SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
ANNUAL REPORT
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Pursuant to Section 15(d) of the
Securities Exchange Act of 1934
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For the fiscal year ended December 31, 2001
Commission file number 1-9076
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Full Title of the Plan:
FORTUNE BRANDS HOURLY EMPLOYEE RETIREMENT SAVINGS PLAN
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Name of the issuer of the securities held pursuant to the plan and the
address of its principal executive office:
FORTUNE BRANDS, INC.
300 Tower Parkway
Lincolnshire, Illinois 60069
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FORTUNE BRANDS HOURLY EMPLOYEE RETIREMENT SAVINGS PLAN
FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED
DECEMBER 31, 2001 AND 2000
FORTUNE BRANDS HOURLY EMPLOYEE
RETIREMENT SAVINGS PLAN
INDEX TO FINANCIAL STATEMENTS
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PAGE(S)
Report of Independent Accountants 1
Financial Statements:
Statement of Net Assets Available for Plan Benefits
as of December 31, 2001 and 2000 2
Statement of Changes in Net Assets Available for Plan Benefits
for the years ended December 31, 2001 and 2000 3
Notes to Financial Statements 4-11
Note: Supplemental schedules required by the Employee Retirement Income
Security Act that have not been included herein will be filed by the
Fortune Brands, Inc. Savings Plans Master Trust.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Corporate Employee Benefits Committee of
Fortune Brands, Inc.
In our opinion, the accompanying statements of net assets available for plan
benefits and the related statements of changes in net assets available for plan
benefits present fairly, in all material respects, the net assets available for
plan benefits of the Fortune Brands Hourly Employee Retirement Savings Plan (the
"Plan") at December 31, 2001 and 2000, and the changes in net assets available
for plan benefits for the years then ended in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Plan's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States 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.
May 24, 2002
FORTUNE BRANDS HOURLY EMPLOYEE RETIREMENT SAVINGS PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
AS OF DECEMBER 31, 2001 AND 2000
(IN THOUSANDS)
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2001 2000
Assets:
Beneficial interest in Fortune Brands, Inc.
Savings Plans Master Trust net assets $30,929 $27,878
Receivables:
Company contributions 27 87
Participant contributions 12 65
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Total assets 30,968 28,030
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Net assets available for Plan benefits $30,968 $28,030
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The accompanying notes are an integral part of the financial statements.
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FORTUNE BRANDS HOURLY EMPLOYEE RETIREMENT SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
(IN THOUSANDS)
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2001 2000
Additions:
Company contributions $ 2,065 $ 1,987
Participant contributions 4,794 4,898
Transfers to the Plan (Note 5) 31 --
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Total additions 6,890 6,885
Deductions:
Allocated share of Fortune Brands, Inc. Savings
Plans Master Trust investment losses 1,415 1,188
Benefits paid to participants 2,374 1,860
Transfers from the Plan (Note 5) 163 --
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Total deductions 3,952 3,048
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Increase in net assets 2,938 3,837
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Net assets available for Plan benefits, beginning of year 28,030 24,193
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Net assets available for Plan benefits, end of year $30,968 $28,030
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The accompanying notes are an integral part of the financial statements.
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FORTUNE BRANDS HOURLY EMPLOYEE RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
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1. DESCRIPTION OF PLAN
GENERAL
The Fortune Brands Hourly Employee Retirement Savings Plan (the "Plan")
is a defined contribution plan covering certain hourly, non-union
employees of certain operating subsidiaries of Fortune Brands, Inc.
participating in the Plan. MasterBrand Cabinets, Inc. ("MasterBrand"),
Moen Incorporated ("Moen"), and Waterloo Industries, Inc. ("Waterloo")
are the operating subsidiaries that contribute to the Plan and are
referred to collectively as the "Companies" and individually as a
"Company". The Plan is subject to the requirements of the Employee
Retirement Income Security Act of 1974 ("ERISA").
The following provides a brief description of the Plan. For a complete
description of the Plan, participants should refer to the specific
provisions of the Plan document or to the Prospectus/ Summary Plan
Description, each of which is available from the Plan Administrator at
300 Tower Parkway, Lincolnshire, Illinois 60069.
The financial statements present the net assets available for Plan
benefits as of December 31, 2001 and 2000, and the changes in net assets
available for Plan benefits for the years then ended. The assets of the
Plan are included in a pool of investments known as the Fortune Brands,
Inc. Savings Plans Master Trust (the "Master Trust"), along with the
assets of the Fortune Brands Retirement Savings Plan and the Future
Brands LLC Retirement Savings Plan. The Master Trust investments are
administered and held by The Fidelity Management Trust Company (the
"Trustee").
