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, 2002
Commission file number 1-9076
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Full Title of the Plan:
FORTUNE BRANDS 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
======================================================================
Fortune Brands Retirement
Savings Plan
Financial Statements
As of and for the Years Ended
December 31, 2002 and 2001
Fortune Brands Retirement Savings Plan
Contents
December 31, 2002 and 2001
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Page(s)
Report of Independent Accountants..............................................1
Financial Statements
Statement of Net Assets Available for Plan Benefits............................2
Statement of Changes in Net Assets Available for Plan Benefits.................3
Notes to Financial Statements...............................................4-12
Note: Supplemental schedules required by the Employee Retirement Income
Security Act that have not been included herein are not applicable to
the Fortune Brands Retirement Savings Plan.
Report of Independent Auditors
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 Retirement Savings Plan (the "Plan") at
December 31, 2002 and 2001, 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.
PricewaterhouseCoopers LLC
May 23, 2003
1
Fortune Brands Retirement Savings Plan
Statement of Net Assets Available for Plan Benefits
As of December 31, 2002 and 2001
(In Thousands)
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2002 2001
Assets
Beneficial interest in Fortune Brands, Inc.
Savings Plans Master Trust net assets $ 472,932 $ 545,956
Receivables
Company contributions 2,639 4,930
Participant contributions - 22
============ =============
Total assets 475,571 550,908
------------ -------------
Net assets available for plan benefits $ 475,571 $ 550,908
============ =============
The accompanying notes are an integral part of the financial statements.
2
Fortune Brands Retirement Savings Plan
Statement of Changes in Net Assets Available for Plan Benefits
For the Years Ended December 31, 2002 and 2001
(In Thousands)
--------------------------------------------------------------------------------
2002 2001
Additions
Company contributions $ 15,097 $ 14,433
Participant contributions $ 30,995 32,163
Transfers to the plan (Note 5) 68 163
------------- -------------
Total additions 46,160 46,759
Deductions
Allocated share of Fortune Brands, Inc. Savings
Plans Master Trust investment losses 80,287 33,026
Benefits paid to participants 40,999 54,713
Transfers from the plan (Note 5) 211 20,790
------------- -------------
Total deductions 121,497 108,529
Decrease in net assets (75,337) (61,770)
============= =============
Net assets available for plan benefits,
beginning of year 550,908 612,678
------------- -------------
Net assets available for plan benefits,
end of year $ 475,571 550,908
============= =============
The accompanying notes are an integral part of the financial statements.
3
Fortune Brands Retirement Savings Plan
Notes to Financial Statements
December 31, 2002 and 2001
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1. Description of Plan
General
The Fortune Brands Retirement Savings Plan (the "Plan") is designed to
encourage and facilitate systematic savings and investment by eligible
employees. Fortune Brands, Inc. ("Fortune") and each of its operating
company subsidiaries participating in the Plan are referred to collectively
as the "Companies" and individually as a "Company". Operating company
subsidiaries include: MasterBrand Industries, Inc. ("MasterBrand"), ACCO
World Corporation ("ACCO"), Acushnet Company ("Acushnet"), and Jim Beam
Brands Worldwide, Inc. ("Beam"). The Plan is subject to the provisions 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 in 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, 2002 and 2001 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 Hourly Employee Retirement Savings Plan and the Future
Brands LLC Retirement Savings Plan. The Master Trust investments are
administered by The Fidelity Management Trust Company (the "Trustee").
Contributions
The Plan is a defined contribution plan. Contributions are held by the
Trustee and accumulated in separate participant accounts. Participants may
generally make tax deferred contributions under Section 401(k) of the
Internal Revenue Code (the "Code") of up to 50% of eligible compensation,
subject to lower limits for highly compensated employees of Fortune and
certain participating Companies. Participants' annual tax deferred
contributions are limited by the Code to $11,000 and $10,500 in 2002 and
2001, respectively.
Participants of MasterBrand and its participating operating subsidiaries
("MasterBrand Participating Employers"), ACCO, Fortune and Acushnet may
also make after-tax contributions, but the sum of tax deferred
contributions and after-tax contributions may not exceed 50% of eligible
compensation.
