2000 Annual Report to Stockholders of Registrant.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
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.
99. List of Pending/Terminated Cases.
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.C6
<SEQUENCE>2
<FILENAME>0002.txt
<DESCRIPTION>SCH. IDENTIFYING SUBSTANTIALLY CONSTITUTING EX. 10C2,10C3,10C4
<TEXT>
<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, 2000.
- --------------------------------------------------------------------------------
Name
----
Norman H. Wesley
Mark Hausberg
Anne C. Linsdau
Craig P. Omtvedt
Mark A. Roche
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.C12
<SEQUENCE>3
<FILENAME>0003.txt
<DESCRIPTION>SCH. IDENT. SUBSTANTIALLY CONSTITUTING EX. 10C8,10C8,10C10,10C11
<TEXT>
<PAGE>
EXHIBIT 10c12
Schedule identifying substantially identical agreements, among Fortune Brands,
Inc. ("Fortune"), 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, 2000.
- --------------------------------------------------------------------------------
Name
----
Norman H. Wesley
Mark Hausberg
Anne C. Linsdau
Craig P. Omtvedt
Mark A. Roche
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.H3
<SEQUENCE>4
<FILENAME>0004.txt
<DESCRIPTION>SCH. IDENTIFYING SUBSTANTIALLY CONSTITUTING EX. 10H1 AND 10H2
<TEXT>
<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 and 10h2 to the Annual Report on Form 10-K
of Fortune for the Fiscal Year ended December 31, 2000.
- --------------------------------------------------------------------------------
Name
----
Norman H. Wesley
Mark Hausberg
Anne C. Linsdau
Craig P. Omtvedt
Mark A. Roche
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.H5
<SEQUENCE>5
<FILENAME>0005.txt
<DESCRIPTION>SCHEDULE IDENTIFYING SUBSTANTIALLY CONSTITUTING
<TEXT>
<PAGE>
EXHIBIT 10h5
Schedule identifying substantially identical agreements, among Fortune Brands,
Inc. ("Fortune") and each of the following persons, to the Amendment
constituting Exhibit 10h4 to the Annual Report on Form 10-K of Fortune for the
Fiscal Year ended December 31, 2000.
- --------------------------------------------------------------------------------
Name
----
Mark Hausberg
Mark A. Roche
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.I4
<SEQUENCE>6
<FILENAME>0006.txt
<DESCRIPTION>SCH. IDENTIFYING SUBSTANTIALLY CONSTITUTING EX. 10IL AND 10I2
<TEXT>
<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, 2000.
- --------------------------------------------------------------------------------
Name
----
Norman H. Wesley
Mark Hausberg
Anne C. Linsdau
Craig P. Omtvedt
Mark A. Roche
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.J4
<SEQUENCE>7
<FILENAME>0007.txt
<DESCRIPTION>SCH. IDENTIFYING SUBSTANTIALLY CONSTITUTING EX. 1031 AND 1052
<TEXT>
<PAGE>
EXHIBIT 10j4
Schedule identifying substantially identical agreements, between Fortune Brands,
Inc. ("Fortune") and each of the following persons, to the Agreement and
Amendments thereto constituting Exhibits 10j1, 10j2 and 10j3 to the Annual
Report on Form 10-K of Fortune for the Fiscal Year ended December 31, 2000.
- --------------------------------------------------------------------------------
Name
----
Norman H. Wesley
Craig P. Omtvedt
Mark A. Roche
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.J6
<SEQUENCE>8
<FILENAME>0008.txt
<DESCRIPTION>SCH. IDENTIFYING SUBSTANTIALLY CONSTITUTING EX. 10J5
<TEXT>
<PAGE>
EXHIBIT 10j6
Schedule identifying substantially identical agreements, between Fortune Brands,
Inc. ("Fortune") and each of the following persons, to the Amendment
constituting Exhibits 10j5 to the Annual Report on Form 10-K of Fortune for the
Fiscal Year ended December 31, 2000.
- --------------------------------------------------------------------------------
Name
----
Norman H. Wesley
Mark A. Roche
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.J10
<SEQUENCE>9
<FILENAME>0009.txt
<DESCRIPTION>SCH. IDENTIFYING SUBSTANTIALLY CONSTITUTING EX. 10J9
<TEXT>
<PAGE>
EXHIBIT 10j10
Schedule identifying substantially identical agreement, between Fortune Brands,
Inc. ("Fortune") and the following persons, to the Agreement constituting
Exhibit 10j9 to the Annual Report on Form 10-K of Fortune for the Fiscal Year
ended December 31, 2000.
- --------------------------------------------------------------------------------
Name
----
Mark Hausberg
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.J15
<SEQUENCE>10
<FILENAME>0010.txt
<DESCRIPTION>AMENDMENT TO SEVERANCE AGREEMENT
<TEXT>
<PAGE>
EXHIBIT 10j15
AMENDMENT TO SEVERANCE AGREEMENT
--------------------------------
This AMENDMENT to the Severance Agreement (the "Agreement") dated as of
January 29, 1996, as amended, between FORTUNE BRANDS, INC., a Delaware
corporation (the "Company") and MARK A. ROCHE ( the "Executive");
W I T N E S S E T H
-------------------
WHEREAS, the Company and the Executive entered into the Agreement in order
to provide severance benefits in the event of termination of the Executive's
employment; and
WHEREAS, the Company and the Executive desire to amend the Agreement in
order to define more precisely the amounts payable in lieu of an incentive bonus
in the event of termination of employment, to provide that a relocation of the
Company's principal executive office constitutes a "good reason" for termination
of employment, to reflect changes in the addresses to which notices may be sent
under the Agreement and to add provisions on Confidential Information, Loyalty
and Non-Competition to the Agreement;
NOW, THEREFORE, in consideration of the premises and to further assure the
retention of the Executive in the employ of the Company after the date of this
Amendment to Severance Agreement, the parties do hereby agree as follows:
1. Section 1(f) of the Agreement is hereby amended by redesignating
paragraphs (iv) through (vi) thereof as paragraphs (v) through (vii),
respectively, and by adding a new paragraph (iv) as follows:
"(iv) the relocation of the Company's principal executive offices to a
location more than 35 miles from their location on March 1, 2000 or
the Company requiring the Executive to relocate to any office other
than the Company's principal executive offices, except for required
travel on the Company's business to an extent substantially consistent
with his business travel obligations on March 1, 2000."
<PAGE>
2. Section 2(b)(ii) of the Agreement is hereby amended in its
entirety as follows:
"in lieu of any further salary payments, annual incentive compensation
awards or profit-sharing allocations to the Executive for periods
subsequent to the Termination Date, an amount equal to the product of
(A) the sum of (1) his annual base salary at the rate in effect on the
date hereof plus any increases therein subsequent thereto, plus (2)
the greater of the amount that was awarded to the Executive under the
Annual Executive Incentive Compensation Plan of the Company and any
other plans or arrangements of the Company and its affiliates
providing for an annual (but not long-term) bonus arrangement (the
'Incentive Compensation Plans') for the calendar year immediately
preceding the year in which the Termination Date occurs (whether or
not fully paid), but not less than the amount paid to the Executive
for 1996, plus (3) the greater of the amount that was allocated to the
Executive's account under the Fortune Brands Retirement Savings Plan
(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 the Company matching award related to the supplemental tax
deferred amounts therein, and any other defined contribution plan of
the Company or an affiliate for 1996 and the amount that would have
been required to be so allocated to him for the year immediately
preceding the year in which the Termination Date occurs, multiplied by
(B) the lesser of the number two and the number of years (and fraction
thereof) 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"
3. Section 2(f)(ii) of the Agreement is hereby amended in its
entirety as follows:
"(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, equal to the
amount paid to the Executive under the Incentive Compensation Plans
for 1996 or, if higher, the amount for the calendar year immediately
preceding the year in which the Termination Date occurs, with such
incentive compensation amount prorated for the portion of the year
through the Termination Date. The payments under this Section
2(f)(ii) shall be reduced by the amount actually paid to the Executive
under the Incentive Compensation Plans for the calendar year in which
the Termination Date occurs."
4. Sections 3, 4, 5, 6, 7, 8, and 9 of the Agreement are hereby
amended by redesignating them as Sections 7, 8, 9, 10, 11, 12 and 13,
respectively, (and any references to such Sections are hereby redesignated
accordingly) and new Sections 3, 4, 5 and 6 are added to the Agreement as
follows:
2
<PAGE>
"Section 3. Confidential Information.
------------------------
(a) The Executive acknowledges that given his high level
position with the Company, he has had and will have access to highly
confidential information of the Company and its affiliates, including,
but not limited to, financial information, supply and service
information, marketing information, personnel data, customer lists,
business and financial plans and strategies, and product costs,
sources and pricing. The Company and the Executive consider their
relation to be one of high confidence with respect to all such
information ('Confidential Trade Secrets'). Accordingly, the
Executive agrees that during and for a period of eighteen (18) months
after the termination of his employment with the Company, regardless
of the reasons that such employment might end, the Executive will:
(i) hold all Confidential Trade Secrets in confidence and
not discuss, communicate, disclose or transmit to others, or make any
unauthorized copy of or use the Confidential Trade Secrets in any
capacity, position or business unrelated to the Company;
(ii) use the Confidential Trade Secrets only in
furtherance of proper Company employment related business reasons; and
(iii) take all reasonable action that the Company deems
necessary and appropriate to prevent unauthorized use or disclosure of
or to protect the Company's interests in the Confidential Trade
Secrets.
(b) It is understood and agreed that the Executive's
obligations under Section 3(a) do not extend to any knowledge or
information which is or hereafter may become available to the public
or to competitors otherwise than by disclosure by the Executive in
breach of this Agreement nor to disclosure compelled by judicial or
administrative proceedings after the Executive diligently tries to
avoid each disclosure and affords the Company the opportunity to
obtain assurance that compelled disclosures will receive confidential
treatment.
Section 4. Loyalty. The Executive further acknowledges
-------
that the loyalty and dedicated service of the Company's and its
affiliates' employees is critical to the Company's business.
Accordingly, the Executive agrees that during and after his employment
by the Company, regardless of the reasons the employment might end, he
will not, without the prior written consent of the Company, induce or
attempt to induce any employee or agency representative of the Company
or any of its affiliates to leave the employment or representation of
the Company or of any affiliate. The Executive also agrees that
during and after his employment, he will not take any action, or make
any statements, that could discredit or disparage the Company or its
affiliates, or its or their officers, directors, employees or
products.
3
<PAGE>
Section 5. Non-Competition.
---------------
(a) The Executive acknowledges that the Company and its
affiliates have invested time and money in establishing or planning to
establish one or more aspects of its business throughout the United
States, Canada, Mexico and Europe. Therefore, the Executive agrees
that during his employment by the Company and for a period of eighteen
(18) months after the termination of his employment, the Executive
will not, directly or indirectly, individually engage in nor be
competitively employed or retained by, or render any competing
services for, or be financially interested in, any firm or corporation
engaged in any business in the United States, Canada, Mexico or Europe
which is directly competitive with any significant business in which
the Company or any of its affiliates was engaged during the two-year
period preceding the date the Executive's employment terminates,
including, but not limited to, any significant business in which,
during such two-year period, the Executive was involved in the
Company's or any affiliate's planning to enter such business.
(b) The restriction in Section 5(a) shall not apply to
(i) the purchase by the Executive of stock not to exceed
5% of the outstanding shares of capital stock of any corporation whose
securities are listed on any national securities exchange; or
(ii) the employment of the Executive by a non-competitive
subsidiary or non-competitive affiliated entity of a competitor of the
Company or any affiliate upon written consent of the Company, which
consent shall not unreasonably be withheld.
(c) The Executive also agrees that for a period of
eighteen (18) months after the termination of his employment with the
Company he will not solicit business from nor directly or indirectly
cause others to solicit business that competes with the Company's or
any affiliate's line of products from any entities which have been
customers of the Company during the Executive's employment or which
were targeted as potential customers during Executive's employment.
Section 6. Remedies. The Executive recognizes and agrees:
--------
(a) that the covenants and restrictions in Sections 3, 4
and 5 of this Agreement are reasonable and valid and all defenses to
the strict enforcement thereof by the Company are waived by the
Executive to the full extent permitted by law. In the event, however,
that a court of competent jurisdiction should determine in any case
that the enforcement of any provision contained in such paragraphs
would not be reasonable, it is intended that enforcement of a
provision which is determined by such court to be reasonable shall be
given effect; and
4
<PAGE>
(b) that a breach of the covenants and restrictions in
Sections 3, 4 and 5 of this Agreement would result in irreparable harm
to the Company which could not be compensated by money damages alone.
Accordingly, the Executive agrees that should there be a breach of any
or all of these provisions or a threatened breach, the Company shall
be entitled to cease paying amounts under Section 2 and to offset any
amounts it owes to Executive against any damage that it has suffered
as a result of the breach of any of the covenants and restrictions in
Sections 3, 4 and 5 and, in addition to its other remedies, to an
order enjoining any such breach or threatened breach without bond. In
addition, the Executive agrees that, in the event he breaches any of
the covenants or restrictions in Sections 3, 4 or 5 of this Agreement,
he will promptly repay to the Company upon demand of the Company any
amounts paid to him pursuant to Section 2. The Executive further
agrees that he will reimburse the Company for its attorney fees and
costs incurred in pursuing any action to enforce these provisions."