CONTRIBUTIONS
Each participant may elect to contribute on a before-tax basis ("elective
contributions") up to 21% of eligible compensation. A participant's
elective contributions may not exceed the dollar amount provided by the
Internal Revenue Code (the "Code"), which was $10,500 in both 2001 and
2000. The Plan also permits each participant to make after-tax
contributions to the Plan ("supplemental contributions"). However, total
elective and supplemental contributions may not exceed 21% of the
participant's total eligible compensation.
Moen and Waterloo each contributes, on behalf of each eligible
participant, an amount equal to 50% of the participant's elective and
supplemental contributions up to 6% of eligible compensation. MasterBrand
contributes 30% of the participant's contribution up to 4% of eligible
compensation for participants at its Littlestown, Pennsylvania,
Crossville, Tennessee, and Kinston, North Carolina locations and
participants at its distribution centers. MasterBrand also contributes
20% of the participant's contribution up to 3% of eligible compensation
for participants at its Grants Pass, Oregon and Hillsboro, Oregon
locations. Additionally, MasterBrand makes an annual profit sharing
contribution in the amount of $200 for each eligible participant who is
employed at the Kinston, North Carolina facility on December 31 of the
applicable year.
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FORTUNE BRANDS HOURLY EMPLOYEE RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
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The Schrock Cabinet division of MasterBrand ("Schrock") contributes, on
behalf of each eligible participant, 50% of the participant's elective
and supplemental contributions up to 5% of eligible compensation and an
additional 50% of the participant's elective and supplemental
contributions up to 3% of eligible compensation. NHB Industries, Inc.
("NHB") (formerly NHB Holdings, Inc.), a subsidiary of MasterBrand,
contributes, on behalf of each eligible participant, an amount equal to
30% of the participant's elective and supplemental contributions up to 4%
of eligible compensation.
Participants may direct the investment of their elective contributions,
supplemental contributions, matching contributions, profit sharing
contributions, if any, and their Plan account balances in the available
investment funds, excluding the Gallaher ADR Fund.
Participant account balances are maintained to reflect each participant's
beneficial interest in the Plan's funds. Participant account balances are
increased by participant and Company contributions (including rollovers
from other plans) and decreased by the amount of withdrawals and
distributions. Income and losses on Plan assets and certain
administrative expenses are allocated to participants' accounts based on
the ratio of each participant's account balance invested in an investment
fund to the total of all participants' account balances invested in that
fund as of the preceding valuation date.
VESTING
Participants are immediately vested in their own contributions plus
earnings thereon. Vesting in the Company matching and profit sharing
contributions plus earnings thereon occurs after one year of service.
FORFEITURES
Company contributions forfeited by nonvested terminated participants are
retained by the Plan and used to reduce subsequent Company contributions.
If a terminated participant returns to the Plan within a specified period
of time (generally 5 years), the participant's previously forfeited
amount will be reinstated to the participant's account.
LOANS
A participant may apply for a loan of at least $1,000 from the vested
portion of the participant's account balance in an amount which does not
exceed one-half of the participant's vested balance, provided that the
loan also does not exceed $50,000. Any loans applied for are also reduced
by any other loan outstanding under the Plan within the previous twelve
months. The term of any loan shall not exceed five years, unless the loan
is related to the purchase of the participant's principal residence. No
more than one home residence loan and one loan for any other purpose may
be outstanding at any time.
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FORTUNE BRANDS HOURLY EMPLOYEE RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
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A new loan may not be applied for until 30 days after any prior loan is
repaid in full. Each loan bears a rate of interest equal to the prime
rate on the last day of the previous quarter at the time the loan is
made, as quoted in the Wall Street Journal. Each loan must be
collateralized by a portion of the participant's account balance and
evidenced by a written obligation payable to the Trustee which is
invested in the Loan Fund. Repayment is made by payroll deduction so that
the loan is repaid over the term of the loan in substantially level
installments not less frequently than quarterly.
DISTRIBUTIONS AND WITHDRAWALS
Benefits are payable from a participant's account under the Plan's
provisions, upon a participant's death, retirement or other termination
of employment in a lump sum or in installment payments. The Plan also
permits withdrawals to be made by participants who have incurred a
"hardship" as defined in the Plan or after the attainment of age 59 1/2.
Distributions and withdrawals to which a participant is entitled are
those, subject to certain eligibility and forfeiture provisions, that can
be provided by the aggregate of employer and employee contributions and
the income thereon (including net realized and unrealized investment
gains and losses) allocated to such participant's account. Distributions
and withdrawals are recorded when paid.