Each MasterBrand Participating Employer, other than NHB Industries, Inc.,
formerly NHB Holdings, Inc., ("NHB"), provides a matching contribution
equal to 50% of the participant's contributions up to 6% of eligible
compensation and an additional 50% of the participant's contributions up to
3% of eligible compensation. NHB provides a matching contribution of 50% of
the participant's contributions up to 5% of eligible compensation.
ACCO and its participating operating subsidiaries ("ACCO Participating
Employers") provide a matching contribution equal to 50% of the
participant's contributions up to 6% of eligible compensation and an
additional 50% of the participant's contributions up to 3% of eligible
compensation. Boone International, Inc. ("Boone") provides a matching
contribution equal to 50% of the participant's contributions up to 6% of
eligible compensation.
4
Fortune Brands Retirement Savings Plan
Notes to Financial Statements
December 31, 2002 and 2001
--------------------------------------------------------------------------------
Acushnet and its participating operating subsidiaries ("Acushnet
Participating Employers") provide a matching contribution of 50% of the
participant's contributions up to 5% of eligible compensation and an
additional 50% of the participant's contributions up to 2% of eligible
compensation.
Beam and its participating operating subsidiaries ("Beam Participating
Employers") do not provide matching contributions.
Fortune provides a matching contribution equal to 50% of the participant's
contributions, not to exceed 6% of eligible compensation.
Profit-sharing contributions are made by Fortune and certain participating
operating subsidiaries and allocated to their participants in proportion to
eligible compensation. Acushnet Participating Employers and MasterBrand
Participating Employers do not provide an annual profit-sharing
contribution. For Plan years after 2001, ACCO Participating Employers no
longer make profit-sharing contributions. ACCO Participating Employers made
a profit-sharing contribution totaling $1,580 for the 2001 plan year.
Fortune contributes on an annual basis, 1/6 of 1% of its Adjusted Income
from Continuing Operations (as defined in the Plan). The Beam Participating
Employers make a determination each year as to the amount of their
profit-sharing contribution. Beam Participating Employers made
profit-sharing contributions totaling $1,990 and $2,614 for the 2002 and
2001 plan years, respectively. Profit-sharing contributions are subject to
certain Plan and statutory limitations.
Participants may direct the investment of their tax deferred contributions,
after-tax 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.
5
Fortune Brands Retirement Savings Plan
Notes to Financial Statements
December 31, 2002 and 2001
--------------------------------------------------------------------------------
Vesting
Participants are immediately vested in their own contributions plus
earnings thereon. Vesting in the Companies' matching contributions plus
earnings thereon occurs after one year of service. Vesting in the
Companies' annual profit-sharing contribution plus actual earnings thereon
is based on the earliest of the following occurrences: (1) retirement; (2)
death; (3) disability; (4) attainment of age 65; (5) termination of
employment without fault, or (6) years of service (as summarized in the
schedule below):
Number of Full Years of Service Fortune Beam ACCO
------------------------------- ------- ---- ----
Less than 1 0% 0% 0%
1 but less than 2 20% 0% 20%
2 but less than 3 40% 0% 40%
3 but less than 4 60% 20% 60%
4 but less than 5 80% 40% 80%
5 but less than 6 100% 60% 100%
6 but less than 7 100% 80% 100%
7 or more 100% 100% 100%
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 one time.
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
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 attainment of age 59-1/2.
6
Fortune Brands Retirement Savings Plan
Notes to Financial Statements
December 31, 2002 and 2001
--------------------------------------------------------------------------------
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 they have not expressed any intent to do so, the Companies have
the right under the Plan to discontinue contributions at any time and
Fortune, as plan sponsor and administrator, has the right to terminate the
Plan 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 conformity with accounting principles generally
accepted in the United States of America.
Investment Valuation and Income
The Master Trust's investments in securities (bonds, debentures, notes and
stocks) traded on a national securities exchange are valued at the last
reported sale price on the last business day of the year; securities traded
in the over-the-counter market are valued at the last reported bid price;
and listed securities for which no sale was reported on that date are
valued at the mean between the last reported bid and asked prices.
Participations in collective trust funds are stated at the Master Trust's
beneficial interest in the aggregate fair value of assets held by the fund,
as reported by the fund's manager.
Purchases and sales of securities are recorded on a trade-date basis. Gains
or losses on sales of securities are based on average cost. Dividend income
is recorded on the ex-dividend date. Income from other investments is
recorded as earned on an accrual basis.