5. Section 5 of the Agreement (Section 9 as redesignated above) is
hereby amended in its entirety as follows:
"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:
If to the Company:
Fortune Brands, Inc.
300 Tower Parkway
Lincolnshire, Illinois 60069
Attention: Secretary
If to the Executive:
Mark A. Roche
22 S. Wynstone Drive
North Barrington, IL 60010
5
<PAGE>
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."
IN WITNESS WHEREOF, the Company has caused this Amendment to Severance
Agreement to be signed by its duly authorized officer and the Executive has
hereunto set his hand as of the ____________day of December, 2000.
FORTUNE BRANDS, INC.
By:__________________________________
Anne C. Linsdau
Vice President - Human Resource
Attest:
__________________________
__________________________________
Mark A. Roche
6
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.J16
<SEQUENCE>11
<FILENAME>0011.txt
<DESCRIPTION>SCH. IDENTIFYING SUBSTANTIALLY CONSTITUTING EX. 10J15
<TEXT>
<PAGE>
EXHIBIT 10j16
Schedule identifying substantially identical agreement, between Fortune Brands,
Inc. ("Fortune") and each of the following persons, to the Amendment
constituting Exhibits 10j15 to the Annual Report on Form 10-K of Fortune for the
Fiscal Year ended December 31, 2000.
- --------------------------------------------------------------------------------
Name
----
Mark Hausberg
<PAGE>
(b) Reports on Form 8-K.
Registrant filed a Current Report on Form 8-K, dated October 10, 2000,
in respect of Registrant's press release dated October 9, 2000
announcing that Registrant is exploring strategic options for its ACCO
World Corporation office products unit (Items 5 and 7(c)).
Registrant filed a Current Report on Form 8-K, dated October 20, 2000,
in respect of Registrant's press release dated October 20, 2000
announcing Registrant's financial results for the three-month and
nine-month periods ended September 30, 2000 (Items 5 and 7(c)).
Registrant filed a Current Report on Form 8-K, dated November 13,
2000, for the purpose of furnishing an investment brochure pursuant to
Regulation FD (Items 7(c) and 9).
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-12
<SEQUENCE>12
<FILENAME>0012.txt
<DESCRIPTION>STATEMENT RE COMPUTATION OF RATIO OF EARNINGS
<TEXT>
<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,
----------------------------------------------------------------------------------
1996 1997 1998 1999 2000
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Continuing Operations
- ---------------------
Earnings Available:
Income before
provision for
taxes on income
and minority interest $ 340.1 $ 145.2 $ 516.4 ($725.2) $ 44.0
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 0.6
--------- --------- --------- --------- ---------
339.6 145.0 516.2 (720.9) 43.2
--------- --------- --------- --------- ---------
Fixed Charges:
Interest expense
(including capitalized
interest) and amortization
of debt discount and expenses 172.6 122.4 105.4 113.9 135.6
Portion of rentals
representative of
an interest factor 15.1 14.7 17.0 19.0 18.0
--------- --------- --------- --------- ---------
Total Fixed Charges 187.7 137.1 122.4 132.9 153.6
--------- --------- --------- --------- ---------
Total Earnings
Available $ 527.3 $ 282.1 $ 638.6 $ (588.0) $ 196.8
========= ========= ========= ========= =========
Ratio of Earnings to
Fixed Charges 2.81 2.06 5.22 (A) (A)
========= ========= ========= ========= =========
</TABLE>
(A) As a result of the loss reported for the years ended December 31, 2000 and
1999, the Company was unable to cover the fixed charges as indicated.
Included in earnings for 2000 was a fourth quarter goodwill write-down of
$502.6 million and included in earnings for 1999 was a second quarter
goodwill write-down of $1,126 million as disclosed in Note 1 to the
Company's consolidated financial statements. If the write-down were
excluded from earnings, the ratio of earnings to fixed charges for the
years ended December 31, 2000 and 1999 would have been 4.52 and 4.05,
respectively.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>13
<FILENAME>0013.txt
<DESCRIPTION>2000 ANNUAL REPORT TO STOCKHOLDERS OF REGISTRANT
<TEXT>
<PAGE>
Exhibit 13
Financial Highlights
- --------------------------------------------------------------------------------
Fortune Brands, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In millions, except per share amounts) 2000 1999 Change 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES/(1)/
Home products $2,215.0 $1,950.7 $ 1,636.8
Office products 1,435.4 1,381.0 1,403.3
Golf products 965.2 977.7 974.1
Spirits and wine 1,228.9 1,269.6 1,265.9
-------------------------------------------------
$5,844.5 $5,579.0 4.8% $ 5,280.1
=================================================
OPERATING COMPANY CONTRIBUTION/(2)/
Home products $ 340.4 $ 300.2 $ 252.5
Office products 79.5 88.5 134.0
Golf products 145.2 147.0 142.9
Spirits and wine 309.1 293.6 268.9
-------------------------------------------------
$ 874.2 $ 829.3 5.4% $ 798.3
=================================================
Income (loss) from continuing operations $ (137.7) $ (890.6) -- $ 293.6
=================================================
Earnings per common share from continuing operations
Basic $ (0.88) $ (5.35) $ 1.70
Diluted $ (0.88) $ (5.35) $ 1.67
=================================================
Income from operations before net charges/(3)/ $ 366.2 $ 339.8 7.8% $ 293.6
=================================================
Earnings per common share before net charges
Basic $ 2.32 $ 2.03 14.3% $ 1.70
Diluted $ 2.29 $ 1.99 15.1% $ 1.67
=================================================
EBITDA/(4)/ $ 985.0 $ 907.0 9% $ 865.7
=================================================
Dividends paid per common share $ .93 $ .89 4% $ .85
=================================================
Actual number of common shares outstanding 153.5 163.2 170.9
Average number of common shares outstanding 157.6 166.6 172.2
=============================================================================================================
</TABLE>
/(1)/ Net sales have been restated for 1999 and 1998 to conform to the 2000
presentation due to the reclassification of shipping and handling in
accordance with Emerging Issues Task Force Issue No. 00-10.
/(2)/ 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.
/(3)/ Income from operations before net charges was $366.2 million, or $2.32
basic and $2.29 diluted per share for 2000, compared with $339.8 million,
or $2.03 basic and $1.99 diluted per share for 1999. The net charges for
2000 represent: a goodwill write-down of $502.6 million ($487.3 million
after tax, or $3.09 per share); restructuring and other nonrecurring
charges of $73.0 million ($46.6 million after-tax, or 30 cents per share);
and a $30.0 million tax reserve reversal no longer required, taken in the
fourth quarter. The net charges for 1999 represent: a 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 $31.6 million
($21.2 million after-tax gain, or 13 cents per share).
We reported a net loss in 2000 and 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.
Income (loss) from continuing operations excludes extraordinary items
charges in 1998 for the early extinguishment of debt.
/(4)/ EBITDA is defined as 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.
7
<PAGE>
Results of Operations
- --------------------------------------------------------------------------------
Fortune Brands, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Sales Operating Company Contribution(a)
- ------------------------------------------------------------------------------------------------------------------------------------
(In millions) 2000 1999 1998 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Home products $2,215.0 $1,950.7 $1,636.8 $340.4 $300.2 $252.5
Office products 1,435.4 1,381.0 1,403.3 79.5 88.5 134.0
Golf products 965.2 977.7 974.1 145.2 147.0 142.9
Spirits and wine 1,228.9 1,269.6 1,265.9 309.1 293.6 268.9
- ------------------------------------------------------------------------------------------------------------------------------------
Continuing operations $5,844.5 $5,579.0 $5,280.1 $874.2 $829.3 $798.3
====================================================================================================================================
</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 14.)
CONSOLIDATED
2000 COMPARED TO 1999 Net sales grew $265.5 million, an increase of 5%. The
increase was primarily due to the introduction of new products, line extensions,
and the full year benefit of acquisitions made in 1999 in the home and office
products segments. These increases were partly offset by lower average foreign
exchange rates, volume declines in some existing products and increased rebates
and allowances in the United States in our office products segment. In addition,
reported sales of spirits and wine were lower because sales through the Maxxium
joint venture are net of excise taxes and distribution costs, which are now
incurred by the venture. Absent this change, total sales would have increased
6%. Operating company contribution, our key measure by which we gauge
performance, increased $44.9 million, or 5%, on the benefit of the higher sales,
improved product mix and savings resulting from our restructuring initiatives.
During the fourth quarter of 2000, we recorded a non-cash write-down of goodwill
of $502.6 million, ($487.3 million after tax, or $3.09 per share). This action
resulted from the significant shortfall in office products earnings, the
softening conditions in the office products industry and the ongoing strategic
review process, which led to the implementation of additional restructuring
actions.
During 2000, we recorded aggregate pre-tax restructuring and other nonrecurring
charges of $73.0 million, ($46.6 million after-tax, or 30 cents per share). (See
Note 13.) These charges principally relate to relocation costs for manufacturing
facilities in the office segment, rationalization of operations in the home
segment, product line discontinuances and manufacturing consolidation in the
golf segment, other workforce reduction initiatives across these segments and
downsizing and relocation of the Corporate office.
Interest and related expenses increased 25%. This increase reflects higher
average borrowings resulting primarily from share repurchases and an investment
in a joint venture and higher average interest rates. Corporate administrative
expense decreased $22.5 million, or 36%, due to the restructuring program
initiated in 1999.
The effective income tax rate comparison was distorted primarily by the
absence of tax benefits on the write-down of goodwill, lower pre-tax income due
to the impact of the restructuring and other nonrecurring charges taken in 2000
and the benefit of the reversal of prior year tax reserves no longer required.
Excluding these charges and reversals, the effective income tax rate was 40.4%
for 2000 and 1999.
Net loss was $137.7 million, or 88 cents per share, in 2000 compared with a net
loss of $890.6 million, or $5.35 per share, for 1999.
Income from operations before net charges was $366.2 million, or $2.32 basic and
$2.29 diluted per share for 2000, compared with $339.8 million, or $2.03 basic
and $1.99 diluted per share for 1999. Income from operations before net charges
for the year ended December 31, 2000 represents income before the $502.6 million
($487.3 million after tax, or $3.09 per share) goodwill write-down, the $73.0
million ($46.6 million after tax, or 30 cents per share) restructuring and other
nonrecurring charges and a $30.0 million tax reserve reversal that was no longer
required. Income from operations before net charges for the year ended December
31, 1999 represents income before the $1,126 million, or $6.76 per share,
goodwill write-down, the $196.0 million ($125.6 million after tax, or 75 cents
per share) of restructuring and other nonrecurring charges and the $31.6 million
($21.2 million after tax, or 13 cents per share) gain on the sale of a financing
subsidiary.
25
<PAGE>
Results of Operations
- --------------------------------------------------------------------------------
Fortune Brands, Inc. and Subsidiaries
----------------------------------------
We derived approximately 23% of our 2000 and 24% of our 1999 operating company
contribution from international markets, principally the United Kingdom,
Australia and Canada. Fluctuations in the exchange rates of foreign currencies
may affect results in future periods. Fluctuations in average foreign exchange
reduced 2000 operating company contribution by approximately 2%. We cannot
accurately predict fluctuations in foreign exchange rates. A 10% change in
average exchange rates for the foreign currencies from 2000 average rates would
have resulted in a change in 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, including the fact that the Company
never made or sold tobacco, 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 businesses 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,
2001, various of our subsidiaries had been designated as potentially responsible
parties under "Superfund" or similar state laws with respect to 47 sites. We
have reached settlements with respect to 40 of these 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 FASB Statement No. 133," was issued, deferring the effective
date of FAS Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities," from January 1, 2000 to January 1, 2001. These statements
establish accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires recognition of all derivatives as either assets
or liabilities on the balance sheet and measurement of those instruments at fair
value. We adopted FAS 133, as amended by FAS Statement No. 138, "Accounting for
Certain Derivative Instruments and Hedging Activities, an amendment of FAS
Statement No. 133," beginning January 1, 2001. We currently enter into foreign
currency hedges to mitigate any unforeseen risks in the fluctuation of the
underlying foreign currency rates. These new Statements will have an
insignificant impact on our balance sheet, income statement or footnote
disclosures.
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 cost
reduction and efficiency opportunities could result in charges.
1999 COMPARED TO 1998 Net sales grew $298.9 million, an increase of 6%. The
increase was primarily due to new products and line extensions, as well as
acquisitions made in
26
<PAGE>
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 lower because 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 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 13.) These charges are for 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 (60 positions), relocation of the corporate headquarters to a lower-cost
facility in Lincolnshire, Illinois, and lease termination costs related to the
move. Savings achieved in 1999, as a result of the corporate restructuring
initiatives, amounted to $7.6 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 related to the formation of the Maxxium joint venture. In total,
pre-tax annualized savings from these actions exceeded $60 million in 2000.
Other (income) expense, 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 reflected higher
average borrowings due to share repurchases and acquisitions partly offset by
lower interest rates.
