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:
FUTURE BRANDS LLC 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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Future Brands LLC
Retirement Savings Plan
Report on Audits of Financial Statements
As of December 31, 2002 and 2001 and for
the Year Ended December 31, 2002 and the Period
April 1, 2001 through December 31, 2001
Future Brands LLC Retirement Savings Plan
Contents
December 31, 2002 and 2001
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Page(s)
Report of Independent Accountants.............................................1
Financial Statements
Statements of Net Assets Available for Plan Benefits..........................2
Statements of Changes in Net Assets Available for Plan Benefits...............3
Notes to Financial Statements..............................................4-10
Note: Supplemental schedules required by the Employee Retirement Income
Security Act that have not been included herein are not applicable to
the Future Brands LLC Retirement Savings Plan.
Report of Independent Auditors
To Future Brands LLC
In our opinion, the accompanying statement of net assets available for plan
benefits and the related statement of changes in net assets available for plan
benefits present fairly, in all material respects, the net assets available for
plan benefits of the Future Brands LLC Retirement Savings Plan (the "Plan") at
December 31, 2002 and 2001, and the changes in net assets available for plan
benefits for the year ended December 31, 2002 and the period April 1, 2001
through December 31, 2001 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
audit 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
Future Brands LLC Retirement Savings Plan
Statements 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 $ 19,234 $ 22,322
Receivables
Company contributions 1,204 1,545
============ =============
Total assets 20,438 23,867
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Net assets available for plan benefits $ 20,438 $ 23,867
============ =============
The accompanying notes are an integral part of the financial statements.
2
Future Brands LLC Retirement Savings Plan
Statements of Changes in Net Assets Available for Plan Benefits
For the Year Ended December 31, 2002 and the Period
April 1, 2001 through December 31, 2001
(In Thousands)
--------------------------------------------------------------------------------
2002 2001
Additions
Allocated share of Fortune Brands, Inc.
Savings Plans Master Trust investment income $ - $ 941
Company contributions 1,204 1,571
Participant contributions 1,231 767
Transfers to the plan (Note 5) 182 20,759
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Total additions 2,617 24,038
Deductions
Allocated share of Fortune Brands, Inc. Savings
Plans Master Trust investment losses 4,303 -
Benefits paid to participants 1,708 171
Transfer from the plan (Note 5) 35 -
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Total deductions 6,046 171
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Increase (decrease) in net assets (3,429) 23,867
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Net assets available for plan benefits,
beginning of period 23,867 -
------------- -------------
Net assets available for plan benefits,
end of period $ 20,438 $ 23,867
============= =============
The accompanying notes are an integral part of the financial statements.
3
Future Brands LLC Retirement Savings Plan
Notes to Financial Statements
December 31, 2002 and 2001
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1. Description of Plan
General
The Future Brands LLC Retirement Savings Plan (the "Plan"), established
effective April 1, 2001 for employees of Future Brands LLC ("Future"), is
designed to encourage and facilitate systematic savings and investment by
eligible employees. 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 510
Lake Cook Road, Deerfield, Illinois 60015-4964.
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 year ended December 31, 2002 and the period April
1, 2001 through December 31, 2001. 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 Fortune Brands 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 Future.
Participants' annual tax deferred contributions are limited by the Code to
$11,000 and $10,500 in 2002 and 2001, respectively.
Profit-sharing contributions are made by Future and allocated to its
participants in proportion to eligible compensation. Future makes a
determination each year as to the amount of its profit-sharing
contribution. Future made profit sharing contributions totaling $1,204 and
$1,545 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,
rollover 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.
4
Future Brands LLC Retirement Savings Plan
Notes to Financial Statements
December 31, 2002 and 2001
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Vesting
Participants are immediately vested in their own contributions plus
earnings thereon. Vesting in the Company's annual profit-sharing
contribution plus actual earnings thereon is based on the earliest of the
following occurrences: (1) retirement; (2) termination of employment
without fault; (3) death; (4) disability; (5) attainment of age 65; or (6)
years of service (as summarized in the schedule below):
Vesting
Number of Full Years of Service Percentage
------------------------------- ----------
Less than 3 0%
3 but less than 4 20%
4 but less than 5 40%
5 but less than 6 60%
6 but less than 7 80%
7 or more 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 may 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.
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.
5
Future Brands LLC 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, Future has the right
under the Plan to discontinue contributions at any time and Future, 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.
6
Future Brands LLC Retirement Savings Plan
Notes to Financial Statements
December 31, 2002 and 2001
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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 $ 20,438 $ 23,867
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 - (305)
Less: Amounts allocated to withdrawing participants - (101)
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Net assets available for Plan benefits as stated
in Form 5500 $ 20,438 $ 23,461
============ ===========
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 $ 1,708 $ 171
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 - 305
Add: Amounts allocated to withdrawing participants
as of current year end - 101
Less: Amounts allocated to withdrawing participants
as of prior year end (101) -
------------ -----------
Benefits paid to participants as stated in Form 5500 $ 1,607 $ 577
============ ===========
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: Adjustment of amounts payable to terminated
employees and Plan participants who have retired
or terminated employement but elected to have their
assets remain in the Plan as of the prior year end 305 -
------------ -----------
Other income as stated in Form 5500 $ 305 $ -
============ ===========
7
Future Brands LLC Retirement Savings Plan
Notes to Financial Statements
December 31, 2002 and 2001
--------------------------------------------------------------------------------
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 September 1, 2002 to increase the maximum
participant contribution from 15% to 50% of compensation, except for highly
compensated participants, who will be limited to 17% of compensation.
The Plan was amended effective January 1, 2002 to permit participation in
profit sharing for all participants who are employed to work at least 20
hours per week.
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 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 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 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 the Plan
During 2001, the value of participant accounts transferred to the Plan from
the Fortune Brands Retirement Savings Plan on April 1 totaled $20,759,274.
During 2002, transfers relate to transactions in the ordinary course of
business between the Plan, the Fortune Brands Retirement Savings 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 beneficial interest of approximately 3.67%
and 3.73% in the Master Trust's net assets at December 31, 2002 and 2001,
respectively.
8
Future Brands LLC 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
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Total assets 524,849 599,993
Administrative expenses payable (488) (786)
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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.
9
Future Brands LLC 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
October 24, 2001 to Future 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 the investment
management and recordkeeping services amounted to $46,826 and $29,634 for
the years ended December 31, 2002 and 2001. In addition, fees payable to
the trustee as of December 31, 2002 and 2001 were $5,339 and $4,937,
respectively.
10
SIGNATURE
The Plan. Pursuant to the requirements of the Securities Exchange Act
of 1934, Future Brands LLC has duly caused this annual report to be signed on
its behalf by the undersigned thereunto duly authorized.
FUTURE BRANDS LLC RETIREMENT
SAVINGS PLAN
By: /s/ Michael P. Donohoe
----------------------------------------
Michael P. Donohoe
President and Chief Executive Officer
Future Brands LLC
Date: June 30, 2003
11