OTHER
Although it has not expressed any intent to do so, each Company has the
right under the Plan to discontinue its contributions at any time and
MasterBrand Industries, Inc. ("MasterBrand"), as Plan Sponsor and
Administrator, may terminate the Plan at any time subject to the
provisions of ERISA. In the event of Plan termination, participants will
become fully vested in their accounts.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRESENTATION
The accompanying financial statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting
principles.
INVESTMENT VALUATION AND INCOME
The Master Trust's investments in securities (bonds, debentures, notes
and stocks) traded on a national securities exchange are valued at the
last reported sale price on the last business day of the year; securities
traded in the over-the-counter market are valued at the last reported bid
price; and listed securities for which no sale was reported on that date
are valued at the mean between the last reported bid and asked prices.
Participations in collective trust funds are stated at the Master Trust's
beneficial interest in the aggregate fair value of assets held by the
fund, as reported by the fund's manager.
Purchases and sales of securities are recorded on a trade-date basis.
Gains or losses on sales of securities are based on average cost.
Dividend income is recorded on the ex-dividend date. Income from other
investments is recorded as earned on an accrual basis.
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FORTUNE BRANDS HOURLY EMPLOYEE RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
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The ratio of the Plan's assets to the fair value of all assets held in
each fund in the Master Trust is used to allocate interest income,
dividend income, realized gains (losses) and unrealized appreciation
(depreciation) in the market value of investments on a monthly basis.
Certain expenses incurred by the Plan are netted against earnings prior
to allocation to participant accounts. These include investment manager,
trust, and recordkeeper expenses.
3. Reconciliation of Financial Statements to Form 5500: The following is a
reconciliation of net assets available for Plan benefits as stated in the
financial statements to Form 5500 at December 31, 2001 and 2000 (in
thousands):
2001 2000
Net assets available for Plan benefits as stated
in the financial statements $30,968 $28,030
Less: Amounts payable to terminated employees
and Plan participants who have retired or
terminated employment but elected to have
their assets remain in the Plan 1,498 1,251
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Net assets available for Plan benefits as stated
in Form 5500 $29,470 $26,779
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The following is a reconciliation of benefits paid to participants as
stated in the financial statements to the Form 5500 at December 31, 2001
and 2000 (in thousands):
2001 2000
Benefits paid to participants as stated $ 2,374 $ 1,860
in the accompanying financial statements
Add: Amounts payable to terminated employees
and Plan participants who have retired
or terminated employment but elected to
have their assets remain in the Plan as
of current year-end 1,498 1,251
Less: Amounts payable to terminated employees
and Plan participants who have retired
or terminated employment but elected to
have their assets remain in the Plan as
of prior year-end 1,251 1,387
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Benefits paid to participants as stated in
Form 5500 $ 2,621 $ 1,724
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FORTUNE BRANDS HOURLY EMPLOYEE RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
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4. PLAN AMENDMENTS
The Plan was amended effective December 10, 2001 to comply with new
regulations on the minimum distribution requirements of Section 401
(a)(9) of the Internal Revenue Code.
The Plan was amended effective January 1, 2001 to include individuals
employed by the Company in the Grants Pass, Oregon and Hillsboro, Oregon
locations, and the Telladega, Alabama facility.
The Plan was amended effective January 1, 2001 to provide that
participant account additions made in excess of the maximum may be
distributed to participants or former participants if permitted under
regulations issued by the Secretary of Treasury pursuant to the
provisions of Section 415 of the Internal Revenue Code.
The Plan was amended effective January 1, 2001 to provide that
MasterBrand provide a matching contribution to participants employed at
its Grants Pass, Oregon and Hillsboro, Oregon locations equal to 20% of
the participants' tax deferred and after tax contributions not to exceed
3% of eligible compensation.
The Plan was amended effective January 1, 2001 to increase the Company
matching contributions to 30% of each participant's tax deferred and
after tax Contribution, not to exceed 4% of eligible compensation for
participants employed at the Talladega, Alabama location of NHB and the
Littlestown, Pennsylvania, Crossville, Tennessee, and Kinston, North
Carolina locations of MasterBrand and distribution centers of
MasterBrand.
5. TRANSFERS TO AND FROM THE PLAN
Transfers relate to transactions in the ordinary course of business
between the Plan and the Fortune Brands Retirement Savings Plan.
6. ASSETS HELD IN MASTER TRUST
The investments of the Master Trust are maintained under a trust
agreement with the Trustee. The Plan had a total beneficial interest of
approximately 5.16% and 4.40% in the Master Trust's net assets at
December 31, 2001 and 2000, respectively.