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 in 1999 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 charges related to repurchasing debt. (See Note 15.)
Net loss in 1999 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 consisted of: 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).
27
<PAGE>
Results of Operations
- --------------------------------------------------------------------------------
Fortune Brands, Inc. and Subsidiaries
-----------------------------------------
HOME PRODUCTS
2000 COMPARED TO 1999 Net sales increased $264.3 million, or 14%. The increase
was primarily attributable to overall volume increases, the acquisition of NHB
Group Ltd. in October 1999 and price increases. The overall volume increases
reflect line extensions, higher volume in some existing products and the
introduction of new products.
Operating company contribution increased $40.2 million, or 13%. The operating
company contribution increase resulted from the higher sales, improved product
mix and a reduction in administrative expenses, partly offset by increased
operating expenses. The increased operating expenses were primarily due to
higher selling expenses and increased distribution and research and development
expenses.
The continued consolidation of the customer base in the home products industry,
including home centers and large homebuilders, as well as increased price
competition, will continue to present us and our competitors with pricing and
service challenges. Customer consolidation will also present opportunities for
the most efficient manufacturers and skilled marketers.
Our home products business may be impacted in 2001 by a potential moderation in
the housing market and overall economic conditions.
1999 COMPARED TO 1998 Net sales increased $313.9 million, or 19%. 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% due to the higher
sales and improved gross margin, partly offset by increased operating expenses.
The gross margin improvement reflects the benefits of higher volume, productiv-
ity improvements and price increases. 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.
OFFICE PRODUCTS
2000 COMPARED TO 1999 Net sales increased $54.4 million, or 4%. The increase
resulted primarily from the acquisition of Boone International, Inc. in October
1999 partly offset by lower average foreign exchange rates, volume declines in
some existing products and weak volumes in the direct mail channel for time-
management products and in certain computer accessory product lines.
Operating company contribution decreased $9 million, or 10%. The decrease
reflects lower gross margin, higher operating expenses and lower average
foreign exchange rates, partly offset by savings achieved as a result of our
restructuring program initiated in 1999. The gross margin decreased due to
higher rebates and allowances in the United States and increased material costs.
The higher operating expenses reflected increased selling expenses, higher
freight costs due primarily to increased fuel prices, and increased distribution
and general and administrative expenses, partly offset by reduced information
technology related expenses.
Certain major customers of our office products business announced reductions in
comparable store sales in the fourth quarter of 2000 and have anticipated soft
sales in the first quarter of 2001. In addition, certain major retailers have
announced plans to close some stores in 2001. These factors may affect our
business in 2001.
The office products business is increasingly concentrated in a small number of
major customers, principally office products superstores, large retailers,
wholesalers and contract stationers. The continuing consolidation of both
competitors and customers is causing increased pricing pressures and rebates
that have negatively affected results. Pricing pressures were compounded by the
decision of several customers to continue to reduce inventory levels. These
conditions persisted throughout 2000 and continue to present challenges for our
office products group and its competitors.
On October 9, 2000, we announced that we are exploring strategic options for our
office products unit. The evaluation is continuing and includes the possible
sale of the office products business.
1999 COMPARED TO 1998 Net sales decreased $22.3 million, or 2%. 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
28
<PAGE>
- --------------------------------------------------------------------------------
prices (including higher rebates and allowances) and lower average foreign
exchange rates. The decrease in net sales was partly offset by the introduction
of new products, particularly technology products at Kensington and the benefits
of an acquisition.
Operating company contribution decreased $45.5 million, or 34%. The decrease
reflects the lower sales, lower gross margin, higher customer program costs and
higher information technology related expenses, partly offset by lower freight
costs (favorable comparison to 1998 costs incurred to maintain customer service
levels during restructuring activities) and decreased general and administrative
costs. The gross margin decreased due to lower prices and additional costs
related to the integration and relocation of operations in North America and
Europe.
GOLF PRODUCTS
2000 COMPARED TO 1999 Net sales decreased $ 12.5 million, on sales declines in
some existing products, principally Cobra golf clubs, partly offset by line
extensions and the introduction of new Titleist and FootJoy products.
Operating company contribution declined $1.8 million, or 1%, on the lower sales
and higher operating expenses partially offset by improved gross margins across
all product categories. The increase in operating expenses was primarily due to
higher advertising and volume-related selling expenses, partially offset by
lower freight and distribution expenses.
The golf ball business experienced a product mix shift as Titleist branded golf
balls declined 2% while lower-priced Pinnacle golf balls increased 12%.
Competitors with significant brand awareness have introduced golf balls into
their product offerings in the past two years. The combined share of Titleist
and Pinnacle in the domestic golf ball market fell approximately 2% in 2000. It
is not possible to predict what long-term effect these new entrants or their
impact on trade inventories will have on our business, but significant research
and development and marketing expenditures to defend market share will continue.
The United States Golf Association (USGA) establishes standards for golf
equipment used in competitive play in the United States. On November 2, 1998,
the USGA announced the immediate implementation of a new golf club performance
rule that established a rebound velocity standard for driving clubs. The Royal
and Ancient Golf Club (R&A) establishes standards for golf equipment used in
competitive play outside the United States and Mexico. On September 21, 2000,
the R&A issued a Notice to Manufacturers announcing its decision not to adopt
the USGA's rebound velocity standard or any new rule or test protocol for
driving clubs. The R&A's decision not to adopt the rule implemented by the USGA
will result in conflicting conformance standards for driving clubs in the United
States and the rest of the world. The divergence between the USGA and the R&A on
this issue may cause confusion to consumers and could be disruptive to the
United States and world markets for driving clubs. In addition, the USGA 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 the USGA rule or the divergence in rules will have a
material effect on the golf club industry and our golf products business.
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 regulations that would shorten the overall distance that golf balls
are allowed to travel and that could hamper innovation in the design and
manufacture of golf balls. The adoption of any such rules could materially
impact our golf products business and/or the golf ball industry.
1999 COMPARED TO 1998 Net sales increased slightly, up $3.6 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.
29
<PAGE>
Results of Operations
- --------------------------------------------------------------------------------
Fortune Brands, Inc. and Subsidiaries
SPIRITS AND WINE
2000 COMPARED TO 1999 Net sales decreased $40.7 million, or 3%, principally on
the effect 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, at a lower price since the related distribution costs are now
incurred by Maxxium. On a comparable basis to prior periods, excluding the
impact of Maxxium, net sales would have been $52.0 million higher, or 1% higher
than 1999. This underlying increase in net sales was led by volume increases and
higher prices. The volume increases primarily reflect increased volumes in
existing premium, super-premium and wine products, line extensions and
introductions of new products, principally in the United States, partially
offset by volume declines in lower-margin U.S. and Scotch whiskey brands.
Operating company contribution increased $15.5 million, or 5%. The increase
resulted primarily from favorable price and volume changes for some brands in
the United States, as well as reduced costs from the Maxxium distribution joint
venture, partly offset by adverse foreign exchange rates.
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. Our spirits and wine
subsidiary agreed to contribute assets related to its international distribution
network and make periodic cash payments with a total estimated value of $110
million in return for a one-third interest in the venture. The investments in
Maxxium are recorded at book value of assets contributed plus cash invested.
The Maxxium joint venture, the merger of Grand Metropolitan and Guinness to
create Diageo in late 1997 and the pending sale of Seagram to Diageo and
Pernod-Ricard reflect a trend towards consolidation in the highly competitive
global spirits and wine business. The creation of Diageo 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 competitors.
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. It is impossible to predict whether any future excise tax increases
will occur, and whether they would have an adverse effect on unit sales,
profitability and industry trends if they did 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 increased slightly, indicating that the historic
decline may be reversing. From 1996 through 2000, cases of our spirits products
sold by distributors to retailers declined, although the rate of decline has
slowed since 1998. The number of cases sold may be affected by our spirits and
wine business's historic strength in mid-to-low priced products that may not be
fully benefiting from the factors influencing the recent industry trends. Our
spirits and wine business has introduced and developed several premium brands in
recent years and is focusing on the introduction of additional premium
products to its portfolio to capitalize on the fastest growing segment of the
spirits and wine industry. The number of cases sold may also be affected by
price increases our spirits and wine business has implemented in recent years.
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 above) 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
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 and improved gross margin (principally reflecting
favorable product mix and price increases) and the full year benefits of the
Geyser Peak wine acquisition, partly offset by higher operating expenses, net of
a reduction in distribution expenses which 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.
30
<PAGE>
Quarterly Financial Data unaudited
- --------------------------------------------------------------------------------
Fortune Brands, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In millions, except per share amounts)
2000 1st 2nd 3rd 4th
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales/(1)/ $1,377.9 $1,518.6 $1,421.2 $1,526.8
Gross profit/(1)/ 572.1 640.6 590.7 636.1
Operating company contribution 182.5 238.5 204.0 249.2
Net income (loss) 64.3 97.4 73.3 (372.7)
Earnings per common share
Basic/(2)/
Net income (loss) $ .40 $ .61 $ .47 $ (2.41)
- ------------------------------------------------------------------------------- --------------------------
Diluted/(2)/
Net income (loss) $ .39 $ .61 $ .46 $ (2.41)
==========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
1999 1st 2nd 3rd 4th
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales/(1)/ $1,304.1 $1,435.0 $1,353.0 $1,486.9
Gross profit/(1)/ 529.7 574.8 559.1 640.5
Operating company contribution 170.8 218.9 194.4 245.2
Net income (loss) 56.1 (1,096.1) 48.2 101.2
Earnings per common share
Basic/(3)/
Net income (loss) $ .33 $ (6.56) $ .29 $ .62
- ----------------------------------------------------------------------------------------------------------
Diluted/(3)/
Net income (loss) $ .32 $ (6.56) $ .28 $ .61
==========================================================================================================
</TABLE>
/(1)/ Net sales and gross profit have been restated due to the reclassification
of billed shipping and handling amounts in accordance with Emerging
Issues Task Force Issue No. 00-10.
In 2000, billed shipping and handling amounted to $14.1 million in the
first quarter; $18.0 million in the second quarter; $ 17.9 million in the
third quarter; and $18.7 million in the fourth quarter. (See Note 1.)
In 1999, billed shipping and handling amounted to $11.8 million in the
first quarter; $14.3 million in the second quarter; $13.7 million in the
third quarter; and $14.5 million in the fourth quarter. (See Note 1.)
/(2)/ In 2000, net income (loss) and basic and diluted earnings per common
share reflected restructuring and other nonrecurring charges of $ 4.5
million ($7.0 million pre-tax, or 3 cents), in the first quarter (See
Note 13); restructuring and other nonrecurring charges of $7.0 million
($11.1 million pre-tax, or 4 cents), in the second quarter, restructuring
and other nonrecurring charges of $7.7 million ($12.3 million pre-tax, or
5 cents), in the third quarter; and restructuring and other nonrecurring
charges of $27.4 million ($42.6 million pre-tax, or 17 cents) and a
write-down of goodwill of $502.6 million ($487.4 million after-tax, or
$3.09), in the fourth quarter. (See Note 1.)
The sum of the quarterly earnings per common share for 2000 does not
equal the amount shown for the year since assumed conversion of preferred
stock and exercise of stock options is not considered in loss periods due
to it being antidilutive.
/(3)/ 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 13) 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.
The sum of the quarterly earnings per common share for 1999 does not
equal the amount shown for the year since assumed conversion of preferred
stock and exercise of stock options is not considered in loss periods due
to it being antidilutive.
31
<PAGE>
Financial Condition
- --------------------------------------------------------------------------------
Fortune Brands, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
NET CASH PROVIDED FROM CONTINUING OPERATING ACTIVITIES Net cash provided from
continuing operating activities in 2000 was $472.4 million compared with $488.4
million in 1999. The principal reasons for the decrease were: increases in
inventory levels, particularly in home and golf products, a decrease in accrued
taxes principally due to the reversal of a tax reserve no longer required,
partly offset by a decrease in other assets.
NET CASH USED BY INVESTING ACTIVITIES Net cash used by investing activities in
2000 was $238.0 million compared with $349.2 million in 1999.
Capital expenditures. We focus our capital spending on becoming the lowest-cost
producers of the highest-quality products. Capital expenditures in 2000 were
$227.2 million as compared with $240.5 million in 1999. This includes $19.9
million in 2000 and $36.4 million in 1999 related to restructuring activities
(principally land and buildings related to relocation of certain operations to
Mexico). See Note 14 for capital expenditures. We currently estimate 2001
capital expenditures to be approximately $230 million and we expect to generate
these funds internally.
Acquisitions and Joint Venture. In 2000, our spirits and wine business invested
$25.6 million in its Maxxium joint venture toward its total investment of $110
million. 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. (See Note 2.)
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES Net cash used by financing
activities in 2000 was $284.0 million compared with $ 107.3 million in 1999.
During the year, purchases of our common stock amounted to $256.1 million and
proceeds received from the exercise of stock options decreased as options
exercises were lower than in the previous year.