The ratio of the Plan's assets to the fair value of all assets held in each
fund in the Master Trust is used to allocate interest income, dividend
income, realized gains (losses) and unrealized appreciation (depreciation)
in market value of investments on a monthly basis.
Certain expenses incurred by the Plan are netted against earnings prior to
allocation to participant accounts. These include investment manager, trust
and recordkeeper expenses.
7
Fortune Brands Retirement Savings Plan
Notes to Financial Statements
December 31, 2002 and 2001
--------------------------------------------------------------------------------
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, 2002 and
2001 (in thousands):
2002 2001
Net assets available for Plan benefits as stated
in the accompanying financial statements $ 475,571 $ 550,908
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 - 91,825
Less: Amounts allocated to withdrawing participants 9,714 6,488
------------ -----------
Net assets available for Plan benefits as stated
in Form 5500 $ 465,857 $ 452,595
============ ===========
The following is a reconciliation of benefits paid to participants as
stated in the financial statements to the Form 5500 at December 31, 2002
and 2001 (in thousands):
2002 2001
Benefits paid to participants as stated in the
accompanying financial statements $ 40,999 $ 54,713
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 - 91,825
Add: Amounts allocated to withdrawing participants
as of current year end 9,714 6,488
Less: Amounts payable to withdrawing participants,
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 - 104,219
Less: Amounts allocated to withdrawing participants
as of prior year end 6,488 -
------------ -----------
Benefits paid to participants as stated in Form 5500 $ 44,225 48,807
============ ===========
8
Fortune Brands Retirement Savings Plan
Notes to Financial Statements
December 31, 2002 and 2001
--------------------------------------------------------------------------------
The following is a reconciliation of other income as stated in the
financial statements to the Form 5500 at December 31, 2002 and 2001 (in
thousands):
2002 2001
Other income as stated in the accompanying
financial statements $ - $ -
Add: Adjustments of 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 the prior year end 91,825 -
------------- -----------
Other income as stated in Form 5500 $ 91,825 -
============= ===========
In the prior year, the Company reported benefits payable in the Form 5500
as amounts payable to employees who have retired or terminated employment
but have elected to have their assets remain in the Plan. In the current
year, the Company changed its method of reporting benefits payable to
reflect amounts payable to employees who have retired or terminated
employment and requested withdrawals but have not been paid out as of year
end. The current year adjustment of the prior year benefits payable amount
is reflected as other income in the Form 5500.
4. Plan Amendments
The Plan was amended effective January 1, 2002 to disallow ACCO cash option
profit sharing contributions.
The Plan was amended effective January 1, 2002 to transfer hourly-paid
employees of Boone International, Inc. from the Plan to the Fortune Brands
Hourly Retirement Savings Plan.
The Plan was amended effective January 1, 2002 to limit each participant's
compensation to $200,000 in each Plan year.
The Plan was amended effective January 1, 2002 to eliminate ACCO profit
sharing contributions.
The Plan was amended effective January 1, 2002 to allow participants of
ACCO, Fortune and Acushnet to make after-tax contributions.
The Plan was amended effective January 1, 2002 to provide that Boone
International, Inc. provide a matching contribution of 50% of each
participant's tax deferred and after tax contribution, not to exceed 6% of
eligible compensation.
The Plan was amended effective January 1, 2002 to provide that MasterBrand
Cabinets, Inc. increase its matching contribution to 50% of each
participant's tax deferred and after-tax contribution, not to exceed 6% of
eligible compensation and an additional 50% of each participant's tax
deferred and after-tax contribution, not to exceed 3% of eligible
compensation.
The Plan was amended effective January 1, 2002 to provide that NHB
Holdings, Inc. increase its matching contribution to 50% of each
participant's tax deferred and after-tax contribution, not to exceed 5% of
eligible compensation.
9
Fortune Brands Retirement Savings Plan
Notes to Financial Statements
December 31, 2002 and 2001
--------------------------------------------------------------------------------
The Plan was amended effective January 1, 2002 to increase the Company
matching contribution to 50% of each participant's tax deferred and
after-tax contribution, not to exceed 6% of eligible compensation and an
additional 50% of each participant's tax deferred and after-tax
contribution, not to exceed 3% of eligible compensation for participants
employed by ACCO Participating employers (excluding Boone International,
Inc.).