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FORTUNE BRANDS HOURLY EMPLOYEE RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
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Master Trust assets at December 31, 2001 and 2000 are as follows (in thousands):
2001 2000
Interest and dividends receivable $ 511 $ 829
Common stock - corporate:
Employer stock 38,950 35,351
Non-employer stock 126,964 151,241
U.S. Government securities 11,080 18,830
Corporate debt instruments 16,202 18,601
Registered investment companies 340,987 354,237
Collateralized promissory notes from participants 16,254 16,635
Interest bearing cash 49,045 38,418
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Total assets 599,993 634,142
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Administrative expenses payable (786) (679)
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Total net assets of the Master Trust available for benefits $ 599,207 $ 633,463
========= =========
Investments that represent 5% or more of the Master Trust's net assets
are separately identified in the Master Trust filing. The net
appreciation (depreciation) in fair value of investments, interest
income, dividend income, and administrative expenses related to the
Master Trust for the years ended December 31, 2001 and 2000 is as follows
(in thousands):
2001 2000
Net appreciation (depreciation) in fair value:
Common stock - corporate $ (14,308) $ (21,895)
U. S. Government securities (34) 1,640
Corporate debt instruments 402 (154)
Registered investment companies (24,973) (13,708)
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Net depreciation in fair value of
investments of the Master Trust (38,913) (34,117)
Interest income 5,026 6,073
Dividend income 2,715 2,980
Administrative expenses (2,328) (2,536)
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Total net loss of the Master Trust $ (33,500) $ (27,600)
========= =========
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FORTUNE BRANDS HOURLY EMPLOYEE RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
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7. RISKS AND UNCERTAINTIES
The Plan provides for various investment options in any combination of
stocks, bonds, fixed income securities, mutual funds, and other
investment securities. Investment securities are exposed to various
risks, such as interest rate, market and credit. Due to the level of risk
associated with certain investment securities and the level of
uncertainty related to changes in the value of investment securities, it
is at least reasonably possible that changes in market value could
materially affect participants' account balances and the amounts reported
in the statement of net assets available for Plan benefits and the
statement of changes in net assets available for Plan benefits.
8. USE OF ESTIMATES
The preparation of the Plan's financial statements in conformity with
generally accepted accounting principles requires the Plan Administrator
to make estimates and assumptions that affect the reported amounts of net
assets available for benefits at the date of the financial statements and
the changes in net assets available for benefits during the reporting
period and, when applicable, the disclosures of contingent assets and
liabilities at the date of the financial statements. Actual results could
differ from those estimates.
9. CREDIT RISKS
The Master Trust invests primarily in equity and fixed income funds. The
fund managers invest in a large number of corporations, industries and
other instruments in an attempt to limit exposure to significant loss.
The funds maintain a diverse portfolio of common stock across various
industry groups and a broad range of debt securities in terms of maturity
and industry groups in order to maintain diversity in Master Trust
investments. The Plan, however, is subject to risk of loss up to its
proportionate share of such assets in the Master Trust.
10. TAX STATUS
The Internal Revenue Service ("IRS") issued a determination letter dated
March 6, 2002 to MasterBrand Industries, Inc. stating that the Plan meets
the requirements of Section 401 (a) of the Code and that the Trust is
exempt from federal income taxes under Section 501 (a) of the Code.
The Plan has been amended since receiving the determination letter.
However, the Plan Administrator believes that the Plan is currently
designed and operated in compliance with the applicable requirements of
the Code. Generally, distributions and withdrawals under the Plan are
taxable to Participants or their beneficiaries in accordance with Section
402 of the Code.
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FORTUNE BRANDS HOURLY EMPLOYEE RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
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11. RELATED-PARTY TRANSACTIONS
Certain Plan investments are shares of mutual funds managed by The
Fidelity Management Trust Company. The Fidelity Management Trust Company
is the trustee as defined by the Plan and, therefore, these transactions
qualify as party-in-interest transactions. Fees paid by the Plan for
recordkeeping and investment management services amounted to $380,239 and
$299,507 for the years ended December 31, 2001 and 2000, respectively. In
addition, fees payable to the trustee as of December 31, 2001 and 2000
were $90,370 and $85,087, respectively.
-11-
SIGNATURE
The Plan. Pursuant to the requirements of the Securities Exchange Act
of 1934, the Corporate Employee Benefits Committee of Fortune Brands, Inc. under
the Fortune Brands Hourly Employee Retirement Savings Plan has duly caused this
annual report to be signed on its behalf by the undersigned thereunto duly
authorized.
FORTUNE BRANDS HOURLY EMPLOYEE
RETIREMENT SAVINGS PLAN
By: /s/ Frank J. Cortese
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Frank J. Cortese, Chairman
Corporate Employee Benefits
Committee of Fortune Brands, Inc.
Date: June 28, 2002