DIVIDENDS
We paid common dividends in 2000 of $0.93 per share. Dividends paid to common
stockholders in 2000 decreased to $146.9 million from $148.7 million in 1999 due
to the lower shares outstanding. On December 1, 2000, we increased the common
stock quarterly dividend by 4% to $.24 per share, or an indicated annual rate of
$0.96 per share.
FINANCIAL POSITION
At December 31, 2000, total debt increased $113 million to $2.0 billion.
Short-term debt increased $166 million and long-term debt decreased $53 million.
Our total debt to total capital ratio increased to 47.8% at December 31, 2000
from 40.3% at December 31, 1999. 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.
At December 31, 2000, $1 billion of debt securities were available for public
sale under our shelf registration with the Securities and Exchange Commission.
We also 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 $224.6 million at December 31, 2000 from $ 309.9
million at December 31, 1999. Increased short-term debt (reflecting purchases of
common stock and an investment in a joint venture in 2000) was the principal
reason for the decline, partly offset by a decline in our accrued restructuring
liability. We believe that our 2000 working capital level was adequate to
support continued growth.
32
<PAGE>
- --------------------------------------------------------------------------------
FOREIGN EXCHANGE
Our subsidiaries 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.
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 of 1999, 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 hedged short-term intercompany
loans, intercompany purchases, foreign-denominated trade receivables primarily
resulting from sales to Maxxium 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 in the income statement.
At December 31, 2000, we had outstanding forward foreign exchange contracts to
purchase $78 million and sell $81 million of various currencies (principally
pound sterling and euros) with a weighted average maturity of 41 days. 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.
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, 2000 and 1999, the fair value of
all outstanding contracts and the contract amounts was essentially the same. A
10% fluctuation in exchange rates for these currencies would change the fair
value by approximately $0.4 million and $9 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, 2000 and 1999, we did not
have any outstanding interest rate swap agreements.
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, 2000 and 1999 was $1,138.5 million and $1,171.1 million,
respectively. If the prevailing interest rates at December 31, 2000 and 1999 had
increased by 1%, the fair value of our total long-term debt would have decreased
by approximately $61 million and $64 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 12 for a discussion of the accounting policies for Derivative
Financial Instruments and information on Financial Instruments, respectively.
33
<PAGE>
Financial Condition
- --------------------------------------------------------------------------------
Fortune Brands, Inc. and Subsidiaries
----------------------------------------
STOCKHOLDERS' EQUITY
Stockholders' equity at year end 2000 decreased $602.3 million to $2.1 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, 10 million and 11 million shares of common stock during 2000
and 1999, respectively. The systematic share purchase program was terminated in
January 2000.
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,
. changes in interest rates,
. competitive product and pricing pressures,
. trade consolidations,
. the impact of excise tax increases with respect to distilled spirits,
. regulatory developments,
. the uncertainties of litigation,
. changes in golf equipment regulatory standards,
. the impact of weather, particularly on the home and golf products groups,
. expenses and disruptions related to shifts in manufacturing to different
locations and sources,
. challenges in the integration of acquisitions and joint ventures,
. risks associated with the Company's implementation of strategic options for
ACCO World Corporation, as well as
. other risks and uncertainties detailed from time to time in the Company's
Securities and Exchange Commission filings.
QUARTERLY COMMON STOCK CASH DIVIDEND PAYMENTS
2000 1999
- -----------------------------------------------------------
Payment date Per share Per share
- -----------------------------------------------------------
March 1 $ .23 $ .22
June 1 .23 .22
September 1 .23 .22
December 1 .24 .23
- -----------------------------------------------------------
$ .93 $ .89
===========================================================
QUARTERLY COMPOSITE COMMON STOCK PRICES
2000 1999
- ------------------------------------------------------------
High Low High Low
- ------------------------------------------------------------
First 33 1/4 21 1/4 39 29 3/8
Second 29 22 11/16 45 7/8 38 1/16
Third 26 1/2 19 3/16 43 32 1/4
Fourth 30 15/16 24 1/16 36 3/8 30 13/16
============================================================
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.
34
<PAGE>
Consolidated Statement of Income
- --------------------------------------------------------------------------------
Fortune Brands, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For years ended December 31 (In millions except per share amounts) 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 5,844.5 $ 5,579.0 $ 5,280.1
Cost of products sold 3,089.0 2,873.1 2,667.9
Excise taxes on spirits and wine 352.7 401.8 443.7
Advertising, selling, general and administrative expenses 1,622.3 1,596.9 1,440.7
Amortization of intangibles 79.6 85.5 108.2
Write-down of goodwill 502.6 1,126.0 --
Restructuring charges 19.7 136.8 --
Interest and related expenses 133.8 106.8 102.7
Other (income) expenses, net 5.9 (27.2) 5.0
- ------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 38.9 (720.7) 511.9
Income taxes 176.6 169.9 218.3
- ------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS (137.7) (890.6) 293.6
Extraordinary items -- -- (30.5)
- ------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (137.7) $ (890.6) $ 263.1
========================================================================================================================
EARNINGS PER COMMON SHARE
Basic
Income (loss) from continuing operations $ (0.88) $ (5.35) $ 1.70
Extraordinary items -- -- (.18)
- ------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (0.88) $ (5.35) $ 1.52
========================================================================================================================
Diluted
Income (loss) from continuing operations $ (0.88) $ (5.35) $ 1.67
Extraordinary items -- (.18)
- ------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (0.88) $ (5.35) $ 1.49
========================================================================================================================
DIVIDENDS PAID PER COMMON SHARE $ .93 $ .89 $ .85
========================================================================================================================
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Basic 157.6 166.6 172.2
========================================================================================================================
Diluted 157.6 166.6 176.2
========================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
35
<PAGE>
Consolidated Balance Sheet
- --------------------------------------------------------------------------------
Fortune Brands, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31 (In millions, except per share amounts) 2000 1999
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 20.9 $ 71.9
Accounts receivable less allowances for discounts,
doubtful accounts and returns, 2000 $60.0; 1999 $63.4 952.1 956.5
Inventories
Bulk whiskey 297.9 326.0
Other raw materials, supplies and work in process 303.7 284.3
Finished products 477.6 451.1
- --------------------------------------------------------------------------------------------------------------------
1,079.2 1,061.4
Other current assets 212.3 223.0
- --------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 2,264.5 2,312.8
- --------------------------------------------------------------------------------------------------------------------
Property, plant and equipment
Land and improvements 98.5 104.5
Buildings and improvements to leaseholds 552.0 515.0
Machinery and equipment 1,498.0 1,383.9
Construction in progress 126.6 185.2
- --------------------------------------------------------------------------------------------------------------------
2,275.1 2,188.6
Less accumulated depreciation 1,070.0 1,012.1
- --------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net 1,205.1 1,176.5
Intangibles resulting from business acquisitions,
net of accumulated amortization, 2000 $794.1; 1999 $937.7 1,989.4 2,592.1
Other assets 305.1 335.7
- --------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 5,764.1 $ 6,417.1
====================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
36
<PAGE>
<TABLE>
<CAPTION>
2000 1999
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable to banks $ 41.7 $ 35.1
Commercial paper 751.9 602.2
Current portion of long-term debt 12.4 2.7
Accounts payable 291.8 272.2
Accrued taxes 387.3 436.3
Accrued expenses and other liabilities 554.8 654.4
------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 2,039.9 2,002.9
------------------------------------------------------------------------------------------------------------------------------
Long-term debt 1,151.8 1,204.8
Deferred income taxes 54.9 48.3
Postretirement and other liabilities 381.6 422.9
------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 3,628.2 3,678.9
------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity
$2.67 Convertible Preferred stock 9.2 9.9
Common stock, par value $3.125 per share, 229.6 shares issued 717.4 717.4
Paid-in capital 125.9 130.8
Accumulated other comprehensive income (loss) (79.6) (14.9)
Retained earnings 3,919.7 4,205.2
Treasury stock, at cost (2,556.7) (2,310.2)
------------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 2,135.9 2,738.2
------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,764.1 $ 6,417.1
==============================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
37
<PAGE>
Consolidated Statement of Cash Flows
- --------------------------------------------------------------------------------
Fortune Brands, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For years ended December 31 (In millions) 2000 1999 1998
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (137.7) $ (890.6) $ 263.1
Write-down of goodwill 502.6 1,126.0 --
Restructuring charges 19.7 136.8 --
Extraordinary items -- -- 30.5
Depreciation and amortization 236.7 230.5 251.1
Increase in accounts receivable (22.6) (24.4) (38.0)
(Increase) decrease in inventories (49.3) 34.7 (89.7)
Decrease (increase) in other assets 17.2 (57.2) (20.6)
(Decrease) increase in accrued taxes (46.8) (6.5) 38.6
Decrease in accounts payable, accrued expenses and other liabilities (68.8) (68.6) (63.1)
Increase in deferred income taxes 34.0 1.2 44.0
Other operating activities, net (12.6) 6.5 (11.7)
--------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED FROM CONTINUING OPERATING ACTIVITIES 472.4 488.4 404.2
--------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Additions to property, plant and equipment (227.2) (240.5) (251.9)
Investment in joint venture and acquisitions, net of cash acquired (25.6) (132.3) (271.8)
Proceeds from the disposition of property, plant and equipment 15.0 23.2 6.5
Proceeds from the disposition of operations, net of cash -- -- 17.0
Other investing activities, net (0.2) 0.4 (2.6)
--------------------------------------------------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES (238.0) (349.2) (502.8)
--------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in short-term debt, net 159.4 316.5 92.8
Issuance of long-term debt 0.6 226.3 624.1
Repayment of long-term debt (43.4) (182.6) (376.0)
Dividends to stockholders (147.7) (149.6) (147.4)
Cash purchases of common stock for treasury (256.1) (397.7) (112.0)
Proceeds received from exercise of stock options 2.7 80.4 56.6
Other financing activities, net 0.5 (0.6) (47.9)
--------------------------------------------------------------------------------------------------------------------------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (284.0) (107.3) 90.2
--------------------------------------------------------------------------------------------------------------------------
Effect of foreign exchange rate changes on cash (1.4) (0.3) (5.5)
--------------------------------------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS $ (51.0) $ 31.6 $ (13.9)
==========================================================================================================================
Cash and cash equivalents at beginning of year $ 71.9 $ 40.3 $ 54.2
Cash and cash equivalents at end of year $ 20.9 $ 71.9 $ 40.3
==========================================================================================================================
Cash paid during the year for
Interest, net of capitalized amount $ 140.9 $ 114.7 $ 107.9
Income taxes $ 178.1 $ 171.3 $ 124.1
==========================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
38
<PAGE>
Consolidated Statement of Stockholders' Equity
- --------------------------------------------------------------------------------
Fortune Brands, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
$2.67 Accumulated
Convertible Other Treasury
Preferred Common Paid-In Comprehensive Retained Stock,
(In millions) Stock Stock Capital Income (Loss) Earnings At Cost Total
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1998 11.3 717.4 151.1 6.9 5,129.7 (1,999.3) 4,017.1
Comprehensive income
Net income -- -- -- -- 263.1 -- 263.1
Changes during the year -- -- -- (2.2) -- -- (2.2)
- ---------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income -- -- (2.2) 263.1 260.9
Dividends -- -- -- -- (147.4) -- (147.4)
Purchases -- -- -- -- -- (112.2) (112.2)
Conversion of preferred stock
and delivery of stock
plan shares (0.8) -- (3.5) -- -- 83.4 79.1
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 10.5 717.4 147.6 4.7 5,245.4 (2,028.1) 4,097.5
Comprehensive income
Net loss -- -- -- -- (890.6) -- (890.6)
Changes during the year -- -- -- (19.6) -- -- (19.6)
- ---------------------------------------------------------------------------------------------------------------------------------
Total comprehensive loss -- -- -- (19.6) (890.6) -- (910.2)
Dividends -- -- -- -- (149.6) -- (149.6)
Purchases -- -- -- -- -- (397.6) (397.6)
Conversion of preferred stock
and delivery of stock
plan shares (0.6) -- (16.8) -- -- 115.5 98.1
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 $ 9.9 $ 717.4 $ 130.8 $ (14.9) $ 4,205.2 $ (2,310.2) $ 2,738.2
Comprehensive income
Net loss -- -- -- -- (137.7) -- (137.7)
Changes during the year -- -- -- (64.7) (0.1) -- (64.8)
- ---------------------------------------------------------------------------------------------------------------------------------
Total comprehensive loss -- -- -- (64.7) (137.8) -- (202.5)
Dividends -- -- -- -- (147.7) -- (147.7)
Purchases -- -- -- -- -- (255.8) (255.8)
Conversion of preferred stock
and delivery of stock
plan shares (0.7) -- (4.9) -- -- 9.3 3.7
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 $ 9.2 $ 717.4 $ 125.9 $ (79.6) $ 3,919.7 $ (2,556.7) $ 2,135.9
=================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
39
<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 first-in,
first-out and average 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, risk adjusted where necessary. 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.
In accordance with this accounting policy, during the fourth quarter of 2000,
the Company recorded a non-cash write-down of goodwill of $502.6 million, $487.3
million after-tax ($3.09 per share). This action resulted from the significant
shortfall in office products earnings, the softening conditions in the office
products industry and the ongoing strategic review process, which led to the
implementation of additional restructuring actions.