The Plan was amended effective January 1, 2002 to increase the maximum
annual additions to participant accounts to the lesser of $40,000 or 100%
of the participant's compensation.
The Plan was amended effective January 1, 2002 to increase the maximum
participant contribution from 21% to 50% of compensation, except for highly
compensated participants, who will be limited to 13% of compensation.
The Plan was amended effective January 1, 2002 to allow the receipt of
after-tax rollovers.
The Plan was amended effective January 1, 2002 to decrease the period of
time following a participant's hardship withdrawal for which the
participant cannot make tax deferred or after-tax contributions to six
months.
The Plan was amended effective January 1, 2002 to allow participants who
have attained age 50 to make "catch-up" contributions in accordance with
Section 414(v) of the Code. This permits such individuals to make annual
tax deferred contributions for specific amounts in excess of the Code's
previously mentioned limits on such contributions.
The Plan was amended effective January 1, 2002 to add the Fidelity Value
Fund.
5. Transfers to and from the Plan
During 2002, transfers relate to transactions in the ordinary course of
business between the Plan, the Fortune Brands Hourly Employee Retirement
Savings Plan, and the Future Brands LLC Retirement Savings Plan.
During 2001, certain employees transferred from Beam to Future Brands LLC,
a joint venture between Beam and V&S Vin & Sprit AB of Sweden. The value of
participant accounts transferred to the Future Brands LLC Retirement
Savings Plan on April 1, 2001 totaled $20,759,274. The remaining transfers
related to transactions in the ordinary course of business between the Plan
and the Fortune Brands Hourly Employee 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
90.19% and 91.11% in the Master Trust's net assets at December 31, 2002 and
2001, respectively.
10
Fortune Brands Retirement Savings Plan
Notes to Financial Statements
December 31, 2002 and 2001
--------------------------------------------------------------------------------
Master Trust assets at December 31, 2002 and 2001 are as follows (in
thousands):
2002 2001
Interest and dividends receivable $ 229 $ 511
Common Stock - corporate
Fortune Brands, Inc. common stock 45,677 38,950
Other common stock 94,831 126,964
U.S. Government securities 6,911 11,080
Corporate debt instruments 6,799 16,202
Registered investment companies 296,953 340,987
Collateralized promissory notes from participants 16,316 16,254
Interest bearing cash 57,133 49,045
------------ ------------
Total assets 524,849 599,993
============ ============
Administrative expenses payable (488) (786)
------------ ------------
Total net assets of the Master Trust available for benefits $ 524,361 $ 599,207
============ ============
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, 2002 and 2001 is as follows (in
thousands):
2002 2001
Net appreciation (depreciation) in fair value
Common stock - corporate
Fortune Brands, Inc. common stock $ 6,752 $ 9,717
Other common stock (34,888) (24,025)
U.S. Government securities 847 (34)
Corporate debt instruments (315) 402
Registered investment companies (64,722) (24,973)
------------ ------------
Net depreciation in fair value of
investments of the Master Trust (92,326) (38,913)
Interest income 3,039 5,026
Dividend income 2,532 2,715
Administrative expenses (2,078) (2,328)
------------ ------------
Total net loss of the Master Trust $ (88,833) (33,500)
============ ============
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.
11
Fortune Brands Retirement Savings Plan
Notes to Financial Statements
December 31, 2002 and 2001
--------------------------------------------------------------------------------
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
February 25, 2003 to Fortune 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.
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 $1,422,021 and $1,398,262
for the years ended December 31, 2002 and 2001, respectively. In addition,
fees payable to the trustee as of December 31, 2002 and 2001 were $193,180
and $188,928, respectively.
12
SIGNATURE
The Plan. Pursuant to the requirements of the Securities Exchange Act
of 1934, the Corporate Employee Benefits Committee of Fortune Brands, Inc.
has duly caused this annual report to be signed on its behalf by the
undersigned thereunto duly authorized.
FORTUNE BRANDS RETIREMENT SAVINGS PLAN
By: /s/ Frank J. Cortese
------------------------------------------
Frank J. Cortese, Chairman
Corporate Employee Benefits Committee of
Fortune Brands, Inc.
Date: June 30, 2003
13