Included in intangible assets, at December 31, 2000 and 1999 are $859.6 million
and $880.1 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.
40
<PAGE>
Change in accounting for goodwill. Effective April 1, 1999, the Company elected
to change its method for assessing recoverability of goodwill from one based on
undiscounted cash flows to one based on discounted cash flows. The Company
determined that using a discounted cash flow methodology was a preferable
policy. The rate used in determining discounted cash flows was a rate
corresponding to the Company's cost of capital, risk adjusted where necessary.
The Company believes that fair value (i.e., discounted cash flow) is preferable
because it is consistent with the basis used for investment decisions
(acquisitions and capital projects) and takes into account the specific and
detailed operating plans and strategies of each business. This change represents
a change in accounting principle which is indistinguishable from a change in
estimate 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.
NET SALES Net sales reflect the effect of a reclassification of amounts billed
to cover shipping and handling costs primarily from the category "advertising,
selling, general and administrative expenses". This reclassification, which
added $68.7 million, $54.3 million and $39.2 million to net sales for the years
ending December 31, 2000, 1999 and 1998, respectively, was required by the
Emerging Issues Task Force Issue No. 00-10. This reclassification did not result
in a change in the Company's operating company contribution, earnings or
earnings per share in any of the periods affected. In addition, our income
statement reflects certain expenses to cover shipping and handling costs charged
by third parties. These expenses, primarily classified in advertising, selling
and general and administrative expenses, amounted to $174.1 million, $152.1
million and $135.8 million for the years ended December 31, 2000, 1999 and 1998,
respectively.
The Company generally recognizes revenue as products are shipped to customers,
net of applicable provisions for discounts, returns and allowances. The
Company provides for its estimate of potential bad debt and warranty expense at
the time of revenue recognition.
ADVERTISING COSTS Advertising costs, which amounted to $378.4 million, $365.6
million and $318.6 million in 2000, 1999 and 1998, 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 2000 and 1999 were $18.7
and $24.3 million, respectively. Amortization of $20.7 million, $26.8 million
and $27.4 million was recorded in the years ended December 31, 2000, 1999 and
1998, respectively and is included in the above amounts.
RESEARCH AND DEVELOPMENT Research and development expenses, which amounted to
$55.5 million, $55.6 million and $54.0 million in 2000, 1999 and 1998,
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 $212.0 million at December 31, 2000, 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.
41
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Fortune Brands, Inc and Subsidiaries
-------------------------------------
DERIVATIVE FINANCIAL INSTRUMENTS Derivative financial instruments are utilized
by the Company, principally 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.
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.
In June 1999, FAS Statement No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133,"
was issued, deferring the effective date of FAS Statement No. 133, "Accounting
for Derivative Instruments and Hedging Activities," from January 1, 2000 to
January 1, 2001. These statements establish accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded
in other contracts and for hedging activities. It requires recognition of all
derivatives as either assets or liabilities on the balance sheet and measurement
of those instruments at fair value. The Company will adopt FAS 133, as amended
by FAS Statement No. 138, "Accounting for Certain Derivative Instruments and
Hedging Activities, an amendment of FAS Statement 133", beginning January 1,
2001.
The Company currently enters into foreign currency hedges to mitigate any
unforeseen risks in the fluctuation of the underlying foreign currencies. These
new Statements will have an insignificant impact on our balance sheet, income
statement or footnote disclosures as of January 1, 2001.
2. ACQUISITIONS, DISPOSALS AND JOINT VENTURES
In 1999, the home products business acquired NHB Group Ltd., a manufacturer of
ready-to-assemble kitchen and bath cabinetry and the office products business
acquired Boone International Inc., a 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.
In 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.
In 1999, the spirits and wine business formed an international sales and
distribution joint venture named Maxxium International B.V. (Maxxium) with
Remy-Cointreau and Highland Distillers, which began operating in August 1999, 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 make 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 were recorded at its book value of assets contributed
plus cash invested. In January 2000, the Company's spirits and wine business
made a cash investment of $25.6 million in Maxxium towards its total investment
of $110 million. In addition, the Company guarantees certain credit facilities
and bank loans entered into by Maxxium up to an amount totaling $77 million of
which $68 million was outstanding at December 31, 2000.
During 1998, acquisitions were made in the home products, office products and
spirits and wine segments for an aggregate cost of $271.8 million, including
fees and expenses. In connection with these acquisitions, liabilities amounting
to $51 million were included at the dates of acquisition. The cost exceeded the
fair value of net assets acquired by $193.7 million.
These operations have been included in consolidated results from the dates of
acquisition. Had the acquisitions been consolidated at the beginning of the
year prior to the acquisitions, they would not have materially affected results.
42
<PAGE>
3. SHORT-TERM BORROWINGS AND CREDIT FACILITIES
At December 31, 2000 and 1999, there were $793.6 million and $637.3 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 6.3% and 5.2%, respectively.
At December 31, 2000 and 1999, there were $26.6 million and $12.4 million
outstanding under committed bank credit agreements, which provide for unsecured
borrowings of up to $59.8 million and $21.8 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 $76.9 million of which $10.4
million was outstanding at year end.
See Note 12 for a description of the Company's use of financial instruments.
4. LONG-TERM DEBT
The components of long-term debt are as follows:
(in millions) 2000 1999
- ------------------------------------------------------------------
Notes payable/(a)/ $ 200.0 $ 200.0
Revolving credit notes/(a)/ -- 42.7
8 1/2% Notes, Due 2003/(b)/ 106.9 106.9
7 1/8% Notes, Due 2004 200.0 200.0
6 1/4% Notes, Due 2008 200.0 200.0
8 5/8% Debentures, Due 2021/(b)/ 90.9 90.9
7 7/8% Debentures, Due 2023 150.0 150.0
6 5/8% Debentures, Due 2028 200.0 200.0
Other notes/(c)/ 11.0 11.0
Miscellaneous 5.4 6.0
- ------------------------------------------------------------------
1,164.2 1,207.5
Less current portion 12.4 2.7
- ------------------------------------------------------------------
$1,151.8 $1,204.8
==================================================================
/(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, 2000.
/(b)/ See Note 15.
/(c)/ The Other notes mature in 2001, with a weighted average coupon of 8.8%.
Estimated payments for maturing debt during the next five years are as follows:
2001, $12.4 million; 2002, $201.1 million; 2003, $109.5 million; 2004, $200.1
million; and no payments in 2005.
5. $2.67 CONVERTIBLE PREFERRED STOCK--REDEEMABLE AT COMPANY'S OPTION
Shares of the $2.67 Convertible Preferred stock issued and outstanding at
December 31, 2000, 1999 and 1998 were 302,399 shares, 323,325 shares and 344,831
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 to 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 20,926 shares, 21,506 shares and 25,108 shares
during 2000, 1999 and 1998, 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 $0.8 million,
$0.9 million and $0.9 million was paid in each of the years ended December 31,
2000, 1999 and 1998, respectively.
6. CAPITAL STOCK
The Company has 750 million authorized shares of common stock and 60 million
authorized shares of Preferred stock.
There were 153,508,867 and 163,243,041 common shares outstanding at December 31,
2000 and 1999, respectively.
The cash dividends paid on the common stock for the years ended December 31,
2000, 1999 and 1998 aggregated $146.9 million, $148.7 million and $146.5
million, respectively.
Treasury shares purchased and received as consideration for stock options
exercised amounted to 10,021,166 shares in 2000; 11,181,299 shares in 1999; and
3,444,180 shares in 1998. 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 286,992 shares in 2000; 3,540,070 shares in
1999; and 2,472,461 shares in 1998. At December 31, 2000 and 1999 there were
76,061,157 and 66,326,983 common treasury shares, respectively.
43
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Fortune Brands, Inc. and Subsidiaries
-----------------------------------------
7. 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, 2000, outstanding Rights
would have been exercisable as described above in the aggregate for 1,535,047 of
such shares.
8. 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 the 1990 Long-Term Incentive Plan 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 2000, 1999 and 1998
been determined consistent with FAS No. 123, pro forma net income (loss) and
earnings per common share would have been as follows:
(In millions,
except per share amounts) 2000 1999 1998
- --------------------------------------------------------------
Net income (loss) $ (152.7) $ (897.6) $ 252.9
==============================================================
Earnings per Common share
Basic $ (0.97) $ (5.39) $ 1.46
==============================================================
Diluted $ (0.97) $ (5.39) $ 1.43
==============================================================
44
<PAGE>
Changes during the three years ended December 31, 2000 in shares under options
were as follows:
Weighted-Average
Options Exercise Price
- -------------------------------------------------------------------
Outstanding at January 1, 1998 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
Granted 3,184,450 24.46
Exercised (122,941) 22.09
Lapsed (426,179) 33.56
- -------------------------------------------------------------------
Outstanding at December 31, 2000 13,793,674 $ 29.73
===================================================================
Options exercisable at the end of each of the three years ended December 31,
2000 were as follows:
Options Weighted-Average
Exercisable Exercise Price
- -------------------------------------------------------------------
December 31, 2000 8,710,980 $ 30.63
December 31, 1999 7,641,037 $ 29.84
December 31, 1998 9,732,526 $ 27.92
The weighted-average fair values of options granted during 2000, 1999 and 1998
were $6.15, $8.80, and $6.70, 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 2000, 1999
and 1998:
2000 1999 1998
- ------------------------------------------------------------------------
Expected dividend yield 3.4% 2.7% 2.7%
Expected volatility 30.0% 28.0% 21.0%
Risk-free interest rate 6.0% 6.0% 4.8%
Expected term 4.5 Years 4.5 Years 4.5 Years
Options outstanding at December 31, 2000 were as follows:
Weighted Weighted
Average Average
Range of Number Contractual Exercise
Exercise Prices Outstanding Life Price
- -------------------------------------------------------------
$20.98 to $24.50 4,329,511 8.0 $23.67
26.03 to 33.41 3,622,157 4.8 28.66
34.19 to 39.88 5,842,006 8.0 34.89
- -------------------------------------------------------------
$20.98 to $39.88 13,793,674 7.2 $29.73
=============================================================
Options exercisable at December 31, 2000 were as follows:
Number Weighted-Average
Exercisable Exercise Price
- ----------------------------------------------
2,685,339 $ 24.40
2,789,095 31.16
3,236,546 35.35
- ----------------------------------------------
8,710,980 $ 30.63
==============================================
At December 31, 2000, performance awards were outstanding pursuant to which up
to 144,750 shares, 222,150 shares, 156,000 shares and 207,750 shares may be
issued in 2001, 2002, 2003, and 2004 respectively, depending on the extent to
which certain specified performance objectives are met. 99,781 shares, 117,690
shares and 81,569 shares were issued pursuant to performance awards during 2000,
1999 and 1998, respectively. The costs of performance awards are expensed over
the performance period.
Compensation expense for stock based plans recorded for 2000, 1999 and 1998 was
$3.5 million, $3.4 million and $4.3 million, respectively.
Shares available in connection with future awards under the Company's stock
plans at December 31, 2000, 1999 and 1998 were: 6,465,498; and 9,752,818; and
6,843,255, respectively. Authorized but unissued shares are reserved for
issuance in connection with awards, but treasury shares may be and are
delivered.
9. 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
made as necessary to ensure legal funding requirements are satisfied.
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. Many employees and retirees outside the United States
are covered by government health care programs.
45
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Fortune Brands, Inc and Subsidiaries
--------------------------------------------
The components of net pension and postretirement costs are as follows:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
- ---------------------------------------------------------------------------------------------------------------
(In millions) 2000 1999(a) 1998 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Service cost $ 31.4 $ 33.6 $ 31.4 $ 1.8 $ 2.2 $ 2.1
Interest cost 55.8 52.9 50.5 7.8 7.8 8.5
Expected return on plan assets (76.1) (70.0) (66.3) -- -- --
Net amortization and deferral 1.0 5.9 4.2 (4.4) (2.3) (1.5)
- ---------------------------------------------------------------------------------------------------------------
$ 12.1 $ 22.4 $ 19.8 $ 5.2 $ 7.7 $ 9.1
===============================================================================================================
</TABLE>
(a) The above costs, for 1999, 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 13).
- --------------------------------------------------------------------------------
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 Postretirement
Benefits Benefits
- ------------------------------------------------------------------------
(In millions) 2000 1999 2000 1999
- ------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at
beginning of year $ 816.4 $803.7 $ 108.9 $ 121.6
Service cost 31.4 33.6 1.8 2.2
Interest cost 55.8 52.9 7.8 7.8
Actuarial loss (gain) 9.8 (30.7) 8.7 (16.8)
Participants' contributions 2.4 3.0 1.1 0.9
Foreign exchange
rate changes (21.9) (8.1) (0.7) (0.2)
Benefits paid (58.9) (52.2) (9.0) (7.2)
Other items 0.2 14.2 1.4 0.6
- ------------------------------------------------------------------------
Benefit obligation
at end of year 835.2 816.4 120.0 108.9
- ------------------------------------------------------------------------
CHANGE IN PLAN ASSETS:
Fair value of plan assets
at beginning of year 858.0 806.5 -- --
Actual return on plan assets 39.2 79.3 -- --
Employer contributions 37.3 23.5 7.9 6.3
Participants' contributions 2.4 3.0 1.1 0.9
Foreign exchange
rate changes (23.6) (8.6) -- --
Benefits paid (58.9) (52.2) (9.0) (7.2)
Other items 0.5 6.5 -- --
- ------------------------------------------------------------------------
Fair value of plan
assets at end of year 854.9 858.0 -- --
- ------------------------------------------------------------------------
FUNDED STATUS 19.7 41.6 (120.0) (108.9)
Unrecognized actuarial
loss (gain) 3.5 (29.1) (22.9) (36.3)
Unrecognized transition 10.5 (2.8) -- --
loss (gain)
Unrecognized prior service cost 20.6 21.9 (0.8) (2.4)
Other 0.9 (0.4) -- --
- ------------------------------------------------------------------------
Net amount recognized $ 55.2 $ 32.0 $(143.7) $(147.6)
========================================================================
Amounts recognized in the balance sheet are as follows:
Pension Postretirement
Benefits Benefits
- ------------------------------------------------------------------------
(In millions) 2000 1999 2000 1999
- ------------------------------------------------------------------------
Prepaid pension benefit $ 87.7 $ 75.8 $ -- $ --
Accrued benefit Liability (51.1) (57.9) (143.7) (147.6)
Intangible assets 10.7 8.9 -- --
Accumulated other
comprehensive income 7.9 5.2 -- --
- ------------------------------------------------------------------------
Net amount recognized $ 55.2 $ 32.0 $(143.7) $(147.6)
========================================================================
Weighted-average assumptions:
Discount rate 7.2% 7.2% 7.4% 7.4%
Expected long-term rate
of return on plan assets 9.6% 9.2% -- --
Rate of compensation
increase 4.9% 5.0% 4.9% 5.0%
========================================================================
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 $216.0 million, $205.6 million and $176.0 million,
respectively, as of December 31, 2000 and $129.4 million, $118.8 million and
$80.1 million, respectively, as of December 31, 1999.
46
<PAGE>
- --------------------------------------------------------------------------------
The assumed health care cost trend rate used in measuring the health care
portion of the postretirement cost for 2000 is 7 1/2%, 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-percentage-point increase in assumed health care
cost trend rates would increase the total of the service and interest cost
components for 2000 and the postretirement benefit obligation as of December 31,
2000 by $0.9 million and $10.0 million, respectively. A one- percentage-point
decrease in assumed health care cost trend rates would decrease the total of the
service and interest cost components for 2000 and the postretirement benefit
obligation by $0.8 million and $9.2 million, respectively.
The Company sponsors a number of defined contribution plans. Contributions are
determined under various formulas. Costs related to such plans amounted to $21.9
million, $21.3 million and $22.7 million in 2000, 1999 and 1998, respectively.
10. LEASE COMMITMENTS
Future minimum rental payments under noncancelable operating leases as of
December 31, 2000 are as follows:
(in millions)
- ------------------------------------------------------------
2001 $ 55.3
2002 48.6
2003 37.5
2004 31.4
2005 27.2
Remainder 111.8
- ------------------------------------------------------------
Total minimum rental payments 311.8
Less minimum rentals to be received under
noncancelable subleases 15.7
- ------------------------------------------------------------
$ 296.1
============================================================
Total rental expense for all operating leases (reduced by minor amounts from
subleases) amounted to $53.9 million, $50.3 million and $49.8 million in 2000,
1999 and 1998, respectively.
11. INCOME TAXES
The components of income (loss) from continuing operations before income taxes
are as follows:
(In millions) 2000 1999 1998
- ------------------------------------------------------
Domestic operations $(60.2) $(320.0) $407.1
Foreign operations 99.1 (400.7) 104.8
- ------------------------------------------------------
$ 38.9 $(720.7) $511.9
======================================================
A reconciliation of income taxes at the 35% federal statutory income tax rate to
income taxes as reported is as follows:
(In millions) 2000 1999 1998
- ------------------------------------------------------------------
Income taxes computed at federal
statutory income tax rate $ 13.6 $(252.2) $179.2
Other income taxes,
net of federal tax benefit 20.5 21.3 17.4
Goodwill write-down and
amortization not deductible
for income tax purposes 183.2 418.5 33.4
Miscellaneous, including
reversals of tax provisions
no longer required (40.7)(a) (17.7) (11.7)
- ------------------------------------------------------------------
Income taxes as reported $176.6 $ 169.9 $218.3
==================================================================
(a) Includes a $30 million reversal of tax reserve that is no longer
required.
Income taxes are as follows:
(In millions) 2000 1999 1998
- ------------------------------------------------------------------
Currently payable
Federal $ 83.9 $ 45.8 $106.7
Foreign 34.5 98.9 35.3
Other 28.5 28.2 25.3
Deferred
Federal and other 26.1 (6.8) 42.2
Foreign 3.6 3.8 8.8
- ------------------------------------------------------------------
$176.6 $169.9 $218.3
==================================================================
47
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Fortune Brands, Inc and Subsidiaries
-------------------------------------
The components of net deferred tax assets (liabilities) are as follows:
(In millions) 2000 1999
- --------------------------------------------------------------
Current assets
Compensation and benefits $ 9.2 $ 10.6
Other reserves 22.5 30.9
Capitalized interest-inventory 14.7 13.9
Restructuring 5.7 17.7
Interest 1.9 1.9
Accounts receivable 13.7 14.9
Miscellaneous 33.1 29.5
- --------------------------------------------------------------
100.8 119.4
- --------------------------------------------------------------
Current liabilities
Inventories (12.2) (12.3)
Miscellaneous (21.5) (16.9)
- --------------------------------------------------------------
(33.7) (29.2)
- --------------------------------------------------------------
Deferred income taxes included in
Other current assets 67.1 90.2
- --------------------------------------------------------------
Noncurrent assets
Compensation and benefits 51.9 48.9
Other retiree benefits 30.3 30.8
Other reserves 31.7 28.2
Foreign exchange 1.2 1.3
Miscellaneous 26.7 31.4
- --------------------------------------------------------------
141.8 140.6
- --------------------------------------------------------------
Noncurrent liabilities
Depreciation (72.7) (70.4)
Pensions (4.9) (6.4)
Trademark amortization (81.1) (74.1)
Miscellaneous (38.0) (38.0)
- --------------------------------------------------------------
(196.7) (188.9)
- --------------------------------------------------------------
Deferred income taxes (54.9) (48.3)
- --------------------------------------------------------------
Net deferred tax asset $ 12.2 $ 41.9
==============================================================
12. FINANCIAL INSTRUMENTS
The Company does not enter into financial instruments for trading or speculative
purposes. Financial instruments are used to principally 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.
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, 2000, the Company had outstanding forward foreign exchange
contracts to purchase $78 million and sell $81 million of various foreign
currencies (principally pound sterling and euros), with maturities ranging from
January 3, 2001 to December 21, 2001, with a weighted average maturity of 41
days. At December 31, 1999, the Company also 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.
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, 2000 and 1999, the fair value of
all outstanding contracts and the contract amounts were essentially the same.
48
<PAGE>
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, 2000 and 1999, the Company did not have any
outstanding interest rate swap agreements.
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 $1,164.2 million and $1,207.5 million
total long-term debt (including current portion) at December 31, 2000 and 1999
was approximately $1,138.5 million and $1,171.1 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.
13. RESTRUCTURING AND OTHER NONRECURRING CHARGES
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 includes 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 includes reductions in force resulting from the move of labeling
and printing production to Mexico as well as other reductions in force in the
U.S. and Europe. The total reduction in force was 406 positions.
Golf products includes asset write-offs and reductions in force (180 positions)
principally resulting from consolidation of golf club facilities from six to
three.
Spirits and wine charges include 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 employee-related and lease termination costs related
to the relocation of the Corporate office 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.
In connection with the restructuring program established in 1999, the Company
recorded pre-tax restructuring charges for the year ended December 31, 2000 as
follows:
(In millions) Restructuring
- ---------------------------------------------------------------
Home products $ 3.6
Office products 13.3
Golf products 2.8
- ---------------------------------------------------------------
$ 19.7
===============================================================
The above charges include costs associated with the elimination of 648 positions
for the year ended December 31, 2000.
Home products includes charges related to employee termination costs (89
positions).
Office products includes charges related to employee termination costs (462
positions) and asset write-offs.
Golf products includes charges related to lease cancellation and employee
termination costs (97 positions).
49
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Fortune Brands, Inc and Subsidiaries
-------------------------------------
Reconciliation of the restructuring liability, as of December 31, 1999 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/(1)/ $ 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>
/(1)/ As of December 31, 1999, 1,005 of the 1,622 positions were eliminated.
- --------------------------------------------------------------------------------
Reconciliation of the restructuring liability, as of December 31, 2000 is as
follows:
<TABLE>
<CAPTION>
Balance at 2000 Cash Non-Cash Balance at
(In millions) 12/31/99 Provision Expenditures Write-offs 12/31/00
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Rationalization of operations
Employee termination costs/(1)/ $ 38.3 $ 14.8 $ (37.6) $ (1.2) $ 14.3
Other 1.5 (0.6) 1.5 (2.4) --
International distribution and lease agreements 16.3 2.1 (2.5) (8.3) 7.6
Loss on disposal of assets 0.8 3.4 -- (2.6) 1.6
- --------------------------------------------------------------------------------------------------------------------
$ 56.9 $ 19.7 $ (38.6) $ (14.5) $ 23.5
====================================================================================================================
</TABLE>
/(1)/ Of the 2,270 positions planned for elimination, 2,052 had been eliminated
as of December 31, 2000.
The Company expects that all remaining activity will be completed within the
next twelve months.
During 1999, the Company recorded other nonrecurring charges as follows:
Cost of
Sales SG&A
(In millions) Charges Charges Total
- --------------------------------------------------------
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
========================================================
Other nonrecurring charges include charges related to the 1999 restructuring
activities:
Home products includes relocation costs for certain manufacturing facilities.
Office products includes 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 includes 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 1999 amortization of corporate furniture and
leasehold improvements no longer utilized.
During 2000, the Company recorded other nonrecurring charges as follows:
Cost of
Sales SG&A
(In millions) Charges Charges Total
- --------------------------------------------------------
Home products $ 11.3 $ 2.9 $ 14.2
Office products 25.1 8.7 33.8
Golf products 0.2 2.8 3.0
Corporate office -- 2.3 2.3
- --------------------------------------------------------
$ 36.6 $ 16.7 $ 53.3
========================================================
50
<PAGE>
- --------------------------------------------------------------------------------
Other nonrecurring charges include charges related to the 2000 restructuring
activities:
Home products includes costs associated with a plant relocation and the
establishment of a distribution center.
Office products includes relocation costs for manufacturing facilities, product
line discontinuances, and the write-off of a note receivable related to a
previously sold operation.
Golf products includes relocation costs for certain manufacturing facilities and
inventory write-offs due to the discontinuance of certain product lines.
Corporate office includes relocation costs associated with establishing a new
corporate headquarters.
14. INFORMATION ON BUSINESS SEGMENTS
The Company's subsidiaries operate principally in the following business
segments:
Home products includes: kitchen and bathroom faucets, as well as plumbing supply
and repair products manufactured, marketed or distributed by Moen; locks
manufactured, marketed or distributed by Master Lock; Aristokraft and Schrock
kitchen cabinets and bathroom vanities manufactured by MasterBrand Cabinets; and
tool storage products manufactured by Waterloo.
Office products includes paper fastening, document management, computer
accessories, time management, presentation and other office products
manufactured, marketed or distributed by ACCO World subsidiaries.
Golf products includes golf balls, shoes, gloves and clubs manufactured,
marketed or distributed by Acushnet Company.
Spirits and wine includes products produced, marketed or distributed 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 2000, 1999 and 1998
and segment assets for the related year ends by business segments and by
geographic areas, are shown on page 56.
Operating company contribution, the key measure by which we gauge performance,
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:
(In millions) 2000 1999 1998
- --------------------------------------------------------------------------------
Operating company contribution $ 874.2 $ 829.3 $ 798.3
Restructuring charges 19.7 136.8 --
Nonrecurring charges 53.3 59.2 --
Amortization of intangibles 79.6 85.5 108.2
Write-down of goodwill 502.6 1,126.0 --
Interest and related expenses 133.8 106.8 102.7
Non-operating expenses 46.3 35.7 75.5
- --------------------------------------------------------------------------------
Income (loss) from continuing
operations before income taxes
as reported $ 38.9 $ (720.7) $ 511.9
================================================================================
Reconciliation of segment assets to consolidated total assets is as follows:
(In millions) 2000 1999 1998
- --------------------------------------------------------------------------------
Segment assets $ 3,617.5 $ 3,642.9 $ 3,473.2
Intangibles resulting from
business acquisitions, net 1,989.4 2,592.1 3,761.3
Corporate 157.2 182.1 125.2
- --------------------------------------------------------------------------------
$ 5,764.1 $ 6,417.1 $ 7,359.7
================================================================================
51
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Fortune Brands' Inc and Subsidiaries
------------------------------------------
Long-lived assets are as follows:/(A)/
(In millions) 2000 1999 1998
- --------------------------------------------------------------------------------
United States $ 956.3 $ 911.7 $ 852.3
United Kingdom 153.2 188.6 194.8
Canada 24.9 25.4 21.2
Australia 12.1 14.1 16.8
Other countries 58.6 36.7 34.8
- --------------------------------------------------------------------------------
$ 1,205.1 $ 1,176.5 $ 1,119.9
================================================================================
/(A)/ Represents property, plant and equipment, net.
Depreciation is as follows:
(In millions) 2000 1999 1998
- --------------------------------------------------------------------------------
Home products $ 55.5 $ 43.1 $ 41.8
Office products 43.2 38.8 42.5
Golf products 23.0 21.6 20.0
Spirits and wine 35.0 38.8 35.7
Corporate 0.4 2.7 2.9
- --------------------------------------------------------------------------------
$ 157.1 $ 145.0 $ 142.9
================================================================================
Amortization of intangibles is as follows:
(In millions) 2000 1999 1998
- --------------------------------------------------------------------------------
Home products $ 32.8 $ 32.4 $ 31.7
Office products 22.8 21.7 23.3
Golf products 3.1 6.5 17.4
Spirits and wine 20.9 24.9 35.8
- --------------------------------------------------------------------------------
$ 79.6 $ 85.5 $ 108.2
================================================================================
Capital expenditures are as follows:
(In millions) 2000 1999 1998
- --------------------------------------------------------------------------------
Home products $ 117.1 $ 113.0 $ 57.6
Office products 30.4 55.5 107.2
Golf products 35.0 37.2 39.9
Spirits and wine 44.3 34.4 46.3
Corporate 0.4 0.4 0.9
- --------------------------------------------------------------------------------
$ 227.2 $ 240.5 $ 251.9
================================================================================
15. EXTRAORDINARY ITEMS
During 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.
16. 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 2.5 million and 3.7 million shares, were not included in
the computation of diluted earnings per common share for 2000 and 1999,
respectively, since they would have resulted in an antidilutive effect.
52
<PAGE>
- --------------------------------------------------------------------------------
The computation of basic and diluted earnings per common share for "Income from
continuing operations" is as follows:
<TABLE>
<CAPTION>
(In millions, except per share amounts) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income (loss) from continuing operations $ (137.7) $ (890.6) $ 293.6
Less: Preferred stock dividends 0.8 0.9 0.9
- ----------------------------------------------------------------------------------------------------------------------
Income available to common stockholders - basic (138.5) (891.5) 292.7
Convertible Preferred stock dividend requirements -- -- 0.9
- ----------------------------------------------------------------------------------------------------------------------
Income available to common stockholders - diluted $ (138.5) $ (891.5) $ 293.6
======================================================================================================================
Weighted average number of common shares outstanding - basic 157.6 166.6 172.2
Conversion of Convertible Preferred stock -- -- 2.2
Exercise of stock options -- -- 1.8
- ----------------------------------------------------------------------------------------------------------------------
Weighted average number of common shares outstanding - diluted 157.6 166.6 176.2
======================================================================================================================
Earnings per common share
Basic $ (0.88) $ (5.35) $ 1.70
======================================================================================================================
Diluted $ (0.88) $ (5.35) $ 1.67
======================================================================================================================
</TABLE>
17. 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 comprehensive income (expense) are as
follows:
<TABLE>
<CAPTION>
Accumulated Other
Foreign Currency Minimum Pension Comprehensive
(In millions) Adjustments Liability Adjustment Income (Loss)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, 1998 $ 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)
Changes during year (net of taxes of $2.3) (63.5) (1.2) (64.7)
- ----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 $ (75.4) $ (4.2) $ (79.6)
=====================================================================================================================
</TABLE>
53
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Fortune Brands, Inc. and Subsidiaries
-------------------------------------
18. 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, including the fact that the Company
never made or sold tobacco, 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.
19. 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.
54
<PAGE>
Report of Independent Accountants and Report of Management
- --------------------------------------------------------------------------------
Fortune Brands, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
TO THE BOARD OF DIRECTORS AND
STOCKHOLDERS OF FORTUNE BRANDS, INC.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, cash flows and stockholders' equity present
fairly, in all material respects, the financial position of Fortune Brands, Inc.
and Subsidiaries at December 31, 2000 and 1999, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2000 in conformity with generally accepted accounting
principles in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards in the United States of America 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 our opinion.
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.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois 60601
January 24, 2001
TO THE STOCKHOLDERS OF FORTUNE BRANDS, INC.
We have prepared the consolidated balance sheet of Fortune Brands, Inc. and
Subsidiaries as of December 31, 2000 and 1999, and the related consolidated
statements of income, cash flows and stockholders' equity for each of the three
years in the period ended December 31, 2000. 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.
/s/ NORMAN H. WESLEY
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
55
<PAGE>
Information on Business Segments/(1)/
- --------------------------------------------------------------------------------
Fortune Brands, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In millions) 2000 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BUSINESS SEGMENTS
NET SALES/(2)/
Home products $2,215.0 $1,950.7 $1,636.8 $1,394.0 $1,374.1 $1,306.8
Office products 1,435.4 1,381.0 1,403.3 1,294.2 1,228.7 1,206.1
Golf products 965.2 977.7 974.1 911.6 811.4 579.3
Spirits and wine 1,228.9 1,269.6 1,265.9 1,244.7 1,303.5 1,288.6
- ---------------------------------------------------------------------------------------------------------------------------------
Ongoing operations 5,844.5 5,579.0 5,280.1 4,844.5 4,717.7 4,380.8
Other businesses/(3)/ -- -- -- -- -- 547.3
- ---------------------------------------------------------------------------------------------------------------------------------
$5,844.5 $5,579.0 $5,280.1 $4,844.5 $4,717.7 $4,928.1
OPERATING COMPANY CONTRIBUTION
Home products $ 340.4 $ 300.2 $ 252.5 $ 222.9 $ 214.1 $ 208.4
Office products 79.5 88.5 134.0 128.1 116.3 105.5
Golf products 145.2 147.0 142.9 138.2 125.3 84.2
Spirits and wine 309.1 293.6 268.9 257.2 244.1 241.9
- ---------------------------------------------------------------------------------------------------------------------------------
Ongoing operations 874.2 829.3 798.3 746.4 699.8 640.0
Other businesses/(3)/ -- -- -- -- -- 6.8
- ---------------------------------------------------------------------------------------------------------------------------------
$ 874.2 $ 829.3 $ 798.3 $ 746.4 $ 699.8 $ 646.8
=================================================================================================================================
SEGMENT ASSETS/(4)/
Home products $1,143.3 $1,008.3 $ 826.2 $ 735.8 $ 752.7 $ 738.1
Office products 936.4 987.6 1,011.5 861.4 856.9 794.1
Golf products 603.0 604.8 667.6 617.1 579.8 361.9
Spirits and wine 934.8 1,042.2 967.9 899.4 986.9 939.4
- ---------------------------------------------------------------------------------------------------------------------------------
$3,617.5 $3,642.9 $3,473.2 $3,113.7 $3,176.3 $2,833.5
=================================================================================================================================
GEOGRAPHIC AREAS
NET SALES/(2),(5)/
United States $4,501.4 $4,196.2 $3,852.9 $3,432.4 $3,330.6 $3,116.5
United Kingdom 426.4 494.0 552.0 499.5 522.8 498.6
Canada 261.4 238.2 236.0 223.9 194.2 184.7
Australia 151.9 157.1 158.4 199.6 190.9 160.6
Other countries 503.4 493.5 480.8 489.1 479.2 420.4
- ---------------------------------------------------------------------------------------------------------------------------------
Ongoing operations $5,844.5 $5,579.0 $5,280.1 $4,844.5 $4,717.7 $4,380.8
=================================================================================================================================
</TABLE>
/(1)/ See Note 14 for further Information on Business Segments.
/(2)/ Net Sales have been restated for 1999 and 1998 to conform to the 2000
presentation due to the reclassification of billed shipping and handling
amounts in accordance with Emerging Issues Task Force Issue No. 00-10.
Amounts prior to 1998 have not been restated as amounts are not
available.
/(3)/ Other businesses included retail distribution and housewares sold during
1995.
/(4)/ Represents total assets excluding intercompany receivables and
intangibles resulting from business acquisitions, net.
/(5)/ Net sales are attributed to countries based on location of customer.
56
<PAGE>
<TABLE>
<CAPTION>
Six- Year Consolidated Selected Financial Data
- --------------------------------------------------------------------------------------------------------------------------------
Fortune Brands, Inc and Subsidiaries
- --------------------------------------------------------------------------------------------------------------------------------
(In millions, except per share amounts) 2000 1999/(2)/ 1998/(2)/ 1997 1996/(2)/ 1995
--------------------------------------------------------------------------------------------------------------------------------
<S>
OPERATING DATA/(1)/ <C> <C> <C> <C> <C> <C>
Net sales/(3)/ $ 5,844.5 $ 5,579.0 $ 5,280.1 $ 4,844.5 $ 4,717.7 $ 4,928.1
Gross profit/(3)/ 2,439.5 2,304.1 2,168.5 1,885.4 1,863.4 1,816.4
Depreciation and amortization 236.7 230.5 251.1 242.7 238.3 224.0
Operating company contribution 874.2 829.3 798.3 746.4 699.8 546.8
Interest and related expenses 133.8 106.8 102.7 116.7 165.5 136.6
Income taxes 176.6 169.9 218.3 98.2 157.9 171.5
Income (loss) from continuing operations (137.7) (890.6) 293.6 41.5 181.7 185.9
Income from discontinued operations -- -- -- 65.1 315.1 357.2
Extraordinary items -- -- (30.5) (8.1) (10.3) (2.7)
Net income (loss) (137.7) (890.6) 263.1 98.5 486.5 540.4
Earnings per common share
Basic
Continuing operations $ (0.88) $ (5.35) $ 1.70 $ .24 $ 1.04 $ .99
Discontinued operations -- -- -- .38 1.82 1.91
Extraordinary items -- -- (.18) (.05) (.06) (.01)
--------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (0.88) $ (5.35) $ 1.52 $ .57 $ 2.80 $ 2.89
================================================================================================================================
Diluted
Continuing operations $ (0.88) $ (5.35) $ 1.67 $ .23 $ 1.03 $ .98
Discontinued operations -- -- -- .38 1.79 1.89
Extraordinary items -- -- (.18) (.05) (.06) (.01)
--------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (0.88) $ (5.35) $ 1.49 $ .56 $ 2.76 $ 2.86
================================================================================================================================
COMMON SHARE DATA/(1),(4)/
Dividends paid $ 146.9 $ 148.7 $ 146.5 $ 242.3 $ 347.2 $ 376.2
Dividends paid per share $ .93 $ .89 $ .85 $ 1.41 $ 2.00 $ 2.00
Average number of shares outstanding 157.6 166.6 172.2 171.6 173.3 186.9
Book value per share $ 13.85 $ 16.71 $ 23.92 $ 23.31 $ 21.48 $ 21.61
================================================================================================================================
BALANCE SHEET DATA/(1)/
Inventories $ 1,079.2 $ 1,061.4 $ 1,087.6 $ 955.2 $ 1,037.9 $ 950.9
Current assets/(5)/ 2,264.5 2,312.8 2,265.3 2,095.6 2,842.1 2,112.5
Working capital/(5)/ 224.6 309.9 420.7 327.1 774.0 651.7
Property, plant and equipment, net 1,205.1 1,176.5 1,119.9 980.9 972.6 904.3
Intangibles, net 1,989.4 2,592.1 3,761.3 3,674.1 3,730.7 3,103.2
Net assets of discontinued operations -- -- -- -- -- 520.7
Total assets 5,764.1 6,417.1 7,359.7 6,942.5 7,737.3 6,833.4
Short-term debt 806.0 640.0 504.7 404.6 782.2 470.0
Long-term debt 1,151.8 1,204.8 981.7 739.1 1,598.3 1,063.0
Stockholders' equity 2,135.9 2,738.2 4,097.5 4,017.1 3,676.0 3,864.0
Capital expenditures 227.2 240.5 251.9 196.9 199.7 175.6
================================================================================================================================
</TABLE>
/(1)/ See pages 25 through 34 of Financial Section.
/(2)/ See Note 2. 1996 includes the acquisition in January of Cobra Golf
Incorporated.
/(3)/ Net Sales and Gross Profit have been restated for 1999 and 1998 to conform
to the 2000 presentation due to the reclassification of billed shipping
and handling amounts in accordance with Emerging Issues Task Force Issue
No. 00-10. Amounts prior to 1998 have not been restated as amounts are not
available.
/(4)/ On January 31, 2001, there were 33,759 common stockholders of record, not
necessarily reflecting beneficial ownership.
/(5)/ 1996 include net assets of discontinued operations as current assets.
57
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>14
<FILENAME>0014.txt
<DESCRIPTION>SUBSIDIARIES OF REGISTRANT
<TEXT>
<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.S. 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
ACCO Italia S.p.A. Italy
Acushnet Company Delaware
Acushnet Cayman Limited Cayman Islands
Acushnet Lionscore, Ltd. (2) 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 40% owned by Acushnet Cayman Limited.
<PAGE>
State or Other
Jurisdiction
Subsidiary of Incorporation
- ---------------------- ----------------------
Acushnet Golf Thailand Ltd. Thailand
Acushnet Japan, Inc. Japan
Acushnet Limited England
Acushnet-Danmark ApS Denmark
Acushnet France S.A. France
Acushnet GmbH Germany
Acushnet Nederland B.V. Netherlands
Acushnet Osterreich GmbH Austria
Acushnet South Africa (Pty.) Ltd. South Africa
Acushnet Sverige AB Sweden
Cobra Golf Incorporated Delaware
Fortune Brands Finance Canada Ltd. Ontario, Canada
Fortune Brands Finance UK plc England
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. Delaware
Maxxium Worldwide B.V. (3) Netherlands
Jim Beam Brands Australia Pty. Limited Australia
Barwang International Pty. Limited (4) Australia
JBB (Greater Europe) PLC (5) Scotland
Jim Beam Brands Co. Delaware
James B. Beam Distilling International Co., Inc. Barbados
JBB Spirits (New York) Inc. New York
Jim Beam Brands Canada, L.P. (6) New Brunswick, Canada
John de Kuyper & Son, Incorporated Delaware
Wood Terminal Company Delaware
MasterBrand Industries, Inc. Delaware
Fortune Brands Home & Office, Inc. Delaware
MasterBrand Cabinets, Inc. Delaware
MasterBrand Industries Foreign Sales Corporation (7) Barbados
________________________
3 33.3% owned by Jim Beam Brands Netherlands, B.V., a subsidiary of Bourbon
Warehouse Receipts, Inc.
4 50% owned by Jim Beam Brands Australia Pty. Limited.
5 428,055,999 shares owned by Jim Beam Brands Worldwide, Inc; 1 share owned
by Jim Beam Brands Co.
6 99% owned by Jim Beam Brands Worldwide, Inc.; 1% owned by Bourbon Warehouse
Receipts, Inc.
7 Owned equally by MasterBrand Cabinets, Inc., Master Lock Company, Moen
Incorporated, Waterloo Industries, Inc. and 21/st/ Century Companies, Inc.
<PAGE>
State or Other
Jurisdiction
Subsidiary of Incorporation
- ---------------------- ----------------------
Master Lock Company Delaware
Master Lock de Nogales, S.A. de C.V. (8) Mexico
Master Lock Europe, S.A. (9) France
Moen Incorporated Delaware
Creative Specialties International California
Creative Specialties International Company
Limited (10) Hong Kong
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 International, Inc. Connecticut
Moen of Pennsylvania, Inc. Delaware
Moen Sonora S.A. de C.V. (13) Mexico
21/st/ Century Companies, Inc. Delaware
Waterloo Industries, Inc. Delaware
Waterloo de Nogales, S.A. de C.V. (14) Mexico
1700 Insurance Company Ltd. Bermuda
______________________________________________________________________________
8 49,996 shares owned by Master Lock Company and 4 shares owned by John
Heppner, Executive Vice President and Chief Operating Officer of Master
Lock Company.
9 99.68% owned by Master Lock Company.
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.
13 49,999 shares owned by Moen Incorporated and 1 share owned by Bruce A.
Carbonari, President and Chief Executive Officer of MasterBrand Industries,
Inc.
14 99.9% owned by Waterloo Industries, Inc. and 0.1% owned by MasterBrand
Industries, Inc.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.(I)
<SEQUENCE>15
<FILENAME>0015.txt
<DESCRIPTION>CONSENT OF INDEPENDENT ACCOUNTANTS
<TEXT>
<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. 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. 33-58865) relating to the 1990 Long-Term Incentive Plan of Fortune Brands,
Inc., 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. 333-51173) relating to the
Fortune Brands, Inc. Non-Employee Director Stock Option Plan, and the
prospectuses related thereto, and (b) the Registration Statements on Form S-3
(Registration Nos. 33-50832 and 333-76371) of Fortune Brands, Inc. of our report
dated January 24, 2001, relating to on our audits of the consolidated financial
statements of Fortune Brands, Inc. and Subsidiaries as of December 31, 2000 and
1999 and for the three years ended December 31, 2000, which is incorporated in
this Annual Report on Form 10-K. We also consent to the incorporation by on Form
F-2 reference of our report on the consolidated financial statement schedule
which appears on page F-2 in this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
Chicago, Illinois 60601
March 9, 2001
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-24
<SEQUENCE>16
<FILENAME>0016.txt
<DESCRIPTION>POWERS OF ATTORNEY RELATING TO EXECUTION
<TEXT>
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
The undersigned, acting in the capacity or capacities stated with their
respective names below, hereby constitute and appoint NORMAN H. WESLEY, 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, 2000, and any and all amendments thereto:
Signature Title Date
/s/ Norman H. Wesley
- ---------------------- Chairman of the Board February 27, 2001
Norman H. Wesley and Chief Executive
Officer (principal
executive officer) and
Director
/s/ Craig P. Omtvedt
- ---------------------- Senior Vice President February 27, 2001
Craig P. Omtvedt and Chief Financial
Officer (principal
financial officer)
/s/ Michael R. Mathieson
- ------------------------ Vice President and February 27, 2001
Michael R. Mathieson Chief Accounting
Officer (principal
accounting officer)
/s/ Patricia O. Ewers
- ---------------------- Director February 27, 2001
Patricia O. Ewers
/s/ Thomas C. Hays
- ---------------------- Director February 27, 2001
Thomas C. Hays
/s/ John W. Johnstone, Jr.
- -------------------------- Director February 27, 2001
John W. Johnstone, Jr.
<PAGE>
/s/ Sidney Kirschner
- ---------------------- Director February 27, 2001
Sidney Kirschner
/s/ Gordon R. Lohman
- ---------------------- Director February 27, 2001
Gordon R. Lohman
/s/ Charles H. Pistor, Jr.
- -------------------------- Director February 27, 2001
Charles H. Pistor, Jr.
/s/ Eugene A. Renna
- ---------------------- Director February 27, 2001
Eugene A. Renna
/s/ Anne M. Tatlock
- ---------------------- Director February 27, 2001
Anne M. Tatlock
/s/ David M. Thomas
- ---------------------- Director February 27, 2001
David M. Thomas
/s/ Peter M. Wilson
- ---------------------- Director February 27, 2001
Peter M. Wilson
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>17
<FILENAME>0017.txt
<DESCRIPTION>LIST OF PENDING / TERMINATED CASES
<TEXT>
<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;
Adkins, C. v. The American Tobacco Company, et al., Circuit Court of
Kanawha County, West Virginia, May 31, 2000;
Alexander, E. v. Philip Morris Companies, Inc., et al., USDC, Eastern
District of LA, St. Landry Parish District Court, September 27, 1999;
Anderson, D. v. The American Tobacco Company, et al., Circuit Court of
Kanawha County, West Virginia, May 30, 2000;
Anderson, J. v. The American Tobacco Company, et al., Circuit Court of Knox
County, Tennessee, May 23, 1997;
Badon, C. v. RJR 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;
Bergeron, D. (Trustees of Massachusetts Carpenters) v. Philip Morris, et
al., Eastern District of New York, September 29, 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;
Cochran, O. v. R.J. Reynolds Tobacco Company, et al., Circuit Court of
George County, Mississippi, February 6, 2001;
Colenberg, E. v. R.J. Reynolds Tobacco Company, et al., Circuit Court of
Jefferson County, Mississippi, October 18, 2000;
<PAGE>
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;
Creech, W. v. The American Tobacco Company, et al., Supreme Court of New
York, Richmond County, January 6, 1997;
DaSilva, JC v. The American Tobacco Company, et al., Supreme Court of New
York, New York County, April 3, 1997;
Decie, W. v. Fortune Brands, Inc., United States District Court, Eastern
District of New York, April 21, 2000;
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, 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";
Fleming, E. v. Philip Morris, Inc., et al., Circuit Court, Kanawha County,
West Virginia, November 2, 2000;
Frankson, G. v. The American Tobacco Company, et al., Supreme Court (State)
New York, Kings County, August 24, 2000;
2
<PAGE>
Gales, C. v. R.J. Reynolds Tobacco Company, et al., Circuit Court of
Jefferson County, Mississippi, October 18, 2000;
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;
Guillory v. The American Tobacco Company, et al., Circuit Court of Cook
County, Illinois, July 7, 1997 (formerly reported under the caption "Denberg"
and "Daley");
Hansen, C. v. The American Tobacco Company, et al., Supreme Court of New
York, Suffolk County, October 16, 1997;
Honduras, (The Republic of) v. Philip Morris, Inc., et al., Circuit Court
of the Eleventh Judicial Circuit in and for Miami-Dade County, Florida, October
5, 2000;
Iacono, A. v. The American Tobacco Company, et al., Supreme Court, Kings
County, New York, August 20, 1997 (formerly reported under the caption
"Mednick");
Jaust, T. v. The American Tobacco Company, et al., Supreme Court of New
York, New York County, September 10, 1997;
Jennings, M. v. R.J. Reynolds Tobacco Company, et al., Circuit Court of
Claiborne County, Mississippi, November 2, 2000;
Juliano, S. v. The American Tobacco Company, et al., Supreme Court of New
York, Richmond County, July 24, 1997;
Kaiser Aluminum & Chemical Corporation v. RJR Nabisco, et al., Circuit
Court of Jefferson County, Mississippi, December 15, 2000;
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;
3
<PAGE>
The Kyrgyz Republic v. The Brooke Group Ltd., Inc., et al., Miami-Dade
County Circuit Court of the Eleventh Judicial Circuit, January 24, 2001;
Labriola, R. v. The American Tobacco Company, et al., Supreme Court of New
York, Suffolk County, May 28, 1997;
Leavitt, C. v. Fortune Brands, Inc., et al., U.S. District of Maine
(Bangor), May 6, 1998;
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;
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;
McDowell, L. v. The American Tobacco Company; 5th Judicial District, Parish
of Franklin, State of Louisiana, March 3, 2000;
4
<PAGE>
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");
Mishk, J. v. The American Tobacco Company, et al., Supreme Court of New
York, New York County, May 2, 1997;
Mitchell, S. v. The American Tobacco Company, et al., Iowa District Court
for Wapello County, October 18, 2000;
National Asbestos Workers Medical Fund v. The American Tobacco Company, et
al., United States District Court, Eastern District of New York, March 27, 1998;
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;
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;
5
<PAGE>
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;
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;
Senzer, B. v. The American Tobacco Company, et al., Supreme Court of York,
Queens County, May 13, 1997;
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;
In re: Simon (II) Litigation, District Court Eastern Division of New York,
September 6, 2000;
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;
6
<PAGE>
Standish, J. v. The American Tobacco Company, Supreme Court of New York,
Bronx County, July 11, 1997;
Tajikistan, The Republic of v. The Brooke Group Ltd., Inc., et al., Miami-
Dade County Circuit Court of the Eleventh Judicial Circuit, January 24, 2001;
Temple, C. v. The American Tobacco Company, et. al., USDC, Middle District
of Tennessee, September 11, 2000;
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;
Tsango v. The American Tobacco Company, et al., Supreme Court of New York,
Kings County, July 2, 1997 (formerly reported under the caption "Leiderman");
Ukraine Soviet Republic (The) v. American Brands, Inc. n/k/a Fortune
Brands, Inc. et al., USDC, The District of Columbia, November 19, 1999;
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;
Welch, C. v. The American Tobacco Company, et al., Iowa District Court of
Shelby County, October 16, 2000;
Werner, R. v. Fortune Brands, Inc., et al., Supreme Court of New York,
Queens County, December 12, 1997;
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.
7
<PAGE>
List of Terminated Cases
The following cases, previously listed as pending, have been dismissed and
not previously reported as such:
Avallone, J. v. The American Tobacco Company, et al., Superior Court of New
Jersey, Middlesex County, April 23, 1998, Dismissed;
Benavidez, P. v. Philip Morris, Inc., et al., Superior Court of the State
of California, County of Alameda, November 5, 1999, Dismissed October 12, 2000;
Crayton, R. v. The American Tobacco Company et al., Superior Court of the
State of California, County of Alameda, March 22, 2000, Dismissed;
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"), Dismissed October 25, 2000;
Krigbaum, W. v. The American Tobacco Company, et al., Superior Court of
California, County of Santa Clara, December 20, 1999, Dismissed September 13,
2000;
Maisonet, B. v. The American Tobacco Company, et al., Supreme Court of New
York, Kings County, May 12, 1997, Dismissed December 22, 2000;
Miller, A. v. Brown & Williamson Tobacco Corporation, et al., Circuit
Court, Kanawha County, West Virginia, January 26, 1999, Dismissed;
Scott, G. v. The American Tobacco Company, et al., United States District
Court for the Eastern District of Louisiana, Orleans Parish, May 28, 1996,
Dismissed November 14, 2000; and
Sweeney, E. v. The American Tobacco Co., et al., Court of Common Pleas,
State of Pennsylvania, Allegheny County, October 30, 1998, Dismissed November
9,2000.
8
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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